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BASE PROSPECTUS
MAF GLOBAL SECURITIES LIMITED A9.4.1.1 (incorporated with limited liability in the Cayman Islands) A9.4.1.2 U.S.$2,000,000,000 A9.4.1.4 Global Medium Term Note Programme unconditionally and irrevocably guaranteed, on a joint and several basis, by MAJID AL FUTTAIM HOLDING LLC (incorporated with limited liability in the Emirate of Dubai, United Arab Emirates) and MAJID AL FUTTAIM PROPERTIES LLC (incorporated with limited liability in the Emirate of Dubai, United Arab Emirates) Under this U.S.$2,000,000,000 Global Medium Term Note Programme (the Programme), MAF Global Securities Limited (the Issuer) may from time to time issue notes (the Notes) denominated in any currency agreed between the Issuer and the relevant Dealer (as defined below). The payments of all amounts due in respect of the Notes will be unconditionally and irrevocably guaranteed, on a joint and several basis, by Majid Al Futtaim Holding LLC (MAF Holding) and Majid Al Futtaim Properties LLC (MAF Properties and, together with MAF Holding, the Guarantors and each a Guarantor). Notes may be issued in bearer or registered form (respectively Bearer Notes and Registered Notes). The maximum aggregate nominal amount of all Notes from time to time outstanding under the Programme will not exceed U.S.$2,000,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement described herein), subject to increase as described herein. The Notes may be issued on a continuing basis to one or more of the Dealers specified under “Overview of the Programme” and any additional Dealer appointed under the Programme from time to time by the Issuer (each a Dealer and together the Dealers), which appointment may be for a specific issue or on an ongoing basis. References in this Base Prospectus to the relevant Dealer shall, in the case of an issue of Notes being (or intended to be) subscribed by more than one Dealer, be to all Dealers agreeing to subscribe such Notes. An investment in Notes issued under the Programme involves certain risks. For a discussion of these risks see “Risk Factors”. Application has been made to the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets Act 2000 (the UK Listing Authority) for Notes issued under the Programme during the period of 12 months from the date of this Base Prospectus to be admitted to the official list of the UK Listing Authority (the Official List) and to the London Stock Exchange plc (the London Stock Exchange) for such Notes to be admitted to trading on the London Stock Exchange’s regulated market. References in this Base Prospectus to Notes being listed (and all related references) shall mean that such Notes have been admitted to trading on the London Stock Exchange’s regulated market and have been admitted to the Official List. The London Stock Exchange’s regulated market is a regulated market for the purposes of Directive 2004/39/EC (the Markets in Financial Instruments Directive). The Programme provides that Notes may be listed or admitted to trading, as the case may be, on such other or further stock exchanges or markets as may be agreed between the Issuer, the Guarantors and the relevant Dealer. The Issuer may also issue unlisted Notes and/or Notes not admitted to trading on any market. Notice of the aggregate nominal amount of Notes, interest (if any) payable in respect of Notes, the issue price of Notes and any other terms and conditions not contained herein which are applicable to each Tranche (as defined under “Terms and Conditions of the Notes”) of Notes will be set out in a final terms document (the Final Terms), which, with respect to Notes to be listed on the London Stock Exchange, will be delivered to the UK Listing Authority and the London Stock Exchange. The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act) or any U.S. State securities laws and may not be offered or sold in the United States or to, or for the account or the benefit of, U.S. persons (as defined in the Securities Act) unless an exemption from the registration requirements of the Securities Act is available and the offer and sale is made in accordance with all applicable securities laws of any state of the United States and any other jurisdiction. See “Form of the Notes” for a description of the manner in which Notes will be issued. Registered Notes are subject to certain restrictions on transfer, see “Subscription and Sale and Transfer and Selling Restrictions”. The Issuer and the Guarantors may agree with any Dealer and the Trustee (as defined herein) that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes herein, in which event a supplemental Base Prospectus, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Notes. The rating of certain Series (as defined under “Terms and Conditions of the Notes”) of Notes to be issued under the Programme may be specified in the applicable Final Terms. Whether or not each credit rating applied for in relation to relevant Series of Notes will be issued by a credit rating agency established in the European Union and registered under Regulation (EC) No. 1060/2009 (the CRA Regulation) will be disclosed in the Final Terms. Arrangers Barclays Capital Emirates NBD Bank PJSC Standard Chartered Bank Dealers Barclays Capital Citi CRÉDIT AGRICOLE CIB Emirates NBD Bank PJSC HSBC J.P. Morgan National Bank of Abu Dhabi Standard Chartered Bank
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This Base Prospectus comprises a base prospectus for the purposes of Article 5.4 of Directive 2003/71/EC (the Prospectus Directive).
The Issuer and each of the Guarantors accepts responsibility for the information contained in this A12.1.1 Base Prospectus. To the best of the knowledge of the Issuer and the Guarantors (each having taken all A12.1.2 reasonable care to ensure that such is the case) the information contained in this Base Prospectus is in A13.1.1 accordance with the facts and does not omit anything likely to affect the import of such information. A13.1.2 A9.1.1 Each Tranche of Notes will be issued on the terms set out herein under “Terms and Conditions of the A9.1.2 Notes” as supplemented by the applicable Final Terms. This Base Prospectus must be read and construed together with any supplements hereto, and, in relation to any Tranche of Notes, the applicable Final Terms.
Subject as provided in the applicable Final Terms, the only persons authorised to use this Base Prospectus in connection with an offer of Notes are the persons named in the applicable Final Terms as the relevant Dealer or the Managers, as the case may be.
Copies of Final Terms will be available from the registered office of the Issuer and the specified office set out below of each of the Paying Agents (as defined below).
Certain information under the headings “Description of the Group” and “Book-entry Clearance A9.13.2 Systems” has been extracted from information provided by Retail Planet, 2010 and the Dubai Department of Tourism and Commerce Marketing (in the case of “Description of the Group”) and the clearing systems referred to therein (in the case of “Book-entry Clearance Systems”) and, in each case, the source of such information is specified where it appears under those headings. The Issuer and each of the Guarantors confirms that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by the relevant sources referred to, no facts have been omitted which would render the reproduced information inaccurate or misleading.
Neither the Dealers nor the Trustee have independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Dealers or the Trustee as to the accuracy or completeness of the information contained in this Base Prospectus or any other information provided by the Issuer or the Guarantors in connection with the Programme. No Dealer or the Trustee accepts any liability in relation to the information contained in this Base Prospectus or any other information provided by the Issuer or the Guarantors in connection with the Programme.
No person is or has been authorised by the Issuer, the Guarantors, the Dealers or the Trustee to give any information or to make any representation not contained in or not consistent with this Base Prospectus or any other information supplied in connection with the Programme or the Notes and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer, either of the Guarantors, any of the Dealers or the Trustee.
Neither this Base Prospectus nor any other information supplied in connection with the Programme or any Notes (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a recommendation by the Issuer, either of the Guarantors, any of the Dealers or the Trustee that any recipient of this Base Prospectus or any other information supplied in connection with the Programme or any Notes should purchase any Notes. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer and/or the Guarantors. Neither this Base Prospectus nor any other information supplied in connection with the Programme or the issue of any Notes constitutes an offer or invitation by or on behalf of the Issuer, either of the Guarantors, any of the Dealers or the Trustee to any person to subscribe for or to purchase any Notes.
Neither the delivery of this Base Prospectus nor the offering, sale or delivery of any Notes shall in any circumstances imply that the information contained herein concerning the Issuer, and/or the Guarantors is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Programme is correct as of any time subsequent to the date indicated in the
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document containing the same. The Dealers and the Trustee expressly do not undertake to review the financial condition or affairs of the Issuer or either of the Guarantors during the life of the Programme or to advise any investor in the Notes of any information coming to their attention.
This Base Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Base Prospectus and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Issuer, the Guarantors, the Dealers and the Trustee do not represent that this Base Prospectus may be lawfully distributed, or that any Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Guarantors, the Dealers or the Trustee which is intended to permit a public offering of any Notes or distribution of this Base Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Base Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Base Prospectus or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Base Prospectus and the offering and sale of Notes. In particular, there are restrictions on the distribution of this Base Prospectus and the offer or sale of Notes in the United States, the European Economic Area (including the United Kingdom), the Cayman Islands, Japan, the United Arab Emirates (excluding the Dubai International Financial Centre), the Dubai International Financial Centre, the Kingdom of Saudi Arabia, the Kingdom of Bahrain, the State of Qatar, Singapore and Hong Kong, see “Subscription and Sale and Transfer and Selling Restrictions”.
This Base Prospectus has been prepared on the basis that any offer of Notes in any Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) will be made pursuant to an exemption under the Prospectus Directive, as implemented in that Relevant Member State, from the requirement to publish a prospectus for offers of Notes. Accordingly any person making or intending to make an offer in that Relevant Member State of Notes which are the subject of an offering contemplated in this Base Prospectus as completed by Final Terms in relation to the offer of those Notes may only do so in circumstances in which no obligation arises for the Issuer, the Guarantors or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive, in each case, in relation to such offer. Neither the Issuer nor any Dealer have authorised, nor do they authorise, the making of any offer of Notes in circumstances in which an obligation arises for the Issuer or any Dealer to publish or supplement a prospectus for such offer.
In making an investment decision, investors must rely on their own independent examination of the Issuer and each of the Guarantors and the terms of the Notes being offered, including the merits and risks involved. The Notes have not been approved or disapproved by the United States Securities and Exchange Commission or any other securities commission or other regulatory authority in the United States, nor have the foregoing authorities approved this Base Prospectus or confirmed the accuracy or determined the adequacy of the information contained in this Base Prospectus. Any representation to the contrary is unlawful.
None of the Dealers, the Issuer, the Guarantors or the Trustee makes any representation to any investor in the Notes regarding the legality of its investment under any applicable laws. Any investor in the Notes should be able to bear the economic risk of an investment in the Notes for an indefinite period of time.
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U.S. INFORMATION
This Base Prospectus is being submitted on a confidential basis in the United States to a limited number of QIBs and Institutional Accredited Investors (each as defined under “Form of the Notes”) for informational use solely in connection with the consideration of the purchase of certain Notes issued under the Programme. Its use for any other purpose in the United States is not authorised. It may not be copied or reproduced in whole or in part nor may it be distributed or any of its contents disclosed to anyone other than the prospective investors to whom it is originally submitted.
Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to United States persons, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code and the regulations promulgated thereunder.
Registered Notes may be offered or sold within the United States only to QIBs or to Institutional Accredited Investors, in either case in transactions exempt from registration under the Securities Act in reliance on Rule 144A under the Securities Act (Rule 144A) or pursuant to any other applicable exemption. Each U.S. purchaser of Registered Notes is hereby notified that the offer and sale of any Registered Notes to it may be being made in reliance upon the exemption from the registration requirements of Section 5 of the Securities Act provided by Rule 144A.
Purchasers of Definitive IAI Registered Notes (as defined under “Form of the Notes” below), will be required to execute and deliver an IAI Investment Letter (as defined under “Terms and Conditions of the Notes”). Each purchaser or holder of Definitive IAI Registered Notes, Notes represented by a Rule 144A Global Note or any Notes issued in registered form in exchange or substitution therefor (together Legended Notes) will be deemed, by its acceptance or purchase of any such Legended Notes, to have made certain representations and agreements intended to restrict the resale or other transfer of such Notes as set out in “Subscription and Sale and Transfer and Selling Restrictions”. Unless otherwise stated, terms used in this paragraph have the meanings given to them in “Form of the Notes”.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
CIRCULAR 230 DISCLOSURE
TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE US INTERNAL REVENUE SERVICE, ANY TAX DISCUSSION HEREIN WAS NOT WRITTEN AND IS NOT INTENDED TO BE USED AND CANNOT BE USED BY ANY TAXPAYER FOR PURPOSES OF AVOIDING US FEDERAL INCOME TAX PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER. ANY SUCH TAX DISCUSSION WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE NOTES DESCRIBED HEREIN. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER.
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AVAILABLE INFORMATION
To permit compliance with Rule 144A in connection with any resales or other transfers of Notes that are “restricted securities” within the meaning of the Securities Act, the Issuer and each of the Guarantors have undertaken in the Trust Deed (as defined under “Terms and Conditions of the Notes”) to furnish, upon the request of a holder of such Notes or any beneficial interest therein, to such holder or to a prospective purchaser designated by him, the information required to be delivered under Rule 144A(d)(4) under the Securities Act if, at the time of the request, any of the Notes remain outstanding as “restricted securities” within the meaning of Rule 144(a)(3) of the Securities Act and none of the Issuer or the Guarantors is a reporting company under Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended, (the Exchange Act) or exempt from reporting pursuant to Rule 12g3-2(b) thereunder.
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
The Issuer is a corporation organised under the laws of the Cayman Islands. All or a substantial portion of the assets of the Issuer are located outside the United States. As a result, it may not be possible for investors to effect service of process outside the Cayman Islands upon the Issuer, or to enforce judgments against it obtained in courts outside the Cayman Islands predicated upon civil liabilities of the Issuer under laws other than Cayman Islands law, including any judgment predicated upon United States federal securities laws.
Each Guarantor is a corporation organised under the laws of the United Arab Emirates (the UAE). A substantial portion of the assets of each Guarantor is located outside the United States. As a result, it may not be possible for investors to effect service of process outside the UAE upon either Guarantor, or to enforce judgments against either Guarantor obtained in courts outside the UAE predicated upon civil liabilities of such Guarantor under laws other than UAE law, including any judgment predicated upon the civil liability provisions of the securities laws of the United States or any state or territory within the United States. The Notes and the Guarantee (as defined under “Terms and Conditions of the Notes”) are governed by English law and disputes in respect of them may be settled by arbitration under the LCIA Arbitration Rules in London, England. In addition, actions in respect of the Notes and the Guarantee may be brought in the English courts.
In the absence of any bilateral treaty for the reciprocal enforcement of foreign judgments, the Dubai courts are unlikely to enforce an English judgment without re-examining the merits of the claim and may not observe the choice by the parties of English law as the governing law of the Notes and the Guarantee. Investors may have difficulties in enforcing any English judgments or arbitration awards against the Issuer or either Guarantor in the courts of Dubai, see “Risk Factors—Factors which are Material for the Purpose of Assessing the Market Risks Associated with Notes Issued under the Programme—Risks Relating to Enforcement”.
NOTICE TO BAHRAIN RESIDENTS
The Central Bank of Bahrain and the Bahrain Stock Exchange assume no responsibility for the accuracy and completeness of the statements and information contained in this Base Prospectus and expressly disclaim any liability whatsoever for any loss howsoever arising from reliance upon the whole or any part of the contents of this Base Prospectus. Each potential investor intending to subscribe for Notes on the Issue Date of such Notes (each, a potential investor) may be required to provide satisfactory evidence of identity and, if so required, the source of funds to purchase the Notes within a reasonable time period determined by the Issuer, the Guarantors and the relevant Dealers. Pending the provision of such evidence, an application to subscribe Notes will be postponed. If a potential investor fails to provide satisfactory evidence within the time specified, or if a potential investor provides evidence but none of the Issuer, the Guarantors or the relevant Dealers are satisfied therewith, its application to subscribe Notes may be rejected in which event any money received by way of application will be returned to the potential investor (without any additional amount added thereto and at the risk and expense of such potential investor). In respect of any potential investors,
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the Issuer and the Guarantors will comply with Bahrain’s Legislative Decree No. (4) of 2001 with respect to Prohibition and Combating of Money Laundering and various Ministerial Orders issued thereunder including, but not limited to, Ministerial Order No. (7) of 2001 with respect to Institutions’ Obligations Concerning the Prohibition and Combating of Money Laundering.
KINGDOM OF SAUDI ARABIA NOTICE
This Base Prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations issued by the Capital Market Authority of the Kingdom of Saudi Arabia (the Capital Market Authority).
The Capital Market Authority does not make any representations as to the accuracy or completeness of this Base Prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this Base Prospectus. Prospective purchasers of Notes issued under the Programme should conduct their own due diligence on the accuracy of the information relating to the Notes. If a prospective purchaser does not understand the contents of this Base Prospectus he or she should consult an authorised financial adviser.
NOTICE TO STATE OF QATAR RESIDENTS
The Notes have not been and will not be offered, sold or delivered at any time, directly or indirectly, in the State of Qatar in a manner that would constitute a public offering. This Base Prospectus has not been reviewed or approved by or registered with the Qatar Central Bank, the Qatar Exchange or the Qatar Financial Markets Authority. This Base Prospectus is strictly private and confidential, and may not be reproduced or used for any other purpose, nor provided to any person other than the recipient thereof.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
PRESENTATION OF GROUP FINANCIAL INFORMATION
The financial statements relating to the Group (as defined below) included in this document are as follows: • audited consolidated financial statements as at and for the financial year ended 31 December 2010 of MAF Holding (previously known as Majid Al Futtaim Group LLC) (the 2010 Group Financial Statements); and • audited consolidated financial statements as at and for the financial year ended 31 December 2009 of MAF Holding (previously known as Majid Al Futtaim Group LLC) (the 2009 Group Financial Statements and, together with the 2010 Group Financial Statements, the Group Financial Statements).
The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (the IASB). The Group Financial Statements have been audited in accordance with International Standards on Auditing by KPMG Lower Gulf Limited (KPMG) without qualification. The Group publishes its financial statements in UAE dirham.
In July 2010, MAF Holding entered into an agreement with Majid Al Futtaim Trust LLC, a company under common control with MAF Holding, to dispose of its wholly-owned subsidiary Majid Al Futtaim Asset Management Holdings LLC (MAFAM) for AED 22 million. The business of MAFAM was not treated as a discontinued operation in the 2009 Group Financial Statements but was so treated in the comparative statement of comprehensive income for 2009 included in the 2010 Group Financial Statements, in order to show the discontinued operations separately from the continuing operations.
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The table below summarises the discontinued operations in 2009: Year ended 31 December 2009 –––––––––– (AED thousands)
Revenue ...... 70,848 Operating expenses ...... (47,671) Profit for the year from discontinued operations ...... 23,177
No equivalent changes were made in the 2009 Group Financial Statements and investors should be aware that, to the extent identified above, the 2009 Group Financial Statements are not comparable with the 2010 Group Financial Statements. All financial information as at and for the year ended 31 December 2009 relating to the Group and included in this document (save for that set out in the 2009 Group Financial Statements included in this document on pages F-61 to F-104) has been extracted from the 2010 Group Financial Statements.
PRESENTATION OF MAF PROPERTIES FINANCIAL INFORMATION
The financial statements relating to MAF Properties included in this document are as follows: • audited consolidated financial statements as at and for the financial year ended 31 December 2010 of MAF Properties (the 2010 MAF Properties Financial Statements); and • audited consolidated financial statements as at and for the financial year ended 31 December 2009 of MAF Properties (the 2009 MAF Properties Financial Statements and, together with the 2010 MAF Properties Financial Statements, the MAF Properties Financial Statements).
The MAF Properties Financial Statements have been prepared in accordance with IFRS. The MAF Properties Financial Statements have been audited in accordance with International Standards on Auditing by KPMG without qualification. MAF Properties publishes its financial statements in UAE dirham.
In the 2010 MAF Properties Financial Statements, MAF Properties made the following reclassifications: • certain fixed utility recoveries of AED 35 million were reclassified from revenue to be offset against expenses; • reclassified certain other expenses to impairment losses; and • reclassified a receivable balance from due from related parties to investment in joint ventures and associates as it was considered part of the investment.
As a result, similar reclassifications were made in the comparable financial statements as at and for the year ended 31 December 2009 included in the 2010 MAF Properties Financial Statements. The table below shows the effect of these reclassifications:
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Consolidated income statement Year ended 31 December 2009 ––––––––––––––––––––––––––––– After Before reclassification reclassification ––––––––––––– ––––––––––––– (AED thousands) Revenue...... 1,823,805 1,858,823 Operating expenses...... (1,292,855) (1,328,079) Other (expenses)/income – net ...... 8,247 7,508 Impairment loss...... 75,715 74,770
Consolidated statement of financial position As at 31 December 2009 ––––––––––––––––––––––––––––– After Before reclassification reclassification ––––––––––––– ––––––––––––– (AED thousands) Investment in joint ventures and associate ...... 1,620,266 1,609,656 Due from related parties ...... 651,153 661,763
Consequential changes were also made in the statement of cash flows for the year ended 31 December 2009 included in the 2010 MAF Properties Financial Statements.
No equivalent changes were made in the 2009 MAF Properties Financial Statements and investors should be aware that, to the extent identified above, the 2009 MAF Properties Financial Statements are not comparable with the 2010 MAF Properties Financial Statements. All financial information as at and for the year ended 31 December 2009 relating to MAF Properties and included in this document (save for that set out in the 2009 MAF Properties Financial Statements included in this document on pages F-160 to F-211) has been extracted from the 2010 MAF Properties Financial Statements.
EBITDA
In certain places within this document, reference is made to EBITDA. EBITDA is not an IFRS measure. As referred to in this document, the Group has calculated EBITDA for each period as profit for the year after adding back extraordinary items, interest, tax, depreciation and amortisation.
EBITDA should not be considered as an alternative measure to operating profit, as an indicator of operating performance, as an alternative to operating cash flows or as a measure of the Group’s or any other company’s liquidity. EBITDA as presented in this document may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated.
EBITDA has important limitations as an analytical tool and should not be considered in isolation from, or as a substitute for an analysis of, the Group’s or any other company’s operating results as reported under IFRS. Some of the limitations are: • EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments; • EBITDA does not reflect changes in, or cash requirements for, working capital needs; • EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on debt; • although depreciation and amortisation are non-cash charges, the assets being depreciated and amortised will often have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and
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• other companies may calculate EBITDA differently, limiting its usefulness as a comparative measure.
PRESENTATION OF OTHER INFORMATION
In this document, references to: • Carrefour (when referring to the Group’s joint venture agreement with Carrefour) are to Carrefour France SA and Carrefour Nederland BV and (when referring to the Group’s stores) include reference to the Group’s Carrefour stores in Iran and Pakistan which are branded as “Hyperstar”; • Group are to MAF Holding and its consolidated subsidiaries, associates and joint ventures; • MAF Retail are to Majid Al Futtaim Retail LLC and, unless the context does not permit, include its subsidiaries; • MAF Properties, unless the context does not permit, include its subsidiaries; • MAF Ventures are to Majid Al Futtaim Ventures LLC and, unless the context does not permit, include its subsidiaries; • Abu Dhabi, Dubai, Sharjah, Fujairah and Ajman are to the Emirates of Abu Dhabi, Dubai, Sharjah, Fujairah and Ajman, respectively; • the MENA region are to the Middle East and North Africa region and include Pakistan in this document; • U.S.$ or U.S. dollars are to the lawful currency of the United States; and • AED, dirham or fils are to the lawful currency of the UAE. One dirham equals 100 fils. The dirham has been pegged to the U.S. dollar since 22 November 1980. The mid point between the official buying and selling rates for the dirham is at a fixed rate of AED 3.6725 = U.S.$1.00. All U.S.$ translations of dirham amounts appearing in this document have been translated at this fixed exchange rate. Such translations should not be construed as representations that dirham amounts have been or could be converted into U.S. dollars at this or any other rate of exchange.
Certain figures and percentages included in this Base Prospectus have been subject to rounding adjustments; accordingly figures shown in the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Some statements in this Base Prospectus may be deemed to be forward looking statements. Forward looking statements include statements concerning the Guarantors’ plans, objectives, goals, strategies, future operations and performance and the assumptions underlying these forward looking statements. When used in this Base Prospectus, the words “anticipates”, “estimates”, “expects”, “believes”, “intends”, “plans”, “aims”, “seeks”, “may”, “will”, “should” and any similar expressions generally identify forward looking statements. These forward looking statements are contained in the sections entitled “Risk Factors”, “Group Financial Review”, “MAF Properties Financial Review“ and “Description of the Group” and other sections of this Base Prospectus. The Guarantors have based these forward looking statements on the current view of their management with respect to future events and financial performance. Although each of the Guarantors believes that the expectations, estimates and projections reflected in its forward looking statements are reasonable as of the date of this Base Prospectus, if one or more of the risks or uncertainties materialise, including those identified below or which the Guarantors have otherwise identified in this Base Prospectus, or if any of the Guarantors’ underlying assumptions prove to be incomplete or inaccurate, the Guarantors’ actual results of operation may vary from those expected, estimated or predicted. Investors are therefore strongly advised to read the sections “Risk Factors”, “Group Financial Review”, “MAF Properties
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Financial Review” and “Description of the Group”, which include a more detailed description of the factors that might have an impact on the Group's business development and on the industry sector in which the Group operates.
The risks and uncertainties referred to above include: • each Guarantor’s ability to successfully manage the growth of its business; • the economic and political conditions in the markets in the UAE and the wider region in which the Guarantors operate; • each Guarantor’s ability to realise the benefits it expects from existing and future projects and investments it is undertaking or plans to or may undertake; • each Guarantor’s ability to obtain external financing or maintain sufficient capital to fund its existing and future investments and capital expenditures; • changes in political, social, legal or economic conditions in the markets in which the Guarantors and their respective customers operate; and • actions taken by each Guarantor’s respective joint venture partners that may not be in accordance with its policies and objectives.
Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under “Risk Factors”.
Any forward looking statements contained in this Base Prospectus speak only as at the date of this Base Prospectus. Without prejudice to any requirements under applicable laws and regulations (including, without limitation, the UKLA’s Prospectus Rules, Listing Rules and Disclosure and Transparency Rules), each of the Guarantors expressly disclaims any obligation or undertaking to disseminate after the date of this Base Prospectus any updates or revisions to any forward looking statements contained herein to reflect any change in expectations thereof or any change in events, conditions or circumstances on which any such forward looking statement is based.
CREDIT RATING AGENCIES
Each of Standard & Poor’s Credit Market Services Europe Limited (S&P) and Fitch Ratings Ltd. (Fitch) has rated MAF Holding.
S&P is established in the European Union and has applied for registration under Regulation (EC) No. 1060/2009, although notification of the corresponding registration decision has not yet been provided by the relevant competent authority.
Fitch is established in the European Union and has applied for registration under Regulation (EC) No. 1060/2009, although notification of the corresponding registration decision has not yet been provided by the relevant competent authority.
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TABLE OF CONTENTS
Page Risk Factors ...... 12
Overview of the Programme ...... 33
Form of the Notes ...... 38
Terms and Conditions of the Notes ...... 57
Use of Proceeds ...... 97
Description of the Issuer ...... 98
Summary of Group Financial Information ...... 99
Group Financial Review ...... 103
Summary of MAF Properties Financial Information ...... 118
MAF Properties Financial Review...... 121
Description of the Group ...... 132
Book-Entry Clearance Systems ...... 165
Taxation ...... 169
Subscription and Sale and Transfer and Selling Restrictions ...... 171
General Information...... 180
Financial Information...... F-1
In connection with the issue of any Tranche of Notes, the Dealer or Dealers (if any) named as the Stabilising Manager(s) (or persons acting on behalf of any Stabilising Manager(s)) in the applicable Final Terms may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or persons acting on behalf of a Stabilising Manager) will undertake stabilisation action. Any stabilisation action or over-allotment may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilising Manager(s) (or persons acting on behalf of any Stabilising Manager(s)) in accordance with all applicable laws and rules.
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RISK FACTORS A9.3.1 A12.2 Each of the Issuer and the Guarantors believes that the following factors may affect its ability to fulfil its A13.2 obligations under Notes issued under the Programme. All of these factors are contingencies which may or may not occur and neither the Issuer nor either Guarantor is in a position to express a view on the likelihood of any such contingency occurring. In addition, factors which are material for the purpose of assessing the market risks associated with Notes issued under the Programme are also described below. If any of the risks described below actually materialise, the Issuer, the Guarantors and/or the Group’s business, financial condition, results of operations and prospects could be materially adversely affected. If that were to happen, the trading price of the Notes could decline and investors could lose all or part of their investment. Each of the Issuer and the Guarantors believes that the factors described below represent all the material risks inherent in investing in Notes issued under the Programme, but the inability of the Issuer or either Guarantor to pay interest, principal or other amounts on or in connection with any Notes may occur for other reasons which may not be considered significant risks by the Issuer and the Guarantors based on information currently available to them or which they may not currently be able to anticipate. Prospective investors should also read the detailed information set out elsewhere in this Base Prospectus and reach their own views prior to making any investment decision.
FACTORS THAT MAY AFFECT THE ISSUER’S ABILITY TO FULFIL ITS OBLIGATIONS UNDER NOTES ISSUED UNDER THE PROGRAMME The Issuer has a limited operating history
The Issuer is a company with limited liability incorporated under the laws of the Cayman Islands on 12 May 2011 and, accordingly, only has a limited operating history. The Issuer will not engage in any business activity other than the issuance of Notes under this Programme and other borrowing programmes established from time to time by the Guarantors, the making of loans to one or both of the Guarantors or other companies controlled by the Guarantors and other activities incidental or related to the foregoing. The Issuer is not expected to have any income but will receive payments from the Guarantors and/or from other companies controlled by the Guarantors in respect of loans made by the Issuer to those companies, which will be the only material sources of funds available to meet the claims of the holders of the Notes (the Noteholders). As a result, the Issuer is subject to all the risks to which the Guarantors are subject, to the extent that such risks could limit their ability to satisfy in full and on a timely basis their respective obligations to the Issuer under any such loans. See “—Risks Relating to the Group”, “—Risks Relating to MAF Properties”, “—Risks Relating to MAF Retail” and “—Risks Relating to MAF Ventures” for a further description of certain of these risks.
RISKS RELATING TO THE GROUP
The risks set out below apply to all of the Group’s businesses. In addition, certain specific risks apply to the particular businesses carried on by MAF Properties, MAF Retail and MAF Ventures and these are discussed separately below.
All of the Group’s businesses are affected by the economic and political conditions in the markets in which they operate
All of the Group businesses are, and will continue to be, affected by economic and political developments in or affecting the UAE and the MENA region. The Group currently has a significant proportion of its operations and interests in the UAE, with a particular focus on Dubai. While the UAE is currently seen as a relatively stable political environment, certain other jurisdictions in the Middle East are not and there is no guarantee that the UAE will continue to be so in the future. In particular, since early 2011 there has been
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political unrest in a range of countries in the MENA region, including Algeria, Bahrain, Egypt, Libya, Oman, Saudi Arabia, Syria, Tunisia and Yemen. This unrest has ranged from public demonstrations to, in extreme cases, armed conflict and has given rise to increased political uncertainty across the region. Unrest in Egypt and Bahrain directly impacted the Group, forcing the closure of some properties in Egypt for up to 60 days and the closure of its shopping mall in Bahrain for five days. In addition, continuing unrest in Syria may disrupt MAF retail’s operations in Syria or cause delays in the construction of MAF Properties’ mixed use development (which includes a shopping mall and three hotels) outside Damascus. It is not possible to predict the occurrence of events or circumstances such as war or hostilities, or the impact of such occurrences, and no assurance can be given that the Group would be able to sustain its current profit levels if adverse political events or circumstances were to occur.
Since early 2008, global credit markets, particularly in the United States and Europe, have experienced difficult conditions of varying intensity. These challenging market conditions have resulted at times in reduced liquidity, greater volatility, widening of credit spreads and lack of price transparency in credit markets. In addition, since late 2008, property and construction markets in the UAE and a number of other countries in the MENA region have been significantly adversely affected. As a result, in 2009 the fair values of the Group’s properties were adversely affected which in turn resulted in a total comprehensive loss for the Group in that year. The Group could be adversely affected in the future by any deterioration of general economic conditions in the markets in which the Group operates, as well as by United States and international trading market conditions and/or related factors.
Investors should also note that the Group’s business and financial performance could be adversely affected by political, economic or related developments both within and outside the MENA region because of inter- relationships within the global financial markets.
Economic and/or political factors which could adversely affect the Group’s business, financial condition, results of operations and prospects include: • regional political instability, including government or military regime change, riots or other forms of civil disturbance or violence, including through acts of terrorism; • military strikes or the outbreak of war or other hostilities involving nations in the region; • a material curtailment of the industrial and economic infrastructure development that is currently underway across the MENA region; • government intervention, including expropriation or nationalisation of assets or increased levels of protectionism; • an increase in inflation and the cost of living; • cancellation of contractual rights, expropriation of assets and/or inability to repatriate profits and/or dividends; • increased government regulations, or adverse governmental activities, with respect to price, import and export controls, the environment, customs and immigration, capital transfers, foreign exchange and currency controls, labour policies and land and water use and foreign ownership; • arbitrary, inconsistent or unlawful government action; • changing tax regimes, including the imposition of taxes in tax favourable jurisdictions such as the UAE; • difficulties and delays in obtaining governmental and other approvals for the Group’s operations or renewing existing ones; • potential lack of reliability as to title to real property in certain jurisdictions in which the Group operates; and • inability to repatriate profits or dividends.
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There can be no assurance that either the economic performance of, or political stability in, the countries in which the Group currently operates or may in the future operate can or will be sustained. To the extent that economic growth or performance in these countries or the MENA region as a whole slows or begins to decline, or political conditions become sufficiently unstable to adversely affect the Group’s operations in those countries, the Group’s business, financial condition, results of operations and prospects may be adversely affected.
The Group’s businesses are inter-dependent to a significant extent and this could increase its exposure to adverse events affecting any part of its business
The Group’s businesses are inter-dependent to a significant extent and will be affected by factors that impact the retail industry as a whole, see “—Risks Relating to MAF Retail”. For example, the financial performance of the Group’s hypermarkets, other retail businesses, leisure and entertainment businesses and hotels are, in large part, dependent on the ability of the shopping malls in or close to which they are located to attract footfall. Conversely, the success of the Group’s shopping malls is, to an extent, dependent on the extent to which its other businesses located in or close to the shopping malls act as an incentive to potential customers to visit the malls. As a result of this inter-dependence, adverse events affecting one part of the Group’s business could also impact other parts of the business and therefore have a materially greater effect on the Group’s business, financial condition, results of operations and prospects than would otherwise have been the case.
As the Group derives the majority of its revenue and EBITDA from its activities in the UAE, it is particularly exposed to any adverse developments affecting the UAE and Dubai in particular
For the year ended 31 December 2010, 53.4 per cent. of the Group’s revenue and 70.5 of the Group’s EBITDA were attributable to its operations in the UAE, principally Dubai. This reflects the fact that a significant proportion of the Group’s malls and Carrefour stores and all of its currently operating hotels are located in the UAE. In part, this is due to the fact that Dubai is a significant tourist destination. As a result, the Group is particularly exposed to adverse events affecting the UAE and Dubai in particular, including events which impact on Dubai’s attractiveness as a tourist destination and to the occurrence of factors that result in a decline in consumer spending in the UAE, such as a downturn in general economic conditions, an increase in the cost of living, an increase in unemployment or a decline in tourism or business travel to Dubai. The occurrence of any or all of these factors could have an adverse effect on the Group’s business, financial condition, results of operations and prospects.
The Group’s growth strategy depends on its ability to successfully manage this growth
The Group’s strategy of continuing to expand its existing operations in its target markets is dependent on a number of factors. These include its ability to: • identify suitable investments and/or development opportunities; • reach agreements with joint venture and strategic partners on terms satisfactory to it; • maintain, expand or develop relationships with customers, suppliers, contractors, lenders and other third parties; • increase the scope of its operational and financial systems to handle the increased complexity and expanded geographic area of operations; • secure adequate financing on commercially reasonable terms; • recruit, train and retain qualified staff to manage its growing business efficiently and without losing operational focus; and • obtain necessary permits or approvals from governmental authorities and agencies.
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These efforts will require significant capital and management resources, further development of the Group’s financial and internal controls and information technology (IT) systems, and additional training and recruitment of management and other key personnel. At the same time, the Group must maintain a consistent level of customer service across its operations to avoid loss of business or damage to its reputation. Any failure by the Group to manage its growth effectively could have a material adverse effect on its business, financial condition, results of operations and prospects.
The Group’s businesses face significant competition in the markets in which they operate
Many of the markets in which the Group operates are highly competitive. In particular, the Group faces increased shopping mall and hotel competition in Dubai, where the majority of its business is concentrated. The population growth of Dubai from 1.4 million in 2005 to an estimated 1.8 million in 2008, along with the growth in business and leisure travel to Dubai, contributed to the opening and announced development of a number of new shopping malls and hotels over this period. The global financial crisis and associated decline in the property and construction market in the UAE since the end of 2008 has placed additional competitive pressure on these businesses. The Group’s Carrefour stores also face significant competition in many of the markets in which the Group operates, including the UAE and Saudi Arabia in particular.
Factors affecting the competitive environment in which the Group operates include, among others: • certain of the Group’s competitors may have greater financial, technical, marketing or other resources and, therefore, may be able to withstand price competition and volatility more successfully than the Group; • some of the Group’s competitors may have a lower cost of capital and access to funding sources that are not available to the Group, including in particular competitors that are controlled by regional governments, and, therefore, may be able to invest more heavily or effectively in their businesses than the Group; • in many of the markets in which the Group operates, government permission is required to operate businesses and local governments grant access to land and infrastructure. As some of the Group’s competitors are owned by the government of the countries in which they operate, they may benefit from preferential treatment; and • some of the Group’s competitors in markets outside the UAE may have a deeper cultural understanding or longer or broader operational experience in such markets, which may reduce the time and therefor the costs necessary for them to execute competing projects, and allow them to attract and retain customers more effectively than the Group.
If the Group is unable to compete effectively, it may not be able to achieve a market share that allows it to remain profitable or increase its market share in the markets in which it operates, which could have a material adverse effect on its business, financial condition, results of operations and prospects.
The countries in which the Group operates may introduce new laws and regulations that adversely affect the way in which the Group is able to conduct its businesses
The countries in which the Group operates are emerging market economies which are characterised by less comprehensive legal and regulatory environments. However, as these economies mature, and in part due to the desire of certain countries in the MENA region, in particular the UAE, to accede to the World Trade Organisation, the governments of these countries have begun, and the Group expects they will continue, to implement new laws and regulations which could impact the way the Group conducts many of its businesses. For example, in 2007, the Dubai, Sharjah and Ajman governments passed laws restricting the ability of landlords to increase commercial rents and, in 2008, the Oman government followed suit. In addition, the government of the UAE has announced the potential introduction of a value added tax to be implemented across the UAE. Other legislative changes could affect environmental issues. There can be no assurance that if a value added tax or other laws or regulations were imposed in respect of the products and services offered by the Group it would not adversely affect the way in which the Group conducts its business or otherwise
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adversely affect its financial condition, results of operations and prospects. In addition, given the relatively illiquid nature of the Group’s property assets, a change in law or regulation that results in the Group ceasing to conduct business in a particular country could result in a significant loss to the Group on the sale of its material properties in that country.
The Group operates in countries which are subject to international sanctions and any failure to comply with these sanctions could adversely affect the Group
European, U.S. and other international sanctions have in the past been imposed on companies engaging in certain types of transactions with specified countries or companies or individuals in those countries. Companies operating in certain countries in the Middle East and Africa have been subject to such sanctions in the past. The terms of legislation and other rules and regulations which establish sanctions regimes are often broad in scope and difficult to interpret.
As at the date of this Base Prospectus, no Group company is in violation of any existing European, U.S. or international sanctions. Should any Group company in the future violate any existing or further European, U.S. or international sanctions, penalties could include a prohibition or limitation on such company’s ability to conduct business in certain jurisdictions or on the Group’s ability to access the U.S. or international capital markets. Any such sanction could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
The Group has operations in Syria and Iran, each of which is a country that the US Department of Treasury’s Office of Foreign Assets Control has targeted for economic and trade sanctions. For the year ended 31 December 2010, the Group earned 3.6 per cent. and 0.8 per cent. of its revenue from customers in Iran and Syria, respectively. Should either country be the subject of further sanctions by the international community, this may lead to a deterioration in that country’s economic environment, which may in turn affect the profitability of the Group’s operations in that country.
The Group also has operations in Pakistan, which has, in recent times, been affected by terrorist activities. To the extent further terrorist acts are carried out, in particular in the cities where the Group has stores, this may adversely affect demand for its services or products in those areas, which may in turn have an adverse effect on its business, financial condition, results of operations and prospects.
Many of the Group’s businesses are subject to licensing requirements and any failure to obtain such licenses or to comply with their terms could adversely affect the Group’s businesses Many of the Group’s businesses are subject to licensing requirements, both at the local and national level. Because of the complexities involved in procuring licences and permits, as well as in ensuring continued compliance with different and sometimes inconsistent local and national licensing regimes, the Group cannot give any assurance that it will at all times be in compliance with all of the licensing requirements to which it is subject although it is not aware of any material breaches that currently exist. Any failure by the Group to comply with applicable laws and regulations and to obtain and maintain requisite approvals, certifications, permits and licences, whether intentional or unintentional, could lead to substantial sanctions, including criminal, civil or administrative penalties, revocation of its licences and/or increased regulatory scrutiny, and liability for damages. It could also trigger a default under one or more of its financing agreements or invalidate or increase the cost of the insurance that the Group maintains for its businesses (assuming it is covered for any consequential losses). For the most serious violations, it could also be forced to suspend operations until it obtains required approvals, certifications, permits or licences or otherwise brings its operations into compliance. In addition, any adverse publicity resulting from any compliance failure, particularly as regards the safety of its leisure and entertainment venues and the food sold in its Carrefour stores, could have a material adverse effect on the business, financial condition, results of operations and prospects of the Group. Furthermore, changes to existing, or the introduction of new, laws or regulations or licensing requirements are beyond the Group’s control and may be influenced by political or commercial considerations not aligned with its interests. Any such laws, regulations or licensing requirements could adversely affect its business by reducing its revenue and/or increasing its operating costs, and the Group may be unable to mitigate the
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impact of such changes. Any of these occurrences could have a material adverse effect on its business, financial condition, results of operations and prospects.
Group companies are party to a number of joint ventures and franchise arrangements which give rise to specific operational risks Group companies may enter into joint venture agreements for a number of reasons, including to gain access to land or where it is required to operate with a local partner in a particular jurisdiction. Joint venture transactions present certain operational risks, including the possibility that the joint venture partners may have economic, business or legal interests or goals that are inconsistent with those of the Group, may become bankrupt, may refuse to make additional investments that the Group deems necessary or desirable or may prove otherwise unwilling or unable to fulfil their obligations under the relevant joint venture agreements. In addition, there is a risk that such joint venture partners may ultimately become competitors of the Group. Many of the Group’s joint venture partners are governmental agencies which exposes the Group to additional risks, including the need to satisfy both political and regulatory demands and the need to react to differences in focus or priorities between successive governments, both of which can lead to delays in decision making, increased costs and greater exposure to competition. To the extent that the Group does not control a joint venture, the joint venture partners may take action that is not in accordance with Group policies or objectives. Should a joint venture partner act contrary to the Group’s interests, this could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. The Group’s ability to expand successfully through joint ventures will depend upon the availability of suitable and willing joint venture partners, the Group’s ability to consummate such transactions and the availability of financing on commercially acceptable terms. The Group cannot give any assurance that it will be successful in establishing any future joint ventures or that, once established, a joint venture will be profitable for the Group. If a joint venture is unsuccessful, the Group may be unable to recoup its initial investment and its financial condition and results of operations may be adversely affected.
The Group’s most significant joint venture is currently with Carrefour, see “Risks Relating to MAF Retail— MAF Retail is dependent on its relationship with Carrefour and the market perception of Carrefour”. Certain matters identified in this joint venture agreement require the approval of Carrefour, see “Description of the Group—MAF Retail—Agreements with Carrefour”.
The Group is party to a number of franchise agreements, of which the most important is the franchise agreement with Carrefour. As such, the Group is exposed to the risk of such agreements not being renewed when they expire and to the risk of non-performance by the relevant franchisor. One of the fashion brands for which the Group is a franchisee, Jane Norman, is currently controlled by a consortium of banks. It is uncertain whether this brand will be sold or become subject to receivership or other similar process.
Certain of the Group’s debt agreements contain restrictions that may limit the flexibility of the Group in operating its businesses
Certain of the Group’s debt agreements contain covenants that limit its ability to engage in specified types of transactions. These include covenants requiring the Group’s operating subsidiaries to maintain certain net worth, interest coverage and debt to equity ratios. Certain of the Group’s debt agreements also contain covenants limiting the Group’s and its operating subsidiaries’ ability to, among other things: • incur or guarantee additional financial indebtedness; • grant security or create any security interests; and • sell, lease, transfer or otherwise dispose of any of its assets without the consent of the relevant lender, unless the disposal is made in the ordinary course of business or to another Group company.
The Notes issued under the Programme will also contain covenants similar to certain of those described above, see Condition 4 of the Notes.
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In addition, certain of the Group’s outstanding debt contains, and its future debt may contain, cross default clauses whereby a default under one debt obligation may constitute an event of default under other debt obligations. Any of these covenants could prevent the Group from engaging in certain transactions that it may view as desirable.
A breach of any of these covenants would result in a default under the Group’s debt obligations in which the covenant is included, which may allow the lenders to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit. Any of these occurrences could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
As at 31 December 2010, the Group had no short-term borrowings apart from an AED 11 million bank overdraft. Approximately 20 per cent. of the Group’s existing long-term borrowings at 31 December 2010 fall due to be repaid within one year. To the extent that it needs to, there is no assurance that the Group will be able to refinance such maturing borrowings as they fall due on terms acceptable to it or at all.
As at 31 December 2010, the Group had AED 10,508 million in outstanding borrowings (excluding bank overdrafts). Of this amount, AED 5,126 million was borrowing which had the benefit of security, see “Group Financial Review—Liquidity and Borrowings”. As unsecured creditors, the claims of Noteholders will rank behind the claims of the Group’s secured creditors to the extent of the security granted.
The Group’s business may be adversely affected by changes in interest rates
Interest rates are highly sensitive to many factors beyond the Group’s control, including the interest rate and other monetary policies of governments and central banks in the jurisdictions in which it operates. As at 31 December 2010, almost all of the Group’s interest bearing loans and borrowings carried interest at floating rates. A hypothetical 1.0 per cent. increase in interest rates (assuming all other relevant factors remained constant) would have resulted in the Group’s pre tax loss increasing by AED 77.9 million in 2010. The Group’s interest-bearing loans and borrowings are subject to interest rate risk resulting from fluctuations in the relevant reference rates underlying such instruments. Consequently, any increase in such reference rates would result in an increase in the Group’s interest rate expense and could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. Although the Group seeks to hedge part of its interest rate risk, there can be no assurance that this hedging will be successful or will protect the Group fully against its interest rate risk.
Foreign exchange movements may adversely affect the Group's profitability
The Group maintains its accounts and reports its results in dirham, the currency in which the majority of its revenue is earned. A portion of the Group’s income and expenses are incurred in the currencies of other countries in the MENA region. As a result, the Group is exposed to movements in foreign exchange rates. Although there can be no assurance that foreign currency fluctuations will not adversely affect the Group’s results of operations in the future, the Group’s management believes that the Group is not currently subject to significant foreign exchange risk given the fact that the majority of its revenue and expenses is incurred in dirham or in currencies which, like the dirham, are pegged to the U.S. dollar at a fixed exchange rate. In relation to its other currency earnings and expenses, the Group’s management believes that its foreign exchange rate risk is reduced by the fact that to a large extent its revenue in a local currency is matched by its expenses being incurred in the same currency.
As at the date of this Base Prospectus, the dirham remains pegged to the U.S. dollar. However, there can be no assurance that the UAE government will not de-peg the dirham from the U.S. dollar, or alter the fixed exchange rate between the two currencies, in the future, which may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
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If the Group fails to attract and retain qualified and experienced employees, its businesses may be harmed
The Group’s ability to carry on and grow its businesses will depend, in part, on its ability to continue to attract, retain and motivate qualified and skilled personnel to manage its day-to-day operations. In particular, the Group depends on finance, technical and engineering staff at both middle management and senior management level. Experienced and capable personnel with these skill sets generally and in the industries in which the Group operates in particular remain in high demand, and there is significant competition in the MENA region for their talents. Consequently, when any such employees leave, the Group may have difficulty replacing them. In addition, the loss of key members of the Group’s senior management team or staff with institutional knowledge may result in: (i) a loss of organisational focus; (ii) poor execution of operations and the Group’s corporate strategy; and (iii) an inability to identify and execute potential strategic initiatives such as future investments and acquisitions. These adverse results could, among other things, reduce potential revenue, expose the Group to downturns in the markets in which it operates and/or otherwise adversely affect its business, financial condition, results of operations and prospects.
The Group’s businesses expose it to health and safety risks
Due to the people-based nature of its business, the Group’s operations are subject to health and safety risks, particularly in relation to its shopping malls and leisure and entertainment businesses. Although all of the shopping malls currently comply with applicable health and safety standards, there can be no assurance that a major health and safety hazard, such as a fire, will not occur. Given the high number of shoppers that visit the Group’s shopping malls on a daily basis, such an event could have serious consequences, particularly in the event of fatalities. Similarly, although the Group’s leisure and entertainment facilities also comply with currently applicable health and safety standards, there can be no assurance that the customers of these facilities will not engage in inappropriate behaviour, endangering their safety and the safety of others. Any of the foregoing incidents could expose the Group to material liability and adversely effect its reputation. All of these factors could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
The Group may not be able to secure full insurance coverage for the risks associated with the operation of its businesses
Management believes that the Group’s insurance coverage for all material aspects of its operations is comparable to that of other companies operating in the sectors and markets in which the Group operates. The Group’s operations may, however, be affected by a number of risks for which full insurance cover is either not available or not available on commercially reasonable terms. In addition, the severity and frequency of various other events, such as accidents and other mishaps, business interruptions or potential damage to its facilities, property and equipment caused by inclement weather, human error, pollution, labour disputes, natural catastrophes and other eventualities, may result in losses or expose the Group to liabilities in excess of its insurance coverage or significantly impair its reputation. There is no assurance that the Group’s insurance coverage will be sufficient to cover the loss arising from any or all such events or that it will be able to renew existing insurance cover on commercially reasonable terms, if at all.
Should an incident occur for which the Group has no, or insufficient, insurance cover, the Group could lose all or part of the capital invested in, and anticipated future revenues relating to, any property that is damaged or destroyed. Any of these occurrences could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.
The interests of the Group’s controlling shareholding may, in certain circumstances, be different from the interests of the Noteholders
The Group’s controlling shareholder is Mr Majid Al Futtaim who beneficially owns almost all of the shares in MAF Holding. As a result, Mr Al Futtaim is in a position to control the outcome of actions requiring shareholders’ approval and also has the ability to approve the election of all the members of the board of
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directors (the Board) of MAF Holding and thus influence Board decisions. The interests of Mr Al Futtaim may be different from those of the Group’s creditors (including the Noteholders).
During the ordinary course of business, Group companies may become subject to lawsuits which could materially and adversely affect the Group
From time to time, Group companies may in the ordinary course of business be named as defendant in lawsuits, claims and other legal proceedings. These actions may seek, among other things, compensation for alleged losses, civil penalties or injunctive or declaratory relief. In the event that any such action is ultimately resolved unfavourably at amounts exceeding the Group’s accrued liability, or at material amounts, the outcome could materially and adversely affect the Group’s business, financial condition, results of operations and prospects.
The Group has significant operations in emerging markets which are subject to greater risks than more developed markets, including significant political, social and economic risks
Almost all of the Group’s operations are conducted, and most of its assets are located in emerging markets. There is no assurance that any political, social, economic and market conditions affecting such countries and the MENA region generally would not have a material adverse impact on the Group’s business, financial condition, results of operations and prospects.
Any unexpected changes in the political, social, economic or other conditions in the countries in which the Group operates or neighbouring countries may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
Investors should also be aware that emerging markets are subject to greater risks than more developed markets, including in some cases significant legal, economic and political risks. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in developing markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved.
RISKS RELATING TO MAF PROPERTIES
MAF Properties’ business is capital intensive and it may not be able to raise sufficient capital to make all future investments and capital expenditures that it deems necessary or desirable
MAF Properties engages in projects which require a substantial amount of capital and other long-term expenditures, including the development of new shopping malls and hotels and mixed-use developments. The capital commitments associated with these projects generally significantly exceed MAF Properties’ cash inflows over the period of the project. In the past, these expenditures and investments have been financed through a variety of means, including internally-generated cash and external borrowings.
The Group’s ability to arrange external financing and the cost of such financing are dependent on numerous factors, including its future financial condition, general economic and capital market conditions, interest rates, credit availability from banks or other lenders or investors, lender and investor confidence in the Group’s businesses and the markets in which they operate, the credit rating assigned to the Group by credit rating agencies, applicable provisions of tax and securities laws, and political and economic conditions in any relevant jurisdiction. The Group cannot provide any assurance that it will be able to arrange any such external financing on commercially reasonable terms, if at all, and it may be required to secure financing with a lien over its assets and those of its subsidiaries and/or agree to contractual limitations on the operation of its businesses. The Group’s failure to obtain adequate funding as required to satisfy its contractual commitments could result in defaults on existing contracts, completion delays and damage to the Group’s reputation as a reliable contractual counterparty, and could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
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A significant proportion of MAF Properties’ and the Group’s assets at 31 December 2010 comprised real estate held either as property, plant and equipment or investment property. The valuation of these assets is inherently subjective, the values attributed to these assets may not accurately reflect their market value at any future date and they may be difficult to sell
The Group appoints an independent external Royal Institute of Chartered Surveyors (RICS) valuer to determine the fair value of its real estate assets as at 31 December in each year. However, real estate valuations are inherently subjective because they are made on the basis of assumptions that may prove to be incorrect. No assurance can be made that the valuations of the Group’s real estate assets will reflect actual sale prices, even where any such sale occurs shortly after the relevant valuation date. Significant differences between valuations and actual sales prices could have a material adverse effect on the financial condition and results of operations both of MAF Properties (which is the owner of the majority of the assets) and the Group as a whole.
Because real estate assets in general are relatively illiquid, the ability of MAF Properties to promptly sell one or more of its properties in response to changing political, economic, financial and investment conditions is limited. MAF Properties is susceptible to decreases in demand for commercial property in the MENA region, and in particular Dubai, given its exposure to the real estate market there. MAF Properties cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or whether it would be able to sell a property on commercially reasonable terms, if at all.
The success of MAF Properties’ business strategy and profitability depends upon its ability to locate and acquire or lease land suitable for development at attractive prices
MAF Properties’ growth and profitability to date have been attributable, in part, to its ability to locate and acquire or lease land at attractive prices, and the success of MAF Properties’ business strategy and future profitability depends upon its continued ability to do so. Many of MAF Properties’ most significant competitors are owned by the government of the countries in which they operate and, therefore, they may be accorded preferential treatment when acquiring land. In the past, MAF Properties has been able to acquire land suitable for its planned shopping malls, hotels and other developments, but there can be no assurance that it will continue to be able to acquire land suitable for development in the future at attractive prices. In addition, MAF Properties faces the risk that competitors may anticipate and capitalise on certain potential investment opportunities in advance of MAF Properties doing so, which could adversely affect its business and the business, financial condition, results of operations and prospects of the Group as a whole.
The MENA region in which MAF Properties operates is characterised by a lack of real estate transparency
According to a real estate transparency survey conducted by Jones Lang LaSalle in 2010, the real estate markets in which MAF Properties operates are categorised as semi-transparent (Dubai, Bahrain, Jordan and Abu Dhabi), low-transparent (Saudi Arabia, Egypt, Oman, Qatar, Kuwait and Pakistan) or opaque (Syria). The degree of transparency of a real estate market is determined by reference to a number of factors, including comparable transactions, accessibility of information relating to counterparties and land title, reliability of market data, clarity of regulations relating to all matters of real estate conveyance and access to government agencies to verify information provided by counterparties in connection with real estate transactions. Although MAF Properties endeavours to undertake comprehensive due diligence with respect to its real estate investments in order to mitigate any risks in connection with the markets in which it operates, there can be no assurance that the factors described above will not result in its discovery at a later date of information or liabilities in association with its investments that could affect their value, expected purpose or returns on investment.
MAF Properties may not have unrestricted title to all of its land parcels
As a result of issues related to the process of registration of title, MAF Properties may not in all cases have unrestricted title to the land on which its properties are located. MAF Properties has not to date experienced a situation where its title has been the subject of legal proceedings leading to the loss of title. However, MAF
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Properties is subject to the risk that it may not acquire or be granted unrestricted title to any land and/or that it could be determined to be in violation of applicable law should it violate any restrictions applicable to any such title. Any such outcome could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
In a limited number of cases, MAF Properties may acquire title to a land parcel which is subject to certain conditions as to the timeframe within which the land should be developed. If MAF Properties fails to comply with any such conditions, it may lose title to the land parcel concerned.
Title to the land on which two of MAF Properties’ shopping malls in the UAE are built and title to MAF Properties’ two shopping malls in Oman and the land on which they are built is registered in the name of Mr Majid Al Futtaim, the Group's major shareholder, although all these properties are held for the beneficial interest of MAF Properties. As a result of this status, there are certain limitations on the ability of MAF Properties to freely dispose of these properties. See also “MAF Properties Financial Review — Land and Buildings”.
In Egypt, title to the land on which two of MAF Properties’ shopping malls are built is in the process of being transferred to MAF Properties. This process is lengthy and, in the case of one shopping mall under construction, is dependent upon completion of the construction.
MAF Properties is exposed to a range of development and construction risks
MAF Properties is subject to a number of construction, financing, operating and other risks associated with project development which have resulted, and may in the future result, in significant cost overruns and delays in the delivery of its projects. These risks include, but are not limited to: • shortages and increases in the cost of raw materials (such as steel and other commodities common in the construction industry), energy, building equipment (including, in particular, cranes), labour or other necessary supplies; • shortages of project managers, contractors and construction specialists, both within MAF Properties and externally, to ensure that planned developments are delivered both on time and on budget; • an inability to obtain on a timely basis, if at all, requisite governmental licences, permits or approvals; • an inability to obtain necessary financing arrangements on acceptable terms or at all, and otherwise fund construction and capital improvements and provide any necessary performance guarantees; • defaults by, or the bankruptcy or insolvency of, contractors and other counterparties; • inadequate infrastructure, including as a result of failure by third parties to provide utilities and transportation and other links that are necessary or desirable for the successful operation of a project; and • discovery of design or construction defects and otherwise failing to complete projects according to design specification.
The occurrence of one or more of these events may negatively affect the ability of MAF Properties’ contractors to complete the development and construction of projects on schedule, if at all, or within the estimated budget, and may prevent MAF Properties from achieving projected internal rates of return for its projects. There can be no assurance that the revenues that MAF Properties is able to generate from its development and construction projects will be sufficient to cover the associated construction costs.
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MAF Properties’ rental revenues depend upon its ability to find tenants for its shopping malls and offices and the ability of such tenants to fulfil their lease obligations as well as on MAF Properties achieving an optimal tenant mix for its shopping malls. In addition, MAF Properties is exposed to tenant concentration
There can be no guarantee that MAF Properties will find or be able to retain tenants for its shopping malls and other properties on terms and conditions that are satisfactory to it. In addition, MAF Properties’ tenants may be adversely affected by a range of factors which may affect their ability to perform their obligations under their leases and may therefore adversely affect the financial performance of the properties leased by MAF Properties and the cash flows generated by them. Further, certain jurisdictions in which MAF Properties operates as a landlord, including the UAE, have imposed restrictions on rental increases and these restrictions may also adversely impact MAF Properties’ business.
MAF Properties seeks to ensure that it has the right mix of retail outlets in its shopping malls to cater to the consumer preferences of its local customers. In pursuit of this strategy, MAF Properties has sought in the past, and may seek in the future, to terminate lease agreements of existing tenants in order to add new tenants to its shopping malls. In addition, MAF Properties may seek to terminate the lease agreements of tenants who default under their leases. It is relatively difficult to evict tenants under the laws of the jurisdictions in which MAF Properties operates. Therefore, MAF Properties may experience delays in evicting tenants for cause or changing its tenant mix to meet strategic directives prior to the expiry of relevant lease terms, and efforts to do so could require considerable expense. Should one or more tenants stop paying rent for a period of time, whether with or without cause, this could reduce MAF Properties’ cash flows and could have a material adverse affect on the business, financial condition, results of operations and prospects of MAF Properties and the Group as a whole.
A significant proportion of the tenants in MAF Properties’ shopping malls are members of a limited number of large retail groups. As a result, MAF Properties would be particularly adversely affected should any of these retail groups cease to carry on business with MAF Properties or at all.
MAF Properties’ shopping malls depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or a store closure by, one or more of these tenants
Shopping malls are typically anchored by hypermarkets, department stores and other large nationally recognised tenants. Many of MAF Properties’ major tenants are owned by a limited number of large retail groups. The performance of some of MAF Properties shopping malls could be adversely affected if these tenants fail to comply with their contractual obligations, seek concessions in order to continue operations, or cease their operations. Concessions made to existing tenants may be made with a view to attracting other tenants. There is no assurance that any such concessions made will achieve their purpose or will not adversely affect the Group’ revenue or profitability. In addition, other tenants may be entitled to modify the terms of their existing leases in the event of such closures and such closures could result in decreased customer traffic which could adversely affect the performance of the shopping mall concerned and have a material adverse affect on the business, financial condition, results of operations and prospects of MAF Properties and the Group as a whole.
MAF Properties’ hotels are all managed by independent third-party operators and MAF Properties is, therefore, exposed to the performance of these operators
MAF Properties has entered into hotel management agreements with Accor Sàrl (Accor) and Kempinski Hotels S.A. (Kempinski). While MAF Properties has close relationships with the operators of its hotels and a successful track record of working with them to make property and operational improvements, MAF Properties does not have the means to compel any hotel to be operated in a particular manner or to govern any particular aspect of its operations. Therefore, even if MAF Properties believes its properties are being operated inefficiently or in a manner that does not result in satisfactory revenues or operating profits, it will generally not have rights under the management agreements to change who operates the properties or how they are operated until the expiry of the term of the agreements unless there is a breach of specific contractual provisions permitting such termination. MAF Properties can only seek redress if an operator breaches the
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terms of the management agreements or, in the case of the agreements with Kempinski, if the hotel does not reach certain prescribed levels of profitability for three consecutive years, and then only to the extent of the remedies provided for under the terms of that agreement. In the event that MAF Properties were to seek to replace either of its current hotel operators, it would likely experience significant disruptions at the affected properties, which could have a material adverse effect on the business, results of operations, financial condition and prospects of MAF Properties and the Group as a whole.
RISKS RELATING TO MAF RETAIL
MAF Retail’s results of operations and financial performance could be materially adversely affected by a change in consumer preferences, perception and/or spending
MAF Retail accounted for 83.8 per cent. of the Group’s revenue and 32.8 per cent. of the Group’s EBITDA for the year ended 31 December 2010. MAF Retail’s performance depends on factors which may affect the level and patterns of consumer spending in the UAE and the MENA region. Such factors include consumer preferences, confidence, incomes and perceptions of the quality of certain products. A general decline in purchases at MAF Retail’s Carrefour stores could occur as a result of a change in consumer preferences, perceptions and spending habits at any time and MAF Retail’s future success will depend partly on its ability to anticipate or adapt to such changes and to offer, on a timely basis, new products that match consumer demand. Such changes, and a failure to adapt its offering to respond to them, may result in reduced demand for the products sold at MAF Retail’s Carrefour stores, a decline in the market share of its products and increased levels of selling and promotional expenses. Any changes in consumer preferences could result in lower sales of the products sold at MAF Retail’s Carrefour stores or put pressure on pricing, and could materially adversely affect the business, financial condition, results of operations and prospects of MAF Retail and the Group as a whole.
MAF Retail is dependent on its relationship with Carrefour and the market perception of Carrefour
All of MAF Retail’s revenue and EBITDA for the year ended 31 December 2010 was derived from the operations of its Carrefour stores. MAF Retail’s joint venture with Carrefour presents risks common to joint ventures, see “—Risks Relating to the Group—Group companies are party to a number of joint ventures which give rise to specific operational risks”. The business, financial condition, results of operations and prospects of MAF Retail and the Group as a whole could be materially and adversely affected to the extent that MAF Retail’s franchise rights and joint venture with Carrefour become compromised in any material respect.
In addition, the willingness of the public to shop at Carrefour, which is considered by many to be associated with France, is also subject to various factors outside MAF Retail’s control, including the public’s perception of Carrefour and, more generally, of France. Should any of these factors be perceived in a negative manner, this would have a material adverse affect on the financial condition and results of operations of MAF Retail and the Group as a whole.
The planned increase in the number of Carrefour stores may not be achieved
MAF Retail plans to open 11 Carrefour hypermarkets in 2011, of which one had been opened by 30 April 2011, in Saudi Arabia. Four of the remaining hypermarkets are planned to open in the UAE, two each in Iran and Oman and one each in Egypt, Iraq and Pakistan. In addition, MAF Retail plans to open 21 Carrefour supermarkets in 2011, of which four had been opened by 30 April 2011.
However, there can be no assurance that it will be able to expand its store network as planned or that all of such new stores will be profitable. While the Group’s management believes that MAF Retail has identified areas in the MENA region where MAF Retail could increase the number of its stores, unforeseen factors could result in potential sites not becoming available on acceptable terms. This could adversely affect the business, reputation, financial condition, results of operations and prospects of MAF Retail and the Group as a whole. Furthermore, if competitors are able to secure high-quality sites, they may be able to gain market share and may effectively restrict MAF Retail’s ability to grow. In addition, MAF Retail’s ability to open new stores, convert or refurbish existing stores, change the use of part of an existing store or implement any of
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these activities without delay may be significantly restricted by regulatory obstacles associated with obtaining the approvals, permits, consents and/or registrations necessary to construct and/or operate its stores.
Interruptions in the availability of products from suppliers or any changes in the costs to MAF Retail of obtaining such products could adversely affect its business
MAF Retail’s operations may be interrupted or otherwise adversely affected by delays or interruptions in the supply of its products or the termination of any product supplier arrangement where an alternative source of product supply is not readily available on substantially similar terms. Any breakdown or change in MAF Retail’s relationships with product suppliers could materially adversely affect the business, financial condition, results of operations and prospects of MAF Retail and the Group as a whole. If MAF Retail is forced to change a supplier of products, there is no guarantee that this would not interrupt supply continuity or result in additional cost. Further, MAF Retail is able to secure significant rebates and other supplier benefits from its product suppliers. Should these benefits decline or become unavailable, this could have a material adverse effect on the business, financial condition, results of operations and prospects of MAF Retail and the Group as a whole.
In addition, the price of the products MAF Retail sells at its Carrefour stores may be significantly affected by the cost of the raw materials used to produce those products in the source markets of MAF Retail’s suppliers. Wherever practicable, MAF Retail seeks to put in place supply contracts which ensure the supply of products for the period that they are anticipated to be offered by the Carrefour stores and in such quantities as its forecasts require. Failure to continue to source products at competitive cost from international markets or to forecast accurately the required quantities could result in MAF Retail having to buy products from other suppliers on short-term contracts which could result in additional cost. Any increases in the prices of products where prices have not been fixed under contractual supply agreements could materially adversely affect the business, financial condition, results of operations and prospects of MAF Retail and the Group as a whole.
Interruptions in or changes to the terms of MAF Retail’s shipping or distribution arrangements could adversely affect its business
MAF Retail is reliant on the services of third-party distribution, shipping and haulage companies for the movement and storage of its private label goods and the entire range of products for its Carrefour supermarkets within the regions in which it operates and the jurisdictions from which it sources its products. Although it has entered into management contracts with two third-party distribution, shipping and haulage companies, any change in the terms of, interruption or failure in the services of one or more of these service providers could affect MAF Retail’s ability to supply and distribute its products and consequently could materially adversely affect the business, financial condition, results of operations and prospects of MAF Retail and the Group as a whole. Such interruption or failure could potentially involve significant additional costs to MAF Retail in obtaining an alternative source of supply or distribution.
MAF Retail faces the risk of product liability claims and associated adverse publicity
The packaging, marketing, distribution and sale of food products purchased from others, as well as production of foods under Carrefour’s private labels, entail an inherent risk of contamination or deterioration, which could potentially lead to product liability claims, product recalls and associated adverse publicity. Any contaminated products inadvertently distributed by MAF Retail may, in certain cases, result in illness, injury or death, or lead to product liability claims asserted against MAF Retail and/or require product recalls. There can be no assurance that such claims will not be asserted against it in the future, or that such recalls will not be necessary. The Group does not have insurance cover against product recall and there is no certainty that any product liability insurance available to the Group will be sufficient to cover all claims that may be asserted against it.
In addition, because MAF Retail’s success is linked to the reputation of Carrefour, any product liability claims or product recalls that cause adverse publicity involving Carrefour stores not owned by MAF Retail
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may have an adverse effect on MAF Retail, regardless of whether such claim or recall involves any products sold by MAF Retail’s Carrefour franchises. Further, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding any assertion that the products it sells caused illness or injury could adversely affect Carrefour’s reputation with existing and potential customers, as well as the business, financial condition, results of operations and prospects of MAF Retail and the Group as a whole. See “—Risks Relating to the Group—The Group may not be able to secure full insurance for the risks associated with the operation of its businesses”.
RISKS RELATING TO MAF VENTURES
MAF Ventures’ wholesale finance and credit card businesses may require higher costs of funding and expose it to credit risk
MAF Ventures provides finance leasing services for moveable assets through its joint venture with Japan’s Orix Corporation (Orix) and issues credit cards. As the Group does not have a consumer banking operation, which is considered to be one of the principal means of achieving inexpensive funding to support businesses like these, both operations are funded through inter-Group and third party loans, which may be more costly than the funding to which certain of its competitors, particularly local and regional banking groups, have access to. A decrease in MAF Ventures’ access to external funding in particular, or a rise in the cost of inter- Group funding, could have an adverse effect on the results of operations and prospects of these businesses.
In addition, the target customers of its lease financing business are UAE-based small- and medium-size enterprises (SMEs), while those of its credit card business are principally UAE nationals as well as expatriates living in the UAE. The UAE lacks a centralised credit bureau, and MAF Ventures and its competitors do not share customer information. Therefore, these businesses are unable to confirm independently information provided by credit applicants regarding the extent of their credit exposure. As a result, customers may be overextended by virtue of other credit obligations about which MAF Ventures is unaware. To some extent, MAF Ventures is therefore exposed to credit risks which it may not be able to accurately assess or provide for and, in the case of expatriates, may be unable to enforce a judgment obtained against delinquent creditors who no longer live in the UAE.
FACTORS WHICH ARE MATERIAL FOR THE PURPOSE OF ASSESSING THE MARKET RISKS ASSOCIATED WITH NOTES ISSUED UNDER THE PROGRAMME
The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(a) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained or incorporated by reference in this Base Prospectus or any applicable supplement;
(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio;
(c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including Notes with principal or interest payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor’s currency;
(d) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant indices and financial markets; and
(e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
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Some Notes are complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as stand-alone investments. They purchase complex financial instruments as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in Notes which are complex financial instruments unless it has the expertise (either alone or with a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of the Notes and the impact this investment will have on the potential investor’s overall investment portfolio.
Risks related to the structure of a particular issue of Notes
A wide range of Notes may be issued under the Programme. A number of these Notes may have features which contain particular risks for potential investors. Set out below is a description of the most common such features:
The Notes may be subject to optional redemption by the Issuer
An optional redemption feature of Notes is likely to limit their market value. During any period when the Issuer may elect to redeem Notes, the market value of those Notes generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period.
The Issuer may be expected to redeem Notes when its cost of borrowing is lower than the interest rate on the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.
The Notes may be redeemed prior to their final maturity date for tax reasons
If the Issuer becomes obliged to pay any additional amounts in respect of the Notes as provided or referred to in Condition 9 of the Notes or if either Guarantor is unable for reasons outside its control to procure payment by the Issuer and in making payment itself would be required to pay such additional amounts, in each case as a result of any change in, or amendment to, the laws or regulations of a Tax Jurisdiction (as defined in Condition 9) or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the Notes, the Issuer may redeem all but not some only of the outstanding Notes of such Tranche in accordance with Condition 8.2 of the Notes.
Index Linked Notes and Dual Currency Notes
The Issuer may issue Notes with principal or interest determined by reference to an index or formula, to changes in the prices of securities or commodities, to movements in currency exchange rates or other factors (each, a Relevant Factor). In addition, the Issuer may issue Notes with principal or interest payable in one or more currencies which may be different from the currency in which the Notes are denominated. Potential investors should be aware that:
(a) the market price of such Notes may be volatile;
(b) they may receive no interest;
(c) payment of principal or interest may occur at a different time or in a different currency than expected;
(d) they may lose all or a substantial portion of their principal;
(e) a Relevant Factor may be subject to significant fluctuations that may not correlate with changes in interest rates, currencies or other indices;
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(f) if a Relevant Factor is applied to Notes in conjunction with a multiplier greater than one or contains some other leverage factor, the effect of changes in the Relevant Factor on principal or interest payable likely will be magnified; and
(g) the timing of changes in a Relevant Factor may affect the actual yield to investors, even if the average level is consistent with their expectations. In general, the earlier the change in the Relevant Factor, the greater the effect on yield.
The historical experience of an index should not be viewed as an indication of the future performance of such index during the term of any Index Linked Notes. Accordingly, each potential investor should consult its own financial and legal advisers about the risk entailed by an investment in any Index Linked Notes and the suitability of such Notes in light of its particular circumstances.
Partly-paid Notes
The Issuer may issue Notes where the issue price is payable in more than one instalment. Failure to pay any subsequent instalment could result in an investor losing all of his investment.
Variable rate Notes with a multiplier or other leverage factor
Notes with variable interest rates can be volatile investments. If they are structured to include multipliers or other leverage factors, or caps or floors, or any combination of those features or other similar related features, their market values may be even more volatile than those for securities that do not include those features.
Inverse Floating Rate Notes
Inverse Floating Rate Notes (as defined below) have an interest rate equal to a fixed rate minus a rate based upon a reference rate such as the London interbank offered rate (LIBOR). The market values of those Notes typically are more volatile than market values of other conventional floating rate debt securities based on the same reference rate (and with otherwise comparable terms). Inverse Floating Rate Notes are more volatile because an increase in the reference rate not only decreases the interest rate of the Notes, but may also reflect an increase in prevailing interest rates, which further adversely affects the market value of these Notes.
Fixed/Floating Rate Notes
Fixed/Floating Rate Notes (as defined below) may bear interest at a rate that converts from a fixed rate to a floating rate, or from a floating rate to a fixed rate. Where the Issuer has the right to effect such a conversion, this will affect the secondary market and the market value of the Notes since the Issuer may be expected to convert the rate when it is likely to produce a lower overall cost of borrowing. If the Issuer converts from a fixed rate to a floating rate in such circumstances, the spread on the Fixed/Floating Rate Notes may be less favourable than then prevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the new floating rate at any time may be lower than the rates on other Notes. If the Issuer converts from a floating rate to a fixed rate in such circumstances, the fixed rate may be lower than then prevailing rates on its Notes.
Notes issued at a substantial discount or premium
The market values of securities issued at a substantial discount or premium from their principal amount tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest- bearing securities. Generally, the longer the remaining term of the securities, the greater the price volatility as compared to conventional interest-bearing securities with comparable maturities.
Risks related to the Notes generally
Set out below is a brief description of certain risks relating to the Notes generally:
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Modification, waivers and substitution
The terms and conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
The terms and conditions of the Notes also provide that the Trustee may, without the consent of Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) determine without the consent of the Noteholders that any Event of Default (as defined in Condition 11) or potential Event of Default shall not be treated as such or (iii) the substitution of another company as principal debtor under any Notes in place of the Issuer, in the circumstances described in Condition 16.
European Monetary Union may cause Notes denominated in certain currencies to be redenominated in euro
If Notes are issued under the Programme which are denominated in the currency of a country which, at the time of issue, has not adopted the euro as its sole currency and, before the relevant Notes are redeemed, the euro becomes the sole currency of that country, a number of consequences may follow including, but not limited to: (i) all amounts payable in respect of the relevant Notes may become payable in euro, (ii) applicable law may allow or require such Notes to be redenominated into euro and additional measures to be taken in respect of such Notes and (iii) there may no longer be available published or displayed rates for deposits in such currency used to determine the rates of interest on such Notes. Any of these or any other consequences could adversely affect the holders of the relevant Notes.
The EU Savings Directive may give rise to withholding on certain Notes
Under EC Council Directive 2003/48/EC (the Directive) on the taxation of savings income, Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State or to certain limited types of entities established in that other Member State. However, for a transitional period, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland).
The European Commission has proposed certain amendments to the Directive which may, if implemented, amend or broaden the scope of the requirements described above.
If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. The Issuer is required to maintain a Paying Agent in a Member State that is not obliged to withhold or deduct tax pursuant to the Directive.
Change of law
The terms and conditions of the Notes are based on English law in effect as at the date of this Base Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of this Base Prospectus.
Bearer Notes where denominations involve integral multiples: definitive Bearer Notes
In relation to any issue of Bearer Notes which have denominations consisting of a minimum Specified Denomination plus one or more higher integral multiples of another smaller amount, it is possible that such
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Notes may be traded in amounts that are not integral multiples of such minimum Specified Denomination. In such a case a holder who, as a result of trading such amounts, holds an amount which is less than the minimum Specified Denomination in his account with the relevant clearing system at the relevant time may not receive a definitive Bearer Note in respect of such holding (should such Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to a Specified Denomination.
If Bearer Notes are issued, holders should be aware that definitive Notes which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade.
Investors in the Notes must rely on DTC, Euroclear and Clearstream, Luxembourg procedures
Notes issued under the Programme will be represented on issue by one or more Global Notes that may be deposited with a common depositary for Euroclear and Clearstream, Luxembourg or may be deposited with a nominee for DTC (each as defined under “Form of the Notes”). Except in the circumstances described in each Global Note, investors will not be entitled to receive Notes in definitive form. Each of DTC, Euroclear and Clearstream, Luxembourg and their respective direct and indirect participants will maintain records of the beneficial interests in each Global Note held through it. While the Notes are represented by a Global Note, investors will be able to trade their beneficial interests only through the relevant clearing systems and their respective participants.
While the Notes are represented by Global Notes, the Issuer will discharge its payment obligations under the Notes by making payments through the relevant clearing systems. A holder of a beneficial interest in a Global Note must rely on the procedures of the relevant clearing system and its participants to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in any Global Note.
Holders of beneficial interests in a Global Note will not have a direct right to vote in respect of the Notes so represented. Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant clearing system and its participants to appoint appropriate proxies.
Risks relating to enforcement
Investors may experience difficulties in enforcing arbitration awards and foreign judgments in Dubai
The payments under the Notes are dependent upon the Issuer (failing which, the Guarantors) making payments to investors in the manner contemplated under the Notes or the Guarantee, as the case may be. If the Issuer and subsequently both of the Guarantors fail to do so, it may be necessary to bring an action against the Guarantors (or either of them) to enforce their (or its) obligations and/or to claim damages, as appropriate, which may be costly and time-consuming.
Under current Dubai law, the Dubai courts are unlikely to enforce an English or United States court judgment without re-examining the merits of the claim and may not observe the choice by the parties of English law as the governing law of the transaction. In the UAE, foreign law is required to be established as a question of fact and the interpretation of English law, by a court in the UAE, may not accord with the interpretation of an English court. In principle, courts in the UAE recognise the choice of foreign law if they are satisfied that an appropriate connection exists between the relevant transaction agreement and the foreign law which has been chosen. They will not, however, honour any provision of foreign law which is contrary to public policy, order or morals in the UAE, or to any mandatory law of, or applicable in, the UAE.
The UAE is a civil law jurisdiction and judicial precedents in Dubai have no binding effect on subsequent decisions. In addition, there is no formal system of reporting court decisions in Dubai. These factors create greater judicial uncertainty than would be expected in other jurisdictions.
The Notes, the Trust Deed, the Agency Agreement (as defined in “Terms and Conditions of the Notes”), and the Programme Agreement (as defined in “Subscription and Sale and Transfer and Selling Restrictions”) are governed by English law and the parties to such documents have agreed to refer any unresolved dispute in relation to such documents to arbitration under the Arbitration Rules of the LCIA in London, England.
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The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) entered into force in the UAE on 19 November 2006. Any arbitration award rendered in London should therefore be enforceable in Dubai in accordance with the terms of the New York Convention. Under the New York Convention, the UAE has an obligation to recognise and enforce foreign arbitration awards, unless the party opposing enforcement can prove one of the grounds under Article V of the New York Convention to refuse enforcement, or the Dubai courts find that the subject matter of the dispute is not capable of settlement by arbitration or enforcement would be contrary to the public policy of the UAE. There have been limited instances where the UAE courts, most notably the Fujairah Court of First Instance and the Dubai Court of First Instance, have ratified or ordered the recognition and enforcement of foreign arbitration awards under the New York Convention. There is, however, no system of binding judicial precedent in the UAE and it is unclear if these decisions are subject to any appeal. In practice, therefore, how the New York Convention provisions would be interpreted and applied by the Dubai courts, and whether the Dubai courts will enforce a foreign arbitration award in accordance with the New York Convention, remains largely untested
There are limitations on the effectiveness of guarantees in the UAE
Under the laws of the UAE the obligation of a guarantor is incidental to the obligations of the principal debtor, and the obligations of a guarantor will only be valid to the extent of the continuing obligations of the principal debtor. The laws of the UAE do not contemplate a guarantee by way of indemnity of the obligations of the debtor by the guarantor and instead contemplate a guarantee by way of suretyship. Accordingly, it is not possible to state with any certainty whether a guarantor could be obliged by the Dubai courts to pay a greater sum than the debtor is obliged to pay or to perform an obligation that the debtor is not obligated to perform.
In order to enforce a guarantee under the laws of the UAE, the underlying debt obligation for which such guarantee has been granted may need to be proved before the Dubai courts.
Risks related to the market generally
Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk:
The secondary market generally
Notes may have no established trading market when issued, and one may never develop. If a market does develop, it may not be very liquid. The liquidity of any market for the Notes that may develop depends on a number of factors, including: • the method of calculating the principal and interest in respect of the Notes; • the time remaining to the maturity of the Notes; • the outstanding amount of the Notes; • the redemption features of the Notes; • the amount of other debt securities linked to the index or formula applicable to the Notes; and • the level, direction and volatility of market interest rates generally. Therefore, investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. This is particularly the case for Notes that are especially sensitive to interest rate, currency or market risks, are designed for specific investment objectives or strategies or have been structured to meet the investment requirements of limited categories of investors. These types of Notes generally would have a more limited secondary market and more price volatility than conventional debt securities. Illiquidity may have a severely adverse effect on the market value of Notes.
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Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Notes and the Guarantors will make any payments under the Guarantee in the Specified Currency. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the Investor’s Currency) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls which could adversely affect an applicable exchange rate. The Issuer does not have any control over the factors that generally affect these risks, such as economic, financial and political events and the supply and demand for applicable currencies. In recent years, exchange rates between certain currencies have been volatile and volatility between such currencies or with other currencies may be expected in the future. An appreciation in the value of the Investor’s Currency relative to the Specified Currency would decrease (1) the Investor’s Currency-equivalent yield on the Notes, (2) the Investor‘s Currency equivalent value of the principal payable on the Notes and (3) the Investor’s Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal. Even if there are no actual exchange controls, it is possible that the Specified Currency for any particular Note may not be available at such Note’s maturity.
Interest rate risks
Investment in Fixed Rate Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of the Fixed Rate Notes.
Credit ratings may not reflect all risks
One or more independent credit rating agencies may assign credit ratings to the Notes. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by its assigning rating agency at any time.
In general, European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU and registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions that apply in certain circumstances whilst the registration application is pending. Such general restriction will also apply in the case of credit ratings issued by non-EU credit rating agencies, unless the relevant credit ratings are endorsed by an EU-registered credit rating agency or the relevant non- EU rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended). Certain information with respect to the credit rating agencies and ratings will be disclosed in the Final Terms.
Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) Notes are legal investments for it, (2) Notes can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.
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OVERVIEW OF THE PROGRAMME
The following overview does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Base Prospectus and, in relation to the terms and conditions of any particular Tranche of Notes, the applicable Final Terms. The Issuer, the Guarantors and any relevant Dealer may agree that Notes shall be issued in a form other than that contemplated in the Terms and Conditions, in which event, a new Base Prospectus or a supplement to the Base Prospectus, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Notes.
This Overview constitutes a general description of the Programme for the purposes of Article 22.5(3) of Commission Regulation (EC) No 809/2004 implementing the Prospectus Directive.
Words and expressions defined in “Form of the Notes” and “Terms and Conditions of the Notes” shall have the same meanings in this overview.
Issuer: MAF Global Securities Limited
Guarantors: Majid Al Futtaim Holding LLC Majid Al Futtaim Properties LLC
Risk Factors: There are certain factors that may affect the Issuer’s ability to fulfil its obligations under Notes issued under the Programme and the Guarantors’ ability to fulfil their obligations under the Guarantee. In addition, there are certain factors which are material for the purpose of assessing the market risks associated with Notes issued under the Programme. These are set out under “Risk Factors”.
Description: Global Medium Term Note Programme
Arrangers: Barclays Bank PLC Emirates NBD Bank PJSC Standard Chartered Bank
Dealers: Barclays Bank PLC Citigroup Global Markets Limited Crédit Agricole Corporate and Investment Bank Emirates NBD Bank PJSC HSBC Bank plc J.P. Morgan Securities Ltd. National Bank of Abu Dhabi PJSC Standard Chartered Bank
and any other Dealers appointed in accordance with the Programme Agreement.
Certain Restrictions: Each issue of Notes denominated in a currency in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements from time to time (see “Subscription and Sale and Transfer and Selling Restrictions”) including the following restrictions applicable at the date of this Base Prospectus.
Notes having a maturity of less than one year
Notes having a maturity of less than one year will, if the proceeds of the issue are accepted in the United Kingdom, constitute deposits for the purposes of the prohibition on accepting deposits contained in section 19 of the Financial Services and Markets Act 2000
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(FSMA) unless they are issued to a limited class of professional investors and have a denomination of at least £100,000 (or if the Notes are denominated in a currency other than sterling, the equivalent amount in such currency), see “Subscription and Sale and Transfer and Selling Restrictions”.
Issuing and Principal Paying Agent Citibank, N.A. and Agent Bank: Trustee: Citibank, N.A., London Branch
Programme Size: Up to U.S.$2,000,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement) outstanding at any time. The Issuer and the Guarantors may increase the amount of the Programme in accordance with the terms of the Programme Agreement. Notes will be issued in Series. Each Series may comprise one or more Tranches issued on different issue dates. The Notes of each Series will all be subject to identical terms, except that the issue date and the amount of the first payment of interest may be different in respect of the different Tranches. The Notes of each Tranche will be subject to identical terms in all respects, save that a Tranche may comprise Notes of different denominations.
Distribution: Notes may be distributed by way of private or public placement and in each case on a syndicated or non-syndicated basis.
Currencies: Subject to any applicable legal or regulatory restrictions, Notes may be denominated in any currency agreed between the Issuer and the relevant Dealer.
Redenomination: The applicable Final Terms may provide that certain Notes may be redenominated in euro. The relevant provisions applicable to any such redenomination are contained in Condition 5.
Maturities: The Notes will have such maturities as may be agreed between the Issuer and the relevant Dealer, subject to such minimum or maximum maturities as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the Issuer or the relevant Specified Currency.
Issue Price: Notes may be issued on a fully-paid or a partly-paid basis and at an issue price which is at par or at a discount to, or premium over, par. The price and amount of Notes to be issued will be determined by the Issuer and the relevant Dealer at the time of issue in accordance with prevailing market conditions.
Form of Notes: The Notes will be issued in bearer or registered form as described in “Form of the Notes”. Registered Notes will not be exchangeable for Bearer Notes and vice versa.
Fixed Rate Notes: Fixed interest will be payable on such date or dates as may be agreed between the Issuer and the relevant Dealer and, on redemption, will be calculated on the basis of such Day Count Fraction as may be agreed between the Issuer and the relevant Dealer.
Floating Rate Notes: Floating Rate Notes will bear interest at a rate determined:
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(a) on the same basis as the floating rate under a notional interest rate swap transaction in the relevant Specified Currency governed by an agreement incorporating the 2006 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc., and as amended and updated as at the Issue Date of the first Tranche of the Notes of the relevant Series); or
(b) on the basis of a reference rate appearing on the agreed screen page of a commercial quotation service; or
(c) on such other basis as may be agreed between the Issuer and the relevant Dealer.
The margin (if any) relating to such floating rate will be agreed between the Issuer and the relevant Dealer for each Series of Floating Rate Notes.
Index Linked Notes: Payments of principal in respect of Index Linked Redemption Notes or of interest in respect of Index Linked Interest Notes will be calculated by reference to such index and/or formula or to changes in the prices of securities or commodities or to such other factors as the Issuer and the relevant Dealer may agree.
Other provisions in relation to Floating Rate Notes and Index Linked Interest Notes may also have Floating Rate Notes and Index Linked a maximum interest rate, a minimum interest rate or both. Interest Notes: Interest on Floating Rate Notes and Index Linked Interest Notes in respect of each Interest Period, as agreed prior to issue by the Issuer and the relevant Dealer, will be payable on such Interest Payment Dates, and will be calculated on the basis of such Day Count Fraction, as may be agreed between the Issuer and the relevant Dealer.
Dual Currency Notes: Payments (whether in respect of principal or interest and whether at maturity or otherwise) in respect of Dual Currency Notes will be made in such currencies, and based on such rates of exchange, as the Issuer and the relevant Dealer may agree.
Zero Coupon Notes: Zero Coupon Notes will be offered and sold at a discount to their nominal amount and will not bear interest.
Redemption: The applicable Final Terms will indicate either that the relevant Notes cannot be redeemed prior to their stated maturity (other than in specified instalments, if applicable, or for taxation reasons or following an Event of Default) or that such Notes will be redeemable at the option of the Issuer and/or the Noteholders (including following the occurrence of a Change of Control Event as described below) upon giving notice to the Noteholders or the Issuer, as the case may be, on a date or dates specified prior to such stated maturity and at a price or prices and on such other terms as may be agreed between the Issuer and the relevant Dealer. The terms of any such redemption, including notice periods, any relevant conditions to be satisfied and the relevant redemption dates and prices will be indicated in the applicable Final Terms.
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The applicable Final Terms may provide that Notes may be redeemable in two or more instalments of such amounts and on such dates as are indicated in the applicable Final Terms.
Notes having a maturity of less than one year may be subject to restrictions on their denomination and distribution, see “Certain Restrictions - Notes having a maturity of less than one year” above.
Change of Control: If so specified in the applicable Final Terms, each investor will have the right to require the redemption of its Notes upon Majid Al Futtaim Capital LLC ceasing to be the ultimate owner (either directly or indirectly) of more than 50 per cent. of the share capital of MAF Holding.
Denomination of Notes: The Notes will be issued in such denominations as may be agreed between the Issuer and the relevant Dealer save that the minimum denomination of each Note will be such amount as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant Specified Currency, see “Certain Restrictions - Notes having a maturity of less than one year” above, and save that the minimum denomination of each Note admitted to trading on a regulated market within the European Economic Area or offered to the public in a Member State of the European Economic Area in circumstances which require the publication of a prospectus under the Prospectus Directive will be €100,000 (or, if the Notes are denominated in a currency other than euro, the equivalent amount in such currency).
The minimum aggregate principal amount of Notes which may be purchased by a QIB pursuant to Rule 144A is U.S.$200,000 (or the approximate equivalent thereof in any other currency).
Unless otherwise stated in the applicable Final Terms, the minimum denomination of each Definitive IAI Registered Note will be U.S.$500,000 or its approximate equivalent in other Specified Currencies.
Taxation: All payments in respect of the Notes will be made without deduction for or on account of withholding taxes imposed by any Tax Jurisdiction as provided in Condition 9. In the event that any such deduction is made, the Issuer or, as the case may be, the Guarantors will, save in certain limited circumstances provided in Condition 9, be required to pay additional amounts to cover the amounts so deducted.
Negative Pledges and other Covenants: The terms of the Notes will contain negative pledge provisions and covenants as further described in Condition 4.
Cross Default: The terms of the Notes will contain a cross default provision as further described in Condition 11.
Status of the Notes: The Notes will constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 4) unsecured obligations of the Issuer and will rank pari passu among themselves and (save for certain obligations required to be preferred by law) equally with all other unsecured obligations (other than subordinated obligations, if any) of the Issuer, from time to time outstanding.
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Guarantee: The Notes will be unconditionally and irrevocably guaranteed, on a A6.1 joint and several basis, by the Guarantors. The obligations of each Guarantor under the Guarantee will be direct, unconditional and (subject to the provisions of Condition 4) unsecured obligations of the relevant Guarantor and will rank pari passu and (save for certain obligations required to be preferred by law) equally with all other unsecured obligations (other than subordinated obligations, if any) of such Guarantor from time to time outstanding.
Rating: The rating of certain Series of the Notes to be issued under the Programme may be specified in the applicable Final Terms. Whether or not each credit rating applied for in relation to the relevant Series of Notes will be issued by a credit rating agency established in the European Union and registered under the CRA Regulation will be disclosed in the applicable Final Terms.
Listing and admission to trading: Application has been made to the UK Listing Authority for Notes issued under the Programme to be admitted to the Official List and to the London Stock Exchange for such Notes to be admitted to trading on the London Stock Exchange’s regulated market.
Notes may be listed or admitted to trading, as the case may be, on other or further stock exchanges or markets agreed between the Issuer and the relevant Dealer in relation to the Series. Notes which are neither listed nor admitted to trading on any market may also be issued.
The applicable Final Terms will state whether or not the relevant Notes are to be listed and/or admitted to trading and, if so, on which stock exchanges and/or markets.
Governing Law: The Notes and any non-contractual obligations arising out of or in connection with the Notes will be governed by, and shall be construed in accordance with, English law.
Clearing Systems: Euroclear and/or Clearstream Luxembourg and/or DTC or, in relation to any Tranche of Notes, any other clearing system.
Selling Restrictions: There are restrictions on the offer, sale and transfer of the Notes in the United States, the European Economic Area (including the United Kingdom), the Cayman Islands, Japan, the United Arab Emirates (excluding the Dubai International Financial Centre), the Dubai International Financial Centre, the Kingdom of Saudi Arabia, the Kingdom of Bahrain, the State of Qatar, Singapore and Hong Kong and such other restrictions as may be required in connection with the offering and sale of a particular Tranche of Notes, see “Subscription and Sale and Transfer and Selling Restrictions”.
United States Selling Restrictions: Regulation S, Category 2. Rule 144A and Section 4(2) and TEFRA C/TEFRA D/TEFRA not applicable, as specified in the applicable Final Terms.
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FORM OF THE NOTES
The Notes of each Series will be in either bearer form, with or without interest coupons attached, or registered form, without interest coupons attached. Bearer Notes will be issued outside the United States in reliance on Regulation S under the Securities Act (Regulation S) and Registered Notes will be issued both outside the United States in reliance on the exemption from registration provided by Regulation S and within the United States in reliance on Rule 144A or otherwise in private transactions that are exempt from the registration requirements of the Securities Act.
BEARER NOTES
Each Tranche of Bearer Notes will be initially issued in the form of a temporary global note (a Temporary Bearer Global Note) or, if so specified in the applicable Final Terms, a permanent global note (a Permanent Bearer Global Note and, together with a Temporary Bearer Global Note, each a Bearer Global Note) which, in either case, will be delivered on or prior to the original issue date of the Tranche to a common depositary (the Common Depositary) for, Euroclear Bank SA/NV (Euroclear) and Clearstream Banking, société anonyme (Clearstream, Luxembourg).
Whilst any Bearer Note is represented by a Temporary Bearer Global Note, payments of principal, interest (if any) and any other amount payable in respect of the Notes due prior to the Exchange Date (as defined below) will be made against presentation of the Temporary Bearer Global Note only to the extent that certification (in a form to be provided) to the effect that the beneficial owners of interests in the Temporary Bearer Global Note are not U.S. persons or persons who have purchased for resale to any U.S. person, as required by U.S. Treasury regulations, has been received by Euroclear and/or Clearstream, Luxembourg and Euroclear and/or Clearstream, Luxembourg, as applicable, has given a like certification (based on the certifications it has received) to the Principal Paying Agent.
On and after the date (the Exchange Date) which is 40 days after a Temporary Bearer Global Note is issued, interests in such Temporary Bearer Global Note will be exchangeable (free of charge) upon a request as described therein either for (i) interests in a Permanent Bearer Global Note of the same Series or (ii) for definitive Bearer Notes of the same Series with, where applicable, receipts, interest coupons and talons attached (as indicated in the applicable Final Terms and subject, in the case of definitive Bearer Notes, to such notice period as is specified in the applicable Final Terms), in each case against certification of beneficial ownership as described above unless such certification has already been given, provided that purchasers in the United States and certain U.S. persons will not be able to receive definitive Bearer Notes. The holder of a Temporary Bearer Global Note will not be entitled to collect any payment of interest, principal or other amount due on or after the Exchange Date unless, upon due certification, exchange of the Temporary Bearer Global Note for an interest in a Permanent Bearer Global Note or for definitive Bearer Notes is improperly withheld or refused.
Payments of principal, interest (if any) or any other amounts on a Permanent Bearer Global Note will be made through Euroclear and/or Clearstream, Luxembourg against presentation or surrender (as the case may be) of the Permanent Bearer Global Note without any requirement for certification.
The applicable Final Terms will specify that a Permanent Bearer Global Note will be exchangeable (free of charge), in whole but not in part, for definitive Bearer Notes with, where applicable, receipts, interest coupons and talons attached upon either (a) not less than 60 days’ written notice given at any time from Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any holder of an interest in such Permanent Bearer Global Note) to the Principal Paying Agent as described therein or (b) only upon the occurrence of an Exchange Event. For these purposes, Exchange Event means that (i) an Event of Default (as defined in Condition 11) has occurred and is continuing, (ii) the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and no successor clearing system is available or (iii) the Issuer has or will become subject to adverse tax consequences which would not be suffered were the Notes represented by the Permanent Bearer Global Note in definitive form and a certificate to such effect signed by two Directors of the Issuer is given to the Trustee. The Issuer will promptly give notice to Noteholders in accordance with
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Condition 15 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream, Luxembourg or the Common Depositary on their behalf (acting on the instructions of any holder of an interest in such Permanent Bearer Global Note) or the Trustee may give notice to the Principal Paying Agent requesting exchange and, in the event of the occurrence of an Exchange Event as described in (iii) above, the Issuer may also give notice to the Principal Paying Agent requesting exchange. Any such exchange shall occur not later than 45 days after the date of receipt of the first relevant notice by the Principal Paying Agent.
The following legend will appear on all Bearer Notes which have an original maturity of more than 365 days and on all receipts and interest coupons relating to such Notes:
“ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.”
The sections referred to provide that United States holders, with certain exceptions, will not be entitled to deduct any loss on Bearer Notes, receipts or interest coupons and will not be entitled to capital gains treatment of any gain on any sale, disposition, redemption or payment of principal in respect of such Notes, receipts or interest coupons.
Notes which are represented by a Bearer Global Note will only be transferable in accordance with the rules and procedures for the time being of Euroclear or Clearstream, Luxembourg, as the case may be.
REGISTERED NOTES
The Registered Notes of each Tranche offered and sold in reliance on Regulation S, which will be sold to non-U.S. persons outside the United States, will initially be represented by a global note in registered form (a Regulation S Global Note). Prior to expiry of the distribution compliance period (as defined in Regulation S) applicable to each Tranche of Notes, beneficial interests in a Regulation S Global Note may not be offered or sold to, or for the account or benefit of, a U.S. person save as otherwise provided in Condition 2 and may not be held otherwise than through Euroclear or Clearstream, Luxembourg and such Regulation S Global Note will bear a legend regarding such restrictions on transfer.
The Registered Notes of each Tranche offered and sold in the United States or to U.S. persons may only be offered and sold in private transactions (i) to “qualified institutional buyers” within the meaning of Rule 144A under the Securities Act (QIBs) or (ii) to “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that are institutions (Institutional Accredited Investors) and who execute and deliver an IAI Investment Letter (as defined in the “Terms and Conditions of the Notes”) in which they agree to purchase the Notes for their own account and not with a view to the distribution thereof. The Registered Notes of each Tranche sold to QIBs will be represented by a global note in registered form (a Rule 144A Global Note and, together with a Regulation S Global Note, each a Registered Global Note).
Registered Global Notes will either (i) be deposited with a custodian for, and registered in the name of a nominee of, the Depository Trust Company (DTC) or (ii) be deposited with a common depositary for Euroclear and Clearstream, Luxembourg, and registered in the name of a common nominee of, Euroclear and Clearstream, Luxembourg, as specified in the applicable Final Terms. Persons holding beneficial interests in Registered Global Notes will be entitled or required, as the case may be, under the circumstances described below, to receive physical delivery of definitive Notes in fully registered form.
The Registered Notes of each Tranche sold to Institutional Accredited Investors will be in definitive form, registered in the name of the holder thereof (Definitive IAI Registered Notes). Unless otherwise set forth in the applicable Final Terms, Definitive IAI Registered Notes will be issued only in minimum denominations of U.S.$500,000 and integral multiples of U.S.$1,000 in excess thereof (or the approximate equivalents in the applicable Specified Currency). Definitive IAI Registered Notes will be subject to the restrictions on transfer set forth therein and will bear the restrictive legend described under “Subscription and Sale and Transfer and Selling Restrictions”. Institutional Accredited Investors that hold Definitive IAI Registered Notes may not elect to hold such Notes through DTC, Euroclear or Clearstream, Luxembourg,
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but transferees acquiring such Notes in transactions exempt from Securities Act registration pursuant to Regulation S or Rule 144A under the Securities Act (if available) may do so upon satisfaction of the requirements applicable to such transfer as described under “Subscription and Sale and Transfer and Selling Restrictions”. The Registered Global Notes and the Definitive IAI Registered Notes will be subject to certain restrictions on transfer set forth therein and will bear a legend regarding such restrictions.
Payments of principal, interest and any other amount in respect of the Registered Global Notes will, in the absence of provision to the contrary, be made to the person shown on the Register (as defined in Condition 7.4) as the registered holder of the Registered Global Notes. None of the Issuer, the Guarantors, any Paying Agent, the Trustee or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments or deliveries made on account of beneficial ownership interests in the Registered Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
Payments of principal, interest or any other amount in respect of the Registered Notes in definitive form will, in the absence of provision to the contrary, be made to the persons shown on the Register on the relevant Record Date (as defined in Condition 7.4) immediately preceding the due date for payment in the manner provided in that Condition.
Interests in a Registered Global Note will be exchangeable (free of charge), in whole but not in part, for definitive Registered Notes without receipts, interest coupons or talons attached only upon the occurrence of an Exchange Event. For these purposes, Exchange Event means that (i) an Event of Default has occurred and is continuing, (ii) in the case of Notes registered in the name of a nominee for DTC, either DTC has notified the Issuer that it is unwilling or unable to continue to act as depository for the Notes and no alternative clearing system is available or DTC has ceased to constitute a clearing agency registered under the Exchange Act and, in any such case, no alternative clearing system is available, (iii) in the case of Notes registered in the name of a nominee for a common depositary for Euroclear and Clearstream, Luxembourg, the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and, in any such case, no successor clearing system is available or (iv) the Issuer has or will become subject to adverse tax consequences which would not be suffered were the Notes represented by the Registered Global Note in definitive form and a certificate to that effect signed by two Directors of the Issuer is given to the Trustee. The Issuer will promptly give notice to Noteholders in accordance with Condition 15 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, DTC, Euroclear and/or Clearstream, Luxembourg or any person acting on their behalf (acting on the instructions of any holder of an interest in such Registered Global Note) or the Trustee may give notice to the Registrar requesting exchange and, in the event of the occurrence of an Exchange Event as described in (iv) above, the Issuer may also give notice to the Registrar requesting exchange. Any such exchange shall occur not later than 10 days after the date of receipt of the first relevant notice by the Registrar.
TRANSFER OF INTERESTS
Interests in a Registered Global Note may, subject to compliance with all applicable restrictions, be transferred to a person who wishes to hold such interest in another Registered Global Note or in the form of a Definitive IAI Registered Note and Definitive IAI Registered Notes may, subject to compliance with all applicable restrictions, be transferred to a person who wishes to hold such Notes in the form of an interest in a Registered Global Note. No beneficial owner of an interest in a Registered Global Note will be able to transfer such interest, except in accordance with the applicable procedures of DTC, Euroclear and Clearstream, Luxembourg, in each case to the extent applicable. Registered Notes are also subject to the restrictions on transfer set forth therein and will bear a legend regarding such restrictions, see “Subscription and Sale and Transfer and Selling Restrictions”.
GENERAL
Pursuant to the Agency Agreement, the Principal Paying Agent shall arrange that, where a further Tranche of Notes is issued which is intended to form a single Series with an existing Tranche of Notes, the Notes of
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such further Tranche shall be assigned a common code and ISIN and, where applicable, a CUSIP and CINS number which are different from the common code, ISIN, CUSIP and CINS assigned to Notes of any other Tranche of the same Series until at least the expiry of the distribution compliance period (as defined in Regulation S) applicable to the Notes of such Tranche.
Any reference herein to Euroclear and/or Clearstream, Luxembourg and/or DTC shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Final Terms or as may otherwise be approved by the Issuer, the Guarantors, the Principal Paying Agent and the Trustee.
No Noteholder, Receiptholder or Couponholder (each as defined under “Terms and Conditions of the Notes”) shall be entitled to proceed directly against the Issuer or either Guarantor unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failure shall be continuing. In addition, holders of interests in such Global Note credited to their accounts with DTC may require DTC to deliver definitive Notes in registered form in exchange for their interest in such Global Note in accordance with DTC’s standard operating procedures.
The Issuer and the Guarantors may agree with any Dealer that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes herein, in which event a new Base Prospectus or a supplement to the Base Prospectus, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Notes.
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APPLICABLE FINAL TERMS
Set out below is the form of Final Terms which will be completed for each Tranche of Notes issued under the Programme.
[Date] MAF GLOBAL SECURITIES LIMITED
Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes] Guaranteed, on a joint and several basis, by Majid Al Futtaim Holding LLC and Majid Al Futtaim Properties LLC under the U.S.$2,000,000,000 Global Medium Term Note Programme
PART A – CONTRACTUAL TERMS
Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Base Prospectus dated 14 June 2011 which constitutes a base prospectus for the purposes of the Prospectus Directive (Directive 2003/71/EC) (the Prospectus Directive). This document constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4 of the Prospectus Directive and must be read in conjunction with the Base Prospectus. Full information on the Issuer, the Guarantors and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Base Prospectus. The Base Prospectus is available for viewing during normal business hours at the registered office of the Issuer at c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands and copies may be obtained from the registered office of the Principal Paying Agent at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom. [The following alternative language applies if the first tranche of an issue which is being increased was issued under a Base Prospectus with an earlier date. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions) set forth in the Base Prospectus dated [original date] which are incorporated by reference in the Base Prospectus dated [current date] and are attached hereto. This document constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4 of the Prospectus Directive (Directive 2003/71/EC) (the Prospectus Directive) and must be read in conjunction with the Base Prospectus dated [current date] which constitutes a base prospectus for the purposes of the Prospectus Directive, save in respect of the Conditions. Full information on the Issuer, the Guarantors and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Base Prospectus dated [current date]. Copies of such Base Prospectuses are available for viewing during normal business hours at the registered office of the Issuer at c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands and copies may be obtained from the registered office of the Principal Paying Agent at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom.] [Include whichever of the following apply or specify as “Not Applicable” (N/A). Note that the numbering should remain as set out below, even if “Not Applicable” is indicated for individual paragraphs or subparagraphs. Italics denote directions for completing the Final Terms.] [When adding any other final terms or information consideration should be given as to whether such terms or information constitute “significant new factors” and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.] [If the Notes have a maturity of less than one year from the date of their issue, the minimum denomination may need to be £100,000 or its equivalent in any other currency. 1. (a) Issuer: MAF Global Securities Limited (b) Guarantors: Majid Al Futtaim Holding LLC Majid Al Futtaim Properties LLC
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2. (a) Series Number: [ ]
(b) Tranche Number: [ ]
(If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible)
3. Specified Currency or Currencies: [ ] A13.4.5
4. Aggregate Nominal Amount: A12.4.1.5 A13.4.1 (a) Series: [ ]
(b) Tranche: [ ]
5. Issue Price: [ ] per cent. of the Aggregate Nominal Amount [plus accrued interest from [insert date] (if applicable)]
6. (a) Specified Denominations: [ ] (in the case of Registered Notes (Note – where Bearer Notes with multiple this means the minimum integral denominations above €100,000 or equivalent are amount in which transfers can be being used the following sample wording should be made) followed:
“[€100,000] and integral multiples of [€1,000] in excess thereof up to and including [€199,000]. No Notes in definitive form will be issued with a denomination above [€199,000].”)
(N.B. If an issue of Notes is (i) NOT admitted to trading on an European Economic Area exchange; and (ii) only offered in the European Economic Area in circumstances where a prospectus is not required to be published under the Prospectus Directive the €100,000 or equivalent minimum denomination is not required.)
(b) Calculation Amount: [ ]
(If only one Specified Denomination, insert the Specified Denomination. If more than one Specified Denomination, insert the highest common factor. Note: There must be a common factor in the case of two or more Specified Denominations.)
7. (a) Issue Date: [ ] A13.4.13 A12.4.1.9 (b) Interest Commencement Date: [specify/Issue Date/Not Applicable]
(N.B. An Interest Commencement Date will not be relevant for certain Notes, for example Zero Coupon Notes.)
8. Maturity Date: [Fixed rate – specify date/ A13.4.9 A12.4.1.11 Floating rate – Interest Payment Date falling in or nearest to [specify month and year]]
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9. Interest Basis: [[ ] per cent. Fixed Rate] [[LIBOR/EURIBOR] +/- [ ] per cent. Floating Rate] [Zero Coupon] [Index Linked Interest] [Dual Currency Interest] [specify other] (further particulars specified below)
10. Redemption/Payment Basis: [Redemption at par] [Index Linked Redemption] [Dual Currency Redemption] [Partly Paid] [Instalment] [specify other]
(N.B. If the Final Redemption Amount is other than 100 per cent. of the nominal value the Notes will be derivative securities for the purposes of the Prospectus Directive and the requirements of Annex XII to the Prospectus Directive Regulation will apply.)
11. Change of Interest Basis or [Specify details of any provision for change of Notes Redemption/Payment Basis: into another Interest Basis or Redemption/Payment Basis]
12. Put/Call Options: [Investor Put] [Change of Control Put] [Issuer Call] [(further particulars specified below)]
13. (a) Status of the Notes: Senior A12.4.1.6 A13.4.6 (b) Status of the Guarantee: Senior
14. Method of distribution: [Syndicated/Non-syndicated]
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE A12.4.1.13 A13.4.8 15. Fixed Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)
(a) Rate(s) of Interest: [ ] per cent. per annum [payable [annually/semi annually/quarterly/other (specify)] in arrear] (If payable other than annually, consider amending Condition 6)
(b) Interest Payment Date(s): [[ ] in each year up to and including the Maturity Date]/[specify other] (N.B. This will need to be amended in the case of long or short coupons)
(c) Fixed Coupon Amount(s): [ ] per Calculation Amount (Applicable to Notes in definitive form.)
(d) Broken Amount(s): [ ] per Calculation Amount, payable on the Interest (Applicable to Notes in definitive Payment Date falling [in/on] [ ] form.)
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(e) Day Count Fraction: [30/360 or Actual/Actual (ICMA) or [specify other]]
(f) Determination Date(s): [[ ] in each year] [Not Applicable] (Insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last coupon N.B. This will need to be amended in the case of regular interest payment dates which are not of equal duration N.B. Only relevant where Day Count Fraction is Actual/Actual (ICMA))
(g) Other terms relating to the method [None/Give details] of calculating interest for Fixed Rate Notes: 16. Floating Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)
(a) Specified Period(s)/Specified [ ] Interest Payment Dates: (b) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/ [specify other]]
(c) Additional Business Centre(s): [ ]
(d) Manner in which the Rate of [Screen Rate Determination/ISDA Determination/ Interest and Interest Amount is to specify other] be determined:
(e) Party responsible for calculating [ ] the Rate of Interest and Interest Amount (if not the Principal Paying Agent): (f) Screen Rate Determination: • Reference Rate: [ ] (Either LIBOR, EURIBOR or other, although additional information is required if other - including fallback provisions in the Agency Agreement) • Interest Determination Date(s): [ ] (Second London business day prior to the start of each Interest Period if LIBOR (other than Sterling or euro LIBOR), first day of each Interest Period if Sterling LIBOR and the second day on which the TARGET2 System is open prior to the start of each Interest Period if EURIBOR or euro LIBOR) • Relevant Screen Page: [ ] (In the case of EURIBOR, if not Reuters EURIBOR01 ensure it is a page which shows a composite rate or amend the fallback provisions appropriately)
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(g) ISDA Determination: • Floating Rate Option: [ ] • Designated Maturity: [ ] • Reset Date: [ ] (h) Margin(s): [+/-] [ ] per cent. per annum
(i) Minimum Rate of Interest: [ ] per cent. per annum
(j) Maximum Rate of Interest: [ ] per cent. per annum
(k) Day Count Fraction: [Actual/Actual (ISDA) Actual/365 (Fixed) Actual/365 (Sterling) Actual/360 30/360 30E/360 30E/360 (ISDA) Other] (See Condition 6 for alternatives)
(l) Fallback provisions, rounding [ ] provisions and any other terms relating to the method of calculating interest on Floating Rate Notes, if different from those set out in the Conditions: 17. Zero Coupon Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining subparagraphs of this paragraph)
(a) Accrual Yield: [ ] per cent. per annum
(b) Reference Price: [ ]
(c) Any other formula/basis of [ ] determining amount payable:
(d) Day Count Fraction in relation to [Conditions 8.5(c) and 8.10 apply/specify other] Early Redemption Amounts and (Consider applicable day count fraction if not U.S. late payment: dollar denominated)
18. Index Linked Interest Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining subparagraphs of this paragraph)
(N.B. If the Final Redemption Amount is other than 100 per cent. of the nominal value the Notes will be derivative securities for the purposes of the Prospectus Directive and the requirements of Annex XII to the Prospectus Directive Regulation will apply.)
(a) Index/Formula: [give or annex details]
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(b) Calculation Agent: [give name (and, if the Notes are derivative securities A13.4.8 to which Annex XII of the Prospectus Directive Regulation applies, address)]
(c) Party responsible for calculating [ ] the Rate of Interest (if not the Calculation Agent) and Interest Amount (if not the Principal Paying Agent):
(d) Provisions for determining [need to include a description of market disruption or Coupon where calculation by settlement disruption events and adjustment reference to Index and/or provisions] Formula is impossible or impracticable:
(e) Specified Period(s)/Specified [ ] Interest Payment Dates:
(f) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/ specify other]
(g) Additional Business Centre(s): [ ]
(h) Minimum Rate of Interest: [ ] per cent. per annum
(i) Maximum Rate of Interest: [ ] per cent. per annum
(j) Day Count Fraction: [ ]
19. Dual Currency Interest Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining subparagraphs of this paragraph)
(N.B. If the Final Redemption Amount is other than 100 per cent. of the nominal value the Notes will be derivative securities for the purposes of the Prospectus Directive and the requirements of Annex XII to the Prospectus Directive Regulation will apply.)
(a) Rate of Exchange/method of [give or annex details] calculating Rate of Exchange:
(b) Party, if any, responsible for [ ] calculating the principal and/or interest due (if not the Principal Paying Agent):
(c) Provisions applicable where [need to include a description of market disruption or calculation by reference to Rate settlement disruption events and adjustment of Exchange impossible or provisions] impracticable:
(d) Person at whose option Specified [ ] Currency(ies) is/are payable:
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PROVISIONS RELATING TO REDEMPTION
20. Issuer Call: [Applicable/Not Applicable] A13.4.9 (If not applicable, delete the remaining subparagraphs of this paragraph)
(a) Optional Redemption Date(s): [ ]
(b) Optional Redemption Amount and [[ ] per Calculation Amount/specify other/see method, if any, of calculation of Appendix] such amount(s): (c) If redeemable in part:
(i) Minimum Redemption Amount: [ ]
(ii) Maximum Redemption Amount: [ ]
(d) Notice period (if other than as set [ ] out in the Conditions): (N.B. If setting notice periods which are different to those provided in the Conditions, the Issuer is advised to consider the practicalities of distribution of information through intermediaries, for example, clearing systems and custodians, as well as any other notice requirements which may apply, for example, as between the Issuer and the Principal Paying Agent or the Trustee)
21. Investor Put: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)
(a) Optional Redemption Date(s): [ ]
(b) Optional Redemption Amount [[ ] per Calculation Amount/specify other/see and method, if any, of calculation Appendix] of such amount(s):
(c) Notice period (if other than as set [ ] out in the Conditions): (N.B. If setting notice periods which are different to those provided in the Conditions, the Issuer is advised to consider the practicalities of distribution of information through intermediaries, for example, clearing systems and custodians, as well as any other notice requirements which may apply, for example, as between the Issuer and the Principal Paying Agent or the Trustee)
22. Change of Control Put: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)
(a) Change of Control Redemption [[ ] per Calculation Amount/specify other] Amount:
(b) Any other provisions relating to [Not Applicable/give details] Change of Control Put:
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23. Final Redemption Amount: [[ ] per Calculation Amount/specify other/see Appendix]
(N.B. If the Final Redemption Amount is other than 100 per cent. of the nominal value the Notes will be derivative securities for the purposes of the Prospectus Directive and the requirements of Annex XII to the Prospectus Directive Regulation will apply.)
24. Early Redemption Amount payable on [[ ] per Calculation Amount/specify other/see redemption for taxation reasons or on Appendix] event of default and/or the method of calculating the same (if required or if different from that set out in Condition 8.5):
GENERAL PROVISIONS APPLICABLE TO THE NOTES
25. Form of Notes: [Bearer Notes: A12.4.1.4 A13.4.4 [Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes [on 60 days’ notice given at any time/only upon an Exchange Event]]
[Temporary Global Note exchangeable for Definitive Notes on and after the Exchange Date]
[Permanent Global Note exchangeable for Definitive Notes [on 60 days’ notice given at any time/only upon an Exchange Event/at any time at the request of the Issuer]]
(N.B. The exchange upon notice/at any time at the request of the Issuer options should not be expressed to be applicable if the Specified Denomination of the Notes in paragraph 6 includes language substantially to the following effect: “[€100,000] and integral multiples of [€1,000] in excess thereof up to and including [€199,000]. No Notes in definitive form will be issued with a denomination above [€199,000].” Furthermore, such Specified Denomination construction is not permitted in relation to any issue of Notes which is to be represented on issue by a Temporary Global Note exchangeable for Definitive Notes.)]
[Registered Notes:
[Regulation S Global Note (U.S.$[ ] nominal amount) registered in the name of a nominee for [DTC/a common depositary for Euroclear and Clearstream, Luxembourg/a common safekeeper for Euroclear and Clearstream, Luxembourg]]
[Rule 144A Global Note (U.S.$[ ] nominal amount) registered in the name of a nominee for [DTC/a common depositary for Euroclear and
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Clearstream, Luxembourg/a common safekeeper for Euroclear and Clearstream, Luxembourg]
[Definitive IAI Registered Notes] (In the case of an issue with more than one Global Note or a combination of one or more Global Notes and Definitive IAI Notes, specify the nominal amounts of each Global Note and, if applicable, the aggregate nominal amount of all Definitive IAI Notes if such information is available)
26. Additional Financial Centre(s) or other [Not Applicable/give details] special provisions relating to Payment (Note that this paragraph relates to the place of Days: payment and not Interest Period end dates to which sub-paragraphs 16(c) and 18(g) relate)
27. Talons for future Coupons or Receipts to [Yes/No. If yes, give details] be attached to Definitive Notes in bearer form (and dates on which such Talons mature):
28. Details relating to Partly Paid Notes: [Not Applicable/give details. N.B. a new form of amount of each payment comprising the Temporary Global Note and/or Permanent Global Issue Price and date on which each Note may be required for Partly Paid issues] payment is to be made and consequences of failure to pay, including any right of the Issuer to forfeit the Notes and interest due on late payment: 29. Details relating to Instalment Notes:
(a) Instalment Amount(s): [Not Applicable/give details]
(b) Instalment Date(s): [Not Applicable/give details]
30. Redenomination applicable: Redenomination [not] applicable
(If Redenomination is applicable, specify the applicable Day Count Fraction and any provisions necessary to deal with floating rate interest calculation (including alternative reference rates))
31. Financial covenants:
(a) Total Net Indebtedness to Total [Does not exceed 1:1, as set out in Condition Equity Ratio: 4]/[specify other]/[Not Applicable] (b) EBITDA to Net Finance Costs Ratio: [Not less than 1.5:1, as set out in Condition 4]/[specify other]/[Not Applicable]
(c) Secured Assets to Total Assets [Not to exceed an amount equal to 49 per cent. of the Percentage: Total Assets of the Group, as set out in Condition 4]/[specify other]/[Not Applicable]
(d) Any other provisions relating to [Not Applicable/give details]] financial covenants:
32. Other final terms: [Not Applicable/give details]
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[(When adding any other final terms consideration should be given as to whether such terms constitute “significant new factors” and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.)]
DISTRIBUTION
33. (a) If syndicated, names of Managers: [Not Applicable/give names]
(If the Notes are derivative securities to which Annex XII of the Prospectus Directive Regulation applies, include names of entities agreeing to underwrite the issue on a firm commitment basis and names of the entities agreeing to place the issue without a firm commitment or on a “best efforts” basis if such entities are not the same as the Managers.)
(b) Date of Subscription Agreement: [ ]
(The above is only relevant if the Notes are derivative securities to which Annex XII of the Prospectus Directive Regulation applies.)
(c) Stabilising Manager(s) (if any): [Not Applicable/give name]
34. If non-syndicated, name of relevant Dealer: [Not Applicable/give name]
35. U.S. Selling Restrictions: [Reg. S Category 2; [Rule 144A/Section 4(2)] TEFRA D/TEFRA C/TEFRA not applicable]
36. Additional selling restrictions: [Not Applicable/give details]
37. Additional U.S. Federal income tax disclosure: [Not Applicable/give details]
PURPOSE OF FINAL TERMS
These Final Terms comprise the final terms required for issue and admission to trading on [specify relevant regulated market (for example, the London Stock Exchange’s regulated market) and, if relevant listing on an official list (for example, the Official List of the UK Listing Authority)] of the Notes described herein pursuant to the U.S.$2,000,000,000 Global Medium Term Note Programme of MAF Global Securities Limited.
RESPONSIBILITY
The Issuer and each of the Guarantors accepts responsibility for the information contained in these Final A12.7.4 Terms. [[Relevant third party information, for example in compliance with Annex XII to the Prospectus A13.7.4 Directive Regulation in relation to an index or its components] has been extracted from [specify source]. The Issuer confirms that such information has been accurately reproduced and that, so far as it is aware and is able to ascertain from information published by [specify source], no facts have been omitted which would render the reproduced information inaccurate or misleading.]
Signed on behalf of
MAF GLOBAL SECURITIES LIMITED:
By: ...... By: ...... Duly authorised Duly authorised
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Signed on behalf of Signed on behalf of
MAJID AL FUTTAIM HOLDING LLC: MAJID AL FUTTAIM PROPERTIES LLC:
By: ...... By: ...... Duly authorised Duly authorised
By: ...... By: ...... Duly authorised Duly authorised
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PART B – OTHER INFORMATION
1. LISTING AND ADMISSION TO TRADING A12.6.1 A12.6.2 (i) Listing and Admission to trading: [Application has been made by the Issuer (or on its A13.5.1 behalf) for the Notes to be admitted to trading on [specify relevant regulated market (for example the London Stock Exchange’s regulated market) and, if relevant, listing on an official list (for example, the Official List of the UK Listing Authority)] with effect from [ ].] [Application is expected to be made by the Issuer (or on its behalf) for the Notes to be admitted to trading on [specify relevant regulated market (for example the London Stock Exchange’s regulated market) and, if relevant, listing on an official list (for example, the Official List of the UK Listing Authority)] with effect from [ ].] [Not Applicable.]
(ii) Estimate of total expenses related to [ ] A13.6.1 admission to trading:
2. RATINGS
Ratings: The Notes to be issued have been rated: A13.7.5
[S & P: [ ]] [Fitch: [ ]] [[Other]: [ ]]
(The above disclosure should reflect the rating allocated to Notes of the type being issued under the Programme generally or, where the issue has been specifically rated, that rating.)
[Standard & Poor’s Credit Market Services Europe Limited is established in the European Union and has applied for registration under Regulation (EC) No. 1060/2009, although notification of the corresponding registration decision has not yet been provided by the relevant competent authority.] / [Standard & Poor’s Credit Market Services Europe Limited is established in the European Union and is registered under Regulation (EC) No. 1060/2009.]
[Fitch Ratings Ltd. is established in the European Union and has applied for registration under Regulation (EC) No. 1060/2009, although notification of the corresponding registration decision has not yet been provided by the relevant competent authority.] / [Fitch Ratings Ltd. is established in the European Union and is registered under Regulation (EC) No. 1060/2009.]
(The following language should be used where the Notes are to be rated by a credit rating agency other than S&P or Fitch.)
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[The Notes to be issued [[have been]/[are expected to be]] rated [insert details] by [insert credit rating agency name(s)].]
[[Insert credit rating agency] is established in the European Union and has applied for registration under Regulation (EC) No. 1060/2009, although notification of the corresponding registration decision has not yet been provided by the relevant competent authority.]
[[Insert credit rating agency] is established in the European Union and is registered under Regulation (EC) No. 1060/2009.]
[[Insert credit rating agency] is not established in the European Union and is not registered in accordance with Regulation (EC) No. 1060/2009.]
[[Insert credit rating agency] is not established in the European Union and has not applied for registration under Regulation (EC) No. 1060/2009. However, the application for registration under Regulation (EC) No. 1060/2009 of [insert the name of the relevant EU CRA affiliate that applied for registration], which is established in the European Union, disclosed the intention to endorse credit ratings of [insert credit rating agency].]
[[Insert credit rating agency] is not established in the European Union and has not applied for registration under Regulation (EC) No. 1060/2009. The ratings [[have been]/[are expected to be]] endorsed by [insert the name of the relevant EU-registered credit rating agency] in accordance with Regulation (EC) No. 1060/2009. [Insert the name of the relevant EU- registered credit rating agency] is established in the European Union and registered under Regulation (EC) No. 1060/2009.]
[[Insert credit rating agency] is not established in the European Union and has not applied for registration under Regulation (EC) No. 1060/2009, but it is certified in accordance with such Regulation.]
3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE A12.3.1 A13.3 [Save for any fees payable to the [Managers/Dealer], so far as the Issuer is aware, no person involved in the issue of the Notes has an interest material to the offer. - Amend as appropriate if there are other interests]
[(When adding any other description, consideration should be given as to whether such matters described constitute “significant new factors” and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.)]
4. REASONS FOR THE OFFER, ESTIMATED NET PROCEEDS AND TOTAL EXPENSES A12.3.2
(i) Reasons for the offer: [ ]
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(ii) Estimated net proceeds: [ ]
(iii) Estimated total expenses: [ ]
(N.B.: Delete unless the Notes are derivative securities to which Annex XII of the Prospectus Directive Regulation applies, in which case (i) above is required where the reasons for the offer are different from making profit and/or hedging certain risks and, where such reasons are inserted in (i), disclosure of net proceeds and total expenses at (ii) and (iii) above are also required.)
5. YIELD (Fixed Rate Notes only) A13.4.10
Indication of yield: [ ]
The yield is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future yield.
6. PERFORMANCE OF INDEX/FORMULA AND OTHER INFORMATION CONCERNING THE UNDERLYING (Index-linked Notes only)
[Need to include details of where past and future performance and volatility of the index/formula can A12.4.2.1 be obtained.] A12.4.2.2
[Where the underlying is an index need to include the name of the index and a description if composed A12.4.2.3 by the Issuer and if the index is not composed by the Issuer need to include details of where the A12.4.2.4 information about the index can be obtained.]
[Include other information concerning the underlying required by paragraph 4.2 of Annex XII of the Prospectus Directive Regulation.]
[(When completing the above paragraphs, consideration should be given as to whether such matters described constitute “significant new factors” and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.)]
The Issuer [intends to provide post-issuance information [specify what information will be reported A12.7.5 and where it can be obtained]] [does not intend to provide post-issuance information].
(N.B. This paragraph 6 only applies if the Notes are derivative securities to which Annex XII of the Prospectus Directive Regulation applies.)
7. PERFORMANCE OF RATE[S] OF EXCHANGE (Dual Currency Notes only)
[Need to include details of where past and future performance and volatility of the relevant rates can be obtained.]
[(When completing this paragraph, consideration should be given as to whether such matters described constitute “significant new factors” and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.)]
The Issuer [intends to provide post-issuance information [specify what information will be reported and where it can be obtained]] [does not intend to provide post-issuance information].
(N.B. This paragraph 7 only applies if the Notes are derivative securities to which Annex XII of the Prospectus Directive Regulation applies.)
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8. OPERATIONAL INFORMATION A12.4.1.1 A13.4.2 (i) ISIN Code: [ ]
(ii) Common Code: [ ]
(iii) CUSIP: [ ]
(iv) CINS: [ ]
(v) Any clearing system(s) other than [Not Applicable/give name(s) and number(s)] DTC, Euroclear and Clearstream, Luxembourg and the relevant identification number(s): (vi) Delivery: Delivery [against/free of] payment
(vii) Names and addresses of additional [ ] Paying Agent(s) (if any):
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TERMS AND CONDITIONS OF THE NOTES A12.4.1.7 A13.4.7 The following are the Terms and Conditions of the Notes which will be incorporated by reference into each Global Note (as defined below) and each definitive Note, in the latter case only if permitted by the relevant stock exchange or other relevant authority (if any) and agreed by the Issuer and the relevant Dealer at the time of issue but, if not so permitted and agreed, such definitive Note will have endorsed thereon or attached thereto such Terms and Conditions. The applicable Final Terms in relation to any Tranche of Notes may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the following Terms and Conditions, replace or modify the following Terms and Conditions for the purpose of such Notes. The applicable Final Terms (or the relevant provisions thereof) will be endorsed upon, or attached to, each Global Note and definitive Note. Reference should be made to “Form of the Notes” for a description of the content of the Final Terms which will specify which of such terms are to apply in relation to the relevant Notes.
This Note is one of a Series (as defined below) of Notes issued by MAF Global Securities Limited (the A13.4.11 Issuer) constituted by a trust deed (such trust deed as modified and/or supplemented and/or restated from time to time, the Trust Deed) dated 14 June 2011 made between the Issuer, Majid Al Futtaim Holding LLC (MAF Holding), Majid Al Futtaim Properties LLC (together with MAF Holding, the Guarantors and each a Guarantor) and Citibank, N.A., London Branch (the Trustee, which expression shall include all persons for the time being trustee or trustees appointed under the Trust Deed).
References herein to the Notes shall be references to the Notes of this Series and shall mean:
(a) in relation to any Notes represented by a global Note (a Global Note), units of each Specified Denomination in the Specified Currency;
(b) any Global Note;
(c) any definitive Notes in bearer form (Bearer Notes) issued in exchange for a Global Note in bearer form; and
(d) any definitive Notes in registered form (Registered Notes) (whether or not issued in exchange for a Global Note in registered form).
The Notes, the Receipts (as defined below) and the Coupons (as defined below) have the benefit of an agency agreement (such agency agreement as amended and/or supplemented and/or restated from time to time, the Agency Agreement) dated 14 June 2011 and made between the Issuer, the Guarantors, the Trustee, Citibank, N.A. as issuing and principal paying agent and agent bank (the Principal Paying Agent, which expression shall include any successor principal paying agent appointed from time to time in connection with the Notes) and the other paying agents named therein (together with the Principal Paying Agent, the Paying Agents, which expression shall include any additional or successor paying agents appointed from time to time in connection with the Notes) and as exchange agent (the Exchange Agent, which expression shall include any successor exchange agent appointed from time to time in connection with the Notes) and Citigroup Global Markets Deutschland AG as registrar (the Registrar, which expression shall include any successor registrar appointed from time to time in connection with the Notes) and a transfer agent and the other transfer agents named therein (together with the Registrar, the Transfer Agents, which expression shall include any additional or successor transfer agents appointed from time to time in connection with the Notes).
Interest bearing definitive Bearer Notes have interest coupons (Coupons) and, if indicated in the applicable Final Terms, talons for further Coupons (Talons) attached on issue. Any reference herein to Coupons or coupons shall, unless the context otherwise requires, be deemed to include a reference to Talons or talons. Definitive Bearer Notes repayable in instalments have receipts (Receipts) for the payment of the instalments of principal (other than the final instalment) attached on issue. Registered Notes and Global Notes do not have Receipts, Coupons or Talons attached on issue.
The final terms for this Note (or the relevant provisions thereof) are set out in Part A of the Final Terms attached to or endorsed on this Note which supplement these Terms and Conditions (the Conditions) and
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may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the Conditions, replace or modify the Conditions for the purposes of this Note. References to the applicable Final Terms are to Part A of the Final Terms (or the relevant provisions thereof) attached to or endorsed on this Note.
The Trustee acts for the benefit of the Noteholders (which expression shall mean (in the case of Bearer Notes) the bearer of the Notes and (in the case of Registered Notes) the persons in whose name the Notes are registered and shall, in relation to any Notes represented by a Global Note, be construed as provided below), the holders of the Receipts (the Receiptholders) and the holders of the Coupons (the Couponholders, which expression shall, unless the context otherwise requires, include the holders of the Talons), in accordance with the provisions of the Trust Deed.
As used herein, Tranche means Notes which are identical in all respects (including as to listing and admission to trading) and Series means a Tranche of Notes together with any further Tranche or Tranches of Notes which are (a) expressed to be consolidated and form a single series and (b) identical in all respects (including as to listing and admission to trading) except for their respective Issue Dates, (unless this is a Zero Coupon Note) Interest Commencement Dates and/or Issue Prices.
Copies of the Trust Deed and the Agency Agreement are available for inspection during normal business hours at the registered office for the time being of the Principal Paying Agent being at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom and at the specified office of each of the Registrar and the other Paying Agents, the Exchange Agent and the other Transfer Agents (such Agents and the Registrar being together referred to as the Agents). Copies of the applicable Final Terms are available for viewing at the registered office of the Issuer and of the Principal Paying Agent and copies may be obtained from those offices save that, if this Note is neither admitted to trading on a regulated market in the European Economic Area nor offered in the European Economic Area in circumstances where a prospectus is required to be published under the Prospectus Directive (Directive 2003/71/EC), the applicable Final Terms will only be obtainable by a Noteholder holding one or more Notes and such Noteholder must produce evidence satisfactory to the Issuer, the Trustee and the relevant Agent as to its holding of such Notes and identity. The Noteholders, the Receiptholders and the Couponholders are deemed to have notice of, and are entitled to the benefit of, all the provisions of the Trust Deed, the Agency Agreement and the applicable Final Terms which are applicable to them. The statements in the Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed and the Agency Agreement.
Words and expressions defined in the Trust Deed, the Agency Agreement or used in the applicable Final Terms shall have the same meanings where used in the Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between the Trust Deed and the Agency Agreement, the Trust Deed will prevail and, in the event of inconsistency between the Trust Deed or the Agency Agreement and the applicable Final Terms, the applicable Final Terms will prevail.
1. FORM, DENOMINATION AND TITLE
The Notes are in bearer form or in registered form as specified in the applicable Final Terms and, in the case of definitive Notes, serially numbered, in the Specified Currency and the Specified Denomination(s). Notes of one Specified Denomination may not be exchanged for Notes of another Specified Denomination and Bearer Notes may not be exchanged for Registered Notes and vice versa.
This Note may be a Fixed Rate Note, a Floating Rate Note, a Zero Coupon Note, an Index Linked Interest Note, a Dual Currency Interest Note or a combination of any of the foregoing, depending upon the Interest Basis shown in the applicable Final Terms.
This Note may be an Index Linked Redemption Note, an Instalment Note, a Dual Currency Redemption Note, a Partly Paid Note or a combination of any of the foregoing, depending upon the Redemption/Payment Basis shown in the applicable Final Terms.
Definitive Bearer Notes are issued with Coupons attached, unless they are Zero Coupon Notes in which case references to Coupons and Couponholders in the Conditions are not applicable.
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Subject as set out below, title to the Bearer Notes, Receipts and Coupons will pass by delivery and title to the Registered Notes will pass upon registration of transfers in accordance with the provisions of the Agency Agreement. The Issuer, each Guarantor, the Trustee and any Agent will (except as otherwise required by law) deem and treat the bearer of any Bearer Note, Receipt or Coupon and the registered holder of any Registered Note as the absolute owner thereof (whether or not overdue and notwithstanding any notice of ownership or writing thereon or notice of any previous loss or theft thereof) for all purposes but, in the case of any Global Note, without prejudice to the provisions set out in the next succeeding paragraph.
For so long as any of the Notes is represented by a Global Note held on behalf of Euroclear Bank SA/NV (Euroclear) and/or Clearstream Banking, société anonyme (Clearstream, Luxembourg), each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular nominal amount of such Notes (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the nominal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer, the Guarantors, the Trustee and the Agents as the holder of such nominal amount of such Notes for all purposes other than with respect to the payment of principal or interest on such nominal amount of such Notes, for which purpose the bearer of the relevant Bearer Global Note or the registered holder of the relevant Registered Global Note shall be treated by the Issuer, each Guarantor, the Trustee and any Agent as the holder of such nominal amount of such Notes in accordance with and subject to the terms of the relevant Global Note and the expressions Noteholder and holder of Notes and related expressions shall be construed accordingly.
For so long as the Depository Trust Company (DTC) or its nominee is the registered owner or holder of a Registered Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Registered Global Note for all purposes under the Trust Deed and the Agency Agreement and the Notes except to the extent that in accordance with DTC’s published rules and procedures any ownership rights may be exercised by its participants or beneficial owners through participants.
In determining whether a particular person is entitled to a particular nominal amount of Notes as aforesaid, the Trustee may rely on such evidence and/or information and/or certification as it shall, in its absolute discretion, think fit and, if it does so rely, such evidence and/or information and/or certification shall, in the absence of manifest error, be conclusive and binding on all concerned.
Notes which are represented by a Global Note will be transferable only in accordance with the rules and procedures for the time being of DTC, Euroclear and Clearstream, Luxembourg, as the case may be. References to DTC, Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Final Terms or as may otherwise be approved by the Issuer, the Guarantors, the Principal Paying Agent and the Trustee.
2. TRANSFERS OF REGISTERED NOTES
2.1 Transfers of interests in Registered Global Notes
Transfers of beneficial interests in Registered Global Notes will be effected by DTC, Euroclear or Clearstream, Luxembourg, as the case may be, and, in turn, by other participants and, if appropriate, indirect participants in such clearing systems acting on behalf of transferors and transferees of such interests. A beneficial interest in a Registered Global Note will, subject to compliance with all applicable legal and regulatory restrictions, be transferable for Notes in definitive form or for a beneficial interest in another Registered Global Note only in the authorised denominations set out in the applicable Final Terms and only in accordance with the rules and operating procedures for the time being of DTC, Euroclear or Clearstream, Luxembourg, as the case may be, and in accordance with the terms and conditions specified in the Trust Deed and the Agency Agreement. Transfers of a Registered Global Note registered in the name of a nominee for DTC shall be limited to transfers of
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such Registered Global Note, in whole but not in part, to another nominee of DTC or to a successor of DTC or such successor’s nominee.
2.2 Transfers of Registered Notes in definitive form Subject as provided in Conditions 2.5, 2.6 and 2.7 below, upon the terms and subject to the conditions set forth in the Trust Deed and the Agency Agreement, a Registered Note in definitive form may be transferred in whole or in part (in the authorised denominations set out in the applicable Final Terms). In order to effect any such transfer (a) the holder or holders must (i) surrender the Registered Note for registration of the transfer of the Registered Note (or the relevant part of the Registered Note) at the specified office of any Transfer Agent, with the form of transfer thereon duly executed by the holder or holders thereof or his or their attorney or attorneys duly authorised in writing and (ii) complete and deposit such other certifications as may be required by the relevant Transfer Agent and (b) the relevant Transfer Agent must, after due and careful enquiry, be satisfied with the documents of title and the identity of the person making the request. Any such transfer will be subject to such reasonable regulations as the Issuer and the Registrar may from time to time prescribe (the initial such regulations being set out in Schedule 5 to the Agency Agreement). Subject as provided above, the relevant Transfer Agent will, within three business days (being for this purpose a day on which banks are open for business in the city where the specified office of the relevant Transfer Agent is located) of the request (or such longer period as may be required to comply with any applicable fiscal or other laws or regulations), authenticate and deliver, or procure the delivery of, at its specified office to the transferee or (at the risk of the transferee) send by uninsured mail, to such address as the transferee may request, a new Registered Note in definitive form of a like aggregate nominal amount to the Registered Note (or the relevant part of the Registered Note) transferred. In the case of the transfer of part only of a Registered Note in definitive form, a new Registered Note in definitive form in respect of the balance of the Registered Note not transferred will be so delivered or (at the risk of the transferor) sent to the transferor.
2.3 Registration of transfer upon partial redemption In the event of a partial redemption of Notes under Condition 8, the Issuer shall not be required to register the transfer of any Registered Note, or part of a Registered Note, called for partial redemption.
2.4 Costs of registration Noteholders will not be required to bear the costs and expenses of effecting any registration of transfer as provided above, except for any costs or expenses of delivery other than by regular uninsured mail and except that the Issuer may require the payment of a sum sufficient to cover any stamp duty, tax or other governmental charge that may be imposed in relation to the registration.
2.5 Transfers of interests in Regulation S Global Notes Prior to expiry of the applicable Distribution Compliance Period, transfers by the holder of, or of a beneficial interest in, a Regulation S Global Note to a transferee in the United States or who is a U.S. person will only be made:
(a) upon receipt by the Registrar of a written certification substantially in the form set out in the Agency Agreement, amended as appropriate (a Transfer Certificate), copies of which are available from the specified office of any Transfer Agent, from the transferor of the Note or beneficial interest therein to the effect that such transfer is being made:
(i) to a person whom the transferor reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A; or
(ii) to a person who is an Institutional Accredited Investor,
together with, in the case of (ii), a duly executed investment letter from the relevant transferee substantially in the form set out in the Agency Agreement (an IAI Investment Letter); or
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(b) otherwise pursuant to the Securities Act or an exemption therefrom, subject to receipt by the Issuer of such satisfactory evidence as the Issuer may reasonably require, which may include an opinion of U.S. counsel, that such transfer is in compliance with any applicable securities laws of any state of the United States,
and, in each case, in accordance with any applicable securities laws of any State of the United States or any other jurisdiction.
In the case of (a)(i) above, such transferee may take delivery through a Legended Note in global or definitive form and, in the case of (a)(ii) above, such transferee may take delivery only through a Legended Note in definitive form. After expiry of the applicable Distribution Compliance Period (A) beneficial interests in Regulation S Global Notes registered in the name of a nominee for DTC may be held through DTC directly, by a participant in DTC, or indirectly through a participant in DTC and (B) such certification requirements will no longer apply to such transfers.
2.6 Transfers of interests in Legended Notes
Transfers of Legended Notes or beneficial interests therein may be made:
(a) to a transferee who takes delivery of such interest through a Regulation S Global Note, upon receipt by the Registrar of a duly completed Transfer Certificate from the transferor to the effect that such transfer is being made in accordance with Regulation S and that in the case of a Regulation S Global Note registered in the name of a nominee for DTC, if such transfer is being made prior to expiry of the applicable Distribution Compliance Period, the interests in the Notes being transferred will be held immediately thereafter through Euroclear and/or Clearstream, Luxembourg; or
(b) to a transferee who takes delivery of such interest through a Legended Note:
(i) where the transferee is a person whom the transferor reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, without certification; or
(ii) where the transferee is an Institutional Accredited Investor, subject to delivery to the Registrar of a Transfer Certificate from the transferor to the effect that such transfer is being made to an Institutional Accredited Investor, together with a duly executed IAI Investment Letter from the relevant transferee; or
(c) otherwise pursuant to the Securities Act or an exemption therefrom, subject to receipt by the Issuer of such satisfactory evidence as the Issuer may reasonably require, which may include an opinion of U.S. counsel, that such transfer is in compliance with any applicable securities laws of any State of the United States,
and, in each case, in accordance with any applicable securities laws of any State of the United States or any other jurisdiction.
Notes transferred by Institutional Accredited Investors to QIBs pursuant to Rule 144A or outside the United States pursuant to Regulation S will be eligible to be held by such QIBs or non-U.S. investors through DTC, Euroclear or Clearstream, Luxembourg, as appropriate, and the Registrar will arrange for any Notes which are the subject of such a transfer to be represented by the appropriate Registered Global Note, where applicable.
Upon the transfer, exchange or replacement of Legended Notes, or upon specific request for removal of the Legend, the Registrar shall deliver only Legended Notes or refuse to remove the Legend, as the case may be, unless there is delivered to the Issuer such satisfactory evidence as may reasonably be required by the Issuer, which may include an opinion of U.S. counsel, that neither the Legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act.
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2.7 Exchanges and transfers of Registered Notes generally
Holders of Registered Notes in definitive form, other than Institutional Accredited Investors, may exchange such Notes for interests in a Registered Global Note of the same type at any time.
2.8 Definitions
In this Condition 2, the following expressions shall have the following meanings:
Distribution Compliance Period means the period that ends 40 days after the completion of the distribution of each Tranche of Notes, as certified by the relevant Dealer (in the case of a non- syndicated issue) or the relevant Lead Manager (in the case of a syndicated issue);
Institutional Accredited Investor means accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that are institutions;
Legended Note means Registered Notes in definitive form that are issued to Institutional Accredited Investors and Registered Notes (whether in definitive form or represented by a Registered Global Note) sold in private transactions to QIBs in accordance with the requirements of Rule 144A which bear a legend specifying certain restrictions on transfer (a Legend);
QIB means a qualified institutional buyer within the meaning of Rule 144A;
Regulation S means Regulation S under the Securities Act;
Regulation S Global Note means a Registered Global Note representing Notes sold outside the United States in reliance on Regulation S;
Rule 144A means Rule 144A under the Securities Act;
Rule 144A Global Note means a Registered Global Note representing Notes sold in the United States or to QIBs; and
Securities Act means the United States Securities Act of 1933, as amended.
3. STATUS OF THE NOTES AND THE GUARANTEE A12.4.1.6
3.1 Status of the Notes
The Notes and any relative Receipts and Coupons are direct, unconditional, unsubordinated and (subject to the provisions of Condition 4) unsecured obligations of the Issuer and rank pari passu among themselves and (save for certain obligations required to be preferred by law) equally with all other unsecured obligations (other than subordinated obligations, if any) of the Issuer, from time to time outstanding.
3.2 Status of the Guarantee
The payment of principal and interest in respect of the Notes and all other moneys payable by the A6.1 Issuer under or pursuant to the Trust Deed has been unconditionally and irrevocably guaranteed, on a A6.2 joint and several basis, by the Guarantors in the Trust Deed (the Guarantee). The obligations of each Guarantor under the Guarantee are direct, unconditional, unsubordinated and (subject to the provisions of Condition 4) unsecured obligations of the relevant Guarantor and (save for certain obligations required to be preferred by law) rank equally with all other unsecured obligations (other than subordinated obligations, if any) of such Guarantor, from time to time outstanding.
4. NEGATIVE PLEDGES AND OTHER COVENANTS A12.4.1.6 A13.4.6 4.1 Negative pledges
So long as any Note remains outstanding (as defined in the Trust Deed):
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(a) the Issuer will not create, or have outstanding, any mortgage, charge, lien, pledge or other security interest (each a Security Interest), other than a Permitted Security Interest, upon the whole or any part of its present or future undertaking, assets or revenues to secure any Relevant Indebtedness or Relevant Sukuk Obligation, or any guarantee or indemnity in respect of any Relevant Indebtedness or Relevant Sukuk Obligation, given by it without at the same time or prior thereto according to the Notes the same security as is created or subsisting to secure any such Relevant Indebtedness, Relevant Sukuk Obligation, guarantee or indemnity or such other security is provided either (i) as the Trustee shall in its absolute discretion deem not materially less beneficial to the interests of the Noteholders; or (ii) as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders; and
(b) each Guarantor will not, and MAF Holding will ensure that no Principal Subsidiary (as defined in Condition 11) will, create, or have outstanding, any Security Interest, other than a Permitted Security Interest, upon the whole or any part of its present or future undertaking, assets or revenues to secure any Relevant Indebtedness or Relevant Sukuk Obligation, or any guarantee or indemnity in respect of any Relevant Indebtedness or Relevant Sukuk Obligation, given by it without at the same time or prior thereto according to the Notes the same security as is created or subsisting to secure any such Relevant Indebtedness, Relevant Sukuk Obligation, guarantee or indemnity or such other security is provided either (i) as the Trustee shall in its absolute discretion deem not materially less beneficial to the interests of the Noteholders; or (ii) as shall be approved by an Extraordinary Resolution of the Noteholders.
4.2 Other Covenants
If specified as being applicable in the applicable Final Terms, so long as any Note remains outstanding, MAF Holding undertakes that unless otherwise specified in the applicable Final Terms:
(a) it will not, and will not permit any of its Subsidiaries (as defined in Condition 11) to, create, issue, incur, assume, guarantee or in any manner become directly or indirectly liable with respect to or otherwise become responsible for, contingently or otherwise, the payment of (individually and collectively, to Incur or, as appropriate, an Incurrence) any Financial Indebtedness (other than Permitted Financial Indebtedness); provided that MAF Holding and its Subsidiaries will be permitted to Incur additional Financial Indebtedness if:
(i) no Potential Event of Default or Event of Default would occur and be continuing; and
(ii) the ratio of Consolidated Total Net Indebtedness to Total Equity (the Total Net Indebtedness to Total Equity Ratio) does not exceed a ratio of 1:1; and
(iii) on the date of such Incurrence the ratio of Consolidated EBITDA to Consolidated Net Finance Costs (the EBITDA to Net Finance Costs Ratio) is not less than 1.5:1; and
(b) it will not, and will not permit any of its Subsidiaries to, grant any Security Interest over assets the value (calculated in the manner set out in the definition of Total Assets below) of which (when aggregated with the value of any other asset that is subject to a Security Interest which is not a Permitted Lien) exceeds an amount equal to 49 per cent. of the Total Assets of the Group at the time (the Secured Assets to Total Assets Percentage).
4.3 Definitions
In these Conditions:
Borrowings means, at any time, the outstanding principal, capital or nominal amount and any fixed or minimum premium payable on prepayment or redemption of any indebtedness for or in respect of Financial Indebtedness determined by reference to the most recent consolidated audited financial statements of the Group and, for the purposes of the definition of “Consolidated Total Net Indebtedness” only, taking account of the Incurrence or repayment of any Borrowings since that date;
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Consolidated Cash and Cash Equivalents means, at any time:
(a) cash in hand or on deposit with any acceptable bank;
(b) certificates of deposit, maturing within one year after the relevant date of calculation, issued by an acceptable bank;
(c) any investment in marketable obligations issued or guaranteed by the government of the United States of America or the United Kingdom or any other government of a state having an equivalent credit rating (an Acceptable Government) or by an instrumentality or agency of an Acceptable Government having an equivalent credit rating; (d) open market commercial paper: (i) for which a recognised trading market exists; (ii) issued in the United States of America or the United Kingdom; (iii) which matures within one (1) year after the relevant date of calculation; and (iv) which has a credit rating of either A-1 by Standard & Poor’s or Fitch or P-1 by Moody’s, or, if no rating is available in respect of the commercial paper, the issuer of which has, in respect of its long-term debt obligations, an equivalent rating; or (e) Sterling bills of exchange eligible for rediscount at the Bank of England and accepted by an acceptable bank or any dematerialised equivalent, in each case, to which any member of the Group is beneficially entitled at that time. An acceptable bank for this purpose is a commercial bank or trust company which has a rating of BBB minus or higher by Standard & Poor’s or Fitch or Baa3 or higher by Moody’s or a comparable rating from a nationally recognised credit rating agency for its long-term obligations;
Consolidated EBIT means, in relation to any period, the consolidated operating profit of the Group before taxation: (a) before deducting any Consolidated Finance Costs; (b) not including any accrued interest owing to any member of the Group; (c) before taking into account any Exceptional Items; (d) after deducting the amount of any profit of any Non-Group Entity to the extent that the amount of the profit included in the most recently available audited consolidated financial statements of MAF Holding exceeds the amount actually received in cash by members of the Group through distributions by the Non-Group Entity; and (e) before taking into account any unrealised gains or losses on any financial instrument (other than any derivative instrument which is accounted for on a hedge accounting basis), in each case, to the extent added, deducted or taken into account, as the case may be, for the purposes of determining operating profits of the Group before taxation;
Consolidated EBITDA means, in relation to any period, Consolidated EBIT for the immediately preceding Measurement Period after adding back any amount attributable to the amortisation, depreciation or impairment of assets of members of the Group (and taking no account of the reversal of any previous impairment charge made in that period);
Consolidated Finance Costs means, for any period, the aggregate amount of the accrued interest, commission, fees, discounts, prepayment fees, premiums or charges and other finance payments in respect of Borrowings whether such amounts were paid or payable (but excluding any such amounts which were capitalised) by any member of the Group (calculated on a consolidated basis) during the immediately preceding Measurement Period:
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(a) including any amortised upfront management or arrangement fees or costs;
(b) including the interest (but not the capital) element of payments in respect of Finance Leases;
(c) including any commission, fees, discounts and other finance payments payable by (and deducting any such amounts payable to) any member of the Group under any interest rate hedging arrangement (other than an amount payable on the termination of any interest rate hedging agreement); and
(d) excluding any dividends on preference shares,
so that no amount shall be added (or deducted or excluded) more than once;
Consolidated Interest Receivable means, in respect of any period, all interest and other financing charges received or receivable by the Group during the immediately preceding a Measurement Period calculated on a consolidated basis;
Consolidated Net Finance Costs means, in respect of any period, Consolidated Finance Costs for the immediately preceding Measurement Period less Consolidated Interest Receivable for the immediately preceding Measurement Period calculated on a consolidated basis;
Consolidated Total Net Indebtedness means at any time the aggregate amount of all obligations of the Group for or in respect of Borrowings but deducting the aggregate amount of Consolidated Cash and Cash Equivalents held by the Group at such time, and so that no amount shall be included or excluded more than once;
Exceptional Items means any material items of an unusual or non-recurring nature which represent gains or losses including those arising on:
(a) the restructuring of the activities of an entity and reversals of any provisions for the cost of restructuring;
(b) disposals, revaluations or impairments of non-current assets (other than disposals of Investment Properties, to the extent they are classified as non-current assets); and
(c) disposals of assets associated with discontinued operations;
Finance Lease means any lease or hire purchase contract which would, in accordance with IFRS, be treated as a finance or capital lease;
Financial Indebtedness means any indebtedness for or in respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with IFRS, be treated as a finance or capital lease;
(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non- recourse basis);
(f) any amount raised under any other transaction (including any Non-recourse Project Financing, Securitisation and any forward sale or purchase agreement) having the commercial effect of a borrowing;
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(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and
(i) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (h) (inclusive) above (but without double counting where Financial Indebtedness is both borrowed and guaranteed (or indemnified against) by different Group companies);
Fitch means Fitch Ratings Ltd;
Group means MAF Holding and its Subsidiaries taken as a whole;
IFRS means International Financial Reporting Standards;
Investment Properties means those assets designated as “Investment Properties” in the most recently available audited consolidated financial statements of MAF Holding;
Measurement Period means a period of 12 months ending on the last day of a financial year of MAF Holding for which consolidated audited financial statements are prepared;
Moody’s means Moody’s Investor Service, Inc.;
Non-Group Entity means any investment or entity (which is not itself a member of the Group (including associates and joint ventures)) in which any member of the Group has an ownership interest;
Non-recourse Project Financing means any financing of all or part of the costs of the acquisition, construction or development or any project, provided that (i) any Security Interest given by the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be, is limited solely to assets of the project; (ii) the person providing such financing expressly agrees to limit its recourse to the project financed and the revenues derived from such project as the principal source of repayment for the moneys advanced; and (iii) there is no other recourse to the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be, in respect of any default by any person under the financing;
Permitted Financial Indebtedness means:
(a) any Financial Indebtedness outstanding on the Issue Date of the first Tranche of the Notes;
(b) Financial Indebtedness owed by MAF Holding or any Subsidiary of MAF Holding to MAF Holding or any other Subsidiary of MAF Holding; provided, however, that any subsequent disposition, pledge or transfer of such Financial Indebtedness (other than to MAF Holding or a Subsidiary of MAF Holding) shall be deemed, in each case, to constitute the Incurrence of such Financial Indebtedness by the obligor thereof;
(c) Financial Indebtedness of MAF Holding or a Subsidiary of MAF Holding Incurred and outstanding on or prior to the date on which such Subsidiary became a Subsidiary of MAF Holding (other than Financial Indebtedness Incurred in connection with, or to provide all or any portion of the funds or credit support utilised to consummate, the transaction or series of related transactions pursuant to which the Subsidiary became a Subsidiary of MAF Holding);
(d) Refinancing Financial Indebtedness Incurred by MAF Holding or a Subsidiary of MAF Holding in respect of Financial Indebtedness Incurred by MAF Holding or a Subsidiary of MAF Holding pursuant to Condition 4.2(a) or pursuant to paragraphs (a), (b) or (c) above;
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(e) any amounts owed to suppliers in respect of goods supplied in the ordinary course of business; and
(f) any amounts owed in respect of transactions entered into (including, without limitation, letters of credit) to facilitate trade finance in the ordinary course of business;
Permitted Lien means:
(a) any Security Interest comprising a netting or set-off arrangement entered into by a member of the Group in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances; and
(b) any lien arising by operation of law and in the ordinary course of business;
Permitted Security Interest means:
(a) any Security Interest existing on the date on which agreement is reached to issue the first Tranche of the Notes;
(b) any Security Interest securing the Relevant Indebtedness or Relevant Sukuk Obligation of a person existing at the time that such person is merged into, or consolidated with, the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be, provided that such Security Interest was not created in contemplation of such merger or consolidation and does not extend to any other assets or property of the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be;
(c) any Security Interest existing on any property or assets prior to the acquisition thereof by the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be, and not created in contemplation of such acquisition; or
(d) any renewal of or substitution for any Security Interest permitted by any of paragraphs (a) to (c) (inclusive) of this definition, provided that with respect to any such Security Interest the principal amount secured has not increased and the Security Interest has not been extended to any additional assets (other than the proceeds of such assets);
Refinancing means, in respect of any Financial Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Financial Indebtedness in exchange or replacement for, such Financial Indebtedness;
Relevant Indebtedness means any Indebtedness (as defined in Condition 11), other than Indebtedness incurred in connection with a Non-recourse Project Financing or a Securitisation, which is in the form of, or represented or evidenced by, bonds, notes, debentures, loan stock, certificates or other securities which for the time being are, or are intended to be or are capable of being, quoted, listed, dealt in or traded on any stock exchange, over-the-counter or other securities market;
Relevant Sukuk Obligation means any Sukuk Obligation (as defined in Condition 11), other than a Sukuk Obligation incurred in connection with a Non-recourse Project Financing or a Securitisation, where the trust certificates or instruments, as the case may be, concerned for the time being are, or are intended to be or are capable of being, quoted, listed, dealt in or traded on any stock exchange, over- the-counter or other securities market;
Securitisation means any securitisation of existing or future assets and/or revenues, provided that (i) any Security Interest given by the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be, in connection therewith is limited solely to the assets and/or revenues which are the subject of the securitisation; (ii) each person participating in such securitisation expressly agrees to limit its recourse to the assets and/or revenues so securitised as the principal source of repayment for the money advanced or payment of any other liability; and (iii) there is no other recourse to the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be, in respect of any default by any person under the securitisation;
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Standard & Poor’s means Standard & Poor’s Rating Services, a division of the McGraw-Hill Companies Inc.;
Total Assets means the aggregate value (less depreciation computed in accordance with international accounting standards) of all assets of the Group which are treated as assets determined in accordance with IFRS, as shown in the most recently available audited consolidated financial statements of MAF Holding or, if no such value is specified in those most recently available financial statements, the fair market value of such assets; and
Total Equity means at any time the aggregate of the amounts paid up or credited as paid up on the issued ordinary share capital of the Group including minority interests (on a consolidated basis) and the aggregate of the amounts standing to the credit of the reserves of each member of the Group, including any amount credited to the share premium account and revaluation reserves, determined by reference to the most recent consolidated audited financial statements of the Group, but adding or deducting (as the case may be):
(a) (to the extent included) any amount shown in respect of goodwill or other intangible assets of each member of the Group;
(b) (to the extent included) any provision or credit for deferred taxation which relates to the revaluation of any item which is excluded from the calculation of Total Equity;
(c) any amount in respect of any dividend or distribution declared, recommended or made by any member of the Group and to the extent such distribution is not provided for in the most recently available audited consolidated financial statements of MAF Holding; and
(d) the amount raised in respect of any issue of ordinary share capital, including amounts credited to share premium account,
and so that no amount shall be included or excluded more than once.
5. REDENOMINATION
5.1 Redenomination
Where redenomination is specified in the applicable Final Terms as being applicable, the Issuer may, without the consent of the Noteholders, the Receiptholders and the Couponholders, on giving prior notice to the Principal Paying Agent, Euroclear and Clearstream, Luxembourg and at least 30 days’ prior notice to the Noteholders in accordance with Condition 15, elect that, with effect from the Redenomination Date specified in the notice, the Notes shall be redenominated in euro.
The election will have effect as follows:
(a) the Notes and the Receipts shall be deemed to be redenominated in euro in the denomination of euro 0.01 with a nominal amount for each Note and Receipt equal to the nominal amount of that Note or Receipt in the Specified Currency, converted into euro at the Established Rate, provided that, if the Issuer determines, with the agreement of the Principal Paying Agent and the Trustee, that the then market practice in respect of the redenomination in euro of internationally offered securities is different from the provisions specified above, such provisions shall be deemed to be amended so as to comply with such market practice and the Issuer shall promptly notify the Noteholders, each listing authority (if any), the stock exchange (if any) on which the Notes may be listed and the Agents of such deemed amendments;
(b) save to the extent that an Exchange Notice has been given in accordance with paragraph (d) below, the amount of interest due in respect of the Notes will be calculated by reference to the aggregate nominal amount of Notes held (or, as the case may be, in respect of which Coupons are presented for payment) by the relevant holder and the amount of such payment shall be rounded down to the nearest euro 0.01;
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(c) if definitive Notes are required to be issued after the Redenomination Date, they shall be issued at the expense of the Issuer (i) in the case of Relevant Notes in the denomination of euro 100,000 and/or such higher amounts as the Principal Paying Agent may determine and notify to the Noteholders and any remaining amounts less than euro 100,000 shall be redeemed by the Issuer and paid to the Noteholders in euro in accordance with Condition 7; and (ii) in the case of Notes which are not Relevant Notes, in the denominations of euro 1,000, euro 10,000, euro 100,000 and (but only to the extent of any remaining amounts less than euro 1,000 or such smaller denominations as the Principal Paying Agent and the Trustee may approve) euro 0.01 and such other denominations as the Principal Paying Agent shall determine and notify to the Noteholders;
(d) if issued prior to the Redenomination Date, all unmatured Coupons denominated in the Specified Currency (whether or not attached to the Notes) will become void with effect from the date on which the Issuer gives notice (the Exchange Notice) that replacement euro- denominated Notes, Receipts and Coupons are available for exchange (provided that such securities are so available) and no payments will be made in respect of them. The payment obligations contained in any Notes and Receipts so issued will also become void on that date although those Notes and Receipts will continue to constitute valid exchange obligations of the Issuer. New euro-denominated Notes, Receipts and Coupons will be issued in exchange for Notes, Receipts and Coupons denominated in the Specified Currency in such manner as the Principal Paying Agent may specify and as shall be notified to the Noteholders in the Exchange Notice. No Exchange Notice may be given less than 15 days prior to any date for payment of principal or interest on the Notes;
(e) after the Redenomination Date, all payments in respect of the Notes, the Receipts and the Coupons, other than payments of interest in respect of periods commencing before the Redenomination Date, will be made solely in euro as though references in the Notes to the Specified Currency were to euro. Payments will be made in euro by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or, at the option of the payee, by a euro cheque;
(f) if the Notes are Fixed Rate Notes and interest for any period ending on or after the Redenomination Date is required to be calculated for a period ending other than on an Interest Payment Date, it will be calculated:
(i) in the case of the Notes represented by a Global Note, by applying the Rate of Interest to the aggregate outstanding nominal amount of the Notes represented by such Global Note; and
(ii) in the case of definitive Notes, by applying the Rate of Interest to the Calculation Amount;
and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Fixed Rate Note in definitive form is a multiple of the Calculation Amount, the amount of interest payable in respect of such Fixed Rate Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination without any further rounding; and
(g) if the Notes are Floating Rate Notes, the applicable Final Terms will specify any relevant changes to the provisions relating to interest.
5.2 Definitions
In these Conditions, the following expressions have the following meanings:
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Established Rate means the rate for the conversion of the Specified Currency (including compliance with rules relating to roundings in accordance with applicable European Union regulations) into euro established by the Council of the European Union pursuant to Article 140 of the Treaty;
euro means the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty;
Redenomination Date means (in the case of interest bearing Notes) any date for payment of interest under the Notes or (in the case of Zero Coupon Notes) any date, in each case specified by the Issuer in the notice given to the Noteholders pursuant to Condition 5.1 above and which falls on or after the date on which the country of the Specified Currency first participates in the third stage of European economic and monetary union;
Relevant Notes means all Notes where the applicable Final Terms provide for a minimum Specified Denomination in the Specified Currency which is equivalent to at least euro 100,000 and which are admitted to trading on a regulated market in the European Economic Area; and
Treaty means the Treaty on the Functioning of the European Union, as amended.
6. INTEREST
6.1 Interest on Fixed Rate Notes
Each Fixed Rate Note bears interest from (and including) the Interest Commencement Date at the rate(s) per annum equal to the Rate(s) of Interest. Interest will be payable in arrear on the Interest Payment Date(s) in each year up to (and including) the Maturity Date.
If the Notes are in definitive form, except as provided in the applicable Final Terms, the amount of interest payable on each Interest Payment Date in respect of the Fixed Interest Period ending on (but excluding) such date will amount to the Fixed Coupon Amount. Payments of interest on any Interest Payment Date will, if so specified in the applicable Final Terms, amount to the Broken Amount so specified.
As used in the Conditions, Fixed Interest Period means the period from (and including) an Interest Payment Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Payment Date.
Except in the case of Notes in definitive form where an applicable Fixed Coupon Amount or Broken Amount is specified in the applicable Final Terms, interest shall be calculated in respect of any period by applying the Rate of Interest to:
(a) in the case of Fixed Rate Notes which are represented by a Global Note, the aggregate outstanding nominal amount of the Fixed Rate Notes represented by such Global Note (or, if they are Partly Paid Notes, the aggregate amount paid up); or
(b) in the case of Fixed Rate Notes in definitive form, the Calculation Amount;
and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Fixed Rate Note in definitive form is a multiple of the Calculation Amount, the amount of interest payable in respect of such Fixed Rate Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding.
Day Count Fraction means, in respect of the calculation of an amount of interest, in accordance with this Condition 6.1:
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(i) if “Actual/Actual (ICMA)” is specified in the applicable Final Terms:
(A) in the case of Notes where the number of days in the relevant period from (and including) the most recent Interest Payment Date (or, if none, the Interest Commencement Date) to (but excluding) the relevant payment date (the Accrual Period) is equal to or shorter than the Determination Period during which the Accrual Period ends, the number of days in such Accrual Period divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Dates (as specified in the applicable Final Terms) that would occur in one calendar year; or
(B) in the case of Notes where the Accrual Period is longer than the Determination Period during which the Accrual Period ends, the sum of:
(1) the number of days in such Accrual Period falling in the Determination Period in which the Accrual Period begins divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; and
(2) the number of days in such Accrual Period falling in the next Determination Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; and
(ii) if “30/360” is specified in the applicable Final Terms, the number of days in the period from (and including) the most recent Interest Payment Date (or, if none, the Interest Commencement Date) to (but excluding) the relevant payment date (such number of days being calculated on the basis of a year of 360 days with 12 30-day months) divided by 360.
In these Conditions:
Determination Period means each period from (and including) a Determination Date to but excluding the next Determination Date (including, where either the Interest Commencement Date or the final Interest Payment Date is not a Determination Date, the period commencing on the first Determination Date prior to, and ending on the first Determination Date falling after, such date); and
sub-unit means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, one cent.
6.2 Interest on Floating Rate Notes and Index Linked Interest Notes
(a) Interest Payment Dates
Each Floating Rate Note and Index Linked Interest Note bears interest from (and including) the Interest Commencement Date and such interest will be payable in arrear on either:
(i) the Specified Interest Payment Date(s) in each year specified in the applicable Final Terms; or
(ii) if no Specified Interest Payment Date(s) is/are specified in the applicable Final Terms, each date (each such date, together with each Specified Interest Payment Date, an Interest Payment Date) which falls the number of months or other period specified as the Specified Period in the applicable Final Terms after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date.
Such interest will be payable in respect of each Interest Period (which expression shall, in these Conditions, mean the period from (and including) an Interest Payment Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Payment Date).
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If a Business Day Convention is specified in the applicable Final Terms and (x) if there is no numerically corresponding day on the calendar month in which an Interest Payment Date should occur or (y) if any Interest Payment Date would otherwise fall on a day which is not a Business Day, then, if the Business Day Convention specified is:
(A) in any case where Specified Periods are specified in accordance with Condition 6.2(a)(ii) above, the Floating Rate Convention, such Interest Payment Date (i) in the case of (x) above, shall be the last day that is a Business Day in the relevant month and the provisions of (b) below shall apply mutatis mutandis or (ii) in the case of (y) above, shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event (1) such Interest Payment Date shall be brought forward to the immediately preceding Business Day and (2) each subsequent Interest Payment Date shall be the last Business Day in the month which falls the Specified Period after the preceding applicable Interest Payment Date occurred; or
(B) the Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day; or
(C) the Modified Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event such Interest Payment Date shall be brought forward to the immediately preceding Business Day; or
(D) the Preceding Business Day Convention, such Interest Payment Date shall be brought forward to the immediately preceding Business Day.
In these Conditions, Business Day means a day which is both:
(a) a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in London and any Additional Business Centre specified in the applicable Final Terms; and
(b) either (1) in relation to any sum payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency (which if the Specified Currency is Australian dollars or New Zealand dollars shall be Sydney and Auckland, respectively) or (2) in relation to any sum payable in euro, a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET 2) System (the TARGET 2 System) is open.
(b) Rate of Interest
The Rate of Interest payable from time to time in respect of Floating Rate Notes and Index Linked Interest Notes will be determined in the manner specified in the applicable Final Terms.
(i) ISDA Determination for Floating Rate Notes
Where ISDA Determination is specified in the applicable Final Terms as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will be the relevant ISDA Rate plus or minus (as indicated in the applicable Final Terms) the Margin (if any). For the purposes of this subparagraph (i), ISDA Rate for an Interest Period means a rate equal to the Floating Rate that would be determined by the Principal Paying Agent under an interest rate swap transaction if the Principal Paying Agent were acting as Calculation Agent for that swap transaction under the terms of an agreement incorporating the 2006 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc. and as amended and updated as at the Issue Date of the first Tranche of the Notes (the ISDA Definitions) and under which:
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(A) the Floating Rate Option is as specified in the applicable Final Terms;
(B) the Designated Maturity is a period specified in the applicable Final Terms; and
(C) the relevant Reset Date is either (1) if the applicable Floating Rate Option is based on the London interbank offered rate (LIBOR) or on the Euro-zone interbank offered rate (EURIBOR), the first day of that Interest Period or (2) in any other case, as specified in the applicable Final Terms.
For the purposes of this subparagraph (i), Floating Rate, Calculation Agent, Floating Rate Option, Designated Maturity and Reset Date have the meanings given to those terms in the ISDA Definitions.
Unless otherwise stated in the applicable Final Terms the Minimum Rate of Interest shall be deemed to be zero.
(ii) Screen Rate Determination for Floating Rate Notes
Where Screen Rate Determination is specified in the applicable Final Terms as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will, subject as provided below, be either:
(A) the offered quotation; or
(B) the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) of the offered quotations,
(expressed as a percentage rate per annum) for the Reference Rate which appears or appear, as the case may be, on the Relevant Screen Page as at 11.00 a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the Interest Determination Date in question plus or minus (as indicated in the applicable Final Terms) the Margin (if any), all as determined by the Principal Paying Agent. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Principal Paying Agent for the purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations.
The Agency Agreement contains provisions for determining the Rate of Interest in the event that the Relevant Screen Page is not available or if, in the case of (A) above, no such offered quotation appears or, in the case of (B) above, fewer than three such offered quotations appear, in each case as at the time specified in the preceding paragraph.
If the Reference Rate from time to time in respect of Floating Rate Notes is specified in the applicable Final Terms as being other than LIBOR or EURIBOR, the Rate of Interest in respect of such Notes will be determined as provided in the applicable Final Terms.
(c) Minimum Rate of Interest and/or Maximum Rate of Interest If the applicable Final Terms specifies a Minimum Rate of Interest for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (b) above is less than such Minimum Rate of Interest, the Rate of Interest for such Interest Period shall be such Minimum Rate of Interest. If the applicable Final Terms specifies a Maximum Rate of Interest for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (b) above is greater than such Maximum Rate of Interest, the Rate of Interest for such Interest Period shall be such Maximum Rate of Interest.
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(d) Determination of Rate of Interest and calculation of Interest Amounts The Principal Paying Agent, in the case of Floating Rate Notes, and the Calculation Agent, in the case of Index Linked Interest Notes, will at or as soon as practicable after each time at which the Rate of Interest is to be determined in relation to each Interest Period, determine the Rate of Interest for such Interest Period. In the case of Index Linked Interest Notes, the Calculation Agent will notify the Principal Paying Agent of the Rate of Interest for the relevant Interest Period as soon as practicable after calculating the same. The Principal Paying Agent will calculate the amount of interest (the Interest Amount) payable on the Floating Rate Notes or Index Linked Interest Notes for the relevant Interest Period by applying the Rate of Interest to: (i) in the case of Floating Rate Notes or Index Linked Interest Notes which are represented by a Global Note, the aggregate outstanding nominal amount of the Notes represented by such Global Note (or, if they are Partly Paid Notes, the aggregate amount paid up); or (ii) in the case of Floating Rate Notes or Index Linked Interest Notes in definitive form, the Calculation Amount; and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Floating Rate Note or an Index Linked Interest Note in definitive form is a multiple of the Calculation Amount, the Interest Amount payable in respect of such Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination without any further rounding. Day Count Fraction means, in respect of the calculation of an amount of interest in accordance with this Condition 6.2: (i) if “Actual/Actual (ISDA)” or “Actual/Actual” is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 365 (or, if any portion of that Interest Period falls in a leap year, the sum of (I) the actual number of days in that portion of the Interest Period falling in a leap year divided by 366 and (II) the actual number of days in that portion of the Interest Period falling in a non-leap year divided by 365); (ii) if “Actual/365 (Fixed)” is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 365; (iii) if “Actual/365 (Sterling)” is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 365 or, in the case of an Interest Payment Date falling in a leap year, 366;
(iv) if “Actual/360” is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 360;
(v) if “30/360”, “360/360” or “Bond Basis” is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows:
[360 x (Y – Y )]+[30 x (M – M )]+(D – D ) Day Count Fraction = –––––––––––––––––––––––––––––––––––––––2 1 2 1 2 1 360 where:
Y1 is the year, expressed as a number, in which the first day of the Interest Period falls;
Y2 is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
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M1 is the calendar month, expressed as a number, in which the first day of the Interest Period falls;
M2 is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
D1 is the first calendar day, expressed as a number, of the Interest Period, unless such number is 31, in which case D1 will be 30; and
D2 is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31 and D1 is greater than 29, in which case D2 will be 30; (vi) if “30E/360” or “Eurobond Basis” is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows: [360 x (Y – Y )]+[30 x (M – M )]+(D – D ) Day Count Fraction = –––––––––––––––––––––––––––––––––––––––2 1 2 1 2 1 360 where:
Y1 is the year, expressed as a number, in which the first day of the Interest Period falls;
Y2 is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
M1 is the calendar month, expressed as a number, in which the first day of the Interest Period falls;
M2 is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
D1 is the first calendar day, expressed as a number, of the Interest Period, unless such number would be 31, in which case D1 will be 30; and
D2 is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31, in which case D2 will be 30; (vii) if “30E/360 (ISDA)” is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows: [360 x (Y – Y )]+[30 x (M – M )]+(D – D ) Day Count Fraction = –––––––––––––––––––––––––––––––––––––––2 1 2 1 2 1 360 where:
Y1 is the year, expressed as a number, in which the first day of the Interest Period falls;
Y2 is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
M1 is the calendar month, expressed as a number, in which the first day of the Interest Period falls;
M2 is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
D1 is the first calendar day, expressed as a number, of the Interest Period, unless (i) that day is the last day of February or (ii) such number would be 31, in which case D1 will be 30; and
D2 is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless (i) that day is the last day of February but not the Maturity Date or (ii) such number would be 31, in which case D2 will be 30.
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(e) Notification of Rate of Interest and Interest Amounts
The Principal Paying Agent will cause the Rate of Interest and each Interest Amount for each Interest Period and the relevant Interest Payment Date to be notified to the Issuer, the Trustee, the other Paying Agents and any stock exchange on which the relevant Floating Rate Notes or Index Linked Interest Notes are for the time being listed and notice thereof to be published in accordance with Condition 15 as soon as possible after their determination but in no event later than the fourth London Business Day thereafter. Each Interest Amount and Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without prior notice in the event of an extension or shortening of the Interest Period. Any such amendment will be promptly notified to each stock exchange on which the relevant Floating Rate Notes or Index Linked Interest Notes are for the time being listed and to the Noteholders in accordance with Condition 15. If the Calculation Amount is less than the minimum Specified Denomination, the Principal Paying Agent shall not be obliged to publish each Interest Amount but instead may publish only the Calculation Amount and the Interest Amount in respect of a Note having the minimum Specified Denomination. For the purposes of this paragraph, the expression London Business Day means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for general business in London.
(f) Determination or Calculation by Trustee
If for any reason at any relevant time the Principal Paying Agent or, as the case may be, the Calculation Agent defaults in its obligation to determine the Rate of Interest or the Principal Paying Agent defaults in its obligation to calculate any Interest Amount in accordance with subparagraph (b)(i) or subparagraph (b)(ii) above or as otherwise specified in the applicable Final Terms, as the case may be, and in each case in accordance with paragraph (d) above, the Trustee shall determine the Rate of Interest at such rate as, in its discretion (having such regard as it shall think fit to the foregoing provisions of this Condition, but subject always to any Minimum Rate of Interest or Maximum Rate of Interest specified in the applicable Final Terms), it shall deem fair and reasonable in all the circumstances (having such regard as it thinks fit to paragraph (b) above) or, as the case may be, the Trustee shall calculate the Interest Amount(s) in accordance with paragraph (d) above and each such determination or calculation shall be deemed to have been made by the Principal Paying Agent or the Calculation Agent, as applicable.
(g) Certificates to be final
All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 6.2, whether by the Principal Paying Agent or, if applicable, the Calculation Agent, shall (in the absence of wilful default, bad faith or manifest error) be binding on the Issuer, the Guarantors, the Principal Paying Agent, the Calculation Agent (if applicable), the other Agents and all Noteholders, Receiptholders and Couponholders and (in the absence of wilful default or bad faith) no liability to the Issuer, the Guarantors, the Noteholders, the Receiptholders or the Couponholders shall attach to the Principal Paying Agent, if applicable, the Calculation Agent or the Trustee in connection with the exercise or non-exercise by it of its powers, duties and discretions pursuant to such provisions.
6.3 Interest on Dual Currency Interest Notes
The rate or amount of interest payable in respect of Dual Currency Interest Notes shall be determined in the manner specified in the applicable Final Terms.
6.4 Interest on Partly Paid Notes
In the case of Partly Paid Notes (other than Partly Paid Notes which are Zero Coupon Notes), interest will accrue as aforesaid on the paid up nominal amount of such Notes and otherwise as specified in the applicable Final Terms.
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6.5 Accrual of interest
Each Note (or in the case of the redemption of part only of a Note, that part only of such Note) will cease to bear interest (if any) from the date for its redemption unless, upon due presentation thereof, payment of principal is improperly withheld or refused. In such event, interest will continue to accrue until whichever is the earlier of:
(a) the date on which all amounts due in respect of such Note have been paid; and
(b) as provided in the Trust Deed.
7. PAYMENTS
7.1 Method of payment
Subject as provided below:
(a) payments in a Specified Currency other than euro will be made by credit or transfer to an account in the relevant Specified Currency maintained by the payee with, or, at the option of the payee, by a cheque in such Specified Currency drawn on, a bank in the principal financial centre of the country of such Specified Currency (which, if the Specified Currency is Australian dollars or New Zealand dollars, shall be Sydney and Auckland, respectively); and
(b) payments in euro will be made by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or, at the option of the payee, by a euro cheque.
Payments will be subject in all cases to any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 9.
7.2 Presentation of definitive Bearer Notes, Receipts and Coupons
Payments of principal in respect of definitive Bearer Notes will (subject as provided below) be made in the manner provided in Condition 7.1 above only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of definitive Bearer Notes, and payments of interest in respect of definitive Bearer Notes will (subject as provided below) be made as aforesaid only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of Coupons, in each case at the specified office of any Paying Agent outside the United States (which expression, as used herein, means the United States of America (including the States and the District of Columbia, its territories, its possessions and other areas subject to its jurisdiction)).
Payments of instalments of principal (if any) in respect of definitive Bearer Notes, other than the final instalment, will (subject as provided below) be made in the manner provided in Condition 7.1 above only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the relevant Receipt in accordance with the preceding paragraph. Payment of the final instalment will be made in the manner provided in Condition 7.1 above only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the relevant Bearer Note in accordance with the preceding paragraph. Each Receipt must be presented for payment of the relevant instalment together with the definitive Bearer Note to which it appertains. Receipts presented without the definitive Bearer Note to which they appertain do not constitute valid obligations of the Issuer. Upon the date on which any definitive Bearer Note becomes due and repayable, unmatured Receipts (if any) relating thereto (whether or not attached) shall become void and no payment shall be made in respect thereof.
Fixed Rate Notes in definitive bearer form (other than Dual Currency Notes, Index Linked Notes or Long Maturity Notes (as defined below)) should be presented for payment together with all unmatured Coupons appertaining thereto (which expression shall for this purpose include Coupons falling to be issued on exchange of matured Talons), failing which the amount of any missing
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unmatured Coupon (or, in the case of payment not being made in full, the same proportion of the amount of such missing unmatured Coupon as the sum so paid bears to the sum due) will be deducted from the sum due for payment. Each amount of principal so deducted will be paid in the manner mentioned above against surrender of the relative missing Coupon at any time before the expiry of 10 years after the Relevant Date (as defined in Condition 9) in respect of such principal (whether or not such Coupon would otherwise have become void under Condition 10) or, if later, five years from the date on which such Coupon would otherwise have become due, but in no event thereafter.
Upon any Fixed Rate Note in definitive bearer form becoming due and repayable prior to its Maturity Date, all unmatured Talons (if any) appertaining thereto will become void and no further Coupons will be issued in respect thereof.
Upon the date on which any Floating Rate Note, Dual Currency Note, Index Linked Note or Long Maturity Note in definitive bearer form becomes due and repayable, unmatured Coupons and Talons (if any) relating thereto (whether or not attached) shall become void and no payment or, as the case may be, exchange for further Coupons shall be made in respect thereof. A Long Maturity Note is a Fixed Rate Note (other than a Fixed Rate Note which on issue had a Talon attached) whose nominal amount on issue is less than the aggregate interest payable thereon provided that such Note shall cease to be a Long Maturity Note on the Interest Payment Date on which the aggregate amount of interest remaining to be paid after that date is less than the nominal amount of such Note.
If the due date for redemption of any definitive Bearer Note is not an Interest Payment Date, interest (if any) accrued in respect of such Note from (and including) the preceding Interest Payment Date or, as the case may be, the Interest Commencement Date shall be payable only against surrender of the relevant definitive Bearer Note.
7.3 Payments in respect of Bearer Global Notes
Payments of principal and interest (if any) in respect of Notes represented by any Global Note in bearer form will (subject as provided below) be made in the manner specified above in relation to definitive Bearer Notes or otherwise in the manner specified in the relevant Global Note against presentation or surrender, as the case may be, of such Global Note at the specified office of any Paying Agent outside the United States. A record of each payment made against presentation or surrender of any Global Note in bearer form, distinguishing between any payment of principal and any payment of interest, will be made on such Global Note by the Paying Agent to which it was presented and such record shall be prima facie evidence that the payment in question has been made.
7.4 Payments in respect of Registered Notes
Payments of principal (other than instalments of principal prior to the final instalment) in respect of each Registered Note (whether or not in global form) will be made against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the Registered Note at the specified office of the Registrar or any of the Paying Agents. Such payments will be made by transfer to the Designated Account (as defined below) of the holder (or the first named of joint holders) of the Registered Note appearing in the register of holders of the Registered Notes maintained by the Registrar (the Register) (i) where in global form, at the close of the business day (being for this purpose a day on which Euroclear and Clearstream, Luxembourg are open for business) before the relevant due date, and (ii) where in definitive form, at the close of business on the third business day (being for this purpose a day on which banks are open for business in the city where the specified office of the Registrar is located) before the relevant due date. Notwithstanding the previous sentence, if (a) a holder does not have a Designated Account or (b) the principal amount of the Notes held by a holder is less than U.S.$250,000 (or its approximate equivalent in any other Specified Currency), payment will instead be made by a cheque in the Specified Currency drawn on a Designated Bank (as defined below). For these purposes, Designated Account means the account (which, in the case of a payment in Japanese yen to a non resident of Japan, shall be a non resident account) maintained by a holder with a Designated Bank and identified as such in the Register and Designated Bank means (in
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the case of payment in a Specified Currency other than euro) a bank in the principal financial centre of the country of such Specified Currency (which, if the Specified Currency is Australian dollars or New Zealand dollars, shall be Sydney and Auckland, respectively) and (in the case of a payment in euro) any bank which processes payments in euro.
Payments of interest and payments of instalments of principal (other than the final instalment) in respect of each Registered Note (whether or not in global form) will be made by a cheque in the Specified Currency drawn on a Designated Bank and mailed by uninsured mail on the business day in the city where the specified office of the Registrar is located immediately preceding the relevant due date to the holder (or the first named of joint holders) of the Registered Note appearing in the Register (i) where in global form, at the close of the business day (being for this purpose a day on which Euroclear and Clearstream, Luxembourg are open for business) before the relevant due date, and (ii) where in definitive form, at the close of business on the fifteenth day (whether or not such fifteenth day is a business day) before the relevant due date (the Record Date) at his address shown in the Register on the Record Date and at his risk. Upon application of the holder to the specified office of the Registrar not less than three business days in the city where the specified office of the Registrar is located before the due date for any payment of interest in respect of a Registered Note, the payment may be made by transfer on the due date in the manner provided in the preceding paragraph. Any such application for transfer shall be deemed to relate to all future payments of interest (other than interest due on redemption) and instalments of principal (other than the final instalment) in respect of the Registered Notes which become payable to the holder who has made the initial application until such time as the Registrar is notified in writing to the contrary by such holder. Payment of the interest due in respect of each Registered Note on redemption and the final instalment of principal will be made in the same manner as payment of the principal amount of such Registered Note.
Holders of Registered Notes will not be entitled to any interest or other payment for any delay in receiving any amount due in respect of any Registered Note as a result of a cheque posted in accordance with this Condition 7.4 arriving after the due date for payment or being lost in the post. No commissions or expenses shall be charged to such holders by the Registrar in respect of any payments of principal or interest in respect of the Registered Notes.
All amounts payable to DTC or its nominee as registered holder of a Registered Global Note in respect of Notes denominated in a Specified Currency other than U.S. dollars shall be paid by transfer by the Registrar to an account in the relevant Specified Currency of the Exchange Agent on behalf of DTC or its nominee for conversion into and payment in U.S. dollars in accordance with the provisions of the Agency Agreement.
None of the Issuer, the Guarantors, the Trustee or the Agents will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Registered Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
7.5 General provisions applicable to payments
The holder of a Global Note shall be the only person entitled to receive payments in respect of Notes represented by such Global Note and the Issuer or, as the case may be, each Guarantor will be discharged by payment to, or to the order of, the holder of such Global Note in respect of each amount so paid. Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the beneficial holder of a particular nominal amount of Notes represented by such Global Note must look solely to Euroclear, Clearstream, Luxembourg or DTC, as the case may be, for his share of each payment so made by the Issuer or, as the case may be, each Guarantor to, or to the order of, the holder of such Global Note.
Notwithstanding the foregoing provisions of this Condition 7, if any amount of principal and/or interest in respect of Bearer Notes is payable in U.S. dollars, such U.S. dollar payment of principal
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and/or interest in respect of such Notes will be made at the specified office of a Paying Agent in the United States if:
(a) the Issuer has appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment in U.S. dollars at such specified offices outside the United States of the full amount of principal and interest on the Bearer Notes in the manner provided above when due;
(b) payment of the full amount of such principal and interest at all such specified offices outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions on the full payment or receipt of principal and interest in U.S. dollars; and
(c) such payment is then permitted under United States law without involving, in the opinion of the Issuer and each Guarantor, adverse tax consequences to the Issuer or either Guarantor.
All payments made pursuant to this Condition 7 are subject in all cases to any applicable fiscal laws and regulations in the place of payment, but without prejudice to the provisions of Condition 9. No commissions or expenses will be charged to the Noteholders in respect of such payments.
7.6 Payment Day
If the date for payment of any amount in respect of any Note, Receipt or Coupon is not a Payment Day, the holder thereof shall not be entitled to payment until the next following Payment Day in the relevant place and shall not be entitled to further interest or other payment in respect of such delay. For these purposes, Payment Day means any day which (subject to Condition 10) is:
(a) a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in:
(i) in the case of Notes in definitive form only, the relevant place of presentation;
(ii) each Additional Financial Centre specified in the applicable Final Terms;
(b) either (1) in relation to any sum payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency (which if the Specified Currency is Australian dollars or New Zealand dollars shall be Sydney and Auckland, respectively) or (2) in relation to any sum payable in euro, a day on which the TARGET 2 System is open; and
(c) in the case of any payment in respect of a Registered Global Note denominated in a Specified Currency other than U.S. dollars and registered in the name of DTC or its nominee and in respect of which an accountholder of DTC (with an interest in such Registered Global Note) has elected to receive any part of such payment in U.S. dollars, a day on which commercial banks are not authorised or required by law or regulation to be closed in New York City.
7.7 Interpretation of principal and interest
Any reference in the Conditions to principal in respect of the Notes shall be deemed to include, as applicable:
(a) any additional amounts which may be payable with respect to principal under Condition 9 or under any undertaking or covenant given in addition thereto, or in substitution therefor, pursuant to the Trust Deed;
(b) the Final Redemption Amount of the Notes;
(c) the Early Redemption Amount of the Notes;
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(d) the Optional Redemption Amount(s) (if any) of the Notes;
(e) in relation to Notes redeemable in instalments, the Instalment Amounts;
(f) in relation to Zero Coupon Notes, the Amortised Face Amount (as defined in Condition 8.5); and
(g) any premium and any other amounts (other than interest) which may be payable by the Issuer under or in respect of the Notes.
Any reference in the Conditions to interest in respect of the Notes shall be deemed to include, as applicable, any additional amounts which may be payable with respect to interest under Condition 9 or under any undertaking or covenant given in addition thereto, or in substitution therefor, pursuant to the Trust Deed.
8. REDEMPTION AND PURCHASE
8.1 Redemption at maturity
Unless previously redeemed or purchased and cancelled as specified below, each Note (including each Index Linked Redemption Note and Dual Currency Redemption Note) will be redeemed by the Issuer at its Final Redemption Amount specified in, or determined in the manner specified in, the applicable Final Terms in the relevant Specified Currency on the Maturity Date, subject as provided in Condition 7.
8.2 Redemption for tax reasons
The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time (if this Note is neither a Floating Rate Note, an Index Linked Interest Note nor a Dual Currency Interest Note) or on any Interest Payment Date (if this Note is either a Floating Rate Note, an Index Linked Interest Note or a Dual Currency Interest Note), on giving not less than 30 nor more than 60 days’ notice to the Trustee and the Principal Paying Agent and, in accordance with Condition 15, the Noteholders (which notice shall be irrevocable), if the Issuer satisfies the Trustee immediately before the giving of such notice that:
(a) on the occasion of the next payment due under the Notes, the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 9 or either Guarantor would be unable for reasons outside its control to procure payment by the Issuer and in making payment itself would be required to pay such additional amounts, in each case as a result of any change in, or amendment to, the laws or regulations of a Tax Jurisdiction (as defined in Condition 9) or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the Notes; and
(b) such obligation cannot be avoided by the Issuer or, as the case may be, the relevant Guarantor taking reasonable measures available to it,
provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer or, as the case may be, the relevant Guarantor would be obliged to pay such additional amounts were a payment in respect of the Notes then due.
Prior to the publication of any notice of redemption pursuant to this Condition, the Issuer shall deliver to the Trustee a certificate signed by two Directors of the Issuer or, as the case may be, two Authorised Signatories (as defined in the Trust Deed) of the relevant Guarantor stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred, and an opinion of independent legal advisers of recognised standing to the effect that the Issuer or, as the case may be, the relevant Guarantor has or
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will become obliged to pay such additional amounts as a result of such change or amendment and the Trustee shall be entitled to accept the certificate and opinion as sufficient evidence of the satisfaction of the conditions precedent set out above, in which event they shall be conclusive and binding on the Noteholders, the Receiptholders and the Couponholders.
Notes redeemed pursuant to this Condition 8.2 will be redeemed at their Early Redemption Amount referred to in Condition 8.5 below together (if appropriate) with interest accrued to (but excluding) the date of redemption.
Upon the expiry of any such notice as is referred to in this Condition 8.2, the Issuer shall be bound to redeem the Notes in accordance with this Condition 8.2.
8.3 Redemption at the option of the Issuer (Issuer Call)
If Issuer Call is specified in the applicable Final Terms, the Issuer may, having given:
(a) not less than 15 nor more than 30 days’ notice to the Noteholders in accordance with Condition 15; and
(b) not less than 15 days before the giving of the notice referred to in (a) above, notice to the Trustee and the Principal Paying Agent and, in the case of a redemption of Registered Notes, the Registrar;
(which notices shall be irrevocable and shall specify the date fixed for redemption), redeem all or some only of the Notes then outstanding on any Optional Redemption Date and at the Optional Redemption Amount(s) specified in, or determined in the manner specified in, the applicable Final Terms together, if appropriate, with interest accrued to (but excluding) the relevant Optional Redemption Date. Any such redemption must be of a nominal amount not less than the Minimum Redemption Amount and not more than the Maximum Redemption Amount in each case as may be specified in the applicable Final Terms. In the case of a partial redemption of Notes, the Notes to be redeemed (Redeemed Notes) will be selected individually by lot, in the case of Redeemed Notes represented by definitive Notes, and in accordance with the rules of Euroclear and/or Clearstream, Luxembourg and/or DTC, in the case of Redeemed Notes represented by a Global Note, not more than 30 days prior to the date fixed for redemption (such date of selection being hereinafter called the Selection Date, in each case, subject to compliance with applicable law, the rules of each competent authority, stock exchange and/or quotation system (if any) by which the Notes have been admitted to listing, trading and/or quotation). In the case of Redeemed Notes represented by definitive Notes, a list of the serial numbers of such Redeemed Notes will be published in accordance with Condition 15 not less than 15 days prior to the date fixed for redemption. No exchange of the relevant Global Note will be permitted during the period from (and including) the Selection Date to (and including) the date fixed for redemption pursuant to this Condition 8.3 and notice to that effect shall be given by the Issuer to the Noteholders in accordance with Condition 15 at least five days prior to the Selection Date.
8.4 Redemption at the option of the Noteholders (Investor Put)
(a) If Investor Put is specified in the applicable Final Terms, upon the holder of any Note giving to the Issuer in accordance with Condition 15 not less than 15 nor more than 30 days’ notice the Issuer will, upon the expiry of such notice, redeem, or, at the Issuer’s option, purchase (or procure the purchase of), subject to, and in accordance with, the terms specified in the applicable Final Terms, such Note on the Optional Redemption Date and at the Optional Redemption Amount together, if appropriate, with interest accrued to (but excluding) the Optional Redemption Date. Registered Notes may be redeemed or, as the case may be, purchased under this Condition 8.4 in any multiple of their lowest Specified Denomination. It may be that before an Investor Put can be exercised, certain conditions and/or circumstances will need to be satisfied. Where relevant, the provisions will be set out in the applicable Final Terms.
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(b) If Change of Control Put is specified in the applicable Final Terms and if a Change of Control Event occurs, the Issuer will, upon the holder of any Note giving notice within the Change of Control Put Period to the Issuer in accordance with Condition 15 (unless prior to the giving of the relevant Change of Control Notice (as defined below) the Issuer has given notice of redemption under Condition 8.2 or Condition 8.3), redeem or, at the Issuer’s option, purchase (or procure the purchase of) such Note on the Change of Control Put Date at the Change of Control Redemption Amount together (if applicable) with interest accrued to but excluding the Change of Control Put Date.
Promptly upon the Issuer or MAF Holding becoming aware that a Change of Control Event has occurred, the Issuer shall give notice (a Change of Control Notice) to the Noteholders in accordance with Condition 15 to that effect.
If 75 per cent. or more in nominal amount of the Notes then outstanding have been redeemed or, as the case may be, purchased, pursuant to this Condition 8.4(b), the Issuer may, on giving not less than 30 nor more than 60 days’ notice to the Noteholders in accordance with Condition 15 (such notice to be given within 30 days of the Change of Control Put Date), redeem or, at the Issuer’s option, purchase (or procure the purchase of) all but not some only of the remaining outstanding Notes at their Change of Control Redemption Amount together (if applicable) with interest accrued to but excluding the date fixed for redemption or purchase, as the case may be.
(c) To exercise the right to require redemption of this Note the holder of this Note must, if this Note is in definitive form and held outside Euroclear and Clearstream, Luxembourg, deliver, at the specified office of any Paying Agent (in the case of Bearer Notes) or the Registrar (in the case of Registered Notes) at any time during normal business hours of such Paying Agent or, as the case may be, the Registrar falling within the notice period, a duly completed and signed notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent or, as the case may be, the Registrar (a Put Notice) and in which the holder must specify a bank account (or, if payment is required to be made by cheque, an address) to which payment is to be made under this Condition 8.4 and, in the case of Registered Notes, the nominal amount thereof to be redeemed and, if less than the full nominal amount of the Registered Notes so surrendered is to be redeemed, an address to which a new Registered Note in respect of the balance of such Registered Notes is to be sent subject to and in accordance with the provisions of Condition 2.2. If this Note is in definitive bearer form, the Put Notice must be accompanied by this Note or evidence satisfactory to the Paying Agent concerned that this Note will, following delivery of the Put Notice, be held to its order or under its control.
If this Note is represented by a Global Note or is in definitive form and held through Euroclear, Clearstream, Luxembourg or DTC, to exercise the right to require redemption of this Note the holder of this Note must, within the notice period, give notice to the Principal Paying Agent of such exercise in accordance with the standard procedures of Euroclear, Clearstream, Luxembourg and DTC (which may include notice being given on such Noteholder’s instruction by Euroclear, Clearstream, Luxembourg, DTC or any depositary for them to the Principal Paying Agent by electronic means) in a form acceptable to Euroclear, Clearstream, Luxembourg and DTC from time to time and if this Note is represented by a Global Note, at the same time present or procure the presentation of the relevant Global Note to the Principal Paying Agent for notation accordingly.
Any Put Notice or other notice given in accordance with the standard procedures of Euroclear, Clearstream, Luxembourg and DTC given by a holder of any Note pursuant to this Condition 8.4 shall be irrevocable except where, prior to the due date of redemption, an Event of Default has occurred and the Trustee has declared the Notes to be due and payable pursuant to Condition 11, in which event such holder, at its option, may elect by notice to the Issuer to withdraw the notice given pursuant to this Condition 8.4.
(d) For the purpose of these Conditions:
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a Change of Control Event shall occur each time Majid Al Futtaim Capital LLC ceases to be the ultimate owner (either directly or indirectly) of more than 50 per cent. of the share capital of MAF Holding; Change of Control Redemption Amount shall mean, in relation to each Note to be redeemed or purchased pursuant to Condition 8.4(b), an amount equal to the nominal amount of such Note or such other amount as may be specified in the applicable Final Terms; Change of Control Put Date shall be the tenth day after the expiry of the Change of Control Put Period provided that, if such day is not a day on which banks are open for general business in both London and the principal financial centre of the Specified Currency, the Change of Control Put Date shall be the next following day on which banks are open for general business in both London and the principal financial centre of the Specified Currency; and Change of Control Put Period shall be the period of 30 days commencing on the date that a Change of Control Notice is given.
8.5 Early Redemption Amounts For the purpose of Condition 8.2 above and Condition 11, each Note will be redeemed at its Early Redemption Amount calculated as follows: (a) in the case of a Note with a Final Redemption Amount equal to the Issue Price, at the Final Redemption Amount thereof; (b) in the case of a Note (other than a Zero Coupon Note but including an Instalment Note and a Partly Paid Note) with a Final Redemption Amount which is or may be less or greater than the Issue Price or which is payable in a Specified Currency other than that in which the Note is denominated, at the amount specified in, or determined in the manner specified in, the applicable Final Terms or, if no such amount or manner is so specified in the applicable Final Terms, at its nominal amount; or (c) in the case of a Zero Coupon Note, at an amount (the Amortised Face Amount) calculated in accordance with the following formula: Early Redemption Amount = RP x (1 + AY)y where: RP means the Reference Price; AY means the Accrual Yield expressed as a decimal; and y is a fraction the numerator of which is equal to the number of days (calculated on the basis of a 360-day year consisting of 12 months of 30 days each) from (and including) the Issue Date of the first Tranche of the Notes to (but excluding) the date fixed for redemption or (as the case may be) the date upon which such Note becomes due and repayable and the denominator of which is 360, or on such other calculation basis as may be specified in the applicable Final Terms.
8.6 Instalments Instalment Notes will be redeemed in the Instalment Amounts and on the Instalment Dates. In the case of early redemption, the Early Redemption Amount will be determined pursuant to Condition 8.5 above.
8.7 Partly Paid Notes Partly Paid Notes will be redeemed, whether at maturity, early redemption or otherwise, in accordance with the provisions of this Condition and the applicable Final Terms.
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8.8 Purchases
The Issuer, each Guarantor or any Subsidiary of a Guarantor may at any time purchase Notes (provided that, in the case of definitive Bearer Notes, all unmatured Receipts, Coupons and Talons appertaining thereto are purchased therewith) at any price in the open market or otherwise. Such Notes may be held, reissued, resold or, at the option of the Issuer or the relevant Guarantor, surrendered to any Paying Agent and/or the Registrar for cancellation.
8.9 Cancellation
All Notes which are redeemed will forthwith be cancelled (together with all unmatured Receipts, Coupons and Talons attached thereto or surrendered therewith at the time of redemption). All Notes so cancelled and any Notes purchased and cancelled pursuant to Condition 8.8 above (together with all unmatured Receipts, Coupons and Talons cancelled therewith) shall be forwarded to the Principal Paying Agent and cannot be reissued or resold.
8.10 Late payment on Zero Coupon Notes
If the amount payable in respect of any Zero Coupon Note upon redemption of such Zero Coupon Note pursuant to Conditions 8.1, 8.2, 8.3 or 8.4 above or upon its becoming due and repayable as provided in Condition 11 is improperly withheld or refused, the amount due and repayable in respect of such Zero Coupon Note shall be the amount calculated as provided in Condition 8.5(c) above as though the references therein to the date fixed for the redemption or the date upon which such Zero Coupon Note becomes due and payable were replaced by references to the date which is the earlier of:
(a) the date on which all amounts due in respect of such Zero Coupon Note have been paid; and
(b) five days after the date on which the full amount of the moneys payable in respect of such Zero Coupon Notes has been received by the Principal Paying Agent or the Registrar or the Trustee and notice to that effect has been given to the Noteholders in accordance with Condition 15.
9. TAXATION A12.4.1.14
All payments of principal and interest in respect of the Notes, Receipts and Coupons by the Issuer or either Guarantor will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, assessments and governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of any Tax Jurisdiction unless such withholding or deduction is required by law. In such event, the Issuer or, as the case may be, each Guarantor will pay such additional amounts as shall be necessary in order that the net amounts received by the holders of the Notes, Receipts or Coupons after such withholding or deduction shall equal the respective amounts of principal and interest which would otherwise have been receivable in respect of the Notes, Receipts or Coupons, as the case may be, in the absence of such withholding or deduction; except that no such additional amounts shall be payable with respect to any Note, Receipt or Coupon:
(a) the holder of which is liable for such taxes, duties, assessments and governmental charges in respect of such Note, Receipt or Coupon by reason of his having some connection with a Tax Jurisdiction other than the mere holding of such Note, Receipt or Coupon; or
(b) presented or surrendered for payment more than 30 days after the Relevant Date (as defined below) except to the extent that the holder thereof would have been entitled to an additional amount on presenting or surrendering the same for payment on such thirtieth day assuming that day to have been a Payment Day (as defined in Condition 7.6); or
(c) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC on the taxation of savings
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income or any law implementing or complying with, or introduced in order to conform to, such Directive; or
(d) presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note, Receipt or Coupon to another Paying Agent in a Member State of the European Union.
As used herein:
(i) Tax Jurisdiction means the Cayman Islands or any political subdivision or any authority thereof or therein having power to tax (in the case of payments by the Issuer) or the United Arab Emirates or any Emirate therein or any political subdivision or any authority thereof or therein having power to tax (in the case of payments by either Guarantor); and
(ii) the Relevant Date means the date on which such payment first becomes due, except that, if the full amount of the moneys payable has not been duly received by the Trustee or the Principal Paying Agent or the Registrar, as the case may be, on or prior to such due date, it means the date on which, the full amount of such moneys having been so received, notice to that effect is duly given to the Noteholders in accordance with Condition 15.
10. PRESCRIPTION
The Notes (whether in bearer or registered form), Receipts and Coupons will become void unless claims in respect of principal and/or interest are made within a period of 10 years (in the case of principal) and five years (in the case of interest) after the Relevant Date (as defined in Condition 9) therefor.
There shall not be included in any Coupon sheet issued on exchange of a Talon any Coupon the claim for payment in respect of which would be void pursuant to this Condition 10 or Condition 7.2 or any Talon which would be void pursuant to Condition 7.2.
11. EVENTS OF DEFAULT AND ENFORCEMENT
11.1 Events of Default
The Trustee at its discretion may, and if so requested in writing by the holders of at least one-fifth in aggregate nominal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall (subject in each case to being indemnified and/or pre-funded and/or secured to its satisfaction), (but in the case of the happening of any of the events described in paragraphs (b) or (d) (other than the winding up or dissolution of the Issuer or either Guarantor) or (e) to (h) inclusive below (other than the happening of any such event in relation to the Issuer or either Guarantor), only if the Trustee shall have certified in writing to the Issuer and the Guarantors that such event is, in its opinion, materially prejudicial to the interests of the Noteholders), give notice in writing to the Issuer that each Note is, and each Note shall thereupon immediately become, due and repayable at its Early Redemption Amount together with accrued interest as provided in the Trust Deed if any of the following events (each an Event of Default) shall occur:
(a) if default is made in the payment of any principal or interest due in respect of the Notes or any of them and the default continues for a period of seven Business Days in the case of principal and 14 Business Days in the case of interest; or
(b) if the Issuer or either Guarantor fails to perform or observe any of its other obligations under these Conditions or the Trust Deed and (except in any case where, in the opinion of the Trustee, the failure is incapable of remedy when no such continuation or notice as is hereinafter mentioned will be required) the failure continues for the period of 30 days next following the service by the Trustee on the Issuer or the relevant Guarantor (as the case may be) of notice requiring the same to be remedied; or
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(c) if the holders of any Indebtedness or Sukuk Obligation of the Issuer, either Guarantor or any Principal Subsidiary accelerate such Indebtedness or Sukuk Obligation or declare such Indebtedness or Sukuk Obligation to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment or pursuant to an option granted to the holders by the terms of such Indebtedness or Sukuk Obligation), prior to the stated maturity thereof or (ii) the Issuer, either Guarantor or any Principal Subsidiary fails to pay in full any principal of, or interest or profit, as the case may be, on, any of its Indebtedness or Sukuk Obligations when due (after expiration of any applicable grace period) or any guarantee of any Indebtedness or Sukuk Obligation of others given by the Issuer, either Guarantor or any Principal Subsidiary shall not be honoured when due and called upon; provided that the aggregate amount of the relevant Indebtedness, Sukuk Obligation or guarantee in respect of which one or more of the events mentioned above in this paragraph (c) shall have occurred equals or exceeds U.S.$40,000,000 (or its equivalent in any other currency or currencies; or
(d) if any order is made by any competent court or resolution passed for the winding up or dissolution of the Issuer, either Guarantor or any Principal Subsidiary, save in connection with a Permitted Reorganisation; or
(e) if the Issuer, either Guarantor or any Principal Subsidiary ceases or threatens to cease to carry on all or substantially all of its business, save in connection with a Permitted Reorganisation, or the Issuer, either Guarantor or any Principal Subsidiary stops or threatens to stop payment of, or is unable to, or admits inability to, pay, its debts (or any class of its debts) as they fall due, or is deemed unable to pay its debts pursuant to or for the purposes of any applicable law, or is adjudicated or found bankrupt or insolvent; or
(f) if (i) proceedings are initiated against the Issuer, either Guarantor or any Principal Subsidiary under any applicable liquidation, insolvency, composition, reorganisation or other similar laws, or an application is made (or documents filed with a court) for the appointment of an administrative or other receiver, manager, administrator or other similar official (and such proceedings are not being actively contested in good faith by the Issuer, the relevant Guarantor or the relevant Principal Subsidiary, as the case may be), or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to the Issuer, either Guarantor or any Principal Subsidiary or, as the case may be, in relation to all or substantially all of the undertaking, assets or revenues of any of them and (ii) in any case (other than the appointment of an administrator) is not discharged within 30 days; or
(g) if the Issuer, either Guarantor or any Principal Subsidiary initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, composition, reorganisation or other similar laws (including the obtaining of a moratorium) or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangement with, its creditors generally (or any class of its creditors) or any meeting is convened to consider a proposal for an arrangement or composition with its creditors generally (or any class of its creditors) save, in all cases, in connection with a Permitted Reorganisation; or
(h) if any event occurs which under the laws of the Cayman Islands (in the case of the Issuer) or the United Arab Emirates or any Emirate therein (in the case of the Guarantors) has an analogous effect to any of the events referred to in paragraphs (d) to (g) (inclusive) above, or any event occurs which under the laws of the jurisdiction under which the relevant Principal Subsidiary is incorporated or constituted has an analogous effect to any of the events referred to in paragraphs (d) to (g) (inclusive) above; or
(i) if any Security Interest, present or future, created or assumed by the Issuer, either Guarantor or any Principal Subsidiary and securing an amount which equals or exceeds U.S.$40,000,000 (or its equivalent in any other currency or currencies) becomes enforceable and any step is taken to enforce the Security Interest (including the taking of possession or the appointment of a receiver, manager or other similar person, but excluding the issue of any notification to the
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Issuer, either Guarantor or any Principal Subsidiary, as the case may be, that such Security Interest has become enforceable) unless the full amount of the debt which is secured by the relevant Security Interest is discharged within 60 days of the later of the first date on which: (a) a step is taken to enforce the relevant Security Interest; or (b) the Issuer, either Guarantor or the relevant Principal Subsidiary, as the case may be, is notified that a step has been taken to enforce the relevant Security Interest; or
(j) if the Guarantee ceases to be, or is claimed by the Issuer or by either Guarantor not to be, in full force and effect.
11.2 Enforcement
The Trustee may at any time, at its discretion and without notice, take such proceedings against the Issuer and/or either Guarantor as it may think fit to enforce the provisions of the Trust Deed, the Notes, the Receipts and the Coupons, but it shall not be bound to take any such proceedings or any other action in relation to the Trust Deed, the Notes, the Receipts or the Coupons unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by the holders of at least one-fifth in aggregate nominal amount of the Notes then outstanding and (b) it shall have been indemnified and/or pre-funded and/or secured to its satisfaction.
No Noteholder, Receiptholder or Couponholder shall be entitled to proceed directly against the Issuer or either Guarantor unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failure shall be continuing.
11.3 Definitions
For the purposes of the Conditions:
EBIT shall have the same meaning as Consolidated EBIT save that (i) all references in the definition of Consolidated EBIT to: (a) “consolidated” (and similar expressions) shall be deemed to be deleted; and (b) “Group” shall be construed as a reference to the “relevant Subsidiary”; and (ii) the definition of “Consolidated Finance Costs” used therein shall be construed to refer only to the relevant Subsidiary;
EBITDA shall have the same meaning as Consolidated EBITDA save that references in the definition of Consolidated EBITDA to “Consolidated EBIT” and “member of the Group” (and similar expressions) shall be deemed to be references to “EBIT” and the “relevant Subsidiary”, respectively;
Indebtedness means all obligations, and guarantees or indemnities in respect of obligations, for moneys borrowed or raised (whether or not evidenced by bonds, debentures, notes or other similar instruments) other than any such obligations, guarantees or indemnities owing or given by one member of the Group to another member of the Group;
Non-Recourse Indebtedness means any present or future Indebtedness or Sukuk Obligation, as the case may be, of any Subsidiary with respect to which there is no contractual recourse against MAF Holding or any other Subsidiary of MAF Holding other than (i) recourse resulting from a pledge of shares of such Subsidiary held by MAF Holding or any of its Subsidiaries in order to secure such Indebtedness or Sukuk Obligation, (ii) recourse resulting from commitments entered into by MAF Holding prior to 31 December 2010 or (iii) recourse against any Subsidiary of such Subsidiary to secure such Indebtedness or Sukuk Obligation, as the case may be;
Non-Recourse Subsidiary means any Subsidiary whose Non-Recourse Indebtedness represents at any relevant time more than 50 per cent. of its aggregate Indebtedness or Sukuk Obligations, as the case may be;
Permitted Reorganisation means:
(a) any winding-up or dissolution of a Principal Subsidiary or any Guarantor whereby the undertaking or assets of that Principal Subsidiary are transferred to or otherwise vested in a
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Guarantor and/or any of its other Subsidiaries provided that, in the case of any Guarantor and such transfer to or vesting in another Subsidiary, at the same time or prior to any such transfer or vesting the payment of principal and interest on the Notes and all other amounts payable by the Issuer under or pursuant to the Trust Deed has been guaranteed by such other Subsidiary by its assumption of the Guarantor’s obligations under the Guarantee it has entered into; or
(b) any composition or other similar arrangement on terms previously approved in writing by the Trustee or by an Extraordinary Resolution;
Principal Subsidiary means at any time a Subsidiary, other than a Non-Recourse Subsidiary, of MAF Holding:
(a) whose EBITDA (consolidated in the case of a Subsidiary which itself has Subsidiaries) or whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries) represent in each case (or, in the case of a Subsidiary acquired after the end of the financial period to which the then latest audited consolidated accounts of MAF Holding and its Subsidiaries relate, are equal to) not less than 10 per cent. of Consolidated EBITDA or, as the case may be, consolidated total assets of MAF Holding and its Subsidiaries taken as a whole, all as calculated respectively by reference to the then latest audited accounts (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited consolidated accounts of MAF Holding and its Subsidiaries, provided that in the case of a Subsidiary of MAF Holding acquired after the end of the financial period to which the then latest audited consolidated accounts of MAF Holding and its Subsidiaries relate, the reference to the then latest audited consolidated accounts of MAF Holding and its Subsidiaries for the purposes of the calculation above shall, until consolidated accounts for the financial period in which the acquisition is made have been prepared and audited as aforesaid, be deemed to be a reference to such first-mentioned accounts as if such Subsidiary had been shown in such accounts by reference to its then latest relevant audited accounts, adjusted as deemed appropriate by MAF Holding;
(b) to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary of MAF Holding which immediately prior to such transfer is a Principal Subsidiary, provided that the transferor Subsidiary shall upon such transfer forthwith cease to be a Principal Subsidiary and the transferee Subsidiary shall cease to be a Principal Subsidiary pursuant to this subparagraph (b) on the date on which the consolidated accounts of MAF Holding and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited as aforesaid but so that such transferor Subsidiary or such transferee Subsidiary may be a Principal Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of subparagraph (a) above or, prior to or after such date, by virtue of any other applicable provision of this definition; or
(c) to which is transferred an undertaking or assets which, taken together with the undertaking or assets of the transferee Subsidiary, generated (or, in the case of the transferee Subsidiary being acquired after the end of the financial period to which the then latest audited consolidated accounts of MAF Holding and its Subsidiaries relate, generate EBITDA equal to) not less than 10 per cent. of Consolidated EBITDA, or represent (or, in the case aforesaid, are equal to) not less than 10 per cent. of the consolidated total assets of MAF Holding and its Subsidiaries taken as a whole, all as calculated as referred to in subparagraph (a) above, provided that the transferor Subsidiary (if a Principal Subsidiary) shall upon such transfer forthwith cease to be a Principal Subsidiary unless immediately following such transfer its undertaking and assets generate (or, in the case aforesaid, generate EBITDA equal to) not less than 10 per cent. of Consolidated EBITDA, or its assets represent (or, in the case aforesaid, are equal to) not less than 10 per cent. of the consolidated total assets of MAF Holding and its Subsidiaries taken as a whole, all as calculated as referred to in subparagraph (a) above, and the transferee Subsidiary shall cease to be a Principal Subsidiary pursuant to this subparagraph (c) on the date on which
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the consolidated accounts of MAF Holding and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited but so that such transferor Subsidiary or such transferee Subsidiary may be a Principal Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of subparagraph (a) above or, prior to or after such date, by virtue of any other applicable provision of this definition,
all as more particularly defined in the Trust Deed.
A report by two Authorised Signatories of MAF Holding (whether or not addressed to the Trustee) that in their opinion a Subsidiary of MAF Holding is or is not or was or was not at any particular time or throughout any specified period a Principal Subsidiary may be relied upon by the Trustee without further enquiry or evidence and, if relied upon by the Trustee, shall, in the absence of manifest error, be conclusive and binding on all parties;
Subsidiary means in relation to any person (the first person), at any particular time, any person (the second person):
(a) which is then directly or indirectly controlled by the first person; or
(b) more than 50 per cent. of whose issued equity share capital (or equivalent) is then beneficially owned by the first person.
For the second person to be controlled by the first person means that the first person (whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract, trust or otherwise) has the power to appoint and/or remove all or the majority of the members of the board of directors or other governing body of that second person or otherwise controls, or has the power to control, the affairs and policies of the second person; and
Sukuk Obligation means any undertaking or other obligation to pay any money given in connection with the issue of trust certificates or other instruments intended to be issued in compliance with the principles of Shari’ah, whether or not in return for consideration of any kind.
12. REPLACEMENT OF NOTES, RECEIPTS, COUPONS AND TALONS
Should any Note, Receipt, Coupon or Talon be lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Principal Paying Agent (in the case of Bearer Notes, Receipts or Coupons) or the Registrar (in the case of Registered Notes) (and, if the Notes are then admitted to listing, trading and/or quotation by any competent authority, stock exchange and/or quotation system which requires the appointment of a Paying Agent or Transfer Agent in any particular place, the Paying Agent or Transfer Agent having its specified office in the place required by such competent authority, stock exchange and/or quotation system), subject to all applicable laws and competent authority, stock exchange and/or quotation system requirements, upon payment by the claimant of such costs and expenses as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Notes, Receipts, Coupons or Talons must be surrendered before replacements will be issued.
13. AGENTS
The names of the initial Agents and their initial specified offices are set out below.
The Issuer is entitled, with the prior written approval of the Trustee, to vary or terminate the appointment of any Agent and/or appoint additional or other Agents and/or approve any change in the specified office through which any Agent acts, provided that:
(a) there will at all times be a Principal Paying Agent and a Registrar;
(b) so long as the Notes are listed on any stock exchange or admitted to trading and/or quotation by any other relevant authority, there will at all times be a Paying Agent (in the case of Bearer
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Notes) and a Transfer Agent (in the case of Registered Notes) with a specified office in such place as may be required by the rules and regulations of the relevant stock exchange or other relevant authority;
(c) so long as any of the Registered Global Notes payable in a Specified Currency other than U.S. dollars are held through DTC or its nominee, there will at all times be an Exchange Agent with a specified office in New York City; and
(d) there will at all times be a Paying Agent in a Member State of the European Union that will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive.
In addition, the Issuer shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in Condition 7.5. Any variation, termination, appointment or change shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 nor more than 45 days’ prior notice thereof shall have been given to the Noteholders in accordance with Condition 15.
In acting under the Agency Agreement, the Agents act solely as agents of the Issuer and the Guarantors and, in certain circumstances specified therein, of the Trustee and do not assume any obligation to, or relationship of agency or trust with, any Noteholder, Receiptholder or Couponholder. The Agency Agreement contains provisions permitting any entity into which any Agent is merged or converted or with which it is consolidated or to which it transfers all or substantially all of its assets to become the successor agent.
14. EXCHANGE OF TALONS
On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet matures, the Talon (if any) forming part of such Coupon sheet may be surrendered at the specified office of any Paying Agent in exchange for a further Coupon sheet including (if such further Coupon sheet does not include Coupons to (and including) the final date for the payment of interest due in respect of the Note to which it appertains) a further Talon, subject to the provisions of Condition 10.
15. NOTICES
All notices regarding the Bearer Notes will be deemed to be validly given if published in a leading English language daily newspaper of general circulation in London. It is expected that any such publication in a newspaper will be made in the Financial Times in London. The Issuer shall also ensure that notices are duly published in a manner which complies with the rules of any stock exchange or other relevant authority on which the Bearer Notes are for the time being listed or by which they have been admitted to trading. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in more than one newspaper, on the date of the first publication in all required newspapers. If publication as provided above is not practicable, a notice will be given in such other manner, and will be deemed to have been given on such date, as the Trustee shall approve.
All notices regarding the Registered Notes will be deemed to be validly given if sent by first class mail or (if posted to an address overseas) by airmail to the holders (or the first named of joint holders) at their respective addresses recorded in the Register and will be deemed to have been given on the fourth day after mailing and, in addition, for so long as any Registered Notes are listed on a stock exchange or are admitted to trading by another relevant authority and the rules of that stock exchange or relevant authority so require, such notice will be published in a daily newspaper of general circulation in the place or places required by those rules.
Until such time as any definitive Notes are issued, there may, so long as any Global Notes representing the Notes are held in their entirety on behalf of Euroclear and/or Clearstream, Luxembourg and/or DTC, be substituted for such publication in such newspaper(s) the delivery of the relevant notice to
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Euroclear and/or Clearstream, Luxembourg and/or DTC for communication by them to the holders of the Notes and, in addition, for so long as any Notes are listed on a stock exchange or are admitted to trading and/or quotation by another relevant authority and the rules of that stock exchange or relevant authority so require, such notice will be published in a daily newspaper of general circulation in the place or places required by those rules. Any such notice shall be deemed to have been given to the holders of the Notes on the day on which the said notice was given to Euroclear and/or Clearstream, Luxembourg and/or DTC.
Notices to be given by any Noteholder shall be in writing and given by lodging the same, together (in the case of any Note in definitive form) with the relative Note or Notes, with the Principal Paying Agent (in the case of Bearer Notes) or the Registrar (in the case of Registered Notes). Whilst any of the Notes are represented by a Global Note, such notice may be given by any holder of a Note to the Principal Paying Agent or the Registrar through Euroclear and/or Clearstream, Luxembourg and/or DTC, as the case may be, in such manner as the Principal Paying Agent, the Registrar and Euroclear and/or Clearstream, Luxembourg and/or DTC, as the case may be, may approve for this purpose.
16. MEETINGS OF NOTEHOLDERS, MODIFICATION, WAIVER AND SUBSTITUTION A13.4.11
The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of the Notes, the Receipts, the Coupons or any of the provisions of the Trust Deed. Such a meeting may be convened by the Issuer, either Guarantor or the Trustee and shall be convened by the Issuer if required in writing by Noteholders holding not less than one-twentieth in nominal amount of the Notes for the time being remaining outstanding. The quorum at any such meeting for passing an Extraordinary Resolution is one or more persons holding or representing a clear majority in nominal amount of the Notes for the time being outstanding, or at any adjourned meeting one or more persons being or representing Noteholders whatever the nominal amount of the Notes so held or represented, except that at any meeting the business of which includes the modification of certain provisions of the Notes, the Receipts or the Coupons or the Trust Deed (including modifying the date of maturity of the Notes or any date for payment of interest thereon, reducing or cancelling the amount of principal or the rate of interest payable in respect of the Notes, altering the currency of payment of the Notes, the Receipts or the Coupons or amending the Guarantee in certain respects), the quorum shall be one or more persons holding or representing not less than two-thirds in nominal amount of the Notes for the time being outstanding, or at any adjourned such meeting one or more persons holding or representing not less than one-third in nominal amount of the Notes for the time being outstanding. An Extraordinary Resolution passed at any meeting of the Noteholders shall be binding on all the Noteholders, whether or not they are present at the meeting, and on all Receiptholders and Couponholders. The expression Extraordinary Resolution is defined in the Trust Deed to mean either (i) a resolution passed at a meeting duly convened and held by a majority consisting of not less than three-fourths of the votes cast or (ii) a resolution in writing signed by or on behalf of the holders of not less than three-fourths in nominal amount of the Notes.
The Trustee may agree, without the consent of the Noteholders, Receiptholders or Couponholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of the Notes or the Trust Deed, or determine, without any such consent as aforesaid, that any Event of Default or potential Event of Default shall not be treated as such, where, in any such case, it is not, in the opinion of the Trustee, materially prejudicial to the interests of the Noteholders so to do or may agree, without any such consent as aforesaid, to any modification, waiver, authorisation or determination which is of a formal, minor or technical nature or to correct a manifest error. Any such modification, waiver, authorisation or determination shall be binding on the Noteholders, the Receiptholders and the Couponholders and any such modification, waiver, authorisation or determination shall be notified by the Issuer to the Noteholders in accordance with Condition 15 as soon as practicable thereafter.
In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation or determination under these Conditions
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and the Trust Deed), the Trustee shall have regard to the general interests of the Noteholders as a class (but shall not have regard to any interests arising from circumstances particular to individual Noteholders, Receiptholders or Couponholders whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders, Receiptholders or Couponholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder, Receiptholder or Couponholder be entitled to claim, from the Issuer, the Guarantors, the Trustee or any other person any indemnification or payment in respect of any tax consequences of any such exercise upon individual Noteholders, Receiptholders or Couponholders except to the extent already provided for in Condition 9 and/or any undertaking or covenant given in addition to, or in substitution for, Condition 9 pursuant to the Trust Deed.
The Trustee may, without the consent of the Noteholders, agree with the Issuer to the substitution in place of the Issuer (or of any previous substitute under this Condition) as the principal debtor under the Notes, the Receipts, the Coupons and the Trust Deed of another company, being a Subsidiary of either Guarantor, subject to (i) the Notes being unconditionally and irrevocably guaranteed, on a joint and several basis, by the Guarantors, (ii) the Trustee being satisfied that the interests of the Noteholders will not be materially prejudiced by the substitution and (iii) certain other conditions set out in the Trust Deed being complied with.
17. INDEMNIFICATION OF THE TRUSTEE AND TRUSTEE CONTRACTING WITH THE ISSUER AND/OR THE GUARANTORS
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified and/or pre- funded and/or secured to its satisfaction, as well as provisions entitling the Trustee to be paid its costs and expenses in priority to the claims of the Noteholders.
The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (a) to enter into business transactions with the Issuer, the Guarantors and/or any of their respective Subsidiaries and to act as trustee for the holders of any other securities issued or guaranteed by, or relating to, the Issuer, the Guarantors and/or any of their respective Subsidiaries, (b) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of, or consequences for, the Noteholders, Receiptholders or Couponholders and (c) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith.
18. FURTHER ISSUES
The Issuer shall be at liberty from time to time without the consent of the Noteholders, the Receiptholders or the Couponholders, and in accordance with the Trust Deed, to create and issue further notes having terms and conditions the same as the Notes or the same in all respects save for the amount and date of the first payment of interest thereon and so that the same shall be consolidated and form a single Series with the outstanding Notes.
19. CURRENCY INDEMNITY
The Specified Currency is the sole currency of account and payment for all sums payable by the Issuer under or in connection with the Notes, the Receipts and the Coupons, including damages. Any amount received or recovered in a currency other than the Specified Currency (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction or otherwise) by any Noteholder, Receiptholder or Couponholder, as the case may be, in respect of any sum expressed to be due to it from the Issuer shall only constitute a discharge to the Issuer to the extent of the amount of the Specified Currency which the recipient is able to purchase with the amount so received or recovered
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in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that amount of Specified Currency is less than the amount of Specified Currency expressed to be due to the recipient under any Note, Receipt or Coupon, the Issuer shall indemnify it against any loss sustained by it as a result. In any event, the Issuer shall indemnify the recipient against the cost of making any such purchase. For the purposes of this Condition, it will be sufficient for the Noteholder, Receiptholder or Couponholder, as the case may be, to demonstrate that it would have suffered a loss had an actual purchase been made. These indemnities constitute a separate and independent obligation from the Issuer’s other obligations, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any Noteholder, Receiptholder or Couponholder and shall continue in full force and effect despite any other judgment, order, claim or proof for a liquidated amount in respect of any sum due under any Note, Receipt or Coupon, as the case may be, or any other judgment or order.
20. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
No person shall have any right to enforce any term or condition of this Note under the Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any person which exists or is available apart from that Act.
21. GOVERNING LAW AND SUBMISSION TO JURISDICTION
21.1 Governing law A12.4.1.3 A13.4.3 The Trust Deed, the Agency Agreement, the Notes, the Receipts and the Coupons and any non- contractual obligations arising out of or in connection with the Trust Deed, the Agency Agreement, the Notes, the Receipts and the Coupons (including the remaining provisions of this Condition 21), are and shall be governed by, and construed in accordance with, English law.
21.2 Agreement to arbitrate
Subject to Condition 21.3, any dispute, claim, difference or controversy arising out of, relating to or having any connection with the Notes (including any dispute as to their existence, validity, interpretation, performance, breach or termination or the consequences of their nullity and any dispute relating to any non-contractual obligations arising out of or in connection with them) (a Dispute) shall be referred to and finally resolved by arbitration under the LCIA Arbitration Rules (the Rules), which Rules (as amended from time to time) are incorporated by reference into this Condition. For these purposes:
(a) the seat of arbitration shall be London;
(b) there shall be three arbitrators, each of whom shall be disinterested in the arbitration, shall have no connection with any party thereto and shall be an attorney experienced in international securities transactions;
(c) the language of the arbitration shall be English; and
(d) any requirement in the Rules to take account of the nationality of a person considered for appointment as an arbitrator shall be disapplied and a person may be nominated or appointed as an arbitrator (including as chairman) regardless of his nationality.
21.3 Option to litigate
Notwithstanding Condition 21.2 above, the Trustee (or, but only where it is permitted to take action in accordance with the Trust Deed, any Noteholder) may, in the alternative, and at its sole discretion, by notice in writing to the Issuer:
(a) within 28 days of service of a Request for Arbitration (as defined in the Rules); or
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(b) in the event no arbitration is commenced,
require that a Dispute be heard by a court of law. If the Trustee (or, but only where it is permitted to take action in accordance with the Trust Deed, any Noteholder) gives such notice, the Dispute to which such notice refers shall be determined in accordance with Condition 21.4 and, subject as provided below, any arbitration commenced under Condition 21.2 in respect of that Dispute will be terminated. Each person who gives such notice and the recipient of that notice will bear its own costs in relation to the terminated arbitration.
If any notice to terminate is given after service of any Request for Arbitration in respect of any Dispute, the Trustee (or, but only where it is permitted to take action in accordance with the Trust Deed, the relevant Noteholder) must also promptly give notice to the LCIA Court and to any Tribunal (each as defined in the Rules) already appointed in relation to the Dispute that such Dispute will be settled by the courts. Upon receipt of such notice by the LCIA Court, the arbitration and any appointment of any arbitrator in relation to such Dispute will immediately terminate. Any such arbitrator will be deemed to be functus officio. The termination is without prejudice to:
(a) the validity of any act done or order made by that arbitrator or by the court in support of that arbitration before his appointment is terminated;
(b) his entitlement to be paid his proper fees and disbursements; and
(c) the date when any claim or defence was raised for the purpose of applying any limitation bar or any similar rule or provision.
21.4 Effect of exercise of an option to litigate
In the event that a notice pursuant to Condition 21.3 is issued, the following provisions shall apply:
(a) subject to paragraph (c) below, the courts of England shall have exclusive jurisdiction to settle any Dispute and the Issuer submits to the exclusive jurisdiction of such courts;
(b) the Issuer agrees that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary; and
(c) this Condition 21.4 is for the benefit of the Trustee, the Noteholders, the Receiptholders and the Couponholders only. As a result, and notwithstanding paragraph (a) above, the Trustee (or, but only where it is permitted to take action in accordance with the Trust Deed, any Noteholder) may take proceedings relating to a Dispute (Proceedings) in any other courts with jurisdiction. To the extent allowed by law, the Trustee (or, but only where it is permitted to take action in accordance with the Trust Deed, any Noteholder) may take concurrent Proceedings in any number of jurisdictions.
21.5 Appointment of Process Agent
The Issuer appoints Law Debenture Corporate Services Limited at its registered office at Fifth Floor, 100 Wood Street, London EC2V 7EX as its agent for service of process, and undertakes that, in the event of Law Debenture Corporate Services Limited ceasing so to act or ceasing to be registered in England, it will appoint another person approved by the Trustee as its agent for service of process in England in respect of any Proceedings or Disputes. Nothing herein shall affect the right to serve proceedings in any other manner permitted by law.
21.6 Waiver of immunity
The Issuer and each of the Guarantors hereby irrevocably and unconditionally waives with respect to the Notes, the Receipts and the Coupons any right to claim sovereign or other immunity from jurisdiction or execution and any similar defence and irrevocably and unconditionally consents to the giving of any relief or the issue of any process, including without limitation, the making, enforcement
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or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment made or given in connection with any Proceedings or Disputes.
20.7 Other documents and the Guarantors
The Issuer and the Guarantors have in the Trust Deed and the Agency Agreement, made provision for arbitration and appointed an agent for service of process in terms substantially similar to those set out above. The Issuer and the Guarantors have in the Trust Deed and the Agency Agreement irrevocably and unconditionally waived with respect to those documents any right to claim sovereign or other immunity from jurisdiction or execution and any similar defence and irrevocably and unconditionally consent to the giving of any relief or the issue of any process, including without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment made or given in connection with any Proceedings or Disputes.
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USE OF PROCEEDS
The net proceeds from each issue of Notes will be lent by the Issuer to one or both of the Guarantors or any other company controlled by the Guarantors and will be applied by the relevant Guarantor or such Group company for its general corporate purposes, which include making a profit. If, in respect of any particular issue of Notes, including any Notes which are derivative securities for the purposes of Article 15 of the Commission Regulation No 809/2004 implementing the Prospectus Directive, there is a particular identified use of proceeds, this will be stated in the applicable Final Terms.
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DESCRIPTION OF THE ISSUER
MAF Global Securities Limited, a Cayman Islands exempted company with limited liability, was A9.4.1.1 incorporated on 12 May 2011 under the Companies Law (2010 Revision) of the Cayman Islands with A9.4.1.2 company registration number 256282. The Issuer has been established as a special purpose borrowing A9.4.1.3 vehicle. The registered office of the Issuer is at c/o Maples Corporate Services Limited, PO Box 309, Ugland A9.4.1 House, Grand Cayman, KY1-1104, Cayman Islands, and its telephone number is +1 345 949 8066.
The issued share capital of the Issuer is comprised of 100 ordinary shares of par value U.S.$1.00 each. The A9.6.1 Issuer is a wholly-owned subsidiary of MAF Holding. A9.10.1
BUSINESS OF THE ISSUER A9.5.1.1
The Issuer will issue Notes under the Programme and may enter into other borrowing arrangements from time to time, may make loans to one or both of the Guarantors or other companies controlled by the Guarantors and may conduct other activities incidental or related to the foregoing. The Issuer is not expected to undertake any other business or to incur any substantial liabilities other than in connection with the Notes to be issued under the Programme and as a result of conducting other financing activities as described above. The Notes are the obligations of the Issuer alone.
The objects for which the Issuer is established are set out in clause 3 of its Articles of Association (as registered on 12 May 2011). The objects of the Issuer are unrestricted and thus the Issuer has full power and authority to carry out any object not prohibited by the laws of the Cayman Islands including raising funds (including through the issuance of Notes), granting loans and granting security over its assets.
FINANCIAL STATEMENTS
Since the date of incorporation, no financial statements of the Issuer have been prepared. The Issuer is not A9.11.1 required by Cayman Islands law, and does not intend, to publish audited financial statements.
DIRECTORS OF THE ISSUER
The Directors of the Issuer are:
Name: Principal Occupation outside of the Issuer: A9.9.1 ––––––––––––––––––––––––––––––––––– ––––––––––––––––––––––––––––––––––––––––––––– Iyad Malas...... Chief Executive Officer, Majid Al Futtaim Holding LLC Ahmed Bin Brek ...... Deputy Chief Executive Officer, Majid Al Futtaim Holding LLC Daniele Vecchi ...... Senior Vice President, Group Treasurer, Majid Al Futtaim Holding LLC Joseph Haddad ...... General Counsel, Majid Al Futtaim Holding LLC
The business address of each Director of the Issuer is c/o Majid Al Futtaim Holding LLC, MAF Tower 1, Deira City Centre, PO Box 91100, Dubai, United Arab Emirates.
There are no potential conflicts of interest between the private interests or other duties of the Directors of the A9.9.2 Issuer listed above and their respective duties to the Issuer.
The Issuer has no employees and is not expected to have any employees in the future.
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SUMMARY OF GROUP FINANCIAL INFORMATION
The following summary of consolidated historical financial information as at and for the years ended 31 December 2010, 2009 and 2008 has been derived from the Group Financial Statements, which are included elsewhere in this document. As a result of the sale of MAFAM in 2010, adjustments have been made in the statement of comprehensive income for the year ended 31 December 2010 relating to revenue, operating expenses, profit before tax and profit from continued operations, in each case for the year ended 31 December 2009, in order to show the discontinued operations separately from the continuing operations. As a result, these items are not comparable in all respects to those in the 2009 Group Financial Statements. No similar adjustments have been made in respect of the statement of comprehensive income for the year ended 31 December 2008. See “Presentation of Financial and Other Information − Presentation of Financial Information”. Prospective investors should read the following summary consolidated financial information in conjunction with the information contained in “Presentation of Financial and Other Information”, “Risk Factors”, “Group Financial Review”, “Description of the Group” and the Group Financial Statements (including the related notes thereto) appearing elsewhere in this document. The 2009 numbers included in this section have been derived from the 2010 Group Financial Statements, see “Presentation of Financial and Other Information – Presentation of Group Financial Information”.
STATEMENT OF COMPREHENSIVE INCOME The following table shows the Group’s consolidated statements of comprehensive income for the three years ended 31 December 2010, 2009 and 2008, respectively. Year ended 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Revenue...... 17,739 15,901 14,746 Cost of sale ...... (12,502) (11,583) (10,673) Operating expenses ...... (3,843) (3,491) (3,451) Net valuation loss on land and buildings ...... (217) (13) (249) Finance costs...... (454) (322) (307) Finance income...... 70 55 105 Other expenses – net...... (15) (1) 189 Impairment loss – net ...... (882) (89) (179) Share of gain in joint ventures and associate – net ...... 39 22 (75) –––––––– –––––––– –––––––– (Loss) / profit before tax...... (65) 480 107 Income tax charge – net ...... (79) (24) 1 –––––––– –––––––– –––––––– (Loss) / profit from continued operations...... (144) 456 – Profit from discontinued operations ...... – 23 – –––––––– –––––––– –––––––– (Loss) / profit for the year ...... (144) 479 108 –––––––– –––––––– –––––––– Other comprehensive income Currency translation differences from foreign operations ...... (78) 9 22 Net change in fair value of cash flow hedges transferred to profit or loss ...... 143 108 (318) Effective portion of changes in fair value of cash flow hedges ...... (142) 30 30 Net gain / (loss) on valuation of land and buildings ...... 657 (2,323) 2,787 Deferred tax liability reversed / (recognized) on revaluation of land and buildings...... 19 (17) 119 Share of gain in joint ventures ...... 40 65 - –––––––– –––––––– –––––––– Total other comprehensive income for the year...... 639 (2,129) 2,640 –––––––– –––––––– –––––––– Total comprehensive income for the year...... 494 (1,649) 2,748 –––––––– –––––––– –––––––– Attributable to: Owners of MAF Holding ...... 312 (1,820) 2,606 Non-controlling interest ...... 183 171 142
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STATEMENT OF FINANCIAL POSITION
The following table shows the Group’s consolidated statement of financial position as at 31 December in each of 2010, 2009 and 2008, respectively. Year ended 31 December –-–––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Tangible fixed assets Property, plant and equipment ...... 18,575 17,887 21,652 Investment property ...... 10,328 9,812 5,752 –––––––– –––––––– –––––––– 28,903 27,699 27,404 Other non-current assets Investments ...... 1,169 1,649 1,465 Net investments in finance leases – long term portion...... 67 110 238 Long term prepaid lease premium ...... 16 18 20 Long term advances ...... 44 23 26 Capital advance...... - - 55 Intangible assets ...... 173 192 - Deferred tax asset ...... 2 - - –––––––– –––––––– –––––––– 1,470 1,991 1,805 Current assets Assets classified as held for sale ...... 3 - 34 Short term loans to related parties ...... 9 - - Inventories...... 717 720 685 Trade and other receivables ...... 954 1,175 1,140 Due from related parties ...... 72 147 182 Net investment in finance leases – current portion...... 179 207 237 Cash in hand and at bank ...... 2,277 2,423 2,215 –––––––– –––––––– –––––––– 4,212 4,672 4,493 Current liabilities Short term loans ...... - - 83 Trade and other payables ...... 4,667 4,704 4,413 Negative fair value of the derivatives ...... 219 213 374 Due to related parties ...... 63 45 52 Other employment benefits payable – current portion...... 128 162 145 Dividend payable to non-controlling interest ...... 32 32 151 Bank overdraft ...... 11 59 40 Current maturity of long term loans ...... 2,038 2,070 966 –––––––– –––––––– –––––––– 7,158 7,284 6,226 –––––––– –––––––– –––––––– Net current liabilities ...... (2,946) (2,612) (1,733) –––––––– –––––––– –––––––– Non-current liabilities Long term loans ...... 8,470 8,302 7,054 Deferred tax liabilities ...... 193 196 184 Other deferred liabilities...... 113 127 - Other employment benefits payable – non current portion ...... 52 38 105 Provision for staff terminal benefits ...... 189 160 139 –––––––– –––––––– –––––––– Net assets ...... 18,410 18,254 19,993 –––––––– –––––––– –––––––– Equity Share capital ...... 2,487 2,487 2,487 Revaluation reserve...... 12,214 11,497 13,772 Other reserves ...... 3,282 3,963 3,605 –––––––– –––––––– –––––––– Total equity attributable to the owners of MAF Holding...... 17,983 17,947 19,864 Non-controlling interest ...... 427 307 130 –––––––– –––––––– –––––––– Total equity ...... 18,410 18,254 19,993 –––––––– –––––––– ––––––––
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CASH FLOW STATEMENT
The following table summarises the Group’s cash flows for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Net cash from operating activities ...... 2,642 1,953 2,054 Net cash used in investing activities...... (2,032) (3,350) (3,204) Net cash (used in)/from financing activities...... (707) 1,586 1,557 (Decrease)/increase in cash and cash equivalents ...... (98) 188 407 Cash and cash equivalents at start of period...... 2,364 2,175 1,768 Cash and cash equivalents at end of period...... 2,266 2,364 2,175
EBITDA
The following table shows the Group’s EBITDA and certain ratios as at and for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– EBITDA(1) (AED millions) ...... 2,346 1,597 1,212 EBITDA margin(2) (per cent.) ...... 13.2 10.0 8.2 EBITDA/interest(3) (times)...... 6.1 6.1 6.0 LTV (4) (per cent.)...... 28.5 28.9 21.3 Net debt/EBITDA(5) (times)...... 3.5 5.1 4.8 Debt/capital(6) (per cent.)...... 57.1 57.1 40.3
Notes: (1) Calculated as profit for the year after adding back extraordinary items, interest, tax, depreciation and amortisation, see reconciliation below. (2) Calculated as EBITDA divided by total revenue. (3) Calculated as EBITDA divided by net interest, which is calculated as interest costs (excluding capitalised interest costs) less interest earned. (4) Calculated as net debt divided by tangible fixed assets. Net debt comprises long-term loans (including current maturity) and bank overdrafts less cash in hand and at banks. (5) Calculated as net debt divided by EBITDA. (6) Calculated as debt divided by capital. Debt comprises long-term loans (including current maturity) and bank overdrafts. Capital is total shareholders’ equity.
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The following table shows a reconciliation of the Group’s EBITDA to profit/(loss) as shown in the consolidated income statement for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) EBITDA ...... 2,346 1,597 1,212 Depreciation ...... (877) (795) (638) Amortisation ...... (22) (9) (2) Provision for joint venture receivables ...... (10) (26) (6) Net finance cost ...... (384) (266) (202) Net valuation loss on land and buildings ...... (217) (13) (249) Taxation...... (79) (24) 1 Project costs written off ...... (17) (30) (52) Impairment provision ...... (882) (89) (175) Extraordinary gain ...... - - 240 Others ...... (2) 134 (21) (Loss)/profit for the year...... (144) 479 108
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GROUP FINANCIAL REVIEW
The following review of the Group’s financial position and results of operations is based upon and should be read in conjunction with the Group Financial Statements included elsewhere in this document. As a result of the sale of MAFAM in 2010, adjustments have been made in the statement of comprehensive income for the year ended 31 December 2010 relating to revenue, operating expenses, profit before tax and profit from continued operations, in each case for the year ended 31 December 2009, in order to show the discontinued operations separately from the continuing operations. As a result, these items are not comparable in all respects to those in the 2009 Group Financial Statements. No similar adjustments have been made in respect of the statement of comprehensive income for the year ended 31 December 2008. See “Presentation of Financial and Other Information—Presentation of Group Financial Information”.
This discussion contains forward-looking statements that involve risks and uncertainties, see “Forecasts and Forward-Looking Statements”. Actual results for the Group could differ materially from those indicated in any forward-looking statements as a result of various factors, including those discussed below and in “Risk Factors”.
OVERVIEW
The Group is one of the largest developers and operators of shopping malls and hypermarkets in the MENA region. Founded in Dubai in 1992 to bring the first regional shopping mall to the Middle East, the Group’s activities have since grown to include hotel development and the provision of complementary leisure and entertainment products and services. The Group currently has operations in 11 countries in the MENA region.
The Group’s operations are carried out by three complementary operating companies, MAF Properties, MAF Retail and MAF Ventures, each of which is a wholly-owned subsidiary of MAF Holding: • MAF Properties develops and manages shopping malls, which is the Group’s core business. MAF Properties currently operates 10 shopping malls in the UAE, Egypt, Oman and Bahrain, and is currently constructing or master planning an additional four malls, located in the UAE, Lebanon, Egypt and Syria. MAF Properties also develops hotels and, on a selective basis, undertakes mixed-use developments, in each case where this adds value to its core mall development business. MAF Properties currently owns nine hotels, all of which are located in Dubai, and is currently constructing or master planning an additional five hotels, located in Bahrain and Syria. MAF Properties operates through its three business units: Shopping Malls, Hotels and Mixed-Use; • MAF Retail first introduced the hypermarket model to the Middle East in 1995. MAF Retail manages Majid Al Futtaim Hypermarkets LLC (MAF Hypermarkets), a 75/25 joint venture company with Carrefour. Carrefour stores are a key anchor tenant in each of the Group’s shopping malls but the Group has also opened Carrefour stores outside its shopping malls. MAF Retail has expanded the Carrefour concept across the UAE and into Bahrain, Egypt, Iran, Jordan, Kuwait, Oman, Pakistan, Qatar, Saudi Arabia and Syria. As at 30 April 2011, it operated 38 Carrefour hypermarkets and 27 Carrefour supermarkets in 11 counties in the MENA region; and • MAF Ventures operates the Group’s leisure and entertainment services, including a unique leisure offering in each of its three super-regional shopping malls, for example Ski Dubai which is located in the Group’s flagship shopping mall, Mall of the Emirates. MAF Ventures also owns 10 Magic Planet entertainment centres located in nine of the Group’s shopping malls and elsewhere and five cinemas located in four of the Group’s shopping malls and elsewhere. MAF Ventures also offers Najm Visa credit cards and has a small portfolio of other investments.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGMENTS
The preparation of the Group Financial Statements requires management to make certain estimates and judgments, some of which are subjective and complex, often as a result of the need to make estimations of future events. The Group’s significant accounting policies are set out in note 3 to the 2010 Group Financial
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Statements and a summary of the critical accounting estimates and judgments that are made in preparing the financial statements is set out in note 4 to the 2010 Group Financial Statements.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED 31 DECEMBER 2010
Revenue
The Group’s principal source of revenue is the sales that it makes in its Carrefour stores. In addition, the Group earns rental income (principally from the tenants in its shopping malls), fees and commissions (from a range of sources), leisure and entertainment revenue (from its leisure and entertainment facilities, including its cinemas, Magic Planet entertainment centres and Ski Dubai among others), hospitality revenue (from its hotels) and fashion goods revenue (from its fashion outlets owned by MAF Ventures).
The table below shows a breakdown of the Group’s revenue for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2010 2009 2008 ––––––––––––––––––– ––––––––––––––––––– ––––––––––––––––––– (AED (AED (AED millions) (%) millions) (%) millions) (%) Sale of goods ...... 13,937 78.6 12,691 79.8 11,705 79.4 Rental income ...... 1,742 9.8 1,377 8.7 1,197 8.1 Fees and commissions ...... 931 5.2 799 5.0 639 4.3 Leisure and entertainment 486 2.7 384 2.4 385 2.6 Hospitality revenue ...... 319 1.8 294 1.8 357 2.4 Fashion goods ...... 259 1.5 238 1.5 282 1.9 Other...... 65 - 117(1) 0.1 180 1.2 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total revenue ...... 17,739 100.0 15,901 100.0 14,746 100.0 –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Note: (1) This figure was restated in 2010 to reflect the sale of MAFAM, see “Presentation of Financial and other Information—Presentation of Financial Information”. Including revenue attributable to MAFAM, the figure would have been AED 188 million.
The Group’s total revenue increased by AED 1,838 million, or 11.6 per cent., in 2010 (from AED 15,901 million in 2009 to AED 17,739 million). The majority of the increase resulted from a 9.8 per cent. increase in revenue from the sale of goods but most other revenue sources also increased.
The Group’s total revenue increased by AED 1,115 million, or 7.8 per cent., in 2009 (from AED 14,746 million in 2008 to AED 15,901 million). The majority of the increase resulted from an 8.4 per cent. increase in revenue from the sale of goods. Rental income and fee and commission income also increased but most other revenue sources declined or were flat, reflecting the challenging economic conditions experienced in Dubai and certain other MENA region countries in 2009.
In geographical terms, in 2010, 53.4 per cent. of the Group’s revenue was derived from the UAE, 12.0 per cent. was derived from Egypt, 8.5 per cent. was derived from Qatar, 8.4 per cent. was derived from Saudi Arabia, 4.8 per cent. was derived from Oman and the remaining 12.9 per cent. was derived from other countries in the MENA region.
A more detailed analysis of the Group’s three principal sources of revenue is set out below. Together, these revenue streams comprised 93.6 per cent., 93.5 per cent. and 91.8 per cent. of the Group’s total revenue in 2010, 2009 and 2008, respectively.
Revenue from the sale of goods
The Group’s revenue from the sale of goods increased by AED 1,246 million, or 10.0 per cent., in 2010 (from AED 12,691 million in 2009 to AED 13,937 million). This principally reflected the fact that seven Carrefour
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hypermarkets which had opened in 2009 were operative for a full year in 2010, the opening of a Carrefour hypermarket in the Mirdif City Centre shopping mall in March 2010 and the impact of 11 Carrefour supermarkets opened during 2010.
The Group’s revenue from the sale of goods increased by AED 986 million, or 8.4 per cent., in 2009 (from AED 11,705 million in 2008 to AED 12,691 million). This principally reflected the opening of seven new Carrefour hypermarkets in 2009 and the fact that six further Carrefour hypermarkets which had opened in 2008 were operative for a full year in 2009.
Rental income
The Group’s rental income increased by AED 365 million, or 26.5 per cent., in 2010 (from AED 1,377 million in 2009 to AED 1,742 million). This principally reflected the rental income generated by the Mirdif City Centre shopping mall which opened in March 2010 and a 5.0 per cent. increase in rental income generated by the Group’s other shopping malls.
The Group’s rental income increased by AED 180 million, or 15.0 per cent., in 2009 (from AED 1,197 million in 2008 to AED 1,377 million). This principally reflected the full year impact of the Bahrain City Centre and Qurum City Centre shopping malls, which both opened in 2008.
Fees and commissions
The Group earns fees and commissions from listing fees, which are fees paid by suppliers of new items in the Carrefour range, from fees paid by the producers of goods sold in the Group’s Carrefour stores to display their goods on the prominent shelves at the end of aisles (known as gondola-ends) and from commissions paid to the Group in respect of sales where its acts as an agent in the transaction. Accordingly, the Group’s fee and commission income is related to the number of its Carrefour stores.
The Group’s fees and commissions increased by AED 132 million, or 16.5 per cent., in 2010 (from AED 799 million in 2009 to AED 931 million).
The Group’s fees and commissions increased by AED 160 million, or 25.0 per cent., in 2009 (from AED 639 million in 2008 to AED 799 million).
Cost of sales
The Group’s cost of sales almost entirely consists of the cost to it of acquiring the goods sold by it in its Carrefour stores. Cost of sales is presented net of any rebates which the Group is able to secure from its suppliers. The Group’s cost of sales increased by AED 919 million, or 7.9 per cent., in 2010 (from AED 11,583 million in 2009 to AED 12,502 million in 2010). The percentage increase in cost of sales was lower than the percentage increase in sale of goods reflecting improved purchase terms negotiated by MAF Retail. The Group’s sales margin was 29.5 per cent. in 2010 compared to 27.2 per cent. in 2009.
The Group’s total cost of sales increased by AED 910 million, or 8.5 per cent., in 2009 (from AED 10,673 million in 2008 to AED 11,583 million). This increase was in line with the increase in sale of goods and reflected the development of the business discussed in “—Revenue from the sale of goods” above. The Group’s sales margin was 27.2 per cent. in 2009 compared to 27.6 per cent. in 2008 due to the increased share of the lower margin retail business in the Group’s total sales margin.
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Operating expenses
The table below shows the Group’s operating expenses for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2010 2009 2008 ––––––––––––––––––– ––––––––––––––––––– ––––––––––––––––––– (AED (AED (AED millions) (%) millions) (%) millions) (%) Staff costs...... (1,516) 39.4 (1,440) 41.2 (1,474) 42.7 Rent ...... (247) 6.4 (237) 6.8 (225) 6.5 Depreciation ...... (877) 22.8 (795) 22.8 (638) 18.5 Amortisation...... (22) 0.6 (9) 0.3 (2) – Consultancy costs...... (38) 1.0 (57) 1.6 (158) 4.6 Legal and professional fees ...... (27) 0.7 (29) 0.8 (28) 0.8 Selling and marketing expenses ...... (197) 5.1 (169) 4.8 (187) 5.4 Utilities...... (181) 4.7 (194) 5.6 (158) 4.6 Repair and maintenance.... (157) 4.1 (62) 1.8 (63) 1.8 Insurance charges...... (15) 0.4 (17) 0.4 (13) 0.4 Franchise and management fees ...... (64) 1.7 (65) 1.9 (81) 2.4 Other general and administrative expenses (500) 13.0 (417)(1) 12.0 (423) 12.3 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total operating expenses (3,843) 100.0 (3,491) 100.0 (3,451) 100.0 –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Note: (1) This figure was restated in 2010 to reflect the sale of MAFAM, see “Presentation of Financial and other Information—Presentation of Financial Information”. Including general and administrative expenses attributable to MAFAM, the figure would have been AED 465 million.
The Group’s principal operating expenses are staff costs and depreciation, which together comprised 62.2 per cent., 64.0 per cent. and 61.2 per cent. of its total operating expenses in 2010, 2009 and 2008, respectively. Each of these items is analysed in more detail below.
The Group’s total operating expenses increased by AED 352 million, or 10.1 per cent., in 2010 (from AED 3,491 million in 2009 to AED 3,843 million). The principal contributors to this increase were increased staff costs, depreciation, repairs and maintenance and other general administrative expenses which, together, increased by AED 336 million.
The Group’s total operating expenses increased by AED 40 million, or 1.2 per cent., in 2009 (from AED 3,451 million in 2008 to AED 3,491 million). The biggest increases were depreciation and utility costs, which increased by AED 157 million and AED 36 million, respectively. Most other expense categories decreased or were relatively flat as the Group sought to contain costs in adverse economic conditions.
Staff costs
The Group’s staff costs (which exclude staff costs capitalised as part of projects under construction) increased by AED 76 million, or 5.3 per cent., in 2010 (from AED 1,440 million in 2009 to AED 1,516 million), principally reflecting increasing employee numbers. The number of employees increased by 6.9 per cent. in 2010 from 17,629 at the start of the year to 18,850, although the majority of the new employees were employed in MAF Retail’s Carrefour stores and MAF Ventures’ leisure and entertainment venues at the lower end of the Group’s salary scale.
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The Group’s staff costs decreased by AED 34 million, or 2.3 per cent., in 2009 (from AED 1,474 million in 2008 to AED 1,440 million). This decrease reflected a reduction in higher grade head office staff which was partially offset by an increase in lower grade staff in the retail business as new Carrefour stores opened. Overall, there was a 7.6 per cent. increase in employees in 2009 (mostly in the lower grade retail business) from 16,386 at the start of the year to 17,629.
Depreciation
The Group’s depreciation charge increased by AED 82 million, or 10.3 per cent., in 2010 (from AED 795 million in 2009 to AED 877 million) and by AED 157 million, or 24.6 per cent., in 2009 (from AED 638 million in 2008 to AED 795 million). These increases principally reflected increases in depreciable assets.
Net valuation change on land and buildings
Land and buildings classified as property, plant and equipment in accordance with IAS 16 are revalued on each reporting date. Any decrease in value resulting from the revaluation is charged to profit and loss in the period in which it occurs and any increase in value arising on the revaluation is credited to a revaluation reserve. Notwithstanding the above general principles, decreases in value are recognised in other comprehensive income to the extent that there is a credit balance in the revaluation reserve in respect of the asset and increases in value are recognised in profit and loss to the extent that they reverse a decrease in the value of the asset concerned that was previously recognised in profit and loss.
Investment properties are properties held either to earn rental income, for capital appreciation or both in accordance with IAS 40. Investment properties are revalued on each reporting date and any changes in the fair value are credited or charged to profit and loss in the period in which they arise.
The net valuation change on land and buildings comprises the sum of (i) any losses incurred on the revaluation of developed properties classified as property, plant and equipment, (ii) any increases arising on the revaluation of developed properties classified as property, plant and equipment to the extent they reverse losses previously charged to profit and loss and (iii) the fair value gains or losses on investment property.
In 2010, the Group recorded an AED 231 million fair value loss on the revaluation of certain property, plant and equipment (principally the Pullman Mall of the Emirates in Dubai and the Rigga IBIS Hotel in Dubai) and a net fair value gain of AED 14 million on its investment property.
In 2009, the Group recorded an AED 291 million fair value loss on the revaluation of certain property, plant and equipment (principally the Port Saeed Novotel in Dubai, the Barsha IBIS Hotel and Suite Novotel in Dubai and an office building in Dubai) and a net fair value gain of AED 278 million on its investment property, principally reflecting progress in constructing the Mirdif City Centre shopping mall.
In 2008, the Group recorded an AED 99 million fair value loss on the revaluation of certain property, plant and equipment (principally undeveloped land) and an AED 150 million fair value loss on its investment property (principally undeveloped land identified for development).
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Net finance cost The table below shows the Group’s net finance cost recognised in profit or loss for the three years ended 31 December 2010, 2009 and 2008, respectively. Year ended 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Arrangement and participation fee ...... (13) (35) (12) Interest charges (less capitalised interest) ...... (294) (175) (247) Net changes in fair value of financial assets at fair value through profit and loss ...... – (1) (15) Ineffective portion of changes in fair value of cash flow hedges...... (5) (4) (2) Net changes in fair value of cash flow hedges transferred from equity ...... (143) (108) (30) –––––––– –––––––– –––––––– Finance costs ...... (454) (322) (307) Interest income ...... 67 39 96 Ineffective portion of changes in fair value of cash flow hedges...... 3 17 9 –––––––– –––––––– –––––––– Finance income ...... 70 55 105 –––––––– –––––––– –––––––– Net finance costs ...... (384) (266) (202) –––––––– –––––––– –––––––– The Group’s net finance cost charged to profit and loss increased by AED 118 million, or 44.4 per cent., in 2010 (from AED 266 million in 2009 to AED 384 million). This principally reflected the net effect of the following factors: • an increase of AED 119 million, or 68.0 per cent., in interest charges (after deducting capitalised interest). The Group pays interest on its outstanding borrowings and the increase in interest charges in 2010 principally reflected the completion of the Mirdif City Centre shopping mall and the consequent charging of interest on the associated borrowings to profit and loss, whereas prior to the completion of the shopping mall such interest was capitalised and deducted from interest charges, increased borrowings and higher interest rates; • an increase of AED 35 million, or 32.4 per cent., in net changes in fair value of cash flow hedges transferred from equity. Under IFRS, changes in the fair values of the effective portion of derivative instruments that are designated as cash flow hedges are recognised directly in other comprehensive income and presented in equity (in the hedging reserve). The amount recognised in other comprehensive income is removed and included in profit or loss in the same period that the hedged item affects profit or loss; and • an increase of AED 15 million, or 27.3 per cent., in finance income. The Group receives interest income on funds invested and on the principal amounts due under finance lease receivables and the increase in interest income in 2010 principally reflected increased rates paid on bank balances. The Group’s net finance cost charged to profit and loss increased by AED 64 million, or 31.7 per cent., in 2009 (from AED 202 million in 2008 to AED 266 million). This principally reflected the net effect of the following factors: • an increase in the Group’s finance cost of AED 15 million (principally reflecting an AED 78 million increase in net changes in fair value of cash flow hedges transferred from equity and an AED 23 million increase in loan arrangement and participation fees partially offset by an AED 72 million fall in interest expense (after deducting capitalised interest) as a result of falling interest rates); and • a decrease of AED 50 million in the Group’s finance income principally driven by a fall in interest income as the rates of interest paid on its bank balances fell significantly in 2009 following the onset of the global financial crisis.
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Other income and expenses, net
The Group’s other income and expenses comprise the net gain or loss made on the disposal of non-current assets, project costs written off once the Group determines not to proceed with a particular project, any net foreign exchange gain or loss, a provision for joint venture receivables and other income. The Group’s other expenses, net increased by AED 14 million in 2010 from AED 1 million in 2009 to AED 15 million in 2010. In 2008, the Group’s other income was AED 189 million, principally reflecting an AED 240 million gain made on the sale of non-current assets.
Impairment losses, net
The Group believes that its policy for taking impairments is conservative. The Group recognised net impairment losses of AED 882 million in 2010, AED 89 million in 2009 and AED 179 million in 2008. In 2010, the impairment loss principally related to the effect of adverse market and business conditions on the value of receivables from and investments in certain joint ventures in the UAE. In addition, the Group recognised an impairment loss on certain leisure assets in the Mirdif City Centre and Bahrain City Centre shopping malls based on its revised assessment of the likely cash flows to be generated from the future operation of those assets.
In 2009, the impairment losses principally related to the effect of adverse market and business conditions on the value of advances to two joint ventures in the UAE which were partially offset by the reversal of an impairment loss against the Group’s joint venture, Waterfront City SARL, in Lebanon as economic conditions and property values in Lebanon improved. In addition, the Group recognised net impairment losses on certain hotel, retail and other assets owned by it during 2009, based on its estimates of the recoverability of the carrying values of the assets (in the case of the hotels and other assets) or the estimated cash flows expected to be generated from the future operation of the assets (in the case of the retail assets).
In 2008, the impairment loss principally related to the Group’s fashion assets and, to a lesser extent, a MAF Retail hypermarket and was based on the Group’s estimates of the recoverability of the carrying values of the assets.
Share of gain in joint ventures and associates, net
A list of the Group’s joint ventures and associates is set out in note 34 to the 2010 Group Financial Statements. Joint ventures and associates are accounted for using the equity method and, as a result, the Group’s proportionate share of the profit or loss made by each joint venture or associate is included under this line item.
The table below shows the Group’s share of the profit or loss of its joint ventures and associates for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Share of profit/(loss) of associates ...... 17 (14) (5) Share of profit/(loss) of joint ventures ...... 21 36 (69) –––––––– –––––––– –––––––– Total ...... 39 22 (75) –––––––– –––––––– ––––––––
The Group’s share of the net gain in joint ventures and associates was AED 39 million in 2010 compared to AED 22 million in 2009 and, in 2008, the Group’s share of the net loss in joint ventures and associates was AED 75 million. At the end of 2009, the Group’s joint venture agreement with Dalkia Middle East Holding (Dalkia) was amended to reflect the contribution by Dalkia to the joint venture of related businesses in Bahrain and Saudi Arabia. In return, the Group ceded control of the joint venture to Dalkia and, whilst retaining its 51 per cent. shareholding, has accounted for the joint venture as an associate since 1 January
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2010. The AED 69 million share in the losses of joint ventures in 2008 principally reflected write offs of investments made in joint ventures that were exited during that year.
(Loss)/profit before tax
Reflecting the above factors, the Group’s loss before tax was AED 65 million in 2010 compared to a profit before tax of AED 480 million in 2009 and a profit before tax of AED 107 million in 2008.
Income tax
The Group is subject to tax on the income earned by it in certain of the jurisdictions in which it operates.
The Group’s operations in these jurisdictions gave rise to AED 79 million in income tax expense in 2010, AED 24 million in income tax expense in 2009 and AED 1 million of income tax credit in 2008. The income tax credit in 2008 reflected the effect of deferred tax on revaluation losses on investment property.
(Loss)/profit for the year
Reflecting the above factors and, in 2009, after adding AED 23 million in respect of profit from discontinued operations (being the profit attributable to MAFAM for the year), the Group’s loss for the year was AED 144 million in 2010 compared to profit of AED 479 million in 2009 and profit of AED 108 million in 2008.
Other comprehensive income/(loss)
In 2010, the Group’s other comprehensive income was AED 639 million compared to an other comprehensive loss of AED 2,129 million in 2009 and other comprehensive income of AED 2,640 million in 2008. The principal factor affecting other comprehensive income and loss is the fair value gains and losses made on the valuation of land and buildings classified as property, plant and equipment each year. In 2008, the Group’s net fair valuation gain on land and buildings classified as property, plant and equipment was AED 2,787 million compared to a net fair valuation loss of AED 2,323 million in 2009 as the full effects of falling property values in Dubai and elsewhere were experienced. In 2010, the Group’s net fair value gain on land and buildings classified as property, plant and equipment was AED 657 million.
Total comprehensive income/(loss)
Coupled with the Group’s loss or profit for each year, this resulted in total comprehensive income for the Group of AED 494 million in 2010, a total comprehensive loss for the Group of AED 1,649 million in 2009 and total comprehensive income for the Group of AED 2,748 million in 2008.
Segments
The Group has four reporting segments as follows: • Properties: which principally corresponds to MAF Properties and its consolidated companies; • Retail: which principally corresponds to MAF Retail and its consolidated companies; • Ventures: corresponds to MAF Ventures and its consolidated companies; and • Head Office: which principally corresponds to the activities carried out in MAF Holding. Note 5 to the 2010 Group Financial Statements presents certain financial information for each segment. In revenue terms, Retail is the most significant segment, accounting for 83.8 per cent. of Group revenue in 2010. In terms of profit before tax, Properties (as a result of impairment losses) and Ventures were loss making in 2010, all segments were profitable in 2009 and Ventures was loss making in 2008. In terms of assets, Properties is the most significant segment, with 86.4 per cent. of Group assets at 31 December 2010.
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CASH FLOWS FOR THE THREE YEARS ENDED 31 DECEMBER 2010
The table below summarises the Group’s cash flows for the three years ended 31 December 2010, 2009 and 2008 respectively.
Year ended 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Net cash from operating activities ...... 2,642 1,953 2,054 Net cash used in investing activities...... (2,032) (3,350) (3,204) Net cash (used in)/from financing activities...... (707) 1,586 1,557 (Decrease)/increase in cash and cash equivalents ...... (98) 188 407 Cash and cash equivalents at start of period...... 2,364 2,175 1,768 Cash and cash equivalents at end of period...... 2,266 2,364 2,175
In 2010, the Group’s net cash from operating activities was AED 2,642 million. The Group’s net cash used in investing activities in the same year was AED 2,032 million, principally reflecting the cost of acquiring property, plant and equipment (including investment property and capital work in progress), which was AED 2,182 million. Of this amount, AED 1,359 million was invested in capital work in progress (principally on hotels, including the Pullman Mall of the Emirates in Dubai, the Rigga IBIS Hotel in Dubai and the Kempinski Hotel in Bahrain, and an extension at the Mall of the Emirates) and AED 454 million was spent on the construction of investment property, mostly relating to the Mirdif City Centre shopping mall in Dubai. The net cash used by the Group in financing activities in 2010 was AED 707 million. Although the Group borrowed AED 3,985 million in new long term debt in 2010, it also repaid AED 3,845 million of such debt, leaving it with net new long term borrowing of AED 140 million. In 2010, the Group paid interest of AED 480 million, spent AED 295 million in acquiring minority interests in two of its subsidiaries, Majid Al Futtaim Finance LLC (MAF Finance) and Majid Al Futtaim Cinemas LLC (MAF Cinemas), and paid dividends of AED 63 million to minority shareholders.
In 2009, the Group’s net cash from operating activities was AED 1,953 million. The Group’s net cash used in investing activities in the same year was AED 3,350 million, principally reflecting the cost of acquiring property, plant and equipment, which was AED 3,461 million. Of this amount, AED 1,156 million was invested in capital work in progress (principally on hotel projects, including the Pullman Mall of the Emirates, the Barsha IBIS Hotel, the Suite Novotel and the Rigga IBIS Hotel in Dubai and the Kempinski Hotel in Bahrain, as well as on the Mall of the Emirates extension) and AED 1,657 million was spent on the construction of the Mirdif City Centre shopping mall. The Group also acquired a 25 per cent. interest in Saudi Hypermarkets LLC in 2009 for consideration of AED 99 million, increasing its ownership from 75 per cent. to 100 per cent. The net cash raised by the Group in financing activities in 2009 was AED 1,586 million. The Group borrowed a net AED 2,268 million in 2009 and paid interest of AED 498 million and dividends to minority shareholders of AED 186 million.
In 2008, the Group’s net cash from operating activities was AED 2,054 million. The Group’s net cash used in investing activities in the same year was AED 3,204 million, principally reflecting the cost of acquiring property, plant and equipment, which was AED 3,671 million. Of this amount, AED 2,951 million was invested in capital work in progress (principally on shopping malls, including the Bahrain City Centre, the Qurum City Centre in Oman and the Mirdif City Centre in Dubai) and AED 103 million was spent on the construction of investment property, principally the extension of the Alexandria City Centre shopping mall in Egypt. The net cash raised by the Group in financing activities in 2008 was AED 1,557 million. The Group borrowed a net AED 2,148 million in 2008 and paid interest of AED 360 million and dividends to minority shareholders of AED 255 million.
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LIQUIDITY AND BORROWINGS
The Group’s long-term financing needs are established based on five-year plans from each operating subsidiary. The Group targets available liquidity (defined as cash in hand and committed facilities available for drawing) sufficient to cover at least 18 months of financing requirements. Throughout the liquidity crisis in 2009, the Group maintained its liquidity coverage although it also scaled back its planned capital expenditure by around 40 per cent. in 2009 and early 2010 to enable it to achieve this. Ensuring flexibility in its capital expenditure plans is another significant liquidity tool utilised by the Group.
The table below summarises the Group’s borrowings as at 31 December in each of 2010, 2009 and 2008, respectively.
At 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Long-term loans ...... 10,508 10,372 8,021 Less current portion ...... (2,038) (2,070) (966) Total non current portion ...... 8,470 8,302 7,054 Short term loans ...... – – 83 Bank overdrafts...... 11 59 40 –––––––– –––––––– –––––––– Total borrowings ...... 10,519 10,431 8,144 –––––––– –––––––– ––––––––
Details of the Group’s 27 outstanding loans and facilities at 31 December 2010 are set out in note 25 to the 2010 Group Financial Statements. The loans have maturity dates extending to 31 January 2022. The loans are denominated in dirham, U.S. dollars, Egyptian pounds and Omani riyal. The majority of the loans bear interest at floating rates with margins ranging from 0.75 per cent. to 3.5 per cent. above a reference rate. Three loans have a fixed 6.5 per cent. rate of interest and one loan has a fixed 6.0 per cent. rate of interest. Certain of the loans (as identified in note 25) are secured against assets of the Group or guaranteed by MAF Properties. The principal amount outstanding of secured loans at 31 December 2010 was AED 5,126 million.
The Group’s borrowings comprise long term loans from commercial banks and overdraft facilities. The Group has to date incurred debt at three levels: • project financing, typically through special purpose vehicles on a non-recourse or limited recourse to other Group companies basis; • senior secured or unsecured debt where MAF Properties or one of its subsidiaries is the borrower; and • senior unsecured debt where MAF Holding is the borrower and a MAF Properties guarantee is given.
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The table below shows the Group’s borrowings (excluding bank overdrafts) at 31 December 2010 by debtor:
At 31 December 2010 –––––––––––– (AED millions) MAF Holding Unsecured but with MAF Properties guarantee ...... 3,261 Unsecured but with MAF Cinemas guarantee ...... 275 Unsecured and unguaranteed ...... 239 –––––––––––– Total MAF Holding ...... 3,775 –––––––––––– MAF Properties Secured ...... 1,139 Unsecured but with MAF Holding guarantee...... 734 Unsecured and unguaranteed ...... 805 –––––––––––– Total MAF Properties ...... 2,678 –––––––––––– Other Secured and/or guaranteed by banks(1) ...... 3,987 Unsecured ...... 68 –––––––––––– Total other ...... 4,055 –––––––––––– Total borrowings (excluding bank overdrafts)...... 10,508 ––––––––––––
Note: (1) Borrowings by subsidiaries of MAF Holding or MAF Properties, in certain cases on a limited recourse basis to the borrower. Certain of these borrowings are also guaranteed by MAF Holding or MAF Properties.
The Group typically aims to match the cash flow profile of its borrowings (excluding bank overdrafts) with the underlying assets to the extent practicable in the circumstances and to fund in local currencies for off- shore businesses where possible. Looking ahead, the Group intends to expand its sources of funds, including through the issue of notes under the Programme and, potentially, through securities structured to be Shariah- compliant.
The table below shows the maturity profile of the Group’s outstanding borrowings (excluding bank overdrafts) as at 31 December 2010.
At 31 December 2010 –––––––––––– (AED millions) Principal amount of borrowings maturing in: 2011...... 1,936 2012...... 3,509 2013...... 1,619 2014...... 791 2015...... 715 After 2015 ...... 1,938 –––––––––––– Total borrowings (excluding bank overdrafts)...... 10,508 ––––––––––––
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SHAREHOLDERS’ EQUITY
The table below shows the Group’s shareholders’ equity as at 31 December in each of 2010, 2009 and 2008, respectively.
At 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Share capital ...... 2,487 2,487 2,487 Retained earnings ...... 2,358 3,018 2,847 Revaluation reserve...... 12,214 11,497 13,772 Other reserves ...... 924 945 758 Total equity attributable to the owners of MAF Holding...... 17,983 17,947 19,864 Non-controlling interest ...... 427 307 130 –––––––– –––––––– –––––––– Total equity ...... 18,410 18,254 19,993 –––––––– –––––––– ––––––––
Share capital A9.10.1
MAF Holding’s share capital comprises 2,486,729 shares of AED 1,000 each, all of which are fully paid and owned by Majid Al Futtaim Capital LLC which, in turn, is owned as to 99.6 per cent. by Mr Majid Al Futtaim, the founder of the Group.
Revaluation reserve
The revaluation reserve principally reflects changes in the fair value of the Group’s land and buildings classified as property, plant and equipment as required by IAS 16. Any increase in value arising on each revaluation of such assets is credited to the revaluation reserve unless and to the extent it reverses a decrease in the value of the same asset previously recognised in profit and loss, in which case the increase in value is recognised in profit and loss instead. Any decrease in value arising on each revaluation of such assets is debited from the revaluation reserve to the extent that the revaluation reserve contains a credit balance in respect of the asset concerned. If and to the extent there is no such credit balance, the decrease is charged to profit and loss.
Other reserves
Group companies maintain a statutory reserve as required by applicable law. Typically a percentage of profit of the relevant company is transferred to the statutory reserve each year until the reserve equals the limit prescribed by applicable law. In addition, the Group maintains fair value reserves in respect of hedging instruments and other as well as a currency translation reserve in respect of foreign currency differences arising from the translation of the financial statements of Group companies whose functional currency is not the dirham.
RELATED PARTIES
The Group’s related party transactions are described in note 28 to the 2010 Group Financial Statements and principally comprise transactions with other Group companies, MAF Holding’s parent company and its shareholders, companies under common control with MAF Holding and key management personnel and/or their close family members. The sale of MAFAM in July 2010 was a related party transaction and is described in note 28.1 to the 2010 Group Financial Statements.
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OFF-BALANCE SHEET LIABILITIES
The Group has significant off-balance sheet liabilities in the form of capital commitments, letters of credit granted by bankers in the normal course of business, forward contracts and guarantees given by Group companies.
The table below shows the Group’s off-balance sheet liabilities as at 31 December in each of 2010, 2009 and 2008, respectively.
At 31 December –––––––––––––––––––––––––––––– 2010 2009 2008 –––––––– –––––––– –––––––– (AED millions) Capital commitments ...... 4,333 6,215 8,350 Letters of credit...... – – 83 Forward contracts ...... 2 7 23 Guarantees...... 3,328 4,694 598 Other ...... ––1 –––––––– –––––––– –––––––– Total ...... 7,663 11,916 9,055 –––––––– –––––––– ––––––––
FINANCIAL RISK MANAGEMENT
Note 29 the 2010 Group Financial Statements describes the principal financial risks faced by the Group and the principal procedures used by the Group to manage these risks. The principal financial risks faced by the Group are credit risk, liquidity risk and interest rate risk.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial transaction fails to meet its contractual obligations and arises principally from the Group’s receivables (including rental amounts due from its tenants under operating leases which are paid in advance by post-dated cheque), its net investment in finance leases and its bank deposits. The Group has implemented policies designed to reduce its credit risk and its exposure to credit risk is monitored on an ongoing basis. The Group performs credit evaluations on all customers requiring credit over a defined amount and believes that it has no credit concentrations. The Group’s cash is placed with a portfolio of banks and is limited by reference to their public ratings and equity capital. Management monitors the ageing of its receivables and believes that both its trade receivables and amounts due from related parties are recoverable.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group seeks to ensure that it always has sufficient funds (whether cash in hand or available for drawing through unused committed credit facilities or bank overdrafts) to meet its future obligations, see “—Liquidity and borrowing”.
Interest rate risk
The Group believes that its liability duration should be 3.9 years, plus or minus one year, in order to best match the interest rate sensitivity of its assets. The Group seeks to achieve this duration through managing the duration of its interest bearing liabilities and by using derivative instruments where appropriate as part of its interest rate risk management process. As at 31 December 2010, the Group’s liability duration was 1.5 years and it is planning to take steps to extend the duration during 2011.
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Capital management
The Group uses a gearing ratio to monitor its capital. This is calculated as debt divided by total equity. Debt comprises long-term interest bearing loans and borrowings whilst capital comprises all equity attributable to the shareholder, including reserves. As at 31 December 2010, the Group’s gearing ratio was 57 per cent.
MAF Orix Finance Co. PJSC (MAF Orix), a joint venture with Orix in which MAF Ventures owns 60 per cent. of the share capital and which is involved in leasing moveable assets, is required by the UAE Central Bank to maintain its capital at a minimum of 15 per cent. of its total available funds. At 31 December 2010, MAF Orix’s capital (as defined by the UAE Central Bank) was equal to 54 per cent. of its total available funds.
The Group has various borrowing arrangements which require it to comply with net worth, interest cover and debt/equity ratios. The Group was in compliance with all such requirements at 31 December 2010.
DIVIDEND POLICY
The only company within the Group which has a set dividend policy is MAF Hypermarkets, see “Description of the Group—MAF Retail—Agreements with Carrefour”. MAF Holding does not have a formal dividend policy and has not paid any dividends in any year under review, with all profits being re-invested in the Group’s businesses.
RECENT DEVELOPMENTS
In the first four months of 2011, the Group’s revenue increased by seven per cent. and its EBITDA increased by 20 per cent., in each case compared to the corresponding period of 2010.
The revenue increase reflects: • an increase of 30 per cent. in revenue from MAF Properties, principally due to a 20 per cent. increase in shopping malls revenue (reflecting the full period impact of Mirdif City Centre which opened in March 2010), a 36 per cent. increase in hospitality revenue (mainly from the Pullman Mall of the Emirates which opened in September 2010 and from a five per cent. increase in revenues from the Group’s other hotels) and the transfer to MAF Properties of certain unique leisure offerings from MAF Ventures at the end of 2010. This increase in revenue from MAF Properties took place notwithstanding the closure of its shopping malls in Egypt and its shopping mall in Bahrain for up to 60 days and five days, respectively, in the 2011 period; • an increase of five per cent. in revenue from MAF Retail, principally reflecting the full period impact of the Carrefour hypermarket in Mirdif City Centre and the addition of 15 Carrefour supermarkets since January 2010. On a like-for-like basis, MAF Retail’s revenue grew by one per cent. mainly due to strong growth in Iran, Saudi Arabia and Pakistan, partially offset by the impact of the temporary closure in Egypt and Bahrain. Excluding the impact of Egypt and Bahrain, the total like-for-like revenue growth would have been six per cent.; and • a decrease of three per cent. in revenue from MAF Ventures, principally reflecting the transfer of certain unique leisure offerings (including Ski Dubai) to MAF Properties at the end of 2010. Excluding the impact of this transfer, the growth in MAF Ventures’ revenues would have been 14 per cent.
The EBITDA increase reflects: • an increase of 32 per cent. in EBITDA from MAF Properties; • an increase of two per cent. in EBITDA from MAF Retail (excluding the impact of Egypt and Bahrain, the increase would have been 15 per cent.); and • an increase of 100 per cent. in EBITDA from MAF Ventures.
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The table below shows certain balance sheet line items for the Group as at 30 April 2011 and 31 December 2010.
At At 30 April 31 December 2011 2010 –––––––––– –––––––––– (unaudited) (AED millions) Total assets...... 35,436 34,585 Gross debt (excluding overdraft)...... 10,335 10,508 Cash in hand and at bank ...... 2,572 2,277 Net debt ...... 7,763 8,231 Total equity ...... 18,804 18,410 Net debt/total equity ...... 0.41 0.45
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SUMMARY OF MAF PROPERTIES FINANCIAL INFORMATION
The following summary of consolidated historical financial information as at and for the years ended 31 December 2010, 2009 and 2008 has been derived from the MAF Properties Financial Statements, which are included elsewhere in this document. Certain minor reclassifications have been made in the 2010 MAF Properties Financial Statements and, as a result, these statements are not comparable in all respects to the 2009 MAF Properties Financial Statements. See “Presentation of Financial and Other Information – Presentation of MAF Properties Financial Information”.
Prospective investors should read the following summary consolidated financial information in conjunction with the information contained in “Presentation of Financial and Other Information”, “Risk Factors”, “MAF Properties Financial Review”, “Description of the Group—MAF Properties” and the MAF Properties Financial Statements (including the related notes thereto) appearing elsewhere in this document. The 2009 numbers included in this section have been derived from the 2010 MAF Properties Financial Statements, see “Presentation of Financial and Other Information – Presentation of MAF Properties Financial Information”.
STATEMENT OF COMPREHENSIVE INCOME
The following table shows MAF Properties’ consolidated statements of comprehensive income for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Revenue...... 2,311 1,824 1,756 Operating expenses ...... (1,399) (1,293) (1,247) Net valuation loss on land and buildings ...... (273) (15) (168) Other expenses – net...... (18) 8 191 Impairment loss – net ...... (860) (76) – ———— ———— ———— Results from operating activities...... (239) 449 532 Share of gain in joint ventures and associate – net ...... 29 19 (75) Finance income...... 9 30 52 Finance costs...... (367) (330) (279) ———— ———— ———— (Loss) / profit before tax...... (568) 167 230 Income tax (expense) / reversal ...... 2 (8) 14 ———— ———— ———— (Loss) / profit for the year ...... (566) 159 244 Other comprehensive income Net valuation gain / (loss) on land and building ...... 677 (2,352) 2,684 Share of gain in joint ventures and associate ...... 40 65 – Deferred tax (liability) / asset recognised on revaluation (loss) / gain on properties ...... – – 119 Net change in fair value of cash flow hedges transferred to profit or loss ...... 143 108 30 Effective portion of changes in fair value of cash flow hedges ...... (142) 30 (318) Foreign currency translation differences from foreign operations .... (68) 8 25 ———— ———— ———— Other comprehensive income for the year, net of income tax .... 650 (2,142) 2,539 ———— ———— ———— Total comprehensive income ...... 84 (1,983) 2,783 Attributable to: Owners of MAF Properties ...... 84 (1,984) 2,783 Non-controlling interest...... –1–
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STATEMENT OF FINANCIAL POSITION
The following table shows MAF Properties’ consolidated statement of financial position as at 31 December in each of 2010, 2009 and 2008, respectively. At 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Non-current assets Property, plant and equipment ...... 15,823 15,090 19,259 Investment property ...... 11,394 10,573 6,416 ———— ———— ———— 27,217 25,664 25,675 Other non-current assets Investment in joint ventures and associate ...... 1,121 1,620 1,457 Intangible assets ...... 172 192 – Deferred tax asset ...... 2–– ———— ———— ———— 1,295 1,812 1,457 Current assets Assets classified as held for sale ...... 3 – 34 Inventories...... 24 11 8 Receivables and prepayments...... 530 736 800 Due from related parties ...... 68 651 966 Cash and cash equivalents ...... 743 627 1,007 ———— ———— ———— 1,367 2,025 2,815 Current liabilities Bank overdraft ...... – – 19 Short term loans ...... – – 450 Payables and accruals ...... 1,962 2,170 2,154 Provisions ...... 73 67 61 Due to related parties ...... 108 15 151 Current maturity of long term loans ...... 1,904 2,025 1,044 ———— ———— ———— 4,047 4,277 3,879 ———— ———— ———— Net current liabilities ...... (2,680) (2,252) (1,064) Non-current liabilities Long term loans ...... 5,705 5,269 7,178 Advance receipts...... 9 10 11 Deferred tax liabilities ...... 185 190 182 Other deferred liabilities...... 113 127 - Long term portion of provision for employment benefits ...... 10 9 32 Provision for staff terminal benefits ...... 37 30 23 ———— ———— ———— 6,059 5,636 7,426 ———— ———— ———— Net assets ...... 19,773 19,588 18,642 ———— ———— ———— Represented by Share capital ...... 3,500 1,820 1,820 Shareholder contribution...... 2,750 4,180 - Revaluation reserve...... 11,144 10,426 12,713 Other reserves ...... 2,307 3,150 4,100 ———— ———— ———— Total equity attributable to the owners of MAF Properties ...... 19,701 19,576 18,633 Non-controlling interest ...... 72 12 9 ———— ———— ———— Total equity ...... 19,773 19,588 18,642 ———— ———— ————
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CASH FLOW STATEMENT
The following table summarises MAF Properties’ cash flows for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Net cash from operating activities ...... 1,578 1,525 722 Net cash used in investing activities...... (1,631) (3,048) (2,344) Net cash (used in)/from financing activities...... 170 1,162 2,279 Increase/(decrease) in cash and cash equivalents ...... 116 (361) 658 Cash and cash equivalents at start of year ...... 627 988 330 Cash and cash equivalents at end of year...... 743 627 988
EBITDA
The following table shows a reconciliation of MAF Properties’ EBITDA to profit/(loss) as shown in the consolidated income statement for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) EBITDA(1) ...... 1,458 1,091 1,170 Depreciation ...... (492) (490) (408) Amortisation ...... (20) (7) – Impairment provision ...... (860) (76) – Provision for receivable from related parties ...... (35) (26) (6) Net finance cost ...... (358) (300) (227) Net valuation loss on land and buildings ...... (273) (15) (168) Taxation...... 2 (8) 14 Fixed assets/project costs written off ...... (17) (30) (52) Share of gain in joint ventures and associates, net...... 29 19 (75) Others ...... – 1 (4) (Loss)/profit for the year...... (566) 159 244
Note: (1) Calculated as profit for the year after adding back extraordinary items, interest, provisions, share of gain/(loss) in joint ventures and associates, tax, depreciation and amortisation. In 2010, MAF Properties changed the way in which it calculated EBITDA by also adding back provisions and the share of gain/(loss) in joint ventures. The 2009 and 2008 numbers in the above table have also been calculated on this basis.
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MAF PROPERTIES FINANCIAL REVIEW
The following review of MAF Properties’ financial position and results of operations is based upon and should be read in conjunction with the MAF Properties Financial Statements included elsewhere in this document. As a result of certain reclassifications made in 2010, adjustments have been to MAF Properties’ statement of comprehensive income for the year ended 31 December 2009 and its statement of financial position as at 31 December 2009, in each case as included in the 2010 MAF Properties Financial Statements. As a result, these statements are not comparable in all respects to those in the 2009 MAF Properties Financial Statements. No similar adjustments have been made in respect of the statement of comprehensive income and the statement of financial position as at and for the year ended 31 December 2008. See “Presentation of Financial and Other Information—Presentation of MAF Properties Financial Information”.
This discussion contains forward-looking statements that involve risks and uncertainties, see “Forecasts and Forward-Looking Statements”. Actual results for MAF Properties could differ materially from those indicated in any forward-looking statements as a result of various factors, including those discussed below and in “Risk Factors”.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGMENTS
The preparation of the MAF Properties’ Financial Statements requires management to make certain estimates and judgments, some of which are subjective and complex, often as a result of the need to make estimations of future events. The Group’s significant accounting policies are set out in Note 3 to the 2010 MAF Properties Financial Statements and a summary of the critical accounting estimates and judgments that are made in preparing the financial statements is set out in Note 29 to the 2010 MAF Properties Financial Statements.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED 31 DECEMBER 2010
Revenue
MAF Properties’ principal source of revenue is the rental income that it earns from the tenants in its shopping malls and other properties. MAF Properties also earns hospitality revenue from the hotels which it owns and limited leisure and entertainment revenue from the unique leisure offerings owned by it and managed by MAF Ventures, including Ski Dubai, the Wahooo Water Park in Bahrain and certain facilities at Mirdif City Centre shopping mall (together referred to as unique leisure offerings), see “Description of the Group— MAF Ventures—Strategic businesses—MAF Leisure and Entertainment—Unique leisure offerings”.
The table below shows a breakdown of MAF Properties’ revenue for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December ——————————————————————————————– 2010 2009 2008 ————————— ————————— ————————— (AED (AED (AED millions) (%) millions) (%) millions) (%) Rental income ...... 1,975 85.5 1,519(1) 83.3 1,387 79.0 Hospitality revenue ...... 319 13.8 305 16.7 369 21.0 Leisure and entertainment revenue ...... 17 0.7–––– ———– ———– ———– ———– ———– ———– Total revenue ...... 2,311 100.0 1,824(1) 100.0 1,756 100.0 ———– ———– ———– ———– ———– ———–
Note: (1) See “Presentation of Financial and Other Information—Presentation of MAF Properties Financial Information”.
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MAF Properties’ total revenue increased by AED 487 million, or 26.7 per cent., in 2010 (from AED 1,824 million in 2009 to AED 2,311 million in 2010). The increase principally reflected a 30.0 per cent. increase in rental income.
MAF Properties’ total revenue increased by AED 68 million, or 3.9 per cent., in 2009 (from AED 1,756 million in 2008 to AED 1,824 million). The increase reflected a 9.5 per cent. increase in rental income which was partially offset by a fall of 17.3 per cent. in hospitality revenue, reflecting the challenging economic conditions experienced in Dubai in 2009.
In geographical terms, in 2010, 77.3 per cent. of MAF Properties’ revenue was derived from the UAE, 10.9 per cent. was derived from Bahrain, 6.3 per cent. was derived from Egypt and 5.5 per cent. was derived from Oman, reflecting the location of its shopping malls.
Rental income
MAF Properties derives almost all of its rental income from renting units in its shopping malls and a very small proportion from renting offices in three office buildings (of which two are partially occupied by Group companies). Rental income increased by AED 456 million, or 30.0 per cent., in 2010 (from AED 1,519 million in 2009 to AED 1,975 million). The increase principally reflects the opening of the Mirdif City Centre shopping mall in Dubai in March 2010, the opening of an extension at the Mall of the Emirates in September 2010 and increased revenues in Egypt (following the completion of an extension to the Alexandria City Centre shopping mall in September 2009) and in Bahrain (where the Bahrain City Centre shopping mall increased revenues on a like for like basis).
MAF Properties’ rental income increased by AED 132 million, or 9.5 per cent., in 2009 (from AED 1,387 million in 2008 to AED 1,519 million in 2009). The increase principally reflected the fact that the Bahrain City Centre shopping mall had a full year of operations in 2009, having been opened in September 2008 and completion of the extension to the Alexandria City Centre shopping mall in September 2009.
Hospitality revenue
MAF Properties earns hospitality revenue from the rooms, food and beverages and other services provided at its hotels. All hospitality revenue is stated gross, with the fees paid to the hotel management companies and the costs incurred by MAF Properties in providing services at its hotels being included in operating expenses.
MAF Properties’ hospitality revenue increased by AED 14 million, or 4.6 per cent., in 2010 (from AED 305 million in 2009 to AED 319 million). This principally reflected the addition of new hotel properties in the UAE, namely the Pullman Mall of the Emirates and the Rigga IBIS Hotel, and a full year of operations at the Barsha IBIS Hotel and the Suite Novotel which were opened in the second half of 2009. MAF Properties’ hospitality revenue decreased by AED 64 million, or 17.3 per cent., in 2009 (from AED 369 million in 2008 to AED 305 million). This principally reflected the challenging economic conditions experienced in Dubai in 2008 and occurred notwithstanding the fact that the Group opened two new hotels close to the Mall of the Emirates in 2009 and experienced a full year of revenues in 2009 from two further hotels which had been opened close to the Deira City Centre shopping mall in 2008.
Leisure and entertainment revenue
On 1 January 2010, MAF Properties acquired beneficial ownership of Wahooo Water Park from Majid Al Futtaim Leisure and Entertainment LLC (MAF Leisure and Entertainment), a wholly-owned subsidiary of MAF Ventures. This asset generated revenue of AED 17 million in 2010. In addition, on 31 December 2010, MAF Properties acquired ownership of Ski Dubai and the unique leisure offerings at Mirdif City Centre shopping mall.
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Operating expenses
The table below shows MAF Properties’ operating expenses for the three years ended 31 December 2010, 2009 and 2008, respectively.
Year ended 31 December ——————————————————————————————– 2010 2009 2008 ————————— ————————— ————————— (AED (AED (AED millions) (%) millions) (%) millions) (%) Staff costs...... (378) 27.0 (329)(1) 25.4 (309) 24.8 Depreciation ...... (492) 35.2 (490)(1) 37.9 (407) 32.6 Legal, professional and consultancy fees ...... (20) 1.4 (20) 1.5 (61) 4.9 Selling and marketing expenses ...... (96) 6.9 (67) 5.1 (75) 6.0 Other general and administrative expenses .... (413) 29.5 (388)(1) 30.0 (360) 28.9 Re-charged expenses ...... ––––(35)2.8 ———– ———– ———– ———– ———– ———– Total operating expenses (1,399) 100.0 (1,293)(1) 100.0 (1,247) 100.0 ———– ———– ———– ———– ———– ———–
Note: (1) See “Presentation of Financial and Other Information—Presentation of MAF Properties Financial Information”.
MAF Properties’ principal operating expenses are staff costs and depreciation, which together comprised 62.2 per cent., 63.3 per cent. and 57.4 per cent. of its total operating expenses in 2010, 2009 and 2008, respectively. Each of these items is analysed in more detail below.
MAF Properties’ total operating expenses increased by AED 106 million, or 8.2 per cent., in 2010 (from AED 1,293 million in 2009 to AED 1,399 million). The principal contributors to this increase were increased staff costs, selling and marketing expenses and other general and administrative expenses which, together, increased by AED 104 million.
MAF Properties total operating expenses increased by AED 46 million, or 3.7 per cent., in 2009 (from AED 1,247 million in 2008 to AED 1,293 million). The increase principally reflected an AED 83 million, or 20.3 per cent., increase in depreciation expenses reflecting an increase in MAF Properties depreciable asset base, the impact of which was partially offset by falls in legal, professional and consultancy fees and selling and marketing expenses as MAF Properties sought to reduce costs in challenging economic conditions. In addition, in 2008 MAF Properties recorded AED 35 million in recharged expenses relating to overheads at companies which subsequently became dormant such that no such expenses were recorded in 2009 or 2010.
Staff costs
MAF Properties’ staff costs (which exclude staff costs capitalised as part of projects under construction) increased by AED 49 million, or 15.0 per cent., in 2010 (from AED 329 million in 2009 to AED 378 million), reflecting both increasing employee numbers and salary increases. The number of employees increased by 16.2 per cent. in 2010 from 1,932 at the start of the year to 2,245, principally reflecting the opening of two new hotels in 2010 as well as the opening of the Mirdif City Centre shopping mall.
MAF Properties’ staff costs increased by AED 20 million, or 6.5 per cent., in 2009 (from AED 309 million in 2008 to AED 329 million). This increase principally reflected a full year of operations at the Bahrain City Centre and Qurum City Centre shopping malls and at the Port Saeed Novotel and Port Saeed IBIS Hotel as well as the opening of the Barsha IBIS Hotel and the Suite Novotel in June 2009. The number of employees decreased by 0.6 per cent. in 2009 from 1,944 at the start of the year to 1,932.
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Depreciation MAF Properties’ depreciation charge increased by AED 2 million, or 0.4 per cent., in 2010 (from AED 490 million in 2009 to AED 492 million) and by AED 83 million, or 20.3 per cent., in 2009 (from AED 407 million in 2008 to AED 490 million). The increase in 2009 reflected an increase in depreciable assets through the completion and capitalisation of new IAS 16 properties such as the Barsha IBIS Hotel and the Suite Novotel and a new office building as well as the effect of a full year’s depreciation on the Port Saeed Novotel and Port Saeed IBIS Hotel. Properties carried at fair value under IAS 16 are depreciated based on their reinstatement cost and the reinstatement cost of the Group’s IAS 16 properties also increased at the end of 2008 resulting in increased depreciation thereafter.
Net valuation change on land and buildings Developed properties classified as property, plant and equipment in accordance with IAS 16 are revalued on each reporting date. Any decrease in value resulting from the revaluation is charged to profit and loss in the period in which it occurs. Any increase in value arising on the revaluation is credited to a revaluation reserve, except to the extent that the increase reverses a decrease in value previously charged to profit and loss, in which case the increase is credited to profit and loss to the extent of the decrease previously charged. MAF Properties has four shopping malls which are classified as property, plant and equipment, the Mall of the Emirates and Deira City Centre in Dubai and both its shopping malls in Oman, see “—Land and Buildings”. Investment properties are properties held either to earn rental income, for capital appreciation or both in accordance with IAS 40. Investment properties are revalued on each reporting date and any changes in the fair value are credited or charged to profit and loss in the period in which they arise. The net valuation change on land and buildings comprises the sum of (i) any losses incurred on the revaluation of developed properties classified as property, plant and equipment, (ii) any increases arising on the revaluation of developed properties classified as property, plant and equipment to the extent they reverse losses previously charged to the profit and loss and (iii) the fair value gains or losses on investment property. In 2010, MAF Properties recognised a net valuation gain of AED 446 million on property, plant and equipment of which a valuation gain of AED 677 million was credited to other comprehensive income and a valuation loss of AED 231 million (principally on the Pullman Mall of the Emirates Hotel and the Rigga IBIS Hotel) was charged to the profit and loss account. A loss on valuation of investment property of AED 42 million was also charged to profit and loss account in 2010. In 2009, MAF Properties recognised a valuation loss of AED 2,643 million on property, plant and equipment of which a valuation loss of AED 2,352 million was charged to other comprehensive income and a valuation loss of AED 291 million (principally on the Port Saeed Novotel, the Barsha IBIS Hotel and the Suite Novotel in Dubai and an office building in Dubai) was charged to the profit and loss account. A gain of AED 276 million on valuation of investment property was also recognised in the profit and loss account, principally reflecting progress made in constructing the Mirdiff City Centre shopping mall. In 2008, MAF Properties recognised a valuation gain of AED 2,585 million on property, plant and equipment of which a valuation gain of AED 2,684 million was credited to other comprehensive income (principally on undeveloped land) and a valuation loss of AED 99 million was charged to the profit and loss account. A valuation loss of AED 69 million on valuation of investment property was also recognised in the profit and loss account (principally on undeveloped land identified for development).
Other income and expenses, net MAF Properties’ other income and expenses comprise the net gain or loss made on the disposal of property, plant and equipment and investment property, fixed assets and project costs written off once the Group determines not to proceed with a particular project, any net foreign exchange gain or loss, service charges levied on related parties, a provision for a related party balance and other income. MAF Properties’ other income and expenses, net comprised net expenses of AED 18 million in 2010, net income of AED 8 million in 2009 and net income of AED 191 million in 2008, principally reflecting an AED 240 million gain made on the sale of property, plant and equipment and investment property.
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Impairment loss, net MAF Properties recognised net impairment losses of AED 860 million in 2010 and AED 76 million in 2009. No impairment losses were recognised in 2008. In 2010, the impairment losses principally related to the effect of adverse market and business conditions on the value of receivables from and investments in certain joint ventures. In addition, MAF Properties recognised an impairment loss on certain leisure assets acquired by it in the Bahrain City Centre and Mirdif City Centre shopping malls, based on its revised assessment of the likely cash flows to be generated from the future operation of those assets.
In 2009, the impairment losses principally related to the effect of adverse market and business conditions on the value of advances to two joint ventures which were partially offset by the reversal of an impairment loss against the MAF Properties’ joint venture, Waterfront City SARL, in Lebanon as economic conditions and property values in Lebanon improved. In addition, in 2009, MAF Properties recognised an impairment loss on the Rigga IBIS Hotel, then under construction, based on its assessment of the recoverability of the carrying amount of the hotel.
Results from operating activities Reflecting the above factors and, in particular, the impairment losses charged in 2010, MAF Properties recorded an operating loss of AED 239 million in 2010 compared to an operating profit of AED 449 million in 2009 and AED 532 million in 2008.
Share of gain in joint ventures and associate, net A list of MAF Properties’ joint ventures and associates is set out in notes 31 and 32 to the 2010 MAF Properties Financial Statements. Joint ventures and associates are accounted for using the equity method, which means that MAF Properties’ proportionate share of the profit or loss made by each joint venture or associate is included under this line item.
The table below shows MAF Properties’ share of the profit or loss of its joint ventures and associates for the three years ended 31 December 2010, 2009 and 2008, respectively. Year ended 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Share of profit/(loss) of joint ventures ...... 18 33 (69) Share of profit/(loss) of associates ...... 11 (14) (5) ———— ———— ———— Total ...... 29 19 (74) ———— ———— ————
MAF Properties’ share of the gain in joint ventures and associate was AED 29 million in 2010 compared to AED 19 million in 2009 and a loss of AED 74 million in 2008. The AED 69 million share in the losses of joint ventures in 2008 principally reflected write offs of investments made in joint ventures that were exited during that year.
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Net finance cost The table below shows MAF Properties’ net finance cost recognised in profit or loss for the three years ended 31 December 2010, 2009 and 2008, respectively. Year ended 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Arrangement and participation fee ...... (13) (24) (9) Interest charges (less capitalised interest) ...... (206) (194) (223) Net changes in fair value of financial assets at fair value through profit and loss ...... – 1 (15) Ineffective portion of changes in fair value of cash flow hedges...... 5 4 (2) Net changes in fair value of cash flow hedges transferred from equity ...... (143) (108) (30) ———— ———— ———— Finance costs ...... (367) (330) (279) Interest income ...... 5 13 43 Ineffective portion of changes in fair value of cash flow hedges...... 3 17 9 ———— ———— ———— Finance income ...... 93052 ———— ———— ———— Net finance costs ...... (358) (300) (227) ———— ———— ————
MAF Properties’ net finance cost charged to profit and loss increased by AED 58 million, or 19.1 per cent., in 2010 (from AED 300 million in 2009 to AED 358 million). This principally reflected the net effect of the following factors: • an increase of AED 35 million, or 32.6 per cent., in net changes in fair value of cash flow hedges transferred from equity. Under IFRS, changes in the fair values of the effective portion of derivative instruments that are designated as cash flow hedges are recognised directly in other comprehensive income and presented in equity (in the hedging reserve). The amount recognised in other comprehensive income is removed and included in profit or loss in the same period that the hedged item affects profits or loss; • an increase of AED 12 million, or 6.3 per cent., in interest charges (after deducting capitalised interest). MAF Properties pays interest on its outstanding borrowings and the increase in interest charges in 2010 principally reflected the completion of the Mirdif City Centre shopping mall and the consequent charging of interest on the associated borrowings to profit and loss, whereas prior to the completion of the shopping mall such interest was capitalised and deducted from interest charges; and • a decrease of AED 21 million, or 71.0 per cent., in finance income, reflecting decreases in the ineffective portion of changes in value in cash flow hedges and in interest income. Under IFRS, changes in the fair values of the ineffective portion of derivative instruments that are designated as cash flow hedges are recognised immediately in profit or loss. MAF Properties receives interest income on funds invested and the decrease in interest income in 2010 principally reflected generally reduced balances of fixed deposits in 2010 compared to 2009.
MAF Properties’ net finance cost charged to profit and loss increased by AED 73 million, or 32.2 per cent., in 2009 (from AED 227 million in 2008 to AED 300 million). This principally reflected the net effect of the following factors: • an increase in MAF Properties’ finance cost of AED 51 million (principally reflecting an AED 78 million increase in net changes in fair value of cash flow hedges transferred from equity partially offset by an AED 29 million fall in interest expense (after deducting capitalised interest) as new less expensive borrowings were arranged); and
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• a decrease of AED 22 million in MAF Properties’ finance income principally driven by a fall in interest income as the rates of interest paid on its bank balances fell significantly in 2009 following the onset of the global financial crisis.
(Loss)/profit before tax
Reflecting the above factors, MAF Properties’ loss before tax was AED 568 million in 2010 compared to a profit before tax of AED 167 million in 2009 and a profit before tax of AED 230 million in 2008.
Income tax
MAF Properties’ is subject to tax on the income earned by it in certain of the jurisdictions in which it operates.
MAF Properties’ operations in these jurisdictions gave rise to a tax credit of AED 2 million in 2010, a tax charge of AED 8 million in income tax expense in 2009 and a tax credit of AED 14 million in 2008. MAF Properties recognises deferred tax on the temporary differences arising between the tax base and asset base on fair valuation of properties in Egypt, Lebanon and Syria. The tax credits in 2010 and 2008 reflect the deferred income tax recognised in respect of the net valuation losses in each of these countries.
(Loss)/profit for the year
Reflecting the above factors, MAF Properties’ loss for the year was AED 566 million in 2010 compared to profit for the year of AED 159 million in 2009 and profit for the year of AED 244 million in 2008.
Other comprehensive income/(loss)
In 2010, MAF Properties’ other comprehensive income was AED 650 million compared to an other comprehensive loss of AED 2,142 million in 2009 and other comprehensive income of AED 2,539 million in 2008. The principal factor affecting other comprehensive income and loss is the fair value gains and losses made on the valuation of land and buildings each year, see “—Net valuation change on land and buildings”.
Coupled with MAF Properties’ loss or profit for each year and less significant changes in other comprehensive income line items, this resulted in total comprehensive income for MAF Properties of AED 84 million in 2010, a total comprehensive loss for MAF Properties of AED 1,983 million in 2009 and total comprehensive income for MAF Properties of AED 2,783 million in 2008.
Segments
MAF Properties has six reporting segments five of which are managed by its three business units as follows:
Managed by the Shopping Malls Business Unit • Shopping Malls: which principally corresponds to the Shopping Malls Business Unit; • Leisure and Entertainment: which principally comprises the unique leisure offerings acquired from MAF Ventures during 2010; • Offices: which principally comprises MAF Properties’ three office buildings which are leased (in whole or in part) to third parties;
Managed by the Hotels Business Unit • Hotels: which principally corresponds to the Hotels Business Unit; Managed by the Mixed-Use Business Unit • Mixed-Use Communities: which principally corresponds to the Mixed-Use Business Unit;
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Not managed by any business unit • Business Support: which principally comprises the activities of MAF Properties head office and other support offices in different countries.
Note 4 to the 2010 MAF Properties’ Financial Statements presents certain financial information for each segment. In revenue and assets terms, Shopping Malls is the most significant segment, accounting for 84.8 per cent. of MAF Properties’ revenue in 2010 and for 73.1 per cent. of its assets as at 31 December 2010. In terms of EBITDA, Shopping Malls, Hotels and Offices each generated positive EBITDA in 2010, 2009 and 2008.
CASH FLOWS FOR THE THREE YEARS ENDED 31 DECEMBER 2010
The table below summarises MAF Properties’ cash flows for the three years ended 31 March 2010, 2009 and 2008 respectively.
Year ended 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Net cash from operating activities ...... 1,578 1,525 722 Net cash used in investing activities...... (1,631) (3,048) (2,344) Net cash (used in)/from financing activities...... 170 1,162 2,279 (Decrease)/increase in cash and cash equivalents ...... 116 (361) 658 Cash and cash equivalents at start of year ...... 627 988 330 Cash and cash equivalents at end of year...... 743 627 988
In 2010, MAF Properties’ net cash from operating activities was AED 1,578 million. MAF Properties’ net cash used in investing activities in the same year was AED 1,631 million, principally reflecting the cost of acquiring property, plant and equipment, which was AED 891 million and investment property, which was AED 744 million. The majority of these amounts reflected capital work in progress (principally on hotels, including the Pullman Mall of the Emirates and the Rigga IBIS Hotel in Dubai and the Kempinski Hotel in Bahrain and an extension at the Mall of the Emirates). The net cash used by the Group in financing activities in 2010 was AED 170 million. MAF Properties borrowed a net AED 570 million in new long term debt in 2010 and also paid interest of AED 408 million.
In 2009, MAF Properties’ net cash from operating activities was AED 1,525 million. MAF Properties’ net cash used in investing activities in the same year was AED 3,048 million, principally reflecting the cost of acquiring property, plant and equipment, which was AED 1,004 million, and investment property, which was AED 1,890 million. The majority of these amounts reflected capital work in progress (principally on hotel projects including the Pullman Mall of the Emirates, the Barsha IBIS Hotel, the Suite Novotel and the Rigga IBIS Hotel in Dubai and the Kempinski Hotel in Bahrain, the Mall of the Emirates extension and construction of the Mirdif City Centre shopping mall in Dubai). The net cash raised by MAF Properties in financing activities in 2009 was AED 1,162 million. MAF Properties borrowed a net AED 1,565 million in 2009 and paid interest of AED 405 million.
In 2008, MAF Properties’ net cash from operating activities was AED 722 million. MAF Properties’ net cash used in investing activities in the same year was AED 2,344 million, principally reflecting the cost of acquiring property, plant and equipment (including investment property and capital work in progress), which was AED 2,731 million. Of this amount, AED 2,336 million was invested in capital work in progress (principally on shopping malls, including the Bahrain City Centre, the Mirdif City Centre in Dubai and the Qurum City Centre in Oman) and AED 103 million was spent on the construction of investment property, principally the extension of the Alexandria City Centre shopping mall in Egypt. MAF Properties also invested AED 366 million in joint ventures in 2008 and raised AED 725 million through the disposal of undeveloped land in Dubai. The net cash raised by MAF Properties in financing activities in 2008 was AED 2,279 million. MAF Properties borrowed a net AED 2,612 million in 2008 and paid interest of AED 333 million.
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LAND AND BUILDINGS
MAF Properties’ land and buildings are categorised either as investment property or as property, plant and equipment. Investment properties are properties held either to earn rental income, for capital appreciation or both, but not for sale in the ordinary course of business, use in the production or supply of goods and services or for administrative purposes.
Certain of MAF Properties’ properties include a portion that is held to generate rental income or capital appreciation and another portion that is held for own use in the supply of services or for administrative purposes. These properties may be split between the two categories where applicable law provides that separate title could be granted to each portion. Due to legal restrictions in Oman, and in the UAE in respect of properties which are built on land gifted by the Ruler of Dubai, these properties cannot currently be sold or finance-leased separately (in case of UAE, without the prior consent of the Ruler). As a result, these properties are classified as investment properties only if an insignificant portion is held for own use. Management assesses the level of own use by reference to the level of ancillary income generated by a property. If ancillary income exceeds five per cent. of the total income from the property, then the entire property is classified as property, plant and equipment.
MAF properties determines the fair value of its developed and undeveloped land annually using valuations made by an independent firm of RICS valuers. Internal valuations are used to assess fair value changes between valuation dates. Fair value is the market value of the properties determined as the highest possible price for which the property could be exchanged on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. If there is no market-based evidence of the fair value of a property, fair value is determined using the present value of the estimated future net cash flows for the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to determine the fair value.
The table below shows the value of MAF Properties’ land and buildings as at 31 December in each of 2010, 2009 and 2008, respectively. At 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Classified as property, plant and equipment...... 14,521 13,345 16,797 Classified as investment property ...... 9,309 4,563 4,598 ———— ———— ———— Total ...... 23,830 17,908 21,395 ———— ———— ————
In addition, MAF Properties had undeveloped land classified as investment property and valued at AED 1,423 million at 31 December 2010.
BORROWINGS
MAF Properties’ external borrowings comprise long-term loans from commercial banks. In addition, MAF Properties has loans outstanding from MAF Holding totalling AED 664 million and a loan of AED 280 million outstanding from another Group company, see “Related Party Transactions”.
The table below summarises MAF Properties’ borrowings as at 31 December in each of 2010, 2009 and 2008, respectively. At 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Long-term loans ...... 7,610 7,295 8,222 Of which current portion ...... 1,904 2,025 1,044
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Details of MAF Properties’ 13 outstanding external loans and facilities at 31 December 2010 are set out in note 20 to the 2010 MAF Properties Financial Statements. The loans have maturity dates ranging from 8 April 2011 to 31 January 2022. The loans are denominated in dirham, U.S. dollars and Omani riyal. The majority of the loans bear interest at floating rates with margins ranging from 0.75 per cent. to 3.5 per cent. above a reference rate. Three loans have a fixed 6.5 per cent. rate of interest. Certain of the loans (as identified in note 20) are secured against assets of MAF Properties. The principal amount outstanding of secured loans at 31 December 2010 was AED 5,126 million.
SHAREHOLDERS’ EQUITY
The table below shows MAF Properties’ shareholders’ equity as at 31 December in each of 2010, 2009 and 2008, respectively.
At 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Share capital ...... 3,500 1,820 1,820 Shareholder contribution...... 2,750 4,180 - Retained earnings ...... 2,042 2,863 4,070 Revaluation reserve...... 11,144 10,426 12,713 Other reserves ...... 265 287 30 ———— ———— ———— Total equity attributable to the owners of MAF Properties ...... 19,701 19,576 18,633 ———— ———— ———— Share capital A9.10.1
MAF Properties’ share capital as at 31 December 2010 comprised 3,500,000 shares of AED 1,000 each, all of which are fully paid and owned by MAF Holding.
Shareholder contribution
In October 2009, MAF Properties issued perpetual subordinated loan instruments of AED 2,500 million to MAF Holding. During 2010, a further AED 250 million of these instruments were issued. The instruments bear interest at eight per cent. to 7 October 2019 at which point they can be called for redemption. If not redeemed, they will bear interest at a floating rate equal to a margin of five per cent. over a defined benchmark. The coupon is not cumulative and can be deferred at MAF Properties discretion. Should MAF Holding cease to control MAF Properties, the coupon will increase by five per cent. and become cumulative. All of the instruments were issued against cancellation of an equivalent amount of debt owed to MAF Holding by MAF Properties and the first coupon declared in 2010 was similarly set-off.
During 2009, the shareholders of MAF Properties approved the conversion of AED 1,680 million in retained earnings to share capital. As the formalities for the increase had not been completed by 31 December 2009, the amount was classified as a shareholder contribution at 31 December 2009.
Revaluation reserve
The revaluation reserve principally reflects changes in the fair value of MAF Properties’ land and buildings classified as property, plant and equipment as required by IAS 16. Any increase in value arising on each revaluation of such assets is credited to the revaluation reserve unless and to the extent it reverses a decrease in the value of the same asset previously recognised in profit and loss, in which case the increase in value is recognised in profit and loss instead. Any decrease in value arising on each revaluation of such assets is debited from the revaluation reserve to the extent that the revaluation reserve contains a credit balance in respect of the asset concerned. If and to the extent there is no such credit balance, the decrease is charged to profit and loss.
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Other reserves
MAF Properties and its subsidiaries maintain a statutory reserve as required by applicable law. Typically a percentage of profit of the relevant company is transferred to the statutory reserve each year until the reserve equals the limit prescribed by applicable law. In addition, MAF Properties maintains fair value reserves in respect of hedging instruments and other as well as a currency translation reserve in respect of foreign currency differences arising from the translation of the financial statements of MAF Properties’ group companies whose functional currency is not the dirham.
RELATED PARTIES
MAF Properties’ related party transactions are described in note 16 to the 2010 MAF Properties Financial Statements and principally comprise transactions with other Group companies and key management personnel and/or their close family members. In 2010, a number of unique leisure offerings were transferred from MAF Leisure and Entertainment to MAF Properties and these transactions, together with the shareholder contributions described under “Shareholders’ Equity—Shareholder contribution”, the guarantees given by and to MAF Properties in respect of borrowings by it and other Group companies as referred to under “Group Financial Review—Liquidity and Borrowings” and the additional transactions described in note 16 to the 2010 MAF Properties Financial Statements and note 15 to the 2009 MAF Properties Financial Statements, comprise the principal related party transactions in the three years under review.
OFF-BALANCE SHEET LIABILITIES
MAF Properties has significant off-balance sheet liabilities in the form of capital commitments and guarantees given by it.
The table below shows MAF Properties’ off-balance sheet liabilities as at 31 December in each of 2010, 2009 and 2008, respectively.
At 31 December ——————————————— 2010 2009 2008 ———— ———— ———— (AED millions) Capital commitments(1) ...... 654 1,315(2) 4,863 Letters of credit...... – – 72 Financial guarantees ...... 3,314 3,430(3) 4,197 Other operational guarantees ...... 555 ———— ———— ———— Total ...... 3,973 4,750 9,137 ———— ———— ————
Notes: (1) MAF Properties has also entered into a development agreement with a government agency in Syria to invest AED 3,673.0 million over a period of 15 years from July 2009, of which AED 1,101.9 million should be invested in the first five years. At 31 December 2010, MAF Properties had invested AED 276.5 million in the project. (2) Adjusted in the 2010 Financial Statements to reflect the effect of certain developments in 2010 on joint venture related commitments. (3) Adjusted in the 2010 Financial Statements to reflect drawdowns made at the end of 2009 but not recorded in the 2009 Financial Statements.
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DESCRIPTION OF THE GROUP A6.3
OVERVIEW
The Group is one of the largest developers and operators of shopping malls and hypermarkets in the MENA region. Founded in Dubai in 1992 to bring the first regional shopping mall to the Middle East, the Group’s activities have since grown to include hotel development and the provision of synergistic leisure and entertainment products and services. The Group currently has operations in 11 countries in the MENA region.
In 2010, driven by annual footfall in excess of 135 million people through its shopping mall destinations, MAF Holding had consolidated revenue of AED 17,739 million and consolidated EBITDA of AED 2,346 million, as well as consolidated assets of AED 34.6 billion at 31 December 2010.
The Group’s operations are carried out by three complementary operating companies: MAF Properties, MAF A9.5.1.1 Retail and MAF Ventures, each of which is a wholly-owned subsidiary of MAF Holding: A9.6.1 • MAF Properties develops and manages shopping malls, which is the Group’s core business. MAF Properties currently operates 10 shopping malls in the UAE, Egypt, Oman and Bahrain and is currently constructing or master planning an additional four malls, located in the UAE, Lebanon, Egypt and Syria. MAF Properties also develops hotels and, on a selective basis, undertakes mixed-use developments, in each case where this adds value to its core mall development business. MAF Properties currently owns nine hotels, all of which are located in Dubai, and is currently constructing or master planning an additional five hotels, located in Bahrain and Syria. MAF Properties operates through its three business units: Shopping Malls, Hotels and Mixed-Use. For the year ended 31 December 2010, MAF Properties had revenue of AED 2,311 million and EBITDA of AED 1,458 million; • MAF Retail first introduced the hypermarket model to the Middle East in 1995. MAF Retail manages MAF Hypermarkets, a joint venture company with Carrefour in which MAF Retail has a 75 per cent. interest. Carrefour stores are a key anchor tenant in each of the Group’s shopping malls and the Group has also opened Carrefour stores outside its shopping malls. MAF Retail has expanded the Carrefour concept across the UAE and into Bahrain, Egypt, Iran, Jordan, Kuwait, Oman, Pakistan, Qatar, Saudi Arabia and Syria. As at 30 April 2011, it operated 38 Carrefour hypermarkets and 27 Carrefour supermarkets in 11 countries in the MENA region. For the year ended 31 December 2010, MAF Retail had revenue of AED 14,868 million and EBITDA of AED 769 million; and • MAF Ventures operates the Group’s leisure and entertainment services, including a unique leisure offering in each of its three super-regional shopping malls, for example Ski Dubai which is located in the Group’s flagship shopping mall, Mall of the Emirates. MAF Ventures also owns 10 Magic Planet entertainment centres located in nine of the Group’s shopping malls and elsewhere and five cinemas located in four of the Group’s shopping malls and elsewhere. MAF Ventures also offers Najm Visa credit cards and has a small portfolio of other investments. For the year ended 31 December 2010, MAF Ventures had revenue of AED 793 million and EBITDA of AED 127 million.
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The following map sets out details of the Group’s principal operations in each of the countries in which it operated as at 30 April 2011:
Syria Kuwait Outlet Number Outlet Number Carrefour stores 1 Carrefour stores 2 Magic Planet 1
Jordan Outlet Number Carrefour stores 5 Pakistan Outlet Number Egypt Carrefour stores 1 Outlet Number Malls 2 Iran Carrefour stores 8 Outlet Number Magic Planet 2 Carrefour stores 1
Bahrain Saudi Arabia Outlet Number Outlet Number Carrefour stores 1 Carrefour stores 13 Malls 1 Magic Planet 1 Wahooo 1 UAE Qatar Outlet Number Outlet Number Oman Malls 5 Carrefour stores 3 Outlet Number Carrefour stores 28 Malls 2 Hotels 9 Carrefour stores 2 Cinemas 5 Magic Planet 1 Magic Planet 5 Ski Dubai 1 1 Fly 1 In geographical terms, in 2010 the Group earned 53.4 per cent. of its revenue from customers in the UAE, 12.0 per cent. from customers in Egypt, 8.5 per cent. from customers in Qatar, 8.4 per cent. from customers in Saudi Arabia, 4.8 per cent. from customers in Oman, 3.6 per cent. from customers in Iran, 3.0 per cent. from customers in Bahrain and less than 3.0 per cent. from customers in each of Jordan, Kuwait, Pakistan and Syria.
HISTORY A9.4.1.3
Founded in 1992 in Dubai, the Group operated solely in Dubai until 1999. During that period, the joint venture with Carrefour was established, and the Group operated shopping malls, hypermarkets, hotels and cinemas. Between 1999 and 2001, the Group expanded across the UAE and into Oman. Between 2001 and 2003, the Group expanded into Egypt. Between 2003 and 2005, the Group expanded into Saudi Arabia. Between 2005 and 2008, the Group expanded into Kuwait, Bahrain, Jordan and Qatar and invested in a mixed-use development in Oman. Between 2008 and 2010, the Group expanded into Iran, Syria and Pakistan, and commenced master planning a mixed-use development on land owned by it in Syria. The Group’s geographic expansion has principally been driven by its retail business with five Carrefour hypermarkets operating by the end of 2000, 18 by the end of 2005 and 37 by the end of 2010.
On 31 May 2011, the management of each of MAF Retail and Carrefour agreed in principle to the extension of the franchise agreement between MAF Hypermarkets and Carrefour to four countries in the Commonwealth of Independent States: Armenia, Azerbaijan, Georgia and Kazakhstan. This approval is subject to a new or amended franchise agreement being entered into.
CREDIT STRENGTHS
Management believes that the Group’s credit strength is bolstered by the following factors: • Low volatility in operating income: Reflecting the fact that a significant majority of its revenue is derived from food retailing (which is relatively unaffected by economic cycles) and, to a lesser extent, from rental income from tenants in its shopping malls (which is also a generally stable source of income), the Group experiences low levels of volatility in its operating income. The Group’s operating income in each of 2008, 2009 and 2010 was AED 4,072 million, AED 4,318 million and AED 5,237
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million, respectively, and its operating margins were 27.6 per cent., 27.2 per cent. and 29.5 per cent., respectively; • Leadership in markets where the Group competes: The Group’s principal market is the UAE and Dubai in particular. The Group believes that it has a leading position as a shopping mall developer in Dubai as it owns three of the leading shopping malls currently operating in Dubai. The Group also believes that it has a leading position as a shopping mall developer in the MENA region as no other company operating in the region has a geographic spread of shopping malls to match the Group’s and that its experience of operating in a wide range of markets within the MENA region will help the Group as it seeks to expand into new markets such as Lebanon in 2011; • Steady cash flows and balanced financial profile: The Group benefits both from a sound asset base in MAF Properties, which accounted for 86.4 per cent. of the Group’s assets at 31 December 2010, and also from a stable source of operating cash flow from the retailing business carried on by MAF Retail, which accounted for 83.8 per cent. of the Group’s revenue in 2010, and from rentals generated by its shopping malls and certain other properties. The Group believes that this combination of sound asset base and stable cash flow is a significant differentiator from other property development companies in the region; • Complementary businesses: The Group has a focused strategy aimed to ensure that it delivers outstanding shopping destinations in significant part through creating and exploiting a range of synergies in its businesses. For example, having Carrefour as an anchor tenant helps to drive significant footfall in the Group’s shopping malls which makes the malls more attractive to prospective tenants. In addition, the Group’s hotels and leisure businesses help to differentiate its shopping malls and provide additional attractions to shoppers, particularly tourist shoppers in Dubai and Bahrain. The Group’s credit cards help to build customer loyalty and to differentiate the Group whilst the Group’s significant customer base is a large potential target market for its credit card offering. MAF Holding believes that these synergies were a major factor in insulating the Group against the worst effects of the global financial crisis during 2008 and 2009; • Strong corporate governance: Management of MAF Holding believes that the Group has robust corporate governance procedures in place. In particular, the Group has voluntarily adopted the principles of the Combined Code on Corporate Governance for listed companies in the UK across all areas of its business and established principles of Corporate Governance and defined their application across each of the Group’s operating companies. In addition, the Group has established strong operating company board structures reporting to the Board of MAF Holding, has segregated shareholdings in and management of the Group’s operating companies and ensures that all applicable laws and regulations in the countries in which it operates are complied with. Although the chief executive officer (CEO) and chairman of MAF Holding are in regular contact with Majid Al Futtaim, the Majid Al Futtaim family does not actively participate in the day-to-day operations of the Group; • Asset locations with strong business potential: When considering a new shopping mall or stand alone Carrefour store project, the Group conducts extensive due diligence and market research in order to identify the best sites. In particular, factors such as current and anticipated population, catchment areas, accessibility to the proposed shopping mall or store, potential rate of urbanisation and known or planned competing facilities are all considered and, in the case of additional shopping malls or stores in a single city, enhanced market research is conducted into relevant catchment areas to ensure that competition between the Group’s facilities is minimised. The Group believes that it has been able to secure prime locations for many of its assets. In addition, particularly in Dubai (where it has three shopping malls) and Bahrain, the Group is not solely reliant on the local population and benefits from significant tourist footfall in its shopping malls. In all of the countries in which the Group operates, it also benefits from factors such as the generally high temperatures which encourage indoor shopping and the fact that shopping malls are perceived as family-friendly places to socialise and engage in wider activities than just shopping;
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• Low leverage: The Group’s net debt to EBITDA ratios in each of 2008, 2009 and 2010 were 4.8, 5.0 and 3.5, respectively. For these purposes, the Group’s net debt is defined as long-term loans (including current maturity) and bank overdrafts less cash in hand and at banks; • Operating in markets with long-term macro-economic potential: The Group’s principal market is the UAE but other markets which are significant to the Group are Egypt, Qatar, Saudi Arabia, Oman and Bahrain. Between 2006 and 2010, each of these markets experienced significant increases in nominal GDP, had growing populations and experienced an average annual growth in private consumption in excess of five per cent. Reflecting these factors, retail sales grew significantly in each market over the 2006 to 2010 period, with Retail Planet, 2010 reporting compound annual growth rates in retail sales of seven per cent. in Bahrain, nine per cent. in the UAE, 10 per cent. in Saudi Arabia, 15 per cent. in Oman, 17 per cent. in Egypt and 18 per cent. in Qatar; and • Prudent financial management and track record: The Group believes that it has implemented strong risk management policies, particularly as regards managing its credit, liquidity and credit risks, see “Group Financial Review – Financial risk management”. The Group has experienced steady revenue and EBITDA growth, even through the global financial crisis and property market crash in Dubai and other countries in the MENA region. The Group’s revenue grew by 29.4 per cent. in 2008, 7.8 per cent. in 2009 and by 11.6 per cent. in 2010 whilst its EBITDA grew by 10.7 per cent. in 2008, 31.8 per cent. in 2009 and by 46.9 per cent. in 2010. In addition, the Group follows a conservative investment and capital expenditure policy, typically entering new markets with lower cost hypermarket developments before committing to capital intensive shopping mall developments, adhering to a defined and rigorous process for making investment decisions, seeking to pre-fund its capital expenditure, entering into joint ventures where appropriate and by retaining the flexibility the scale back its developments in adverse market conditions.
STRATEGY
The Group’s corporate strategy is focussed on achieving outstanding shopping destinations. The Group intends to focus on core sectors and markets where it has existing market leadership or where it sees an opportunity to establish itself as a leader in an under-developed market and to continue to create and exploit the synergies between its different businesses. In particular, the Group intends to: • Enhance and grow its shopping destination business: The Group intends to continue to undertake shopping mall developments on a regional basis both within the UAE and, outside the UAE, in markets which it believes are currently under-developed and offer a combination of increasing consumer spending power, increasing openness to international markets and low levels of international competitiveness. The Group intends, over time, to continue to diversify away from Dubai, where its revenues are currently concentrated; • Control and grow its retail businesses: The Group expects to continue to develop its Carrefour hypermarket and supermarket business, both as anchor tenants for its new shopping mall developments and also on a stand alone basis. In particular, the Group expects to continue to expand its portfolio of Carrefour supermarkets to meet customer preferences for more convenient food retail outlets and to exploit other synergies within its business, such as the loyalty rewards it can offer through the credit cards issued by MAF Finance; and • Strengthen its core capabilities to compete in the future: The Group intends to strengthen certain aspects of individual businesses to further support its retail-focused corporate strategy. One of the Group’s core capabilities is its ability to identify retail potential in specific catchment areas within a city, which is critical to the decision of where to locate a new shopping mall, Carrefour store or other relevant asset. To this end, the Group continues to invest in proprietary research methods based on primary ground research and its accumulated experience gained in relation to the Carrefour stores and shopping malls already opened. Another core capability that the Group is further strengthening is its accumulation and integration of customer data that allows it to better serve the needs of its final consumers. Carrefour is working on a personalised loyalty programme that will allow the capture of
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data in relation to individual shoppers. MAF Properties is also designing a loyalty programme for shopping mall visitors. Once launched, customer data from these programmes is expected to be integrated with existing MAF Finance credit card data and loyalty programmes in the cinema and leisure businesses.
MAF PROPERTIES
Overview
MAF Properties’ vision is to be recognised as the market leader in the development, ownership and management of shopping malls in the MENA region. MAF Properties’ goal is to create long-term sustainable wealth for the Group through: • the entrepreneurial development and management of a diversified portfolio of shopping centres; and • the development of hotels and, on a selective basis, mixed-use projects where they add synergistic value to its shopping centres.
MAF Properties operates through three independent business units as follows: A9.5.1.1 • Shopping Malls: the Shopping Malls Business Unit currently operates 10 shopping mall destinations in the UAE, Egypt, Oman and Bahrain with a gross leasable area of 939,010 square metres at 30 April 2011. A further four new shopping malls are planned to open between 2012 and 2014, one each in the Lebanon, Fujairah (in the UAE), Egypt and Syria. The business unit is also currently undertaking an extension project at its Deira City Centre shopping mall in the UAE. Combined, the Group’s malls attracted over 135 million visitors in 2010. The Shopping Malls Business Unit’s revenue and EBITDA were AED 1,958 million and AED 1,532 million, respectively, in 2010 and its assets were AED 21.9 billion at 31 December 2010, representing 11.0 per cent. 65.3 per cent. and 63.2 per cent., respectively, of the Group’s revenue, EBITDA and assets as of and for the year ended 31 December 2010; • Hotels: The Hotels Business Unit focuses on developing hotels in close proximity to the Group’s shopping mall destinations. The business unit currently owns nine hotels, all in the UAE, with a further five hotels under development in Bahrain and Syria and expected to be opened in 2011 (Bahrain) and by 2014 (Syria). The hotels currently owned by the business unit offer a total of 2,521 keys as at 30 April 2011. The Hotels Business Unit’s revenue and EBITDA were AED 319 million and AED 110 million, respectively, in 2010 and its assets were AED 2.7 billion at 31 December 2010, representing 1.8 per cent., 4.7 per cent. and 7.9 per cent., respectively, of the Group’s revenue, EBITDA and assets as of and for the year ended 31 December 2010; and • Mixed-Use: The Mixed-Use Business Unit focuses on selective mixed use developments principally with a view to secure market access for the Group’s core shopping mall business, primarily through limited- or non-recourse joint ventures accounted for under the equity method. The Mixed-Use Business Unit did not earn any revenue in 2010 and had assets of AED 0.5 billion at 31 December 2010, representing 1.4 per cent. of the Group’s assets at that date.
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The following map sets out details of MAF Properties’ operating properties, properties under construction, properties under master planning and design and land bank in each of the countries in which it was present as at 31 December 2010:
Syria Type of Property Number GLA(m2) Keys Shopping malls 1* 126,000 Hotels 3* 700 Bahrain Type of Property Number GLA(m2) Keys Shopping malls 1 157,742 Hotels 2* 460
Lebanon Type of Property Number GLA(m 2 ) Shopping malls 1* 60,000
Egypt Type of Property Number GLA(m 2 ) Shopping malls 2 + 1* 254,064
UAE Type of Property Number GLA(m 2 ) Keys Shopping malls 5 + 1* 642,242 Hotels 2* 2,521
Oman Type of Property Number GLA(m 2 ) Shopping malls 2 76,962
* Denotes properties being master planned or under construction
Two of MAF Properties’ shopping malls in Dubai are built on land gifted by the Ruler of Dubai to Mr. Majid Al Futtaim and MAF Properties’ shopping malls in Oman and the land on which they are built are also registered in the name of Mr. Al Futtaim. This status imposes certain restrictions on MAF Properties’ ability to freely dispose of the properties, see “MAF Properties Financial Review – Land and Buildings”. In addition, MAF Properties owns a land bank of 1.2 million square metres of land which is neither developed nor currently under development. In accordance with Group policy, land exceeding a valuation threshold of AED 50 million is valued on an annual basis by an external firm of chartered surveyors and valuers.
MAF Properties had revenue of AED 2,311 million and EBITDA of AED 1,458 million in 2010 as well as assets of AED 29.9 billion at 31 December 2010, equal to 13.0 per cent., 62.2 per cent. and 86.4 per cent., respectively, of the Group’s revenue, EBITDA and assets as of and for the year ended 31 December 2010.
Strategy
MAF Properties strategy is to focus on the development of shopping malls as its core business but to diversify its risk and income through operating in different countries (although it intends to remain focussed within the MENA region), through developing different product types, for example super-regional shopping malls (malls with in excess of 120,000 square metres of gross leasable area), regional shopping malls (malls with between 60,000 and 120,000 square metres of gross leasable area) and community malls (being malls with less than 60,000 square metres of gross leasable area), through its product mix (for example, hotels, leisure and retail developments) and through joint ventures. MAF Properties expects to build a network of malls covering differing catchment areas in selected cities in which it believes it can achieve a dominant position and/or capture unique market opportunities and aims to develop hotels and undertake mixed-use projects where there are clear synergistic benefits to the Group’s core shopping mall business. In relation to its hotel developments, MAF Properties’ strategy is to outsource the day-to-day operational management of the hotels to specialist hotel management companies, such as Kempinski and Accor.
MAF Properties intends to prioritise its future capital expenditures through focussing on existing and new markets and opportunities, utilising existing land owned by it where practicable and through entering into joint ventures where it can secure control of the venture. It also expects to realise value through sales of non- strategic properties within its land bank and to sell development, management and other shopping centre- related services to third parties where this generates knowledge or other benefits to its existing shopping
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malls and where it can ensure that reputational and conflict risks are properly controlled. Wherever possible, MAF Properties intends to add value to its non-strategic land, for example through planning approvals, prior to its sale.
Competitive advantages
MAF Properties believes that its competitive advantages include: • Established track record and reputation: MAF Properties currently owns and manages 10 shopping malls in four countries, including its flagship mall, the Mall of the Emirates in Dubai, which was opened in 2005 and had an annual footfall in excess of 31 million in 2010. MAF Properties first mall was opened in November 1995 and nine of its malls had occupancy rates of 99 per cent. or higher at 30 April 2011 with the remaining mall having an occupancy rate over 96 per cent. at the same date. MAF Properties believes that this track record, along with its established reputation, give it a significant competitive advantage in attracting tenants both to its existing and future shopping mall developments; • Locations: In many of the countries in which its operates, MAF Properties has been able to secure prime locations for its shopping malls. In addition, MAF Properties seeks to ensure that malls are located in all prime catchment areas within major cities such as Dubai, Cairo and Muscat; • In-house expertise: MAF Properties benefits from having a fully integrated development, delivery and asset management team with significant experience in the development and management of shopping malls in a number of countries in the MENA region. MAF Properties outsources construction activity to major construction contractors with which the Group has established relationships; • Alliances and partnerships: Through its alliance with MAF Retail and Carrefour and its established relationships with a number of regional retailing groups, MAF Properties is able to secure a strong tenant base for each of its shopping malls. In addition, MAF Properties is able to leverage these relationships and the demand for prime space in certain of its malls (such as the Mall of the Emirates) to help achieve an optimal tenant mix in its shopping malls. See “Risk Factors—Risks Relating to MAF Properties—MAF properties rental revenues depend upon its ability to find tenants for its shopping malls and offices and the ability of such tenants to fulfil their lease obligations as well as on MAF Properties achieving an optimal tenant mix fir its shopping malls”; and • Unique leisure offers: Through its collaboration with MAF Ventures, MAF Properties’ super–regional shopping malls are each able to provide a unique leisure offering to their customers. These offerings include Ski Dubai (at the Mall of Emirates), the Wahooo water park (at the Bahrain City Centre shopping mall) and IFly (a simulated sky diving experience at the Mirdif City Centre shopping mall). MAF Properties regional and community shopping malls benefit from other leisure and entertainment facilities such as cinemas and Magic Planet entertainment centres, in each case where appropriate to the shopping mall concerned.
Project development model
MAF Properties has three asset creation functions: business development, project development and project delivery, which are responsible for conceptualising and developing projects for each of the three business units: Shopping Malls, Hotels and Mixed-Use. The business development function pursues project opportunities and assesses their feasibility prior to land acquisition. The project development function is responsible for producing detailed master plans and concept designs for each individual development project. The project delivery function manages project construction with the goal of delivering projects on time and within the quality specification and budget.
All development projects undertaken by MAF Properties follow a rigorous standardised process designed to ensure consistent oversight and that all development projects are executed in line with overall Group strategy, represent economically sound investments and are able to be funded by the Group. MAF Properties project
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development model is a nine-stage process and is followed for all shopping mall, hotel and mixed-use developments. The expertise of MAF Properties’ project development and delivery functions and the relevant business unit’s property management function is sought and utilised at each step of the process to ensure a smooth transition from business concept through to delivered property.
Stage 1: Approval of land purchase due diligence budget
The first of the nine stages principally involves potential site identification and the preparation and approval of a due diligence scope and budget in relation to each potential site. Target markets and geographies are identified with the goal of achieving market leading status in each country. Target land acquisition opportunities are identified in specific geographic areas. Approval by both the CEO and the Board of MAF Properties is required for the key elements of this stage.
Stage 2: Land purchase and outline master plan
During this stage, a high level feasibility study is undertaken. This seeks to identify the potential options for the project and the success criteria for each option. In addition due diligence is undertaken, including background market research by internal and external research providers (including as to current and projected population and household numbers in the catchment areas, any current and potential future competing properties, potential tenant interest and any environmental or other potentially adverse factors affecting the site concerned), traffic assessment (including ease of accessibility) and financial criteria such as indicative land, construction and other development costs, as well as possible financing strategies. This research is updated at each later stage of the project. Exit options are also identified for any non-strategic assets and approval by both the CEO and Board of MAF Properties is required before the identified land is purchased and the next stage can commence. MAF Properties prefers to acquire 100 per cent. ownership of its properties and to develop its assets itself, but will enter into joint ventures where appropriate, for example as a result of legal restrictions on foreign ownership in some of the countries in which it operates. Key considerations for entering into a joint venture agreement include property location, identity of the joint venture partner and clarity of land ownership as well as control over development and operations. Although it has not done so to date, MAF Properties will also consider acquiring existing companies or properties under development where economically attractive to do so. When constructing a new shopping mall, MAF Properties seeks to purchase sufficient land to allow for future expansion projects and may also seek to plan the development in stages. See “Risk Factors—Risks Relating to MAF Properties—The success of MAF Properties’ business strategy and profitability depends heavily upon its ability to locate and acquire land suitable for development at attractive prices”.
Stage 3: Master plan approval and development budget
During this stage, the proposed structure of the project is identified and the high level feasibility study is developed into an indicative business plan and more detailed success criteria (such as internal rate of return, net present value and economic value-added) are developed and analysed together with benchmarking and sensitivities, with a view to establishing a clear understanding of the financial, resourcing and risk implications of the proposed project. A financing strategy is also formulated in conjunction with the MAF Holding treasury team, see “—Treasury”. In the case of a new shopping mall project, the proposed merchandising mix is identified and for all new projects any necessary statutory approvals are applied for and obtained. Approval by both the CEO and Board of MAF Properties is required for the key elements of this stage, including the financing strategy.
Stage 4: Concept design
During this stage, a detailed business plan is prepared. Financial assumptions (including as to costs, financing, taxation and discount rates as well as revenue assumptions) are clearly identified and updated at each later stage of the project. Based on the financing strategy approved in the previous stage, funding proposals are sought from third parties, a preliminary leasing plan is prepared and a project development brief containing all relevant data in relation to the proposed project is presented to the CEO and Board of MAF Properties for approval.
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Stage 5: Schematic design
During this stage, a scheme design and planning report is prepared with a view to achieving a high level of confidence that the proposed project is deliverable and will meet or exceed its success criteria. The purpose of the scheme design and planning report is to allow a commitment to be made on detailed design and procurement and securing lease commitments from anchor tenants. The detailed business plan is revised in the light of any new information and the financing strategy and preliminary leasing plan are also finalised and approved. In the case of a new shopping mall project, commitments from anchor tenants are sought at this stage whilst in the case of a new hotel project, management agreements (both for technical services and hotel management) are entered into at this stage. Qualified contractors are identified and pre-qualification activity is undertaken. Approval by the CEO of MAF Properties is required for the key elements of this stage.
Stage 6: Detailed design
During this stage, a detailed design, procurement and construction report is prepared and any required funding is secured in accordance with the approved financing strategy and approved by the Board of MAF Holding and further pre-leasing is undertaken with significant tenants. The Group typically seeks to fund projects with a combination of debt and equity financing, including medium-term loans, short-term loans and overdraft and uncommitted money market facilities. Additionally the project development team seeks to ensure flexibility in the construction costs and commitments to minimise potential exit costs in the event of a significant adverse change in the feasibility of a project. In addition, detailed designs are finalised, tenders are undertaken and any required building permits are obtained at this stage. The detailed business plan is further revised in the light of any new information. Approval by the CEO of MAF Properties is required for the key elements of this stage.
Stage 7: Main construction contract award
During this stage, the business plan is finalised. A tender report is prepared summarising the outcome of the tender process and recommending proposed contractors. The main construction contractor is appointed and enabling works and any necessary site preparation commence, although, in the case of a new shopping mall project, historically this has taken place once tenants have been secured for about 50 per cent. of the gross leasable area. Approval by both the CEO and Board of MAF Properties is required for the key elements of this stage.
Stage 8: Construction
During this stage, construction is undertaken in accordance with the detailed designs prepared. The costs, time and associated construction risks are closely monitored throughout this stage with a view to achieving handover on time and within budget. During this stage, in the case of a new shopping mall project the letting process continues and space is allocated within the shopping mall to committed tenants. Approval by the CEO of MAF Properties is required for the key elements of this stage and any cost overruns are referred to the Board of MAF Properties.
Stage 9: Project completion
During this stage, post-completion evaluations are conducted for each project at the first and third year following delivery. Each evaluation is reviewed and approved by the MAF Properties CEO.
The development of a new project, from concept to completion, typically averages between four and seven years. The first three stages set out above typically take between one to two years and account for around 15 to 20 per cent. of the total project investment. Each of the fourth and fifth stages and the sixth and seventh stages described above typically takes between six months and one year to complete and accounts for around 5 per cent. of the total project investment. The final two stages typically take between two and three years to complete and account for approximately 70 to 75 per cent. of the total project investment.
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Shopping Malls Business Unit
The Shopping Malls Business Unit currently operates 10 shopping malls with a gross leasable area at 30 April 2011 of 939,010 square metres and is constructing or master planning an additional four shopping malls with a combined planned gross leasable area in excess of 378,000 square metres. The business unit’s 10 shopping malls, five in the UAE, two each in Egypt and Oman and one in Bahrain, enjoyed a combined total footfall of over 135 million visitors in 2010. Nine of the shopping malls currently in operation achieved tenant occupancy rates in excess of 99 per cent. at 31 December 2010 with the remaining mall having an occupancy rate in excess of 96 per cent. at the same date.
Shopping malls are classified in terms of their size and type. Three of the business unit’s malls are currently classified as super-regional malls and the remaining seven are regional and community malls. Each shopping mall is designed to have large anchor stores and various leisure amenities, including entertainment facilities and food and beverage facilities (such as food courts, fast food and speciality restaurants). Where feasible, the Group seeks to maximise the synergies in its various businesses in new shopping mall developments. For example, the Group incorporates Carrefour hypermarkets operated by MAF Retail as the food retail anchor store, will typically locate entertainment facilities such as Magic Planet entertainment centres and, in the case of larger malls, cinemas owned by MAF Ventures, within its shopping malls and may co-locate its hotels adjacent to its shopping malls. In addition, the Shopping Malls Business Unit utilises the facilities management services of the Group’s joint venture with Dalkia for certain of its facilities.
The Shopping Malls Business Unit seeks to maintain a balanced portfolio of shopping malls, ensuring that it has the right mix of super-regional, regional and community malls and that the format it chooses to develop in a particular location will be attractive to its potential customer base. The business unit strategically locates its shopping mall destinations close to residential areas to attract local residents with the convenience of shopping close to home. The potential customer base is expanded when, in line with the Group’s overall strategy, the Hotels Business Unit and, where relevant, the Mixed-Use Business Unit develop hotels or residential properties close to the shopping malls.
The design and type of shopping malls are based on the profile of the relevant catchment areas. For example, the Shopping Malls Business Unit has focused on super regional malls in tourist heavy Dubai and Bahrain and plans to focus on developing community and regional malls in Fujairah in the UAE and other markets within the MENA region. In addition, the mix of retail outlets is based on the business unit’s understanding of the consumer preferences of local shoppers and, where appropriate, regional and international tourists within the particular area. This is done with the aim of ensuring an attractive mix of international brands, national retailers and leading local retailers. Market research is performed to evaluate trends, to segment the market and to benchmark against competitors.
The Shopping Malls Business Unit has strong relationships with key retail houses, such as Al Shaya, Landmark, Azadea, the Apparel group and the Al Tayer group, which control a number of major brands in different countries in the MENA region. Depending on the size and customer profile of a particular shopping mall, the business unit will contract with one or more of these retail houses to establish a selection of retail brands within the shopping mall. In addition, the business unit endeavours to cater to the expansion strategies of its tenants by offering them retail space in a variety of preferred locations in a number of its developments. At the same time, the business unit seeks to increase its footfall across the region by leveraging the increased recognition and popularity of its tenants.
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Shopping malls currently in operation
The following table shows the year opened, occupancy rate at 30 April 2011, 2010 footfall, gross leasable area at 30 April 2011, tenant sales per square metre for the year ended 31 December 2010 and the mall valuation as at 31 December 2010 for each of the 10 shopping malls in operation.
Gross Year Leasable Tenant Mall Opened Occupancy Footfall Area Sales/m2 valuation ————– ————– ————– ————– ————– ————– (%) (millions) (m2) (AED) (AED million) Super Regional Malls Mall of the Emirates, Dubai, UAE ...... 2005 99.6 31.3 233,612 25,909 7,668 Mirdif City Centre, Dubai, UAE ...... 2010 96.7 13.0(1) 196,054 9,058(1) 4,700 Bahrain City Centre, Bahrain ...... 2008 99.4 11.8 157,742 11,328 2,143 Regional and Community Malls Deira City Centre, Dubai, UAE ...... 1995 99.0 19.6 114,411 27,661 3,715 Alexandria City Centre, Alexandria, Egypt ...... 2003 99.9 14.8 61,713 14,132 805 Muscat City Centre, Muscat, Oman ...... 2001 99.4 8.6 56,525 18,119 735 Sharjah City Centre, Sharjah, UAE ...... 2001 99.8 11.4 37,722 22,146 668 Maadi City Centre, Cairo, Egypt ...... 2002 99.7 11.6 31,351 29,591 531 Ajman City Centre, Ajman, UAE...... 1998 100 9.6 29,443 26,132 415 Qurum City Centre, Qurum, Oman ...... 2008 100 3.6 20,437 19,061 305 ———— ———— ———— Total ...... 135.3 939,010 21,685 ———— ———— ————
Note: (1) Opened in March 2010. The footfall and sales/m2 figures for the 12 months ended 31 March 2011 were 16.2 million and AED 11,813, respectively. • Mall of the Emirates, Dubai, UAE: This three-level shopping and leisure centre had 569 tenants, including 29 stores with a gross leasable area in excess of 1,000 square metres, located in 233,612 square metres of gross leasable area as at 30 April 2011. The Mall of the Emirates features the largest Carrefour hypermarket in the Middle East and more than 60 stores that are unique in the marketplace. Its family leisure and entertainment offerings include a 8,800 square metre Magic Planet entertainment centre, a MAF Ventures’ cinema, Ski Dubai, a five-star Kempinski hotel with 393 keys and a four-star Pullman hotel with 481 keys. The mall is located next to a metro station, named Mall of the Emirates. In 2005, its first year of operation, the mall welcomed more than 23 million visitors. In 2010, the Mall of the Emirates had 31.3 million visitors. • Mirdif City Centre, Dubai, UAE: Mirdif City Centre is MAF Properties’ newest mall, having opened on 16 March 2010. The mall had 474 tenants, including a Carrefour hypermarket, 31 other stores with a gross leasable area in excess of 1,000 square metres, located in 196,054 square metres of gross leasable area as at 30 April 2011. The mall’s unique leisure offerings include IFly, a simulated sky diving experience, a soccer academy and Cité des Enfants, an educational establishment for children. The Mirdif City Centre shopping mall was the first shopping centre in the Middle East to achieve a Gold Rating for Leadership in Energy and Environmental Design (LEED), the sustainability rating
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system developed by the U.S. Green Building Council. In its first 12 months of operation, the mall had more than 16 million visitors. • Bahrain City Centre, Bahrain: Bahrain City Centre is MAF Properties’ third super regional mall and is its landmark project in Bahrain. The Bahrain City Centre shopping mall started operations in September 2008. The three-level mall, with 157,742 square metres of gross leasable area and 378 tenants as at 30 April 2011, is the first integrated entertainment, shopping and leisure complex in Bahrain, the largest shopping mall in Bahrain and one of the largest in the GCC region. It features 16 stores with a gross leasable area in excess of 1,000 square metres (including a Carrefour hypermarket), Wahooo, the region’s largest indoor-outdoor water park, the largest cinema complex in the Middle East and a Magic Planet entertainment centre. In 2010, the Bahrain City Centre had 11.8 million visitors. • Deira City Centre, Dubai, UAE: This mall, with 394 tenants and 114,411 square metres of gross leasable area as at 30 April 2011, was MAF Properties first mall development. Opened in November 1995, the Deira City Centre shopping mall underwent various expansions and reburbishment and is currently undertaking further expansion designed to increase its gross leasable area to 144,401 square metres by the end of the second quarter of 2012. Deira City Centre has 19 stores with a gross leasable area in excess of 1,000 square metres (including a Carrefour hypermarket). The mall is located next to a metro station, named Deira City Centre. The Deira City Centre shopping mall had 19.6 million visitors in 2010. • Alexandria City Centre, Alexandria, Egypt: Alexandria City Centre opened in January 2003 and is currently Alexandria’s largest shopping centre, with 11 stores with a gross leasable area in excess of 1,000 square metres, 211 tenants and 61,713 square metres of gross leasable area as at 30 April 2011. The Alexandria City Centre shopping mall had 14.8 million visitors in 2010. • Muscat City Centre, Oman: Muscat City Centre, which opened in October 2001, is the largest mall in Oman in terms of gross leasable area. The original 33,036 square metres of gross leasable area was expanded in 2007 to a total of 56,525 square metres of gross leasable area, almost doubling the size of the mall which had 153 tenants and nine stores with a gross leasable area in excess of 1,000 square metres as at 30 April 2011. The Muscat City Centre shopping mall had 8.6 million visitors in 2010. • Sharjah City Centre, Sharjah, UAE: Sharjah City Centre, encompassing 37,722 square metres of gross leasable area, had seven stores with a gross leasable area in excess of 1,000 square metres and 142 tenants as at 30 April 2011. The mall opened in September 2001 and is located in central Sharjah. The Sharjah City Centre shopping mall had 11.4 million visitors in 2010. • Maadi City Centre, Cairo, Egypt. Maadi City Centre opened in December 2002 and had 31,351 square metres of gross leasable area as at 30 April 2011. The mall had three stores with a gross leasable area in excess of 1,000 square metres and a total of 96 tenants as at 30 April 2011. The Maadi City Centre shopping mall had 11.6 million visitors in 2010. • Ajman City Centre, Ajman, UAE. Ajman City Centre opened in December 1998 with 46 stores. It had a gross leasable area of 29,443 square metres, five stores with a gross leasable area in excess of 1,000 square metres and 71 tenants as at 30 April 2011, making Ajman City Centre the largest shopping mall in Ajman. The Ajman City Centre shopping mall had 9.6 million visitors in 2010. • Qurum City Centre, Oman. Qurum City Centre opened in November 2008 and comprised 20,437 square metres of gross leasable area as at 30 April 2011. The Qurum City Centre shopping mall had two stores with a gross leasable area in excess of 1,000 square metres and 79 tenants as at 30 April 2011 and had 3.6 million visitors in 2010.
Shopping Malls under Construction or Master Planning and Design
In addition to the shopping malls currently in operation, MAF Properties is constructing two additional shopping malls in Beirut, Lebanon and Fujairah, UAE (which are expected to open during 2012) and is master planning two further shopping malls in Egypt and Syria (which are expected to open in 2014). MAF
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Properties believes that Egypt, Lebanon and Syria are markets where there is (i) growth in middle income families, (ii) limited penetration of modern retailing, (iii) limited competition, especially in Syria, and (iv) good land locations available for shopping malls developments. Together, the four projects represent an anticipated 378,000 additional square metres of gross leasable area, equivalent to approximately 40 per cent. of the gross leasable area of MAF Properties’ shopping mall portfolio at 30 April 2011.
The following shopping malls are currently under construction:
Expected Gross Expected Property Location Leasable Area (m2) Opening Year —————————————– ——————— ———————— —————— Beirut City Centre...... Beirut, Lebanon 60,000 2012 Fujairah City Centre ...... Fujairah, UAE 31,000 2012 • Beirut City Centre: The Beirut City Centre shopping mall is centrally located in Beirut with a wide catchment area and located close to major highways. The mall is planned to be a regional mall with a gross leasable area of around 60,000 square metres and will include a Carrefour hypermarket. Construction of the mall is expected to be completed in late 2012 and the mall was 52 per cent. pre- let at 30 April 2011. • Fujairah City Centre: The Fujairah City Centre shopping mall is located west of the City of Fujairah, adjacent to the main highway connecting Fujairah to Dubai and Sharjah. The mall is expected to have a gross leasable area of 31,000 square metres and to include a Carrefour hypermarket and Magic Planet entertainment centre along with a range of other tenants. The mall is planned to be developed in three phases, with the second and third phases potentially comprising a 10,000 square metre retail park adjacent to the mall and a MAF Ventures’ cinema and hotel project in phase three, although no firm decision has yet been taken to proceed with either of these latter phases. As at 30 April 2011, the Fujairah City Centre shopping mall was 52 per cent. pre-let and the mall is currently expected to open in mid 2012.
The following two shopping mall projects are in the master planning and design phase.
Approximate Gross Leasable Property Location Area (m2) ———————————— ——————— —–———— Mall of Egypt ...... Cairo, Egypt 161,000 Khams Shamat Mall ...... Damascus, Syria 126,000 • Mall of Egypt: The Mall of Egypt shopping mall is currently planned to be a super-regional mall providing approximately 161,000 square metres of gross leasable area and including a unique leisure offering themed around snow and ice. The mall is also expected to include a MAF Ventures’ cinema and a Magic Planet entertainment centre. The mall will be located on the western outskirts of Cairo. The Mall of Egypt is currently at the detailed design stage and construction is expected to start in late 2011 or early 2012 (subject to a satisfactory political situation) and to take approximately three years to complete. • Khams Shamat Mall: The Khams Shamat shopping mall is currently planned to be a super-regional mall providing approximately 126,000 square metres of gross leasable area. The mall will be located to the west of Damascus on the main road between Damascus and Beirut and is being constructed as part of the Khams Shamat mixed-use development, see “—Mixed-Use Business Unit—Khams Shamat Tourist Complex, Damascus, Syria”. The Khams Shamat Mall is currently at the detailed design stage and, subject to resolution of the current political difficulties in Syria, construction is expected to start in late 2011 or early 2012 and to take approximately three years to complete.
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Marketing
The Shopping Malls Business Unit has a centralised marketing structure ensuring consistent marketing across products and geographies and aimed at enhancing the value of the Group’s brands. Marketing is targeted at both retailers (as potential tenants) and end-consumers. The principal marketing activities include branding, media, sales promotions and loyalty programmes. The Group’s shopping malls have won numerous awards, including 45 international awards such as the Dubai Shopping Festival 2009 Best Mall Promotion Award (Mall of the Emirates) in 2009 and the ICSC Asia Shopping Awards Silver Award for Strategic Grand Opening (Mirdif City Centre shopping mall) and the Oman Observer Awards – Best Shopping Mall in Oman Award (Muscat City Centre shopping mall), each in 2010.
Lease arrangements
MAF Properties enters into lease agreements with its retail tenants, the duration of which varies by tenant, and typically commences negotiations regarding the renewal of lease agreements approximately six months prior to the expiration of a lease agreement. The lease term for anchor tenants typically varies from 10 to 20 years, for major tenants from between five to 10 years and for line stores from between one to five years. The average lease terms across the Group’s malls as at 31 December 2010 ranged from six years (at Deira City Centre) to 10 years (at Maadi City Centre). Maximum lease terms, excluding leases for Group tenants, are 10 years, with the exception of the Mall of the Emirates where the maximum lease term is 20 years. MAF Properties also enters into leases of one year or less for tenants operating counters, carts, kiosks and mall media in each mall. Under the terms of the lease agreements, some major tenants have a restrictive clause preventing them from opening a competing store within a defined radius. In addition, tenants typically do not have the right to rescind their lease agreements except in limited cases and MAF Properties has the right to rescind certain line tenants’ lease agreements in the event they do not achieve certain sales thresholds.
The fit-out of individual stores is the responsibility of the tenant subject to approval by MAF Properties. Tenants are also responsible for all repairs and maintenance to their leased area over the lease period and must vacate the premises as found prior to fit-out.
Lease rental fees contain a number of fixed elements linked to the area of floor space under lease, along with a variable rent element calculated based on the tenant’s gross sales. Each lease is negotiated separately and there is no set formula for rents applied across all tenants.
Some jurisdictions in which MAF Properties has shopping malls have passed laws which limit MAF Properties’ flexibility to increase the rentals paid in those jurisdictions.
Competition
MAF Properties is one of the largest shopping mall destination developers in the MENA region. However, it still faces competition from a number of real estate developers in each of the markets in which it operates. The principal competitor in the UAE, the Group’s main market, is Emaar Properties PJSC, 32 per cent. owned by the Dubai government, which opened its first shopping mall in Dubai (the Dubai Mall with approximately 350,000 square metres of gross leasable area) in November 2008. Other competing malls include the Ibn Batuta shopping mall and the Dubai Festival City shopping mall, both in Dubai with gross leasable areas of approximately 175,000 square metres and approximately 110,000 square metres, respectively.
Hotels Business Unit
The Hotels Business Unit focuses on the development of hotels located adjacent, or in close proximity, to the Group’s shopping malls or within the Group’s mixed-use developments. MAF Properties currently owns nine hotels, all of which are located in Dubai, offering a total of 2,521 keys and is currently constructing or master planning an additional five hotels, located in Bahrain and Syria. MAF Properties’ strategy is to focus on building hotels which complement its shopping mall developments and it does not currently anticipate building any stand-alone hotels in addition to its Rigga IBIS Hotel, the decision to build this property having been made in a significantly different economic environment.
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The Hotels Business Unit’s current business model is to focus on asset ownership and therefore to outsource the day-to-day management of its hotels to international hotel management companies. The business unit enters into agreements with international hotel operators to provide its hotels with a recognised brand, experienced operational management and access to bespoke booking systems and customer networks.
Hotels in operation As at 30 April 2011, the Hotels Business Unit owned nine hotels. Eight of these hotels are either co-located adjacent to, or are sited in close proximity to, shopping malls operated by the Group in Dubai. The co-located hotels are the five-star City Centre Hotel and Residence (which is classified as two hotels) and the five-star Kempinski Hotel Mall of the Emirates and the four-star Pullman Mall of the Emirates Hotel. These hotels have a combined capacity of 1,304 keys. The other hotels are the four-star Port Saeed Novotel and the two- star Port Saeed IBIS which have a combined capacity of 553 keys and are located close to the Deira City Centre shopping mall and the two-star Barsha IBIS Hotel and three-star Suite Novotel, which have a combined capacity of 384 keys and are located close to the Mall of the Emirates. In addition, the Hotels Business Unit owns the stand alone budget Rigga IBIS Hotel in Deira which offers 280 keys.
The table below sets out certain information on the Hotels Business Unit’s nine hotels currently in operation as at and for the year ended 31 December 2010. At 31 December 2010 ———————————————— Average Total Keys Daily at 30 April Rate(1) Occupancy(2) RevPAR(3) Property Location 2011 (AED) (%) (AED) ———————————————— ————— ————–– ————–– ————–– ————— City Centre Hotel...... Dubai, UAE 318 473 69 327 City Centre Residence ...... Dubai, UAE 112 457 71 327 Kempinski Hotel Mall of the Emirates .. Dubai, UAE 393 1,053 64 679 Port Saeed Novotel ...... Dubai, UAE 188 377 74 277 Port Saeed IBIS ...... Dubai, UAE 365 207 76 157 Barsha IBIS Hotel ...... Dubai, UAE 204 220 80 175 Suite Novotel ...... Dubai, UAE 180 354 56 200 Pullman Mall of the Emirates(4) ...... Dubai, UAE 481 505 34 169 Rigga IBIS, Deira, Dubai(5) ...... Dubai, UAE 280 198 49 97
Notes: (1) Average daily rate refers to the average room rate charged by a hotel over a given period. (2) Occupancy refers to the percentage of a hotel’s rooms that are occupied over a given period. (3) RevPAR (revenue per available room) is calculated by multiplying the average daily rate by the occupancy rate over a given period. (4) Opened in September 2010. (5) Opened in March 2010.
City Centre Hotel and Residence, Deira, Dubai The Deira City Centre Hotel and Residence offers two distinct choices: hotel rooms and fully furnished apartments. The City Centre Hotel has been operating since March 1998 and is managed by Accor. The 5- star hotel has 318 keys, including six executive suites and a presidential suite. The hotel offers three restaurants, three bars, 10 meeting rooms and a banquet hall. The hotel’s customer mix is approximately 70 per cent. business and approximately 30 per cent. leisure. The City Centre Residence, which opened in April 1998, offers 112 fully-furnished and serviced studios, one, two and three bedroom apartments. Similar to the City Centre Hotel, the residence’s customer mix is approximately 70 per cent. business and approximately 30 per cent. leisure. The City Centre Hotel and Residence is adjacent to the Deira City Centre shopping mall and the hotel is currently undergoing a refurbishment which is due to be completed in 2012, at which point it is expected to be rebranded as a Pullman hotel. Pullman is Accor’s upscale brand.
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Kempinski Hotel Mall of the Emirates, Dubai
Kempinski Hotel Mall of the Emirates, Kempinski’s first hotel in Dubai and the Group’s largest hotel, is located on Sheikh Zayed Road, at the forefront of the Mall of the Emirates. The hotel, which covers an area of 48,000 square metres, began operating in April 2006. Since January 2008, the hotel has been operating with a full inventory of 393 keys, including deluxe rooms, suites, ski chalets and business suites with private board rooms, some of which enjoy views over Ski Dubai. The Kempinski Hotel Mall of the Emirates includes a wellness spa, fitness centre, swimming pool and tennis court. The hotel features a number of restaurants and bars, including a 1,000 seat dining and lounge area occupying 2,900 square metres. The hotel attracts leisure and business clientele in a ratio of approximately two to one.
Port Saeed Novotel and Port Saeed IBIS, Deira, Dubai
The Port Saeed Novotel and Port Saeed IBIS both opened for business in November 2008 and are managed by Accor. These properties are both located in close proximity to the Deira City Centre shopping mall. This hotel cluster comprises the Hotels Business Unit’s first budget/midscale hotels. The Port Saeed Novotel offers 188 keys as well as international and regional restaurants, fully licensed bars and an outdoor temperature controlled swimming pool. The Port Saeed IBIS offers 365 keys, a bistro restaurant and a bar.
Barsha IBIS Hotel and Suite Novotel, Mall of the Emirates, Dubai
The Barsha IBIS Hotel and Suite Novotel both opened for business in June 2009 and are managed by Accor. These properties are both located in close proximity to the Mall of the Emirates. The hotel has 204 keys, a restaurant, a café, two bars and a gym. The Suite Novotel has 180 residence keys, a restaurant, bar, 24 hour Deli Boutique, a swimming pool and a fully-equipped gym.
Pullman Mall of the Emirates, Dubai
The Pullman Mall of the Emirates Hotel was constructed adjacent to the extension of the Mall of the Emirates and opened for business in September 2010. This hotel is managed by Accor and offers 481 keys and features two restaurants, two bars and extensive meeting facilities.
Rigga IBIS, Deira, Dubai
The Rigga IBIS opened for business in March 2010. This stand-alone budget hotel, which is managed by Accor, offers 280 keys, a café, bar and a fitness centre.
Hotels under construction
The Hotels Business Unit is currently constructing a two-tower Kempinski hotel (counted as two hotels in view of the different ratings) in Bahrain in close proximity to the Bahrain City Centre shopping mall offering a total of 460 additional keys, the details of which are set out in the table below:
Management/ Expected Expected Operational Number Site Name/Location Completion Relationship of Keys ——————————————————— ————–—— ——–———— ——————– Five-star tower ...... Late 2011 Kempinski 200 Four-star tower ...... Late 2011 Kempinski 260
Adjacent to the Bahrain City Centre shopping mall, the two towers will offer a collection of seven bars and restaurants, a 1,000 square metre spa, a fitness centre and swimming pool.
Hotels under master planning and design
In addition to the hotels currently in operation and under construction, the Hotels Business Unit is in the master planning and design phase with respect to an additional three hotels to be built as part of its mixed-use development in Syria, see “—Mixed-Use Business Unit—Khams Shamat Tourist Complex, Damascus, Syria”,
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which are expected to offer a total of approximately 700 additional keys. Construction is expected to commence on each of these hotels in late 2011 or early 2012.
Approximate Number of Description Location Category Keys ——–––––––––––––—————————— —————— ———— –————— Hotel 1 ...... Damascus, Syria Upper Upscale 250 Hotel 2 ...... Damascus, Syria Upscale 250 Hotel 3 ...... Damascus, Syria Midscale 200
Hotel management agreements
MAF Properties has entered into the following agreements for the management of its hotels: • Management agreements with Kempinski. MAF Properties has two separate management agreements with Kempinski, appointing Kempinski exclusive operator and manager of the Kempinski Hotels in the Mall of the Emirates and in the Bahrain City Centre shopping mall. Under the terms of these agreements, Kempinski carries out all duties required to efficiently manage, operate and market the hotels, including in relation to the appointment and dismissal of employees, in exchange for an incentive fee based on the success of each hotel. In addition, under separate technical and pre-opening services agreements in respect of each of the hotels and a marketing and central services agreement in respect of the Mall of the Emirates, Kempinski provides consultancy services in relation to the design and set-up of the hotels and ongoing “back-of-house” functions such as marketing and reservations, for which Kempinski is entitled to separate remuneration. • Management agreements with Accor. MAF Properties has entered into separate management agreements with Accor, appointing Accor exclusive operator and manager of the City Centre Hotel and Residence at Deira City Centre, the Barsha IBIS Hotel, the Suite Novotel, the IBIS Hotel and Novotel at Port Saeed, the IBIS Hotel on Rigga Road, Deira and the Pullman Mall of the Emirates Hotel. The terms of the management agreements with Accor are similar to those of the management agreements with Kempinski described above and also cover the provision of centralised “back-of- house” functions. In exchange for the provision of its services, Accor receives a monthly basic management fee as well as an incentive fee based on the success of each hotel. In addition to the management agreements, MAF Properties has entered into separate technical assistance contracts with Accor, pursuant to which Accor provides consultancy services in relation to the design and set- up of the hotels.
Marketing
Pursuant to the terms of the management agreements with Kempinski and Accor, both Kempinski and Accor are responsible for all marketing activities related to the hotels they manage. See “—Hotel Management Agreements”.
Competition
The Hotels Business Unit faces competition from a number of existing hotel operators in the region as well as new market entrants. Growth in business and leisure travel to Dubai in the period up to mid 2008 supported the development of a significant number of new hotels in Dubai. The global financial crisis and associated decline in the property and construction market in the UAE since the end of 2008 placed additional competitive pressure on the hotel business. Dubai’s hotels accommodated 6.6 million guests in 2010 up from 6.1 million in 2009. The Dubai Department of Tourism and Commerce Marketing reported hotel occupancy rates of 70 per cent. in both 2009 and 2010 reflecting a 17.7 per cent. increase in the number of hotel rooms in 2010. The Group believes that there is a more limited supply of branded three-star hotels in Dubai than there is of higher quality properties.
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Mixed-Use Business Unit The Mixed-Use Business Unit was established to invest in joint ventures to develop sites containing a mix of residential and commercial properties throughout the MENA region or to develop such sites itself. The business unit is currently involved in master planning a single mixed-use development and is a partner in another joint venture undertaking a mixed-use development in respect of which it has development control. These two developments are:
Khams Shamat Tourist Complex, Damascus, Syria MAF Properties owns an estimated 1.0 million square metres of land located 17 kilometres west of Damascus adjacent to the Damascus Beirut highway on which it proposes to develop the Khams Shamat Tourist Complex in a number of stages. The project is intended to capitalise on the projected expansion of Damascus and to create a significant centre for that expansion. The first stage of the project is currently in the master planning and design phase and is expected to include a super-regional shopping mall, three hotels, a number of different residences and a commercial office building, among other facilities. It is currently anticipated that the development will be part-financed through pre-selling residential units, other commercial properties and plots of land for development by other developers. The business unit expects to sub-contract the development of the residential units to third-party contractors while ring-fencing its interests in the non- residential portions of the development. Construction of the first phase is expected to commence in late 2011 or early 2012, subject to resolution of the current political difficulties in Syria.
Lebanon Waterfront City The Group has invested in a 50/50 joint venture with a Lebanese company, Joseph G. Khoury Holdings & Fils S.A.L., which owns around 193,000 square metres of reclaimed land surrounding a marina located close to central Beirut in the Lebanon. The joint venture company is undertaking a mixed-use development in a number of phases. The first phase is expected to cover approximately 56,500 square metres and to be launched in June 2011. This phase is primarily residential in nature with the development expected to be funded in large part by advance property sales. MAF Properties retains development control of this project through a development agreement between the joint venture company and one of MAF Properties’ subsidiaries.
The Mixed-Use Business Unit is also an investor in two other joint ventures in respect of which it has no development and management agreement. These joint ventures are:
The Wave Muscat, Oman Located close to Muscat, the capital city of Oman, The Wave Muscat is a mixed-use development project occupying a total area of 2.5 million square metres along over six kilometres of natural beach. The Wave Muscat is being developed as a joint venture between the Oman-based Waterfront Investments, National Investment Funds Company, representing the Omani pension funds, and MAF Properties, which holds 50 per cent. of the joint venture entity, The Wave - Muscat SAOC (The Wave JV). The Wave JV has been established as an independent joint venture that has its own employees and operations, with MAF Properties having 50 per cent. voting powers and representation on the board. The Wave Muscat is being developed in seven phases, four of which have been completed. The Wave JV does not require funding from MAF Properties and is financed independently, including through the receipt of advance cash payments for the sale of units which are currently being used to finance construction of further development work.
Sharjah Holding In December 2007, MAF Properties entered into a joint venture with the Government of Sharjah, as a result of which a 50/50 joint venture entity, Sharjah Holding, has been established. As part of the joint venture, the Government of Sharjah will identify and provide suitable land for mixed-use development and/or community shopping malls, including but not limited to land owned by the Government of Sharjah. Sharjah Holding is in the process of planning and/or constructing a number of community shopping malls in Sharjah.
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Other property In addition to the properties described above, MAF Properties owns 1.2 million square metres of land, some of which it plans to develop for shopping mall and hotel projects, principally in the UAE, and part of which it expects to sell to third parties subject to agreeing satisfactory terms. MAF Properties has not yet initiated the project development phase for these properties, and therefore appropriate Board approval has not yet been received and financing has not yet been secured for the development of these projects.
In addition to its land bank held for development, MAF Properties also owns four office buildings in Dubai, three of which are leased to third parties. Two of the leased office buildings are partially occupied by the Group with all of the remaining building being leased.
MAF RETAIL Overview The Group first introduced the hypermarket model to the Middle East in 1995 under a partnership with Promodes S.A. (Promodes) using the brand “Continent”. A joint venture agreement with Promodes established MAF Hypermarkets, a joint venture company 75 per cent. owned by the Group and 25 per cent. owned by Promodes. In 2000, Promodes merged with Carrefour and the joint venture agreement was updated and amended. Over the past 40 years, France’s Carrefour group has grown to become one of the world’s leading distribution groups. The world’s second-largest retailer and the largest in Europe (according to the Carrefour website), the Carrefour group currently operates four main grocery store formats: hypermarkets, supermarkets, hard discount and convenience stores.
Pursuant to a franchise agreement with Carrefour, MAF Hypermarkets currently has the exclusive right to establish Carrefour stores in 15 countries in the MENA region. To date, MAF Retail has expanded the Carrefour concept across the UAE and into Bahrain, Egypt, Iran, Jordan, Kuwait, Oman, Pakistan, Qatar, Saudi Arabia and Syria. As at 30 April 2011, MAF Retail operated 38 Carrefour hypermarkets and 27 Carrefour supermarkets across the MENA region and also operates an online store (www.iC4uae.com), principally selling light and heavy household goods for delivery within the UAE.
MAF Retail initially rolled out Carrefour supermarkets in 2007 on a trial basis in the UAE in an attempt to take advantage of its large store network and the regional suburban demand for smaller stores allowing easier access to the local population. MAF Retail has rolled out the new format in three sizes, ranging from approximately 500 square metres to 2,000 square metres, depending on factors including target product range, population density and catchment areas. The Carrefour supermarkets focus mainly on food products, with food sales contributing approximately 80 per cent. of total sales per year.
MAF Retail’s workforce of more than 14,000 employees processed more than 103 million transactions at its Carrefour stores in 2010, resulting in sales of AED 13,937 million for the year. MAF Retail expects to open a further 11 Carrefour hypermarkets and 21 Carrefour supermarkets in 10 countries in the remainder of 2011.
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The following map shows the location of MAF Retail’s Carrefour hypermarkets and supermarkets as at 30 April 2011:
Syria Outlet Number Kuwait Carrefour hypermarkets 1 Outlet Number Carrefour hypermarkets 1 Carrefour supermarkets 1 Jordan Outlet Number Carrefour hypermarkets 1 Carrefour supermarkets 4
Pakistan
Outlet Number Hyperstar hypermarkets 1
Egypt Outlet Number Iran Carrefour hypermarkets 4 Outlet Number Carrefour supermarkets 4 Hyperstar hypermarkets 1
Bahrain Saudi Arabia Outlet Number Outlet Number Carrefour hypermarkets 1 Carrefour hypermarkets 10 Carrefour supermarkets 5 UAE Outlet Number Carrefour hypermarkets 13 Qatar Carrefour supermarkets 15 Outlet Number Carrefour hypermarkets 1 Oman Outlet Number Carrefour hypermarkets 2
MAF Retail had revenue of AED 14,868 million and EBITDA of AED 769 million in 2010 as well as assets of AED 4.0 billion at 31 December 2010, equal to 83.8 per cent., 32.8 per cent. and 11.4 per cent., respectively, of the Group’s revenue, EBITDA and assets as of and for the year ended 31 December 2010.
Strategy MAF Retail aims to establish Carrefour as the hypermarket store of choice for consumers throughout the MENA region. MAF Retail aims to offer the cheapest products through utilising a portion of the rebates it receives from suppliers to reduce prices and by maintaining a low level of commercial margin. Accordingly, MAF Retail aims to offer the best quality at an affordable price and the widest possible range of both local and international products to meet customer demand.
MAF Retail intends to continue to focus on the hypermarket format (with an average of 9,000 square metres of selling space) and smaller store formats to fill market gaps. See “—Store Rollout and Development Strategy”. MAF Retail is also focused on further developing private-label products in conjunction with Carrefour and increasing the proportion of such products in its sales mix. Finally, management believes that MAF Retail’s growth, coupled with its strong relationship with Carrefour, will allow it to take advantage of Carrefour’s reputation internationally and further improve its purchasing power from international suppliers.
Agreements with Carrefour In 1995, the Group entered into a joint venture agreement with Promodes, now part of the Carrefour group, creating MAF Hypermarkets which is 75 per cent. owned by MAF Retail. Pursuant to a separate franchise agreement, MAF Hypermarkets is the exclusive franchisee of Carrefour for 15 countries in the MENA region — Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Pakistan, Qatar, Saudi Arabia, Syria, UAE and Yemen. Under the terms of the franchise agreement, Carrefour provides trade signs, operating procedures and know-how (particularly in relation to hypermarket design, quality, health and safety standards and administration), assistance in supply chain management as well as access to product sourcing networks and training. Carrefour is in addition responsible for the sourcing of its private-label products, “Carrefour” and “N1”.
On 31 May 2011, the management of each of MAF Retail and Carrefour agreed in principle to the extension of the franchise agreement between MAF Hypermarkets and Carrefour to four countries in the
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Commonwealth of Independent States: Armenia, Azerbaijan, Georgia and Kazakhstan. This approval still needs to be reflected in a new or amended franchise agreement.
MAF Retail has agreed not to utilise any know how gained in the operation of independent hypermarkets or supermarkets and is not permitted to sell the products of any of Carrefour’s competitors. The existing agreements are valid until 2015 and thereafter may be renewed for further five-year terms. One year’s notice of non-renewal is required to be given by each party.
Carrefour charges MAF Retail a franchise fee based on sales made. MAF Retail is responsible for the day- to-day operation of each store, seeking approval from Carrefour for new store openings.
Certain matters identified in the joint venture agreement require either the unanimous approval of MAF Hypermarket’s Board (which comprises three MAF Retail members and one Carrefour member) or unanimous shareholder approval. Unanimous Board approval is required for the making of inter-Group loans in excess of AED 300 million by MAF Hypermarkets or for the giving of indemnities or security or the making of payments outside the ordinary course of business in excess of AED 500,000. Unanimous shareholder approval is required before MAF Hypermarkets may establish any subsidiaries, acquire shares in a third party, merge, dispose of all or a substantial part of its assets, change its auditors, increase its share capital above AED 40 million or change the nature of its business or conduct certain transactions outside the ordinary course of its business. MAF Hypermarkets’ dividend policy is controlled by MAF Retail provided that the debt to equity ratio does not exceed 2:1 and, in such case, that the Board distributes at least 50 per cent. of the distributable profits. Any proposed dividend outside these parameters requires unanimous shareholder approval.
Current operations
UAE, Qatar, Oman and Kuwait
MAF Retail opened its first Carrefour hypermarket in 1995 in the Deira City Centre shopping mall in the UAE. Subsequently, it opened its first hypermarket in Qatar in 2000, in Oman in 2001 and in Kuwait in 2007. The Carrefour hypermarket in the Mall of the Emirates, which opened in 2005, is MAF Retail’s largest hypermarket. MAF Retail currently has 13 hypermarkets in the UAE, three in Qatar, two in Oman and one in Kuwait and a total of 16 Carrefour supermarkets in the four countries.
Egypt
MAF Retail opened its first Carrefour hypermarket in Egypt in 2002. The hypermarket is located in the Maadi City Centre shopping mall in Cairo, the most populous city in the Arab world. MAF Retail currently has four Carrefour hypermarkets and four Carrefour supermarkets in Egypt.
Saudi Arabia
MAF Retail entered Saudi Arabia in 2004 with its first Carrefour hypermarket on Khurais Road in Riyadh. MAF Retail currently has 10 Carrefour hypermarkets and three Carrefour supermarkets in Saudi Arabia.
Other countries
MAF Retail was the first hypermarket chain entrant into Jordan when it opened a Carrefour hypermarket within the Amman City Centre shopping mall in December 2006. In the second half of 2008, MAF Retail entered Bahrain by opening a Carrefour hypermarket in the Bahrain City Centre shopping mall. In 2009, MAF Retail entered the markets of Iran, Pakistan and Syria by opening one hypermarket in each country. MAF Retail currently has a total of five hypermarkets and four supermarkets in these five countries.
Development pipeline
MAF Retail plans to open 11 Carrefour hypermarkets in 2011, of which one had been opened by 30 April 2011, in Saudi Arabia. Four of the remaining hypermarkets are planned to open in the UAE, two each in Iran
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and Oman and one each in Egypt, Iraq and Pakistan. In addition, MAF Retail plans to open 21 Carrefour supermarkets in 2011, of which four had been opened by 30 April 2011.
Operational leases
MAF Retail currently leases the properties on which it operates Carrefour stores. Properties are leased from both MAF Properties and, to gain quicker access to a target market, third-parties, including third-party shopping mall developers. As at 30 April 2011, 10 hypermarkets were leased from MAF Properties, with the remaining 28 hypermarkets and all 27 supermarkets leased from third parties.
It takes approximately six months for MAF Retail to open a new hypermarket from the point at which the store is handed over and, in the case of hypermarkets located in shopping malls, it can take up to 2.5 years to develop the mall in which the hypermarket is to be located from the point at which MAF Retail commits to lease the store. In the case of supermarkets, it takes around four months to carry out refurbishment works and around two months to obtain necessary licences and approvals. MAF Retail prefers to lease sites for its Carrefour stores to ensure a faster time to market and to expedite the return on its investment. However, MAF Retail will consider other options, such as owning a limited number of properties or leasing land and constructing a store, where it determines that it is more commercially viable to do so. In Iran, for example, MAF Retail built its hypermarket, with complementary stores owned by MAF Retail surrounding it, on land it had leased, due to a lack of available buildings appropriate to the hypermarket format.
MAF Retail aims to maintain long-term lease agreements (typically with terms of approximately 20 years for hypermarkets and approximately 10 years for supermarkets). As of 30 April 2011, the average lease period for its hypermarkets was approximately 19 years and for its supermarkets was approximately 10 years. Under most of the lease agreements, MAF Retail has a conditional right to renew the lease subject to agreement on lease terms and retains termination rights at certain points during the lease.
MAF Retail undertakes refurbishment of its hypermarkets approximately every seven to ten years. In addition, store managers are responsible for reviewing and analysing inventory turnover and consumer trends.
Store Rollout and development strategy
MAF Retail has created a development team to oversee the rollout of its Carrefour store network. The development team has representatives covering the UAE, Qatar, Oman and Kuwait region and, separately, each of Egypt, Saudi Arabia, Iran and Pakistan. Development within the remaining countries is managed by the head office development team with local management support. These development teams identify store location opportunities and negotiate with local suppliers and are supported by MAF Retail country managers who are present in all countries of the region.
When rolling out a new store, the local development teams (under the supervision and with the support of the head office development team) are responsible for sourcing suitable real estate, negotiating lease or purchase agreements, conducting tenders for construction and installation services, store design and store launch. They also co-ordinate contacts with the external parties involved in the rollout process such as real estate agents, licensing authorities, lawyers and construction companies. There is a close dialogue between the regional teams and the MAF Retail head office, although significant responsibility is given to the regional teams to facilitate efficient decision making. However, all important decisions require the involvement of the head office development team and MAF Retail’s legal and finance departments and significant financial commitments require approval by the MAF Retail CEO or Board, depending on the size of the commitment.
MAF Retail Board approval is required prior to entering into a new store project and a new geographical market. When considering a new geography, the head office development team first seeks to identify appropriate locations and conducts all necessary diligence, including commissioning a third party consultant approved by Carrefour in its capacity as franchisor, to estimate future sales for each proposed site. Based on the results of the diligence, the development team prepares a feasibility study which, among other matters, considers the financial criteria which are required to be met (including (i) a positive net present value of the expected cash flows from the investment for the period of the lease and (ii) an internal rate of return and
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return on capital employed in excess of the country return objective set by MAF Retail). MAF Retail evaluates potential store feasibility based on projected cash flows for the proposed lease period, which depend on factors such as current population, catchment areas, customer access to the hypermarket, potential rate of urbanisation and existing and planned competing properties. The feasibility study is reviewed by the CEO of MAF Retail and, if approved by him, is submitted to the MAF Retail Board for final approval. Projects for supermarkets involving capital expenditure of less than AED 10 million are approved by the MAF Retail CEO.
Following completion of a development, an annual review process for each store is conducted. Among other matters, results to date, the latest five-year plan and a conservative projection to cover the full lease period are considered. The return and profitability key performance indicators are compared with those identified at the initial project approval stage and the results of each review are presented to the MAF Retail Board.
Typically, MAF Retail’s Carrefour hypermarkets are the anchor tenants of choice for MAF Properties’ shopping mall developments. However, Carrefour hypermarkets and supermarkets are also located outside MAF Properties shopping malls.
Product range and quality control
Product range
MAF Retail’s Carrefour hypermarkets stock five categories of products: consumer, market, light household, textile and heavy household goods. Consumer goods are all food products excluding fresh produce; market goods are fresh produce; light household goods are non-food household products falling outside the heavy household category; textile goods are principally clothing and linen merchandise; and heavy household goods consist of large appliances and electronic goods. For the year ended 31 December 2010, food products and non-food products accounted for 55.2 per cent. and 44.8 per cent., respectively, of MAF Retail’s total sales.
Depending on the size of the individual store, MAF Retail’s Carrefour hypermarkets stock between 35,000 and 45,000 stock keeping units (SKUs) per store. The SKUs stocked in a particular store include mandatory items selected centrally by the relevant country head office sourcing team and products chosen locally by the store’s management to ensure the range of products offered is adapted to suit local tastes. As a result, the range of products varies from store-to-store, depending on preferences within a local catchment area.
MAF Retail’s merchandise strategy is aimed at standardising its range of products and optimising its ability to satisfy customer preferences. Based on monthly analyses of results and other relevant data (including competition data and periodic customer feedback), it sets objectives and modifies parameters, including of store layout, range and price. Individual stores are then charged with adjusting accordingly the mix of products, prices, products on promotion and the location of products within the store.
A portion of Carrefour hypermarkets’ SKUs are private label brands. The private label brands developed by Carrefour include “N1” and “Carrefour”. MAF Retail intends to increase the proportion of the higher margin private label items in its sale mix.
MAF Retail develops private label brand products in partnership with Carrefour, identifying product specifications based on consumer preferences. All of the private label products must adhere to the Carrefour group’s strict quality standards, and MAF Retail and Carrefour work together to ensure quality control.
Quality control
MAF Retail has implemented an audit control system for its market goods and private label items. The audit control system covers staff training, UAE audits of suppliers, stores and products. MAF Retail has appointed several companies to perform audits according to targets set by its management team. Most of MAF Retail’s stores have received Hazard Analysis and Critical Control Points (HACCP) certification. HACCP is a systematic preventive approach to food safety that addresses physical, chemical, and biological hazards as a means of prevention rather than finished product inspection. HACCP is used in the food industry to identify potential food safety hazards, so that key actions can be taken to reduce or eliminate the risk of the hazards being realised. The system is used at all stages of food production and preparation processes.
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Supply chain, procurement, inventory and distribution
Supply chain and procurement
MAF Retail uses Carrefour’s logistics network in East Asia to source products for its N1 and Carrefour private label brands and for limited non-food items, allowing MAF Retail to leverage Carrefour’s market size.
For all other products, MAF Retail’s central procurement team is responsible for producing an annual list of preferred suppliers by product category. These suppliers are ranked based on performance using benchmarking reports. In order to keep the supplier list relevant and manageable, the central procurement team consider the range required for each product type, as well as the target selling price. If a certain product line has not been selling well, the number of suppliers listed will be reduced to reflect the reduced demand or only those suppliers that offer goods at a price the market is willing to pay will be listed. Individual store managers can suggest potential new suppliers to the central sourcing and procurement department. However, the final decision on whether to add a proposed supplier to the list is taken centrally.
The majority of supplier contracts are negotiated and entered into at the local level based on the supplier list. Negotiations and execution of supplier contracts with certain key suppliers are carried out by the central sourcing team. These suppliers tend to provide key imported branded products which are sold in large quantities across all regions allowing MAF Retail to secure favourable terms due to its purchasing power. See “—Rebates and Supplier Benefits”.
Inventory
Inventory management is a store-managed process. Store requirements are assessed at each individual store and orders are placed directly with suppliers. Order quantities are based on a minimum order level set for each SKU and an order is raised automatically once this minimum quantity has been triggered in-store. All purchase orders require authorisation from an appropriate level before being sent to suppliers.
Physical inventory counts are performed for all stores every three to six months (depending on the country in which the store is located), with sections counted on a rotational basis in between as well. Certain high value items at greater risk of theft are counted weekly or monthly. MAF Retail uses the same inventory system used by Carrefour in its hypermarkets for managing store inventory. When goods arrive, the inventory system is automatically updated and MAF Retail’s accounting system captures invoices upon receipt. Inventory days in MAF Retail’s Carrefour hypermarkets have remained relatively constant over the three years to 31 December 2010. In addition, more than 90 per cent. of MAF Retail’s Carrefour hypermarkets had a shrinkage level (being the percentage of loss of products between acquisition and point of sale) below 0.8 per cent. for the year ended 31 December 2010.
Distribution
Deliveries are predominantly made directly to stores and the logistical costs of transport are usually borne by the distributor, but included within the purchase cost price. A small proportion of purchases are delivered to distribution centres managed by third party distributors before distribution to stores. These goods tend to be centrally purchased imported goods and private label Carrefour products. The third-party central warehouse facility also provides storage space for Carrefour supermarkets due to the limited storage capacity available at each supermarket.
Rebates and supplier benefits
Due to its increased buying power across each region as its store portfolio expands, MAF Retail is able to secure rebates and other supplier benefits from both its local distributors and its brand suppliers. MAF Retail negotiates a number of different types of rebates and other benefits with its suppliers, generally on an annual basis at a regional level, although negotiations with some of the larger branded importers are conducted centrally. Fixed rebates are obtained on a yearly basis based on an agreed fixed percentage of supplier turnover. Volume discounts are obtained on yearly purchase values by brand or supplier. Other types of
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benefits include fees charged to suppliers for promotional activities, displays, advertising space and additional shelf space. Rebates and supplier benefits represent a significant driver of MAF Retail’s revenue. A portion of the rebate gains are reinvested in the business to allow MAF Retail to maintain its prices at competitive levels.
Pricing policy
In line with Carrefour’s pricing policy, MAF Retail’s business philosophy is to offer its customers the products they want at a competitive price. Management aims to keep prices below those of its competitors by leveraging its market share to achieve volume-based rebates on its supply orders.
Typically, with the exception of promotional items, selling prices for non private-label SKUs are managed at the store level. The MAF Retail head office sourcing team is responsible for setting prices for all private label SKUs and national promotion items. In some countries, for example Saudi Arabia, and in the supermarkets, a more centralised pricing approach has been introduced.
To ensure its Carrefour hypermarket SKUs are priced competitively, MAF Retail regularly monitors prices through third party service providers. Additional price surveys are carried out as needed, for example in connection with entering a new market or the introduction of a new competitor to one of its existing markets.
Advertising and marketing
For MAF Retail, customer growth is the most important aspect of sales growth and its marketing effort is, accordingly, focused towards this end. In addition to traditional newspaper, magazine, radio and internet advertising, MAF Retail delivers three to four leaflets per month door-to-door to local households. MAF Retail also conducts co-branded advertising whereby a supplier pays to promote new items or a range of products in conjunction with MAF Retail. In addition, MAF Venture’s Najm Visa credit card, which MAF Retail actively promotes in its Carrefour hypermarkets, features a loyalty programme that offers its customers up to 50 per cent. off selected items at all Carrefour stores. All advertising promotions focus on Carrefour’s low prices and wide range of products, and are managed centrally. MAF Retail head office is responsible for determining which SKUs are discounted with the Najm Visa credit card and this decision is implemented across all stores nationally.
Competition
MAF Retail faces competition from international, regional and local retailers. The competition from international retailers is limited as the only major grocery retailer which has a multi-country and multi-store presence in the region where MAF Retail operates is Carrefour, and the Group’s contractual arrangements with Carrefour mean that it does not compete with MAF Retail in the countries in which MAF Retail operates.
MAF Retail’s main regional competitors (being those with a presence in a number of countries in which MAF Retail operates) are Lulu (Emke Group), Spinneys, Panda (Savola Group) and The Sultan Center. The Group believes that MAF Retail faces moderate competition from these entities on a regional basis. MAF Retail’s local competitors vary depending on the country concerned and the level of competition from these competitors also varies in each country. Certain of the regional competitors are also local competitors in individual countries, for example MAF Retail’s main competitors in the UAE are Union Cooperative, Lulu and Spinneys, its main competitor in Saudi Arabia is Panda and its main competitor in both Kuwait and Jordan is The Sultan Center.
MAF VENTURES
Overview
MAF Ventures operates the Group’s: • leisure and entertainment services, including Ski Dubai and Magic Planet, through Majid Al Futtaim Leisure and Entertainment LLC (MAF Leisure and Entertainment);
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• cinemas, through MAF Cinemas; • financial services, including the Najm Visa credit card, through MAF Finance; • commercial premises facilities management, through Majid Al Futtaim Dalkia Middle East LLC (MAF Dalkia); • fashion retailing, through Majid Al Futtaim Fashion LLC (MAF Fashion); and • leasing services to SMEs, through MAF Orix. In addition, MAF Ventures serves as the business division through which the Group will seek to develop, in partnership with other international and regional businesses where appropriate, new retail and financial products and services that are designed to complement and leverage the success of the existing businesses of the Group.
The following table sets out details of the current businesses operated by MAF Ventures:
% Conbributed to 2010 MAF MAF Ventures Date Venture Partner Ownership Business Established Revenue Name Share ——————————————— ————— —–—–——– ————– ————– MAF Leisure & Entertainment ...... 1995 33 — 100% MAF Cinemas ...... 1999 26 — 100% MAF Finance ...... 2008 4 — 100% MAF Dalkia ...... 2002 —(1) Dalkia 51% MAF Fashion ...... 2005 33 — 100% MAF Orix...... 2002 4 Orix (37%) 60% and Orix Leasing Pakistan (3%)
Note: (1) Accounted for as an associate in 2010.
MAF Ventures had revenue of AED 793 million and EBITDA of AED 127 million in 2010 as well as assets of AED 1.0 billion at 31 December 2010, equal to 4.5 per cent., 5.4 per cent. and 2.9 per cent., respectively, of the Group’s revenue, EBITDA and assets as of and for the year ended 31 December 2010.
Strategic businesses
MAF Ventures categorises its portfolio companies as either strategic or investment. Strategic companies comprise those which are both financially attractive and provide a strategic fit to the Group’s business. MAF Ventures’ strategic businesses are:
MAF Leisure and Entertainment
Through its wholly-owned subsidiary, MAF Leisure and Entertainment, MAF Ventures offers leisure and entertainment facilities throughout the Middle East. These facilities are typically located in Group shopping malls to capitalise on existing high footfalls as well as to act as an attraction designed to increase the number of visitors to the shopping mall. MAF Leisure and Entertainment’s facilities fall into two categories, its Magic Planet Entertainment Centres and its unique leisure offerings, each of which serves as a Group shopping mall anchor tenant and, in the case of the unique leisure offerings, provides a significant point of differentiation for the Group’s super-regional shopping malls. MAF Ventures’ strategy in relation to this company is to continue to use it to strengthen its shopping malls and at the same time to focus on improving efficiency and reducing costs.
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Magic Planet entertainment centres
Magic Planet is a mall-based family entertainment destination. Magic Planet’s 10 entertainment centres, which range from 1,000 to 9,000 square metres, offer thrill rides, family rides, soft-play areas for children and video games for all ages. There are currently Magic Planet centres in the Mall of the Emirates, Deira City Centre, Ajman City Centre, Sharjah City Centre and Mirdif City Centre in the UAE, in Maadi City Centre and Alexandria City Centre in Egypt, in Muscat City Centre in Oman, in Bahrain City Centre in Bahrain and in The Avenues Mall in Kuwait, which is not a Group-owned shopping mall.
Unique leisure offerings
MAF Leisure and Entertainment’s unique leisure offerings include: • Ski Dubai, the largest indoor ski resort in the Middle East, is located at the Mall of the Emirates and opened in October 2005. Ski Dubai offers a five-run ski hill and a 5,000 square metre snow-land play area. Its longest ski run measures 400 metres with a fall of over 80 metres, making it the world’s first indoor black run. Each of its five ski runs varies in difficulty, height and steepness. With a capacity of 1,500 visitors per day, Ski Dubai holds a total of 5,500 tons of snow; • Wahooo, a water park which provides both outdoor and indoor aquatic entertainment adjacent to the Bahrain City Centre shopping mall; and • IFly, a simulated sky diving centre, Soccer Circus, a soccer academy, and Cité des Enfants, an educational entertainment centre for children, all of which are located at the Mirdif City Centre shopping mall.
MAF Cinemas
MAF Cinemas was originally established in 1999 as a joint venture between Greater Union Holdings, a leading Australian international cinema, entertainment and leisure group, and MAF Ventures. In 2010, MAF Ventures acquired the 49 per cent. shareholding of its joint venture partner and became the sole owner of the company. MAF Ventures currently operates five cinemas with a total of 50 screens in the UAE. Each of the 50 auditoria features state-of-the-art sight and sound technology and stadium-style seating arrangements. Each cinema also has a candy bar offering a range of drinks and snacks and extended dining offerings. Each of the cinemas is located in a shopping mall, four of which are owned by MAF Properties.
MAF Cinemas typically serves as a Group shopping mall anchor tenant in the super-regional malls where the cinema complex is generally located in close proximity to the unique leisure offering. MAF Ventures’ strategy in relation to this company is to target growth through expansion outside Dubai in the medium term as well as upgrading the service offered, particularly in relation to seating and food and beverage.
MAF Finance
MAF Ventures established MAF Finance as a joint venture company with JCB and Orix in 2008. In April 2010, MAF Ventures acquired the shares held by its joint venture partners and became the sole owner of the company. At the same time, MAF Finance entered into an arrangement with Visa International Service Association to issue Najm Visa cards. The MAF Ventures Najm credit cards feature a loyalty programme that leverages the Group’s retail, shopping, hotel and leisure and entertainment products and services.
MAF Finance and the Group’s Carrefour stores benefit from the fact that the Carrefour shoppers are a captive market to which the credit cards can be marketed and the credit cards are a vehicle through which shoppers can be encouraged to make purchases at the Carrefour stores through targeted offers. MAF Ventures’ strategy in relation to MAF Finance is to increase the range and value of promotions offered to existing card holders as well as to identify a bank partner to provide additional funding to enable the Group to expand the number of card holders. At 30 April 2011, 73,835 active Najm credit cards (representing approximately 42,000 accounts) were in issue and the Group has controlled the expansion of its credit card business by imposing stringent credit profile requirements.
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Investments
MAF Ventures’ investments comprise:
MAF Dalkia
MAF Dalkia is a joint venture established in 2002 between MAF Ventures and Dalkia, a subsidiary of Veolia Environment, in which MAF Ventures owns 51 per cent. of the shares. MAF Dalkia provides solutions designed to optimise the costs involved in managing the energy infrastructure in shopping centres, offices, leisure complexes, hotels, hospitals, universities, airports and any other commercial, industrial, residential or public buildings.
MAF Dalkia was originally created to service Group facilities at prices in line with market rates. Since its inception, however, the company has grown such that approximately 50 per cent. of its revenue for the year ended 31 December 2010 came from charges to non-Group companies. In December 2009, the joint venture agreement with Dalkia was amended to reflect the contribution by Dalkia to the joint venture of related businesses in Bahrain and Saudi Arabia. In return, MAF Ventures ceded management control of the joint venture to Dalkia and, whilst retaining its 51 per cent. shareholding, now accounts for the joint venture as an associate.
MAF Fashion
MAF Fashion is a wholly-owned subsidiary of MAF Ventures which was established in late 2005. It operates primarily as a licensee of Liz Claiborne brands (such as Juicy Couture and Mexx) and other brands such as Jane Norman and Hoss Intropia with exclusive licensing rights for these brands in different MENA region countries, depending on the brand. Currently, MAF Fashion operates more than 50 stores in six countries: the UAE, Bahrain, Kuwait, Qatar, Lebanon and Saudi Arabia.
MAF Orix
MAF Orix is a joint venture established in 2002 between MAF Ventures, Orix and Orix Leasing Pakistan, in which MAF Ventures owns 60 per cent. of the shares. MAF Orix provides lease financing of moveable assets, principally to SMEs. It is based in Dubai, with a branch in Sharjah, to meet the growing demand of leasing and other financial products of companies situated in the northern Emirates.
In addition, MAF Ventures also has a 15 per cent. interest in Orix Leasing Egypt, a joint venture with National Bank of Egypt (24 per cent.), Orix (23 per cent.), Orix Leasing Pakistan (23 per cent.), International Finance Corporation (7.5 per cent.) and Egypt’s Commercial International Investment Company (7.5 per cent.).
TREASURY AND INTERNAL AUDIT
The Group operates centralised treasury and internal audit functions with a view to benefitting from both internal and external economies of scale and core expertise as well as leveraging the Group’s different business profiles.
The treasury function is principally responsible for the overall co-ordination of cash management (payments and operational cash management are managed at an individual business unit level), financing and financial risk management, with all Group borrowings being arranged by the treasury and approved by the MAF Holding Board. The treasury function has a clear demarcation of responsibility between front, middle and back office functions and its performance is measured by reference to a number of defined benchmarks in terms of capital structure and allocation, liquidity management, funding and investment, financial risk management and other areas.
The internal audit function operates under an audit charter approved by the MAF Holding Board and applies a risk-based methodology in audit planning and execution, based on enterprise-wide risk assessment and management surveys. The annual internal audit plan is established on the basis of a formal planning methodology which considers factors such as the control risks associated with specific processes and
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functional and geographic business segments, the quality of the control environment, past internal audit history and results, materiality, the complexity and maturity of the operations and systems, the quality of management and the degree of employee turnover and management concerns.
INFORMATION TECHNOLOGY
The Group utilises IT solutions for a variety of business functions, including financial reporting, supply chain management, project development and human resources. Each of the Group’s operating subsidiaries uses software that is tailored to its particular business needs.
The Group does not currently have a separate disaster recovery site although disaster recovery procedures are in place at its data centre and designed to recover data and applications in a disaster scenario. The Group also implements anti-virus and other data security procedures.
HEALTH AND SAFETY AND SECURITY
The Group’s operating subsidiaries follow comprehensive fire and health and safety policies and procedures appropriate to their respective businesses. In particular, the Group’s shopping malls are constructed to international standards, most of MAF Retail’s stores have received HACCP certification and all applicable health and safety regulations applicable to the Group’s business are complied with.
The Group is also bolstering contingency plans and implementing other security procedures following the civil unrest in Egypt and Bahrain which affected its properties in those countries.
LITIGATION A9.11.5
During 2010, a joint venture company that is 50 per cent. owned by the Group and 50 per cent. owned by a major UAE-based property development company became involved in arbitration proceedings under which the amount of AED 2,614 million is being claimed from the joint venture for non-payment of instalments of the purchase price of land which the joint venture company had agreed to purchase. The Group has been advised by its legal advisers that the joint venture company has strong grounds to contest the claim and does not believe that any arbitration ruling against the joint venture will result in financial liability for any other Group company.
In addition to the above, MAF Holding and its subsidiaries are involved from time to time in legal actions, often as the claimant, and most of which arise in the ordinary course of business.
INSURANCE
The Group has in place insurance coverage for all material aspects of its operations up to a level which management considers to be reasonable and comparable to or in excess of that of other companies operating in the sectors and markets in which the Group operates. The Group’s major insurable risks are covered by insurance policies for property all risks (including business interruption), terrorism cover and public liability. The Group will continue to seek to secure appropriate insurance coverage for these risks at commercially reasonable rates. See “Risk Factors—Risks Relating to the Group—The Group may not be able to secure full insurance coverage for the risks associated with the operation of its businesses”.
Following the civil unrest in Egypt in the first quarter of 2011 during which certain of the Group’s properties were damaged, insurance claims have been made by the Group in respect of which interim payments are in an advanced stage of processing.
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MANAGEMENT AND EMPLOYEES
MANAGEMENT Overview MAF Holding places considerable emphasis on governance and transparency within its operational framework and has voluntarily adopted the principles of the Combined Code on Corporate Governance for listed companies in the UK. The MAF Holding Board is responsible for (i) determining overall strategic objectives and ensuring there are appropriate human and financial resources available to meet these objectives, (ii) monitoring the performance of management against the strategic objectives and key performance indicators, (iii) ensuring the establishment and operation of prudent and effective controls to assess and manage the risks associated with the operations of the business and (iv) setting and upholding the values and standards necessary to ensure that obligations to shareholders and other stakeholders including employees and, in appropriate cases, creditors are met. Each of MAF Properties, MAF Retail and MAF Ventures has its own Board responsible for setting strategic goals and measuring the success of the business in achieving objectives and maintaining corporate accountability. Independent non-executive chairmen have been appointed to the MAF Properties and MAF Retail Boards to define and allow for the implementation of separate and distinct roles for MAF Holding’s Chairman and CEO. This Board structure allows the MAF Holding CEO to focus on his overriding responsibility of leading the executive management of the Group, while allowing the individual Boards and their management to focus on the increasingly complex and specialised demands of their respective businesses. Each of the Group’s Boards work closely together to review, recommend and approve projects, combining the expertise of the various businesses. To further this goal, the MAF Holding CEO and Deputy CEO sit on the Boards of each of MAF Properties, MAF Retail and MAF Ventures to ensure that the Group’s strategy is implemented consistently. A Group Executive Committee, chaired by the MAF Holding CEO and comprising the CEOs of each operating company, meets once a month to exchange information and discuss strategy, operational issues and new projects. Each Board undertakes a formal review process with a view to seeking continuous improvement in the Board’s performance. Each review analyses the Board and any associated committee processes and their effectiveness, the relationships between non-executive and executive directors, information flows and other relevant information.
MAF Holding Board A9.9.1 The MAF Holding Board meets a minimum of four times annually and principally reviews the business performance of the operating companies as well as reports from both the internal and external audit functions. The table below provides certain information in relation to the MAF Holding’s Board:
Name Position Year of Appointment ––––––––––––––––––––––––––––––––– –––––––––––––––––––––– ––––––––––––––––––– Sir Michael Rake ...... Chairman 2009 Dr Fahad Al Mubarak ...... Deputy Chairman 2005 Mr Iyad Malas ...... CEO 2009 Mr Ahmed Bin Brek ...... Deputy CEO 2008 Mr Tariq Al Futtaim...... Director 2005 Mr Waldemar Schmidt(1) ...... Director 2005
Note: (1) Mr Schmidt has announced his retirement on 30 June 2011.
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Sir Michael Rake – Chairman
Sir Michael Rake was appointed as Chairman of MAF Holding on 1 July 2009. He is currently the chairman of British Telecom Group plc, the UK’s largest telecom operator. He was previously the chairman of KPMG International and a senior partner of KMPG in the UK. Prior to his appointment as chairman of KPMG International, he was the chairman of KPMG in Europe. He holds directorships at Barclays PLC, McGraw Hill Inc and the Financial Reporting Council.
Dr Fahad Al Mubarak – Deputy Chairman
Dr Fahad Al Mubarak joined the MAF Holding Board in May 2005. Dr Fahad is the chairman and managing director of Morgan Stanley Saudi Arabia. He has worked extensively on various privatisation and liberalisation projects in KSA in the telecom, natural gas and securities industries. He served on the Saudi Shura (Parliament) for six years when he was vice chairman of the Economic and Energy Committee and was previously the chairman of the Saudi Stock Exchange.
Iyad Malas – CEO
Mr Iyad Malas was appointed as CEO of MAF Holding on 26 March 2009. He was formerly the CEO of Majid Al Futtaim Trust from April 2007. Prior to that he was the regional director, South Asia for International Finance Corporation/World Bank, New Delhi, India, where he was directly responsible for all new investments in the region and for portfolio supervision. He was formerly chief operating officer and head of asset management for EFG – Hermes, Cairo, Egypt. Mr Malas has spent twenty two years in finance, investment and asset management.
Ahmed Bin Brek – Deputy CEO
Mr Ahmed Bin Brek was appointed as MAF Holding Vice President and CEO of MAF Ventures in 2004. He stepped down from his role of CEO of MAF Ventures on 1 December 2008 and was appointed Deputy CEO of MAF Holding. He was also appointed as acting CEO of MAF Properties on 1 June 2009. Prior to this, he spent most of his working life in the financial services industry, becoming the CEO of Citibank’s UAE and Oman businesses.
Tariq Al Futtaim
Mr Tariq Al Futtaim joined the MAF Holding Board in May 2005. He was appointed as Vice President when MAF Holding was formed. He is currently the Chairman of the Majid Al Futtaim Charity Foundation, a prominent charitable initiative of the President.
Waldemar Schmidt
Mr Waldemar Schmidt joined the MAF Holding Board in May 2005. Mr Schmidt is a non-executive director of Alfa Laval International AB, Kwintet AB and Enodis plc. He is also chairman of the board of directors at Superfos A/S, Superfos Industries A/S, Thrane and Thrane A/S and Scan Energy A/S. He was formerly group chief executive of ISS, where he began his career in 1972. Mr Schmidt has announced his retirement from the MAF Holding Board on 30 June 2011.
As a result of Mr Schmidt’s announced retirement from the MAF Holding Board, an additional non- A9.9.2 executive director is expected to be appointed to that Board in due course. There are no conflicts of interest between the duties of the members of the MAF Holding Board listed above to MAF Holding and their private interests or other duties.
MAF Properties Board A9.9.1
The MAF Properties Board meets a minimum of four times annually and is responsible for setting strategic goals, measuring the success of the businesses in achieving its objectives and maintaining corporate accountability. The MAF Properties Board is assisted by two committees, the Audit and Risk Committee and
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the HR and Remuneration Committee. The Audit and Risk Committee meets at least four times annually and represents and assists the MAF Properties Board with the oversight of the integrity of the company’s financial statements and internal controls, the company’s compliance with legal and regulatory requirements, the findings of the internal audit department and independence, and the performance of the company’s internal audit and its independent auditor. The HR and Remuneration Committee meets at least twice annually and represents and assists the Board with the oversight of annual and long term performance rewards, annual pay and benefits and strategic human resource issues.
The table below provides certain information in relation to the MAF Properties Board:
Name Position Year of Appointment ––––––––––––––––––––––––––––––––– –––––––––––––––––––––– ––––––––––––––––––– Mr Alvaro Portela ...... Chairman 2010 Mr Peter Walichnowski ...... CEO 2009 Mr Ahmed Bin Brek ...... Deputy Chairman 2008 Mr Richard North ...... Audit Chairman 2006 Mr Abdulla Majed Ahmad Al Ghurair .. Director 2009 Dr Cheng Fong Han...... Director 2010 Mr Iyad Malas ...... Director 2009
Alvaro Portela – Board Chairman & Remuneration Committee Chairman
Mr Alvaro Portela joined the MAF Properties Board as a Non-Executive Director on 1 April 2010 and was subsequently appointed as Chairman of the Board on 23 September 2010. Mr Portela was president of Sonae Imobiliária SGPS, SA, Maia and the CEO of Sonae Sierra SGPS S.A. He has been an executive vice president of Sonae SGPS SA since 1999. He was previously a director with Laboratorios BIAL and executive director of Finance, Planning and Exports with COPAM. Mr Portela sits on the International Advisory Board for Eurohypo and is a fellow of the Royal Institute of Chartered Surveyors (FRICS).
Peter Walichnowski – CEO
Mr Peter Walichnowski was appointed as CEO of MAF Properties on 1 June 2009. He was formerly the CEO of Omniyat Properties, a privately held real estate investment and development company. Mr Walichnowski has spent over 29 years in the real estate business in the Middle East, Europe and Asia.
Richard North – Audit Chairman
Mr Richard North joined the Group Board in February 2006 and subsequently transferred to the MAF Properties Board in July 2009. A Partner with Coopers & Lybrand from 1983, he joined The Burton Group in 1991 as group CFO, moving to Bass PLC (later Six Continents) in 1994 and becoming CEO of Intercontinental Hotels Group in 2003 following the demerger of Six Continents. He has held a number of non-executive positions on various boards including Asda, Britannia Soft Drinks (as chairman), Felcor Lodgings Trust Inc. and Mecom. He was formerly chairman of Woolworths Group.
Abdullah Al Ghurair
Mr Abdulla Majed Ahmad Al Ghurair joined the MAF Properties Board in July 2009. He is currently the chairman of Abdulla & Hamad Al Ghurair Investment LLC, a holding company established in Dubai under his and his brother Mr. Hamad Majed Al Ghurair’s leadership. A&H Investment manages the partners’ interest in companies that are either partially or fully owned by the Group. He also holds a number of directorships and is a member of the board of the Dubai Financial Markets.
Chen Fong Han
Dr Cheng Fong Han joined the MAF Properties Board in May 2010. Dr Han is currently the executive chairman for Hua Xia International Investment Holding in Singapore. He was previously the CEO at
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Sinoland (HK) Ltd, Far East Organisation and the deputy chairman and CEO at Fraser Neave Ltd. Dr Han also holds a number of directorships with companies in Asia.
There are no conflicts of interest between the duties of the members of the MAF Properties’ Board listed A9.9.2 above to MAF Properties and their private interests or other duties.
EMPLOYEES
As at 31 December 2010, the Group had 18,850 employees. The following table shows the number of employees in each of the major Group companies: Number of Business Division Employees ––––––––––––––– ––––––––––– MAF Holding ...... 58 MAF Properties ...... 2,245 MAF Retail...... 14,007 MAF Ventures...... 2,540 ––––––––––– Total ...... ––––––––––– 18,850 As is common in jurisdictions in which the Group operates, employee benefit packages include housing allowances for employees of a certain grade and the provision of housing for employees below that grade.
Presently, most GCC countries do not permit unions, and the Group does not presently have any direct dealings with unions in its countries of operation.
The Group fulfils its statutory pension obligations in all countries in which it operates.
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BOOK-ENTRY CLEARANCE SYSTEMS A12.4.1.4 A13.4.4 The information set out below is subject to any change in or reinterpretation of the rules, regulations and procedures of DTC, Euroclear or Clearstream, Luxembourg (together, the Clearing Systems) currently in effect. Investors wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the rules, regulations and procedures of the relevant Clearing System. None of the Issuer, the Guarantors, the Trustee nor any other party to the Agency Agreement will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Notes held through the facilities of any Clearing System or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
BOOK-ENTRY SYSTEMS
DTC
DTC has advised the Issuer that it is a limited purpose trust company organised under the New York Banking Law, a “banking organisation” within the meaning of the New York Banking Law, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to Section 17A of the Exchange Act. DTC holds securities that its participants (Direct Participants) deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerised book-entry changes in Direct Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organisations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (Indirect Participants and, together with Direct Participants, Participants).
Under the rules, regulations and procedures creating and affecting DTC and its operations (the Rules), DTC makes book-entry transfers of Registered Notes among Direct Participants on whose behalf it acts with respect to Notes accepted into DTC’s book-entry settlement system (DTC Notes) as described below and receives and transmits distributions of principal and interest on DTC Notes. The Rules are on file with the Securities and Exchange Commission. Direct Participants and Indirect Participants with which beneficial owners of DTC Notes (Owners) have accounts with respect to the DTC Notes similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective Owners. Accordingly, although Owners who hold DTC Notes through Direct Participants or Indirect Participants will not possess Registered Notes, the Rules, by virtue of the requirements described above, provide a mechanism by which Direct Participants will receive payments and will be able to transfer their interest in respect of the DTC Notes.
Purchases of DTC Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the DTC Notes on DTC’s records. The ownership interest of each actual purchaser of each DTC Note (Beneficial Owner) is in turn to be recorded on the Direct and Indirect Participant’s records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the DTC Notes are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in DTC Notes, except in the event that use of the book-entry system for the DTC Notes is discontinued.
To facilitate subsequent transfers, all DTC Notes deposited by Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. The deposit of DTC Notes with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual
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Beneficial Owners of the DTC Notes; DTC’s records reflect only the identity of the Direct Participants to whose accounts such DTC Notes are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the DTC Notes within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to DTC Notes. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the DTC Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the DTC Notes will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts on the due date for payment in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payment on the due date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name”, and will be the responsibility of such Participant and not of DTC or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Issuer, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Under certain circumstances, including if there is an Event of Default under the Notes, DTC will exchange the DTC Notes for definitive Registered Notes, which it will distribute to its Participants in accordance with their proportionate entitlements and which, if representing interests in a Rule 144A Global Note, will be legended as set forth under “Subscription and Sale and Transfer and Selling Restrictions”.
Since DTC may only act on behalf of Direct Participants, who in turn act on behalf of Indirect Participants, any Owner desiring to pledge DTC Notes to persons or entities that do not participate in DTC, or otherwise take actions with respect to such DTC Notes, will be required to withdraw its Registered Notes from DTC as described below.
Euroclear and Clearstream, Luxembourg
Euroclear and Clearstream, Luxembourg have advised the Issuer that each holds securities for its customers and facilitates the clearance and settlement of securities transactions by electronic book-entry transfer between their respective account holders. Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective participants may settle trades with each other.
Euroclear and Clearstream, Luxembourg customers are world-wide financial institutions, including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions that clear through or maintain a custodial relationship with an account holder of either system.
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BOOK-ENTRY OWNERSHIP OF AND PAYMENTS IN RESPECT OF DTC NOTES
The Issuer may apply to DTC in order to have any Tranche of Notes represented by a Registered Global Note accepted in its book-entry settlement system. Upon the issue of any such Registered Global Note, DTC or its custodian will credit, on its internal book-entry system, the respective nominal amounts of the individual beneficial interests represented by such Registered Global Note to the accounts of persons who have accounts with DTC. Such accounts initially will be designated by or on behalf of the relevant Dealer. Ownership of beneficial interests in such a Registered Global Note will be limited to Direct Participants or Indirect Participants, including, in the case of any Regulation S Global Note, the respective depositaries of Euroclear and Clearstream, Luxembourg. Ownership of beneficial interests in a Registered Global Note accepted by DTC will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to the interests of Direct Participants) and the records of Direct Participants (with respect to interests of Indirect Participants).
Payments in U.S. dollars of principal and interest in respect of a Registered Global Note accepted by DTC will be made to the order of DTC or its nominee as the registered holder of such Note. In the case of any payment in a currency other than U.S. dollars, payment will be made to the Exchange Agent on behalf of DTC or its nominee and the Exchange Agent will (in accordance with instructions received by it) remit all or a portion of such payment for credit directly to the beneficial holders of interests in the Registered Global Note in the currency in which such payment was made and/or cause all or a portion of such payment to be converted into U.S. dollars and credited to the applicable Participants’ account.
The Issuer expects DTC to credit accounts of Direct Participants on the applicable payment date in accordance with their respective holdings as shown in the records of DTC unless DTC has reason to believe that it will not receive payment on such payment date. The Issuer also expects that payments by Participants to beneficial owners of Notes will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers, and will be the responsibility of such Participant and not the responsibility of DTC, the Principal Paying Agent, the Registrar or the Issuer. Payment of principal, premium, if any, and interest, if any, on Notes to DTC is the responsibility of the Issuer.
TRANSFERS OF NOTES REPRESENTED BY REGISTERED GLOBAL NOTES
Transfers of any interests in Notes represented by a Registered Global Note within DTC, Euroclear and Clearstream, Luxembourg will be effected in accordance with the customary rules and operating procedures of the relevant clearing system. The laws in some States within the United States require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer Notes represented by a Registered Global Note to such persons may depend upon the ability to exchange such Notes for Notes in definitive form. Similarly, because DTC can only act on behalf of Direct Participants in the DTC system who in turn act on behalf of Indirect Participants, the ability of a person having an interest in Notes represented by a Registered Global Note accepted by DTC to pledge such Notes to persons or entities that do not participate in the DTC system or otherwise to take action in respect of such Notes may depend upon the ability to exchange such Notes for Notes in definitive form. The ability of any holder of Notes represented by a Registered Global Note accepted by DTC to resell, pledge or otherwise transfer such Notes may be impaired if the proposed transferee of such Notes is not eligible to hold such Notes through a direct or indirect participant in the DTC system.
Subject to compliance with the transfer restrictions applicable to the Registered Notes described under “Subscription and Sale and Transfer and Selling Restrictions”, cross-market transfers between DTC, on the one hand, and directly or indirectly through Clearstream, Luxembourg or Euroclear accountholders, on the other, will be effected by the relevant clearing system in accordance with its rules and through action taken by the Registrar, the Principal Paying Agent and any custodian (Custodian) with whom the relevant Registered Global Notes have been deposited.
On or after the Issue Date for any Series, transfers of Notes of such Series between accountholders in Clearstream, Luxembourg and Euroclear and transfers of Notes of such Series between participants in DTC will generally have a settlement date three business days after the trade date (T+3). The customary arrangements for delivery versus payment will apply to such transfers.
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Cross-market transfers between accountholders in Clearstream, Luxembourg or Euroclear and DTC participants will need to have an agreed settlement date between the parties to such transfer. Because there is no direct link between DTC, on the one hand, and Clearstream, Luxembourg and Euroclear, on the other, transfers of interests in the relevant Registered Global Notes will be effected through the Registrar, the Principal Paying Agent and the Custodian receiving instructions (and, where appropriate, certification) from the transferor and arranging for delivery of the interests being transferred to the credit of the designated account for the transferee. In the case of cross-market transfers, settlement between Euroclear or Clearstream, Luxembourg accountholders and DTC participants cannot be made on a delivery versus payment basis. The securities will be delivered on a free delivery basis and arrangements for payment must be made separately.
DTC, Clearstream, Luxembourg and Euroclear have each published rules and operating procedures designed to facilitate transfers of beneficial interests in Registered Global Notes among participants and accountholders of DTC, Clearstream, Luxembourg and Euroclear. However, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued or changed at any time. None of the Issuer, the Guarantors, the Trustee, the Agents or any Dealer will be responsible for any performance by DTC, Clearstream, Luxembourg or Euroclear or their respective direct or indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations and none of them will have any liability for any aspect of the records relating to or payments made on account of beneficial interests in the Notes represented by Registered Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial interests.
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TAXATION A12.4.1.14
GENERAL
Prospective purchasers of Notes are advised to consult their tax advisers as to the consequences, under the tax laws of the countries of their respective citizenship, residence or domicile, of a purchase of Notes, including, but not limited to, the consequences of receipt of payments under the Notes and their disposal or redemption.
THE CAYMAN ISLANDS
The following is a discussion on certain Cayman Islands income tax consequences of an investment in the Notes. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances and does not consider tax consequences other than those arising under Cayman Islands law.
Under existing Cayman Islands laws, payments on the Notes will not be subject to taxation in the Cayman Islands and no withholding will be required on the payments to any holder of the Notes, nor will gains derived from the disposal of the Notes be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance or gift tax.
Subject as set out below, no capital or stamp duties are levied in the Cayman Islands on the issue, transfer or redemption of Notes. The Notes themselves (if issued in bearer form) will be stampable if they are executed in or brought into the Cayman Islands. An instrument transferring title to Notes issued in registered form, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty. An annual registration fee is payable by the Issuer to the Cayman Islands Registrar of Companies which is calculated by reference to the nominal amount of its authorised capital. At current rates, this annual registration fee is approximately U.S.$732. The foregoing is based on current law and practice in the Cayman Islands and this is subject to change therein.
UNITED ARAB EMIRATES
The following summary of the anticipated tax treatment in the UAE in relation to payments on the Notes is based on the taxation law in force at the date of this Base Prospectus, and does not constitute legal or tax advice. Prospective investors should be aware that the relevant fiscal rules and practice and their interpretation may change.
There is currently in force in the emirates of Abu Dhabi and Dubai legislation establishing a general corporate taxation regime (the Abu Dhabi Income Tax Decree 1965 (as amended) and the Dubai Income Tax Decree 1969 (as amended)). The regime is, however, not enforced save in respect of companies active in the hydrocarbon industry, some related service industries and branches of foreign banks operating in the UAE. It is not known whether the legislation will or will not be enforced more generally or within other industry sectors in the future. Under current legislation, there is no requirement for withholding or deduction for or on account of UAE, Abu Dhabi or Dubai taxation in respect of payments made under the Guarantee. In the event of the imposition of any such withholding, the Guarantors have undertaken to gross-up any payments subject to certain limited exceptions.
The Constitution of the UAE specifically reserves to the Federal Government of the UAE the right to raise taxes on a federal basis for purposes of funding its budget. It is not known whether this right will be exercised in the future.
The UAE has entered into double taxation arrangements with certain other countries, but these are not extensive in number.
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EU SAVINGS DIRECTIVE
Under the Directive on the taxation of savings income, Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State or to certain limited types of entities established in that other Member State. However, for a transitional period, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non- EU countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland).
The European Commission has proposed certain amendments to the Directive, which may, if implemented, amend or broaden the scope of the requirements described above.
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SUBSCRIPTION AND SALE AND TRANSFER AND SELLING RESTRICTIONS
The Dealers have, in a programme agreement (the Programme Agreement) dated 14 June 2011, agreed with the Issuer and the Guarantors a basis upon which they or any of them may from time to time agree to purchase Notes. Any such agreement will extend to those matters stated under “Form of the Notes” and “Terms and Conditions of the Notes”. In the Programme Agreement, the Issuer (failing which, each Guarantor) has agreed to reimburse the Dealers for certain of their expenses in connection with the establishment and any future update of the Programme and the issue of Notes under the Programme and to indemnify the Dealers against certain liabilities incurred by them in connection therewith.
In order to facilitate the offering of any Tranche of the Notes, certain persons participating in the offering of the Tranche may engage in transactions that stabilise, maintain or otherwise affect the market price of the relevant Notes during and after the offering of the Tranche. Specifically such persons may over-allot or create a short position in the Notes for their own account by selling more Notes than have been sold to them by the Issuer. Such persons may also elect to cover any such short position by purchasing Notes in the open market. In addition, such persons may stabilise or maintain the price of the Notes by bidding for or purchasing Notes in the open market and may impose penalty bids, under which selling concessions allowed to syndicate members or other broker-dealers participating in the offering of the Notes are reclaimed if Notes previously distributed in the offering are repurchased in connection with stabilisation transactions or otherwise. The effect of these transactions may be to stabilise or maintain the market price of the Notes at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the Notes to the extent that it discourages resales thereof. No representation is made as to the magnitude or effect of any such stabilising or other transactions. Such transactions, if commenced, may be discontinued at any time. Under U.K. laws and regulations stabilising activities may only be carried on by the Stabilising Manager(s) named in the applicable Final Terms (or persons acting on behalf of any Stabilising Manager(s)) and only for a limited period following the Issue Date of the relevant Tranche of Notes.
TRANSFER RESTRICTIONS A12.4.1.10 A13.4.14 As a result of the following restrictions, purchasers of Notes in the United States are advised to consult legal counsel prior to making any purchase, offer, sale, resale or other transfer of such Notes.
Each purchaser of Registered Notes (other than a person purchasing an interest in a Registered Global Note with a view to holding it in the form of an interest in the same Global Note) or person wishing to transfer an interest from one Registered Global Note to another or from global to definitive form or vice versa, will be required to acknowledge, represent and agree, and each person purchasing an interest in a Registered Global Note with a view to holding it in the form of an interest in the same Global Note will be deemed to have acknowledged, represented and agreed, as follows (terms used in this paragraph that are defined in Rule 144A or in Regulation S are used herein as defined therein):
(a) that either: (i) it is a QIB, purchasing (or holding) the Notes for its own account or for the account of one or more QIBs and it is aware that any sale to it is being made in reliance on Rule 144A or (ii) it is an Institutional Accredited Investor which has delivered an IAI Investment Letter or (iii) it is outside the United States and is not a U.S. person;
(b) that the Notes are being offered and sold in a transaction not involving a public offering in the United States within the meaning of the Securities Act, and that the Notes have not been and will not be registered under the Securities Act or any other applicable U.S. State securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as set forth below;
(c) that, unless it holds an interest in a Regulation S Global Note and either is a person located outside the United States or is not a U.S. person, if in the future it decides to resell, pledge or otherwise transfer the Notes or any beneficial interests in the Notes, it will do so, prior to the date which is one year after the later of the last Issue Date for the Series and the last date on which the Issuer or an affiliate of the Issuer was the owner of such Notes, only (i) to the Issuer or any affiliate thereof, (ii) inside the United States to a person whom the seller reasonably believes is a QIB purchasing for its
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own account or for the account of a QIB in a transaction meeting the requirements of Rule 144A, (iii) outside the United States in compliance with Rule 903 or Rule 904 under the Securities Act, (iv) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (v) pursuant to an effective registration statement under the Securities Act, in each case in accordance with all applicable U.S. State securities laws; (d) it will, and will require each subsequent holder to, notify any purchaser of the Notes from it of the resale restrictions referred to in paragraph (c) above, if then applicable; (e) that Notes initially offered in the United States to QIBs will be represented by one or more Rule 144A Global Notes, that Notes offered to Institutional Accredited Investors will be in the form of Definitive IAI Registered Notes and that Notes offered outside the United States in reliance on Regulation S will be represented by one or more Regulation S Global Notes; (f) that the Notes in registered form, other than the Regulation S Global Notes, will bear a legend to the following effect unless otherwise agreed to by the Issuer: “NEITHER THIS SECURITY NOR THE GUARANTEE THEREOF HAS BEEN OR WILL BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE U.S. STATE SECURITIES LAWS AND, ACCORDINGLY, THIS SECURITY MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (A) REPRESENTS THAT (1) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING THE SECURITIES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QUALIFIED INSTITUTIONAL BUYERS OR (2) IT IS AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN “INSTITUTIONAL ACCREDITED INVESTOR”); (B) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITIES EXCEPT IN ACCORDANCE WITH THE AGENCY AGREEMENT AND, PRIOR TO THE DATE WHICH IS ONEYEAR AFTER THE LATER OF THE LAST ISSUE DATE FOR THE SERIES AND THE LAST DATE ON WHICH THE ISSUER OR AN AFFILIATE OF THE ISSUER WAS THE OWNER OF SUCH SECURITIES OTHER THAN (1) TO THE ISSUER OR ANY AFFILIATE THEREOF, (2) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (4) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND ANY OTHER JURISDICTION; AND (C) IT AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144A FOR RESALES OF THE SECURITY.
THIS SECURITY AND RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION, THE AGENCY AGREEMENT REFERRED TO HEREIN) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT OF, BUT UPON NOTICE TO, THE HOLDERS OF SUCH SECURITIES SENT TO THEIR REGISTERED ADDRESSES, TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO RESALES OR OTHER TRANSFERS OF RESTRICTED SECURITIES GENERALLY. THE
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HOLDER OF THIS SECURITY SHALL BE DEEMED, BY ITS ACCEPTANCE OR PURCHASE HEREOF, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL BE CONCLUSIVE AND BINDING ON THE HOLDER HEREOF AND ALL FUTURE HOLDERS OF THIS SECURITY AND ANY SECURITIES ISSUED IN EXCHANGE OR SUBSTITUTION THEREFOR, WHETHER OR NOT ANY NOTATION THEREOF IS MADE HEREON).”;
(g) if it is outside the United States and is not a U.S. person, that if it should resell or otherwise transfer the Notes prior to the expiration of the distribution compliance period (defined as 40 days after the later of the commencement of the offering and the closing date with respect to the original issuance of the Notes), it will do so only (i)(A) outside the United States in compliance with Rule 903 or 904 under the Securities Act or (B) to a QIB in compliance with Rule 144A and (ii) in accordance with all applicable U.S. State securities laws; and it acknowledges that the Regulation S Global Notes will bear a legend to the following effect unless otherwise agreed to by the Issuer:
“THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE U.S. STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE AGENCY AGREEMENT AND PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THIS LEGEND SHALL CEASE TO APPLY UPON THE EXPIRY OF THE PERIOD OF 40 DAYS AFTER THE COMPLETION OF THE DISTRIBUTION OF ALL THE NOTES OF THE TRANCHE OF WHICH THIS NOTE FORMS PART.”; and
(h) that the Issuer and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that if any of such acknowledgements, representations or agreements made by it are no longer accurate, it shall promptly notify the Issuer; and if it is acquiring any Notes as a fiduciary or agent for one or more accounts it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account.
Institutional Accredited Investors who purchase Registered Notes in definitive form offered and sold in the United States in reliance upon the exemption from registration provided by the Securities Act are required to execute and deliver to the Registrar an IAI Investment Letter. Upon execution and delivery of an IAI Investment Letter by an Institutional Accredited Investor, Notes will be issued in definitive registered form, see “Form of the Notes”.
The IAI Investment Letter will state, among other things, the following:
(a) that the Institutional Accredited Investor has received a copy of the Base Prospectus and such other information as it deems necessary in order to make its investment decision;
(b) that the Institutional Accredited Investor understands that the Notes are being offered and sold in a transaction not involving a public offering in the United States within the meaning of the Securities Act, and that the Notes have not been and will not be registered under the Securities Act or any other applicable U.S. State securities laws and that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Base Prospectus and the Notes (including those set out above) and that it agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act;
(c) that, in the normal course of its business, the Institutional Accredited Investor invests in or purchases securities similar to the Notes;
(d) that the Institutional Accredited Investor is an Institutional Accredited Investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its
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investment in the Notes, and it and any accounts for which it is acting are each able to bear the economic risk of its or any such accounts’ investment for an indefinite period of time;
(e) that the Institutional Accredited Investor is acquiring the Notes purchased by it for its own account or for one or more accounts (each of which is an Institutional Accredited Investor) as to each of which it exercises sole investment discretion and not with a view to any distribution of the Notes, subject, nevertheless, to the understanding that the disposition of its property shall at all times be and remain within its control; and
(f) that, in the event that the Institutional Accredited Investor purchases Notes, it will acquire Notes having a minimum purchase price of at least U.S.$500,000 (or the approximate equivalent in another Specified Currency).
No sale of Legended Notes in the United States to any one purchaser will be for less than U.S.$100,000 (or its foreign currency equivalent) principal amount or, in the case of sales to Institutional Accredited Investors, U.S.$500,000 (or its foreign currency equivalent) principal amount and no Legended Note will be issued in connection with such a sale in a smaller principal amount. If the purchaser is a non-bank fiduciary acting on behalf of others, each person for whom it is acting must purchase at least U.S.$100,000 (or its foreign currency equivalent) or, in the case of sales to Institutional Accredited Investors, U.S.$500,000 (or its foreign currency equivalent) principal amount of Registered Notes.
SELLING RESTRICTIONS
United States
The Notes have not been and will not be registered under the Securities Act or any other applicable U.S. state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
In connection with any Notes which are offered or sold outside the United States in reliance on an exemption from the registration requirements of the Securities Act provided under Regulation S (Regulation S Notes), each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will not offer, sell or deliver such Regulation S Notes (a) as part of their distribution at any time or (b) otherwise until 40 days after the completion of the distribution, as determined and certified by the relevant Dealer or, in the case of an issue of Notes on a syndicated basis, the relevant lead manager, of all Notes of the Tranche of which such Regulation S Notes are a part, within the United States or to, or for the account or benefit of, U.S. persons. Each Dealer has further agreed, and each further Dealer appointed under the Programme will be required to agree, that it will send to each dealer to which it sells any Regulation S Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Regulation S Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 and regulations thereunder.
In respect of Bearer Notes where TEFRA D is specified in the applicable Final Terms each Dealer will be required to represent, undertake and agree (and each additional Dealer appointed under the Programme will be required to represent, undertake and agree) that:
(a) except to the extent permitted under U.S. Treas. Reg. Section 1.163-5(c)(2)(i)(D) (the D Rules), (i) that it has not offered or sold, and during the restricted period it will not offer or sell, Bearer Notes to a person who is within the United States or its possessions or to a United States person, and (ii) that it has not delivered and it will not deliver within the United States or its possessions definitive Bearer Notes that are sold during the restricted period;
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(b) it has and throughout the restricted period it will have in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling Bearer Notes are aware that such Notes may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person, except as permitted by the D Rules;
(c) if it is a United States person, it is acquiring Bearer Notes for purposes of resale in connection with their original issuance and if it retains Bearer Notes for its own account, it will only do so in accordance with the requirements of U.S. Treas. Reg. Section l.163-5(c)(2)(i)(D)(6);
(d) with respect to each affiliate that acquires Bearer Notes from a Dealer for the purpose of offering or selling such Notes during the restricted period, such Dealer repeats and confirms the representations and agreements contained in subparagraphs (a), (b) and (c) on such affiliate’s behalf; and
(e) it will obtain from any distributor (within the meaning of U.S. Treas. Reg. Section 1.163- 5(c)(2)(i)(D)(4)(ii)) that purchases any Bearer Notes from it pursuant to a written contract with such Dealer (except a distributor that is one of its affiliates or is another Dealer), for the benefit of the Issuer and each other Dealer, the representations contained in, and such distributor’s agreement to comply with, the provisions of subparagraphs (a), (b), (c) and (d) of this paragraph insofar as they relate to the D Rules, as if such distributor were a Dealer hereunder.
Terms used in this paragraph have the meanings given to them by the Code and Treasury regulations thereunder, including the D Rules.
Until 40 days after the commencement of the offering of any Series of Notes, an offer or sale of such Notes within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with an available exemption from registration under the Securities Act.
Dealers may arrange for the resale of Notes to QIBs pursuant to Rule 144A and each such purchaser of Notes is hereby notified that the Dealers may be relying on the exemption from the registration requirements of the Securities Act provided by Rule 144A. The minimum aggregate principal amount of Notes which may be purchased by a QIB pursuant to Rule 144A is U.S.$100,000 (or the approximate equivalent thereof in any other currency). To permit compliance with Rule 144A in connection with any resales or other transfers of Notes that are “restricted securities” within the meaning of the Securities Act, the Issuer and each the Guarantors have undertaken in the Trust Deed to furnish, upon the request of a holder of such Notes or any beneficial interest therein, to such holder or to a prospective purchaser designated by him, the information required to be delivered under Rule 144A(d)(4) under the Securities Act if, at the time of the request, any of the Notes remain outstanding as “restricted securities” within the meaning of Rule 144(a)(3) of the Securities Act and none of the Issuer or the Guarantors is a reporting company under Section 13 or 15(d) of the Exchange Act or exempt from reporting pursuant to Rule 12g3-2(b) thereunder.
Each issuance of Index Linked Notes or Dual Currency Notes shall be subject to such additional U.S. selling restrictions on the Issuer and the relevant Dealer may agree as a term of the issuance and purchase of such Notes, which additional selling restrictions shall be set out in the applicable Final Terms.
Public Offer Selling Restriction under the Prospectus Directive
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of Notes which are the subject of the offering contemplated by this Base Prospectus as completed by the final terms in relation thereto to the public in that Relevant Member State, except that it may, with effect from and including the Relevant Implementation Date, make an offer of such Notes to the public in that Relevant Member State:
(a) at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;
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(b) at any time to fewer than 100 or, if the relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or
(c) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Notes referred to above shall require the Issuer, the Guarantors or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an offer of Notes to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
United Kingdom
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that:
(a) in relation to any Notes which have a maturity of less than one year, (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section 19 of the FSMA by the Issuer;
(b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or either Guarantor; and
(c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
Cayman Islands
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not made and will not make any offer or invitation to the public in the Cayman Islands to subscribe for any Notes.
Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended; the FIEA) and each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will not offer or sell any Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949, as amended)), or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of,
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a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.
United Arab Emirates (excluding the Dubai International Financial Centre)
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the Notes to be issued under the Programme have not been and will not be offered, sold or publicly promoted or advertised by it in the United Arab Emirates other than in compliance with any laws applicable in the United Arab Emirates governing the issue, offering and sale of securities.
Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that the information contained in this Base Prospectus does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law 8 of 1984 (as amended)) or otherwise and is not intended to be a public offer and the information contained in this Base Prospectus is not intended to lead to the conclusion of any contract of whatsoever nature within the territory of the United Arab Emirates.
Dubai International Financial Centre
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered and will not offer the Notes to be issued under the Programme to any person in the Dubai International Financial Centre unless such offer is:
(a) an “Exempt Offer” in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (the DFSA); and
(b) made only to persons who meet the Professional Client criteria set out in Rule 2.3.2 of the DFSA Conduct of Business Module.
Kingdom of Saudi Arabia
Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a Saudi Investor) who acquires Notes pursuant to an offering should note that the offer of Notes is a limited offer under Article 11 of the “Offer of Securities Regulations” as issued by the Board of the Capital Market Authority resolution number 2-11-2004 dated 4 October 2004 and amended by the Board of the Capital Market Authority resolution number 1-28-2008 dated 18 August 2008 (the KSA Regulations). Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the offer of the Notes will not be directed at more than 60 Saudi Investors (excluding “Sophisticated Investors” (as defined in Article 10 of the KSA Regulations)) and the minimum amount payable per Saudi Investor will be not less than Saudi Riyal (SR) 1 million or an equivalent amount.
The offer of Notes shall not therefore constitute a “public offer” pursuant to the KSA Regulations, but is subject to the restrictions on secondary market activity under Article 17 of the KSA Regulations. Any Saudi Investor who has acquired Notes pursuant to a limited offer may not offer or sell those Notes to any person unless the offer or sale is made through an authorised person appropriately licensed by the Saudi Arabian Capital Market Authority and: (a) the Notes are offered or sold to a Sophisticated Investor; (b) the price to be paid for the Notes in any one transaction is equal to or exceeds SR 1 million or an equivalent amount; or (c) the offer or sale is otherwise in compliance with Article 17 of the KSA Regulations.
Kingdom of Bahrain
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered and will not offer any Notes to the Public (as defined in Articles 142-146 of the Commercial Companies Law (Decree Law No. 21/2001 of Bahrain)) in Bahrain.
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State of Qatar
Each of the Dealers has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered or sold, and will not offer or sell, directly or indirectly, any Notes in the State of Qatar (Qatar), except (a) in compliance with all applicable laws and regulations of Qatar and (b) through persons or corporate entities authorised and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in Qatar.
Singapore
This Base Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (SFA). Accordingly each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered or sold and that it will not offer or sell any Notes or cause such Notes to be made the subject of an invitation for subscription or purchase, nor will it circulate or distribute this Base Prospectus or any other document or material in connection with the offer or sale or invitation for subscription or purchase of the Notes, whether directly or indirectly, to any person in Singapore other than (a) to an institutional investor pursuant to Section 274 of the SFA, or (b) to a relevant person, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (c) pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.
Hong Kong
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that:
(a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes other than (i) to persons whose ordinary business is to buy or sell shares or debentures (whether as principal or agent); or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the SFO) and any rules made under the SFO; or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and
(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to the Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO.
General
Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it will (to the best of its knowledge and belief) comply with all applicable securities laws, regulations and directives in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes this Base Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and none of the Issuer, the Guarantors, the Trustee nor any of the other Dealers shall have any responsibility therefor.
None of the Issuer, the Guarantors, the Trustee and the Dealers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.
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With regard to each Tranche, the relevant Dealer will be required to comply with such other restrictions as the Issuer and the relevant Dealer shall agree and as shall be set out in the applicable Final Terms.
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GENERAL INFORMATION
AUTHORISATION A12.4.1.8 A13.4.12 The establishment of the Programme and the issue of Notes have been duly authorised by a resolution of the Board of Directors of the Issuer dated 5 June 2011. The giving of the Guarantee has been duly authorised by a resolution of the shareholders of MAF Holding dated 31 May 2011 and a resolution of the shareholders of MAF Properties dated 1 June 2011, respectively.
LISTING OF NOTES
It is expected that each Tranche of Notes which is to be admitted to the Official List and to trading on the London Stock Exchange’s regulated market will be admitted separately as and when issued, subject only to the issue of one or more Global Notes initially representing the Notes of such Tranche. Application has been made to the UK Listing Authority for Notes issued under the Programme to be admitted to the Official List and to the London Stock Exchange for such Notes to be admitted to trading on the London Stock Exchange’s regulated market. The listing of the Programme in respect of Notes is expected to be granted on or before 17 June 2011.
DOCUMENTS AVAILABLE
For the period of 12 months following the date of this Base Prospectus, copies of the following documents A9.14 will, when published, be available for inspection from the registered office of the Issuer and from the specified office of the Paying Agent for the time being in London:
(a) the Articles of Association of the Issuer and the Articles of Association (with an English translation thereof) of each Guarantor;
(b) the consolidated audited financial statements of each Guarantor in respect of the financial years ended 31 December 2009 and 31 December 2010, in each case together with the audit reports prepared in connection therewith. Each Guarantor currently prepares audited consolidated accounts on an annual basis;
(c) the most recently published unaudited interim financial statements (if any) of each Guarantor (in each case with an English translation thereof), in each case together with any audit or review reports prepared in connection therewith. Each Guarantor currently prepares unaudited consolidated interim accounts for the first six months of each year. The Issuer is not required to, and does not intend to, publish any interim financial statements;
(d) the Trust Deed, the Agency Agreement and the forms of the Global Notes, the Notes in definitive A6.4 form, the Receipts, the Coupons and the Talons; A13.4.11
(e) a copy of this Base Prospectus; and
(f) any future offering circulars, prospectuses, information memoranda and supplements including Final Terms (save that a Final Terms relating to a Note which is neither admitted to trading on a regulated market in the European Economic Area nor offered in the European Economic Area in circumstances where a prospectus is required to be published under the Prospectus Directive will only be available for inspection by a holder of such Note and such holder must produce evidence satisfactory to the Issuer and the Paying Agent as to its holding of Notes and identity) to this Base Prospectus and any other documents incorporated herein or therein by reference.
CLEARING SYSTEMS
The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg which are the entities in charge of keeping the records. The appropriate Common Code and ISIN for each Tranche of Notes allocated by Euroclear and Clearstream, Luxembourg will be specified in the applicable Final Terms. In
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addition, the Issuer may make an application for any Notes in registered form to be accepted for trading in book-entry form by DTC. The CUSIP and/or CINS numbers for each Tranche of such Registered Notes, together with the relevant ISIN and (if applicable) common code, will be specified in the applicable Final Terms. If the Notes are to clear through an additional or alternative clearing system the appropriate information will be specified in the applicable Final Terms.
The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels. The address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg. The address of DTC is 55 Water Street, New York, New York 10041, United States of America.
CONDITIONS FOR DETERMINING PRICE
The price and amount of Notes to be issued under the Programme will be determined by the Issuer and the relevant Dealer at the time of issue in accordance with prevailing market conditions.
SIGNIFICANT OR MATERIAL CHANGE
There has been no significant change in the financial or trading position of the Issuer and no material adverse A9.7.1 change in the financial position or prospects of the Issuer, in each case, since its incorporation. A9.11.6
There has been no significant change in the financial or trading position of each Guarantor and its respective A9.11.6 subsidiaries, taken as a whole since 31 December 2010 and there has been no material adverse change in the A9.7.1 financial position or prospects of each Guarantor and its respective subsidiaries, taken as a whole since 31 December 2010.
LITIGATION A9.11.5
None of the Issuer, the Guarantors or any other member of the Group is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer or the Guarantors are aware) in the 12 months preceding the date of this document which may have or have in such period had a significant effect on the financial position or profitability of the Issuer, the Guarantors or the Group.
AUDITORS
The Issuer is not required by Cayman Islands law, and does not intend, to publish audited financial A9.2.1 statements or appoint any auditors. The auditors of each Guarantor are KPMG, chartered accountants, who A9.11.3.1 have audited each Guarantor’s accounts without qualification, in accordance with IFRS for each of the two financial years ended on 31 December 2009 and 31 December 2010. The auditors of each Guarantor have no material interest in that Guarantor.
POST-ISSUANCE INFORMATION
Save as set out in the applicable Final Terms, the Issuer does not intend to provide any post-issuance A12.7.5 information in relation to any issues of Notes.
DEALERS TRANSACTING WITH THE ISSUER AND THE GUARANTORS
Certain of the Dealers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services to the Issuer, the Guarantors and their affiliates in the ordinary course of business.
CERTAIN ADDITIONAL INFORMATION RELATING TO MAF HOLDING
MAF Holding is registered as a limited liability company in Dubai under UAE Federal Law No. 8 of 1984 (as amended) as applicable to commercial companies.
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MAF Holding has been incorporated for a term of 50 years expiring in May 2052, which term shall be lengthened or shortened by resolution of the general assembly of MAF Holding in accordance with its Articles of Association (the MAF Holding Articles). The MAF Holding Articles provide that MAF Holding shall be dissolved: • unless renewed upon the expiry of its 50-year term; • upon fulfilment of the objectives for which it was created; • upon merger of MAF Holding into another company; • if shareholders holding 75 per cent. of MAF Holding’s capital decide in the general assembly to terminate the term of MAF Holding; • if all or most of MAF Holding’s assets have been damaged in such a manner that the remaining assets cannot be invested productively; or • if MAF Holding is dissolved pursuant to a court decision. MAF Holding changed its name from Majid Al Futtaim Group LLC to Majid Al Futtaim Holding LLC on 18 January 2011.
MAF Holding’s address and telephone number are PO Box 91100, Dubai, UAE and +971 (0)4 209 4657, respectively. This is also the address of each member of the MAF Holding Board and senior executive management.
CERTAIN ADDITIONAL INFORMATION RELATING TO MAF PROPERTIES
MAF Properties is registered as a limited liability company in Dubai under UAE Federal Law No. 8 of 1984 (as amended) as applicable to commercial companies.
MAF Properties has been incorporated for a term of 50 years expiring in February 2044, which term shall be lengthened or shortened by resolution of the general assembly of MAF Properties in accordance with its Articles of Association (the MAF Properties Articles). The MAF Properties Articles provide that MAF Properties shall be dissolved: • unless renewed upon the expiry of its 50-year term; • upon fulfilment of the purposes for which it was created; • upon merger of MAF Properties into another company; • if shareholders holding 75 per cent. of MAF Properties' capital decide in the general assembly to terminate the term of MAF Properties; • if all or most of MAF Properties' assets have been damaged in such a manner that the remaining assets cannot be invested productively; or • if MAF Properties is dissolved pursuant to a court decision. MAF Properties’ address and telephone number are PO Box 60811, Dubai, UAE and +971 (0)4 294 2444, respectively. This is also the address of each member of MAF Properties’ Board and senior executive management.
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FINANCIAL INFORMATION A9.11.1 A9.11.2 Auditors’ audit report in respect of the consolidated financial statements of MAF Holding* A9.11.4.1 as at and for the year ended 31 December 2010 ...... F-2
Consolidated financial statements of MAF Holding* as at and for the year ended 31 December 2010 ...... F-4
Auditors’ audit report in respect of the consolidated financial statements of MAF Holding* as at and for the year ended 31 December 2009 ...... F-59
Consolidated financial statements of MAF Holding* as at and for the year ended 31 December 2009 ...... F-61
Auditors’ audit report in respect of the consolidated financial statements of MAF Properties as at and for the year ended 31 December 2010 ...... F-105
Consolidated financial statements of MAF Properties as at and for the year ended 31 December 2010 ...... F-107
Auditors’ audit report in respect of the consolidated financial statements of MAF Properties as at and for the year ended 31 December 2009 ...... F-158
Consolidated financial statements of MAF Properties as at and for the year ended 31 December 2009 ...... F-160
Note: * MAF Holding changed its name from Majid Al Futtaim Group LLC to Majid Al Futtaim Holding LLC on 18 January 2011.
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
Consolidated statement of comprehensive income For the year ended 31 December In thousands of AED Notes 2010 2009
Revenue 5 17,738,865 15,900,924 Cost of sales (12,501,776) (11,583,144) Operating expenses 6 (3,842,500) (3,490,795) Net valuation loss on land and buildings 10 (x) (217,099) (12,704) Finance costs 7 (454,318) (321,697) Finance income 7 69,949 55,499 Other expenses - net 8 (15,011) (817) Impairment loss - net 9 (881,929) (89,065) Share of gain in joint ventures & associate - net 12 38,528 22,101 (Loss) / profit before tax (65,291) 480,302 Income tax charge -net 27 (78,893) (24,211) (Loss) / profit from continued operations (144,184) 456,091 Discontinued operations Profit from discontinued operations 28.1 - 23,177 (Loss) / profit for the year (144,184) 479,268 (Loss) / profit for the year attributable to: Owners of the Company (329,317) 308,241 Non-controlling interest 185,133 171,027 (Loss) / profit for the year (144,184) 479,268 Other comprehensive income Currency translation differences from foreign operations (78,439) 8,605 Net change in fair value of cash flow hedges transferred to profit or loss 7 142,621 107,570 Effective portion of changes in fair value of cash flow hedges 7 (142,263) 29,977 Net gain / (loss) on valuation of land and buildings 10 (i) 657,001 (2,322,843) Deferred tax liability reversed / (recognized) on revaluation of land and buildings 27 19,333 (16,928) Share of gain in joint ventures 12 (c) 40,390 64,997 Total other comprehensive income for the year 638,643 (2,128,622) Total comprehensive income for the year 494,459 (1,649,354) Total comprehensive income for the year attributable to: Owners of the Company 311,857 (1,820,171) Non-controlling interest 182,602 170,817 Total comprehensive income for the year 494,459 (1,649,354)
The notes on pages 11 to 59 form part of these consolidated financial statements. The report of the independent auditors is set out on pages 3 and 4
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
Consolidated statement of cash flows For the year ended 31 December In thousands of AED
Note 2010 2009
(Loss) / profit for the period after tax (144,184) 479,268
Adjustments: Finance income 7 (69,949) (55,499) Net valuation loss on land and building 10 (x) 217,099 12,704 Finance costs 7 454,318 321,697 Depreciation 10 877,031 794,876 Deferred tax charge / (credit) 27 19,247 (5,242) Amortisation of intangible assets 6 21,811 8,582 Project cost written off 8 17,365 29,972 Movement in long term prepaid rentals - net (21,311) 4,634 Share of gain in joint ventures and associate 12 (38,528) (22,101) Provision for potential lease losses 13 - 6,799 Impairment provision - net 9 881,929 89,065 (Gain) / loss on disposal of non-current assets 8 (24,378) 1,886 Provision for receivable from joint ventures 8 9,788 25,860 Provision for staff terminal benefits 23.1 66,204 59,702 Others 5,497 8,134 Net cash from operations 2,271,939 1,760,337
Changes to working capital Inventories 2,865 (35,747) Receivables and prepayments 327,016 65,856 Payables and accruals (37,662) 174,488 Due from/to related parties 115,074 26,075 Payment of staff terminal benefits 23.1 (37,174) (38,431) 370,119 192,241 Net cash from operating activities 2,642,058 1,952,578
The notes on pages 11 to 59 form part of these consolidated financial statements. The report of the independent auditors is set out on pages 3 and 4
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
Consolidated statement of cash flows (continued) For the year ended 31 December In thousands of AED 2010 2009
Net cash from operating activities 2,642,058 1,952,578 Investing activities
Acquisition of property, plant and equipment (including investment 10 & 11 (2,182,194) (3,460,922) property and capital-work in progress) Acquisition of intangible assets (650) Proceeds from sale of property, plant and equipment 110,507 12,163 Capital advance - 1,468 Investment in joint ventures and associate 12 (41,672) (28,187) Investment in finance lease 70,842 151,729 Investment in a subsidiary - (58,812) Cash surrendered on disposal of subsidiary 28.1 (49,022) - Cash ceded on loss of control over a subsidiary (17,641) Payments against intangibles assets 16 (19,440) (54,000) Lease premium paid during the year (445) - Interest received 97,457 86,531 Net cash used in investing activities (2,032,258) (3,350,030) Financing activities
Short term loan granted to related party 18 (9,057) - Short term loans repaid 18 - (83,264) Long term loans received 25 3,985,258 3,063,958 Long term loan repaid 25 (3,844,954) (713,185) Interest paid (480,003) (497,683) Share capital repaid during the year (1,247) - Acquisition of share of non-controling interest in existing subsidiaries (295,000) - Non controlling interest equity injection 7,552 1,806 Payment of employees' share of dividend declared (6,504) - Dividend paid to minority shareholders (63,450) (185,943) Net cash (used in) / from financing activities (707,405) 1,585,689 (Decrease) / increase in cash and cash equivalents (97,605) 188,237 Cash and cash equivalents at the beginning of the year 2,363,698 2,175,461 Cash and cash equivalents at the end of the year 2,266,093 2,363,698
Cashandcashequivalentscomprise: Cash in hand and at bank 21 2,277,112 2,422,641 Bank overdraft 24 (11,019) (58,943) 2,266,093 2,363,698
The notes on pages 11 to 59 form part of these consolidated financial statements. The report of the independent auditors is set out on pages 3 and 4
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F-7 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a) - 8,605 1,806 64,997 29,977 74,701 107,570 479,268 (66,693) (89,513) (99,327) (16,928) 19,993,159 18,254,292 Total - - (2,322,843) - - - - (210) 1,806 6,577 74,701 (3,237) interest 129,629 307,023 171,027 170,817 (1,649,354) (66,693) - 8,815 29,977 64,997 107,570 308,241 (96,090) (96,090) (16,928) 19,863,530 17,947,269 (2,322,843) (1,820,171) ------8,815 29,977 107,570 454,603 308,241 (96,090) (96,090) reserves holders of the parent 3,604,949 3,963,462 Total other Attributable to equity Non-controlling ------Currency ------8,815 - - - - 107,570 - - - 29,977 - - - - 090) 308,241 308,241 137,547 8,815 0 0 1 1 0 0 ------Other Reserves------2 2 - - - - - (96, ------r r e e 701 2,846,600 (357,982) 10,630 308 3,018,144 (220,435) 19,445 b b m m e e -9------40,607 40,607 (40,607) (136,697) c c e e 928) D D 1 1 3 3 - - (16, - - - - (2,322,843) ------64,997 - - - - - (2,274,774) d d e e Share Revaluation Statutory Retained Hedging d d capital reserve reserve earnings reserve translation n n 2,486,729 13,771,852 1,105, 2,486,729 11,497,078 1,146, e e r r a a e e y y e e h h t t r r o o y y f f t t i i s s u u t t q q n n e e 9 e 9 e n n 0 0 i i m 0 m 0 C s s C 2 2 e e e e t t L L r g r g a a e e n t n L t L b b a a S S p h p h m m l l c c u u e e a a f f c c o o i i e o e o r r c c t t D D n n G G n n 1 1 a e a e 3 3 n n m m m m i D i D i i d d e e E t e F E t e a F a t t a a d d A A t t t t d d n n s s f f u u e e e e o o t t d d F F r r s e a s e a a l t a t l d d d d e e a a n i n i y A y A l a d l a d i i s s e l e o l o d d u u o s o h h s i i o t o s t s j j n n h h n n a r a r t t o o o o o o n n Losses absorbed by non-controlling interest At 1 January 2009 Transactions with owners recorded directly in equity Contribution by and distributions to owners and other movement in equity Dividends declared Increase in non controlling interest Net change in fair value of cash flow hedges transferred to profit or loss (refer note 7) Deferred tax liability recognized on revaluation on properties (refer noteShare 27) of gain in Joint Ventures (refer note 12 (c)) Total comprehensive income for the year Net profit for the year Other comprehensive income Net loss on valuation of land and buildings (refer note 10 (i)) Effective portion of changes in fair value of cashCurrency translation flow differences hedges in foreign (refer operations note 7) Total comprehensive income for the year Acquisition of non-controlling interest (refer note 30) Transfer to statutory reserve (refer note 26.2) Total Contribution by and distribution to owners At 31 December 2009 C M C F I The notes on pages 11 to 59 form part of these consolidated financial statements. C C M F I
F-8 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a) - 7,552 19,333 40,390 52,789 (6,012) (9,141) (1,247) 657,001 142,621 494,459 18,254,292 18,410,431 Total - - - - (23,177) - - - (142,263) 7,552 52,789 (2,531) (78,439) (1,503) (9,141) (1,247) interest 185,133 (144,184) 182,602 427,488 307,023 (46,645) (295,142) (62,137) (338,320) (63,942) (63,942) Non-controlling - - 19,333 40,390 (4,509) 142,621 657,001 311,857 (75,908) (23,177) (248,497) (329,317) (142,263) (276,183) 17,982,943 17,947,269 holders of the parent Attributable to equity ------412 462 (4,509) 142,621 (75,908) (23,177) reserves (248,497) (142,263) (276,183) (404,867) (329,317) 3,282, 3,963, Total other ------Currency translation ------(75,908) - - - - - 358 (75,908) 077) (56,463) reserve Hedging - 142,621 ------(142,263) 177) 497) (4,509) 0 0 1 1 0 0 2 ------Other Reserves------2 r r - (248, - - (23, ------(329,317) - - - - - (329,317) e e b b reserve Retained earnings m Statutory m e e c c ------54,414 (54,414) ------54,414 (330,597) - -10- e e 724 D D reserve 1 1 Revaluation 3 3 d - - - - - 19,333 - 657,001 ------716, - -- 40,390 - - - d e e d d Share capital n n 2,486,729 12,213,802 1,200,722 2,358,230 (220, 2,486,729 11,497,078 1,146,308 3,018,144 (220,435) 19,445 e e ) ) r r d d a a e e e e u u y y n n i i t e t e n n h h t o t o c c r r ( ( o o y y f f t t i i s s u u t t q q n n e e 0 e 0 e n n 1 1 i i m 0 m 0 C s s C 2 2 e e e e t t L L r g r g a a e e n t n L t L b b a a S S p h p h m m l l c c u u e e a a f f c c o o i i e o e o r r c c t t D D n n G G n n 1 1 a e a e 3 3 n n m m m m i D i D i i d d e e t E e F E t e a F a t t a a d d A A t t t t d d n n s s f f u u e e e e o o t t d d F F r r s e a s e a a l t a t l d d d d e e a a n i n i A y y A l d a l d a i i s s e l e o l o d d u u o s o h h s i i o t s o t s j j n n h h n n a r a r t t o o o o o o n n Loss on disposal on controlling interest (refer note 28.1) Increase in non-controlling interest by way of land contribution Transfer to statutory reserve (refer note 26.2) Acquisition of non-controlling interest with a change in control (refer note 30) Equity paid in by a non-controlling interest Other comprehensive income Net gain on valuation of land and buildings (refer note 10 (i)) Currency translation differences in foreign operations Total comprehensive income for the year Employees' share of dividend declared by a subsidiary At 31 December 2010 Total comprehensive income for the year Net loss for the year Deferred tax liability recognized on revaluation on properties (refer noteShare of 27) gain in Joint Ventures (refer note 12 (c)) Net change in fair value of cash flow hedges transferred toEffective profit portion of or loss changes in (refer note fair 7) value of cash flow hedges (refer note 7) Transactions with owners recorded directly in equity Contribution by and distributions to owners and other movement inDividends equity declared Loss of control of a subsidiary Decrease in non-controlling interest - net Total Contribution by and distribution to owners At 1 January 2010 C M C F I The notes on pages 11 to 59 form part of these consolidated financial statements. C C M F I
F-9 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
Notes to the consolidated financial statements
1) Legal status and principal activities
Majid Al Futtaim Group LLC (“the Company”), is registered as a limited liability company in the Emirate of Dubai under the UAE Federal Law No. 8 of 1984 (as amended) as applicable to commercial companies.
The principal activities of the Company are establishing, investing in and managing commercial projects. The activities of its subsidiaries are the establishment and management of malls, hotels, hypermarkets, supermarkets and retail stores, leisure activities and investment activities. The status of these subsidiaries is set out in note 34. The Company and its subsidiaries are collectively referred to as “the Group” The registered address of the Company is P.O Box 91100, Dubai, United Arab Emirates. Subsequent to 31 December 2010, the name of the Company has been changed to Majid Al Futtaim Holding LLC.
Majid Al Futtaim Group LLC is fully owned by Majid Al Futtaim Capital LLC ("the Parent Company"). The registered address of the Parent Company is P.O Box 91100, Dubai, United Arab Emirates.
2) Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the International Accounting Standards Board and the requirements of the UAE Federal Law No. 8 of 1984 (as amended).
The consolidated financial statements were authorized for issue by the Board of Directors on 18 March 2011.
(b) Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention except for investment properties, certain classes of property, plant and equipment, financial instruments at fair value through profit or loss and derivative financial instruments which are measured at fair value. The methods used to measure fair values are discussed further in note 4.
(c) Functional and presentation currency
These consolidated financial statements are presented in United Arab Emirates Dirhams (“AED”), which is the Company’s functional currency, and are rounded to the nearest thousand, except whenever stated otherwise.
(d) Use of estimates and judgments
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised and in any future years affected. In particular, information about significant areas of estimation, uncertainty and critical judgment in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are described in note 4.
3) Significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented.
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F-10 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(a) Basis of consolidation
These consolidated financial statements present the results of operations and financial position of the Group for the year ended 31 December 2010.
i) Subsidiaries
Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed where necessary to align them with the policies adopted by the Group. Losses applicable to non-controlling interests in a subsidiary are allocated to non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
The accounting year-end for all of the Group’s subsidiaries is 31 December.
ii) Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognized gains and losses of associates using the equity method of accounting, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate.
iii) Joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity and exists when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control.
The Group has contractual arrangements with other parties representing joint ventures; which take the form of a jointly controlled entity. A jointly controlled entity involves the establishment of a separate entity in which each venturer has an interest, under contractual arrangement that establishes joint control over the entity.
The Group reports its interest in jointly controlled entities using the equity method whereby the interest in the joint venture is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of net assets of the jointly controlled entity. The profit or loss of the Group includes its share of the profit and loss of jointly controlled entities.
The financial statements of the Group’s jointly controlled entities are prepared using consistent accounting policies. Wherever necessary, adjustments are made to bring accounting policies in line with those of the Group.
iv) Business combinations involving entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established.
The Group has applied the book value measurement method to all common control transactions. The assets and liabilities acquired are recognized at the carrying amounts recognized previously in the Group controlling Shareholder’s consolidated financial statements. The components of other comprehensive income of the acquired entities are added to the same components within Group’s other comprehensive income and any gain / loss arising is recognized directly in equity. -12-
F-11 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
v) Loss of control
Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is remeasured at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.
vi) Transactions eliminated on consolidation
Intra-group balances and transactions and any unrealized gains and losses arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealized gains arising from transactions with jointly controlled entities and associates are eliminated to the extent of the Group’s interest in the entity. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
(b) Foreign currency
Foreign currency transactions
Transactions denominated in foreign currencies are translated into the respective functional currencies of the Group entities at the rates of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into functional currency at the exchange rates ruling at that date. Foreign exchange differences arising on translation are recognized in the profit or loss.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to functional currency at the exchange rates ruling at the dates when the fair value was determined. Non- monetary assets and liabilities denominated in foreign currencies, which are measured in terms of historical cost, are translated into functional currency at the exchange rates ruling at the date of the transaction.
Foreign exchange differences arising on the translation of non-monetary assets and liabilities carried at fair value are recognized in profit or loss. Foreign exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income are recognized directly in other comprehensive income.
Foreign operations
The assets and liabilities of foreign operations are translated into functional currency at the foreign exchange rates at the reporting date. Share capital is translated at historical rate. The income and expenses of foreign operations are translated into functional currency at average rates of exchange for the year. Foreign exchange differences arising on retranslation are recognized directly in other comprehensive income and are presented in currency translation reserve in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interest.
When a foreign operation is disposed off such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes off only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes only a part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and presented in the currency translation reserve in equity. -13-
F-12 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(c) Leases
i) Operating lease payments
Leases in which the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Lease payments as lessee under operating leases are recognized as an expense in profit or loss on a straight-line basis over the lease term. Lease incentives received are recognized in profit or loss as an integral part of the total lease expense, over the term of the lease.
Increases in rentals which are considered to be due to inflation are regarded as contingent rent and are recognized in the year in which that they occur. Differences between rentals on the straight-line basis and contracted rentals are recognized as ‘accrued lease rentals’, as an asset or a liability, as the case may be. Lease rentals which are considered contingent at the inception of the lease but are confirmed at a subsequent date during the period of the lease are accounted for in the period in which they are incurred.
ii) Net investment in finance leases
Gross amounts due under originated finance leases include the total of future lease payments on finance leases (lease contract receivables) plus the estimated residual value of leased assets. The difference between the gross amount due under originated finance leases and the cost of the leased assets is recorded as unearned finance income. The Group takes security deposits on leases with the right to set off. For the purposes of presentation, the unearned finance income and the security deposits are shown as deductions from the gross amounts due under finance lease.
Impaired finance leases
Impaired finance leases are those for which the Group determines that it is probable that it will be unable to collect all principal and finance income due according to the contractual terms of the lease finance agreements. As per the internal evaluation system, finance leases are considered impaired when they are past due by 91 days or more.
Past due but not impaired finance leases
Past due but not impaired finance leases are those where contractual finance income or principal payments are past due but the Group believes that impairment is not appropriate on the basis of the level of security and/or the stage of collection of amounts owed to the Group. As per the internal evaluation system, finance leases which are past due but not considered impaired are those which are past due for more than 30 days but less than 90 days.
Finance leases with restructured terms
Finance leases with restructured terms are those which have been restructured due to deterioration in the customer’s financial position and where the Group has made concessions that it would not otherwise consider. Once the finance lease is restructured it remains in this category till the satisfactory performance after restructuring.
Provision for potential lease losses
The provision for leases losses is shown as a deduction from the gross amounts due under finance lease. Specific provisions are made against the carrying amount of lease contract receivables that are identified as being doubtful based on regular reviews of outstanding leases to reduce the lease contract receivables to their recoverable amounts. Collective allowances are maintained to reduce the carrying amount of portfolios of similar lease contract receivables to their estimated recoverable amounts at the reporting date. In evaluating the adequacy of the collective allowances, management considers many factors such as current economic conditions, credit concentrations, historical loss experience etc.
Write off policy for finance leases
The Group writes off a finance lease receivable (and any related provision for potential lease losses) when a lease contract receivable is known to be uncollectible, all necessary means of collection have been exhausted, and the final loss has been determined.
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F-13 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(d) Finance income and finance costs
Finance income comprises interest income on funds invested and the principal amounts due under finance lease receivables. Interest income is recognized as it accrues in the profit or loss, using the effective interest method.
Finance costs comprise interest expense, arrangement fees, processing fees and similar charges on borrowings and losses on hedging instruments that are recognized in profit or loss.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest rate method.
(e) Borrowing costs
Borrowing costs are recognized as expenses in the period in which they are incurred. However, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing costs continues until the assets are substantially ready for the intended use. The capitalization rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds.
(f) Capital work in progress
Work in progress in respect of capital expenditure including land is classified as capital work in progress. Interest and other overheads directly attributable to the projects are included in capital work in progress until completion thereof. Where development work is carried out on land owned by the Group, the carrying value of the land is included under capital work in progress.
Capital work in progress for properties that are being constructed with an intention of building an investment property is carried at fair value.
For other properties that are developed with an intention of constructing an owner occupied property, both the capital expenditure and land are carried at cost, less impairment, if any, until the property is fully developed.
Development expenses are charged to profit or loss as incurred except for development expenditure which complies with the following conditions:
x The concept for the new project has been defined; x Preliminary market, technical and financial feasibility studies demonstrate a viable project; and x The management have agreed to proceed with developing the project, and believe that it is more probable than not that the project will go ahead.
These development costs are shown as assets under capital work in progress.
Development expenses initially charged to profit or loss are not recognized as an asset in a subsequent period even if it is found that the project to which they relate satisfies the criteria for capitalization.
Development costs carried forward are reviewed in subsequent periods to ensure that circumstances have not changed such that the criteria for capitalization are no longer met. In these circumstances, the costs are written-off or provided for to the extent they are believed to be irrecoverable. Such provisions are reversed if the circumstances change again and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.
-15-
F-14 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued) (g) Intangible assets Goodwill All business combinations are accounted for by applying the purchase method except for acquisition of entities under common control. The excess of cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition is recorded as goodwill. Negative goodwill arising on acquisition is immediately recognized in profit or loss. Acquisitions of non controlling interests are accounted for as transactions with the equity holders in their capacity as equity holders and therefore, goodwill is not recognized as a result of such transactions. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and is not tested for impairment separately. Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses, if any. On disposal of a subsidiary / joint venture / associate, the attributable amount of goodwill is included in the determination of profit or loss on disposal.
Other intangible assets Intangible assets that are acquired by Group and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses, if any. Where the payment term is deferred the cost of the intangible asset is the cash price equivalent, which is the discounted amount of cash over the payment term. Amortization Amortization is calculated over the cost of the asset, or other amount substituted for cost, less its residual value. Amortization is recognized in the profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative years are as follows: Metro naming rights 10 years
(h) Property, plant and equipment Recognition and measurement
Following initial recognition at cost, developed properties (land and building), mainly comprising hotels, shopping malls and offices, are stated at their revalued amounts, being the fair value at the date of revaluation, less any accumulated depreciation and any impairment losses. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount.
Land on which development work has started with the intention of constructing property, plant and equipment is fair valued at the date when significant development commences. During the construction period, land is held at its carrying value and development expenditure is carried at cost. Upon completion of construction, the entire property (that is land and building) is carried at revalued amount.
All other items of property, plant and equipment, mainly comprising administrative assets, are stated at cost less accumulated depreciation and any impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the assets. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and costs of dismantling and removing the items and restoring the site on which they are located and capitalized borrowing costs. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (components) of property, plant and equipment.
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F-15 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(h) Property, plant and equipment (continued)
Subsequent costs Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit or loss during the financial year in which they are incurred.
Depreciation
Depreciation is charged to profit or loss so as to write off the cost / revalued amounts of property, plant and equipment by equal installments over their estimated useful lives. Land is not depreciated. The estimated useful lives for the current and comparative years are as follows:
Buildings 4-35 years Motor vehicles 4years Leisure rides and game 3 -10 years Furniture, fixtures and equipment 3 -15 years
Depreciation methods, remaining useful life of assets, if not insignificant are reassessed at each reporting date and adjusted if appropriate. Valuation surplus relating to buildings is allocated to the building structure and is depreciated over the remaining useful life of the respective building structure which ranges from 20 to 35 years.
Revaluation reserve
Any revaluation increase arising on the revaluation of developed properties is credited to revaluation reserve, except to the extent that it reverses a revaluation decrease for the same property previously recognized in profit or loss, in which case the increase is credited to the profit or loss to the extent of the decrease previously charged.
A decrease in carrying amount arising on the revaluation of properties is charged to profit or loss except to the extent that it reverses a previously recognized revaluation gain on the property in which case it is debited to revaluation reserve.
De-recognition
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in profit or loss in the year the asset is derecognized.
On subsequent disposal or retirement of a revalued property, the attributable revaluation surplus remaining in revaluation reserve is transferred directly to retained earnings.
(i) Investment Property
Recognition and measurement
Investment properties are properties held either to earn rental income, for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Following initial recognition at cost, investment property, principally comprising land with undetermined use, shopping malls and properties being constructed for future use as investment property is stated at fair value at the reporting date.
Where the fair value of an investment property under development is not reliably determinable, such property is carried at the book value of the land and any cost incurred to date; until the earlier of the date the construction is completed or date at which fair value becomes reliably measurable.
Gains or losses arising from changes in fair value are included in profit or loss in the period in which they arise.
Rental income from investment property is accounted for as described in the accounting policy for revenue recognition. -17-
F-16 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(i) Investment Property (continued)
Reclassification
When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as an investment property. Any gain arising on re-measurement is recognized in other comprehensive income. Any loss is recognized immediately in profit or loss except to the extent that it reverses a previously recognized revaluation gain on the same property in which case it is debited to other comprehensive income.
If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its fair value at the date of reclassification becomes its deemed cost. Change in fair value up to the date of reclassification is recognized directly in profit or loss.
De-recognition
An investment property is derecognized when either it has been disposed of or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss on the retirement or disposal of an investment property is included in profit or loss in the period the property is derecognized.
(j) Assets classified as held for sale
Non-current assets or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets or components of a disposal group are measured in accordance with the Group’s accounting policies. Thereafter the assets are measured at the lower of their carrying amount and fair value less costs to sell.
Impairment losses on initial classification as held for sale and subsequent gains and losses on re-measurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss previously recognized.
(k) Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, trade and other payables, long-term loans, income tax payable, bank borrowings and related party balances.
Non-derivative financial instruments are recognized initially at fair value plus transaction cost. Subsequent to initial recognition non-derivative financial instruments are measured at amortized cost less impairment losses.
A financial instrument is recognized if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognized if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognized if the Group’s obligations specified in the contract expire or are discharged or cancelled.
Cashandcashequivalentscomprisecashinhandandcashatbankincurrentaccountsandcalldepositswithoriginal maturities of three months or less. For the purpose of the consolidated statement of cash flows, bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents.
Financial assets at fair value through profit or loss (“FVPL”)
A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. -18-
F-17 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(k) Financial instruments (continued)
Derivative financial instruments
Derivative financial instruments are contracts, the value of which is derived from one or more underlying financial instruments and include interest rate swaps and interest rate and currency exchange rate collars.
The Group uses derivative instruments for risk management purposes to hedge its exposure to interest rate risks arising from operational, financing and investment activities.
On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an on-going basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80 to 125 percent.
Derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is entered into; attributable transaction costs are recognized in profit or loss when incurred. Derivative financial instruments with positive fair values are included in assets and derivative financial instruments with negative fair values are included in liabilities.
Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
In respect of changes in the fair values of derivative financial instruments that are designated as a hedge of variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly effective forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized directly in other comprehensive income and presented in the hedging reserve in the statement of changes in equity. The amount recognized in other comprehensive income is removed and included in profit or loss in the same period that the hedged item affects profit or loss. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount recognized in equity remains in equity until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in equity is recognized immediately in profit or loss.
Any gains or losses arising from changes in fair value of derivative instruments that do not qualify for hedge accounting are taken directly to profit or loss.
(l) Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss. -19-
F-18 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(l) Impairment (continued)
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than property, plant and equipment and investment properties that are fair valued, and inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated at each reporting date in order to assess impairment.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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 the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash generating unit” or CGU).
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.
In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(m) Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first- out principle (FIFO) and weighted average cost, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and selling expenses.
Management reviews the carrying amount of inventory on a regular basis and inventory is written down to its net realizable value to ensure that the inventory is carried at lower of cost and net realizable value.
(n) Staff terminal and retirement benefits
Provision for staff terminal benefits is calculated in accordance with the labor laws of the respective country in which they are employed. The Group’s net obligation in respect of staff terminal benefits is calculated by estimating the amount of future benefit that employees have earned in return for their services in the current and prior periods, and is discounted to determine the present value of the obligation. The discount rate used is the yield at the reporting date on premium bonds that have maturity dates approximating the terms of the Group’s obligation.
Under the UAE Federal Law No.7 of 1999 for Pension and Social Security, employers are required to contribute 12.5% of the ‘contribution calculation salary’ of those employees who are UAE nationals. These employees are also required to contribute 5% of the ‘contribution calculation salary’ to the scheme. The Group’s contribution is recognized as an expense in profit or loss as incurred.
(o) Long term employee benefits
The Group earlier offered performance based incentives to certain senior management staff under a special incentive scheme. A provision for the Group’s obligation under the scheme was accrued by estimating the present obligation and present value of the estimated future payments as at the reporting date in respect of all applicable employees for their services rendered during the current year. The scheme was discontinued during 2009. However, management is still carrying certain provision with respect to the old scheme which would be paid to the employees who were eligible as per the previous scheme. Also refer note-23. -20-
F-19 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(p) Operating segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by senior management and board of directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
The Group has four reportable segments, as described below, which are the Group’s strategic business units. The strategic businesses units offer different services and are managed separately because they have different strategic requirements. The following summary describes the operations in each of the Group’s reportable segments:
Properties:s includes establishment and management of shopping malls, hotels and leisure and entertainment activities.
Retail: includes establishment and management of hypermarkets, supermarket and retail stores.
Ventures: includes establishment and management of retail stores, leisure activities, leasing activities, credit cards and providing facility and energy management services.
Head office: includes managing the Group's commercial activities.
Inter-segment pricing is determined on an arm’s length basis.
(q) Revenue recognition
Revenue includes amounts derived from the provision of goods and services falling within the Group’s ordinary activities and includes hypermarkets’ revenue, rental income, hospitality services, facility management services, leisure and entertainment services, sale of fashion goods, income from net investment in finance lease and income from credit card operations.
Goods sold
Hypermarket revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns comprises amounts derived from sale of goods falling within the ordinary activities of the Group and are recognized at the time of check-out sales when persuasive evidence exists that the significant risks and rewards of ownership have been transferred to the customer, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.
Listing and gondola fees
Listing and gondola fees are recognized as income on an accrual basis, when the obligations to display inventories are met.
Opening fees
Opening fees, based on agreements with suppliers, are recognized at the time of opening of the store.
Commission
When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission earned by the Group.
Rebates and other supplier benefits
Income from rebates and other supplier benefits is recognized on an accrual basis, monthly, according to the agreements with suppliers. For the purpose of presentation, cost of sales is shown net of income from rebates.
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F-20 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(q) Revenue recognition (continued)
Loyalty programs
For customer loyalty programs, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the reward credit and the other components of the sale. The amount allocated to the reward credit is considered to be the fair value for which they could be redeemed. Such amount is deferred and revenue is recognized only when the reward credit is redeemed and the Group has fulfilled its obligations to supply the products. The amount of revenue recognized in those circumstances is based on the number of reward credits that have been redeemed in exchange for products, relative to the total number of reward credit that is expected to be redeemed. Deferred revenue is also released to revenue when it is no longer considered probable that the reward credit will be redeemed.
Rental income
Rental income received as lessor from properties under operating leases is recognized on a straight-line basis over the term of the lease. Contingent rents are recorded as income in the period in which they are earned. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease.
Services
Revenue from hospitality, facility management services and leisure and entertainment activities is recognized on rendering the services. Revenue from services is recognized when customers have a right to use the facilities on payment for these services
Sale of fashion goods
Revenue from sale of fashion goods is recognized net of discounts and provisions for estimated returns and allowances when the significant risks and rewards of ownership have been transferred to the buyer, recovery of consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement of the goods.
Income from net investment in finance lease
Unearned income on finance lease is amortized to the profit or loss over the term of the lease applying the annuity method so as to produce a systematic return on the net investment in finance lease.
(r) Alcohol
The purchase of alcohol for hotels and residence is the responsibility of the relevant Hotel Management Company, and the revenue derived from sale is deemed to be that of the Hotel Management Company. The profit resulting from the sales of alcoholic beverages forms part of the Hotel Management Company’s incentive fee.
(s) Provisions
A provision is recognized in the reporting date when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
(t) Income tax
Income tax expense comprises current and deferred tax calculated in accordance with the income tax laws applicable to certain overseas subsidiaries. Income tax expense is recognized in profit or loss except to the extent it relates to items recognized directly in other comprehensive income, in which case it is recognized in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
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F-21 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
3) Significant accounting policies (continued)
(t) Income tax (continued)
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity or on different taxable entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for future tax losses, tax credits deductable temporary differences, to the extent it is probable that future tax profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(u) New standards and interpretations issued but not yet effective
A number of new standards, amendments to standards and interpretation that are issued but not yet effective for the year ended 31 December 2010, and have not been early adopted in preparing these financial statements.
The following are the new standards which will be applicable to the company but not yet adopted:
• IFRS 9 Financial instruments (effective 1 January 2013) • IFRS 7 Financial instruments - Disclosures (Improvements) (effective 1 January 2011) • IAS 1 Presentation of financial statements (effective 1 January 2011) • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010) • IAS 24 (Revised) Related Party Disclosures (effective 1 January 2011) • IAS 32 (Amended) Financial instrument Presentation (effective 1 February 2010)
Management has assessed the impact of the new standards, amendments to standards and interpretations and amendments to published standards, and concluded that they are either not relevant to the Group or their impact is limited to the disclosures and presentation requirement in the financial statements except for IFRS 9 as stated below.
IFRS 9 is the first standard issued as part of a wider project to replace IAS 39, key features of IFRS 9 are:
- IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value.
- The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset.
- The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply.
The Group is currently in the process of evaluating the potential effect of this standard. Given the nature of the Group's operations, this standard is not expected to have a pervasive impact on the Group’s financial statements.
-23-
F-22 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
4) Critical judgments in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, which are described in the notes, management has made certain judgments as mentioned below.
Investment property - accounting for dual-use properties
Investment property is property held to either earn rental income or capital appreciation or for both. Certain properties of the Group include a portion that is held to generate rental income or capital appreciation and another portion that is held for own use by the Group in the supply of services or for administrative purposes. Such properties are split between property, plant and equipment and investment properties based on leasable value, subject to the conditions described below.
Properties where the let-out portions can be sold or finance leased separately
In the UAE, Law No. 27 of 2007 regulating the Ownership of Jointly Owned Properties in the Emirate of Dubai (“the Strata Law”) came into effect from 1 April 2008. Based on the terms of the Strata Law and clarification obtained by the Group from independent legal advisors, management is of the view that:
x It is possible to divide developed property, such as a shopping mall, into separate units;
x That conceptually, strata title can validly be created within the shopping malls and individual units or parts may be sold or subject to long leases; and
x The Dubai Land Department and the Strata Law both support the above concept.
In countries other than UAE, wherever similar laws exist, the Company splits dual use properties on a similar basis.
Properties where the let-out portions cannot be sold or finance leased separately
Due to legal restrictions in Oman, and in the UAE in respect of properties which are built on land gifted by the Ruler, these properties cannot currently be sold or finance leased separately (in case of UAE, without the prior consent of the Ruler). Consequently, the entire property is classified as investment property only if an insignificant portion is held for own use.
In management’s judgment, the level of own use is assessed based on the level of ancillary income earned by the Group from the property as a whole. If the ancillary income exceeds 5% of the total income from the property, then the entire property is classified as property, plant and equipment, at the date when the level of ancillary income exceeds 5%.
Properties built on gifted land
Certain properties have been developed on land gifted to the majority shareholder of the Parent Company, personally, rather than Majid Al Futtaim Properties LLC, a subsidiary. These properties are held in the name of the majority shareholder for the beneficial interest of the Group.
Properties which are built on land gifted by the Ruler of Dubai, cannot currently be sold or finance leased, separately, without the prior consent of the ruler. On 15 March 2010, the Ruler of Dubai issued a decree which allows each UAE national, who has been granted industrial or commercial land, to apply to the Land and Properties Department (“the Department”) to request for free ownership of the land (and obtain a title deed with freehold status for the plot), that is free from any restrictions over the use of the land by registering it in the real estate register for a fee of 30% of the market value of the land, which will be determined by the Department on the date of the transfer of ownership. Upon issuance of this decree, the Group can transfer the legal title and register the properties constructed on gifted land in its name. Management is of the view that until the decision to register the properties is formally taken by the Board of Directors of Majid Al Futtaim Properties LLC, the properties will continue to be classified as property, plant and equipment if a significant portion is held for own use.
-24-
F-23 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
4) Critical judgments in applying the Group’s accounting policies (continued)
Fair value of properties
Fair value of undeveloped land and other developed properties at the reporting date is determined every year at the reporting date by independent external RICS Chartered Surveyors and Valuers having sufficient current local and national knowledge of the respective property markets. The valuation has been prepared in accordance with the RICS Valuation Standards, Sixth Edition. Internal valuations are carried out quarterly, based on the methods and assumptions used by the external valuer, to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.
Fair value is the market value of the properties. Market value is the highest possible price for which the property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. If there is no market- based evidence of fair value of a property, fair value is determined using the present value of the estimated future net cash flows for each property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.
The fair valuation of properties constructed on gifted land reflects management’s interpretation of the relevant decree and assumes that the titles are transferable to the Group within a reasonable time scale.
The current volatility in the global financial system has created a significant degree of turbulence in commercial real estate markets across the world. Furthermore, the lack of liquidity in the capital markets means that it may be very difficult to achieve the sale of property assets in the short term.
Apportionment of fair values between land and buildings
Where the valuation of a property comprises the aggregate value of land and building, the valuation is apportioned between land and building based on the reinstatement cost as computed by an external appraiser of the building, unless another appropriate basis is available for allocation.
Change in fair value apportioned to buildings is then allocated to the building structure as it is impracticable to obtain detailed fair value information at each component level of the building from the valuer or to use any other reasonable method of approximation to internally estimate such component values. Consequently, any increase in fair values is allocated to the structure of the buildings and depreciated over the remaining useful lives of the respective buildings.
Staff terminal benefits
The Group’s liability for staff terminal benefits qualifies as a defined benefit plan under IAS 19. The Group’s net obligation in respect of staff terminal benefits is calculated by estimating the amount of future benefits that employees have earned in return for their services in the current and prior years, and is discounted to determine the present value of the obligation. The discount rate used is the yield at the reporting date on premium bonds that have maturity dates approximating the terms of the Group’s obligations.
The principal assumptions for calculation of the provision for staff terminal benefits at the reporting date are as follows:
Discount rate 5.00% Future salary increase 4.00%
Impairment
Management assesses impairment loss on assets other than investment property and inventories whenever there are indicators of impairment. In assessing impairment of assets based on 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 risk specific to the asset.
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F-24 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
4) Critical judgments in applying the Group’s accounting policies (continued)
Impairment (continued)
Impairment losses on receivables
The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgments about counterparty’s financial situation and the net realizable value of any underlying collateral.
Collectively assessed impairment allowances cover credit losses inherent in portfolios of finance lease receivables with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired lease receivables but the individual impaired items cannot yet be identified. In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors.
Provision for obsolete inventory
The Group reviews its inventory to assess loss on account of obsolescence on a regular basis. In determining whether provision for obsolescence should be recorded in the profit or loss, the Group makes judgments as to whether there is any observable data indicating that there is any future salability of the product and the net realizable value for such product. Accordingly, provision is made where the net realizable value of inventories is less than cost based on best estimates by the management. The provision for obsolescence of inventory is based on the ageing and past movement of the inventory.
Valuation of financial instruments
The Group’s accounting policy on fair value measurements is discussed in accounting policy 3(k). The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in the market that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuations. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark profit rates, credit spreads and other premia use in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.
The Group uses widely recognized valuation models for determining the fair value of common and more simple financial instruments, that use only observable market data and require little management judgment and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps and collars. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on products and markets and is prone to changes based on specific events and general conditions in the financial markets. -26-
F-25 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
4) Critical judgments in applying the Group’s accounting policies (continued)
Valuation of financial instruments (continued)
The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorized:
At 31 December 2010 Carrying amount Level 1 Level 2 Level 3 AED '000 AED '000 AED '000 AED '000 Financial assets Equities held at fair value through profit and loss 7,600 - 7,600 - 7,600 7,600 Financial liabilities Derivative held for interest rate risk management (218,746) - (218,746) - (218,746) - (218,746) -
At 31 December 2009 Carrying amount Level 1 Level 2 Level 3 AED '000 AED '000 AED '000 AED '000 Financial assets Equities held at fair value through profit and loss 7,600 - 7,600 - 7,600 7,600 Financial liabilities Derivative held for interest rate risk management (212,636) - (212,636) - (212,636) - (212,636) -
During the year, there was no movement between the fair value hierarchies of the derivative financial instruments held by the Group. Furthermore, there has been no change in the valuation techniques in relation to valuation of derivative financial instruments during the year.
-27-
F-26 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a) - 34,361,886 Group (after eliminations) - 17,738,865 15,900,924 - 38,528 22,101 Adjustments Eliminations/ ion and services. Total - 17,738,865 15,900,924 - - (57,380) (37,864) (21,513) 13,653 (78,893) (24,211) - 38,528 22,101 - 724 97,687 828,212 (162,978) (347,910) (65,291) 480,302 ,256,980 20,388,526 20,159,298 (4,213,727) (4,051,704) 16,174,799 16,107,594 34) (6,695) (841,837) (770,905) (35,194) (23,971) (877,031) (794,876) 11) (84,443) (551,789) (438,696) 97,471 116,999 (454,318) (321,697) - Head Office 0 0 1 1 0 0 2 2 - 86,698 23,752 38,931 256,407 338,671 (256,407) (338,671) - r Ventures r e e -28- b b m m e e c c - - 9,959 3,251 - e e D D 1 1 3 3 Retail d d e e d d n n e e r r a a e e y y e e h h t t r r Properties 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 8,691 30,0132,342 79,578 (8,430) 61,618 (59,558) 2,529 (29,434) 3,735 (164) 272,369 - 72,365 363,167 167,731 (293,218) (112,232) 69,949 55,499 o o 28,569 18,850 - f f 232,655 213,042 - (366,507) (330,327) (14,456)(491,725) (8,116) (489,844) (230,305) (27,615) (195,978) (15,810) (116,173) (143,2 (568,438) (78,388) 167,172 (3,6 606,511 471,024 (34,291) 2,292 93,905 187, AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 2,077,873 1,645,782 14,868,154 13,489,772 792,838 765,370 - s s 29,879,185 29,500,82310,106,472 3,953,155 9,912,562 3,226,162 2,948,702 1,001,104 2,718,376 1,377,378 9,753,084 959,226 9,547,659 1,271,380 44,586,528 6,374,126 43,652,022 6 (10,001,298) (9,290,136) 34,585,230 t t n n e e m m C C e e t t L L a a t L t L S S p p l l u u a a o o i i r r c c n n G G a a n n m m i i i i F a F a t t t t d d u u e e t t F F a a l l d d i i A A l 5) (i) Segment reporting Segment information is presented in respect of (i) the Group's principal business activities; (ii) revenue by product; (iii) its geographical locat Principal activities are as follow: Properties Retail Asset Management Ventures The segment information provided to the Board of Directors for the reportable segments for the year ended 31 December 2010 are as follows: l o o d d s s i i j j n n a a o o Others Inter-segment Finance costs Share of income in joint ventures & associate Profit/(loss) before tax Depreciation Finance income Income tax (charge) / credit Business segments: Revenue Total assets Total liabilities C M C M
F-27 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
5) (ii) Revenue 2010 2009 AED’000 AED’000
Sale of goods 13,937,427 12,691,220 Listing fees, gondola fees and commissions 930,727 798,553 Rental income 1,742,236 1,377,477 Leisure and entertainment 485,928 384,297 Hospitality revenue 318,613 294,281 Fashion goods 258,683 237,972 Other 65,251 117,124 17,738,865 15,900,924
Under a customer loyalty program to stimulate sales, the Group grants tickets when customers buy certain designated products. These tickets can be redeemed against the next purchase of the customers within a pre-determined period of time. At 31 December 2010, deferred revenue in respect of tickets granted but not yet redeemed amounted AED 1.14 million (2009: nil).
Commission on sales relates to the sale of products in which the Group acts as an agent in the transaction rather than as the principal. Management considers the following factors for identifying and accounting for agency relationship:
- The Group does not take title of the goods and has no responsibility in respect of the goods sold; and
- The Group cannot vary the selling price set by the supplier.
5) (iii) Revenue by geographical market 2010 2009 AED’000 AED’000
UAE 9,477,522 8,563,037 Saudi Arabia 1,495,499 1,596,120 Egypt 2,122,034 1,838,696 Qatar 1,508,510 1,527,609 Oman 853,075 813,076 Jordan 473,053 387,484 Bahrain 529,400 450,840 Iran 634,571 196,205 Syria 133,212 94,857 Pakistan 151,877 92,104 Kuwait 360,112 340,896
17,738,865 15,900,924
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F-28 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
5) (iv)Total assets by geographical region 2010 2009 AED’000 AED’000
UAE 25,172,014 26,685,896 Bahrain 3,105,800 3,204,132 Egypt 2,620,125 2,736,927 Oman 1,283,796 1,108,804 Others * 2,403,495 626,127
34,585,230 34,361,886 * Others include Qatar, Kuwait, Lebanon, Syria, Iran, Iraq, Saudi Arabia, Pakistan, Libya and Jordan.
6) Operating expenses 2010 2009 AED’000 AED’000 Staff costs (refer note (i) below) (1,516,469) (1,440,088) Rent (246,793) (237,059) Depreciation (refer note 10) (877,031) (794,876) Amortisation (refer notes 14 & 16) (21,811) (8,582) Consultancy costs (38,494) (56,788) Legal and professional fees (27,146) (28,518) Sellingandmarketingexpenses (197,435) (168,926) Utilities (180,988) (194,251) Repair and maintenance (157,444) (62,331) Insurance charges (15,164) (17,083) Franchise and management fees (63,839) (65,107) Other general and administrative expenses (499,886) (417,186)
(3,842,500) (3,490,795)
(i) Staff cost includes the following:
2010 2009 AED’000 AED’000 Gratuity cost (60,136) (59,702) Pension cost (5,459) (3,078)
Staff costs are net of staff costs capitalized to various projects under construction amounting to AED 58.3 million (2009: AED 54.1 million).
The number of employees at 31 December 2010 was 18,850 (2009: 17,629).
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F-29 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
7) Net finance cost
Recognized in profit or loss 2010 2009 AED’000 AED’000 Arrangement and participation fee (12,666) (34,741) Interest charges (358,515) (274,885) Less: capitalised interest 64,787 100,094 (306,394) (209,532) Net changes in fair value of financial assets at fair value through profit or loss - (639) Ineffective portion of changes in fair value of cash flow hedges (5,303) (3,956) Net changes in fair value of cash flow hedges transferred from equity (142,621) (107,570) Finance costs (454,318) (321,697) Interest income 66,543 38,773 Ineffective portion of changes in fair value of cash flow hedges 3,406 16,726 Finance income 69,949 55,499
Net Finance cost recognised in profit or loss (384,369) (266,198)
Recognized directly in other comprehensive income 2010 2009 AED’000 AED’000 Effective portion of changes in fair value of cash flow hedges (142,263) 29,977 Net changes in fair value of cash flow hedges transferred to profit or loss 142,621 107,570 Finance income recognised in other comprehensive income 358 137,547
Capitalized interest arises on borrowings for development expenditure.
The capitalization rate used to determine the amount of borrowing cost eligible for capitalization varies from 3.5% to 8.0% (2009: 3.5% to 8.1%) depending on the effective interest rate over the tenure of the borrowing.
8) Other expenses – net 2010 2009 AED’000 AED’000
Gain / (loss) on disposal of non-current assets 24,378 (1,886) Project costs written off (17,365) (29,972) Foreign exchange loss (41,968) (4,775) Provision for joint venture receivables (9,788) (25,860) Other income 29,732 61,676
(15,011) (817)
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F-30 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
9) Impairment loss - net 2010 2009 Note AED’000 AED’000
Provision for the investment in joint ventures (refer note(i)) 12 (c ) (608,957) (147,955) Reversal of impairment on investment in a joint venture 12 (c ) - 110,283 (refer note(ii)) Impairment of property, plant and equipment and capital work in (286,245) (86,389) progress (refer notes (iii) & 10) Reversal of impairment of property, plant and equipment 13,273 34,996 (refer notes (iii) & 10)
(881,929) (89,065) i) The Group has performed impairment tests and analysis of its carrying value of receivables and investments in various joint ventures. Based on the results of this analysis, the management is of the view that the carrying value of these receivables and investments has been eroded due to adverse market and business conditions and has, therefore, recognized an impairment loss of AED 609.0 million (2009: 148.0 million) to reflect reduction in the value.
The amount in 2009 represents impairment loss recognized on advances and investments in joint ventures.
ii) In the previous year, Group reversed an impairment loss of AED 110.3 million on its investment in Waterfront City SARL, a joint venture in Lebanon. The impairment provision, which was created in 2006, was reversed due to an improvement in the economic conditions and underlying property values in Lebanon.
iii) In the current year, certain leisure and entertainment assets have been tested for impairment based on the estimated cash flows expected to be generated from the future operations of these assets. Accordingly, an impairment of AED 265.5 million has been recognized in the current year in respect of these assets.
In addition, an impairment loss of AED 3.7 million was recognized for the current year on fixed assets of fashion stores. Reversal of impairment loss on fixed assets in respect of certain other stores amounted to AED 13.3 million (2009: AED 33.2 million).
In 2009, management assessed the recoverability of the carrying amount of a hotel under construction in the UAE and an impairment of AED 37.1 million was recognized in profit or loss.
In 2009, the Group had recognized an impairment loss of AED 14.6 million in respect of an aircraft owned by it. The amount of impairment was determined by comparing the carrying value of the asset and recoverable amount based on the estimate of net selling price.
During the current year, the Group has decided to book an impairment loss for the assets of certain operating units because of unfavorable future projections due to adverse external circumstances. This loss was booked because the recoverable amount of the cash generating units (hypermarkets and supermarkets), which was estimated based on the value in use of the cash generating unit, was lower than the carrying amount of the assets by AED 17.0 million (2009: AED 34.7 million). A discount rate of 9 % was used to derive the net present value of the future cash flows. Accordingly, an impairment loss has been recognized in profit or loss for this amount.
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F-31 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
10) Property, plant and equipment
Furniture Capital Land and Motor fixtures and work in buildings vehicles equipment progress Total AED'000 AED'000 AED'000 AED'000 AED'000
Cost / valuation At 1 January 2009 17,580,988 10,521 2,147,751 2,924,993 22,664,253 Transferred to investment property (refer note (iii)) (442,693) --(1,531,899) (1,974,592) Additions 203,137 722 300,090 1,156,156 1,660,105 Disposals / write offs (516) (2,342) (99,852) (26,286) (128,996) Reclassification - (249) 249 - - Transfer to Capital work-in-progress (refer note (iv)) (282,872) --282,872 - Assets placed in service 351,168 1,055 657,592 (955,971) 53,844 Loss on valuation of properties (refer note (i)) (2,613,744) -- -(2,613,744) Accumulated depreciation eliminated on valuation (473,607) -- -(473,607) Effect of foreign exchange movements 4,588 (45) (5,640) (3,878) (4,975)
At 31 December 2009 14,326,449 9,662 3,000,190 1,845,987 19,182,288 At 1 January 2010 14,326,449 9,662 3,000,190 1,845,987 19,182,288 Transferred to investment property (refer note (ix)) (65,113) - - (73,312) (138,425) Additions 64,411 514 278,920 1,359,553 1,703,398 Disposals / write offs (57,748) (1,486) (130,259) (19,420) (208,913) Transfer to assets held for sale (2,546) - - - (2,546) Reclassification 38,415 - (38,415) - - Assets placed in service 1,547,286 52 365,527 (1,912,865) - Gain on valuation of properties (refer note (i)) 425,707 - - - 425,707 Accumulated depreciation eliminated on valuation (504,745) - - - (504,745) Effect of foreign exchange movements (3,203) (36) (17,637) (668) (21,544) At 31 December 2010 15,768,913 8,706 3,458,326 1,199,275 20,435,220
Depreciation At 1 January 2009 (1,870) (3,056) (1,007,767) - (1,012,693) Charged during the year (refer note 6) (481,533) (1,709) (311,634) - (794,876) On reclassification 1,957 (114) (1,843) - - Impairment loss (refer note 9 (iii)) - - (49,291) (37,098) (86,389) Reversal of impairment (refer note 9 (iii)) - - 33,211 1,785 34,996 Accumulated depreciation eliminated on valuation 473,607 - - - 473,607 On disposals / write offs - 2,179 86,965 - 89,144 Effect of foreign exchange movements 7 16 510 - 533
At 31 December 2009 (7,832) (2,684) (1,249,849) (35,313) (1,295,678) At 1 January 2010 (7,832) (2,684) (1,249,849) (35,313) (1,295,678) Charged during the year (refer note 6) (476,867) (1,288) (398,876) - (877,031) On reclassification (37,098) - - 37,098 - Impairment loss (refer note 9 (iii)) - - (286,245) - (286,245) Reversal of impairment (refer note 9 (iii)) - - 13,273 - 13,273 Accumulated depreciation eliminated on valuation 504,745 - - - 504,745 On disposals / write offs - 649 73,424 - 74,073 Effect of foreign exchange movements 84 15 6,458 - 6,557 At 31 December 2010 (16,968) (3,308) (1,841,815) 1,785 (1,860,306) Net book value At 1 January 2009 17,579,118 7,465 1,139,984 2,924,993 21,651,560 At 31 December 2009 14,318,617 6,978 1,750,341 1,810,674 17,886,610 At 31 December 2010 15,751,945 5,398 1,616,511 1,201,060 18,574,914
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F-32 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
10) Property, plant and equipment (continued)
i) During 2010, the total revaluation gain of AED 425.7 million (2009: loss of AED 2,613.7 million) has been recognized. This comprises a valuation gain of AED 657.0 million (2009: loss of AED 2,322.8 million) which has been credited to revaluation reserve directly in equity and a loss of AED 231.3 million (2009: AED 290.9 million) has been charged to profit and loss. The valuation loss charged to profit and loss pertains to a decrease in the revalued amounts of certain properties in excess of any valuation gain previously recorded in the revaluation reserve for these properties.
ii) During the current year the Group completed the construction of two hotels in the UAE amounting to AED 858.1 million, which were reclassified from capital work in progress to the respective class of assets under property, plant and equipment. The Group also transferred AED 410.9 million on completion of extension of a shopping mall in the UAE from capital work in progress. The Group also completed the construction of a shopping mall, the own use portion of which, amounting to AED 307.5 million was reclassified from capital work in progress.
In 2009, the Group completed the construction of two hotels in the UAE amounting to AED 337 million which were capitalized and reclassified from capital work in progress.
iii) The Group adopted IAS 40 (revised 2008) from its effective date of 1 January 2009. As per the revision to IAS 40, property that is being constructed for future use as investment property is classified as investment property and accounted for at fair value. Accordingly, during the previous year the Group transferred certain malls and a commercial office tower under construction with a carrying value of AED 1,949.5 million at 1 January 2009 from property, plant and equipment to investment property. Furthermore, another property with a carrying value of AED 25 million was transferred due to a change in use from property, plant and equipment to investment property.
iv) In 2009, two plots of land were transferred to capital work-in-progress with the carrying value of AED 282.9 million as management had commenced the development of the projects.
v) Certain properties of the Group are mortgaged against bank borrowings (refer note 25).
vi) Certain lands with a carrying value of AED 6,855.7 million are held in the personal name of the majority shareholder of the Parent Company for the beneficial interest of the Group.
vii) Accrued income relating to the accounting for lease rentals on a straight line basis as per IAS 17 have been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2010 2009 AED'000 AED'000 Fair value of land and buildings 15,837,234 14,398,884 Less: adjustment for accrued operating lease income (85,289) (80,267) Net adjusted fair value 15,751,945 14,318,617
viii) If the properties had been stated under the historical cost basis, the carrying amounts would have been as follows: 2010 2009 Land Buildings Land Buildings AED'000 AED'000 AED'000 AED'000 Cost 649,926 6,512,003 758,900 5,253,434 Accumulated depreciation - (1,674,688) - (1,364,285) Net carrying amount 649,926 4,837,315 758,900 3,889,149
ix) At 31 December 2010, a portion of an office tower in the UAE amounting to AED 65 million, which is a dual use property, has been reclassified from property, plant and equipment to investment property at its fair value due to a change in use.
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F-33 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
10) Property, plant and equipment (continued)
x) The following fair value gains/ (losses) were recognized during the year in the profit or loss: 2010 2009 Note AED'000 AED'000
Loss on valuation of property, plant and equipment 10 (i) (231,293) (290,900) Gain on valuation of investment property 11 (i) 14,194 278,196 Total valuation gain / (loss) (217,099) (12,704)
11) Investment property Land- Land and Capital work undeveloped buildings in progress Total AED'000 AED'000 AED'000 AED'000
Cost / valuation At 1 January 2009 1,579,809 3,934,250 238,142 5,752,201 Transferred from property, plant and equipment 25,000 19,474 1,930,118 1,974,592 (refer note 10 (iii)) Additions 129,143 14,399 1,657,275 1,800,817 Netvaluationgainoninvestmentproperty (231,991) (557,237) 1,067,424 278,196 (refer note (i) below) Assets placed in service (refer note (iii) below) - 384,777 (384,777) - Effect of foreign exchange movements - 6,439 - 6,439
At 31 December 2009 1,501,961 3,802,102 4,508,182 9,812,245 At 1 January 2010 1,501,961 3,802,102 4,508,182 9,812,245 Transferred from property, plant and equipment - 135,567 2,858 138,425 Additions 1,835 22,829 454,132 478,796 Netvaluationgainoninvestmentproperty (110,706) 124,900 - 14,194 (refer note (i) below) Assets placed in service (refer note (ii) below) - 4,227,436 (4,227,436) - Reclassification of assets 71,217 - (71,217) - Disposals - (7,792) - (7,792) Effect of foreign exchange movements (41,706) (61,925) (4,409) (108,040) At 31 December 2010 1,422,601 8,243,117 662,110 10,327,828 Carrying amounts At 1 January 2009 1,579,809 3,934,250 238,142 5,752,201 At 31 December 2009 1,501,961 3,802,102 4,508,182 9,812,245
At 31 December 2010 1,422,601 8,243,117 662,110 10,327,828
i) For the year ended 31 December 2010 a net valuation gain of AED 14.2 million (2009: AED 278.2 million) is included in profit or loss.
ii) During the current year, the Group completed the construction of a mall and office tower in the UAE amounting to AED 4,394.1million and AED 140.9 million respectively. Of this AED 308.0 million relates to a mall which is a dual use property and hence included under property, plant and equipment. Accordingly AED 4,227.0 million has been reclassified from capital work in progress to land and buildings (refer note 10 (ii)).
iii) In 2009, the Group transferred AED 266.3 million on completion of the extension of a shopping mall in Egypt from capital work in progress to land and buildings. An additional expenditure of AED 118.5 million was capitalized on a mall in Bahrain.
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F-34 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
11) Investment property (continued) iv) Certain properties of the Group are mortgaged against bank borrowings (refer note 25). v) A land with a carrying value of AED 45.1 million is held in the personal name of the majority shareholder of the Parent Company for the beneficial interest of the Group. vi) Accrued income relating to the accounting for lease rentals on a straight line basis as per IAS 17 has been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2010 2009 AED'000 AED'000 Fair value of land and buildings 8,288,211 3,811,193 Less: adjustment for accrued operating lease income (45,094) (9,091) Net adjusted fair value 8,243,117 3,802,102
vii) Rental income derived from investment properties during the current year is AED 755 million (2009: AED 315 million). The direct operating expenses arising from investment property that generated rental income during the current year amounted to AED 241 million (2009: AED 200 million). 12) Investments 2010 2009 AED'000 AED'000
Unlisted equities held as fair value through profit and loss (FVPL) 7,600 7,600 (refer note 12(a)) Investment in associate (refer note 12(b)) 260,337 231,879 Investment in joint ventures (refer note 12(c)) 900,901 1,409,215 Total investments 1,168,838 1,648,694
2010 2009 AED'000 AED'000
Share of profit from joint ventures 21,199 36,040 Share of profit / (loss) from associate 17,329 (13,939) 38,528 22,101
12) (a) Unlisted equities held as fair value through profit and loss (FVPL)
This is an investment in Orix Leasing Egypt SAE, an unlisted company incorporated in Egypt. At 31 December 2010, the investment is carried at its estimated fair value. The fair value is calculated as the simple average of PE and PB multiples of a peer group of listed companies operating in the same industry in the region, after incorporating a liquidity discount to reflect the fact that the investment is not listed. Based on the valuation, the fair value of investment is AED 7.6 million (2009: AED 7.6 million).
12) (b) Investment in associates 2010 2009 AED'000 AED'000 At 1 January 231,879 245,818 Additions during the year (refer note below) 9,509 Share of post acquisition gain / (loss) accounted through profit or loss 17,329 (13,939) Foreign currency translation differences from foreign operations 1,620 - At 31 December 260,337 231,879
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F-35 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
12) Investments (continued)
12) (b) Investment in associate (continued)
On 23 December 2009, the Group’s Board of Directors approved the Second Amendment of the JV Agreement entered into between the Group and Dalkia International. As per the terms of the Second Amendment, Dalkia International agreed to transfer its multi-technical businesses (including the contracts, assets, and employees) in Kingdom of Saudi Arabia and Bahrain to Majid Al Futtaim Dalkia LLC. As a result, Majid Al Futtaim Dalkia LLC became the sole and exclusive provider of multi-technical services across a significantly expanded territory, including, UAE, Oman, Egypt, Qatar, Bahrain, Kuwait, Saudi Arabia, Yemen, Iran, Iraq, Jordan, Lebanon, Palestine, and Pakistan.
In return, the Group ceded to Dalkia International the right to consolidate fully Majid Al Futtaim Dalkia LLC as a result of amending the deadlock procedure which effectively gives Dalkia International control over Majid Al Futtaim Dalkia LLC. Hence it was agreed that as of 1 January 2010, the Group deconsolidated Majid Al Futtaim Dalkia LLC and accounted the investment by employing the equity method.
Summarized financial information in respect of the Group's interest in the associates is set out below: 2010 2009 AED'000 AED'000 Total assets 2,324,457 1,904,047 Total liabilities (1,434,397) (1,088,720)
Net assets 890,060 815,327 Group's share of associates' net asset 260,337 231,879 Profit / (loss) for the year 63,844 (101,511) Group's share of associate's profit / (loss) for the year 17,329 (13,939)
12) (c) Investment in joint ventures 2010 2009 AED'000 AED'000 At 1 January 1,409,215 1,211,472 Additions during the year 41,672 98,992 Reclassified from assets held for sale - 33,702 Reclassified to other receivables (272,300) - Reversal of impairment provision (refer note 9) - 110,283 Provision for impairment (336,657) (147,955) Share of post acquisition gain accounted through profit or loss 21,199 36,040 Share of post acquisition gain accounted through other comprehensive 40,390 64,997 income (refer note (i)) Foreign currency translation differences from foreign operations (2,618) 1,684 At 31 December 900,901 1,409,215
i) This comprises the Group’s share of revaluation gains, net of the impact of deferred tax of land and building recorded directly in other comprehensive income by the joint ventures.
Investment amounts in various entities include capital contributions made by the Group in its capacity as a shareholder. These balances are unsecured and interest free in nature and will not be called for repayment, except at the sole discretion of the joint venture entities.
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F-36 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
12) Investments (continued)
12) (c) Investment in joint ventures (continued)
Summarized financial information in respect of the Group’s interest in joint ventures is set out below: 2010 2009 AED'000 AED'000 Total assets (at cost) 4,485,764 4,077,090 Total liabilities (2,466,545) (2,207,765) Net assets 2,019,219 1,869,325 Group's share of joint ventures' net assets (net of impairment) 900,901 806,082 Profit for the year 53,326 73,279 Group's share of joint ventures' profit for the year, 21,199 36,040 including losses on investments exited.
13) Net investment in finance leases 2010 2009 AED'000 AED'000 Lease contracts receivable 314,420 382,287 Residual value of leased assets 199,661 213,656 Gross amount due under finance leases 514,081 595,943 Non-refundable security deposits (199,661) (213,656) Unearned lease finance income (34,251) (39,811) Provision for potential lease losses (refer note 13.1) (34,072) (25,537) 246,097 316,939 Less: lease contracts maturing within one year (179,404) (207,358) Lease contracts maturing after one year 66,693 109,581
The maturity of lease contracts receivable outstanding at 31 December 2010 is as follows:
Less than One to Total oneyear fiveyears AED'000 AED'000 AED'000 Lease contracts receivable 203,568 110,852 314,420 Residual value of leased assets 80,561 119,100 199,661 Gross amount due under finance leases 284,129 229,952 514,081 Non-refundable security deposits (80,561) (119,100) (199,661) Unearned lease finance income (24,164) (10,087) (34,251) Provision for potential lease losses (refer note 13.1) - (34,072) (34,072) Less contracts maturing after one year 179,404 66,693 246,097
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F-37 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
13) Net investment in finance leases (continued)
The maturity of lease contracts receivable outstanding at 31 December 2009 is as follows: Less than One to Total oneyear fiveyears AED'000 AED'000 AED'000 Lease contracts receivable 234,242 148,045 382,287 Residual value of leased assets 84,517 129,139 213,656 Gross amount due under finance leases 318,759 277,184 595,943 Non-refundable security deposits (84,517) (129,139) (213,656) Unearned lease finance income (26,884) (12,927) (39,811) Provision for potential lease losses (refer note 13.1) - (25,537) (25,537) Less contracts maturing after one year 207,358 109,581 316,939
There are no lease contracts receivables over five years. The Group’s mark-up rate on leases ranges between 7% and 15% per annum (2009: 7% and 15%). Lease contracts receivable with a maturity of less than one year are shown in current assets.
13.1) Provision for potential lease losses 2010 2009 AED'000 AED'000 At 1 January 25,537 18,738 Provision during the year 12,777 8,401 Write-off (4,242) (1,602) 34,072 25,537
14) Long term prepaid lease premium 2010 2009 AED'000 AED'000 At 1 January 17,650 19,607 Additions during the year 446 - Amortisation charge for the year (1,944) (1,957) At 31 December 16,152 17,650
This mainly represents the amortized value of the payments made to the landlord of Al Saqr hypermarket of AED 29.4 million towards the cost of construction of the building in which the hypermarket is situated and to the landlord of Ras Al Khaimah hypermarket of AED 1.6 million in respect of the right to enter as a lessee. These payments are in the nature of lease premiums and are amortized over the period of the respective leases which range from 2 to 20 years.
15) Long term advances 2010 2009 AED'000 AED'000 Advances 43,948 22,637 43,948 22,637
Advances mainly represent the unamortized portion of advance rentals paid to landlords' for staff accommodation and certain other landlords for stores.
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F-38 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
16) Intangible assets
2010 2009 AED'000 AED'000 At 1 January 198,743 - Intangible asset recorded during the year 650 198,743 At 31 December 199,393 198,743 2010 2009 Amortisation AED'000 AED'000 At 1 January (6,625) - Charge for the year (19,867) (6,625) At 31 December (26,492) (6,625)
Carrying Amount 172,901 192,118
During 2008, the Group entered into an agreement with a Government entity in the UAE to acquire naming rights for two stations of Dubai Metro for a 10 year period. As per the agreement, a payment schedule is agreed over the life of the contract. In 2009, upon the Metro becoming operational, management recorded the present value of the total future payments to be made as an intangible asset. The asset is being amortized over the contract period of 10 years.
The cash flows have been discounted using the incremental borrowing cost of the Group at 4.5%. The corresponding deferred liability to the Government entity for the Metro naming rights has been booked as follows:
2010 2009 AED'000 AED'000 At 1 January 146,759 - Intangible asset recorded during the year - 198,743 Interest accrued during the year 6,323 2,016 Less: payment made during the year (19,440) (54,000) At 31 December 133,642 146,759 Current maturity of deferred liability (refer note 22) (20,995) (19,440) Long term portion of deferred liability 112,647 127,319
17) Assets classified as held for sale
This represents a plot of land located in Iran which has been transferred from property, plant and equipment as the management is committed to a plan to sell this land. Efforts to sell the land commenced in 2010 and the sale has been completed subsequent to 31 December 2010.
18) Short term loans to related parties 2010 2009 AED'000 AED'000 At 1 January - 83,264 Granted during the year 9,057 - Repaid during the year - (83,264) At 31 December 9,057 -
During the year, the Group provided a short term loan to an associated company, Majid Al Futtaim Dalkia LLC, amounting to AED 9.1 million to fund the working capital requirements of the associated company which is repayable within one year. The loan is interest bearing and carries an interest rate of EIBOR plus 3.75% per annum.
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F-39 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
19) Inventories 2010 2009 AED'000 AED'000 Inventory held for sale 715,326 706,702 Spares and consumables 2,109 13,598 717,435 720,300
20) Trade and other receivables 2010 2009 AED'000 AED'000 Trade receivables 261,909 409,929 Advances, prepayments and deposits 455,665 526,790 Other receivables 236,471 236,769 Accrued interest -1,768 954,045 1,175,256
21) Cash in hand and at bank
Cash in hand represents daily sales takings at stores not deposited, the cash in operation at the central cashier office and petty cash.
Cash at bank represents amount held in current and call accounts and short term deposits with banks at prevailing market interest rates.
22) Trade and other payables 2010 2009 AED'000 AED'000 Trade payables 2,505,363 2,333,040 Accruals 727,407 1,072,022 Current portion of deferred liability (refer note 16) 20,995 19,440 Unearned rental income 415,065 495,463 Retentions 176,224 189,485 Advance receipts 365,478 413,837 Tax payable 57,176 41,275 Provisions 69,969 52,415 Other payables 329,224 87,286 4,666,901 4,704,263
23) Other employment benefits payable At 1 Payment/ At 31 Additions January 2010 transferred December 2010 AED’000 AED’000 AED’000 AED’000 Provision for bonus 200,150 115,453 (135,251) 180,352 Less: Non-current portion (38,151) (16,878) 2,909 (52,120) Current portion 161,999 98,575 (132,342) 128,232
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
23) Other employment benefits payable (continued)
At 1 Payment/ At 31 Additions January 2009 transferred December 2009 AED’000 AED’000 AED’000 AED’000 Provision for bonus 250,268 145,948 (196,066) 200,150 Less: Non-current portion (105,000) 12,499 54,350 (38,151) Current portion 145,268 158,447 (141,716) 161,999
The bonus provision of AED 180.3 million (2009: AED 200.2 million) includes AED 52.1 million (2009: 38.1 million) which is part of the deferred bonus plan for the senior management staff, and is expected to be paid after one year from the reporting date.
23.1) Provision for staff terminal benefits 2010 2009 AED'000 AED'000 At 1 January 160,045 138,774 Additions during the period 66,204 59,702 Payments made during the year (37,174) (38,431) Currency translation adjustment (145) - At 31 December 188,930 160,045
24) Bank overdraft
In the ordinary course of business, companies within the Group use overdraft facilities from banks and pay interest at market rates. The Group has bank overdraft facilities of AED 170 million (2009: AED 160 million). The facilities carry interest at 2% - 3% above one month EIBOR and amounts drawn are repayable on demand. The amounts borrowed against these facilities were AED 11.0 million at 31 December 2010 (2009: AED 59.0 million).
25) Long term loans 2010 2009 AED'000 AED'000 At 1 January 10,371,749 8,020,646 Borrowed during the year 3,985,258 3,063,958 Repaid during the year (3,844,954) (713,185) Currency translation adjustment (4,264) 330 At 31 December 10,507,789 10,371,749 Less: Current maturity of long term loan (2,038,016) (2,069,608) Non-current portion 8,469,773 8,302,141
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
25) Long term loans (continued)
The details of long term loans are mentioned below:
Loan facility Loan amount at Repayment Repayment Maturity date 31 December Interval Commencement ’000 AED ’000 Quarterly AED 1,139,000 1,139,000 27-Mar-11 29-Dec-13 (refer note (b) AED 765,000 765,000 Revolving NA 23-Oct-11 USD 125,000 458,998 Half yearly 30-Apr-13 31-Oct-15 (AED 459,000) USD 75,000 275,475 Half yearly 30-Apr-13 31-Oct-15 (AED 275,475) OMR 22,000 Half yearly 167,609 25-Oct-08 30-Apr-18 (AED 210,100) refer note (a)) OMR 30,000 Half yearly 286,200 31-Jan-12 31-Jan-22 (AED 286,200) refer note (a)) USD 54,466 39,660 Quarterly 31-Mar-07 31-Dec-11 (AED 200,081) OMR 9,500 Quarterly 9,074 7-Mar-07 17-Dec-11 (AED 90,656) refer note (a)) USD 600,000 Half yearly 2,098,358 31-Mar-10 26-Apr-18 (AED 2,203,200) refer note (e)) USD 300,000 Half yearly 973,177 31-May-09 30-Nov-16 (AED 1,101,900) refer note (c)) USD 50,000 Bullet 183,600 NA 25-Jan-13 (AED 183,600) refer note (d)) USD 50,000 Bullet 183,138 NA 8-Apr-11 (AED 183,600) refer note (d)) USD 33,000 Half yearly 86,027 8-Mar-10 8-Sep-13 (AED 121,240) refer note (d)) AED 40,000 12,500 Quarterly 31-Mar-08 31-Dec-11
AED 100,000 43,750 Quarterly 31-Dec-08 30-Sep-12
AED 50,000 10,000 Quarterly 31-Mar-08 31-Dec-11 Bullet AED 679,505 679,505 NA 7-Jul-12 refer note (f)) USD 315,000 Bullet 1,156,680 NA 7-Jul-12 (AED 1,156,680) refer note (f)) Bullet AED 541,770 82,505 NA 7-Jul-12 refer note (f)) USD 352,500 Bullet 197,388 NA 7-Jul-12 (AED 1,294,380) refer note (f)) USD 95,000 238,650 Quarterly 31-Oct-09 31-Jul-13 (AED 348,840) USD 67,500 41,370 Quarterly 31-Jan-08 31-Oct-10 (AED 247,860) AED 106,000 53,000 Quarterly 26-Jan-09 26-Oct-12
AED 368,000 368,000 Annual 26-Aug-11 26-Aug-14 USD 125,000 459,125 Bullet NA 3-Aug-12 (AED 459,125) AED 300,000 225,000 Semi Annual 6-Sep-09 6-Mar-15
AED 275,000 275,000 Quarterly 24-Jan-11 25-Oct-14 Total 10,507,789
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
25) Long term loans (continued)
The above loans are obtained at margins ranging from 1.0% to 3.3% (2009: 0.5% to 3.5%) over the base lending rate, whilst three loans are fixed at 6.5% and one loan is fixed at 6% (2009: 6.5% for two loans). For loans obtained in the UAE, the base lending rate used is generally EIBOR / LIBOR.
The amount of AED 2,038.0 million (2009: AED 2,069.6 million) is payable within the next 12 months for the above loans and is shown under current maturity of long term loans.
a) The loans in Omani Riyal are secured against:
i A registered first charge on all assets of Muscat City Centre including land, buildings and equipment but excluding fit-outs and equipment owned by tenants (refer note 10); and
ii Assignment of all insurance policies related to the fixed assets of Muscat City Centre.
b) The loan facility of AED 1,139.0 million was obtained during 2010 and is secured by way of assignment of lease rentals of a shopping mall in UAE and a corporate guarantee provided by Majid Al Futtaim Properties LLC, a subsidiary.
c) The USD 300 million loan obtained by a subsidiary in Bahrain is secured against:
i A first ranking mortgage over the property of a shopping mall in Bahrain, a first ranking fixed and floating charge over the subsidiary’s assets and accounts, pledge of the subsidiary’s shares, assignment of insurances, and assignment of the subsidiary’s rights under the project documents (refer note 10); and ii A corporate guarantee was provided by Majid Al Futtaim Properties LLC, a subsidiary against the outstanding loan for the construction and stabilization of the project. d) The USD 133 million loans of a subsidiary in Egypt are secured by way of bank guarantees. e) The USD 600 million loan facility is secured by a mortgage on the land and assignment of insurance policies of the property and future lease rentals of a shopping mall in UAE (refer note 11). f) This loan is guaranteed by Majid Al Futtaim Properties LLC, a subsidiary. g) Other than the securities referred to above, the remaining loans are unsecured. The carrying value of properties mortgaged against the above loans aggregates to AED 11,215.8 million (2009: AED 7,242.5 million).
26) Share capital and reserves
26.1) Share capital 2010 2009 AED'000 AED'000
Issued and fully paid 2,486,729 shares of AED 1000/- each 2,486,729 2,486,729
2,486,729 2,486,729
26.2) Statutory reserve
In accordance with the Articles of Association of entities in the Group and relevant local laws, 10% of the net profit for the year of the individual entities, to which the law is applicable, is transferred to a statutory reserve. Such transfers may be discontinued when the reserve equals the limit prescribed by the relevant laws applicable to individual entities. This reserve can be utilized only in the manner specified under the relevant laws and is not available for distribution. During the current year Group had transferred AED 54.4 million to reserves (2009: AED 40.6 million).
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
26) Share capital and reserves (continued)
26.3) Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedges related to hedged transactions that have not yet occurred.
26.4) Currency translation reserve The currency translation reserve comprises all foreign currency differences arising from translation of the financial statements of foreign operations. 27) Taxation Current tax expenses 2010 2009 AED'000 AED'000 Tax for current period 59,771 29,233 Adjustment for prior periods 1,739 220 Tax expense for the year 61,510 29,453 Deferred tax expenses Origination / (reversal) of temporary differences 17,383 (5,242) 17,383 (5,242) Net tax charge 78,893 24,211
Reconciliation of effective tax rate 2010 2010 2009 2009 % AED '000 % AED '000 (Loss) / profit for the period (144,184) 479,268 Income tax charge - net 78,893 24,211 (Loss) / profit before income tax - (65,291) - 503,479 Income tax using the Group’s domestic tax rate 0.00% - 0.00% - Effect of tax rates in foreign jurisdictions -88.72% 57,926 6.59% 33,173 Non-deductible expenses -2.83% 1,845 -0.35% (1,779) Deferred tax on revaluation losses/(gains) -26.62% 17,383 -1.04% (5,242) Recognition of previously unrecognised losses 0.00% - -0.43% (2,161) Under provided in prior periods -2.66% 1,739 0.04% 220 Total -120.83% 78,893 4.81% 24,211
Income Tax Recognised Directly in Equity 2010 2009 AED'000 AED'000 Deferred tax (credit) / charge on revaluation (loss) / gain on (19,333) 16,928 property, plant and equipment Total income tax recognised directly in equity (19,333) 16,928
Deferred tax liability has been computed on the taxable temporary differences arising as a result of valuation gain on properties in Egypt, Syria and Lebanon. The tax rates in these countries are 20%, 28% and 15% respectively. During 2007, the Group recognized deferred tax liabilities in respect of taxable temporary differences in respect of revaluation gain recognized in the consolidated income statement and consolidated statement of changes in equity. Accordingly, the resulting deferred tax expense was charged to the consolidated income statement and consolidated statement of changes in equity respectively.
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
27) Taxation (continued)
For the year ended 31 December 2010, a deferred tax charge of AED 19.2 million (2009: a deferred tax credit of AED 5.2 million) is included in profit or loss in respect of the taxable temporary difference of AED 104.7 million (2009: tax credit of AED 6.7 million) in respect of investment property. A deferred tax credit of AED 19.3 million (2009: tax expense of AED 16.9 million) has been credited (2009: credited) to equity for the reversal (2009: origination) of taxable temporary differences of AED 96.6 million (2009: AED 84.6 million) in respect of property, plant and equipment.
The subsidiaries' tax assessments for the pervious years have not been finalized by the tax authorities. The management consider that additional taxes, if any, that may become payable on the finalization of the assessments of the open tax years would not be significant to the subsidiaries' financial position at 31 December 2010.
Deferred tax asset 2010 2009 AED'000 AED'000 At 1 January -- Credited to profit or loss 1,864 - 1,864 -
Deferred tax asset of AED 1.86 million has been recognized by a subsidiary of Group in Egypt at the enacted tax rate of 20%. AED 1.61 million is recognized in respect of reduction in corporate tax liability due to the deduction in 2009 and 2010 resulting from the new property tax law and AED 0.25 million is recognized in respect of carry forward of tax losses of AED 1.28 million.
Deferred tax liability 2010 2009 AED'000 AED'000 At 1 January 195,978 184,292 Charged / (writeback) to profit or loss 19,247 (5,242) (Writeback) / charged to equity (19,333) 16,928 Foreign currency translation difference from foreign operations (2,836) - At 31 December 193,056 195,978
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
28. Related party transactions
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include the Parent Company and its shareholders, fellow subsidiaries, associates, joint ventures, key management personnel and / or their close family members. Transactions with related parties are carried out at agreed terms.
Due from related parties: 2010 2009 AED'000 AED'000 The Egypt Emirates Mall Group SAE 52,405 55,468 Majid Al Futtaim Trust LLC - 18,506 Majid Al Futtaim Capital LLC 1,813 36,264 Aya Real Estate Investment BSC 2,983 3,000 Yenkit Tourism Development 28,900 28,213 City Centre Essa Town Co. WLL 10,938 10,938 Sharjah Real Estate Development Holding (Brajeel) PSC - 10,643 Al Mamzar Island Development LLC 2,582 2,412 Arzanah Mall LLC 3,171 3,140 Others 5,371 4,072 Provision for doubtful receivables from related parties (35,670) (25,860) 72,493 146,796
Due to related parties: 2010 2009 AED'000 AED'000 Others 62,867 44,511 62,867 44,511
Compensation to key management personnel The aggregate compensation of key management personnel including non-executive directors is disclosed as follows:
2010 2009 AED'000 AED'000 Directors' fees and expenses 15,322 15,871 Employee benefits (salaries and allowances including provision for bonus) 69,066 36,963 Post employment benefits (provision for end of service benefits) 2,655 7,588 87,043 60,422
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
28.1) Discontinued operations At 21 July 2010, the Company has entered into an agreement with Majid Al Futtaim Trust LLC, a company under the common control of the Parent Company, to dispose off the investment in a wholly owned subsidiary, Majid Al Futtaim Asset Management Holdings LLC, (MAFAM), at the agreed purchased consideration of AED 22 million. The business of MAFAM was not treated as a discontinued operation or treated as held for sale in the financial statements for the year ended 31 December 2009. Consequently, comparatives in the statement of comprehensive income have been reclassified to show the discontinued operations separately from continued operations. The operating results for the year from discontinued operations are as follows:
Discontinued Operations 2010 2009 AED'000 AED'000
Revenue -70,848 Operating expenes -(47,671) Profit for the year from the discontinued operations - 23,177
The net asset value of MAFAM was as follows: At 31 At the date December of disposal 2009 AED'000 AED'000
Cash and cash equivalents 49,022 47,625 Receivables and prepayments 5,406 9,500 Due from related parties -16,759 Furniture, fixtures and equipment 2,916 3,113 Total assets 57,344 76,997 Due to related parties - (6,736) Payables and accruals (12,167) (25,084) Net assets 45,177 45,177 Less: consideration received (22,000) - Loss on disposal 23,177 -
29) Financial instruments
Financial assets of the Group include investment in equity, cash at bank and in hand, trade and other receivables, amounts due from related parties, short term loans, and long term receivables. Financial liabilities of the Group include amounts due to related parties, short term loans, bank overdraft, long term loans and other payables. Accounting policies for financial assets and liabilities are set out in note 3. 29.1) Financial risk management objectives and policies The Board of Directors of Majid Al Futtaim Group LLC has the overall responsibility for the management of risk throughout its Group companies. The Board establishes and regularly reviews the Company's risk management strategy, policies and procedures to ensure that they are inline with The Group strategies and objectives. The Group has adopted a standard methodology consistent with the Combined Code on Risk Management and ISO Guide 73 (Risk Management). It has constituted Audit Committees within the board of directors of Majid Al Futtaim Group’s main operating subsidiaries who are required to review and assess the risk management process. It ensures that the internal risk management framework is effective, that a sound system of risk management is in place, and is maintained to safeguard shareholders’ interests. All Group companies are required to report on risk management on a regular basis including self certification indicating that they have reviewed the risks identified within their area, and they are satisfied that the controls are operating effectively.
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
29) Financial instruments (continued)
29.1) Financial risk management objectives and policies (continued)
The main risks arising from the Group’s financial instruments are credit risk, liquidity risk, and market risk, including foreign currency risk, interest rate risk and equity risk. The management establishes and reviews policies for managing each of these risks.
29.2) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or a counter party to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables and net investment in finance leases.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Majority of the Group's income is by way of cash and advance receipts and is supported by a deposit equivalent to one month's advance rental. Credit evaluations are performed on all customers requiring credit over a certain amount and there is no concentration of credit risk. Cash is placed with a diversified portfolio of reputable banks and the risk of default is considered remote. Under the current economic conditions, management has assessed the recoverability of its trade receivables as at the reporting date and considers them to be recoverable. Amounts due from related parties are considered by management to be fully recoverable.
The credit risk management framework of the Group in relation to finance leases includes:
x Adhering to credit policies which are formulated by a separate Credit Department and reviewed and approved by the Board’s Executive Committee. The Credit Department is responsible for overseeing the Company’s credit risk, with direct reporting to the Managing Director;
x Monitoring credit policies and guidelines on a regular basis to incorporate any changes in the regulatory requirements or to improve upon the existing practices;
x Establishing authorization structure and limits of credit approval and renewal of financing facilities;
x Reviewing and assessing credit exposures in accordance with authorization structure and limits, prior to financing facilities being committed to lessees. Renewing of financing facilities are subject to the same review process;
x Diversifying of lending activities to avoid undue concentration of risks with individuals, groups or specific industry segments;
x Limiting concentration of exposures to industry segments and type of assets; and
x Reviewing of compliance, on an on going basis, with established exposure limits relating to the industry segments and assets types and review of limits in accordance with management strategy and market trends. Credit risk on gross amounts due in relation to investment in finance leases is further mitigated by the retention of title on leased assets, security deposits and maintaining an allowance for potential lease losses.
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
29.2) Credit risk (continued)
The carrying amount of Group’s financial assets represents the maximum exposure to credit risk. The maximum exposure to credit risk at the reporting date was:
Carrying Carrying amount amount 2010 2009 AED'000 AED'000
FVPL financial assets 7,600 7,600 Short term loan to a related party 9,057 - Net investment in finance leases 246,097 316,939 Trade receivables 261,909 409,929 Other receivables 304,087 276,649 Due from related parties 72,493 146,796 Cash at bank 2,138,945 2,338,641
3,040,188 3,496,554
29.3) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when they become due without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk through the use of bank overdrafts, bank loans and credit facilities.
As at 31 December 2010 Carrying Contractual 6months 6-12 1-2 2-5 More than 5 AED’000 amount cash flows or less months years years years Secured bank loans 7,242,261 8,522,491 561,993 384,878 2,940,496 2,403,825 2,231,299 Other loans and borrowings 3,276,547 3,660,699 236,982 1,147,808 921,975 1,353,934 - Trade and other payables 4,066,710 4,066,710 - 4,014,590 52,120 - - Due to related parties 62,867 62,867 - 62,867 - - - Derivative financial liabilities -Forward exchange contracts 1,934 1,934 1,934 - - - - -Interest rate swaps 80,198 86,459 16,404 15,254 24,745 28,396 1,660 -Interest rate collars 138,548 166,206 46,452 38,063 46,493 34,706 492 Total 14,869,065 16,567,366 863,765 5,663,460 3,985,829 3,820,861 2,233,451
As at 31 December 2009 Carrying Contractual 6 months 6-12 1-2 2-5 More than 5 AED’000 amount cash flows or less months years years years
Secured bank loans 7,690,861 9,096,695 503,271 1,240,669 497,935 4,461,712 2,393,108 Other loans and borrowings 2,739,831 2,955,894 382,244 258,871 1,146,920 1,142,617 25,242 Trade and other payables 3,995,113 3,995,113 - 3,956,962 38,151 - - Due to related parties 44,511 44,511 - 44,511 - - - Derivative financial liabilities -Forward exchange contracts 4,121 4,121 4,121 -- - - -Interest rate swaps 66,473 70,993 17,524 15,552 19,818 17,630 469 -Interest rate collars 146,163 167,550 53,987 47,851 54,177 20,145 (8,610) Total 14,687,073 16,334,877 961,147 5,564,416 1,757,001 5,642,104 2,410,209
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
29.3) Liquidity risk (continued) Funding and Liquidity At 31 December 2010, the Group has net current liabilities of AED 2,946.2 million (2009: AED 2,611.6 million) which includes debt maturing in the short-term of AED 2,038.0 million (2009: AED 2,069.6 million). Furthermore, at 31 December 2010 debt maturing in the long term is AED 8,469.8 million (2009: AED 8,302.1 million). Furthermore, during 2011, the Group expects to incur interest cost of AED 663.0 million and committed capital expenditure of AED 937.0 million.
To meet the above commitments the Group has existing undrawn facilities of AED 2,900 million, cash in hand at 31 December 2010 of AED 2,277 million and it expects to generate cash from operations of AED 2,475 million in 2011. At 31 December 2010, the Group is in compliance with all covenants under its credit facilities.
29.4) Market risk
Market risk is the risk of changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Group’s income or the value of its holdings of financial instruments. The Group seeks to apply hedge accounting to manage volatility in its profit or loss in relation to its exposure to interest rate risk.
29.4.1) Foreign currency risk
The Group is exposed to foreign currency risk on its net investments in foreign subsidiaries and operations. The Group is also exposed to foreign currency risk on purchases denominated in foreign currencies.
The Group hedges the risk by obtaining foreign exchange forward contracts on all material foreign currency purchases. All of the forward exchange contracts have maturities of less than one year after the reporting date. Where necessary, forward exchange contracts are rolled over at maturity.
Foreign currency sensitivity analysis
Significant portion of the Group’s foreign currency borrowings and balances are denominated in US Dollar (USD) and other currencies linked to US Dollar. As the Group’s functional currency is currently pegged to USD therefore, any fluctuation in exchange rate is not likely to have a significant impact on Group’s equity and profit or loss.
29.4.2) Interest rate risk
The Group reckons that in order to balance the interest rate sensitivity of its assets should have a liability duration of 3.9 years with a maximum duration of + / - one year. This is achieved through managing the duration of interest- bearing portfolio and by using derivative financial instruments such as interest rate swaps and collars as part of the Groups interest rate risk management. These are entered into pursuant to master agreements that provide for a single net payment to be made by one counter party at each due date. The fair value of swap agreements is estimated based on proprietary pricing models or market quotes provided by the bank. Net interest paid or received related to these agreements is recorded using the accrual method and is recorded as an adjustment to interest expense. Interest on borrowed funds is charged at EIBOR/ LIBOR plus a fixed margin negotiated prior to executing the loan. At year end the duration of liability portfolio including derivatives stays at 1.5 years. The Board has advised that this should be adjusted in accordance with the policy by June 2011.
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
29.4.2) Interest rate risk (continued)
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
2010 2009 AED’000 AED’000
Fixed rate instruments Financial assets 246,097 316,939 Financial liabilities (737,883) (206,643)
(491,786) 110,296
Variable rate instruments Financial liabilities (9,780,925) (10,224,049)
(9,780,925) (10,224,049)
Sensitivity analysis for variable rate instruments A change of 100 basis points in the interest rate at the reporting date would have increased / (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables in particular foreign currency rates remain constant. Increase / Effect on pre-tax profit or Effect on other (decrease) in loss comprehensive income basis points December December December December 2010 2009 2010 2009 Variable rate instrument + 100 (83,515) (88,064) - - Interest rate swap + 100 - - 24,933 29,761 Interest rate collar + 100 5,575 13,407 53,832 55,898 Cash flow sensitivity (net) (77,940) (74,657) 78,765 85,659 Variable rate instrument - 100 83,515 88,064 0 - Interest rate swap - 100 - - (34,658) (36,274) Interest rate collar - 100 - - (45,714) (80,809) Cash flow sensitivity (net) 83,515 88,064 (80,372) (117,083)
29.5) Fair values
The fair value of the Group's financials assets and liabilities are not materially different from their carrying amounts
Basis for determining fair values Following significant methods and assumptions were used in estimating the fair values of above financial instruments:
Derivatives: The fair values are obtained from quoted market prices available from the counterparty bank, discounted cash flow models and valuation models as appropriate. The Group uses widely recognized valuation models for determining the fair value of common and simpler financial instruments like options and interest rate swaps. For these financial instruments, inputs into models are market observable.
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
29.5) Fair values (continued)
Long term receivables:
The fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date
Non-derivative financial liabilities:
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date
Related party balances:
Amounts due from and due to related parties are generally repayable on demand and are carried at cost under current assets and liabilities. Net investment in finance lease:
The fair value of net investment in finance leases has been estimated to approximate the carrying amount as the average duration of the leases is less then three years.
Interest rates used for determining fair value:
The interest rates used to discount estimated cash flows, where applicable, are based on the spot rates derived from the interpolated yield curve at the reporting date and were in the in the following range:
2010 2009
Derivatives 0.29% to 3.05% 0.25% to 3.50% Borrowings 0.29% to 3.05% 0.25% to 3.50%
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
29.6) Derivative instruments designated as cash flow hedges
At the end of the reporting year, the Group held the following derivative instruments, designated as cash flow hedges in relation to floating rate interest-bearing loans and borrowings:
Instrument Period to Commencement date Fair value of (liabilities) maturity 2010 2009 AED'000 AED'000
Interest rate swap 30-Nov-2016 30-Nov-2006 (80,198) (66,473)
Interest rate collar 9-Jul-2012 9-Jul-2007 (34,519) (42,316) 25-Jul-2011 25-Jul-2007 (8,467) (20,632) 8-Aug-2010 8-Aug-2007 - (9,149) 28-Aug-2011 28-Aug-2007 (9,684) (19,825) 31-Mar-2018 30-Sep-2008 (85,878) (54,241)
(138,548) (146,163) Total (218,746) (212,636)
The following table indicates the periods in which the cash flows associated with derivatives that are designated as cash flow hedges are expected to occur: As at 31 December 2010 Carrying Expected 6months 6to12 1to2 2to5 Morethan AED'000 amount cash flows or less months years years 5 years Interest rate swaps: Liabilities (80,198) (86,459) (16,404) (15,254) (24,745) (28,396) (1,660) Interest rate collars: Liabilities (138,548) (166,206) (46,452) (38,063) (46,493) (34,706) (492) (218,746) (252,665) (62,856) (53,317) (71,238) (63,102) (2,152)
As at 31 December 2009 Carrying Expected 6 months 6 to 12 1 to 2 2 to 5 More than AED'000 amount cash flows or less months years years 5 years Interest rate swaps: Liabilities (66,473) (70,993) (17,524) (15,552) (19,818) (17,630) (469) Interest rate collars: Liabilities (146,163) (167,550) (53,987) (47,851) (54,177) (20,145) 8,610 (212,636) (238,543) (71,511) (63,403) (73,995) (37,775) 8,141
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
29.7) Capital management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support future development of the business and maximize shareholder value.
The Group also uses gearing ratio to monitor its capital, which is calculated as debt divided by total capital. The Group includes within debt, long term interest bearing loans and borrowings. Capital includes equity attributable to the equity holders including retained earnings, revaluation and other reserves. The Group has various borrowing arrangements which require maintaining certain net worth, interest coverage and debt equity ratio. Apart from these requirements and except as discussed below, neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
2010 2009 AED '000 AED '000 Interest bearing loans and borrowings 10,518,808 10,430,692 Share capital 2,486,729 2,486,729 Other reserves 3,282,412 3,963,462 Revaluation reserve 12,213,802 11,497,078 Non-controlling interest 427,488 307,023 Total capital 18,410,431 18,254,292 Gearing ratio 57% 57%
The Group has various borrowing arrangements which require maintaining certain net worth, interest coverage and debt equity ratio. Apart from these requirements neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
Regulatory capital
In respect of a subsidiary of the Group involved in leasing of moveable assets, the subsidiary's regulator, UAE Central Bank sets and monitors capital requirements for the subsidiary. In implementing current capital requirements, UAE Central Bank requires the subsidiary to maintain capital at a minimum of 15% of the total available funds.
The capital ratios of the subsidiary as at 31 December were as follows: 2010 2009 AED '000 AED '000 Paid-up capital 150,000 150,000 Reserves 50,783 54,857 Total equity 200,783 204,857 Total borrowing 77,269 135,000 Total funds available 278,052 339,857 Capital ratio 72% 60%
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
30) Acquisition of non-controlling interest
Majid Al Futtaim Finance LLC On 18 March 2010, the Group entered into a Share Sale and Purchase Agreement with Orix Corporation and JCB International Co. Ltd (“the Sellers”) to purchase the remaining 40% share capital of Majid Al Futtaim Finance LLC (24,000 shares at AED 1,000 per share) from the Sellers. In return, the Group paid the Sellers a total consideration of AED 12.0 million (AED 9.0 million to Orix Corporation and AED 3.0 million to JCB International Co. Ltd.). Accordingly, the Group’s equity interest in Majid Al Futtaim Finance LLC increased from 60% to 100%. The following summarizes the consideration transferred, and the recognized amounts of assets acquired and liabilities assumed at the acquisition date:
2010 AED’000 Consideration transferred 12,000 Less: Identifiable net assets acquired 1,765 Excess of consideration paid over the identifiable net assets acquired 10,235
The excess of consideration over the net assets acquired amounting to AED 10.2 million was recorded as debit to retained earnings.
Majid Al Futtaim Cinemas LLC On 21 October 2010, the Group entered into a Share Purchase Agreement with Greater Union Holdings Limited to purchase the remaining 49% shareholding in Majid Al Futtaim Cinemas LLC (27,903 shares at AED 1,000 per share) from Amalgamated Holding Limited for a purchase price of AED 283.0 million. Accordingly, the Group’s equity interest in Majid Al Futtaim Cinemas LLC increased from 51% to 100%.
The following summarizes the consideration transferred, and the recognized amounts of assets acquired and liabilities assumed at the acquisition date: 2010 AED’000 Consideration transferred 283,000 Less: Identifiable net assets acquired 44,880 Excess of consideration paid over the identifiable net assets acquired 238,120
The access of consideration over the net assets acquired amounting to AED 238.1 million was recorded as a debit to retained earnings.
Saudi Hypermarkets LLC
In January 2009, the Group acquired an additional 25 percent interest in Saudi Hypermarkets LLC at a consideration of AED 99.3 million, thereby increasing its ownership from 75% to 100% percent. The total consideration of AED 99.3 million was settled through a cash payment of AED 58.8 million and the remaining balance of AED 40.5 million was adjusted against an equivalent amount receivable by the subsidiary from the non-controlling interest shareholder. The carrying amount of Saudi Hypermarkets LLC's net assets in the consolidated financial statements on the date of acquisition was AED 12.9 million. Accordingly, the Group recognized a decrease in non-controlling interest of AED 3.2 million and a decrease in retained earnings of AED 96.1 million.
Furthermore, the contribution by the non-controlling interest shareholder to the losses of the subsidiary in prior years amounting to AED 74.7 million was classified as a liability up to 31 December 2008. During the current year, following the acquisition of the share of non-controlling interest shareholder, this amount has been adjusted in equity.
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
30) Acquisition of non-controlling interest (continued) The following summarizes the effect of changes in the Group's ownership interest in Saudi Hypermarkets LLC: 2009 AED '000 Parent's ownership interest at the beginning of the year 9,711 Effect of increase in parent's ownership interest 3,237 Share of comprehensive income 705 Parent's ownership interest at the end of the year 13,653 31) Contingent liabilities, guarantees and commitments Capital commitments of the Group at 31 December 2010 amounted to AED 4,333.5 million (December 2009: AED 6,215.0 million). Letters of credit contracts outstanding at 31 December 2010 amounted to AED nil (2009: AED nil) and forward contracts amounted to AED 1.95 million (2009: AED 7.1 million). At 31 December 2010, guarantees of AED 3,328 million (2009: AED 4,694 million) remained outstanding. A legal case has been brought against the Group for termination of a lease agreement. Currently, the evaluation is being made by the court whether the case should be taken to arbitration to comply with the lease contract or to commercial court. Management is of the view that currently there is no significant financial implication arising from this legal case. During the year, a JV company that is 50% owned by the Group has been subject to arbitration proceedings on the grounds of non- payment of installments for purchase of land, for a total claim of AED 2,614 million. The Group has received legal advice that the concerned JV company has strong grounds on which to contest the claim and that the outcome of any adverse arbitration ruling will not result in financial liability to the Group. 32) Operating lease commitments Operating leases a) Leases as lessor The Group leases out its property under operating leases as lessor. Non-cancellable operating lease rentals are receivable as follows: 2010 2009 AED'000 AED'000 Less than one year 1,366,055 1,239,580 Between one and five years 4,580,178 3,469,005 More than five years 1,006,382 624,208 Total 6,952,615 5,332,793
b) Leases as lessee
The Group leases some properties under operating leases as lessee. Non-cancellable operating lease rentals are payable as follows: 2010 2009 AED'000 AED'000 Less than one year 246,104 211,751 Between one and five years 1,138,737 859,771 More than five years 3,302,470 2,410,835 Total 4,687,311 3,482,357
33) Subsequent events
There have been no significant events up to the date of authorization, which would have a material effect on these consolidated financial statements. -57-
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Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
34) Subsidiaries, associate and joint ventures
The consolidated financial statements include the results of the following subsidiaries: Subsidiaries Country Effective ownership% of incorporation 2010 2009 Majid Al Futtaim Commercial Development LLC U.A.E. 100% 100% Majid Al Futtaim Properties LLC U.A.E. 100% 100% Majid Al Futtaim Leisure and Entertainment LLC U.A.E. 100% 100% MAF Technological Systems LLC (dormant) U.A.E. 100% 100% Majid Al Futtaim Retail LLC U.A.E. 100% 100% Majid Al Futtaim Ventures LLC U.A.E. 100% 100% Majid Al Futtaim Hospitality LLC U.A.E. 100% 100% Majid Al Futtaim Fashions LLC U.A.E. 100% 100% Majid Al Futtaim Syria for Investment and Development LLC U.A.E. 100% 100% Majid Al Futtaim Properties Lebanon LLC U.A.E. 100% 100% Majid Al Futtaim Syria for Investment and Development LLC U.A.E. 100% 100% Majid Al Futtaim Shopping Malls LLC (dormant) U.A.E. 100% 100% Majid Al Futtaim Developments LLC (dormant) U.A.E. 100% 100% Majid Al Futtaim Investments Mirdiff LLC U.A.E. 100% 100% MAM Investments LLC U.A.E. 100% 100% Majid Al Futtaim Malls International LLC (dormant) U.A.E. 100% 100% Majid Al Futtaim Asset Management Holdings LLC (refer note 28.1) U.A.E. NA 100% Fujairah City Centre Investment LLC U.A.E. 62.50% 62.50% Majid Al Futtaim Hypermarkets LLC U.A.E. 75% 75% Al Saqr Hypermarket LLC U.A.E. 75% 75% MAF Orix Finance Co. PJSC U.A.E. 60% 60% Majid Al Futtaim Cinemas LLC (refer note 30) U.A.E. 100% 51% Majid Al Futtaim Dalkia Middle East LLC (refer note 12(b) U.A.E. NA 51% Majid Al Futtaim Finance LLC (refer note 30) U.A.E. 100% 60% Majid Al Futtaim Shopping Malls KSA Saudi Arabia 100% 100% Saudi Hypermarkets Company LLC Saudi Arabia 100% 100% MAF Fashion KSA LLC Saudi Arabia 75% 75% International Property Services LLC Oman 100% 100% Arabian Entertainment Services LLC Oman 100% 100% Majid Al Futtaim Hypermarkets LLC, Oman Oman 75.25% 75.25% MAF Fashion Qatar LLC Qatar 100% 100% Majid Al Futtaim Hypermarkets Qatar WLL Qatar 75% 75% MAF Lebanon for Commercial and Real Estate Investments SARL Lebanon 100% 100% Suburban Development Company SAL Lebanon 92.7% 92.7% MAF Lebanon Holding SAL Lebanon 100% 100% MAF Misr for Commercial and Real Estate Investment Company SAE Egypt 100% 100% MAF for Installation and Management of Hypermarkets SAE Egypt 75% 75% MAF for Real Estate Investment SAE (dormant) Egypt 100% 100% MAF Investments Bahrain BSC Bahrain 100% 100% MAF Fashion Bahrain SPC Bahrain 100% 100% MAF Hypermarkets Bahrain SPC Bahrain 75% 75% MAF Fashion Ready Wear W.L.L. Kuwait 100% 100% MAF Retail Kuwait for Central Markets WLL Kuwait 99.9% 99.9% MAF Fashion Cyprus Cyprus 100% 100% Societe Tunisia WIFEK (dormant) Tunisia 100% 100% Majid Al Futtaim North Africa SARL (dormant) Tunisia 100% 100% Bab Al Madina Company Property Investment Limited Yemen 51% 51% Majid Al Futtaim Hypermarkets Jordan LLC Jordan 75% 75% Majid Al Futtaim Lil Aswak Al Tijariah LLC Syria 75% 75% MAF Hypermarkets Pakistan (Private) Limited Pakistan 75% 75%
Shares in certain subsidiary companies are held by the subsidiaries of the Group companies for the beneficial interest of the Group.
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F-57 Level: 1 – From: 1 – Monday, May 23, 2011 – 22:52 – eprint6 – 4331 Section 10(a)
Consolidated Financial Statements for the year ended 31 December 2010 Majid Al Futtaim Group LLC
34) Subsidiaries, associate and joint ventures (continued)
Associate Country Effective ownership% of incorporation 2010 2009 Enshaa PSC U.A.E. 28.44% 28.44% Majid Al Futtaim Dalkia Middle East LLC (refer note 12(b) U.A.E. 51.00% NA Joint ventures Country Effective ownership% of incorporation 2010 2009 Sharjah Real Estate U.A.E 50% 50% Arzanah Mall LLC U.A.E 50% 50% Al Mamzar Islands Development U.A.E 50% 50% Hydra Properties PJSC U.A.E NA 50% Yenkit Tourism Development Oman 60% 60% The Wave Muscat S.A.O.C Oman 50% 50% Qatar Entertainment City Co. Qatar 50% 50% Waterfront City SARL Lebanon 50% 50% The Egypt Emirates Malls Egypt 50% 50% Aya Real estate Investment BSC Bahrain 50% 50% City Centre Essa Town Co. WLL Bahrain 50% 50% Al Shaya Kuwait 50% 50% Bab Al Madina Libya 50% 50% *MAFI-NLC Developments Pakistan 55% 55%
*Liquidated during 2010.
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F-59 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
F-60 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
F-61 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Consolidated statement of comprehensive income For the year ended 31 December In thousands of AED
Notes 2009 2008
Revenue 5 15,971,772 14,745,899 Cost of sales (11,583,144) (10,673,424) Operating expenses 6 (3,538,466) (3,450,624) Net valuation loss on land and buildings 10 (x) (12,704) (248,693) Finance costs 7 (321,697) (307,093) Finance income 7 55,499 105,140 Other (expenses) / income - net 8 (817) 189,111 Impairment (provision) / reversal - net 9 (89,065) (178,752) Share of gain / (loss) in joint ventures & associate 12(b&c) 22,101 (74,688) Profit before tax 503,479 106,876 Income tax (charge) / credit -net 29 (24,211) 1,353 Profit for the year 479,268 108,229 Profit / (loss) attributable to: Owners of the Company 308,241 (32,051) Non-controlling interest 171,027 140,280 Profit for the year 479,268 108,229 Other comprehensive income Currency translation differences in foreign operations 8,605 21,636 Net change in fair value of cash flow hedges transferred to statement of comprehensive income 7 107,570 (318,415) Effective portion of changes in fair value of cash flow hedges 29,977 30,431 Net (loss) / gain on valuation of land and buildings 10 (ii) (2,322,843) 2,787,202 Deferred tax liability (arising) / reversal on revaluation of land and buildings 28 (16,928) 118,982 Share of gain in joint ventures 12 (c) 64,997 - Total other comprehensive income for the year (2,128,622) 2,639,836 Total comprehensive income for the year (1,649,354) 2,748,065 Total Comprehensive income for the year attributable to: Owners of the Company (1,820,171) 2,606,275 Non-controlling interest 170,817 141,790 Total comprehensive income for the year (1,649,354) 2,748,065 The notes on pages 11 to 48 form part of these consolidated financial statements. The report of the independent auditors is set out on pages 3 and 4
6
F-62 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b) - 30,431 21,636 24,009 108,229 118,982 2,787,202 2,748,029 23,097,302 Total - - (318,451) - (2,487,000) - - - 1,510 24,009 interest 141,790 154,204 140,280 129,629 19,993,159 (190,374) (3,389,181) - - 30,431 20,126 118,982 (32,051) (318,451) 2,606,239 2,787,202 22,943,098 (2,487,000) (3,198,807) (5,685,807) (166,365) (5,852,172) 19,863,530 ------30,431 20,126 (32,051) reserves holders of the parent (299,945) (318,451) 7,103,701 3,604,949 (3,198,807) ------(3,198,807) ------20,126 - - - (318,451) - - - 30,431 - - account reserve translation 7 - - - - (32,051) - - - - (3,198,807) - - (32,051) (288,020) 20,126 ------Other Reserves------79,962 (79,962) - - - 79,962 (3,278,769) 118,982 - - 2,787,202 ------2,906,184 Share Revaluation Statutory Profit and loss Hedging Currency Total other Attributable to equity Non-controlling capital reserve reserve 4,973,729 10,865,668 1,025,739 6,157,420 (69,962) (9,496) 2,486,729 13,771,852 1,105,701 2,846,600 (357,982) 10,630 (2,487,000) (2,487,000) nces in foreign operations Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009 At 31 December 2008 Net gain on valuation of land and buildings (refer note 10 (ii)) Consolidated statement of changes in equityFor the year ended 31 December 2008 In thousands of AED Total comprehensive income for the year Net (loss) for the year Other comprehensive income Reversal of deferred tax liabilityNet on change revaluation in loss fair on value of propertiesincome cash (refer flow note hedges 29) transferred to statement of comprehensive Effective portion of changes in fair value of cash flow hedges Total comprehensive income for the year Transactions with owners recorded directly in equity Contribution by and distributions to owners and other movements in equity Capital reduction (refer note 28) Transfer to statutory reserve (refer note 33) Total Contribution by and distribution to owners At 1 January 2008 Increase in non controlling interest Currency translation differe Dividends declared and paid
F-63 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b) - 8,605 1,806 64,997 29,977 74,701 479,268 107,570 19,993,159 18,254,292 Total - (2,322,843) - -- (16,928) - - (210) 1,806 6,577 (89,513) 74,701 (3,237) (99,327) interest 170,817 (1,649,354) 307,023 171,027 129,629 (66,693) (66,693) - 8,815 29,977 64,997 308,241 107,570 (16,928) (96,090) (96,090) 17,947,269 19,863,530 (2,322,843) (1,820,171) ------8,815 29,977 454,603 308,241 107,570 (96,090) (96,090) reserves holders of the parent 3,963,462 3,604,949 Total other Attributable to equity Non-controlling ------Currency - - - - 8,815 ------29,977 - - 107,570 - - 308,241 137,547 8,815 account reserve translation (96,090) 8 - - - - 308,241 ------Other Reserves------40,607 (40,607) - - - 40,607 (136,697) 928) 64,997 - (16, - (2,322,843) ------(2,274,774) - Share Revaluation Statutory Profit and loss Hedging capital reserve reserve 2,486,729 11,497,078 1,146,308 3,018,144 (220,435) 19,445 2,486,729 13,771,852 1,105,701 2,846,600 (357,982) 10,630 hedges transferred to statement of comprehensive w flo h nces in foreign operations value of cas r Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009 fai n et change i Increase in non controlling interest Deferred tax liability on revaluation on properties (referShare note of 29) gain in Joint Ventures Net loss on valuation of land and buildings (refer note 10 (ii)) Consolidated statement of changes in equityFor (continued) the year ended 31 December 2009 In thousands of AED Total comprehensive income for the year Net profit for the year Other comprehensive income N income Effective portion of changes in fair value of cash flow hedges Currency translation differe Total comprehensive income for the year Acquisition of non-controlling interest (refer note 32) Transfer to statutory reserve (refer note 33) Total Contribution by and distribution to owners The notes on pages 11 to 48 form part of these consolidated financial statements. At 1 January 2009 At 31 December 2009 Transactions with owners recorded directly in equity Contribution by and distributions to owners and other movement in equity Dividends declared and paid Losses absorbed by non-controlling interest
F-64 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Consolidated statement of cash flows For the year ended 31 December In thousands of AED
Note 2009 2008
Profit for the period after tax 479,268 108,229 Non-cash adjustments: Interest income 7 (55,499) (105,140) Net valuation loss on land and building 10 & 11 12,704 248,693 Interest charges 7 321,697 307,093 Depreciation 10 794,876 637,881 Deferred tax credit 29 (5,242) (19,939) Amortisation of intangible assets 6 8,582 2,227 Project cost written off 8 29,972 51,941 Movement in long term prepaid rentals - net 4,634 (16,268) Movement in accrued lease rental charges - net 5,780 16,360 Share of (gain) / loss in joint ventures and associate 12 (b & c) (22,101) 74,688 Provision for potential lease losses 13 6,799 10,542 Income from FVPL investments - net - 2,678 Impairment provision / (reversals) - net 9 89,065 178,752 (Profit) / loss on disposal of non-current assets 8 1,886 (239,688) Provision for receivable from joint ventures 8 25,860 6,223 Provision for staff termination benefits - net 25.1 21,271 36,970 Others 8,134 6,364 Cash generated from operations 1,727,686 1,307,606 Changes to working capital Inventories (35,747) (200,160) Receivables and prepayments 60,076 (180,223) Payables and accruals 174,488 1,343,426 Due from/to related parties 26,075 (216,360) 224,892 746,683 Cash inflow from operating activities 1,952,578 2,054,289
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F-65 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Consolidated statement of cash flows (continued) For the year ended 31 December In thousands of AED 2009 2008
Cash inflow from operating activities 1,952,578 2,054,289 Cashflow from Investing activities Acquisition of property, plant and equipment (including investment 10 & 11 property and capital-work in progress) (3,460,922) (3,671,356) Proceeds from sale of property, plant and equipment 12,163 748,224 Capital advance 16 1,468 (55,312) Investment in joint ventures and associate (28,187) (366,295) Investment in finance lease 151,729 (102,136) Investment in a subsidiary 32 (58,812) - Payments against intangibles assets 17 (54,000) Movement in short term fixed deposits - net - 150,000 Interest received 86,531 93,050 Cash used in investing activities (3,350,030) (3,203,825) Cashflow from financing activities Short term loans received - 156,700 Short term loans repaid 23 (83,264) (227,246) Long term loans received 27 3,063,958 5,246,434 Long term loan repaid 27 (713,185) (3,027,523) Interest paid (497,683) (360,319) Non controlling interest equity injection 1,806 24,009 Dividend paid to minority shareholders (185,943) (255,124) Cashflow from financing activities 1,585,689 1,556,931 Increase in cash and cash equivalents 188,237 407,395 Cash and cash equivalents at the beginning of the year 2,175,461 1,768,066 Cash and cash equivalents at the end of the year 2,363,698 2,175,461 Cash and cash equivalents comprise: Cash in hand and at bank 2,422,641 2,215,472 Bank overdraft (58,943) (40,011) 2,363,698 2,175,461 The notes on pages 11 to 48 form part of these consolidated financial statements. The report of the independent auditors is set out on pages 3 and 4
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F-66 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Notes to the consolidated financial statements 1) Legal status and principal activities Majid Al Futtaim Group LLC (“the Company”), is registered as a limited liability company in the Emirate of Dubai under the UAE Federal Law No. 8 of 1984 (as amended) as applicable to commercial companies. The principal activities of the Company are establishing, investing in and managing commercial projects. The activities of its subsidiaries are establishment and management of malls, hotels, hypermarkets, supermarkets and retail stores, leisure activities and investment activities. The status of these subsidiaries is set out in note 36. The Company and its subsidiaries are collectively referred to as “the Group” The registered address of the Company is P.O Box 91100, Dubai, United Arab Emirates. Majid Al Futtaim Group LLC is fully owned by Majid Al Futtaim Capital LLC ("the Parent Company"). The registered address of the Parent Company is P.O Box 91100, Dubai, United Arab Emirates.
2) Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the International Accounting Standards Board and the requirements of the UAE Federal Law No. 8 of 1984 (as amended).
(b) Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention except for investment properties, certain classes of property, plant and equipment, financial instruments at fair value through profit or loss and derivative financial instruments which are measured at fair value. The methods used to measure fair values are discussed further in note 31.
(c) Functional and presentation currency
These consolidated financial statements are presented in United Arab Emirates Dirhams (“AED”), which is the Company’s functional currency, and are rounded to the nearest thousand.
(d) Changes in accounting policies Effective 1 January 2009, the Group has changed its accounting policies in the following areas:
(i) Classification of investment properties
The Group adopted IAS 40 (revised 2008) from its effective date of 1 January 2009. As per the revision to IAS 40, property that is being constructed for future use as investment property is classified as investment property and accounted for at fair value. Previously, such properties were classified as property, plant and equipment and accounted for at cost less impairment losses, if any. If the accounting policy had not changed, the profit for the current year would have been lower by AED 1,067.4 million.
(ii) Presentation of financial statements
The Group applies revised IAS 1 Presentation of Financial Statements (revised 2007), which became effective as of 1 January 2009. As a result, all changes in equity, other than those resulting from transactions with owners, are presented in a consolidated statement of comprehensive income. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings.
(iii) Disclosure pertaining to fair values and liquidity risk for financial instruments
The Group has applied Improving Disclosures about Financial Instruments (amendments to IFRS 7), issued in March 2009, that require enhanced disclosures about fair value measurements and liquidity risk in respect of financial instruments. The amendments require that the fair value measurements disclosures use a three-level fair value hierarchy that reflects the significance of the inputs used in measuring fair values of the financial instruments. Specific disclosures are required when the fair value measurements are categorized as Level 3 (significant unobservable inputs) in the fair value hierarchy. The amendments require that any significant transfers between Level 1 and Level 2 to the fair value hierarchy be disclosed separately, distinguishing between transfers into and out of each level. Furthermore, changes in valuation techniques from one period to another, including the reasons thereof, are required to be disclosed for each class of financial instruments.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
2) Basis of preparation (continued) (iii) Disclosure pertaining to fair values and liquidity risk for financial instruments (continued) Revised disclosures in respect of fair values of financial instruments have been disclosed in note 4 to the consolidated financial statements. Further the definition of liquidity risk has been amended and it is now defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The amendments require disclosure of a maturity analysis for non-derivative financial liabilities, but contractual maturities are required to be disclosed for derivative financial liabilities only when contractual maturities are essential for an understanding of the timing of cash flows. For issued financial guarantee contracts, the amendments require the maximum amount of the guarantee to be disclosed in the earliest period in which the guarantee could be called. Revised disclosures in respect of liquidity risk are included in note 31. (e) Use of estimates and judgements
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised and in any future years affected. In particular, information about significant area of estimation, uncertainty and critical judgment in applying accounting policies that have significant effect on amounts recognized in the consolidated financial statements are described in note 4.
3) Significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented except as stated in note 2 (d).
(a) Basis of consolidation
These consolidated financial statements present the results of operations and financial position of the Group for the year ended 31 December 2009. i) Subsidiaries
Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed where necessary to align them with the policies adopted by the Group. ii) Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognized gains and losses of associates using the equity method of accounting, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate.
iii) Joint ventures A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity and exists when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The Group has contractual arrangements with other parties representing joint ventures; which take the form of a jointly controlled entity. A jointly controlled entity involves the establishment of a separate entity in which each venturer has an interest, under contractual arrangement that establishes joint control over the entity. The Group reports its interest in jointly controlled entities using the equity method whereby the interest in the joint venture is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of net assets of the jointly controlled entity.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued) iii) Joint ventures (continued)
The profit or loss of the Group includes its share of the profit and loss of jointly controlled entities. The financial statements of the Group’s jointly controlled entities are prepared using consistent accounting policies. Wherever necessary, adjustments are made to bring accounting policies in line with those of the Group.
iv) Business combinations involving entities under common control
A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The Group has applied the book value measurement method to all transactions involving entities under common control.
v) Transactions eliminated on consolidation
Intra-group balances and transactions and any unrealised gains and losses arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised gains arising from transactions with jointly controlled entities and associates are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(b) Foreign currency
Foreign currency transactions
Transactions denominated in foreign currencies are translated into functional currency and recorded at the rates of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into functional currency at the exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to functional currency at the exchange rates ruling at the dates when the fair value was determined. Non- monetary assets and liabilities denominated in foreign currencies, which are measured in terms of historical cost, are translated into functional currency at the exchange rates ruling at the date of the transaction. Foreign exchange differences arising on the translation of non-monetary assets and liabilities carried at fair value are recognised in the other comprehensive income for the year except for foreign exchange differences arising on the retranslation of non- monetary items in respect of which gains and losses are recognised directly in other comprehensive income. For such non-monetary assets and liabilities, any exchange component of that gain or loss is also recognised directly in other comprehensive income. Foreign operations The assets and liabilities of foreign operations are translated into functional currency at the foreign exchange rates at the reporting date. Share capital is translated at historical rate. The income and expenses of foreign operations are translated into functional currency at average rates of exchange for the year. Foreign exchange differences arising on retranslation are recognised directly in other comprehensive income. On the disposal of a foreign operation, accumulated exchange differences are recognised in the profit or loss as a component of gain or loss on disposal.
(c) Leases
i) Operating leases The Group enters into operating leases. Rental income received from properties as lessor under operating leases is recognised in the profit or loss on a straight-line basis over the lease term. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Lease payments as lessee under operating leases are recognised as an expense in the profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised in the profit or loss as an integral part of the total lease expense, over the term of the lease.
ii) Net investment in finance leases Gross amounts due under originated finance leases include the total of future lease payments on finance leases (lease contracts receivable) plus the estimated residual value of leased assets. The difference between the gross amount due under originated finance leases and the cost of the leased assets is recorded as unearned finance income. The Group takes security deposits on leases with the right to set off. For the purposes of presentation, the unearned finance income and the security deposits are shown as deductions from the gross amounts due under finance lease.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
(c) Leases (continued)
ii) Net investment in finance leases (continued) Impaired finance leases Impaired finance leases are those for which the Group determines that it is probable that it will be unable to collect all principal and finance income due according to the contractual terms of the lease finance agreements. As per the internal evaluation system, finance leases are considered impaired when they are past due by 91 days or more. Past due but not impaired finance leases Past due but not impaired finance leases are those where contractual finance income or principal payments are past due but the Group believes that impairment is not appropriate on the basis of the level of security and/or the stage of collection of amounts owed to the Group. As per the internal evaluation system, finance leases which are past due but not considered impaired are those which are past due over by 30 days but less than 90 days. Finance leases with restructured terms Finance leases with restructured terms are those which have been restructured due to deterioration in the customer’s financial position and where the Group has made concessions that it would not otherwise consider. Once the finance lease is restructured it remains in this category till the satisfactory performance after restructuring. Provision for potential lease losses The provision for leases losses is shown as a deduction from the gross amounts due under finance lease. Specific provisions are made against the carrying amount of lease contract receivables that are identified as being doubtful based on regular reviews of outstanding leases to reduce the lease contract receivables to their recoverable amounts. Collective allowances are maintained to reduce the carrying amount of portfolios of similar lease contract receivables to their estimated recoverable amounts at the reporting date. In evaluating the adequacy of the collective allowances, management considers many factors such as current economic conditions, credit concentrations, historical loss experience etc. Write off policy for finance leases The Group writes off a finance lease receivable (and any related provision for potential lease losses) when a lease contract receivable is known to be uncollectible, all necessary means of collection have been exhausted, and the final loss has been determined.
(d) Finance income and expenses
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in the profit or loss, using the effective interest method. Finance expense comprises interest expense on loans from banks at normal commercial rates. (e) Borrowing costs
Borrowing costs are recognised as expenses in the period in which they are incurred. However, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs continues until the assets are substantially ready for the intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds.
(f) Capital work in progress
Work-in-progress in respect of capital expenditure including land is classified as capital work-in-progress. Interest and other overheads directly attributable to the projects are included in capital work-in-progress until completion thereof. Capital work-in-progress for properties that are being constructed with an intention of building an investment property is carried at its fair value. For other properties that are developed with an intention of constructing an owner occupied property, both the capital expenditure and land is carried at cost, less impairment, if any, until the property is fully developed.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
(g) Development expenditure
Development expenses are charged to the profit or loss as incurred except for development expenditure which complies with the following conditions: - the concept for the new project has been defined; - preliminary market, technical and financial feasibility studies demonstrate a viable project; - the Board has agreed to proceed with developing the project, and believe that it is more probable than not that the project will go ahead; - there is adequate technical, financial and other resources available to complete the development; and - the expenditure can be measured reliably. These development costs are shown as assets under capital work in progress. Development expenses initially charged to the profit or loss are not recognised as an asset in a subsequent period even if it is found that the project to which they relate satisfies the criteria for capitalisation. Development costs carried forward are reviewed in subsequent periods to ensure that circumstances have not changed such that the criteria for capitalisation are no longer met. In these circumstances, the costs are written-off or provided for to the extent they are believed to be irrecoverable. Such provisions are reversed if the circumstances change again and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.
(h) Intangible assets
Goodwill
All business combinations are accounted for by applying the purchase method except for acquisition of entities under common control. The excess of cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition is recorded as goodwill. Negative goodwill arising on acquisition is immediately recognised in the profit or loss. Acquisition of non controlling interests are accounted for as transactions with the equity holders in their capacity as equity holders and therefore, goodwill is not recognised as a result of such transactions. Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses, if any. On disposal of a subsidiary/ joint venture/ associate, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Other intangible assets
Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses, if any. Where the payment term is deferred the cost of the intangible asset is the cash price equivalent. This is the discounted amount. Amortisation Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value. Amortisation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:
Metro naming rights 10 years
(i) Property, plant and equipment
Following initial recognition at cost, developed properties (land and building), mainly comprising hotels, shopping malls and offices, are stated at their revalued amounts, being the fair value at the date of revaluation, less any accumulated depreciation and any impairment losses. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. The revaluation surplus is recognised as a separate component of other comprehensive income.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
All other items of property, plant and equipment, mainly comprising administrative and head office assets, are stated at cost less accumulated depreciation and any impairment losses. The depreciation methods, remaining useful life and residual values of assets, if not insignificant, are reassessed at each reporting date. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (components) of property, plant and equipment. Land on which development work has started with the intention of constructing property, plant and equipment is fair valued at the date
when significant development commences. During the construction period, land is held at its carrying value and development expenditure
is carried at cost. Upon completion of construction, the entire property (that is land and building) is carried at revalued amount. Depreciation is charged to the profit or loss so as to write off the cost / revalued amounts of property, plant and equipment by equal instalments over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows: Buildings 4-35 years Motor vehicles 4years Leisure rides and games 3-10years Furniture, fixtures and equipment 3-15years Valuation surplus relating to buildings is allocated to the building structure and is depreciated over the remaining useful life of the respective building structure which ranges from 23 to 35 years. The portion allocated to land is not depreciated. Cost includes expenditures that are directly attributable to the acquisition of the assets. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit or loss during the financial year in which they are incurred. Any revaluation increase arising on the revaluation of developed properties is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same property previously recognised in the profit or loss, in which case the increase is credited to the profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of properties is charged to the profit or loss except to the extent that it reverses a previously recognised revaluation gain on the property in which case it is debited to revaluation reserve. On subsequent disposal or retirement of a revalued property, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the profit or loss in the year the asset is derecognised. (j) Investment Property
Investment properties are properties held either to earn rental income, for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Following initial recognition at cost, investment property, principally comprising land with undetermined use, certain shopping malls and properties being constructed for future use as investment property is stated at fair value at the reporting date. Gains or losses arising from changes in fair value are included in the profit or loss in the period in which they arise. An investment property is derecognised when either it has been disposed of or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss on the retirement or disposal of an investment property is included in the profit or loss in the period the property is derecognised. Rental income from investment property is accounted for as described in the accounting policy for revenue recognition. Following the adoption of IAS 40 (revised 2008), investment properties under construction have been transferred from property, plant and equipment to investment properties at 1 January 2009 at their carrying amounts. These have subsequently been fair valued at the reporting date. All fair value gains and losses on such properties have been recognised in the profit or loss in the current year.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
(j) Investment Property (continued)
When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as an investment property. Any gain arising on re-measurement is recognised in other comprehensive income. Any loss is recognised immediately in the profit or loss except to the extent that it reverses a previously recognised revaluation gain on the property in which case it is debited to other comprehensive income. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its fair value at the date of reclassification becomes its deemed cost. Change in fair value up to the date of reclassification is recognised directly in the profit or loss. (k) Property valuation The fair value of properties is determined at the reporting date by an independent valuer holding a recognised professional qualification and is the market value of the properties. Market value is the highest possible price for which the property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. If there is no market-based evidence of fair value of a property, fair value is determined using the present value of the estimated future net cash flows for each property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation. Where the valuation of a property comprises the aggregate value of land and building, the valuation is apportioned between land and building based on the depreciated replacement cost of the building, unless another appropriate basis is available for allocation. Change in fair value apportioned to buildings is then allocated to the building structure as it is impracticable to determine the fair value of each component of the building or to use any other reasonable method of approximation to estimate such component values.
(l) Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in the profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in the profit or loss.
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than property, plant and equipment and investment properties that are fair valued, and inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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 the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash generating unit or CGU”). An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in the profit or loss.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
(l) Impairment (continued)
Non-financial assets (continued)
In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill is not reversed.
(m) Financial instruments
Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, trade and other payables, long-term loans, income tax payable, bank borrowings and related party balances. Non-derivative financial instruments are recognised initially at fair value plus transaction cost. Subsequent to initial recognition non- derivative financial instruments are measured at amortised cost less impairment losses. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash in hand, cash at bank and bank overdrafts. For the purpose of the statement of cash flows, bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents. Financial assets at fair value through profit or loss (“FVPL”) A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. All investments are initially recognised at cost, being the fair value of the consideration given including acquisition charges associated with the investment. After initial recognition, investments are measured at fair value. For investments traded in organised financial markets, fair value is determined by reference to stock exchange quoted market prices at the close of business on the reporting date. For investments where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to the current market value of another instrument which is substantially the same, or is based on the expected cash flows or the underlying net asset base of the investment. Any gain or loss arising from a change in fair value of investments is included in the profit or loss in the period in which it arises. Derivative financial instruments Derivative financial instruments are contracts, the value of which is derived from one or more underlying financial instruments and include interest rate swaps and collars. The Group uses derivative instruments for risk management purposes to hedge its exposure to interest rate risks arising from operational, financing and investment activities. Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into; attributable transaction costs are recognised in the profit or loss when incurred. Derivative financial instruments with positive fair values are included in assets and derivative financial instruments with negative fair values are included in liabilities. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. In respect of changes in the fair values of derivative financial instruments that are designated as a hedge of variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly effective forecast transaction that could affect the profit or loss, the effective portion of changes in the fair value of the derivative is recognised directly in the profit or loss. The amount recognised in other comprehensive income is removed and included in the profit or loss in the same period as the hedged cash flows affect. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the profit or loss.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
(m) Financial instruments (continued)
Derivative financial instruments (continued)
If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount recognised in other comprehensive income remains in other comprehensive income until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in equity is recognised immediately in the profit or loss. Any gains or losses arising from changes in fair value of derivative instruments that do not qualify for hedge accounting are taken directly to the profit or loss.
(n) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle (FIFO) and weighted average cost, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business less estimated selling expenses.
(o) Staff terminal and retirement benefits
The provision for staff termination benefits is calculated in accordance with the labour laws in the respective countries and is based on the liability that could arise if the employment of all the group staff were terminated on the reporting date. Under the UAE Federal Law No.7 of 1999 for pension and social security law, employers are required to contribute 12.5% of the ‘contribution calculation salary’ of those employees who are UAE nationals. These employees are also required to contribute 5% of the ‘contribution calculation salary’ to the scheme. The Group’s contribution is recognised as an expense in the profit or loss as incurred.
(p) Long term employee benefits
The Group earlier offered performance based incentives to certain senior management staff under a special incentive scheme. A provision for the Group’s obligation under the scheme was accrued by estimating the present obligation and present value of the estimated future payments as at the reporting date in respect of all applicable employees for their services rendered during the current year. The scheme was discontinued during the year. However, management is still carrying certain provision with respect to the old scheme which would be paid to the employees who were eligible as per the previous scheme. Also refer note-25.
(q) Operating segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by senior management and board of directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Group has five reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer different services and are managed separately because they require different strategic requirements. The following summary describes the operations in each of the Group’s reportable segments:
Properties: includes shopping malls, hotels and residence.
Retail: includes hypermarkets, supermarket and retail stores.
Ventures : includes retail stores, leisure activities, leasing activities and providing facility and energy management services.
Asset Management: includes management of assets, investments, deals with financial products and arrangement of credit.
Head office: includes managing the Group's commercial enterprises.
Inter-segment pricing is determined on an arm’s length basis.
(r) Revenue recognition
Revenue includes amounts derived from the provision of goods and services falling within the Group’s ordinary activities and includes hypermarkets’ revenue, rental income, hospitality services, facility management services, entertainment services, sale of fashion goods, income from net investment in finance lease and income from credit card operations. Revenue from the sale of goods is recognized in the profit or loss when the significant risks and rewards of ownership have passed to the buyer.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
(r) Revenue recognition (continued)
Hypermarket revenue comprises amounts derived from sale of goods falling within the ordinary activities of the Group and are recognised at the time of check-out sales when there is no continuing management involvement with the goods. Listing fees and gondola fees are recognised as income on an accrual basis, when the obligations to display inventories are met. Opening fees, based on agreements with suppliers, are recognised at the time of opening of the store. When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission earned by the Group. Income from rebates and other supplier benefits is recognised on an accrual basis, monthly, according to the agreements with suppliers. For the purpose of presentation, cost of sales is shown net of income from rebates. Lease rental income is recognised on a straight-line basis on the base rent over the term of the lease. Contingent rents are recorded as income in the period in which they are earned. Revenue from hospitality and facility management services is recognised on rendering the services. Revenue from sale of fashion goods is recognised net of discounts and provisions for estimated returns and allowances when the significant risks and rewards of ownership have been transferred to the buyer, recovery of consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement of the goods. Management and performance fee is recognised in income on a monthly basis in accordance with the terms set out in the investment management agreement, taking account of the assets under management at the month end date. Interest income on short term deposits is recognised on an accrual basis. Unearned income on finance lease is amortised to the profit or loss over the term of the lease applying the annuity method so as to produce a systematic return on the net investment in finance lease.
(s) Alcohol
The purchase of alcohol for hotels and residence is the responsibility of the relevant Hotel Management Company, and the revenue derived from sale is deemed to be that of the Hotel Management Company. The profit resulting from the sales of alcoholic beverages forms part of the Hotel Management Company’s incentive fee.
(t) Provisions
A provision is recognised in the reporting date when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
(u) Income tax expense Income tax expense comprises current and deferred tax calculated in accordance with the income tax laws applicable to certain overseas subsidiaries. Income tax expense is recognised in the profit or loss except to the extent it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred assets and liabilities are offset if their is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity or on different taxable entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised only to the extent it is probable that future tax profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
(v) New standards and interpretations issued but not yet effective
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009 and therefore have not been applied in preparing these consolidated financial statements. None of these will have an effect on the consolidated financial statements of the Group, except for:
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
3) Significant accounting policies (continued)
(v) New standards and interpretations issued but not yet effective (continued)
IFRS 9 Financial Instruments, published on 12 November 2009, as part of phase I of IASB’s comprehensive project to replace IAS 39, deals with the classification and measurement of financial assets. The Standard contains two primary measurement categories for financial assets: amortised cost or fair value.
4) Critical judgments in applying the Group’s accounting policies In the process of applying the Group’s accounting policies, which are described in the notes, management has made certain judgments as mentioned below.
Investment property - accounting for dual-use properties
Investment property is property held to either earn rental income or capital appreciation or for both. Certain properties of the Group include a portion that is held to generate rental income or capital appreciation and another portion that is held for own use by the Group in the supply of services or for administrative purposes. Such properties are split between property, plant and equipment and investment properties based on leasable value, subject to the conditions described below. Properties where the let-out portions can be sold or finance leased separately In the UAE, Law No. 27 of 2007 Regulating the Ownership of Jointly Owned Properties in the Emirate of Dubai (“the Strata Law”) came into effect from 1 April 2008. Based on the terms of the Strata Law and clarification obtained by the Group from independent legal advisors, management is of the view that: - it is possible to divide developed property, such as a shopping mall, into separate units; - that conceptually, strata title can validly be created within the shopping malls and individual units or parts may be sold or subject to long leases; and - the Dubai Land Department and the Strata Law both support the above concept. - In countries other than UAE, wherever similar laws exist, the Company splits dual use properties on a similar basis.
Properties where the let-out portions cannot be sold or finance leased separately
Due to legal restrictions in Oman, and in the UAE in respect of properties which are built on land gifted by the Ruler, these properties cannot currently be sold or finance leased separately (in case of UAE, without the prior consent of the Ruler). Consequently, the entire property is classified as investment property only if an insignificant portion is held for own use. In management’s judgment, the level of own use is assessed based on the level of ancillary income earned by the Group from the property as a whole. If the ancillary income exceeds 5% of the total income from the property, then the entire property is classified as property, plant and equipment, at the date when the level of ancillary income exceeds 5%.
Fair value of properties
Fair value of undeveloped land and other developed properties at the reporting date is determined by independent external valuers once every year. Internal valuations are carried out quarterly, based on the methods and assumptions used by the external valuer, to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. In management's judgment, the fair values as determined by the external valuers of the properties developed on gifted land, are realisable subject to the consent of the Ruler’s court. These properties are stated at their fair values, as determine by the external valuers, in the financial statements.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Impairment losses on receivables The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a counterparty’s financial situation and the net realisable value of any underlying collateral. Collectively assessed impairment allowances cover credit losses inherent in portfolios of finance lease receivables with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired lease receivables but the individual impaired items cannot yet be identified. In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors.
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F-77 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
4) Critical judgments in applying the Group’s accounting policies (continued) Key sources of estimation uncertainty (continued) Provision for obsolete inventory The Group reviews its inventory to assess loss on account of obsolescence on a regular basis. In determining whether provision for obsolescence should be recorded in the profit or loss, the Group makes judgments as to whether there is any observable data indicating that there is any future saleability of the product and the net realisable value for such product. Accordingly, provision is made where the net realisable value of inventories is less than cost based on best estimates by the management. The provision for obsolescence of inventory is based on the ageing and past movement of the inventory. Property, plant and equipment Management has not highlighted any requirement for an adjustment to the residual values and remaining useful life of the assets for the current or future periods. Valuation of financial instruments The Group’s accounting policy on fair value measurements is discussed in accounting policy 3(n). The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in the market that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuations. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark profit rates, credit spreads and other premia use in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of financial instruments at the reporting date that would have been determined by market participants acting at arm’s length. The Group uses widely recognized valuation models for determining the fair value of common and more simple financial instruments, that use only observable market data and require little management judgment and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps and collars. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on products and markets and is prone to changes based on specific events and general conditions in the financial markets. The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorized: Carrying amount Level 1 Level 2 Level 3 AED '000 AED '000 AED '000 AED '000 31 December 2009 Financial assets Equities held at fair value through profit and loss 7,600 - 7,600 - 7,600 7,600 Financial liabilities Derivative held for interest rate risk management (212,636) - (212,636) - (212,636) - (212,636) - During 2009, there was no movement between the fair value hierarchies of the derivative financial instruments held by the Group. Furthermore, there has been no change in the valuation techniques in relation to valuation of derivative financial instruments during the year.
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F-78 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b) - Group - 15,971,772 14,745,899 - 22,101 (74,688) Adjustments (after eliminations) Eliminations/ Total ------15,971,772 14,745,899 - -- (37,864) 22,101 (218) (74,688) 13,653 - 1,571 (24,211) 1,353 - Head Office (735) - - Ventures 3,251 - 86,698 61,656 38,931 71,262 338,671 281,483 338,671 281,483 - 765,370 794,833 - 23 - (15,810) (17,088) (84,443) (51,534) (438,696) (353,190) 116,999- 46,097- 1,377,378 1,325,148 (321,697) 1,271,380 9,547,659 (307,093) 1,186,743 5,965,674 6,246,340 47,167,099 2,862,718 40,641,912 23,663,735 (6,280,026) 17,585,456 (6,940,798) 34,361,886 (7,556,141) 33,701,114 (3,877,501) 16,107,594 13,707,955 - 3,735- 3,351 72,365 36,564 167,731 152,749 (112,232) (47,609) 55,499 105,140 ion and services. - Asset Management - Retail ---- business activities; (ii) revenue by product; (iii) its geographical locat Properties 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 (8,430) 13,689 (29,434) (13,172) - 30,013 52,075 61,618 60,75918,850 (74,688) - 213,042 148,565 - 167,172 223,410 471,024 416,641 23,177 - 2,292 (133,148) 198,363 159,054 862,028 665,957 162,478 (559,081) 503,479 106,876 AED '000 AED '000 AED '000 AED '000 AED '000(330,327) AED '000 (279,176) AED '000 (8,116)(489,844) AED '000 (408,323) (5,392) AED '000 (194,342) AED '000 (146,699) - AED '000 AED '000 (331) AED '000 AED '000 - AED '000 (77,731) AED '000 (63,863) (6,695) (2,886) (768,943) (621,771) (25,933) (16,017) (794,876) (637,881) 1,645,782 1,606,580 13,489,773 12,344,486 70,848 2,893,430 2,859,585 352,913 636,402 638 - 460,301 291,752 3,025 63,588 3,710,307 3,851,327 (249,385) (44,129) 3,460,922 3,807,198 33,015,900 30,070,26213,427,639 3,226,162 10,705,145 3,280,828 2,718,376 2,830,850 - - Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009 Others Inter-segment 5) (i) Segment reporting Segment information is presented in respect of (i) the Group's principal Principal activities are as follow: Properties Retail Asset Management Ventures The segment information provided to the Board of Directors forBusiness the reportable segments for the year endedsegments: 31 December 2009 are as follows Revenue Finance costs Finance income Depreciation Capital expenditure Income tax (charge) / Credit Share of income / (loss) in joint ventures & associate Profit/(loss) before tax Total assets Total liabilities
F-79 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
5) (ii) Revenue 2009 2008 AED’000 AED’000
Sales 12,691,220 11,705,065 Listing fees, gondola fees and commissions 798,553 639,421 Rental income 1,377,477 1,196,809 Leisure and entertainment 384,297 385,041 Hospitality revenue 294,281 357,134 Fashion goods 237,972 282,235 Other 187,972 180,194 15,971,772 14,745,899
Commission on sales relates to the sale of products in which the Group acts as an agent in the transaction rather than as the principal. Management considers the following factors for identifying and accounting for agency relationship:
i. The Group does not take title of the goods and has no responsibility in respect of the goods sold; and ii. The Group cannot vary the selling price set by the supplier.
5) (iii) Revenue by geographical market 2009 2008 AED’000 AED’000
UAE 8,633,885 9,199,146 Saudi Arabia 1,596,120 1,342,740 Egypt 1,838,696 1,392,091 Qatar 1,527,609 1,367,474 Oman 813,076 660,352 Jordan 387,484 331,766 Bahrain 450,840 124,913 Iran 196,205 - Syria 94,857 - Pakistan 92,104 - Kuwait 340,896 327,417
15,971,772 14,745,899
5) (iv) Total assets by geographical region 2009 2008 AED’000 AED’000
UAE 25,898,252 23,135,796 Qatar 188,059 187,447 Bahrain 3,204,132 3,757,022 Kuwait 77,120 90,544 Egypt 2,736,927 2,457,157 Lebanon 284,236 1,335,963 Oman 1,108,804 1,589,394 Syria 32,537 347,185 Iran 270,224 159,416 Saudi Arabia 401,690 451,576 Pakistan 88,358 83,455 Others * 71,547 106,159
34,361,886 33,701,114 * Other include Norafco, Tunisia, Libya and Jordan
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F-80 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
6) Operating expenses 2009 2008 AED’000 AED’000
Staff costs (refer note (i) below) (1,440,088) (1,473,860) Rent (237,059) (225,129) Depreciation (794,876) (637,881) Amortisation (8,582) (2,227) Consultancy costs (56,788) (157,700) Legal and professional fees (28,518) (28,376) Selling and marketing expenses (168,926) (186,847) Utilities (194,251) (158,334) Repair and maintenance (62,331) (62,911) Insurance charges (17,083) (12,843) Franchise and management fees (65,107) (81,438) Other general and administrative expenses (464,857) (423,078)
(3,538,466) (3,450,624)
(i) Staff cost includes the following: 2009 2008 AED’000 AED’000
Gratuity cost (59,702) (64,210) Pension cost (3,078) (3,623)
Staff costs are net of staff costs capitalised to various projects under construction amounting to AED 54.1 million (2008: AED 53.4 million). The number of employees at 31 December 2009 was 17,629 (2008: 16,386).
7) Net finance cost 2009 2008 AED’000 AED’000 Arrangement and participation fee (34,741) (12,497) Interest charges (274,885) (316,287) Less: capitalised interest 100,094 68,865 Finance cost (209,532) (259,919) Net changes in fair value of financial assets at fair value through profit and loss (639) (14,816) Ineffective portion of changes in fair value of cash flow hedges (3,956) (1,927) Net changes in fair value of cash flow hedges transferred from equity (107,570) (30,431)
Finance expense (321,697) (307,093)
Interest income from related parties - - Interest income from bank 38,773 95,916 Ineffective portion of changes in fair value of cash flow hedges 16,726 9,224 Finance income 55,499 105,140
Net Finance cost (266,198) (201,953)
Capitalised interest arises on borrowings for development expenditure. The capitalisation rate used to determine the amount of borrowing cost eligible for capitalization varies from 3.5% to 5.1% (2008: 2.1% to 4.7%) depending on the interest rates prevalent on the date of drawdown.
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F-81 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
8) Other (expenses) / income - net 2009 2008 AED’000 AED’000
(Loss) / gain on disposal of non-current assets (1,886) 239,684 Project costs written off (29,972) (51,941) Foreign exchange loss (4,775) (20,650) Provision for joint venture receivables (25,860) (6,223) Other income 61,676 28,241
(817) 189,111
9) Impairment (provision) / reversal - net 2009 2008 Note AED’000 AED’000
Provision for the investment in joint ventures (refer note(i)) 12 (c ) (147,955) - Reversal of impairment on investment in a joint venture (refer note(ii)) 12 (c ) 110,283 - Impairment of goodwill and other assets (refer note (iii)) (86,389) (178,752) Reversal of impairment of property, plant and equipment (refer note (iii)) 34,996
(89,065) (178,752)
(i) A non-refundable advance of AED 31.3 million was paid for a joint venture under incorporation in 2008. As at 31 December 2009, management is in the process of renegotiating the terms of the potential joint venture and due to the likelihood of the joint venture partner not agreeing to the proposed terms, an impairment provision has been recognised for the entire advance.
In previous years, the Group had advanced an amount of AED 389 million as a deposition to a prospective joint venture partner for purchase of land. In 2009, During the year, , management has reassessed the future prospects of the joint venture and an impairment provision of AED 116.7 million has been recognised on the advance.
(ii) During the year, the Group reversed an impairment loss of AED 110.3 million on its investment in Waterfront City SARL, a joint venture in Lebanon. The impairment provision, which was created in 2006, was reversed due to an improvement in the economic conditions and underlying property values.
(iii) In 2009, Management assessed the recoverability of the carrying amount of a hotel under construction in UAE and an impairment of AED 37.1 million was recognised in profit or loss.
During the year, the Group has recognised an impairment loss of AED 14.6 million in respect of an aircraft owned by it. The amount of impairment has been determined by comparing the carrying value of the asset and recoverable amount based on the estimate of net selling price.
During the current year, the Group has decided to book an impairment loss for the assets of certain operating units of Majid Al Futtaim Retail LLC because of unfavourable future projections due to adverse external circumstances. Appropriate action in respect of future operations of these operating units will be taken in 2010. This loss is booked because the recoverable amount of the cash generating units (hypermarkets and supermarkets), which was estimated based on the value in use of the cash generating unit, was lower than the carrying amount of the assets by AED 34.7 million (2008: AED 22.8 million). Accordingly, an impairment loss has been recognised for this amount.
In 2008 Majid Al Futtaim Fashion LLC, a subsidiary, had determined the recoverable amount of the assets based on value in calculation. Based on this calculation, management had concluded that the value of its assets is fully impaired and therefore, goodwill and other intangibles amounting to AED 95 million were fully written off (also refer note 17).
Based on projections made by management of the cash flows of the concerned fixed assets and capital work-in-progress, the Group has reversed impairment losses on fixed assets and capital work-in-progress recorded in Majid Al Futtaim Fashion LLC amounting to AED 33.2 million (2008: impairment of AED 57.7 million) and AED 1.8 million, respectively.
The recoverable amounts of the fixed assets have been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a five-year period. The discount rate applied to cash flow projections is 10%, and cash flows beyond the 5-year period are extrapolated using a zero percent growth rate.
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F-82 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
10) Property, plant and equipment Furniture Capital Land and Motor fixtures and work in buildings vehicles equipment progress Total AED'000 AED'000 AED'000 AED'000 AED'000
Cost / valuation At 1 January 2008 15,310,190 10,380 1,626,938 2,973,998 19,921,506 Transferred to investment property (refer notes ii & v) (3,123,549) ---(3,123,549) Additions 449,892 2,522 251,965 2,951,755 3,656,134 Disposals / write offs (23,473) (2,373) (49,421) (22,031) (97,298) Reclassification 257,253 - 146,943 (404,196) - Transfer from related party - 94 1,818 - 1,912 Assets placed in service 2,390,573 - 166,728 (2,557,301) - Netgainonvaluationoflandandbuildings(refernote(i)) 2,688,530 ---2,688,530 Accumulated depreciation eliminated on valuation (400,358) ---(400,358) Effect of foreign exchange movements 31,930 (102) 2,780 (17,232) 17,376
At 31 December 2008 17,580,988 10,521 2,147,751 2,924,993 22,664,253
At 1 January 2009 17,580,988 10,521 2,147,751 2,924,993 22,664,253 Transferred to investment property (refer note (iii)) (442,693) --(1,531,899) (1,974,592) Additions 203,137 722 300,090 1,156,156 1,660,105 Disposals / write offs (516) (2,342) (99,852) (26,286) (128,996) Reclassification - (249) 249 - Transfer to Capital work-in-progress (refer note (iv)) (282,872) --282,872 - Assets placed in service 351,168 1,055 657,592 (955,971) 53,844 Loss on valuation of properties (refer note (i)) (2,613,744) ---(2,613,744) Accumulated depreciation eliminated on valuation (473,607) ---(473,607) Effect of foreign exchange movements 4,588 (45) (5,640) (3,878) (4,975)
At 31 December 2009 14,326,449 9,662 3,000,190 1,845,987 19,182,288
Depreciation At 1 January 2008 - (2,099) (738,046) - (740,145) Charged during the year (402,228) (1,546) (234,107) - (637,881) Transfer - - (12) - (12) Impairment - (136) (78,609) - (78,745) Accumulated depreciation eliminated on valuation 400,358 631 - - 400,989 Disposals / write offs - 61 43,764 - 43,825 Effect of foreign exchange movements - 33 (757) - (724)
At 31 December 2008 (1,870) (3,056) (1,007,767) - (1,012,693)
At 1 January 2009 (1,870) (3,056) (1,007,767) - (1,012,693) Charged during the year (481,533) (1,709) (311,634) - (794,876) Reclassification 1,957 (114) (1,843) - - Impairment (refer note 9 (iii)) - - (49,291) (37,098) (86,389) Reversal of Impairment (refer note 9 (iii)) 33,211 1,785 34,996 Accumulated depreciation eliminated on valuation 473,607 ---473,607 Disposals / write offs - 2,179 86,965 - 89,144 Effect of foreign exchange movements 7 16 510 - 533
At 31 December 2009 (7,832) (2,684) (1,249,849) (35,313) (1,295,678)
Carrying amounts At 1 January 2008 15,310,190 8,281 888,892 2,973,998 19,181,361 At 31 December 2008 17,579,118 7,465 1,139,984 2,924,993 21,651,560 At 31 December 2009 14,318,617 6,978 1,750,341 1,810,674 17,886,610
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F-83 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
10) Property, plant and equipment (continued)
i) During 2009, the total revaluation loss of AED 2,613.7 million (2008: gain of AED 2,688.5 million) has been recognised. This comprises a valuation loss of AED 2,322.8 million (2008: gain of AED 2,788.2 million) which has been debited to revaluation reserve directly in equity and a loss of AED 290.9 million (2008: 98.7 million) has been charged to profit and loss. The valuation loss charged to profit and loss pertains to a decrease in the revalued amounts of certain properties in excess of any valuation gain previously recorded in the revaluation reserve for these properties.
ii) In the previous year, the Group has transferred some of the shopping malls from property, plant and equipment to investment property at the fair value of AED 621 million.
iii) The Group adopted IAS 40 (revised 2008) from its effective date of 1 January 2009. As per the revision to IAS 40, property that is being constructed for future use as investment property is classified as investment property and accounted for at fair value. Accordingly, the Group transferred certain malls and a commercial office tower under construction with a carrying value of AED 1,949.5 million at 1 January 2009 from property, plant and equipment to investment property. Furthermore, another property with a carrying value of AED 25 million was transferred due to a change in classification from property, plant and equipment to investment property.
iv) In 2009, two plots of land were transferred to capital work-in-progress with the carrying value of AED 282.9 million as management has commenced the development of the projects.
v) In the previous year, the Group completed the construction of a shopping mall, which was partially reclassified from property, plant and equipment to investment property at fair value of AED 2,340 million.
vi) Certain properties of the Group are mortgaged against bank borrowings (refer note 27).
viii) Certain lands are owned by a related party for the beneficial interest of the group.
viii) Accrued income relating to the accounting for lease rentals on a straight line basis as per IAS 17 have been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2009 2008 AED'000 AED'000 Fair value of land and buildings 14,398,884 17,653,766 Less: adjustment for accrued operating lease income (80,267) (60,526) Less: adjustment for capital commitments - (14,122) Net adjusted fair value 14,318,617 17,579,118
ix) If the properties had been stated under the historical cost basis, the carrying amounts would have been as follows: 2009 2008 Land Buildings Land Buildings AED'000 AED'000 AED'000 AED'000 Cost 758,900 5,253,434 1,305,118 4,891,173 Accumulated depreciation - (1,364,285) - (1,109,069) Net carrying amount 758,900 3,889,149 1,305,118 3,782,104
x) The following fair value gains/ (losses) were recognised during the year in the profit or loss:
2009 2008 Note AED'000 AED'000
Loss of valuation of property, plant and equipment 10 (290,900) (98,672) Gain/(loss) of valuation of investment property 11 278,196 (150,021) Total valuation gain / (loss) (12,704) (248,693) xi) The aircraft owned by the Group with a carrying value of AED 36 million (2008: AED nil) is included under furniture fixture and equipment
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F-84 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Land- Land and Capital work 11) Investment property undeveloped buildings in progress Total AED'000 AED'000 AED'000 AED'000
Cost / valuation At 1 January 2008 2,611,537 504,689 - 3,116,226 Transferred from property, plant and equipment (refer note 10 (ii & v)) - 3,123,549 - 3,123,549 Additions - 47,922 103,142 151,064 Net valuation loss on investment property (refer note (ii) below) (348,810) 266,794 (68,006) (150,022) Reclassification (203,006) - 203,006 - Disposals (refer note (v) below) (480,000) (9,105) - (489,105) Effect of foreign exchange movements 88 401 - 489
At 31 December 2008 1,579,809 3,934,250 238,142 5,752,201
At 1 January 2009 1,579,809 3,934,250 238,142 5,752,201 Transferred from property, plant and equipment (refer note 10 (iii)) 25,000 19,474 1,930,118 1,974,592 Additions 129,143 14,399 1,657,275 1,800,817 Netvaluationgainoninvestmentproperty (refer note (ii) below) (231,991) (557,237) 1,067,424 278,196 Assets placed in service (refer note (iii) below) - 384,777 (384,777) - Effect of foreign exchange movements - 6,439 - 6,439
At 31 December 2009 1,501,961 3,802,102 4,508,182 9,812,245
Carrying amounts At 1 January 2008 2,611,537 504,689 - 3,116,226 At 31 December 2008 1,579,809 3,934,250 238,142 5,752,201
At 31 December 2009 1,501,961 3,802,102 4,508,182 9,812,245
i) Investment properties are stated at fair value based on the valuation carried out at each reporting date. The fair value of properties is determined annually by an independent valuer.
ii) For the year ended 31 December 2009 a net valuation gain of AED 278.2 million (2008: net valuation loss of AED 150.0 million) is included in the consolidated statement of comprehensive income.
iii) In 2009, the Group transferred AED 266.3 million on completion of the extension of a shopping mall in Egypt from capital work in progress to land and buildings. An additional expenditure of AED 118.5 million was capitalised on a mall in Bahrain.
iv) Certain properties of the Group are mortgaged against bank borrowings (refer note-27).
v) During previous year, the Group disposed an undeveloped land at a profit of AED 240 million (refer note-8).
vi) Certain lands are owned by a related party for the beneficial interest of the Group
vii) Accrued income relating to the accounting for lease rentals on a straight line basis as per IAS 17 has been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2009 2008 AED'000 AED'000
Fair value of land and buildings 3,811,193 3,970,928 Less: adjustment for accrued operating lease income (9,091) (27,215) Less: adjustment for capital commitments - (9,462)
Net adjusted fair value 3,802,102 3,934,251
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F-85 Level: 1 – From: 1 – Monday, May 23, 2011 – 23:07 – eprint6 – 4331 Section 10(b)
Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
11) Investment property (continued) viii) Rental income derived from investment properties during the current year is AED 375 million (2008: AED 216 million). The direct operating expenses arising from investment property that generated rental income during the current year amounted to AED 200 million (2008: AED 87 million). 2009 2008 12) Investments AED'000 AED'000
Unlisted equities held as fair value through profit and loss (FVPL) (refer note 12(a)) 7,600 7,600 Investment in associate (refer note 12(b)) 231,879 245,818 Investment in joint ventures (refer note 12(c)) 1,409,215 1,211,472 Total investments 1,648,694 1,464,890 12) (a) Unlisted equities held as fair value through profit and loss (FVPL) This is an investment in Orix Leasing Egypt SAE, an unlisted company incorporated in Egypt. At 31 December 2009, the investment is carried at its estimated fair value. The fair value is calculated as the simple average of PE and PB multiples of a peer group of listed companies operating in the same industry in the region, after incorporating a liquidity discount to reflect the fact that the investment is not listed. Based on the valuation, the fair value of investment is AED 7.6 million (2008: AED 7.6 million). 2009 2008 12)(b) Investment in associate AED'000 AED'000 At1January 245,818 251,096 Adjustment for the Group's share of loss of associate (13,939) (5,278) At 31 December 231,879 245,818 Summarised financial information in respect of the Group's interest in the associate is set out below: 2009 2008 AED'000 AED'000 Total assets 1,904,047 1,354,978 Total liabilities (1,088,720) (490,638)
Net assets 815,327 864,340 Group's share of joint ventures' net asset (net of minority interest) 231,879 245,818 (Loss) for the year (101,511) (39,835) Group's share of associate's (loss) for the year (13,939) (5,278) 2009 2008 12) (c) Investment in joint ventures AED'000 AED'000 At1January 1,211,472 855,883 Additions during the year 98,992 424,999 Reclassified from assets held for sale (refer note 19) 33,702 Reversal of impairment provision (refer note 9) 110,283 - Provision for impairment (refer note 9) (147,955) - Share of post acquisition gain / (loss) accounted through profit or loss 36,040 (69,410) Share of post acquisition gain accounted through the statement of comprehensive income (refer note (i)) 64,997 - Foreign currency translation differences from foreign operations 1,684 - At 31 December 1,409,215 1,211,472 i) This comprises the Group’s share of revaluation gains, net of the impact of deferred tax of land and building recorded directly in the statement of comprehensive income by the joint ventures.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
12) Investments (continued) 12) (c ) Investment in joint ventures (continued) Investment amounts in various entities include capital contributions made by the Group in its capacity as a shareholder. These balances are unsecured and interest free in nature and will not be called for repayment, except at the sole discretion of the joint venture entities. Summarised financial information in respect of the Group’s interest in joint ventures is set out below: 2009 2008 AED'000 AED'000 Total assets (at cost) 4,077,090 3,354,160 Total liabilities (2,207,765) (1,441,410) Net assets 1,869,325 1,912,750 Group's share of joint ventures' net assets (net of impairment) 806,082 731,965 Loss for the year 73,279 (118,779) Group's share of joint ventures' profit / (loss) for the year, including losses on investments exited. 36,040 (69,410) 13) Net investment in finance leases 2009 2008 AED'000 AED'000 Lease contracts receivable 382,287 563,383 Residual value of leased assets 213,656 218,219 Gross amount due under finance leases 595,943 781,602 Non-refundable security deposits (213,656) (218,219) Unearned lease finance income (39,811) (69,178) Provision for potential lease losses (refer note 13.1) (25,537) (18,738) 316,939 475,467 Less: lease contracts maturing within one year (207,358) (237,007) Lease contracts maturing after one year 109,581 238,460 The maturity of lease contracts receivable outstanding at 31 December 2009 is as follows: Less than One to one year five years Total AED'000 AED'000 AED'000 Lease contracts receivable 234,242 148,045 382,287 Residual value of leased assets 84,517 129,139 213,656 Gross amount due under finance leases 318,759 277,184 595,943 Non-refundable security deposits (84,517) (129,139) (213,656) Unearned lease finance income (26,884) (12,927) (39,811) Provision for potential lease losses (refer note 13.1) - (25,537) (25,537) Less contracts maturing after one year 207,358 109,581 316,939 The maturity of lease contracts receivable outstanding at 31 December 2008 is as follows: Less than One to one year five years Total AED'000 AED'000 AED'000 Lease contracts receivable 280,173 283,210 563,383 Residual value of leased assets 60,159 158,060 218,219 Gross amount due under finance leases 340,332 441,270 781,602 Non-refundable security deposits (60,159) (158,060) (218,219) Unearned lease finance income (43,166) (26,012) (69,178) Provision for potential lease losses (refer note 13.1) - (18,738) (18,738) Less contracts maturing after one year 237,007 238,460 475,467 There are no lease contracts receivable over five years. The Group’s mark-up rate on leases ranges between 7% and 15% per annum (2008: 7% and 15%). Lease contracts receivable with a maturity of less than one year are shown in current assets.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
13) Net investment in finance leases (continued) 13.1) Provision for potential lease losses 2009 2008 AED'000 AED'000 At1January 18,738 8,196 Provision during the year 8,401 11,161 Write-off (1,602) (619) 25,537 18,738
14) Long term prepaid lease premium 2009 2008 AED'000 AED'000 At1January 19,607 21,564 Amortisation (1,957) (1,957) At 31 December 17,650 19,607 This mainly represents payments made by Group to the landlord of Al Saqr hypermarket of AED 29.4 million towards the cost of construction of the building in which the hypermarket is situated and to the landlord of Ras Al Khaimah hypermarket of AED 1.6 million in respect of the right to enter as a lessee. These payments are in the nature of lease premiums and are amortised over the period of the respective leases.
15) Long term receivable / advances 2009 2008 AED'000 AED'000 Advances 22,637 26,324 22,637 26,324 Advances mainly represent the unamortised portion of advance rentals paid to landlords' for staff accommodation.
16) Capital advance 2009 2008 AED'000 AED'000 At1January 55,312 - Advance - 55,312 Cash rebate (1,468) - Transferred to property, plant and equipment (53,844) - At 31 December - 55,312
17) Intangible assets 2009 2008 AED'000 AED'000 At1January - 95,049 Intangible asset recorded during the year 198,743 - Amortisation charge for the year (6,625) - Impairment of other intangible assets - (95,049) At 31 December 192,118 - At the end of the previous year, management had determined the recoverable amount of the fashion business based on value in use calculation. Management had concluded that the value of assets was fully impaired. Therefore, goodwill amounting to AED 95 million was fully written off. In the previous year, the Group entered into an agreement with a government entity in the UAE to acquire naming rights for two Metro stations for a 10 year period. As per the agreement, a payment schedule is agreed over the life of the contract. In 2009, upon the Metro becoming operational, management recorded the present value of the total future payments to be made as an intangible asset. The asset is being amortised over the contract period of 10 years. The cash flows have been discounted using the incremental borrowing cost of the Group at 4.5%. The corresponding deferred liability for the Metro naming rights had been booked as follow: 2009 2008 AED'000 AED'000 Intangible asset recorded during the year 198,743 - Less: payment made during the year (54,000) - Deferred liability recorded 144,743 - Interest accrued during the year 2,016 - Current maturity of deferred liability (refer note 24) (19,440) - At 31 December 127,319 - 32
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
18) Short term loans to related parties 2009 2008 AED'000 AED'000 At1January - 5,736,984 Adjusted against dividend payable to Parent Company (refer note (i)) - (3,198,806) Adjusted against share capital (refer note (ii) below & 28) - (2,487,020) Loan balance transferred to related party - (74,803) Intercompany balance transferred as loan to related party - 23,645 At 31 December -- i) At 31 December 2007, the Company had a short term loan due from the Parent Company of AED 3,273.6 million against which AED 3,198.8 million was adjusted in respect of dividend declared in 2008. The balance of AED 74.8 million was transferred to the Parent Company's current account. ii) The Company had a short term loan of AED 2,487.0 million receivable from Majid Al Futtaim Trust LLC, which was assigned to the Parent Company in 2008.
19) Assets classified as held for sale 2009 2008 AED'000 AED'000 Land held as contribution towards joint venture - 33,702 - 33,702 This represented land held as contribution towards a joint venture company incorporated in the Kingdom of Bahrain. The Group currently holds the legal title to the piece of land. In 2009, the Group has initiated proceedings to transfer the land to the joint venture and accordingly the amount has been transferred to investment in joint venture (refer note 12 (c)).
20) Inventories 2009 2008 AED'000 AED'000 Inventory held for sale 706,702 669,322 Spares and consumables 13,598 15,231 720,300 684,553
21) Trade and other receivables 2009 2008 AED'000 AED'000 Trade receivables 409,929 302,918 Advances, prepayments and deposits 526,790 677,807 Other receivables 236,769 154,835 Accrued interest 1,768 4,899 1,175,256 1,140,459
22) Cash at bank and in hand Cash in hand represents daily sales takings at stores not deposited, the cash in operation at the central cashier office and petty cash. Cash at bank represents amount held in current and call accounts and short term deposits with banks at prevailing market interest rates.
23) Short term loans 2009 2008 AED'000 AED'000
At1January 83,264 153,810 Borrowed during the year - 156,700 Repaid during the year (83,264) (227,246)
At 31 December - 83,264
During the previous year, the Group had obtained a short term loan facility of AED 156.7 million from a bank at SIBOR plus 1.5%. This loan is fully paid off in the current year.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
24) Trade and other payables 2009 2008 AED'000 AED'000
Trade payables 2,333,040 2,423,030 Accruals 1,567,485 1,325,844 Current portion of deferred liability (refer note 17) 19,440 - Retentions 189,485 186,687 Advance receipts 413,837 280,864 Tax payable 41,275 24,492 Provisions 52,415 33,133 Other payables 87,286 139,311 4,704,263 4,413,361
25) Other employment benefits payable January 2009 Additions transferred 2009 AED’000 AED’000 AED’000 AED’000 Provision for bonus 250,268 145,948 (196,066) 200,150 Less: Non-current portion (105,000) 12,499 54,350 (38,151) Current portion 145,268 158,447 (141,716) 161,999 At 1 Payment/ At 31 December January 2008 Additions transferred 2008 AED’000 AED’000 AED’000 AED’000 Provision for bonus 126,021 251,745 (127,498) 250,268 Less: Non-current portion (36,213) (68,787) - (105,000) Current portion 89,808 182,958 (127,498) 145,268 The bonus provision of AED 200.2 million (2008: AED 250.3 million) includes AED 38 million which is part of the deferred bonus plan for the senior management staff, and is expected to be paid after one year from the balance sheet date.
25.1 Provision for staff termination benefits 2009 2008 AED'000 AED'000 At1January 138,774 101,820 Additions during the period 59,702 64,210 Payments / transferred (38,431) (27,256) At 31 December 160,045 138,774
26) Bank overdraft In the ordinary course of business, companies within the Group use overdraft facilities from banks and pay interest at market rates. The Group has bank overdraft facilities of AED 160 million (2008: AED 80 million). The facilities carry interest at 2% - 2.5% above one month EIBOR and amounts drawn are repayable on demand. The amounts borrowed against these facilities were AED 59 million at 31 December 2009 (2008: AED 40 million).
27) Long term loans 2009 2008 AED'000 AED'000 At1January 8,020,646 5,801,735 Borrowed during the year 3,063,958 5,246,434 Repaid during the year (713,185) (3,027,523) Currency translation adjustment 330 -
At 31 December 10,371,749 8,020,646 Less: Current maturity of long term loan (2,069,608) (966,385) Non-current portion 8,302,141 7,054,261
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
27) Long term loans (continued) The details of long term loans are mentioned below: Loan facility Loan amount at Repayment Repayment Maturity date 31 December Interval Commencement ’000 AED ’000 US$ 62,500 22,950 Quarterly 30-Sep-05 30-Jun-10 (AED 229,500) US$ 54,466 79,769 Quarterly 7-Mar-07 17-Dec-11 (AED 200,081) AED 300,000 274,981 Half-yearly 6-Sep-09 6-Mar-15 OMR 9,500 Quarterly 18,168 31-Mar-02 31-Dec-11 (AED 90,750) (refer note (a)) AED 500,000 83,334 Quarterly 31-Dec-07 28-Jun-10 US$ 125,000 458,998 Bullet 20-Oct-12 20-Oct-12 (AED 459,000) US$ 75,000 275,475 Revolving 29-Nov-12 29-Nov-12 (AED 275,475) US$ 285,000 Revolving 1,046,625 27-Aug-10 27-Aug-10 (AED 1,046,625) (refer note (e)) US$ 50,000 Bullet 182,445 8-Apr-10 8-Apr-10 (AED 183,600) (refer note (c)) US$ 50,000 Bullet 183,745 25-Jan-13 25-Jan-13 (AED 183,600) (refer note (c)) OMR 22,000 Half-yearly 188,475 25-Oct-08 30-Apr-18 (AED 210,100) (refer note(a)) USD 33,000 Bullet 08-Sep-13 121,240 8-Sep-13 (AED 121,240) (refer note (c)) (Under Negotiation) USD 600,000 Half-yearly 1,968,306 31-Mar-10 26-Apr-18 (AED 2,203,200) (refer note (d)) USD 300,000 Half-yearly 1,037,134 31-May-09 30-Nov-16 (AED 1,101,900) (refer note (b)) AED 765,000 765,000 Revolving 23-Nov-11 23-Nov-11
AED 100,000 18,750 Quarterly 1-Dec-06 1-Sep-10
AED 40,000 22,500 Quarterly 31-Mar-08 31-Dec-11
AED 100,000 68,750 Quarterly 31-Dec-08 30-Sep-12
AED 50,000 25,000 Quarterly 31-Mar-08 31-Dec-11 Bullet AED 679,505 679,505 7-Jul-12 7-Jul-12 (refer note (f)) USD 315,000 Bullet 1,156,680 7-Jul-12 7-Jul-12 AED 1,156,680 (refer note (f)) Bullet AED 541,770 327,412 7-Jul-12 7-Jul-12 (refer note (f)) USD 352,500 Bullet 781,126 7-Jul-12 7-Jul-12 AED 1,294,380 (refer note (f)) USD 67,500 82,589 Quarterly 31-Jan-08 31-Oct-10 (AED 247,860) USD 95,000 326,802 Quarterly 31-Oct-09 31-Jul-13 (AED 348,840) USD 60,049 96,491 Quarterly 31-Dec-07 30-Sep-11 (AED 220,500) AED 106,000 79,500 Quarterly 26-Jan-09 26-Oct-12 Total 10,371,749 The above loans are obtained at margins ranging from 0.5% to 3.5% over the base lending rate, whilst two loans are fixed at 6.5%. For loans obtained in the UAE, the base lending rate used is generally EIBOR / LIBOR.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
27) Long term loans (continued)
The amount of AED 2,069.6 million (2008: AED 966.4 million) is payable within the next 12 months for the above loans and is shown under current maturity of long term loans.
a) The loans in Omani Riyal are secured against: i A registered first charge on all assets of Muscat City Centre including land, buildings and equipment but excluding fit- outs and equipment owned by tenants (refer note 10); and ii Assignment of all insurance policies related to the fixed assets of Muscat City Centre. b) The USD 300 million loan obtained on behalf of a subsidiary in Bahrain is secured against:
i A first ranking mortgage over the property, a first ranking fixed and floating charge over the subsidiary’s assets and accounts, pledge of the subsidiary’s shares, assignment of insurances, and assignment of the subsidiary’s rights under the project documents (refer note 10); and ii A corporate guarantee was provided against the outstanding loan during the period for the construction and stabilization of the project. c) The USD 133 million loans of a subsidiary in Egypt are secured by way of bank guarantees.
d) The loan facility is secured by a mortgage on the land and assignment of insurance policies of the property and future lease rentals of the shopping mall operations of Mirdiff City Centre, which is currently under construction.
e) A revolving loan facility of AED 1,046.6 million is due for repayment in August 2010 and accordingly, has been shown under current maturity of long term loan. Management is in the process of refinancing this facility.
f) This loan is guaranteed by Majid Al Futtaim Properties LLC.
h) Other than the securities referred to above, the remaining loans are unsecured.
Certain properties with an aggregate carrying value of AED 4,061.9 million are mortgaged to various loans.
28) Share capital 2009 2008 AED'000 AED'000
Issued and fully paid 2,486,729 shares of AED 1000/- each 2,486,729 4,973,729 Reduction in share capital - (2,487,000)
2,486,729 2,486,729
At the end of previous year, the Directors had resolved to reduce the share capital by AED 2.487 billion and had made an application to the Department of Economic Development, Dubai ("DED"). The share capital reduction had been effected in financial statements by offsetting an equivalent amount of a loan receivable from Majid Al Futtaim Capital LLC, the Parent Company, with the amount payable to the Parent Company in respect of such capital reduction. Subsequent to 31 December 2008, the Group had received a formal approval of the DED for this reduction of share capital. Accordingly, the reduction of share capital had been recognised in the Consolidated financial statements for the year ended 31 December 2008. Also refer note 18.
A dividend of AED nil per share (2008: AED 643 per share) was declared / paid during the year. 29) Taxation Deferred tax liability 2009 2008 AED'000 AED'000 At 1 January 184,292 323,213 (Write back) to income statement (5,242) (19,939) Charge / (write back) to equity 16,928 (118,982) At 31 December 195,978 184,292
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009 29) Taxation (continued)
Deferred tax liability (continued)
Deferred tax liability has been computed on the taxable temporary differences arising as a result of valuation gain on properties in Egypt, Syria and Lebanon. The tax rates in these countries are 20%, 28% and 15% respectively. During 2007, the Group recognised deferred tax liabilities in respect of taxable temporary differences in respect of revaluation gain recognised in the consolidated income statement and consolidated statement of changes in equity. Accordingly, the resulting deferred tax expense was charged to the consolidated income statement and consolidated statement of changes in equity respectively. For the year ended 31 December 2009, a deferred tax credit of AED 5.2 million (2008: AED 19.9 million) is included in the consolidated income statement in respect of the taxable temporary difference of AED 6.7 million (2008: tax credit of AED 93 million) in respect of investment property. A deferred tax expense of AED 16.9 million (2008: tax credit of AED 119 million) has been debited (2008: credited) to equity for the origination (2008: reversal) of taxable temporary differences of AED 84.6 million (2008: AED 410 million) in respect of property, plant and equipment. Current tax expenses 2009 2008 AED'000 AED'000
Current period 29,233 15,238 Adjustment for prior periods 220 3,348 29,453 18,586 Deferred Tax Expenses Origination and reversal of temporary differences (5,242) (19,939) (5,242) (19,939) Net tax charge / (credit) 24,211 (1,353) Reconciliation of effective tax rate 2009 2009 2008 2008 % AED '000 % AED '000
Profit/(loss) for the period 479,268 108,229 Income tax (credit) / charge - net 24,211 (1,353) Profit before income tax 503,479 106,876 Income tax using the Group’s domestic tax rate 0.00% 0.00% - Effect of tax rates in foreign jurisdictions 6.59% 33,173 22.28% 23,813 Non-deductible expenses 0.07% 372 0.46% 489 Deferred tax on revaluation losses/(gains) -1.04% (5,242) -18.66% (19,939) Reversal of deferred tax asset on losses 0.00% - -9.06% (9,682) Deferred tax for other temporary differences -0.43% (2,151) 0.58% 618 Recognition of previously unrecognised losses -0.43% (2,161) 0.00% - Under (over) provided in prior periods 0.04% 220 3.13% 3,348 Total 4.81% 24,211 -1.27% (1,353) Income Tax Recognised Directly in Equity 2009 2008 AED'000 AED'000 Deferred tax (credit) / charge on revaluation (loss) / gain on property, plant and equipment 16,928 (118,982) Total income tax recognised directly in equity 16,928 (118,982)
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
29) Taxation (continued)
The subsidiaries' tax assessments for the pervious years have not been finalised but the tax authorities. The management consider that additional taxes, if any, that may become payable on the finalisation of the assessments of the open tax years would not be significant to the subsidiaries' financial position at 31 December 2009
30) Related party transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include the ultimate parent company and its shareholders, fellow subsidiaries, associates, joint ventures, key management personnel and / or their close family members. Transactions with related parties are carried out at agreed terms. Related party balances 2009 2008 AED'000 AED'000 Due from related parties: The Egypt Emirates Mall Group SAE 55,468 122,274 Majid Al Futtaim Trust LLC 18,506 18,216 Majid Al Futtaim Capital LLC 36,264 - Aya Real Estate Investment BSC 3,000 - Yenkit Tourism Development 28,213 20,424 City Centre Essa Town Co. WLL 10,938 - Sharjah Real Estate Development Holding (Brajeel) PSC 10,643 18,047 Al Mamzar Island Development LLC 2,412 2,606 Arzanah Mall LLC 3,140 - Others 4,072 - Provision for doubtful receivables from related parties (25,860) - 146,796 181,567
Related party balances 2009 2008 AED'000 AED'000
Due to related parties: Majid Al Futtaim Capital LLC - 26,937 Others 44,511 24,759 44,511 51,696 Compensation of key management personnel The aggregate compensation of key management personnel including non-executive directors is disclosed as follows: 2009 2008 AED'000 AED'000 Directors' fees and expenses 15,871 17,881 Employee benefits (salaries and allowances including provision for bonus) 36,963 104,611 Post employment benefits (provision for end of service benefits) 7,588 1,504 60,422 123,996 31) Financial instruments Financial assets of the Group include investment in equity, cash at bank and in hand, trade and other receivables, amounts due from related parties, short term loans, and long term receivables. Financial liabilities of the Group include amounts due to related parties, short term loans, bank overdraft, long term loans and other payables. Accounting policies for financial assets and liabilities are set out in note 3.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
31) Financial instruments (continued)
31.1 Financial risk management objectives and policies The Board of Directors of Majid Al Futtaim Group LLC have the overall responsibility for the management of risk throughout its Group companies. The Board establishes and regularly reviews the Company's risk management strategy, policies and procedures to ensure that they are inline with The Group strategies and objectives. The Group has adopted a standard methodology consistent with the Combined Code on Risk Management and ISO Guide 73 (Risk Management). It has constituted Audit Committees within the board of directors of Majid Al Futtaim Group’s main operating subsidiaries who are required to review and assess the risk management process. It ensures that the internal risk management framework is effective, that a sound system of risk management is in place, and is maintained to safeguard shareholders’ interests. All Group companies are required to report on risk management on a regular basis including self certification indicating that they have reviewed the risks identified within their area, and they are satisfied that the controls are operating effectively. The main risks arising from the Group’s financial instruments are credit risk, liquidity risk, and market risk, including foreign currency risk, interest rate risk and equity risk. The management establishes and reviews policies for managing each of these risks. 31.2 Credit risk Credit risk is the risk of financial loss to the Group if a customer or a counter party to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Most of the Group's income is by way of cash receipts and advance receipts and is supported by a deposit equivalent to one month's advance rental. Credit evaluations are performed on all customers requiring credit over a certain amount and there is no concentration of credit risk. Cash is placed with a diversified portfolio of reputable banks and the risk of default is considered remote. Under the current economic conditions, management has assessed the recoverability of its trade receivables as at the reporting date and considers them to be recoverable. Tenor of the deposits are relatively short and the Group investment policy promotes principal protection over yields. Amounts due from related parties are considered by management to be fully recoverable. The carrying amount of Group’s financial assets represents the maximum exposure to credit risk. The maximum exposure to credit risk at the reporting date was: Carrying Carrying amount amount 2009 2008 AED'000 AED'000
FVPL financial assets 7,600 7,600 Net investment in finance leases 316,939 475,467 Trade receivables 409,929 302,918 Other receivables 276,649 108,627 Due from related parties 146,796 181,567 Cash at bank 2,338,641 2,145,079
3,496,554 3,221,258
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
31.3 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when they become due without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk through the use of bank overdrafts, bank loans and credit facilities. As at 31 December 2009 Carrying Contractual 6 months or 6-12 More than 5 AED’000 1-2 years 2-5 years amount cash flows less months years Secured bank loans* 7,690,861 9,432,409 503,271 1,240,669 497,935 4,630,076 2,560,458 Other loans and borrowings 2,680,888 2,896,951 323,301 258,871 1,146,920 1,142,617 25,242 Trade and other payables 4,238,011 4,238,011 - 4,238,011 - - - Due to related parties 44,511 44,511 - 44,511 - - - Bank overdraft 58,943 60,264 60,264 - - - - Derivative financial liabilities -Forward exchange contracts 4,121 4,121 4,121 - - - - -Interest rate swaps 66,473 70,993 17,524 15,552 19,818 17,630 469 -Interest rate collars 146,163 167,550 53,987 47,851 54,177 20,145 (8,610) Total 14,929,971 16,914,810 962,468 5,845,465 1,718,850 5,810,468 2,577,559
As at 31 December 2008 Carrying Contractual 6 months or 6-12 More than 5 AED’000 1-2 years 2-5 years amount cash flows less months years Secured bank loans* 4,361,048 6,530,749 375,854 100,588 278,715 3,092,406 2,683,186 Other loans and borrowings 3,659,597 3,910,175 282,654 367,826 1,543,340 1,637,375 78,980 Trade and other payables 4,099,364 4,099,364 - 4,099,364 - - - Due to related parties 51,696 51,696 - 51,696 - - - Short term loans 83,263 87,426 2,080 85,346 - - - Bank overdraft 40,011 40,011 40,011 - - - - Derivative financial liabilities -Forward exchange contracts - 23,125 23,125 - - - - -Interest rate swaps 105,941 116,260 9,928 14,871 24,256 45,300 21,905 -Interest rate collars 268,452 265,233 34,945 47,128 80,570 75,620 26,970 Total 12,669,372 15,124,039 768,597 4,766,819 1,926,881 4,850,701 2,811,041 *The Group has included in its contractual cash flows amounts that have not been borrowed as at the year end. The Group is committed towards these borrowings over a period of seven years.
Funding and Liquidity
At 31 December 2009, the Group has net current liabilities of AED 2,611.6 million (2008: AED 1,732.9 million) which includes debt maturing in the short-term of AED 2,069.6 million (2008: AED 966.4 million). Furthermore, at 31 December 2009 debt maturing in the long term is AED 8,302.1 million (2008: AED 7,054.3 million). Also, during 2010, the Group expects to incur interest cost of AED 540 million and committed capital expenditure of AED 2,711.0 million. To meet the above commitments the Group has existing undrawn facilities of AED 1,268.9 million, cash in hand at 31 December 2009 of AED 2,422.6 million and it expects to generate cash from operations of AED 2,338.0 million in 2010. At 31 December 2009, the Group is in compliance with all covenants under its credit facilities.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
31.4 Market risk
Market risk is the risk of changes in market prices, such as foreign exchange rates, interest rates and equity prices,
which will affect the Group’s income or the value of its holdings of financial instruments. The Group seeks to
apply hedge accounting to manage volatility in its income statement in relation to its exposure to interest rate risk.
31.4.1 Foreign currency risk
The Group is exposed to foreign currency risk on its net investments in foreign subsidiaries and operations. The Group is also exposed to foreign currency risk on purchases denominated in foreign currencies. The Group hedges the risk by obtaining foreign exchange forward contracts on all material foreign currency purchases. All of the forward exchange contracts have maturities of less than one year after the balance sheet date. Where necessary, forward exchange contracts are rolled over at maturity.
Foreign currency sensitivity analysis
Significant portion of the Group’s foreign currency borrowings and balances are denominated in US Dollar (USD) and other currencies linked to US Dollar. As the Group’s functional currency is currently pegged to USD therefore, any fluctuation in exchange rate is not likely to have a significant impact on Group’s equity and profit or loss.
31.4.2 Interest rate risk
The Group adopts a policy of ensuring that between 40% and 60% of its exposure on borrowings is on a fixed rate basis. This is achieved through managing the duration of interest-bearing portfolio and by using derivative financial instruments such as interest rate swaps and collars as part of the Groups interest rate risk management. These are entered into pursuant to master agreements that provide for a single net payment to be made by one counter party at each due date. The fair value of swap agreements is estimated based on proprietary pricing models or market quotes provided by the bank. Net interest paid or received related to these agreements is recorded using the accrual method and is recorded as an adjustment to interest expense. Interest on borrowed funds is charged at EIBOR/ LIBOR plus a fixed margin negotiated prior to executing the loan. At 31 December 2009, after taking into account the effect of interest rate swaps and caps, approximately 44% (December 2008: 55%) of the Group’s term borrowings are at a fixed or capped rate of interest. At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
2009 2008 AED’000 AED’000
Fixed rate instruments Financial assets 316,939 475,467 Financial liabilities (206,643) -
110,296 475,467
Variable rate instruments Financial assets -- Financial liabilities (10,224,049) (8,143,921)
(10,224,049) (8,143,921)
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Interest rate sensitivity analysis Sensitivity analysis for variable rate instruments The following table demonstrates the sensitivity of the Group’s profit before tax and the Group’s other comprehensive income to a reasonably possible change in interest rates, assuming all other variables in particular foreign currency rates remain constant. Increase / Effect on pre-tax profit or Effect on other (decrease) in loss comprehensive income basis points December December December December 2009 2008 2009 2008 Variable rate instrument + 100 (102,240) (81,439) - - Interest rate swap + 100 - - 29,761 27,117 Interest rate collar + 100 13,407 (4,971) 55,898 104,019 Interest rate floor + 100 - (1,844) - - Cash flow sensitivity (net) (88,833) (88,254) 85,659 131,136 Variable rate instrument - 100 102,240 81,439 - - Interest rate swap - 100 - - - (45,700) Interest rate collar - 100 - 881 - (104,368) Interest rate floor - 100 - 2,633 - - Cash flow sensitivity (net) 102,240 84,953 - (150,068) 31.5 Fair value The fair value of the Group's financials assets and liabilities are not materially different from their carrying amounts Basis for determining fair values Following significant methods and assumptions were used in estimating the fair values of above financial instruments: Derivatives: The fair values are obtained from quoted market prices available from the counterparty bank, discounted cash flow models and valuation models as appropriate. The Group uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options and interest rate swaps. For these financial instruments, inputs into models are market observable. Long term receivables: The fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. Non-derivative financial liabilities: Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Related party balances: Amounts due from and due to related parties are generally repayable on demand and are carried at cost under current assets and liabilities. Net investment in finance lease The fair value of net investment in finance leases has been estimated to approximate the carrying amount as the average duration of the leases is less then three years.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Basis for determining fair values (continued) Interest rates used for determining fair value: The interest rates used to discount estimated cash flows, where applicable, are based on the spot rates derived from the interpolated yield curve at the reporting date and were in the in the following range: 2009 2008
Derivatives 0.25% to 3.50% 1.40 % to 2.27% Borrowings 0.25% to 3.50% 1.40 % to 2.27% 31.6 Derivative instruments designated as cash flow hedges At the end of the reporting year, the Group held the following derivative instruments, designated as cash flow hedges in relation to floating rate interest-bearing loans and borrowings: Instrument Period to Commencement date Fair value of (liabilities) maturity 2009 2008 AED'000 AED'000
Interest rate swap 30/11/2016 30/11/2006 (66,473) (105,941)
Interest rate collar 31/3/2010 30/3/2007 - (42,706) 9/7/2012 9/7/2007 (42,316) (55,778) 25/7/2011 25/7/2007 (20,632) (27,896) 8/8/2010 8/8/2007 (9,149) (19,121) 28/8/2011 28/8/2007 (19,825) (26,844) 31/03/2018 30/09/2008 (54,241) (96,107)
(146,163) (268,452) Total (212,636) (374,393)
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
31.6 Derivative instruments designated as cash flow hedges (continued)
The following table indicates the periods in which the cash flows associated with derivatives that are designated as cash flow hedges are expected to occur: As at 31 December 2009 Carrying Expected 6 months 6 to 12 1 to 2 2 to 5 More than AED'000 amount cash flows or less months years years 5 years Interest rate swaps: Liabilities (66,473) (70,993) (17,524) (15,552) (19,818) (17,630) (469) Interest rate collars: Liabilities (146,163) (167,550) (53,987) (47,851) (54,177) (20,145) 8,610 (212,636) (238,543) (71,511) (63,403) (73,995) (37,775) 8,141 As at 31 December 2008 Carrying Expected 6 months 6 to 12 1 to 2 2 to 5 More than AED'000 amount cash flows or less months years years 5 years Interest rate swaps: Liabilities (105,941) (116,260) (9,928) (14,871) (24,256) (45,300) (21,905) Interest rate collars: Liabilities (268,452) (265,233) (34,945) (47,128) (80,570) (75,620) (26,970) (374,393) (381,493) (44,873) (61,999) (104,826) (120,920) (48,875) 31.7 Capital management The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support future development of the business and maximize shareholder value. The Group also uses gearing ratio to monitor its capital, which is calculated as debt divided by total capital. The Group includes within debt, long term interest bearing loans and borrowings. Capital includes equity attributable to the equity holders including retained earnings, revaluation and other reserves. 2009 2008 AED '000 AED '000 Interest bearing loans and borrowings 10,430,692 8,143,921 Share capital 2,486,729 2,486,729 Other reserves 3,963,462 3,604,949 Revaluation reserve 11,497,078 13,771,852 Non-controlling interest 307,023 129,629 Total capital 18,254,292 19,993,159 Gearing ratio 57% 41% The Group has various borrowing arrangements which require maintaining certain net worth, interest coverage and debt equity ratio. Apart from these requirements neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Regulatory capital In respect of a subsidiary of the Group involved in leasing of moveable assets, the subsidiary's regulator, UAE Central Bank sets and monitors capital requirements for the subsidiary. In implementing current capital requirements, UAE Central Bank requires the subsidiary to maintain capital at a minimum of 15% of the total available funds. The capital ratios of the subsidiary as at 31 December were as follows: 2009 2008 AED '000 AED '000
Paid-up capital 150,000 150,000 Reserves 54,857 43,336 Total equity 204,857 193,336 Total borrowing 135,000 276,885 Total funds available 339,857 470,221 Capital ratio 60% 41% 32) Acquisition of non-controlling interest In January 2009, the Group acquired an additional 25 percent interest in Saudi Hypermarkets LLC at a consideration of AED 99.3 million, thereby increasing its ownership from 75 to 100 percent. The total consideration of AED 99.3 million was settled through a cash payment of AED 58.8 million and the remaining balance of AED 40.5 million was adjusted against an equivalent amount receivable by the subsidiary from the non-controlling interest shareholder. The carrying amount of Saudi Hypermarkets LLC's net assets in the consolidated financial statements on the date of acquisition was AED 12.9 million. Accordingly, the group recognised a decrease in non-controlling interest of AED 3.2 million and a decrease in retained earnings of AED 96.1 million. Furthermore, the contribution by the non-controlling interest shareholder to the losses of the subsidiary in prior years amounting to AED 74.7 million was classified as a liability up to 31 December 2008. During the current year, following the acquisition of the share of non-controlling interest shareholder, this amount has been adjusted in equity. The following summarises the effect of changes in the Group's ownership interest in Saudi Hypermarkets LLC: 2009 2008 AED '000 AED '000 Parent's ownership interest at the beginning of the year 9,711 - Effect of increase in parent's ownership interest 3,237 - Share of comprehensive income 705 - Parent's ownership interest at the end of the year 13,653 -
33) Statutory reserve
In accordance with the Articles of Association of entities in the Group and relevant local laws, 10% of the net profit for the year of the individual entities, to which the law is applicable, is transferred to a statutory reserve. Such transfers may be discontinued when the reserve equals the limit prescribed by the relevant laws applicable to individual entities. This reserve can be utilised only in the manner specified under the relevant laws and is not available for distribution. During the current year Group had transferred AED 40.6 million to reserves (2008: AED 79.9 million).
34) Contingent liabilities, guarantees and commitments
Capital commitments of the Group at 31 December 2009 amounted to AED 6,215 million (December 2008: 8,350 million ).
A subsidiary of the Group has leasing contracts committed but not executed as at 31 December 2009 amounting to AED nil (2008: 1.4 million).
Letters of credit contracts outstanding at 31 December 2009 amounted to AED nil (2008: AED 83.2 million ) and forward contracts amounted to AED 4.1 million (2008: AED 23.1 million).
At 31 December 2009, guarantees of AED 4,694 million (2008: AED 598 million) remained outstanding.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
34) Contingent liabilities, guarantees and commitments (continued)
A legal case has been brought against the Group for termination of a lease agreement. Currently, the evaluation is being made by the court whether the case should be taken to arbitration to comply with the lease contract or to commercial court. Management is of the view that currently there is no significant financial implication arising from this legal case.
35) Operating lease commitments Operating leases a) Leases as lessor The Group leases out its property under operating leases as lessor. Non-cancellable operating lease rentals are receivable as follows: 2009 2008 AED'000 AED'000 Less than one year 1,239,580 862,077 Between one and five years 3,469,005 2,336,857 More than five years 624,208 479,069 Total 5,332,793 3,678,003 b) Leases as lessee The Group leases some properties under operating leases as lessee. Non-cancellable operating lease rentals are payable as follows 2009 2008 AED'000 AED'000 Less than one year 211,751 182,073 Between one and five years 859,771 739,738 More than five years 2,410,835 1,937,832 Total 3,482,357 2,859,643 36) Subsequent events There have been no significant events up to the date of authorisation, which would have material effect on these consolidated financial statements.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
37) Subsidiaries, associate and joint ventures The consolidated financial statements include the results of the following subsidiaries: Country of Effective Subsidiaries incorporation ownership% Majid Al Futtaim Commercial Development LLC U.A.E. 100% Majid Al Futtaim Properties LLC U.A.E. 100% Majid Al Futtaim Leisure and Entertainment LLC U.A.E. 100% MAF Technological Systems LLC (dormant) U.A.E. 100% Majid Al Futtaim Retail LLC U.A.E. 100% MajidAlFuttaimVenturesLLC U.A.E. 100% Majid Al Futtaim Hospitality LLC U.A.E. 100% MajidAlFuttaimFashionsLLC U.A.E. 100% Majid Al Futtaim Syria for Investment and Development LLC U.A.E. 100% Beirut Marina Property Investments LLC U.A.E. 100% Majid Al Futtaim Syria for Investment and Development LLC U.A.E. 100% Majid Al Futtaim Shopping Malls LLC U.A.E. 100% Majid Al Futtaim Developments LLC U.A.E. 100% Majid Al Futtaim Investments Mirdiff LLC U.A.E. 100% MAM Investments LLC U.A.E. 100% Majid Al Futtaim Malls International LLC (dormant) U.A.E. 100% Majid Al Futtaim Asset Management Holdings LLC U.A.E. 100% Fujairah City Centre Investment LLC (under incorporation) U.A.E. 62.50% Majid Al Futtaim Hypermarkets LLC U.A.E. 75% Al Saqr Hypermarket LLC U.A.E. 75% MAF Orix Finance Co. PJSC U.A.E. 60% Majid Al Futtaim Greater Union LLC U.A.E. 51% Majid Al Futtaim Dalkia Middle East LLC U.A.E. 51% MajidAlFuttaimJCBFinanceLLC U.A.E. 60% Majid Al Futtaim Shopping Malls KSA Saudi Arabia 100% Saudi Hypermarkets Company LLC* Saudi Arabia 100% MAF Fashion KSA LLC Saudi Arabia 75% International Property Services LLC Oman 100% Arabian Entertainment Services LLC Oman 100% Majid Al Futtaim Hypermarkets LLC, Oman Oman 75.25% MAF Fashion Qatar LLC Qatar 100% Majid Al Futtaim Hypermarkets Qatar WLL Qatar 75% MAF Lebanon for Commercial and Real Estate Investments SARL Lebanon 100% Suburban Development Company SAL Lebanon 92.7% MAF Lebanon Holding SAL Lebanon 100% MAF Misr for Commercial and Real Estate Investment Company Egypt 100% MAF for Installation and Management of Hypermarkets SAE Egypt 75% MAF for Real Estate Investment SAE (dormant) Egypt 100% MAF Investments Bahrain BSC Bahrain 100% MAF Fashion Bahrain SPC Bahrain 100% MAF Hypermarkets Bahrain SPC Bahrain 75% MAF Fashion Ready Wear W.L.L. Kuwait 100% MAF Retail Kuwait for Central Markets WLL Kuwait 99.9% MAF Fashion Cyprus Cyprus 100% Societe Tunisia WIFEK (dormant) Tunisia 100% Majid Al Futtaim North Africa SARL (dormant) Tunisia 100% Bab Al Madina Company Property Investment Limited Yemen 51% Majid Al Futtaim Hypermarkets Jordan LLC Jordan 75% MajidAlFuttaimLilAswakAlTijariahLLC Syria 75% MAF Hypermarkets Pakistan (Private) Limited Pakistan 75% MAF Pars Hypermarket PJSC Iran 75% Shares in certain subsidiary companies are held by the subsidiaries of the Group companies for the beneficial interest of the Group. * During the year the Group has acquired additional 25% stake in the subsidiary.
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Majid Al Futtaim Group LLC Consolidated Financial Statements for the year ended 31 December 2009
Associate Country of Effective incorporation ownership% Enshaa PSC U.A.E. 28.44%
Joint ventures Country of Effective incorporation ownership% Sharjah Real Estate U.A.E 50% Arzanah Mall LLC U.A.E 50% Al Mamzar Islands Development U.A.E 50% Hydra Properties PJSC U.A.E 50% Yenkit Tourism Development Oman 60% TheWaveMuscatS.A.O.C Oman 50% Qatar Entertainment City Co. Qatar 50% Waterfront City SARL Lebanon 50% The Egypt Emirates Malls Group Egypt 50% Aya Real estate Investment BSC Bahrain 50% City Centre Essa Town Co. WLL Bahrain 50% Al Shaya Kuwait 50% Bab Al Madina Libya 50% *MAFI-NLC Developments Pakistan 55% *This joint venture was in the process of liquidation at 31 December 2009.
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F-105 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
F-106 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010
Consolidated income statement For the year ended 31 December 2010
Note 2010 2009 AED'000 AED'000
Revenue 5 2,310,528 1,823,805
Operating expenses 6 (1,398,599) (1,292,855)
Net valuation loss on land and building 11(i) (273,297) (14,846)
Other (expenses) / income - net 8 (17,822) 8,247
Impairment loss 9 (860,001) (75,715)
Results from operating activities (239,191) 448,636
Share of gain in joint ventures and associate - net 12 28,569 18,850
Finance income 7.1 8,691 30,013
Finance costs 7.2 (366,507) (330,327)
(Loss) / Profit for the year before tax (568,438) 167,172
Income tax 22 2,342 (8,430)
(Loss) / Profit for the year (566,096) 158,742 (Loss) / Profit attributable to: Owners of the Company (565,771) 157,987 Non-controlling interest (325) 755 (566,096) 158,742
The notes on pages 11 to 55 form part of these consolidated financial statements.
The independent auditors' report is set out on pages 3 and 4.
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Consolidated Financial Statements for the year ended 31 December 2010
Consolidated statement of comprehensive income For the year ended 31 December 2010
Note 2010 2009 AED'000 AED'000
(Loss) / Profit for the year (566,096) 158,742
Other comprehensive income
Net valuation gain / (loss) on land and building 10(i) 677,207 (2,352,010)
Share of gain in joint ventures and associate 12.1(i) 40,390 64,997
Net change in fair value of cash flow hedges transferred to profit or loss 7 142,621 107,570
Effective portion of changes in fair value of cash flow hedges 7 (142,263) 29,977
Foreign currency translation differences from foreign operations (67,748) 7,537
Other comprehensive income for the year, net of income tax 650,207 (2,141,929)
Total comprehensive income for the year 84,111 (1,983,187)
Total comprehensive income attributable to: Owners of the Company 84,342 (1,983,892) Non-controlling interest (231) 705 84,111 (1,983,187)
The notes on pages 11 to 55 form part of these consolidated financial statements.
The independent auditors' report is set out on pages 3 and 4.
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F-109 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010
Consolidated statement of cash flows For the year ended 31 December 2010
Note 2010 2009 AED'000 AED'000 Cash flows from operating activities (Loss) / Profit for the year after tax (566,096) 158,742 Adjustments: Interest income 7.1 (8,691) (30,013) Interest and similar charges 7.2 366,507 330,327 Provision for receivables from related parties 8 35,272 25,882 Impairment loss 9 860,001 75,715 Net loss on revaluation of land and buildings 11(i) 273,297 14,846 Depreciation 10 491,725 489,844 Provision for deferred tax 22 (4,130) 8,411 Amortisation of intangible asset 13 19,867 6,625 Gain on sale of property, plant and equipment and investment properties 8 (26,938) (967) Fixed assets / project costs written off 8 17,365 29,972 Share of gain in joint ventures and associate 12 (28,569) (18,850) Net movement in provision for staff terminal benefits 19.1 7,079 6,326
2,002,785 938,118
Changes to working capital: Inventories 471 (2,884) Receivables and prepayments 233,379 81,064 Payables and accruals (98,144) 191,127 Due (from) / to related parties 5,153 158,760 140,859 428,067
Net cash from operating activities 1,577,548 1,524,927
Investing activities Acquisition of property, plant and equipment 10 (891,074) (1,003,838) Acquisition of investment property (744,013) (1,889,592) Proceeds from disposal of property, plant and equipment 55,313 2,138 Investment in joint ventures and associate 12.1 (41,672) (116,062) Payment of deferred liability for acquisition of intangible asset 13 (19,440) (54,000) Interest received 9,440 13,287 Net cash used in investing activities (1,631,446) (3,048,067) Financing activities Long term loans received 20.1 & 20.2 3,024,502 2,393,370 Long term loans repaid 20.1 & 20.2 (2,454,251) (828,409) Non-controlling interest equity injection 7,552 1,750 Interest paid (407,961) (404,793) Net cash from financing activities 169,842 1,161,918
Net increase / (decrease) in cash and cash equivalents 115,944 (361,222)
Cash and cash equivalents at beginning of the year 626,703 987,925
Cash and cash equivalents at end of the year 742,647 626,703 Cash and cash equivalents comprise: Cash in hand and at bank 17 742,647 626,703 742,647 626,703
The notes on pages 11 to 55 form part of these consolidated financial statements.
The independent auditors' report is set out on pages 3 and 4.
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F-110 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c) - - 7,537 1,800 64,997 29,977 158,742 107,570 432,550 2,500,000 2,929,205 18,642,243 19,588,261 - - - - (5,145) - - - - (2,352,010) - Non- controlling Total - - - 1,800 - 2,927,405 1,800 - - (5,145) -- 2,500,000 432,550 - 107,570 - 29,977 -- (2,352,010) 64,997 - - - 157,987 755 Currency ------7,587 7,587 (50) - - - - - 29,977 ED'000 AED'000 AED'000 AED'000 AED'000 - 137,547 7,587 (1,983,892) 705 (1,983,187) ------107,570 - - y ------2010 ------Other Reserves------er es in equit b g ecem - (1,364,417) 111,822 - (1,680,000) - - - (5,145) - - 432,550 - - - (111,822) 111,822 - 157,987 d31D e Attributable to the equity holders of the company -9- d ear en y e - (2,287,013) 157,987 - 12,713,042 4,069,546 404,000 (357,982) (15,684) 18,632,922 9,321 - - - 64,997 - - - - - (2,352,010) - - h or t Share- F Consolidated statement of chan - - 4,180,000 - 1,680,000 - - 2,500,000 ------Share holder Revaluation Retained Statutory Hedging translation capital contribution reserve earnings reserve reserve reserve Total interest equity AED'000 AED'000 AED'000 AED'000 AED'000 A 1,820,000 1,820,000 4,180,000 10,426,029 2,863,116 515,822 (220,435) (8,097) 19,576,435 11,826 in y ferred to profit or loss , recorded directl y ote-23.4) om foreign operations ear y e-23.2) and distributions to the owners of the y 2009 y Increase in non-controlling interest Total comprehensive income for the At 1 Januar Profit for the year Other comprehensive income Net valuation loss on land and building Net change in fair value of cash flow hedgesEffective trans portion of changes in fair value of cashForeign flow currency hedges translation differences fr Total comprehensive income for the year Transactions with owners of theequity Compan Contributions by and distributions toother owners movements of in the equity CompanyTransfer and to statutory reserve Capitalisation of retained earnings (refer n Shareholders' contribution (refer not Waiver of payable by MAFG (refer note-16(viii)) Goodwill written off (refer note- 16(vii)) Company The notes on pages 11 to 55 form part of these consolidated financial statements. Total contributions b At 31 December 2009 Share of gain in joint ventures and associate Consolidated Financial Statements for the year ended 31 December 2010
F-111 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c) - - 7,552 40,390 84,111 52,789 677,207 142,621 250,000 100,341 19,588,261 19,772,713 - (142,263) - - - (210,000) - - - - Non- controlling Total - 52,789 - - 7,552 - - 40,000 60,341 - - - (142,263) - 250,000 - (210,000) - 677,207 - 40,390 - - (565,771) (325) (566,096) - - 142,621 Currency ------(67,842) (67,842) 94 (67,748) - - - 358 (67,842) 84,342 (231) - - - - (142,263) ------142,621 ------2010 ------Other reserves------er b ecem - (255,676) 45,676 - - - - - (210,000) - - - (565,771) - (45,676) 45,676 - d31D e -10- d Attributable to the equity holders of the company eyearen - 717,597 (565,771) - h - - -- 677,207 40,390 - - - - - or t F Share- Consolidated statement of changes in equity - - - - - 250,000 ------Share holder Revaluation Retained Statutory Hedging translation capital contribution reserve earnings reserve reserve reserve Total interest equity AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 1,820,000 4,180,000 10,426,029 2,863,116 515,822 (220,435) (8,097) 19,576,435 11,826 3,500,000 2,750,000 11,143,626 2,041,669 561,498 (220,077) (75,939) 19,700,777 71,936 1,680,000 (1,430,000) 1,680,000 (1,680,000) Other comprehensive income Net valuation gain on land and building Total comprehensive income for the year Total contributions by and distributions to the owners of the Transactions with owners of the Company, recorded directly in At 31 December 2010 At 1 January 2010 Loss for the year Share of gain in joint ventures and associate Net change in fair valuestatement of cash flow hedges transferred to income Effective portion of changes in fair value of cash flow hedges equity Contributions by and distributions toother owners movements of in the equity Company and Transfer to statutory reserve Issue of shares (refer note-23.4) Shareholders' contribution (refer note-23.2) Coupon declared during the year (23.2.2) Equity paid in by non-controlling interest Company The notes on pages 11 to 55 form part of these consolidated financial statements. Increase in non controlling interest by way of land contribution Foreign currency differences from foreign operations Total comprehensive income for the year Consolidated Financial Statements for the year ended 31 December 2010
F-112 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 Notes to the consolidated financial statements 1. Legal status and principal activities Majid Al Futtaim Properties LLC (“the Company”) was registered as a limited liability company in the Emirate of Dubai, United Arab Emirates (“UAE”) on 5 February 1994. The principal activities of the Company are investment in and management of commercial projects including shopping malls, hotels, leisure and entertainment and acting as a holding company to various subsidiaries. The Company and its subsidiaries are collectively referred to as “the MAFP Group”. The registered address of the Company is P.O. Box 60811, Dubai, UAE. The Company is a wholly owned subsidiary of Majid Al Futtaim Group LLC (“MAFG”), which in turn is a wholly owned subsidiary of Majid Al Futtaim Capital LLC (“MAFC”), the ultimate holding entity. The registered address of MAFC is P.O. Box 91100, Dubai, UAE.
2. Basis of preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and the requirements of the U.A.E. Federal Law No.8 of 1984 (as amended). (b) Basis of measurement These consolidated financial statements have been prepared under the historical cost convention except for investment properties, certain classes of property, plant and equipment and derivative financial instruments which are measured at fair value. The methods used to measure fair values are discussed further in notes 24 and 29. (c) Functional and presentation currency These consolidated financial statements are presented in United Arab Emirates Dirhams (“AED”), which is the Company’s functional currency, and are rounded to the nearest thousands, except wherever stated otherwise. (d) Use of estimates and judgements The preparation of consolidated financial statements, in conformity with IFRS, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on amounts recognised in the consolidated financial statements are described in note 29.
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F-113 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all periods presented. (a) Basis of consolidation These consolidated financial statements present the results of operations and financial position of the MAFP Group for the year ended 31 December 2010. (i) Subsidiaries Subsidiaries are entities controlled by the MAFP Group. Control exists when MAFP Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed where necessary to align them with the policies adopted by the MAFP Group. Losses applicable to non-controlling interests in a subsidiary are allocated to non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. The accounting year-end for all of the MAFP Group’s subsidiaries is 31 December. (ii) Joint ventures A joint venture is a contractual arrangement whereby the MAFP Group and other parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity and exists when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The MAFP Group has contractual arrangements with other parties representing joint ventures, which take the form of a jointly controlled entity. A jointly controlled entity involves the establishment of a separate entity in which each venturer has an interest, under contractual arrangement that establishes joint control over the entity. The MAFP Group reports its interest in jointly controlled entities using the equity method whereby the interest in the joint venture is initially recorded at cost and adjusted thereafter for the post acquisition change in the MAFP Group’s share of net assets of the jointly controlled entity. The consolidated income statement of the MAFP Group includes its share of the profit and loss of the jointly controlled entities. The financial statements of the MAFP Group’s jointly controlled entities are prepared using consistent accounting policies. Where necessary, adjustments are made to bring accounting policies in line with those of the MAFP Group.
(iii) Associates Associates are those entities in which the MAFP Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the MAFP Group’s share of the total recognized gains and losses of associates using the equity method of accounting, from the date that significant influence commences until the date that significant influence ceases. When the MAFP Group’s share of losses exceeds its interest in an associate, the MAFP Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the MAFP Group has incurred legal or constructive obligations or made payments on behalf of an associate.
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F-114 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued)
(a) Basis of consolidation (continued)
(iv) Transactions eliminated on consolidation Intra-group balances and transactions and any unrealised gains and losses arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised gains arising from transactions with jointly controlled entities and associates are eliminated to the extent of MAFP Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (v) Business combinations involving entities under common control Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the MAFP Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established.
The MAFP Group has applied the book value measurement method to all common control transactions. The assets and liabilities acquired are recognized at the carrying amounts recognized previously in the Group controlling Shareholder’s consolidated financial statements. The components of other comprehensive income of the acquired entities are added to the same components within MAFP Group’s other comprehensive income and any gain/loss arising is recognised directly in other comprehensive income. (b) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the MAFP Group entities at exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Foreign exchange differences arising on translation are recognised in the profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into functional currency at the exchange rates ruling at the date when the fair value was determined. Non-monetary assets and liabilities denominated in foreign currencies, which are measured in terms of historical cost, are translated into functional currency at the exchange rates ruling at the date of the transaction.
Foreign exchange differences arising on the translation of non-monetary assets and liabilities carried at fair value are recognised in profit or loss. Foreign exchange differences arising on the translation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income are recognised directly in other comprehensive income.
Foreign operations The assets and liabilities of foreign operations are translated into functional currency at the foreign exchange rates at the reporting date. Share capital is translated at historical rate. The income and expenses of foreign operations are translated into functional currency at average rates of exchange. Foreign exchange differences arising on retranslation are recognised directly in other comprehensive income, and are presented in currency translation reserve in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests.
When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When MAFP Group disposes of only part of its interest in a subsidiary that
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F-115 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued)
(b) Foreign currency (continued)
Foreign operations (continued)
includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When MAFP Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or join control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the currency translation reserve in equity. (c) Lease payments Lease payments incurred as lessee under operating leases are recognised as an expense in the profit or loss on a straight line basis over the lease term. Lease incentives received are recognised in the profit or loss as an integral part of the total lease expense, over the term of the lease. (d) Borrowing costs Borrowing costs are recognised as expenses in the period in which they are incurred. However, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs continues until the assets are substantially ready for the intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds.
(e) Finance income and finance costs Finance income comprises interest income on funds deposited with banks and related party receivables. Interest income is recognised as it accrues in profit or loss.
Finance costs comprise interest expense, arrangement fees, processing fees and similar charges on borrowings and losses on hedging instruments that are recognised in profit or loss.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest rate method. (f) Capital work in progress Work in progress in respect of capital expenditure including land is classified as capital work in progress. Interest and other overheads directly attributable to the projects are included in capital work in progress until completion thereof. Capital work in progress for properties that are being constructed with an intention of building an investment property is carried at fair value. For other properties that are developed with an intention of constructing an owner occupied property, both the capital expenditure and land are carried at cost, less impairment, if any, until the property is fully developed.
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F-116 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued)
(f) Capital work in progress (continued)
Development expenses are charged to the profit or loss as incurred except for development expenditure which complies with the following conditions: - the concept for the new project has been defined; - preliminary market, technical and financial feasibility studies demonstrate a viable project; and - the management have agreed to proceed with developing the project, and believe that it is more probable than not that the project will go ahead.
These development costs are shown as assets under capital work in progress.
Development expenses initially charged to profit or loss are not recognised as an asset in a subsequent period even if it is found that the project to which they relate satisfies the criteria for capitalisation.
Development costs carried forward are reviewed in subsequent periods to ensure that circumstances have not changed such that the criteria for capitalisation are no longer met. In these circumstances, the costs are written- off or provided for to the extent they are believed to be irrecoverable. Such provisions are reversed if the circumstances change again and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. (g) Intangible assets Goodwill All business combinations are accounted for by applying the purchase method except for acquisition of entities under common control. The excess of cost of acquisition over the MAFP Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition is recorded as goodwill. Negative goodwill arising on acquisition is immediately recognised in the profit or loss. Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses, if any. On disposal of a subsidiary / joint venture / associate, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Other intangible assets Intangible assets that are acquired by the MAFP Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses, if any. Where the payment term is deferred, the cost of the intangible asset is the cash price equivalent, which is the discounted amount of cash over the payment term. Amortisation Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful life for the current and comparative years is as follows: Metro naming rights 10 years
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F-117 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued)
(h) Property, plant and equipment Recognition and measurement
Following initial recognition at cost, developed properties (land and building), mainly comprising hotels, shopping malls and offices, are stated at their revalued amounts, being the fair value at the date of revaluation, less any accumulated depreciation and any impairment losses. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. Land on which development work has started with the intention of constructing property, plant and equipment is fair valued at the date when significant development commences. During the construction period, land is held at its carrying value and development expenditure is carried at cost. Upon completion of construction, the entire property (that is land and building) is carried at revalued amount. All other items of property, plant and equipment, mainly comprising administrative assets, are stated at cost less accumulated depreciation and any impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the assets. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located and capitalized borrowing costs. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (components) of property, plant and equipment.
Subsequent costs
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the MAFP Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit or loss during the period in which they are incurred.
Depreciation
Depreciation is charged to the profit or loss so as to write off the cost / revalued amounts of property, plant and equipment by equal instalments over their estimated useful lives. Land is not depreciated. The estimated useful lives for the current and comparative years are as follows: Buildings 4 - 35 years Motor vehicles 4years Furniture, fixtures and equipment 3 - 15 years Leisure rides and games 3 - 10 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Valuation surplus relating to buildings is allocated to the building structure and is depreciated over the remaining useful life of the respective building structure which ranges from 20 to 35 years. Revaluation reserve
Any revaluation increase arising on the revaluation of developed properties is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same property previously recognised in profit or loss, in which case the increase is credited to the profit or loss to the extent of the decrease previously charged.
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F-118 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued)
(h) Property, plant and equipment (continued) Revaluation reserve (continued) A decrease in carrying amount arising on the revaluation of properties is charged to profit and loss except to the extent that it reverses a previously recognised revaluation gain on the property in which case it is debited to revaluation reserve. De-recognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in profit and loss in the period the asset is derecognised. On subsequent disposal or retirement of a revalued property, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. (i) Investment property Recognition and measurement Investment properties are properties held either to earn rental income, for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Following initial recognition at cost, investment property, principally comprising land with undetermined use, certain shopping malls and property being constructed for future use as investment property, is stated at fair value at the reporting date. Where the fair value of an investment property under development is not reliably determinable, such property is carried at its book value and any cost incurred during the year; until the earlier of the date the construction is completed or date at which fair value becomes reliably measurable.
Gains or losses arising from changes in fair value are included in profit or loss in the period in which they arise. An investment property is derecognised when either it has been disposed of or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss on the retirement or disposal of an investment property is included in profit or loss in the period the property is derecognised. Reclassification When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as an investment property. Any gain arising on re-measurement is recognised directly in equity. Any loss is recognised immediately in profit or loss except to the extent that it reverses a previously recognised revaluation gain on the property in which case it is debited to equity. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its fair value at the date of reclassification becomes its deemed cost. Change in fair value up to the date of reclassification is recognised directly in profit or loss.
(j) Assets classified as held for sale
Non-current assets or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets or components of a disposal group are measured in accordance with the MAFP Group’s accounting policies. Thereafter the assets are measured at the lower of their carrying amount and fair value less costs to sell.
Impairment losses on initial classification as held for sale and subsequent gains and losses on re-measurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.
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F-119 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued)
(k) Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss. Non-financial assets The carrying amount of the MAFP Group’s non-financial assets, other than property, plant and equipment and investment properties that are fair valued and inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date in order to assess impairment. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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.
(l) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on weighted average cost principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business less estimated selling expenses.
(m) Staff terminal and retirement benefits Provision for staff terminal benefits is calculated in accordance with the labour laws of the respective country in which they are employed. The MAFP Group’s net obligation in respect of staff terminal benefits is calculated by estimating the amount of future benefit that employees have earned in return for their services in the current and prior periods, and is discounted to determine the present value of the obligation. The discount rate used is the yield at the reporting date on premium bonds that have maturity dates approximating the terms of the MAFP Group’s obligation. Under the UAE Federal Law No.7 of 1999 for pension and social security law, employers are required to contribute 12.5% of the ‘contribution calculation salary’ of those employees who are UAE nationals. These employees are also required to contribute 5% of the ‘contribution calculation salary’ to the scheme. The MAFP Group’s contribution is recognised as an expense in profit or loss as incurred.
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F-120 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued) (n) Operating segments An operating segment is a component of the MAFP Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the MAFP Group’s other components. All operating segments’ operating results are reviewed regularly by senior management and board of directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
(o) Revenue recognition Revenue comprises amounts derived from the provision of services falling within the MAFP Group’s ordinary activities and encompasses hospitality services, rental income and leisure and entertainment activities.
Revenue from hospitality services and leisure and entertainment activities is recognised on rendering the services. Revenue from services is recognised when customers have a right to use the facilities on payment for these services. Rental income received as lessor from properties under operating leases is recognised in the profit or loss on a straight line basis over the lease term. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Contingent rents are recorded as income in the period in which they are earned.
(p) Alcohol The purchase of alcohol for hotels and residence is the responsibility of the relevant Hotel Management Company, and the revenue derived from sale is deemed to be that of the Hotel Management Company. The profit resulting from the sales of alcoholic beverages forms part of the Hotel Management Company’s incentive fee. (q) Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, trade and other payables, long-term loans, income tax payable, bank borrowings and related party balances. Non-derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less impairment losses. A financial instrument is recognised if the MAFP Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the MAFP Group’s contractual rights to the cash flows from the financial assets expire or if the MAFP Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the MAFP Group’s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash in hand, cash at bank and bank overdrafts. For the purpose of the consolidated statement of cash flows, bank overdrafts that are repayable on demand and form an integral part of the MAFP Group’s cash management are included as a component of cash and cash equivalents.
Derivative financial instruments Derivative financial instruments are contracts, the value of which is derived from one or more underlying financial instruments and include interest rate swaps and collars.
The MAFP Group uses derivative instruments for risk management purposes to hedge its exposure to interest rate risks arising from operational, financing and investment activities.
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F-121 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued) (q) Financial instruments (continued)
Derivative financial instruments (continued) On initial designation of the derivative as the hedging instrument, MAFP Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The MAFP Group makes an assessment, both at the inception of the hedge relationship as well as on an on-going basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80 to 125 percent. Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into; attributable transaction costs are recognised in profit or loss when incurred. Derivative financial instruments with positive fair values are included in assets and derivative financial instruments with negative fair values are included in liabilities. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. In respect of changes in the fair values of derivative financial instruments that are designated as a hedge of variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly effective forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised directly in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period that the hedged item affects profit or loss. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount recognised in equity remains in equity until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in equity is recognised immediately in profit or loss. Any gains or losses arising from changes in the fair value of derivative instruments that do not qualify for hedge accounting are taken directly to profit or loss. (r) Provisions A provision is recognised in the statement of financial position when the MAFP Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. (s) Income tax Income tax expense comprises current and deferred tax calculated in accordance with the income tax laws applicable to certain overseas subsidiaries. Income tax expense is recognised in the profit or loss except to the extent it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
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F-122 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 3. Significant accounting policies (continued)
(s) Income tax (continued)
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for the financial reporting purposes and the corresponding tax bases used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for future tax loses, tax credits and deductible temporary differences, to the extent it is probable that future tax profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
(t) New standards and interpretations not adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2010 and have therefore not been applied in preparing these consolidated financial statements.
The application of such new standards, amendments to standards and interpretations is not expected to result in any change in the accounting policies adopted by the MAFP Group and have a material impact on the consolidated financial statements.
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F-123 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c) (8,430) 2009 Total 2,342 2,310,528 1,823,805 2010 sation). This measure - 9,318 2009 - Business Support (5,124) (25,701) (22,382) (491,725) (489,844) (177,405) (72,673) (273,297) (14,846) (190,325) (107,000) 1,458,336 1,090,576 (167,744) (236,907) (357,816) (300,314) 2010 - - (3,287,315) (1,363,919) 19,772,713 19,588,261 - 4,403,180 4,207,013 29,879,185 29,500,823 - (7,690,495) (5,570,932) (10,106,472) (9,912,562) - - - - - 2009 - - - (4,656) 17,024 (12,741) Leisure & Entertainment 2010 - - - (238,537) - - - - 2009 ------Mixed Use Communities -22- - - Offices - - - - 2009 2010 2009 2010 Hotels - - 2010 2009 Shopping Malls 7,466 (17,748) 162,410 397,545 (166,653) (336,358) (91,649) (3,360) (304,825) (335,409) (137,412) (118,628) (11,046) (13,425) (190,072) (63,407) 1,958,397 1,493,574 318,613 304,704 16,494 25,527 1,531,556 1,128,147 110,398 49,014 11,363 20,415 (1,013,854) (2,377,731) (1,157,749) (1,961,034) (5,837) (2,865) 2010 21,853,365 21,204,487 2,741,667 3,227,369 268,407 430,800 471,544 431,154 141,022 20,839,511 18,826,756 1,583,918 1,266,335 262,570 427,935 471,544 431,154 (97,515) AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Shopping malls Hotels Offices Mixed Use Communities Leisure & Entertainment x x x x x Revenue Other segment information Depreciation Assets and liabilities Segment assets (net of impairment) Segment liabilities EBITDA Net finance cost Net valuation (loss) / gain on land and building Taxation Consolidated Financial Statements for the year ended 31 December 2010 4. Segment information The MAFP Group is structured around functional lines catering to the development and management of the following asset classes: Management assesses the performance of the operating segments based on EBITDA (earnings before interest, tax, depreciation, impairment and amorti The segment information provided to the Board of Directors for the year ended 31 December is as follows: excludes the impact of fair valuation of land and buildings and share of gain / (loss) in joint ventures and associate.
F-124 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c) Total - 2,310,528 1,823,805 142 (357,816) (300,314) (386) (491,725) (489,844) - - - (5,124) (11,905) 2,342 (8,430) Others countries - Bahrain - Egypt -23- (49) 7,509 3,524 Oman (43) - UAE - (435,137) (431,868) (52,214) (54,952) (1,439) (1,262) (2,935) (1,376) (273,309) (213,500)(331,981) 594,913 (12,658) (14,495) (3,457) (15,641) (10,975) (34,042) (34,999) (56,208) (17,543) (38,419) 62,815 (661,834) 34,325 80,593 (273,297) (14,846) 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 1,786,778 1,371,5491,220,615 126,546 748,445 130,649 72,079 144,735 83,307 101,167 30,256 252,469 59,685 220,440 153,264 132,644 (17,878) 66,495 1,458,336 1,090,576 (5,949,117) (7,106,156) (345,337) (297,153) (1,159,120) (1,048,944) (1,265,116) (1,444,984) (1,387,782) (15,325) (10,106,472) (9,912,562) 22,794,454 23,328,786 1,168,229 956,989 2,015,887 2,190,851 2,824,206 2,850,859 1,076,409 173,338 29,879,185 29,500,823 16,845,337 16,222,630 822,892 659,836 856,767 1,141,907 1,559,090 1,405,875 (311,373) 158,013 19,772,713 19,588,261 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Other segment information Depreciation Revenue EBITDA Assets and liabilities Segmentassets(netofimpairment) Segment liabilities Taxation Net finance cost Net valuation (loss) / gain onand land building Consolidated Financial Statements for the year ended 31 December 2010 4. Segments information (continued) Other countries comprise Saudi Arabia, Syria, Lebanon, Tunisia, Libya, Yemen, Qatar and Iran.
F-125 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 4. Segment information (continued)
A reconciliation of EBITDA to (loss) / profit for the year as per the consolidated income statement is as follows:
2010 2009 Note AED'000 AED'000
EBITDA 1,458,336 1,090,576 Depreciation 10 (491,725) (489,844) Amortisation 13 (19,867) (6,625) Impairment provision 9 (860,001) (75,715) Provision for receivable from related parties 8 (35,272) (25,882) Net finance cost 7 (357,816) (300,314) Net valuation loss on land and buildings 11(i) (273,297) (14,846) Taxation 22 2,342 (8,430) Fixed assets/project costs written off 8 (17,365) (29,972) Share of gain in joint ventures and assocaites-net 12 28,569 18,850 Others - 944 (Loss) / profit for the year (566,096) 158,742
5. Revenue
2010 2009 AED'000 AED'000
Rental income 1,974,891 1,519,101 Hospitality revenue 318,613 304,704 Leisure and entertainment revenue 17,024 -
2,310,528 1,823,805
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F-126 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 6. Operating expenses 2010 2009 Note AED’000 AED’000 Staff costs (refer note (i) below) (378,041) (328,823) Depreciation 10 (491,725) (489,844) Legal, professional and consultancy fees (20,006) (19,946) Selling and marketing expenses (95,919) (66,531) Other general and administration expenses (412,908) (387,711) (1,398,599) (1,292,855)
(i) Staff costs include the following: 2010 2009 AED’000 AED’000 Gratuity cost (11,594) (10,517) Pension cost (1,830) (909)
Staff costs are net of costs capitalised to various projects amounting to AED 58.3 million (2009: AED 54.1 million).
7. Net finance cost Recognised in profit or loss 2010 2009 AED’000 AED’000 7.1 Finance income Interest income 5,285 13,287 Ineffective portion of changes in fair value of cash flow hedges 3,406 16,726 Finance income 8,691 30,013
7.2 Finance costs Arrangement and participation fees (12,666) (24,471) Interest expense (270,704) (293,785) Less: capitalised interest 64,787 100,094 (218,583) (218,162) Net changes in fair value of financial assets at fair value through profit or loss - (639) Ineffective portion of changes in fair value of cash flow hedges (5,303) (3,956) Net changes in fair value of cash flow hedges transferred from equity (142,621) (107,570) Finance costs (366,507) (330,327)
Net finance cost recognised in profit or loss (357,816) (300,314)
Recognised directly in other comprehensive income 2010 2009 AED’000 AED’000 Effective portion of (decrease)/increase in fair value of cash flow hedges (142,263) 29,977 Net changes in fair value of cash flow hedges transferred to profit or loss 142,621 107,570 Finance income recognised in other comprehensive income 358 137,547
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F-127 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 7. Net finance cost (continued) Capitalised interest arises on borrowings for development expenditure. The capitalisation rate used to determine the amount of borrowing cost eligible for capitalization varies from 3.49% to 8.04% (2009: 3.5% to 8.1%) depending on the effective interest rate over the tenure of the borrowing.
8. Other (expenses) / income - net 2010 2009 Note AED’000 AED’000 Foreign exchange loss (27,885) (517) Gain on disposal of property, plant and equipment and investment property 26,938 967 Service charges levied on related parties 16 16,801 9,095 Provision for related party balance 16.1 (35,272) (25,882) Fixed assets / project costs written off (17,365) (29,972) Other income 18,961 54,556 (17,822) 8,247
9. Impairment loss 2010 2009 Note AED’000 AED’000 Impairment of investments and receivables (refer note (i)) 12.1 (608,957) (148,900) Reversal of impairment on investment in a joint venture (refer - 110,283 note (ii)) Impairment of property, plant and equipment 10(ii) (251,044) (37,098) (860,001) (75,715) (i) Impairment of investments and receivables: MAFP Group has performed impairment tests and analysis of its carrying value of receivables and investments in various joint ventures. Based on the results of this analysis, the management is of the view that the carrying value of these receivables and investments has been eroded due to adverse market and business conditions and has, therefore, recognized an impairment loss of AED 608.9 million to reflect reduction in the value. Amount in 2009 represents impairment loss recognised on advances and investments in joint ventures.
(ii) Reversal of impairment on investment: In the previous year, MAFP Group reversed an impairment loss of AED 110.3 million on its investment in a joint venture due to improvement in the economic conditions and underlying increase in property valuations.
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F-128 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 10. Property, plant and equipment Furniture, Leisure Capital Land and Motor fixtures and rides and work in buildings vehicles equipment games progress Total AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Cost / valuation At 1 January 2009 16,797,134 4,177 253,670 - 2,346,372 19,401,353 Additions 63,509 91 48,309 - 891,929 1,003,838 Assets placed in service (refer note-(iii), below) 307,625 1,055 28,368 - (337,048) - Disposals / write offs (516) (812) (5,345) - (25,159) (31,832) Transferred (to) / from related parties (2,888) 120 14,455 - (1,099) 10,588 Accumulated depreciation eliminated on valuation (449,967) - - - - (449,967) Transferred to capital work-in-progress (refer note-(vii), below) (282,872) - - - 282,872 - Net valuation loss on land and buildings (refer note-(i), below) (2,642,910) - - - - (2,642,910)
Transferred to investment property (refer note-(vi) below) (449,535) - - - (1,534,033) (1,983,568) Effect of foreign exchange movements 4,930 - - - (469) 4,461 At 31 December 2009 13,344,510 4,631 339,457 - 1,623,365 15,311,963
At 1 January 2010 13,344,510 4,631 339,457 - 1,623,365 15,311,963 Additions 52,732 223 25,545 - 812,574 891,074 Transferred on acquisition of businesses from a related party (refer note-(ii), below) - - 3,269 357,484 - 360,753
Transferred to investment property (refer note-(iv) below) (105,020) - - - (32,518) (137,538) Assets placed in service (refer note-(iii), below) 1,239,697 52 29,334 - (1,269,083) - Disposals / write offs / reversals (57,748) (359) (5,930) - (19,420) (83,457) Reclassification of assets 36,587 - - - (36,587) - Transferred to asset held for sale (refer note 14) (2,546) - - - - (2,546) Accumulated depreciation & impairment eliminated on valuation (432,989) - - - (37,098) (470,087) Net valuation gain on land and buildings (refer note-(i), below) 445,913 - - - - 445,913 Effect of foreign exchange movements - (12) (261) - - (273) At 31 December 2010 14,521,136 4,535 391,414 357,484 1,041,233 16,315,802
Depreciation and impairment At 1 January 2009 - (2,828) (139,058) - - (141,886) Depreciation charge for the year (449,967) (675) (39,202) - - (489,844) Impairment loss (refer note-(v), below) - - - - (37,098) (37,098) Accumulated depreciation eliminated on valuation 449,967 - - - - 449,967 Disposals / write offs - 759 3,216 - - 3,975 Transferred to related parties - (85) (6,719) - - (6,804) At 31 December 2009 - (2,829) (181,763) - (37,098) (221,690)
At 1 January 2010 - (2,829) (181,763) - (37,098) (221,690) Depreciation charge for the year (432,989) (672) (45,323) (12,741) - (491,725) Impairment loss (refer note-(ii), below) - - - (251,044) (251,044) Accumulated depreciation & impairment eliminated on valuation 432,989 - - - 37,098 470,087 Disposals / write offs - - 1,951 - - 1,951 At 31 December 2010 - (3,501) (225,135) (263,785) - (492,421)
Carrying amounts At 31 December 2009 13,344,510 1,802 157,694 - 1,586,267 15,090,273 At 31 December 2010 14,521,136 1,034 166,279 93,699 1,041,233 15,823,381
(i) During 2010, a net revaluation gain of AED 445.9 million (2009: loss of AED 2,642.9 million) has been recognised on property, plant and equipment of which a valuation gain of AED 677.2 million (2009: loss of AED 2,352.0 million) has been credited to other comprehensive income and a loss of AED 231.3 million (2009: loss of AED 290.9 million) has been charged to profit or loss because of a decrease in the carrying value of certain properties over and above any valuation gain previously recorded in the revaluation reserve for these properties (refer note 11(i)). (ii) The assets transferred on acquisition of businesses from a related party represent certain leisure and entertainment units transferred to the Company during 2010 at their book values (refer note- 16(i)). The carrying amount of these assets have been tested for impairment based on the estimated cash flows expected to be generated from the future operations of these assets. Accordingly, an impairment of AED 251.0 million has been recognised in current year in respect of these assets. -27-
F-129 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 10. Property, plant and equipment (continued)
(iii) During the current year MAFP Group completed the construction of two hotels in the UAE amounting to AED 858.1 million, which were reclassified from capital work in progress to respective class of assets under property, plant and equipment. MAFP Group also transferred AED 410.9 million on completion of the extension of a shopping mall in UAE from capital work in progress. In 2009, MAFP Group completed the construction of two hotels in UAE amounting to AED 337.0 million, which were capitalised and reclassified from capital work in progress.
(iv) At 31 December 2010, an office towers in UAE with a carrying amount of AED 105.0 million was reclassified from property, plant and equipment to investment property at its fair value due to a change in use, as the owner-occupation based on the leasable value was considered insignificant.
(v) In 2009, an impairment loss of AED 37.1 million was recognised in profit or loss on a hotel under construction in UAE. This hotel was reclassified from capital work in progress on completion of construction in 2010.
(vi) The MAFP Group adopted IAS 40 (revised 2008) from its effective date of 1 January 2009. As per the revision to IAS 40, property that is being constructed for future use as investment property is classified as investment property and accounted for at fair value. Accordingly, during the previous year, MAFP Group transferred the land and construction cost of a mall and a commercial tower under construction with a carrying value of AED 1,958.6 million at 1 January 2009 from property, plant and equipment to investment property. Furthermore, another property with a carrying value of AED 25.0 million was transferred due to a change in classification from property, plant and equipment to investment property.
(vii) In 2009, two plots of land were transferred to capital work-in-progress with the carrying value of AED 282.9 million as management has commenced the development of the projects.
(viii) Certain properties of the MAFP Group are mortgaged against bank borrowings (refer note-20). (ix) Certain lands are held in the personal name of a majority shareholder of the ultimate holding entity for the beneficial interest of MAFP Group.
(x) Accrued income at 31 December 2010, relating to the accounting for lease rentals on a straight line basis as per IAS 17, has been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2010 2009 AED'000 AED'000
Fair value of land and buildings 14,623,290 13,443,289 Less: adjustment for accrued operating lease income (102,154) (98,779) Net adjusted fair value 14,521,136 13,344,510
(xi) If the properties had been measured under the historical cost basis the carrying amounts would have been as follows: 2010 2009 AED'000 AED'000 AED'000 AED'000 Land Buildings Land Buildings
Cost 644,926 6,083,310 758,900 4,927,561 Accumulated depreciation - (1,575,898) - (1,308,214) Net carrying amount 644,926 4,507,412 758,900 3,619,347
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F-130 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 11. Investment property Land- Land and Capital work Total undeveloped buildings in progress AED'000 AED'000 AED'000 AED'000 Cost / valuation At 1 January 2009 1,579,809 4,597,805 238,142 6,415,756 Transferred from property, plant and equipment 25,000 26,316 1,932,252 1,983,568 Additions 129,143 5,877 1,754,572 1,889,592 Assets placed in service (refer note-(vi), below) - 484,564 (484,564) - Disposals - (30) - (30) Transferred from related parties - 2,066 - 2,066 Net valuation (loss) / gain on investment property (refer note-(i),below) (231,992) (559,734) 1,067,780 276,054 Effect of foreign exchange movements - 6,439 - 6,439 At 31 December 2010 1,501,960 4,563,303 4,508,182 10,573,445 At 1 January 2010 1,501,960 4,563,303 4,508,182 10,573,445 Additions 1,835 33,246 761,721 796,802 Transferred on acquisition (refer note- (ii), below) - 43,677 - 43,677 Assets placed in service (refer note-(iii), below) - 4,535,025 (4,535,025) - Transferred from property, plant and equipment (refer note- 10(iv)) - 134,680 2,858 137,538 Disposals / write offs - (7,792) - (7,792) Reclassification of assets 71,217 - (71,217) - Net valuation (loss) / gain on investment property (refer note-(i),below) (110,707) 68,703 - (42,004) Effect of foreign exchange movements (41,706) (61,926) (4,409) (108,041) At 31 December 2010 1,422,599 9,308,916 662,110 11,393,625 Carrying amounts At 31 December 2009 1,501,960 4,563,303 4,508,182 10,573,445 At 31 December 2010 1,422,599 9,308,916 662,110 11,393,625 (i) For the year ended 31 December 2010, a net valuation loss of AED 42.0 million (2009: gain of AED 276.1 million) is included in profit or loss. Accordingly the following fair value losses were recognized during the year in profit or loss:
2010 2009 Note AED'000 AED’000
(Loss) on valuation of property, plant and equipment 10(i) (231,293) (290,900) (Loss) / gain on valuation of investment property (42,004) 276,054 Total valuation (loss) (273,297) (14,846)
(ii) The amount of assets transferred on acquisition represents the carrying amounts of common area and leasehold improvements related to leisure and entertainment units transferred to the Company in 2010 (refer note 16(i)). (iii) During the current year, MAFP Group completed the construction of a mall and office tower in UAE amounting to AED 4,535.0 million, which were reclassified from capital work in progress to land and buildings. (iv) Certain properties of the MAFP Group are mortgaged against bank borrowings (refer note-20). (v) Certain land is held in the personal name of a majority shareholder of the ultimate holding entity of MAFP Group. (vi) In 2009, the MAFP Group transferred AED 359.8 million on completion of extension of a shopping mall in Egypt from capital work in progress to land and buildings. An additional expenditure of AED 124.8 million was capitalised on a mall in Bahrain in 2009.
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F-131 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 11. Investment property (continued) (vii) Accrued income at 31 December 2010, relating to the accounting for lease rentals on a straight line basis as per IAS 17 has been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2010 2009 AED'000 AED'000
Fair value of land and buildings 9,375,507 4,597,395 Less: adjustment for accrued operating lease income (66,591) (34,092) Net adjusted fair value 9,308,916 4,563,303
(viii) Rental income derived from investment property during the current year was AED 858.4 million (2009: AED 436.6 million). The direct operating expenses arising from investment property that generated rental income during the current year amounted to AED 333.9 million (2009: AED 262.5 million).
12. Investment in joint ventures and associate 2010 2009 Note AED'000 AED'000 Investment in joint ventures 876,910 1,388,387 Investment in associate 244,093 231,879 At 31 December 1,121,003 1,620,266
Share of profit from joint ventures 12.1 17,975 32,789 Share of profit / (loss) from associate 12.2 10,594 (13,939) 28,569 18,850
12.1 Investment in joint ventures Note 2010 2009 AED'000 AED'000 At 1 January 1,388,387 1,211,472 Additions during the year 41,672 116,062 Reclassified to other receivables* (272,300) - Provision for impairment 9(i) (336,657) (148,900) Reversal of impariment provision 9(ii) - 110,283 Share of post acquisition gain accounted through profit or loss 17,975 32,789 Share of post acquisition gain accounted through the statement of comprehensive income (refer note(i)) 40,390 64,997 Foreign currency translation differences from foreign operations (2,557) 1,684 At 31 December 876,910 1,388,387
*This balance was reclassified to other receivables and was fully impaired in 2010 (also refer note-9 (i)).
(i) This comprises the MAFP Group’s share of revaluation gains, net of the impact of deferred tax, of land and building recorded directly in the statement of comprehensive income by the joint ventures.
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F-132 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 12. Investment in joint ventures and associate (continued)
12.1 Investment in joint ventures (continued) Investment amounts in various entities include capital contributions made by the MAFP Group in its capacity as a shareholder. These balances are unsecured and interest free in nature and will not be called for repayment, except at the sole discretion of the respective joint venture entities. Summarised financial information in respect of the MAFP Group’s interest in joint ventures is set out below: 2010 2009 AED'000 AED'000
Total assets 4,425,985 4,004,522 Total liabilities (2,445,450) (2,191,571) Net assets 1,980,535 1,812,951 Group’s share of joint venture’s net assets (net of impairment) 876,910 788,505
Profit for the year earned by joint ventures 36,919 66,777 MAFP Group’s share of joint ventures' gain / (losses) for the year including losses on investments exited 17,975 32,789
12.2 Investment in an associate 2010 2009 AED'000 AED'000
At 1 January 231,879 245,818 Share of post acquisition gain accounted through profit or loss 10,594 (13,939) Foreign currency translation differences from foreign operations 1,620 - At 31 December 244,093 231,879
The above represents 28.44% investment in Enshaa PSC. Summarised financial information in respect of the MAFP Group’s interest in the associate is set out below: 2010 2009 AED'000 AED'000
Total assets 2,235,667 1,904,047 Total liabilities (1,377,393) (1,088,720) Net assets 858,274 815,327 MAFP Group’s share of associate’s net assets 244,093 231,879 Profit / (loss) for the year incurred by the associate 50,639 (101,511) MAFP Group’s share of associates’s profit / (loss) for the year 10,594 (13,939) 13. Intangible asset and deferred liability During 2008, the Company entered into an agreement with a Government entity in Dubai to acquire naming rights for two stations of Dubai Metro for a 10 year period. As per the agreement, a payment schedule is agreed over the life of the contract. In 2009, upon the Metro becoming operational, management recorded the present value of the total future payments to be made as an intangible asset. The asset is being amortised over the contract period of 10 years. The intangible asset is measured by discounting the estimated cash flows using the incremental borrowing cost of the MAFP Group at 4.5%.
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F-133 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 13. Intangible asset and deferred liability (continued)
2010 2009 Intangible asset - cost AED’000 AED’000
At 1 January 198,743 - Acquired during the year - 198,743 At 31 December 198,743 198,743
Amortisation
At 1 January (6,625) - Amortisation for the year (19,867) (6,625) At 31 December (26,492) (6,625) Carrying amounts 172,251 192,118
The corresponding liability to the Government entity for the Metro naming rights has been booked as follows:
2010 2009 Note AED'000 AED’000 At 1 January 146,759 - Payable recorded during the year - 198,743 Interest accrued during the year 6,323 2,016 Less: payment made during the year (19,440) (54,000) At 31 December 133,642 146,759 Current maturity 18 (20,995) (19,440) Long term portion 112,647 127,319
14. Asset classified as held for sale
This represents a plot of land located in Iran which has been transferred from property, plant and equipment as the management is committed to a plan to sell this land. Efforts to sell the land commenced in 2010 and the sale is expected to complete in early 2011.
15. Receivables and prepayments 2010 2009 AED’000 AED’000 Trade receivables 150,337 341,853 Advances 45,436 121,750 Prepayments and deposits 96,181 80,799 Other receivables 238,116 191,123 At 31 December 530,070 735,525
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F-134 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 16. Related party transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include the ultimate parent company, Majid Al Futtaim Capital LLC, its subsidiaries, associates, joint ventures, key management personnel and / or their close family members. Transactions with related parties are carried at agreed terms.
(i) In 2010 management agreed to a plan to acquire activities of certain leisure and entertainment businesses from MAF Leisure & Entertainment LLC, a subsidiary of the parent company.
The effective transfer dates of leisure and entertainment units are 1 January 2010 and 31 December 2010.
Purchase consideration towards the acquisition as at 31 December 2010, is equivalent to the carrying value of the net assets acquired. The purchase consideration is partially settled by adjusting an amount of AED 150.0 million due from the parent company, MAFG. The remaining amount is adjusted with the related party balance payable to MAFG.
The following summarises the consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the respective acquisition date:
1 January 2010 31 December 2010 AED’000 AED’000 Property, plant and equipment (refer note 161,240 199,466 10) Investment property (refer note 11) 17,560 26,117 Inventories 1,384 11,500 Other current assets 6,390 12,935 Cash and cash equivalents 390 (2,810) Due to related parties (203,861) (32,932) Trade and other payables (8,323) (15,649) Provision for staff termination and (264) (1,593) retirement benefits Total identifiable net (liabilities) / assets (25,484) 197,034
Purchase consideration - 197,034
The negative net assets value of AED 25.5 million acquired at 1 January 2010 were recorded as a related party receivable from MAF Leisure & entertainment LLC. On 31 December 2010, MAFP Group has recorded a full impairment loss against this balance.
The assets transferred were tested for impairment at 31 December 2010 and an impairment loss of AED 251.0 million was recognised against the book value of AED 360.7 million. The impairment was determined by comparing the recoverable amount of the assets with their respective carrying amounts. The recoverable amount was calculated based on the estimated cash flows that are expected to be generated through the future operations of the business.
(ii) During 2009, MAFG subscribed to equity instruments issued by the Company through a debt to equity swap transaction in a partial fulfilment of a financial liability of AED 2,492.5 million at its carrying value and AED 7.5 million through the related party current account totalling to AED 2,500.0 million. During 2010 MAFG subscribed to an additional equity instrument of AED 250.0 million issued by the Company. Management believes that there is no significant difference between the carrying value of the financial liability being extinguished and the equity instrument being recognised (refer note 20.2 and 23.2.1).
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F-135 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 16. Related party transactions (continued)
The instrument carried a coupon payment at a fixed rate of 8% per annum up to 7 October 2019 and at a floating rate of EIBOR + 5% thereafter. A coupon of AED 210.0 million was declared and adjusted against the balance payable to MAFG in 2010 (refer notes-20.2, 23.2.1 & 23.2.2).
(iii) During the year, a receivable from Majid Al Futtaim Ventures LLC, a related party, amounting to AED 363.4 million was transferred to MAFG. This receivable was partially offset of by settlement of a long term loan payable to MAFG amounting to AED 308.3 million.
(iv) During current year, the MAFP Group earned interest income of AED 0.4 million (2009: AED 1.4 million) on related party balances and loans receivables.
(v) Finance charges on loans from related parties amounted to AED 56.0 million (2009: AED 87.1 million). These loans carry interest rate of EIBOR/LIBOR plus a margin of 1% to 3.25% (refer note-20.2). (vi) In previous years and 2010 the Company novated certain bank loans to the parent company. However, the Company continues to use these facilities (refer note 20.2). Accordingly, these loans are disclosed as related party loans.
(vii) At 1 January 2009, the Company acquired 100% stake in Majid Al Futtaim Shopping Malls LLC, Majid Al Futtaim Hospitality LLC and Majid Al Futtaim Development LLC from Majid Al Futtaim Commercial Development LLC, a related party, at a value of AED 143.2 million. The purchase consideration paid towards acquisition of Majid Al Futtaim Development LLC was higher than the carrying value of its net assets, thereby generating goodwill of AED 5.1 million. Management decided to write off the goodwill and this is debited to equity. (viii) In 2009, MAFG waived a net payable of AED 432.6 million to the Company. This transaction was treated as a waiver of debt by MAFG in its capacity as the parent company. Accordingly, it was directly credited to equity. (ix) In 2009 MAFP Group charged MAFC AED 79.8 million in respect of payments made to a related party on its behalf. (x) The Company has provided a corporate guarantee of AED 3,673.0 million (2009: AED 3,673.0 million) to a bank in respect of a loan obtained by MAFG (refer note 26).
2010 2009 Services provided to the MAFP Group by related parties AED’000 AED’000 Internal audit, IT, legal services and corporate communication (9,181) (28,618) Facility management services (55,247) (60,842) (64,428) (89,460) Services provided by the MAFP Group to related parties Provision of retail and office space 231,326 214,671 Corporate and administrative services 16,801 9,095 248,127 223,766
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F-136 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 16. Related party transactions (continued) 16.1 Related party balances Balances with related parties at 31 December are as follows:
Due from related parties 2010 2009 AED’000 AED’000 Majid Al Futtaim Leisure and Entertainment LLC 25,484 504,643 Majid Al Futtaim Group LLC - 54,475 Majid Al Futtaim Capital LLC - 740 Majid Al Futtaim Fashions LLC 81 5,278 The Egyptian Emirates Malls Group 52,405 55,468 Majid Al Futtaim JCB Finance LLC 269 4,601 Yenkit Tourism Development 28,900 28,213 Aya Real Estate Investment BSC 2,983 3,000 Arzanah Mall LLC 3,171 3,140 Al Mamzar Islands Development LLC 2,582 2,412 City Centre Essa Town Co. WLL 10,938 10,938 Other related parties 2,175 4,127 128,988 677,035 Less: Provision for doubtful receivables (61,154) (25,882) 67,834 651,153
Due to related parties 2010 2009 AED’000 AED’000 Majid Al Futtaim Dalkia Middle East LLC 2,719 5,282 Majid Al Futtaim Commercial Development LLC - 1,028 Majid Al Futtaim Ventures LLC 27,536 - Majid Al Futtaim Group LLC 68,600 - Majid Al Futtaim Retail LLC 8,665 7,080 Other related parties 587 1,126 108,107 14,516
16.2 Compensation to key management personnel The aggregate compensation to key management personnel is disclosed as follows: 2010 2009 AED'000 AED'000 Short term employee benefits (salaries and allowances including 30,265 25,517 provision for bonus) Provision for staff terminal benefits 899 751 31,164 26,268
17. Cash and cash equivalents 2010 2009 AED’000 AED’000 Cash in hand 2,120 1,267 Fixed Deposits 138,450 184,449 Call deposits 602,077 440,987 Cash and cash equivalents 742,647 626,703
Cash in hand represents the pending sales deposit, the cash in operation at the central cashier office and petty cash. Cash at bank represents amount held in current and call accounts and short term deposits with banks at prevailing market interest rates.
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F-137 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 18. Payables and accruals 2010 2009 Note AED’000 AED’000 Trade payables 139,370 134,672 Accruals 454,513 537,976 Current portion of deferred liability 13 20,995 19,440 Unearned rental income 415,065 495,463 Retention from contractor payments 170,038 165,568 Rent received in advance 365,478 388,097 Tax payable 2,717 92 Negative fair value of derivatives (refer note-(i), below) 218,746 212,636 Others 175,273 215,558 At 31 December 1,962,195 2,169,502
(i) This comprises negative fair value in respect of the derivatives designated as cash flow hedges. These derivatives are classified as cash flow hedges as the arrangements are undertaken under interest rate collar and interest rate swap arrangements to hedge the variability of future cash flows arising on variable interest rate loans. The details of these arrangements are set-out in note-24.6.
19. Provisions Transfers / At 1 January Charge / At 31 December payments / 2010 transfers 2010 write backs AED’000 AED’000 AED’000 AED’000 Provision for bonus 58,358 49,116 (52,073) 55,401 Long-term portion (9,245) (831) - (10,076) Current portion of bonus provision 49,113 48,285 (52,073) 45,325 Other provisions 18,224 9,495 (510) 27,209 67,337 57,780 (52,583) 72,534
Long-term portion of bonus provision represent the deferred bonus plan for senior management staff, shown under non-current liabilities.
19.1 Provisions for staff terminal benefits 2010 2009 AED’000 AED’000
At 1 January 29,734 23,408 Charge during the year 17,402 15,349 Transferred on acquisition 1,857 - Payments / transfers (12,180) (9,023) At 31 December 36,813 29,734
20. Long-term loans 2010 2009 Note AED'000 AED’000
Long-term portion of external loans 20.1 5,145,745 4,961,007 Long-term portion of related party loans 20.2 559,740 308,266 At 31 December 5,705,485 5,269,273
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F-138 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 20. Long term loans (continued) 2010 2009 Note AED'000 AED’000
Current portion of external loans 20.1 1,519,571 1,745,638 Current portion of related party loans 20.2 384,735 279,640 At 31 December 1,904,306 2,025,278
20.1 Long term loans - external 2010 2009 AED'000 AED’000
At 1 January 6,706,645 5,691,596 Loans transferred to a related party (refer note-(i)) (250,000) (493,414) Borrowed during the year 1,660,208 1,955,654 Repaid during the year (1,447,273) (447,523) Currency translation adjustment (4,264) 332 At 31 December 6,665,316 6,706,645 Current maturity of long term loans (1,519,571) (1,745,638) Long-term portion at 31 December 5,145,745 4,961,007 (i) In 2010, the Company novated bank loans amounting to AED 250.0 million (2009: AED 493.4 million) to MAFG by converting external facilities to related party funding. However, the Company continues to use these facilities under an inter-company funding agreement signed with MAFG. Accordingly, these loans have been disclosed as related party loans (refer note 16(vi)).The details of long term loans are set out below:
Loan facility Loan amount at 31 Repayment interval Repayment Maturity date December 2010 commencement date
’000 AED ’000 Quarterly AED 1,139,000 1,139,000 27-Mar-11 29-Dec-13 (refer note (b)) AED 765,000 765,000 Revolving 23-Oct-11 USD 125,000 458,998 Half-yearly 30-Apr-13 31-Oct-15 (AED 459,000) USD 75,000 275,475 Half-yearly 30-Apr-13 31-Oct-15 (AED 275,475) OMR 22,000 Half-yearly 167,609 25-Oct-08 30-Apr-18 (AED 210,100) (refer note (a)) OMR 30,000 Half-yearly 286,200 31-Jan-12 31-Jan-22 (AED 286,200) (refer note (a)) USD 54,466 39,660 Quarterly 07-Mar-07 17-Dec-11 (AED 200,081) OMR 9,500 Quarterly 9,074 31-Mar-02 31-Dec-11 (AED 90,656) (refer note (a)) USD 600,000 Half-yearly 2,098,358 31-Mar-10 26-Apr-18 (AED 2,203,200) (refer note (e)) USD 300,000 Half-yearly 973,177 31-May-09 30-Nov-16 (AED 1,101,900) (refer note (c)) USD 50,000 Bullet 184,019 25-Jan-13 (AED 183,600) (refer note (d)) USD 50,000 Bullet 182,719 08-Apr-11 (AED 183,600) (refer note (d)) USD 33,000 Half-yearly 86,027 08-Mar-10 08-Sep-13 (AED 121,240) (refer note (d)) 6,665,316
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F-139 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010
20. Long term loans (continued) 20.1 Long term loans – external (continued)
The above loans are obtained at margins ranging from 0.75% to 3.5% (2009: 0.5% to 2.25%) over the base lending rate, whilst three loans are fixed at 6.5% (2009: 6.5% for two loans). For loans obtained in the UAE, the base lending rate used is generally EIBOR / LIBOR. The amount of AED 1,519.6 million (December 2009: AED 1,745.6 million) payable within the next 12 months is shown under current maturity of long term loans.
a) The loans in Omani Riyal are secured against: i) A registered first charge on all assets of Muscat City Centre including land, buildings and equipment but excluding fit-outs and equipment owned by tenants (refer note-10); and ii) Assignment of all insurance policies related to the fixed assets of Muscat City Centre. b) The loan facility of AED 1,139.0 million was obtained during 2010 and is secured by way of assignment of lease rentals of a shopping mall in UAE and a corporate guarantee provided by the Company. c) The USD 300 million loan obtained by a subsidiary in Bahrain is secured against: i) A first ranking mortgage over the property of a shopping mall in Bahrain, a first ranking fixed and floating charge over the subsidiary’s assets and accounts, pledge of the subsidiary’s shares, assignment of insurances, and assignment of the subsidiary’s rights under the project documents (refer note 11); ii) A corporate guarantee was provided by the Company against the outstanding loan for the construction and stabilization of the project. d) The USD 133 million loans of a subsidiary in Egypt are secured by way of bank guarantees. e) The USD 600 million loan facility is secured by a mortgage on the land and assignment of insurance policies of the property and future lease rentals of a shopping mall in UAE (refer note 11). The carrying value of properties mortgaged against the above loans aggregates to AED 11,215.8 million (2009: AED 7,242.5 million).
20.2 Long term loans - related parties
2010 2009 Note AED'000 AED’000 At 1 January 587,906 2,530,170 External loans novated to a related party 16(vi) 250,000 493,414 Borrowed during the year 1,364,294 437,716 Repaid during the year (1,006,978) (380,886) Transferred to Shareholder contribution 23.2.1 (250,000) (2,492,508) Currency translation adjustment (747) - At 31 December 944,475 587,906 Current maturity of long term loans (384,735) (279,640) Long-term portion 559,740 308,266
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F-140 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 20. Long term loans (continued) 20.2 Long term loans - related parties (continued)
In 2009, MAFG subscribed to a subordinated capital loan instrument of AED 2,500.0 million issued by the Company which was partly settled through the above-mentioned financial liability at its carrying value amounting to AED 2,492.5 million (refer notes-16(ii) and 23.2.1). During the current year, MAFG subscribed to an additional equity instrument of AED 250.0 million issued by the Company which was settled through the above mentioned financial liability at its carrying value. The above loans are obtained from the following related parties:
Loan facility Loan amount Lender Repayment ’000 AED ’000
Revolving facility payable on 7 AED 1,836,148 387,979 Majid Al Futtaim Group LLC July 2012 AED 1,836,185 6,243 Majid Al Futtaim Group LLC Bullet payment on 01 Jul 2012 4 equal annual instalments AED 459,125 270,000 Majid Al Futtaim Group LLC commencing on 26 Aug 2011 MAF for Installation and Repayable within 45 days of AED 300,000 280,253 Management of Hypermarkets SAE demand made by the lender 944,475
The above loans are obtained at a margin ranging from 1.0% to 3.25% over EIBOR / LIBOR (2009: 1.0% to 2.5%). The amount of AED 384.7 million (2009: AED 279.6 million) payable within the next 12 months for the above loans is shown under current maturity of long term loans (refer note 20).
21. Advance receipts This represents contributions in respect of the cost of chillers within the shopping malls of AED 9.3 million (2009: AED 10.3 million) made by Majid Al Futtaim Hypermarkets LLC, a tenant and a related party, under operating lease agreements. The contributions are amortised over the useful life of the chillers estimated to be 15 years.
22. Taxation The subsidiaries of the MAFP Group are liable to income tax in Oman and Egypt at the enacted tax rate of 12% and 20% respectively. Income tax expense of AED 42.5k (OMR 4.5k) was recognised against the profits of the MAFP Group’s subsidiary in Oman of AED 602.2k (OMR 63.1k). The tax assessments of a subsidiary in Egypt are in the process of being finalised for the years 2005 to 2008 and accordingly an additional charge of AED 1,745k was recognised in the current year.
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F-141 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010
22. Taxation (continued)
The following amounts have been recognised in respect of income tax and deferred tax charge in the consolidated financial statements.
Income tax expenses 2010 2009 AED’000 AED’000 Current tax expense -Current year (43) (19) -Adjustment for prior years (1,745) - Deferred tax 4,130 (8,411) Tax income / (expense) for the year 2,342 (8,430) Reconciliation of effective tax rate (Loss) / Profit for the year (566,096) 158,742 Tax (income) / expense for the year (2,342) 8,430 (Loss) / Profit for the year before tax (568,438) 167,172 Income tax using the Group's domestic tax rate 0.00% - 0.00% - Effect of tax rates in foreign jurisdictions 0.01% (43) -0.01% (19) Under provided in prior years 0.31% (1,745) - Deferred tax gain / (loss) on revaluation of land and buildings -0.73% 4,130 -5.03% (8,411) -0.41% 2,342 -5.04% (8,430)
For the subsidiary in Oman, the tax assessments for previous years have not been finalised by the tax authorities. The management consider that additional taxes, if any, that may become payable on finalisation of assessments of the open tax years would not be significant to the MAFP Group’s financial position as at 31 December 2010.
Deferred tax liability 2010 2009 AED’000 AED’000 At 1 January 190,046 181,727 (Credited) / charged to profit or loss (2,266) 8,411 Foreign currency translation difference from foreign operations (2,836) (92) At 31 December 184,944 190,046
Deferred tax liability has been computed on the taxable temporary differences arising as a result of valuation gain/losses on properties in Egypt, Syria and Lebanon. The tax rates in these countries are 20%, 28% and 15% respectively. The corresponding valuation gain or loss has been recognised in profit or loss. Accordingly, the resulting net deferred tax income has been recognized in profit or loss. For the year ended 31 December 2010, in respect of change in valuation gain / loss on investment properties, a deferred tax credit of AED 16.1 million is included in the profit and loss on account of the deductible temporary differences of AED 78.7 million and a deferred tax expense of AED 13.8 million (2009: AED 8.4 million) is included on account of taxable temporary difference of AED 77.9 million (2009: AED 61.5 million).
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F-142 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 22. Taxation (continued) Deferred tax asset 2010 2009 AED’000 AED’000 At 1 January - - Credited to profit or loss 1,864 - At 31 December 1,864 - Deferred tax asset of AED 1.86 million has been recognised by a subsidiary of MAFP Group in Egypt at the enacted tax rate of 20%. AED 1.61 million is recognised in respect of reduction in corporate tax liability due to the deduction in 2009 and 2010 resulting from the new property tax law and AED 0.25 million is recognised in respect of carry forward of tax losses of AED 1.28 million. 23. Share capital and reserves 23.1 Share capital 2010 2009 AED’000 AED’000 Authorised, issued and fully paid: 3,500,000 (2009: 1,820,000) shares of AED 1,000 each 3,500,000 1,820,000 At 31 December 3,500,000 1,820,000
This represents the capital of Majid Al Futtaim Properties LLC. During the current year, an amount of AED 1,680.0 million was transferred from shareholder contribution to share capital upon completion of the necessary legal formalities for the issue of shares (refer note 23.2).
23.2 Shareholder contribution 2010 2009 AED’000 AED’000
Subordinated capital loan instruments (refer note 23.2.1) 2,750,000 2,500,000 Proposed capitalisation of retained earnings (refer note 23.1) -1,680,000
At 31 December 2,750,000 4,180,000
23.2.1 Subordinated capital loan instrument In 2009, the Company issued subordinated capital loan instruments of AED 2,500 million in five loan instruments of AED 500 million each. During the current year, an additional loan instrument of AED 250 million was issued by the Company. These instruments are collectively referred to as “the hybrid instruments” and are fully subscribed to by MAFG as per the terms of a Master Capital Loan Agreement and a separate Capital Loan Agreement for each loan, dated 5 October 2009. The hybrid instruments carry a coupon payment, payable semi-annually, at a fixed rate of 8% per annum up to 7 October 2019 and at a floating rate of EIBOR + 5% thereafter (refer note 16(ii)). The hybrid instrument has a first par call date on 7 October 2019, at the election of the Company, without any obligation. The hybrid instrument does not have a final maturity date. The coupon is non-cumulative in nature and can be deferred indefinitely at the Company’s discretion without constituting a default. In case of the parent company ceasing control of the Company, the prevailing coupon rate on the hybrid instruments will be permanently increased by 5% and such coupons will become cumulative. Based on the terms of the hybrid instruments, these were accounted for as equity instruments. The hybrid instruments were subscribed to through a debt to equity swap transaction. Also refer notes-16(ii) & 20.2.
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F-143 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010
23. Share capital and reserves (continued) 23.2.2 Coupons
During current year the Company declared a coupon of AED 210.0 million calculated at the rate of 8% per annum on the amount outstanding for a one year period from 06 October 2009 to 05 October 2010. The coupon was adjusted against the related party balance of MAFG. Also refer to note 16 (ii).
2010 2009 AED’000 AED’000
Full year coupon at the rate of 8% per annum on AED 2,500 200,000 - million issued in 2009 Six months coupon at the rate of 8% per annum on aditional AED 10,000 - 250 million issued in 2010
For the year ended 31 December 210,000 -
23.3 Revaluation reserve
The revaluation reserve relates to the revaluation of property, plant and equipment, including reserve in respect of properties that were subsequently reclassified as investment property.
23.4 Conversion of retained earnings
In 2009, the shareholders of the Company passed a resolution to convert retained earnings amounting to AED 1,680 million to share capital. Since the legal formalities for increase in capital were pending as at 31 December 2009, the amount was classified as shareholder contribution. During current year this amount was transferred from shareholder contribution to share capital upon completion of the necessary legal formalities.
23.5 Statutory reserve In accordance with the Articles of Association of companies in the MAFP Group and relevant local laws, 10% of the net profit for the year of the individual companies, to which the law is applicable, is transferred to a statutory reserve. Such transfers may be discontinued when the reserve equals the limit prescribed by the relevant laws applicable to individual entities. This reserve can be utilised only in the manner specified under the relevant laws and is not available for distribution. During the current year, AED 45.7 million (2009: AED 111.8 million) has been transferred to this reserve.
23.6 Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedges related to hedged transactions that have not yet occurred.
23.7 Currency translation reserve
The currency translation reserve comprises all foreign currency differences arising from translation of the financial statements of foreign operations.
24. Financial instruments Financial assets of the MAFP Group include cash at bank and in hand, receivables and amounts due from related parties. Financial liabilities of the MAFP Group include amounts due to related parties, short term loans, long term loans, bank overdrafts, payables and provisions. Accounting policies for financial assets and liabilities are set out in note 3. -42-
F-144 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 24. Financial instruments (continued) 24.1 Financial risk management objectives and policies
The Company’s Board of Directors have the overall responsibility for the management of risk throughout its Group companies. The Board establishes and regularly reviews the Company’s risk management strategy and policy and procedures to ensure that they are in line with MAFG strategies and objectives. It has constituted an Audit Committee within the Board of the Company which is required to review and assess the risk management process. It ensures that internal risk management framework is effective and that a sound system of risk management is in place to safeguard shareholder’s interests. All the MAFP Group’s entities are required to report on risk management on a regular basis including self-certification indicating that they have reviewed the risks identified within their area, and they are satisfied that the controls are operating effectively. The main risks arising from the MAFP Group’s financial instruments are credit risk, liquidity risk and market risk, including foreign currency risk and interest rate risk. Liquidity risk and market risk (including foreign currency risk and interest rate risk) are managed by the centralised treasury function of MAFG on behalf of the Company. The exposure to credit risk is monitored by the MAFP Group on an on-going basis (refer note 24.2).
24.2 Credit risk Credit risk is the risk of financial loss to the MAFP Group if the counter-party fails to meet its contractual obligations and arises principally from the MAFP Group’s receivables. The entities in the MAFP Group have credit policies in place and the exposure to credit risk is monitored on an on-going basis. A majority of the MAFP Group’s income is by way of cash and advance receipts and is supported by a deposit equivalent to one month’s advance rental. Credit evaluations are performed on all customers requiring credit over a certain amount and there is no concentration of credit risk. Cash is placed with reputable banks and the risk of default is considered remote. Under the current economic conditions, management has assessed the recoverability of its trade receivables as at the reporting date and consider them to be recoverable. Due from related parties (net of provisions) are considered recoverable by management. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
2010 2009 AED’000 AED’000
Trade receivables 150,337 341,853 Other receivables and deposits 243,670 201,205 Cash at bank 740,527 625,436 Due from related parties 67,834 651,153 At 31 December 1,202,368 1,819,647
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F-145 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 24. Financial instruments (continued) 24.3 Liquidity risk Liquidity risk is the risk that the MAFP Group will not be able to meet its financial obligations as they fall due. The MAFP Group’s approach to managing liquidity is to ensure, in so far as it is reasonably possible, that it will always have sufficient liquidity to meet its liabilities when they become due without incurring unacceptable losses or risking damage to the MAFP Group’s reputation. The MAFP Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and credit facilities.
At 31 December 2010
Carrying Contractual More than 5 amount cash flows 6 months or less 6-12 months 1-2 years 2-5 years years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000
Secured bank loans 5,126,183 (6,325,629) (543,977) (365,209) (781,319) (2,403,825) (2,231,299)
Other loans and borrowings 1,539,133 (1,677,899) (41,331) (810,143) (23,874) (802,551) - Related party loans 944,475 (999,293) (86,247) (363,005) (550,041) - - Trade and other payables 1,018,307 (1,018,307) (1,008,231) - (10,076) - - Due to related parties 108,107 (108,107) - (108,107) - - - Derivative financial liabilities for risk management - Interest rate swaps 80,198 (86,459) (16,404) (15,254) (24,745) (28,396) (1,660) - Interest rate collars 138,548 (166,206) (46,452) (38,063) (46,493) (34,706) (492) Total 8,954,951 (10,381,900) (1,742,642) (1,699,781) (1,436,548) (3,269,478) (2,233,451)
At 31 December 2009
Carrying Contractual More than 5 amount cash flows 6 months or less 6-12 months 1-2 years 2-5 years years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000
Secured bank loans 4,746,138 (5,900,330) (478,475) (1,216,198) (391,461) (1,421,088) (2,393,108) Other loans and borrowings 1,960,507 (2,136,842) (162,189) (81,444) (933,380) (934,588) (25,241) Related party loans 587,906 (616,067) (281,855) (2,803) (15,114) (316,295) - Trade and other payables 1,131,664 (1,131,664) (1,122,419) - (9,245) - - Due to related parties 14,516 (14,516) - (14,516) - - - Derivative financial liabilities for risk management - Interest rate swaps 66,473 (70,993) (17,524) (15,552) (19,818) (17,630) (469) - Interest rate collars 146,163 (167,550) (53,987) (47,851) (54,177) (20,145) 8,610 Total 8,653,367 (10,037,962) (2,116,449) (1,378,364) (1,423,195) (2,709,746) (2,410,208)
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F-146 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 24. Financial instruments (continued) 24.3.1 Funding and liquidity
At 31 December 2010, the Group has net current liabilities of AED 2,680.0 million (2009: AED 2,251.9 million) which includes loans maturing in the short-term of AED 1,904.3 million (2009: AED 2,025.3 million). Furthermore, at 31 December 2010 debts maturing in the long term are AED 5,705.5 million (2009: AED 5,269.3 million). Also, during 2011, the MAFP Group expects to incur interest cost of AED 525 million and capital expenditure of AED 2,680 million.
To meet the above commitments the MAFP Group has existing undrawn facilities of AED 3,757 million, cash in hand at 31 December 2010 of AED 743 million and it expects to generate cash from operations of AED 1,382 million in 2011. At 31 December 2010, the MAFP Group is in compliance with all covenants under its credit facilities.
During the year, MAFG has provided financial support to the MAFP Group through conversion of long term loans of AED 250.0 million into equity. In 2009 MAFG had converted long terms loans and a related party balance amounting to AED 2,500.00 million into equity (refer note 16(ii)) and waived a payable balance to MAFG of AED 432.6 million (refer note 16 (viii)).
On the basis of the above, management have concluded that MAFP Group will be able to meet its commitments in the foreseeable future.
24.4 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the MAFP Group’s income or the value of its holdings of financial instruments. The MAFP Group seeks to apply hedge accounting to manage volatility in its income statement in relation to its exposure to interest rate risk.
24.4.1 Foreign currency risk The MAFP Group is exposed to foreign currency risk on its net investments in foreign subsidiaries and operations. The MAFP Group is also exposed to foreign currency risk on purchases denominated in foreign currencies.
Foreign currency sensitivity analysis A significant portion of the MAFP Group’s foreign currency borrowings and balances are denominated in US Dollar (US$) and other currencies linked to US$. As MAFP Group’s functional currency (AED) is currently pegged to US$, any fluctuation in exchange rate is not likely to have an impact on Group’s equity and profit or loss.
24.4.2 Interest rate risk As mentioned in note 24.1, interest rate risk is managed by MAFG on behalf of the Company. Within the framework of the interest rate risk management policy of MAFG, the MAFP Group adopts a policy of ensuring that between 40% and 60% of its exposure on borrowings is on a fixed rate basis. This is achieved through managing the duration of interest-bearing portfolio and by using derivative financial instruments such as interest rate swaps and collars as part of the parent company’s interest rate risk management. These are entered into pursuant to master agreements that provide for a single net payment to be made by one counter party at each due date. The fair value of the derivative instrument is estimated based on proprietary pricing models or market quotes provided by the counter-party bank. Net interest paid or received related to these agreements is recorded using the accrual method and is recorded as an adjustment to interest expense. Interest on borrowed funds is charged at EIBOR/LIBOR plus a fixed margin negotiated prior to executing the loan.
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F-147 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 24. Financial instruments (continued) 24.4 Market risk (continued) 24.4.2 Interest rate risk (continued)
At the reporting date the interest rate profile of the MAFP Group’s interest-bearing financial instruments was:
Carrying amount Carrying amount 2010 2009 AED’000 AED’000 Variable rate instruments Financial liabilities (loans) (7,146,908) (7,087,908) At 31 December (7,146,908) (7,087,908)
The contractual maturities of the financial liabilities are disclosed in note 24.3.
Sensitivity analysis for variable rate instruments The following table demonstrates the sensitivity of the MAFP Group’s profit before tax and the MAFP Group’s equity to a reasonably possible change in interest rates, assuming all other variables in particular foreign currency rates remain constant. The analysis is performed on the same basis for 2009.
Increase / (decrease) in Effect on other basis points Effect on profit or loss comprehensive income AED'000 2010 2009 2010 2009 Variable rate instrument + 100 (57,175) (56,703) - - Interest rate swap + 100 - - 24,933 29,761 Interest rate collar + 100 5,575 13,407 53,832 55,898 Cash flow sensitivity (net) (51,600) (43,296) 78,765 85,659 Variable rate instrument - 100 57,175 56,703 - - Interest rate swap - 100 - - (34,658) (36,274) Interest rate collar - 100 - - (45,714) (80,809) Cash flow sensitivity (net) 57,175 56,703 (80,372) (117,083)
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F-148 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 24. Financial instruments (continued) 24.5 Fair values (continued) The fair value of the MAFP Group’s financial instruments together with the carrying amounts shown in the statement of financial position, are as follows:
Fair values Carrying amount AED'000 2010 2009 2010 2009 Financial assets Trade and other receivables 394,007 543,058 394,007 543,058 Due from related parties 67,834 651,153 67,834 651,153 Cash and cash equivalents 742,647 626,703 742,647 626,703 At 31 December 1,204,488 1,820,914 1,204,488 1,820,914 Financial liabilities Long term loans 7,609,791 7,294,551 7,609,791 7,294,551 Due to related parties 108,107 14,516 108,107 14,516 Trade payables, other payables and accruals 1,018,307 1,128,238 1,018,307 1,128,238 Interest rate swaps 80,198 66,473 80,198 66,473 Interest rate collars 138,548 146,163 138,548 146,163 At 31 December 8,954,951 8,649,941 8,954,951 8,649,941
Basis for determining fair values The following significant methods and assumptions were used in estimating the fair values of the MAFP Group’s financial instruments: Derivatives: The fair values are obtained from market prices available from the counterparty bank, discounted cash flow models and valuation models as appropriate. The MAFP Group uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options and interest rate swaps. For these financial instruments, inputs into models are market observable. Non-derivative financial liabilities: Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Interest rates used for determining fair value: The interest rates used to discount estimated cash flows, where applicable, are based on the spot rates derived from the interpolated yield curve at the reporting date and were in the following range:
2010 2009 Derivatives 0.29% to 3.05% 0.25% to 3.5% Borrowings 0.29% to 3.05% 0.25% to 3.5%
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F-149 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 24. Financial instruments (continued) 24.6 Derivatives held for interest rate risk management Cash flow hedges of interest rate risk
At the end of the reporting year, the MAFP Group held the following derivative instruments, designated as cash flow hedges in relation to floating rate interest-bearing loans and borrowings:
Maturity Commencement Fair value of liabilities Instrument date date 2010 2009 AED'000 AED'000 Interest rate swap 30-Nov-16 30-Nov-06 (80,198) (66,473) Interest rate collar 09-Jul-12 09-Jul-07 (34,519) (42,316) 25-Jul-11 25-Jul-07 (8,467) (20,632) 08-Aug-10 * 08-Aug-07 - (9,149) 28-Aug-11 28-Aug-07 (9,684) (19,825) 31-Mar-18 30-Sep-09 (85,878) (54,241) (138,548) (146,163) *This derivative matured during the current year. MAFG was the counterparty to this derivative instrument.
The following table indicates the periods in which the cash flows associated with derivatives that are designated as cash flow hedges are expected to occur:
At 31 December 2010 Carrying Expected 6mths 6to12 1to2 2to5 Morethan amount cash flows or less mths years years 5 years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Interest rate swaps: Liabilities 80,198 (86,459) (16,404) (15,254) (24,745) (28,396) (1,660) Interest rate collars: Liabilities 138,548 (166,206) (46,452) (38,063) (46,493) (34,706) (492) 218,746 (252,665) (62,856) (53,317) (71,238) (63,102) (2,152)
At 31 December 2009 Carrying Expected 6mths 6to12 1to2 2to5 Morethan amount cash flows or less mths years years 5 years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Interest rate swaps: Liabilities 66,473 (70,993) (17,524) (15,552) (19,818) (17,630) (469) Interest rate collars: Liabilities 146,163 (167,550) (53,987) (47,851) (54,177) (20,145) 8,610 212,636 (238,543) (71,511) (63,403) (73,995) (37,775) 8,141
The periods in which the cash flows associated with derivatives that are designated as cash flow hedges are expected to impact the income statement are not expected to be significantly different from the above.
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F-150 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 24. Financial instruments (continued) 24.7 Capital management The primary objective of the MAFP Group’s capital management is to ensure that it maintains healthy capital and liquidity ratios in order to support its operations and future developments. The following ratios are used to monitor the business performance: (i) Net debt to equity ratio (ii) Interest coverage ratio (iii) Debt service coverage ratio
These ratios are monitored in accordance with MAFG’s capital management policy.
2010 2009 AED'000 AED'000
Loans and borrowings 7,609,791 7,294,551 Total debt 7,609,791 7,294,551 Share capital 3,500,000 1,820,000 Shareholder contribution 2,750,000 4,180,000 Retained earnings 2,041,669 2,863,116 Revaluation reserve 11,143,626 10,426,029 Other reserves 265,482 287,290 Total equity attributable to owners of the Company 19,700,777 19,576,435
Gearing ratio 39% 37%
The MAFP Group has various borrowing arrangements which require maintaining certain net worth, interest coverage and debt equity ratios. Apart from these requirements neither the Company nor any of its subsidiaries are subject to any externally imposed capital requirements.
25. Capital commitments Capital commitments of the MAFP Group at 31 December 2010 on on-going projects, including the MAFP Group’s interest in joint ventures, amounted to AED 653.9 million (2009: AED 1,315.1 million).
The MAFP Group has executed a development agreement with a Government agency in Syria to invest AED 3,673.0 million in 15 years from the effective date July 2009 of which AED 1,101.9 million should be invested in the first five years. At 31 December 2010, the MAFP Group has invested AED 276.5 million in the project.
26. Contingent liabilities The MAFP Group is contingently liable in respect of corporate guarantees of AED 3,314.0 million to various banks (2009: AED 3,429.8 million). Furthermore, the MAFP Group has provided other operational guarantees of AED 5.4 million (2009: AED 5.3 million).
During the year, a joint venture company that is 50% owned by MAFP Group has been subject to arbitration proceedings on the grounds of non- payment of installments for purchase of land, for a total claim of AED 2,614 million. MAFP Group has received legal advice that the concerned joint venture company has strong grounds to contest the claim and that the outcome of any adverse arbitration ruling will not result in financial liability to MAFP Group.
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F-151 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 27. Subsequent events There have been no significant events subsequent to 31 December 2010 up to the date of authorisation of financial statements on 24 March 2011, which would have a material effect on these consolidated financial statements.
28. Operating leases Leases as lessor The MAFP Group leases out its properties under operating leases. Minimum lease payments under non- cancellable operating leases are as follows: 2010 2009 AED’000 AED’000 Less than one year 1,481,970 1,425,070 Between one and five years 5,167,871 4,246,328 More than five years 2,002,417 1,360,871 Total 8,652,258 7,032,269
Leases as lessee Minimum lease payments under non-cancellable operating leases are as follows: 2010 2009 AED’000 AED’000 Less than one year 10,921 11,228 Between one and five years 42,809 10,921 More than five years 106,022 148,831 Total 159,752 170,980 Above lease rentals represent MAFP Group commitments for staff accommodation. In addition to this MAFP Group also enters into operating leases, which typically run for a period of one year with an option to renew the lease after that date. The lease rentals are usually renewed to reflect market rentals.
29. Critical judgments in applying the MAFP Group’s accounting policies In the process of applying the MAFP Group’s accounting policies, which are described in the notes, management has made certain judgments as mentioned below.
Investment property – accounting for dual use properties Investment property is property held to either earn rental income or capital appreciation or for both. Certain properties of the MAFP Group include a portion that is held to generate rental income or capital appreciation and another portion that is held for own use by the Company in supply of services or for administrative purposes. Such properties are split between property, plant and equipment and investment properties based on leasable value, subject to the conditions described below. Properties that can be sold or finance leased separately In the UAE, Law No. 27 of 2007 Regulating the Ownership of Jointly Owned Properties in the Emirate of Dubai (“the Strata Law”) came into effect from 1 April 2008. Based on the terms of the Strata Law and clarification obtained by the Company from independent legal advisors, management is of the view that: - it is possible to divide developed property, such as shopping mall, into separate units; - that conceptually, strata title can validly be created within the shopping malls and individual units or parts may be sold or subject to long leases; and - the Dubai Land Department and the Strata Law both support the above concept. In countries other than UAE, wherever similar laws exist, the Company splits dual use properties on a similar basis.
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F-152 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 29. Critical judgments in applying the MAFP Group’s accounting policies (continued) Investment property – accounting for dual use properties (continued) Properties that cannot be sold or finance leased separately (continued) Due to legal restrictions in Oman, and in the UAE in respect of properties which are built on land gifted by the Ruler, these properties cannot currently be sold or finance leased separately (in case of UAE, without the prior consent of the Ruler). Consequently, the entire property is classified as investment property only if an insignificant portion is held for own use.
Properties built on gifted land:
Certain properties have been developed on land gifted to the majority shareholder of the ultimate holding entity, personally, rather than the company. These properties are held in the name of the majority shareholder for the beneficial interest of the company.
Properties which are built on land gifted by the Ruler of Dubai, cannot currently be sold or finance leased separately (without the prior consent of the ruler). On 15 March 2010, the Ruler of Dubai issued a decree which allows each UAE national, who has been granted industrial or commercial land, to apply to the Land and Properties Department (“the Department”) to request for free ownership of the land (and obtain a title deed with free hold status for the plot), that is free from any restrictions over the use of the land by registering it in the real estate register for a fee of 30% of the market value of the land, which will be determined by the Department on the date of the transfer of ownership. Upon issuance of this decree, MAFP can transfer the legal title and register the properties constructed on gifted land in its name. Management is of the view that until the decision to register the properties is formally approved by the Board, the properties will continue to be classified as property, plant and equipment if a significant portion is held for own use. In management’s judgment, the level of own use is assessed based on the level of ancillary income earned by the MAFP Group from the property as a whole. If the ancillary income exceeds 5% of the total income from the property, then the entire property is classified as property, plant and equipment, at the date when the level of ancillary income exceeds 5%.
Fair value of properties Fair value of undeveloped land and other developed properties at the reporting date is determined every year at the reporting date by independent external RICS Chartered Surveyors and Valuers having sufficient current local and national knowledge of the respective property markets. The valuation has been prepared in accordance with the RICS Valuation Standards, Sixth Edition. Internal valuations are carried out quarterly, based on the methods and assumptions used by the external valuer, to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Fair value is the market value of the properties. Market value is the highest possible price for which the property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. If there is no market-based evidence of fair value of a property, fair value is determined using the present value of the estimated future net cash flows for each property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation. The fair valuation of properties constructed on gifted land reflects management’s interpretation of the relevant decree and assumes that the titles are transferable to the company within a reasonable time scale.
The current volatility in the global financial system has created a significant degree of turbulence in commercial real estate markets across the world. Furthermore, the lack of liquidity in the capital markets means that it may be very difficult to achieve the sale of property assets in the short term.
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F-153 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 29. Critical judgments in applying the MAFP Group’s accounting policies (continued)
Apportionment of fair values between land and buildings Where the valuation of a property comprises the aggregate value of land and building, the valuation is apportioned between land and building based on the reinstatement cost as computed by an external appraiser of the building, unless another appropriate basis is available for allocation. Change in fair value apportioned to buildings is then allocated to the building structure as it is impracticable to obtain detailed fair value information at each component level of the building from the valuer or to use any other reasonable method of approximation to internally estimate such component values. Consequently, any increase in fair values is allocated to the structure of the buildings and depreciated over the remaining useful lives of the respective buildings.
Impairment Management assesses impairment loss on assets other than investment property and inventories whenever there are indicators of impairment. In assessing impairment of assets based on 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 risk specific to the asset.
Staff terminal benefits The MAFP Group’s liability for staff terminal benefits qualifies as a defined benefit plan under IAS 19. The MAFP Group’s net obligation in respect of staff terminal benefits is calculated by estimating the amount of future benefits that employees have earned in return for their services in the current and prior years, and is discounted to determine the present value of the obligation. The discount rate used is the yield at the reporting date on premium bonds that have maturity dates approximating the terms of the MAFP Group’s obligations.
The principal assumptions for calculation of the provision for staff terminal benefits at the reporting date are as follows:
Discount rate 5.00% Future salary increase 4.00%
Valuation of financial instruments
The MAFP Group’s accounting policy on fair value measurements is discussed in accounting policy 3(q).
The MAFP Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in the market that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuations. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
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F-154 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 29. Critical judgments in applying the MAFP Group’s accounting policies (continued) Valuation of financial instruments (continued)
Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark profit rates, credit spreads and other premia use in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.
The MAFP Group uses widely recognized valuation models for determining the fair value of common and more simple financial instruments, that use only observable market data and require little management judgment and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps and collars. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on products and markets and is prone to changes based on specific events and general conditions in the financial markets.
The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorized:
Level 1 Level 2 Level 3 Total Note AED’000 AED’000 AED’000 AED’000 31 December 2010 Financial liabilities Derivatives held for interest rate risk management 24.6 - 218,746 - 218,746 - 218,746 - 218,746 31 December 2009 Financial liabilities Derivatives held for interest rate risk management 24.6 - 212,636 - 212,636 - 212,636 - 212,636
During the year, there was no movement between the fair value hierarchies of the derivative financial instruments held by the MAFP Group. Furthermore, there has been no change in the valuation techniques in relation to valuation of derivative financial instruments during the year.
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F-155 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 30. List of Subsidiaries
The consolidated financial statements include the results of the following subsidiaries: Country of Subsidiaries incorporation / Ownership % origin Active subsidiaries Majid Al Futtaim Investments Mirdiff LLC UAE 100% Majid Al Futtaim Syria for Investment and Development LLC UAE 100% MAM Investments LLC UAE 100% Beirut Marina Property Investments LLC UAE 100% Fujairah City Centre Investment LLC UAE 62.5% International Property Services LLC Oman 100% Egypt 100% MAF Misr for Commercial and Real Estate Investment Company S.A.E MAF Investments Bahrain BSC Bahrain 100% MAF Lebanon for Commercial and Real Estate Investments SARL Lebanon 100% MAF Lebanon Holding SAL Lebanon 100% Suburban Development Company SAL Lebanon 92.7% MAF Investments Syria LLC Syria 100% Majid Al Futtaim Shopping Malls KSA Saudi Arabia 100% Bab Al Madinah Company Property Investment Limited Yemen 51% Majid Al Futtaim Properties Lebanon Holding SAL Lebanon 100% Majid Al Futtaim Properties Management Services SARL Lebanon 100% Dormant subsidiaries MAF Technological Systems LLC UAE 100% Majid Al Futtaim Malls International LLC UAE 100% Majid Al Futtaim Hospitality LLC UAE 100% Majid Al Futtaim Development LLC UAE 100% Majid Al Futtaim Shopping Malls LLC UAE 100% MAF for Real Estate Investment S.A.E. Egypt 100% Majid Al Futtaim North Africa SARL Tunisia 100% Societe Tunisia WIFEK Tunisia 100%
Shares of certain subsidiary companies are held by subsidiaries of MAFG for the beneficial interest of the MAFP Group.
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F-156 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:20 – eprint6 – 4331 Section 10(c)
Consolidated Financial Statements for the year ended 31 December 2010 31. List of joint ventures The consolidated financial statements include the MAFP Group’s share of the results of the following joint venture companies: Country of Joint ventures incorporation / Ownership % origin Active joint ventures Sharjah Real Estate Development Holding (Brajeel) JSC UAE 50% Al Mamzar Islands Developments LLC UAE 50% The Wave Muscat S.A.O.C Oman 50% Waterfront City SARL Lebanon 50% The Egypt Emirates Malls Group S.A.E Egypt 50% Aya Real Estate Investment BSC Bahrain 50%
Dormant joint ventures Arzanah Mall LLC UAE 50% Yenkit Tourism Development LLC Oman 60% MAFI-NLC Developments (Pvt) Ltd * Pakistan 50% Bab Al Madina for Development and Management of Business Centers Company LLC Libya 50% City Centre Essa Town Co WLL Bahrain 50%
* Liquidated during 2010.
32. Associate
The consolidated financial statements include the MAFP Group’s share of the results of the following associate company: Country of Associate incorporation / Ownership % origin Active associate Enshaa PSC UAE 28.44%
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F-157 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
F-158 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
F-159 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
Consolidated income statement For the year ended 31 December 2009
Note 2009 2008 AED'000 AED'000
Revenue 1,858,823 1,755,900
Operating expenses 5 (1,328,079) (1,247,292)
Net valuation gain / (loss) on land and building 28 (14,846) (167,591)
Other income / (expenses) 7 7,508 191,204
Impairment (provision) / reversals 8 (74,770) -
Share of gain / (loss) in joint ventures and associate 11 18,850 (74,688)
Net finance cost 6 (300,314) (227,173)
Profit for the year before tax 167,172 230,360
Income tax (expense) / reversal 21 (8,430) 13,689
Profit for the year 158,742 244,049 Profit / (loss) for the year attributable to: Owners of the Company 157,987 244,060 Non-controlling interest 755 (11) 158,742 244,049
The notes on pages 11 to 56 form part of these consolidated financial statements.
The independent auditors' report is set out on pages 3 and 4.
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F-160 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
Consolidated statement of comprehensive income For the year ended 31 December 2009
Note 2009 2008 AED'000 AED'000
Profit for the year 158,742 244,049 Other comprehensive income Gains / (losses) recognised directly in statement of comprehensive income
Net valuation (loss) / gain on land and building 9(ii) (2,352,010) 2,683,799
Share of gain / (loss) in joint ventures and associate 11.1 64,997 -
Deferred tax (liability) / asset recognised on revaluation (loss) / gain on properties 21 - 118,982
Net change in fair value of cash flow hedges transferred to income statement 6 107,570 30,431
Effective portion of changes in fair value of cash flow hedges 29,977 (318,451)
Foreign currency translation difference from foreign operations 7,537 24,663
Other comprehensive income for the year, net of income tax (2,141,929) 2,539,424
Total comprehensive income for the year (1,983,187) 2,783,473
Total comprehensive income attributable to: Owners of the Company (1,983,892) 2,783,484 Non-controlling interest 705 (11) (1,983,187) 2,783,473
The notes on pages 11 to 56 form part of these consolidated financial statements.
The independent auditors' report is set out on pages 3 and 4.
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F-161 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
F-162 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
Consolidated statement of cash flows For the year ended 31 December 2009
Note 2009 2008 AED'000 AED'000 Cash flows from operating activities Profit for the year after tax 158,742 244,049
Adjustments: Interest income 6 (30,013) (52,003) Interest and similar charges 6 330,327 279,176 Provision for receivables from joint ventures 7 25,860 6,223 Impairment provision / (reversals) 8 74,770 - Net loss on revaluation of land and buildings 9&10 14,846 167,591 Depreciation 9 489,844 408,323 Provision for deferred tax 21 8,411 (18,831) Amortisation of intangible asset 12 6,625 - Gain on sale of property, plant and equipment and (206) (240,174) Fixed assets / project costs written off 7 29,972 51,941 Share of (gain) / loss in joint ventures and associate 11 (18,850) 74,688 Net movement in provision for staff terminal benefits 6,326 15,230 Other adjustments - 2,483 Cash generated from operations 937,912 694,647
Changes to working capital: Inventories (2,884) (1,623) Receivables and prepayments 81,064 4,370 Payables and accruals 191,333 459,002 Due (from) / to related parties 42,698 (678,090) 312,211 (216,341)
Cash flows from operating activities 1,408,865 722,355
Investing activities Acquisition of property, plant and equipment and investment property 9 & 10 (2,893,430) (2,730,956)
Proceeds from disposal of property, plant and equipment 2,138 724,692 Investment in joint ventures and associate - (366,295) Short term loans repaid by a related party - 16,150 Acquisition of intangible asset 12 (54,000) - Interest received 13,287 12,704 Cash flows used in investing activities (2,932,005) (2,343,705) Financing activities Long term loans received 18 2,393,370 5,558,804 Long term loans repaid 18 (828,409) (2,940,023) Non-controlling interest equity injection 1,750 - Short term loans repaid - (6,854) Interest paid (404,793) (332,519) Cash flows from financing activities 1,161,918 2,279,408 Net (decrease) / increase in cash and cash equivalents (361,222) 658,058 Cash and cash equivalents at beginning of the year 987,925 329,867
Cash and cash equivalents at end of the year 626,703 987,925 Cash and cash equivalents comprise: Cash in hand and at bank 626,703 1,006,532 Bank overdraft - (18,607) 626,703 987,925
The notes on pages 11 to 56 form part of these consolidated financial statements.
The independent auditors' report is set out on pages 3 and 4. -8-
F-163 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d) - 2,483 2,483 30,431 24,663 244,049 118,982 2,683,799 2,783,473 15,856,287 18,642,243 - (318,451) - - - - - Non- controlling Total - 2,483 - - 2,483 - - (318,451) - 118,982 - 2,683,799 - - - 30,431 - 244,060 (11) Currency - - 24,663 24,663 - - - - - D'000 AED'000 AED'000 AED'000 AED'000 - (288,020) 24,663 2,783,484 (11) - (318,451) - - - - - 30,431 - ory Hedging translation ------2009 er b ecem - (36,161) 36,161 - - - (36,161) 36,161 - - - 244,060 d31D -9- e d Attributable to the equity holders of the company eyearen - 2,802,781 244,060 - - 9,910,261 3,861,647 367,839 (69,962) (40,347) 15,849,438 6,849 - 12,713,042 4,069,546 404,000 (357,982) (15,684) 18,632,922 9,321 - - 118,982 - - 2,683,799 - - - - h or t F Share- Consolidated statement of changes in equity ------Share holder Revaluation Retained Statut capital contribution reserve earnings reserve reserve reserve Total interest equity AED'000 AED'000 AED'000 AED'000 AED'000 AE 1,820,000 1,820,000 Other comprehensive income Transaction with owners, recorded directlyContribution in by equity and distribution to owners Total comprehensive income for the year At 1 January 2008 Profit or loss Net valuation gain / (loss) on land and building Deferred tax asset recognised on revaluation loss on properties Net change in fair valuestatement of cash flow hedges transferred to income Effective portion of changes in fair value of cash flow hedges Total comprehensive income for the year Transfer to statutory reserve Changes in ownership interest inloss subsidiaries of that control do not resultIncrease in in a non-controlling interest The notes on pages 11 to 56 form part of these consolidated financial statements. At 31 December 2008 Foreign currency translation differences from foreign operations Consolidated Financial Statements for the year ended 31 December 2009
F-164 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d) - - 7,537 1,800 64,997 29,977 158,742 107,570 432,550 2,500,000 2,929,205 18,642,243 19,588,261 - - - - (5,145) - - (2,352,010) - - Non- controlling Total - - 1,800 - 64,997 - - 2,500,000 - 432,550 -- (5,145) - 29,977 - 2,927,405 1,800 - (2,352,010) - - 107,570 - 157,987 755 Currency ------29,977 ------107,570 - - - 7,587 7,587 (50) (continued) y 2009 uit er q b - (1,680,000)- - - - 432,550 - - - (5,145) - - - - - (1,268,394) 15,799 - - (15,799) 15,799 - - - - 157,987 - - -10- ecem es in e g d31D e d Attributable to the equity holders of the Company - - - - 12,713,042 4,069,546 404,000 (357,982) (15,684) 18,632,922 9,321 ear en - - 64,997 - (2,352,010) - (2,287,013) 157,987 - 137,547 7,587 (1,983,892) 705 (1,983,187) - - - - y e h Share- or t F - 1,680,000 - 2,500,000 ------4,180,000 - - - - - Consolidated statement of chan Share holder Revaluation Retained Statutory Hedging translation capital contribution reserve earnings reserve reserve reserve Total interest equity AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 1,820,000 1,820,000 4,180,000 10,426,029 2,959,139 419,799 (220,435) (8,097) 19,576,435 11,826 y uit q in e y ear y 2009 y rehensive income rehensive income for the p p At 31 December 2009 At 1 Januar Profit or loss Net valuation gain / (loss) on land and building Net change in fair value ofstatement cash flow hedges transferred to income Effective portion of changes in fair value of cashForeign flow currency differences hedges from foreign operations Total comprehensive income for the year Transaction with owners, recorded directl Contribution by and distribution to ownersequity and other movements in Transfer to statutory reserve Capitalisation of retained earnings (refer note-20.2.2) Shareholders' contribution (refer note-20.2.1) Waiver of payable by MAFG (refer note-15(ii)) Goodwill written off (refer note-15(i)) Total contribution by and distribution to owners The notes on pages 11 to 56 form part of these consolidated financial statements. Share of gain / (loss) in joint ventures and associate Total com Other com Increase in non-controlling interest Consolidated Financial Statements for the year ended 31 December 2009
F-165 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
Notes to the consolidated financial statements 1. Legal status and principal activities Majid Al Futtaim Properties LLC (“the Company”) was registered as a limited liability company in the Emirate of Dubai, United Arab Emirates (“UAE”) on 5 February 1994. The principal activities of the Company are investment in and management of commercial projects including shopping malls, hotels and acting as a holding company to various subsidiaries. The Company and its subsidiaries are collectively referred to as “the MAFP Group”. The registered address of the Company is P.O. Box 60811, Dubai, UAE. The Company is a wholly owned subsidiary of Majid Al Futtaim Group LLC (“MAFG”), which in turn is a wholly owned subsidiary of Majid Al Futtaim Capital LLC (“MAFC”), the ultimate holding entity. The registered address of MAFC is P.O. Box 91100, Dubai, UAE. The Company was previously owned by Majid Al Futtaim Commercial Development LLC, a subsidiary of MAFG, that sold its entire stake in the Company to MAFG on 1 January 2009.
2. Basis of preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board and the requirements of the U.A.E. Federal Law No.8 of 1984 (as amended). (b) Basis of measurement These consolidated financial statements have been prepared under the historical cost convention except for investment properties, certain classes of property, plant and equipment and derivative financial instruments which are measured at fair value. The methods used to measure fair values are discussed further in note 27. (c) Functional and presentation currency These consolidated financial statements are presented in United Arab Emirates Dirhams (“AED”), which is the Company’s functional currency, and are rounded to the nearest thousand, except wherever stated otherwise. (d) Use of estimates and judgements The preparation of consolidated financial statements, in conformity with IFRS, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on amounts recognised in the consolidated financial statements are described in note 27. (e) Changes in accounting policies Effective 1 January 2009, the MAFP Group has changed its accounting policies in the following areas: (i) Classification of investment properties The MAFP Group adopted IAS 40 (revised 2008) from its effective date of 1 January 2009. As per the revision to IAS 40, property that is being constructed for future use as investment property is classified as investment property and accounted for at fair value. Previously, such properties were classified as property, plant and equipment and accounted for at cost less impairment losses, if any. If the accounting policy had not changed, the profit for the current year would have been lower by AED 1,067.4 million.
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F-166 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
2. Basis of preparation (continued) (e) Changes in accounting policies (continued) (ii) Presentation of financial statements The MAFP Group applies revised IAS 1 Presentation of Financial Statements (revised 2007), which became effective as of 1 January 2009. As a result, all changes in equity, other than those resulting from transactions with owners, are presented in a consolidated statement of comprehensive income. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings. (iii) Disclosure pertaining to fair values and liquidity risk for financial instruments The MAFP Group has applied Improving Disclosures about Financial Instruments (amendments to IFRS 7), issued in March 2009, that require enhanced disclosures about fair value measurements and liquidity risk in respect of financial instruments.
The amendments requires that the fair value measurements disclosures use a three-level fair value hierarchy that reflects the significance of the inputs used in measuring fair values of the financial instruments. Specific disclosures are required when the fair value measurements are categorized as level 3 (significant unobservable inputs) in the fair value hierarchy. The amendments require that any significant transfers between Level 1 and Level 2 to the fair value hierarchy be disclosed separately, distinguishing between transfers into and out of each level. Furthermore, changes in valuation techniques from one period to another, including the reasons thereof, are required to be disclosed for each class of financial instruments.
Revised disclosures in respect of fair values of financial instruments have been disclosed in note 27 to the consolidated financial statements.
Further the definition of liquidity risk has been amended and it is now defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.
The amendments require disclosure of a maturity analysis for non-derivative financial liabilities, but contractual maturities are required to be disclosed for derivative financial liabilities only when contractual maturities are essential for an understanding of the timing of cash flows. For issued financial guarantee contracts, the amendments requires the maximum amount of the guarantee to be disclosed in the earliest period in which the guarantee could be called.
Revised disclosures in respect of liquidity risk are included in note 22.
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F-167 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented except as stated in note 2(e). (a) Basis of consolidation These consolidated financial statements present the results of operations and financial position of the MAFP Group for the year ended 31 December 2009. (i) Subsidiaries Subsidiaries are those entities controlled by the MAFP Group. Control exists when the MAFP Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed where necessary to align them with the policies adopted by the MAFP Group. The accounting year-end for all of the MAFP Group’s subsidiaries is 31 December. The consolidated financial statements include the results of the following companies: Country of Ownership Subsidiaries incorporation / % origin Active subsidiaries Majid Al Futtaim Investments Mirdiff LLC UAE 100% Majid Al Futtaim Syria for Investment and Development LLC UAE 100% MAM Investments LLC UAE 100% Beirut Marina Property Investments LLC UAE 100% Fujairah City Centre Investment LLC (under incorporation) UAE 62.5% International Property Services LLC Oman 100% MAF Misr for Commercial and Real Estate Investment Company Egypt 100% S.A.E MAF Investments Bahrain BSC Bahrain 100% MAF Lebanon for Commercial and Real Estate Investments SARL Lebanon 100% MAF Lebanon Holding SAL Lebanon 100% Suburban Development Company SAL Lebanon 92.7% MAF Investments Syria LLC Syria 100% Majid Al Futtaim Shopping Malls KSA Saudi Arabia 100% Bab Al Madinah Company Property Investment Limited Yemen 51% Dormant subsidiaries MAF Technological Systems LLC UAE 100% Majid Al Futtaim Malls International LLC UAE 100% MAF for Real Estate Investment S.A.E. Egypt 100% Majid Al Futtaim North Africa SARL Tunisia 100% Societe Tunisia WIFEK Tunisia 100% Shares of certain subsidiary companies are held by subsidiaries of MAFG for the beneficial interest of the MAFP Group.
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F-168 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (a) Basis of consolidation (continued) (ii) Joint ventures A joint venture is a contractual arrangement whereby the MAFP Group and other parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity and exists when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The MAFP Group has contractual arrangements with other parties representing joint ventures, which take the form of a jointly controlled entity. A jointly controlled entity involves the establishment of a separate entity in which each venturer has an interest, under contractual arrangement that establishes joint control over the entity. The MAFP Group reports its interest in jointly controlled entities using the equity method whereby the interest in the joint venture is initially recorded at cost and adjusted thereafter for the post acquisition change in the MAFP Group’s share of net assets of the jointly controlled entity. The consolidated income statement of the MAFP Group includes its share of the profit and loss of the jointly controlled entities. The financial statements of the MAFP Group’s jointly controlled entities are prepared using consistent accounting policies. Where necessary, adjustments are made to bring accounting policies in line with those of the MAFP Group. The consolidated financial statements include the MAFP Group’s share of results of the following joint venture companies: Country of incorporation Joint ventures Ownership % /origin Active joint ventures Sharjah Real Estate Development Holding (Brajeel) JSC UAE 50% Al Mamzar Islands Developments LLC UAE 50% TheWaveMuscatS.A.O.C Oman 50% Waterfront City SARL Lebanon 50% The Egypt Emirates Malls Group S.A.E Egypt 50% Aya Real Estate Investment BSC Bahrain 50%
Dormant joint ventures Arzanah Mall LLC UAE 50% Yenkit Tourism Development LLC Oman 60% MAFI-NLC Developments (Pvt) Ltd * Pakistan 50% Bab Al Madina for Development and Management of Business Centers Company LLC ** Libya 50% City Centre Essa Town Co WLL Bahrain 50%
* In process of liquidation. ** The MAFP Group is in the process of decreasing its shareholding from 50% to 5%.
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F-169 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (a) Basis of consolidation (continued) (iii) Associates Associates are those entities in which the MAFP Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the MAFP Group’s share of the total recognized gains and losses of associates using the equity method of accounting, from the date that significant influence commences until the date that significant influence ceases. When the MAFP Group’s share of losses exceeds its interest in an associate, the MAFP Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the MAFP Group has incurred legal or constructive obligations or made payments on behalf of an associate. The consolidated financial statements include the MAFP Group’s share of results of the following associate companies: Country of incorporation Associate Ownership % /origin Active associate Enshaa PSC UAE 28.44%
(iv) Transactions eliminated on consolidation Intra-group balances and transactions and any unrealised gains and losses arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised gains arising from transactions with jointly controlled entities and associates are eliminated to the extent of MAFP Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (v) Business combinations involving entities under common control A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties, both before and after the business combination and that control is not transitory. The MAFP Group has applied the book value measurement method to all common control transactions. (b) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the MAFP Group entities at exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Foreign exchange differences arising on translation are recognised in the profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into functional currency at the exchange rates ruling at the date when the fair value was determined. Non-monetary assets and liabilities denominated in foreign currencies, which are measured in terms of historical cost, are translated into functional currency at the exchange rates ruling at the date of the transaction. Foreign exchange differences arising on the translation of non-monetary assets and liabilities carried at fair value are recognised in profit or loss for the year, except for foreign exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary assets and liabilities, any exchange component of that gain or loss is also recognised directly in statement of comprehensive income.
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F-170 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (b) Foreign currency (continued) Foreign operations The assets and liabilities of foreign operations are translated into functional currency at the foreign exchange rates at the reporting date. Share capital is translated at historical rate. The income and expenses of foreign operations are translated into functional currency at average rates of exchange for the year. Foreign exchange differences arising on retranslation are recognised directly in equity. On the disposal of a foreign operation, accumulated exchange differences are recognised in the profit or loss as a component of gain or loss on disposal. (c) Leasing Rental income received as lessor from properties under operating leases is recognised in the profit or loss on a straight line basis over the lease term. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Lease payments incurred as lessee under operating leases are recognised as an expense in the profit or loss on a straight line basis over the lease term. Lease incentives received are recognised in the profit or loss as an integral part of the total lease expense, over the term of the lease. (d) Borrowing costs Borrowing costs are recognised as expenses in the period in which they are incurred. However, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs continues until the assets are substantially ready for the intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds. (e) Capital work in progress Work in progress in respect of capital expenditure including land is classified as capital work in progress. Interest and other overheads directly attributable to the projects are included in capital work in progress until completion thereof. Capital work in progress for properties that are being constructed with an intention of building an investment property is carried at fair value. For other properties that are developed with an intention of constructing an owner occupied property, both the capital expenditure and land are carried at cost, less impairment, if any, until the property is fully developed. (f) Development expenditure Development expenses are charged to the profit or loss as incurred except for development expenditure which complies with the following conditions:
- the concept for the new project has been defined; - preliminary market, technical and financial feasibility studies demonstrate a viable project; and - the management have agreed to proceed with developing the project, and believe that it is more probable than not that the project will go ahead.
These development costs are shown as assets under capital work in progress.
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F-171 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (f) Development expenditure (continued) Development expenses initially charged to the profit or loss are not recognised as an asset in a subsequent period even if it is found that the project to which they relate satisfies the criteria for capitalisation. Development costs carried forward are reviewed in subsequent periods to ensure that circumstances have not changed such that the criteria for capitalisation are no longer met. In these circumstances, the costs are written-off or provided for to the extent they are believed to be irrecoverable. Such provisions are reversed if the circumstances change again and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. (g) Intangible assets Goodwill All business combinations are accounted for by applying the purchase method except for acquisition of entities under common control. The excess of cost of acquisition over the MAFP Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition is recorded as goodwill. Negative goodwill arising on acquisition is immediately recognised in the profit or loss. Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses, if any. On disposal of a subsidiary / joint venture / associate, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Other intangible assets Intangible assets that are acquired by the MAFP Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses, if any. Amortisation Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Metro naming rights 10 years (h) Property, plant and equipment Following initial recognition at cost, developed properties (land and building), mainly comprising hotels, shopping malls and offices, are stated at their revalued amounts, being the fair value at the date of revaluation, less any accumulated depreciation and any impairment losses. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. All other items of property, plant and equipment, mainly comprising administrative assets, are stated at cost less accumulated depreciation and any impairment losses. The depreciation methods, remaining useful lives and residual values of assets, if not insignificant, are reassessed at each reporting date. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (components) of property, plant and equipment.
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F-172 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (h) Property, plant and equipment (continued) Land on which development work has started with the intention of constructing property, plant and equipment is fair valued at the date when significant development commences. During the construction period, land is held at its carrying value and development expenditure is carried at cost. Upon completion of construction, the entire property (that is land and building) is carried at revalued amount. Depreciation is charged to the profit or loss so as to write off the cost / revalued amounts of property, plant and equipment by equal instalments over their estimated useful lives. Land is not depreciated. The estimated useful lives in years for the current and comparative years are as follows: Buildings 4 - 35 years Motor vehicles 4years Furniture, fixtures and equipment 3 - 15 years Valuation surplus relating to buildings is allocated to the building structure and is depreciated over the remaining useful life of the respective building structure which ranges from 23 to 35 years. The portion allocated to land is not depreciated. Cost includes expenditures that are directly attributable to the acquisition of the assets. The cost of self- constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the MAFP Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit or loss during the period in which they are incurred. Any revaluation increase arising on the revaluation of developed properties is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same property previously recognised in the profit or loss, in which case the increase is credited to the profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of properties is charged to profit and loss except to the extent that it reverses a previously recognised revaluation gain on the property in which case it is debited to revaluation reserve. On subsequent disposal or retirement of a revalued property, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in profit and loss in the year the asset is derecognised.
(i) Investment property Investment properties are properties held either to earn rental income, for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Following initial recognition at cost, investment property, principally comprising land with undetermined use, certain shopping malls and property being constructed for future use as investment property, is stated at fair value at the balance sheet date. Gains or losses arising from changes in fair value are included in the profit or loss in the period in which they arise.
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F-173 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (i) Investment property (continued) An investment property is derecognised when either it has been disposed of or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss on the retirement or disposal of an investment property is included in the profit or loss in the period the property is derecognised. Rental income from investment property is accounted for as described in the accounting policy for revenue recognition. Following the adoption of IAS 40 (revised 2008), investment properties under construction have been transferred from property, plant and equipment to investment properties at 1 January 2009 at their carrying amounts. These have subsequently been fair valued at the reporting date. All fair value gains and losses on such properties have been recognised in the profit or loss in the current year. When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as an investment property. Any gain arising on re-measurement is recognised directly in equity. Any loss is recognised immediately in the profit or loss except to the extent that it reverses a previously recognised revaluation gain on the property in which case it is debited to equity. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its fair value at the date of reclassification becomes its deemed cost. Change in fair value up to the date of reclassification is recognised directly in the profit or loss.
(j) Property valuation The fair value of properties is determined at the reporting date and is the market value of the properties. Market value is the highest possible price for which the property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. If there is no market-based evidence of fair value of a property, fair value is determined using the present value of the estimated future net cash flows for each property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation. Where the valuation of a property comprises the aggregate value of land and building, the valuation is apportioned between land and building based on the depreciated replacement cost of the building, unless another appropriate basis is available for allocation. Change in fair value apportioned to buildings is allocated to the building structure as it is impracticable to determine the fair value of each component of the building or to use any other reasonable method of approximation to estimate such component values.
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F-174 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (k) Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss. Non-financial assets The carrying amount of the MAFP Group’s non-financial assets, other than property, plant and equipment and investment properties that are fair valued and inventories, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each balance sheet date. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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.
(l) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on weighted average cost principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business less estimated selling expenses.
(m) Staff terminal and retirement benefits Provision for staff terminal benefits is calculated in accordance with the labour laws of the respective country in which they are employed. The MAFP Group’s net obligation in respect of staff terminal benefits is calculated by estimating the amount of future benefit that employees have earned in return for their services in the current and prior periods, and is discounted to determine the present value of the obligation. The discount rate used is the yield at the balance sheet date on premium bonds that have maturity dates approximating the terms of the MAFP Group’s obligation. Under the UAE Federal Law No.7 of 1999 for pension and social security law, employers are required to contribute 12.5% of the ‘contribution calculation salary’ of those employees who are UAE nationals. These employees are also required to contribute 5% of the ‘contribution calculation salary’ to the scheme. The MAFP Group’s contribution is recognised as an expense in the profit or loss as incurred.
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F-175 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued) (n) Operating segments An operating segment is a component of the MAFP Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the MAFP Group’s other components. All operating segments’ operating results are reviewed regularly by senior management and board of directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
(o) Revenue recognition Revenue comprises amounts derived from the provision of services falling within the MAFP Group’s ordinary activities and encompasses hospitality services and rental income. Revenue from hospitality services is recognised on rendering the services. Lease rental income is recognised on a straight-line basis of the base rent over the term of the lease. Contingent rents are recorded as income in the period in which they are earned.
(p) Alcohol The purchase of alcohol for hotels and residence is the responsibility of the relevant Hotel Management Company, and the revenue derived from sale is deemed to be that of the Hotel Management Company. The profit resulting from the sales of alcoholic beverages forms part of the Hotel Management Company’s incentive fee. (q) Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, trade and other payables, long-term loans, income tax payable, bank borrowings and related party balances. Non-derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less impairment losses. A financial instrument is recognised if the MAFP Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the MAFP Group’s contractual rights to the cash flows from the financial assets expire or if the MAFP Group transfers the financial asset to party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the MAFP Group’s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash in hand, cash at bank and bank overdrafts. For the purpose of the statement of cash flows, bank overdrafts that are repayable on demand and form an integral part of the MAFP Group’s cash management are included as a component of cash and cash equivalents. Derivative financial instruments Derivative financial instruments are contracts, the value of which is derived from one or more underlying financial instruments and include interest rate swaps and collars.
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F-176 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued)
(q) Financial instruments (continued) Derivative financial instruments The MAFP Group uses derivative instruments for risk management purposes to hedge its exposure to interest rate risks arising from operational, financing and investment activities. Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into; attributable transaction costs are recognised in profit or loss when incurred. Derivative financial instruments with positive fair values are included in assets and derivative financial instruments with negative fair values are included in liabilities. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. In respect of changes in the fair values of derivative financial instruments that are designated as a hedge of variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly effective forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised directly in the statement of comprehensive income. The amount recognised in equity is removed and included in profit or loss in the same period as the hedged cash flows affect profit and loss under the same income statement line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit and loss. If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount recognised in equity remains in equity until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in equity is recognised immediately in profit or loss. Any gains or losses arising from changes in fair value of derivative instruments that do not qualify for hedge accounting are taken directly to profit or loss. (r) Provisions A provision is recognised in the balance sheet when the MAFP Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
(s) Income tax expense
Income tax expense comprises current and deferred tax calculated in accordance with the income tax laws applicable to certain overseas subsidiaries. Income tax expense is recognised in the profit or loss except to the extent it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
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F-177 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
3. Significant accounting policies (continued)
(s) Income tax expense (continued)
A deferred tax asset is recognised only to the extent it is probable that future tax profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
(t) Non-current assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are re-measured in accordance with the MAFP Group’s accounting policies. Thereafter, generally the assets or disposal group are measured at the lower of their carrying amount and fair value less cost to sell.
(u) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these consolidated financial statements. None of these will have an effect on the consolidated financial statements of the MAFP Group, except for:
x IFRS 9 Financial Instruments, published on 12 November 2009, as part of phase I of IASB’s comprehensive project to replace IAS 39, deals with the classification and measurement of financial assets. The Standard contains two primary measurement categories for financial assets: amortised cost or fair value.
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F-178 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d) AED'000 Total 2009 2008 s measure excludes the - 1,858,823 1,755,900 - Business Support - (72,673) (67,636) (14,846) (167,591) - - (22,382) (15,578) (489,844) (408,323) - (300,314) (227,173) (300,314) (227,173) - (2,232) 9,318 (3,927) (8,430) 13,689 - Mixed Use Communities - - - 13,178 (69,767) 7,519 (4,853) 18,849 (74,688) Offices - - - -24- - - - Hotels - - - 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 (1,848) (68) - Shopping Malls (17,748) 19,848 - 397,545 (55,360) (336,358) (57,167) (3,360) 12,572 - AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 (335,409) (302,598) (118,628) (77,761) (13,425) (12,386) - 1,528,592 1,366,6781,126,299 1,065,690 304,704 368,694 49,014 163,065 25,527 20,415 20,528 16,285 - (13,454) (78,955) (174,445) (75,234) * 1,007,829 1,090,851 (3,892,808) (1,527,537) (1,961,034) (1,399,297) (2,865) 172,004 (1,748,667) (1,694,536) (5,822,265) (5,684,297) (13,427,639) (10,133,663) 22,600,111 20,934,89918,707,303 3,222,101 19,407,362 3,790,246 1,261,067 2,390,949 429,301 426,436 409,848 1,528,739 581,852 1,421,901 (219,928) 5,235,648 (272,635) 2,219,012 (586,617) (3,465,285) 33,015,900 28,775,906 19,588,261 18,642,243 Shopping malls Hotels Offices Mixed Use Communities x x x x Net valuation loss on land and building Taxation Depreciation Net finance cost Revenue Other segment information Share of loss in joint ventures and associate EBITDA Assets and liabilities Segment assets Segment liabilities Consolidated Financial Statements for the year ended 31 December 2009 4. Segment information The MAFP Group is structured around functional lines catering to the development and management of the following asset classes: * Business Support EBITDA for 2008 includes profit onManagement disposal assesses of a the land performance in of UAE the amounting operating to segments AED 240 based million on EBITDA (earnings before interest, tax, depreciation and amortisation). Thi The segment information provided to the Board of Directors for the reportable segments for the year ended 31 December 2009 are as follows: impact of fair valuation of land and buildings.
F-179 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d) AED'000 Total - 1,858,823 1,755,900 - (386) (300) (489,844) (408,323) 80,593 28,207 (14,846) (167,591) Others countries - - - (11,905) (12,928) (8,430) 13,689 Bahrain - 65 (1,851) (14,790) 3,958 (24,586) 18,850 (74,688) Egypt -25- (29) 3,524 26,646 Oman (49) - UAE - 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 (26,900) (2,728) 41,041 (32,649) 2,602 618,443 1,002,926 129,924 41,252 62,257 45,933 131,089 15,565 66,116 (14,825) 1,007,829 1,090,851 594,913 19,032 (10,975) (72,607) (17,543) (142,223) (661,834) AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 (431,868) (370,455) (54,952) (36,645) (1,262) (923) (1,376) (213,500) (178,855) (14,495) (9,922) (34,042) (24,534) (38,419) (13,649) 142 (213) (300,314) (227,173) 1,406,567 1,500,503 130,649 97,940 101,167 81,718 220,440 75,739 (7,106,108) (8,244,347) (312,296) (337,914) (1,048,944) (764,547) (1,454,218) (1,345,945) (15,325) (4,194) (9,936,891) (10,696,947) 23,328,738 22,932,523 972,132 975,801 2,190,851 1,812,282 2,860,093 3,196,930 173,338 421,654 29,525,152 29,339,190 16,222,630 14,688,176 659,836 637,887 1,141,907 1,047,735 1,405,875 1,850,985 158,013 417,460 19,588,261 18,642,243 Other segment information Share of loss in jointassociate ventures and Depreciation EBITDA Assets and liabilities Segment assets Segment liabilities Revenue Taxation Net finance cost Net valuation loss on landbuilding and Consolidated Financial Statements for the year ended 31 December 2009 4. Segments information (continued) Other countries comprise Saudi Arabia, Syria, Lebanon, Tunisia, Libya, Yemen, Qatar, Pakistan and Iran.
F-180 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
4. Segment information (continued)
A reconciliation of EBITDA to profit for the year as per the consolidated income statement is provided as follows:
2009 2008 Note AED'000 AED'000
EBITDA 1,007,829 1,090,851 Depreciation 9 (489,844) (408,323) Amortisation 12 (6,625) - Net finance cost 6 (300,314) (227,173) Net valuation gain / (loss) on land and buildings 9 & 10 (14,846) (167,591) Taxation 21 (8,430) 13,689 Fixed assets / project costs written off 7 (29,972) (51,941) Others 944 (5,463) Profit for the year 158,742 244,049
EBITDA in 2008 includes profit on disposal of a land in UAE amounting to AED 240 million.
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F-181 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
5. Operating expenses 2009 2008 Note AED’000 AED’000 Staff costs (refer note (i) below) (330,206) (308,748) Depreciation 9 (488,461) (407,131) Legal, professional and consultancy fees (19,946) (60,838) Selling and marketing expenses (66,531) (75,056) Other general and administration expenses (422,935) (360,159) Re-charged expenses - (35,360) (1,328,079) (1,247,292)
(i) Staff costs include the following: 2009 2008 Note AED’000 AED’000 Depreciation 9 (1,383) (1,192) Gratuity cost (10,517) (11,221) Pension cost (909) (801)
Staff costs are net of staff costs capitalised to various projects amounting to AED 54.1 million (2008: AED 53.4 million).
6. Net finance cost
Recognised in the consolidated income statement 2009 2008 AED’000 AED’000 Interest income 13,287 42,779 Ineffective portion of changes in fair value of cash flow hedges 16,726 9,224 Finance income 30,013 52,003
Arrangement and participation fees (24,471) (9,346) Interest expense (293,785) (291,522) Less: capitalised 100,094 68,866 (218,162) (232,002) Net changes in fair value of financial assets at fair value through profit and loss (639) (14,816) Ineffective portion of changes in fair value of cash flow hedges (3,956) (1,927) Net changes in fair value of cash flow hedges transferred from equity (107,570) (30,431) Finance expense (330,327) (279,176)
Net finance expense recognised in the consolidated income statement (300,314) (227,173)
Recognised directly in equity 2009 2008 AED’000 AED’000
Net changes in fair value of cash flow hedges transferred to the income statement 107,570 30,431
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F-182 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
6. Net finance cost (continued) Capitalised interest arises on borrowings for development expenditure. The capitalisation rate used to determine the amount of borrowing cost eligible for capitalization varies from 3.5% to 5.1% (2008: 2.1% to 4.7%) depending on the effective interest rate over the tenure of the borrowing.
7. Other income / (expenses) 2009 2008 Note AED’000 AED’000 Foreign exchange loss (517) (8,226) Gain on disposal of property, plant and equipment and investment property 206 240,174 Service charges levied on related parties 15 9,095 1,583 Provision for joint venture receivables 15.1 (25,860) (6,223) Fixed assets / project costs written off (29,972) (51,941) Other income 54,556 15,837 7,508 191,204
8. Impairment (provision) / reversal 2009 2008 Note AED’000 AED’000 Provision for investment in joint ventures (refer note (i)) 11.1 (147,955) - Reversal of impairment on investment in a joint venture (refer 11.1 110,283 - note (ii)) Impairment of property, plant and equipment 9(vi) (37,098) - (74,770) -
(i) A non-refundable advance of AED 31.3 million was paid for a joint venture under incorporation in 2008. As at 31 December 2009, management is in the process of renegotiating the terms of the potential joint venture and due to the likelihood of the joint-venture partner not agreeing to the proposed terms, an impairment provision has been recognised for the entire advance. In previous years, the MAFP Group had advanced an amount of AED 389 million as a deposition to a prospective joint venture partner for purchase of land. During the year, Management has reassessed the future prospects of the joint venture and an impairment provision of AED 116.7 million has been recognised on the advance.
(ii) During the year, the MAFP Group reversed an impairment loss of AED 110.3 million on its investment in Waterfront City SARL, a joint venture in Lebanon. The impairment provision, which was created in 2006, was reversed due to an improvement in the economic conditions and underlying property values.
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F-183 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
9. Property, plant and equipment Furniture, Leisure Capital Land and Motor fixtures and rides and work in buildings vehicles equipment games progress Total AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Cost / valuation At 1 January 2008 8,268,487 2,972 199,565 14,097 2,746,339 11,231,460 Additions 348,677 1,155 10,314 - 2,336,022 2,696,168 Assets placed in service 2,390,573 - 45,002 - (2,435,575) - Disposals / write offs (22,121) (1,131) (826) - (19,986) (44,064) Reclassifications 397,584 - 6,612 - (404,196) - Transferred to related parties (140,315) 1,181 (7,960) (14,097) (11,165) (172,356) Accumulated depreciation eliminated on valuation (384,362) - - - - (384,362) Net valuation gain on land and buildings (refer note-(ii), below) 2,585,127 - - - - 2,585,127 Transferred to investment property (refer note-(viii), below) (2,546,148) - - - - (2,546,148) Transferred from investment property (refer note-(vii), below) 5,867,838 - - - 139,192 6,007,030 Effect of foreign exchange movements 31,794 - 963 - (4,259) 28,498 At 31 December 2008 16,797,134 4,177 253,670 - 2,346,372 19,401,353 At 1 January 2009 16,797,134 4,177 253,670 - 2,346,372 19,401,353 Transferred to investment property (refer note-(iii), below) (449,535) - - - (1,534,033) (1,983,568) Additions 63,509 91 48,309 - 891,929 1,003,838 Assets placed in service (refer note-(v), below) 307,625 1,055 28,368 - (337,048) - Disposals / write offs (516) (812) (5,345) - (25,159) (31,832) Transferred from related parties (2,888) 120 14,455 - (1,099) 10,588 Accumulated depreciation eliminated on valuation (449,967) - - - - (449,967) Transferred to capital work-in-progress (282,872) - - - 282,872 - Net valuation loss on land and buildings (refer note-(ii), below) (2,642,910) - - - - (2,642,910) Effect of foreign exchange movements 4,930 - - - (469) 4,461 At 31 December 2009 13,344,510 4,631 339,457 - 1,623,365 15,311,963
Depreciation and impairment At 1 January 2008 - (2,084) (121,701) (9,944) - (133,729) Depreciation charge for the year (384,362) (462) (23,499) - - (408,323) Accumulated depreciation eliminated on valuation 384,362 - - - - 384,362 Disposals / write offs - 631 855 - - 1,486 Transferred to related parties - (913) 5,302 9,944 - 14,333 Effect of foreign exchange movements - - (15) - - (15) At 31 December 2008 - (2,828) (139,058) - - (141,886)
At 1 January 2009 - (2,828) (139,058) - - (141,886) Depreciation charge for the year (449,967) (675) (39,202) - - (489,844) Impairment loss (refer note-(vi), below) - - - - (37,098) (37,098) Accumulated depreciation eliminated on valuation 449,967 - - - - 449,967 Disposals / write offs - 759 3,216 - - 3,975 Transferred to related parties - (85) (6,719) - - (6,804) At 31 December 2009 - (2,829) (181,763) - (37,098) (221,690)
Carrying amounts At 1 January 2008 8,268,487 888 77,864 4,153 2,746,339 11,097,731 At 31 December 2008 16,797,134 1,349 114,612 - 2,346,372 19,259,467
At 31 December 2009 13,344,510 1,802 157,694 - 1,586,267 15,090,273
(i) A list of properties classified as property, plant and equipment is set out in note 28.
(ii) During 2009, a revaluation loss of AED 2,642.9 million (2008: gain of AED 2,585.1 million) has been recognised on property, plant and equipment of which a valuation loss of AED 2,352.0 million (2008: gain of AED 2,683.8 million) has been debited to the statement of comprehensive income. A loss of AED 290.9 million (2008: loss of AED 98.7 million) has been charged to profit or loss because of a decrease in the carrying value of certain properties over and above any valuation gain previously recorded in the revaluation reserve for these properties.
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F-184 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
9. Property, plant and equipment (continued) (iii) The MAFP Group adopted IAS 40 (revised 2008) from its effective date of 1 January 2009. As per the revision to IAS 40, property that is being constructed for future use as investment property is classified as investment property and accounted for at fair value. Accordingly, the MAFP Group transferred certain malls and a commercial office tower under construction with a carrying value of AED 1,958.6 million at 1 January 2009 from property, plant and equipment to investment property. Furthermore, another property with a carrying value of AED 25.0 million was transferred due to a change in classification from property, plant and equipment to investment property. Also refer note-10. (iv) In 2009, two plots of land were transferred to capital work-in-progress with the carrying value of AED 282.9 million as management has commenced the development of the projects. (v) In 2009, the MAFP Group completed the construction of two hotels in UAE amounting to AED 337.0 million, which were reclassified from capital work in progress to land and buildings. (vi) In 2009, Management assessed the recoverability of the carrying amount of a hotel under construction in UAE and an impairment of AED 37.1 million was recognised in profit or loss (refer note-8). (vii) In 2008, two shopping malls owned by the Company were reclassified from investment property to property, plant and equipment. This reclassification was done as the owner-occupation in 2008 was determined based on the level of ancillary services provided by the shopping mall for properties where the local law does not allow properties to be sold or finance leased separately. In 2008, the basis of determining owner- occupation based on ancillary income represented a change in management judgement, since till 2007, management had determined the level of owner-occupation based on the area occupied for own use. Also refer notes-10 & 27. (viii) In 2008, the MAFP Group completed construction of a shopping mall, which was reclassified to investment property upon completion at its fair value of AED 2,546.1 million (refer note-10). (ix) Certain properties of the MAFP Group are mortgaged against bank borrowings (refer note-18). (x) Certain lands are owned by a related party for the beneficial interest of the MAFP Group. (xi) Accrued income at 31 December 2009, relating to the accounting for lease rentals on a straight line basis as per IAS 17, has been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2009 2008 AED'000 AED'000
Fair value of land and buildings 13,443,289 16,901,142 Less: adjustment for accrued operating lease income (98,779) (89,886) Less: adjustment for capital commitments - (14,122) Net adjusted fair value 13,344,510 16,797,134
(xii) If the properties had been stated under historical cost basis the carrying amounts would have been as follows: 2009 2008 AED'000 AED'000 AED'000 AED'000 Land Buildings Land Buildings
Cost 758,900 4,927,561 1,305,118 4,639,897 Accumulated depreciation - (1,308,214) - (1,069,734) Net carrying amount 758,900 3,619,347 1,305,118 3,570,163
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F-185 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
10. Investment property Land- Land and Capital work Total undeveloped buildings in progress AED'000 AED'000 AED'000 AED'000 Cost / valuation At 1 January 2008 2,611,537 7,523,241 139,192 10,273,970 Additions - 59,483 103,142 162,625 Disposals (480,000) (4,518) - (484,518) Reclassifications (203,006) - 203,006 - Transfers to a related party - (7,166) - (7,166) Net valuation (loss) / gain on investment property (refer note-(ii),below) (348,810) 347,897 (68,006) (68,919) Transferred from property, plant and equipment (refer note- 9(viii)) - 2,546,148 - 2,546,148 Transferred to property, plant and equipment (refer note- 9(vii)) - (5,867,838) (139,192) (6,007,030) Effect of foreign exchange movements 88 558 - 646 At 31 December 2008 1,579,809 4,597,805 238,142 6,415,756 At 1 January 2009 1,579,809 4,597,805 238,142 6,415,756 Transferred from property, plant and equipment (refer note- 9(iii)) 25,000 26,316 1,932,252 1,983,568 Additions 129,143 5,877 1,754,572 1,889,592 Assets placed in service (refer note-(iii), below) - 484,564 (484,564) - Disposals - (30) - (30) Transferred from related parties - 2,066 - 2,066 Net valuation (loss) / gain on investment property (refer note-(ii),below) (231,992) (559,734) 1,067,780 276,054 Effect of foreign exchange movements - 6,439 - 6,439 At 31 December 2009 1,501,960 4,563,303 4,508,182 10,573,445
Carrying amounts At 1 January 2008 2,611,537 7,523,241 139,192 10,273,970 At 31 December 2008 1,579,809 4,597,805 238,142 6,415,756
At 31 December 2009 1,501,960 4,563,303 4,508,182 10,573,445
(i) A list of properties classified as investment property is set out in note 28. (ii) For the year ended 31 December 2009, a net valuation gain of AED 276.1 million (2008: loss of AED 68.9 million) is included in profit or loss. (iii) In 2009, the MAFP Group transferred AED 359.8 million on completion of the extension of a shopping mall in Egypt from capital work in progress to land and buildings. An additional expenditure of AED 124.8 million was capitalised on a mall in Bahrain. (iv) Certain properties of the MAFP Group are mortgaged against bank borrowings (refer note-18). (v) Certain lands are owned by a related party for the beneficial interest of the Company.
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F-186 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
10. Investment property (continued) (v) Accrued income relating to the accounting for lease rentals on a straight line basis as per IAS 17 has been eliminated from the valuation of developed properties, in order to avoid double counting of assets, as mentioned below: 2009 2008 AED'000 AED'000
Fair value of land and buildings 4,597,395 4,634,662 Less: adjustment for accrued operating lease income (34,092) (27,215) Less: adjustment for capital commitments -(9,642) Net adjusted fair value 4,563,303 4,597,805
(vi) Rental income derived from investment property (including properties reclassified from property, plant and equipment to investment properties) during the current year was AED 436.6 million (2008: AED 189.5 million). The direct operating expenses arising from investment property that generated rental income during the current period amounted to AED 262.5 million (2008: AED 89.6 million).
11. Investment in joint ventures and associate 2009 2008 Note AED'000 AED'000 Investment in joint ventures 1,377,777 1,211,472 Investment in associate 231,879 245,818 1,609,656 1,457,290
11.1 Investment in joint ventures 2009 2008 AED'000 AED'000 At 1 January 1,211,472 855,883 Additions during the year 104,507 424,999 Reversal of impairment provision 8(ii) 110,283 - Provision for impairment 8(i) (147,955) - Share of post acquisition gain / (loss) accounted through profit or loss 32,789 (69,410) Share of post acquisition gain accounted through the statement of comprehensive income (refer note (i)) 64,997 - Foreign currency translation differences from foreign operations 1,684 - At 31 December 1,377,777 1,211,472
(i) This comprises the MAFP Group’s share of revaluation gains, net of the impact of deferred tax, of land and building recorded directly in the statement of comprehensive income by the joint ventures.
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F-187 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
11. Investment in joint ventures and associate (continued)
11.1 Investment in joint ventures (continued)
Investment amounts in various entities include capital contributions made by the MAFP Group in its capacity as a shareholder. These balances are unsecured and interest free in nature and will not be called for repayment, except at the sole discretion of the respective joint venture entities.
Summarised financial information in respect of the MAFP Group’s interest in joint ventures is set out below: 2009 2008 AED'000 AED'000
Totalassets(atcost) 4,004,522 3,354,160 Total liabilities (2,191,571) (1,526,639) Net assets 1,812,951 1,827,521 Group’s share of joint venture’s net assets (net of impairment) 777,895 817,194
Profit / (loss) for the year earned by joint ventures 66,777 (118,779) MAFP Group’s share of joint ventures' gain/ (loss) for the year including losses on investments exited 32,789 (69,410)
11.2 Investment in an associate 2009 2008 AED'000 AED'000
At 1 January 245,818 251,096 MAFP Group's share of associate's loss for the year (13,939) (5,278) At 31 December 231,879 245,818
The above represents 28.44% investment in Enshaa PSC. Summarised financial information in respect of the MAFP Group’s interest in the associate is set out below: 2009 2008 AED'000 AED'000
Total assets 1,904,047 1,354,978 Total liabilities (1,088,720) (490,638) Net assets 815,327 864,340 MAFP Group’s share of associate’s net assets 231,879 245,818 Loss for the year incurred by the associate (101,511) (39,835) MAFP Group’s share of associates’s loss for the year (13,939) (5,278)
12. Intangible asset and deferred liability During 2008, the Company entered into an agreement with a government entity in the UAE to acquire naming rights for two Metro stations for a 10 year period. As per the agreement, a payment schedule is agreed over the life of the contract. In 2009, upon the Metro becoming operational, management recorded the present value of the total future payments to be made as an intangible asset. The asset is being amortised over the contract period of 10 years. The cash flows have been discounted using the incremental borrowing cost of the MAFP Group at 4.5%.
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F-188 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
12. Intangible asset and deferred liability (continued) 2009 2008 AED’000 AED’000 Intangible asset recorded during the year 198,743 - Amortisation charge for the year (6,625) - At 31 December 192,118 -
The corresponding deferred liability for the Metro naming rights has been booked as follows:
2009 2008 Note AED'000 AED’000 Intangible asset recorded during the year 198,743 - Less: payment made during the year (54,000) - Deferred liability recorded 144,743 - Interest accrued during the year 2,016 - Current maturity of deferred liability 16 (19,440) - At 31 December 127,319 -
13. Asset classified as held for sale This represents land held as contribution towards a joint venture company incorporated in the Kingdom of Bahrain. The MAFP Group currently holds the legal title to the land. In 2009, the MAFP Group has initiated proceedings to transfer the land to the joint venture company and accordingly, the amount has been transferred to investment in joint venture.
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F-189 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
14. Receivables and prepayments 2009 2008 AED’000 AED’000 Trade receivables 341,853 215,854 Advances 121,750 289,533 Prepayments and deposits 80,799 96,869 Positive fair value of derivatives - 3,200 Other receivables 191,123 194,407 735,525 799,863
15. Related party transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include the parent company, Majid Al Futtaim Group LLC and its subsidiaries, the ultimate parent company and its subsidiaries, associates, joint ventures, key management personnel and / or their close family members. Transactions with related parties are carried out at agreed terms.
(i) At 1 January 2009, the Company acquired 100% stake in Majid Al Futtaim Shopping Malls LLC, Majid Al Futtaim Hospitality LLC and Majid Al Futtaim Development LLC from Majid Al Futtaim Commercial Development LLC, a related party, at a value of AED 143.2 million.
The purchase consideration paid towards acquisition of Majid Al Futtaim Development LLC is higher than the carrying value of its net assets, thereby generating goodwill of AED 5.1 million. Management has decided to write off the goodwill and has debited it to equity. (ii) During the year, MAFG waived a net payable of AED 432.6 million to the Company. This transaction has been treated as a waiver of debt by MAFG in its capacity as the parent company. Accordingly, it has been directly credited to equity. (iii) During the year, MAFG subscribed to an equity instrument issued by the Company through a debt to equity swap transaction in a partial fulfilment of a financial liability of AED 2,492.5 million at its carrying value and AED 7.5 million through the related party current account totalling to AED 2,500.0 million. Furthermore, Management believes that there is no significant difference between the carrying value of the financial liability being extinguished and the equity instrument being recognised (refer notes-18.2 & 20.2.1). (iv) During the year, the MAFP Group charged MAFC AED 79.8 million (2008: AED 98.9 million) in respect of payments made to a related party on its behalf. (v) During the year, the MAFP Group earned interest income of AED 1.4 million (2008: AED 23.6 million) on related party balances and loans receivables. (vi) Finance charges on loans from related parties amounted to AED 104.1 million (2008: AED 35.6 million). These loans carry interest rate of EIBOR/LIBOR plus a margin of 1% to 2.5% (refer note-18.2).
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F-190 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
15. Related party transactions (continued) (vii) During 2008 and 2009, the Company had novated certain bank loans to the parent company. However, the Company continues to use these facilities (refer note-18.2). Accordingly, these loans are disclosed as related party loans. (viii) Refer note 24 for details of a financial guarantee provided by the Company on behalf of MAFG.
2009 2008 Services provided to the MAFP Group by related parties AED’000 AED’000 Internal audit, IT, legal services and corporate communication (28,618) (43,588) Facility management services (60,842) (45,650) (89,460) (89,238) Services provided by the MAFP Group to related parties Provision of retail and office space 214,671 156,863 Corporate and administrative services 9,095 1,583
15.1 Related party balances Balances with related parties at 31 December are as follows:
Due from related parties 2009 2008 AED’000 AED’000 Majid Al Futtaim Retail LLC - 4,127 Majid Al Futtaim Ventures LLC 504,643 367,815 Majid Al Futtaim Group LLC 54,475 236,324 Majid Al Futtaim Capital LLC 740 - Majid Al Futtaim Fashions LLC 5,278 4,944 Majid Al Futtaim Commercial Development LLC - 160,537 Majid Al Futtaim Greater Union LLC - 5,762 The Egyptian Emirates Malls Group 55,468 122,274 Majid Al Futtaim Developments LLC - 7,975 Majid Al Futtaim JCB Finance LLC 4,601 4,486 Yenkit Tourism Development 28,213 20,423 Aya Real Estate Investment BSC 3,000 492 Sharjah Real Estate Development Holdings (Brajeel) PSC 10,643 18,047 Arzanah Mall LLC 3,140 518 Al Mamzar Islands Development LLC 2,412 2,606 City Centre Essa Town Co. WLL 10,938 7,570 Other related parties 4,072 2,086 687,623 965,986 Less: Provision for doubtful receivables (25,860) - 661,763 965,986
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F-191 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
15. Related party transactions (continued)
15.1 Related party balances (continued)
Due to related parties 2009 2008 AED’000 AED’000 Majid Al Futtaim Dalkia Middle East LLC 5,282 3,965 Majid Al Futtaim Commercial Development LLC 1,028 - Majid Al Futtaim Shopping Malls LLC - 2,618 Majid Al Futtaim Hospitality LLC - 142,614 Majid Al Futtaim Retail LLC 7,080 - Other related parties 1,126 1,734 14,516 150,931
15.2 Compensation of key management personnel The aggregate compensation of key management personnel is disclosed as follows:
2009 2008 AED'000 AED'000 Short term employee benefits (salaries and allowances including 8,282 9,877 provision for bonus) Post employment benefits (provision for end of service benefits) 219 173 8,501 10,050
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F-192 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
16. Payables and accruals 2009 2008 Note AED’000 AED’000 Trade payables 134,672 292,098 Accruals 537,976 553,805 Current portion of deferred liability 12 19,440 - Unearned rental income 495,463 390,821 Retention from contractor payments 165,568 166,375 Rent received in advance 388,097 268,328 Tax payable 92 75 Negative fair value of derivatives (refer note-(i), below) 212,636 374,393 Others 215,558 108,379 2,169,502 2,154,274
(i) This comprises negative fair value in respect of the derivatives designated as cash flow hedges. These derivatives are classified as cash flow hedges as the arrangements are undertaken under interest rate collar arrangements to hedge the variability of future cash flows arising on variable interest rate loans. The details of these arrangements are set-out in note-22.6.
17. Provisions Charge / Transfers / At 1 January At 31 December transfers payments AED’000 AED’000 AED’000 AED’000 Provision for bonus 84,612 47,364 (73,618) 58,358 Long-term portion (32,000) 22,755 - (9,245) Current portion of bonus provision 52,612 70,119 (73,618) 49,113 Other provisions 8,225 10,009 (10) 18,224 60,837 80,128 (73,628) 67,337
Charge during the year includes an amount of AED 7.8 million which was transferred from the parent company on account of employees transferred to the Company. Long-term portion of bonus provision represent the deferred bonus plan for senior management staff, shown under non-current liabilities. Also refer note-27.
17.1 Provisions for staff terminal and retirement benefits 2009 2008 AED’000 AED’000
At 1 January 23,408 8,178 Charge during the year 15,349 23,695 Payments / transfers (9,023) (8,465) At 31 December 29,734 23,408
The charge during the year includes an amount of AED 4.2 million which was transferred from the parent company on account of employees transferred to the Company.
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F-193 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
18. Long-term loans 2009 2008 Note AED'000 AED’000
Long-term portion of external loans 18.1 4,961,007 4,902,751 Long-term portion of related party loans 18.2 308,266 2,274,940 5,269,273 7,177,691
2009 2008 Note AED'000 AED’000
Current portion of external loans 18.1 1,745,638 788,845 Current portion of related party loans 18.2 279,640 255,230 2,025,278 1,044,075
18.1 Long term loans - external 2009 2008 AED'000 AED’000
At 1 January 5,691,596 5,602,985 Loans transferred to a related party (refer note-(i)) (493,414) (287,630) Borrowedduringtheyear 1,955,654 3,316,264 Repaid during the year (447,523) (2,940,023) Currency translation adjustment 332 - At 31 December 6,706,645 5,691,596 Current maturity of long term loans (1,745,638) (788,845) Long-term portion 4,961,007 4,902,751
(i) In 2009, the Company novated bank loans amounting to 493.4 million (2008: AED 287.6 million) to MAFG by converting external facilities to related party funding. However, the Company continues to use these facilities under an inter-company funding agreement signed with MAFG. Accordingly, these loans have been disclosed as related party loans (refer notes 15(vii) and 18.2).
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F-194 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
18. Long term loans (continued) 18.1 Long term loans – external (continued) The details of long term loans are set out below: Loan facility Loan amount at Repaymentinterval Repayment Maturity date 31 December comme nceme nt 2009 date ’000 AED ’000 USD 600,000 Half-yearly 31-Mar-10 26-Apr-18 1,968,306 (AED 2,203,200) (refer note (d)) US$ 285,000 Revolving 27-Aug-10 1,046,625 (AED 1,046,625) (refer note (e)) USD 300,000 Half-yearly 31-May-09 30-Nov-16 1,037,134 (AED 1,101,900) (refer note (b)) AED 765,000 765,000 Revolving 23-Nov-11 US$ 125,000 Bullet 20-Oct-12 458,998 (AED 459,000) US$ 75,000 Revolving 29-Nov-12 275,475 (AED 275,400) AED 300,000 274,981 Half-yearly 06-Sep-09 06-Mar-15 OMR 22,000 Half-yearly 25-Oct-08 30-Apr-18 188,475 (AED 210,100) (refer note (a)) US$ 50,000 Bullet 25-Jan-13 183,745 (AED 183,600) (refer note (c)) US$ 50,000 Bullet 08-Apr-10 182,445 (AED 183,600) (refer note (c)) USD 33,000 Bullet 08-Sep-13 121,240 (AED 121,240) (refer note (c)) (under negotiation) Quarterly 31-Dec-07 28-Jun-10 AED 500,000 83,334
US$ 54,466 Quarterly 07-Mar-07 17-Dec-11 79,769 (AED 200,081) US$ 62,500 Quarterly 30-Sep-05 30-Jun-10 22,950 (AED 229,500) OMR 9,500 Quarterly 31-Mar-02 31-Dec-11 18,168 (AED 90,750) (refer note (a)) 6,706,645
The above loans are obtained at margins ranging from 0.5% to 2.25% over the base lending rate, whilst two loans are fixed at 6.5%. For loans obtained in the UAE, the base lending rate used is generally EIBOR / LIBOR. The amount of AED 1,745.6 million (2008: AED 788.8 million) payable within the next 12 months is shown under current maturity of long term loans.
a) The loans in Omani Riyal are secured against: i) A registered first charge on all assets of Muscat City Centre including land, buildings and equipment but excluding fit-outs and equipment owned by tenants (refer note-9); and ii) Assignment of all insurance policies related to the fixed assets of Muscat City Centre.
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F-195 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
18. Long term loans (continued) 18.1 Long term loans – external (continued) b) The US$ 300 million loan obtained by a subsidiary in Bahrain is secured against: i) A first ranking mortgage over the property, a first ranking fixed and floating charge over the subsidiary’s assets and accounts, pledge of the subsidiary’s shares, assignment of insurances, and assignment of the subsidiary’s rights under the project documents (refer note-10); ii) A corporate guarantee was provided by the Company against the outstanding loan for the construction and stabilization of the project. c) The US$ 133 million loans of a subsidiary in Egypt are secured by way of bank guarantees. d) The loan facility is secured by a mortgage on the land and assignment of insurance policies of the property and future lease rentals of the shopping mall operations of Mirdiff City Centre, which is currently under construction. e) A revolving loan facility of AED 1,046.6 million is due for repayment in August 2010 and accordingly, has been shown under current maturity of long term loan. Management is in the process of refinancing this facility. Certain properties with an aggregate carrying value of AED 4,061.9 million are mortgaged to various loans.
18.2 Long term loans - related parties 2009 2008 Note AED'000 AED’000 At 1 January 2,530,170 - External loans novated to a related party 15 (viii) & 18.1 493,414 287,630 Borrowed during the year 437,716 2,242,540 Repaid during the year (380,886) - Transferred to Shareholder Contribution 20.2.1 (2,492,508) - At 31 December 587,906 2,530,170 Current maturity of long term loans (279,640) (255,230) Long-term portion 308,266 2,274,940
During the year, the parent company subscribed to an equity instrument issued by the Company in partial fulfilment of the above-mentioned financial liability at its carrying value amounting to AED 2,500.0 million (refer notes-15(iii) & 20.2). The above loans are obtained from the following related parties:
Loan facility Loan amount Lender Repayment ’000 AED ’000
Revolving facility payable on 7 AED 1,836,500 308,266 Majid Al Futtaim Group LLC July 2012 MAF for Installation and Repayable with 45 days of demand AED 300,000 279,640 Management of Hypermarkets SAE made by the lender 587,906
The above loans are obtained at a margin ranging from 1.0% to 2.5% over EIBOR / LIBOR.
The amount of AED 279.6 million (2008: AED 255.2 million) payable within the next 12 months for the above loans is shown under current maturity of long term loans.
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F-196 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
19. Advance receipts This represents contributions in respect of the cost of chillers within the shopping malls of AED 10.3 million (2008: AED 11.3 million) made by Majid Al Futtaim Hypermarkets LLC, a tenant and a related party, under operating lease agreements. The contributions are amortised over the useful life of the chillers estimated to be 15 years.
20. Share capital and shareholder contribution
20.1 Share capital 2009 2008 AED’000 AED’000 Authorised, issued and fully paid: 1,820,000 shares of AED 1,000 each 1,820,000 1,820,000 At 31 December 1,820,000 1,820,000
This represents the capital of Majid Al Futtaim Properties LLC, the holding company of the MAFP Group. No dividend is proposed at the end of the year.
20.2 Shareholder contribution 2009 2008 AED’000 AED’000 Subordinated capital loan instruments (refer note 20.2.1) 2,500,000 - Proposed capitalisation of retained earnings (refer note 20.2.2) 1,680,000 - At 31 December 4,180,000 - 20.2.1 Subordinated capital loan instrument
On 5 October 2009, the Company issued subordinated capital loan instruments of AED 2,500 million in five loan instruments of AED 500 million each (collectively referred to as “the hybrid instruments”), which were fully subscribed by MAFG as per the terms of a Master Capital Loan Agreement and a separate Capital Loan Agreement for each loan, dated 5 October 2009. The hybrid instrument carries a coupon payment at a fixed rate of 8% per annum up to 7 October 2019 and at a floating rate of EIBOR + 5% thereafter. The hybrid instrument has a first par call date on 7 October 2019, at the election of the Company, without any obligation. The hybrid instrument does not have a final maturity date. The coupon is non-cumulative in nature and can be deferred indefinitely at the Company’s discretion without constituting a default. In case of the parent company ceasing control of the Company, the prevailing coupon rate on the hybrid instruments will be permanently increased by 5% and such coupons will become cumulative.
Based on the terms of the hybrid instruments, these have been accounted for as equity instruments. The hybrid instruments were subscribed to through a debt to equity swap transaction in a partial fulfilment of a financial liability. The equity instrument has been recognised at the carrying amount of the financial liability and no gain or loss has been recognised in the profit or loss. Management believes that there is no significant difference between the carrying value of the financial liability being extinguished and the fair value of the equity instrument being recognised. Also refer notes-15(iii) & 18.2.
20.2.2 Conversion of retained earnings
During the year, the shareholders of the Company passed a resolution to convert retained earnings amounting to AED 1,680 million to share capital. Since the legal formalities for increase in capital are pending as at 31 December 2009, the amount has been classified as shareholder contribution. It would be transferred to share capital upon completion of the pending formalities.
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F-197 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
21. Taxation The subsidiaries of the MAFP Group are liable to income tax in Oman and Egypt at the enacted tax rate of 12% and 20% respectively. Income tax expense of AED 47k (OMR 5k) was recognised against the profits of the MAFP Group’s subsidiary in Oman of AED 694k (OMR 72.7k). In Egypt, income tax credit of AED 27.7k (EGP 42k) was recognised against a losses the MAFP Group’s subsidiary in Egypt of AED 7.7 million (EGP 11.7 million).
The following amounts have been recognised in respect of income tax and deferred tax charge in the consolidated financial statements.
Current tax expenses 2009 2008 AED’000 AED’000 Income tax at rates mentioned above (19) (5,142) Deferred tax (8,411) 18,831 Tax (expense) / reversal for the year (8,430) 13,689
Reconciliation of effective tax rate Profit for the year 158,742 244,049 Tax expense /( reversal) for the year 8,430 (13,689) Profit for the year before tax 167,172 230,360
Effect of tax rates in foreign jurisdictions -0.01% (19) 0.66% (1,525) Deferred tax (loss) / gain on revaluation of land and buildings -5.03% (8,411) -8.17% 18,831 Change in unrecognised temporary differences - 0.07% (152) (Under) / over provided in prior periods - 1.50% (3,465) -5.04% (8,430) -5.94% 13,689
Income tax recognised directly in equity Deferred tax loss on revaluation of land and buildings - 118,892 - 118,892
The subsidiaries’ tax assessments for previous years have not been finalised by the tax authorities. The management consider that additional taxes, if any, that may become payable on finalisation of assessments of the open tax years would not be significant to the MAFP Group’s financial position at 31 December 2009.
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F-198 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
21. Taxation (continued)
Deferred tax liability 2009 2008 AED’000 AED’000 At 1 January 181,727 319,540 Charged / (released) to profit or loss 8,411 (18,831) Charged / (released) to equity - (118,982) Foreign currency translation difference from foreign operations (92) - At 31 December 190,046 181,727
Deferred tax liability (net) has been computed on the taxable temporary difference arising as a result of valuation gain/losses on properties in Egypt, Syria and Lebanon. The tax rates in these countries are 20%, 28% and 15% respectively. The corresponding valuation gain or loss has been recognised partly in the profit and loss and partly in equity. Accordingly, the resulting net deferred tax income has been recognized partly in the profit and loss and partly in equity respectively. For the year ended 31 December 2009, a deferred tax expense of AED 8.4 million (2008: income of AED 18.8 million) is included in the profit and loss in respect of the taxable temporary difference of AED 61.5 million (2008: AED 85.04 million) in respect of net valuation loss on investment properties. In 2008, a deferred tax credit of AED 118.9 million was recognised in equity for the reversal of a taxable temporary difference recorded in prior years of AED 438.6 million. This was been partly offset by a deferred tax liability of AED 3.8 million recognised in equity in respect of a taxable temporary difference of AED 19.1 million in respect of property, plant and equipment. During 2009, to taxable temporary differences arise of losses recognised directly in equity.
22. Financial instruments Financial assets of the MAFP Group include cash at bank and in hand, receivables and amounts due from related parties. Financial liabilities of the MAFP Group include amounts due to related parties, short term loans, long term loans, bank overdrafts, payables and provisions. Accounting policies for financial assets and liabilities are set out in note-3 on pages 13 to 23.
22.1 Financial risk management objectives and policies
The Company’s Board of Directors have the overall responsibility for the management of risk throughout its Group companies. The Board establishes and regularly reviews the Company’s risk management strategy and policy and procedures to ensure that they are in line with MAFG strategies and objectives. It has constituted an Audit Committee within the Board of the Company which is required to review and assess the risk management process. It ensures that internal risk management framework is effective and that a sound system of risk management is in place to safeguard shareholder’s interests. All the MAFP Group’s entities are required to report on risk management on a regular basis including self certification indicating that they have reviewed the risks identified within their area, and they are satisfied that the controls are operating effectively. The main risks arising from the MAFP Group’s financial instruments are credit risk, liquidity risk and market risk, including foreign currency risk and interest rate risk. Liquidity risk and market risk (including foreign currency risk and interest rate risk) are managed by the centralised treasury function of MAFG on behalf of the Company. The exposure to credit risk is monitored by the MAFP Group on an ongoing basis (refer note 22.2).
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F-199 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
22. Financial instruments (continued) 22.2 Credit risk Credit risk is the risk of financial loss to the MAFP Group if the counter-party fails to meet its contractual obligations and arises principally from the MAFP Group’s receivables. The entities in the MAFP Group have credit policies in place and the exposure to credit risk is monitored on an ongoing basis. Most of the MAFP Group’s income is by way of cash and advance receipts and is supported by a deposit equivalent to one month’s advance rental. Credit evaluations are performed on all customers requiring credit over a certain amount and there is no concentration of credit risk. Cash is placed with reputable banks and the risk of default is considered remote. Under the current economic conditions, management has assessed the recoverability of its trade receivables as at the balance sheet date and consider them to be recoverable. Due from related parties are considered recoverable by management. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Carrying amount Carrying amount 2009 2008 AED’000 AED’000
Trade receivables 341,853 215,854 Other receivables and deposits 201,205 496,618 Cash at bank 625,431 1,006,196 Due from related parties 661,763 965,986 1,830,252 2,684,654
22.3 Liquidity risk Liquidity risk is the risk that the MAFP Group will not be able to meet its financial obligations as they fall due. The MAFP Group’s approach to managing liquidity is to ensure, in so far as it is reasonably possible, that it will always have sufficient liquidity to meet its liabilities when they become due without incurring unacceptable losses or risking damage to the MAFP Group’s reputation. The MAFP Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and credit facilities.
At 31 December 2009 Gross nominal Carrying inflow / 6monthsor More than 5 amount (outflow) less 6-12 months 1-2 years 2-5 years years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Secured bank loans (refer note-(i) ) 4,746,138 (6,236,044) (478,475) (1,216,198) (391,461) (1,589,452) (2,560,458) Other loans and borrowings 1,960,507 (2,136,845) (162,190) (81,445) (933,381) (934,588) (25,242) Related party loans 587,906 (616,067) (281,855) (2,803) (15,114) (316,295) - Trade and other payables 1,128,238 (1,128,238) (1,118,993) - (9,245) - - Due to related parties 14,516 (14,516) - (14,516) - - - Derivative financial liabilities for risk management - Interest rate swaps 66,473 (70,993) (17,524) (15,552) (19,818) (17,630) (469) - Interest rate collars 146,163 (167,550) (53,987) (47,851) (54,177) (20,145) 8,610 Total 8,649,941 (10,370,253) (2,113,024) (1,378,365) (1,423,196) (2,878,110) (2,577,559)
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F-200 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
22. Financial instruments (continued)
22.3 Liquidity risk (continued)
At 31 December 2008 Gross nominal Carrying inflow / 6 months or 6-12 More than 5 amount (outflow) less months 1-2 years 2-5 years years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Secured bank loans (refer note-(i) ) 2,524,628 (4,537,821) (353,496) (78,230) (278,715) (1,144,194) (2,683,186) Other loans and borrowings 3,166,968 (3,382,011) (180,741) (267,680) (1,471,334) (1,383,276) (78,980) Related party loans 2,980,170 (3,420,705) (689,011) (88,044) (143,857) (2,499,793) - Trade and other payables 1,213,569 (1,213,569) (1,181,569) - (32,000) - - Due to related parties 150,931 (150,931) - (150,931) - - - Bank overdraft 18,607 (18,607) (18,607) - - - - Derivative financial liabilities for risk management - Interest rate swaps 105,941 (116,260) (9,928) (14,871) (24,256) (45,300) (21,905) - Interest rate collars 268,452 (265,233) (34,945) (47,128) (80,570) (75,620) (26,970) Total 10,429,266 (13,105,137) (2,468,297) (646,884) (2,030,732) (5,148,183) (2,811,041)
(i) The MAFP Group has also included in its contractual cash flows amounts that have not been borrowed as at the year end.
22.3.1 Funding and liquidity
At 31 December 2009, the Group has net current liabilities of AED 2,241.3 million (2008: AED 1,064.1 million) which includes debt maturing in the short-term of AED 2,025.3 million (2008: AED 1,044.1 million). Furthermore, at 31 December 2009 debt maturing in the long term is AED 5,269.3 million (2008: AED 7,177.7 million). Also, during 2010, the MAFP Group expects to incur interest cost of AED 278.0 million and committed capital expenditure of AED 1,740.0 million.
To meet the above commitments the Group has existing undrawn facilities of AED 2,033.1 million, cash in hand at 31 December 2009 of AED 627.7 million and it expects to generate cash from operations of AED 1,247.0 million in 2010 (2009: AED 937.9 million). At 31 December 2009, the MAFP Group is in compliance with all covenants under its credit facilities.
During the year 2009, MAFG has provided financial support to the MAFP Group through conversion of long term loans of AED 2,500.0 million into equity and a waiver of AED 432.6 million was obtained on a payable to MAFG.
On the basis of the above, management have concluded that MAFP Group will be able to meet its commitments in the foreseeable future.
22.4 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the MAFP Group’s income or the value of its holdings of financial instruments. The MAFP Group seeks to apply hedge accounting to manage volatility in its income statement in relation to its exposure to interest rate risk.
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F-201 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
22. Financial instruments (continued) 22.4 Market risk (continued)
22.4.1 Foreign currency risk The MAFP Group is exposed to foreign currency risk on its net investments in foreign subsidiaries and operations. The MAFP Group is also exposed to foreign currency risk on purchases denominated in foreign currencies.
Foreign currency sensitivity analysis Significant portion of the MAFP Group’s foreign currency borrowings and balances are denominated in US Dollar (US$) and other currencies linked to US Dollar. So long as the MAFP Group’s functional currency (AED) is currently pegged to US$ therefore, any fluctuation in exchange rate is not likely to have an impact on Group’s equity and profit or loss.
22.4.2 Interest rate risk As mentioned in note 22.1, interest rate risk is managed by MAFG on behalf of the Company. Within the framework of the interest rate risk management policy of MAFG, the MAFP Group adopts a policy of ensuring that between 40% and 60% of its exposure on borrowings is on a fixed rate basis. This is achieved through managing the duration of interest-bearing portfolio and by using derivative financial instruments such as interest rate swaps and collars as part of the parent company’s interest rate risk management. These are entered into pursuant to master agreements that provide for a single net payment to be made by one counter party at each due date. The fair value of swap agreement is estimated based on proprietary pricing models or market quotes provided by the counter-party bank. Net interest paid or received related to these agreements is recorded using the accrual method and is recorded as an adjustment to interest expense. Interest on borrowed funds is charged at EIBOR/LIBOR plus a fixed margin negotiated prior to executing the loan. At 31 December 2009, after taking into account the effect of interest rate swaps and collars, approximately 49% (2008: 55%) of the MAFP Group’s term borrowings are at a fixed or capped rate of interest. At the reporting date the interest rate profile of the MAFP Group’s interest-bearing financial instruments was:
Carrying amount Carrying amount 2009 2008 AED’000 AED’000 Variable rate instruments Financial assets -- Financial liabilities (loans) (7,087,908) (8,240,373) (7,087,908) (8,240,373)
The contractual maturities of the financial liabilities are disclosed in note-22.3.
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F-202 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
22. Financial instruments (continued) 22.4 Market risk (continued) 22.4.2 Interest rate risk (continued) Sensitivity analysis for variable rate instruments The following table demonstrates the sensitivity of the MAFP Group’s profit before tax and the MAFP Group’s equity to a reasonably possible change in interest rates, assuming all other variables in particular foreign currency rates remain constant. The analysis is performed on the same basis for 2008. Increase / (decrease) in Effect on other basis points Effect on profit or loss comprehensive income AED'000 2009 2008 2009 2008 Variable rate instrument + 100 (56,703) (65,923) - - Interest rate swap + 100 - - 29,761 27,117 Interest rate collar + 100 13,407 (4,971) 55,898 104,019 Swaption + 100 - (1,844) - - Cash flow sensitivity (net) (43,296) (72,738) 85,659 131,136 Variable rate instrument - 100 56,703 65,923 - - Interest rate swap -100 - - - (45,700) Interest rate collar - 100 - 881 - (104,368) Swaption - 100 - 2,633 - - Cash flow sensitivity (net) 56,703 69,437 - (150,068)
22.5 Fair values The fair value of the MAFP Group’s financial instruments together with the carrying amounts shown in the balance sheet, are as follows: Fair values Carrying amount AED'000 2009 2008 2009 2008 Financial assets Trade and other receivables 543,058 419,740 543,058 419,740 Due from related parties 661,763 965,986 661,763 965,986 Swaption - 3,200 - 3,200 Cash and cash equivalents 626,703 1,006,532 626,703 1,006,532 1,831,524 2,395,458 1,831,524 2,395,458 Financial liabilities Long term loans 7,294,551 8,221,766 7,294,551 8,221,766 Short term loans - 450,000 - 450,000 Due to related parties 14,516 150,931 14,516 150,931 Trade payables, other payables and accruals 1,130,448 1,213,569 1,130,448 1,213,569 Bank overdraft - 18,607 - 18,607 Interest rate swaps 66,473 105,941 66,473 105,941 Interest rate collars 146,163 268,452 146,163 268,452 8,652,151 10,429,266 8,652,151 10,429,266
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F-203 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
22. Financial instruments (continued) 22.5 Fair values (continued) Basis for determining fair values The following significant methods and assumptions were used in estimating the fair values of the MAFP Group’s financial instruments: Derivatives: The fair values are obtained from quoted market prices available from the counterparty bank, discounted cash flow models and valuation models as appropriate. The MAFP Group uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options and interest rate swaps. For these financial instruments, inputs into models are market observable. Non-derivative financial liabilities: Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Interest rates used for determining fair value: The interest rates used to discount estimated cash flows, where applicable, are based on the spot rates derived from the interpolated yield curve at the reporting date and were in the following range:
2009 2008 Derivatives 0.25% to 3.5% 1.40% to 2.27% Borrowings 0.25% to 3.5% 1.40% to 2.27%
22.6 Derivatives held for interest rate risk management Cash flow hedges of interest rate risk At the end of the reporting year, the MAFP Group held the following derivative instruments, designated as cash flow hedges in relation to floating rate interest-bearing loans and borrowings:
Maturity Commencement Fair value of liabilities Instrument date date 2009 2008 AED'000 AED'000 Interest rate swap 30-Nov-16 30-Nov-06 (66,473) (105,941) Interest rate collar 31-Mar-10 * 30-Mar-07 - (42,706) 09-Jul-12 09-Jul-07 (42,316) (55,778) 25-Jul-11 25-Jul-07 (20,632) (27,896) 08-Aug-10 * 08-Aug-07 (9,149) (19,121) 28-Aug-11 28-Aug-07 (19,825) (26,844) 31-Mar-18 30-Sep-08 (54,241) (96,107) (146,163) (268,452)
* MAFG is the counterparty to these derivative instruments.
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F-204 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
22. Financial instruments (continued) 22.6 Derivatives held for interest rate risk management (continued) The following table indicates the periods in which the cash flows associated with derivatives that are designated as cash flow hedges are expected to occur:
At 31 December 2009 Carrying Expected 6mths 6to12 1to2 2to5 Morethan amount cash flows or less mths years years 5 years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Interest rate swaps: Assets ------Liabilities 66,473 (70,993) (17,524) (15,552) (19,818) (17,630) (469) Interest rate collars: Assets ------Liabilities 146,163 (167,550) (53,987) (47,851) (54,177) (20,145) 8,610 212,636 (238,543) (71,511) (63,403) (73,995) (37,775) 8,610
At 31 December 2008 Carrying Expected 6mths 6to12 1to2 2to5 Morethan amount cash flows or less mths years years 5 years AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 Interest rate swaps: Assets ------Liabilities 105,941 (114,641) (9,928) (14,871) (24,256) (45,300) (20,286) Interest rate collars: Assets ------Liabilities 268,452 (265,233) (25,362) (56,707) (80,574) (75,620) (26,970) 374,393 (379,874) (35,290) (71,578) (104,830) (120,920) (26,970)
The above cash flows represent the discounted net payments and do not represent the gross cash flows. The periods in which the cash flows associated with derivatives that are designated as cash flow hedges are expected to impact the income statement are not expected to be significantly different from above.
22.7 Capital management The primary objective of the MAFP Group’s capital management is to ensure that it maintains healthy capital and liquidity ratios in order to support its operations and future developments. The following ratios are used to monitor the business performance: (i) Net debt to equity ratio (ii) Interest coverage ratio (iii) Debt service coverage ratio
These ratios are monitored in accordance with MAFG’s capital management policy.
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F-205 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
22. Financial instruments (continued) 22.7 Capital management (continued) 2009 2008 AED'000 AED'000
Loans and borrowings 7,294,551 8,690,373 Debt 7,294,551 8,690,373 Share capital 1,820,000 1,820,000 Shareholder contribution 4,180,000 - Retained earnings 2,531,734 4,069,546 Revaluation reserve 10,426,029 12,713,042 Other reserves 618,672 30,334 Total capital 19,576,435 18,632,922
Gearing ratio 37% 47% The MAFP Group has various borrowing arrangements which require maintaining certain net worth, interest coverage and debt equity ratios. Apart from these requirements neither the Company nor any of its subsidiaries are subject to any externally imposed capital requirements.
23. Capital commitments Capital commitments of the MAFP Group at 31 December 2009 on ongoing projects, including the MAFP Group’s interest in joint ventures, amounted to AED 2,391.1 million (2008: AED 4,862.6 million).
The MAFP Group has executed a development agreement with a government agency in Syria to invest AED 3,673.0 million in 15 years from the effective date July 2009 of which AED 1,101.9 million should be invested in the first five years. At 31 December 2009, the MAFP Group has invested AED 256.4 million in the project. Letters of credit outstanding at 31 December 2009 amounted to AED nil (2008: 72.5 million).
24. Contingent liabilities The MAFP Group has provided financial guarantees of AED 4,012.9 million to various banks (2008: AED 4,197.1 million), which includes AED 3,673.0 million (2008: AED 3,673.0 million) in respect of a loan obtained by MAFG from a creditor bank (refer note 15(viii)). Furthermore, the MAFP Group has provided other operational guarantees of AED 5.3 million (2008: AED 4.7 million).
25. Operating leases Leases as lessor The MAFP Group leases out its properties under operating leases. Non-cancellable operating lease rent receivables are as follows: 2009 2008 AED’000 AED’000 Less than one year 1,425,070 1,059,234 Between one and five years 4,246,328 3,009,381 More than five years 1,360,871 1,287,292 Total 7,032,269 5,355,907
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F-206 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
25. Operating leases (continued) Leases as lessee The MAFP Group enters into operating leases, which typically run for a period of one year with an option to renew the lease after that date. The lease rentals are usually renewed to reflect market rentals.
26. Statutory reserve In accordance with the Articles of Association of companies in the MAFP Group and relevant local laws, 10% of the net profit for the year of the individual companies, to which the law is applicable, is transferred to a statutory reserve. Such transfers may be discontinued when the reserve equals the limit prescribed by the relevant laws applicable to individual entities. This reserve can be utilised only in the manner specified under the relevant laws and is not available for distribution. During the current year, AED 15.8 million (2008: 36.2 million) has been transferred to this reserve.
27. Critical judgments in applying the MAFP Group’s accounting policies In the process of applying the MAFP Group’s accounting policies, which are described in the notes, management has made certain judgments as mentioned below.
Investment property – accounting for dual use properties Investment property is property held to either earn rental income or capital appreciation or for both. Certain properties of the MAFP Group include a portion that is held to generate rental income or capital appreciation and another portion that is held for own use by the Company in supply of services or for administrative purposes. Such properties are split between property, plant and equipment and investment properties based on leasable value, subject to the conditions described below. Properties that can be sold or finance leased separately In the UAE, Law No. 27 of 2007 Regulating the Ownership of Jointly Owned Properties in the Emirate of Dubai (“the Strata Law”) came into effect from 1 April 2008. Based on the terms of the Strata Law and clarification obtained by the Company from independent legal advisors, management is of the view that: - it is possible to divide developed property, such as shopping mall, into separate units; - that conceptually, strata title can validly be created within the shopping malls and individual units or parts may be sold or subject to long leases; and - the Dubai Land Department and the Strata Law both support the above concept.
In countries other than UAE, wherever similar laws exist, the Company splits dual use properties on a similar basis. Properties that cannot be sold or finance leased separately Due to legal restrictions in Oman, and in the UAE in respect of properties which are built on land gifted by the Ruler, these properties cannot currently be sold or finance leased separately (in case of UAE, without the prior consent of the Ruler). Consequently, the entire property is classified as investment property only if an insignificant portion is held for own use.
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F-207 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
27. Critical judgments in applying the MAFP Group’s accounting policies (continued) Investment property – accounting for dual use properties (continued) Properties that cannot be sold or finance leased separately (continued) In management’s judgment, the level of own use is assessed based on the level of ancillary income earned by the MAFP Group from the property as a whole. If the ancillary income exceeds 5% of the total income from the property, then the entire property is classified as property, plant and equipment, at the date when the level of ancillary income exceeds 5%.
Fair value of properties Fair value of undeveloped land and other developed properties at the reporting date is determined by independent external valuers once every year. Internal valuations are carried out quarterly, based on the methods and assumptions used by the external valuer, to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Management has made the judgment that the fair values determined by the external valuers, of the properties developed on gifted land, are realisable subject to the consent of the Ruler’s Court. These properties are stated at their fair values as determined by the external valuers in the financial statements.
Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting year, are discussed below.
Property, plant and equipment Where the valuation of a property comprises the aggregate value of land and building, the valuation is apportioned between land and building based on the reinstatement cost as computed by an external appraiser of the building, unless another appropriate basis is available for allocation. Change in fair value apportioned to buildings is then allocated to the building structure as it is impracticable to obtain detailed fair value information at each component level of the building from the valuer or to use any other reasonable method of approximation to internally estimate such component values. Consequently, any increase in fair values is allocated to the structure of the buildings and depreciated over the remaining useful lives of the respective buildings.
Impairment The carrying value of the MAFP Group’s assets other than property, plant and equipment that is fair valued, investment property and inventories are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indications exists and where the carrying value exceeds the estimated recoverable amount, the assets or cash-generating units are written-down to their recoverable amount. 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 risk specific to the asset.
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F-208 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
27. Critical judgments in applying the MAFP Group’s accounting policies (continued) Key sources of estimation uncertainty (continued)
Staff terminal and retirement benefits The MAFP Group’s liability for staff terminal benefits qualifies as a defined benefit plan under IAS 19. The MAFP Group’s net obligation in respect of staff terminal benefits is calculated by estimating the amount of future benefits that employees have earned in return for their services in the current and prior years, and is discounted to determine the present value of the obligation. The discount rate used is the yield at the balance sheet date on premium bonds that have maturity dates approximating the terms of the MAFP Group’s obligations.
The principal assumptions for calculation of the provision for staff terminal benefits at the balance sheet date areas follows: Discount rate 5.00% Future salary increase 4.00%
Long term employee benefits
The MAFP Group earlier offered performance based incentives to certain senior management staff under a special incentive scheme. A provision for the MAFP Group’s obligation under the scheme was accrued by estimating the present obligation and present value of the estimated future payments as at the balance sheet date in respect of all applicable employees for their services rendered during the current year. The scheme was discontinued during the year. However, management is still carrying certain provision with respect to the old scheme which would be paid to the employees who were eligible as per the previous scheme. Also refer note-17.
Valuation of financial instruments
The MAFP Group’s accounting policy on fair value measurements is discussed in accounting policy 3(q).
The MAFP Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in the market that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuations. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
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F-209 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
27. Critical judgments in applying the MAFP Group’s accounting policies (continued) Key sources of estimation uncertainty (continued)
Valuation of financial instruments (continued)
Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark profit rates, credit spreads and other premia use in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.
The MAFP Group uses widely recognized valuation models for determining the fair value of common and more simple financial instruments, that use only observable market data and require little management judgment and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps and collars. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on products and markets and is prone to changes based on specific events and general conditions in the financial markets.
The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorized:
Level 1 Level 2 Level 3 Total Note AED’000 AED’000 AED’000 AED’000 31 December 2009 Financial liabilities Derivatives held for interest rate risk management 22.6 - 212,636 - 212,636 - 212,636 - 212,636
During 2009, there was no movement between the fair value hierarchies of the derivative financial instruments held by the MAFP Group. Furthermore, there has been no change in the valuation techniques in relation to valuation of derivative financial instruments during the year.
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F-210 Level: 1 – From: 1 – Tuesday, May 24, 2011 – 13:19 – eprint6 – 4331 Section 10(d)
Consolidated Financial Statements for the year ended 31 December 2009
28. List of properties
At 31 December 2009, the following properties are recorded in the financial statements of the MAFP Group:
Property, plant and equipment Investment property Property Location Property Location
Shopping malls Shopping malls Mall of the Emirates UAE Sharjah City Centre UAE Deira City Centre UAE Ajman City Centre UAE Muscat City Centre Oman Madi City Centre Egypt Qurum City Centre Oman Alexandria City Centre Egypt Sohar City Centre * Oman Bahrain City Centre Bahrain Mirdiff City Centre * UAE Hotels Mall of Egypt * Egypt Kempinski Hotel – Mall of the Emirates UAE Beirut City Centre * Lebanon City Centre Hotel UAE City Centre Residences UAE Offices IBIS Hotel – Deira City Centre UAE Jebel Ali Warehouse UAE Novotel Hotel – Deira City Centre UAE Rigga offices * UAE IBIS Hotel – Mall of the Emirates UAE Suite Hotel – Mall of the Emirates UAE IBIS Hotel – Rigga * UAE Kempinski Hotel – Bahrain * Bahrain Pullman Hotel * UAE
Offices MAF Tower 1 UAE MAF Tower 2 UAE City Centre Offices UAE
Mixed use communities Sabbourah project * Syria
* Properties under construction.
Apart from properties listed above, the MAFP Group has a land bank comprising lands located in UAE, Oman, Egypt, Lebanon and Syria, which are recorded as investment property.
The following fair value gains / (losses were recognised during the year in the profit or loss:
2009 2008 Note AED'000 AED’000
Gain / (loss) of valuation of property, plant and equipment 9 (290,900) (98,672) Gain / (loss) of valuation of investment property 10 276,054 (68,919) Total valuation gain / (loss) (14,846) (167,591)
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F-211 Level: 7 – From: 7 – Tuesday, June 14, 2011 – 11:29 – eprint6 – 4331 Section 11
ISSUER
MAF Global Securities Limited A9.4.1.4 c/o Maples Corporate Services Limited PO Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands
GUARANTORS A9.9.1 Majid Al Futtaim Holding LLC Majid Al Futtaim Properties LLC PO Box 91100 PO Box 60811 Dubai Dubai United Arab Emirates United Arab Emirates
TRUSTEE Citibank, N.A., London Branch Citigroup Centre Canada Square Canary Wharf London E14 5LB United Kingdom
PRINCIPAL PAYING, TRANSFER REGISTRAR, PAYING AND A13.5.2 AND EXCHANGE AGENT TRANSFER AGENT Citibank, N.A. Citigroup Global Markets Deutschland AG Citigroup Centre Reuterweg 16 Canada Square 60323 Frankfurt Canary Wharf Germany London E14 5LB United Kingdom
LEGAL ADVISERS A12.7.1 To the Issuer as to Cayman Islands law A13.7.1 Maples and Calder The Exchange Building, 5th Floor Dubai International Financial Centre PO Box 119980 Dubai United Arab Emirates
To the Guarantors as to English and UAE law United States law Allen & Overy LLP Allen & Overy LLP Level 2 One Bishops Square Gate Village Building GV08 London E1 6AD Dubai International Financial Centre United Kingdom PO Box 506678 Dubai United Arab Emirates Level: 7 – From: 7 – Tuesday, June 14, 2011 – 11:29 – eprint6 – 4331 Section 11
To the Dealers as to To the Trustee as to English, UAE and United States law English law Clifford Chance LLP Clifford Chance LLP 3rd Floor, The Exchange Building 10 Upper Bank Street Dubai International Financial Centre London E14 5JJ PO Box 9380 United Kingdom Dubai United Arab Emirates
AUDITORS A9.2.1 To the Guarantors KPMG Emirates Towers Sheikh Zayed Road PO Box 3800 Dubai United Arab Emirates
DEALERS Barclays Bank PLC Citigroup Global Markets Limited 5 The North Colonnade Citigroup Centre Canary Wharf Canada Square London E14 4BB Canary Wharf United Kingdom London E14 5LB United Kingdom
Crédit Agricole Corporate and Investment Bank Emirates NBD Bank PJSC Broadwalk House PO Box 777 5 Appold Street Dubai London EC2A 2DA United Arab Emirates United Kingdom
HSBC Bank plc J.P. Morgan Securities Ltd. 8 Canada Square 125 London Wall London E14 5HQ London EC2Y 5AJ United Kingdom United Kingdom
National Bank of Abu Dhabi PJSC Standard Chartered Bank One NBAD Tower PO Box 999 Sheikh Khalifa Street Dubai PO Box 4 United Arab Emirates Abu Dhabi United Arab Emirates Level: 7 – From: 7 – Tuesday, June 14, 2011 – 11:29 – eprint6 – 4331 Section 11
printed by eprintfinancial.com tel: + 44 (0) 20 7613 1800 document number 4331