1) Emaar The Economic City’s group (the “Group”) has reported a gross profit of SAR 221M during Q3 2023 against a gross loss of SAR (53M) when compared with the similar quarter of last year which represents an increase in gross margin by SAR 274M. The variance is mainly due to the following:

• Projects’ gross profit increased by SAR 275M, from a gross loss of SAR (13M) (Q3 2022) to a gross profit of SAR 262M (Q3 2023), driven mainly by a regular periodic reassessment of life cycle cost estimates for residential and industrial projects.

• Gross loss generated by the Group’s operating assets increased by SAR 1M.

2) General and administrative expense for the current quarter is SAR 77M compared with an expense of SAR 67M in the similar quarter of last year. The SAR 10M increase is mainly due to an increase in professional charges. However, the impact was partially offset by the decrease in employee costs.

3) The decrease in impairment loss is due to a lower provision required under the Expected Credit Loss (ECL) model resulting from a decrease in the accounts receivable balance. The impairment/ provision is calculated using the Expected Credit Loss (ECL) model as required under “IFRS 9 Financial instruments”.

4) The increase in financial charges of SAR 42M is mainly due to an increase in SAIBOR and a slight increase in term loans compared to the similar quarter of last year.

1) The Group has reported a gross profit of SAR 221M during Q3 2023 against a gross profit of SAR 237M when compared with the previous quarter of the current year which represents a decrease of SAR 16M. The variance is mainly due to the following:

• Projects’ gross profit decreased by SAR 12M, from a gross profit of SAR 275M (Q2 2023) to a gross profit of SAR 263M (Q3 2023). There were no significant sales during current quarter when compared with previous quarter of current year except for the revision in life cycle cost estimates for residential and industrial projects based on a regular periodic reassessment by the management.

• The gross loss generated by the operating assets increased by SAR 4M to SAR 42M in Q3 2023.

2) The Group’s general and administrative expenses decreased by SAR 4M mainly due to decrease in employee cost.

3) Financial charges increased by SAR 15M mainly due to an increase in SAIBOR and slight increase in outstanding loan balances.

4) Increase in impairment loss is due to higher provision required under the ECL model resulting from an increase in account receivable balances that are subject to ECL.

5) In the current quarter, there was a decrease of SAR 19 million in other income. This reduction can be mainly attributed to the company receiving an amount of USD 10 million (equivalent to SAR 37.5 million) in previous quarter and was accounted for as ‘other income’. However, this decrease was partially offset by the reversal of a legal provision that was no longer necessary, amounting to SAR 24 million in the current quarter.

Comparative Information

We draw attention to Note 20 to the condensed consolidated interim financial statements, which indicates that the comparative information presented for the three-month and nine-month periods ended 30 September 2022 has been restated. Our conclusion is not modified in respect of this matter.

The main causes of these accumulated losses are as follows:

Under Saudi Organization for Chartered and Professional Accountants (SOCPA) accounting framework, the Group had a positive retained earning balance of SAR 16.8M as at 31 Dec 2015. During 2017, SOCPA made it mandatory for listed companies to adopt the International Financial Reporting Standards (IFRS) retrospectively with effect from 01 Jan 2016. Due to the switch from SOCPA accounting framework to IFRS, positive retained earnings got converted into accumulated losses of SAR 1.4B as of 01 Jan 2016, mainly due to change in impairment testing methodology of operating assets and change in revenue recognition policy. However, part of the accumulated losses pertaining to revenue recognition were reversed in subsequent periods in line with the projects progress.

In addition to this, during 2019, the IFRS Interpretation committee published an agenda decision “Over Time Transfer of Constructed Good - IAS 23 Borrowing Costs” which states that under construction inventories of real estate properties are not qualifying assets for capitalization of borrowing costs as these are ready for its intended sale in its current condition. Accordingly, capitalized borrowing costs pertaining to development properties (inventories), amounting to SAR 252M, as of 31 December 2019, had been offloaded and charged to accumulated losses. Furthermore, the prevailing COVID 19 situation has resulted in impairment of development properties and operating assets, amounting to SAR 177M and SAR 187M respectively, which had been recognized in the books of accounts.

In addition to this, financial charges pertaining to outstanding loans, losses related to operating assets being at the infancy stage, and depreciation, operations, and maintenance of city infrastructure are other major contributors to the accumulated losses of the company as of September 30, 2023.

The company will apply the Procedures and Instructions Related to Listed Companies with Accumulated Losses Reaching 20% or more of their Share Capital issued by the Capital Market Authority.