Common-Size Analysis

The financial statements of DAMAC Properties for the fiscal period of 2015 to 2019 can be found in the Appendix section.

Horizontal Analysis

Balance Sheet’s Assets

Table 4 exhibits the horizontal analysis of DAMAC Properties’ assets in its balance sheet for the fiscal period of 2015 to 2019. In the analysed period, the cash and bank balances were on a downward trend, beginning at -12.47% change in 2016 compared to the amount in 2015 and ending at -24.75% as the lowest percentage in 2019. A part of this is due to the company investing more into its related entity, DAMAC International Limited, which principal activity is property development. Thus, the financial investments are on an upward trend with a ranging growth between 7.77% to 41.97% during the analysed period, with the highest rise in 2017 at 41.97%. Trade and other receivables were on an uptrend varying increase between 22.90% and 37.53% until 2019, when it had slightly dropped by 1.36%. Other financial assets, which are comprised of escrow retention accounts and margin deposits, were on the same trend as the trade and other receivables with varying increases between 0.80% and 28.91% then falling substantially in 2019 by 17.52%. hence, the total current assets also reflect the same trend by increasing in the period of 2016 up to 2018 fluctuating between 0.31% and 6.74% then deteriorated by 11.87% in 2019.

Table 4: Horizontal Analysis of DAMAC Properties' Assets in its Balance Sheets 2015 - 2019

Source: (DAMAC Properties)

The sharp rise of property and equipment by 156.12% in 2017 was mainly due to transferral of building from development properties and purchase of furniture and fixtures, tools and office equipment and motor vehicles. However, the analysis suggests that there has been a downtrend for this noncurrent asset as majority of the time it displays negative numbers ranging from -6.45% to -9.03%. On the one hand, looking over the development properties, which are consisting of the company’s owned land held for future development, properties under development and completed properties held in inventory, can be observed that there have been no signs of any trends as it often fluctuates during the analysed period, varying changes between -5.88% and 12.04%. In 2017, there was a slight decrease of development properties with a relative change of -5.88%. The particular reason for this circumstance was increase of sales, handover of these assets and transfer of building to property equipment. For instance, DAMAC started handing over branded properties like Versace-designed homes in January 2017 and had held a special sales event in November 2017 for a range of villas across AKOYA Oxygen, which had both contributed to the reduction in this non-current asset. In contrast to this, it can be seen that there was a significant increase in trade and other receivables with a relative change of 37.53% in the same year, which most likely resulted from the special sales event that was mentioned before.

On the contrary, investment properties were only included in the financial statements starting from 2017, which represent completed properties held by the company minus accumulated depreciation and impairment losses under the cost model in accordance with IFRS, but it can be assumed that it has been on a decreasing trend as it reveals in the consequent years that the changes are negative in 2018 and 2019 with -4.12% and -4.30% respectively. Similarly, right-of-use assets, which were only included in the financial reporting in 2019, is the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating

2016 2017 2018 2019

Current Assets:

Cash and Bank Balances -12,47% -10,31% -17,23% -24,75%

Trade and Other Receivables 26,31% 37,53% 22,90% -1,36%

Other Financial Assets 28,91% 0,80% 2,98% -17,52%

to that lease recognised in the previous year. Therefore, as it only included in the last year of the analysed period, it is not possible to recognise if it follows a certain trend. To sum up, various fluctuations in the components of non-current assets are mirrored in its total because there is no trace that it follows a specific trend by increasing at the start and end of the analysed period with 12.12% in 2016 and 4.79% in 2019; however, it was decreasing in the middle of this period with -2.25% in 2017 and -4.15% in 2018. Overall, the total assets present no signs of a certain trend, as it increased during the first half of the analysed period by 12.60% in 2016 and 6.84% in 2017, then decreased during the second half by 1.63% in 2018 and 13.75% in 2019.

Figure 6: DAMAC Properties' Assets Structure 2015 - 2019 (AED'000)

Source: (DAMAC Properties)

Figure 6 above illustrates DAMAC Properties’ asset structure for the analysed period of 2015 to 2019. It discloses that the company had held the highest number of total assets in 2017 with 25 343 496 000 AED which can be concluded as normal owing to the fact that there was a rise of sales in that business year. However, it can be noticed from the figure that company has been following the nature of the real estate industry by going through expansion in 2015 to 2016 and peaking in 2017 then recession in 2018 and 2019. The cyclical nature of the industry makes the company vulnerable to fluctuations in macroeconomic factors. For instance, as the UAE economy experienced an economic downturn in 2018 and the continuation of the stabilisation of the industry, the amount of the total assets has begun to deteriorate.

Balance Sheet’s Liabilities & Equity

Table 5 exhibits the horizontal analysis of DAMAC Properties’ liabilities and equity in its balance sheet for the fiscal period of 2015 to 2019. Trade and other payables do not follow a

14092 852 AED 14136 954 AED 15090 299 AED 15349 022 AED

13526 357 AED

9354 645 AED 10488 828 AED 10253 197 AED 9827 240 AED 10298 275 AED 23447 497 AED 24625 782 AED 25343 496 AED 25176 262 AED

23824 632 AED

- AED 5000 000 AED 10000 000 AED 15000 000 AED 20000 000 AED 25000 000 AED 30000 000 AED

2015 2016 2017 2018 2019

Current Assets Non-current Assets Total Assets

trend as its changes range between -13.62% to 1.46%. On the contrary, it can be seen that the advance from customers had a decreasing trend with relative changes ranging from -9.42% up to -24.15%. This could mean that the number of customers interested of availing off-plan properties have been declining. Similarly, the total current liabilities are also on a downward trend with relative changes ranging from -4.94% to -17.90%. On the one hand, the horizontal analysis on bank borrowings indicates that the company may have borrowed funds in 2016 as it increased by 13.44% from the prior year. From then on, it has started a decreasing trend with -29.86% in 2017 to -17.62% in 2019. Sukuk certificates, which are Sharia-compliant certificates that are somehow similar to bonds, do not follow a certain trend as it can be noticed that it was decreasing in the beginning and at the end of the analysed period with a relative change of -3.14% in 2016 and -23.09% in 2019. Meanwhile, in between those periods, it increased by 48.38% in 2017 and by 8.71% in 2018. This trend may be due to the cyclical nature of the industry. Nonetheless, there is no sufficient data to detect if the provision for employees’ end-of-service and lease liabilities follows a certain trend, as they did not appear in the balance sheet each year during the analysed period.

Table 5: Horizontal Analysis of DAMAC Properties' Liabilities & Equity in its Balance Sheets 2015 – 2019

Source: (DAMAC Properties)

In equity, it is evident that no changes have occurred in the company’s share capital with 0.00%

relative change all throughout the analysed period. The statutory reserve which represents the 10% of the net profit can be seen having an increasing trend with 18.84% in 2016 to 12.16%

in 2018; however, it remained stagnant in 2019 due to the company incurring loss instead of earning profit. On the contrary, retained earnings have not been following any trends as it decreased in the beginning and at the end of the analysed period with 27.28% in 2016 and -0,52% in 2019, but were increasing in between these periods with 18.19% in 2017 and 2.04%

in 2018. Again, this may be due to the cyclical nature of the business therefore it is heavily reliant on the fluctuations of the net profit. The group restructuring reserve which represents

2016 2017 2018 2019

Current Liabilities:

Trade and Other Payables -6,79% -13,62% 1,46% -1,58%

Advances from Customers -24,15% -21,98% -20,05% -9,42%

Total Current Liabilities -16,57% -17,90% -9,02% -4,94%

Non-current Liabilities:

Bank Borrowings 13,44% -29,86% -18,18% -17,62%

Sukuk Certificates -3,14% 48,38% 8,71% -23,09%

Provision for Employees' End-of-Service Indemnity N/A N/A N/A N/A

Lease Liabilities N/A N/A N/A N/A

Total Equity and Liabilities 5,03% 2,91% -0,66% -5,37%

the difference between the net book value and the trade receivables only occurred in the balance sheet in 2015, so it is not possible to identify if it is following a trend. The total equity was in an increasing trend for the years 2016 by 28.35% to 1.76% in 2018; however, this trend ended in 2019 as the relative change was -0.26%.

Figure 7: DAMAC Properties' Liabilities & Equity Structure 2015 - 2019 (AED'000)

Source: (DAMAC Properties)

Figure 7 above illustrates DAMAC Properties’ liabilities and equity structure for the analysed period of 2015 to 2019. It reveals that current liabilities are on a downward trend with at least 4% per year whereas non-current liabilities show no trend as it fluctuated through the period.

However, the total liabilities still managed to demonstrate a decreasing trend. This may indicate that the company has been managing its amount of debt appropriately as its debt level manage to fall over time despite the cyclical nature of the business and the stabilisation of the real estate industry. On the contrary, it shows that the total equity was on an increasing trend up until 2019 when it had slightly decreased, which may have been due to the company suffering from loss;

hence, not increasing its statutory reserve and decreasing its retained earnings.

Income Statement

Table 6 exhibits the horizontal analysis of DAMAC Properties’ income statement for the fiscal period of 2015 to 2019. The revenue of the company can be seen mostly decreasing throughout the analysed period with the exception of 2017 when it had risen up to 4.17%. Likewise, although cost of sales corresponds with revenue, it can be noticed that it does not follow the same variations of it, and it also does not follow a certain trend. The table presents that it decreased only in the beginning and at the end of the analysed period with -8.93% in 2016 and -22.52% in 2019. In between these years, the cost of sales was increasing by 20.92% in 2017

9818 693 AED

Current Liabilities Non-current Liabilities Total Liabilities Total Equity

and 5,01% in 2018. The particular reason for this circumstance may have been due to inflation flaring up from 2017 to 2018 then deteriorating 2019; hence, the huge drop of the cost of sales at the end of the analysed period. The gross profit was on a downward trend with at least -9%

year-by-year. Its relative changes range between -9.08% to -41.64%. The greatest change occurred in 2018 which is the -41.64%. Again, this is caused by the cyclical nature of the business and the rate of inflation during analysed period.

Table 6: Horizontal Analysis of DAMAC Properties' Income Statements 2015 – 2019

Source: (DAMAC Properties)

Onto the other operating income of the company, which is consist of income from cancellation of units and penalties from overdue customers and unit registration and transfer fees, do not show any trend as it can be noticed fluctuating throughout the analysed period between -67.43% and 44.25%. Likewise, the general, administrative and selling expenses also do not follow a certain trend as its relative changes varied between -15.29% and 23.75%. On the other hand, depreciation can be seen increasing over time ranging between 6.52% and 72.71%; thus, resulting to an uptrend. Aside from this, the provision for impairment on development properties as well as the provision of impairment on trade receivables were only included in the income statement since 2018, so there is not enough data to identify their trend. Similarly, amortisation of right-of-use assets was only recorded in 2019, so it is also not possible to detect the trend it follows. In spite of that, the operating profit still demonstrates a downtrend ranging between -18.21% to -82.02%. The greatest fall of operating profit in 2019 was mainly due to the sudden increase in the provision for impairment of development properties by 129.70%.

Other income, which represents the property management fees, support services fees as well as gain on disposal of a subsidiary, was on an uptrend during the analysed period. Both finance income and finance cost were increasing from the years 2016 to 2018 but had both declined in 2019. These two items on the income statement both relates to financial institutions such as Islamic banks and conventional banks. Furthermore, VAT was only introduced in the UAE back in 2018; therefore, it is not possible to detect the trend the provision of value added tax

2016 2017 2018 2019

Revenue -16,17% 4,17% -17,73% -28,27%

Cost of Sales -8,93% 20,92% 5,01% -22,52%

Gross Profit -21,12% -9,08% -41,64% -39,14%

Other Operating Income 17,90% -51,09% -67,43% 44,25%

General, Administrative and Selling Expenses -15,29% 23,75% -5,39% -3,04%

Depreciation 20,86% 72,71% 6,52% 11,46%

Provision for Impairment on Development Properties N/A N/A N/A 129,70%

Amortisation of Right-of-Use Assets N/A N/A N/A N/A

Provision/Reversal of Impairment on Trade Receivables N/A N/A N/A -61,65%

Operating Profit -18,21% -23,72% -56,44% -82,02%

Other Income 33,74% 25,65% 42,42% 22,22%

Finance Income 28,49% 21,83% 14,96% -7,12%

Finance Costs 19,60% 49,35% 19,42% -10,63%

Provision for Value Added Tax N/A N/A N/A N/A

Profit for the Year -18,17% -25,30% -58,26% -103,20%

Other Comprehensive Income for the Year N/A N/A N/A N/A

Total Comprehensive Income for the Year -18,17% -25,30% -58,26% -103,20%

follows as it is only accounted for in 2019. To sum up, the profit for the year and the total comprehensive income for the year have the same relative changes as no other comprehensive income for the year was recorded during the whole analysed period. Both can be seen demonstrating a downturn with an extreme relative change of -103.20% as the company experienced loss in 2019.

Cash Flow Statement

Table 7: Horizontal Analysis of DAMAC Properties' Cash Flow Statements 2015 – 2019

Source: (DAMAC Properties)

Table 7 exhibits the horizontal analysis of DAMAC Properties’ cash flow statement for the fiscal period of 2015 to 2019. In cash flow from operating activities, trends can only be detected

2016 2017 2018 2019

Cash Flow from Operating Activities

Profit for the Year -18,17% -25,30% -58,26% -103,20%

Adjustments for:

Depreciation of Property and Equipment 20,86% 72,71% 6,52% 11,46%

Provision for Employees' End-of-Service Indemnity 3,85% 69,01% -25,41% -6,63%

Gain on Disposal of Financial Investments N/A N/A -15,36% N/A

Gain on Disposal/Retirement of Property and Equipment -110,03% -489,66% N/A N/A

Amortisation of Issue Costs on Sukuk Certificates -42,15% 101,33% 11,79% -51,08%

Finance Costs 19,60% 49,35% 19,42% -10,63%

Finance Income 28,49% 21,83% 14,96% -7,12%

Reversal of/Provision for Impairment on Trade Receivables 947,86% -50,11% 383,05% -138,35%

Reversal of Impairment on Development Properties N/A N/A N/A 129,70%

Amortisation on Right-of-Use Assets N/A N/A N/A N/A

Provision for Value Added Tax N/A N/A N/A N/A

Operating Cash Flows Before Changes in Operating Assets and Liabilities -18,63% -22,05% -55,05% -56,60%

Increase in Trade and Other Receivables -6,67% 83,16% -20,09% -104,70%

Decrease in Inventories N/A N/A N/A N/A

Increase in Due to a Related Party N/A N/A N/A N/A

Increase in Trade and Other Payables -145,08% 71,46% -106,26% -858,95%

Increase in Development Properties -7,25% -126,89% 21,47% -221,53%

Increase in Advances from Customers 129,59% -30,99% -28,80% -62,45%

Cash Generated from Operations

Finance Costs Paid N/A N/A N/A N/A

Interest Received N/A N/A N/A N/A

Employees' End of Service Indemnity Paid 5,84% 30,42% 34,82% -5,97%

Net Cash Generated from Operating Activities -99,63% -613,45% 704,76% -12,24%

Cash Flows from Investing Activities

Purchases of Property and Equipment -41,23% 105,32% -46,99% 3,49%

Increase in Fixed Deposits with an Original Maturity of Greater Than 3 Months -162,99% 29,44% -371,00% -81,80%

Proceeds from Disposal of Financial Investments N/A N/A N/A N/A

Acquisition of Financial Investments -70,44% 104,23% -73,73% 324,90%

Increase in Other Financial Assets -455,68% -96,43% 275,32% -705,94%

Net Cash Outflow on Discontinued Operations N/A N/A N/A N/A

Net Cash Inflow on Acquisition of Controlling Interest in DRED N/A N/A N/A N/A

Interest Received N/A 2,76% 36,50% -12,65%

Proceeds from Disposal of Property and Equipment N/A N/A N/A N/A

Net Cash Generated from Investing Activities -236,76% -32,42% -459,90% -58,05%

Cash Flows from Financing Activities

Proceeds from Bank Borrowings During the Year -26,40% -18,94% -14,74% -47,81%

Repayment of Bank Borrowings During the Year 478,11% 91,36% -55,10% -10,22%

Net Proceeds from Issuance of Sukuk Certificates -125,35% -2578,72% -35,95% N/A

Redemption and Repurchase of Sukuk Certificates N/A N/A 12,43% -11,73%

Dividend Paid 65,00% 66,67% -40,00% N/A

Finance Costs Paid N/A 44,10% 19,90% -5,27%

Repayment of Principal Lease Liabilities N/A N/A N/A N/A

Net Cash Generated from Financing Activities -286,13% -12,61% -4,02% 67,83%

Net Increase in Cash and Cash Equivalents -143,43% -14,04% -72,44% 322,91%

Cash and Cash Equivalents at the Beginning of the Year 60,61% -17,56% -17,09% -5,68%

Cash and Cash Equivalents at the End of the Year -16,39% -18,25% -5,68% -25,47%

in a few of its components. Firstly, profit for the year was on a decreasing trend. Secondly, depreciation of property and equipment was on an increasing trend. Both components were already mentioned in the horizontal analysis of the company’s income statement. Thirdly, changes in operating assets and liabilities, the table shows that it was on a downtrend as its relative changes range between -18.63% and 56.60% during the period. In cash flow from investing activities, there was no trend in any of its components aside from the net cash generated from the investing activities. The component was on decreasing trend with an extremely wide parameter of -32.42% to -459.90%. In cash flow from financing activities, only the proceeds from bank borrowings during the year showed a trend. It is on a decreasing trend with relative changes range between -14.74% to -47.81%. From the overview of the analysis of DAMAC Properties’ cash flow statement, it is noticeable that most items are heavily fluctuating as it was soaring out of parameters. This may be considered normal as the real estate industry in which the company is operating in is cyclical.

Figure 8: DAMAC Properties' Net Cash Generated by Activity 2015 - 2019 (AED'000)

Source: (DAMAC Properties)

Figure 8 above illustrates DAMAC Properties’ cash flows structure for the analysed period of 2015 to 2019. In 2015, all three cash flow activities were increasing because during that year the company was first listed on Dubai Financial Market. Hence, the increase in the cash flow of financing activities. Likewise, the increase of cash flow from investing activities was mainly due to the increase in fixed deposits with an original maturity of greater than 3 months. In addition to this, the cash flow from operating activities also increased due to several factors like strategically collaborating with one of China’s largest real estate and financial services companies called Qfang. This was initiated in order to boost the company’s sales operation in the country. In 2016, although many projects were delivered by DAMAC Properties, it can be seen that all the cash flows from the three activities deteriorated continuing up to 2019 aside

2409 915 AED

from the cash flow from investing activities which managed to rise back in 2018 with 913 411 000 AED that may have been again due to the increase in fixed deposits with an original maturity of greater than 3 months.

Vertical Analysis

Balance Sheet’s Assets

Table 8: Vertical Analysis of DAMAC Properties' Assets in its Balance Sheets 2015 – 2019

Source: (DAMAC Properties)

Table 8 exhibits the vertical analysis of DAMAC Properties’ assets in its balance sheet for the fiscal period of 2015 to 2019. Firstly, in the beginning of the analysed period – 2015, the company’s total assets were mainly made up of the current assets with a total share of 60.10%

then a share of 39.90% allotted to its non-current assets. Similarly, at the end of the analysed period – 2019, the current assets also mainly contributed to the total assets with 56,77% then non-current assets with 43.23%. Although there are some minor variations during the analysed years, it is still shown that the current assets have always dominated the share in the total assets.

This simply indicates that the company holds a higher number of liquid assets at its disposal.

Looking over the asset’s components, the current assets were mostly made up of cash and bank balances throughout 2015 to 2017 with 40.52%, 33.77%, 29.43% respectively, then had shifted to trade and other receivables with 32.25% in 2018 and 33.62% in 2019. On the contrary, the non-current assets were consistently highly made up of development properties, which is not out of the ordinary as it is the company’s line of business.

Balance Sheet’s Liabilities & Equity

Table 9 exhibits the vertical analysis of DAMAC Properties’ liabilities and equity for the fiscal period of 2015 to 2019. It shows that the company’s assets were financed by debt in 2015 with 58.07% but shifted to be financed through equity in 2016 with 51.24% and has continued to grow doing so through the following years in the analysed period. Current liabilities have shown the most improvement by substantially falling from 41.88% in 2015 to 24.42% in 2019.

2015 2016 2017 2018 2019

Current Assets:

Cash and Bank Balances 40,52% 33,77% 29,43% 24,52% 19,50%

Cash and Bank Balances 40,52% 33,77% 29,43% 24,52% 19,50%

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