اعلان إعمار المدينة الإقتصادية عن النتائج المالية الأولية للفترة المنتهية في 30-09-2021م ( تسŸ

• Decrease in general and administration and marketing cost by SAR 13.3M mainly due to various cost optimization measures taken during Q3 2021 including reduction in employee costs and early settlement discount offered to customers during Q3 2020.

• Decrease in impairment loss on receivable balances related to leasing, utilities and service charge revenue by SAR 15M calculated under Expected Credit Loss (ECL) model as required under "IFRS 9"

• Increase in the Group's share of results of investee, Port Development Company (PDC) amounting to SAR2.4M as well as positive changes in revaluation of interest rate swap arrangements made by PDC amounting to SAR 4.6M.

The above referred impact of decrease in total comprehensive loss was partially offset by increase in gross loss by SAR -15.3M mainly due to reduction in net order intake of real estate sales and increase in amortization cost by SAR -0.8M.

• Decrease in gross loss by SAR 14.8M is mainly due to increase in operating assets' revenue and change in mix of real estate sales during Q3 2021.

• Decrease in impairment loss on receivable balances related to leasing, utilities and service charge revenue by SAR 12.6M calculated under Expected Credit Loss (ECL) model as required under "IFRS 9".

The above referred impact of decrease in total comprehensive loss was partially offset by:

• Increase in general and administration and marketing expenses by SAR -7.2M, mainly due to increase in marketing activities such as branding, advertising and discounts offered to customers during Q3 2021.

• Increase in other items by SAR -0.4M during the current period.

• Decrease in general and administration and marketing cost by SAR 46M is mainly due to various cost optimization measures including reduction in employee cost.

• Impairment loss on operating assets amounting to SAR 21.3M booked during the corresponding period whereas no such impairment was booked during the current period.

• Decrease in financial charges by SAR 52 M during the current period mainly due to decrease in overall SAIBOR rates.

• Increase in the Group's share of results of investee, Port Development Company (PDC) amounting to SAR 16.3Mas well as positive changes in revaluation of interest rate swap arrangements made by PDC amounting to SAR 40M.

• Decrease in depreciation, zakat and other items by SAR 22.4M during the current period.

The above referred impact of decrease in total comprehensive loss was partially offset by increase in gross loss amounting to SAR -30M, mainly due to significant reduction in order intake of real estate business during the current period.

relation to the Swap transaction.

We draw attention to Note 3 of the condensed consolidated interim financial statements, which indicates that the Group incurred a net loss of SR 516.8 million during the period ended 30 September 2021 and, as of that date, the Group's current liabilities exceeded its current assets by SR 3,763 million. These events or conditions, along with other matters as set forth therein, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our Conclusion is not modified in respect of this matter.

The accumulated losses, as of 30 September 2021, amounted to SR 3.187 billion, which is equivalent to 28.1% of the Company's capital, amounting to SR 11.3 billion.

The main causes of these accumulated losses are as follows:

Under Saudi Organization for Certified Public Accountants (SOCPA) accounting framework, EEC had a positive retained earning balance of SR 16.8M as at 31 Dec 2015. During 2017, SOCPA made it mandatory for listed companies to adopt the International Financial Reporting Standards (IFRS) retrospectively with effect from 01 Jan 2016. Due to the switch from SOCPA accounting framework to IFRS, positive retained earnings got converted into accumulated losses of SR 1.4B as of 01 Jan 2016, mainly due to change in impairment testing methodology of operating assets and change in revenue recognition policy. However, part of the accumulated losses pertaining to revenue recognition were reversed in subsequent periods in line with the projects progress.

In addition to this, during 2019, the IFRS Interpretation committee published an agenda decision "Over Time Transfer of Constructed Good - IAS 23 Borrowing Costs" which states that under construction inventories of real estate properties are not qualifying assets for capitalization of borrowing costs as these are ready for its intended sale in its current condition. Accordingly, capitalized borrowing costs pertaining to development properties (inventories), amounting to SR 252M, as of 31 December 2019, had been offloaded and charged to accumulated losses. Furthermore, the prevailing COVID 19 situation has resulted in impairment of development properties and operating assets, amounting to SR 138M and SR 178M respectively, which had been recognized in the books of accounts as of 31 December 2020. In addition to this, financial charges pertaining to outstanding loans, losses related to operating assets being at infancy stage and depreciation, operations and maintenance of city infrastructure are other major contributors to the accumulated losses of the company as at September 30, 2021.

The company will apply the procedures and instructions issued by the Capital Market Authority for companies listed on the Saudi Stock Exchange, whose accumulated losses amounted to more than 20% of its share capital.

The main reasons that led to these losses:

EEC is an economic city development company which requires to invest a substantial amount on the development of city's infrastructure such as city roads, bridges, sub-stations, water & sewage plants, telecom infrastructure etc. and the Company is involved in the development and maintenance of city essentials such as education, healthcare, hospitality, leisure to serve the growing needs of the city population. This naturally results in considerable amount of depreciation along with the initial operating losses related to these assets which affect the Company's profitability in shorter term, but these investments have helped achieve the strategic objectives of KAEC as a great enabler for socio economic transformation in Saudi Arabia.

From a value standpoint, the Company has invested in the development of King Abdullah Economic City approximately SR 18 billion in equity and funding since inception which has created approx. 8x value to the investment properties as disclosed in the audited financial statements for the year ended 31 December 2020. This value will be unlocked by additional investment on strategic projects both by the Company and the third-party developers, to create jobs and footfall, up to a certain point beyond which KAEC will have organic growth and hence yield long awaiting great returns for its shareholders.

From liquidity management perspective, company is actively pursuing rescheduling of its current outstanding debts (which are due within one year from September 30, 2021) with its lenders. In addition to this, the request to increase the Company's share capital through conversion of debt amounting to SR 2,833 million was approved by the Capital Market Authority (CMA) on 01 Aug 2021. Further, on 26 September 2021, the shareholders in extraordinary general assembly has approved the increase of the share capital of the Company from SR 8,500 million to SAR 11,333 million. Accordingly, PIF became a shareholder of the Company through issuance of 283,333,334 new shares, at the nominal value of SR 10 per share, against the debt amount of SR 2,833 million.

In addition to above mentioned measures to reduce the accumulated losses, the Company has recently engaged with multiple mortgage and financing companies to enhance the affordability of housing units in King Abdullah Economic City and boost its profitability and cash flow generation.