FY 2012 Annual Report - Orascom Development

F-31 Orascom Development 2012 Annual Report F-32
4.2.4 Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which
goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise
from the cash-generating unit and a suitable discount rate in order to calculate present value.
The carrying amount of goodwill at the end of the current reporting period is CHF 7,331,756 (31 December 2011: 7,951,210). The
recoverability of goodwill is tested for impairment annually during the fourth quarter, or earlier, if an indication of impairment
exists. The value of goodwill is primarily dependent upon projected cash flows, discount rates (WACC) and long-term growth
rates. The significant assumptions are disclosed in note 18. As at 31 December 2012 the annual impairment test showed no
impairment loss (2011: none). Changes to the assumptions may result in further impairment losses in subsequent periods.
4.2.5 Provisions
The carrying amount of provisions at the end of the current reporting period is CHF 79,106,988 (31 December 2011: CHF
90,144,020). This amount is based on estimates of future costs for infrastructure completion, legal cases, government fees,
employee benefits and other charges including taxes in connection with the Group’s operations (see note 32). As the provisions
cannot be determined exactly, the amount could change based on future developments. Changes in the amount of provisions due
to change in management estimates are accounted for on a prospective basis and recognized in the period in which the change in
estimates arises.
4.2.6 Impairment of trade and other receivables as well as other current assets
An allowance for doubtful receivables is recognized in order to record foreseeable losses arising from events such as a customer’s
insolvency. The carrying amount of the allowance for trade and other receivables at the end of the current reporting period is
CHF 42,730,631 (31 December 2011: CHF 23,127,659) (see note 25). In determining the amount of the allowance, several factors are
considered. These include the aging of accounts receivables balances, the current solvency of the customer and the historical
write-off experience.
A similar assessment has been done in relation to the recoverability of other current assets amounted to CHF 74,015,193 (2011:
CHF 73,719,589) which includes amounts due from employees and management (see note 23), outstanding proceeds from the sale
of the six percent stake in the former Garranah subsidiaries and the entire interests in the Joud Funds 1, 2, 3 and 4 (see note 23). To
determine the need for the recognition of any impairment charge, management considered several factors, such as the
contractual repayment date, current solvency of the counterparty and historical write-off experience. In 2012 an impairment
charge of total CHF 9.9 million has been booked in relation to the amounts outstanding from employees and management. CHF
8.8 million were netted off whereas CHF 1.1 million are included in provisions
At 31 December 2011, an impairment charge of CHF 18 million was recorded in addition to the CHF 15 million charged in 2010 to
cover any shortfall that might occur in relation to Joud Fund 1, 2, 3 and 4.
The actual write-offs and / or impairment charges might be higher than expected if the actual financial situation of the customers
and other counterparties is worse than originally expected.
4.2.7 Deferred income taxes
The measurement of deferred income tax assets and liabilities is based on the judgment of management. Deferred income tax
assets are only capitalized if it is probable that they can be used. Whether or not they can be used depends on whether the
deductable tax temporary difference can be offset against future taxable gains. In order to assess the probability of their future
use, estimates must be made of various factors including future taxable profits. At 31 December 2012 deferred income tax assets
amounted to CHF 30,999,043 (31 December 2011: CHF 30,681,825) that have mainly resulted from the tax impact of carry forward
tax losses (see note 13.4). Such deferred tax assets are only recorded when the development phase of the project has been started
and it becomes evident that future taxable profits are probable. If the actual values differ from the estimates, this can lead to a
change in the assessment of recoverability of the deferred tax assets and accounting for such a change, if any, is to be made on a
prospective basis in the reporting periods affected by the change.
4.2.8 Retirement benefit obligations
The retirement benefit obligation is calculated on the basis of various financial and actuarial assumptions. The key assumptions for
assessing these obligations are the discount rate, future salary and pension increases and the probability of the employee reaching
retirement. The obligation was calculated using a discount rate of 2.00% (31 December 2011: 2.40%). Pension costs were
calculated on the basis of an expected return on investment on plan assets of 3.00% (31 December 2011: 3.00%). The calculations
were done by an external expert and the principal assumptions used are summarised in note 38. At 31 December 2012, the
underfunding amounted to CHF 2,935,142 (31 December 2011: CHF 2,352,983), whereby only CHF 871,355 (31 December 2011: CHF
416,295) were recorded as an obligation in the consolidated statement of financial position because the corridor approach is used.
Using other basis for the calculations could have led to different results.
4.2.9 Classification and valuation of investment property
Generally real estate units are constructed either for the Group’s own use or for the sale to third parties and carried at cost.
However, when a unit may not be sold, as soon as a long term rent contract over more than 1 year is agreed with a third party at
market conditions, the unit is classified as an investment property and measured at the fair value obtained from independent,
third party valuation experts. The fair value of investment properties at 31 December 2012 is CHF 78,903,321 (2011: CHF
76,366,131).
The fair value of each of these properties has been arrived at on the basis of valuations carried out, at the dates specified above, by
Messrs Alan Tinkler, Ramlackhan & Co and Fincorp, independent valuation specialists not related to the Group. Note 17 provides
detailed information about the valuation techniques applied and the key assumptions used in the determination of the fair value
of each investment property.
4.2.10 Net realisable value of inventory
Inventory mainly includes real estate construction work under progress which is recognised at cost or net realisable value. The
majority of real estate under construction (approximately three quarters) is already sold at market prices which are significantly
higher than construction cost. Therefore the estimation uncertainty only relates to the unsold real estate under construction. In
general the profit margins on these real estate projects are high and management currently does not expect any of these projects
to be sold below cost.
4.2.11 Infrastructure cost
The Group has an obligation under the terms of its sale and purchase agreements to develop the infrastructure of the sold land.
Infrastructure cost is deemed to form part of the cost of revenue and is based on management estimate of the future budgeted
costs to be incurred in relation to the project including, but are not limited to, future subcontractor costs, estimated labor costs,
and planned other material costs. The provision for infrastructure costs requires the Group’s management to revise its estimate of
such costs on a regular basis in light of current market prices for inclusion as part of the cost of revenue.
4.2.12 Liquidity shortages and related uncertainties
For further details on management’s plans to manage liquidity shortages and related uncertainty please refer to note 43.1.
5 THE GROUP AND MAJOR CHANGES IN GROUP ENTITIES
The Group is comprised of the Parent Company and its subsidiaries operating in different countries.
There have been no major changes in the group structure during the period except for the sale of the last remaining subsidiary
operating in the tour operations segment (note 36), the disposal of Lupp Middle East, an Omani subsidiary of the Group (note 36),
as well as the deemed loss of control of the Swiss subsidiary Andermatt Sedrun Sportbahnen AG due to the acquisition of two
companies operating skiing areas (note 37).
Orascom Hotels & Development SAE (“OHD”) remains the principal operating subsidiary and is located in Egypt.
The group controls its subsidiaries directly and indirectly.
6 REVENUE
An analysis of the Group’s revenue for the year is as follows:
CHF 2012 2011
Revenue from the rendering of services and rental income 195,491,243 184,537,743
Revenue from agreements for construction of Real Estate and construction
revenue
76,409,607 66,969,813
Revenue on sale of land - 2,254,067
TOTAL 271,900,850 253,761,623
F-31
F-32