FY 2012 Annual Report - Orascom Development

F-47 Orascom Development 2012 Annual Report F-48
17 INVESTMENT PROPERTY
The following table summarizes movements, which have occurred, during the current reporting period, on the carrying amount of
investment property.
CHF 2012 2011
FAIR VALUE OF COMPLETED INVESTMENT PROPERTY
Balance at the beginning of the year 76,366,131 78,355,235
Transfer from property, plant and equipment - 4,859,598
Revaluation gain/(loss) 3,951,870 (4,745,050)
Foreign currency translation adjustment (1,414,680) (2,103,652)
Balance at the end of the year 78,903,321 76,366,131
The Group’s investment properties are located in Mauritius and in Egypt.
Their fair values at 31 December 2012 and 2011 have been arrived at on the basis of valuations carried out at these dates by Messrs
Alan Tinkler, Ramlackhan & Co and Fincorp, independent valuation specialists not related to the Group. They are both accredited
valuators in Mauritius and Egypt and have appropriate qualifications and recent experience in the valuation of properties in the
relevant locations.
Both valuation companies have relied on the Discounted Cash Flow (DCF) method to determine the fair value of the investment
property. The Discounted Cash Flow (DCF) approach describes a method to value the investment property using the concepts of
the time value of money. All future cash flows are estimated and discounted to give them a present value. This valuation method
is in conformity with the International Valuation Standards.
For the valuation of the major investment property (86% of total value) in Mauritius the valuer used cash flow projections based on
the rental contracts and the financial budgets approved by the directors, covering a ten-year period and an average discount rate
of 10.52% per annum for Mauritius. The expected rental income based on the rental contracts was indexed using a historical
inflation index provided by Eurostat.
For the valuation of the residual investment property situated in Egypt the valuer used cash flow projections based on financial
budgets for the next four years and an average discount rate of 22.6% (cost of equity). For the terminal value a perpetual growth
rate of 3% was used.
All of the Group’s investment property is held under freehold interests. The following table summarizes income and direct
operating expenses from investment properties rented out to third parties.
CHF 2012 2011
Rental income from investment properties (i) 6,170,558 5,943,966
Direct operating expenses (including repairs and maintenance) arising from
investment properties that generated rental income during the period
1,689,212 1,253,799
18.1 Allocation of goodwill to cash-generating units
Annual test for impairment
An impairment test of goodwill was performed by the Group in order to assess the recoverable amount of its goodwill. No
impairment was recorded as a result of this test. All cash-generating units were tested for impairment using the Discounted Cash
Flow (DCF) method in accordance with IFRS.
The Group’s business segments have been identified as cash–generating units. The DCF model utilized to evaluate the recoverable
amounts of these units was based on a five year projection period. A further description of the assumptions used in the model is
given in the following paragraphs.
The carrying amount of goodwill that has been allocated for impairment testing purposes is as follows:
CHF Segment 2012 2011
Hotel companies * Hotels 7,331,756 7,951,210
*Each subsidiary considered separately
7,331,756 7,951,210
Hotels
As already mentioned, Egypt has been on the brink of social and political turmoils in the past couple of years. While the Egyptian
uprising has come with the promise of major political reform, it has led to the temporary disruption of economic activity. Looking
beyond the current crisis, Egypt can benefit from maintaining its current momentum towards economic liberalization,
privatization, and a more efficient government. This will improve Egypt’s economic position and help foster a sustained growth
once the inevitable global economic upturn materializes. In light of the previously mentioned analysis, the impairment model has
taken the current economical situation of Egypt into close consideration.
The recoverable amount of each cash-generating unit has been determined based on a value in use calculation which uses cash
flow projections based on the financial budgets approved by management covering a five-year period and an average discount
rate of 18% per annum (2011: 19% per annum). The discount rate is based on a risk free tax rate of 10.5% as well as a risk premium
of 7.5%. An average occupancy rate of 75% - 80% was used for the calculations.
Cash flow projections during the budget period were based on management’s expected growth rates for each hotel within the
cash-generating unit. The cash flows beyond that five year period were extrapolated using a growth rate between 0% and 3%.
No impairment loss (2011: CHF nil) was recognized due to impairment test described above.
Sensitivity analysis where the average discount rate was increased by 4.5% and the growth rate reduced by 0.5%, which according
to management is a reasonably possible change in key assumptions, did not cause the aggregate carrying amount to exceed the
aggregate recoverable amount of the cash-generating unit.
Furthermore, management believes that any reasonably possible change in the key assumptions (sensitivity analysis) on which the
recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the
cash-generating unit.
(i)
See note 7.1 for further information on the Group’s rental income.
18 GOODWILL
CHF 2012 2011
Cost 7,331,756 7,951,210
Accumulated impairment losses - -
Carrying amount at end of year 7,331,756 7,951,210
CHF 2012 2011
COST
Balance at beginning of year 7,951,210 8,208,807
Effect of foreign currency exchange differences (619,454) (257,597)
Balance at end of year 7,331,756 7,951,210
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