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2008AnnuAl RepoRt
Contents
Financial Highlights 4
2008 At a Glance 6
Board of Directors 8
Chief Officers and Executive Directors 9
Chairman’s Statement 10
Joint Statement of the Managing Director
and the Chief Executive Officer 12
Financial Review 14
Operational Review 16
Governance Report 33
Consolidated Financial Statements 47
His Highness Sheikh Khalifa Bin Zayed Al Nahyan
President of the United Arab Emirates
Supreme Commander of the UAE Armed Forces
2
His Highness Sheikh Mohammed Bin Zayed Al Nahyan
Crown Prince of Abu Dhabi
Deputy Supreme Commander of the
UAE Armed Forces
3
Net profit for 2008 amounted to AED 1.784 billion, an increase of 42 per cent over 2007, all generated from operating activities, representing a 48 per cent rise in earnings per share to 74 fils. Total assets grew by 135 per cent to AED 16.939 billion, and net asset value was 33.5 per cent up at AED 5.958 billion. Operating revenue rose from AED 2.321 billion to AED 3.723 billion.
FINANCIAL HIGHLIGHTS
4
Total assets
AED million
2008
16,939
2007
7,220
2006
4,350
Earnings per share
AED
2008
0.74
2007
0.50
2006
0.39
Net profit
AED million
2008
1,784
2007
1,257
2006
976
Market capitalisation
AED million
2008
7,900
2007
21,700
2006
6,000
Average return on equity
Per cent
2008
30%
2007
28%
2006
28%
Total revenue
AED million
2008
3,723
2007
2,321
2006
630
06 07 08
06 07 08 06 07 08
06 07 08 06 07 08
Net asset value per share
AED
2008
2.38
2007
1.79
2006
1.39
06 07 08
06 07 08
Total equity
AED million
2008
5,958
2007
4,463
2006
3,470
06 07 08
5
Project Progress
Sorouh made progress on all fronts
in its property developments in 2008.
Construction has well advanced on
Sky and Sun Towers, part of the Shams
project, with completion scheduled
for early 2010. Further significant
advancement has been made at Golf
Gardens 1 with a handover planned for
late 2009. Further progress was seen in
the design stages of the Al Ain Mall, Golf
Gardens 2 and Al Mashtal. Lulu Island
and Saraya also made good progress in
2008. All these are planned and delivered
in conjunction with, and conformity to,
the strategy plan of the government of
Abu Dhabi.
2008 AT A GLANCE
129 13% increase in properties under development
% increase in investmentproperties and those under development
Diversity of Our Customers
Our customers are a top priority
and are one of the four core
principles of Sorouh’s strategy.
Middle East 72% Asia 8% Americas 3% Europe 2% Asia Pacific 2% Africa 1% Others 12%
SAS AL NAKHL
GOLF GARDENS
LULU ISLAND
TALA TOWER
AL MASHTAL
SKY TOWER, SUN TOWERAND GATE DISTRICT
SARAYASHAMS ABU DHABI
KHALIDIYA VILLAGE
ALGHADEER55KM NORTHEAST
2007AED 1.08 billion
2008AED 2.48 billion
Property Development
Our underlying principle is to create
destination developments that will rank
with the highest international standards,
creating irresistible appeal for owners
and investors alike.
2007AED 1.26 billion
2008AED 1.43 billion
6
Share Performance: Sorouh vs UAE Peers
Share Performance 2008 Share Performance 2006 – 2008
12/0
7
03/0
8
06/0
8
09/0
8
12/0
8
20
15
10
5
0
Emaar Aldar Sorouh
12/0
5
12/0
6
12/0
7
12/0
8
25
20
15
10
5
0
Emaar Aldar Sorouh
249% growth in sales
2007AED 6.02 billion
2008AED 21.00 billion
48% increase in earnings per share
2007AED 0.50
2008AED 0.74
Cultural Diversity of Employees
Committed to promoting
cultural diversity within
Sorouh, whilst supporting the
government strategy on the
employment of UAE nationals
as part of the Emiratisation
programme. Enhancing Sorouh’s
reputation as a ‘first choice’
employer in a more challenging
business environment.
Sorouh’s cultural diversity is
reflected in its employment
profile, with more than
and nationalites represented
amongst its staff.
Sorouh’s aim is to
be the ‘first choice’
for employment.
As a leading UAE business,
Sorouh has a social,
professional and cultural
obligation to support
government goals to attract,
develop and retain UAE
nationals.
Gender Distribution (%)
% Female
% Male
Workforce Distribution (%)
% Operational
% Senior Management
% Executive Management
Age Group Distribution (%)
% Female
% Male
< 25 26-35 36-45 46-55 > 56
0
4
3
14
6
21
18
27
4
3
2005 2006 2007 2008
16
14
8 10
85 8 3
878876 82
2005 2006 2007 2008
12
88
31
69
31
69
32
68
38 countries
Key companies
incorporated within
the Group in 2008
Gate Towers – Shams Abu
Dhabi LLC Delivering
Sorouh’s prestigious Gate
Towers development.
Al Sdeirah Real Estate
Investment Co LLC Delivering
the Al Ghadeer development.
Abu Dhabi Business Parks
Co LLC Developing world
class business and logistics
parks in Abu Dhabi and
across the GCC.
Sorouh Egypt for Investment
and Tourism Development
JSC (closed) Facilitating
Sorouh’s property development
activities in Egypt.
Pivot Engineering & General
Contracting WLL Supporting
Sorouh’s construction activities.
S&T Cool District Cooling Co
LLC Providing state of the art
district cooling to the Shams
Abu Dhabi development.
LLJ Co LLC Facilitates the
purchase and sale of Sorouh’s
real estate developments.
Abu Dhabi Finance PJSC
Provides turn-key mortgage
financing solutions to Sorouh
homeowners.
7
Saeed Eid Al GhafliChairman
Mohamed Khalaf Al MazroueiVice Chairman
Abubaker Seddiq Al KhouriManaging Director, Board Member
Fardan Hasan Al FardanBoard Member
Yousif Mohammed Al NowaisBoard Member
Mohamed Ahmed Saeed Al QasmiBoard Member
Mubarak Mattar Al HoumeiryBoard Member
Saeed Mubarak Al HajeriBoard Member
BOARD OF DIRECTORS
8
CHieF OFFiCeRs & exeCUtive DiReCtORs
Mounir Haidar Chief Executive Officer
Ala Khannak Chief Financial Officer
Afshar Monsef Chief Corporate Officer
Gurjit Singh Chief Property Development Officer
Samer Abu-Hijleh Chief Operations Officer
Paul Warren Chief Strategy Officer
Simon Cunningham Chief Sales & Marketing Officer
Firoze Kapadia Executive Director, Treasury & Investments
Abdallah Shabaan Executive Director, International Property Development
Akram Abu El-Huda Executive Director, Legal
Anthony Mallows Executive Director, Design & Planning (Lulu)
Fahad Al Ketbi Executive Director, Operations
Georges Page Executive Director, Development (Lulu)
Mohamed Al Marzouqi Executive Director, HR & Admin
Sutton Turner Executive Director, Asset Management
Richard Hyde Executive Director, Procurement and Contracts
9
On behalf of the Board of Directors of Sorouh Real Estate PJSC, I am pleased to present our annual report and financial statements for the year ended 31 December 2008.
CHAIRMAN’S STATEMENT
The progress made during the year – the most
successful year since our inception in 2005 – is
reflected in our strong financial and operating
performance. In an uncertain global economic
environment, stakeholders can be assured that our
company is well prepared for the future.
Net profit for 2008 amounted to AED 1.784 billion,
an increase of 42 per cent over 2007. It is gratifying
to point out that the return was generated from
operating activities, with no asset revaluations.
Total assets grew by 135 per cent to AED 16.94
billion at the end of 2008, compared to AED 7.22
billion in 2007, reflecting the increasing value of
Sorouh’s development business. Our financial
position is further strengthened by the proceeds
from the successful AED 4 billion sukuk issue of late
August 2008.
From this position of security we will continue our
strategy of building a diversified stream of revenue
to generate cash and long-term value for our
shareholders. The ultimate aim remains to create an
income-producing real estate portfolio with primary
emphasis on the needs of the customer.
The year was one of consolidation and
implementation of the executive and financial
structures put in place by our strategic plan, which
will stand us in good stead in 2009.
We are aware of the uncertainties facing the global
economy, but remain confident that Sorouh has the
resilience, strength-in-depth and sound financial
resources to emerge from this period a dynamic,
world-class property company, ready to take
advantage of any future upturn in world conditions.
At the same time, we are acutely aware of our
position within Abu Dhabi society, and will
continue to play our role, to the utmost, in helping
the government of the Emirate achieve its long-term
vision for the future. We reaffirm our commitment
to the highest standards of corporate social
responsibility. Meeting those standards is the task of
all Sorouh employees, whom I thank for their
dedication and hard work in 2008.
Of course, all our work would be in vain without
the guidance and support of the government of Abu
Dhabi, under the visionary leadership of HH Sheikh
Khalifa Bin Zayed Al Nahyan, President of the UAE
and Supreme Commander of the UAE Armed
Forces, and HH Mohammed Bin Zayed Al Nahyan,
Crown Prince of Abu Dhabi and Deputy Supreme
Commander of the UAE Armed Forces. They have
cultivated the economic conditions in which UAE
real estate developers will flourish, and under their
leadership we will continue our task of fulfilling the
aspirations of residents, investors and stakeholders.
Saeed Eid Al Ghafli
Chairman
10
Net profit for 2008 amounted to AED 1.784 billion. Total assets grew by 135 per cent to AED 16.939 billion at the end of 2008.
11
In the first three quarters of 2008, we witnessed
continued strong growth in sales, with Shams Abu
Dhabi and Saraya continuing to attract investor
interest. Rental income from the three residential
villages – Sas Al Nakhl, Khalidiya and Al Oyoun
– was also ahead of expectations.
The final quarter, when the global situation
deteriorated faster than most experts had predicted,
was challenging. We were nonetheless pleased to
meet full-year expectations, and encouraged that we
have the resources and management team in place to
keep Sorouh in the leading position it has achieved.
Given the actions of the UAE government and
other governments around the world, we anticipate
that the situation will start to improve in late 2009.
Meanwhile, we are well placed to deliver on our
committed projects due to our competitive advantage,
strong balance sheet and enhanced liquidity.
Each sub-developer, on the flagship master
developments Shams Abu Dhabi and Saraya, has
met its financial obligations on time. Nonetheless,
we continue to monitor the performance and
progress of these projects.
Our central goal remains to deliver real estate
developments based on strong fundamentals for the
benefit of all our stakeholders, in accordance with
the strategic plan of the government of Abu Dhabi
and with the interests of our customers at the
forefront. The emphasis for 2009 will be to focus on
the on-time delivery of Sorouh projects and to take
advantage of the opportunities that will inevitably
present themselves in the more demanding markets
we currently face.
During 2008 significant progress was made towards
achieving Sorouh’s long-term business strategy – to
become an income-yielding operation generating
revenue from first-class developments on prime
sites. That will continue in the current year, and the
proportion of income revenue can be expected to
increase annually over the next five years as core
developments are rolled out.
It is our intention to proceed with the scheduled
launches as planned, including in the international
sector, but we reserve the right to re-prioritise
projects according to demand and local market
conditions. This is an essential part of the prudent
management of resources incumbent on all
companies in the challenging times we face.
We do, however, enter this critical period with
strong advantages. Our management team is now
fully in place; we have institutionalised corporate
processes and procedures that reinforce our
corporate credibility; we have a strong relationship
with the Abu Dhabi authorities; and a well-located
and valuable land-bank. These will serve us well in
the demanding times ahead.
It is especially reassuring that in 2008 liquid funds
increased from AED 1.4 billion to AED 6.8 billion,
as a result of cash flow from sales and rental
income, and the proceeds of the award-winning
asset-backed sukuk completed in the third quarter.
Bank borrowings are significantly lower now than at
the start of 2008, putting Sorouh in the
advantageous position of being under-leveraged and
cash positive during such a turbulent time in the
world’s credit markets. It is our intention to take
advantage of this positive position, as and when the
opportunities arise, but at the same time to exercise
prudence and caution in our financial transactions.
We remain fully conscious of our responsibility to
enhance shareholder value, but retain the right to
adopt a flexible approach to our financial and
capital structure, as the broader global macro-
economic situation allows.
The macro-economic background continues to be
problematic. The general consensus is that the UAE
is well-resourced, with sound management-in-
depth, and therefore well-placed to benefit from
global recovery. The liquidity and resilience of the
Abu Dhabi financial infrastructure lead us to believe
that the Emirate will lead the way in the return to
growth in the UAE.
Just as important as the financial structure is the
human capital on which our efforts are built, and
we take this opportunity to thank all Sorouh
employees for their dedication, commitment and
professionalism in 2008. They have made, and we
are sure will continue to make, a huge contribution
towards our goal of being a world-class company.
We also take this opportunity to thank the Board
of Directors for their efforts during 2008 and
congratulate them on their successful achievements.
The past year was one of achievement and progress for Sorouh, with the best financial results in our history, complementing significant operational advances. Our success in 2008 leaves us well placed to face the challenges presented by the current global market uncertainty in property and finance.
JOINT STATEMENT BY THE MANAGING DIRECTOR
AND THE CHIEF EXECUTIVE OFFICER
12
Abubaker Seddiq Al Khouri
Managing Director
Mounir Haidar
Chief Executive Officer
13
Net profit rose by 42 per cent to AED 1.784 billion
for the year, compared to AED 1.257 billion in
2007. The net profit represented a 48 per cent rise
in earnings per share to 74 fils from 50 fils per
share in 2007.
Sorouh’s total assets increased 135 per cent to AED
16.939 billion by the year end compared to AED
7.221 billion in 2007. The net asset value rose 33.5
per cent to AED 5.958 billion compared to AED
4.463 billion in 2007.
The increase in profits reflected the continuing
completion and sales of land in ongoing flagship
projects. The entire profit rise was generated from
operating activities, with no asset revaluations in
2008. Operating revenues rose from AED 2.321
billion to AED 3.723 billion with the bulk derived
from land sales, especially in the Shams Abu
Dhabi and Saraya projects.
The income from such sales is recognised in
accordance with the existing accounting policy and
International Financial Reporting Standards.
Other projects also contributed to the growth
in revenue. Sas Al Nakhl, Khalidiya Village and
Al Oyoun Village, the three prime residential
developments, made significant contributions to
revenues in 2008, underlining Sorouh’s position
as an income-generating operation.
In addition, revenue of AED 127 million was also
recognised from Pivot Engineering and General
Contracting, a newly acquired subsidiary (60 per
cent ownership).
The continued growth of the company generated
increased costs of revenue – attributable to cost of
land plots, infrastructure work and lease expenses
– of AED 1.427 billion compared to AED 1 billion
in 2007. General and administrative expenses rose
from AED 165 million to AED 320 million, due to
Sorouh’s expansion, consultancy work and expenses
related to subsidiaries and impairment taken for
certain projects.
Sales and marketing expenses rose in line with
this growth, from AED 100 million to AED 311
million, reflecting a rise in sponsorships,
communication expenses and sales commission
on newly launched projects.
As a key part of Sorouh’s financial strategy, 2008 saw
the completion of the award-winning asset-backed
sukuk facility in the third quarter. This instrument
raised AED 4 billion in funds, freed up operating
capital for the development of flagship projects, and
helped put Sorouh on a very sound financial footing
for the future. Finance income from liquid
investments increased from AED 73 million in 2007
to AED 120 million for the year 2008.
There was an unrealised loss on financial assets at
fair market value of AED 35 million due to
prevailing market conditions. Earlier this year, the
company realised a gain of AED 4 million on the
sale of investments in listed companies. Other
income, including transfer fees, dividends and late
payment charges, increased from AED 18 million to
AED 79 million in 2008.
Investment properties marginally increased from
AED 853 million to AED 858 million over the year.
Sorouh is developing the second phase of Sas Al
Nakhl and the Abu Dhabi Aviation project and as a
result investment properties under development
increased from AED 408 million to AED 573
million at year end.
Sorouh has seven associated companies: Aseel
Finance, Green Emirates, Bunya, Al Maabar, LLJ
Property, Al Sdeirah Real Estate Investment and Abu
Dhabi Finance. Sorouh’s share of profit from its
associates increased from AED 18 million in 2007
to AED 51 million in 2008.
The inventory of land plots still held at the Shams
Abu Dhabi and Saraya projects represents AED 257
million, down AED 358 million from AED 615
million, due to the recognition of revenue on plots
held in the two developments.
Development work in progress of AED 2.474
billion represents properties developed for sale
recorded at cost, including costs attributable to
the design and construction of such properties.
The increase of AED 1.392 billion represents
project work completed in 2008. Trade and other
receivables (non-current and current) at the end
of 2008 amounted to AED 4.331 billion compared
to AED 2.080 billion in 2007, as a result of an
increase in receivables on the sale of plots and an
increase in advance payments to contractors.
FINANCIAL REVIEW
Sorouh’s financial performance in 2008, the most successful year in its corporate history, was marked by strong increases in revenue, profit, asset values and earnings per share, against the background of a resilient capital and liquidity structure. Achieving such an encouraging result leaves Sorouh well placed to exploit the opportunities presented by current uncertainties in the global economy.
14
Bank borrowings were reduced from AED 233
million to AED 220 million at year end. This
puts Sorouh in the enviable position, vis-à-vis
many of its competitors, of enjoying a healthy
debt-to-equity ratio. In September 2008, Sun
Finance Limited, a consolidated Special Purpose
Vehicle, issued non-convertible Islamic Sukuk
Certificates for a total amount of AED 4.02 billion.
The Sukuk Certificates are arranged to conform to
the principles of Islamic Sharia and are structured
as a non-recourse facility with repayment solely
from the receivables due from clients on certain
plots sold on the Shams Abu Dhabi and Saraya
projects. As a result of the non-recourse nature of
the Sukuk Certificates, the adjusted debt-to-equity
ratio for Sorouh (excluding the outstanding
amounts of the Sukuk Certificates as of 31
December 2008) is 3.7 per cent.
Due to prevailing market conditions, the market
capitalisation of Sorouh, listed on the Abu Dhabi
Securities Exchange, fell from AED 21.7 billion to
AED 7.9 billion at year end.
Sorouh has sufficient liquidity, and is well-placed to
meet its working capital requirements for the current
year. Senior management is aware of the constraints
operating in the broader financial and equity
markets as a result of the global financial situation,
but is equally cognisant of the opportunities
presented by the current downturn. All options are
being considered to allow Sorouh to maximise the
potential presented by these opportunities.
Property, especially in the markets in which Sorouh
operates, is a long-term and low-risk business.
Management is fully aware of this and sets its central
strategy as the continuation of Sorouh’s prudent and
cautious approach to the real estate business.
Decisions on asset selection, allocation of financial
resources and long-term development plans are
taken with this fundamental reality in mind.
The low-risk nature of Sorouh’s portfolio,
focusing on prime developments in or near the
core market of Abu Dhabi, in alliance with the
government of the Emirate and its long-term
strategic plan, will continue to be Sorouh’s guiding
principle in the coming year. As in previous years,
the key performance indicators will remain profit
growth, total shareholder return and asset growth.
Benchmarking these indicators against our
competitors in the real estate sector will remain a
central part of our management philosophy, and
will ensure adherence to the basic principle of
value creation for our shareholders, business
partners and customers.
In the current volatile financial environment, Sorouh
will adopt a flexible and pragmatic approach to
capital structure. Solid asset backing and liquidity
give management the opportunity to consider the
long-term benefits of securitisation at competitive
rates, wherever possible without recourse to
third-party dependence or rigid financial covenants.
Revolving credit facilities and committed bank lines,
which are both long term and flexible, will continue
to be considered as options, along with more
conventional forms of capital raising, with a view
to taking advantage of the long-term global trend
towards lower basic interest rates. The central financial
strategy will remain, to finance Sorouh’s growth in as
flexible and sustainable a manner as possible in the
challenging global financial environment.
42%increase in net profit in 2008
135%growth of total assets to AED 16.939 billion
48%rise in earnings per share
15
Property Development
The key efforts of 2008 included the implementation
of the development management framework based
on a matrix management approach. This saw the
progression of development business plans for
various integrated mixed-use developments within
the Sorouh portfolio such as alghadeer, The Gate
Towers, Al Mashtal, Shams Marina, Al Ain Mall, Al
Ain Hotel and Golf Gardens 2.
The development plans were based on a rigorous
analysis of the property market and the various asset
classes including an assessment of the consumer
demand for the various types of real estate. Various
master plans were also carried out for numerous
potential developments both within the UAE and
overseas, namely the Lulu Island development in
Abu Dhabi, Sorouh Egypt and the Atlas Gardens
development in Marrakesh, Morocco.
One of the key initiatives undertaken was the
strategy to increase the development of income-
producing property within the Sorouh portfolio.
To this end the development plans were implemented
for the Al Mashtal and Golf Gardens 2 developments,
which are intended to be longer term income-
producing property. Initiatives also commenced
with the leasing of retail space within the Sun and
Sky Tower mall.
In May 2008, the Government of Abu Dhabi
endorsed Sorouh’s conceptual master plan for Lulu
Island, granting the land to Sorouh in partnership
with the Mubadala Development Company. The
conceptual master plan reflects Sorouh’s vision for a
low rise, low density and low impact development.
It will see Lulu Island become an integral district of
the capital city, offering a world-class destination for
residents and visitors and a benchmark for
self-sustainable island communities.
Sorouh is continuing to work in conjunction with
the Abu Dhabi Municipality and the Urban
Planning Council to refine the master plan in line
with the strategic plan for Abu Dhabi. An
international team of renowned urban designers,
architects, landscape designers, engineers and
environmental experts is being assembled to deliver
Sorouh’s vision for Lulu Island.
Another key project in which master planning was
completed in 2008 was alghadeer; this project is one
of the major strategic developments that Sorouh is
focusing on in 2009. Meanwhile, concept designs
were completed for the Navy Base, Maya Island,
Emirates Golf Club, Fujairah Resort and the hotel
and retail developments in Al Ain.
Going forward, the approach will be one of
adhering to the Plan Abu Dhabi 2030, the Urban
Structure Framework Plan and the Abu Dhabi
Economic Vision Plan 2030. One of the principal
focuses for attention will be the creation of an
affordable housing portfolio in line with the
objectives of the Government of Abu Dhabi.
International
In the international arena, progress was maintained
on Sorouh’s two projects in Egypt and Morocco, to
which Sorouh retains a long-term commitment.
Master planning was completed and development
commenced on Sorouh City outside Cairo and Atlas
Gardens in Marrakesh. In view of the global
economic climate, Sorouh intends to proceed
cautiously on these projects, with constant attention
to customers’ needs as its top priority.
Operations
Sorouh’s development projects adhere to several
project fundamentals: feasibility and differentiation
of the project concept and design, the ability to
meet the demand of the market, and consistent and
timely delivery. Sorouh continues to apply these
fundamentals and has proven this in the
considerable operational progress made across its
portfolio in 2008.
This progress is reflected by the ramping up of
resources in the operations division’s workforce,
which almost doubled in 2008 in all areas, from
project management and design through to quality
control and safety.
Design stage work has advanced for many projects
including the hotel in Al Ain. Shams Marina has
completed the master plan and initial concept and
is getting ready to commence the tendering process
for the design consultancy. Design stage work has
been substantially completed in 2008 for the Al Ain
Mall, Golf Gardens 2 and the schematic design was
completed for Al Mashtal. Each of these projects is
now in the initial stages of construction, site
clearance, excavation and preliminary infrastructure
work. Construction commenced with the Gate
Towers in late 2008 and is progressing well. It
remains on target for initial completion in 2013.
Several flagship projects in Shams Abu Dhabi have
made significant progress in 2008 and are nearing
the final stages of completion, with Sun Tower
scheduled to reach its full 64 floors by the end of
April 2009. Sky Tower will reach its full 74 floors by
June 2009. Golf Gardens 1 is nearing substantial
completion and is scheduled for handover in 2009.
Work is underway on the Saraya flagship
development, where Sorouh has responsibility for
master developing the infrastructure and managing
the development of the plots by various sub-
developers. Sorouh has also made significant
progress on the design of the new Corniche
Hospital in the Saraya project, scheduled to start
construction in 2009. This includes a 400 bed
maternity hospital and represents part of Sorouh’s
social responsibility contribution to Abu Dhabi.
OPERATIONAL REVIEW
16
17
OPERATIONAL REVIEW CONTINUED
Sas Al Nakhl Village is a beautifully designed gated community fulfilling the needs of modern families. At its heart is the superbly equipped Clubhouse offering various leisure and recreational facilities.
462,000 sq metrescompleted development
Situated close to Abu Dhabi Golf Club
and the cricket stadium, Sas Al Nakhl is just
30 minutes from the city centre, 15 minutes
from Abu Dhabi Airport and 40 minutes
from Jebel Ali Free Zone.
588 residential unitsunder leasing process
The Clubhouse offers a range of first-rate
amenities including swimming pools, a
fully-equipped gymnasium, sauna and steam
room, tennis and squash courts, a children’s
playground and games room.
18
19
Strategy
Sorouh’s strategy in 2008 focused on the need to
provide stability and continuity. Sorouh shifted from
a functional structure to a hybrid matrix model,
utilised by most big corporations, and formalised
‘operating model principles’ to support the matrix
organisational structure and the project life-cycle.
The core principles of Sorouh’s strategy are to
focus on ‘the Four Cs’ – Country, Customers,
Competencies and Cash. This is in line with the basic
corporate position of being primarily an Abu
Dhabi-oriented business, which places its customers
as a top priority in its core activity as a master property
developer with a strong emphasis on managing its
financial resources soundly and prudently.
Asset Management
Within this framework, the asset management
department began the task of preparing for the
launch of a new service management unit in 2009.
The new unit, Khidmah, finalised its business plan,
grew its staffing numbers to 14 and managed the
leases on three current leased properties – Golf
Gardens, Sas Al Nakhl and Khalidiya Village.
Sales & Marketing
The sales and marketing division had a successful
year, advancing its goal to be one of the UAE’s top
property developers and real estate brands. The
emphasis is on sustained and excellent customer
relations, designed to strengthen our reputation as a
provider of first class customer-centric products.
This will continue to be our goal in the more
demanding market conditions of 2009.
In 2008 projects were launched or major sales
made in alghadeer, Gate Towers 1, 2 and 3, The
Arch and the Sun Tower. The total inventory for
2008 amounted to 10,361 units, of which
approximately 6,700 units were sold. This included
sales through joint venture partners, such as the
Gate development.
The first sales centre was opened in Abu Dhabi and
the sales staff grew by 16 employees. In line with our
business strategy and customer-oriented focus, a
new customer service department was established
to enhance customer experience and diversify
Sorouh within the real estate market. In the same
year Sorouh was voted “Best Customer Services
Company – Real Estate” by the Middle East
Excellence Awards Institute.
Sorouh signed deals with seven significant
financial groups to support property financing
for its customers, against the background of
increasingly constrained market conditions
towards the end of 2008.
One highlight for sales and marketing was the
Sorouh Faces project, which included a donation of
$1 million to the UAE Red Crescent and the
building of the biggest advertising poster in the
world, comprising 1 million photographed faces
from local and international contributions. The
poster was clearly visible from the air on the final
approach to Dubai International Airport.
The corporate communications department
developed a core strategy, integrated with all
divisions, whilst focusing primarily on marketing
and project activities. A major initiative of the year
was to research and present a corporate branding
refocus designed to meet the needs of our key
stakeholders – the Government of Abu Dhabi, our
strategic partners, the community, our employees,
the media, our customers and our shareholders. The
unit also introduced an innovative benchmark for
gauging return on investment in corporate
communications, a first for Sorouh and the UAE
business community.
Key events and sponsorships of the year included
the eye-catching exhibits at the Cityscape events
in Dubai and Abu Dhabi and participation in the
Abu Dhabi Investment Forum in London in
October. The unit also strengthened its involvement
with the UAE cultural and sporting community with
sponsorship of equestrian and sporting events across
the Emirates, and the Paris Art Abu Dhabi exhibition
at the Emirates Palace Hotel in the capital.
Corporate
The corporate division continued to serve Sorouh
under its slogan “the better we serve, the faster
Sorouh grows”. The departments within corporate
met many challenges during 2008 as a result of the
growth of Sorouh.
The human resources and administration
departments oversee the well-being and
development of Sorouh’s most important asset –
its people. Key achievements for HR in 2008
included the recruitment of UAE nationals in line
with the long-term Emiratisation programme, to
bring the total number of UAE nationals employed
by Sorouh to 49 (15 per cent of the total workforce);
and the employment of 164 additional staff to
meet Sorouh’s growing operational manpower
requirement. The focus on manpower development
saw the delivery of a range of training programmes
in support of the matrix organisation, as well as
enhancement of Sorouh’s induction programme
for all new employees.
Sorouh’s workforce mirrors the cultural and ethnic
diversity of the UAE, with representatives from 38
nationalities. We remain committed to promoting
cultural diversity within Sorouh, while always
acting within the guidelines of government strategy
on the employment of UAE nationals as part of the
Emiratisation programme.
OPERATIONAL REVIEW CONTINUED
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OPERATIONAL REVIEW CONTINUED
22
Strategically positioned between Abu Dhabi and Dubai, alghadeer is a community of villas, town houses, terraced homes and apartments close to some of the UAE’s most significant industrial zones and facilities.
3.11 million sqm land under development
Adding to the convenient location, the
development will be beautifully landscaped
to seamlessly bring together nature and urban
living with hills and valleys, walkways, lakes
and public parks.
19,000 residentsat 100 per cent occupancy
Combining sustainability with charm and
the essence of the natural desert, residents
will be offered the best of everything, from
education to entertainment, beautiful homes
and modern office space.
23
OPERATIONAL REVIEW CONTINUED
Advancing Sorouh’s human capital will
continue to be a top priority in 2009, specifically
designed to enhance Sorouh’s reputation as a
‘first choice’ employer in a more challenging
business environment.
The information technology department, in
conjunction with the business divisions, successfully
implemented an Oracle ERP System in 2008; a
critical component of Sorouh’s organisation-wide
infrastructure. IT also set up Sorouh’s new data
centre and rolled out a new suite of collaborative
tools to enhance Sorouh’s partnership with third
parties across its value chain.
The legal department, in liaison with the sales
and finance divisions, executed a new transfer
and mortgage process as part of Sorouh’s
customer-centricity programme to deliver more
streamlined procedures, faster settlement and a
better customer experience.
The procurement and contracts departments, in
liaison with the legal department, implemented a
new monitoring and standardisation system for new
contracts. The contracts department will continue to
ensure Sorouh enjoys a competitive advantage in the
tendering process by negotiating agreements that
deliver higher quality and lower cost within more
effective timelines. In an era of volatile raw material
and labour costs, the effective supervision of this
process will continue to be an important goal.
The corporate division also advanced Sorouh’s
corporate social responsibility by securing
scholarships for 15 UAE nationals. Furthermore, with
contributions from staff, matched by the company, it
funded the building of water wells in Ghana and
Niger and supported an orphanage programme.
Sustainability
As a responsible corporation doing business in the
real estate sector, Sorouh is firmly committed to
delivering sustainable growth to its customers and
the wider community. The thrust of our business in
2009 will be to extend this ambition, in alliance
with the Government of Abu Dhabi and the
Emirate’s planning authorities. We fully share the
goal of making the UAE a new paradigm for global
developers, in line with internationally agreed
models for best practice in environmental and
ecological matters. This approach is of fundamental
importance for the future of the UAE, the region
and the world.
Corporate Governance and Internal Audit
Corporate governance is fundamental to Sorouh’s
long-term prosperity. The Board and Executive
Management are committed to ensuring that
shareholder value is enhanced on a sustainable basis,
in a manner that recognises the interests of all
stakeholders, including employees, suppliers,
customers and the communities in which we operate.
Governance Achievements
In 2008, we further aligned our governance
framework with the Securities and Commodities
Authority (SCA) - Decision No. R/32 (Corporate
Governance Regulations for Joint-Stock Companies
and Institutional Discipline Criteria). We have
implemented all material requirements ahead of the
2010 deadline.
In 2008, under the stewardship of the Audit &
Governance Committee, the Board of Directors also
attended an internal corporate governance
workshop provided by an independent expert, as
part of Sorouh’s commitment to continually
enhance and revaluate governance to ensure our
governance practices adhere to the highest
standards and to provide valuable information to
all our stakeholders.
Sorouh’s governance framework includes the
following elements:
• Board stewardship.
• Integrity of financial reporting.
• Timely and balanced disclosures.
• Recognition of stakeholders’ interests.
• Accountable and ethical decision-making.
• Management of risk and internal controls.
• Responsible remuneration for management
and staff.
Further details on the above elements are included
in Sorouh’s Governance Report for 2008 shown on
pages 34 - 46.
24
25
OPERATIONAL REVIEW CONTINUED
26
SunTower
SkyTower
40,000 sq metrescombined tower land area
The Sky Tower will comprise apartments,
penthouses and Class-A offices, while the Sun
Tower is exclusively residential. Both will offer
intelligent building design with panoramic
views across the Gulf and Abu Dhabi island.
3,200 residentsat 100 per cent occupancy
The towers’common podium will house a
state-of-the-art fitness and leisure centre, a 70
metre infinity pool and a yoga lawn. Below a
striking glass atrium, an integrated mall will
include exclusive shops, cafes and restaurants.
The Sky and Sun Towers, 74 and 64 storeys high respectively, are the iconic multi-use developments at the heart of the Gate District, the breath-taking entrance to Shams Abu Dhabi.
27
28
OPERATIONAL REVIEW CONTINUED
Audit and Governance Committee
In providing an advisory service to the Board of
Directors, the Audit and Governance Committee
provides independent comment, advice and counsel
to the Board on matters considered at its regular
meetings. The committee’s role is to provide
reasonable assurance that Sorouh is meeting its
core business goals and objectives efficiently and
effectively, within the internal control and risk
management framework established by the Board
of Directors.
In 2008, the committee’s activities included:
• Providing assurance on the financial statements.
• Providing a forum for the consideration of
external auditors’ findings.
• Reviewing the implementation of SCA corporate
governance regulations.
• Reviewing the quality of Sorouh’s financial
policies, practices and disclosures.
• Reviewing the appropriateness of accounting
policies adopted by the Executive Management.
• Discussing and resolving issues arising from
internal audit reports.
• Monitoring coordination between the external
and internal audit programmes.
• Reviewing the Internal Audit Charter and scope of
internal audit operations.
Further information on the above is discussed in the
Governance Report.
Internal Audit
Sorouh’s Internal Audit Directorate provides
independent, objective and authoritative advice and
counsel to the Board of Directors, the Audit and
Governance Committee and Executive Management
to assist them in discharging the functions and
duties conferred or imposed on them.
The department provides assurance in the
following areas:
• Reliability of financial and related management
information.
• Cost effectiveness and efficiency of all Sorouh’s
operations.
• Adequacy and accuracy of its accounting and
computer systems.
• Protection and efficient utilisation of funds and
assets under Sorouh’s control.
• Compliance with legislative and statutory
requirements and established policies.
It also advises on the following:
• Identification of improvement opportunities in
the delivery of services or activities.
• Improved accountability and transparency of
decision-making.
• Assessment of internal control frameworks within
line areas.
• Effective implementation of audit
recommendations.
• Ad hoc advice on emerging issues.
Internal Audit coverage includes all aspects of
Sorouh’s activities in accordance with the Internal
Audit Charter. All areas are subject to internal audit
coverage, based on risk assessment and contractual
and/or statutory provisions. The extent and
frequency of audits depends upon varying
circumstances, such as results of previous audits,
relative risk associated with activities, materiality,
the adequacy of the system of internal control, and
available resources.
Our reporting and consultative relationship is
illustrated below:
In 2008, the internal audit activities included:
• Assessing the control environment.
• Providing assurance on the implementation of
Oracle ERP.
• Facilitating implementation of Enterprise Risk
Management.
• Performing audits and consulting on
recommendations with management.
• Leading the implementation of the SCA
Corporate Governance regulations.
In 2009, the internal audit focus will be on:
• Improving reporting.
• Aligning assurance, risk and governance efforts.
• Facilitating improved awareness on corporate
governance.
• Actively engaging with clients to improve
effectiveness of our services.
Direct reporting relationship
Consultative relationship
Board committees
29
OPERATIONAL REVIEW CONTINUED
345,000 sq metresdevelopment land area
Just 30 kilometres from Abu Dhabi city
centre, Golf Gardens will feature a range of
home designs from the family-size Orchid
Villa, to the simple yet comfortable Jouri
and Khuzama townhouses.
1,900 residentsat 100 per cent occupancy
Residents can take advantage of the sprawling
gardens, beautiful boulevards, and the
Gardens Club, designed as a vibrant centre
for recreational activities and housing the
clubhouse, sports centre and retail zone.
Golf Gardens is a premium residential compound bordering the lush greens of Abu Dhabi Golf Club. The project comprises 391 beautifully finished villas and townhouses, and a large retail and entertainment area.
30
31
32
governance report
contents:
1.0 Overview 34 1.1 SCA Corporate Governance Regulations 35
2.0 Board of Directors 36 2.1 Matters Reserved for the Board 37 2.2 Composition of the Board 37 2.3 Induction Programme 38 2.4 Access to Independent Advice 38 2.5 Board Performance 38 2.6 Directors’ Meetings 39 2.7 Chairman of the Board 39 2.8 Executive Management 39 2.9 Board of Directors’ Remuneration 39 2.10 Directors’ Transaction in Sorouh Securities 39
3.0 Board Committees 40 3.1 Audit & Governance Committee 40 3.2 Follow-up & Remuneration Committee 42 3.3 Investment Committee 42
4.0 Risk Management 43
5.0 Shareholder Communication 43
6.0 Business Conduct 44 6.1 Employee Disclosure Line 44 6.2 Conflict of Interest 44 6.3 Insider Share Dealing 44 6.4 Corporate Social Responsibility 45
7.0 External Auditor 45
8.0 Top 20 Shareholders 45
governance reportfor the year ended 31 december 2008
1.0 overviewThe Board of Directors believes that good corporate governance is fundamental to the long-term prosperity of Sorouh. The Board is committed to ensuring that shareholder value is enhanced on a sustainable basis in a manner that recognises the interests of all stakeholders in Sorouh including its employees, suppliers, customers, business partners and the communities in which it operates.
In 2007, the Board formalised and aligned Sorouh’s Corporate Governance framework in accordance with SCA regulations and international best practice. The diagram below provides a schema of the framework and the key elements adopted.
ShareholdersThe Shareholders represent the highest level of governance and set, via the Articles of Association, the framework within which Sorouh must operate as a Public Joint Stock Company. Sorouh’s Corporate Governance framework takes into account the principles espoused and standards set by the Securities & Commodities Authority (SCA), the Abu Dhabi Securities Exchange (ADX) and Commercial Companies Law Federal Law No (8) (as amended), in setting the direction and requirements for Sorouh.
Board of DirectorsThe Board is accountable to Sorouh’s shareholders and seeks to ensure that the business objectives of Sorouh are aligned with the expectations of shareholders, and that the operations of Sorouh are being effectively managed in a manner that is properly focused on those objectives as well as conforming to the regulatory and ethical requirements of the SCA and ADX.
The key Board level corporate governance elements are the charters that outline the objectives, responsibilities and framework for operation of the Board and Board Committees.
• CharterfortheBoardofDirectors • CharterfortheChairman&Vice-Chairman • CodeofConductforDirectorsoftheBoard • ScheduleofDelegations • CharterfortheInvestmentCommittee • CharterfortheAudit&GovernanceCommittee • CharterfortheFollow-up&RemunerationCommittee
Securities & CommoditiesAuthority
Charter for Chairman&ViceChairman
Code of Conduct forDirectors of the Board
Schedule of Delegations
Charter forManaging Director
Charter forChief Executive Officer
Charter forManagement Reporting
BusinessCode of Ethics
Abu DhabiSecurities Exchange
Charter forBoard of Directors
Articles of Association
Charter for Audit & Governance Committee
Charter for Follow-up & Remuneration Committee
Charter for Investment Committee
corporate governance framework
Shareholders
Board of Directors
Executive Management
34
1.0 overview continued
Executive Management The Executive level implements the corporate strategy and manages the day-to-day affairs of Sorouh according to the business plan approved by the Board. Executive Management has the authority to manage Sorouh affairs and business, taking into account the protection of shareholders’ interests, international best practice, as well as the pragmatic day-to-day operational needs.
The key executive level corporate governance elements are the charters setting out the objectives, responsibilities and authority of Executive Management.
• CharterfortheManagingDirector • CharterfortheChiefExecutiveOfficer • CharterforManagementReporting • BusinessCodeofEthicsforallSorouhStaff
1.1 Sca corporate governance regulationsThe table below summarises Sorouh’s compliance with the Securities and Commodities Authority – Decision No. R/32, Corporate Governance Regulations for Joint-Stock Companies and Institutional Discipline Criteria. (The reference column identifies the relevant section of this report for further commentary.)
corporate governance regulations elements comply reference
I Lay Solid foundation for management and oversightImplement Decision No. R/32 – Corporate Governance Regulations for Joint-Stock Companies and Institutional Discipline Criteria in accordance with the timeframe stipulated.
Yes 1.0, 3.1
Board approved Corporate Governance framework. Yes 1.0Formalise and disclose the functions reserved for the Board and those delegated to management.
Yes 1.0, 2.0, 2.1
II Structure the board to add valueA majority of the Board should be Independent Directors Yes 2.2The roles of Chairperson and Chief Executive Officer should not be exercised by the same individual.
Yes 1.0, 2.2
The Board should establish a Follow-up & Remuneration Committee. Yes 3.0Structure the Follow Up & Remuneration Committee so that it consists of –•Notlessthan3Non-ExecutiveDirectors.•Atleast2IndependentDirectors.•ChairmancannotbeamemberoftheCommittee.
YesYesYes
3.2
III promote ethical and responsible decision-makingEstablish a Code of Conduct to guide the Board of Directors as to the practices necessary to maintain confidence in the company’s integrity. (Code of Conduct for Directors of the Board)
Yes 1.0, 6.0, 6.2
Establish a Code of Conduct to guide the key executive and staff as to the practices necessary to maintain confidence in the company’s integrity. (Business Code of Ethics)
Yes 1.0, 6.0
Board approved Employee Disclosure Policy through which employees can make confidential disclosures.
Yes 6.1
Board approved policy on Insider Share Dealing. Yes 6.3
Iv Safeguard Integrity in financial reportingThe Board should establish an Audit Committee. Yes 3.0The Audit Committee should have a formal charter. Yes 3.1Structure of the Audit Committee so that it consists of –
•Notlessthan3Non-ExecutiveDirectors.•Atleast2IndependentDirectors.•MajorityareIndependentDirectors.•Includefinancialandaccountingexpert.•Anindependentchair,whoisnotchairmanoftheBoard
YesYesYesYesYes
3.1
External Auditor to be independent from the Company and Board of Directors. Yes 7.0
35
1.0 overview continued
1.1 Sca corporate governance regulation continued
corporate governance regulations elements continued comply reference
v make timely and balanced disclosureBoard approved Market Disclosure Policy Yes 5.0Procedures designed to ensure compliance with ADX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance –•Identifiedwhohasresponsibilitytocaptureinformationfordisclosure.•Corporateframeworktoensurecompliancewithstandardsfordisclosures.•Identifiedauthorisedspokespersonstomakeanypublicstatement.
YesYesYes
5.0
vI respect the rights of ShareholdersCommunications strategy to promote effective communication with shareholders and encourage effective participation at General Assembly Meetings.
Yes 5.0
Representation on the Board of Directors of minority shareholders’ interests. Yes 2.2The appointment and remuneration of the External Auditor shall be according to a decision of the General Assembly.
Yes 7.0
External auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.
Yes 5.0, 7.0
vII recognise and manage risk Board approved Risk Management Policy. Yes 4.0Risk management oversight under stewardship of Audit & Governance Committee. Yes 3.1, 4.0Risk management and internal compliance and control system reporting. Yes 3.1, 4.0
vIII assurance on Internal controlsBoard approved Internal Audit function. Yes 3.1Charter for Internal Audit, which outlines purpose, powers, tasks and reporting on internal control system of the company.
Yes 3.1
Internal Audit oversight under stewardship of Audit & Governance Committee. Yes 3.1
IX remunerate fairly and responsiblyArticles of Association shall have a system to determine the Board of Directors’ remuneration. Yes 2.9Provide disclosure in relation to the company’s remuneration policies. Yes 2.9
X recognise Interests of StakeholdersBoard approved Corporate Social Responsibility Policy. Yes 6.4
2.0 board of directorsThe role of the Board is to provide stewardship for Sorouh’s business and affairs, which are conducted by its officers and employees under the direction of the Managing Director (MD) and Chief Executive Officer (CEO).
The Board is responsible for overseeing the effective governance, management and control of Sorouh. The Board has delegated certain responsibilities to Board Committees which operate in accordance with charters approved by the Board.
The Board has delegated the day to day management of the business of Sorouh to management through the MD and CEO subject to agreed authority limits applicable to the Senior Executive Team. These delegations are documented within the Schedule of Delegations and are reviewed regularly to ensure a balance between appropriate control, risk management and operational business requirements.
governance reportfor the year ended 31 december 2008
36
2.0 board of directors continued
2.1 matters reserved for the boardThe Board has established a list of matters which have been reserved for its control. These are of a strategic, sensitive or extraordinary nature or which exceed the thresholds set in the authority delegated to management. Reserved matters include –
• SettingandreviewingthestrategicdirectionofSorouh.• OverseeingthemanagementandcontrolofSorouh.• Initiatingandimplementingkeycorporatepolicies,proceduresandcontrolsasnecessary.• Approvingandmonitoringkeybudgets,businessplans,financialstatementsandfinancialpolicies.• Overseeingtheadequacyandeffectivenessofaccountability,responsibility,riskmanagementandcorporategovernance.• Approvingproposalsformajorinvestments,capitalexpenditureinitiativesasproposedbytheMDandCEOandendorsedbythe
Investment Committee.• Overseeingtheadequacyofmanagerialresourcestoensurethatthereisadequatedepthofresourcesandappropriate
succession planning.• Ensuringthatshareholdersreceivehighquality,relevantandaccurateinformationinatimelymannerandthatinvestorsgenerallyare
able to trade in Sorouh’s securities in a market which is efficient, competitive and informed. • TheappointmentandremovaloftheManagingDirector,ChiefExecutiveOfficer,DirectorInternalAuditandCompanySecretary.
2.2 composition of the boardThere are currently eight Directors on the Sorouh Board; seven are Non-Executive Directors.
composition of the boarddirectors position
Saeed Eid Al Ghafli ChairmanMohamed Khalaf Al-Mazrui Vice-ChairmanAbubaker Seddiq Al Khouri Member & Managing DirectorFardan Hassan Al Fardan MemberMohammed Ahmed Saeed Al Qasmi MemberMubarak Matar Al Humairi MemberSaeed Mubarak Al Hajeri MemberYusouf Mohammed Al Nowais Member
Since inception Sorouh has had a majority of independent Directors. This is in line with the Board’s Charter, which provides that the Board should have a majority of Non-Executive Directors who are considered by the Board to be independent.
The Board considers six of the seven Non-Executive Directors as independent. (See Board of Director Division table on next page.) Mr Al Khouri is assessed to be an Executive Director as he also holds the position of Managing Director.
The Board has adopted a policy on the independence of Directors, under which the Board assesses the independence of each Director annually and on disclosure of any new interests or relationships by a Director. In the event that the Board considers that an independent Director has ceased to be so, this will be disclosed to the SCA, ADX and the market.
The overarching test used by the Board to assess the independence of a Director is whether the Director is independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement. The Board evaluates the materiality of any interests or relationships that could be perceived to compromise independence on a case-by-case basis, having regard to each Director’s individual circumstances.
37
2.0 board of directors continued
2.2 composition of the board continued
Board of Directors Division directors Independent executive appointed
Saeed Eid Al Ghafli No 2005Mohamed Khalaf Al-Mazrui Yes 2007Abubaker Seddiq Al Khouri No Yes 2007Fardan Hassan Al Fardan Yes 2005Mohammed Ahmed Saeed Al Qasmi Yes 2005Mubarak Matar Al Humairi Yes 2005Saeed Mubarak Al Hajeri Yes 2005Yusouf Mohammed Al Nowais Yes 2005Note:(a) H.E. Saeed Eid Al Ghafli and Mr Abubaker Seddiq Al Khouri are deemed non independent as per the definition stipulated in Article 1 of SCA - Decision
No. R/32, Corporate Governance Regulations for Joint-Stock Companies and Institutional Discipline Criteria. (b) Mr Al Khouri was appointed Managing Director on 14 Nov 07.
In line with the Board’s Charter, all Directors have substantial experience in Business and Management and within the real estate industry specifically. The table below provides an overview of the experience.
directors Qua
lifi
cati
ons
bac
helo
r (b
) /
mas
ters
(m
) /
prof
essi
onal
(p)
bus
ines
s &
man
agem
ent
expe
rien
ce (
year
s)
expe
rien
ce a
s d
irec
tor
(yea
rs)
rea
l est
ate
& c
onst
ruct
ion
oil
& U
tili
ties
ban
kin
g , f
inan
ce &
In
sura
nce
tele
com
mun
icat
ion
s
gov
ern
men
t, n
ot f
or
profi
t &
com
mun
ity
org
anis
atio
ns
and
oth
er
Saeed Eid Al Ghafli B 15+ 10-15 P P P
Mohamed Khalaf Al-Mazrui B 15+ 10-15 P P
Abubaker Seddiq Al Khouri M & P 15+ 10-15 P P P P P
Fardan Hassan Al Fardan B 15+ 10-15 P P
Mohammed Ahmed Saeed Al Qasmi P 15+ 15+ P P
Mubarak Matar Al Humairi B & P 15+ 15+ P P P P
Saeed Mubarak Al Hajeri M & P 10-15 10-15 P P P P
Yusouf Mohammed Al Nowais B 15+ 15+ P P P
2.3 Induction programme New Directors are provided with a formal letter of appointment, which sets out their rights, duties and responsibilities as a Director of Sorouh. New Directors also participate in an induction programme involving comprehensive briefings from management and site visits.
All Directors have access to information and senior management as required to enable them to fulfil their responsibilities. In addition to management briefings at every Board meeting, Directors are regularly briefed by internal and external specialists on key business and industry developments and matters material to their role as Directors.
2.4 access to Independent advice Under the Board Charter, any Director may seek external, independent, professional advice at Sorouh’s expense. It is expected that a Director will consult the Chairman before obtaining external advice. The policy of the Board is that external advice will be made available to all Directors, unless the Chairman determines otherwise.
2.5 board performance The Board Charter provides that the Board will undertake a self-assessment of its performance annually. The review process will include interviews with the Directors as well as Senior Executives and generate recommendations to assist the Board in developing initiatives to enhance governance.
governance reportfor the year ended 31 december 2008
38
2.0 board of directors continued
2.6 directors’ meetings The Board formally convened on 7 occasions during 2008, to consult and make determinations on strategic and operational issues affecting Sorouh. Attendance was as follows –
directors positionboard meetings
available attended
Saeed Eid Al Ghafli Chairman 7 7Mohammed Khalaf Al Mazrui Vice-Chairman 7 6Abubaker Seddiq Al Khouri Member & MD 7 7Yusouf Mohammed Al Nowais Member 7 4Mubarak Matar Al Humeiry Member 7 5Saeed Mubarak Al Hajeri Member 7 5Fardan Hassan Al Fardan Member 7 5Mohammed Ahmed Saeed Al Qasmi Member 7 6
2.7 chairman of the board H.E. Saeed Eid Al Ghafli has been Chairman of the Board since inception of the company. The Chairman serves as the primary link between the Board and Management and works closely with the MD and CEO. He is responsible for drafting and approving the agenda of Board meetings, taking into consideration any matter proposed by other Directors. The Chairman is responsible for providing leadership to the Board and ensuring that the Board works effectively and discharges its responsibilities.
There is no financial, family, business or other important relevant relationships between the Chairman, MD and CEO.
2.8 executive managementThe MD and CEO operate in accordance with the authority set by the Board within the approved Strategic Plan. The MD and CEO have full authority to act within the Operational Plan and Operating Cost Budget that has been presented to and agreed by the Board. The MD and CEO may sub-delegate functions to the Senior Management Group subject to existing Board policies and legal requirements that limit that power of sub-delegation.
Senior Management GroupThe Senior Management Group (SMG) is jointly chaired by the MD and CEO and comprises Chiefs and Executive Directors. The SMG is responsible for managing Sorouh’s day to day performance and key business issues in line with Sorouh’s Operational Plan. SMG members meet face-to-face on a regular basis.
2.9 board of directors’ remunerationIn accordance with the Articles of Association the remuneration of the Board of Directors shall consist of a percentage of the net profit. The upper limit is fixed at no more than 10 per cent of the net profit (Article 34(1) & 58(4)). This is in accordance with and complies with Articles 7, Decision No. R/32 – Corporate Governance Regulations for Joint-Stock Companies and Institutional Discipline Criteria issued by the Securities and Commodities Authority.
In 2008, with the approval of the General Annual Assembly, the amount of AED 31.434 million (equivalent to 2.5 per cent of the net profit) was allocated to the remuneration of the Board of Directors. (2007 – AED 14.633 million)
2.10 directors’ transaction in Sorouh Securities The Board approved Sorouh’s Insider Share Dealing Policy in 2007. This policy prohibits trading where it is reasonably probable that unpublished price-sensitive information relating to Sorouh’s business could be exploited. Sorouh’s Insider Share Dealing policy applies to the Board of Directors. More information on the policy is provided under Section 6.3 of this report.
The Board and the individual Directors understand their obligations with respect to disclosure requirements in connection with their dealings in Sorouh securities and are committed to complying with all requirements set by the SCA and ADX.
39
3.0 board committeesThe Board has established three Committees to assist in executing its functions and bestow on them powers and entrusts them with responsibilities to implement resolution(s) of the Board.
The permanent Committees of the Board are –• InvestmentCommittee• Audit&GovernanceCommittee• Follow-up&RemunerationCommittee
Each Committee has a Charter setting out its objectives, responsibilities, structure, operation and reporting framework. The Board reconstituted all Committees in 2007, to ensure that the roles and responsibilities were aligned to and in accordance with SCA Decision No. R/32.
3.1 audit & governance committee The Audit & Governance Committee assists the Board in fulfilling its corporate governance responsibilities in relation to Sorouh’s risk management and internal control systems, accounting policies and practices, financial reporting and internal and external audit functions.
The Audit & Governance Committee provides assurance to the Board that Sorouh’s core business goals and objectives are being achieved in an efficient and economical manner, within an appropriate framework of internal control, risk management and governance.
The Audit & Governance Committee is composed of three Non Executive Directors. All members of the Committee are independent Directors. It is a requirement of the Audit & Governance Committee’s Charter that all committee members are financially literate and that at least one member has relevant accounting or financial expertise.
The Committee Chairman meets with the MD, CEO and Director Internal Auditor to ensure that Committee members are kept regularly informed of key issues. The Committee also meets with the External Auditor, without members of management present, as it deems appropriate.
The Charter of the Audit & Governance Committee defines the Committee’s responsibilities as follows –
External Auditor• Considerthe“TermsofEngagement”oftheExternalAuditor,includingthenature,scopeofworkandauditplan.• ConsidertheindependenceoftheExternalAuditorandanypotentialconflictsofinterest.• DiscusswiththeExternalAuditoranyauditproblemsencounteredinthecourseoftheengagement,includinganyrestrictionson
scope or access to information.• DiscusswiththeExternalAuditortheappropriatenessoftheaccountingpoliciesappliedinfinancialreports.• EnsurethatsignificantfindingsandrecommendationscommunicatedbytheExternalAuditorandExecutiveManagement’sproposed
responses are received, discussed and appropriately acted upon.• ReviewtheperformanceoftheExternalAuditorandmakerecommendationstotheBoardofDirectors.
External Reporting• Assuranceover“going-concern”.• EnsureaprocessisinplaceforcontinuousdisclosuretotheSCAandADX.• Assuranceovertheintegrityofthequarterly,halfyearlyandannualfinancialstatements.• ReviewtheintegrityofSorouh’sfinancialreporting,including–¡ Appropriateness of accounting policies.¡ Significant estimates and judgments used in financial reports.
• RecommendationtotheBoardconcerningtheadoptionofthefinancialstatements.• Reviewdocuments,reportsandstatementsrequiredtobeapprovedbytheBoardandrecommendtheybesignedby
the Board based on the Committee’s assessment of them.
governance reportfor the year ended 31 december 2008
40
3.0 board committees continued
3.1 audit & governance committee continued
Risk Management• MonitorSorouh’sriskregisterandriskprofile.• Reviewstrategicandoperationalriskmanagement.• Monitortheeffectivenessofimplementedriskmitigationstrategies.• Evaluatetheoveralleffectivenessoftheriskmanagementframework.• Reviewtheadequacyofriskmanagementpolicies,processes,proceduresandsystems.
Internal Audit • Reviewthescopeofworkandreviewandapprovetheannualauditplan.• Reviewtheactivities,resourcesandorganisationalstructureofInternalAudit.• AssessandcontributetotheauditplanningprocessesrelatingtorisksandthreatstoSorouh,takingintoaccountthefinancialand
operational environment in which it operates and its performance management framework.• DiscusswiththeDirectorInternalAuditorwhetheranydifficultieswereencounteredinthecourseoftheaudit,suchasrestrictionson
the scope of their work or access to information.• EnsurethatthefindingsandrecommendationscommunicatedbyInternalAudit,andExecutiveManagement’sproposedresponses,
are received, discussed and appropriately acted upon.• EvaluatethequalityoftheInternalAuditfunction,particularlyinrespecttoplanning,monitoringandreporting.• ContributetotheselectionprocessfortheappointmentoftheDirectorInternalAuditor.
Internal Control • Evaluatetheoveralleffectivenessoftheinternalcontrolframework.• Reviewtheimplementationofkeyaccountingpoliciesandfinancialreporting.• OverseeandappraiseSorouh’sfinancialandoperationalreportingprocesses.
Compliance• ReviewadherenceofSorouhstafftorulesofprofessionalconduct.• Reviewtheadequacyofpracticesandprocedureswithrespecttocompliancewithapplicablelaws.• ReviewtheeffectivenessofthesystemformonitoringcompliancewiththeListingRules,DisclosureRulesandothersuchlegal
requirements as relevant to the preparation of financial reports.• Reviewtheeffectivenessofthesystemformonitoringcompliancewithrelevantlawsandregulations(includinginternalrules)and
the measures taken by Management as a result of its investigation of material incidents of non-compliance.• ObtainregularupdatesfromManagement(andCompany’slegaladvisorifappropriate)regardingcompliancematters.
Related Party Transactions• Reviewandmonitortheproprietyofrelatedpartytransactions,otherthantransactionswithmajorshareholders,whichshallbethe
responsibility of the Board of Directors.
Whistleblower – Employee Disclosures • ReviewpoliciesandprocessesthroughwhichtheemployeesofSorouhcanconfidentiallynotifyanyoftheirdoubtsonpotential
abnormalities in the financial reports or internal control or any other matters.• Overseetheinvestigationofsuchabnormalitiestoensureanindependentandfairinvestigation.• ReviewExecutiveManagementactionstoaddressvalidatedabnormalities.
During the period 1 Jan – 31 Dec 08, four meetings of the Committee were held. Attendance was as follows –
audit & governance committee positionmeetings
available attended
Yusouf Mohammed Al Nowais Chair 4 2Mohammed Khalaf Al Mazrui Member 4 4Saeed Mubarak Al Hajeri Member 4 3
41
3.0 board committees continued
3.1 audit & governance committee continued
2008 Achievements Financial Reporting• Reviewedthefinancialinformationpresentedbymanagementforquarterlyandhalf-yearlyandFinancialStatements,togetherwith
reports and opinions from Deloitte & Touche – External Auditors.• AssessedtheappropriatenessofaccountingpoliciesandmethodschosenbyManagement.• ReviewedappropriatenessofdisclosureinthefinancialstatementsandfinancialreportingtotheSCAandADX.• MaderecommendationstotheBoardonthefinancialinformation(Q1,Q2&Q3)andyearendFinancialStatements.
Corporate Governance• ReviewedandapprovedtheCorporateGovernanceReporttoSCAandADX.• InitiatedandconductedCorporateGovernanceworkshopfortheBoardofDirectorsbyanindependentexpert.
Audit • MaderecommendationstotheBoardastotheappointmentoftheExternalAuditor.• ReviewedwithDeloitte&Touchethescopeandtermsoftheiraudit.• MonitoredthecoordinationbetweentheExternalAuditandInternalAuditprogrammes.• ReviewedtheimplementationoftheCorporateGovernanceregulationsissuedbytheSCA.• ReviewedandapprovedoperationsofInternalAudit.• DiscussedandresolvedissuesarisingfromInternalAuditreports.
3.2 follow-up & remuneration committee The Follow-up and Remuneration Committee provides assurance to the Board on Human Resource Management and Compensation policies that reflect best practice. It also provides guidance on Board succession planning, taking into account the challenges and opportunities facing Sorouh and what skills and expertise are needed in the future.
The Follow-up and Remuneration Committee is composed of three Non-Executive Directors and one Executive Director. All Non-Executive Directors of the Committee are independent. The Committee Chairman meets with the CEO and Executive Director HR to ensure that Committee members are kept regularly informed of key issues.
The Charter of the Follow-up and Remuneration Committee defines the Committee’s responsibilities in the following categories –
• NominationofDirectors• ExternalReporting• AnnualIncentivePlan• RemunerationReviews• RelatedPartyTransactions• HumanResourceManagement• LongTermDeferredIncentivePlan• RemunerationforDirectorsoftheBoard
During the period 1 Jan – 31 Dec 08, one meeting of the Committee was held. Attendance was as follows –
follow-up and remuneration committee positionmeetings
available attended
Mohammed Khalaf Al Mazrui Chair 1 1Yusouf Mohammed Al Nowais Member 1 -Mohammed Ahmed Saeed Al Qasmi Member 1 1Abubaker Seddiq Al Khouri Member 1 1
2008 Achievements • ReviewedandapprovedtheDirectors’RemunerationdisclosurestatementtobeprovidedaspartofSorouh’sGovernanceReport.• ReviewedandsubmittedtotheBoardrecommendationsonremunerationguidelinesforemployees.• ReviewandsubmittedtotheBoardrecommendationsontheannualincentiveguidelines.• Reviewandapprovethetermsoftheannualincentiveplanandtheparticipationlevelsfor2007and2008.• ReviewedandsubmittedtotheBoardproposalonlong-termdeferredincentiveplanforstaffandSeniorManagement.
3.3 Investment committee The Investment Committee provides the Board assurance and oversight of Sorouh’s investment strategy and performance. The Committee also ensures that there has been an appropriate level of due diligence undertaken on investment proposals.
governance reportfor the year ended 31 december 2008
42
3.0 board committees continued
3.3 Investment committee continued
The Investment Committee is composed of two Non-Executive Directors and one Executive Director. All Non-Executive Directors of the Committee are independent. The Committee Chairman meets with the CEO, CFO and Executive Director Investment to ensure that Committee members are kept regularly informed of key issues.
The Charter of the Investment Committee defines the Committee’s responsibilities in the following categories –
• InvestmentStrategy• MonitoringandReviewofInvestments.• EndorsemandatesrelatingtoInvestment• PortfolioComplianceProgram• RiskManagementProgram• RelatedPartyTransactions
During the period 1 Jan – 31 Dec 08, one meeting of the Committee was held. Attendance was as follows –
Investment committee positionmeetings
available attended
Saeed Mubarak Al Hajeri Chair 1 1Fardan Hassan Al Fardan Member 1 -Abubaker Seddiq Al Khouri Member 1 1
2008 Achievements • Monitoredtheperformanceofinvestmentportfolio.• Reviewedtheinvestmentvaluationpoliciesandmethodologies.• ProvidedadvicetotheBoardontheeffectiveutilisationofthebalancesheet.• Evaluatedtheoverallriskmanagementframeworkfortreasuryandinvestments.• ReviewedandrecommendedtotheBoardtheneedforadditionalfundingandcapital.• ReviewedandsubmittedtotheBoardrecommendationsoninvestmentstrategyandpolicies.• ReviewedproposalsformaterialinvestmentsandsubmittedtotheBoardrecommendationsonthemosteffective
options for implementation.
4.0 risk managementSorouh considers effective risk management as a fundamental part of good management practice and is committed to maintaining risk management systems to safeguard shareholders’ investment, other stakeholders’ interests and Sorouh’s assets; and to prevent breaches in applicable laws or regulation.
The Enterprise Risk Management (ERM) project was initiated in 2007, to formalise existing risk management practices and to align these to best practice. The aim of the ERM project is to ensure there is a consistency to the methods used in assessing, monitoring and communicating risks and that risk management efforts are aligned with Sorouh’s strategic and business objectives.
In 2008 as part of the ERM, Phase 1 of the project was implemented. This included –
• DevelopingtheRiskManagementPolicyandFramework• Developingriskimpactandlikelihoodcriteria.• EstablishingthecontextandidentifyrisksthroughoutSorouh.• Ratingstrategicandoperationalrisks.• DevelopingRiskRegisters.
The Board is responsible for approving the risk policy, reviewing the effectiveness of the risk management process and confirming Sorouh’s risk appetite. The Audit and Governance Committee assists the Board in fulfilling its obligations in relation to risk management.
Sorouh’s MD and CEO are responsible for implementing the risk management framework within Sorouh and ensuring its effective performance.
5.0 Shareholder communicationSorouh is committed to ensuring that shareholders and the market receive high quality, relevant and accurate information in a timely manner and that investors generally are able to trade in Sorouh’s securities in a market which is efficient, competitive and informed.
Sorouh has a Market Disclosure Policy setting out the corporate governance standards, protocols and related processes aimed at ensuring timely and accurate information is provided equally to all shareholders and market participants. The policy also outlines processes implemented by the Board to ensure compliance with continuous disclosure obligations imposed by the SCA and ADX.
43
5.0 Shareholder communication continued
Under the policy the only persons authorised to make any public statement on behalf of or attributable to Sorouh are those that hold the following positions –
• ChairmanoftheBoardofDirectors• ManagingDirector• ChiefExecutiveOfficer• ChiefFinancialOfficer
From time to time Sorouh conducts analyst and investor briefings. In these cases no information is disclosed at these briefings unless it has been previously or is simultaneously released to the market. Furthermore, Sorouh does not comment on market speculation or rumours, unless it relates to an official query from regulatory authorities – the SCA or ADX.
The General Assembly is the primary opportunity for shareholders to meet with the Board and Senior Executives face-to-face. All shareholders receive the Notice of Meeting detailing the time and venue and outlining the resolutions to be put to the Meeting. Accompanying the Notice is a proxy form, instructions on completion and lodgement and addressed return envelope to encourage maximum shareholder participation.
Shareholders attending the venue are given the opportunity to ask questions during the course of the meeting. The Chairman will seek to address as many of the more frequently raised topics as possible within the time available. Directors also make themselves available after the formal part of the meeting with shareholders.
The External Auditor also attends the General Assembly Meeting and is available to answer questions.
6.0 business conduct The success of Sorouh depends on its reputation for enterprise, fair dealing and professionalism. Sorouh is committed to the highest standards of legal and ethical conduct in its business dealings and complies with all applicable governmental laws, regulations and codes whenever it conducts business.
For Sorouh employees, ethical behaviour is a duty and commitment; and considered as an integral part of the way we do business. The principles and values to which we are committed are summarised within our Business Code of Ethics.
6.1 employee disclosure LineIn line with the Code of Conduct, Sorouh has developed an Employee Disclosure Policy which outlines Sorouh’s commitment to ensuring that employees are able to raise concerns regarding any improper conduct without being subject to victimisation, harassment or discriminatory treatment, and to have such concerns properly investigated.
The Employee Disclosure Line allows Sorouh staff to confidentially and anonymously (if they wish) raise concerns in a responsible manner without fear of discriminatory treatment via an internally developed web-based system.
Arrangements are in place to investigate matters raised. Where appropriate, investigations will be conducted independently. Under the policy levels of activity and support processes for employees will be monitored, with activity reports submitted to the Audit & Governance Committee and the Board.
6.2 conflict of InterestDirectors and Senior Executives are required to identify any conflicts of interest they may have in dealing with Sorouh’s affairs, and refrain, as appropriate, from participating in any discussion or voting on these matters. In addition to general guidelines in the Code of Conduct, a range of procedures designed to ensure compliance with laws and the highest standards in relation to managing conflicts of interest have been implemented. Furthermore, Directors are encouraged to raise any matters that may give rise to a conflict of interest with the Chairman of the Board.
6.3 Insider Share dealingSorouh has developed an Insider Share Dealing Policy to assist Directors and employees to comply with their legal obligations while they are in possession of price-sensitive information. The policy contains an explanation and prohibition of insider trading and sets out restrictions on dealing in Sorouh securities.
Under the policy, and in addition to the ADX enforced restriction periods, Sorouh Directors, Executive Management and staff are required to advise Sorouh Management before or at the same time as lodgment of their applications with ADX for an insider trade no matter what the value of the trade – Buy or Sell. Notification for an insider trade by Directors and designated executives is required to be made to the Chairman of the Board prior to any dealing.
Sorouh reserves the right to disallow or restrict a trade where it considers it is reasonably probable that unpublished price-sensitive information relating to Sorouh’s business could be exploited. Furthermore, an additional restriction period can be imposed during which no insider trade will be allowed by Board of Directors, Executive Management or staff.
governance reportfor the year ended 31 december 2008
44
6.0 business conduct continued
6.4 corporate Social responsibility Sorouh’s Corporate Social Responsibility (CSR) objective is to create sustainable value for shareholders, employees, suppliers, customers, business partners and the communities we operate in. It is about ensuring our business remains viable and contributes lasting benefits to the UAE and other societies through the consideration of social, environmental, ethical and economic aspects in all that we do.
Our aim is to meet all social, environmental and corporate responsibilities imposed by the jurisdictions we operate in. To this end, we will be working to integrate environmental and social considerations into our decision-making and operational practices. This assists us in understanding the impact (direct and indirect) created by our operations. Ultimately this leads to better decisions and improved business performance, adding value to our business by reducing risk, improving our operational efficiency, as well as creating a great place to work.
Our CSR strategy will be implemented by focusing on the following areas –
• Governance–Ethicsandaccountability.• Employees–Creatingagreatplacetowork.• Environment–Managingourenvironmentalimpacts.• Suppliers–WorkingwithoursupplychaintoenhanceCSR.• Customers–Providingcustomerswithanenhancedexperience.• Community–Supportingandinvestinginthelocalcommunitiesinwhichweoperate.
7.0 external auditorThe External Auditor of Sorouh is Deloitte & Touche. Deloitte & Touche were appointed by a decision of the General Assembly at the General Assembly Meeting in 2008.
Deloitte & Touche are a professional external audit firm and are independent from Sorouh’s Board of Directors, MD, CEO and CFO.
The Audit & Governance Committee reviews the quality and effectiveness of the audits conducted by the External Auditor and makes recommendations to the Board as to the re-appointment or replacement of the auditor and the rotation of the audit engagement partner where appropriate.
The External Auditor attends the General Assembly Meeting and is available to answer questions.
8.0 top 20 Shareholders and nationality of ShareholdingThe table below lists Sorouh’s Top 20 shareholders.
no citizenship Investor nameQuantity (million)
% of Issued capital
1 UAE Al Joud Investment 290.66 11.63%2 UAE Abu Dhabi Investment Co 180.71 7.23%3 UAE Capital Investment 106.93 4.28%4 UAE National Bank of Abu Dhabi 96.00 3.84%
5 UAE Al Oula investment 87.91 3.52%6 UAE Al Nahda Investment 68.45 2.74%7 UAE Capital Investments International 60.34 2.41%8 UAE 7 Emirates Co. for Investment and Trading 57.29 2.29%9 UAE Mohammed Ahmed Saeed Al Qasmi 55.65 2.23%10 UAE Al Tadamon Financial Investment 52.03 2.08%11 UAE Abu Dhabi Co-operative Society 37.34 1.49%12 GBR HSBC Bank plc 31.47 1.26%13 UAE Damac Invest Co 29.00 1.16%14 UAE Shuaa Capital 24.51 0.98%15 UAE Abd el Rahman Saeed Ghanem 21.18 0.85%16 UAE Link Investment 21.00 0.84%17 UAE Sheikh Tahnon Bin Zayed Bin Sultan Al Nehyan 20.53 0.82%18 UAE Yousef Mohammed Ali Naser Al Nowais 20.52 0.82%19 GBR Hermitage Global Master 20.47 0.82%20 UAE Reem Investments 19.99 0.80%
total 1,302.00 52.08%Source : ADX as at 22 Jan 09
45
governance reportfor the year ended 31 december 2008
8.0 top 20 Shareholders and nationality of Shareholding continued
Under Sorouh’s Articles of Association 15 per cent of the issued share capital can be owned by Non-UAE Nationals. The table below outlines the nationality of the shareholding.
no code citizenship% of Issued
capital
1 UAE United Arab Emirates 90.58%2 GBR Great Britain 4.72%3 KWT Kuwait 0.74%4 IRL Ireland 0.60%5 LUX Luxembourg 0.44%6 OMN Oman 0.34%7 JPN Japan 0.31%8 SAU Saudi Arabia 0.28%9 JOR Jordan 0.28%10 BHR Bahrain 0.26%11 DEU Germany 0.22%12 ESP Spain 0.20%13 LBN Lebanon 0.19%14 USA Unites States of America 0.13%15 EGY Egypt 0.10%16 ITA Italy 0.09%17 QAT Qatar 0.07%18 YAM Yemen 0.06%19 PAL Palestine 0.06%20 IRQ Iraq 0.04%
total 99.72%
Source : ADX as at 22 Jan 09
46
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008fInancIaL StatementS
contents:
Board of Directors’ Report 48
Independent Auditor’s Report 49
Consolidated Balance Sheet 50
Consolidated Statement of Income 51
Consolidated Statement of Changes in Equity 52
Consolidated Statement of Cash Flows 53
Notes to the Consolidated Financial Statements 54
board of dIrectorS’ report
On behalf of the Board of Directors, I am pleased to present the audited consolidated financial statements of Sorouh Real Estate PJSC (Sorouh) for the year ended 31 December 2008.
financial resultsSorouh has earned profits of AED 1,784 million for the year ended 31 December 2008 compared to AED 1,257 million for the year ended 31 December 2007. Earnings per share for the year ended 31 December 2008 amount to AED 0.74 compared to AED 0.50 for the prior year. The Group’s asset base has grown to AED 16.9 billion during this year from AED 7.2 billion for the prior year.
releaseThe Directors propose to discharge the Chairman and Members of the Board of Directors and auditors from liabilities related to the performance of their duties for the year ended 31 December 2008.
auditorsDeloitte and Touche (M.E.) were appointed as auditors for the Company for the year ended 31 December 2008.
directors
The Board of Directors comprises:Saeed Eid Al Ghafli ChairmanMohamed Khalaf Al Mazrouei ViceChairmanAbubaker Seddiq Al Khouri Managing DirectorYousif Mohammed Al Nowais DirectorMubarak Mattar Al Houmeiry DirectorSaeed Mubarak Al Hajiri DirectorFardan Hasan Al Fardan DirectorMohammed Ahmed Saeed Al Qasmi Director
The appointment or re-election of board members will be presented to the General Annual Meeting for approval in accordance with the Company’s Articles of Association.
on behalf of the board of directors
Saeed eid al ghafliChairman28 January 2009
48
Independent aUdItor’S report
To the Shareholders of Sorouh Real Estate PJSCAbu Dhabi, UAE
report on the consolidated financial statementsWehaveauditedtheaccompanyingconsolidatedfinancialstatementsofSorouhRealEstatePJSC(the“Company”)anditssubsidiaries(togetherreferredtoasthe“Group”),whichcomprisetheconsolidatedbalancesheetasat31December2008,andtheconsolidatedincome statement, consolidated statement of changes in equity and consolidated statement of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory notes.
management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
opinionIn our opinion, the consolidated financial statements present fairly, in all material respect the financial position of the Group as of 31 December 2008, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
report on other legal and regulatory requirementsAlso, in our opinion, proper books of account are maintained by the Company, and the financial information included in the Board of Directors’ report is in agreement with the books of account. We have obtained all the information and explanations which we considered necessary for the purpose of our audit. According to the information available to us, there were no contraventions of the UAE Federal Commercial Companies Law No. (8) of 1984 (as amended) or the Articles of Association of the Company which might have a material effect on the financial position of the Company or on the results of its operations for the year.
deloitte & touche
Saba y. SindahaRegistration Number 41028 January 2009
49
conSoLIdated baLance Sheet aS at 31 december 2008
Notes2008
aed’0002007
AED’000
aSSetSnon-current assetsProperty, plant and equipment 5 87,716 17,971Investment properties 6 858,236 852,979Investment properties under development 7 572,769 408,438Intangible assets 8 143,300 -Goodwill 9 508,281 345,355Investment in associates and joint ventures 10 610,664 174,022Available-for-sale financial assets 11 148,887 39,251Prepaid leases – long term 20,158 20,591Trade and other receivables 12 1,938,142 904,424Other financial assets 14 28,577 -total non-current assets 4,916,730 2,763,031
current assetsInventories 29,891 -Land held for resale 15 256,593 614,822Development work-in-progress 16 2,474,754 1,082,079Financial assets at fair value through profit or loss 17 29,333 126,799Trade and other receivables 12 2,393,052 1,176,279Cash and cash equivalents 18 6,839,040 1,457,657total current assets 12,022,663 4,457,636total assets 16,939,393 7,220,667
eQUIty and LIabILItIeScapital and reservesShare capital 19 2,500,000 2,500,000Share issuance costs, net (5,292) (5,292)Statutory reserve 20 409,108 223,292Hedging reserve (1,423) -Revaluation reserve (37,112) -Translation reserve (1,518) -Retained earnings 3,085,903 1,744,996attributable to equity holders of the parent 5,949,666 4,462,996Minority interest 8,658 -total equity 5,958,324 4,462,996
non-current liabilitiesNon-convertible Sukuk 21 1,874,293 -Provision for end of service benefits 22 19,938 3,250Notes payable – long term 23 - 135,853Bank borrowings – long term 24 114,950 190,181Other long term payables 128,192 -total non-current liabilities 2,137,373 329,284
current liabilitiesNon-convertible Sukuk 21 1,735,626 -Trade and other payables 25 6,727,418 2,177,273Notes payable – short term 23 275,461 208,526Bank borrowings – short term 24 105,191 42,588total current liabilities 8,843,696 2,428,387total liabilities 10,981,069 2,757,671total equity and liabilities 16,939,393 7,220,667
Saeed eid al ghafliChairman
mounir haidarChief Executive Officer
ala’a KhannakChief Financial Officer
The accompanying notes form an integral part of these consolidated financial statements.
50
Notes2008
aed’0002007
AED’000
revenue 26 3,723,428 2,320,961Cost of revenue 27 (1,426,924) (1,001,343)
gross operating profit 2,296,504 1,319,618Unrealised (loss)/gain on financial assets at fair value through profit or loss (34,714) 47,420Realised gain on disposal of financial assets at fair value through profit or loss 3,615 48,627Impairment loss on available-for-sale financial assets (20,855) -Share of net profits from associates and joint ventures 10 51,174 18,431General and administrative expenses 28 (319,501) (165,076)Selling and marketing expenses 29 (311,513) (99,802)Finance income 30 120,508 72,926Finance costs 31 (80,262) (2,903)Other income 79,312 18,150profit for the year 1,784,268 1,257,391Attributable to:Equity holders of the parent 1,858,158 1,257,391Minority interest (73,890) -
profit for the year 1,784,268 1,257,391
basic earnings per share (in aed per share) 32 0.74 0.50
The accompanying notes form an integral part of these consolidated financial statements.
conSoLIdated Statement of Incomefor the year ended 31 december 2008
51
conSoLIdated Statement of changeS In eQUItyfor the year ended 31 december 2008
The accom
panying n
otes form an
integral part of th
ese consolidated fin
ancial statem
ents.
Share
capitala
ed’000
Share
issuance
costs, net
aed
’000
Statutoryreserve
aed
’000
hedgin
greserve
aed
’000
revaluation
reservea
ed’000
translationreserve
aed
’000
retain
edearn
ings
aed
’000
attributable
to equity ofthe paren
ta
ed’000
min
orityin
teresta
ed’000
totala
ed’000
Balan
ce at 1 January 2007
2,500,000(5,292)
97,553-
--
877,9773,470,238
-3,470,238
Profit for the year
--
--
--
1,257,3911,257,391
-1,257,391
Transfer to statutory reserve
--
125,739-
--
(125,739)-
--
Dividen
ds-
--
--
-(250,000)
(250,000)-
(250,000)D
irectors’ remun
eration
--
--
--
(14,633)(14,633)
-(14,633)
balan
ce at 1 January 2008
2,500,000(5,292)
223,292-
--
1,744,9964,462,996
-4,462,996
Min
ority share in
the capital of
subsidiaries established during the year-
--
--
--
-103
103Profit for th
e year -
--
--
-1,858,158
1,858,158(73,890)
1,784,268Tran
sfer to statutory reserve-
-185,816
--
-(185,816)
--
-D
ividend paid
--
--
--
(300,000)(300,000)
-(300,000)
Directors’ rem
uneration
--
--
--
(31,435)(31,435)
-(31,435)
Decrease in fair value of available for sale
finan
cial assets-
--
-(57,967)
--
(57,967)(35)
(58,002)Im
pairmen
t loss on available-
for-sale finan
cial assets-
--
-20,855
--
20,855-
20,855C
han
ge in fair value of cash
flow h
edge-
--
(1,423)-
--
(1,423)-
(1,423)M
inority in
terest in th
e net assets of
subsidiaries on acquisition
date-
--
--
--
-82,859
82,859Exch
ange differen
ces arising on
tran
slation of foreign
operations
--
--
-(1,518)
-(1,518)
(379)(1,897)
balan
ce at 31 decem
ber 20082,500,000
(5,292)409,108
(1,423)(37,112)
(1,518)3,085,903
5,949,6668,658
5,958,324
52
conSoLIdated Statement of caSh fLowSfor the year ended 31 december 2008
2008aed’000
2007AED’000
operating activitiesProfit for the year 1,784,268 1,257,391Adjustments for: Depreciation of property, plant and equipment 11,195 2,962 Amortisation of non-cash prepaid leases - 53,948 Provision for infrastructure costs 431,913 226,581 Adjustments to property, plant and equipment - 1,334 Finance cost 80,163 - Amortisation of intangible assets 6,188 - Provision for future loss, impairment loss and write-off of project costs 65,550 16,808 Impairment loss on available-for-sale financial assets 20,855 - Unrealised loss/(gain) on financial assets at fair value through profit and loss 34,714 (47,420) Realised gain on disposal of financial assets at fair value through profit and loss (3,615) (48,627) Share of net profits from associates and joint ventures (54,351) (18,431) Interest income (130,554) (72,796) Dividend income - (8,015) Provision for end of service benefits, net 6,755 2,386
operating cash flows before movements in working capital 2,253,081 1,366,121
Decrease / (increase) in land held for sale 358,229 (614,822)
Increase in inventories 4,385 -
Expenditure on development work in progress (1,314,740) (684,423)
Increase in trade and other receivables (2,027,046) (1,832,666)
Increase in trade and other payables 3,635,732 1,159,799
(Decrease) / increase in notes payable (68,918) 648,007
Decrease in other long-term payables (9,121) -
net cash from operating activities 2,831,602 42,016
Investing activities
Purchase of property, plant and equipment (25,699) (16,040)
Expenditure on investment properties (5,257) (18,251)
Expenditure on investment properties under development (176,915) (223,746)
Purchase of available-for-sale financial assets (167,514) (23,251)
Purchase of financial assets at fair value through profit and loss (2,008) -
Disposal of financial assets at fair value through profit and loss 66,367 216,225
Investment in associates (217,815) (30,000)
Investment in joint ventures (160,073) -
Acquisition of a subsidiary (132,660) -
Cash received from business combination 78,013 -
Interest received 103,716 74,739
Dividend received 3,000 8,015Movement in term deposits with original maturities greater than three months and restricted short term deposits (1,223,998) -net cash used in investing activities (1,860,843) (12,309)
financing activities
Minority contribution in the capital of subsidiary 103 -
Proceeds from non-convertible Sukuk 4,016,000 -
Repayment of bank borrowings (66,809) (5,864)
Bank borrowings raised 54,181 197,584
Dividends paid (308,004) (217,455)
Repayment of non-convertible Sukuk (320,857) -
Finance costs paid (187,988) -
net cash from/(used in) financing activities 3,186,626 (25,735)
net increase in cash and cash equivalents 4,157,385 3,972Cash and cash equivalents at the beginning of the year 1,457,657 1,453,685
cash and cash equivalents at the end of the year (note18) 5,615,042 1,457,657
The accompanying notes form an integral part of these consolidated financial statements.
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noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
1 generalSorouhRealEstatePJSC(the“Company”)wasinitiallyformedbyaMinisterialDecreedated23July2005andformallyincorporatedasa public joint stock company in the Emirate of Abu Dhabi, United Arab Emirates, on 26 July 2005. The Company’s ordinary shares are listed on the Abu Dhabi Securities Exchange.
TheprincipalactivitiesoftheCompanyanditssubsidiaries(togetherreferredtoas“theGroup”)includerealestatedevelopmentandsale, real estate investment, property management, contracting works and related services.
The Company is domiciled in the United Arab Emirates and its registered office is P.O. Box 93666 Abu Dhabi, United Arab Emirates.
2 adoption of new and revised standardsThree interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) effective for the current period are as follows:
• IFRIC11IFRS 2 Group and Treasury Share Transactions• IFRIC12Service Concession Arrangements• IFRIC14IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirement and their interaction.
The adoption of these Interpretations has not led to any changes in the Group’s accounting policies.
At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations were in issue but not yet effective:
New Standards and Amendments to Standards:
• IAS 1 (revised) Presentation of Financial Statements and IAS 32 (revised) Financial Instruments: Presentation – Amendments relating to puttable instruments and obligations arising on liquidation
Effective for annual periods beginning on or after 1 January 2009
• IAS 23 (Revised) Borrowing Costs Effective for annual periods beginning on or after 1 January 2009
• IAS 39 (revised) Financial Instruments: Recognition and Measurement- Amendments for eligible hedged Items
Effective for annual periods beginning on or after 1 July 2009
• IFRS 1 (revised) First time Adoption of IFRS and IAS 27 (revised) Consolidated and Separate Financial Statements – Amendment relating to cost of an investment on first time adoption
Effective for annual periods beginning on or after 1 January 2009
• IFRS 2 (revised) Share-based payment – Amendment relating to vesting conditions and cancellations
Effective for annual periods beginning on or after 1 January 2009
• IFRS 3 (revised) Business Combinations – Comprehensive revision on applying the acquisition method and consequential amendments to IAS 27 (revised) Consolidated and Separate Financial Statements, IAS 28 (revised) Investments in Associates and IAS 31 (revised) Interests in Joint Ventures
Effective for annual periods beginning on or after 1 July 2009
• IFRS 8 Operating Segments Effective for annual periods beginning on or after 1 January 2009
• Amendments to IFRS 5, IAS 1, IAS 16, IAS 19, IAS 20, IAS 23, IAS 27, IAS 28, IAS 29, IAS 31, IAS 36, IAS 38, IAS 39, IAS 40 and IAS 41 resulting from the May and October 2008 Annual Improvements to IFRSs
Effective for annual periods beginning on or after 1 January 2009
New Interpretations:
• IFRIC 13 Customer Loyalty Programmes Effective for annual periods beginning on or after July 1, 2008
• IFRIC 15 Agreements for the Construction of Real Estate Effective for annual periods beginning on or after January 1, 2009
• IFRIC 16 Hedges of a Net Investment in a Foreign Operation Effective for annual periods beginning on or after October 1, 2008
• IFRIC 17 Distributions of Non-cash Assets to Owners Effective for annual periods beginning on or after July 1, 2009
The directors anticipate the adoption of those Standards and Interpretations in future periods will have no material impact on the consolidated financial statements of the Group in the period of initial application.
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3 Summary of significant accounting policies
3.1 Statement of complianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).
3.2 basis of preparationThe consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties and certain financial instruments. The principal accounting policies are set out below:
3.3 basis of consolidationThe consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the consolidated financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Minority interests in the net assets (excluding goodwill) of subsidiaries are identified separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination (see below) and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
Transactions with minority interests are handled in the same way as transactions with external parties. Sale of participations to minority interests result in a gain or loss that is recognised in the consolidated income statement. Acquisition of minority shares can result in goodwill if the cost exceeds the carrying amount of the acquired net assets.
Details of the Group’s subsidiaries at 31 December 2008 are as follows:
name of subsidiaries place of incorporationownership interest % principal activities
Sorouh International Limited U.A.E. 100 Holding company of foreign entitiesGate Towers- Shams Abu Dhabi L.L.C. U.A.E. 60 Development of Gate TowersPivot Engineering & General Contracting Co. (WLL) U.A.E 60 Engineering and general
construction worksAl Seih Real Estate Management L.L.C. U.A.E 91.4 Management and leasing of real estate;
real estate projects investmentSorouh Abu Dhabi Real Estate L.L.C. U.A.E. 100 Act as Mudareb in accordance with the
Sukuk Issue structureSun Finance Limited Jersey, Channel Islands 100 Issuance of the Sukuk Certificates and
execution of the issuance documentsSorouh Egypt for Investment and Tourism Development SAE
Egypt 80 Investment in tourism activity
3.4 business combinationsAcquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured at the aggregated of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in consolidated income statement.
The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.
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noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
3 Summary of significant accounting policies continued
3.5 Interests in joint venturesA joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control. The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5: Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in joint venture are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the joint venture, less any impairment in the value of individual investments.
Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture.
3.6 Investment in associatesAn associate is an entity over which the Group has significant influence that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but has no control or joint control over those policies.
The results and assets and liabilities of the associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in consolidated income statement.
Where the Group transacts with an associate, profits and losses are eliminated to the extent of the Group interest in the relevant associate.
3.7 goodwillGoodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the consolidated income statement on disposal.
3.8 Intangible assets
3.8.1 Intangible assets acquired separatelyAn intangible asset is recognised at fair value as at the date of acquisition of the right to the extent the Group receives a right to charge users of the service. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Intangible assets are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets is recognised in the consolidated income statement in the expense category consistent with the function of the intangible asset.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in consolidated income statement when the asset is derecognised.
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3 Summary of significant accounting policies continued
3.8 Intangible assets continued
3.8.2 Intangible assets acquired in a business combinationIntangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and the fair values can be measured reliably. The cost of such intangible assets is the fair value at the acquisition date.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses on a straight-line basis over their estimated useful lives.
The following useful lives are used in the calculation of amortisation of intangibles:
Trade name IndefiniteLeasehold premises Over periods of leasesVendorpricebenefit IndefiniteCustomer relationships 5 – 10 yearsContracts on hand Based on remaining periods of contracts
The estimated useful life and amortisation methods are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
3.9 revenue recognition Revenue is measured at the fair value of the consideration received or receivable in the ordinary course of the Group’s activities.
3.9.1 Sale of properties Revenue from the sale of properties shall be recognised when the equitable interest in a property vests in a buyer and all the following conditions have been satisfied:
• theGrouphastransferredtothebuyerthesignificantrisksandrewardsofownershipoftheproperties;• theGroupretainsneithercontinuingmanagerialinvolvementtothedegreeusuallyassociatedwithownershipnoreffectivecontrol
over the properties sold;• theamountofrevenuecanbemeasuredreliably;• itisprobablethattheeconomicbenefitsassociatedwiththetransactionwillflowtotheGroup;and• thecostsincurredortobeincurredinrespectofthetransactioncanbemeasuredreliably.
3.9.2 Rental income Lease income from operating leases is recognised on a straight-line basis over the lease term.
3.9.3 Interest incomeInterest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.
3.9.4 Dividend incomeDividend income is recognised when the right to receive payment is established.
3.10 construction contractsThe Group recognises revenue from contracts following the percentage-of-completion method.
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the consolidated balance sheet date, as measured by the proportion that contract costs incurred forworkperformedtodatebeartotheestimatedtotalcontractcosts.Variationsincontractwork,claimsandincentivepaymentsareincluded in revenue to the extent that they have been agreed with the client and can be reliably measured.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
When it is possible that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Costs of contracts include all direct costs of labour, materials, depreciation of property, plant and equipment and costs of subcontracted works, plus an appropriate proportion of construction overheads and general and administrative expenses of the year, which are allocated to construction contracts in progress during the year.
The gross amount due from clients for contract work classified under accounts receivable, is the net amount of costs incurred plus recognised profits; less recognised losses and progress billings, for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings.
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3 Summary of significant accounting policies continued
3.10 construction contracts continued
The gross amount due to clients for contract work classified under accounts payable, is the net amount of costs incurred plus recognised profits less recognised losses and less progress billings, for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).
3.11 LeasingLeases are classified as finance leases whenever the terms of the lease transfers substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
3.11.1 The Group as lessorAmounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.
Lease income from operating leases is recognised on a straight-line basis over the term of the relevant lease agreement. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
3.11.2 The Group as lesseeLeases payable under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into the operating lease are also spread on a straight-line basis over the lease term.
3.12 foreign currencies For the purpose of these consolidated financial statements U.A.E Dirhams (AED) is the functional currency of the Company and the presentation currency of the Group.
Transactions in currencies other than AED (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each consolidated balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the consolidated balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in consolidated income statement in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in consolidated profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign subsidiaries are expressed in UAE Dirhams using exchange rates prevailing at the consolidated balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the translation reserve. Such exchange differences are recognised in consolidated profit or loss in the period in which the foreign operation is disposed of.
3.13 borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated income statement in the period which they are incurred.
3.14 property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
The cost of property, plant and equipment is their purchase cost, together with any incidental expense of acquisition.
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3 Summary of significant accounting policies continued
3.14 property, plant and equipment continued
Depreciation is calculated so as to write off the cost of property, plant and equipment, other than land and properties under construction, over their useful lives using the straight line method on the following basis:
Furniture and fixtures 4 – 10 yearsOffice equipment 3 – 5 yearsMotor vehicles 3 – 5 yearsPlant and machinery 3 – 10 yearsLabour camps 10 years
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in consolidated income statement.
3.15 capital work in progressCapital work in progress is stated at cost. When commissioned, capital work in progress is transferred to the appropriate property, plant and equipment category and is depreciated in accordance with the Group’s policies.
3.16 Inventories Inventories consisting of materials in stores for use of projects are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, directs labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted-average method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.
3.17 Investment property Investment property, which is property held to earn rental income and/or for capital appreciation, is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at fair value. Gains and losses arising from changes in the fair value of investment property are included in the consolidated income statement in the period in which they arise.
3.18 Investment properties under developmentProperties in the course of construction for rental or appreciation in value are carried at cost, less any recognised impairment loss. Cost includes all direct costs attributable to the design and construction of the property including direct staff costs. Upon completion of construction or development, such properties are transferred to investment properties.
3.19 development work-in-progressDevelopment work-in-progress consists of property being developed principally for sale and is stated at the lower of cost or net realisable value. Cost comprises all direct costs attributable to the design and construction of the property including staff costs. Net realisable value is the estimated selling price in the ordinary course of the business less applicable variable selling expenses.
3.20 Land held for resaleLand held for resale is stated at lower of cost and net realisable value. Costs include the cost of land acquired. Net realisable value represents the estimated selling price of the land less all estimated costs necessary to make the sale.
3.21 government grants Land granted by the government is recognised at nominal value where there is reasonable assurance that the land will be received and the Group will comply with any attached conditions, where applicable.
3.22 Impairment of tangible and intangible assets excluding goodwill At each consolidated balance sheet date, the Group reviews the carrying amounts of its assets whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use.
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noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
3 Summary of significant accounting policies continued
3.22 Impairment of tangible and intangible assets excluding goodwill continued
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in consolidated income statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in consolidated income statement, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
3.23 provisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the consolidated balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
3.23.1 Employee benefitsAn accrual is made for estimated liability for employees’ entitlement to annual leave and leave passage as a result of services rendered by eligible employees up to the consolidated balance sheet date.
Provision is also made for the full amount of end of service benefits due to employees in accordance with the Group’s policy, which is at least equal to the benefits payable in accordance with UAE Labour Law, for their period of service up to the consolidated balance sheet date.
Pension and national insurance contributions for U.A.E. citizens are made by the Group in accordance with Federal Law No. 7 of 1999.
3.24 cash and cash equivalentsCash and cash equivalents comprised cash on hand and balances at banks. Cash and cash equivalents are short term, high liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and are subject to an insignificant risk of change in value.
3.25 financial assetsInvestments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit and loss, which are measured at fair value.
Financial assets are classified into the following specified categories:
Financialassetsatfairvaluethroughprofitandloss(FVTPL),availableforsale(AFS)financialassetsandloansandreceivables.Theclassification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
3.25.1 Financial assets at fair value through profit or lossFinancialassetsareclassifiedasatFVTPLwherethefinancialassetiseitherheldfortradingoritisdesignatedasatFVTPL.
A financial asset is classified as held for trading if:• ithasbeenacquiredprincipallyforthepurposeofsellinginthenearfuture;or• itisapartofanidentifiedportfoliooffinancialinstrumentsthattheGroupmanagestogetherandhasarecentactualpatternof
short-term profit-taking; or• itisaderivativethatisnotdesignatedandeffectiveasahedginginstrument.
AfinancialassetotherthanafinancialassetheldfortradingmaybedesignatedasatFVTPLuponinitialrecognitionif:• suchdesignationeliminatesorsignificantlyreducesameasurementorrecognitioninconsistencythatwouldotherwisearise;or• thefinancialassetformspartofagroupoffinancialassetsorfinancialliabilitiesorboth,whichismanagedanditsperformanceis
evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
• itformspartofacontractcontainingoneormoreembeddedderivatives,andIAS39permitstheentirecombinedcontract(assetorliability)tobedesignatedasatFVTPL.
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3 Summary of significant accounting policies continued
3.25 financial assets continued
3.25.1 Financial assets at fair value through profit or loss continued
FinancialassetsatFVTPLarestatedatfairvalue,withanyresultantgainorlossrecognisedinconsolidatedincomestatement.Thenetgain or loss recognised in consolidated income statement incorporates any dividend or interest earned on the financial asset. Fair values of financial assets at fair value through consolidated income statement are determined by reference to quoted market prices.
3.25.2 Available-for-sale financial assetsAvailable-for-sale investments are measured at subsequent reporting dates at fair value unless the latter cannot be reliably measured. Gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gains or losses previously recognised in equity are included in the net consolidated income statement for the period. Impairment losses recognised in consolidated income statement for equity investments classified as available-for-sale are not subsequently reversed through consolidated income statement.
3.25.3 Loans and receivablesTrade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
3.25.4 Impairment of financial assetsFinancial assets are assessed for indicators of impairment at each consolidated balance sheet date.
For unquoted shares classified as AFS at cost, objective evidence of impairment could include:
• significantfinancialdifficultyoftheissuerorcounterparty;or• defaultordelinquencyininterestorprincipalpayments;or• itbecomingprobablethattheborrowerwillenterbankruptcyorfinancialreorganisation;or
For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in consolidated income statement.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through consolidated income statement to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
In respect of AFS equity securities, impairment losses previously recognised through consolidated income statement are not reversed through consolidated income statement. Any increase in fair value subsequent to an impairment loss is recognised directly in equity.
3.25.5 Derecognition of financial assetsThe Group recognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset.
3.26 financial liabilities and equity instruments
3.26.1 Classification as debt or equityDebt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
61
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
3 Summary of significant accounting policies continued
3.26 financial liabilities and equity instruments continued
3.26.2 Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
3.26.3 Financial liabilitiesFinancial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
3.26.4 Derecognition of financial liabilitiesThe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
3.27 derivative financial instrumentsThe Group enters into derivative financial instruments to manage its exposure to interest rate risk.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each consolidated balance sheet date. The resulting gain or loss is recognised in the consolidated income statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the consolidated income statement depends on the nature of the hedge relationship. The Group designates certain derivatives as hedges of highly probable forecast transactions (cash flow hedges).
The fair value of hedging derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the hedge relationship is more than 12 months and as a current asset or a current liability if the remaining maturity of the hedge relationship is less than 12 months.
3.27.1 Hedge accountingAt the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.
3.27.2 Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in consolidated income statement.
Amounts deferred in equity are recycled in the consolidated income statement in the periods when the hedged item is recognised in consolidated income statement, in the same line of the consolidated income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in consolidated income statement.
4 critical accounting judgements and key sources of estimation uncertainty
4.1 critical judgments in applying the group’s accounting policiesIn the process of applying the Group’s accounting policies, which are described in note 3, management has made the following judgments that have the most significant effect on the amounts recognised in the consolidated financial statements (apart from those involving estimations, which are dealt with below).
62
4 critical accounting judgements and key sources of estimation uncertainty continued
4.1 critical judgments in applying the group’s accounting policies continued
4.1.1 Business CombinationsIn accordance with International Financial Reporting Standards, the Group is required to allocate the cost of business combinations by recognising, at fair value the acquiree’s identifiable assets, liabilities and contingent liabilities that meet certain recognition criteria. In doing so, management have exercised their judgment, based on experience and knowledge of the industry, in determining the applicability of the recognition criteria, including the separability of intangible assets, the amortisation timetable and the impairment tests to be applied in future.
4.1.2 Classification of propertiesIn the process of classifying properties, management has made various judgments. Judgment is needed to determine whether a property qualifies as an investment property, property plant and equipment and/or property held for resale. The Group develops criteria so that it can exercise that judgment consistently in accordance with the definitions of investment property, property plant and equipment and land held for resale. In making its judgment, management considered the detailed criteria and related guidance for the classification of properties as set out in IAS 2, IAS 16 and IAS 40, in particular, the intended usage of property as determined by management.
4.1.3 Classification of leasesDuring the year, the Group, as a lessor, entered into long term lease arrangements for plots of land with entities outside the Gulf Cooperation Council (non-GCC entities) whereby the lease term under each lease is valid for a period of 99 years renewable at the option of the lessees for an indefinite duration.
In the process of determining whether these arrangements represent operating leases or finance leases, the Group management has made various judgments. In making its judgments, the Group management considered the terms and conditions of the lease agreementsandtherequirementsofInternationalAccountingStandard17“Leases”,includingtheBasisforConclusionsonIAS17provided by the International Accounting Standards Board and related guidance, to determine whether significant risks and rewards associated with the land in accordance with each lease term would have been transferred to the lessees despite there being no transfers of title. The Group evaluated the transfer of risks and rewards before and after entering into the lease arrangements, and has obtained a legal opinion from independent legal advisors. Management has determined that in the lease arrangements referred to above, the Group transferred substantially all risks and rewards of ownership to the lessees with practical ability for the lessees to exercise unilaterally all rights on the plots of land. Accordingly, management is satisfied that these arrangements represent finance leases.
During the year, the Group recognised revenue from sale of land under finance leases amounting to AED 914.7 million with cost of sale amounting to AED 366.8 million.
4.2 Key sources of estimationThe key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
4.2.1 Allowance for doubtful debtsManagement has estimated the recoverability of accounts receivable balances and has considered the allowance required for doubtful debts based on the current economic environment and past default history.
4.2.2 Estimate of fair value of investment propertyThe best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the management determined the amount within a range of reasonable fair value estimates by considering recent transaction prices or rentals and discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing leases and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same or similar locations and conditions, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. Management has also identified any differences in the nature, location or condition of the properties, or in the contractual terms of the leases and other contracts, with adjustments made to reflect any changes in the nature, location or economic conditions since the date of the transactions that occurred at market prices. Such estimation is based on certain assumptions, which are subject to uncertainty and may differ from the actual results.
4.2.3 Contract cost estimatesAs described in note 3.10, when the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity on the consolidated balance sheet date. In judging whether the outcome of the construction contract can be estimated reliably, management has considered the detailed criterion for determination of such outcome as set out in IAS 11 ‘Construction Contracts’. For the purpose of estimating the stage of completion of contract activity, management has considered the contracted revenue and forecasted cost related to the construction contract.
63
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
4 critical accounting judgements and key sources of estimation uncertainty continued
4.2 Key sources of estimation continued
4.2.4 Project cost to complete estimates At each consolidated balance sheet the Group is required to estimate costs to complete fixed price and modified fixed price contracts. Estimating costs to complete on such contracts requires the Group to make estimates of future costs to be incurred, based on work to be performed beyond the consolidated balance sheet date. These estimates include the cost of potential claims by contractors and the cost of meeting other contractual obligations to the customers.
4.2.5 Provision for infrastructure constructionThe Group has an obligation under the terms of its sale and purchase agreements to develop the infrastructure of the sold land. Infrastructure cost is deemed to form part of the cost of revenue and is based on management estimate. The provision for infrastructure costs requires the Group’s management to revise its estimate of such costs on a regular basis in light of current market prices for inclusion as part of the cost of revenue.
4.2.6 Impairment of goodwillDetermining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculations require the entity to estimate the future cash flows expected to arise from the cash-generating units and a suitable discount rate in order to calculate the present value of those estimated future cash flows.
4.2.7 Impairment of other intangible assets with indefinite livesAn annual assessment is required to be made as to whether intangible assets with indefinite useful lives other than the goodwill have been impaired. Determining whether such assets are impaired requires an estimation of the value in use of assets. The value in use calculation requires the entity to estimate the future cash flows expected to arise from each asset and a suitable discount rate in order to calculate present value. The aggregate carrying amount of indefinite life of intangible assets other than goodwill at the consolidated balance sheet was AED 118,457,000.
4.2.8 Impairment of other intangible assets with definite livesFinite life intangible assets have to be tested for impairment only if there are indications that they may be impaired. Determining whether such assets are impaired requires an estimation of the value in use of assets. The value in use calculation can be undertaken using the same techniques employed to value the asset as on date of acquisition. However, no marketability discount would need to be applied as value in use rather than fair value is being computed. The aggregate carrying amount of finite life intangible assets at the consolidated balance sheet date was AED 24,843,500.
4.2.9 Impairment of properties under development Properties classified under capital work in progress, development work in progress and investment properties under development are assessed for impairment based on assessed cash flows on individual cash-generating units when there is indication that those assets have suffered an impairment loss. Cash flows are determined based on contractual agreements and estimations over the useful life of the assets and discounted using a range of discounting rates representing the rate of return on such cash-generating units. The net present values are compared to the carrying amounts to assess any probable impairment.
4.2.10 Impairment of available-for-sale financial assetsManagement regularly reviews indicators of impairment for available-for-sale financial assets and considers whether there has been a significant or prolonged decline in their fair value below cost. This determination of what is significant or prolonged decline requires judgement. In making this judgement and to decide if an impairment loss adjustment is necessary, the Management evaluates among other factors, the normal volatility in share price, the financial health of the investee, industry and sector performance, changes in technology and operational and financial cash flows and pay out dividend capability of the investee. In assessing the volatility in the share price, the Management also takes into consideration various aspects related to the market, including but not limited to, volume of trading over the past period, whether the listed price is a reflection of a distressed value driven by inactive or illiquid one way market, and the subsequent performance of the market after the consolidated balance sheet date. Management also considers its intent and ability to hold the investment until its market price recovers. Impairment of available-for-sale financial assets at 31 December 2008 is AED 20.85 million.
64
5 property, plant and equipment
furniture &fixtures
aed’000
officeequipment
aed’000
motorvehicles
aed’000
plant andmachinery
aed’000
Labourcamps
aed’000
Landat Sharjah
aed’000
capitalwork in
progressaed’000
total aed’000
cost1 January 2007 2,429 3,980 558 - - - 650 7,617Additions 4,105 2,022 525 - - - 9,664 16,316Disposals - - (301) - - - - (301)Adjustments (422) (245) - - - - (667) (1,334)
1 January 2008 6,112 5,757 782 - - - 9,647 22,298Additions 9,332 8,049 1,385 2,705 - - 4,228 25,699Additions through business
combination 10,317 - 7,786 48,580 17,753 1,350 1,107 86,893Disposals (35) - - - - - - (35)31 december 2008 25,726 13,806 9,953 51,285 17,753 1,350 14,982 134,855
accumulated depreciation1 January 2007 143 1,047 200 - - - - 1,390Disposals - - (25) - - - - (25)Charge for the year 1,190 1,530 242 - - - - 2,9621 January 2008 1,333 2,577 417 - - - - 4,327
Additional accumulated depreciation through business combination 5,829 - 2,293 19,350 4,180 - - 31,652Disposals (35) - - - - - - (35)Charge for the year 2,751 2,444 1,000 3,601 1,399 - - 11,19531 december 2008 9,878 5,021 3,710 22,951 5,579 - - 47,139
carrying amount 31 december 2008 15,848 8,785 6,243 28,334 12,174 1,350 14,982 87,716
31 December 2007 4,779 3,180 365 - - - 9,647 17,971
Property, plant and equipment includes a plot of land granted by the Government of Abu Dhabi, on which the Group has the intention to build its head office premises. The land is accounted for at nominal value of AED 1.
6 Investment propertiesInvestment properties comprise of the following:
2008aed’000
2007AED’000
Land held as investment property 650,451 650,451Villasheldasinvestmentproperty 207,785 202,528
858,236 852,979
Movement during the year is as follows:2008
aed’0002007
AED’000
Opening balance 852,979 834,728Additions 5,257 18,251
858,236 852,979
65
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
6 Investment properties continued
The fair value of investment property has been estimated by management by considering recent transaction prices or rentals and discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing leases and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same or similar locations and conditions, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. Management has also identified any differences in the nature, location or condition of the properties, or in the contractual terms of the leases and other contracts, with adjustments made to reflect any changes in the nature, location or economic conditions since the date of the transactions that occurred at market prices.
As at year end, management estimated the fair value of its investment properties and determined that there is no fair value gain or loss on its investment properties for the year ended 31 December 2008.
All investment properties are located in the United Arab Emirates.
7 Investment properties under development
2008aed’000
2007AED’000
Opening balance 425,246 184,692Additions during the year 176,915 240,554Additions through business combination 247 -
602,408 425,246Less: Impairment (29,639) (16,808)
572,769 408,438
All investment properties under development are located in the United Arab Emirates.
8 Intangible assets
trade nameaed’000
Leaseholdpremisesaed’000
vendorprice benefit
aed’000
customerrelationships
aed’000
customer contractsaed’000
totalaed’000
costAcquisition through business combinations 92,683 10,762 25,774 13,379 6,890 149,488as at 31 december 2008 92,683 10,762 25,774 13,379 6,890 149,488
accumulated amortisationAmortisation for the year - 1,461 - 1,694 3,033 6,188as at 31 december 2008 - 1,461 - 1,694 3,033 6,188
net carrying amount as at 31 december 2008 92,683 9,301 25,774 11,685 3,857 143,300
9 goodwill
2008aed’000
2007AED’000
Opening balance 345,355 345,355Goodwill recognised from business combination (note 34) 162,926 -
Closing balance 508,281 345,355
66
10 Investment in associates and joint ventures
Investeeownership
interestplace of
registration
cost at 1 January
2008aed’000
additionaed’000
Share in current
year’s profit/(loss)
aed’000
dividends receivedaed’000
Unrealised profits
aed’000
allocated to associate/
joint venture current account
aed’000
Share in underlying
net assets at 31 december
2008aed’000
associatesAl Maabar International Investment LLC 20% Abu Dhabi 30,000 70,000 (3,667) - - - 96,333
Aseel Finance PJSC 20% Abu Dhabi 63,076 40,000 14,971 - - - 118,047
Green Emirates Properties PJSC 20% Abu Dhabi 80,946 - 51,855 (3,000) - - 129,801
Bunya LLC (formerly Bayt Al Khidmah LLC) 33.33 % Abu Dhabi - - (4,502) - - 4,502 -
Abu Dhabi Finance PJSC 20% Abu Dhabi - 100,000 - - - - 100,000
LLJ Properties LLC 40% Abu Dhabi - 4,815 (1,768) - 3,177 - 6,224
Al Sdeirah Real Estate Investment – LLC 30% Abu Dhabi - 3,000 - - - - 3,000
174,022 217,815 56,889 (3,000) 3,177 4,502 453,405
Joint venturesRise Above Real Estate * 0.6% Abu Dhabi - 157,573 (2,625) - - - 154,948
S&T Cool District Cooling Co. LLC 50% Abu Dhabi - 2,500 (189) - - - 2,311
Abu Dhabi Business Co. LLC ** 51% Abu Dhabi - - (2,901) - - 2,901 -
- 160,073 (5,715) - - 2,901 157,259
174,022 377,888 51,174 (3,000) 3,177 7,403 610,66
Asatthebalancesheetdate,60percentofthecapitalwascalledandcollectedbyGreenEmiratesPropertiesPJSC(the“Associate”).Theremaining 40 per cent is payable within two years from the date of registration of the Associate in the commercial registry.
Latest available financial information in respect of the Group’s associates is summarised below:
2008aed’000
2007AED’000
Total assets 11,086,364 1,786,072
Total liabilities 9,650,496 962,221
Net assets 1,435,869 823,851
Group’s share of net assets of associates and joint ventures 610,664 174,022
Total revenue 434,994 159,940
Total profit for the year 499,467 101,141
Group’s share of net profits of associates and joint ventures 51,174 18,431
* The Group has a shareholding interest of 0.6 per cent in Rise Above Real Estate, but has joint control over the strategic financial and operational decisions and is entitled to 25 per cent share in the profit of the entity. Losses are shared in proportion to the respective shareholding interest.
** Although the Group holds 51 per cent of the equity shares of Abu Dhabi Business Co. LLC, the entity is jointly controlled by the Group and the other venturer. Profits and losses are shared equally.
11 available-for-sale financial assetsAvailable-for-sale financial assets represent investments in unlisted equity securities of companies registered in the United Arab Emirates and non-UAE based funds.
Due to the absence of an active market or any recent transactions that could provide evidence of the current fair value, the unlisted equity securities registered in United Arab Emirates are carried at cost less impairment losses, if any. Management believes that the fair market value of these securities approximates their carrying value. The fair value of the non-UAE based funds is based on the latest quotations available in the market.
67
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
11 available-for-sale financial assets continued
2008aed’000
2007AED’000
Balance at the beginning of the year 39,251 16,000Additions during the year 167,514 23,251Additions through acquisition of a subsidiary 124 -Changes in fair value (37,147) -Impairment losses (20,855) -
Balance at the end of the year 148,887 39,251
Management reviewed its available-for-sale financial assets for impairment based on criteria that include the extent to which carrying value exceeds market value, the duration of the market decline, management’s intent and ability to hold investment up to recovery and the financial health and specific prospects for the issuer. As a result, Management recognised impairment on available-for-sale financial assets for the amount of AED 20.85 million.
The geographical distribution of available-for-sale financial assets is as follows:
2008aed’000
2007AED’000
Within the UAE 24,326 16,000Outside the UAE 124,561 23,251
148,887 39,251
12 trade and other receivables
2008aed’000
2007AED’000
non-current portion
Trade receivables 1,938,142 904,424
current portionTrade receivables 1,260,832 550,668Less: allowance for doubtful debts (19,578) (19,578)
1,241,254 531,090Advances to contractors 675,496 286,044Due from related parties (note 33) 191,350 159,776Advance for investment property 73,774 73,774Retentions receivable 34,603 -Interest receivable 32,831 5,700Prepayments 31,643 36,674Gross amount due from clients (note 13) 14,072 -Accrued income 5,072 -Prepaid leases-short term 433 433Other receivables 92,524 82,788
2,393,052 1,176,279
Trade receivables represent the amounts due from sales of plots of land and revenue from construction contracts. Interest is charged at 12 per cent per annum on the outstanding past due amounts.
Trade receivables over 120 days are provided for based on estimated irrecoverable amounts from the sale of plots of land and revenue from construction contracts, determined by reference to management expectations.
Of the trade receivables balance at the end of the year, 71 per cent is due from 9 major customers. There are no other customers who represent more than 5 per cent of the total balance of trade receivables.
68
12 trade and other receivables continued
Included in the Group’s trade receivable balance are debtors with a carrying amount of AED 250 million (2007 : AED 117 million) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable.
Ageing of past due but not impaired:
2008aed’000
2007AED’000
60-90 days 71,777 28,35390-120 days 135,663 25,994Over 120 days 42,416 62,541
249,856 116,888
Movement in the allowance for doubtful debts:
2008aed’000
2007AED’000
Balance at beginning of the year 19,578 -Charge for the year - 19,578
Balance at end of the year 19,578 19,578
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.
13 construction contractsContracts in progress at balance sheet date
2008aed’000
2007AED’000
Amount due from contract customers included in trade and other receivables (note 12) 14,072 -Amount due to contract customers included in trade and other payables (note 25) (20,347) -
(6,275) -
Contracts cost incurred plus recognised profits less recognised losses to date 84,196 -Less: Progress billings (90,471) -
(6,275) -
14 other financial assetsOther financial assets include a derivative designated and effective as hedging instrument carried at fair value. In connection with the non-convertible Sukuk issuance, the Group has entered into hedge agreement with a foreign bank in order to hedge its exposure to movements in interest rates.
Under the hedge agreement, the Group secures an interest rate cap which provides protection from rises in interest rates.
15 Land held for resaleThe land held for resale at the year end is located in the United Arab Emirates.
69
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
16 development work-in-progress Development work-in-progress represents development and construction costs incurred on properties being constructed for and are related to the following projects:
2008aed’000
2007AED’000
Sky Tower and Sun Tower 1,117,143 411,942Golf Gardens 808,296 450,830Danet Abu Dhabi 116,934 81,785Al Mashtal 56,896 -Lulu Island 68,184 48,074Gate District 50,323 -Projects under planning 83,586 52,432Al Nagfa 34,304 25,635Al Ghadeer 66,383 11,381Egypt project 72,705 -
2,474,754 1,082,079
The Group is also pursuing several other projects which are currently at the design or the pre-development phases.
All development work in progress relates to projects undertaken in the United Arab Emirates, except for Egypt project which is still in the pre-development phase.
17 financial assets at fair value through profit or loss
2008aed’000
2007AED’000
Balance at the beginning of the year 126,799 246,977Disposal during the year (62,752) (167,598)Fair value (loss)/ gain (34,714) 47,420
Balance at the end of the year 29,333 126,799
The investments included above are held for trading and represent investments in listed equity securities listed in the United Arab Emirates that offer the Group the opportunity for return through dividend income and fair value gains. The fair values of these securities are based on quoted market prices.
18 cash and cash equivalents
2008aed’000
2007AED’000
Cash in hand 408 94Current account 440,865 48,230Fixed deposits 6,288,431 1,409,333Call account 109,336 -
6,839,040 1,457,657Less: Short term deposits with original maturities date greater than three months (1,100,000) -Restricted short term deposits (123,998) -
5,615,042 1,457,657
The interest rate on term deposits ranges between 2 per cent and 6 per cent per annum.
Cash and cash equivalents as at 31 December 2008 includes current account balances of AED 255 million held with foreign banks.
19 Share capitalShare capital comprises of AED 2,500,000,000 authorised, issued and fully paid up ordinary shares of AED 1 each. Equity includes ordinary shares of AED 395 million issued at nominal value to the previous owner of Al Reem Island as partial payment of land’s purchase consideration (note 23).
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20 Statutory reserveIn accordance with its Articles of Association and the UAE Federal Law No. (8) of 1984, as amended, 10 per cent of the annual net profit of the Company is transferred to a statutory reserve that is non-distributable. Transfers to this reserve are required to be made until such time as it equals at least 50 per cent of the paid up share capital of the Company.
21 non-convertible SukukInSeptember2008,theGroupissuednon-convertibleSukukCertificates/Sukukal-mudarabaal-muqayyada(the“Sukuk”)foratotalamount of AED 4.016 billion. The Sukuk are structured to conform to the principles of Islamic Sharia and were issued in 3 classes of certificates with initial capital amount, anticipated profit rate and weighted average life as follows:
class
Initial capital amount
aed’ 000anticipated
profit rateweighted
average lifeScheduled
dissolution datefinal
dissolution date
Class A 2,761,000 1 m EIBOR +2% 1.02 years January 2012 January 2015Class B 251,000 1 m EIBOR +2.5% 2.05 years January 2012 January 2015Class C 1,004,000 1 m EIBOR +3.5% 2.54 years January 2012 January 2015
As per the terms of the issuance, an amount of AED 1.84 billion of the proceeds has been deposited in Reserve Accounts and will be mainly used to fund infrastructure development and any shortfall in profits payable. The Sukuk are secured by first fixed charge security over the Reserve Accounts and a floating charge over some of the Group’s business and assets.
Transaction costs in connection with the issuance of the Sukuk amounted to AED 123 million.
The non-convertible Sukuk are presented in the consolidated balance sheet as follows:
2008aed’000
2007AED’000
Proceeds from the issue of non-convertible Sukuk 4,016,000 -Less: Issuance costs (123,254) -Net proceeds from the issue of non-convertible Sukuk 3,892,746 -Payments made (320,857)Profit distribution accrued up to year end 38,030 -Carrying amount of non-convertible Sukuk 3,609,919 -Less: current portion (1,735,626) -
Non current portion of non-convertible Sukuk 1,874,293 -
Sukuk profit payable amounting to AED 22.6 million has been capitalised during the year.
22 provision for end of service benefitsThe movement in the provision for end of service benefits is as follows:
2008aed’000
2007AED’000
Balance at 1 January 3,250 864On acquisition of a subsidiary 9,933 -Charge during the year 8,187 2,518Payments during the year (1,432) (132)
Balance at 31 December 19,938 3,250
71
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
23 notes payableTheGroupenteredintoaSale&PurchaseAgreement(“SPA”)forthepurchaseoftwoplotsoflandintheEmirateofAbuDhabiforatotal consideration of AED 241 million and AED 72 million, respectively. As at consolidated balance sheet date, the outstanding balance payable was AED Nil and AED 3.8 million, respectively.
The Group also entered into a SPA on 1 April 2007 for the purchase of freehold title to a portion of Al Reem Island in Abu Dhabi for a consideration of AED 1,074,260,000. As at consolidated balance sheet date, the outstanding balance payable was AED 271.7 million.
2008aed’000
2007AED’000
Total payables as of year end 275,461 344,379Less: Short term payables (275,461) (208,526)
Long term payables - 135,853
24 bank borrowings
2008 2007
currentaed’000
non currentaed’000
CurrentAED’000
Non currentAED’000
Secured – at amortised cost Bank loan (1) 5,864 23,457 10,588 24,597Bank loan (2) 45,146 - 32,000 78,359Bank loan (3) - 91,493 - 87,225Bank overdraft 54,181 - - -
105,191 114,950 42,588 190,181
The non-current portion of the bank loan is repayable over the next 7 years.
Bank loan (1) represents a loan assumed by the Group in 2007 following the acquisition of the six real estate projects of Al Rayan InvestmentsPvtJSC(“ARI”).Theloanbearsaninterestrateat6monthsEIBORplusamarginof1.25percentperannumandisrepayable over 7 years. The loan is secured by a mortgage over the villas of one of the projects acquired from ARI. The interest charge on the loan for the year amounting to AED 2 million has been capitalised.
Bank loan (2) was obtained in 2007 from a local bank for the purpose of financing the construction of villas at Abu Dhabi Golf Residential Community. The loan bears an interest rate at 3 months EIBOR plus a margin of 1.25 per cent per annum and is repayable over 1 year. The loan is secured by the assignment over income from sale of the villas. The interest charge on the loan for the year amounting to AED 4.6 million has been capitalised.
Bank loan (3) was obtained in 2007 from a local bank for the purpose of financing the construction of Sky Tower on Al Reem Island, Abu Dhabi. The loan bears an interest rate at 3 months EIBOR plus a margin of 1.25 per cent per annum and is repayable at the end of the fourth year from the date of initial disbursement. The loan is secured by the assignment over income from sale of the units of Sky Tower. The interest charge on the loan for the year amounting to AED 5.8.million.has.been.capitalised.
25 trade and other payables
2008aed’000
2007AED’000
Advances from customers 4,716,245 1,318,914Provision for infrastructure construction 893,451 461,538Accrued expenses 404,352 172,060Trade payables 149,292 100,967Sales commission payable 125,641 -Retention payable 123,001 57,959Payable to minority shareholders 76,400 -Dividend payable 40,798 32,545Provision for future losses from projects 35,362 -Gross amounts due to contracts’ customers (note 13) 20,347 -Other payables 142,529 33,290
6,727,418 2,177,273
72
26 revenue
2008aed’000
2007AED’000
Sale of land 3,532,341 2,000,774Contract revenue earned 126,963 -Lease income 64,124 320,187
3,723,428 2,320,961
27 cost of revenue
2008aed’000
2007AED’000
Cost of land sold 1,290,165 848,422Cost of contract revenue 118,151 -Lease expense 18,608 152,921
1,426,924 1,001,343
28 general and administrative expenses
2008aed’000
2007AED’000
Staff costs 168,632 68,462Consultation and advisory costs 39,708 28,241Project costs written off 17,357 10,127Project costs impaired 12,831 16,808Office rent 11,464 4,923Depreciation on property, plant and equipment 5,676 2,962Provision for future losses on projects 35,362 -Amortisation of intangible assets 6,187 -Others 22,284 33,553
319,501 165,076
29 Selling and marketing expenses
2008aed’000
2007AED’000
Sales commission 167,361 7,961Exhibitions and sponsorships 56,725 28,093Advertising expenses 81,383 62,249Others 6,044 1,499
311,513 99,802
30 finance income
2008aed’000
2007AED’000
Interest and profit income:Bank fixed deposits 128,607 72,796Call and current accounts 1,947 130Gross income 130,554 72,926Less: Amounts offset against the finance costs capitalised during the year (10,046) -
120,508 72,926
73
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
31 finance costs
2008aed’000
2007AED’000
Interest on bank loans: Gross 12,451 12,367 Less: Amounts included in the cost of qualifying assets (12,451) (12,367)
- -Sukuk profits: Gross 75,546 - Less: Amounts included in the cost of qualifying assets (22,601) -
52,945 -Interest on overdraft and other facilities 27,218 2,903Net foreign exchange loss 99 -
27,317 2,903
80,262 2,903
32 earnings per shareBasic earnings per share is calculated by dividing the net profit attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the year which amounted to 2,500,000,000 shares.
There were no potentially dilutive securities as at 31 December 2008.
33 transactions and balances with related partiesRelated parties include the Group’s major shareholders, directors, and business controlled by them and their families or over which they exercise a significant influence as well as key management personnel.
The Group maintains significant balances with these related parties, which are as follows:
due from related parties2008
aed’0002007
AED’000
Due from associates 10,252 15,377Due from directors 172,905 144,399Others 8,193 -
191,350 159,776
Significant transactions with these related parties are as follows:
2008aed’000
2007AED’000
Revenue from sale of plots of land to directors 166,182 190,865Advances and payments effected on behalf of associates 78,843 -RevenuefromsaleofplotoflandtoaJointVenture 942,235 -
Key management personnel remuneration 23,232 10,900
34 acquisition of subsidiaries
(a) acquisition of pivot engineering and general contracting co. wLLDuring the year, the Company acquired 60 per cent of the issued share capital of Pivot Engineering and General Contracting Co. WLL for cash consideration of AED 264.7 million. This transaction has been accounted for by the purchase method of accounting effective 1 July 2008. The net assets acquired in the transaction, and the goodwill arising, are as follows:
74
34 acquisition of subsidiaries continued
(a) acquisition of pivot engineering and general contracting co. wLL continued
book valueaed’000
fair valueadjustment
aed’000
fair value (100%)
aed’000
fair value on acquisition
(60%)aed’000
net assets acquiredCurrent assets 315,631 - 315,631 189,379Non-current assets 46,771 8,470 55,241 33,145Current liabilities (271,271) - (271,271) (162,762)Long term liabilities (9,933) - (9,933) (5,960)Retained earnings / shareholders loan (79,698) 10,099 (69,599) (41,760)Intangible assets 149,488 149,488 89,692
1,500 168,057 169,557 101,734Goodwill on acquisition 60% 162,926Total consideration 264,660Cash consideration payable (132,660)Cash consideration paid 132,000Cash and cash equivalents acquired (77,658)
Net cash outflow on acquisition 54,342
(b) acquisition of Sorouh egypt for Investment and tourism development SaeDuring the year, the Group acquired 80 per cent ownership of Sorouh Egypt for Investment and Tourism Development SAE (formerly known as Modern Egyptian Company for Investment in Tourism MCIT), an Egyptian Company with a net asset value of AED 73.23 million, which represents mainly the subsidiary’s investment in a single property in Egypt. As a result of this acquisition the Group recognised assets, deferred consideration and minority interest for the amounts of AED 75.2 million, AED 60.1 million and AED 15.1 million respectively.
35 contingent liabilities and commitments
2008aed’000
2007AED’000
Bank guarantees 375,025 -
Letters of credit 67,518 -
Bank guarantees and letters of credit are issued in the normal course of business.
Contractual capital commitments as at 31 December 2008 in respect of agreements with consultants and contractors for projects under development amounted to AED 9,800 million which are all expected to be paid within four years from the consolidated balance sheet date (notes 7 and 16). The Group has also a commitment of AED 40 million towards investment in associates (note 10).
The future aggregate minimum lease payments under non-cancellable operating lease arrangements are as follows:2008
aed’0002007
AED’000
Not later than one year 6,588 4,500Later than one year but not later than five years 84,230 53,000Later than five years 399,568 455,000
490,386 512,500
36 financial instruments
36.1 capital risk managementThe Group manages its capital to ensure it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2007.
The capital structure of the Group consists of debt, which includes the non-convertible Sukuk and the borrowings disclosed in Notes 21 and 24, and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity.
75
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
36 financial instruments continued
36.1.1 Gearing ratioThe Group’s Board of Directors reviews the capital structure on a regular basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital and debt. The Group has targeted a maximum gearing ratio of 100 per cent determined as the proportion of debt to equity. The Group expects to increase its gearing ratio closer to 100 per cent through the issue of new debt in 2009.
The gearing ratio at the year end was as follows:2008
aed’0002007
AED’000
Debt (1) 3,830,060 232,769Equity (2) 5,949,666 4,462,996
Debt to equity ratio 64.37% 5.2%
(i) Debt is defined as long and short term non convertible Sukuk and long and short-term borrowings, as detailed in Notes 21 and 24.
(ii) Equity includes all capital and reserves of the Group.
36.2 Significant accounting policiesDetails of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 3 to the consolidated financial statements.
36.3 financial risk management objectivesThe Group’s Corporate Treasury function co-ordinates access to domestic and international financial markets and monitors and manages the financial exposures relating to the operations of the Group. These financial exposures include credit risk, liquidity risk and market risk.
The Corporate Treasury function reports monthly to the Group’s Investment Committee, an independent body that monitors funding and investment policies.
36.4 market riskThe Group’s activities expose it primarily to the financial risks of changes in interest rates (as illustrated below).
36.4.1 Foreign currency risk managementCurrency risk relates to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Group does not have any significant exposure to currency risk as most of its assets are denominated in UAE Dirhams.
36.4.2 Interest rate risk managementThe Group’s exposure to interest rate risk results mainly from its funds borrowed at floating interest rates and short term deposits at fixed interest rates. The Group actively manages its interest rate risk on deposits.
The Group’s exposure to interest rate cash flow risk is managed by the use of interest rate cap contracts.
The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in Notes 18, 21 and 24.
Interest rate sensitivity analysisThe sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 50 basis point increase or decrease is used to represent management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended 31 December 2008 would decrease/increase by AED 19 million (2007: decrease/increase by AED 0.2 million). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.
36.4.3 Other price risksThe Group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments.
Equity price sensitivity analysisThe sensitivity analysis below have been determined based on the exposure to equity price risks at the reporting date.
76
36 financial instruments continued
36.4 market risk continued
36.4.3 Other price risks continued
Equity price sensitivity analysis continued
If equity prices had been 20 per cent higher/lower:
• TheGroup’sprofitwouldincrease/decreasebyAED5.6million(2007:increase/decreasebyAED24.8million)asaresultoftheGroup’s portfolio classified at fair value through profit and loss.
• TheGroup’sequityreserveswouldincrease/decreasebyAED29.6million(2007:increase/decreasebyAED8million)asaresultofthe Group’s portfolio classified as available-for-sale financial assets.
36.5 credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Group’s significant credit risk exposure to a single counterparty or any group of counterparties having similar characteristics is provided in Note 12. The Group defines counterparties as having similar characteristics if they are related entities. Except where related to liquid funds the concentration of credit risk did not exceed 10 per cent of gross monetary assets at any time during the year. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies or reputable local banks closely monitored by the regulatory body.
The carrying amount of trade and other receivables and cash and cash equivalents represents the Group’s maximum exposure to credit risk.
36.6 Liquidity risk managementUltimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.
effectiveInterest rate
%
Less than1 monthaed‘000
1-6months
aed‘000
7 monthsto 1 yearaed‘000
1-5 yearsaed‘000
5+ yearsaed‘000
totalaed‘000
2008Non-interest bearing - 336,573 635,862 584,136 2,115,606 - 3,672,177Interest bearing instruments 5.11 3,221,167 2,519,969 1,100,000 - - 6,841,136
3,557,740 3,155,831 1,684,136 2,115,606 - 10,513,313
2007Non-interest bearing - 320,589 72,673 141,039 682,967 15 1,217,283Interest bearing instruments 5.80 - - 42,588 190,181 - 232,769
320,589 72,673 183,627 873,148 15 1,450,052
The following tables detail the Group’s expected maturity for its non-derivative financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group anticipates that the cash flow will occur in a different period.
effectiveInterest rate
%
Less than1 monthaed‘000
1-6months
aed‘000
7 monthsto 1 yearaed‘000
1-5 yearsaed‘000
5+ yearsaed‘000
totalaed‘000
2008Non-interest bearing - 453,674 186,372 656,375 - - 1,296,421Interest bearing instruments 6.83 78,137 885,100 953,980 2,117,435 - 4,034,652
531,811 1,071,472 1,610,355 2,117,435 - 5,331,073
2007Non-interest bearing - 235,873 210,134 298,267 939,378 221 1,683,873Interest bearing instruments 4.77 936,434 537,451 - - - 1,473,885
1,172,307 747,585 298,267 939,378 221 3,157,758
77
noteS to the conSoLIdated fInancIaL StatementSfor the year ended 31 december 2008
36 financial instruments continued
36.6 Liquidity risk management continued
The Group has access to financing facilities, of which the unutilised amount is AED 739 million at the consolidated balance sheet date. The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. The Group expects to maintain current debt to equity ratio, within 100 per cent limits. This will be achieved through the issue of new debt and the increased use of secured bank loan facilities.
37 Segment reporting
primary reporting format - business segmentsFor management purposes, the Group is organised into four main business segments – property development, land sales, construction and investment properties portfolio.
Segment information about the Group’s continuing operations for the year then ended is presented below:
propertydevelopment
aed’000Land sales
aed’000construction
aed’000
Investment propertiesportfolioaed’000
Unallocatedaed’000
groupaed’000
year ended 31 december 2008Revenue - 3,532,341 126,963 64,124 - 3,723,428Investment income - - - - 51,174 51,174Finance costs - - - - 80,262 80,262Net profit/(loss) for the year (105,258) 1,823,398 1,428 14,417 50,283 1,784,268
year ended 31 december 2007Revenue - 2,000,774 - 320,187 - 2,320,961Investment income - - - - 18,431 18,431Finance costs - - - - 72,926 72,926
Net profit/(loss) for the year (69,528) 1,055,652 - 167,266 104,001 1,257,391
The segment assets and liabilities for the year then ended are as follows:
propertydevelopment
aed’000Land sales
aed’000construction
aed’000
Investment propertiesportfolioaed’000
Unallocatedaed’000
groupaed’000
as at 31 december 2008Assets 3,150,250 5,286,614 222,574 803,632 7,476,323 16,939,393Liabilities 3,896,624 3,506,759 214,823 50,222 3,312,641 10,981,069
as at 31 december 2007Assets 1,082,077 614,822 - 852,978 4,670,790 7,220,667
Liabilities 805,636 1,081,906 - 88,540 781,589 2,757,671
The Group operated only in one geographical segment, i.e., United Arab Emirates, except for the Egypt project which is still in the pre-development phase.
38 approval of consolidated financial statementsThe consolidated financial statements were approved by the Board of Directors and authorised for issue on 28 January 2009.
78
noteS
79
noteS
80
Sorouh Real estate p.J.S.C. P.O. Box 93666Abu Dhabi, UAETel: +971 2 444 0006Fax: +971 2 444 0066www.sorouh.com
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