palestine development and investment · amman - jordan . the attached notes 1 to 13 form part of...

Palestine Development and Investment Limited (PADICO) Unaudited Interim Condensed Consolidated Financial Statements March 31, 2016

Ernst & Young Jordan P.O. Box 1140 Amman 11118 Jordan Tel: +962 6552 6111/+962 6552 7666 Fax: +962 6553 8300

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A member firm of Ernst & Young Global Limited

Report on review of interim condensed consolidated financial statements to the shareholders of Palestine Development and Investment Limited (PADICO)

We have reviewed the accompanying interim condensed consolidated statement of financial position of Palestine Development and Investment Limited (PADICO) and its subsidiaries as at March 31, 2016, and the related interim condensed consolidated statements of income, comprehensive income, changes in equity and of cash flows for the three-month period then ended and other explanatory notes.

The Board of Directors is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard/IAS 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity.” A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing. Consequently, it does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Basis for qualification

Some of PADICO’s subsidiaries do not prepare quarterly financial statements that are reviewed by the independent auditors of these companies as at March 31, 2016 and 2015. Therefore, PADICO prepared its interim condensed consolidated financial statements based on interim financial statements that are not reviewed. Total assets of those subsidiaries whose financial statements were not reviewed as at March 31, 2016 represent 45 % of PADICO’s total assets, and their revenues for the three-month period ended March 31, 2016 and 2015 represent %70 and 66% of PADICO’s revenues respectively. Had we been able to complete a review of interim financial information reviewed by the external auditor of these subsidiaries, matters might have come to our attention indicating that adjustments might be necessary to the interim consolidated financial statements.

Conclusion

Based on our review, except for the effect of the matter described in the basis for qualification paragraph, if any, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

May 2, 2016 Amman - Jordan

The attached notes 1 to 13 form part of these interim condensed consolidated financial statements

1

Palestine Development and Investment Limited (PADICO)

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at March 31, 2016 (U.S. $ 000’s)

March

31, 2016 December 31, 2015

Notes (Unaudited) (Audited)

U.S. $ U.S. $ Assets

Non-current assets Property, plant and equipment 130,838 128,110 Intangible assets 4 25,706 23,344 Investment properties 94,451 93,975

Projects in progress 5 17,875 20,793 Investment in associates 374,883 394,452 Financial assets at fair value through other

comprehensive income 32,790 32,819 Biological assets 13,662 13,348 Long term accounts receivable 8,821 8,197 699,026 715,038

Current assets Inventories and ready for sale properties 5 43,129 39,361 Accounts receivable and other current assets 6 61,983 40,709 Financial assets at fair value through profit or loss 11,357 11,378 Cash and short-term deposits 7 13,568 15,580 130,037 107,028 Total assets 829,063 822,066

Equity and liabilities Equity Paid-in share capital 250,000 250,000

Share premium 16,932 16,932

Treasury shares )387( (387)

Statutory reserve 8 28,741 28,741

Voluntarily reserve 1,594 1,594

Fair value reserve (25,535) (21,964)

Foreign currency translation reserve 1,467 627

Retained earnings 174,648 168,022

Equity attributable to equity holders of the parent 447,460 443,565

Non-controlling interests 102,975 101,799

Total equity 550,435 545,364

Non-current liabilities Long-term loans and borrowings 92,634 93,959 Provision for employees’ indemnity 8,010 7,815 Other non-current liabilities 269 269 100,913 102,043

Current liabilities Credit facilities and short-term loans and borrowings 44,808 43,349 Debt bonds 85,000 85,000 Accounts payable and other liabilities 47,907 46,310 177,715 174,659 Total liabilities 278,628 276,702 Total equity and liabilities 829,063 822,066


2


INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT For the three-month period ended March 31, 2016 (U.S. $ 000’s)

For the three months ended

March 31, 2016


March 31, 2015

(Unaudited) (Unaudited)

U.S. $ U.S. $ Revenues

Operating income 23,986 19,715

Share of associates’ results of operation 10,266 10,002

Gain from financial assets portfolio 150 561

34,402 30,278

Expenses Operating costs 17,130 15,828

General and administrative expenses 4,926 4,120

Finance costs 2,922 2,727

Depreciation and amortization 2,101 2,118

7,323 5,485

Other revenues 127 434

Profit before income tax 7,450 5,919

Income tax expense (353) )267(

Profit for the period 7,097 5,652

Attributable to:

Equity holders of the parent 6,626 5,797

Non–controlling interests 471 )145(

7,097 5,652

Basic and diluted earnings per share attributable

to shareholders of the parent

0.027 0.023


3


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the three-month period ended March 31, 2016 (U.S. $ 000’s)


March 31, 2016


March 31, 2015

(Unaudited) (Unaudited)

U.S. $ U.S. $ Profit for the period 7,097 5,652

Other comprehensive income Items not to be reclassified to income statement in

subsequent periods:

Net loss in fair value of financial assets at fair value

through other comprehensive income (3,506)

)1,264(

Items to be reclassified to income statement in subsequent periods:

Foreign currency translation difference 1,414 )680(

Total other comprehensive income items for the period (2,092)

)1,944(

Net comprehensive income for the period 5,005 3,708

Attributable to:

Equity holders of the parent 3,895 4,085

Non–controlling interests 1,110 )377(

5,005 3,708


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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the three-month period ended March 31, 2016 (U.S. $ 000’s)

Equity attributable to equity holders of the parent

Paid-in share capital

Share premium

Treasury shares

Statutory reserve

Voluntarily reserve

Fair value reserve

Foreign currency

translation reserve

Retained earnings Total

Non-controlling interests

Total equity

March 31, 2016 U.S. $ U.S. $ U.S. $ U.S. $ U.S. $ U.S. $ U.S. $ U.S. $ U.S. $ U.S. $ U.S. $

Balance at January 1, 2016 250,000 16,932 (387) 28,741 1,594 (21,964) 627 168,022 443,565 101,799 545,364 Profit for the period - - - - - - - 6,626 6,626 471 7,097

Other comprehensive income - - - - - (3,571) 840 - (2,731) 639 (2,092)

Net comprehensive income

for the period - - - - - (3,571) 840 6,626 3,895 1,110 5,005 Change in non-controlling

interests - - - - - - - - - 66 66

Balance at March 31, 2016 (Unaudited) 250,000 16,932 (387) 28,741 1,594 (25,535) 1,467 174,648 447,460 102,975 550,435

March 31, 2015 Balance at January 1, 2015 250,000 16,932 )426( 26,773 1,594 )15,495( 843 153,357 433,578 101,595 535,173

Profit for the period - - - - - - - 5,797 5,797 )145( 5,652

Other comprehensive income - - - - - )1,368( )344( - )1,712( )232( )1,944(

Net comprehensive income

for the period - - - - - )1,368( )344( 5,797 4,085 )377( 3,708

Sale of financial assets transferred directly to retained earnings - - - - - )1,592( - 1,592 - - -

Change in non-controlling interests - - - - - - - - - 15 15

Balance at March 31, 2015 (Unaudited) 250,000 16,932 )426( 26,773 1,594 )18,455( 499 160,746 437,663 101,233 538,896

The attached notes 1 to 13 form part of these interim condensed consolidated financial statements.

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INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS For the three-month period ended March 31, 2016 (U.S. $ 000’s)


March 31, 2016


March 31, 2015

Notes (Unaudited) (Unaudited) U.S. $ U.S. $ Operating activities Profit before income tax 7,450 5,919 Adjustments for: Depreciation and amortization 2,101 2,118 Share of associates’ results of operations (10,266) )10,002( Gain from financial assets portfolio (150) )561( Finance costs 2,922 2,727 Other non-cash items (3,130) )275(

(1,073)

)74(

Working capital adjustments:

Accounts receivable and other current assets (4,617) )567(

Inventories and ready for sale properties 3,165 5,326

Financial assets at fair value through profit or loss (244) 171

Accounts payable and other liabilities 3,433 )2,335(

Income tax paid (534) )584(

Net cash from operating activities 130 1,937

Investing activities

Financial assets at fair value through other

comprehensive income

31 1,106

Property, plant and equipment (4,038) (318)

Investments in properties (707) -

Projects in progress (4,420) )3,717(

Dividends received 9,374 -

Biological assets (314) (227)

Cash from acquisition of subsidiaries 808 -

Net cash from (used in) investing activities 734 (3,156)

Financing activities

Cash dividends paid (917) )237(

Non-controlling interest 66 15

Long-term loans and credit facilities 73 5,012

Finance costs paid (3,660) )2,727(

Net cash (used in) from financing activities (4,438) 2,063

(Decrease) Increase in cash and cash equivalents (3,574) 844

Foreign currency translation difference 1,501 )539(

Cash and cash equivalents, beginning of the period 15,180 7,776

Cash and cash equivalents, end of the period 7 13,107 8,081

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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31 2016

1. Corporate Information

Palestine Development and Investment Limited (PADICO) was incorporated on October 14, 1993 under the Liberian Off Shore Business Corporation Act in Monrovia, Liberia. PADICO shares are publicly traded in Palestine Securities Exchange. On December 3, 2009, the Company was registered in Palestine as a foreign company under registration No. (562801332).

The main objectives of PADICO are to develop and encourage investment in various sectors including industrial, real estate, tourism and housing, and to provide technical and consultancy services through the establishment of companies, joint ventures and associations with other companies.

The interim consolidated financial statements of PADICO as at March 31, 2016 were authorized for issuance by the Board of Directors May 2, 2016.

2. Consolidated Financial Statements

The interim consolidated financial statements comprise of Palestine Development and Investment Limited (PADICO) and its subsidiaries as at March 31, 2016. PADICO's direct and indirect ownership in its subsidiaries' subscribed capital was as follows:

Ownership %

Activity type

Country of origin

March 31, 2016

December 31, 2015

Palestine Real Estate Investment Company (PRICO) Real estate

Palestine

74.49 74.49

Jericho Gate for Real Estate Investment (JG) Real estate Palestine 50 50 TAICO for trade and investment company Real estate

Jordan 100 100

Palestine Industrial Investment Company (PIIC) Industrial Palestine 56.72 56.72 The Palestinian Waste Recycling Company

(Tadweer) Industrial

Palestine

100 100 Palestine Securities Exchange Company (PSE) Financial market Palestine 74.65 74.72 Jerusalem Development and Investment

Company Ltd. (JEDICO) Tourism

Britain

100 100 Palestine Development and Investment Company

Private Shareholding Investment

Palestine

100 100 Rawan International Investment Company Investment

Jordan 100 100

Palestine General Trading Company Ltd. Investment Palestine 100 100 Palestine Company for the Transfer of

Technology Ltd. Investment

Palestine

100 100 Palestine Company for Canning and Packaging

Ltd. Investment

Palestine

100 100 Palestine Company for Basic Chemical Products

Ltd. Investment

Palestine

100 100 PADICO Services Company Investment Palestine 100 100

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3. Basis of preparation and significant accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the three months ended March 31, 2016 have been prepared in accordance with International Financial Reporting Standers IAS 34 (Interim financial reporting).

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with PADICO`s annual financial statements as at December 31, 2015. The results for the three-month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the financial year ending December 31, 2016.

Changes in significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of PADICO’s annual consolidated financial statements for the year ended December 31, 2015.

4. The Acquisition of a subsidiary during the year 2016

On February 2 ,2016, PIIC ( a subsidiary), acquired 100% of Al Pinar General Trading Company (Al Pinar) 1,500,000 outstanding shares. As a result, Al Pinar has become wholly owned by PIIC and the financial statements of Al Pinar were consolidated with the financial statements of Al Pinar as of the date of acquisition. PIIC’s share of net income from Al Pinar from the date of acquisition and until March 31, 2016 amounted to U.S.$ 102,000.

PIIC recorded the acquisition using the fair value of assets and liabilities in accordance with IAS and as result, PIIC recorded goodwill for an amount of U.S.$ 2,517,000 as an intangible asset

The fair values of the identifiable assets and liabilities of Al Pinar as at the date of acquisition were:

U.S $ 000’s

Fair value assets

Fair value at the date of the

acquisition

Property, plant and equipment 2,711 Inventory 310 Account receivable 252 Other current assets 15 Cash and short term deposits 808 4,096

Fair value liabilities Account payable 1,196 Other non-current liabilities 71 Provision for employees indemnity 346 1,613 Net assets fair value of Pinar company 2,483 Purchase price 5,000 Goodwill from purchasing a subsidiary 2,517

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5. Projects in progress and ready for sale properties

During the period, PRICO (a subsidiary) completed the construction and preparation works related to Prico house (2) project. As a result, these projects were transferred to ready for sale properties.

6. Accounts receivable and other current assets

This item includes accrued cash dividends from Palestine Telecommunications Company (an associate) amounting to approximately U.S. $ 26 million which was based on the associate’s General Assembly meeting decision to distribute JD 0.45 per share.

7. Cash and short-term deposits

For the purpose of the interim consolidated statement of cash flows, cash and cash equivalents comprise the following:

U.S. $ 000’s

March

31, 2016 March

31, 2015

Cash on hand and current accounts at banks 10,586 7,397 Term deposits at banks 2,982 801 13,568 8,198 Restricted cash (461) (117)

13,107 8,081

8. Statutory Reserve

As these financial statements represent interim financial information, PADICO did not appropriate any amounts to the statutory reserve.

9. Proposed Cash Dividends

The Board of Directors decided to propose, to the General Assembly, on their meeting that will be held in during the year 2016, the distribution of cash dividends of U.S. $ 0.05 per share amounting to U.S. $ 12,500,000 for the results of the year 2015.

9

10. Related Party Transactions

Related parties represent associated companies, major shareholders, directors and key management personnel of PADICO, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by PADICO’s Board of Directors.

Balances with related parties included in the interim consolidated statement of financial position as at March 31, 2016 and December 31, 2015 are as follows:

U.S. $ 000’s

Nature of Relationship

March 31, 2016

December 31, 2015

Accounts receivable and other current assets

Associate and sister companies

21,059 3,620

Accounts payable and other liabilities Associates and sister

companies

1,287 1,627

Loans and credit facilities

Banks - Members of the Board of Directors

80,654 86,725

Debt bonds Banks - Members of

the Board of Directors

30,000 30,000

Transactions with related parties included in the interim consolidated income statement for the three-month period ended March 31, 2016 and 2015 are as follows:

U.S. $ 000’s

Nature of Relationship

March 31, 2016

March 31, 2015

Expenses

Finance costs Banks members of the

Board of Directors

1,432 753

Finance costs Associate company - 610

Key management personnel compensations:

Salaries and related benefits 864 833

11. Commitments and Contingent Liabilities

– The unpaid investments of PADICO and its subsidiaries in financial assets at fair value through profit or loss amounted to U.S. $ 159,000 and 183,000 as at March 31, 2016 and December 31, 2015, respectively.

– On April 9, 2015, Palestine Real Estate Investment Company (a subsidiary) signed a partnership and investment agreement with Ramallah Municipality for a period of seven years to develop a commercial project (Seryeh building project) starting from the date the company obtains all the necessary construction licenses. The company will commit to annual payments to Ramallah Municipality throughout the term of the agreement which will amount to a total of U.S.$ 611,000.

– Palestine Real Estate Investment Company is committed to pay U.S. $ 60,000 for the Chalets land rent in Gaza for a period of 49 years started January 1, 1998 and its renewable for a similar period.

10

– Palestine Real Estate Investment Company along with other investors established the Arab Markets Company in Gaza City, with an authorized capital of U.S. $ 10 million divided into 10 million shares. The subsidiary’s share of the capital is 10%. Until the date of the financial statements, the establishment of the Arab Markets company was not yet completed, and no capital payment requests were made to shareholders.

– The contingent liabilities resulted from contracts and agreements signed with suppliers in relation to PADICO’s projects amounted to U.S. $ 1,575,143. This amount represents the difference between the total contract value and the completed amount as at the date of the consolidated financial statements.

– There has been several lawsuits against PADICO’s subsidiaries within the normal course of business. PADICO’s management and their legal advisors believe that these cases and their consequences are not material to the consolidated financial statements.

– PADICO and its subsidiaries have entered into commercial property leases on its investment property portfolio and intangible assets. These non-cancellable leases have remaining terms between 6 and 11 years.

12. Fair Value of Financial Instruments

Set out below is a comparison by class of the carrying amounts and fair values of PADICO’s financial instruments carried in the financial statements as at March 31, 2016 and December 31, 2015: U.S. $000’s

Carrying amount Fair value

March

31, 2016 December 31, 2015

March 31, 2016

December 31, 2015

Financial assets Accounts receivable and other

current assets 69,597 46,655 69,597 46,655 Financial assets at fair value through

profit or loss 11,357 11,378 11,357 11,378 Cash and short-term deposits 13,568 15,580 13,568 15,580 Financial assets at fair value through

other comprehensive income: Quoted 6,712 6,741 6,712 6,741 Unquoted 26,078 26,078 26,078 26,078

127,312 106,432 127,312 106,432

Financial liabilities Debt Bonds 85,000 85,000 85,000 85,000 Loans and credit facilities 137,442 137,308 137,442 137,308 Accounts payable and other liabilities 41,712 35,851 41,712 35,851 264,154 258,159 264,154 258,159

The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

11

The fair values of accounts receivable (except for long term accounts receivable), cash and short term deposits, accounts and notes payable, other financial liabilities and credit facilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of long term accounts receivable is estimated by discounting future cash flows using rates currently available for receivables and credit facilities on similar terms.

Fair value of financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income that are actively traded in active financial markets is determined by reference to quoted prices at the date of the interim consolidated financial statements.

The fair values of unquoted financial assets at fair value through other comprehensive income were determined using appropriate valuation techniques.

The fair value of loans and debt bonds is estimated by discounting future cash flows using rates currently available for debt on similar terms.

Fair Value Measurement

The following table provides the fair value measurement hierarchy of PADICO’s assets and liabilities. Following are quantitative disclosures fair value measurement hierarchy for assets and liabilities as at March 31, 2016:

Fair value Measurement using

Total

Quoted Prices in

active markets (Level 1)

Significant observable

inputs (Level2)

Significant unobservable

inputs (Level3)

U.S. $000’s Financial assets measured at fair value Financial assets at fair value through other

comprehensive income:

Quoted 6,712 6,712 - - Unquoted 26,078 - - 26,078

Financial assets measured at fair value through profit or loss

11,357 11,357 - -

Following are quantitative disclosures fair value measurement hierarchy for assets and liabilities as at December 31, 2015: Fair value Measurement using

Total

Quoted Prices in

active markets (Level 1)

Significant observable

inputs (Level2)

Significant unobservable

inputs (Level3)

U.S. $000’s Financial assets measured at fair value Financial assets at fair value through other

comprehensive income:

Quoted 6,741 6,741 - - Unquoted 26,078 - - 26,078

Financial assets measured at fair value through profit or loss

11,378 11,378 - -

Biological assets 13,348 - - 13,348

12

PADICO uses the following hierarchy for determining and disclosing the fair value of its financial instruments:

Level 1: Quoted (unadjusted) prices in active markets for identical financial instrument.

Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are

observable, either directly or indirectly.

Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not

based on observable market data. There have been no transfers between Level 1, Level 2 and level 3 during the year.

13

13. Segment Reporting of PADICO and its Subsidiaries

PADICO’s reporting segments as PADICO's risks and rates of return are affected predominantly by differences in the products and services provided. PADICO and its subsidiaries segments are real estate, industrial and agricultural, tourism, securities markets, in addition to the investment sector.

The following table presents revenues and profit information regarding PADICO's business segments for the three-month period ended March 31, 2016 and 2015, respectively as follows:

U.S. $ 000’s

Three months ended March 31, 2016 (unaudited)

Investment sector

Real estate sector

Industrial and agricultural

sector

Securities market sector

Tourism sector

Eliminations Consolidated

Revenues 9,822 6,452 16,341 773 1,124 (110) 34,402

Segment profit (loss) before tax 6,314 329 2,052 112 (1,524) 167 7,450

U.S. $ 000’s

Three months ended March 31, 2015 (unaudited)

Investment sector

Real estate sector


sector

Securities market sector

Tourism sector


Revenues 9,807 6,896 11,594 551 1,529 (99) 30,278

Segment profit (loss) before tax 6,234 1,284 157 109 (1,377)

(488) 5,919

The following table presents segment assets and liabilities of PADICO’s operating segments as at March 31, 2016 and December 31, 2015: U.S. $ 000’s

Segment assets Investment

sector Real estate

sector


sector

Securities market

sector

Tourism sector


At March 31, 2016 622,727 231,381 103,809 12,567 86,795 (228,216) 829,063

At December 31, 2015 624,616 233,093 94,037 11,823 86,606 (228,109) 822,066

Segment liabilities At March 31, 2016 176,675 72,907 31,847 1,718 20,456 (24,975) 278,628

At December 31, 2015 177,834 72,615 26,097 1,118 20,895 (21,857) 276,702

palestine development and investment · amman - jordan . the attached notes 1 to 13 form part of...

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