WWW.ORASCOMDH.COM
STRATEGICALLY DECENTRALIZED
ANNUAL REPORT 2016
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Contents
AT A GLANCE
1.1 CompanyProfile 6
1.2 Destinations'Map 8
1.3 Chairman'sNote 10
1.4 CEO'sLetter 11
01
BUSINESS SEGMENTS
2.1 Hotels 18
2.2 RealEstateandConstruction 20
2.3 DestinationManagement 22
2.4 LandSales 24
2.5 OtherOperations 25
02
COUNTRIES 3.1 Egypt 30
3.2 Oman 42
3.3 UAE 48
3.4 Montenegro 50
3.5 Switzerland 52
3.6 Morocco 54
3.7 UK 55
03
ORASCOM *FOCUS VISION
Breakthrough with Focus
CORPORATE GOVERNANCE 4.1 GroupStructureand SignificantShareholders 58
4.2 CapitalStructure 60
4.3 BoardofDirectors 62
4.4 ExecutiveManagement 68
4.5 CompensationShareholdingandLoans 70
4.6 Shareholders'Participation 71
4.7 ChangesofControlandDefenseMeasures 72
4.8 Employees 72
4.9 ExternalAuditors 73
4.10 InformationPolicy 74
04
05INVESTOR INFORMATION 78
CONSOLIDATED FINANCIAL STATEMENTS 2016 ORASCOM DEVELOPMENT HOLDING AG 6.1 Consolidatedstatementofcomprehensiveincome F-3
6.2 Consolidatedstatementoffinancialposition F-4
6.3 Consolidatedstatementofchangesinequity F-6
6.4 Consolidatedstatementofcashflows F-7
6.5 Notestotheconsolidatedfinancialstatements F-10
06
GLOSSARY OF TERMS
08
STATUTORY FINANCIAL STATEMENTS 2016 ORASCOM DEVELOPMENT HOLDING AG 7.1 Incomestatement F-86
7.2 Statutorybalancesheet F-87
7.3 Statementofchangesinequity F-88
7.4 Cashflowstatement F-89
7.5 Notestothefinancialstatements F-90
07
186
1.1 CompanyProfile 1.2 Destinations’Map 1.3 Chairman'sNote 1.4 CEO'sLetter
ORASCOM DEVELOPMENT AT A GLANCE01
OrascomDevelopmentisaleadingdeveloperoffullyintegrateddestinations,includinghotels,privatevillasandapartments,leisurefacilitiessuchasgolfcourses,marinasandsupportinginfrastructure.
TheGroup’sdiversifiedportfolioofdestinationsisspreadovermultiplejurisdictionssuchasEgypt,UAE,Oman,Switzerland,Morocco,MontenegroandUnitedKingdom.OrascomDevelopmenthasaduallisting:aprimarylistingontheSIXSwissExchange;andasecondarylistingontheEGXEgyptianExchange.
1.1 Company Profile
Focusing on “Life as it should be” across all destinations
AcquisitionPhase
Development Phase
Operational Phase
NEWDESTINATION
IDENTIFICATIONACQUISITION &
INITIAL CONCEPT
LAND BANK VALUE CREATION
REAL ESTATE
HOTEL DEVELOPMENT
DESTINATION DEVELOPMENT
PROJECT MANAGEMENT OPERATIONS MANAGEMENT
HOTEL OPERATIONS
PLANNING AND DESIGNPROPERTY AND
FACILITY MANAGEMENT
DESTINATION OPERATIONS
RE OWNER SERVICES
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1 2 3 4 5 6 7 8 9 10
CONSTRUCTION
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TheGroup’sdiversifiedportfolioofdestinationsisspreadovermultiplejurisdictionssuchasEgypt,UAE,Oman,Switzerland,Morocco,MontenegroandUnitedKingdom.
1.2 Destinations Map
01ORASCOMDEVELOPMENTATAGLANCE
100.3millionm2
TOTAL LAND AREA
17.7millionm2
COMPLETED AREA
17.7%COMPLETED
01ORASCOMDEVELOPMENTATAGLANCE
SWITZERLAND
OPERATING DESTINATIONInvestment Held in Associates
AndermattSwissAlps
UAE
OPERATING DESTINATION
TheCove
MOROCCO
DEVELOPING DESTINATION
Chbika
OMAN
OPERATING DESTINATIONS
JebelSifahHawanaSalalah
DEVELOPING DESTINATION
AsSodahIsland
DESTINATION IN THE PIPELINE
CityWalk,Muscat
U.K.
DESTINATION IN THE PIPELINE
Eco-Bos
MONTENEGRO
OPERATING DESTINATION
LušticaBay
EGYPT
OPERATING DESTINATIONS
ElGounaTabaHeightsHaramCityMakadiFayoum
DEVELOPING DESTINATION
QenaGardens
OTHER HOTELS
RoyalAzurandClubAzurZahraOberoi
SamihO.Sawiris,ChairmanoftheBoardofDirectors
Iamverypleasedwiththemanagementachievementsduring2016andtheenhancedoperationalperformancethatwaswitnessedacrossourbusinesssegments,despitethedifficultbusinessenvironmentthatweoperatedin.Theturbulenceinthetourismmarketandthefluctuatingforeignexchangerates,haverequiredthecompany'smanagementanditsBoardtobeexceptionallyactive.Ourcommitmenttoourclientsandtoconstantly evolveourorganizationtomeettheirneedsisalsocentraltoourframeworkforcreatinglong-termvalueforourshareholders.
During2016,thenewmanagementteamheadedbyKhaledwasmandatedbytheBoardtofocusmoreonidentifyingourchallengesanddevelopmentareasrelatedtostrategyandinternalstructure.WeaskedthemanagementtocomebacktotheBoardattheendoftheyearwithathoroughassessmentofthecurrentbusinessmodelindicatingareasofinefficienciesandenhancementsandthenprovidingtheirvisionofhowthiscompanyshouldlooklike5yearsdowntheroad.
TheBoardandIwerepleasedwiththenewstrategythatwaspresentedbythemanagementinDecember2016.Ipersonallywasgladtohavemoreclarityonthe5years’directionthatwasputdownforeachdestinationindependentlyandfortheGroup’sbusinessmodelingeneral.MoreimportantlywasthattheteamkeptthesameessenceandtruevalueofthisGroupintactandcontinuedtocapitalizeonitscoreassetwhichremainstobeitslandbank.Theydidsobypresentingthedifferentapproachesofhowtogenerateandmonetizethemaximumvaluepossiblefromthisassetoverthecourseofitsdevelopment.InowbelievethatbythethoroughimplementationofthisstrategythemarketandtheshareholderswillsoongettoacknowledgethetruevalueofthisGroupthathasbeenseverelydiscounted.
Iwouldliketoextendmythanksandappreciationtoouremployeesandtheircontinuouscommitmentandenduranceduringthosechallengingtimesandalsothankthemforputtingthecompanyontherighttracktonoticeablesuccess.
OnbehalfoftheentireBoardofDirectors,thankyouallverymuchforyourvaluedsupportandongoingtrust.
Samih O. SawirisChairmanoftheBoardofDirectors
1.3 1.4Chairman’s Note
CEO’s Letter
KhaledBichara,CEOofODH
January1st,2016,wasmyfirstofficialdayastheCEOfortheGroup,IwasfortunateenoughtohavesucceededEng.Samihinthisrole,afounderthatIgreatlyadmireandrespectandwasalsoluckytohavefoundatalentedanddedicatedteamthattogetherwiththeChairmanhavebuiltaglobaltouristiclandmark,knowninmanypartsoftheworld.
Throughoutthefirsthalfoftheyear,importantpositionswithintheorganizationhavebeenchangedandfilled,intheexecutiveandtopmanagementlevel.ThisteamthenworkedtogetheronconductingathoroughassessmentofthecurrentbusinessmodeloftheGroupandhowithasbeenmanaged.
Theassessmentinvolvedconductingbusinessreviewsessionswithseveraldepartmentheadsandemployeesandmeetingwithexternaladvisors,investors,analystsandshareholdersofthecompany.Severalchallengesandareasofinefficiencieswereidentifiedasanoutcomeofthosemeetings.Challengesincludedthefollowing:1)Theinefficientholisticstructureoftheorganizationandhowcomplexitistomanage,thusnotreflectiveofthepotentialvaluecreation,2)Noclearvisibilityregardingtheusageoftheremaininglandbank;and3)Timingonwhenthecompanywillbeabletooperationallybreak-even.
ThemanagementteamworkedonrevisitingtheGroup’sstrategyanddraftedaguidelineonhowthisbusinessshouldbemanagedmovingforward.TheproposalthatwasthenpresentedandapprovedbytheBoardwastorevisetheCompany’smediumtolongtermstrategyalongthreeguidelines(or“Pillars”):
1.Establishmentofenhancedbusinesspractices
2.StrengtheningODHbalancesheet
3.RepositioningandenhancementofODH’sbrand
1.Establishmentofenhancedbusinesspractices:
A.Destinationbasedstructure
Ourinitialfocuswasonidentifyingourorganizationalchallengesanddevelopmentareasrelatedtostrategy,visibilityandaccountability.Accordingly,westartedworkingonre-organizingthecurrentsegmentstructuretoadestinationbasedstructure,pushingmoreauthorityandresponsibilityonthegroundforeach
destination,tobetterincreaseoperationalefficiency,shortenthedecisionmakingprocessandimprovemarkettransparency.
Dependingonitslevelofmaturityandscaleofoperations,eachdestinationshouldbecomeaseparatelymanagedentityheadedbyitsownCEOorGeneralManagerwhowillbeultimatelyinchargeofallbusinesssegments(Hotels,RealEstateandDestinationManagement).
WehavealreadyadaptedthisnewstructureinTabaandFayoum.NowwehavetwoGeneralManagersoverlookingthethreebusinesssegmentsinbothdestinations.ThemodelhasalreadyprovedsuccessfulinTaba,wherebywewereabletocuttheannualGOPlossesfromCHF4.5millioninFY2015toCHF1.7millioninFY2016.
Severalinitiativeswereadaptedinternallyintermsofrestructuring,reportingandcommunicationincoordinationwithourHumanResourcesdepartment,tobettersupportourdestinationbasedstructureandallowforbetterassessmentofeachbusinesssegmentatthelocallevelofeachdestination.
B.Continuouslandvaluecreation
ThisnotionisbuiltaroundcapitalizingthecoreassetoftheGroupofwhichitsbusinessmodelisbuiltupon–itslandbankandthehugevaluethatitpertains.TheGroupholdsoneofthelargestland
Photographer:MarcWelt
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banksglobally;amountingto100.3millionm2ofwhichonly17.7millionm2hasbeendevelopedasofthe31stofDecember2016andsotheessenceofitscurrentoperatingmodelevolvesaroundbuildingthevalueofthislandbank.
Theinitialphaseofthemodelentails“cashflowgeneration”bycompletingthedevelopmentsmandatedbytheMinimumBuildObligations(MBO’s)andbyseveralin-houserealestateandotherdevelopmentsthatgeneratecashandaddvaluetothedestination.Inparallel,withmorevalue-addingdevelopmentsinthedestinations,thevalueoftheremaininglandbankcontinuestoappreciateandbecomesmoreappealingtootherdevelopers,investorsandowners.
Duringourmeetingswithexternalanalystsandinvestors,itwasclearthatthemarketdiscountoftheGroup’slandbankresultedfromthelackofclarityprovidedregardingtheusageoftheremaininglandineachdestination.Thistriggeredmanagementtoidentifydifferentapproachesofhowtogenerateandmonetizethemaximumvaluepossiblefromthisassetovertheforeseenfuture,tyingthismonetizationplanwithdefinitemilestonesandtargeteddeliverables.
Whileontheotherhand,clearlycommunicatingthatthereisstillapartofthislandbankofwhichitsusageisyettobeidentified,sinceitisverydifficulttoclearlymasterplanandindicatethespecificusageofapproximately82.0millionm2ofundevelopedlandoverthecourseofthecoming5years.
Asaresult,managementstartedthisprocessbydevelopingamuchclearermasterplanforeachdestinationtoincludethefollowing:
1. Atargetedshort-termdevelopmentplanthatcoverstheMBO’sthatwerepre-agreeduponwiththeGovernments,inadditiontoin-houserealestateandotherdevelopmentsthatcomplementstheGroup’s3-5years’businessview.
2. Identifyingspecificlandplotsforsaleorsub-developmentofcertainprojectsthatmightincludebutnotlimitedtohotels,conferencecenters,businessparks,aquaparksetc.thatwebelieveareneededandwilladdvaluetothedestination.
3. Clearlycommunicatingtothemarketthattherewillstillberemainingundevelopedlandbankafterpoints1and2above–ofwhichfutureusehasnotyetbeendetermined-yetthislandbankstillpertainsvalueandwewillbeprovidingthemarketwithanupdatedfairvalueforthisremaininglandusinganexternalvaluatoronanannualbasis.
Webelievethatbydeliveringonthose3notions,theanalystcommunitywillbeabletobuildtheirownbusinessmodelofODHandwillhavetheneededinputtohaveamoreproperassessmentofitsvalue.
WestartedbyElGouna,beingthemostmaturedestinationtodateandhaveworkedwithourdevelopmentdepartmenttoidentifythefutureuseofthelandbyzoningouttheareasofwhichwewillcontinuedevelopingourselvesandhaveallocatedsomeplotsforsub-development.
Wehavealsocommunicatedthatwewillbeveryselectivewithourfuturelandsalesinalldestinationsingeneral,especiallywhenitcomestorealestatesub-development.Incountrieswheretheoffplansalesmodeldoesn’twork,thenrealestatesub-developmentmayhelpusonthefinancingside.
2.StrengtheningODHbalancesheet:
Partoftheultimategoalofhavingaself-sustaineddestinationistomakesurethatnotonlyisitprofitablebutalsothatitholdsasustainableandasolidbalancesheet,thatbuildsvaluetoitsequityandcarriesassetsthatcouldpotentiallygeneratecash.That’swhyaspartoftheassessmentofeachdestinationwedecidedtotakeoutthenecessaryimpairmentsontheinvestmentsthatwillnotbringinvalueandwillnotgeneratethecashneededunderournewstrategy.Wewillalsolookintorevaluingourassetsthatarecurrentlybookedatcostinourbookstobeabletogivethemarketamuchcloserindicationonthoseassetscurrenttruevalue.
Inlinewiththepreliminary5yearsplanthatweareputtingtogetherforeachdestination,managementhascometotheconclusionthatitisnecessarytofurtherreduceandrescheduletheoutstandingdebtthatismostlysittingattheEgyptianholdinglevel;OrascomHotels&Development(OHD).Eventhoughwehavesuccessfullyconcludedtherefinancingpackagethatwehadbeenworkingonsince2014,westillplantofurtherreduceourdebtbalancetolevelsthatweforeseeassustainableenoughtobecoveredbytheprojectedlevelsofoperations.Accordingly,managementhasputtogetheraninternalmonetizationlistthatincludesnon-coreassetsinadditiontoevaluatingtheopportunityofdisposingsomeminoritystakesincertainsubsidiariesandusingtheproceedsofwhichtoreducethedebt.
Underthisnotion,TamweelHoldingGroupwasidentifiedasanon-coreassettotheGroupandhasbeenputinthemonetizationlistandassignedasanassetheldforsale.
BysellingTamweelwewillbeabletodeconsolidateitsdebtfromourbooksandtheproceedsofitssaleareearmarkedtofurtherreducethedebtbalance.
Weareidentifyingdebtre-allocationandrestructuringoptionsacrossvariouslevelsofthecorporatestructureandhaveagreedthatmovingforward,debtshouldbetakenattheprojectlevelasopposedtotheholdinglevelwhenfeasible.Wearealsostudyingopportunitiestoemploynewdebtinstrumentswithtenorsthatmatchthematurityprofilesofourdestinations.
3.Repositioning&enhancementofODH’sbrand:
Wehavebeenhearingalotofcomplaintsfromtheinvestorcommunityregardingtheilliquidityofbothlistedcompanies,theholdingGroupODHandtheEgyptiansubsidiaryOHDandtheconfusionbehindhavingthembothlistedonthesamestockexchange.
Accordingly,managementhasproposedtotheBoardthedelistingofODH’sEgyptianDepositoryReceipts(EDRs).Thedecisiontodelistaimstoincreasethefreefloatandimprovetheliquidityofthecompany'ssharesontheSIXSwissExchangewhereODHmaintainsitsprimarylistingandremovetheinconsistenciesresultingfromthelistingofboththeEDRsandthesharesofODH'slargestsubsidiaryinEgypt,OrascomHotelsandDevelopment(OHD),ontheEgyptianExchange,whichshouldpotentiallyenhancetheliquidityandtradingvolumesofOHD’sshares.DecisionwasthenofficiallygrantedbytheBoardandwehavebeenproceedingaccordingly
withthenecessarystepsandprocedureswithbothstockexchangesandregulatorsinSwitzerlandandEgypttoconcludethedelisting.
Furtheractionsthatwearecurrentlystudyingtohelpinsolvingtheilliquidityissuesinclude;afurtherstake-saleinOHDatacceptablepricepointsandadaptingamarketmakingmechanismattheholdinglevel.Allthoseactionsarestudiedinparallelwithmaintaininganopenandactivemarketpresenceanddialoguewiththeinvestor,analystandshareholdercommunity.
ManagementhavealsoproposedexploringthefirstandsecondhomemarketsinCairoandNorthCoastinEgypt,insteadofonlyfocusingonthethirdhomemarkets.ManagementbelievesthatwiththesolidtrackrecordthatwehaveestablishedinElGounawecouldcapitalizeonourdevelopmentknow-howandtapthosemarketswhererealdemandexists.
Finally,weareworkingonthebrandingofODHbyapplyingthe“Lifeasitshouldbe”statementacrossalldestinationsstartingfromthehighenddestinationssuchasElGounamovingtoMakadiandtheBudgetHousingsegmentofHarramCity.ThemessagebehindthismotoisthatODHiscapableofprovidingthebestleveloflivingforeachcategorywithinthedestinationsitbuilds.
OperationalandFinancial highlightsof2016
Duringthispastyear,wehaveexperiencedandIbelievesuccessfullynavigatedthroughseveralperiodsofvolatilityandturbulences.
Althoughwearenotimmunefromwhatishappeningaroundus,wewereabletodoamuchbetterjoboperationallythantheyearbeforeinmostofourdestinations.
ResultswereimpactedbythepoliticalandeconomicbackdropiinEgyptespeciallyaftertheCBE’sdecisiontofloattheEGPagainsttheforeigncurrencies.HoweverotherdestinationsinOmanandMontenegrohavewitnessedhigherlevelsofmaturityandaccordinglyhighercontributionstotheGroup’srevenues.
ThedecisiontakenbytheCentralBankofEgyptinNovember2016tofloattheEgyptianpoundinanattempttostabilizetheeconomyhashadasignificantimpactonalotofcompaniesthatoperateinEgyptincludingtheGroup.
The102.7%appreciationoftheU.S.DollaragainsttheEGPfrom8.88to18.0resultedinsubstantialrevaluationsofthedebtheldinUSDollarsatthesubsidiaryandsubsequentlynegativelyimpactedtheGroupsP&Lstatementwithanon-cashforeignexchangelossofCHF113.2million.Ontheotherhand,totaldebtoftheEgyptianSubsidiaryonODH’sbalancesheethasdecreasedby24%fromCHF414.7milliontoCHF315.2million.
Inaddition,resultswerealsoimpactedbyimpairmentsintheamountofCHF32.9million.GrossprofitreachedCHF11.3millionandthenetlossattributabletoshareholdersforthereportingperiodamountedtoCHF196.4millionvs.netlossofCHF19.1millioninFY2015.
Onthepositiveside,AdjustedEBITDAfortheperiodreachedCHF19.6million.Whenresultsarenormalizedforlandsaleinthe
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leaseagreementstarting1stofNovember2016,withFTIGroupfor3ofourhotelsthereforatotalofEUR3.3millionperannum.InFayoum,wesuccessfullyheldthesoftopeningofByoumLakesideHotelonSeptember2016with50rooms,whichreportedverypositiveoccupancyrateof43%forFY2016.
InOman,Salalahdestinationhasbeenrecentlybrandedto"HawanaSalalah".WewereabletolaunchourthirdhotelinSalalah,AlFanarhotelinFebruarywith218roomsandtherebycompletingthe700-roomphase1ofourhoteldevelopmentplaninOman,makingitthelargestcontributortothedevelopmentofhigh-endhotelsinOmanduringthelastfiveyears.WealsowitnessedalotofdemandonourhotelsinSalalahduringourvisittotheITBconferencewhichhaspushedustoaddanextra84roomsinAlFanarhotelthatwehavesuccessfullyopenedinDecember22,2016.Todaywehaveatotalof784roomsinSalalahandallourhotelsthereoutperformedthisyearrecordinganoccupancyof69%comparedto54%in2015.RevenuesofSalalah'sHotelsaloneincreasedby61.5%toreachCHF29.4millionvsCHF18.2millioninFY2015.
TheCoveRotana,UAEhascontinueditspositivemomentumandreportedarevenueincreaseof7.9%toreachCHF27.1millioninFY2016comparedtoCHF25.1millioninFY2015withanincreaseinoccupancyratetoreach78%inFY2016vs.70%inFY2015.
Finally,Ibelievethatthenewformulatedstrategydetailedabove,willensureourfuturecompetitiveness.Wewillcontinuetoaddvaluewhereverwegotoourshareholders,clients,partnersandcommunities.
Iwouldliketothankallouremployeesfortheirtremendouseffortsandcommitmentduringthosetoughtimes.Ilookforwardtocontinueworkingwithyouonachievingmuchbetterresultsinthecomingyears.
comparativeperiodtheAdjustedEBITDAwouldhavereachedonlyCHF15.6millioninFY2015.
Totalrevenuesdecreasedby22.5%toreachCHF237.4millionvs.CHF306.1millioninFY2015,mainlyduetothestrategicdecisiontobecomemoreselectivewithlandsaleswhichamountedtoCHF65.2millioninthecomparativeperiodandthedrop-inEgypt’shotelrevenuesresultingfromtheongoingtravelbans.
WesuccessfullyreachedourrealestatesalestargetforFY2016.Valueofcontractedunitsincreasedby29.2%toreachCHF122.5millionvs.CHF94.8millioninFY2015andthenetvalueofcontractedunitsincreasedby101%toreachCHF115.2millionvs.CHF57.3millioninFY2015withmaincontributionscomingfromElGouna,JebalSifahandMontenegro.TheEnhancedsalesperformanceresultedfromthetargetedsalesandmarketingactivitiesthatwestartedimplementingwithournewlaunchesthroughoutourdestinations.Totaldeferredrevenuefromrealestatethatisyettoberecognizeduntil2019reachedCHF133.3millioninFY2016vs.CHF143.0millioninFY2015.InElGouna,Egyptwelaunched3differentprojectsthisyearwithatotalinventoryofUSD84.6million.NetvalueofcontactedunitsforElGounaincreasedby31.9%inFY2016toreachCHF80.6millionvs.CHF61.1millioninFY2015.Besidesthenewlyintroduceddesignsof2016,wefocusedoncontrollingtheconstructioncostsintermsof
valueengineeringtomaintainqualitywhileobtainingbestmarketpricesfromsuppliers.
InJebelSifah,Oman,welaunchedanewrealestateproject“GolfLakeResidence”inOctober2016,thedestination’snewrealestateproductlaunchinseveralyears.Theproductofferedatotalof118unitsforatotalvalueofCHF19.3millionandhasnailedgreatacceptanceandsuccesssellingout60%oftheprojectinonlytwomonthsfromlaunch.TotalnetsalesinOmanreachedCHF16.2millioninFY2016.
WealsofinalizedtheusufructagreementforOman’sfourthprojectCityWalk,Muscat,whichwassignedinNovember2016.Theprojectisplannedtoincludearetailareawithshopsandrestaurants,aswellasa5-starhotelwithanupscale123rooms.Additionally,theprojectwillfeatureacommercialareawithofficesandadedicatedcinemacomplex.
InterestinLušticaBay,Montenegrohascontinuedtoflourish,theyear2016startedasthebusiestyearyetonthedevelopmentandconstructionfronts.WewereabletorecordasignificantincreaseinnetsalestoreachCHF17.3millionvs.CHF9.1millioninFY2015,thatfurtheremphasizeddemandonourprojectandwealsospeededuptheconstructionofthenew(F)&(G)buildingscomprising88apartmentswithplanstobefinalizedduringthefirsthalfof2017.Inaddition,wefinalizedthemarinasuperstructure,planningtolaunchthemarinainthesummerof2018.
Onthehotelsside,despitetheseveredeclineintheEgypt’stourismsectoroverallwhichcontinuedtoaffectourperformance,totalhotelsegmentrevenuesdecreasedbyonly3.2%toreachCHF120.2millioninFY2016vs.CHF124.2millioninFY2015.Nevertheless,theAdjustedEBITDAofthesegmentincreasedby12.2%toreachCHF20.3millioninFY2016comparedtoCHF18.1millioninFY2015.ThisboostinprofitabilityresultedfromthedualeffectoftheenhancedoperationaleffortsandcostoptimizationcoupledwiththedevaluationoftheEGPagainstothercurrencies.
ElGounafostereditsleadingmarketpositioninthecountryrecordinganoccupancyof57%andwesuccessfullyopenedanew5-starhotel“AncientSands”with56roomsand120hotelapartments.TabaHeights,remainedourmostlychallengeddestinationtodategiventheextendedtravelbansonSinai,yetdemandhasstartedtopickupsincetheendofQ22016duetotheaggressivemarketingcampaignstargetedtowardsJordaniansandEgyptians.In2016wehad718operatingroomsinTabaandinJanuary2017weopenedanadditional100roomsbringingthetotalcountto818roomsoutof2,365roomsandweareplanningtoopenmoreroomsinthecomingperiod.
OurhotelsinMakadiwereaffectedbytheRussiantravelban.WecontinuedtooperateonlytwohotelsoutofthefoursinceDecember2015.Toreducethelossesofthedestination,wesuccessfullysigneda3-year
Khaled BicharaChiefExecutiveOfficer
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2.1 Hotels 2.2 RealEstateandConstruction 2.3 DestinationManagement 2.4 LandSales 2.5 OtherOperations
ORASCOM BUSINESS SEGMENTS02
Hotels Segment in 2016
In2016travelbansfromRussia,amongotherEuropeancountries,thatwereannouncedinOctober2015continuedtoapply.AccordingtothelatestfiguresEgypttouristarrivalsfell42%inFY16comparedtoFY15.HotelsinMakadi,SahlHasheeshandTabaHeights–50%oftheGroup’stotalinventory–likemostotherEgyptiantouristicdestinationsweredrasticallyaffected.Nonetheless,thecrisismanagementprogramthatOrascomHotelManagementstartedimplementinglate2015,comprisingstrictcost-cuttingmeasures,centralizationofservicesandsuspensionofoperationsatsomehotels,limitedtheimpactoftheindustryparametersatthethreedestinationstoacollectiveGOPdeclineof18.8%goingfromCHF3.2millioninFY15toCHF2.6millioninFY16-whilestillmaintainingapositiveGOP.
Conversely,atElGouna–34%oftheGroup’stotalinventory-theoptimizationstrategiesintroducedin2014,coupledwiththeDestination’smarketpositioningandstrongtieswithleadingEuropeantouroperators,affordedagrowthintheHotels’bottomlineresultswiththeGOPPARgrowingfromCHF13inFY15toCHF15inFY16.OntheGOPlevel,ElGounahotelsreporteda15.4%growthgoingfromCHF12.3millioninFY15toCHF14.2millioninFY16.
InTabaHeights,ourmostlychallengeddestinationtodategiventheextendedtravelbansonSinaibyallmajorEuropeancountries,demandhasstartedtopickupsincetheendofQ22016duetotheaggressivemarketingcampaignsweimplementedinJordanandthelocalEgyptianmarkets.InFY2016wehadatotalof718operatingroomsinTabaHeightsoutof2,365roomswithplanstoopenmoreroomsinthecomingperiod.Totaloccupancyoftheavailableroomsincreasedto30%inFY16vs.20%inFY15.
InMakadi,2016wasatoughyearforourhotelsasaresultsoftheongoingtravelbansbytheRussiangovernment.Wecontinued
tooperatetwohotelsoutoffoursinceDecember2015.Nevertheless,wehavesigneda3-yearleaseagreementstarting1stofNovember2016,withFTIGroupfor3ofourhotelsinMakadiforatotalofEUR3.3millionperannumnettoowner,subjecttoanannualincreaseof5%toovercomethedropinbusiness.ItisworthnotingthatthesehotelshavereportedaGOPlossinFY16.
InFayoum,wesuccessfullyheldthesoftopeningofByoumLakesideHotelinSeptember2016with50roomsrecordinganoccupancyof43%duringFY16.
TheGulfHotels–14%oftheGroup’stotalinventory–maintainedthepositivetrendthatstartedin2015.
HawanaSalalah,theGroup’srisingdestination,dominatedtheperformancescenereportingaGOPPARgrowthof88.9%goingfromCHF18inFY15toCHF34inFY16.Moreover,theopeningofthefirstphaseofFanarHotel&ResidencethattookplaceonDecember172015,affordedanotableboostintheDestination’soverallGOPreportinga166.7%growthgoingfromCHF3.3millioninFY15toCHF8.8millioninFY16.It’simportanttohighlightthatSalalahhotelsmanagedtorecordanotablegrowthinoccupancyrateduringFY16toreach69%vs.54%inFY15.
Similarly,attheCove,RotanasustaineditsgrowthtrendwiththeGOPPARgoingfromCHF69inFY15toCHF85inFY16.TheCovereportedaGOPgrowthof22.5%goingfromCHF8.9millioninFY15toCHF10.9millioninFY16.Inaddition,occupancyrateincreasedtoreach78%inFY16vs.70%inFY15.
OntheGrouplevel,theHotelSegmentreportedayear-endGOPgrowthof31.3%risingfromCHF27.8millioninFY15toCHF36.5millioninFY16.
Overall,totalhotelsegmentrevenuesdecreasedby3.2%toreachCHF120.2millioninFY16vs.CHF124.2millioninFY15.ThesegmentreportedAdjustedEBITDAofCHF20.3millioninFY16comparedtoCHF18.1millioninFY15duetothedevaluationoftheEgyptiancurrencyagainstotherscurrencies.
Situation Analysis
Todateandconsideringanefficientcontinuationofthestrategiesimposedonthechallengeddestinationsin2015,variablesforaprofitablehoteloperationareallevident.
InEgypt,thefreefloatoftheEgyptianpoundandtheincreaseinnumberofflightsfromGermany;addtothat,the3-year-leaseagreementthattheGroupenteredfortheMakadiHotelspromiseahighyieldoperation.
InOman,theproductmixofourHotels,inHawanaSalalahinparticular,provedtobehighlyappealingtotheEuropeanend-usermakingitanattractiveinvestmentfortouroperators;accordingly,anewextensionof84roomswasannexedtoFanarHotel&Residence,makingthetotalnumberofroomsinHawanaSalalah784guestrooms.Inaddition,wearestudyingthepossibilityofconstructingnewhotelsinSalalahcapitalizingonthehugedemandforourhotels.
TheCoveinUAEhasearneditssuccessrecord.InFY16,whileTheCoveRotana’sinventoryrepresentedonly5%ofthatoftheGroup,itsGOPaccumulatedto30%ofthatoftheGroup.Buildingonthata145-guestroomextensioniscurrentlyunderdevelopmentandduetoopeninQ217makingthetotalnumberofroomsatthehoteladdupto491rooms.InMontenegro,wearealsoplanningtostarttheconstructionofthefirsthotelinLušticaBayduringthefirsthalfof2017,headedbytheluxuryhotelbrandTheChediGroup.
A Challenging Start and an Optimistic Finale for a Promising Year Ahead
TheHotelsSegmentKPIs,asofDecember31,2016
Total numberof hotel rooms
Number ofavailable hotel
rooms
Occupancyfor)%( total rooms
Occupancyfor total rooms )%(
TRevPAR*)CHF(
GOP PAR **)CHF(
Country Destination FY 16 FY 15 FY 16 FY 15 FY 16 FY 15 FY 16 FY 15 FY 16 FY 15 FY 16 FY 15
Egypt ElGouna1 2,650 2,627 2,650 2,627 57 68 57 68 46 53 15 13
TabaHeights2 2,365 2,365 718 1,756 7 10 30 20 22 18 (5) (11)
Makadi3 1,627 1,627 1,005 1,627 24 64 37 64 28 41 9 13
Fayoum4 50 - 50 - 43 - 43 - 34 - (22) -
FloatingHotels 27 27 27 27 7 13 7 13 54 88 (20) (12)
Oman TotalOman5 851 767 851 767 66 51 66 51 113 101 32 18
U.A.E UAE 346 346 346 346 78 70 78 70 213 196 85 69
ODH Group 7,916 7,759 5,647 7,150
Germany
Egypt
Russia
Netherlands
Belgium
UnitedKingdom
UAE
Switzerland
France
Jordan
Oman
Italy
Austria
Sweden
Israel
Ukraine
Poland
Denmark
Others
Egypt
Oman
UAE
REVENUES BY
COUNTRIES (% TOTAL)
50.726.7
22.5
1InQ216AncientSandsHotelwasopenedwith56rooms.AlsoInQ416BellevueHotel:33roomshavebeenconvertedtorealestateunitsresultinginreducingthetotalnumberofroomsto101.
2DuringtheFY2016,only2hotelswereoperating(Sofitelwith442rooms)andStrandBeachHotelwith276rooms(out
of503rooms)inTabaHeights.Whereby,duringFY2015only1hotelwasoperatingrepresenting442roomsbyendof2015.
3InFY2016,only2hotelswereoperating(RoyalAzurwith491rooms&CitadelAzurwith514rooms)inMakadi,thenweleasedout(RoyalAzur,ClubAzur&MakadiGardens)startingNovember2016.
4InSeptember1st,2016;softopeningofByoumLakesideHotelwith50rooms.
5InDecember22nd2016,FanarHotelextensionwasopenedwith84rooms,thusbriningtotalnumberofthehotelroomsto302rooms.
HOTELS REVENUE
2016
2015
CHF120.2mn(2015:CHF124.1mn)
SHARE OF GROUPS REVENUE
2016
2015
50.6%(2015:41.0%)
ADJUSTED EBITDA
2016
2015
CHF20.3mn(2015:CHF18.7mn)
36
26
4
4
3
3
3
22
22
2 1 1 1 1 1 1 1 7
2.1 Hotels
NATIONALITY OF HOTEL GUESTS
(% TOTAL)
*FinancialKPIsarecalculatedbasedonthenumberofavailableroomsduringthereportedperiodofFY16.
**Includeallexpensesofthehotelsinthedestinations.
02ORASCOM BUSINESS SEGMENTS
02ORASCOM BUSINESS SEGMENTS
18 19Annual Report - 2016 STRATEGICALLY DECENTRALIZED
Segment operational review in 2016
TherealestatemarketinEgyptstartedoutpositivelyin2016.Mostoftherealestatedeveloperswereabletoachievey-o-ygrowthintheirsalesfigures,wherebyrealestateisstillregardedasasafehavenagainstthedevaluationofthelocalcurrency.
Wewereabletosuccessfullyreachoursalestargetfortheyear.ElGounaremainedtobetheGroup’smostimportantsalescontributorrecordinganetsalesvalueofCHF80.6millioncomparedtoCHF61.1millioninFY15onthebackofaggressivetargetedsalesandmarketingactivitiesthatweinitiatedwithournewlaunchesduringthesecondhalfoftheyear,diversifyingourofferingstocaterforthedifferenttastesofourtargetsegment.Ourfirstlaunchwas"FanadirBay"projectinApril2016,withatotalinventoryofUSD60.0million.Theprojectofferedaluxuriousyetcomfortableunitswithauniquelocationandviewofthebayandthesea.Itwitnessedsoliddemandandhassoldalmost90%ofitstotalinventory.
Wealsolaunchedalimitedprojectcalled“TheWestVillas”inJuly2016,consistingof11unitsforatotalvalueofUSD3.0million,whichhadalsosuccessfullysoldoutduringthefirst48hoursfromitslaunch.Buildingonthesuccessandthehypeindemandonthelaunchedprojects,weintroducedourlatestproject,“Tawila”inOctober2016withatotalinventoryofUSD21.6millionandwemanagedtosell68%ofitsinventory.
Tawilacomprisesdifferenttypesandsizesofvillas,inadditiontotownhouses,whichleavesprospectiveclientswithawiderangeofoptionstochoosefrom.Besidesthenewlyintroduceddesignsof2016,wefocusedoncontrollingtheconstructioncostsintermsofvalueengineeringtomaintainqualitywhileobtainingbestmarketpricesfromsuppliers.Wecontinuedspeedingupourconstructionprogresstodeliversomeofourprojectsaheadofschedule,allowingforfasterrevenue
recognitionandaccordinglywewereabletoincreasethesegment’srevenues.
InJebelSifah,Oman,welaunchedanewrealestateproject“GolfLakeResidence”inOctober2016,thedestination’snewrealestateproductlaunchinseveralyears.Theproductofferedatotalof118unitsforatotalvalueofCHF19.3millionandhasnailedgreatacceptanceandsuccesssellingout60%oftheprojectinonlytwomonthsfromlaunch.Theresidentialneighborhoodconsistsofstudio,oneandtwobedroomapartments,aswellaslofts.ThesuccessfullaunchwasastrongtestamenttohowJebelSifahwasbecomingoneofthemostattractivedestinationsintheMuscatsuburbwithitscontinuallyexpandingrangeofattractions.TotalnetsalesinOmanreachedCHF16.2millioninFY2016.
WefinalizedtheusufructagreementforOman’sfourthprojectCityWalkMuscat,whichwassignedinNovember2016.Theprojectwhichhasanincrediblesea-frontlocationinoneofthehighestdensityareasinMuscatandisplannedtoincludearetailareawithshopsandrestaurants,aswellasanupscale5-starhotel.Additionally,theprojectwillfeatureacommercialareawithofficesandadedicatedcinemacomplex.
InterestinLušticaBay,Montenegrohascontinuedtoflourish,theyear2016startedasthebusiestyearyetonthedevelopmentandconstructionfronts.Besidesthesignificantincreaseinsalesthatfurtheremphasizeddemandonourproject,wearestronglyprogressingwiththeconstructionofthenew(F)and(G)buildingscomprising88apartmentsandwefinalizedthemarinasuperstructure,planningtolaunchthemarinainthesummerof2018.
LušticaBay,continueditsstrongsalesmomentumsincethebeginningoftheyear.Wewereabletoconcludeabulksale’sdealforEUR3.9millionpushingthenetsalesvaluetoCHF17.3millioninFY16comparedtoCHF9.1millioninFY15.
Financial Review 2016
DuringFY16totalrealestateandconstructionrevenuesreachedCHF65.4millioncomparedtoCHF66.4millioninFY15.TheGroup’stotalvalueofcontractedunitsinFY16reachedCHF122.5millioncomparedtoCHF94.8millioninFY15andthenetvalueofcontractedunitsreachedCHF115.2millioncomparedtoCHF57.3millioninFY15.Theenhancedsalesperformanceduringthe2016reflectsthetargetedsalesandmarketingactivitiesthatwestartedimplementingwithournewlaunchesin2016throughoutallourdestination.Totaldeferredrevenuefromrealestatethatisyettoberecognizeduntil2019reachedCHF133.3millioninFY16comparedtoCHF143.0millioninFY15.
Outlook for 2017
Although2016startedoutonapositivenote,theeffectsoftheliberalizationoftheEgyptianpoundwhichtookplaceinearlyNovemberhadstartedtoimpacttheoverallbuyersentimentinEgypt.Nevertheless,wearebuildingonthestrongbasethatwasestablishedlastyearandarecapitalizingonthesuccessfullaunchesofElGouna.WeareplanningtolaunchnewphasesofTawilaandFanadirBaywithanexpectedinventoryofUSD40.0million.
TherewillalsobeastrongfocusonexistingprojectslikeSabinaandWaterSideCondos.WearealsoworkingonnewproductofferingsthatwillincludeservicedhotelapartmentsinFanadir,BellveueandMosaique.InMakadi,westartedtheconstructionoftheClubHousewithplanstobefinalizedduring2017.
A Year of Success Across the Destinations
InFayoum,weareplanningtolaunchnewproductswithatotalinventoryofCHF3.4millioninQ22017.Finally,forEgypt,wearecurrentlystudyingseveralopportunitiesforthefirstandsecondhomemarkets.
InOman,wearecapitalizingonthesuccessfulrealestatecomeback,withplanstolaunchnewrealestateproductsinbothdestinationsSifahandSalalah,cateringforlocal,regionalandinternationalbuyers.Wearealsoontrackonfinalizingtheconstructionofthe9-holesgolfcourseinSifah,scheduledtobeopenedinSeptember2017andareplanningtheconstructionoftheWaterParkinSalalah,thenewadditiontothetownwhichwillserverealestateownersandhotelguestsduringthefirsthalfoftheyear,withplanstobefinalizedbeforetheendof2017.
InMontenegro,wearespeedinguptheconstructionprogress,expectingtodeliverthe(F)and(G)buildingsinthefirsthalfof2017.WearealsoplanningtolaunchnewproductsinadditiontostartingtheconstructionofthefirsthotelinLušticaBayduringthefirsthalfof2017,headedbyluxuryhotelbrandTheChediGroup.
ADJUSTED EBITDA
2016
2015
CHF20.8mn(2015:CHF16.2mn)
REAL ESTATE AND CONSTRUCTION REVENUES
2016
2015
CHF65.4mn(2015:CHF66.4mn)
SHARE OF GROUPS REVENUE
2016
2015
27.5%(2015:21.7%)
VALUE OF DEFERRED INCOME
2016
2015
CHF133.3mn(2015:CHF147.0mn)
2.2 Real Estate and Construction
TheRealEstateSegmentKPIs,asofDecember31,2016
Value of contracted units )CHF mn(
Number of contracted units
Average Selling Price )CHF/m2(
Value of deferred Income )CHF mn(
Country Destination FY 16 FY 15 FY 16 FY 15 FY 16 FY 15 FY 16 FY 15
Egypt ElGouna 85.5 71.4* 215 183 2,721 2,541 53.6 79.3
Fayoum 0.4 0.2 4 3 821 539 0.6 3.2
Makadi 0.5 1.0 16 20 477 640 - 0.5
Gardania 0.8 2.7 1 4 1,276 1,329 - -
Oman JebelSifah 16.5 4.3 80 5 1,948 2,381 28.9 17.0
HawanaSalalah 1.5 4.1 3 15 3,228 3,685 5.3 15.9
Montenegro LušticaBay 17.3 11.1 37 24 5,883 4,812 44.9 27.0
ODH Group 122.5 94.8 356 254 2,692 2,543 133.3 142.9
Numbers net of cancellations1:
ODH Group 115.2 57.3 319 180
*1Cancellationsoftheaccumulatedsalesfrompriorperiods. *Thenumbershavebeenre-statedaftertakingoutmansion-landsales.
EgyptOmanMontenegro
87.2
18.0
17.3
VALUE OF CONTRACTED
UNITS (CHF MN)
02ORASCOM BUSINESS SEGMENTS
02ORASCOM BUSINESS SEGMENTS
20 21Annual Report - 2016 STRATEGICALLY DECENTRALIZED
Destination Management Environment in 2016
Aseriesofrestructuringinitiativesandnewcollaborationswereinitiatedwithinseveraldestinations.Themaindriversbehindthoseorganizationalstructurereformsweretostreamlineoperations,eliminatewasteandimproveprofitability.Thefirststepstakenincludedre-organizingthecurrentsegmentstructuretoadestinationbasedstructure,pushingmoreauthorityandresponsibilityonthegroundofeachdestination,tobetterincreaseoperationalefficiency.
Key events
VariousmaintenanceworksandupgradeswithinElGounawereperformedduringtheyear,wefocusedmoreonthedestination’slivelihoodandpromotedthestateofmindcampaign.Werenovatedthemarinaflooring,streetsidewalks,andmultipleroadpavementswhichenhancedthetrafficandflowwithinthedestination.Wealsoadded19newberthstoAbuTigmarina.Wesuccessfullymanagedtorent41newstoresduring2016andcurrentlystudyingfurtheropportunitiesinexpandingwarehouses.
Weshiftedmorefocusonimprovingthequalityofservicesprovidedtoownersandresidents,thoughsupportingtheCustomerServiceunitwithmoretools–soweintroducedElGounamobileapplication,trackingsystemandshortnumber.Wecollaboratedwithanumberofserviceproviderstoenhancetheportfolioofactivitiesthroughaddinglandsailingandadirtbiketrack.Inaddition,tobuildingasquashcourtandsigningacontractwith7SportsManagementtomanagetherenovatedtennisandfootballpitch.Lastbutnotleast,wesuccessfullyorganizedanumberofbranded“ElGouna”eventsnamely:NewYear’sParty,SquashTournament,SandboxPartyandWorldKiteboardingChampionship.
JebelSifahandHawanaSalalaharebecomingamongsttheleadingITCandtourismdestinationsinOman,withongoingadditionstothedestinations’facilitiesandactivities.InJebelSifah,theconstructionofthe9-holesHarradinegolfcoursewasfasttrackedandconstructionalsostartedonthebeach-frontinfinitypoolandclubhouse.Newretailoutletsalsoopenedincludinganinternationalcuisinerestaurantandagym,aswellastheadditionoftheWibitfloatingwaterpark.JebelSifahhostedseasonalcommunitybeachevents,aswellasOman’sfirstandinternationallyacclaimedSpartanRaceArabia.
InHawanaSalalah,wefinalizedthedesignofthewaterparkandareplanningitsconstructionduringthefirsthalfof2017.WefasttrackedworkontheSoulyCampEco-lodgeandisnearingcompletion.Avarietyofretailoutletsandactivitieswereopenedinthedestinationaswellincludingachocolatier,restaurants,Turkishsilverware,greenhouseandAlFanarHotelandResidences’watersports.
InLusticaBay,Montenegro,RentalManagementProgram(RMP)wassuccessfullystartedin2016underthedirectionofsalesdepartmentandsupportedbythefacilityteam.Wehostedtwomajorevents,MilosKaradaglic’sconcertandJossStoneconcert,alongwithnumerousminorones.Wealsofocusedonavailingmoreactivitiestoourresidentsandvisitorsincludingbeachentertainment,watersportactivities,golflessonsanddrivingrangeandabar.
Financial Review 2016
Revenuesinthedestinationmanagementhasslightlyincreasedby1.9%inFY16toreachCHF15.9millioncomparedtoCHF15.6millioninFY15.Around36.0%oftherevenuesweregeneratedfromutilityfunctionssuchaswaterandelectricitygeneration,whiletheremaining64.0%werederivedfromcommercial,urbanandcommunityservices,infrastructureandmaintenanceactivities.ThesegmentreportedAdjustedEBITDAlossesofCHF6.4millioninFY16comparedtoalossofCHF3.9millioninFY15.
Outlook for 2017
InEgypt,specificallyinElGouna,wewillcontinuetostrengthenourbrandawarenessandensurethatguests/residentsexperienceour“lifeasitshouldbe”visioninourdestinations.WewillworkonpositioningElGounaasanallyearrounddestinationandwideningthetargetedaudiencebyprovidinganallyearroundcalendarofactivitiesthatlastsfrommorningtillnightforallage-groups,throughdifferententertainmentandsportsevents.
Inadditiontofocusingoncreatingmorejobopportunitiesthroughestablishingabusinessparkandstartuphubtoencouragemorepeople
tomovetoElGounaontheotherside,weareplanningtoadd12newberthsinAbuTigMarinaduringthefirsthalfof2017.
JebelSifahisexpectedtolaunchthe9-holeHarradinegolfcoursebytheinSeptember2017,aswellastheinfinitypoolandclubhouse.ItisworthmentioningthatfirstDesertBajawilltakeplaceincloseproximitytoJebelSifah,whereallbackendandrallyactivitieswillbehostedatthedestination.The2ndSpartanRaceArabiawillalsotakeplaceinthesecondhalfoftheyear.Retailandfacilitiestobeopenedincludebarbershop,laundry,chocolateshop,skyloungerestaurant,andchildren’sclimbing
wall.AsforHawanaSalalah,theEco-lodgeisexpectedtolaunchinthefirsthalfof2017.Also,thefirstSpartan’sRaceArabiaisplannedtotakeplaceinHawanaSalalah.ConstructionwillalsostartontheHawanaSalalahwaterpark,duringthefirsthalfoftheyearwithplanstobefinalizedbeforetheendof2017.NewretailshopsincludeTurkishfashion,Sabayaabayas,housewareandwomen/childrenclothing.
ForLusticaBay,Montenegro,thesoftopeningofMarinaisalsoscheduledinsummer2018andweshallexpandourbeachfrontspaceaccordingtothegrowingnumberofhomeowners.
New Restructuring and More Life to the Destinations
DESTINATION MANAGEMENT REVENUES
2016
2015
CHF15.9mn(2015:CHF15.6mn)
SHARE OF GROUPS REVENUE
2016
2015
6.7%(2015:5.1%)
ADJUSTED EBITDA
2016
2015
CHF(6.4mn)(2015:CHF(3.9mn)
ElGouna
TabaHeights
Makadi
Oman
TheCove
2
2
5
11
DESTINATION MANAGEMENT REVENUES BY DESTINATION
(% TOTAL)
80
Utilities
CommercialServices
InfrastructureandMaintenance
UrbanServices
CommunityServices
Others
36
25
16
14
18
DESTINATION MANAGEMENT REVENUES BY SERVICE TYPE
(% TOTAL)
2.3 Destination Management
02ORASCOM BUSINESS SEGMENTS
02ORASCOM BUSINESS SEGMENTS
22 23Annual Report - 2016 STRATEGICALLY DECENTRALIZED
Includesaleoflandandlandrightstothirdpartiesonwhichthegrouphavedevelopedorwilldevelopcertaininfrastructurefacilitiesandwherethegroupdoesnothavefurtherdevelopmentcommitments.
ThedropintheGroup’stotalrevenueswasmainlydrivenbythedecreaseinthelandsegment’srevenuetoreachCHF2.0millioninFY16comparedtoCHF67.6millioninFY15.
Asapartofthenewmanagementstrategythatstartedin2016,movingforward,thecompanydecidedtobemoreselectiveintermsoflandsales,optingtocreatethemaximumvaluepossibleforitsshareholders.
AsaresultofthislandrevenuessegmenthastremendouslydecreasedinFY16toreachCHF2.0millioncomparedtoCHF67.6millioninFY15.InFY15revenuesincludedCHF65.2millionfromlandsalesinElGouna,Egyptforsub-developmentagreements.
ThesegmentotheroperationscombinethosebusinessesofOrascomDevelopmentthatarenotclassifiedinanyoftheotherbusinesssegments.Thesegmentincludesactivitiessuchasmortgagefinancing,rentalofvillasandapartments,hospitalandeducationalservices,marina,limousinerentals,laundryandotherservices.During2016,revenuesofthesegmentotheroperationsincreasedby5.0%toreachCHF33.9millioncomparedtoCHF32.3millioninFY15,inparticularduetotheincreaseofTamweelMortgagefinancebusinessoperation.
Itisimportanttohighlightthatin-linewiththecompany’sinitiativetofocusonitscoredestinationsinEgypt,OmanandMontenegro,theGroupisundertakingeffortstosellitsnon-strategicassetsandaccordinglyhasreclassifiedTamweelGroupcompaniesasanassetheldforsale.
Ourotheroperationsaccountedfor14.3%ofourtotalrevenuesinthefinancialyear2016.
LAND SALES REVENUE (CHF)
2016
2015
CHF2.0mn(2015:CHF67.6mn)
SHARE OF GROUPS REVENUE
2016
2015
0.8%(2015:22.1%)
ADJUSTED EBITDA
2016
2015
CHF2.4mn(2015:CHF68.6mn)
OTHER OPERATIONS REVENUE
2016
2015
CHF33.9mn(2015:CHF32.3mn)
ADJUSTED EBITDA
2016
2015
CHF8.4mn(2015:CHF8.3mn)
2015
SHARE OF GROUPS REVENUE
2016
14.3%(2015:10.6%)
2.4 2.5Land Sales Other Operations
02ORASCOM BUSINESS SEGMENTS
02ORASCOM BUSINESS SEGMENTS
24 25Annual Report - 2016 STRATEGICALLY DECENTRALIZED
3.1 Egypt 3.2 Oman 3.3 UAE 3.4 Montenegro 3.5 Switzerland 3.6 Morocco 3.7 UnitedKingdom
ORASCOM COUNTRIES03
OperatingTownsTOTALLANDBANK
100.3millionm2
HOTELROOMSOPERATING
8,016millionm2
IN7DESTINATION
35Hotels
OrascomDevelopment
OrascomDevelopmenthasadiversifiedportfolioofdestinations,whichisspreadoversevenjurisdictionscoveringEgypt,UAE,Oman,Switzerland,Morocco,MontenegroandUnitedKingdom.Itisaleadingdeveloperoffullyintegratedandinfrastructure-supporteddestinationsthatincludehotels,privatevillas,apartmentsandleisurefacilities–namely,golfcoursesandmarinas.
Ourstrategyisbasedonthecreationofvalueinourlandbankforthemediumandlong-termstakeholders.Tothatend,weaccumulatelargetractsoflandwithenoughspacetodevelopself-sufficientcommunitiesandtowns.
Subjecttocertainconditions,theGrouphas,uptothisdate,securedlandbanksofapproximately100.3millionm2inseveraljurisdictions.Moreover,OrascomDevelopmentholdsitsundevelopedlandbanks
primarilybywayofcontractualrightsorusufructs,withtheoptiontoacquirelegaltitle.
TheGrouphasalsodevelopedtenoperatingdestinationsincludingtouristdestinationssuchasElGounaontheRedSeaCoast,TabaHeightsintheSinaiPeninsula,MakadiintheRedSeadistrictandByouminFayoum,TheCoveinRasAlKhaimahinUAE,JebelSifahandHawanaSalalahinOman,LušticaBayinMontenegroandAndermattinSwitzerland,inadditiontothebudgethousingcommunityofHarramCityintheGreaterCairoinEgypt.
Furthermore,severaldestinationsarecurrentlyinvariousstagesofdevelopmentandplanninginOman,Morocco,andtheUnitedKingdom.
OrascomDevelopment’sLandBank
Land categories Definition
TotalLandBank
Anyplotofland,developedorundeveloped,whichisunderthedirectorindirectpossessionofOrascomDevelopmentbyvirtueoflease,usufructand/orownershiprightsandoverwhichOrascomDevelopmentmayhavefurtherrightstodevelop,fullyown,leasetothirdparties,selltothirdparties,grantsub-usufructrightstothirdparties,orotherwisedisposetothirdparties.EachplotoflandisgovernedbytherespectiveagreementbetweenOrascomDevelopment(directlyorindirectly)andtherespectivegovernmentalentity,shareholders,and/orinvestors
Completed Anyplotoflandwhereinfrastructureiscompletedandindividualelementsoftheprojectsarecompleted
Underconstruction Anyplotoflandwhereinfrastructureiscompletedandindividualelementsoftheprojectsareunderconstruction
UnderDevelopment Anyplotoflandwhereinfrastructureisunderconstructionbutnotyetcompleted
Undeveloped Anyplotwithzeroinfrastructure(rawland)
Destination Name Total landbank Completed Under
construction Under
development Undeveloped
EGYPT 49.11 14.52 5.81 1.73 27.05
ElGouna 36.92 9.36 5.46 1.29 20.81
TabaHeights 4.27 2.56 0.00 0.02 1.69
HaramCity 2.60 1.93 0.25 0.24 0.18
Fayoum 1.08 0.25 0.07 0.08 0.68
QenaGardens 0.80 0.00 0.00 0.01 0.79
Makadi 3.44 0.42 0.03 0.09 2.90
UAE 0.29 0.29 0.00 0.01 0.01
TheCove 0.29 0.29 0.00 0.01 0.01
OMAN 20.84 1.70 0.15 3.80 15.19
JebelSifah 6.20 0.20 0.05 1.50 4.45
HawanaSalalah 13.60 1.50 0.10 1.50 10.50
AsSodahIsland 1.00 0.00 0.00 0.80 0.20
CityWalk 0.04 0.00 0.00 0.00 0.04
SWITZERLAND 1.57 1.21 0.07 0.29 0.00
Andermatt 1.57 1.21 0.07 0.29 0.00
MOROCCO 15.00 0.00 0.00 3.00 12.00
Chbika 15.00 0.00 0.00 3.00 12.00
MONTENEGRO 6.90 0.02 0.12 0.39 6.37
Luštica 6.90 0.02 0.12 0.39 6.37
UNITEDKINGDOM 6.54 0.00 0.00 0.00 6.54
Eco-Bos 6.54 0.00 0.00 0.00 6.54
Total 100.25 17.73 6.16 9.21 67.15
Percentage of Total Land bank Size 17.68 6.14% 9.34% 66.98%
3.0 COUNTRIES
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
28 29Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TOTALPROJECTAREA
36.92millionm2
COMPLETED
14.82millionm2
ElGounaisOrascomDevelopment’sflagshiptownandtheGroup’s“Lifeasitshouldbe”developmentbenchmark.Itisaself-sufficient,fullyintegratedresorttown,withawater-tides’naturallyprotectedarea,thankstothesurroundingreefs.Thenameofthetownwasdrivenfromtheancientword“ElGouna”whichmeantprotected.Thetownisstretchingacross10kmofpristineshorelineonthebeautifulRedSeacoastwithatotallandareaof36.92millionm2ofwhich14.82millionm2hasbeendeveloped,ElGounaisamultinationalcommunitythatcontinuestogrow.
ElGounaoffersunparalleledlifestyleattractingagrowingmultinationalcommunity.Year-roundsunshine,shimmeringlagoons,turquoisebeaches,andbeinga4-hourflightfromEuropemakeElGounatheultimateparadiseescape.Itboastsworldclassinfrastructure,upscaleservicesandishometosomeoftheworld’smostreputablebrandsinthetourismandleisureindustries.
ElGounaoffersawiderangeofinternational-standardfacilities.Itoffersawiderangeofrealestateunits,fromexclusiveprivatevillastocozyapartments,allinharmony,yetwithauniqueidentity,17hotelswith2,650guestroomswithamixof5,4and3starhotels,alandingstrip,aworld-classhospital,anursinginstitute,twochampionships18-holegolfcourse,threemarinaswithacapacityof380berthsincludingdrydocks,463commercialoutlets,100restaurants,barsandeateries,aweatherstation,conferenceandmeetingfacilities,
beautysalons,spas,postoffice,laundryserviceandbanks.ElGounaalsohostsasatellitecampusoftheTechnischeUniversityBerlin,whichoffersthreeMaster'sdegreeprograms,avarietyofbothinternationalandEgyptiancurriculumschoolsandalibrarylinkedtoBibliothecaAlexandrinaaswellasaslidercableparkwithacompletewatersportsfacilitiessuchasdivingcenters,kitesurfing,amosqueandchurch,inadditiontoculturalfestivalsandmajoreventsandmanyotherfacilities.
ElGounaishonoredtobethefirstdestinationinAfricaandtheArabRegiontoreceivetheGlobalGreenAward.SponsoredbytheUnitedNationsEnvironmentProgram,thisawardishandedtocitiesdisplayingsubstantialmeasuresandeffortsinprogresswithinthefieldofenvironmentalsustainability.
Events2016:
* KitesurfingWorldChampionship–ElGounaGrandSlam
* KiteJamboreeSpringandFall2016
* WomenForSuccessConference
* GlobalBikingInitiative(GBI)
* ElGounaRally
* ElGounaFishingCompetition
* ElGounaInternationalSpinningMarathon
* ElGounaInternationalSquashOpen
* WellspringKidsCamp
* MBCGreenAppleShowSummerFinaleEpisode
* Sandbox
* MusicHall
* Halloweekend
* 3-CushionBilliardWorldCup
* ElGounaWonderlandWeekend
* MidnightinWonderlandNewYear'sParty
* MirrorMirrorNewYear'sParty
Highlights2016:
* OpenedAncientSandHotelinApril2016with56roomsand120hotelapartments.
* LaunchedanewrealestateprojectinApril2016,“FanadirBay”,withatotalinventoryofUSD60millionandmanagedtosellmorethan90%oftheproject.
* Launchedalimitedprojectcalled“TheWestVillas”inJuly2016,holding11units
foratotalvalueofUSD3.0million,whichhassuccessfullysoldoutduring48hoursfromitslaunch.
* Launchedfirstphaseof“Tawila”realestateprojectinOctober2016withatotalinventoryofUSD21.6millionandmanagedtosellmorethan68%oftheproject.
* Upgradedthesportsfacilitiesandfinalizedadealwithasportsmanagementcompanytomanagethefacility.
* ExpandedAbuTigMarinaby19newberths.
* Rented41newstoresduring2016.
* Delivered102unitsduring2016andstartedtheconstructionof134unitstobedeliveredin2017.
* SuccessfullylaunchedElGouna“StateofMind”marketingcampaignandpositioning.
EL GOUNA EGYPTOPERATINGDESTINATION
ElGounaboastsworldclassinfrastructure,upscaleservicesandishometosomeoftheworld’smostreputablebrandsinthetourismandleisureindustries
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
30 31Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TOTALPROJECTAREA
4.27millionm2
COMPLETEDAREA
2.56millionm2
TabaHeightsisoursecondfullyself-sufficientresorttown,locatedinTabaoveratotallandareaofapproximately4.27millionm2,ofwhichapproximately2.56millionm2hasbeendeveloped.Thebreathtakingnaturalsettingiscomplementedbyanofferingoflavishfourandfive-starhotels.Worldwidehospitalityleadersprovideanunparalleledexperienceinrelaxationandleisure.
TabaHeightsislocatedinTaba,asmallEgyptiantownnearthenortherntipoftheGulfofAqabaontheSinaiPeninsula,approximately200kmnorthofSharmEl-Sheikhandapproximately20kmsouthoftheIsraelitownEilat,whichmakesitapopularstartingpointforexcursionstoUNESCOWorldHeritagesites,suchasthemonasteryofSaintCatherine,therose-redcityofPetra,thedesertofWadiRum,theholycityofJerusalemandtheDeadSea.TabaInternationalAirportisonlyapproximately25kmawayfromTabaHeights.
Thetownoffersawiderangeofinternational-standardfacilitiessuchasaSix(4-and5-starHotelswith2,365guestrooms),amedicalcenter,childdaycareservicesandatowncenterandmanyotherfacilities.Furthermore,thetownfeatures111outletsincludingcafés,bars,restaurantsandshoppingfacilities,25hotelswimmingpools,variousspas,5-starwatersportscenter,tennisandsquashcourts,man-madesaltcaveandan18-holechampionshipgolfcourse.Inaddition,TabaHeightsoffersayachtmarinawithberthingcapacityfor50yachtsandprovidesovernightmooring.
Highlights2016:
* TabahotelscontinuedtosufferfromtravelbanstotheSinaiPeninsulaissuedbymostWesternEuropeancountriessinceOctober2015.Asaresults,fiveoutofoursixhotelswereclosedkeepingonlySofitelHotelopenwith442roomsaswearecontinuingwiththecost-cuttingmeasures.
* InQ2andQ32016demandforTabaHeightshotelsstartedtopickupwhichledtothere-openingof276roomsinStrandBeachandGolfResortoutofthehotels’503rooms.In2016wehaveatotalof718operatingroomsinTabaHeightsoutof2,365rooms.
TABA HEIGHTS EGYPTOPERATINGDESTINATION
03ORASCOM COUNTRIES
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32 33Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TOTALPROJECTAREA
3.44millionm2
COMPLETEDAREA
0.45millionm2
SettledintheheartoftheRedSeaonly30kmawayfromHurghadaInternationalAirport,laystheuniqueresidentialandtouristiccommunity,Makadi.AstheonlyresidentialcommunityinMakadiBay,thedestinationaddsadifferentflavortotheareawhencomparedtoitsneighboringresortbasedcommunities.
Makadistretchesacrossapproximately3.44millionm2providingbothitsresidentsandvisitorsalltheservicesandfacilitiesthattheywouldrequireanddesire.Withamissiontoprovideuppermiddleclassfamiliestheopportunitytoownahomeataffordableprices,thetownresortisnowfeaturingavarietyofresidentialunits,andalsoanoperatinghotelwithatotalcapacityof283rooms.
BeingthefirstgatedcommunityinHurghada,Makadiisdestinedtoprovidethecommunitywithhighqualityservices,amongwhichisHurghada’sfirst"clubhouse"thatofferssocialandsportsactivities,nottomentionthespaciouscommercialarea,hotels,medicalcenterandschool.Withsuchservicesbeingprovided,notonlyownersandhotelvisitorsofMakadiwillenjoytheirstay,butalsoallofHurghadawillfindsomethingsuitableinMakaditofulfilltheirneeds.
LocatedatMakadibay,oneofHurghada’sfascinatingshores,30kmawayfromHurghadaInternationalAirport.RoyalAzurHotelwith491guestroomsandClubAzurHotelwith339guestrooms.
Thetwohotelsoverlooktheirownspaciousprivatesandybeach,offeringsixteenrestaurantsandbars,fullyequippedwatersportscenter,tenniscourts,squashcourt,billiards,afullyequippedfitnessroomandswimmingpools.HotelsoccupancieswereaffectedfromtheongoingRussiantravelbans,asaresultsofthis,themanagementtookthedecisiontoshutdownClubAzurandMakadiGardensHotelsinDecember2015.Nevertheless,wesuccessfullyintroducedmeasurestoovercomethedropinbusinessandhavesigneda3-yearleaseagreementstarting1stofNovember2016,withFTIGroupfor3ofourhotelsinMakadiforatotalofEUR3.3millionperannumnettoowner,subjecttoanannualincreaseof5%. CitadelAzurisa5-stardeluxeresort,builtin2008.
ItislocatedinSahl-Hasheeshwhichis18kmSouthofHurghadaInternationalAirportand20kmsouthofHurghadaCityitself.
Thetotalsiteareaisapproximately553,448sqmonwhichthereare8buildings.These8buildingscompriseatotalof514rooms.CitadelAzurhasaprivatebeachthatextendsto1.6kmlongontheRedSeaCoast,offeringthreeswimmingpools,restaurantsandbars,fullyequippedwatersportscenter,afullyequippedfitnessandmanyotheramenities.InJuly2016,wemanagedtotakethefullownershipofthehotel.
Highlights2016:
* HotelsoccupancieswereaffectedfromtheongoingRussiantravelbans,asaresultsofthis,themanagementtookthedecisiontoshutdownClubAzurHotelinDecember2015.Nevertheless,wesuccessfullyintroducedmeasurestoovercomethedropinbusinessandhavesigneda3-yearleaseagreementstarting1stofNovember2016,withFTIGroupfor3ofourhotelsinMakadiforatotalofEUR3.3millionperannumnettoowner,subjecttoanannualincreaseof5%.
* Delivered16unitsduring2016andstartedtheconstructionoftheclubhouseexpectedtobefinalizedduring2017.
RoyalM A K A DI BAY
Grand Resorts
ClubM A K A DI BAY
Club
MAKADI EGYPTOPERATINGDESTINATION
ROYAL AZUR AND CLUB AZUR EGYPTOTHERHOTELS
CITADEL AZUR EGYPTOTHERHOTELS
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
34 35Annual Report - 2016 STRATEGICALLY DECENTRALIZED
Located100kmsouthwestofCairoinanideallocationoverlookingthespirituallakeofQarun.TheplanissettodeveloptwoluxuryresidentialcommunitiesByoumandAlRoboua,inFayoum.
In1998,theGroupacquiredfromthirdpartieslandrightsinitiallyacquiredfromtheGovernmentofEgyptatElFayoumforaresidentialrealestatedevelopmentproject.Totallandparcelssecuredcoverapproximately1.08millionm2.Al-Robouaprojectoffers36standalonevillasintraditionalNubianstylewithallsupportingamenities.Duringthethirdquarterof2008,Byoum,anewresidentialrealestateproject,waslaunchedcoveringatotalareaofapproximately446,507m2outofthetotalawardedland.Byoum,isplannedtoofferrealestateunits,a4-starhotel,beachclub,huntinglodge,Pierandcommercialareas.WeareplanningtolaunchnewrealestateproductswithatotalinventoryofCHF3.4millioninQ22017.
Highlights2016
* InSeptember2016,wesuccessfullyheldthesoftopeningofByoumLakesideHotelafour-starshotelwitha50rooms.
1.08millionm2
TOTALPROJECTAREA
0.32millionm2
COMPLETEDAREA
FAYOUM EGYPTOPERATINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
36 37Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TOTALPROJECTAREA
2.60millionm2
COMPLETEDAREA
2.18millionm2
Duringthelastquarterof2006,OrascomDevelopmententeredthebudgethousingarena,abusinessstrategicallyfocusedondevelopingaffordableincomehousingthroughoutEgyptbyestablishingthroughitssubsidiaryOrascomHotelsandDevelopment(OHD)thebudgethousingcompanyOrascomHousingCommunities(OHC).OHCisthefirstEgyptiancompanytofocusonthedevelopmentofhigh-qualityaffordablehousingunitswithinsustainableandfully-integratedtownshipsinEgypt.
OrascomHousingCommunities,a35.25%ownedbyOrascomHotelsandDevelopment,managesthislineofbusiness.Launchedin2007asthefirstofitskindinEgypt,HarramCity’sawardwinningmodelofaffordablehousingwithinasustainableandfullyintegratedtownshipencouragessocialresponsibilityandcivilengagement.Locatedin6thofOctober,20kmwestofCairo,HarramCityspansoverapproximately2.60millionm2ofland,andisnowhometomorethan40,000residents.Asatrulyintegrateddevelopment,HarramCityofferscomprehensivecommunityfacilitiesincludingschools,clinics,worshiphouses,sportingamenities,acinema,policestation,nurseriesandcommercialoutlets.Beyondensuringthetown’s
self-sustainabilitythroughemploymentopportunitiesincommercialandindustrialsectors,thecityhostsvariousprojectsdesignedtostimulatejobcreationandbenefitstheoverallcommunityaswellasunderprivilegedsegments.Inordertoimprovethequalityofeducationofthetownstudents,theGroupsubsidizesfourpublicschoolssuchasHarramCityLanguageSchoolandOrascomLanguageSchool,makingthemmoreaffordablefortheenrolledstudentstolearnEnglish,German,andArabic.
Highlights2016:
* Startedtheconstructionof240unitstobedeliveredduring2017and2018.
* Delivered256unitsduring2016andstartedtheexcavationof176newunits.
* Continuedtheinfrastructureof120acres(includingroads,hardscape,planting,plumpingpipes,waterandfirepipes,andmediumandlowvoltagecables).
* Openedthepolicestationandthechurchduring2016.
* ProceedingwiththeconstructionofElectricstationandOrascomLanguageSchool.
HARRAM CITY EGYPTOPERATINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
38 39Annual Report - 2016 STRATEGICALLY DECENTRALIZED
DescribedasoneofEgypt’smostspaciouscruiseshipswith27cabins.
OberoiZahraoffersthehigheststandardsofhospitalityandservice.TheOberoiZahraistheonlyNileCruiserwithafullservicespaandhasbeenrecognizedbytheEgyptianMinistryofTourismasthe“BestCruiserontheRiverNile”.
In2010,followingthesuccessofHarramCity,OHCwasallocated0.8millionm2oflandintheQenaGovernorate,UpperEgypt.
QenaGardensistoprovideahigh-qualityaffordablehousingunitswithinsustainableandfully-integratedtownshipsinQena.Theprojectisplannedtoincorporateresidentialunits,aschool,clinics,shoppingareas,andanentertainmentvenue.
Highlights2016
* Delivered35unitsin2016.
0.80millionm2
TOTALPROJECTAREA
QENA GARDENS EGYPTDEVELOPINGDESTINATION
ZAHRA OBEROI EGYPTOPERATINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
40 41Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TOTALPROJECTAREA
6.20millionm2
COMPLETEDAREA
0.25millionm2
AnaturalgatewaylocatedontheshoresofOman,JebelSifahisashortdrivefromMuscatandlocated20minutesfromBandarKhayran.NestledbetweenthemajesticAlHajarMountainrangeandtheArabianSea,JebelSifahisspreadover6.20millionm2,with5kmofbeautifulOmanibeaches.ItisODH’sthirdbiggesttown.
JebelSifahboastsarangeoffreeholdwaterfrontapartments,luxuryoceanviewvillasandtherecentlylaunchedGolfLakeapartments,overlookingthelargesttwoholesoftheHarradinegolfcourse.Asanintegratedtourismcomplex,thedestinationoffersindividualsandinvestorsalikeanattractiveproposaloffreeholdrealestateoptionsandresidencystatuswithanalternativelifestyleinamulticulturalcommunity.
AttheheartofJebelSifahisthe85-berthMarina,whereyachtownersareassuredasafehavenfortheirboats,withanadditionalcapacityof150dryberths.Themarinaishometothefour-star67-roomSifawyBoutiqueHotel,thefirstoffiveplanned5-starexclusivehotels,featuringtheJebelSifahHotel,ResortandSpa,byAnantara,sub-developedbytheleadingpropertydeveloperandinvestorMusstir.
AlsooverlookingtheMarinaisanarrayoflivelyrestaurants,shopsandserviceoutlets,allcomplementedbyahostoffirst-classrecreationandentertainmentfacilities.TheseincludethechancetoviewOman’samazingtreasurechestofmarinelifeupclose,fun-filledwatersportsandtheexhilaratingfloatingwaterpark.
AddingtothemixistheJebelSifah9-holeresortgolfcourseanddrivingrangedesignedwiththeenvironmentinmindbytherenownedPeterHarradine.ThismasterpieceissettobelaunchedinSeptember2017.
AnaturalgatewaylocatedontheshoresofOman,JebelSifahisODH’sthirdbiggesttown.
Highlights2016
* Progresswithgolfcourseconstruction.ExpectedtobelaunchedinSeptember2017.
* NewamenitiesandshopsopeningsincludinggymandSMErestaurantservinginternationalcuisine.
* Infrastructurecompletedinthemainresortboulevardanddifferentvillazonesincludingwaterplumbing,electricallinkageandlandscape.
* PartneredupwithinvestorstodeveloptwoEcoLodgeHuts.
* Launchedanewrealestateproject“GolfLakeResidence”inOctoberwithatotalinventoryofCHF22.16mn,comprisingof131apartmentsandsucceededtosell60%ofthetotalprojectsincelaunch.
* Openedfloatingfuelstationonthemarina.
* Plantolaunchnewrealestateprojectsin2017.
JEBEL SIFAH OMANOPERATINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
42 43Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TOTALPROJECTAREA
13.60millionm2
COMPLETEDAREA
1.60millionm2
LocatedintheancientGovernorateofDhofar,andstretchingoversevenkilometersofphenomenallywhitebeautifulIndianOceancoastlineand13.6millionm2ofland,HawanaSalalahisasustainablybuiltever-evolving,low-densitytown.ItisourflagshipdestinationinOmanandfollowingthemodelsuccessfullybuiltinElGouna.
HawanaSalalahincorporatesluxuryfreeholdvillasandone,twoandthreebedroomapartments,allenjoyingspectacularviewsofthebreath-takingocean,marinaorthetranquillagoons.Withspaceforthecommunity,publicandrecreationareasaboundtoencouragewell-being,familytime,get-togethersandconnections.
Centraltothedestinationisitsluxurioushotelsandresortexperienceswiththefirstthreehotels,ofthesevenplannedhotels,alreadyopen:the82-roommarina-sideJuweiraBoutiqueHotel;theluxurious400-room5-starSalalahRotanaResortwithitselegantwaterwaysandcoconut-fringedprivatebeach,andthe218-roomFanarHotelandResidences,whichrecentlyincreaseditscapacitywithanadditional84roomsinDecember2016.Thusbringingthenumberofroomsto302rooms.
Creatinganenvironmentthatbringspeopletogetherandnurturinglocalbusinesses,HawanaSalalahoffersresidents,visitorsandtouristsanexceptionalrangeoffacilitiesandleisureoptionsincludingastate-of-the-art171berthsuperyachtmarinawithanadditional109dryberths,thecommunity’ssocialhubandapopularportofcallforseafarersfromaroundtheworld.Settobeamagnetforfun-seekersisthedestination’sworld-classwaterpark,whichisscheduledforlaunchbytheendof2017.HawanaSalalahalsooffersagrowingrangeofrestaurants,cafés,andlounges,wateractivitiesandseaexcursions,aswellasculturalandretailoutlets.
HawanaSalalahistuckedawayjust20minutesfromSalalah’snewlyrefurbishedinternationalairport,withregulardirectflightsfromneighboringandEuropeandestinations.
Highlights2016:
* Planningtostarttheconstructionofthewaterparkwithplanstobefinalizedbytheendof2017.
* Partneredupwithinvestorstodevelopnewsubprojectsthatwilladdcriticalmasstoourdestinations,including"SoulyLodgewhichcomprisesof14beach-fronteco-lodgehutswhichlaunchedinFebruary2017.
* OpenedFanarHotel&Residencesextension(84rooms)onDecember22,2016.
* NewhotelchartercontractsfromPolandandSlovakia.
* Additionalpontoon
* Plantolaunchnewrealestateprojectsin2017.
Creatinganenvironmentthatbringspeopletogetherandnurturinglocalbusinesses,HawanaSalalahoffersresidents,visitorsandtouristsanexceptionalrangeoffacilities.HAWANA SALALAH
OMANOPERATINGDESTINATION
03ORASCOM COUNTRIES
44 45Annual Report - 2016 STRATEGICALLY DECENTRALIZED
03ORASCOMCOUNTRIES
Asecludedislandcovering11.0millionm2,AsSodahislocatedoffthesoutherncoastofOmanoppositetoHawanaSalalah.
TheIslandissettobetheregion’snichedestination,comprisinga32rooms5-starsluxuryboutiquehotel.Thehotelspansanareaof1.0millionm2andfeaturesexclusivepavilionswithswimmingpoolsandprivateaccessbeach.Thehotel’splanalsoincludesamainlodgeandaspa.
CityWalkMuscat,avibrantbeachfrontcommercialcitycomplexlocatedinNorthAlHail,Muscat.
Thelandcoversanareaofapproximately47,499m2thatwillcomprisea355-meterwaterfront,aretailareawithshopsandrestaurants,aswellasanupscale123-room5-starhotel.Additionally,theprojectwillfeatureacommercialareawithofficesandadedicatedcinemacomplex.
InNovember2016,theGroupsignedthedevelopmentagreementbasedonausufructconcessionfor50yearswithfeespayablestartingfromyearsix.
1.00millionm2
TOTALPROJECTAREA
0.04millionm2
TOTALPROJECTAREA
AS SODAH ISLAND OMANDEVELOPINGDESTINATION
CITY WALK MUSCAT OMANDESTINATIONINTHEPIPELINE
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
46 47Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TOTALPROJECTAREA
0.29millionm2
COMPLETEDAREA
0.29millionm2
TheCoveRotanaResortislocatedonanidyllicwaterinletontheRasAl-Khaimahbeachfront,offeringspectacularviewsovertheArabianGulf.Just8kmfromtheCityCentre,20kmfromtheRasAl-KhaimahAirportandan87kmdrivefromDubai.
TheCovecomprisesatotalareaofaround290,000m2,ofwhichapproximately285,000m2havebeendeveloped.TheCoveopeningtookplaceinearlyFebruary2009,offering346rooms.Thetotalnumberof346roomsconsistsof204hotelrooms(hotelbuilding)plus142roomsresultedfrom80residentialunitsbeingleasedbacktotheRAKTIandmanagedbyRotanaaspartofthehotelrooms’inventory.Meanwhile,anewstaffhousingbuildingwasconstructedandfinishedinNovember2015.Inadditiontothat,theGroupdecidedtoconverttheoldseniorexecutives’staffhousingbuildingintoa145roomhotelextensiontoincreasetheexistingroomcapacityanditisexpectedtobefinalizedin2017.
TheCoveRotanaResortisanidealdestinationforleisuretravelersandweekendbreakers.TheCoveoffers3fully-equippedandflexiblemeetingroomswiththelatestaudio-visualequipment,6attractivechoicesofrestaurants,barsandlounges,thefullyequippedBodylinesFitnessandWellnessClub,kidsarea,600metersofpristinebeach,2swimmingpoolsand7exquisitelydesignedmassagetreatmentroomsareamongthemanyfacilitiesofferedatTheCoveRotanaResort–RasAlKhaimah.
AwardsReceivedfor2016
WorldLuxuryHotelAward2016
* LuxuryCoastalResort–CountryWinnerUnitedArabEmirates
TripAdvisor2016Winner
* CertificateofExcellence
HolidayCheckAward2016
* VotedasoneofthemostpopularHotelsWorldwide
THE COVE UAEOPERATINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
48 49Annual Report - 2016 STRATEGICALLY DECENTRALIZED
LušticaDevelopmentA.D.isdevelopingafullyintegrated,self-sufficientandluxurytouristicdestinationontheMontenegrinAdriaticcoastattheidyllicTrašteBaywithalandbankofapproximately6.90millionm2,placedashortdistancefromthreeinternationalairports(only10kmfromTivatairportandPodgorica90kmandĆilipi-Dubrovnik46km).TheGrouphadconcludedtheleaseanddevelopmentagreementwiththeGovernmentofMontenegroandtheMunicipalityofTivatonthe23rdofOctober2009.
ThegoalofLušticaBayistocreateadistinctcommunity,withinaself-sufficientextraordinarysetting,whereresidentscancreateahomearoundthelifetheywanttolive.CombiningMontenegro’sbeautyandculturewithOrascomDevelopment’sexperienceofcultivatingenvironmentally-centred,luxuryresidentialliving,itprovidesafoundationthatwillgroworganically.
LušticaBayissettobecomeasustainable,fully-integrated,state-of-the-arttown.Designedtoblendseamlesslyintoitssurroundingsitwillbecomeapermanenthometoafewthousandresidents.Itcomprisesavarietyofresidentialofferings,hotelsandlifestylefacilities,offeringbothtranquilityandprivacy,discoveryandadventure.AsecludedoasisandagatewaytotherestofMontenegro.
Theintegratedprojectisplannedtoofferresidentialunits,7worldclasshotels,2marinaswithmooringand
dockingsupportfacilitiesontheAdriaticSea,an18-holegolfcoursewithclubhouse,commercialfacilities,atowncenter,andbasicinfrastructurerequirementsandmanyotheramenities.
ConstructionstartedinSeptember2013andthefirsttwobuildingsclusters(10buildingscomprising70apartments)havebeenfullyfinishedanddeliveredin2015,withresidentsmovinginthesummerof2015.AfterthreeyearsLušticaBayisnowlive,andgrowingnewtownproject.
2017willseeheavyconstructionworksbeingcarriedoutinalldirections–fromthemarina,hotelandinfrastructuretoprogresswithotherresidentialzones.
LušticaBayoffersawiderangeofproperties,fromwaterfrontapartments,charminghillsidetownhouses.Adiversebutdistinctcommunityforthosewhoseekalifelikenoother.
Highlights2016
* ProgressingaheadofschedulewiththeconstructionofthenewFandGbuildingscomprising88apartmentsexpectedtobefinalizedbyearly2017.
* Finalizedthemarinasuperstructure,planningtolaunchthemarinainthesummerof2018.
* ExcavationworksfortheGolfCourseiscompletedandtheconstructionpermithasbeenobtained(thefirstGolfCoursepermitinMontenegro).
* Thefirst5-starhotelinpartnerwithworld-renownedluxuryhotelbrandTheChedi.SettobecomethesecondEuropeanhotelofTheChedibrand,thehotelwilloperateonaspectacularcentralpositionwithintheLušticaBaymainmarinapromenade,affordingstunningviewsoverthemarinaandtheAdriaticSea.
* PlanningtostarttheconstructionofthefirsthotelinLušticaBayheadedbyluxuryhotelbrandTheChediinthefirsthalfof2017.
TOTALPROJECTAREA
6.90millionm2
COMPLETEDAREA
0.14millionm2
LUŠTICA BAY MONTENEGROOPERATINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
50 51Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TheAndermattSwissAlpsdevelopmentistransformingthetraditionalSwissAlpinevillageintooneofthebestyear-rounddestinationsinSwitzerlandcomprisingsomeofthefinestfacilities.
Withatotallandbankofapproximately1.57millionm2,Andermattissituatedat1,440metersabovesealevelandliesapproximately1.5hoursbycarfromZurichand2hoursfromMilan.Itscentrallocationresultsinexcellentconnectionstothemajornationalandinternationaltransportroutes.EverybuildinginAndermattSwissAlpsDevelopmenthasbeenindividuallydesignedbyoneofover30selectedSwissandinternationalarchitectstocreateabeautifulandeclecticappearanceforthemaster-plannedresort.
Tomaintainaperfectlyharmoniousandpeacefulenvironmentthevillagecentrewillbeacarfreezoneandenoughundergroundparkingspacesareprovidedforvisitorsandresidents.Thenewaccommodationandsportsfacilitiesmeanthatwhetheryouseek
adrenalinorrelaxationyourneedsarecateredforinthemostspectacularsurroundings,fromanecologicallydesigned18-holegolfcoursemeetinginternationaltournamentstandardsidealforoutdoorsummeractivities,tomodernizedskifacilitieslinkingupwiththeneighboringskiareaofSedruntoforma120-kilometerskidomain.Thehighlyintegratedinfrastructureandstateoftheartfacilitieswillalsomakethevillagetheperfectlocationforculturaleventsandcongresses.
TheGrouphasashareofinterestof49%inAndermattSwissAlpsAG,remainscommittedtotheprojectandwillbenefitfromanyfutureupside.InNovember2015ASAsuccessfullysoldbondsintheamountofCHF50millionwhichwillhelpinfundingthenecessarynextstepsofthedevelopment.
Highlightsin2016
* OfficialOpeningoftheAndermattSwissAlpsGolfCourseandhostingtheSwissPGAduringitsfirstyearofoperation
* The5-stardeluxeHotelTheChediAndermattwasannouncedGaultMillauHoteloftheYear2017,andbestwinterhotelofSwitzerlandbythenationalSwissNewspaperSonntagsZeitung
* OccupancyratescontinuetoincreasesignificantlyinTheChediAndermatt
* Toppingoutceremonyofthreenewapartmenthouses,theGotthardResidenceswithpublicspaandswimmingareasanda4-starhotel
* RadissonBluannouncedastheoperatorofthenew4-starHotel
* Startingtheplanningofthenextapartmenthouseswhichuponits
completionthedestinationwillhaveitsfirstvillagesquare
*Offeringnewretailspaceswiththenewapartmenthouses
* 70%ofallthebuiltandoccupiedapartmentsaresoldwithanincreaseinthenumberofrentedapartments
* TheSkiArenaAndermatt-Sedrunhastwonewchairliftsinoperation–oneisaPorscheDesignunitwithheatedseats
* StartofconstructionoftheGondola-corepiecefortheskiingarea“Nätschen-Gütsch”
* IntheprocesstofinalizetheconnectionbetweenthetwoskiareasAndermattandSedrunbyahorse-drawnsledge
* ThevalleyrunsinAndermattandSedrunaresnowsecurethankstotechnicalsnowmaking
Andermattisaplacewhereyoucanbreatheinthefreshalpineairandstayrelaxedwithinamostfascinatingsetting.
1.57millionm2
TOTALPROJECTAREA
1.28millionm2
COMPLETEDAREA
ANDERMATT SWITZERLANDOPERATINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
52 53Annual Report - 2016 STRATEGICALLY DECENTRALIZED
TheGroupformallyestablishedEco-BosDevelopmentLtdinMay2010asajointventurewithImerys,amultinationalindustrialmineralscompany,todevelopaseriesofsustainablecommunitiesinCornwallUnitedKingdom.Thetotallandbankisover6.54millionm2dividedover6separatesites.
TheschemewasoriginallyconceivedaspartoftheUKGovernment’sEco-towncompetitiontopromotethegrowthofsustainablecommunitiesandtheinnovativeEco-Bosproposalstoregeneratelandformerlyusedformineralsextractionandprocessingreflectsthepotentialandaspirationsofsuch“green”developmentinitiatives.
TheEco-Bosproposalswillofferamixedportfolioofaround5,000realestatedwellingsacrossallmarketsectorsalongwithassociatedretailandemploymentspaces.Leisureandrecreationfacilitiesarealsoplannedwithproposalsforoneocean-facingsiteincludinga5-starhoteland
marinadevelopment.Thecompanyhasfocusedonsecuringplanningandcommencingdevelopmentforthefirstphaseofthesesitesandtheplanningauthorityhasrecentlytakenafavorableviewofthebenefitstheseproposalswouldbring,inparticularcreatinghousing,employmentandleisurefacilitiesandvotedinfavourofgrantingaplanningpermit.
Thisisamajorstepforwardfortheprojectandallowsustonowfinalisethisstageoftheprocessandthenproceedtothenextstageofdetaileddesignandphasedimplementation.
6.54millionm2
TOTALPROJECTAREA
ECO-BOS UKDESTINATIONINTHEPIPELINE
Comingacrossalocationofsuchuntappedbeautyalongwiththeuniquelandscapeoftheocean,mountainsandsandharmoniouslyco-existing;hascontributedtothemoldingofChbika’sarchitecturewiththenaturalsurroundings.Chbikaisideallylocatedapproximately400kmsouthofAgadirdirectlyinfrontoftheCanaryIslandofFuerteventuraontheAtlanticOcean,withatotallandareaof15.0millionm2.
Themasterplanoftheprojectreflectsamodernoasisofharmonycharacterizedbyawestern,Moroccanculturalblend.Hometoworldclasshotels,mixofvillasandapartments,atmosphericriads,andevencustomizablemansionsintheKosourneighborhood,Chbika,likeallotherOrascomDevelopmentsignaturetowns,willfeaturestate-of-artfacilitiesincludingshops,diningoutlets,aswellasamedina-stylehandcraftcenterandamedicalfacility.
Theprojecthasbeengrantedthestatusofnewintegratedtourismzone.Theprojectcompany(OuedChbika)hastherighttoacquireandtransferfreeholdtitletothelandareaofapproximatelyfivemillionm2(Phase1)andapproximatelytenmillionm2(Phase2)subjecttocertainconditions.
Theprojectcompanyhastherighttotransferitsrightsunderthedevelopmentagreementsubjecttocertainconditions.
WeaimatdevelopingatouristdynamicengineofsocialandculturaldevelopmentintheprovincesofsouthernMorocco,incorporatinglocalpeople.
TOTALPROJECTAREA
15.0millionm2
CHBIKA MOROCCODEVELOPINGDESTINATION
03ORASCOM COUNTRIES
03ORASCOM COUNTRIES
54 55Annual Report - 2016 STRATEGICALLY DECENTRALIZED
ORASCOM CORPORATE GOVERNANCE04
4.1 GroupStructureandSignificantShareholders
4.2 CapitalStructure
4.3 BoardofDirectors
4.4 ExecutiveManagement
4.5 CompensationShareholdingandLoans
4.6 Shareholders'Participation
4.7 ChangesofControlandDefenseMeasures
4.8 Employees
4.9 ExternalAuditors
4.10 InformationPolicy
4.1 Group structure and significant shareholders
Groupstructure(ReportingStructure)
TheoperatingbusinessofOrascomDevelopmentHoldingAG(“OrascomDevelopment”orthe“Company”)isorganizedintothefollowingsegments:Hotels,RealEstate&Construction,LandSales,DestinationManagement,andOtherOperations.
ThesharesoftheCompanyarelistedontheSIXSwissExchange.Inaddition,thesharesoftheCompany'ssubsidiaryOrascomHotelsandDevelopmentS.A.E.arelistedontheEGXEgyptianExchange.Seebelowformoreinformationonthelisting.
Foralistofthegroup'sunlistedsubsidiariesseenote18ofthenotesoftheconsolidatedfinancialstatements.
Significantshareholders
ThefollowingshareholdershavedisclosedascurrentlyholdingaparticipationintheCompanyof3.0%ormoreinvotingrights(inaccordancewithArt.120FMIA1):
Cross-Shareholdings
Therearenocross-shareholdingsbetweentheCompanyandanyotherentitythatwouldexceed5.0%ofcapitalorvotingrightsonbothsides.
OnApril4,2016,JanusCapitalManagementGroupdisclosedthattheirparticipationintheCompanyhadfallenbelow3.0%invotingrights.
OnMay3,2016,SamihO.SawirisandOnsiSawirisdisclosedthecreationofashareholdergroupholding72.7%ofthevotingrightsintheCompany.
Asidefromtheabove,theCompanyisnotawareofashareholderholdingaparticipationof3.0%ormorevotingrights.
Company
ORASCOM DEVELOPMENT HOLDING AG
(ALTDORF,SWITZERLAND)
ThemarketcapitalizationofOrascomDevelopmentasperDecember31,2016isCHF206.49million.ThesharesofOrascomDevelopmentarelistedontheSIXSwissExchangeaccordingtotheInternationalReportingStandard.ThesecondarylistingintheformofEDRs(EgyptianDepositaryReceipts)ontheEGXEgyptianExchange(20EDRs=1equityshare)willbediscontinuedduringthefirsthalfof2017andtheEDRswillbedelisted.
ListingontheSIXSwissExchange
Exchange SIXSwissExchange
Symbol ODHN
Securitynumber 003828567
ISIN CH0038285679
ORASCOM HOTELS AND DEVELOPMENT S.A.E.
(CAIRO,EGYPT)
EGXRegistration
Exchange EGXEgyptianExchange
Marketcapitalization EGP1,400.00million
Symbol ORHD
ISIN EGS70321C012
OrascomHotelsandDevelopmentS.A.E.is84.79%ownedbyOrascomDevelopment.
Name of shareholder Number of shares as of December 31, 2016
Percentage of ownership of the total equity capital
and voting rights 2
SAMIH O. SAWIRIS AND ONSI SAWIRIS3 29,359,216 72.7
Orascom Development Holding AG
Hotels
RealEsta
te&
Constr
uction
DestinationManagement
Land
Sa
les
Other
Operations
1SwissFederalActonFinancialMarketInfrastructuresand
MarketConductinSecuritiesandDerivativesTrading
(FMIA).2Thetableshowssignificantshareholdersaslastdisclosedto
theCompanypursuanttoArt.120FMIA.Thenumberof
sharesandpercentagesshownconformtothesituationat
thetimeoftherespectivelastdisclosure.Theydonotneces-
sarilyconformtothesituationasperDecember31,2016,
giventhatashareholdermayhavepurchasedorsoldshares
subsequenttothelastdisclosure,butmaynothavethereby
reachedorcrossedadisclosurethreshold.Forinformation
ontheparticipationsofshareholdersexceeding3.0%of
votingrightsasreflectedintheCompany’sshareregisteras
ofDecember31,2016,refertoNote27.5oftheCompany’s
non-consolidatedfinancialstatements.3ThesharesareheldthroughtheentitiesThursdayHolding,
SOSHoldingandOSHolding.
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Capital
AsofDecember31,2016,theCompany’sissuedsharecapitalamountedtoCHF937’510’283.20andwasdividedinto40’409’926registeredshareswithanominalvalueofCHF23.20each.
Authorized and conditional capital
Authorized capital
TheordinarymeetingofshareholdersheldonMay18,2015authorizedtheBoardofDirectorstoincreasethesharecapitaloftheCompanybyamaximumofCHF278,400,000.00byissuingupto12’000’000fullypaid-upregisteredshareswithaparvalueofCHF23.20eachuntilMay18,2017.
Partialincreasesarepermitted.TheBoardofDirectorsdeterminesthedateofissue,theissueprice,thetypeofcontribution,thedateofdividendentitlementaswellastheallocationofnon-exercisedpre-emptiverights.Thesubscriptionrightsoftheexistingshareholdersshallbegranteddirectlyorindirectly(e.g.byunderwrittenofferingfollowedbyanoffertothethen-existingshareholdersoftheCompany).
FollowinganincreaseofthesharecapitaloutoftheauthorizedsharecapitalonDecember15,2015,theBoardofDirectorsremainsauthorizedtoincreasethecapitaloftheCompanybyamaximumofCHF3,090,272.20byissuingofupto133'221fullypaid-upregisteredshareswithaparvalueofCHF23.20eachuntilMay18,2017.
Forthefullwordingregardingtheauthorizedsharecapital,seeArt.4aoftheArticlesofIncorporationwhichareavailableontheCompany'swebsitehttps://www.orascomdh.com,followingthelinkstoInvestorRelationsandCorporateDocuments.
Conditional capital
PursuanttoArt.4boftheArticlesofIncorporationregardingtheCompany’sconditionalcapital,theCompany'ssharecapitalmaybeincreasedbyamaximumamountofCHF139,200,000throughtheissuanceofupto6,000,000fullypaidregisteredshareswithanominalvalueofCHF23.20each,(a)uptotheamountofCHF23,200,000correspondingto1,000,000fullypaidregisteredsharesthroughtheexerciseofoptionrightsgrantedtothemembersoftheBoardofDirectorsandthemanagement,furtheremployeesand/oradvisorsofthecompanyoritssubsidiaries,(b)uptotheamountofCHF116,000,000correspondingto5,000,000fullypaidregisteredsharesthroughtheexerciseofconversionrightsand/orwarrantsgrantedinconnectionwiththeissuanceofnewlyoralreadyissuedbondsorotherfinancialinstrumentsbytheCompanyoroneofitsgroupcompanies.
Thesubscriptionrightsoftheshareholdersshallbeexcluded.TheBoardofDirectorsmayrestrictorwithdrawtherightforadvancesubscription(Vorwegzeichnungsrecht)oftheshareholdersinconnectionwith(i)thefinancing(refinancinginclusively)ofacquisitionsofenterprisesorpartsthereof,participationsorotherinvestmentprojectsofthecompanyand/oritssubsidiariesor(ii)theplacementofconvertiblebondsorfinancialinstrumentswithconversionoroptionrightsonthenationalorinternationalcapitalmarket.
AsofDecember31,2016,nooptionrights,conversionrights,orwarrantshadbeengrantedonthebasisofArt.4b.
Forthefullwordingregardingtheauthorizedsharecapital,seeArt.4boftheArticlesofIncorporationwhichareavailableontheCompany'swebsitehttps://www.orascomdh.com,followingthelinkstoInvestorRelationsandCorporateDocuments.
Changes in capital in the past three years
2014
Thesharecapitalwasnotchangedduringthe2014financialyear.TheregisteredsharecapitalasofDecember31,2014amountedtoCHF662,201,010.40,dividedinto28,543,147registeredshareswithaparvalueofCHF23.20each.
2015
OnDecember14,2015,theCompanycompletedanauthorizedcapitalincreaseintheamountofCHF275,309,272.80throughtheissuanceof11,866,779registeredshareswithaparvalueofCHF23.20each.Theshareswereofferedtotheexistingshareholdersbywayofarightsoffering.Thenewshareswerepaidupincash,byconversionofaloanfromtheCompany’smajorshareholder,SamihO.Sawiris,andbyconversionofcapitalcontributionreservesintoequity.
2016
Theordinarysharecapitalwasnotchangedduringtheyearunderreview.
TheCompany'sannualgeneralmeetingheldonMay9,2016,resolvedtoincreasetheconditionalsharecapitalpursuanttoarticle4blit.aoftheArticlesofIncorporationfromCHF14,489,699.20,correspondingto624,556shareswithaparvalueofCHF23.20each,toCHF23,200,000.00,correspondingto1,000,000shareswithaparvalueofCHF23.20each,andtoamendarticle4blit.aoftheArticlesofIncorporationaccordingly.
4.2 Capital Structure
Shares and participation certificates
The40,409,926registeredshareswithaparvalueofCHF23.20arefullypaidin.Theyareintheformofdematerializedsecurities(Wertrechte,withinthemeaningoftheSwissCodeofObligations)andintermediatedsecurities(Bucheffekten,withinthemeaningoftheSwissFederalIntermediatedSecuritiesAct).Eachregisteredsharecarriesonevoteandanequalrighttodividendpayments.Nopreferentialorsimilarrightshavebeengranted.
AsofDecember31,2016,noparticipationcertificates(Partizipationsscheine)havebeenissued.
Profit sharing certificates
TheCompanyhasnotissuedanyprofitsharingcertificates(Genussscheine).
Limitation on transferability and nominee registrations
Limitations on transferability PursuanttoArt.5oftheArticlesofIncorporation,theCompanymaintainsashareregisterinwhichthefullname,addressandnationality(incaseoflegalentities,thecompanynameandregisteredoffice)oftheholdersandusufructuariesofregisteredsharesarerecorded.
UponapplicationtotheCompany,acquirersofregisteredshareswillberecordedintheshareregisterasshareholderswiththerighttovote,providedthattheyexplicitlydeclaretohaveacquiredthesharesintheirownnameandfortheirownaccount.
Acquirerswhodonotmakethisdeclarationwillberecordedintheshareregisterasshareholderswithouttherighttovote(foranexceptiontopermitnomineeregistrations,seebelow).
Exemptions in the year under review Noexemptionsfromthelimitationsontransferabilityofshareshavebeengrantedintheyearunderreview.
Nominee registration PursuanttotheCompany’sRegulationsontheRegistrationofNominees,theCompanymayregisteranomineeinitsshareregisterasashareholderwiththerighttovoteifeithersuchnominee’sshareholdingsdonotexceed5%oftheissuedsharecapitalassetforthintheCommercialRegister,or,ifsuchnominee’sshareholdingsexceedthatthreshold,therespectivenomineedisclosestotheCompanythenames,addresses,locationsorregisteredoffices,nationalitiesandthenumberofsharesheldonbehalfofallbeneficialownerswhosebeneficialshareholdingsexceed0.5%oftheissuedsharecapital.
Procedure and conditions for cancelling statutory privileges and limitations on transferabilityTheArticlesofIncorporationdonotprovideforanyprivileges.ThelimitationsontransferabilityoftheCompany’sshares,asdescribedbefore,maybecancelledbyaresolution(amendingtheArticlesofIncorporation)ofanordinarygeneralmeetingofshareholdersreunitingtheabsolutemajorityofvotesrepresentedatthemeeting,orbyaresolutionofanextraordinarygeneralmeetingofshareholdersreunitingamajorityoftwothirdsofthevotesrepresented(seeSection4.7below).
Convertible bonds and warrants/options
TheCompanyhasnotissuedanyconvertiblebonds,warrantsoroptions.
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Mr.Sieber,borninLucerne,Switzerland,studiedeconomicsattheBusinessSchoolinLausanne.Aftergraduatingwithabusinessdegree,in1989hetookoverthefamilyownedcompanySIGAHoldingLtd.togetherwithhisbrother.
Mr.SiebermanagedtotransformSIGAintoacompanywhichoperatesinternationallyandwhichhasover450employees.
SIGAdevelopsandproducesproductsfortheconstructionsector,namelyinthefieldofenergy-savingsealings.Mr.Sieberisamemberofseveralboards.
Mr.NaguibS.SawirisistheFounderandCEOofYup(2014-present),aSanFranciscobasededucationtechnologycompany.Yupprovideson-demandpersonalizedlearningthroughmobilechatwithover500,000studentsign-ups.YuphasraisedUSD7.5millionfromleadingtechandeducationinvestorsincludingIndexVentures,FloodgateFund,andStanfordUniversity'sStartXFund.Mr.NaguibS.SawirisattendedStanfordUniversitywherehedesignedhisownmajor,EconomicandEnterpriseEngineering.
Heisanactiveangelinvestor,havinginvestedinover20companiesincludingDoctorOnDemand,Transcriptic,andWomply.HisinvestmentshavewentontoraisemorethanUSD200millioninsubsequentrounds.
AfterreceivinghisDiplomaineconomicengineeringfromtheTechnicalUniversityofBerlinin1980,Mr.Sawirisfoundedhisfirstcompany,NationalMarineBoatFactory.In1996,heestablishedOrascomProjectsforTouristicDevelopmentandin1997OrascomHotelHoldings,thetwocompanieslatermergedtoformOrascomHotelsandDevelopmentS.A.E.(OHD).Furthermore,Mr.SawirisestablishedElGounaBeveragesCo.in1997,whichhesoldin2001whenitwasthelargestbeveragecompanyinEgypt.
AsofApril1,2014,Mr.SawiristookoverthepositionoftheCEOonad-interimbasisofOrascomDevelopmentuntilDecember31,2015.HealsoservesasChairmanoftheBoardofDirectors.
Mr.JürgenFischerisfounderof“ThePearlManagementConsultants”inDubai,UAE.PreviouslyhewasCEOofDubaiPropertiesLLC,amajorrealestatedeveloperintheUAE.Besideslookingafter20,000residentialleasingunits,50,000sqmofretailspace,thousandsof“BuilttoSell”apartmentsandvillasandseveralmasterdevelopmentsinDubai,hewasaswellinvolvedininternationaldevelopmentsofSamaDubaiGroupin,amongothers,MoroccoandOman.DuringhistimewithDubaiPropertiesheoversawseveralthemeparkandtouristprojects.Between1995and2008JürgenFischerheldseveralseniorpositionswithHiltonInternational,suchasPresidentCommercialOperationsandPresidentforContinentalEurope,MiddleEastandAfrica,aswellasPresidentofScandicHotelsAB.Since2008FischerisaswellaNonExecutiveBoardmemberofMovenpickHotels&ResortsandNonExecutiveChairmansince2014todate.
PriortojoiningHilton,heworkedfortheWaltDisneyCompanyindifferentrolesinFloridaandParisincludingVicePresidentSalesandMarketingforDisneylandParis,DirectorofResortDevelopmentatDisneylandParisandGeneralManagerofthe«GrandFloridianBeachResortandSpa»atWaltDisneyWorld,Florida.FischerheldseveralhotelmanagementpositionsinEuropeandMiddleEastafterstartinghisprofessionallifeasachefin1970.HelatergraduatedfromtheEcoleHôtelièreLausanne,SwitzerlandandobtainedanMBAwithHonorsfromIMEDE/IMD,Lausannein1988.
Ms.Müller-MöhlisaSwissfounder,investorandphilanthropist.Since2000,CarolinaMüller-MöhlhasmanagedandpresidedovertheMüller-MöhlGroup,asingle-familyofficethatactivelymanagesthefamily'sinvestments.ShecurrentlyservesontheboardofdirectorsofGebrüderMüllerImmobilienAG(since2000),AGfürdieNeueZürcherZeitung(since2010),amajormediagroupinSwitzerland,andin2015alsobecameaboardmemberofFielmannAG,Europe'slargestoptician.
Ms.Müller-Möhlishighlycommittedtoaddresssocio-politicalcausesandbringshereffortsundertheMüller-MöhlFoundation,whichfocusesoncompatibilityofworkandfamilylife,education,promotionofafreemarketinSwitzerlandandphilanthropyingeneral.Furthermore,shesitsonvariousfoundationandadvisoryboardsthatsupporttheabovecausessuchasDepartmentofEconomics,UniversityofZurich,UniversityofSt.Gallen,MBAforWomenFoundation,EDGE,AvenirSuisse,SwissEconomicForum,SchweizerischeManagementGesellschaftandBertelsmannStiftung,Germany.
Ms.Müller-Möhlstudiedpolitics,historyandlawandgraduatedasM.A.PoliticalSciencefromFreieUniversitätBerlin.Inrecognitionofhersuccessandherphilanthropiccommitment,theWorldEconomicForumnominatedherasaYoungGlobalLeaderin2007.
Mr.WeberholdsanMBAwithaMajorinFinanceandStrategicPlanningfromtheWhartonSchool,UniversityofPennsylvania.Mr.WeberpreviouslystudiedCivilEngineeringattheSchoolofEngineeringinSwitzerlandandMicroeconomicsandEnglishattheUniversityofCalifornia,SantaBarbara.
BeforehispresentpositionasDivisionCEOofSIXPaymentServicesandChairmanoftheBoardofTWINT,Mr.WeberwasCEOandpartialownerofBoynerFinancialServicesinIstanbulandanentrepreneurincardissuing,purchasefinanceandpaymentservices.PreviouslyhewasaconsultantatMcKinsey&CompanywhereheservedSwissbankingclientsandlaterco-leadthefoundingoftheIstanbulOffice,leadingtohisnominationforPartner.BeforethatMr.WeberservedasprojectassistanttotheViceChairmanofUBSPhillips&DrewinLondonandasprojectmanagerfortheCEOofUBSNorthAmericainNewYork,wherehewaselectedintothe“UBSLeadershipProgram”withasponsorshipforMBA.
SamihO.SawirisCHAIRMAN, NON-EXECUTIVE MEMBER
JürgenFischerNON-EXECUTIVE MEMBER
Mr.Egle’sbackgroundisinstrategydevelopment,corporatecommunications,mediaandPR.AfterholdingseniorpositionsintheprivatesectorhewasinchargeofcommunicationsattheSwissFederalDepartmentofForeignAffairsandadvisortotheMinisterofForeignAffairs(1993-1998).
Beforeco-foundingDynamicsGroup,aSwisscompanyprovidingstrategicconsulting,communicationmanagementandresearchanalysis,Mr.EglewasapartnerofHirzel.Schmid.NefKonsulenten,acommunicationandfinancialconsultancyfirm(1999-2006).Mr.EgleholdsaDoctor’sdegreeinsociologyfromtheUniversityofZurich.
FranzEgleNON-EXECUTIVE MEMBER
CarolinaMüller-MöhlNON-EXECUTIVE MEMBER
Mr.DouiriisthefoundingshareholderandCEOofMutandis,aMoroccanconsumergoodsmanufacturinggroupestablishedin2008.Mr.DouiriservedinHisMajestyKingMohamedVI’sGovernmentasMinisterofTourism(2002-2004)andlaterasMinisterforTourism,CraftsandSocialEconomy(2004-2007).In1992Mr.DouirifoundedCasablancaFinanceGroup(laterrenamedCFGGroup),thecountry’sfirstinvestmentbank.
TodayCFGGouphasbecomeCFGBank,afull-fledgedMoroccantechnologydrivenbank,ofwhichMrDouiricurrentlyservesaschairmanoftheboard.HeisalsoaboardmemberofResidencesDarSaada,apubliclylistedMoroccanrealestatedeveloperandofMFEx,aStockholmbasedtechnologycompanyservingthefinancialindustry.Mr.DouirigraduatedasanengineerfromtheEcoleNationaledesPontsetChaussées(ENPC)inParis.
AdilDouiriNON-EXECUTIVE MEMBER
MarcoSieberNON-EXECUTIVE MEMBER
NaguibS.SawirisNON-EXECUTIVE MEMBER
JürgWeberLEAD DIRECTOR, NON-EXECUTIVE MEMBER
4.3 Board of Directors
Photographer:MarcWelt
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ThecurrentmembersoftheBoardofDirectorsareallnon-executive.Mr.SawirisservedasChiefExecutiveOfficeroftheCompanyonanadinterimbasisfromApril1,2014toDecember31,2015.WiththeexceptionoftheChairman,noneofthecurrentmembersoftheBoardofDirectorsheldexecutivepositionswithOrascomDevelopmentduringthethree
financialyearsprecedingtheyearunderreview.Otherthanasindividuallymentionedabove,noneofthesemembers,andnoenterpriseororganizationrepresentedbythemmaintainsanysubstantialbusinessrelationshipwithanOrascomDevelopmentsubsidiary.
MembersoftheBoardofDirectors
Name Function Nationality Birth Elected first Elected until
Audit Committee
Nomination and Compensation
Committee
SamihO.Sawiris Chairman Egyptian 1957 2008 2017
AdilDouiri Member Moroccan 1963 2008 2017 Member
FranzEgle Member Swiss 1957 2008 2017 Member
JürgenFischer Member Swiss 1955 2014 2017
CarolinaMüller-Möhl Member Swiss 1968 2008 2017
NaguibS.Sawiris Member Egyptian 1991 2016 2017
MarcoSieber Member Swiss 1959 2013 2017 Chair
JürgWeber Member Swiss 1961 2014 2017 Chair
Elections and terms of office
ThemembersoftheBoardofDirectorsanditsChairmanareelectedbythegeneralmeetingofshareholdersindividuallyforatermofoneyearuntilthecompletionofthenextordinarygeneralmeeting.InaccordancewiththeArticlesofIncorporation,theBoardofDirectorsiscomposedofaminimumofthreeandamaximumoffifteenmembers.Themembersmaybere-elected.
External mandates
ForrestrictionsregardingthenumberofexternalmandatesseeArt.20oftheArticlesofIncorporationwhichareavailableontheCompany'swebsitehttps://www.orascomdh.com,followingthelinkstoInvestorRelationsandCorporateDocuments.
Internal organizational structure
Board of Directors
TheBoardofDirectorsgovernstheCompanyandisultimatelyresponsiblefortheCompany’sbusinessstrategyandmanagement.IthastheauthoritytodecideonallcorporatemattersnotreservedbylawortheArticlesofIncorporationtothegeneralmeetingofshareholdersortoanotherbody.
Subjecttoitsinalienabledutiespursuanttothelawandtoanumberofadditionalmatters,theBoardofDirectorshasdelegatedthemanagementoftheCompany’sbusinesstotheCEO.TheBoardofDirectorsappointstheCEOandtheothermembersofExecutiveManagement.
Subjecttothepowerofthegeneralmeeting,theBoardofDirectorsconstitutesitselfautonomouslyandappointsitsSecretary,whodoesnothavetobeamemberoftheBoardofDirectors.Itisquorateifamajorityofmembersarepresentatameeting.Decisionsaretakenbythemajorityof
votescast.Incaseofadeadlock,theChairmanhasacastingvote.AmemberoftheBoardofDirectorsshallabstainfromvotingifheorshehasapersonalinterestinamatterotherthananinterestinhisorhercapacityasshareholderoftheCompany.
Committees
TwopermanentcommitteeshavebeenformedtosupporttheBoardofDirectors;thesearetheAuditCommitteeandtheNominationandCompensationCommittee.Thedutiesandcompetencesofbothcommitteesareoutlinedbelow.
Audit Committee
TheAuditCommitteecurrentlyconsistsoftwonon-executivemembersoftheBoardofDirectors.ThemembersandthechairmanoftheAuditCommitteeareelectedbytheBoardofDirectors.ThetwoAuditCommitteememberscurrentlyappointedhavebroadexperienceinfinanceandaccountingonthebasisoftheirprofessionalbackgrounds.
ThemissionoftheAuditCommitteeistoassisttheBoardofDirectorsinthedischargeofitsresponsibilitieswithrespecttofinancialreportingandaudit.ThecommitteereportsandissuesrecommendationstotheBoardofDirectorsregardingyearlyandinterimfinancialstatements,theauditingprocess,theinternalcontrolsystem,theintegrityandeffectivenessoftheCompany’sexternalandinternalauditorsandothertopicssubmittedtoitbytheBoardofDirectorsfromtimetotime.TheAuditCommitteehasnodecision-makingpower.
Nomination and Compensation Committee
TheNominationandCompensationCommitteecurrentlyconsistsoftwonon-executivemembersoftheBoardofDirectors.Themembersareelectedbythegeneralmeetingofshareholdersindividuallyforatermofoneyearuntilthecompletionofthenextordinarygeneralmeeting.ThechairmanoftheNominationandCompensationCommitteeisappointedbytheBoardofDirectors.
ThemissionoftheNominationandCompensationCommitteeistoassisttheBoardofDirectorsinthedischargeofitsresponsibilitiesandtodischargecertainresponsibilitiesoftheBoardofDirectorsrelatingtocompensationandnominationofmembersoftheBoardofDirectorsandtheExecutiveManagement.
TheNominationandCompensationCommitteeissuesrecommendationstotheBoardofDirectorsregardingmattersofthecompensationofexecutivemembersoftheBoardofDirectorsandmembersofExecutiveManagementandregardingothermattersofcompensation.ItalsoissuesrecommendationsregardingthenominationofmembersoftheBoardofDirectorsandofExecutiveManagement,andothertopicssubmittedtoitbytheBoardofDirectorsforthecommittee’sconsideration.
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Work methods of the Board of Directors and its committees
InvitationstoattendmeetingsoftheBoardofDirectorsareextendedbytheChairmanortheSecretaryoftheBoardofDirectors.AnymemberoftheBoardofDirectorsmayrequesttheChairmantoconveneameeting.ThemembersoftheBoardofDirectorsandthecommitteesareprovidedwithallnecessarysupportingmaterialbeforeameetingisheld,enablingthemtopreparefordiscussionoftherelevantagendaitems.
PursuanttotheirrespectiveCharters,thecommitteesoftheBoardofDirectorsconveneatleastonce(inthecaseoftheNominationandCompensationCommittee)ortwiceayear(inthecaseoftheAuditCommittee),butcanbesummonedbytheirrespectivechairmanasoftenasthebusinessrequires.
MeetingsoftheAuditCommitteemay,uponinvitationbyitschairmanandinanadvisoryfunction,beattendedbymembersofExecutiveManagement.TheCompany'sauditorsareinregularcontactwiththechairmanoftheAuditCommitteeandhavetherighttohaveitemsaddedtoitsagenda.
Inthe2016financialyear,theBoardofDirectorsconvenedforninemeetings,andpassedonecircularresolutions.Oftheninemeetings,fourwereheldasphysicalmeetingsandfivemeetingswereheldbytelephoneconference.TheAuditCommitteeconvenedforfourmeetings.TheNominationandCompensationCommitteeconvenedforonemeeting.
Definition of areas of responsibility
BasedontheprovisionofArt.15oftheArticlesofIncorporationgoverningthedelegationofduties,theBoardofDirectorshasentrustedthepreparationandtheexecutionofcertaindecisions,thesupervisionofcertaintasks,aswellascertaindecision-makingpowerstothepermanentcommittees.TheBoardofDirectorshasdelegatedthemanagementoftheCompany'sbusinesstotheCEO,whomayfurtherdelegateanyofhisdutiesandcompetenciestoExecutiveManagementandothermembersoftheCompany'smanagementalthoughtheCEOremainsfullyresponsibleforalldutiesandcompetenciesdelegatedtohimbytheBoardofDirectors.
ExcludedfromsuchdelegationtotheCEOaretheinalienabledutiesoftheBoardofDirectorsasdefinedbylaw(Art.716aPara.1oftheSwissCodeofObligations),thedutiesoftheBoardofDirectors’permanentcommittees(asdescribedabove),andcertainmatterswhichremainreservedtotheBoardofDirectorspursuanttotheCompany'sInternalRegulations.
Information and control instruments vis-a-vis senior management
ToensurethatcomprehensiveinformationisprovidedtotheBoardofDirectorsontheperformanceofthefunctionsdelegatedbyit,membersofExecutiveManagementandotherseniormanagersareregularlyinvitedbytheChairmanortheLeadDirectortoattendmeetingsoftheBoardofDirectors,ortoparticipatewhenindividualagendaitemsarediscussed.
Forexample,duringtheyearunderreview,theCEOandtheCFOwerepresentatallphysicalmeetingsoftheBoardofDirectors.Alsoduringtheyearunderreview,individualBoardofDirectorsmemberssupportedExecutiveManagementinvariousprojects.Furthermore,
membersoftheBoardofDirectorscultivatearegularinformalexchangeofideaswithCompanymanagementandregularlyvisittheCompany'slocations.
Thecompany’smanagementhasbeenmanagingtoenhancetheinternalgovernancebyincreasingthecapacityoftheinternalauditfunctions.Duringtheyearunderreview,PwCMuscathasbeenappointedtoprovidetheservicesofinternalauditinOman.Ingeneral,thein-houseinternalauditfunctionhasperformedmanyad-hocassignmentsinadditiontothepre-plannedassignments.Foreachassignment,areportofmajorfindingswaspresentedtoanddiscussedwiththemanagement
ontheentitylevel,andcorrectiveactionswereagreed.
ExecutiveManagementmeetings,chairedbytheCEO,areheldatleastonamonthlybasisinwhichperformanceofoperatingprojectsisreviewedalongsidethebudgetandpreviousfinancialyear.Keyperformanceindicatorsarereviewedandupdatesonnewprojects,whetheroff-planorunderconstruction,aresharedandfuturestepsagreedupon.
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Definition of areas of responsibility
TheCEOwhoisresponsiblefortheday-to-dayoperationalmanagementoftheCompanyissupportedbytheExecutiveManagement.TheExecutiveManagementassiststheCEOindevelopingandimplementingthestrategicbusinessplansfortheCompanyoverallaswellasfortheprincipalbusinesses,subjecttoapprovalbytheBoardofDirectors.
TheExecutiveManagementfurtherreviewsandcoordinatessignificantinitiatives,projectsandbusinessdevelopmentsinthesegments,regionsandinthecorporateservicesfunctionsandimplementsCompany-widepolicies.
Appointment of New Members
EffectiveApril1,2017,AshrafNessimhasbeenappointedasanExecutiveManagementmemberandChiefFinancialOfficeronapermanentbasisafterhavingalreadyservedinthisfunctiononanadinterimbasissinceMay2016.NermineFaltas,GroupChiefHumanResources&OrganizationDevelopmentOfficer,andTarekGadallah,GroupGeneralCounsel,havealsobeenappointedasmembersoftheExecutiveManagementwitheffectasofthesamedate.
External mandates
ForrestrictionsregardingthenumberofexternalmandatesseeArt.20oftheArticlesofIncorporationwhichareavailableontheCompany'swebsitehttps://www.orascomdh.com,followingthelinkstoInvestorRelationsandCorporateDocuments.
AnEgyptiannational,born1971,Mr.KhaledBicharacurrentlyholdsthepositionofChiefExecutiveOfficerofOrascomDevelopmentHolding.HeisalsoaCo-FounderofAcceleroCapital.Mr.BicharapreviouslyservedasGroupPresidentandChiefOperatingOfficerofVimpelComLtd(“VimpelCom”).HewasalsoChiefExecutiveOfficerofOrascomTelecomHoldingS.A.E.(“OTH”)aswellasChiefOperatingOfficerofWindTelecomunicazioniS.p.A.(“WindItaly”).
HeplayedapivotalroleinthemergerofVimpelComwithWindTelecomS.p.A,(“WindTelecom”)foratotalconsiderationofUSD25.7Billiontocreatetheworld’ssixthlargesttelecommunicationscarrier.Mr.BicharamanagedtenoperationsacrosstheglobethroughOTHandWindItalyand22operationsacrosstheglobe
AnEgyptiannational,born1965,Mr.Nessimhasmorethan20yearsofexperienceinvariousfieldsincludingfinance,infrastructureandhospitality.HecurrentlyholdsthepositionoftheGroup’sChiefFinancialOfficerofOrascomDevelopmentHolding.HeisalsotheChiefFinancialOfficerofOrascomHotelsandDevelopmenttheEgyptianlargestsubsidiaryofthegroup.Priortojoiningthegroup,hewastheChiefFinancialOfficerrepresentingBeltonePrivateEquityintheirPickAlbatrosInvestment.
From2007to2010hewastheGroupChiefFinancialOfficerofMobiserve,akeyplayerinthemobiletelecomnetworkinfrastructurein9countrieswithintheMiddleEastandSouthAsia.PriortoshiftinghiscareertofinanceheestablishedtheoperationofRayaDistributioninAlgeriaandmanagedmerchandisingactivitiesinall34shopsofNokiaandSamsunginEgypt.Mr.NessimholdsaBachelordegreeinMechanicalEngineeringandheisalsooneoftheearlierpeopleinEgypttoholdtheCFAdesignationin2004.
AnEgyptiannational,born1975,Mr.Abouyoussefisatourismentrepreneurwhostartedhiscareerindesignandinstallationofhotelelectro-mechanicalsystemsin1998movingontoProjectManagementandOwner’sRepresentationuntil2004whenhefoundedhisfirstcompanyShoresHotelstomanageasinglehotelof200guestrooms.
WiththegrowthofShoresHotels’portfolio,Mr.AbouyoussefpursuedHotelDevelopmentdevelopingthreehotelsinthreedifferentdestinationsacrossEgypt.Mr.AbouyoussefisaholderofaB.S.inMechanicalEngineeringfromtheAmericanUniversityinCairoandaMaster’sofSciencefromtheUniversityofCaliforniaatBerkeley.HeisalsoacommissionmemberoftheInternationalFederationoftheAutomobile(FIA).
throughVimpelCom.In2009,Mr.BicharawasappointedChiefExecutiveOfficerofOTHandWindTelecom,bringingwithhimawealthofexperienceinbothtelecommunicationandinformationtechnologycoupledwithstrongmanagementandentrepreneurialexpertise.Priortothisposition,Mr.BicharawasChiefOperatingOfficer(“COO”)ofWindItaly,whichhejoinedin2005,headingthefixedlineandportalbusinessunitbeforebeingpromotedtoCOOofthecompany.
Heplayedakeyroleinrestructuringthecompany’sorganization,resultinginthesuccessfulturnaroundofWindItalyfromacontinuouslylossmakingcompanytoaleadingmobile,fixedlineandbroadbandintegratedoperatorinEuropewithinathree-yeartimespan.PriortojoiningWindItaly,hewastheco-founder,ChairmanandCEOof“LINKdotNET”(“LDN”),oneofthelargestprivateInternetServiceProvidersintheMiddleEast.In2001,followingsuccessfulnegotiations,MicrosoftchosetopartnerwithLDNtolaunchMSNArabia,theMiddleEast’sfirstglobalportal,bringingthefullinternetexperienceofMSNtousersintheregion.In2011,Mr.BicharaalsoservedasGroupExecutiveChairmanofOTHaswellasChairmanofWindItaly.Mr.BicharacurrentlyservesasaboardmemberofvarioustelecomandITcompanies,includingOrascomTelecomMediaandTechnologyHoldingS.A.E.;andSUPERNAPInternationalS.A.,thedeveloperoftheworld-renownedSUPERNAPdatacenters.HeisthechairmanoftheboardofItaliaonlineS.p.A.(acompanylistedontheMilanStockExchange),theItalianleaderininternetservicesforSMEs(website,directories,localadvertising),aswellasthe#1internetplatformandemailserviceinItaly.
HeisalsoaboardmemberofOrascomConstructionLimited,acompanyduallylistedonNASDAQDubaiandtheEgyptianStockExchange,aswellasaboardmemberofOrascomHotelsandDevelopmentS.A.E.,acompanylistedontheEgyptianStockExchange.Mr.BicharaisalsoamemberoftheAdvisoryBoardfortheComputerScienceandEngineeringDepartmentoftheAmericanUniversityinCairo.HewaspreviouslyamemberoftheGSMAboard.Mr.BicharaholdsaBachelorofSciencedegreefromtheAmericanUniversityinCairo.
Members of Executive Management
ASHRAF NESSIM
ChiefFinancialOfficeradinterim
ABDELHAMID ABOUYOUSSEF
ChiefHotelOfficer
KHALED BICHARA
ChiefExecutiveOfficer
4.4 Executive Management
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FordetailedinformationoncompensationpaidtomembersoftheBoardofDirectorsandtomembersofExecutiveManagementforthefinancialyear2016,andonsharesandoptionsheldbyandloansgrantedtothesepersonsasofDecember31,2016,pleaserefertotheCompensationReport2016andtoNote12.1oftheconsolidatedfinancialstatements.
ThecompensationofthemembersoftheBoardofDirectorsandofExecutiveManagementisdeterminedasspecifiedbelow.TheCompanydoesnothaveanyformalstockownershiporoptionplansformembersoftheBoardofDirectorsorExecutiveManagement.Itdoesnotemployexternaladvisorsorsystematicallyuseexternalbenchmarksforfixingcompensation.
Board of Directors
FortheirserviceontheBoardofDirectorsanditscommitteesin2016,theBoardofDirectorsdecidedtopaycompensationofgrossCHF120’000forallmembersoftheBoardofDirectors.ThecompensationispaidoutintheformofsharesoftheCompany.ThesharesoftheCompanyallocatedtothemembersoftheBoardofDirectorsascompensationare,forthatpurposeandifnotavailabletotheCompanyalready,purchasedbytheCompanyonthemarketandtheirvaluation(forpurposesofthecalculationofthenumberofsharesallocatedtoeachmemberoftheBoardofDirectors)isbasedontheaveragesharepriceoftheCompany'ssharesontheSIXSwissExchangeduringthelastsixmonthsofthepreviousfinancialyear.
InadditiontothebasecompensationforallmembersoftheBoardofDirectors,members(andchairs)ofoneoftheCommitteesreceiveanadditionalcompensationofgrossCHF20,000.TheLeadDirectorreceivesanadditionalcompensationofgrossCHF40,000.
Executive Management
CompensationofthemembersofExecutiveManagementfortheirserviceinExecutiveManagementconsistsofabasesalaryandabonuspaymentwhichisannuallydetermined,asfurtherdescribedbelow.ThecompensationofthemembersofExecutiveManagementisbasedon
anevaluationoftheCompanyperformance,oftheindividualperformanceofeachmember,aswellasoftheperformanceofthebusinessareaforwhicheachmemberisresponsible.TheNominationandCompensationCommitteediscussestheproposalspresentedbytheCEOandsubsequentlypresentsaproposaltotheBoardofDirectorsforapproval.
MembersofExecutiveManagementdonothavearighttoattendmeetingsoftheNominationandCompensationCommitteeatwhichdecisionsaretakeninrespecttotheircompensation,orotherwisetoparticipateinthedecisionprocess.
Performance related remuneration
In2014,theBoardofDirectorsrevisedtheCompany'sbonuspolicy.Thepolicyincludesacash-bonusandadeferredshare-bonus.100%ofthecash-bonusand40%oftheshare-bonusarebasedontheExecutiveManagementmember'spersonalperformance.60%oftheshare-bonusisbasedonthe(financial)performanceoftheGroup.
Thecash-bonuscanreachatmaximum25%oftheExecutiveMember’sannualgrossbasesalary.Theshare-bonuscanreachatmaximum100%oftheExecutiveMember’sannualgrossbasesalary.
ThesharepricethatisrelevanttodeterminethenumberofODHsharestobegrantedtothememberoftheExecutiveManagementistheaveragesharepriceofthesharesoftheCompanyontheSIXSwissExchangeduringthelastsixmonthsoftheperformanceyear.AsthefinancialperformancetargetsoftheCompanywerenotachievedin2016andduetothechallengingeconomicandpoliticalenvironment,theBoardofDirectorsdecidedthatnobonusshallbepaidtotheExecutiveManagementfortheirperformancein2016.
Contingent compensation of the CEO
Inadditiontothebasesalary,theCEOwasgrantedacontingentcompensationwhichisdependentsolelyonthedevelopmentofthesharepriceoftheCompany.ThecontingentcompensationisdeterminedaccordingtoaformulawhichtakesintoaccountthedevelopmentoftheCompany'sshareprice.Inessence,thenewCEOshallbeentitledto10%oftheincrementalmarketcapitalizationof
theCompanyaboveahurdlerateorminimumyieldof8%perannum.Theawardaccruesoveravestingperiodofsixyearsandissubjecttousualforfeitureandaccelerationprovisions.Forexample,thecontingentcompensationwillbeforfeitedandlostincasetheCEOterminateshisemploymentrelationshipwiththeCompanywithoutcause.Thecontingentcompensationmaybepaidincashor,attheCompany'sdiscretion,in(wholeorinpartin)sharesoftheCompany.Ifpaymentismadeinshares,thenumberofshareswillbecalculatedaccordingtoaformulawhichisbasedonanaverageofthesharepriceatthetimeimmediatelypriortothedeliveryoftheshares.
IfthemarketcapitalizationoftheCompanydoesnotexceedthehurdlerateof8%perannum,theCEOdoesnotreceiveanypaymentsunderthecontingentcompensation.TheBoardofDirectorsbelievesthatavestingperiodofsixyearsrewardsalong-termperformanceandshowsalong-termcommitmentofthenewCEOtowardstheCompany.Theawardof10%oftheincrementalmarketcapitalizationoftheCompanyaboveahurdlerateof8%perannumaimsensuresthatthenewCEOispaidforhiscontributiontoCompanyperformance.
Principles on compensation in the Articles of Incorporation
SeeArt.21oftheArticlesofIncorporationwhichareavailableontheCompany'swebsitehttps://www.orascomdh.com,followingthelinkstoInvestorRelationsandCorporateDocuments.
Shareholder approval of compensation
SeeArt.22oftheArticlesofIncorporationwhichareavailableontheCompany'swebsitehttps://www.orascomdh.com,followingthelinkstoInvestorRelationsandCorporateDocuments.
Loans, credit and pension contributions
SeeArt.26oftheArticlesofIncorporationwhichareavailableontheCompany'swebsitehttps://www.orascomdh.com,followingthelinkstoInvestorRelationsandCorporateDocuments.
Voting rights and representation restrictions
Withtheexceptionofrestrictionsontheregistrationofshares(seeSection4.2.above),therearenolimitationsonvotingrights.Atageneralmeetingofshareholders,eachshareentitlesitsownertoonevote.Bymeansofawrittenproxy,eachshareholdermayberepresentedbyathirdpersonwhoneednothimselfbeashareholder.
Statutory quora
AccordingtoArt.10oftheArticlesofIncorporation,theholdersofatleast25.0%ofissuedsharesmustbepresentorrepresentedatanordinarygeneralmeetingofshareholdersforthemeetingtobevalidlyconstituted.Similarly,holdersofatleast50.0%ofissuedsharesmustbepresentorrepresentedatanextraordinarygeneralmeetingofshareholdersforthemeetingtobevalidlyconstituted.
Resolutionsaregenerallypassed,inthecaseofanordinarygeneralmeetingofshareholders(exceptformatterssubjecttoahighermajorityrequirementbylaw),withtheabsolutemajorityofthesharesrepresented.Inthecaseofanextraordinarygeneralmeetingofshareholders,resolutionsaregenerallypassedwithamajorityoftwo-thirdsofthesharesrepresented.
Resolutionsrelatingtothefollowingmatters,however,requireamajorityof75.0%ofsharesrepresentedatthemeeting:(a)capitalincreasespursuanttoArt.650COandreductionsofthesharecapitalpursuanttoArt.732CO;(b)dissolvingtheCompanybeforeitsterminationdateorchangingitsduration(which,pursuanttotheArticlesofIncorporation,is99yearsfromitsformation);(c)changingtheCompany’spurpose;and(d)anymergerwithanothercompany.
Convocation of the general meeting of shareholders
Anordinarygeneralmeetingofshareholdersistobeheldannuallyfollowingthecloseofthefinancialyear.ItiscalledbytheBoardofDirectorsor,ifnecessary,bytheauditors.ExtraordinarygeneralmeetingsmaybecalledbytheBoardofDirectors,theauditors,theliquidators,orbythegeneralmeetingofshareholdersitself.
Oneormoreshareholdersrepresentingatleast10%ofthesharecapitalmayrequestinwritingthattheBoardofDirectorscallanextraordinarygeneralmeetingofshareholders.Therequestmuststatethepurposeofthemeetingandtheagendatobesubmitted.GeneralmeetingsofshareholdersareheldatthestatutoryseatoftheCompanyoratsuchotherplaceasdeterminedbytheBoardofDirectors.
NoticeofageneralmeetingofshareholdersisgivenbymeansofasinglepublicationintheSwissOfficialGazetteofCommerce(SchweizerischesHandelsamtsblatt)orbyregisteredlettertotheshareholdersofrecord.Theremustbeatimeperiodofnotlessthan20calendardaysbetweenthedayofthepublicationorthemailingofthenoticeandthescheduleddateofthemeeting.ThenoticeofthegeneralmeetingofshareholdersmustindicatetheagendaandthemotionsbytheBoardofDirectors.
Agenda
ShareholderswhorepresentshareswithaparvalueofatleastCHF1,000,000mayrequestthatanitembeplacedontheagenda.TherequestmustbecommunicatedtotheBoardofDirectorsinwriting,statingtheitemtobeplacedontheagendaandtheshareholder’scorrespondingmotion,atleast45dayspriortothegeneralmeetingofshareholders.
Record date for entry into the share register
Onlyshareholderswhoareregisteredintheshareregisterasshareholderswithvotingrightsattherecorddateareentitledtoattendanordinarygeneralmeetingandtoexercisetheirvotingrights.TheBoardofDirectorsensuresthattherecorddateissetascloseaspossibletothedateoftheordinarygeneralmeeting.TherecorddateispublishedtogetherwiththeinvitationtotheordinarygeneralmeetingintheSwissOfficialGazetteofCommerce.
4.5 4.6Compensation, shareholdings and loans
Shareholders' participation
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Duty to make an offer
TheArticlesofIncorporationdonotprovideforany“optingout”or“optingup”arrangementswithinthemeaningofArt.125andArt.135FMIA.
Clauses of change of control
NochangeofcontrolclausesbenefitingmembersoftheBoardofDirectors,ExecutiveManagementorothermembersoftheCompany’smanagementhavebeenagreedupon.
AsofDecember31,2016,theCompanyhad8,549employeesworldwide,ofwhich7,316wereinEgypt.Thenumberofemployeesdecreasedby567employees.comparedtotheendof2015.
Duration of the mandate and term of office of the lead auditor
SincethefoundationoftheCompanyonJanuary17,2008,DeloitteAG,Zurich,hasbeenthestatutoryauditorwithresponsibilityfortheauditoftheCompany’snon-consolidatedandconsolidatedfinancialstatements.TheCompany’ssubsidiaryOHDisauditedbyDeloitteSaleh,BarsoumandAbdelAziz,Cairo.TheauditorinchargefortheCompanyatDeloitteAGcurrentlyisRolandMullersincethe2013financialyear.Arotationcycleof7yearsisforeseenforthepositionoftheauditorincharge.TheBoardofDirectorswillproposetotheordinarygeneralmeetingofshareholdersonMay9,2017tore-electDeloitteAG,Zurichasthestatutoryauditorforthe2017financialyear.
Auditing fees
DeloittereceivedthefollowingfeesforitsservicesasthestatutoryauditoroftheCompanyandthemajorityofOrascomDevelopmentcompaniesontheonehand,andfornon-auditservicesontheotherhand:
Informational instruments pertaining to the external audit
TheBoardofDirectors’AuditCommitteehasthetaskofensuringtheeffectiveandregularsupervisionofthestatutoryauditors’reportingwiththeaimofensuringitsintegrity,transparencyandquality.Inadvanceofeachfinancialyear,theproposedauditingscheduleispresentedtoanddiscussedwiththeAuditCommittee.Aftereachaudit,importantobservationsbythestatutoryauditor,togetherwithappropriaterecommendations,arepresentedtotheAuditCommittee(afterdiscussionswiththeCFO)duringitsrelevantmeeting.Subsequently,membersoftheAuditCommitteereceivethestatutoryauditors’managementletterinfinalform.Duringtheyear,thestatutoryauditorisinregularcontactwiththechairmanoftheAuditCommitteetodiscussmattersarisingintheperformanceofitstask.
BasedonthesecommunicationstheAuditCommitteediscussesitsimpressionoftheintegrityandeffectivenessofthestatutoryauditors’work,andissuesarecommendationtotheBoardofDirectorsconcerningtheproposaltothegeneralmeetingofshareholderswhethertore-electthestatutoryauditorsforthefollowingyear.
InCHF 2016 2015
AuditServices 1,860,000 1,790,322
IPO/Listingrelatedservices - 398,000
TaxAdvisoryServices 12,228 -
Total 1,872,228 2,188,322
4.7 4.9Changes of control and defense measures
4.8Employees
External auditors
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TheCEO,theCFO,andtheInvestorRelationsDepartmenttookcareofthecommunicationwithinvestorsduring2016.TheCompanyintendstoupdatethefinancialcommunitythroughpersonalcontacts,discussions,andpresentationsheldthroughvariousroadshowsandinvestorconferences.
OrascomDevelopmentiscommittedtoanopeninformationpolicyandprovidesshareholders,thecapitalmarket,employeesandallstakeholderswithopen,transparentandtimelyinformation.TheinformationpolicyaccordswiththerequirementsoftheSIXSwissExchangeaswellastherelevantstatutoryrequirements.AsacompanylistedonSIXSwissExchange,OrascomDevelopmentalsopublishesinformationrelevanttoitsstockpriceinaccordancewithArt.53oftheListingRulesoftheSIXSwissExchange(adhocpublicity).
Thefinancialreportingsystemiscomprisedofquarterly,interim(semiannual),andannualreports.ConsolidatedfinancialstatementsarepreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)incompliancewithSwisslawandtherulesoftheSIXSwissExchange.
InvitationstotheannualandextraordinarygeneralmeetingsarepublishedintheSwissOfficialGazetteofCommerceandsenttoregisteredshareholdersbyletter.
Inaddition,theCompanyutilizeselectronicnewsreleasestoreportthelatestchangesanddevelopmentstoensureequaltreatmentforallcapitalmarketparticipants.
Corporate Calendar
Annualgeneralmeetingofshareholders:May9,2017
Firstquarter2017results:May16,2017
Secondquarter2017results: August15,2017
Thirdquarter2017results: November15,2017
Further information and contact
InvestorsandotherinterestedstakeholderscanfindfurtherinformationonOrascomDevelopmentonlineatwww.orascomdh.com.NewsitemsarepublishedonthewebsitefollowingthelinkstoInvestorRelationsandNews.StakeholdersmaysubscribetotheCompany’se-mailalertservicetoreceivenewsreleasesatwww.orascomdh.com/en/media-center/news-alert.html.InvestorsmayalsocontacttheInvestorRelationsDepartmentasfollows:
SaraElGawahergyHeadofInvestorRelationsT.:+20224618961T.:[email protected]
Registered office
TheCompany'sregisteredofficeisatGotthardstrasse12,6460Altdorf,Switzerland.
4.10 Information policy
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ORASCOM INVESTOR INFORMATION05
OrascomDevelopmentHoldingAGhasaduallistingwithitsprimarylistingonthemainboardoftheSIXSwissExchange.ThesecondarylistingisintheformofEgyptianDepositoryReceipts(EDRs)ontheEGXEgyptianExchange.
Overview
Date 31.12.2016 31.12.2015
SWITZERLAND
SharesheldwithSISandregisteredintheshareregister 26,735,126 25,769,127
Disposhares 3,739,307 4,599,165
EGYPT
ShareequivalentsincustodyofMCDR’sdepositarybank(EDRs) 9,060,077 9,935,493
SharesincustodyofMCDR(NotTraded) 875,416 875,416
Total Shares 40,409,926 40,409,926
Market capitalization )in CHF Million( 206,49 414,20
Shareinformation1
Shareslisting Zurich,Switzerland
Numberofshares 31,349,849
ISINcode CH0038285679
Currency SwissFranc
Tickercode(Bloomberg) ODHN:SW
Tickercode(Reuters) ODHN.S
EDRsinformation1
EDRslisting Cairo,Egypt
NumberofEDRs2 181,201,540
ISINcode EGG676K1D011
Currency EgyptianPound
Tickercode(Bloomberg) ODHR:EY
Tickercode(Reuters) ODHR.CA
1Asatendof2016.2Implyingaconversionratioof20:1,where20EDRsareequivalentto1registeredshare.
Persharedata1
Date 31.12.2016 31.12.2015
Sharepriceatyear-end(inCHF) 5.11 10.25
Highestsharepriceduringtheyear(inCHF) 10.45 20.00
Lowestsharepriceduringtheyear(inCHF) 4.40 9.33
Numberoftradedshares(inmillions) 4.94 5.17
Valueoftradedshares(inCHFmillion) 32.76 69.51
Averagenumberoftradedsharesperday 19,433 20,579
Averagetradedvalueperday(inCHF) 128,979 277,358
1Source:ThomsonReuters.
PerEDRdata1
Date 31.12.2016 31.12.2015
Marketpriceatyear-end(inEGP) 5.17 4.48
Highestmarketpriceduringtheyear(inEGP) 5.87 8.06
Lowestmarketpriceduringtheyear(inEGP) 3.45 4.15
NumberoftradedEDRs(inmillions) 71.76 30.73
ValueoftradedEDRs(inEGPmillion) 319.34 184.26
AveragenumberoftradedEDRsperday 300,245 127,525
Averagetradedvalueperday(inEGP) 1,336,163 764,573
1Source:ThomsonReuters.
5.0 Investor Information
05ORASCOM INVESTOR INFORMATION
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Shareholding Structure
A)Shares B)EDRs
Shareholdersbytype EDRsholdersbytypeShareholdersbycountry EDRsholdersbycountry
Categories Number of shareholders
Number of Registered shares
Legalpersons 68 12,592,215
Naturalpersons 3,596 11,052,786
Banks 20 2,491,364
Investmenttrusts 28 562,432
Pensionfunds 7 24,613
Foundations 3 8,356
Insurancecompanies 1 3,170
Publiccorporations 2 190
Total 3,725 26,735,126
Categories Number of EDRs Holders
Number of EDRs
Naturalpersons 1,725 149,920,245
Legalpersons 19 28,779,301
Banks 2 1,417,980
Investmenttrusts 3 903,014
Pensionfunds 1 181,000
Foundations 0 0
Insurancecompanies 0 0
Publiccorporations 0 0
Total 1,777 181,201,540
Distributionofshareholdings1
Number of Registered shares
Number of Registered shares
1 10 303 2,097
11 100 1,045 57,525
101 1,000 1,743 754,134
1,001 10,000 583 1,584,305
10,001 100,000 40 1,163,807
100,001 1,000,000 7 2,594,167
1,000,001 999,999,999 4 20,579,091
Total 3,725 26,735,126
DistributionofEDRsHolders1
Number ofEDRs Holders
Number of EDRs
1 10 130 258
11 100 103 5,713
101 1,000 547 295,002
1,001 10,000 721 2,817,983
10,001 100,000 229 6,917,446
100,001 1,000,000 37 11,747,661
1,000,001 999,999,999 10 159,417,477
Total 1,777 181,201,540
Country Number of shareholders
Number of Registered shares
Egypt 10 18,716,314
Switzerland 3,665 3,870,567
UnitedKingdom 7 2,408,283
Belgium 2 520,890
CaymanIslands 1 511,136
UnitedStatesofAmerica 6 400,792
Liechtenstein 5 242,515
Malta 2 17,600
Brazil 1 14,413
Luxembourg 1 10,118
Austria 4 9,100
Italy 2 5,880
Germany 10 5,460
UnitedArabofEmirates 2 691
Bahamas 1 500
Ireland 1 360
France 2 205
Spain 1 200
SaudiArabia 1 100
Denmark 1 2
Total 3,725 26,735,126
Country Number of EDRs Holders
Number of EDRs
Egypt 1,718 147,744,920
UnitedKingdom 8 22,076,347
SaudiArabia 23 9,615,653
Luxembourg 1 849,999
Lebanon 2 276,236
UnitedArabofEmirates 6 267,969
Germany 2 265,000
Yemen 1 27,941
Tunis 1 20,000
Palestine 3 19,240
Jordan 2 12,360
Malaysia 1 9,100
Oman 1 8,240
Italy 1 3,850
UnitedStatesofAmerica 4 2,931
Libya 2 1,750
Switzerland 1 4
Total 1,777 181,201,540
1Distributionofregisteredshares/EDRsasatDecember31,2016.
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Significantshareholders1
Categories2016 2015
Number of shares issued
Percentage of ownership )%(
Number of shares issued
Percentage of ownership )%(
SamihSawiris2 27,391,814 67.78 29,355,452 72.64
OSHolding 2,049,782 5.07 - -
JanusCapitalManagementLLC - - 1,494,207 3.70
Others 10,968,330 27.14 9,560,267 23.66
Total 40,409,926 100.00 40,409,926 100.00
1OverviewofsignificantshareholdersasatDecember31,2016.2ThesharesofSamihO.SawirisarehelddirectlyandthroughhisentitiesThursdayHoldingandSOSHolding.
CorporateCalendar
Date Event
9May2017 9thAnnualGeneralMeeting
16May2017 FirstQuarter2017Results
15Aug2017 FirstHalf2017Results
15Nov2017 NineMonths2017Results
InvestorContacts
SaraElGawahergy
HeadofInvestorRelations
T:+20224618961
Forpublicationsandfurtherinformationvisit
http://www.orascomdh.com/en/investor-relations
05ORASCOM INVESTOR INFORMATION
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OrascOm Financial statements06
06OrascOm FINaNcIaL sTaTEmENTs
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Annual Report - 2016 Strategically decentralized F- 21F-
Contents
6.0 Orascom Development Holding AG (consolidated financial statements)
Consolidated statement of comprehensive income F-3
Consolidated statement of financial position F-4
Consolidated statement of changes in equity F-6
Consolidated statement of cash flows F-7
Notes to the consolidated financial statements F-10
7.0 Orascom Development Holding AG (statutory financial statements)
Income statement F-86
Statutory balance sheet F-87
Statement of changes in equity F-88
Cash flow statement F-89
Notes to the financial statements F-90
6.0 Orascom Development Holding AG
Consolidated finanCial statements
together with auditor's report for
the year ended 31 deCember 2016
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 43F-
F-‐3
Orascom Development Holding AG Consolidated statement of comprehensive income for the year ended 31 December 2016
CHF Notes 2016 2015
CONTINUING OPERATIONS Revenue 6/7 237,361,504 306,064,168 Cost of sales 7.2 (226,055,966) (234,953,377)
GROSS PROFIT 11,305,538 71,110,791
Investment income 9 6,370,112 9,984,457 Other gains 10 3,064,859 7,884,044 Administrative expenses (46,710,878) (39,403,630)
Finance costs 11 (44,800,269) (33,596,120)
Share of losses of associates 19 (17,299,645) (19,436,964)
Other losses 12 (147,414,540) (14,886,221)
(LOSS) BEFORE TAX (235,484,823) (18,343,643)
Income tax expense 14 (8,351,012) (4,175,658)
(LOSS) FOR THE YEAR (243,835,835) (22,519,301) OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX
Items that will not be reclassified subsequently to profit or loss
Net (loss) on revaluation of financial assets at FVTOCI (2,666,099) (2,942,440) Remeasurement of defined benefit obligation 39 (14,281) (304,423)
(2,680,380) (3,246,863)
Items that may be reclassified subsequently to profit or loss
Exchange differences arising on translation of foreign operations
(124,790,087) (34,206,243)
(124,790,087) (34,206,243)
TOTAL OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF INCOME TAX
(127,470,467) (37,453,106)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (371,306,302) (59,972,407)
(Loss)/profit attributable to:
Owners of the Parent Company (196,415,554) (19,052,959)
Non-‐controlling interests (47,420,281) (3,466,342)
(243,835,835) (22,519,301)
Total comprehensive income attributable to:
Owners of the Parent Company (274,771,316) (50,043,036) Non-‐controlling interests (96,534,986) (9,929,371)
(371,306,302) (59,972,407)
Earnings per share from continuing operations
Basic 15 (4.86) (0.66)
Diluted 15 (4.86) (0.66)
In the comparative period, the amounts of other gains and other losses were split compared to prior year financial statements, where they were shown as a net position.
Khaled Bichara Ashraf Nessim Group CEO Group CFO
F-‐4
Orascom Development Holding AG Consolidated statement of financial position at 31 December 2016
CHF Notes 31 December 2016 31 December 2015
ASSETS
NON-‐CURRENT ASSETS
Property, plant and equipment 16 762,596,957 940,356,468
Investment property 17 5,501,334 10,981,552
Goodwill 18 2,893,347 6,476,682
Investments in associates 20 78,551,111 100,678,830
Non-‐current receivables 21 42,450,100 124,906,207
Deferred tax assets 14.4 992,920 12,693,483
Finance lease receivables 25 -‐ 38,632,861
Other financial assets 22 3,516,633 5,649,259
TOTAL NON-‐CURRENT ASSETS 896,502,402 1,240,375,342
CURRENT ASSETS
Inventories 23 124,960,013 191,289,618
Trade and other receivables 24 55,834,930 61,414,053
Finance lease receivables 25 -‐ 9,844,267
Current receivables due from related parties 42 19,930,353 35,006,557
Other financial assets 22 -‐ 3,544,372
Other current assets 26 40,055,756 99,502,308
Cash and bank balances 27 80,834,952 167,636,917
321,616,004 568,238,092
Assets held for sale 28 67,230,735 -‐
TOTAL CURRENT ASSETS 388,846,739 568,238,092
TOTAL ASSETS 1,285,349,141 1,808,613,434
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 65F- F-‐5
Orascom Development Holding AG Consolidated statement of financial position at 31 December 2016
CHF Notes 31 December 2016 31 December 2015
EQUITY AND LIABILITIES
CAPITAL AND RESERVES
Issued capital 29 937,510,283 937,510,283
Reserves 30 (365,520,995) (291,172,731)
(Accumulated losses)/Retained earnings 31 (120,782,194) 78,164,830
Equity attributable to owners of the Parent Company 451,207,094 724,502,382
Non-‐controlling interests 32 140,467,237 232,127,614
TOTAL EQUITY 591,674,331 956,629,996
NON-‐CURRENT LIABILITIES
Borrowings 33 137,631,013 224,752,279
Trade and other payables 34 11,576,940 17,128,923
Retirement benefit obligation 39 647,232 623,793
Notes payable -‐ 282,289
Deferred tax liabilities 14.4 22,925,809 43,047,276
TOTAL NON-‐CURRENT LIABILITIES 172,780,994 285,834,560
CURRENT LIABILITIES
Trade and other payables 34 24,690,585 29,913,933
Borrowings 33 231,937,486 282,275,360
Due to related parties 42 859,940 2,192,765
Current tax liabilities 14.3 2,128,992 4,605,237
Provisions 35 68,626,934 82,521,775
Other current liabilities 36 138,530,986 164,639,808
466,774,923 566,148,878
Liabilities directly associated with assets held for sale 28 54,118,893 -‐
TOTAL CURRENT LIABILITIES 520,893,816 566,148,878
TOTAL LIABILITIES 693,674,810 851,983,438
TOTAL EQUITY AND LIABILITIES 1,285,349,141 1,808,613,434
Khaled Bichara Ashraf Nessim Group CEO Group CFO
F-‐6
Orascom
Develop
ment H
olding
AG
Consolidated statement o
f chang
es in equity for the year end
ed 31 Decem
ber 2016
CHF
Issued
Capital
Share
prem
ium
Treasury
shares
Share-‐based
paym
ent
reserve
Investments
revaluation
reserve
General
reserve
Foreign
currency
translation
reserve
Reserve from
common
control
transactions
Equity swap
settlement
(Accum
ulated
losses)/
Retained
earnings
Attribu
table
to owners of
the Parent
Company
Non
-‐controlling
interests
Total
Balance at 1 January 2015 (note 30)
662,201,010
243,799,019
(5,471,285)
-‐ (11,647,720)
4,916,86
8 (248,250,610)
(121,749,573)
(2,114,229)
99,060,154
620,743,634
200,456,351
821,199,98
5
Loss fo
r the
yea
r -‐
-‐ -‐
-‐ -‐
-‐ -‐
-‐ -‐
(19,05
2,95
9)
(19,05
2,95
9)
(3,466
,342
) (22,51
9,30
1)
Other com
preh
ensive
inco
me for the
yea
r, net of inc
ome tax
-‐ -‐
-‐ -‐
(2,942
,440
) -‐
(27,74
3,21
4)
-‐ -‐
(304
,423
) (30,99
0,07
7)
(6,463
,029
) (37,45
3,10
6)
Total com
prehensive income for the year
-‐ -‐
-‐ -‐
(2,942,440)
-‐ (27,743,214)
-‐ -‐
(19,357,382)
(50,043,036)
(9,929,371)
(59,972,407)
Distribution of ordinary sh
ares
-‐ -‐
2,20
2,60
4 -‐
-‐ -‐
-‐ -‐
-‐ (1,537,942
) 66
4,66
2 -‐
664,66
2
Capital inc
rease (note 29
.2)
275,30
9,27
3 (141
,452
,006
) -‐
-‐ -‐
-‐ -‐
-‐ -‐
-‐ 133,85
7,26
7 -‐
133,85
7,26
7
Capital inc
rease tran
saction co
st
-‐ (3,776
,769
) -‐
-‐ -‐
-‐ -‐
-‐ -‐
-‐ (3,776
,769
) -‐
(3,776
,769
)
Sale of 1
5% in
terest in
OHD
-‐ -‐
-‐ -‐
-‐ -‐
-‐ 22
,858
,157
-‐ -‐
22,858
,157
36,147
,080
59
,005
,237
Acq
uisitio
n of non
-‐con
trollin
g interests’ sha
re in
sub
sidiaries
19
8,46
7
-‐ 19
8,46
7 (861
,844
) (663
,377)
Non
-‐con
trollin
g interests’ sha
re in
sub
sidiaries’ cap
ital inc
rease
-‐ -‐
-‐ -‐
-‐ -‐
-‐ -‐
-‐ -‐
-‐ 6,315,39
8 6,315,39
8
Balance at 31 Decem
ber 2015 (note 30)
937,510,283
98,570,244
(3,268
,681)
-‐ (14,590,160)
4,916,86
8 (275,993,824)
(98,69
2,949)
(2,114,229)
78,164,830
724,502,382
232,127,614
956,629,99
6
Balance at 1 January 2016 (note 30)
937,510,283
98,570,244
(3,268
,681)
-‐ (14,590,160)
4,916,86
8 (275,993,824)
(98,69
2,949)
(2,114,229)
78,164,830
724,502,382
232,127,614
956,629,99
6
Loss fo
r the
yea
r -‐
-‐ -‐
-‐ -‐
-‐ -‐
-‐ -‐
(196
,415
,554
) (196
,415
,554
) (47,42
0,28
1)
(243
,835
,835
)
Other com
preh
ensive
inco
me for the
yea
r, net of inc
ome tax
-‐ -‐
-‐ -‐
(2,666
,099
) -‐
(75,67
5,38
2)
-‐ -‐
(14,28
1)
(78,35
5,76
2)
(49,114,70
5)
(127
,470
,467
)
Total com
prehensive income for the year
-‐ -‐
-‐ -‐
(2,666
,099
) -‐
(75,675,382)
-‐ -‐
(196
,429,835)
(274,771,316)
(96,534,98
6)
(371,306,302)
Distribution of ordinary sh
ares
-‐ -‐
3,24
1,88
4
-‐
-‐ -‐
-‐ (2,517,189
) 72
4,69
5 -‐
724,69
5
Tran
sactions
cos
ts in
relatio
n to delistin
g of EDRs
in Egy
pt
-‐ (82,00
0)
-‐ -‐
-‐ -‐
-‐ -‐
-‐ -‐
(82,00
0)
-‐ (82,00
0)
Share-‐ba
sed pa
ymen
ts (n
ote 41
) -‐
-‐ -‐
833,333
-‐
-‐ -‐
-‐ -‐
833,333
-‐ 83
3,333
Non
-‐con
trollin
g interests’ sha
re in
equ
ity of c
onso
lidated
sub
sidiaries
-‐ -‐
-‐
-‐
-‐ -‐
-‐ -‐
-‐ 4,87
4,60
9 4,87
4,60
9
Balance at 31 Decem
ber 2016 (note 30)
937,510,283
98,488
,244
(26,797)
833,333
(17,256,259)
4,916,86
8 (351,669
,206)
(98,69
2,949)
(2,114,229)
(120,782,194)
451,207,094
140,467,237
591,674,331
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 87F-
F-‐7
Orascom Development Holding AG Consolidated cash flow statement for the year ended 31 December 2016
CHF Notes 2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year (243,835,835) (22,519,301) Adjustments for: Income tax expense recognized in profit or loss 14.1 8,351,012 4,175,658
Share of losses of associates 20 17,299,645 19,436,964
Finance costs recognized in profit or loss 11 44,800,269 33,596,120
Investment income recognized in profit or loss 9 (6,370,112) (9,984,457)
Write down on inventory 23 13,529,631
Impairment loss on receivables and other current assets 24 6,360,984 2,172,965 Reversal of impairment loss on trade receivables 24 (109,181) (113,506) Impairment loss of receivables on acquisition of subsidiary
843,588 -
Impairment loss on property, plant and equipment 12/16 18,611,089 9,128,902 Gain on sale or disposal of property, plant and equipment 10 (14,944) (289,015) Gain on disposal of subsidiaries 10/38 -‐ (1,736,869) Gain on disposal of financial investments (2,888,614) - Gain on revaluation of investment properties 17 (161,301) (118,103) Depreciation and amortization of non-‐current assets 16 35,958,484 28,735,476 Share-‐based payments 833,333 - Unrealized net foreign exchange losses 12 113,243,690 5,757,319
MOVEMENTS IN WORKING CAPITAL
(Increase) in trade and other receivables (26,113,426) (52,522,695) (Increase)/decrease in finance lease receivables (1,800,511) 2,609,243 Decrease/(increase) in inventories 7,344,753 (18,831,501) Decrease in other assets 15,628,489 14,806,485 (Decrease) in trade and other payables (5,316,634) (5,969,203) (Decrease)/increase in provisions (14,458,403) 1,907,629 Increase in other liabilities 22,891,260 1,330,965
Cash generated by operations 4,627,266 11,573,076
Interest paid (9,701,214) (30,108,232) Income tax paid (3,980,401) (5,174,017)
Net cash (used in) operating activities (9,054,349) (23,709,173)
-‐
F-‐8
Orascom Development Holding AG Consolidated cash flow statement for the year ended 31 December 2016
CHF Notes 2016 2015
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment 16 (41,684,521) (46,398,486) Proceeds from disposal of property, plant and equipment 452,858 259,929 Proceeds on sale of financial assets 2,888,614 419,848 Payments to acquire financial assets (at amortised cost) 22 -‐ (160,381) Payments to acquire investment in associates 20 -‐ (9,908,175) Interest received 6,370,112 9,984,457 Net cash inflow from acquisition of subsidiaries 37 2,516,016 Net cash inflow on deconsolidated subsidiaries 38 -‐ 9,801,160
Net cash (used in) investing activities (29,456,921) (36,001,648)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital increase 29 -‐ 49,615,380 Payments for transaction costs due to capital increase (1,873,095) (1,862,696) Non-‐controlling interests shares in change of equity for consolidated subsidiaries
32 4,874,609 64,657,258
Repayment of borrowings 33 (45,695,877) (31,998,070) Proceeds from borrowings 33 18,013,828 52,755,858
Net cash (used in)/generated by financing activities (24,680,535) 133,167,730
Net (decrease)/increase in cash and cash equivalents (63,191,805) 73,456,909
Cash and cash equivalents at the beginning of the year 167,636,917 100,658,860
Effects of exchange rate changes on the balance of cash held in foreign currencies (22,272,800) (6,478,852)
Cash and cash equivalents at the end of the year 82,172,312 167,636,917
Included in cash and cash equivalents 27 80,834,952 167,636,917
Included in assets held for sale 28 1,337,360 -‐
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 109F-F-‐9
Index to the notes to the consolidated financial statements Page
1 General information 10
2 Application of new and revised International Financial Reporting Standards 10 3 Significant accounting policies 13 4 Critical accounting judgments and key sources of estimation uncertainty 26 5 The group and major changes in group entities 28
6 Revenue 28 7 Segment information 28 8 Employee benefits expense 32 9 Investment income 33 10 Other gains 33
11 Finance costs 33 12 Other losses 34 13 Compensation of key management personnel 34 14 Income taxes relating to continuing operations 35 15 Earnings per share 38
16 Property, plant and equipment 39 17 Investment property 41 18 Goodwill 41 19 Subsidiaries 43 20 Investments in associates 46
21 Non-‐current receivables 49 22 Other financial assets 49 23 Inventories 50 24 Trade and other receivables 50 25 Finance lease receivables 51
26 Other current assets 52 27 Cash and cash equivalents 52 28 Assets held for sale 53 29 Capital 54
30 Reserves (net of income tax) 55 31 (Accumulated losses)/retained earnings 58 32 Non-‐controlling interests 58 33 Borrowings 59 34 Trade and other payables 59
35 Provisions 60 36 Other current liabilities 61 37 Acquisition of a subsidiary 61 38 Disposal of a subsidiary 62 39 Retirement benefit plans 63
40 Financial instruments 65 41 Share-‐based payments 71 42 Related party transactions 72 43 Non-‐cash transactions 74 44 Operating lease arrangements 74
45 Commitments for expenditure 75 46 Litigation 76 47 Other significant events that occurred during the reporting period 77 48 Subsequent events 78 49 Approval of financial statements 78
F-‐10
Notes to the consolidated financial statements for the year ended 31 December 2016 1 GENERAL INFORMATION Orascom Development Holding AG (“ODH” or “the Parent Company”), a limited company incorporated in Altdorf, Switzerland, is a public company whose shares are traded on the SIX Swiss Exchange. In addition, Egyptian Depository Receipts (“EDRs”) of the Parent Company are traded at the EGX Egyptian Exchange. One EDR represents 1/20 of an ODH share.
The Company and its subsidiaries (the “Group”) is a leading developer of fully integrated towns that include hotels, private villas and apartments, leisure facilities such as golf courses, marinas and supporting infrastructure. The Group’s diversified portfolio of projects is spread over eight jurisdictions, with primary focus on touristic towns and recently affordable housing. The Group's diversified portfolio of destinations is spread over seven jurisdictions (Egypt, UAE, Oman, Switzerland, Morocco, Montenegro and United Kingdom), with primary focus on touristic destinations. The Group currently operates ten destinations; five in Egypt (El Gouna, Taba Heights, Fayoum Makadi, and Harram City), The Cove in the United Arab Emirates, Jebel Sifah and Salalah Beach in Oman, Luštica Bay in Montenegro and Andermatt in Switzerland.
In January 2015, the Group has sold a 15% stake in its Egyptian subsidiary Orascom Hotels and Development S.A.E. (“OHD”). This transaction marks the return of OHD’s active trading on the EGX since 2008. For further detail refer to note 32.
In June 2015, the Group has lost control over its investment in Golden Beach for Hotels Company, Jordan, to an associated company of the Group. For further detail refer to note 38.
The addresses of its registered office and principal place of business are disclosed in the introduction to the annual report.
2 Application of new and revised International Financial Reporting Standards (“IFRSs”)
2.1 Amendments to IFRSs and the new Interpretation that are mandatorily effective for the current year
In the current year, the Group has applied a number of amendments to IFRSs and a new Interpretation issued by the International Accounting Standards Board (IASB) that are mandatorily effective for the current year. None of the revised Standards and the new Interpretation has had a material effect on these financial statements. The details of the revised Standards and the new Interpretation are as follows:
Amendments to IFRS 11 Joint Arrangements – Accounting for acquisition of interests in joint operations
The Group has applied the amendments to IFRS 11 Joint Arrangements regarding accounting for acquisitions of interests in joint operations for the first time in the current year. IFRS 11 Joint Arrangements is amended to require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3 Business Combinations) to:
-‐ apply all of the business combinations accounting principles in IFRS 3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11
-‐ disclose the information required by IFRS 3 and other IFRSs for business combinations.
The amendments apply both to the initial acquisition of an interest in joint operation, and the acquisition of an additional interest in a joint operation (in the latter case, previously held interests are not remeasured).
The application of these amendments has had no impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements as the Group has not been a party to any joint arrangement in the current year.
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 1211F-
F-‐11
Amendments to IAS 1 Presentation of Financial Statements – Disclosure Initiative
The Group has applied the amendments to IAS 1 Presentation of Financial Statements in relation to the disclosure initiative for the first time in the current year. IAS 1 Presentation of Financial Statements is amended to address perceived impediments to preparers exercising their judgement in presenting their financial reports by making the following changes:
-‐ clarification that information should not be obscured by aggregating or by providing immaterial information, materiality considerations apply to the all parts of the financial statements, and even when a standard requires a specific disclosure, materiality considerations do apply;
-‐ clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements and clarification that an entity's share of OCI of equity-‐accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss;
-‐ additional examples of possible ways of ordering the notes to clarify that understandability and comparability should be considered when determining the order of the notes and to demonstrate that the notes need not be presented in the order so far listed in paragraph 114 of IAS 1.
The application of these amendments had some impact on the presentation of the statement of comprehensive income as well as on the disclosures within the notes. However, it did not have any impact on the amounts recognised in the Group’s consolidated financial statements.
Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets – Clarification of acceptable methods of depreciation and amortisation
The Group has applied the amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets regarding the clarification of acceptable methods of depreciation and amortisation for the first time in the current year. IAS 16 is amended to prohibit entities from using a revenue-‐based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. This presumption can only be rebutted in limited circumstances.
The application of these amendments has had no impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements.
Amendments resulting from annual improvements 2012 – 2014 Cycle
Makes amendments to the following applicable standards:
-‐ IFRS 5 — Adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-‐for-‐distribution accounting is discontinued
-‐ IFRS 7 — Additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset, and clarification on offsetting disclosures in condensed interim financial statements
-‐ IAS 19 — Clarify that the high quality corporate bonds used in estimating the discount rate for post-‐employment benefits should be denominated in the same currency as the benefits to be paid
-‐ IAS 34 — Clarify the meaning of 'elsewhere in the interim report' and require a cross-‐reference
The application of these amendments has had no impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements.
2.2 Standards and Interpretations in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not adopted the following Standards and Interpretations that have been issued but are not yet effective. They will be effective on or after the dates described below.
New, amended and revised Standards and Interpretations effective from
IFRS 2 Amends IFRS 2 Share-‐ based Payment to clarify the standard in relation to the accounting for cash-‐settled share-‐based payment transactions that include a performance condition, the classification of share-‐based payment transactions with net settlement features, and the accounting for modifications of share-‐based payment transactions form cash-‐settled to equity-‐settled.
Annual periods beginning on or after 1 January 2018
IFRS 9 The Group has early applied IFRS 9 (issued in November 2009 and October 2010) as at 1 January 2011 which included new requirements for the classification and measurement of financial assets and financial liabilities as well as for derecognition. However, the Group has not yet applied the requirements for general hedge accounting (issued in November 2013) and another revised version of IFRS issued in July 2014 which mainly includes a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a “fair value through other comprehensive income” (FCTOCI) measurement category for certain simple debt instruments. Financial liabilities are classified in a similar manner as under IAS 39, however there are differences in the requirements applying to the measurement
Annual periods beginning on or after 1 January 2018
F-‐12
of an entity's own credit risk, only for financial liabilities that are designated on initial recognition as at FVTOCI
IFRS 15 The new Standard IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-‐step approach to revenue.
Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.
Unlike the scope of IAS 18, the recognition and measurement of interest income and dividend income from debt and equity investments are no longer within the scope of IFRS 15. Instead, they are within the scope of IFRS 9 Financial Instruments.
Annual periods beginning on or after 1 January 2018
IFRS 16 The new Standard provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases and its associated interpretative guidance.
IFRS 16 applies a control model to the identification of leases, distinguishing between leases and service contracts on the basis of whether there is an identified asset controlled by the customer.
Significant changes to lessee accounting are introduced, with the distinction between operating and finance leases removed and assets and liabilities recognised in respect of all leases (subject to limited exceptions for short-‐term leases and leases of low value assets). In contrast, the Standard does not include significant changes to the requirements for accounting by lessors.
Annual periods beginning on or after 1 January 2019
IAS 7 Amends IAS 7 Statement of Cash Flows to clarify that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.
Annual periods beginning on or after 1 January 2017
IAS 12 Amends IAS 12 Income Taxes to clarify the following aspects:
-‐ Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use.
-‐ The carrying amount of an asset does not limit the estimation of probable future taxable profits.
-‐ Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.
-‐ An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilisation of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type.
Accounting periods beginning on or after 1 January 2017
IAS 40 Amend IAS 40 Investment Property to state that and entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use. The list of examples of evidence is now presented as a non-‐exhaustive list of examples instead of the previous exhaustive list.
Accounting periods beginning on or after 1 January 2018
Various Annual Improvements to IFRS Standards 2014-‐2016 makes relevant amendments to the following standard:
IFRS 12 – Clarifies the scope of the standard by specifying that the disclosure requirements in the standard, except for those in paragraphs B10-‐B16, apply to an entity’s interests listed in paragraph 5 that are classified as held for sale, as held for distribution or as discontinued operations in accordance with IFRS 5.
Accounting periods beginning on or after 1 January 2017
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 1413F-
F-‐13
The Group is currently assessing whether these changes will impact the consolidated financial statements in the period of initial application. Regarding IFRS 15, the Group is currently assessing its revenue streams and expects to have some impact on the financial statements in relation to its revenue from real estate construction. Regarding IFRS 16, the Group is currently looking at all its lease contracts and expects some additional property, plant and equipment as well as financial liabilities recognised on its statement of financial position on first-‐time application of the Standard. Other than that, the Group does not expect any major changes from the other new or amended Standards.
3 SIGNIFICANT ACCOUNTING POLICIES
3.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
3.2 Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair value or amortized cost, as appropriate and investment properties that are measured at fair value as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
The principal accounting policies are set out below.
3.3 Basis of consolidation The consolidated financial statements of the Group incorporate the financial statements of the Parent Company and entities (including special purpose entities) controlled by the Parent Company (its subsidiaries). Control is achieved when the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to use its power to affect its returns
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:
– The size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
– Potential voting rights held by the Company, other vote holders or other parties;
– Rights arising from other contractual arrangements; and
– Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-‐controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-‐controlling interests even if this results in the non-‐controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of a group entity to bring its accounting policies into line with the Group’s accounting policies.
All intra-‐group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Changes in the Group's ownership interests in existing subsidiaries
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-‐controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-‐controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Parent Company.
When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received or receivable and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-‐controlling interests. When assets of the subsidiary are carried at re-‐valued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Parent Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent
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accounting under IFRS 9 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.
3.4 Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-‐date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-‐related costs are generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:
– deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
– liabilities or equity instruments related to share-‐based payment arrangements of the acquiree or share-‐based payment arrangements of the Group entered into to replace share-‐based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-‐based Payment at the acquisition date; and
– 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 are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-‐controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-‐date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-‐date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-‐controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
Non-‐controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-‐controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-‐by-‐transaction basis. Other types of non-‐controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.
When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is re-‐measured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.
Business combinations that took place prior to 1 January 2010 were accounted for in accordance with the previous version of IFRS 3. The policy described above is applied to all business combinations that took place on or after January 2010.
For common control transactions in which all of the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory, the Group recognises the difference between purchase consideration and carrying amount of net assets of acquired entities or businesses as an adjustment to equity. This accounting treatment is also applied to later acquisitions of some or all shares of the non-‐controlling interests in a subsidiary.
3.5 Investments in associates An associate is an entity over which the Group has significant influence and 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 is not control or joint control over those policies.
The results, assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting.
Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the associate. When the Group's share of losses of an associate exceeds 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 the associate), the Group discontinues recognising its share of further losses. Additional losses 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 an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount 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 profit or loss.
The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of
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value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
3.6 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see note 3.4) less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill acquired in a business combination is allocated, starting from the acquisition date, to each of the Group’s cash-‐generating units (or groups of cash-‐generating units) that is expected to benefit from the synergies of the combination. When assessing each unit or group of units to which the goodwill is so allocated, the Group’s objective is to test goodwill for impairment at a level that reflects the way the Group manages its operations and with which the goodwill would naturally be associated under the reporting system in place.
A cash-‐generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-‐generating unit is less than its carrying amount, 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 based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods.
The Group’s policy for goodwill arising on the acquisition of an associate is described in note 3.5.
3.7 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
Different policies for revenue recognition apply across the Group's business segments. The following table shows the link between the accounting policies for revenue recognition and segment information.
Accounting policies Segments classified by type of activity
3.7.1 Revenue on sale of land Sale of land
3.7.2 Revenue from agreements for construction of real estate Real estate and construction
3.7.3 Construction revenue Real estate and construction
3.7.4 Revenue from the rendering of services
Hotels
Destination management
Other operations
3.7.5 Dividend and interest income Other operations
3.7.6 Rental income Other operations
3.7.1 Revenue on sale of land Revenue from sale of land, sale of land right and associated cost are recognised when land is delivered and the significant risks, rewards of ownership and control have been transferred to the buyer, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Management uses its judgment and considers the opinion obtained from the legal advisors in assessing whether the Group’s contractual and legal rights and obligations in the agreements are satisfied and the above criteria are met.
3.7.2 Revenue from agreements for construction of real estate Management uses its judgment to analyze the Group's agreements for the construction of real estate and any related agreements to conclude whether or not the contractual terms of such agreements indicate that they are, in substance, for the provision of construction services or for the delivery of goods that are not complete at the time of entering into the agreement. Such conclusion depends on the terms of the agreement and all the surrounding facts and circumstances and on whether such an agreement meets the definition of a construction contract, as described in 3.7.3 below.
In accordance with IFRIC 15, an agreement for the construction of real estate will meet the definition of a construction contract when the buyer is able to specify the major structural elements of the design of the real estate before construction begins and / or specify major structural changes once construction is in progress, whether it exercises that ability or not. Where such conditions are met, revenue and costs associated with such contracts are accounted for in accordance with IAS 11 Construction Contracts (see 3.7.3).
Where an agreement for the construction of real estate does not meet the definition of a construction contract and is not for the rendering of services, then it is accounted for as a sale of goods under the scope of IAS 18 Revenue. Management concluded that all contracts entered into for the construction of real estate meet the revenue recognition criteria for the sale of goods.
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Accordingly, revenue from the sale of real estate is recognised when all the following conditions are satisfied: the Group has transferred to the buyer the significant risks and rewards of ownership of the real estate, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the real estate sold, the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the entity.
3.7.3 Construction revenue A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in term of their design, technology and function or their ultimate purpose or use.
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 end of the reporting period measured based on the completion of a physical proportion of the contract work. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer, their amount can be measured reliably and its receipt is considered probable.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that is probable to be recovered. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
When contract costs incurred to date plus recognized profits less recognized losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognized profits less recognized losses, the surplus is shown as amounts due to customers for contract work. Amounts received before the related work is performed are included in the consolidated statement of financial position, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statement of financial position under trade and other receivables.
Construction contract revenue comprises revenue arising from finishing of sold units, extra works requested by customers and any construction agreement with third parties.
3.7.4 Revenue from the rendering of services Revenue from services is recognised in the accounting periods in which the services are rendered.
3.7.5 Dividend and interest income Dividend income from investments other than in associates is recognised when the shareholder’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on original recognition.
3.7.6 Rental income The Group’s policy for recognition of revenue from operating leases is described in 3.8.1.
3.7.7 Cost of sales Cost of sales comprises costs related directly to the sale of goods or rendering of services. These costs include also administration expenses of revenue generating entities in the Group. Under administration expenses are costs allocated for corporate and head quarter functions as well as non revenue generating entities, such as corporate companies, holding companies and start up companies. Companies providing these services are marked as HQ in the subsidiaries' list in note 19.
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3.8 Leasing Leases are classified as finance leases whenever the terms of the lease substantially transfer all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
3.8.1 The Group as lessor Amounts due from lessees under finance leases are recognised 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.
Rental income from operating leases is recognized on a straight-‐line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-‐line basis over the lease term.
3.8.2 The Group as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see 3.10 below). Contingent rentals are recognised as expenses in the periods in which they are incurred.
If a sale and leaseback transaction results in a finance lease, the asset is recognized at its previous carrying amount and any gain/loss recognized over the lease term. In case of a loss, management assesses whether the asset is impaired.
Operating lease payments are recognised as an expense on a straight-‐line basis over the lease term, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-‐line basis, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
3.9 Foreign currencies The individual financial statements of each subsidiary are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the preparation of the Group’s consolidated financial statements, the results and financial position of each subsidiary are translated into Swiss Franc (CHF), which is the Group’s presentation currency.
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that 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 on monetary items are recognised in profit or loss in the period in which they arise except for:
– Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
– Exchange differences on monetary items that qualify as hedging instruments in transactions entered into to hedge certain foreign currency risks (see 3.22.1 below for hedging accounting policies); and
– Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Swiss Francs (CHF) using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in the Group’s foreign currency reserve, a separate component in equity (attributed to non-‐controlling interests as appropriate).
On the disposal of a foreign operation (i.e. disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in other comprehensive income in respect of that operation attributable to the owners of the Parent are reclassified to profit or loss.
In the case of a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-‐attributed to non-‐controlling interests and are not recognized in
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profit or loss. For all other partial disposals (i.e. reductions in the Group's ownership interest in associates that do not result in the Group losing significant influence), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.
Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the exchange rate prevailing at the end of each reporting period. Exchange differences arising are recognised in equity.
The exchange rates for the major foreign currencies against CHF relevant to the annual consolidated financial statements were:
Currency table 2016 2015
Average Year end Average Year end
1 EGP Egyptian Pound 0.1047 0.0566 0.1248 0.1267
1 USD US Dollar 0.9848 1.0190 0.9625 0.9922
1 EUR Euro 1.0899 1.0713 1.0682 1.0807
1 OMR Oman Rial 2.5551 2.6427 2.4986 2.5749
1 AED United Arab Emirates Dirham 0.2681 0.2774 0.2620 0.2691
1 MAD Moroccan Dirham 0.1002 0.1006 0.0986 0.0999
1 JOD Jordanian Dinar 1.3889 1.4385 1.3574 1.3983
3.10 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.
The following principles apply when borrowing costs are partly or fully capitalized by the Group as part of a qualifying asset:
– Where hedge accounting is not applied to minimize the interest rate risk on borrowings used to fund that asset and, therefore derivatives are classified as at fair value through profit or loss, all gains / losses on non-‐hedging derivatives are immediately recognized in profit or loss.
– Where variable rate borrowings are used to finance a qualifying asset and a derivative is designated to cash flow hedge the variability in interest rates on such borrowings, any gain or loss on the hedging derivative that is effective and, therefore previously recognized in other comprehensive income, is reclassified from equity to profit or loss when the hedged risk impacts profit or loss. The hedged interest component of the qualifying asset (hedged risk) impacts profit or loss when the qualifying asset is amortized, impaired or sold.
– Where fixed rate borrowings are used to finance a qualifying asset and a derivative is designated to hedge the fair value exposure to changes in interest rates of such borrowings, the synthetic floating interest rate that is achieved as a result of a highly effective hedge is capitalized, so that borrowing costs always reflect the hedged interest rate. The amount of borrowing costs capitalized in such a case comprises the actual fixed rate on the borrowings plus the effect of swapping this fixed rate into floating rates.
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 profit or loss in the period in which they are incurred.
As the financing activity is co-‐ordinated centrally and generally by the parent and some of the main subsidiaries, the group determines the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset. The group includes all borrowings of the parent and its subsidiaries when computing the weighted average of the borrowing costs applicable to the borrowings that are outstanding during the period other than borrowings made specifically for the purpose of obtaining a qualifying asset.
The amount of borrowing costs that an entity capitalises during the period shall not exceed the amount of borrowing costs it incurred during that period, provided that the carrying amount of the qualifying asset on which eligible borrowing costs have been capitalized does not exceed its recoverable amount (being the higher of fair value less costs to sell or amount in use for that asset).
3.11 Retirement benefit costs Employee pension and retirement benefits are based on the regulations and prevailing circumstances of those countries in which the Group is represented. In Switzerland, ordinary pension and retirement benefit plans qualify as defined-‐benefit plans and are accounted for in conformity with IAS 19 Employee Benefits.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses are recognized immediately through other comprehensive income, whereas past service-‐costs (vested and unvested) are recognized immediately in profit or loss.
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The retirement benefit obligation recognised in the consolidated statement of financial position represents the present value of the defined benefit obligation reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the plan.
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contribution.
3.12 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax.
3.12.1 Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
3.12.2 Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the Balance Sheet Liability Method.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.
Such deferred tax liabilities are not recognised if the temporary difference arises from goodwill and no deferred tax assets or liabilities are recognised for temporary differences resulting from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
3.12.3 Current and deferred tax for the year Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
3.13 Property, plant and equipment Buildings, plant and equipment, furniture and fixtures held for use in the production, supply of goods or services or for administrative purposes are stated in the consolidated statement of financial position at cost less any accumulated depreciation and accumulated impairment losses.
Properties in the course of construction for production, administrative purposes or for a currently undetermined future use are carried at cost less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group’s accounting policy as described in note 3.10. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Depreciation of buildings, plant and equipment as well as furniture and fixtures commences when the assets are ready for their intended use.
Freehold land is not depreciated.
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Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their estimated useful lives, using the straight-‐line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership of the leased asset will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the net sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
The following estimated useful lives are used in the calculation of depreciation:
Buildings 20 – 50 years
Plant and equipment 4 – 25 years
Furniture and fixtures 3 – 20 years
3.14 Investment property Investment properties are properties (land or a building – or part of a building – or both) held by the Group entities to earn rentals and / or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value at the end of each reporting period. Gains and losses arising from changes in the fair value of investment properties are recognised in profit or loss including an adjustment to the related deferred tax position in the period in which they arise.
Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The fair value of investment properties reflects market conditions at the end of each reporting period and is determined without any deduction for transaction costs which the Group may incur on sale or other disposal. The fair value of investment properties is determined based on evaluations performed by independent valuators or internal valuations.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on de-‐recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.
3.15 Impairment of tangible assets At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine 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. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
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 (or cash-‐generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or 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 (or cash-‐generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
3.16 Inventories Inventories are stated at the lower of cost and net realizable value.
Costs, including an appropriate portion of fixed and variable production overheads as well as other costs incurred in bringing the inventories to their present location and condition, are assigned to inventories by the method most appropriate to the particular class of inventory, with the majority being valued on a weighted average basis. For items acquired on credit and where payment terms of the transaction are extended beyond normal credit terms, the cost of that item is its cash price equivalent at the recognition date with any difference from that price being treated as an interest expense on an effective-‐yield basis (see note 11).
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Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
Estimates of net realisable value are generally made on an item-‐by-‐item basis, except in circumstances, where it is more appropriate to group items of similar or related inventories.
The net realizable value of an item of inventory may fall below its cost for many reasons including, damage, obsolescence, slow moving items, a decline in selling prices, or an increase in the estimate of costs to complete and costs necessary to make the sale. In such cases, the cost of that item is written-‐down to its net realizable value and the difference is recognized immediately in profit or loss.
Properties intended for sale in the ordinary course of business or in the process of construction or development for such a sale are included in inventories. These are stated at the lower of cost and net realizable value. The cost of development properties includes the cost of land and other related expenditure attributable to the construction or development during the period in which activities are in progress that are necessary to get the properties ready for its intended sale.
3.17 Provisions Provisions 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 end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When 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 (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a 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.
3.18 Financial instruments Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
3.19 Financial assets All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the timeframe established by regulation or convention in the market place.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
3.19.1 Classification of financial assets Debt instruments that meet the following conditions are subsequently measured at amortised cost less impairment loss (except for debt investments that are designated as at fair value through profit or loss on initial recognition):
– the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
– the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
All other financial assets are subsequently measured at fair value.
3.19.2 Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees or points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments measured subsequently at amortised cost. Interest income is recognised in profit or loss and is included in the “investment income” line item.
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3.19.3 Financial assets at fair value through other comprehensive income (FVTOCI) On initial recognition, the Group can make an irrevocable election (on an instrument-‐by-‐instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading.
A financial asset is held for trading if:
– it has been acquired principally for the purpose of selling it in the near term; or
– on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-‐term profit-‐taking; or
– it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.
Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the investments.
The Group has designated all investments in equity instruments that are not held for trading as at FVTOCI on initial application of IFRS 9.
Dividends on these investments in equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established in accordance with IAS 18 Revenue. Dividends earned are recognised in profit or loss and are included in the ‘investment income’ line item.
3.19.4 Financial assets at fair value through profit or loss (FVTPL) Investments in equity instruments are classified as at FVTPL, unless the Group designates an investment that is not held for trading as at fair value through other comprehensive income (FVTOCI) on initial recognition.
Debt instruments that do not meet the amortised cost are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria but are designated as at FVTPL are measured at FVTPL. A debt instrument may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The Group has not designated any debt instrument as at FVTPL.
Debt instruments are reclassified from amortised cost to FVTPL when the business model is changed such that the amortised cost criteria are no longer met. Reclassification of debt instruments that are designated as at FVTPL on initial recognition is not allowed.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss is included in the 'other gains and losses' line item in the consolidated statement of comprehensive income. Fair value is determined in the manner described in note 40.12.
Interest income on debt instruments as at FVTPL is included in the net gain or loss described above.
Dividend income on investments in equity instruments at FVTPL is recognised in profit or loss when the Group's right to receive the dividends is established in accordance with IAS 18 Revenue and is included in the net gain or loss as described above.
3.19.5 Impairment of financial assets Financial assets that are measured at amortised cost are assessed for impairment at the end of each reporting period.
Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the asset have been affected.
Objective evidence of impairment could include:
– significant financial difficulty of the issuer or counterparty; or
– breach of contract, such as a default or delinquency in interest or principal payments; or
– it becoming probable that the borrower will enter bankruptcy or financial re-‐organisation; or
– the disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, 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 of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.
The amount of the impairment loss recognised is the difference between the asset's carrying amount and the present value of estimated future cash flows reflecting the amount of collateral and guarantee, discounted at the financial asset's original effective interest rate.
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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 profit or loss.
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 profit or loss 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.
3.19.6 De-‐recognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when 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 and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.
On derecognition of a financial asset that is classified as FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is reclassified to retained earnings.
3.20 Financial liabilities and equity instruments 3.20.1 Classification as debt or equity Debt and equity instruments issued by a Group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
3.20.2 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
The instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met:
a) The instrument includes no contractual obligation:
i. to deliver cash or another financial asset to another entity; or
ii. to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer.
b) If the instrument will or may be settled in the issuer’s own equity instruments, it is:
i. a non-‐derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or
ii. a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.
A contract that will be settled by the Group entity receiving or delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument.
Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
3.20.3 Financial liabilities All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL.
A financial liability is classified as current liability when it satisfies any of the following criteria:
-‐ It is expected to be settled in the entity’s normal operating cycle
-‐ It is held primarily for the purposes of trading;
-‐ It is due to be settled within twelve months after the reporting period;
-‐ The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
All other financial liabilities are classified as non-‐current.
However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued by the Group, and commitments issued by the
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Group to provide a loan at below-‐market interest rate are measured in accordance with the specific accounting policies set out below.
Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not held-‐for-‐trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expense that is not capitalised as part of costs of an asset is included in the 'finance costs' line item.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-‐cash assets transferred or liabilities assumed, is recognised in profit or loss.
3.21 Derivative financial instruments If required, the Group enters into derivative financial instruments mainly to manage its exposure to interest rate and foreign exchange rate risk. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently re-‐measured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized as a financial liability.
A derivative that has a remaining maturity of less than twelve months from the end of the reporting period or has a remaining maturity greater than twelve months but is expected to be settled within twelve months is presented as current asset or liability.
A derivative that is designated and effective in a hedging relationship with a non-‐current hedged item is presented as a non-‐current asset or liability in accordance with the presentation of the hedged item.
A derivative that has a maturity of more than twelve months from the end of the reporting period and is not intended to be settled within twelve months is presented as a non-‐current asset or liability, even if that derivative is not part of a designated and effective hedge accounting.
3.22 Assets held for sale Non-‐current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-‐current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
When a Group entity acquires a non-‐current asset (or disposal group) exclusively with a view to its subsequent disposal, it classifies the non-‐current asset (or disposal group) as held for sale at the acquisition date only if the one-‐year requirement above is met and it is highly probable that the other criteria above that are not met at that date will be met within a short period following the acquisition.
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-‐controlling interest in its former subsidiary after the sale.
Non-‐current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.
When the above criteria required for the held for sale classification are no longer met, the Group ceases to classify the asset (or disposal group) as held for sale. At that date, the Group measures any non-‐current asset that ceases to be classified as held for sale (or ceases to be included in a disposal group classified as held for sale) at the lower of:
– Its carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset (or disposal group) not been classified as held for sale; and
– Its recoverable amount at the date of subsequent decision not to sell.
The Group includes any required adjustment to the carrying amount of a non-‐current asset (or disposal group), that ceases to be classified as held for sale, in profit or loss from continuing operations in the period in which the criteria of held for sale classification are no longer met. The Group presents that adjustment in the same caption in the statement of comprehensive income used to present any gain or loss recognized on the remeasurement of that non-‐current asset (or disposal group) that had been previously classified as held for sale provided that it had not met the definition of a discontinued operation upon initial classification as held-‐for-‐sale.
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Comparative figures in the financial statements for prior periods presented are not restated as a result of the change in the plan to sell unless the non-‐current asset (or disposal group) had previously met the definition of a discontinued operation, in which case, the results of operations of the component previously presented in discontinued operations is reclassified and included in income from continuing operations for the prior period presented in the statement of comprehensive income. This also applies to the presentation of the statement of cash flows.
3.23 Share-‐based payment arrangements 3.23.1 Share-‐based payment transactions of the Parent Company Share-‐based payment transactions in which the terms of the arrangement provide the entity with the choice to settle the transaction in cash (or other assets) or in equity instruments issued by the entity, are accounted for as a cash-‐settled share-‐based payment transaction if, and to the extent that, the entity has incurred a liability to settle in cash or other assets, or as an equity-‐settled share-‐based payment transaction if, and to the extent that, no such liability has been incurred.
Share-‐based payment arrangements whose terms provide the Company with the choice to settle the transaction in cash or, at its discretion, in its own equity shares issued to employees are accounted for as equity-‐settled and measured at the fair value of the contingent consideration by reference to the market price of the Company's equity shares at the grant date. Details regarding the determination of the fair value of equity-‐settled share-‐based payment transaction are set out in note 41.
The fair value determined at the grant date of the equity-‐settled share-‐based payments is expensed on a straight-‐line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimate, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-‐settled share-‐based payment reserve in equity.
Upon settlement of a share-‐based payment transaction in which the terms of the arrangement provide the entity with a choice of settlement, then:
– if the entity elects to settle in cash, the cash payment is accounted for as the repurchase of an equity interest (i.e. as a deduction from equity, except as noted in (c) below.
– if the entity elects to settle by issuing equity instruments, no further accounting is made (other than a transfer from one component of equity to another, if necessary), except as noted in (c) below.
– if the entity elects the settlement alternative with the higher fair value, as at the date of settlement, an additional expense is recognized for the excess value given (i.e. the difference between the cash paid and the fair value of the equity instruments that would otherwise have been issued, or the difference between the fair value of the equity instruments issued and the amount of cash that would otherwise have been paid, whichever is applicable.
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4 CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
4.1 Critical judgments in applying accounting policies The following are the critical judgments, apart from those involving estimations (see note 4.2), that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.
4.1.1 Revenue recognition – Real estate sales The operating cycle of residential construction projects predominantly starts when the Group enters into agreements to sell the real estate units off-‐plan. The Group treats the sale of real estate units as sale of goods in accordance with IAS 18 Revenue and IFRIC 15 Agreements for the Construction of Real Estates. Management takes the view that the critical event of revenue recognition hinges on the transfer of significant risks and rewards of ownership and control to the buyer. When management makes this assessment it ensures that the detailed criteria for revenue recognition from the sale of goods as set out in IAS 18 and IFRIC 15 -‐ including the transfer of significant risks and rewards of ownership and control to the buyer -‐ are satisfied and that recognition of revenue from the sale of real estate is appropriate in the current reporting period.
Given the structure of the real estate sale contracts and the application of IAS 18 and IFRIC 15 as described above, revenue recognition from residential construction projects can occur in independent stages which consist of the sale of land, constructed, but unfinished units and finished units. The transfer of significant risks and rewards of ownership and control of each stage is documented in an official delivery protocol and signed by representatives of the Group as well as the buyer.
4.1.2 Deferred taxation on investment property For the purposes of measuring deferred tax liabilities or deferred tax assets arising from investment properties management concluded that the Group’s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sales. Therefore, in determining the Group’s deferred taxation on investment properties, management has determined that the presumption that the carrying amounts of investment properties measured using the fair value model are recovered entirely through sale is rebutted. As a result, the Group has recognised deferred taxes on changes in fair value of investment properties.
4.2 Key sources of estimation uncertainty The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
4.2.1 Impairment of tangible assets and investments in associates At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets and investments in associates to determine 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 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.
In light of the political development in Egypt, management reconsidered the recoverability of the Group's significant items of property, plant and equipment and its investments in associates, which are included in the consolidated statement of financial position at 31 December 2016 at CHF 762,596,957 and CHF 78,551,111 respectively (31 December 2015: CHF 940,356,468 and CHF 100,678,830).
In 2016, the impairment reviews resulted in total impairment losses of CHF 18.6 million on property under construction (2015. CHF 9.1 million on property under construction). The impairment reviews in 2016 and 2015 did not result in any other impairment losses of property, plant and equipment or investments in associates.
Management is aware that the slow-‐down in processes and logistics still impacts the business operations considerably. Therefore, they periodically reconsider their assumptions in light of the macroeconomic developments regarding future anticipated margins on their products. Detailed sensitivity analysis has been carried out and management is confident that the carrying amount of these assets will be recovered in full, even if returns are reduced. This situation will be closely monitored, and adjustments made in future periods if future market activity indicates that such adjustments are appropriate.
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4.2.2 Useful lives of property, plant and equipment The carrying value of the Group's property, plant and equipment at the end of the current reporting period is CHF 762,596,957 (31 December 2015: CHF 940,356,468). Management’s assessment of the useful life of property, plant and equipment is based on the expected use of the assets, the expected physical wear and tear on the assets, technological developments as well as past experiences with comparable assets. A change in the useful life of any asset may affect the amount of depreciation that is to be recognized in profit or loss for future periods.
4.2.3 Provisions The carrying amount of provisions at the end of the current reporting period is CHF 68,626,934 (31 December 2015: CHF 82,521,775). This amount is based on estimates of future costs for infrastructure completion, legal cases, government fees, employee benefits and other charges including taxes in relation to the Group’s operations (see note 35). As the provisions cannot be determined exactly, the amount could change based on future developments. Changes in the amount of provisions due to change in management estimates are accounted for on a prospective basis and recognized in the period in which the change in estimates arises.
4.2.4 Impairment of trade and other receivables An allowance for doubtful receivables is recognized to record foreseeable losses arising from events such as a customer’s insolvency. The carrying amount of the allowance for trade and other receivables at the end of the current reporting period is CHF 18,340,388 (31 December 2015: CHF 20,959,808) (see note 24). In determining the amount of the allowance, several factors are considered. These include the aging of accounts receivables balances, the current solvency of the customer and the historical write-‐off experience.
4.2.5 Classification and valuation of investment property Generally real estate units are constructed either for the Group’s own use or for the sale to third parties and carried at cost. However, when a unit may not be sold, as soon as a long term rent contract over more than 1 year is agreed with a third party at market conditions, the unit is classified as an investment property and measured at the fair value obtained from independent, third party valuation experts. The fair value of investment properties at 31 December 2016 is CHF 5,501,334 (31 December 2015: CHF 10,981,552).
The fair values at 31 December 2016 were determined based on an internal valuation model. The last external valuations were prepared as at 31 December 2012 by Fincorp, an accredited valuation specialist in Egypt. Note 17 provides detailed information about the valuation techniques applied and the key assumptions used in the determination of the fair value of each investment property.
4.2.6 Net realisable value of inventory Inventory mainly includes real estate construction work under progress which is recognised at cost or net realisable value. The majority of real estate under construction (approximately three quarters) is already sold at market prices which are significantly higher than construction cost. Therefore, the estimation uncertainty only relates to the unsold real estate under construction. In general, the profit margins on these real estate projects are high and management currently does not expect any of these projects to be sold below cost except for the following:
– In 2016, an impairment of CHF 13.5 million was made in relation to inventory of development projects. In 2015, none of the inventory was impaired
4.2.7 Infrastructure cost The 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 of the future budgeted costs to be incurred in relation to the project including, but are not limited to, future subcontractor costs, estimated labour costs, and planned other material costs. 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.
4.2.8 Liquidity shortages and related uncertainties For further details on management’s plans to manage liquidity shortages and related uncertainty please refer to note 27.1.
4.2.9 Minimum building obligations One part of the Group’s business is to acquire land for the development of tourism projects. Out of these business opportunities often no legally binding commitments incur however the Group has unbinding business opportunity commitments in relation to their projects. These contingent liabilities are further explained in note 45.1. Due to the complexity of the projects and the ongoing negotiations, estimation of the contingent liability involves a high degree of uncertainty.
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5 THE GROUP AND MAJOR CHANGES IN GROUP ENTITIES The Group comprises the Parent Company and its subsidiaries operating in different countries.
Except for the acquisition of Mozn Investment & Tourism S.A.E. (“Mozn”), the entity owning the Citadel Azur hotel, in 2016 (for further details see note 37), disposal of 15% of OHD in 2015 (for further details see note 32) and the disposal of Golden Beach for Hotels Company in Jordan in 2015 (for further details see note 38) there have been no major changes in the group structure in 2016 and 2015.
Orascom Hotels & Development SAE (“OHD”) remains the principal operating subsidiary and is located in Egypt.
The group controls its subsidiaries directly and indirectly.
6 REVENUE An analysis of the Group’s revenue for the year is as follows:
CHF 2016 2015
Revenue from the rendering of services and rental income 169,916,662 172,082,609
Revenue from agreements for construction of Real Estate and construction revenue 65,432,308 66,387,282
Revenue on sale of land 2,012,534 67,594,277
TOTAL 237,361,504 306,064,168
7 SEGMENT INFORMATION
7.1 Products and services from which reportable segments derive their revenues The Group has four reportable segments, as described below, which are the Group’s strategic divisions. The strategic divisions offer different products and services and are managed separately because they require different skills or have different customers. For each of the strategic divisions, the Country CEOs and the Head of Segments review the internal management reports at least on a quarterly basis. The following summary describes the operation in each of the Group’s reportable segments:
– Hotels – Include provision of hospitality services in two to five star hotels owned by the Group which are managed by international or local hotel chains or by the Group itself.
– Real estate and construction – Include acquisition of land in undeveloped areas and addition of substantial value by building residential real estate and other facilities in stages.
– Land sales – Include sale of land and land rights to third parties on which the Group have developed or will develop certain infrastructure facilities and where the Group does not have further development commitments.
– Destination management – Include provision of facility and infrastructure services at operational resorts and towns.
The real estate and construction segment includes two lines of business each of which is considered as a separate operating segment. For financial statements presentation purposes, these individual operating segments have been aggregated into a single operating segment taking into account the following factors:
– These operating segments have similar long-‐term gross profit margins;
– The nature of the products and production processes are similar.
Other operations include the provision of services from businesses not allocated to any of the segments listed above comprising rentals from investment properties, mortgages, sports, hospital services, educational services, marina, limousine rentals, laundry services and other services. None of these segments meets any of the quantitative thresholds for determining a reportable segment in 2016 or 2015.
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The following is an analysis of the Group's revenue from continuing operations by its major products and services.
Segment Product Revenue from external customers
2016 2015
Hotels Hotels managed by international chains 66,032,406 61,483,056
Hotels managed by local chains 16,139,841 22,839,021
Hotels managed by the Group 38,002,104 39,844,612
Segment total 120,174,351 124,166,689
Real estate and construction Tourism real estate 64,932,570 66,268,885
Construction work 499,738 118,397
Segment total 65,432,308 66,387,282
Land sales Sales of land and land rights 2,012,534 67,594,277
Destination management Utilities (e.g. water, electricity) 15,866,467 15,641,985
Other operations Mortgage (Real estate financing) 8,022,882 8,456,831
Sport (Golf) 755,121 1,546,523
Rentals (ii) 3,662,727 4,329,115
Hospital services 3,718,242 4,053,539
Educational services 2,120,816 2,279,333
Marina 4,568,022 3,400,256
Limousine 34,905 52,650
Laundry services 28,444 45,334
Others 10,964,685 8,110,354
Segment total 33,875,844 32,273,935
TOTAL 237,361,504 306,064,168 (i) Rentals include income from investment property of CHF 3,662,727 (2015: CHF 4,242,564) and from other short term rent
contracts in hotels, marinas and golf courses of CHF 0 (2015: CHF 86,551).
F-‐31
7.2 Se
gmen
t reven
ue and
results
The fo
llowing is an an
alys
is of t
he G
roup
’s re
venu
e an
d re
sults
from
con
tinuing
ope
ratio
ns by re
portab
le seg
men
ts:
CHF
Total seg
men
t reven
ue
Inter-‐segm
ent reven
ue
Reven
ue externa
l customers
Cost of reven
ue
Dep
reciation
Gross profit/(loss)
Segm
ent result
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Hot
els
121,24
8,44
8 12
4,55
4,97
9 (1,074
,097
) (388
,290
) 12
0,17
4,35
1 12
4,16
6,68
9 (9
6,00
8,53
4)
(109
,200
,529
) (13,41
6,23
5)
(17,35
0,12
9)
10,749
,582
(2
,383
,969
) (2
4,83
3,86
0)
(9,837
,873
)
Real estat
e an
d co
nstruc
tion
72,560
,397
89
,181
,710
(7,128
,089
) (2
2,79
4,42
7)
65,432
,308
66
,387
,282
(4
8,53
9,73
6)
(53,08
5,06
1)
(134
,226
) (148
,123
) 16
,758
,346
13
,154
,098
51
,245
,283
21
,190
,436
Land
sales
1,33
1,41
8 67
,761
,513
68
1,11
6 (167
,236
) 2,01
2,53
4 67
,594
,277
(1,802
,755
) (8
32,612
) (6
86,887
) (1,007
,706
) (4
77,108
) 65
,753
,959
24
,819
,389
66
,885
,687
Des
tinat
ion m
anag
emen
t 33
,356
,556
34
,742
,779
(17,49
0,08
9)
(19,10
0,79
4)
15,866
,467
15
,641
,985
(19,23
7,48
8)
(17,28
0,78
6)
(6,336
,559
) (4
,935
,305
) (9
,707
,580
) (6
,574
,106
) (11,92
6,56
1)
(8,237
,361
)
Oth
er ope
ratio
ns
43,343
,053
44
,799
,534
(9
,467
,209
) (12,52
5,60
0)
33,875
,844
32
,273
,935
(2
4,50
8,96
9)
(28,64
6,93
9)
(15,38
4,57
7)
(2,466
,188
) (6
,017
,702
) 1,16
0,80
9 (2
,510
,767
) 1,56
2,74
4
Total
271,83
9,87
2 361,04
0,515
(34,478,368)
(54,976,347)
237,361,504
306,06
4,16
8 (190
,097,482
) (209
,045,927)
(35,958,48
4)
(25,90
7,451)
11,305,538
71,110,791
36,793,484
71,563,633
Una
llocated item
s 1):
Shar
e of
(los
ses) of a
ssoc
iate
s
(17,29
9,64
5)
(19,43
6,96
4)
Oth
er gains
2,90
1,39
3 6,82
0,57
0
Oth
er lo
sses
(181
,316
,575
) (18,17
1,75
0))
Inve
stm
ent inc
ome
1,54
2,88
5 4,67
4,90
4
Cent
ral a
dministrat
ion co
sts an
d dire
ctor
s’ salar
ies
(46,71
0,87
8)
(39,40
3,63
0)
Fina
nce co
sts
(31,39
5,48
7)
(24,39
0,40
6)
Loss before tax (con
tinu
ing op
erations)
(235,484
,823)
(18,343,64
3)
Inco
me ta
x ex
pens
es
(8,351
,012
) (4
,175
,658
)
Loss fo
r the
year (continuing
ope
ration
s)
(243,835,835)
(22,519,301)
1) F
or th
e pu
rpos
es of s
egm
ent r
epor
ting, par
t of t
he am
ount
s re
ported
for t
hese
item
s in th
e co
nsolidat
ed sta
tem
ent o
f com
preh
ensive
inco
me ha
ve bee
n alloca
ted in th
e ta
ble ab
ove to
their
releva
nt seg
men
ts.
The ac
coun
ting po
licies of
the re
portab
le seg
men
ts are
the sa
me as
the Gro
up’s acc
ount
ing po
licies de
scrib
ed in
not
e 3. Seg
men
t res
ult r
epre
sent
s th
e pr
ofit ea
rned
by ea
ch seg
men
t with
out
alloca
tion of
cen
tral adm
inistrat
ion co
sts an
d dire
ctor
s’ salar
ies, sha
re of p
rofit
s (lo
sses
) of a
ssoc
iate
s, in
vestm
ent inc
ome, oth
er gains
and
loss
es, finan
ce cos
ts and
inco
me ta
x ex
pens
e, as includ
ed
in th
e inte
rnal m
anag
emen
t rep
orts th
at are
regu
larly
review
ed by th
e Boa
rd of D
irector
s. This m
easu
re is
con
side
red be
ing m
ost r
elev
ant f
or th
e pu
rpos
es of r
esou
rces
allo
catio
n an
d as
sess
men
t of
segm
ent p
erfo
rman
ce.
Exce
pt fo
r the
impa
irmen
t los
s of
CHF 18
.6 m
illion on
pro
perty un
der c
onstru
ction of
dev
elop
men
t pro
jects in 201
6 (2
015: CHF 9.1 m
illion)
, no im
pairm
ent los
s in re
spec
t pro
perty, plant
and
eq
uipm
ent a
s well a
s go
odwill w
as re
cogn
ized
in 201
6 an
d 20
15.
Furthe
r, an im
pairm
ent o
f CHF 13
.5 m
illion was
mad
e in re
latio
n to
inve
ntor
y of
dev
elop
men
t pro
jects in 201
6 (n
ote 23
). Th
e im
pairm
ent los
ses ha
ve bee
n alloca
ted to
the re
al estat
e an
d co
nstruc
tion se
gmen
t. In
201
5, no su
ch im
pairm
ent los
ses wer
e re
cogn
ised
on inve
ntor
y.
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 3231F-
F-‐32
7.3 Segment assets and liabilities 7.3.1 Segment assets and liabilities
CHF 31 December 2016 31 December 2015
SEGMENT ASSETS
Hotels 482,382,904 649,751,820
Real estate and construction 468,610,543 659,273,746
Land sales 194,273,533 388,246,579
Destination management 79,635,393 147,741,223
Other operations 280,022,695 367,189,806
Segment assets before elimination 1,504,925,068 2,212,203,174
Inter-‐segment elimination (684,242,468) (757,497,313)
Segment assets after elimination 820,682,600 1,454,705,861
Unallocated assets 397,435,806 353,907,573
Assets held for sale 67,230,735 -‐
CONSOLIDATED TOTAL ASSETS 1,285,349,141 1,808,613,434
CHF 31 December 2016 31 December 2015
SEGMENT LIABILITIES
Hotels 240,545,744 306,465,420
Real estate and construction 271,393,094 431,303,175
Land sales 52,001,900 106,015,849
Destination management 73,322,825 108,635,083
Other operations 277,579,803 390,806,172
Segment liabilities before elimination 914,843,366 1,343,225,699
Inter-‐segment elimination (522,967,523) (766,678,121)
Segment liabilities after elimination 391,875,843 576,547,578
Unallocated liabilities 247,680,074 275,435,860
Liabilities directly associated with assets held for sale 54,118,893 -‐
CONSOLIDATED TOTAL LIABILITIES 693,674,810 851,983,438
For the purposes of monitoring segment performance and allocation of resources between segments, all assets and liabilities are allocated to reportable segments except for the assets of holding companies or companies which are not yet operational. Goodwill is allocated to reportable segments as described in note 18.
It is the Group’s policy to reassess the classification of certain assets and liabilities within the reporting segments once a certain development stage of the destination is achieved. In 2016 and 2015 no such transfers were made.
7.3.2 Additions to non-‐current assets
CHF 2016 2015
Hotels 22,857,636 32,396,739
Real estate and construction 244,910 13,406,471
Land sales -‐ -‐
Destination management 15,191,687 6,953,586
Other operations 3,897,173 15,120,040
Unallocated -‐ -‐
TOTAL 42,191,406 67,876,836
F-‐33
7.4 Geographical information The Group currently operates in eight principal geographical areas – Egypt, Oman, United Arab Emirates, Jordan, Switzerland, UK, Montenegro and Morocco. The Group's revenue from continuing operations from external customers by location of operations and information about its non-‐current assets by location of assets are detailed below:
Revenue Non-‐current assets
CHF 2016 2015 2016 2015
Egypt 157,982,742 220,055,941 185,613,535 456,477,589
Oman 47,233,458 36,059,077 397,502,323 385,779,340
United Arab Emirates 28,903,499 26,806,627 58,822,085 54,546,079
Jordan -‐ 536,091 -‐ -‐
Montenegro 184,639 18,915,307 61,663,108 48,138,912
Morocco 40,123 23,733 243,511 3,141,845
Others 3,017,043 3,667,392 67,147,076 9,730,937
TOTAL 237,361,504 306,064,168 770,991,638 957,814,702
The revenue realized from a single client did not exceed the rate of 10% or more of the total Group’s revenue during 2016 while for 2015 the revenues of only one client reached 14% of the total group revenue.
Non-‐current assets exclude investments in associates, financial instruments and deferred tax assets.
7.5 Additional information on segment results The aftermath of the Arab Spring continues to affect the Group’s performance in 2016 as the political uncertainty and the after-‐effects of the extraordinary events that took place in Egypt and other countries in the Middle East have had a significant impact on the general business environment in these countries. The slow-‐down in processes and logistics still impacts the business operations considerably. For further detail on the political situation refer to note 47.
Total segment result of CHF 36.8 million (2015: CHF 71.6 million) mainly decreased due to the following:
-‐ There was a small decrease in the real estate and construction segment revenue as a similar number of units was delivered in Egypt and Oman compared to prior year period. However, there was an increase in the segment result compared to prior year period due foreign currency exchange gains on USD receivables.
-‐ While Hotels in Makadi and Taba Heights -‐ 50% of the Group’s hotel inventory -‐ continued to suffer the consequences of the aircraft Incident of October 2015, in 2016 the hotels’ segment achieved a GOP growth of 28% going from CHF 27.8 million to CHF 35.7 million (year to year). This performance boost came as an accumulated result of the minimized costs at Taba Heights and Makadi as well as successful operations in El Gouna, Salalah and The Cove. In 2016, Taba Heights and Makadi collectively maintained a positive GOP of CHF 1.9 million sliding down from CHF 3.2 million. El Gouna, on the other hand, achieved a GOP growth of 14%, going from CHF 12.3 million to CHF 14.1 million (year to year). Similarly, The Cove in RAK reported a GOP growth of 22% going from CHF 8.9 million to CHF 10.9 million in 2016 (year to year). Further, Salalah Beach in Oman reported a notable GOP growth of CHF 169%, going from CHF 3.3 million in 2015 to CHF 8.8 million in 2016.
-‐ During 2014, a subsidiary of the Group entered into an agreement with a third-‐party investor to sub-‐develop a real estate and touristic project in El Gouna with a total land area of 168,779 square metre. In 2015, the second and third plot containing a total of 136,779 square meter was sold and recognised as revenue in the total amount of USD 44.2 million (CHF 42.8 million). No significant sale of land incurred in 2016. The segment profit in 2016 mainly results from foreign exchange gains in Egyptian subsidiaries due to outstanding receivables in USD.
8 EMPLOYEE BENEFITS EXPENSE
CHF 2016 2015
Employee benefits expense 78,124,234 86,802,923
Thereof included in cost of sales 60,577,748 67,037,497
Thereof included in administration expenses 17,546,486 19,765,426
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 3433F-F-‐34
9 INVESTMENT INCOME
CHF 2016 2015
Interest income:
-‐ Bank deposits 2,253,002 4,015,946
-‐ Other loans and receivables 4,104,644 5,925,004
Dividends received from equity investments 12,466 43,507
TOTAL 6,370,112 9,984,457
Investment income earned on financial assets by category of assets is CHF 6,357,646 (2015: CHF 9,940,950) for loans and receivables including cash and bank balances as well as CHF 12,466 (2015: 43,507) for financial assets at fair value through other comprehensive income.
Gains or (losses) relating to financial assets classified as at fair value through profit or loss is included in “Other gains” in note 10.
10 OTHER GAINS
CHF 2016 2015
Gain on disposal of subsidiaries (note 38) -‐ 1,736,869
Gain from change in fair value of investment property (note 17) 161,301 118,103
Gain on disposal of property, plant and equipment 14,944 289,015
Gain on disposal of financial investments (i) 2,888,614
Other gains (ii) -‐ 5,740,057
TOTAL 3,064,859 7,884,044
(i) Gain from selling shares in stock exchange
(ii) In 2015, includes reversal of provisions of CHF 4.6 million
11 FINANCE COSTS
CHF 2016 2015
Interest on bank overdrafts and loans (47,429,715) (36,637,974)
Total interest expense for financial liabilities not classified as at fair value through profit or loss
(47,429,715) (36,637,974)
Less: amounts included in the cost of qualifying assets (i) 2,629,446 3,041,854
TOTAL (44,800,269) (33,596,120)
(i) The amount of capitalization cost of qualifying assets (project under construction and work in progress) has decreased compared to prior year. This is mainly due to decreased activities in relation to the current hotel projects and real estate projects in Egypt and Oman, which are eligible for the capitalization of interest expense. Beside a general increase in finance costs, this led to an increase in finance cost by CHF 11.2 million from CHF 33.6 million to CHF 44.8 million.
The rate used by the Group to determine the amount of borrowing costs eligible for capitalization is 7.75% per annum (2015: 7.84% per annum).
In line with the Central Bank of Egypt's efforts to support the tourism industry, Orascom Hotels & Development (“OHD”), the largest subsidiary of the Company, signed a debt refinancing package allowing OHD to postpone its principal payments for the coming 3 years and its interest payments for financial year 2016 with an option to postpone the interest payments for financial year 2017. As a result, the balance sheet of the Group will be strengthened and thereby lead to more flexibility to advancing its projects.
The transaction involves the payment of CHF 33.5 million from the CHF 120.5 million of short term facilities and refinancing the remaining balance of CHF 87.2 million into one 8.5 years' syndicated term loan, in addition to the payment of CHF 14.9 million from CHF 156.2 million of medium term loans and the refinancing of the remaining balance of CHF 140.6 million into 7.5 years' tenor term loans, all under a common terms agreement frame work.
F-‐35
12 OTHER LOSSES
CHF 2016 2015
Net foreign exchange (losses)/gains (i) (113,243,690) (5,757,319)
Impairment related to property under construction (ii) (18,611,089) (9,128,902)
Write-‐down on inventory(iii) (13,529,631) -‐
Impairment loss of receivables on acquisition of subsidiaries (note 38) (843,588) -‐
Other losses (1,186,542) -‐
TOTAL (147,414,540) (14,886,221)
(i) For further details on foreign exchange losses in 2016 refer to note 30.6
(ii) In 2016, impairment losses on property under construction of 18.6 million (2015: CHF 9.1 million) were recognised on development projects.
(iii) In 2016, impairment losses on inventory of CHF 13.5 million (2015: none) were recognised on inventory of development projects.
13 COMPENSATION OF KEY MANAGEMENT PERSONNEL
CHF 2016 2015
Salaries 3,485,161 4,185,000
Other short-‐term employee benefits 141,290 307,500
Post employment benefits 48,968 90,000
TOTAL COMPENSATION OF KEY MANAGEMENT PERSONNEL 3,675,419 4,582,500
There is a compensation plan in place for the Board of Directors which consists of a fixed compensation subject to an annual review. As to the compensation of the members of Executive Management, the base salary is either (in case of members who have served in that capacity since the Company was formed in 2008) carried over from their previous employment with Orascom Hotels & Development SAE, or (in case of members appointed at a later time) determined in a discretionary decision of the CEO approved by the Nomination & Compensation Committee. In respect of the bonus part of the compensation, proposals by the CEO are presented to the Nomination & Compensation Committee which discusses such proposals and approves them if deemed fit.
The annual proposals and decisions concerning the compensation of the members of Executive Management are based on an evaluation of the individual performance of each member, as well as of the performance of the business area for which each member is responsible (in case of the executive members of the Board, the performance of the Orascom Development Group as a whole). The CEO forms the respective proposals in his discretion, based on his judgment of the relevant individuals' and business areas' achievements.
The disclosures required by the Swiss Code of Obligations on Board and Executive committee compensation are shown in the compensation report.
Total compensation of directors and Executive Management is part of the employees benefit expense allocated between cost of sales and administrative expenses (see note 8).
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 3635F-
F-‐36
13.1 Holding of Shares
2016 2015
ODH shares OHD shares
ODH shares OHD shares
BOARD OF DIRECTORS
Samih Sawiris1 Chairman 27,391,814 -‐ 29,355,452 -‐
Franz Egle Member 51,285 -‐ 40,588 -‐
Adil Douiri Member 25,379 -‐ 19,469 -‐
Carolina Müller-‐Möhl Member 36,272 -‐ 31,488 -‐
Eskandar Tooma 2 Member -‐ -‐ 93,500 -‐
Naguib S. Sawiris 4 Member -‐ -‐ -‐ -‐
Marco Sieber Member 27,195 -‐ 20,816 -‐
Jürgen Fischer Member 94,868 -‐ 3,482 -‐
Jürg Weber Member 23,929 -‐ 3,482 -‐
TOTAL BOARD OF DIRECTORS 27,650,742 -‐ 29,568,277 -‐
EXECUTIVE MANAGEMENT
Samih Sawiris 2, 3 CEO -‐ -‐ -‐ -‐
Eskandar Tooma 2, 3 CFO -‐ -‐ -‐ -‐
Khaled Bichara 5 CEO -‐ -‐ -‐ -‐
Ashraf Nessim 6 CFO -‐ -‐ -‐ -‐
Abdelhamid Abouyoussef Chief Hotels Officer 90,830 -‐ 86,207 -‐
TOTAL EXECUTIVE MANAGEMENT 90,830 -‐ 86,207 -‐
1 total includes direct and indirect holding ownership as per note 29.4. 2 The holding of shares of Samih Sawiris and Eskandar Tooma are shown within the Board of Directors’ table. 3 As at 31 December 2015, Samih Sawiris and Eskandar Tooma have resigned from the Executive Management. Further
Eskandar Tooma did not stand for re-‐election as Member of the Board of Directors at the Annual General Meeting on 10 May 2016
4 During the Annual General Meeting on 10 May 2016, Naguib S. Sawiris was elected as new member of the Board of Directors.
5 As at 1 January 2016, Khaled Bichara was appointed as Group CEO 6 As at 10 May 2016, Ashraf Nessim was appointed as interim Group CFO
As at 31 December 2016, an amount of CHF 250,432 was due from key executives relating to the allocation of OHD shares in 2007. No other loans or credits were granted to members of the Board, the Executive Management or parties closely linked to them during 2016 and 2015.
14 Income taxes
14.1 Income tax recognised in profit or loss CHF 2016 2015
CURRENT TAX Current tax (income)/expense for the current year 4,563,472 3,607,731
4,563,472 3,607,731
DEFERRED TAX
Deferred tax (income)/expense recognized in the current year 3,787,540 1,091,490
Adjustments to deferred tax attributable to changes in tax rates and laws -‐ (523,563)
3,787,540 567,927
TOTAL INCOME TAX EXPENSE RECOGNIZED IN THE CURRENT YEAR RELATING TO CONTINUING OPERATIONS
8,351,012 4,175,658
F-‐37
The following table provides reconciliation between income tax expense recognized for the year and the tax calculated by applying the applicable tax rates on accounting profit:
CHF 2016 2015
Profit/(loss) before tax from continuing operations (235,484,823) (18,343,643)
Income tax expense/(benefit) calculated at 13.25% (2015: 19.58%) (31,203,798) (3,591,686)
Unrecognized deferred tax assets during the year 42,637,842 12,275,505
Effect of income that is exempt from taxation (9,860,142) (8,963,765)
Effect of deferred tax balances due to changes in income tax -‐ (523,563) Effect of (income)/expenses that are not (added)/deductible in determining taxable profit
6,777,110 4,979,167
INCOME TAX EXPENSE RECOGNIZED IN PROFIT OR LOSS 8,351,012 4,175,658
The average effective tax rate of 13.25% (2015: 19.58%) is the effective tax rate from countries in which the company generates taxable profit. The average effective tax rate mainly decreased due to the following:
In August 2015, the income tax rate in Egypt was changed to a unified rate of 22.5% instead of 25% which affected the income tax expense in 2015.
14.2 Income tax recognized in other comprehensive income CHF 2016 2015
DEFERRED TAX
Fair value measurement of hedging instruments entered into in a cash flow hedge
-‐ -‐
Remeasurement of defined benefit obligation -‐ -‐
TOTAL INCOME TAX RECOGNISED IN OTHER COMPREHENSIVE INCOME -‐ -‐
14.3 Current tax assets and liabilities CHF 2016 2015
Current tax expense 4,563,472 3,607,731
Advance payment in relation to current tax of current year -‐ 473,943
Foreign currency difference (2,434,480) 523,563
CURRENT TAX LIABILITIES 2,128,992 4,605,237
14.4 Deferred tax balances Deferred tax assets and liabilities arise from the following:
2016 CHF
Opening balance
Charged to income
Exchange difference
Recognized in other
comprehen-‐sive income
Acquisition/ disposal of Subsidiary
Closing balance
ASSETS
Temporary differences
Property, plant & equipment 4,521,152 (2,959,192) (569,040) -‐ -‐ 992,920
Tax losses 8,172,331 (6,852,186) (1,320,145) -‐ -‐ -‐
12,693,483 (9,811,378) (1,889,185) -‐ -‐ 992,920
LIABILITIES
Temporary differences
Property, plant & equipment 40,865,187 (6,020,209) (14,065,385) 1,219,890 -‐ 21,999,483
Investment property 2,182,089 (3,628) (1,252,135) -‐ -‐ 926,326
43,047,276 (6,023,837) (15,317,520) 1,219,890 -‐ 22,925,809
NET DEFERRED TAX LIABILITY 30,353,793 3,787,541 (13,428,335) 1,219,890 -‐ 21,932,889
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 3837F-
F-‐38
2015 CHF
Opening balance
Charged to income
Exchange difference
Recognized in other
comprehen-‐sive income
Acquisition/ disposal of Subsidiary
Closing balance
ASSETS
Temporary differences
Property, plant & equipment 5,380,705 (492,791) (366,762) -‐ -‐ 4,521,152
Tax losses 10,643,839 (1,855,350) (616,158) -‐ -‐ 8,172,331
16,024,544 (2,348,141) (982,920) -‐ -‐ 12,693,483
LIABILITIES
Temporary differences
Property, plant & equipment 41,895,558 1,350,173 (2,380,544) -‐ -‐ 40,865,187
Investment property 5,769,081 (3,130,387) (456,605) -‐ -‐ 2,182,089
47,664,639 (1,780,214) (2,837,149) -‐ -‐ 43,047,276
NET DEFERRED TAX LIABILITY 31,640,095 567,927 (1,854,229) -‐ -‐ 30,353,793
14.5 Unrecognized deferred tax assets
Deferred tax assets not recognized at the reporting date:
CHF 2016 2015
Tax losses in Parent Company (expiry in 2016) (i) -‐ 275,640,031
Tax losses in Parent Company (expiry 2018) (i) 846,695,821 846,695,821
Tax losses in Parent Company (expiry 2019) (i) 1,032,630,753 1,032,630,753
Tax losses in Parent Company (expiry 2020) (i) 29,383,250 29,383,250
Tax losses in Parent Company (expiry 2021) (i) 86,373,116 86,373,116
Tax losses in Parent Company (expiry 2022) (i) 2,955,358 -‐
Temporary differences in subsidiaries (ii) 104,045,729 226,472,442
(i) At 31 December 2015, the Parent Company’s tax losses amounted to CHF 2,270,722,971 which mainly related to tax losses
caused by impairment charges recognized on investments as result of the original restructuring of the Group. The historical cost value of these investments was the fair value of the investments at the date of the stock market listing in Switzerland.
The Parent Company incorporated in Switzerland is a holding company and enjoys a privileged taxation for dividend income from subsidiaries, as such income is tax exempted if certain criteria are met.
The Parent Company does not expect to have any substantial income streams other than tax exempted dividend income in the foreseeable future and therefore it is not probable that the unused tax losses can be utilized. Therefore, and unchanged to prior year, all tax losses accumulated in the Parent Company which amounted to CHF 2,273,678,329 at 31 December 2016 were treated as unrecognized deferred tax assets.
(ii) At 31 December 2016, the Group has not recognised deferred tax assets for gains recognized at the subsidiaries level on intercompany land sales which took place in 2010 in the amount of CHF 92,071,502 (31 December 2015: CHF 206,099,642). During 2016, the Group has not recognised any deferred tax asset on the sale transaction as the development of this land either has not yet been started or is still in the early stages of development and therefore it is not evident that future taxable profits are probable. The residual temporary differences are unrecognized tax losses in subsidiaries which expire in 2017.
F-‐39
15 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings from continuing operations attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. As the Company does not have any dilutive potential, the basic and diluted earnings per share are the same.
The earnings from continuing operations and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows:
CHF 2016 2015
EARNINGS (for basic and diluted earnings per share)
(Loss)/profit for the period attributable to owners of the parent (196,415,554) (19,052,959)
NUMBER OF SHARES (for basic and diluted earnings per share)
Weighted average number of ordinary shares for the purposes of EPS 40,399,443 28,951,419
EARNINGS PER SHARE FROM CONTINUING OPERATIONS (4.86) (0.66)
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 4039F-
F-‐40
16 P
RO
PER
TY, P
LAN
T A
ND
EQ
UIP
MEN
T
CHF
Free
hold
land
B
uild
ings
P
lant
and
eq
uipm
ent
Furn
itur
e an
d fix
ture
s P
rope
rty
unde
r co
nstr
ucti
on
Ass
ets
unde
r fin
ance
leas
e To
tal
COST
Bal
ance
at 1
Jan
uary
201
5 13
4,97
8,32
7 63
1,30
4,01
4 12
3,57
1,14
3 82
,522
,428
18
1,98
8,72
5 6,
936,
223
1,16
1,30
0,86
0
Add
ition
s 37
6,37
4 7,
746,
110
4,16
4,94
1 1,
338,
878
54,2
50,5
33
-‐ 67
,876
,836
Tran
sfer
from
inve
ntor
y
-‐ -‐
-‐ -‐
90,7
95,9
56
-‐ 90
,795
,956
Tran
sfer
to in
vent
ory
(321
,024
) (2
,871
,954
) (1
8,74
5)
(18,
284)
-‐
-‐ (3
,230
,007
)
Tran
sfer
from
pro
perty un
der c
onst
ruct
ion
22,5
81
14,8
69,9
70
630,
267
7,40
0 (1
5,53
0,21
8)
-‐ -‐
Dispo
sals
(218
,053
) (1
,656
,363
) (2
27,1
29)
(721
,758
) -‐
-‐ (2
,823
,303
)
Der
ecog
nize
d on
loss
of c
ontrol
of s
ubsidi
arie
s (6
23,5
93)
(16,
027,
886)
(9
60,3
05)
(1,2
66,2
45)
-‐ -‐
(18,
878,
029)
Fore
ign
curren
cy e
xcha
nge
differ
ence
s (8
,478
,264
) (3
9,88
8,36
2)
(8,1
12,6
09)
(6,9
26,2
92)
(6,6
28,2
00)
-‐ (7
0,03
3,72
7)
Bal
ance
at 1
Jan
uary
201
6 12
5,73
6,34
8 59
3,47
5,52
9 11
9,04
7,56
3 74
,936
,127
30
4,87
6,79
6 6,
936,
223
1,22
5,00
8,58
6
Add
ition
s 78
4,90
9 18
,255
,345
6,
193,
555
5,30
2,37
7 11
,215
,734
-‐
41,7
51,9
20
Acq
uire
d th
roug
h bu
sine
ss com
bina
tion
(not
e 37
) 29
,362
,420
23
,254
,101
17
3,53
9 35
,107
1,
719,
654
-‐ 54
,544
,821
Tran
sfer
from
pro
perty un
der c
onst
ruct
ion
-‐ 24
,807
,267
-‐
-‐ (2
4,80
7,26
7)
-‐ -‐
Tran
sfer
from
inve
ntor
y (n
ote
23)
2,24
6 2,
369,
589
167,
363
-‐ -‐
-‐ 2,
539,
198
Rec
lass
ified
as he
ld fo
r sal
e
(5,2
96)
(152
,881
) (1
82,5
74)
(157
,933
) -‐
(498
,684
)
Dispo
sals
(1
91,5
36)
(440
,721
) (3
18,0
71)
(40,
188)
-‐
(990
,516
)
Fore
ign
curren
cy e
xcha
nge
differ
ence
s (2
8,30
2,16
0)
(232
,113
,279
) (4
1,57
4,94
5)
(24,
573,
326)
(2
3,14
4,50
5)
(4,0
51,1
38)
(353
,759
,353
)
Bal
ance
at 3
1 D
ecem
ber 2
016
127,
583,
763
429,
851,
720
83,4
13,4
73
55,1
99,6
40
269,
662,
291
2,88
5,08
5 96
8,59
5,97
2
F-‐41
CHF
Free
hold
land
B
uild
ings
P
lant
and
eq
uipm
ent
Furn
itur
e an
d fix
ture
s P
rope
rty
unde
r co
nstr
ucti
on
Ass
ets
unde
r fin
ance
leas
e To
tal
ACC
UM
ULA
TED
DEP
REC
IATI
ON
AN
D IM
PA
IRM
ENT
Bal
ance
at 1
Jan
uary
201
5 -‐
111,
102,
421
90,5
72,6
92
63,7
19,4
41
7,65
5,79
8 1,
490,
891
274,
541,
243
Elim
inat
ed o
n di
spos
als of
ass
ets
-‐ (1
,437
,422
) (2
26,2
24)
(667
,994
)
-‐ (2
,331
,640
)
Der
ecog
nize
d on
loss
of c
ontrol
of s
ubsidi
arie
s -‐
(2,2
75,6
31)
(704
,664
) (8
83,4
47)
-‐
(3,8
63,7
42)
Tran
sfer
to in
vent
ory (n
ote
23)
-‐ (6
15,5
34)
(2,5
17)
(2,4
91)
-‐ -‐
(620
,542
)
Dep
reciat
ion
expe
nse
-‐ 14
,576
,079
8,
750,
828
5,01
5,36
7
393,
202
28,7
35,4
76
Impa
irmen
t los
s (n
ote
12)
-‐ -‐
-‐ -‐
9,12
8,90
2 -‐
9,12
8,90
2
Fore
ign
curren
cy e
xcha
nge
differ
ence
s -‐
(9,7
47,9
65)
(7,4
40,2
46)
(3,2
50,7
96)
(498
,572
) -‐
(20,
937,
579)
Bal
ance
at 1
Jan
uary
201
6 -‐
111,
601,
948
90,9
49,8
69
63,9
30,0
80
16,2
86,1
28
1,88
4,09
3 28
4,65
2,11
8
Elim
inat
ed o
n di
spos
als of
ass
ets
-‐ (1
5,78
2)
(266
,380
) (2
03,0
41)
-‐ -‐
(485
,203
)
Rec
lass
ified
to a
sset
s he
ld fo
r sal
e -‐
(221
) (1
35,9
21)
(167
,358
) -‐
-‐ (3
03,5
00)
Dep
reciat
ion
expe
nse
-‐ 14
,957
,404
8,
689,
680
12,0
09,0
47
-‐ 30
2,35
3 35
,958
,484
Impa
irmen
t los
s (n
ote
12)
-‐
18,6
11,0
89
18
,611
,089
Fore
ign
curren
cy e
xcha
nge
differ
ence
s -‐
(56,
196,
500)
(3
9,34
5,65
6)
(32,
275,
845)
(3
,254
,091
) (1
,361
,881
) (1
32,4
33,9
73)
Bal
ance
at 3
1 D
ecem
ber 2
016
-‐ 70
,346
,849
59
,891
,592
43
,292
,883
31
,643
,126
82
4,56
5 20
5,99
9,01
5
CAR
RY
ING
AM
OU
NT
At 3
1 Dec
embe
r 201
5 12
5,73
6,34
8 48
1,87
3,58
1 28
,097
,694
11
,006
,047
28
8,59
0,66
8 5,
052,
130
940,
356,
468
At 3
1 D
ecem
ber 2
016
127,
583,
763
359,
504,
871
23,5
21,8
81
11,9
06,7
57
238,
019,
165
2,06
0,52
0 76
2,59
6,95
7 At 3
1 Dec
embe
r 201
6, p
rope
rty,
pla
nt a
nd e
quip
men
t (PP
E) o
f the
Gro
up w
ith a
car
ryin
g am
ount
of C
HF
88.3
mill
ion
(31 Dec
embe
r 201
5: C
HF
96.6
mill
ion)
wer
e pl
edge
d to
sec
ure
borrow
ings
of t
he
Gro
up a
s de
scrib
ed in
not
e 33
. See
not
e 11
for t
he cap
italiz
ed fi
nanc
e co
st d
urin
g th
e ye
ar.
In 2
016,
impa
irmen
t los
ses on
pro
perty un
der c
onst
ruct
ion
of C
HF
18.6
mill
ion
(201
5: C
HF
9.1 m
illio
n) w
ere
reco
gnised
on
deve
lopm
ent p
roje
cts.
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 4241F-
F-‐42
17 INVESTMENT PROPERTY The following table summarizes movements, which have occurred, during the current reporting period, on the carrying amount of investment property.
CHF 2016 2015
FAIR VALUE OF COMPLETED INVESTMENT PROPERTY
Balance at the beginning of the year 10,981,552 11,922,802
Addition 439,486 -‐
Revaluation gain 161,301 118,103
Foreign currency translation adjustment (6,081,005) (1,059,353)
Balance at the end of the year 5,501,334 10,981,552
The fair values at 31 December 2016 were determined based on an internal valuation model performed by Group management. The last external valuations were prepared as at 31 December 2012 by Fincorp, an accredited valuation specialist in Egypt. In estimating the fair value of the investment properties, management considers the current use of the properties as their highest and best use.
The internal valuation model relies on the Discounted Cash Flow (DCF) method to determine the fair value of the investment property. The Discounted Cash Flow (DCF) approach describes a method to value the investment property using the concepts of the time value of money. All future cash flows are estimated and discounted to give them a present value. This valuation method is in conformity with the International Valuation Standards. The same method was used for any previous external valuations. As investment property only consists of a few properties in Egypt, management has decided to use an internal valuation model due to efficiency and cost saving reasons.
For the valuation of the investment property which is situated in Egypt the model used cash flow projections based on financial budgets for the next five years and an average discount rate of 22.7% (cost of equity). For the terminal value a perpetual growth rate of 3% was used. In 2015 an average discount rate of 19.5% and a perpetual growth rate of 3% were used.
All of the Group’s investment property is held under freehold interests. The following table summarizes income and direct operating expenses from investment properties rented out to third parties.
CHF 2016 2015
Rental income from investment properties (i) 3,662,727 4,242,564
Direct operating expenses (including repairs and maintenance) arising from investment properties that generated rental income during the period
179,832 324,810
(i) See note 7.1 for further information on the Group’s rental income.
18 GOODWILL
CHF 2016 2015
Cost 2,893,347 6,476,682
Accumulated impairment losses -‐ -‐
Carrying amount at end of year 2,893,347 6,476,682
CHF 2016 2015
COST
Balance at beginning of year 6,476,682 7,109,426
Effect of foreign currency exchange differences (3,583,335) (632,744)
Balance at end of year 2,893,347 6,476,682
F-‐43
18.1 Allocation of goodwill to cash-‐generating units Annual test for impairment
An impairment test of goodwill was performed by the Group to assess the recoverable amount of its goodwill. No impairment was recorded as result of this test. All cash-‐generating units were tested for impairment using the Discounted Cash Flow (DCF) method in accordance with IFRS.
The Group’s business segments have been identified as cash–generating units. The DCF model utilized to evaluate the recoverable amounts of these units was based on a five-‐year projection period. A further description of the assumptions used in the model is given in the following paragraphs.
The carrying amount of goodwill that has been allocated for impairment testing purposes is as follows:
CHF Segment 2016 2015
Hotel companies * Hotels 2,893,347 6,476,682
2,893,347 6,476,682
*Each subsidiary considered separately
Hotels
As already mentioned, Egypt has been on the brink of social and political turmoil in the past few years. While the Egyptian uprising has come with the promise of major political reform, it has led to the temporary disruption of economic activity. Looking beyond the current crisis, Egypt can benefit from maintaining its current momentum towards economic liberalization, privatization, and a more efficient government. This will improve Egypt’s economic position and help foster a sustained growth once the inevitable global economic upturn materializes. Considering the previously mentioned analysis, the impairment model has taken the current economic situation of Egypt into close consideration.
The recoverable amount of each cash-‐generating unit has been determined based on a value in use calculation which uses cash flow projections based on the financial budgets approved by management covering a ten-‐year period that consists of two phases. The first phase shows the evolving status of the hotel segment indicated by being back to the operating levels of the year 2010. And the second phase shows steady performance of the hotel operations. An average discount rate of 22.7% per annum (2015: 18.1% per annum) was used for the value in use calculation. The discount rate is based on a risk free post-‐tax interest rate of 13.8% (the pre-‐tax risk free rate used is 17.3%; applying the 20% Egyptian tax rate for sovereign bonds, the post-‐tax risk free rate of 13.8% resulted), a beta of 1.27 (2015: 0.83) as well as a risk premium of 7% (2015: 7%). For the terminal value calculation, a terminal growth rate of 3% (2015 3%) was used.
Sensitivity analysis, where the average discount rate was increased by 4.5% and the growth rate reduced by 0.5%, which according to management is a reasonably possible change in key assumptions, did not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-‐generating unit.
Furthermore, management believes that any reasonably possible change in the key assumptions (sensitivity analysis) on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-‐generating unit.
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 4443F-
F-‐44
19 SUBSIDIARIES
The Group has control over all the subsidiaries below either directly or indirectly through subsidiaries controlled by the Parent Company. Details of the Group’s significant subsidiaries at the end of the reporting period are as follows:
Country – Company name Domicile FC Share/paid-‐ in capital
Proportion of ownership interest and voting power held by the Group
Segment
HO* R&C LS DM Other HQ
Egypt
Abu Tig for Hotels Company Red Sea EGP 3,412,500 84.54% 2
Accasia for Hotels Company Cairo EGP 25,000,000 84.54% 5
Arena for Hotels Company S.A.E Cairo EGP 20,000,000 100.00% 4 Azur for Floating Hotels Company S.A.E 1)
Cairo EGP 3,000,000 43.24% 5
Captain for Hotels Company Red Sea EGP 768,750 84.54% 3
El Dawar for Hotels Company Cairo EGP 9,560,000 84.54% 3 El Khamsa for Hotels & Touristic Establishments
Red Sea EGP 48,000,000 84.51%
El Golf for Hotels Company & Touristic Establishments
Cairo EGP 22,000,000 84.54% 5
El Gouna for Hotels Company S.A.E Cairo EGP 79,560,000 59.78% 5
El Gouna Hospital Company Red Sea EGP 19,000,000 64.02%
El Gouna Services Company Red Sea EGP 250,000 84.79%
El Mounira for Hotels Company S.A.E Red Sea EGP 14,000,000 63.35% 4 El Tebah for Hotels & Touristic Establishments Company
Cairo EGP 52,000,000 59.77% 5
El Wekala for Hotels Company Cairo EGP 39,000,000 63.56% 4 International Company for Taba Touristic Projects (Taba Resorts)
Cairo EGP 96,000,000 54.84% 5
International Hotel Holding Cairo EGP 452,367,300 84.54% Marina 2 for Hotels & Touristic Establishments Company
Cairo EGP 19,250,000 50.72% 4
Marina 3 for Hotels & Touristic Establishments Company
Cairo EGP 26,000,000 84.54% 4
Med Taba for Hotels Company S.A.E Cairo EGP 51,000,000 56.61% 4
Misr El Fayoum for Touristic Development Company S.A.E
Cairo EGP 28,000,000 57.03%
Mokbela for Hotels Company S.A.E Cairo EGP 85,000,000 69.62% 5
Orascom Hotels & Development S.A.E Cairo EGP 1,108,307,375 84.79%
Orascom Housing Company Cairo EGP 22,000,000 84.79%
Paradisio for Hotels & Touristic Establishments Company S.A.E
Red Sea EGP 18,500,000 84.54% 4
Rihana for Hotels Company S.A.E Red Sea EGP 13,000,000 50.72% 4
Roaya for Tourist & Real Estate Development SAE
Red Sea EGP 50,000,000 63.15%
Royal for Investment & Touristic Development S.A.E
Cairo EGP 50,000,000 50.71% 4
Taba First Hotel Company S.A.E Cairo EGP 105,000,000 50.68% 5
Taba Heights Company S.A.E South Sinai
EGP 157,510,000 83.94%
Tamweel Leasing Finance Co. ILC Cairo EGP 50,000,000 73.08% Tamweel Mortgage Finance Company S.A.E
Cairo EGP 100,000,000 74.18%
Tawila for Hotel Company S.A.E Cairo EGP 68,000,000 84.54% 5 Mozn Investment and Tourism S.A.E. Red Sea EGP 268,520,000 99.99% 5
F-‐45
Country – Company name Domicile FC Share/paid
in capital
Proportion of ownership interest and voting power held by the Group
Segment
HO* R&C LS DM Other HQ
Montenegro
Lustica Development Ad Podgorica Podgo-‐rica
EUR 11,025,000 90.90%
Morocco
Oued Chibika Development (SA) Casa-‐blanca
MAD 367,420,258 55.00%
Chbika Rive Hotel Casa-‐blanca
MAD 66,000,000 100.00% UC
Oman Madrakah Hotels Management Company LLC
Muscat OMR 4,350,000 70.00%
Muriya Tourism Development Company (S.A.O.C)
Muscat OMR 25,525,800 70.00%
Salalah Beach Tourism Development Company (S.A.O.C)
Muscat OMR 35,922,530 70.00%
Sifah Tourism Development Company (S.A.O.C)
Muscat OMR 42,947,800 70.00%
Soda Tourism Development Co. 2) Muscat OMR 12,646,260 49.00% Wateera Property Management Company LLC
Muscat OMR 270,000 70.00%
United Arab Emirates
RAK Tourism Investment FZC Ras al Khaimah
AED 7,300,000 73.00% 5
United Kingdom Eco-‐Bos Development Limited Cornwall GBP 10,000,000 75.00%
1) The direct ownership in Azur for Floating Hotels Company S.A.E. is 51% therefore the Group has control over this company.
2) The Group has control over Soda Tourism Development Company as one of Group’s subsidiaries holds a 70% interest.
Abbreviations:
HO Hotels
R&C Real estate and construction
LS Land sales
DM Destination management
HQ Headquarter or not yet operational
Other Other operations
* Number of stars the hotel holds
UC Hotel under construction
06OrascOm FINaNcIaL sTaTEmENTs
06OrascOm FINaNcIaL sTaTEmENTs
Annual Report - 2016 Strategically decentralized F- 4645F-
F-‐46
19.1. Details of non-‐wholly owned subsidiaries that have material non-‐controlling interests The table below shows details of non-‐wholly owned subsidiaries of the Group that have material non-‐controlling interests. The assessment whether a non-‐controlling interest is material is based on the carrying amounts of such non-‐controlling interests.
Name of subsidiary
Proportion of ownership interest and voting power held by non-‐controlling
interests
Profit/(loss) allocated to non-‐controlling interests
Accumulated non-‐controlling interests
31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
Orascom Hotels & Development S.A.E.
15.21% 15.21% (26,021,932) 3,913,622 20,137,970 60,994,701
Sifah Tourism Development Co. 30.00% 30.00% (4,012,170) (2,251,412) 30,541,755 32,966,201
RAK Tourism Investment FZC 27.00% 27.00% (87,553) 169,025 13,133,936 13,183,421
Individually immaterial subsidiaries with non-‐controlling interests 76,653,576 124,983,291
TOTAL 140,467,237 232,127,614
Summarised financial information in respect of each of the Group’s subsidiaries that has material non-‐controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations.
OHD Sifah RAK
31/12/2016 31/12/2015 31/12/2016 31/12/2015 31/12/2016 31/12/2015
Current assets 233,194,040 318,967,439 82,734,908 85,669,322 7,717,081 8,217,637
Non-‐current assets 240,291,944 628,500,084 102,417,943 95,806,790 76,399,769 71,372,126
Current liabilities (330,161,230) (415,421,855) (83,316,341) (71,535,970) (32,559,943) (22,285,315)
Non-‐current liabilities (82,077,620) (190,844,391) (30,661) (52,789) (2,912,700) (8,476,964)
Equity attributable to owners (41,109,164) (280,206,576) (71,264,094) (76,921,152) (35,510,271) (35,644,063)
Non-‐controlling interests (20,137,970) (60,994,701) (30,541,755) (32,966,201) (13,133,936) (13,183,421)
Revenue 148,479,624 221,281,224 6,976,443 6,447,898 28,903,499 26,791,095
Profit/(loss) for the year (171,084,363 25,730,582 (13,373,899) (7,504,705) (324,272) 626,017
attributable to owners (145,062,431) 21,816,960 (9,361,729) (5,253,293) (236,719 456,992 attributable to non-‐controlling interests (26,021,932) 3,913,622 (4,012,170) (2,251,412) (87,553) 169,025
Other comprehensive income for the year
(155,029,062) (41,761,546) 1,170,814 (1,056,955) 1,498,512 (146,033)
attributable to owners (131,449,142) (35,409,615) 819,570 (739,869) 1,093,914 (106,604) attributable to non-‐controlling interests
(23,579,920) (6,351,931) 351,244 (317,086) 404,598 (39,429)
Total comprehensive income for the year (326,113,425) (16,030,964) (12,203,085) (8,561,660) 1,174,240 479,984
attributable to owners (276,511,573) (13,592,655) (8,542,159) (5,993,162) 857,195 350,388 attributable to non-‐controlling interests
(49,601,852) (2,438,309) (3,660,926) (2,568,498) 317,045 129,596
Net cash inflow/(outflow) 7,732,041 44,672,265 2,090,211 (509,122) 38,454 (1,972,356)
from operating activities 75,596,834 78,999,480 2,090,211 (6,349,682) 4,366,440 3,355,039
from investing activities (38,140,967) (20,342,088) -‐ -‐ (4,327,986) (5,327,395)
from financing activities (29,723,826) (13,985,127) -‐ 5,840,560 -‐ -‐
Except for exchange differences arising on translating the foreign operations there are no other items of other comprehensive income.
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19.2 Changes in the Group’s ownership interests which have occurred during the year In 2016, the Group has acquired a 100% stake in Mozn Investment & Tourism S.A.E. (refer to note 37 for further details).
In 2015, the Group has sold a 15% stake in its Egyptian subsidiary Orascom Hotels and Development S.A.E. (refer to note 32 for further details). Further, the Group has lost control over its investment in Golden Beach for Hotels Company, Jordan, to an associated company of the Group (refer to note 38 for further detail).
20 INVESTMENTS IN ASSOCIATES Details of the Group’s associates at the end of the reporting period are as follows:
Name of associate Place of incorporation
Proportion of ownership interest and voting
power held by the Group
Carrying value (CHF )
2016 2016 2015
Andermatt Swiss Alps AG (i) Switzerland 49.00% 56,549,204 73,231,607
Orascom Housing Communities (ii) Cairo 35.25% 4,497,608 12,423,795
Jordan Company for Projects and Touristic Development (iii)
Jordan 18.33% 15,820,535 15,023,428
Red Sea for Construction & Deveolpment (iv) Cairo 47.18% 1,683,764 -‐
Orascom for Housing and Establishments (v) Cairo 39.90% -‐ -‐
International Stock Company for Floating Hotels & Touristic Establishments (vi)
Cairo 30.00% -‐ -‐
Mirotel for Floating Hotels Company (vi) Cairo 30.00% -‐ -‐
Tarot Garranah & Merotil for Floating Hotels (vi) Cairo 30.00% -‐ -‐
Tarot Tours Company (Garranah) S.A.E (vi) Cairo 30.00% -‐ -‐
Al Tarek for Tourist & Hotel Cruises (vi) Cairo 30.00% -‐ -‐
TOTAL 78,551,111 100,678,830
The Group measures all its associates using the equity method of accounting as described in policy 3.5 of the notes to the consolidated financial statements. None of the Group’s equity-‐method investments are listed on Stock Exchanges and, accordingly, they do not have quoted market prices. Management considers ASA, OHC and JPTD as the only associate that are material to the Group. The Group did not receive any dividends during the current year from its material investments (2015: none).
The Group has stopped recognizing its share of losses of its other immaterial associates. The Group’s unrecognized share of losses amounts to CHF 1,515,228 and CHF 3,093,644 both for the current year and cumulatively as of 31 December 2016.
(i) Andermatt Swiss Alps AG
On 25 June 2013, the Group lost control over Andermatt Swiss Alps AG (“ASA”) due to various capital increases in ASA in which the Group did not fully participate. With a remaining share of interest of 49% in ASA, the investment is classified as investment in associates.
The fair value of ASA on initial recognition as investment in associates is based on a third-‐party valuation which supported the transaction price paid by Mr. Samih Sawiris.
ASA is not subject to any restrictions on transferring funds to ODH whether resulting from regulatory requirements, borrowing arrangements or contractual arrangements between ASA and ODH.
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Summarised financial information in respect of ASA is set out below:
2016 2015
Current assets 208,613,209 268,316,841
Non-‐current assets 261,235,099 199,520,699
Current liabilities (73,194,325) (87,544,353)
Non-‐current liabilities (295,142,870) (242,714,164)
Net assets 101,511,113 137,579,023
Revenue for the year 80,725,764 144,935,056
(Loss) for the year (34,045,191) (34,622,848)
Other comprehensive income for the year -‐
Total comprehensive income for the year (34,045,191) (34,622,848)
Group’s share of comprehensive income for the year (16,682,144) (16,965,195)
Reconciliation of the above summarised financial information to the carrying amount of the interest in ASA recognised in the consolidated financial statements:
2016 2015
Net assets of the associate over Group level 115,406,539 149,452,258
Proportion of the Group’s ownership interest in ASA 49% 49%
Carrying amount of the Group’s interest in ASA 56,549,204 73,231,607
(ii) Orascom Housing Communities (“OHC”)
In June 2014, the Group lost control over OHC as they did not participate in the capital increase of OHC. With a remaining share of interest of 35.25% in OHC, the investment is classified as investment in associates.
The fair value of OHC on initial recognition as investment in associates is based on a fair value which has been determined by Fincorp, an accredited valuation specialist in Egypt, using a DCF model. With a remaining share of interest of 35.25% the fair value on initial recognition as at 30 June 2014 was CHF 14.6 million.
Summarised financial information in respect of OHC is set out below:
2016 2015
Current assets 14,441,830 83,877,929
Non-‐current assets 18,911,772 19,883,298
Current liabilities (29,190,252) (82,393,695)
Non-‐current liabilities (3,119,514) (7,649,430)
Net assets 1,043,836 13,718,102
Revenue for the year 5,878,339 29,707,239
Profit/(loss) for the year (5,520,591) (6,091,785)
Other comprehensive income for the year -‐ -‐
Total comprehensive income for the year (5,520,591) (6,091,785)
Group’s share of comprehensive income for the year (1,945,759) (2,147,079)
Reconciliation of the above summarised financial information to the carrying amount of the interest in OHC recognised in the consolidated financial statements:
2016 2015
Net assets of the associate over Group level 12,759,173 35,244,809
Proportion of the Group’s ownership interest in OHC 35.25% 35.25%
Carrying amount of the Group’s interest in OHC 4,497,608 12,423,795
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(iii) Jordan Company for Projects and Touristic Development (JPTD)
JPTD is investing in property, destination management and development in Aqaba in Jordon. Since 2008 the Group exercised significant influence with their two active board members out of eleven leading to changes in the JPTD’s Executive Management and provision of essential technical information.
Summarised financial information in respect of JPTD is set out below:
2016 2015
Current assets 46,303,928 46,571,838
Non-‐current assets 131,416,736 130,020,208
Current liabilities (29,382,174) (34,033,048)
Non-‐current liabilities (59,054,335) (57,457,683)
Net assets 89,284,155 85,101,315
Group’s share of net assets of associate 16,365,786 15,599,071
Revenue for the year 30,322,208 10,789,041
Profit/(loss) for the year 1,740,317 (2,076,051)
Other comprehensive income for the year -‐ -‐
Total comprehensive income for the year 1,740,317 (2,076,051)
Group’s share of comprehensive income for the year 319,054 (324,694)
Reconciliation of the above summarised financial information to the carrying amount of the interest in JPTD recognised in the consolidated financial statements:
2016 2015
Net assets of the associate over Group level 86,309,520 81,960,873
Proportion of the Group’s ownership interest in JPTD 18.33% 18.33%
Carrying amount of the Group’s interest in JPTD 15,820,535 15,023,428
(iv) Red Sea for Construction & Development (“RSCD”)
During 2016, Red Sea for Construction & Development, of which the Group held a direct interest of 0.4% as well as an indirect interest of 14% through OHC, increased its share capital from EGP 25 million to EGP 50 million. Of these EGP 25 million, the Group invested EGP 20 million (CHF 2.2 million), resulting in a total interest of 47.18%. Hence, the investment is now classified as an associate. The investment in associates is initially recognised at the consideration paid for the capital increase with any previously acquired interests recognised at fair value.
Summarised financial information in respect of RSCD is set out below:
2016 2015
Current assets 18,591,781 -‐
Non-‐current assets 1,234,697 -‐
Current liabilities (17,446,344) -‐
Non-‐current liabilities -‐ -‐
Net assets 2,380,134 -‐
Group’s share of net assets of associate 1,122,914 -‐
Revenue for the year 55,482,195 -‐
Profit/(loss) for the year 2,139,111 -‐
Other comprehensive income for the year -‐ -‐
Total comprehensive income for the year 2,139,111 -‐
Group’s share of comprehensive income for the year 1,009,203 -‐
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Reconciliation of the above summarised financial information to the carrying amount of the interest in RSCD recognised in the consolidated financial statements:
2016 2015
Net assets of the associate over Group level 3,568,809 -‐
Proportion of the Group’s ownership interest in RSCD 47.18% -‐
Carrying amount of the Group’s interest in RSCD 1,683,764 -‐
(v) Orascom for Housing and Establishment
The company develops real estate and housing projects located in Egypt for the low cost sector. The proportion of ownership interest held by the Group at 31 December 2016 is unchanged to prior year. In previous years, the investment was reduced to CHF nil as the losses in their last financial statements exceeded the carrying amount of the investment.
(vi) ODH investments in Garranah Group subsidiaries
The Group continues to hold a 30% interest in the four operating floating hotels and a tour operator entity of the Garranah Group. In previous years, the carrying amount of the investments in Garranah was fully impaired.
21 NON-‐CURRENT RECEIVABLES
CHF 2016 2015
Trade receivables 33,058,066 105,547,136
Notes receivable 9,392,034 19,359,071
TOTAL 42,450,100 124,906,207 Non-‐current receivables include long term receivables for land and real estate contracts, which will be collected over an average collecting period of 5.5 years (2015: 5.5 years). None of these non-‐current receivables is impaired and/or overdue.
The decrease in non-‐current receivables is mainly due to the reclassification of Tamweel as disposal group (note 28) as well as foreign currency exchange losses.
In 2016, due to the reclassification of Tamweel Group as disposal group, none of the receivables were pledged. In 2015, Tamweel Mortgage Finance Company S.A.E. had pledged trade receivable with a carrying amount of CHF 26.6 million to secure borrowings.
22 OTHER FINANCIAL ASSETS
Details of the Group’s other financial assets are as follows:
CHF Current Non-‐current
2016 2015 2016 2015
Financial assets carried at fair value through other comprehensive income (FVTOCI)
Nasr City company for Housing & Development (N.C.H.R.) -‐ -‐ 2,545 3,771 Egyptian Resort Company (i) -‐ -‐ 2,889,523 5,030,403 Reclaim Limited -‐ -‐ 481,604 561,271 Desert Cruise LLC -‐ 118,921 -‐ Camps and Lodges Company -‐ -‐ 14,152 31,680 Palestine for Tourism Investment Company -‐ -‐ 9,696 21,703 El Koseir Company -‐ -‐ 192 431
Financial assets carried at amortized cost Bonds issued by the Egyptian Government (11.50%, November 2016)
-‐ 3,121,781 -‐ -‐
Bonds issued by the Egyptian Government (11.30%, November 2016)
-‐ 422,591 -‐ -‐
TOTAL -‐ 3,544,372 3,516,633 5,649,259
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(i) Egyptian Resort Company
The investment in Egyptian Resort Company (“ERC”), which is listed in EGX, remains unchanged to prior year. The company is acting as the developer of the hotel and real estate project in Sahel Hashish (Egypt). Since March 2011, ERC is involved in a dispute with the General Authority for Tourism and Development (“GATD”).
In contrast to the overall market environment, the share price of the listed Egyptian Resort Company, the Group’s most significant financial assets carried at FVTOCI, has dropped significantly in 2016. CHF 2.7 million are recorded in net losses on financial assets at FVTOCI within other comprehensive income. These losses were partly compensated by foreign currency exchange gains of CHF 0.6 million which are also shown within other comprehensive income.
23 INVENTORIES CHF 2016 2015
Construction work in progress (i) 84,300,498 92,775,132
Land held for development under purchase agreements (ii) 24,695,522 63,852,503
Other inventories (iii) 15,963,993 34,661,983
TOTAL 124,960,013 191,289,618
(i) This amount includes real estate construction work under progress. The real estate units are sold off plan. The main reasons
for the decrease in inventory compared to 31 December 2015 are foreign currency exchange losses due to the devaluation of the Egyptian Pound. The main part of the decreases as netted-‐off by capitalized construction cost in relation to development projects in Egypt and Montenegro. For further details on the net realisable value of construction work in progress refer to note 4.2.10.
(ii) In 2008, the finance leases between OHD and General Authority for Touristic and Development (“GATD”) in Egypt for development of land were terminated and replaced with purchase agreements with GATD. On May 2008, OHD signed a new purchase agreement with GATD to purchase a plot of land and paid a down payment of 27% and the remaining balance is payable in equal annual instalment commencing upon the expiry of the grace period of three years. In addition, OHD is required to pay an annual interest at the rate of 5% after the grace period with each instalment. The decrease compared to prior year is due to the devaluation of the Egyptian Pound and amortisation of infrastructure.
The value of land shown above is for those plots of land assigned for development and not yet sold by OHD.
(iii) This amount includes hotels inventory of CHF 9.7 million (2015: CHF 19.7 million) as well as completed but unsold units of CHF 8.2 million (2015: CHF 15.8 million)
In 2016, inventory of development projects was written down by CHF 13.5 million.
24 TRADE AND OTHER RECEIVABLES
CHF 2016 2015
Trade receivables (i) 46,171,705 53,292,676
Notes receivable 28,003,613 29,081,185
Allowance for doubtful debts (see below) (18,340,388) (20,959,808)
TOTAL 55,834,930 61,414,053
(i) Trade and other receivables decreased by CHF 7.1 million due to reclassification into non-‐current receivables as well as foreign currency translation losses due to the devaluation of the Egyptian Pound (note 30.6). The decrease was partly netted of by an increase due to increased operating activities. The average credit period on sales of real-‐estate is 5.5 years. No contractual interest is charged on trade receivables arising from the sale of real estate units. Interest is only charged in case of customer’s default. The Group has recognised an allowance for doubtful debts of 25% (2015: 25%) based on individual bad debts and allowances due to past due amounts. Allowances for doubtful debts are recognised against trade receivables based on estimated irrecoverable amounts determined by reference to past default experience of the counterparty and an analysis of the counterparty's current financial position.
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Movement in the allowance for doubtful debt:
CHF 2016 2015
Balance at beginning of year (20,959,808) (29,911,892)
Impairment losses recognised on receivables (6,360,984) (2,172,965)
Amounts written off during the year as uncollectable 146,424 8,933,851
Impairment losses reversed (allowance no longer used) 109,181 113,506
Reclassified (from)/to assets held for sale 1,576,401 -‐
Foreign exchange translation gains and losses 7,148,398 2,077,692
Balance at end of year (18,340,388) (20,959,808)
Included in the Group’s trade and other receivable balance are debtors with a carrying amount of CHF 29.0 million (2015: CHF 36.8 million) which are past due but not impaired at the reporting date. The Group has not built an allowance for impairment loss for the past due amounts reported below as there has not been a significant change in credit quality and the amounts are still considered recoverable (see note 40).
Aging of receivables that are past due but not impaired:
CHF 2016 2015
Less than 30 days 7,788,904 10,288,904
Between 30 to 60 days 4,195,001 5,795,001
Between 60 to 90 days 2,754,133 3,754,133
Between 90 to 120 days 1,687,209 2,387,209
More than 120 days 12,594,217 14,593,637
TOTAL 29,019,464 36,818,884
25 FINANCE LEASE RECEIVABLES
CHF 2016 2015
Current finance lease receivables -‐ 9,844,267
Non-‐current finance lease receivables -‐ 38,632,861
TOTAL -‐ 48,477,128
Due to the planned disposal of Tamweel, all finance lease receivables were reclassified to assets held for sale. For further detail refer to note 28.
25.1 Leasing arrangements Tamweel Leasing Finance Co., a subsidiary of the Group entered into finance lease arrangements for buildings, cars, equipment, computer hardware and software as a lessor. All leases are denominated in EGP. The average term of finance leases entered into was ten years. In 2016, Tamweel was reclassified as disposal group.
25.2 Amounts receivable under finance lease
Minimum lease payments Present value of
minimum lease payments CHF 2016 2015 2016 2015
Not later than one year -‐ 23,540,730 -‐ 9,844,267
Later than one year and not later than five years -‐ 44,768,780 -‐ 37,151,394
Later than five years -‐ 1,731,267 -‐ 1,481,467
-‐ 70,040,777 -‐ 48,477,128
Less: unearned finance income -‐ (21,563,649) -‐ -‐
Present value of minimum lease payments -‐ 48,477,128 -‐ 48,477,128
The interest rate inherent in the leases is fixed at the contract date for the entire lease term. The average effective interest rate contracted was approximately 15.5% per annum as at 31 December 2015.
The finance lease receivables as at 31 December 2015 included CHF 262,680 which was past due. None of these was impaired.
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26 OTHER CURRENT ASSETS
CHF 2016 2015
Advance to suppliers (i) 16,844,505 10,011,045
Deposit with others 5,471,972 3,592,506
Prepaid expenses 5,000,567 5,396,436
Prepaid sales commissions related to uncompleted units 4,005,504 5,932,142
Withholding tax 3,629,337 3,924,241
Other debit balances 3,496,691 7,528,598
Letters of guarantee – cash margin 564,201 1,348,799
Accrued revenue 438,923 1,298,449
Cash imprest 340,582 594,790
Amounts due from employees and the management team (ii) 247,227 303,283
Down payments for investments 16,247 37,637
Amounts due in relation to settlement with Falcon (note 37) -‐ 59,534,382
TOTAL 40,055,756 99,502,308
(i) Advance to suppliers relates to advances paid in Oman, Egypt and Montenegro. The increase is mainly due to an increase in advances in Montenegro and Oman.
(ii) This amount is due from employees and management team including executive board members as a result of receiving two million OHD shares in 2007. These shares were previously issued based on a general assembly resolution in OHD dated 13 February 2006 authorizing the company to issue 2 million shares at par to be used to allocate to employees and management team (see note 41). All shares were swapped at a rate of 1:10 for ODH shares in 2008. On one side payment of the share price was deferred and payback period was extended each year, on the other side employees and management were instructed not to sell their unpaid shares. As the share price decreased substantially since the allocation of the shares, provisions against these receivables were recognized in 2011 and 2012. In March 2013, the terms and conditions of the final settlement were ultimately determined by the Board of Directors based on the share price as at 31 December 2012. This resulted in a residual amount of CHF 250,432 (2015: 303,283) which is due from employees and management team including executive board members and a residual provision of CHF 247,227 (2015: CHF 303,283). All other amounts due were netted off.
27 CASH AND CASH EQUIVALENTS
For the purposes of the consolidated cash flow statement, cash and cash equivalents include cash on hand, demand deposits and balances at banks. Cash equivalents are short-‐term, highly liquid investments of maturities of three months or less from the acquisition date, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash and cash equivalents at year end as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows:
CHF 2016 2015
Cash and cash equivalents 80,834,952 167,636,917
Cash and cash equivalents included in assets held for sale 1,337,360
Balance at the end of the year 82,172,312 167,636,917
27.1 Management’s plans to manage liquidity shortages and related uncertainty During this past year, we have experienced and successfully navigated through several periods of volatility and turbulences. Although we are not immune from what is happening around us, the company managed to do better job operationally than the year before in most of our destinations. Results were impacted by the political and economic backdrop in Egypt. However, Oman continued its positive contribution in terms of real estate sales and hotels operations. In addition, Montenegro has also contributed positively in terms of real estate sales.
During 2016 our initial focus was on identifying our organizational challenges and development areas related to strategy, visibility and accountability. Accordingly, we started working on re-‐organizing the current segment structure to a destination based structure, pushing more authority and responsibility on the ground of each destination, to better increase operational efficiency, shorter the decision-‐making process and improve market transparency.
We now have a clear view of where each destination is going to be over the short-‐term course 5 years and we have also indicated the needed sources of funding that we have been working on diligently to make sure the plan unfolds in the direction we want it to.
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The actions taken by the Group so far towards managing this situation are as follows:
Commitment from Chairman
In April 2016, the Chairman signed a letter of commitment in favour of the Group to avail up to CHF 40 million until 31 May 2017 should the Group require it. Of the committed amount CHF 4.7 million were drawn-‐down by the Group until end of December 2016. In February 2017, the chairman renewed his commitment letter vowing to avail up to CHF 60.0 million until end of December 2018.
Monetization plan, financing and loans
The monetization initiatives that the management started since 2012 to generate cash to be injected into the business of the Group is continuing and has proved its success. Under this notion, in 2016 Tamweel Holding Group was identified as a non-‐core asset to the Group and has been put in the monetization list and assigned as an asset held for sale. By selling Tamweel we will be able to deconsolidate its debt from our books and the proceeds of its sale are earmarked to further reduce the debt balance.
Moreover, OHD – the largest subsidiary of ODH – signed a CHF 228.67 million debt refinancing package with its banks allowing the company to postpone its principal payments for the coming 3 years and its interest payments for financial year 2016 with an option to postpone the interest payments for financial year 2017. Thus, the balance sheet of the company will be strengthened and thereby lead to more flexibility to advancing its projects. Even though we have successfully concluded the refinancing package that we had been working on since 2014, we still plan to further reduce our debt balance to levels that we foresee as sustainable enough to be covered by the projected levels of operations.
Management is continuously looking for local partner to inject funds into new projects in Oman and Montenegro. Further, management is considering to propose new financing structures on ODH level, including new debt, equity or structured equity instruments.
In addition, from an operational perspective the management is continuing with its cost saving initiatives that will generate further savings in overhead expenses, direct expenses and interest expenses. These initiatives target enhancing the performance of the group in certain segments where we believe that there is room for enhancement. Management tackled those findings through the re-‐organization of the current segment structure to a destination based structure. The model proved successful after we have implemented it in Taba and Fayoum. In Taba, we managed to cut the annual GOP losses from CHF 4.5 million in financial year 2015 to CHF 1.7 million in financial year 2016.
Management believes that these plans are sufficient to substantially mitigate the liquidity risk. Given that there is a certain degree of uncertainty in major countries where the Group operates, especially Egypt, the loan from our Chairman as noted above is extended to support the company in the coming few months should such uncertainties prevail. However, management keeps monitoring the events as they unfold in case further immediate action is required.
28 ASSETS HELD FOR SALE
28.1 Planned disposal of Tamweel In the second half of 2016, the Board of Directors decided to sell its Tamweel Group companies (“Tamweel”) and management has engaged a third party as sell side advisor. The sale process has started in July 2016 after all necessary documentation had been prepared by the sell side advisor. So far the Group received non-‐binding offers from interested third parties however are still looking for further investors.
Tamweel does not qualify as discontinued operation as it is neither a separate major line of business nor a geographical area of operations.
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The non-‐current assets held for sale and the liabilities associated with non-‐current assets held for sale were reclassified from the following categories of assets and liabilities:
CHF 2016
Non-‐current assets
Property, plant and equipment 195,184
Non-‐current receivables 21,752,349
Finance lease receivables 28,553,814
Current assets
Inventories 222,431
Trade and other receivables 6,403,184
Finance lease receivables 7,254,695
Other financial assets 1,047,635
Other currents assets 464,083
Cash and bank balances 1,337,360
Assets classified as assets held for sale 67,230,735
Non-‐current liabilities
Non-‐current borrowings (35,712,509)
Deferred tax liabilities (380)
Current liabilities
Trade and other payables (1,440)
Current borrowings (16,441,930)
Current tax liabilities (651,419)
Provisions (267,638)
Other current liabilities (1,043,577)
Liabilities associated with assets classified as assets held for sale (54,118,893)
Net assets classified as disposal group 13,111,842
The above amounts represent the carrying amounts on date of reclassification. No adjustments to fair value less costs to sell had to be made.
29 CAPITAL
29.1 Issued capital
CHF 2016 2015
Par value per share 23.20 CHF 23.20 CHF
Number of ordinary shares issued and fully paid 40,409,926 40,409,926
Issued capital 937,510,283 937,510,283
29.2 Fully paid ordinary shares In December 2015, the share capital was increased from CHF 662,201,010 to CHF 937,510,283 by issuing 11,866,779 ordinary shares at the par value per share of CHF 23.20. There were no changes to the share capital in the current financial year.
The new registered shares were offered at the offer price of CHF 11.28 per share at a slight premium to the 30 day Volume Weighted Average Price (VWAP). The exercise of 12 subscription rights entitled the holder the right to purchase 5 new shares against payment of the offer price. 66.6% of the subscription rights were exercised, corresponding to 7,903,387 new registered shares. 3,963,392 offered shares for which rights were not exercised were purchased by Samih Sawiris, through a controlled entity (SOS Holding), for an aggregate amount of CHF 44.7 million at the same conditions as for existing shareholders of the Company.
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29.3 Authorized capital
The ordinary meeting of shareholders held on 18 May 2015 authorized the Board of Directors to increase the share capital of the Company by a maximum of CHF 278 million by issuing up to 12,000,000 fully paid-‐up registered shares with a par value of CHF 23.20 each until 18 May 2017. Partial increases are permitted. Following an increase of the share capital out of the authorized share capital on 15 December 2015, the Board of Directors remains authorized to increase the capital of the Company by a maximum of CHF 3,090,272.20 by issuing of up to 133'221 fully paid-‐up registered shares with a par value of CHF 23.20 each until 18 May 2017.
29.4 Conditional capital
The share capital may be increased by a maximum amount of CHF 139.2 million through the issuance of up to 6 million fully paid registered shares with a nominal value of CHF 23.20 each
a) up to the amount of CHF 23 million corresponding to 1 million fully paid registered shares through the exercise of option rights granted to the members of the Board and the management, further employees and / or advisors of the Parent Company or its subsidiaries.
b) up to the amount of CHF 116 million corresponding to 5 million fully paid registered shares through the exercise of conversion rights and / or warrants granted in connection with the issuance of newly or already issued bonds or other financial instruments by the Parent Company or one of its group companies.
The subscription rights of the shareholders shall be excluded. The Board of Directors may restrict or withdraw the right for advance subscription (“Vorwegzeichnungsrecht”) of the shareholders in connection with (i) the financing (refinancing inclusively) of acquisitions of enterprises or parts thereof, participations or other investment projects of the company and/or its subsidiaries or (ii) the placement of convertible bonds or financial instruments with conversion or option rights on the national or international capital market.
At 31 December 2016, no option rights, conversion rights or warrants had been granted on that basis.
29.5 Significant shareholders
The following significant shareholders are known to us.
2016 2015
CHF Number of shares % Number of shares %
Samih Sawiris (i) 27,391,814 67.78% 29,355,452 72.64%
SOS Holding 2,049,782 5.07% -‐ -‐
Janus Capital Management LLC -‐ -‐ 1,494,207 3.70%
Others 10,968,330 27.15% 9,560,267 23.66%
TOTAL 40,409,926 100.00% 40,409,926 100.00%
(i) The shares of Samih Sawiris are held directly and through his entities Thursday Holding and SOS Holding.
30 RESERVES (NET OF INCOME TAX) CHF 2016 2015
Share premium (note 30.1) 98,488,244 98,570,244
Treasury shares (note 30.2) (26,797) (3,268,681)
Share-‐based payment reserve (note 30.3) 833,333 -‐
Investments revaluation reserve (note 30.4) (17,256,259) (14,590,160)
General reserve (note 30.5) 4,916,868 4,916,868
Foreign currencies translation reserve (note 30.6) (351,669,206) (275,993,824)
Reserve from common control transactions (note 30.7) (98,692,949) (98,692,949)
Equity swap settlement (note 30.8) (2,114,229) (2,114,229)
TOTAL (365,520,995) (291,172,731)
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30.1 Share premium
CHF 2016 2015
Balance at beginning of year 98,570,244 243,799,019
Transaction costs in relation to delisting of EDRs in Egypt (note 48) (82,000) -‐
Issuance of ordinary shares (note 29.2) -‐ (141,452,006)
Share capital increase costs (note 29.2) -‐ (3,776,769)
Balance at end of year 98,488,244 98,570,244
30.2 Treasury shares
CHF 2016 2015
Balance at beginning of year (3,268,681) (5,471,285)
Acquisition of treasury shares -‐
Distribution of treasury shares (i) 3,241,884 2,202,604
Balance at end of year (26,797) (3,268,681)
As of 31 December 2016, the Company owned 516 own shares (31 December 2015: 62,877). A total of 150,612 own shares were received in 2010 (26,171 shares) and 2013 (124,441 shares) as part of the compensation for the sale of the six percent stake in the former Garranah subsidiaries (note 30.8).
(i) During 2016, ODH transferred a total of 62,361 own shares to the members of the Board of Directors as part of their remuneration (CHF 0.7 million). The treasury shares reserve, which values the shares at original purchase price (CHF 3.2 million), has been reduced accordingly and the resulting difference has been recognized as loss directly through retained earnings (CHF 2.5 million).
In March and September 2015, ODH transferred a total of 42,369 own shares to the members of the Board of Directors as part of their remuneration (CHF 0.7 million). The treasury shares reserve, which values the shares at original purchase price (CHF 2.2 million), has been reduced accordingly and the resulting difference has been recognized as loss directly through retained earnings (CHF 1.5 million).
30.3 Share-‐based payment reserve
CHF 2016 2015
Balance at beginning of year -‐ -‐
Share-‐based payments (note 41) 833,333 -‐
Balance at end of year 833,333 -‐
30.4 Investments revaluation reserve
CHF 2016 2015
Balance at beginning of year (14,590,160) (11,647,720)
Net (loss) arising on revaluation of financial assets at FVTOCI (2,666,099) (2,942,440)
Balance at end of year (17,256,259) (14,590,160)
The investments revaluation reserve represents the cumulative gains and (losses) arising on the revaluation of financial assets at fair value through other comprehensive income (“FVTOCI”).
30.5 General reserve
CHF 2016 2015
Balance at beginning of year 4,916,868 4,916,868
Balance at end of year 4,916,868 4,916,868
On 3 December 2010, the Parent Company borrowed 1,286,353 ODH shares from Mr. Samih Sawiris free of charge under a securities lending agreement. These shares were intended to be used for the tender offer regarding the buy-‐out of the remaining shareholders of Orascom Hotels & Development SAE (OHD), a company listed at the EGX. The borrowed ODH shares were not accounted for as treasury shares by the Group, as Mr. Samih Sawiris retained the significant rights, such as dividend and voting rights, during the borrowing period as per contractual provisions. Under the above mentioned securities lending agreement the Parent Company has returned 330 029 of the borrowed ODH shares to Mr. Samih Sawiris on 28 July 2011 by way of capital increase, which is further explained in note 42. All of the remaining 956,324 shares, which were not used during the above mentioned tender offer, were returned to Mr. Samih Sawiris by 31 December 2013. The difference between the balance, which
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was reported in equity as “equity swap settlement”, measured at the fair value of the share at the end of the tender offer, and the fair value amount of the capital increase was recognised as ”general reserve”.
30.6 Foreign currencies translation reserve
CHF 2016 2015
Balance at beginning of year (275,993,824) (248,250,610)
Exchange differences arising on translating the foreign operations (75,675,382) (27,743,214)
Balance at end of year (351,669,206) (275,993,824)
Exchange differences relating to the translation of the results and net assets of the Group's foreign operations from their functional currencies to the Group's presentation currency (CHF) are recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve in respect of translating the results and net assets of foreign operations are reclassified to profit or loss on the disposal and/or deemed loss of control of a foreign operation.
In 2016, the Egyptian Pound dropped by 55% against the Swiss Franc. Compared to this significant devaluation, the decrease of the Swiss Franc against the US Dollar only had an insignificant positive impact. This resulted in a net loss for the year of CHF 124.8 million.
The devaluation of the Egyptian Pound was initiated in the first half of 2016 by the decision of the Egypt Central Bank to devalue the Egyptian Pound against USD by approximately 14% compared to the foreign exchange rate as at 31 December 2015 resulting in a similar devaluation of the Egyptian Pound against the Swiss Franc.
The decision taken by the central bank of Egypt in November 2016 to float the Egyptian pound in an attempt to stabilize the economy has had a significant impact on many companies that operate in Egypt including the Group. The 102.7% appreciation of the U.S. Dollar against the EGP from 8.88 to 18.0 resulted in substantial revaluations of the debt held in USD at the subsidiaries and subsequently negatively impacted the Group’s income statement with a non-‐cash foreign exchange loss of CHF 120.0 million. On the other hand, total debt of Egyptian subsidiaries on ODH’s balance sheet has decreased by 24%. It is important to note that the Group’s hotels and real estate income is mostly in foreign currency and therefore ODH borrows also in USD and benefits from a lower interest rate.
30.7 Reserve from common control transactions
CHF 2016 2015
Balance at beginning of year (98,692,949) (121,749,573)
Sale of 15% of OHD (note 32) -‐ 22,858,157
Non-‐controlling interests’ share in equity of consolidated subsidiaries -‐ 198,467
Balance at end of year (98,692,949) (98,692,949)
The reserve from common control transactions mainly relates to the restructuring of the group and the set-‐up of a new holding company during May 2008. This new structure became effective by way of a share exchange between the shareholders of the initial holding company (OHD) and the new holding company (ODH). Following this acquisition through exchange of equity instruments, ODH became the parent of OHD with an ownership stake of 98.05%, later increased to 98.16% at 31 December 2008.
Whereas the new holding company (ODH) is ultimately owned and controlled by the same major shareholders, management decided that this Group reorganisation was for the purpose of capital restructuring and it has been accounted for as a continuation of the financial statements of the initial holding Group (OHD) in the 2008 consolidated financial statements
Management concluded that the above Group restructure is classified as a transaction under common control since the combining entities are ultimately controlled by the same parties both before and after the combination and that control is not transitory.
However, since IFRS 3 Business Combinations excludes from its scope business combinations involving entities or businesses under common control (common control transactions), IAS 8 requires management to develop and apply an accounting policy that results in information that is relevant and reliable.
Management used its judgment in developing and applying an accounting policy for common control transactions arising from the Group’s capital restructuring as follows:
� Recognition of the assets acquired and liabilities assumed of the initial holding Group (OHD) at their previous carrying amounts;
� Recognition of the difference between purchase consideration and the previous carrying amount of net assets acquired as an adjustment to equity;
� Transaction costs, which were incurred in relation to the issuance of ODH shares, have been recognised as a reduction to the reserve from common control transaction. Amount included in the consolidated statement of changes in equity.
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30.8 Equity swap settlement CHF 2016 2015
Balance at beginning of year (2,114,229) (2,114,229)
Balance at end of year (2,114,229) (2,114,229)
The consolidated statement of changes in equity includes a balance of CHF 2.1 million outstanding at 31 December 2016 which has originally arisen from the Group’s sale of the six percent stake in Garranah companies to the Garranah family during 2010. The unsettled consideration at 31 December 2012 amounted to CHF 10.6 million of which CHF 10.2 million were reported as a negative component in equity. The remaining balance arising from such sale of CHF 0.4 million was classified as trade and other receivables. On 12 November 2013, the Garranah family has settled part of the outstanding consideration by transferring 124,441 ODH shares. This led to a corresponding transfer of CHF 8.1 million from this reserve to treasury shares (note 30.2). The residual amount as at 31 December 2016 is due to EDRs which are held in an escrow account and remained unchanged since 31 December 2014.
31 (ACCUMULATED LOSSES)/RETAINED EARNINGS
CHF 2016 2015
Balance at beginning of year 78,164,830 99,060,154
Loss attributable to owners of the Parent Company (196,415,554) (19,052,959)
Remeasurement gain/(loss) on defined benefit obligation (14,281) (304,423)
Distribution of treasury shares (note 30.2) (2,517,189) (1,537,942)
Balance at end of year (120,782,194) 78,164,830
During 2015 and 2016 no dividends had been paid. In respect of the current year, the Board of Directors does not propose a dividend or a capital reduction to the shareholders at the Annual General Meeting.
32 NON-‐CONTROLLING INTERESTS
CHF 2016 2015
Balance at beginning of year 232,127,614 200,456,351
Share of loss for the year (47,420,281) (3,466,342)
Exchange differences arising on translation of foreign operations (49,114,705) (6,463,029)
Sale of 15% interest in OHD (i) -‐ 36,147,080
Acquisition of non-‐controlling interests in consolidated subsidiaries (ii) -‐ (861,844)
Other non-‐controlling interest share in equity of consolidated subsidiaries 4,874,609 6,315,398
Balance at end of year 140,467,237 232,127,614
(i) On 4 January 2015 ODH completed the subscription in the public offering of its Egyptian subsidiary OHD, through the sale of 33,294,349 shares at a price of EGP 15.20 (approximately CHF 1.85) per share. The offering generated EGP 506.1 million (approximately CHF 61.5 million) in total proceeds for the Group. This is lower than the CHF 69.9 million announced earlier due to significant changes in the foreign currency exchange rate. Net proceeds were CHF 2.5 million lower due to transaction costs which were recognised directly through equity. The net gain from this transaction of CHF 22.9 million was recognised through reserve from common control transactions. As a result of strong investor demand (oversubscription of 3.8x in total), ODH elected to proceed with the sale of a 15% stake in OHD, which is the top end of the range approved by ODH’s Board of Directors. This transaction marks the return of OHD’s active trading on the EGX since 2008.
(ii) In 2015, the Group bought the remaining shares of Captain for Hotels Company (Egypt) from the non-‐controlling shareholders.
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33 BORROWINGS
Current Non-‐current
CHF 2016 2015 2016 2015
Secured -‐ at amortized cost
Credit facilities (i) 94,290,856 154,436,267 -‐ -‐
Bank loans (ii) 137,137,050 126,917,461 136,504,475 221,113,293
Finance lease 509,580 921,632 1,126,538 3,638,986
TOTAL 231,937,486 282,275,360 137,631,013 224,752,279
33.1 Summary of borrowing arrangements The weighted average contractual effective interest rate for all credit facilities and loans are 7.40% (2015: 8.22%). It is calculated by dividing the forecasted contractual interest expense due next year by the total outstanding credit facilities and bank loans at the end of the current reporting period. For a breakdown of debts bearing variable and fixed interest see note 40.10.1.
(i) Credit facilities used by the group are revolving facilities used to finance working capital requirements and they are available in multiple currencies. The average interest rate for the credit facilities for year 2016 is 9.13% (2015: 9.62%).
(ii) Bank loans are current and non-‐current loans and have in general variable interest rates including a mark up. Property, plant and equipment with a carrying amount of CHF 88.3 million (2015: CHF 96.6 million) and receivables with a carrying amount of CHF 12.1 million (2015: CHF 26.6 million) have been pledged to secure borrowings (see notes 16 and 24).
In 2016, borrowings decreased by CHF 137.5 million mainly due to the devaluation of the Egyptian Pound as well as the reclassification of Tamweel as disposal group (note 28) and repayment of loans in Egypt and Oman. The decrease was partly set-‐off by new loan agreement in Egypt, Oman and Montenegro.
33.2 Breach of loan agreement
In Q4 2016, OHD, an Egyptian subsidiary, signed a syndication agreement with all its short-‐term lenders while subsequently signing a common terms and inter-‐creditor agreement (CTIA) with all lenders (including both the short-‐term lenders and exiting medium terms lenders). The syndication agreement groups all short-‐term lenders under one legal document and converts the debt from short term loans (overdraft lines) to one single medium term loan with a door to door tenor of 8.5 years from the date of signing the CTIA. The CTIA is a document that governs the terms of all OHD loans (the newly signed syndication agreement and the various existing bilateral medium term loans) so that terms are unified except for the collateral structure which is unique to each individual legal document. It is worthy to mention that the previously mentioned cash proceeds from the OHD relisting was used to pay down the bank debt balances of OHD on a pro-‐rata basis and that OHD rescheduled all its existing bilateral medium term loans to loans with a door to door tenor of 7.5 years from the date of signing the CTIA. All OHD loans after the signed transaction were granted a 3-‐year grace period of loan principal repayment from 30 June 2016 and the ability to capitalize the interest expense for the full year 2016 as well as the option to capitalize the interest expense for the full year 2017 if OHD elects to, based on performance. OHD is currently working with the lender’s legal counsel to finalize the conditions required to effect the terms under both these loan agreements which is expected during Q2 of the year 2017.
It is also worth mentioning that in addition to the above, and until these loan agreements become effective, all covenant breaches were waived by every ODH lender for the year 2016 and 2017.
34 TRADE AND OTHER PAYABLES
CHF 2016 2015
Non-‐current trade payables 11,576,940 17,128,923
Current trade and other payables 24,690,585 29,913,933
TOTAL 36,267,525 47,042,856
Trade and other payables decreased by CHF 10.8 million mainly due to foreign currency exchange differences based on the devaluation of the Egyptian Pound (note 30.6). There were no other significant changes in 2016.
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35 PROVISIONS
CHF 2016 2015
Current 68,626,934 82,521,775
Non-‐Current -‐ -‐
TOTAL 68,626,934 82,521,775
CHF Provision for infrastructure completion
Provision for legal cases
Provision for governmental
fees
Provision for employee benefits
Other provisions
Total
(i) (ii) (iii) (iv) (v)
Balance at 1 January 2015 16,934,850 17,659,014 6,362,380 4,830,504 36,735,027 82,521,775
Additional provisions recognized
416,205 4,158,422 19,227 1,152,472 3,732,709 9,479,035
Provision reversed as no longer required
-‐ -‐ -‐ -‐ (203,137) (203,137)
Reductions arising from payments
-‐ -‐ (1,535,109) (270,150) (1,202,400) (3,007,659)
Transfer to assets held for sale
-‐ -‐ -‐ -‐ (433,081) (433,081)
Acquired through business combination
-‐ -‐ -‐ -‐ 831,200 831,200
Exchange differences (3,713,435) (1,416,682) (2,264,572) 159,330 (13,325,840) (20,561,199)
Balance at 31 December 2016
13,637,620 20,400,754 2,581,926 5,872,156 26,134,478 68,626,934
(i) Provision for infrastructure completion relates to committed cash outflows for the development of the necessary
infrastructure to make the project area that is usually located in remote regions, habitable and attractive. Such provisions are recorded for land and real estate sales on the date on which all the criteria for revenue recognition are met.
(ii) Provision for legal cases consists of expected cash outflows for the settlement of pending litigations. The increase is primarily due to various new legal cases in Egypt and Oman.
(iii) Provision for government fees relates to cash outflows for fees due on the sale of land and / or any profit thereon which were recorded during the current year. Such provision is calculated and recorded using the locally enacted fee structures.
(iv) Provision for employee benefits partly relates to compulsory termination payments to foreign employees in Oman. The provision is based on their actual salaries. As the work permits for these employees are reconsidered by the Government on annual basis.
(v) This provision mainly includes charges, services and consultancy fees for the Group's current year's operations which have not yet been finally negotiated as well as provisions in relation to various assets of the Group. In addition, it covers the Group’s exposures to tax risks.
Management annually reviews and adjusts these provisions based on the latest developments, discussions and agreements with the involved parties.
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36 OTHER CURRENT LIABILITIES CHF 2016 2015
Advances from customers (i) 61,945,102 81,350,530
Amounts due to shareholders (ii) 21,913,765 18,953,355
Other credit balances 20,041,084 20,739,655
Accrued expenses (iii) 19,262,811 23,545,811
Deposits from others 8,291,650 10,492,839
Taxes payable (other than income taxes) 6,478,813 8,442,156
Due to management companies 597,761 1,115,462
TOTAL 138,530,986 164,639,808
(i) Advances from customers include amounts received (progress payments) from buyers of real estate units between the time of the initial agreement and contractual completion. The increase related to advances from customers in Montenegro, Oman and Egypt was netted off by foreign currency exchange gains based on the devaluation of the Egyptian Pound (note 30.6).
(ii) Amounts due to shareholders include amounts owed to Mr. Samih Sawiris in the total of CHF 21.3 million (2015: CHF 17.3 million) as well as amounts owed to other shareholders in the total of CHF 0.6 million (2015: 1.4 million).
(iii) Accrued expenses mainly include operating costs for the hotel and destination management activities. The decrease is mainly due to foreign currency exchange gains based on the devaluation of the Egyptian Pound (note 30.6)
37 ACQUISITION OF A SUBSIDIARY
37.1 Description of transactions
On 27 July 2016, based on the settlement agreement with Falcon, the full control and ownership of the entity owning the Citadel Azur hotel was transferred to ORH Investment Holding Company, a subsidiary of ODH, as compensation for the amount due from the settlement agreement of USD 60 million (CHF 58.2 million). For further details on the settlement agreement refer to notes 42 and 46).
37.2 Consideration transferred
The amount due from the settlement agreement with Falcon of USD 60 million (CHF 58.2 million), which was classified as other current asset in the balance sheet is the consideration transferred.
37.3 Analysis of assets acquired and liabilities recognised at the date of acquisition
CHF 2016
Non-‐current assets
Property, plant and equipment 54,544,821
Current assets
Inventories 211,054
Trade and other receivables 2,185,062
Other currents assets 461,503
Cash and bank balances 2,516,016
Non-‐current liabilities
Deferred tax liabilities (1,103,765)
Current liabilities
Trade and other payables (552,102)
Provisions (831,200)
Other current liabilities (86,977)
Net assets acquired 57,344,412
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37.4 Impairment of receivable amount due
CHF 2016
Receivable amount due at acquisition (other current assets) 58,188,000
Less: Fair value of identifiable net assets (consideration received) (57,344,412)
Impairment of receivable amount due 843,588
37.5 Net cash inflow on acquisition of the subsidiary
CHF 2016
Cash and cash equivalent balances acquired 2,516,016
Less: consideration paid in cash -‐
Net cash inflow on acquisition of subsidiary 2,516,016
37.6 Impact of acquisition on the results of the Group
Included in the result for the year is a profit of CHF 4.3 million attributable to the additional business generated in the acquired hotel business.
38 DISPOSAL OF A SUBSIDIARY
38.1 Description of transactions
During 2015, Jordan Company for Projects and Touristic Development (“JPTD”), an associate of the Group, purchased 100% of the shares of a subsidiary of the Group which holds 100% of the Golden Beach for Hotels Company (“Golden Beach”). Control of the Golden Beach Hotel was transferred on 24 June 2015 through change of possession and composition of Board of Directors of the Golden Beach for Hotels Company was changed to include representatives of JPTD. Since then all shares transactions have been completed and the cash has been received.
As Golden Beach and its Hotel do not represent a major line of business or a principal geographical area of operations of the Group, the sold operations are not recognized as discontinued operations".
38.2 Consideration received
CHF 2015
Consideration received in cash and cash equivalents 9,908,175
Consideration received as amounts due from buyers -‐
Total consideration received 9,908,175
38.3 Analysis of assets and liabilities over which control was lost
CHF 2015
Non-‐current assets
Property, plant and equipment 15,014,287
Current assets
Inventories 122,254
Trade and other receivables 224,906
Due from related parties 547,991
Other currents assets 36,800
Cash and bank balances 107,015
Non-‐current liabilities
Non-‐current borrowings (7,030,371)
Current liabilities
Trade and other payables (258,337)
Current borrowings (338,463)
Other current liabilities (922,894)
Net assets and non-‐controlling interests disposed of 7,503,188
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38.4 Gain on disposal of subsidiaries CHF 2015
Fair value of consideration received 9,908,175
Net assets disposed of (7,503,188)
Unrealised gains due to interests held through JPTD (376,135)
Foreign currency translation reserve recycled to profit or loss (291,983)
Gain on disposal 1,736,869
38.5 Net cash inflow on disposal of subsidiaries CHF 2015
Consideration received in cash and cash equivalents 9,908,175
Less: cash and cash equivalent balances disposed of (107,015)
Total net cash inflow 9,801,160
39 RETIREMENT BENEFIT PLANS
39.1 Defined benefit plans The Group operates fund defined benefit plans for qualifying employees in Switzerland. Under the plans, the employees are entitled to retirement benefits and risk insurance for death and disability. No other post-‐retirement benefits are provided to these employees. The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out on 31 December 2016.
Swiss pension plans need to be administered by a separate pension fund that is legally separated from the entity. The law prescribes certain minimum benefits.
The pension plans of the employees of the Swiss entities are carried out by collective funds with Allianz Suisse Lebensversicherungs-‐Gesellschaft. Under the pension plans, the employees are entitled to retirement benefits and risk insurance for death and disability. The boards of the various pension funds are composed of an equal number of representatives from both employers and employees.
Due to the requirements of IAS 19 the above mentioned pension plans are classified as defined benefit plans. The pension plans are described in detail in the corresponding statues and regulations. The contributions of employers and employees in general are defined in percentages of the insured salary. The retirement pension is calculated based on the old-‐age credit balance on retirement multiplied by the fixed conversion rate. The employee has the option to withdraw the capital at once. The death and disability pensions are defined as percentage of the insured salary. The assets are invested directly with the corresponding pension funds.
The pension funds can change their financing system (contributions and future payments) at any time. Also, when there is a deficit which cannot be eliminated through other measures, the pension funds can oblige the entity to pay a restructuring contribution. For the pension funds of the Group such a deficit currently cannot occur as the plans are fully reinsured. However, the pension funds could cancel the contracts and the entities of the Group would have to join another pension fund.
In the current and comparative period no plan amendments, curtailments or settlements occurred.
The fully reinsured pension funds have concluded insurance contracts to cover the insurance and investment risk. The board of each pension fund is responsible for the investment of assets and the investment strategies are defined in a way that the benefits can be paid out on due date.
The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
CHF 2016 2015
Current service cost 242,116 152,599
Past service cost (128,390) 17,778
Net interest expense 6,202 4,332
Administration cost excl. cost for managing plan assets 749 349
Expense recognised in profit or loss 120,677 175,058
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Amounts recognised in other comprehensive income in respect of these defined benefit plans are as follows:
CHF 2016 2015
Remeasurement (gain)/loss on defined benefit obligation 15,864 304,921
Return on plan assets excl. interest income (1,583) (498)
Expense recognised in other comprehensive income 14,281 304,423
The amount included in the consolidated statement of financial position arising from the Group’s obligation in respect of its defined benefit plans is as follows:
CHF 31 December 2016 31 December 2015
Present value of funded defined benefit obligation 1,808,042 1,497,229
Fair value of plan assets (1,160,810) (873,436)
Net liability arising from defined benefit obligation 647,232 623,793
Movements in the present value of the defined benefit obligation in the current year were as follows:
CHF 2016 2015
Opening defined benefit obligation 1,497,229 699,685
Current service cost 242,116 152,599
Past service cost (128,390) 17,778
Interest expense on defined benefit obligation 15,308 14,872
Contributions from plan participants 111,519 100,271
Benefits (paid)/deposited 53,647 206,754
Remeasurement (gain)/loss on defined benefit obligation 15,864 304,921
Administration cost (excluding cost for managing plan assets) 749 349
Closing defined benefit obligation 1,808,042 1,497,229
Movements in the present value of the plan assets in the current period were as follows:
CHF 2016 2015
Opening fair value of plan assets 873,436 455,102
Interest income on plan assets 9,106 10,540
Return on plan assets excluding interest income 1,583 498
Contributions from the employer 111,519 100,271
Contributions from plan participants 111,519 100,271
Benefits (paid)/deposited 53,647 206,754
Closing fair value of plan assets 1,160,810 873,436
The respective insurance company is providing reinsurance of these assets and bears all market risk on these assets.
The actual return on plan assets was CHF 10,689 (2015: CHF 11,038).
The principal assumptions used for the purposes of the actuarial valuations were as follows:
2016 2015
Discount rates 0.40% 0.90%
Expected rates of salary increase 1.00% 1.00%
Expected pension increases 0.00% 0.00%
Mortality table BVG 2015 GT BVG 2010 GT
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The following sensitivity analyses -‐ based on the principal assumptions -‐ have been determined based on reasonably possible changes to the assumptions occurring at the end of the reporting period:
If the discount rate would be 25 basis points (0.25 percent) higher (lower), the defined benefit obligation would decrease by CHF 1.7 million (increase by CHF 1.9 million if all other assumptions were held constant
If the expected salary growth would increase (decrease) by 0.25%, the defined benefit obligation would increase by CHF 1.8 million (decrease by CHF 1.8 million if all other assumptions were held constant
If the life expectancy would increase (decrease) with one year for both men and women, the defined benefit obligation would increase by CHF 1.8 million (decrease by CHF 1.8 million if all other assumptions were held constant
The average duration of the defined benefit obligation at the end of the reporting period is 19.5 years (2015: 18.5 years)
The Group expects to make a contribution of CHF 116,123 to the defined benefit plans during the next financial year (2015: CHF 120,628).
40 FINANCIAL INSTRUMENTS
40.1 Capital risk management The Group manages its capital to ensure that entities in the Group 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 since 2010.
The capital structure of the Group consists of net debt (borrowings, as detailed in note 33, offset by cash and bank balances) and equity of the Group (comprising issued capital, share premium, reserves, retained earnings and non-‐controlling interests as detailed in notes 29 to 32).
The Group is not subject to any externally imposed capital requirements.
According to the Group’s internal policies and procedures, the Executive Management reviews the capital structure on a regular basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. The Group has a target gearing ratio of 40% to 45% determined as the proportion of net debt to equity.
The gearing ratio at 31 December 2016 of 57.39% (see below) increased due to the losses for the year and was above the target recommended by the committee.
The gearing ratio at the end of the reporting period was as follows:
CHF 2016 2015
Debt (i) 421,722,938 507,027,639
Cash and cash equivalents (note 27) (82,172,312) (167,636,917)
Net debt 339,550,626 339,390,722
Equity (ii) 591,674,331 956,629,996
Net debt to equity ratio 57.39% 35.48%
(i) Debt is defined as long-‐ and short-‐term borrowings (excluding derivatives), as detailed in (note 33) as well as long-‐ and short-‐
term borrowings included in disposal groups classified as held for sale (note 28). (ii) Equity includes all capital and reserves of the Group and non-‐ controlling interests that are managed as capital excluding
equity of disposal groups.
40.2 Significant accounting policies Details 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 3.18 Financial instruments.
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40.3 Categories of financial instruments
CHF 2016 2015
Financial assets
Cash and bank balances 82,172,312 167,636,917
Fair value through other comprehensive income (FVTOCI) 3,516,633 5,649,259
Financial assets measured at amortised cost (i) 194,139,536 351,511,001
Financial liabilities
At amortised cost (ii) 536,481,304 639,834,828
(i) Includes trade and other receivables, finance lease receivables as well as those other non-‐ current and current assets that
meet the definition of a financial asset. A total of CHF 25.9 million (2015: CHF 21.3 million) of other current assets does not meet the definition of a financial asset.
(ii) Includes trade and other payables, borrowings, notes, other financial liabilities as well as other current liabilities that meet the definition of a financial liability. A total of CHF 61.9 million (2015: CHF 81.4 million) of other current liabilities does not meet the definition of a financial liability.
40.4 Financial risk management objectives
In the course of its business, the Group is exposed to a number of financial risks. This note presents the Group’s objectives, policies and processes for managing its financial risk and capital.
The Group’s Corporate Treasury function provides services to the business, co-‐ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. Other price risk includes equity price risk, settlement risk and commodity price risk.
It is, and has been throughout 2016 and 2015, the Group’s policy not to use derivatives without an underlying operational transaction or for trading (i.e. speculative) purposes.
The Group seeks to minimise the effects of these risks mainly through operational and finance activities and, on occasional basis, using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s internal policies and procedures approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-‐derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
The Corporate Treasury function reports monthly to the Executive Management. The Group Treasury Director carries out risk management under the Group’s guidelines.
40.5 Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see note 40.6 below) and interest rates (see note 40.7 below).
Driven by the need, the Group’s policy is to enter into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk, including:
– forward foreign exchange contracts to hedge the exchange rate risk arising on sales in foreign currency to the tourism / real estate industry;
– interest rate swaps to mitigate the risk of rising interest rates
40.6 Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The currencies, in which these transactions primarily are denominated, are US Dollar (USD), Euro (EUR) and Egyptian Pound (EGP). Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
The Group’s main foreign exchange risk arises from sales in foreign currency to the tourism / real estate industry, which generates a net foreign currency surplus for the Group. The Group has strong inflows in foreign currency, mainly US Dollar, Euro, Oman Rial and Egyptian Pound.
Out of the total receivables on hand at the end of the reporting period, receivables in USD have accounted for 71% (2015: 34%), in EUR for 3% (2015: 2%), in EGP for 12% (2015: 55%), in OMR 11% (2015: 7%) and in AED 3% (2015: 1%) respectively.
To mitigate the above risk exposures, where possible, the Group borrows in matching currencies to create a natural hedge. The following table shows the carrying amounts of borrowings, at the end of the reporting period, in the major currencies in which they are issued.
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Borrowing
CHF 2016 2015
USD 191,109,413 51% 193,983,296 38%
OMR 84,462,594 23% 70,848,463 14%
EGP 42,131,008 12% 191,800,766 38%
EUR 34,268,406 9% 33,188,873 7%
AED 17,476,168 5% 16,953,930 3%
CHF 120,910 0% 252,299 0%
Total 369,568,499 100% 507,027,627 100%
At the end of the reporting period, the carrying amounts of the Group’s major foreign currency denominated monetary assets (mainly receivables and finance lease receivables) and monetary liabilities (mainly borrowings), at which the Group is exposed to currency rate risk, are as follows:
CHF Liabilities Assets
2016 2015 2016 2015
Currency-‐USD 191,109,413 193,983,296 67,493,643 78,472,523
Currency OMR 84,462,594 70,848,463 10,767,206 16,603,075
Currency-‐EGP 42,131,008 191,800,766 11,447,801 127,507,661
Currency-‐EUR 34,268,406 33,188,873 3,145,093 5,280,198
Residual foreign exchange exposure is managed by hedging through entering into foreign currency forward contracts if needed.
Currency risk has also recently developed due to the Group’s investments in different markets such as those in Egypt, UAE, Oman, Morocco and the UK. Again, the Group borrows in the local currency of the investment and uses the above mentioned strategies to mitigate residual currency risk.
40.6.1 Foreign currency sensitivity analysis
As discussed above, the Group is mainly exposed to the US Dollar (USD), Euro (EUR) and Egyptian Pound (EGP) arising from sales in these currencies to the tourism / real estate industry.
The following table details the Group’s sensitivity to a 5% increase and decrease in CHF against the relevant foreign currencies. The (5%) is the sensitivity rate used when reporting foreign currency risk internally to key management and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates.
The sensitivity analysis includes outstanding borrowings, impact of the changes in the fair value of derivative instruments designated as cash flow hedges and receivables in foreign currencies and, where appropriate, loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower.
A positive number below indicates an increase in profit or equity where the CHF strengths 5% against the relevant currency. For a 5% weakening of the CHF against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative.
CHF Currency USD Impact Currency EUR Impact Currency EGP Impact Currency OMR Impact
2016 2015 2016 2015 2016 2015 2016 2015
Profit or loss 6,047,369 5,771,378 1,556,105 1,394,562 1,526,688 3,496,976 3,684,769 2,712,269
Equity -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐
The Group's sensitivity to foreign currency has changed in accordance with the changes in EGP, USD and AED borrowings.
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40.7 Interest rate risk management
The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-‐effective hedging strategies are applied. The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
During 2016 and 2105 the Group did not hold any derivative financial instruments.
40.7.1 Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-‐derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the end of reporting period was outstanding for the whole year. A ‘100 basis point’ (1%) increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 100 basis points higher / lower and all other variables were held constant, the Group’s profit for the year ended 31 December 2016 would decrease / increase by CHF 2.2 million (2015: decrease / increase by CHF 2.1 million). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.
40.8 Other price risks The 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.
40.9 Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group credit risk arises from transactions with counterparties, mainly individual customers and corporations. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
The Group’s exposure to credit risk is, to a great extent, influenced by the individual characteristics of each customer. Risk control assesses the credit quality of the customer, taking into account its financial position, past experience, other publicly available financial information, its own trading records and other factors, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure is continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
Trade receivables consist of a large number of customers, spread across various industries and geographical areas. The Group does not have any significant credit risk exposure to any single counterparty or any Group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. The credit risk on sales of real estate is limited because the Group controls this risk through the property itself by registering the unit in the name of the customer only after receiving the entire amount due from the customer.
Counterparty risk is also minimized by ensuring that 80% of derivative financial instruments, money market investments and current account deposits are placed with financial institutions whose credit standings are above Aa1 and 20% above BB+.
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained.
40.10 Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established 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. Regarding management’s plans to manage liquidity shortages and related uncertainty please refer to note 27.1.
As of 31 December 2016, total un-‐drawn facilities, that the Group has at its disposal in order to further reduce liquidity risk, are CHF 40.2 million (31 December 2015: CHF 9.7 million).
Further, please refer to note 27.1 regarding the disclosures on management’s plans to manage liquidity shortages and related uncertainties.
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40.10.1 Liquidity and interest risk tables The following tables detail the Group's remaining contractual maturity for its non-‐derivative financial liabilities with agreed repayment periods. 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 tables include both interest and principal cash flows. To the extent that interest cash flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay.
Maturities of non-‐derivative financial liabilities
2016 Weighted average effective interest
rate
Less than 6 month
6 months to one year
1 – 5 years 5 + years Total CHF
Non-‐interest bearing 102,136,409 -‐ 11,576,940 -‐ 113,713,349 Variable interest rate instruments 7.75% 103,760,063 116,552,453 61,136,151 1,425,463 282,874,129
Fixed interest rate instruments 6.51% 18,408,389 14,205,153 71,044,064 21,785,381 125,442,987
TOTAL 224,304,861 130,757,606 143,757,155 23,210,843 522,030,465
2015 Weighted average effective interest
rate
Less than 6 month
6 months to one year
1 – 5 years 5 + years Total CHF
Non-‐interest bearing -‐ 115,396,076 -‐ 17,128,923 -‐ 132,524,999 Variable interest rate instruments 7.82% 228,837,587 34,377,962 100,428,527 4,962,507 368,606,583
Fixed interest rate instruments 9.02% 22,957,437 32,667,292 122,850,847 33,441,422 211,916,998
TOTAL 367,191,100 67,045,254 240,408,297 38,403,929 713,048,580
CHF 2016 2015
Counterparty Rating Credit limit Carrying amount Credit limit Carrying amount
Bank 1 B2 26,324,162 12,115,917 27,459,769 22,399,246 *
Bank 2 -‐ 5,547,888 5,167,594 12,418,560 12,461,024
Bank 3 BBB 34,511,370 24,256,533 36,675,919 37,184,782
Bank 4 AA-‐ 24,252,196 10,254,875 23,614,779 21,680,658 *
Bank 5 B-‐ 11,605,276 10,903,908 13,090,176 13,093,783 * Outstanding amount includes interest charged
The amounts included above for variable interest rate instruments for liabilities is subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.
40.11 Impairment losses on financial assets CHF 2016 2015
Impairment loss on trade receivables 7,204,572 2,172,965
TOTAL 7,204,572 2,172,965
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40.12 Fair value measurement 40.12.1 Fair value of financial instruments carried at amortised cost Except as detailed in the following table, management considers that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.
31 December 2016 31 December 2015
CHF Carrying amount Fair value Carrying amount Fair value
Financial liabilities
Borrowings/bank loans 421,722,938 474,917,757 507,027,639 580,523,569
Finance lease receivables
As at 31 December 2016, due to the reclassification of Tamweel as disposal group, there were no finance lease receivables. As at 31 December 2015 , the fair value of finance lease receivables was estimated to be CHF 48.4 million) using a 15.5% discount rate based on an average six year tenor and adding a credit margin that reflects the secured nature of the receivables.
40.12.2 Valuation techniques and assumptions applied for the purposes of measuring fair value The fair values of financial assets and financial liabilities are determined as follows:
– The fair values of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes unlisted and listed equity investments classified as at FVTPL and FVTOCI respectively).
– The Group receives the fair values of foreign currency forward contracts and interest rate swaps from the counterparty banks. Foreign currency forward contracts are usually measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. Interest rate swaps are usually measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.
– The fair values of other financial assets and financial liabilities (excluding those described above) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. Specifically, significant assumptions used in determining the fair value of the following financial assets and liabilities are set out below.
40.12.3 Fair value measurements recognised in the consolidated statement of financial position The following table provides an analysis of financial and non-‐financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
– Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
– Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
2016
CHF Level 1 Level 2 Level 3 Total
Financial assets at FVTOCI
Listed and unlisted shares measured at FV 2,892,067 -‐ 624,566 3,516,633
2,892,067 -‐ 624,566 3,516,633
Other assets at fair value
Investment property 1) -‐ -‐ 5,501,334 5,501,334
-‐ -‐ 5,501,334 5,501,334
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2015
CHF Level 1 Level 2 Level 3 Total
Financial assets at FVTPL
Non-‐derivative financial assets held for trading -‐ -‐ -‐ -‐
-‐ -‐ -‐ -‐
Financial assets at FVTOCI
Listed and unlisted shares measured at FV 5,034,175 -‐ 615,084 5,649,259
5,034,175 -‐ 615,084 5,649,259
Other assets at fair value
Investment property 1) -‐ -‐ 10,981,552 10,981,552
-‐ -‐ 10,981,552 10,981,552
There were no transfers between Level 1 and 2 in the period. The financial assets at FVTOCI were measured at fair value based on a method that combined the earning and net equity book values of the companies.
1) The reconciliation for investment property is shown in note 17.
Reconciliation of Level 3 fair value measurements of financial assets
Unquoted equity securities
CHF 2016 2015
Opening balance 615,085 1,242,091
Additions 118,921 -‐
Total losses recognized in other comprehensive income (109,440) (627,006)
Closing balance 624,566 615,085
41 SHARE-‐BASED PAYMENTS
The Company has contractually granted a variable compensation amount to its new CEO, Khaled Bichara (“Contingent Compensation”). The compensation amount is due 6 years after the start date (1 January 2016) or earlier if an acceleration event occurs. In summary, the compensation amount is 10% of the share price increase above an annual average increase of 8% (based on the fixed spot share price of CHF 11.37). The Contingent Compensation will be paid in cash or, at ODH’s discretion, in shares if the annual average increases in the share price are met. As of 9 May 2016, the General Assembly of ODH approved the abovementioned compensation plan. The calculated fair value of the Contingent Compensation as at grant date of CHF 5.0 million, which was calculated by an independent third party valuation company, is recognised over the 6 year vesting period on a linear basis within profit or loss. The accumulated amount is shown as a separate share-‐based payment reserve within equity.
At 31 December 2015, the Group did not have any share option or participation schemes in place and had not granted any ODH shares to the members of the Board or the Executive Management.
The Group compensates the members of the Board with a fixed fee of CHF 1.04 million (note 13.1) which is payable in unrestricted shares of the Parent Company based on the quoted market price at grant date as well as in cash. The amount has been recognized in the consolidated statement of comprehensive income as part of administrative expenses. It will be transferred to the members of the Board in 2017.
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42 RELATED PARTY TRANSACTIONS A party (a company or individual) is related to an entity if: a) directly, or indirectly through one or more intermediaries, the party: i. controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow
subsidiaries); ii. has an interest in the entity that gives it significant influence over the entity; or iii. has joint control over the entity;
b) the party is an associate of the entity or a joint venture in which the entity is a venturer (both defined in IAS 28 Investments in Associates and Joint Ventures);
c) the party is a member of the key management personnel of the entity or its parent;
d) the party is a close member family of any individual referred to in (a) or (b);
e) the party is an entity that is controlled, jointly controlled or significantly influenced by, or which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (a) or (b); or
f) the party is a post-‐employment benefit plan for the benefit of employees of the entity, or of any entity that is related party of the entity.
Balances and transactions between the Group and its subsidiaries, which are related parties of the Group, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
During the year, the Group purchased services from companies in which members of the Board have a partnership or significant influence through ownership during the reporting period. These services related to the leasing of office space (see note 13).
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The following balances were outstanding at the end of the reporting period:
Due from related parties Due to related parties
CHF 2016 2015 2016 2015
Financial instruments
Three Corners Company 4,439,742 9,595,110 -‐ -‐
Red Sea Company for Construction & Develop. 4,391,883 9,651,747 -‐ -‐
Orascom Housing Community 2,563,681 3,265,299 -‐ -‐
El Gouna Football Club 734,337 2,196,473 -‐ -‐
Kingdom Co. 632,070 1,414,872 -‐ -‐
Camps and lodges 520,784 1,165,411 -‐ -‐
Iskan International Projects 42,336 49,758 14,206 -‐
Other (balances less than CHF 120 000 each) 480,766 834,504 38,499 385,442
Non controlling shareholders
Mirotel For Floating Hotels 189,938 425,170 -‐ -‐
Tarot & Merotil Garranah for hotels 71,515 160,084 -‐ -‐
Tarot Garranah for touristic transportation 35,121 78,617 -‐ -‐
Tarot Tours Garanah 16,872 37,755 807,235 1,807,323
Close family members
Samih Sawiris – (i) -‐ -‐ -‐ -‐
Close family companies
Meeting Point Egypt 4,413,060 2,751,696 -‐ -‐
FTI 894,800 538,787 -‐ -‐ Orascom for Touristic Establishments company (OTEC)
452,548 1,013,040 -‐ -‐
TU Berline University 26,579 821,322 -‐ -‐
Orascom International Hotels & Development 24,321 285,930 -‐ -‐
Other Related Party Receivables -‐ 720,982 -‐ -‐
Total 19,930,353 35,006,557 859,940 2,192,765
Current 19,930,353 35,006,557 859,940 2,192,765
Non-‐current -‐ -‐ -‐
Total 19,930,353 35,006,557 859,940 2,192,765
(i) Current accounts due to Mr. Samih Sawiris are disclosed in note 36. Transactions involving Mr. Samih Sawiris, Chairman and major shareholder:
Falcon
During previous financial periods Orascom Development & Management Ltd (“ODM”), a Group’s subsidiary, entered into a development agreement with Falcon for Hotels S.A.E. (“Falcon”), under which ODM was to undertake the development activities of the land bank owned by Falcon. Due to Falcon’s non-‐compliance with the terms of the development agreement, ODM filed a legal claim against Falcon asking for remuneration for profits ODM missed out on as a result of the non-‐compliance with the said agreement. In June 2014 the final settlement agreement regarding all the litigation proceedings in relation to the securities purchase agreement and the development of the land bank as well as the proceeds from sale of Joud Funds was signed by both parties.
The residual amount due from Falcon of USD 60 million (CHF 58.2 million) was due at 31 December 2015 but was extended until Q2 2016. It was shown in the consolidated statement of financial position as other current assets (at amortised cost of CHF 58.0 million) and is secured by hotel property.
In accordance with the settlement agreement both parties have opened an escrow account and placed in escrow the shares of the company that ultimately holds Citadel Azur hotel.
As the 15 months period in which the payment should have been effected in cash or in kind, has lapsed subsequent to 30 June 2016 as the amount in cash was not settled, in accordance with the terms and conditions of the Settlement Agreement, the full ownership of the special purpose vehicle owning the Citadel Azur hotel has been transferred on 27 July 2016 to ORH Investment Holding Company, a subsidiary of ODH.
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Purchase of shares from OHD
On 17 January 2007 OHD allocated to employees and the management team (including the chairman and the executive board members) an amount of 2 million shares for full consideration being the market price as of that day. Mr. Samih Sawiris acquired under this transaction 330,000 shares at the market price. Amounts due from Mr. Samih Sawiris under this transaction are included in “Other assets” as amounts due from employees and management team and amounted to CHF 0.3 million at 31 December 2015 (31 December 2014: CHF 0.4 million). There are no amounts due from executive board members under this transaction in 2015 and 2014. (see note 26(ii)).
Taba Heights Company transactions
One of the Group companies had been granted the right to acquire freehold title to the project's land by the Tourism Development Authority. Due to foreign ownership restrictions on the Sinai Peninsula becoming applicable in connection with the reorganization in 2008, the respective Group company had to be transferred to Mr. Samih Sawiris, major shareholder and of Egyptian nationality. Mr. Samih Sawiris entered into a binding agreement to retransfer these shares subject to approval of the competent authorities, and that until such retransfer, the Group would be put into a position as the full economic beneficiary of these shares. This entails, inter alia, an irrevocable assignment of dividends and the authorization to collect dividends, exercise voting rights related to these shares and cause the sale of shares with no additional rights of Mr. Samih Sawiris in any value received.
Securities lending agreement
For further details on this transaction refer to note 30.5.
Rental contract for office building in Cairo
Orascom Hotel and Development, a major subsidiary of Orascom Development Holding AG, has rented part of its administrative headquarter in Nile City from a joint stock company owned by the major shareholders and others.
FTI
FTI is the fourth largest tour operator in Europe. In 2014, Mr. Samih Sawiris acquired a 35% stake in this tour operator. In 2016, revenue transactions for a total of CHF 26.6 million (2015: CHF 24.7 million) were done with FTI.
43 NON-‐CASH TRANSACTIONS During the current year, the Group entered into the following non-‐cash investing and financing activities which are not reflected in the consolidated statement of cash flow:
– Capitalization of interest of CHF 2.6 million over projects under constructions (note 11).
– Transfer of treasury shares to Board of Directors as part of their remuneration of 2015 which was paid in 2016 (note 30.2)
– Acquisition of subsidiary (Falcon) (refer to note 37 for further details)
– Tamweel Group classified as assets held for sale (refer to note 28 for further details)
44 OPERATING LEASE ARRANGEMENTS
44.1 The Group as lessee 44.1.1 Leasing arrangements Operating leases relates to car lease with lease terms of between 2 to 4 years and office facilities with lease terms of 25 years. The Group (as a lessee) does not have an option to purchase these leased assets at the expiry of the lease periods.
44.1.2 Payments recognised as an expense in the period
CHF 2016 2015
Minimum lease payments 228,061 880,124
TOTAL 228,061 880,124
44.1.3 Non-‐cancellable operating lease commitments
Total of future minimum lease payments
CHF 2016 2015
Not longer than 1 year 232,800 232,800
Longer than 1 year and not longer than 5 years 931,200 931,200
Longer than 5 years 2,793,600 3,026,400
TOTAL 3,957,600 4,190,400
In respect of non-‐cancellable operating leases, no liabilities have been recognised.
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44.2 The Group as lessor
44.2.1 Leasing arrangements Operating leases relate to the investment property owned by the Group with lease terms of between 1 and 4 years for premises in El Gouna (Egypt). These lease contracts do not include a lease extension option and are subject to renegotiation at the end of the lease term. The lessee does not have an option to purchase the property at the expiry of the lease period. No material non-‐cancellable operating lease receivables exist as at 31 December 2016.
Rental income earned by the Group from its investment properties and direct operating expenses arising on the investment properties for the year are set out in note 17.
45 COMMITMENTS FOR EXPENDITURE The following commitments for expenditure have been made for the future development of the respective projects:
CHF 2016
Eco-‐Bos Development Limited (i) 4,050,031 (i) As per the property management agreement between Eco-‐Bos and Imerys (shareholder in Eco-‐Bos) , Eco-‐Bos has the right but
not the obligation (American call option maturing in 2030) to purchase part or all of 6.6 million square meters (divided on 7 independent plots), which is currently owned by Imerys Mineral Limited. An annual option premium is paid to retain the rights and the purchase price is calculated based on an agreed dynamic pricing formula. The trigger event of the option(s) is at the full discretion of Eco-‐Bos and shall only be exercised when building permits are attained. Currently Eco-‐Bos is in negotiations with the local authorities and other investors and is taking its time to optimize on the best alternatives for the development.
45.1 Minimum Building Obligations Beside the legally binding commitment for expenditure mentioned above the, following should be considered:
One part of the Group’s business is to acquire land for the development of tourism projects. Out of these business opportunities often no legally binding commitments are incurred. However, the Group has non-‐binding business opportunity commitments in relation to their projects. In particular, the Group has minimum building obligations (“MBOs”) for the next three years, which are included in their development agreements (“DAs”) with the relevant governments in Oman, Morocco and Montenegro.
The contingent liabilities in relation to the MBOs in Montenegro, Oman and Morocco are assessed by management of the Group as follows:
Oman
According to the DAs for Salalah and Sifah, the project companies, which are subsidiaries of the Group, shall use their best efforts to substantially complete a defined number of Hotels and Golf Courses within an indicative timeline. Based on this indicative timeline, the project companies have been initially granted an extension of time for the substantial completion (which is defined as the material elements of the specific MBOs) of the MBOs that elapses on 1 January 2015.
Based on the right to request an extension of the completion date, which is included in the DAs, the Group has requested an extension for the time of completion of the residual MBOs until 2018. The Sifah and Salalah project companies engaged in exhaustive negotiations with the Omani Government. Finally on 30 June 2015 the Group and the Omani Government signed the Addenda (individually “Addendum“ and collectively “Addenda”) in which they officially agreed on the extension of the deadline for completion of the MBOs until 1 January 2020 and 1 January 2018 for Sifah and Salalah respectively. Furthermore, the Parties agreed to amend certain elements of the MBOs. With regards to Sifah project, the Parties agreed that the Project Company shall deliver 500 hotel keys over three hotels instead of four hotels. The project company has so far finalized 67 rooms. Additionally, the project company would be required to either develop an aquarium or a waterpark or increase the number of hotel keys by 60 rooms within either the four star or five star hotel, and such shall be determined at its sole discretion. Similarly, with regards to the Salalah project, it was agreed in the Addendum that the project company would deliver 700 hotel keys and replace the 18-‐hole golf course with a waterpark. To date, the project company in Salalah has completed 3 hotels with a total number of 784 keys, hence completing its requirement with regards to the touristic components. The Salalah Addendum also stipulates that the Project Company shall grant, transfer and assign to the Omani Government an area of land amounting to two million square meters, while the Omani Government undertook to provide all pending licenses to the Project Company.
The Group has requested the Omani Government to merge the required minimum number of keys, and as such the Project Companies shall be required to complete a total number of 1200/1260 keys among both the Sifah and Salalah projects. Moreover, the Group requested the Omani Government to reduce the required number of holes in the golf course contemplated in the Sifah project from 18 to 9. Said request was due to anticipated shortage in the water resources in the area as suggested by experts. In March 2017, the Omani government approved both requests and sent a letter to that effect.
F-‐78
Morocco
In Morocco, the DA does not contemplate the concept of MBOs. However, it sets out a timeline for the performance of the essential elements of a development plan. These essential elements have no fixed dates but are rather governed by interconnected milestones that change the date automatically on the occurrence of an agreed milestone.
In 2010, the project company obtained an exception entitling it to finalize three hotels in 2013 and the remaining two in 2015. Since then the project company has created the organisational structure for the creation of three hotels and the related infrastructure. However, further process by the project companies was delayed by various factors outside the control of the project companies and they therefore have solid grounds for requesting further extensions. In addition, the DA states that in the event the delay is for reasons outside of the control of the project company, this would be taken into consideration when assessing whether the project company has fulfilled its obligations or not. In furtherance and in compliance with the obligations to which the project company is committed to, a new hotel holding structure has been proposed, the main goal of which is the creation of the 3 Hotels and the associated infrastructure, which is part of phase 1 of the project. The scope of investment for the aforementioned hotel holding structure is approximately CHF 129 million. The financing package is currently being negotiated, the equity partners are already identified, the shareholder agreement for the hotel holding entity is currently under review.
On 16 September 2014, the Moroccan Government granted the project company an initial approval regarding the new hotel holding structure, as well as the project company’s request to extend the timeline for completion of Phases 1 and 2. The Group remains engaged in discussions, meetings and workshops with the state agency for tourism (“SMIT”) for the purpose of integrating the amendments to the DA. Furthermore, the Group has undertaken all necessary studies of the social and environmental impact of the project on the region, a task to which the financing of the Hotel Holding Structure by the financial institutions was, inter alia, contingent. Finally, the Group received a comfort letter envisaged in the proposal sent by SMIT suggesting an extension of the timeline, however still pending negotiations between the parties.
Montenegro
In Montenegro, the investment obligations contemplated by the DAs span over three phases of development. The date of completion of the initial phase is due by 2017. Additionally, based on the minimum investment obligations set out for the first two years, the financial expenditure to date has exceeded the required minimum investment as per the DA.
The initial phase of the project entails the completion of a four star hotel, in addition to a main mooring area, an 18 hole golf course and a club house, as well as a town centre with several facilities.
Whilst the initial phase of the project should be completed by 2017, it should be noted that the DA provides for a mechanism whereby the project company is granted an extension of time proportionally to the time consumed by the Government in fulfilment of its obligations. To date the Government has not yet finalized the steps it should have taken, especially with regards to transfer of the title to some parts of the land, therefore the project company’s entitlement to an additional period, if required, should not be challenged.
Risk assessment of contingent liability
Management has analysed the various MBOs and is comfortable with the current status of the MBOs and the minimum investment obligations. Albeit that certain delays have or may potentially occur, all such delays were well founded and are premised on legal grounds that would protect the Group from any exposure. The Group has exerted a great deal of negotiations in all destinations to ensure that any delays are communicated to local authorities and thereby working alongside the government in rescheduling and extending the completion dates. Additionally, the Group has worked on securing finance schemes to accommodate the newly developed restructuring of the investment obligations, or in cases were completion dates are at risk, expending the necessary amounts to comply with the contractual obligations.
46 LITIGATION Falcon
The financial statements of Falcon Company for Hotels (“Falcon”) were incorporated into ODH’s consolidated financial statements on 31 December 2008 in accordance with the International Financial Reporting Standards, as a result of the business combination previously effected through one of ODH’s subsidiaries whereby control had existed over Falcon at that time.
Subsequent to the first time consolidation, but prior to the completion of the transfer of the legal title on the Egyptian Stock Exchange (EGX), a dispute over the Falcon securities purchase agreement had arisen. At the beginning of October 2009, the Group ceased consolidating Falcon due to changes in Falcon’s management resulting in a loss of control for the Group which was one of the reasons of the dispute.
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Several arbitration and litigation proceedings involving Falcon, the Group and third parties were pending. In July 2013, an award was issued in favour of one of ODH’s subsidiaries, establishing ODH’s subsidiary’s right for compensation for the breaches made by Falcon and its owners. The exact amount of the compensation was supposed to be subject to another set of arbitration proceedings. This had a significant positive impact on strengthening the position of the Group in recovering all its losses suffered as a result of this dispute. As a result, settlement negotiations have commenced with Falcon and a memorandum of understanding, setting forth the basic terms of the settlement, was successfully signed on 8 January 2014. The parties to the dispute have continued to negotiate the remaining terms of the settlement and have reached a final form of the settlement agreement, which was signed by all parties involved on 20 June 2014 and thus ending all disputes in this connection.
In execution of the terms and conditions of the settlement agreement the parties have agreed to transfer the shares of the company fully owning the Citadel Azur hotel to a special purpose vehicle to be held in an escrow account for a period of 15 months from the date of transfer of the shares in the escrow account. Initially the parties agreed that the shares will be transferred on an earlier date, and the payment of the settlement amount should have been December 2015. However, the shares were transferred on 3 March 2015, hence the 15 months count started from the foregoing date. Consequently, the parties effectively extended the payment date by virtue of joint instructions sent to the Escrow Agent.
Accordingly, the 15-‐months period in which the payment should have been effected in cash or in kind, has lapsed. The amount in cash was not settled, therefore, in accordance with the terms and conditions of the Settlement Agreement, the full ownership of the special purpose vehicle owning the Citadel Azur hotel has been transferred on 27 July 2016 to ORH Investment Holding Company, a subsidiary of ODH.
47 OTHER SIGNIFICANT EVENTS THAT OCCURRED DURING THE REPORTING PERIOD Political situation in Egypt
On 11 November 2016, the Executive Board of the International Monetary Fund (IMF) approved a three-‐year extended arrangement under the Extended Fund Facility (EFF) for the Arab Republic of Egypt for an amount equivalent to about USD 12.0 billion to support the authorities’ economic reform program. Over the program period general government debt is expected to decline from about 98% in financial year 15/16 to about 88% of GDP in financial year 18/19. In addition, the Central Bank of Egypt (CBE) has floated the pound in an attempt to stabilize its economy, which has been hampered by a shortage of foreign currency. The currency was initially devalued by 32.3% to about 13.0 pounds per USD, down from the previous peg of 8.8 per USD, which had been in place since March 2016 in a dramatic move that met a key demand from the IMF to close the financial year 2016 at EGP 18.0 per USD. The CBE also allowed the currency to float freely and raised the benchmark interest rate by three percentage points (300 basis points) to 14.75%.
The economy is entering a new phase after the IMF approved the USD 12.0 billion Extended Fund Facility as part of a wide-‐ranging program of economic reform. The authorities will hope that the liberalization of the exchange rate regime and the devaluation of the Egyptian pound will be a critical step toward restoring confidence in the economy and eliminating foreign exchange shortages. However, critical structural reforms are needed for the success of the program. Meanwhile, the economy is facing a modest recovery despite a number of political and economic challenges.
On the other hand, Standard & Poor's upgraded the future outlook of the Egyptian economy from negative to stable during November 2016. This came in light of the preceding IMF endorsement and support of Egypt. Standard & Poor's also predicted that the Egyptian economy will begin to recover during 2018 and 2019, mitigated by increased foreign direct investments and the recovery of domestic consumption. In the same context, Fitch Ratings affirmed Egypt at “B” with stable future outlook, while Moody's retained its credit rating for Egypt at B3 with a stable outlook.
The Tourism sector is continuing to suffer due to travel bans from most of the European countries on Sinai Peninsula and Sharm El Sheikh. Tourism revenues decreased by 56.1%, to reach USD 758.2 million (from USD 1.7 billion in the first quarter of financial year 2015/2016), due to the decline in the number of tourist nights by 61.3%, to 9.2 million (against 23.7 million). According to the latest figures by the Central Agency for Public Mobilization & Statistics (CAPMAS), Egypt tourist arrivals fell 10.5% year to year to 499,800 tourists in November 2016 compared to 558,600 tourists in November 2015.
However, on the medium-‐term, the outlook is more positive which is reflected in the revised IMF outlook for Egypt.
F-‐80
48 SUBSEQUENT EVENTS Delisting of EDRs from the Egyptian Exchange
On 1 March 2017, the Extraordinary General Meeting of ODH approved the Board of Directors' proposal regarding the voluntary delisting of the Egyptian Depositary Receipts (EDRs) from the Egyptian Exchange. The Board of Directors called the meeting in accordance with the requests of the relevant authorities in Egypt to present to the shareholders of the company the proposal to approve the delisting. Based on the Extraordinary General Meeting's approval the currently proceeds to undertake all further actions required to complete the delisting of the EDRs.
There have been no other significant events subsequent to 31 December 2016.
49 APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the directors and authorized for issue on 10 April 2017.
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Statutory Auditor’s Report To the General Meeting of ORASCOM DEVELOPMENT HOLDING AG, ALTDORF Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Orascom Development Holding AG and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2016, and the consolidated statements of profit or loss and other comprehensive loss, statement of changes in equity, statement of cash flows and notes to the consolidated financial statements for the year then ended, including a summary of significant accounting policies. In our opinion the consolidated financial statements (pages F-3 to F-78) give a true and fair view of the consolidated financial position of the Group as at December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Basis for Opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Deloitte AG General-Guisan-Quai 38 8022 Zürich Schweiz Telefon: +41 (0)58 279 6000 Fax: +41 (0)58 279 6600 www.deloitte.ch
F-‐82
Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition Key audit matter How the scope of our audit responded
to the key audit matter
As at 31 December 2016, the Group consolidated statement of comprehensive income included Revenue of CHF 237.4 million.
The revenue is measured at the fair value of the consideration received, such revenue is reduced for rebates, estimated customer returns, and other similar allowances. Different policies for revenue recognition apply across the Group's business segments. The two major streams are revenue from services and revenue from agreements for constructions of real estate.
Some terms of the sales arrangements within each of the Group’s companies, including the timing of transfer of risk and rewards, the nature of discount and rebates arrangements and the measurement of the construction progress, generate complexity and judgment in determining occurrence and cut-off for revenues.
The risk is, therefore, that revenue is not recognised in the correct period, or did not occur.¨
Refer to Note 3.7 Revenue recognition, Note 4.1.1 Revenue recognition – Real estate sales to the consolidated financial statements, Note 6 Revenue, and Note 7 Segment Information.
We tested the design and implementation of the Group’s relevant controls in respect of revenue recognition.
We evaluated whether the revenue recognition approach applied by the Group comply with IFRS requirements. More specifically, we evaluated each different revenue stream for its own.
In addition to substantive analytical reviews to understand how the revenue has trended over the year, we performed a detailed testing on transactions through out to the year to address occurrence and on transaction specifically around the year-end to address cut-off, ensuring revenues were recognised in the correct accounting period. Further, our detail test for construction/real estate revenues included comparisons against the contractual terms.
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Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
Impairments for property, plant and equipment, receivables and work-in-progress included in inventories
Key audit matter How the scope of our audit responded to the key audit matter
The Group’s statement of financial positions includes CHF 762.6 million of property, plant and equipment (PP&E), CHF 125.0 million inventories, CHF 42.5 million non-current receivables and CHF 55.8 trade and other receivables representing 76.7% of total Group assets. In accordance with IFRS, these balances are tested annually for impairment, if there are triggering events present. A deficit in recoverable value would result in impairment.
The Group is not generating positive cash inflows from operations. This prevailing condition is a fundamental indicator for impairments on the assets used to generate operating cash flows. Further, the current market conditions in main markets indicate a significant risk for uncollectible receivable balances.
The Group’s statement of income includes impairments of CHF 18.6 million for PP&E, of CHF 13.5 million for inventories and of CHF 6.4 million for receivables.
Refer to Note 7.2 Segment revenue, depreciation and results, Note 12 Other losses, Note 16 Property, plant and equipment, Note 23 Inventories, and Note 24 Trade and other receivables.
We tested the design and implementation of the Group’s relevant controls in respect of the impairment process.
Our audit procedures on the impairments, amongst others, included:
corroborating impairments with management and members of the Board of Directors
assessing the counterparties credit risk based on publicly available information and historical information/experience for receivables
auditing the specific valuation for land auditing the valuations of the hotels and verify
the value of the hotel is higher than the PP&E allocated to the respective hotel
challenging the Group’s destinations under development with the current year’s progress, its own plans and the outlook to generate positive cash-flows
F-‐84
Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
Financing and Liquidity
Key audit matter How the scope of our audit responded to the key audit matter
We identified that the most significant assumption in the assessment on its ability to continue as a going concern is liquidity within the Group, which is ensured by the commitment from the chairman to provide up to CHF 60 million in cash until December 2018. The calculations supporting the assessment require management to make judgments on estimated future cash-inflows and cash-outflows.
The Group’s cash projection is fundamental to assess the appropriateness of the basis adopted for the preparation of the financial statements and therefore represents a key audit matter.
Refer to Note 27.1 Management’s plans to manage liquidity shortages and related uncertainty.
We tested the design and implementation of the Group’s relevant controls and assessed the appropriateness of the methodology applied for the cash projection that builds the basis for the Group’s going concern conclusion. Our audit procedures on the cash projection underlying the going concern conclusion, amongst others, included:
corroborating cash projection with management and members of the Board of Directors
testing mechanical accuracy of the liquidity forecast
critically assessing how the Group’s assumptions tie back to the budget approved by the Board of Directors
audit that the necessary waivers are obtained which support exclusion of cash-outflow for loan repayments and interest payments
performing historical back testing to obtain an understanding of the past precision for the commitments from the chairman to identify potential management bias effects included in the cash projections
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F-‐85
Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
Other Information in the Annual Report The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements of the Company and our auditor’s reports thereon. The annual report is expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Responsibility of the Board of Directors for the Consolidated Financial Statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
F-‐86
Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies.This description forms part of our auditor’s report. Report on Other Legal and Regulatory Requirements
In accordance with article 728a paragraph 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. Deloitte AG Roland Mueller Adrian Kaeppeli Licensed Audit Expert Licensed Audit Expert Auditor in Charge Zurich, April 10, 2017
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Orascom Development Holding AG Income statement
CHF Notes 2016 2015
Gross revenue from services 156,954 119,363
Net proceeds from services 156,954 119,363
Staff costs (4,452,683) (5,590,826)
Other operational costs (3,423,285) (8,016,838)
Depreciation on fixed assets items (3,801) (1,973)
Transaction costs 3.3 -‐ (2,509,321)
Impairment on investments 3.3 -‐ (81,233,259)
Provisions 24,056 (454,439)
Total operating expenditure (7,855,713) (97,806,656)
Operating Loss (7,698,759) (97,687,293)
Financial expenses 3.10 (701,637) (1,063,352)
Financial income 3.11 5,445,038 4,053,207
Total financial income / (expenses) 4,743,401 2,989,855
Annual loss (2,955,358) (94,697,438)
Khaled Bichara Ashraf Nessim Group CEO Group CFO
Orascom Development Holding AG
statutory finanCial statements
together with auditor's report for
the year ended 31 deCember 2016
7.0
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Orascom Development Holding AG Statutory balance sheet
CHF Notes 31 December 2016 31 December 2015
Assets
Current assets Cash at bank 3.1 4,230,381 40,605,624 Other current receivables -‐ Related parties 11,836 11,927 -‐ Third parties 3.2 235,322 573,799 Accrued income and prepaid expenses -‐ 73,352
Total current assets 4,477,539 41,264,702
Non-‐current assets Other non-‐current receivables – Affiliated Companies 271,249,263 248,873,722 Investments in subsidiaries 3.3 1,193,546,736 1,180,443,903 Tangible fixed assets 3.4 124,937 247,545
Total non-‐current assets 1,464,920,936 1,429,565,170
Total assets 1,469,398,475 1,470,829,872
Liabilities and shareholders’ equity
Current liabilities Trade creditors 225,535 754,534 Current interest-‐bearing liabilities -‐ Shareholder 3.5 20,730,879 15,945,914 -‐ Affiliated Companies -‐ 351,454 Other current liabilities 3.6 95,044 127,743 Provision and similar items required by law 3.7 868,383 892,439 Accrued expenses 3,587,348 4,594,121
Total current liabilities 25,507,189 22,666,205
Non-‐current liabilities Non-‐current interest-‐bearing liabilities – Affiliated Companies 16,366,281 30,110,070
Other non-‐current liabilities 25,866 120,910 Deferred currency translation gain 16,127,271 4,330,157
Total non-‐current liabilities 32,519,418 34,561,137
Total liabilities 58,026,607 57,227,342
Shareholders’ equity Share capital 3.9 937,510,283 937,510,283 Statutory capital reserves Capital contribution reserve (privileged) of which reserves from tax privileged capital contributions 3.8 2,858,520,175 2,858,520,175 Statutory retained earnings 12,543,438 12,543,438 Accumulated losses (2,397,193,303) (2,393,941,791) Own shares (8,725) (1,029,575)
Total shareholders' equity 1,411,371,868 1,413,602,530
Total liabilities and shareholders‘ equity 1,469,398,475 1,470,829,872
Khaled Bichara Ashraf Nessim Group CEO Group CFO
F-‐90
Orascom
Develop
ment H
olding
AG
Statem
ent o
f chang
es in equ
ity
CHF
Share capital
Statutory Ca
pital
Reserves
(tax privileged)
Statutory retained
earnings
Accum
ulated
losses
Own shares
Total
Balance at 1
January 2015
662,201,010
2,99
9,972,181
12,543,438
(2,299
,215,010)
(1,723,580)
1,373,778,039
Acquisitio
n of own shares
275,309,273
(141,452,006
) -‐
-‐
133,857,26
7 Distribution to Boa
rd M
embe
rs and
Revaluatio
n -‐
-‐ -‐
(29,343)
694,00
5 66
4,66
2
Loss fo
r the
period
-‐ -‐
-‐ (94,69
7,438)
-‐ (94,69
7,438)
Balance at 31 Decem
ber 2015
937,510,283
2,858,520,175
12,543,438
(2,393,941,791)
(1,029,575)
1,413,602,530
Balance at 1
January 2016
937,510,283
2,858,520,175
12,543,438
(2,393,941,791)
(1,029,575)
1,413,602,530
Distribution to Boa
rd M
embe
rs
-‐ -‐
-‐ (296
,154)
1,02
0,850
724,69
6
Loss fo
r the
period
-‐ -‐
-‐ (2,955,358)
-‐ (2,955,358)
Balance at 31 Decem
ber 2016
937,510,283
2,858,520,175
12,543,438
(2,397,193,303)
(8,725)
1,411,371,86
8
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F-‐91
Orascom Development Holding AG Cash flow statement
CHF Notes 2016 2015
Cash flows from operating activities
Annual Loss (2,955,358) (94,697,438)
Adjustments for:
Depreciation on fixed assets items 3,801 1,973
Own shares 724,696 664,662
Financial expenses 3.10 701,637 1,063,352
Financial income 3.11 (3,523,020) (2,920,320)
Net foreign exchange gain (274,763) (318,537)
Impairment on investments 3.3 -‐ 81,233,259
Provision (24,056) 454,439 Transaction cost of delisting EDRs from Egypt exchange 500,000 -‐
Movements in working capital
(Increase) in trade and other current receivables (21,939,565) (33,760,599) (Decrease) in trade creditors and other interest-‐bearing liabilities (14,651,312) (57,920,976)
Other expenditure not related to cash flow 3.3/4.7 -‐ 2,509,321
(Decrease)/increase in other liabilities 10,290,341 5,787,894
Cash used in operations (31,147,599) (97,902,970)
Interest paid (701,637) (1,063,352)
Income tax paid -‐ -‐
Cash outflow from operating activities (31,849,236) (98,966,322)
Cash flows from investing activities Payments for investments in purchase of financial assets
(13,102,833) (14,573,917)
Payments for tangible assets (5,922) (8,499)
Interest received 3.11 3,523,020 2,920,320 Receipt of payments from divestment of financial assets 3.3 -‐ 59,005,239
Cash inflow/(outflow) for investment activities (9,585,735) 47,343,143
Cash flows from financing activities
Receipt of payments from shareholder loans 19,050,965 35,180,562
Repayments of loans to shareholder (14,266,000) -‐
Receipt of payments from capital increase -‐ 49,615,380
Cash inflow from financing activities 4,784,965 84,795,942
Net increase/(decrease) in cash and cash equivalents
(36,650,006) 33,172,763
Cash and cash equivalents as at beginning of the financial year
40,605,624 7,114,324
Effect of foreign exchange rate changes 274,763 318,537
Cash and cash equivalents as at end of the financial year 4,230,381 40,605,624
F-‐92
Notes to the financial statements 1 GENERAL INFORMATION Orascom Development Holding AG was established in Switzerland as Joint Stock Company and is domiciled in Altdorf, Uri. The purpose of the Company is the direct or indirect acquisition, durable management and disposal of participations in domestic or foreign enterprises, in particular in the field of real estate, tourism, hotels, construction, resort management, financing of real estate and related industries as well as the provision of related services.
The accounts for the period from 1 January to 31 December 2016 were approved by the Board of Directors on 10 April 2017. The Company has an annual average of less than 10 full-‐time employees (previous year: less than 10 full-‐time employees).
2 KEY ACCOUNTING AND VALUATION PRINCIPLES
2.1 Principal of Financial Reporting The present accounts for Orascom Development Holding AG have been prepared in accordance with the requirements of the Swiss Financial Reporting Law. The main accounting and valuation principles used, which are not already specified by the Swiss Code of Obligations, are described as follows.
2.2 Estimates and Assumptions made by management Financial reporting under the Swiss Code of Obligations requires certain estimates and assumptions to be made by management. These are on-‐going and are based on past experience and other factors (e.g. expectations of future results for investments and budget). The result subsequently achieved may change from these estimates. Items in the accounts, which are based on the estimates and assumptions made by management, are as follows:
– Investments
– Direct taxes
– Tangible fixed assets
– Provisions
2.3 Foreign Currency items The currency in which Orascom Development Holding AG operates is Swiss Francs (CHF). Transactions in foreign currencies are converted into the currency in which the company operates (CHF) at the exchange rate on the day of the transaction takes place.
– Monetary assets and liabilities in foreign currencies are converted into CHF at the exchange rate on the balance sheet date. Any profit or losses from the exchange are recorded in the income statement except net unrealized gain from non-‐current items, which are deferred in the balance sheet.
– Non-‐monetary assets and liabilities at historical costs are converted at the foreign exchange rate at the time of the transaction.
2.4. Cash Flow Statement The company presents as a holding company the movements on long-‐term interest-‐bearing liabilities – affiliated companies and other non-‐current receivables – affiliated companies in the cash-‐flow from operating activities.
2.5 Related parties Related parties include subsidiary companies, members of the Board of Directors and Orascom Development Holding AG shareholders. Transactions with related parties take place under proper market conditions (dealing at an arm’s length).
2.6 Cash and Cash Equivalents and current assets with a stock exchange price The cash and current assets with a stock exchange price include cash holdings, bank deposits and short-‐term money market investments maturing in a maximum of 3 months. They are recorded at their nominal value.
2.7 Current Assets with a stock exchange price and financial assets Current assets with a stock exchange price are valued at the stock exchange price on the balance sheet closing date. There is no provision for a fluctuation reserve. Financial assets include long-‐term securities without a stock exchange price or an observable market price. These are valued no higher than the acquisition cost less any value adjustment.
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2.8 Tangible Fixed Assets The straight-‐line depreciation method is used for tangible fixed assets according to their expected useful life. Useful life is established as follows and is revised each year:
– Machinery and Equipment 5 Years
– Office Equipment and Computers 3 Years
– Furniture and fixtures 3 Years
2.9 Own Shares Own Shares are recorded at acquisition cost on the balance sheet as a deduction to equity. If they are resold at a later date, the profit or loss is recorded in retained earnings, respectively accumulated losses.
2.10 Shareholder rights and options Own shares are allocated to management and administrative bodies or to employees as shareholder rights or options. The difference between the acquisition value and any payments to counterparties during share allocation is shown as staff costs.
2.11 Leasing transactions Leasing and rental contracts are accounted for in accordance with legal ownership. Expenses as a lessee or tenant are recorded corresponding as expenditure in the relevant period.
2.12 Contingent compensation The company performs an assessment for their contingent compensation arrangement and disclose it as contingent liability as long as the compensation is not probable. If the assessment comes to the conclusion that the compensation is more likely than not, the company is recording an accrual for the estimated compensation.
3 INFORMATION RELATING TO ITEMS ON THE BALANCE SHEET AND INCOME STATEMENT
3.1 Cash and cash equivalents
CHF 31 December 2016 31 December 2015
of which in CHF 252,750 2,994,864
of which in USD 3,347,297 35,402,713
of which in EUR 407,924 1,547,029
of which in GBP 13,447 197,481
of which in EGP 208,963 463,537
Total cash and cash equivalents 4,230,381 40,605,624
3.2 Other current receivables – Third Parties Accounts receivables include a position in the amount of CHF 203,383 (31 December 2015: 427,439), whose value is determined by the market value of ODH EDRs. This position is valued at lower of cost or market. A provision is formed for the whole outstanding amount of CHF 203,383.
3.3 Investments in subsidiaries Investments are valued at acquisition cost less adjustments for impairment. On a regular basis the Company’s management reviews the recoverable value of the Company’s investments in the various destinations, and accordingly reduces the carrying value by the amount of any impairment losses.
The Egyptian revolution in 2011 has negatively affected the performance of the Company’s Egyptian arm under Orascom Hotels & Development S.A.E. (“OHD”). OHD’s different operating segments, especially real estate and hotels being the key revenue and value drivers of OHD, have been negatively affected by the deteriorated economic conditions that took place in Egypt. This is represented in downsized demand for real estate purchases and declined flow of tourists.
F-‐95
The valuation model of the Company captures the different investments, whether greenfield projects, brownfield projects, or operating projects. The valuation model adopts various approaches depending on the category of the project: as for the greenfield projects and brownfield projects, the model keeps it at investment cost given the uncertainty of the future assumptions and the absence of track record for those projects. One of the major contributors to the investments’ value is land banks in Egypt, for which valuation depends very much on developments and sales that are achievable over a long-‐term period. Due to this long-‐term view and the current political and economic situation, there remains a significant uncertainty.
For the operating projects, DCF valuation techniques applying a two-‐phase model for the hotels segment were used. The first phase is a 5-‐year period which shows the evolving status of the hotel segment indicated by being back to the operating standards of before the 2011 revolution. And the second phase is a 5-‐year period which shows the steady performance of the hotel operations. Major underlying assumptions are occupancy and average room rates for hotels and the number of real estate units to be sold.
The various assumptions and future projections incorporate the various political, economic and operational facts prevailing at the time of preparing the valuations. Future developments may impact the value.
In January 2015, the Swiss National Bank decided to discontinue the minimal exchange rate of Euro 1.20 to the CHF. This had a significant impact on the CHF / EGP exchange rate as well. Management monitored the development after this decision and came to the conclusion that a full recovery of CHF / EGP exchange rate is not to be expected in the near or middle-‐term future. Therefore, an impairment of CHF 81 million as recorded in Q1 2015.
In January 2015, 15% of OHD Investment was sold in a public offering for total proceeds of EGP 506 million equivalent to CHF 61.5 million, which was equivalent to its carrying amount. The costs related to this offering were CHF 2.5 million, which resulted in net proceeds of CHF 59.0 million.
In 2016, the Egyptian pound dropped by 55% against the Swiss Franc. The devaluation of the Egyptian pound was initiated in the first half of 2016 by the decision of the Egypt Central Bank to devalue the Egyptian Pound against the USD by approximately 14% compared to the foreign exchange rate as at 31 December 2015 resulting in a similar devaluation of the Egyptian Pound against the Swiss Franc. On 3 November 2016, the Central Bank of Egypt decided to float the Egyptian pound and allowed banks to deal in the foreign currencies with flexible rates, which led to a further devaluation of the Egyptian Pound. In addition, Central Bank of Egypt raised interest rate for deposits in EGP by approximately 3% to face the rise in prices a currency devaluation may bring.
As at 31 December 2016 and 2015, the Company directly holds the following investments:
Company, domicile, purpose Ownership % Share capital
31 December
2016 31 December
2015
Orascom Hotels & Development S.A.E. 84.79% 84.79% EGP 1,009,811,630 (previously: EL Gouna Development & Hotels S.A.E.), Egypt Real estate development, hotel management
Arena for Hotels Company S.A.E., Egypt 99.85% 99.85% EGP 20,000,000 Hotel operation
Orascom Development & Management Limited, Cyprus 100.00% 100.00% EUR 1,000 Management company
ORH Investment Holding Ltd, BVI 100.00% 100.00% USD 125,000,000 International holding company
Lustica Development AD, Montenegro 90.82% 90.82% EUR 11,025,000 Real estate development, hotel management
Andermatt Swiss Alps AG, Switzerland (ASA) 49.00% 49.00% CHF 231,147,000 Real estate development
Orascom Development International AG, Switzerland 100.00% 100.00% CHF 1,400,000 Real estate development
Orascom Hotels Management AG, Switzerland 100.00% 100.00% CHF 9,000,000
Hotel Management
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3.4 Tangible fixed assets
CHF 31 December 2016 31 December 2015
Machinery and equipment 114,459 239,187
Office equipment and computers 10,478 8,358
Furniture and fixtures -‐ -‐
Total tangible fixed assets 124,937 247,545
3.5 Current interest-‐bearing liabilities – Shareholder The balance of “Current interest-‐bearing liabilities – Shareholder” as at 31 December 2016 is due to Mr. Samih O. Sawiris in the amount of CHF 20,730,879 (31 December 2015: CHF 15,945,914). An amount of CHF 84,241,891 has been converted in December 2015 into share capital during the capital increase. Please refer to note number 3.9. for more information around the capital increase.
3.6 Other current liabilities
CHF 31 December 2016 31 December 2015
Third parties 95,044 127,743
Total other current liabilities 95,044 127,743
3.7 Provisions and similar items required by law
CHF 31 December 2016 31 December 2015
Provision for disputes 665,000 465,000
Bad debt provision 203,383 427,439
Total provisions and similar items required by law 868,383 892,439
3.8 Reserves from tax privileged capital contributions As of 1 January 2011, Swiss tax authorities have introduced a regulation concerning capital contribution reserves. Distributions from such reserves are exempt from Swiss income and withholding tax. In order to reflect this regulation, capital contribution reserves have been classified separately in the balance sheet. The capital contribution reserves in the amount of CHF 2,999,972,181 have been approved by the tax authorities. An amount of CHF 141,452,006 out of this statutory capital reserves from tax contributions has been used in the capital increase through converting it in share capital, as the offering price was CHF 11.28, which was below the par value CHF 23.20. Therefore, the capital contribution reserves from tax contributions decreased to CHF 2,858,520,176 as per 31 December 2016 and remained unchanged as per 31 December 2016.
3.9 Share capital As at 31 December 2016 the Company’s Share capital of CHF 937,510,283 (31 December 2015: CHF 937,510,283) was divided into 40,409,926 (31 December 2015: Shares 40,409,926) registered shares with a par value of CHF 23.20 each. The share capital is fully paid-‐in. The registered shares of the Company are listed on the Swiss Exchange (SIX). The Company has also issued Egyptian Depository Rights (EDRs) which are traded on the Egyptian Stock Exchange (EGX).
During December 2015 the company increased its capital by CHF 275,309,723 by issuing 11,866,779 shares with a nominal value of CHF 23.20. The offering price was CHF 11.28 per share which was financed by cash injection with an amount of CHF 49,615,380 and settlement of the shareholder loan with CHF 84,241,887. The difference between the offering price and the nominal value was deducted from the statutory capital reserves from tax contributions with an amount of CHF 141,452,006. The costs for the ODH capital increase were CHF 3,776,769.
F-‐97
3.10 Finance expenses
CHF 2016 2015
Interest expense 701,637 1,063,352
Total finance expenses 701,637 1,063,352
3.11 Finance income
CHF 2016 2015
Interest income 3,523,020 2,920,320
Foreign exchange gain, net 1,922,018 1,132,887
Total finance income 5,445,038 4,053,207
4 OTHER INFORMATION, WHICH IS NOT ALREADY VISIBLE IN THE BALANCE SHEET OR INCOME STATEMENT
4.1 Residual amount of leasing liabilities Leasing liabilities, which will not expire and may not be terminated within twelve months, are subject to the following repayment structure:
CHF 31 December 2016 31 December 2015
< 1 year 232,800 232,800
1 – 5 years 931,200 931,200
> 5 years 2,793,600 3,026,600
Total 3,957,600 4,190,400
4.2 Total amount of assets pledged or assigned to secure own liabilities and assets under reservation of ownership Andermatt Swiss Alps (ASA)
Andermatt Swiss Alps AG (ASA) has obligations towards the canton of Uri and the municipality of Andermatt. ASA is responsible for the construction of certain parts of the tourism resort Andermatt. Within certain periods or should the construction work be stopped for whatever reason, ASA has the obligation to rebuild the relevant plots of land to the original state. As at 31 December 2016, 36,985 ASA shares owned by the Company (31 December 2015: 36,985) with a net book value of CHF 957 each, amounting to a total book value of CHF 35,384,945 (31 December 2015: CHF 35,384,945), have been pledged as a security to the canton and municipality. Additionally, land with a value of CHF 1,000,000 has been pledged (31 December 2015: CHF 1,000,000).
Orascom Hotels and Development S.A.E. (OHD)
As at 31 December 2016, 34,512,392 OHD shares owned by the Company (31 December 2015; 34,512,392) with a net book value of CHF 4.60 each, amounting to a total book value of CHF 158.9 million (31 December 2015: CHF 158.9 million), have been pledged as a security.
Island Lastavica with fortress Mamula in Herceg Novi
As at 31 January 2014, Orascom Development Holding submitted a bid pursuant to the invitation to tender issued by the tender committee for valorisation of tourism location for the purpose of long term lease of the site island Lastavica with fortress Mamula in Herceg Novi with an amount of EUR 300,000.
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4.3 Shareholder rights and options held by management and Board of Directors and information on allocation of shares and options to executive officers, directors and employees Shareholder Rights and Allocation of Shares to Board of Directors:
The compensation of the members of the Board of Directors is gross CHF 120’000. The compensation is paid out half in cash and half in the form of shares of the Company. The annual share element of the members of the Board of Directors therefore comprises shares in the value of CHF 60’000.
The members of the Board of Directors are entitled to additional compensation in shares in the value of CHF 20’000 for services as a member or chair of a Committee and/or in the value CHF 40’000 for the service as Lead Director of the Company. The valuation of the shares (for purposes of the calculation of the number of shares allocated to each member of the Board of Directors) is based on the average share price of the ODH share (ODHN) at Zurich Stock Exchange during the last six months prior to the grant date. The shares are not subject to any vesting or blocking.
The members of the Board of Directors do not have any specific further shareholder rights and do not participate in any additional share allocation plans.
Shareholder Rights and Allocation of Shares to Members of the Executive Management:
The bonus policy of the Group for members of the Executive Management includes a cash-‐bonus and a deferred share-‐bonus. 100% of the cash-‐bonus and 40% of the share-‐bonus are based on the member of the Executive Management’s personal performance. 60% of the share-‐bonus is based on the (financial) performance of the Company.
The cash-‐bonus can reach at maximum 25 % of the Executive Member’s annual gross base salary. The share-‐bonus can reach at maximum 100 % of the Executive Member’s annual gross base salary.
The share price that is relevant to determine the number of ODH shares to be granted to the member of the Executive Management is the average share price of the ODH share (ODHN) at Zurich Stock Exchange during the last six months of the performance year (closing prices of all trading days between July 1 and December 31).
The members of the Executive Management do not have any specific further shareholder rights and do not participate in any additional share allocation plans.
4.4 Liabilities towards staff pension schemes There are no liabilities as at 31 December 2016 (31 December 2015: CHF 0).
4.5 Joint liability in favour of third party The Company, together with certain Swiss subsidiaries, is part of a Swiss value added tax (VAT) group, resulting in a joint liability for taxation for VAT purposes.
4.6 Contingent liability The Company has contractually granted a variable compensation amount to its new CEO, Khaled Bichara (“Contingent Compensation”). The Compensation amount is due 6 years after the start date (1 January 2016) or earlier if an acceleration event occurs. In summary, the compensation amount is 10% of the share price increase above an annual average increase of 8% (based on the fixed spot share price of CHF 11.37). The contingent Compensation will be paid in cash or, at ODH’s discretion, in shares if the annual average increases in the share price are met. As of 9 May 2016, the General Assembly of ODH approved the abovementioned compensation plan.
4.7 Subsequent events Delisting of EDRs from the Egyptian Exchange
On 1 March 2017, the Extraordinary General Meeting of ODH approved the Board of Directors' proposal regarding the voluntary delisting of the Egyptian Depositary Receipts (EDRs) from the Egyptian Exchange. The Board of Directors called the meeting in accordance with the requests of the relevant authorities in Egypt to present to the shareholders of the company the proposal to approve the delisting. Based on the Extraordinary General Meeting's approval the currently proceeds to undertake all further actions required to complete the delisting of the EDRs.
There have been no other significant events subsequent to 31 December 2016.
4.8 Other The presentation of the prior year cash flow statements has been adjusted to be in line with the current year presentation.
F-‐99
Statutory Auditor’s Report To the General Meeting of ORASCOM DEVELOPMENT HOLDING AG, ALTDORF Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Orascom Development Holding AG, which comprise the balance sheet as at December 31, 2016 and the income statement, the statement of changes in equity, the cash-flow statement and notes for the year then ended, including a summary of significant accounting policies. In our opinion the financial statements (pages F-86 to F-95) as at December 31, 2016 comply with Swiss law and the Company’s articles of incorporation. Basis for Opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter We draw attention to note 3.3 of the financial statements disclosing the existence of a significant uncertainty relating to the valuation of the investments in subsidiaries. Our opinion is not modified in respect of this matter. Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Deloitte AG General-Guisan-Quai 38 8022 Zürich Schweiz Telefon: +41 (0)58 279 6000 Fax: +41 (0)58 279 6600 www.deloitte.ch
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Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
Non-current receivables, affiliated companies and investments
Key audit matter How the scope of our audit responded to the key audit matter
The statutory balance sheet presents non-current receivables, affiliated companies amounting to CHF 271.2 million and investments amounting to CHF 1,193.5 million as at December 31, 2016, which is further explained in note 3.3.
There are triggering events present indicating that non-current receivables from affiliated companies and investments balances were potentially no longer recoverable from subsidiaries.
Management’s annual impairment test for non-current receivables from affiliated companies and investments balances is considered to be judgmental, as the recoverability of the non-current receivables and investments is depending on political and economic assumptions for middle east and especially Egypt, which are inherently uncertain. As the balances are material to the statutory financial statements as a whole, the recoverability of non-current receivables and investments in subsidiaries represents a key audit matter.
We tested the design and implementation of the Company’s relevant controls.
We assessed the appropriateness of management’s accounting policies regarding the recoverability of the non-current receivables, affiliated companies and investments.
We challenged the recoverability of non-current receivables, affiliated companies and investments, and critically assessed whether the assumption are appropriate for the different valuations that support the recoverability of non-current receivables, affiliated companies and investments.
We validated the appropriateness and completeness of the related disclosures in the financial statements.
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Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
Liquidity and financing
Key audit matter How the scope of our audit responded to the key audit matter
We identified that the most significant assumption in the Company’s assessment of its ability to continue as a going concern is liquidity within the Group, which is ensured by the commitment from the chairman to provide up to CHF 60 million in cash until December 2018. The calculations supporting the assessment require management to make judgments on estimated future cash-inflows and cash-outflows. Liquidity cannot just be considered from a stand-alone perspective, it needs to be addressed for the whole Group, as if liquidity issues on subsidiaries’ level result in going concern issues for subsidiaries such going concern issues could trigger impairments on the Company’s level (ultimate holding), which could impact the Company’s going concern.
The Group’s cash projection is fundamental to assess the appropriateness of the basis adopted for the preparation of the financial statements and therefore represents a key audit matter.
Refer to Note 26.1 of the Group’s financial statements for the commitment and Note 3.5 for the actual shareholder’s loan from Chairman.
We tested the design and implementation of the relevant controls and assessed the appropriateness of the methodology applied for the cash projection that builds the basis for the Group’s going concern conclusion and consequently also for the stand-alone conclusion. Our audit procedures on the cash projection underlying the going concern conclusion, amongst others, included:
corroborating cash projection with management and members of the Board of Directors
testing mechanical accuracy of the liquidity forecast
critically assessing how the Group’s assumptions tie back to the budget approved by the Board of Directors
audit that the necessary waivers are obtained which support exclusion of cash-outflow for loan repayments and interest payments
performing historical back testing to obtain an understanding of the past precision for the commitments from the chairman to identify potential management bias effects included in the cash projections
Responsibility of the Board of Directors for the Financial Statements The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the Company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
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Orascom Development Holding AG Report of the Statutory Auditor
for the Year Ended December 31, 2016
In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies.This description forms part of our auditor’s report. Report on Other Legal and Regulatory Requirements
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We recommend that the financial statements submitted to you be approved. Furthermore, we draw attention to the fact that half of the share capital and legal reserves are no longer covered (article 725 paragraph 1 CO). Deloitte AG Roland Mueller Adrian Kaeppeli Licensed Audit Expert Licensed Audit Expert Auditor in Charge Zurich, April 10, 2017
AG: Aktiengesellschaft (abbr. AG) is the German name for a stock corporation.
ARR: Average Room Rate is a statistical unit often used in the lodging industry. The ARR is calculated by dividing the room revenue (excluding services and taxes) earned during a specific period by the number of occupied rooms.
Company: Orascom Development Holding AG.
EBIT: Earnings Before Interest and Taxes is an indicator of a company’s profitability, calculated as total revenue minus total expenses, excluding tax and interest. EBIT is also referred to as “Operating Earnings”, “Operating Profit” and “Operating Income”. The indicator is also known as Profit before Interest and Taxes (PBIT), and is equal to the net income with interest and taxes added back to it.
EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization is an indicator of a company’s financial performance, calculated as total revenue less total expenses, excluding tax, interest, depreciation and amortization. EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.
EBITDA Adjusted: Earnings Before Interest, Taxes, Depreciation and Amortization adjusted to better reflect optimization of core operating activities net of any extraordinary items such as Provisions & impairments, FOREX losses, Capitalized G&A expenses, Share in associates and Fair value differences
EDRs: Egyptian Depository Receipts
EFSA: Egyptian Financial Supervisory Authority
EGX: The Egyptian Exchange is one of the oldest stock markets established in The Middle East. The
Egyptian Exchange traces its origins to 1883 when the Alexandria Stock Exchange was established, followed by the Cairo Stock Exchange in 1903.
GOP: Gross Operating Profit means the profit of our hotel business after deducting operating costs and before deducting amortization and depreciation expenses. It excludes all costs related to non-hotel operations.
GOP PAR: Gross Operating Profit per Available Room a key performance indicator for the hotel industry, defined as total gross operating profit (GOP) per available room per day
Group: Orascom Development Holding AG and its subsidiaries.
KPI: Key Performance Indicators are financial and non-financial metrics used to help an organization define and measure progress toward organizational goals.
M2: square meter
MBA: The Master of Business Administration is a master’s degree in business administration.
MCDR: Misr for Central Clearing, Depository and Registry provides securities settlement and custody services in Egypt by applying central depository system, effect central registry of securities traded in the Egyptian capital market and facilitate securities trading on dematerialized shares.
MENA: Middle East and North Africa
NAV: Net Asset Value is a term used to describe the value of an entity’s assets less the value of its liabilities
OHM: Orascom Hotels Management
RevPAR: Revenue Per Available Room equals average room rate (ARR) multiplied by average occupancy.
SIX Swiss Exchange: The SIX Swiss Exchange is Switzerland’s principal stock exchange and part of the Cash Markets Division of SIX Group. It operates several trading platforms and is the marketplace for various types of securities. The SIX Swiss Exchange is supervised by the Swiss Financial Market Supervisory Authority (FINMA).
TRevPAR: Total Revenue per Available Room is similar to RevPAR but also takes into account other room revenues e.g. food and beverage, entertainment, laundry and other services.
UAE: United Arab Emirates
UK: United Kingdom
8.0 Glossary of Terms
08GlOSSARy OF TERMS
186 Annual Report - 2016
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