DP World Announces Strong Financial Results Like-For-Like Earnings Growth of 15.1% in 2017

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1. DP WORLD ANNOUNCES STRONG FINANCIAL RESULTS Like-for-like Earnings growth of 15 .1% in 2017 Dubai, United Arab Emirates, 15 March 2018. Global trade enabler DP World today announces strong financial results for the twelve months ending 31 December 2017. On a reported basis, revenue grew 13.2% and adjusted EBITDA increased 9.1% with adjusted EBITDA margin of 52.4%, delivering profit attributable to owners of the Company, before separately disclosed items 1, of $1,209 million, up 7.3%, and EPS of 145.6 US cents. On a like-for-like basis, revenue grew 6.0%, adjusted EBITDA increased by 8.0% with adjusted EBITDA margin of 53.2%, and earnings attributable to owners of the Company increased 15.1%. Like-forlike at constant currency % change2 2017 2016 As Reported % change USD million Gross throughput3 (TEU ‘000) 70,079 63,658 10.1% 9.7% Consolidated throughput4 (TEU ‘000) 36,476 29,240 24.7% 6.2% 4,715 4,163 13.2% 6.0% Results before separately disclosed items1 unless otherwise stated Revenue Share of profit from equity-accounted investees Adjusted EBITDA5 Adjusted EBITDA margin 6 Profit for the period Profit for the period attributable to owners of the Company before separately disclosed items Profit for the period attributable to owners of the Company after separately disclosed items Basic earnings per share attributable to owners of the Company (US cents) Ordinary dividend per share (US Cents) 124 149 (17.3%) 31.2% 2,469 2,263 9.1% 8.0% 52.4% 54.4% - 53.2%7 1,363 1,260 8.2% 12.0% 1,209 1,127 7.3% 15.1% 1,177 1,024 14.9% - 145.6 135.7 7.3% 15.1% 41.0 38.0 7.9% - Results Highlights ➢ Revenue of $4,715 million ▪ ▪ ▪ 1 Revenue growth of 13.2% supported by the strong volume growth across all three DP World regions. Like-for-like revenue increased by 6.0% driven by a 6.9% increase in total containerized revenue. Like-for-like containerized revenue per TEU (twenty-foot equivalent unit) grew 0.7% and total revenue per TEU remained broadly flat (-0.2%). Before separately disclosed items (BSDI) primarily excludes non-recurring items. DP World reported separately disclosed items of a loss of $31.8 million. 2 Like-for-like at constant currency is without the addition of new units at Berbera (Somaliland), Limassol (Cyprus), Saint John (Canada), CXP (Peru), Yarimca (Turkey), Kigali (Rwanda), Posorja (Ecuador) and normalizes for consolidations of PNC (South Korea) and Santos (Brazil). 3 Gross throughput is throughput from all consolidated terminals plus equity-accounted investees. 4 Consolidated throughput is throughput from all terminals where the group has control as per IFRS. 5 Adjusted EBITDA is Earnings before Interest, Tax, Depreciation & Amortisation but including share of profit from equity-accounted investees before separately disclosed items. 6 The adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue. 7 Like-for-like adjusted EBITDA margin.
2. 2 ➢ Adjusted EBITDA of $2,469 million and adjusted EBITDA margin of 52.4% ▪ ➢ Profit for the period attributable to owners of the Company of $1,209 million ▪ ➢ ▪ ▪ Cash from operating activities increased to $2,412 million up from $2,002 million in 2016. Free cash flow (post cash tax maintenance capital expenditure and pre-dividends) amounted to $2,095 million against $1,674 million in 2016. Leverage (Net Debt to adjusted EBITDA) decreased to 2.5 times from 2.8 times in 2016. DP World was upgraded again by rating agency Fitch to BBB+ from BBB with stable outlook following the one notch upgrade in 2016. Total dividend per share increased by 7.9% to 41 US cents ▪ ➢ Strong adjusted EBITDA growth resulted in a 7.3% increase in profit attributable to owners of the Company before separately disclosed items on a reported basis and 15.1% growth on a like-for-like basis at constant currency. Strong cash generation, robust balance sheet and credit rating upgrade ▪ ▪ ➢ Adjusted EBITDA grew 9.1% and achieved an EBITDA margin for the full year of 52.4%. Likefor-like adjusted EBITDA margin was at 53.2%. Ordinary dividend increased by 7.9% to 41 US cents to reflect earnings growth in 2017. Continued investment in high quality long-term assets to drive long-term profitable growth ▪ ▪ ▪ ▪ ➢ Investment partnership with NIIF and consolidation of DP World Santos ▪ ▪ ➢ Capital expenditure of $1,090 million invested across the portfolio during the year, below the Group’s guidance of approximately $1,200 million in 2017. In 2017, gross global capacity was at 88 million TEU and is expected to grow to over 100 million TEU of gross capacity by 2020, subject to market demand. Consolidated capacity was at 50 million TEU up from 42 million TEU in 2016 including the consolidation of Pusan (South Korea). We expect capital expenditure in 2018 to be up to $1.4 billion with investment planned mainly into UAE, Posorja (Ecuador), Berbera (Somaliland), Pusan (South Korea), Maputo (Mozambique) and Sokhna (Egypt). DP World has partnered with the Government of India sponsored, National Investment and Infrastructure Fund (NIIF), to create an investment platform of up to $3 billion of equity to acquire assets and develop projects in the ports, transportation and logistics sector in India. The partnership will also look at opportunities beyond sea ports such as river ports and transportation, freight corridors, special economic zones, inland container terminals, and logistics infrastructure including cold storage. DP World acquired an additional 66.67% stake in Embraport in the Port of Santos (Brazil) from Odebrecht Transport (OTP) to take its shareholding to 100%. The terminal has an annual capacity of 1.2 million TEU and has been rebranded to DP World Santos. Rebound in global trade and market share gains ▪ ▪ ▪ Benefitting from the improved trading environment and market share gains, our global portfolio delivered ahead-of-market volume growth in 2017. Strong performance across all three regions. Looking ahead into 2018, we expect to continue to grow ahead of the market and see increased contributions from our new developments.
3. 3 DP World Group Chairman and CEO , Sultan Ahmed Bin Sulayem, commented: “We are pleased to announce another set of strong financial results in 2017, as we again delivered earnings in excess of $1 billion and above 50% EBITDA margin for the full year. On a like-for-like basis, our earnings grew at 15.1% ahead of revenue growth of 6.0% and EBITDA growth of 8.0%. Encouragingly, our volumes have continued to grow ahead of the market with gross volumes growing 10.1% year-on-year, ahead of Drewry Maritime’s full year market estimate8 of 6.0%. Our portfolio has seen strong performance across all three regions benefitting from the improved trading environment and market share gains. “In recent years, we have leveraged on our in-house expertise to extend our core business into port-related, maritime, transportation and logistics sectors with the objective of diversifying our revenue base and connecting directly with the owners of cargo and aggregators of demand to remove inefficiencies in trade, improve the quality of our earnings and drive returns. Going forward, we expect this trend to continue as we seek opportunities in complementary sectors in the global supply chain and also make use of new technology and data solutions to provide better service to our customers. “In 2017, we invested $1,090 million of capital expenditure across our portfolio in markets with strong demand and supply dynamics, and we will maintain capital expenditure discipline by bringing capacity in line with demand. “The Board of DP World recommends increasing the dividend by 7.9% to $340.3 million at 41.0 US cents per share. The Board is confident of the Company’s ability to continue to generate cash and support our future growth whilst maintaining a consistent dividend payout. “Our significant cash generation and investment partnerships, leave us with a strong balance sheet and flexibility to capitalise on the significant growth opportunities in the industry and deliver enhanced shareholder value over the long term. “We have made an encouraging start to the year with current trading in line with expectations. As we look ahead into 2018, geopolitical headwinds in some regions pose a challenge but we expect to continue to grow ahead of the market and see increased contributions from our recent investments.” – END – 8 Drewry Maritime’s 4Q Forecaster & Annual Review (December 2017) upgraded full-year 2017 global container throughput volume growth forecast to 6.0%.
4. 4 Investor Enquiries Redwan Ahmed DP World Limited Mobile : +971 50 5541557 Direct: +971 4 8080842 Redwan.ahmed@dpworld.com Lie-Tin Wu DP World Limited Mobile: +971 50 4220405 Direct: +971 4 8080929 Lie-Tin.wu@dpworld.com 12pm UAE, 8am UK Conference Call 1) Conference call for analysts and investors hosted by Redwan Ahmed. 2) A playback of the call will be available after the 12pm conference call concludes. For the dial in details and playback details please contact investor.relations@dpworld.com. The presentation accompanying these conference calls will be available on DP World’s website within the investor centre. www.dpworld.com from approximately 9am UAE time this morning. Forward-Looking Statements This document contains certain "forward-looking" statements reflecting, among other things, current views on our markets, activities and prospects. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that may or may not occur and which may be beyond DP World’s ability to control or predict (such as changing political, economic or market circumstances). Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forwardlooking statements. Any forward-looking statements made by or on behalf of DP World speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Except to the extent required by law, DP World does not undertake to update or revise forwardlooking statements to reflect any changes in DP World’s expectations with regard thereto or any changes in information, events, conditions or circumstances on which any such statement is based.
5. 5 Group Chairman and CEO Statement A Business Model that Continues to Grow Ahead of the Market 2017 has been an eventful year – not only has global trade outperformed previous expectations but also have three major shipping alliances been formed since April, which have benefitted some major ports at the expense of others. DP World has benefitted from both the improved trading environment as well as the market share gains from the new shipping alliances and although 2017 global port throughput is expected to have grown the most since 2011, we have again outperformed the market. Our financial performance has also remained strong as our revenues grew 13.2% to $4,715 million and attributable earnings increased by 7.3% year-on-year to $1,209 million. The underlying business performance has been even stronger as we saw earnings growth of 15.1% on a like-for-like basis and EBITDA margins of 53.2%, ahead of 2016 like-for-like numbers, highlighting that we have deployed the right strategy and the relevant capacity in the key markets. Overall, our strong volume performance combined with the resilient financial performance once again reinforces our view that operating a diversified portfolio with a focus on faster growing markets, and origin and destination cargo, will deliver superior earnings growth and enhance shareholder value. Recovery in Global Trade to Remain Global trade has remained resilient through the various economic cycles and despite increasing discussions about protectionism and trade barriers, global trade has picked up significantly in 2017 and the container port industry has posted the highest growth rates since 2011. In fact, DP World volumes grew ahead of the market at 10.1% in 2017 with record volumes of 70.1 million TEU, which is also our highest growth rate since 2011. As global economic activity rebounded in 2017 with notable upside surprises in Europe, US and Asia, and with the global growth forecasts for 2018 and 2019 also having been revised upwards9, we are confident that the improved macroeconomic growth momentum will continue. Any upswing in growth will positively affect global trade and DP World’s global portfolio of ports. However, while the trade environment may appear more benign, geopolitical headwinds in some regions continue to pose a challenge. Nevertheless, we still expect to grow ahead of the market and see increased contributions from our new developments. Even in cyclical upswings, it is important to constantly review the Group’s portfolio and business model to ensure that it can withstand the various economic cycles and deliver consistent performance of our assets. In 2017, we invested $1,090 million in capex across our portfolio and our expansionary capex has been targeted at key markets with long-term growth opportunity and attractive demand and supply dynamics. Diversified Growth Strategy and Portfolio Consolidation We remain committed to growing our role as a global trade enabler and in recent years, we have invested in various port related businesses such as the Jebel Ali Free Zone and inland terminals, which have proven to not only diversify our business but also improve the quality of our earnings. In 2017, DP World was at the forefront of targeting a broader strategy to grow complementary sectors in the global supply chain to add further value for all our stakeholders as evidenced by the acquisitions of Dubai Maritime City (DMC) and Drydocks World (Drydocks) in Dubai (UAE). These new assets further enhance our position as a leading maritime service provider and strengthen the Group’s port related businesses. Going forward, we aim to leverage on the technology and data available to us to provide smart solutions to our customers that will remove inefficiencies in trade and deliver stakeholder value. 9 In January 2018, the IMF revised 2017 global GDP forecast upward to 3.7% and for 2018 and 2019 the growth forecasts have also been revised upward to 3.9%.
6. 6 London Gateway is another great example of our diversified growth strategy as we have not only won the renowned Asia-Europe service from one of the major shipping alliances but also signed new customers to our logistics park . We are the only operator to offer two deep-water ports in the UK and combined with Europe’s largest logistics facility, we are well positioned to be a key player in the UK supply chain. We have continued to increase our stake in key assets, after consolidating our terminal in Pusan (South Korea) in December 2016, we have more recently consolidated Embraport (Brazil), which operates in the Port of Santos with strategic access to sea, road and rail, and with 90% of the cargo destined for Brazil’s most populous city, São Paulo. Thus, we have been at the forefront of increasing our stake in key assets and we remain committed to our role as a global trade enabler and are targeting a broader strategy to grow complementary sectors in the global supply chain. Significant Opportunity Landscape and Strategic Partnership Our customers, the container shipping industry, are going through many changes as we have seen a number of mergers between shipping lines and more recently the restructuring into three major shipping alliances. These developments addressing the overcapacity in the shipping sector, which include vessel sharing and the more efficient use of ultra-large vessels, are positive developments for the health of the industry. As DP World had already been investing early on in deep-water capacity to accommodate the increasing size of vessels, we are benefitting from these developments with market share gains, which have translated into our volume growth. Going forward, our continued focus will be on delivering operational excellence in addition to investing in relevant capacity in order to ensure that we remain the port of choice across geographies. We believe in the significant medium to long-term growth potential of the ports and terminals sector as well as the complementary businesses. To capitalise on this growth potential, we formed some important partnerships such as the investment platform with the Indian National Investment and Infrastructure Fund (NIIF) to invest up to $3 billion in the ports, terminals, transportation and logistics businesses in India. Capacity Globally we added approximately 3.6 million TEU of new gross capacity in 2017 to take our total gross capacity to 88 million TEU. Consolidated capacity has increased by 7.3 million TEU to take total consolidated capacity to 50 million TEU, which includes the consolidation of Pusan (South Korea) at the end of 2016. By the end of 2018, we anticipate that we will have approximately 90 million TEU of capacity across our portfolio and our aim is to be operating over 100 million TEU of capacity by 2020, subject to demand. In 2018, we look forward to adding further capacity including capacity in UAE, Pusan (South Korea), and Maputo (Mozambique).
7. 7 Regional Review Middle East , Europe and Africa Results before separately disclosed items 2017 2016 % change Like-forlike at constant currency % change 22,889 21,279 7.6% 6.7% 3,284 3,071 6.9% 4.8% USD million Consolidated throughput (TEU ‘000) Revenue Share of profit from equity-accounted investees Adjusted EBITDA Adjusted EBITDA margin 21 18 18.6% 72.6% 1,918 1,791 7.1% 6.3% 58.4% 58.3% - 59.2%10 In 2017, the market conditions in the Middle East, Europe and Africa (EMEA) region improved as the container volumes at Jebel Ali port (UAE) continue to recover and our terminal at London Gateway (UK) won the prestigious Asia-Europe container line service from the THE Alliance, which is one of the three major shipping alliances formed since April 2017. Consolidated container throughput in the EMEA region grew by 7.6% year-on-year to 22.9 million TEU driven by strong performance in Europe and recovery in UAE. Overall, revenue in the region grew 6.9% to $3,284 million on a reported basis, benefitting from container volume growth but also aided by the performance of Jebel Ali Free Zone as non-containerized revenue grew 7.1%. Adjusted EBITDA was $1,918 million, up 7.1% compared to 2016, benefitting from the improved trading environment in the UAE and the new services at London Gateway. On a like-forlike basis, revenue grew 4.8%, adjusted EBITDA increased by 6.3% and EBITDA margins rose to 59.2%. In 2017, we invested $836 million of capital expenditure in the region, which was mainly focused on the capacity expansions at Jebel Ali port (UAE), Jebel Ali Free Zone (UAE) and London Gateway (UK). Asia Pacific and Indian Subcontinent Results before separately disclosed items Like-forlike at constant currency % change % change 2017 2016 10,020 4,957 102.1% 2.4% Revenue 668 433 54.2% 6.1% Share of profit from equity-accounted investees 117 125 (6.3%) 13.0% Adjusted EBITDA 435 317 37.4% 11.7% 65.1% 73.0% - 65.7%11 USD million Consolidated throughput (TEU ‘000) Adjusted EBITDA margin Markets conditions in the Asia Pacific and Indian Subcontinent region were generally positive. Asia Pacific performance was relatively stronger with moderate growth in India due to our high levels of utilisation at key locations. Container volume growth of 102.1% was boosted by the consolidation of Pusan (South Korea), therefore the like-for-like growth of 2.4% is a better reflection of the performance in the region. 10 Like-for-like 11 Like-for-like adjusted EBITDA margin. adjusted EBITDA margin.
8. 8 Similarly , revenue growth of 54.2% to $668 million on a reported basis was boosted by the consolidation of Pusan, therefore, like-for-like revenue growth of 6.1% is a better reflection of the financial performance, which was ahead of volume growth as non-containerized revenue grew at 8.0% and the price for lifting a container (stevedoring revenue per TEU) also grew 4.6% on a like-for-like basis. Our share of profit from equity-accounted investees (joint ventures) dropped 6.3% from $125 million in 2016 to $117 million in 2017 because Pusan was consolidated and no longer included. However, on a like-for-like basis JV profit grew 13.0% due to the strong performance of our joint ventures in Asia Pacific. On a like-for-like basis, adjusted EBITDA grew 11.7% while the adjusted EBITDA margin stood at 65.7%. Capital expenditure in this region during the year was $88 million, which was invested in capacity expansions at Pusan (South Korea), Mumbai (India), Mundra (India) and Karachi (Pakistan). Australia and Americas 2017 2016 % change Like-forlike at constant currency % change 3,567 3,003 18.8% 14.9% Revenue 762 659 15.6% 11.6% Share of profit from equity-accounted investees (15) 6 (332.1%) 39.7% 292 293 (0.5%) 7.9% 38.2% 44.5% - 39.8%12 Reported results before separately disclosed items USD million Consolidated throughput (TEU ‘000) Adjusted EBITDA Adjusted EBITDA margin Market conditions in the Australia and Americas region also improved and volumes grew by 18.8%, benefiting from stronger volumes in the Americas. Strong volume growth prompted 15.6% revenue growth on reported basis but adjusted EBITDA dropped slightly from $293 million in 2016 to $292 million in 2017 due to less favourable foreign exchange movements in Brazil 13. This also impacted our profit from equity-accounted investees, which recorded a loss of $15 million compared to a gain of $6 million in 2016, however, on a like-for-like at constant currency basis, JV income was up by 39.7%. Like-for-like revenue growth at constant currency was up 11.6% and like-for-like adjusted EBITDA improved by 7.9%, reflecting a good performance in the region. Furthermore, we invested $164 million of capital expenditure in the region, mainly in our terminal at Prince Rupert (Canada). 12 13 Like-for-like adjusted EBITDA margin. DP World Santos (Brazil) was reported as a JV up until November 2017.
9. 9 Group Chief Financial Officer ’s Review 2017 has been another successful year for DP World as Group revenue grew 13.2% to $4,715 million and our adjusted EBITDA increased by 9.1% to $2,469 million resulting in an EBITDA margin of 52.4%, maintaining our medium-term target of margins at 50% and more. As a result, the profit attributable to the owners of the Company grew 7.3% to $1,209 million. If we look at our results on a like-for-like basis, which excludes new developments and normalizes for consolidation of businesses and currency effects, our revenues grew by 6.0%, driven by a 6.9% improvement in total containerized revenue as opposed to non-container revenue. Non-container revenue, which includes lease revenue, grew by 3.9% on a like-for-like basis in 2017 which is an improvement to the decline in 2016. Like-for-like adjusted EBITDA grew at 8.0% while adjusted EBITDA margin increased to 53.2% compared to 52.2% in 2016. Like-for-like profit attributable to owners of the Company increased by 15.1% at a higher rate than revenue and EBITDA growth, which directly translate into the basic earnings per share (EPS). We continue to make good progress on our revenue diversification strategy as containerized revenue now accounts for approximately 70% of Group revenues compared to approximately 80% in 2014. This is despite a 24% absolute growth in containerized revenue during this period and we expect this trend to continue as we estimate non-container revenue share to grow to approximately 40% of Group revenues by the end of 2018. Cash Flow and Balance Sheet In 2017, DP World generated $2,412 million in cash from operations while gross debt increased to $7,739 million compared to $7,618 million at the end of 2016. However, net debt was lower at $6,255 million compared to $6,319 million in 2016 as the cash on the balance sheet was higher in 2017 at $1,484 million due to the partial monetisation of our Canadian assets as part of the Caisse de dépôt et placement du Québec (CDPQ) investment partnership. Furthermore, our leverage (net debt to adjusted EBITDA) decreased to 2.5 times from 2.8 times at 31 December 2016. Overall, the balance sheet remains strong with robust and consistent cash generation and our partnerships with CDPQ, Russian Direct Investment Fund (RDIF) and the National Investment and Infrastructure Fund (NIIF) of India give us further financial flexibility to expand our portfolio should favourable assets become available at attractive prices. The continued strength and resilience of our business was also recognized by the credit rating agency Fitch in 2017 as they upgraded our Long-Term Issuer Default Rating (IDR) to BBB+ from BBB with stable outlook following the upgrade in 2016 from BBB- to BBB. Capital Expenditure In 2017, our capital expenditure reached $1,090 million across the portfolio as we invested in new capacity in Jebel Ali port (UAE), Jebel Ali Free Zone (UAE), London Gateway (UK), Prince Rupert (Canada) and Berbera (Somaliland) amongst others. Maintenance capital expenditure stood at $113 million. The capital expenditure in 2017 was below our guidance of $1.2 billion as we maintain our disciplined approach to deploying capital. We expect 2018 capital expenditure to be up to $1.4 billion and we look forward to adding further capacity in UAE, Pusan (South Korea), and Maputo (Mozambique). Sultan Bin Sulayem Group Chairman and Chief Executive Officer Yuvraj Narayan Group Chief Financial Officer
10. DP World Limited and its subsidiaries Consolidated financial statements 31 December 2017
11. DP World Limited and its subsidiaries Consolidated financial statements 31 December 2017 Contents Independent auditors ’ report Consolidated financial statements Consolidated statement of profit or loss Consolidated statement of other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to consolidated financial statements Basis of preparation and accounting policies 1. Corporate information 2. Basis of preparation of the consolidated financial statements 3. Significant accounting policies Performance for the year 4. Segment information 5. Revenue 6. Profit for the year 7. Finance income and costs 8. Income tax 9. Separately disclosed items 10. Dividends 11. Earnings per share Assets 12. Property, plant and equipment 13. Investment properties 14. Intangible assets and goodwill 15. Impairment testing 16. Investment in equity-accounted investees 17. Accounts receivable and prepayments 18. Cash and cash equivalents Liabilities 19. Employees’ end of service benefits 20. Pension and post-employment benefits 21. Accounts payable and accruals Group composition 22. Non-controlling interests 23. Business combinations 24. Significant group entities 25. Related party transactions Risk 26. Financial risk management Capital structure 27. Share capital 28. Reserves 29. Interest bearing loans and borrowings 30. Capital management Other information 31. Operating leases 32. Capital commitments 33. Contingencies 34. Subsequent events
12. Independent Auditors ’ Report To the Shareholders of DP World Limited Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of DP World Limited (“the Company”) and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at 31 December 2017, the consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Dubai International Financial Centre (“DIFC”), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1
13. DP World Limited Independent Auditors ’ Report 31 December 2017 Key audit matter Impairment assessment of carrying value of goodwill and port concession rights Refer to notes 3 and 15 of the consolidated financial statements. The Group has significant goodwill and port concession rights arising from the acquisition of businesses. The Group’s annual impairment testing on goodwill and port concession rights with indefinite useful lives requires the Group to identify Cash Generating Units (CGUs) in accordance with the requirements of IAS 36 – Impairment of Assets. Impairment testing is then performed using free cash flow projections based on three year financial budgets approved by the Board and five year future forecasts estimated by the Group. Due to the inherent uncertainty involved in forecasting and discounting future cash flows, which forms the basis of the assessment of recoverability, along with the judgemental aspects of the assessment of appropriate CGUs, these are the key areas that our audit concentrated on. Our response to address the key audit matter Our procedures included: In respect of the assessment of CGUs: We challenged the identification of CGUs and considered the operating and management structure with reference to our understanding of the business. In respect of the cash flows: We considered the Group’s procedures used to develop the forecasts and the principles and integrity of the Group’s discounted cash flow model and reperformed the calculations of the model results to test their accuracy. To challenge the reasonableness of those cash flows, we assessed the historical accuracy of the Group’s forecasting and corroborated the forecasts with reference to publicly available information and other evidence that has been made available during the course of the audit. We conducted our own assessments to challenge other key inputs, such as the projected growth rate and perpetuity rate. In respect of the discount rates: We compared the Group’s assumptions to externally-derived data (for example, bond yields and inflation statistics) where appropriate. We used our valuation specialists to assist us in assessing the adequacy of the significant assumptions used in arriving at the discount rates. In respect of the sensitivity to key assumptions: We performed sensitivity analysis on the discount rates and forecast cash flows. We also considered CGU specific and external market factors to assess the reasonableness of management assumptions. We assessed the adequacy of the Group’s disclosure in these respects. Key audit matter Accounting for business acquisitions and disposal Refer to notes 3 and 23 of the consolidated financial statements. During the year, the Group has acquired an additional 66.67% stake in Empresa Brasileira de Terminais Portuarious S.A. (“Embraport”) and 93% stake in Remolques y Servicios Marítimos, S.L. (“Reyser”). The Group has also monetised 45% of its stake in the Canadian ports (Prince Rupert and Vancouver). 2
14. DP World Limited Independent Auditors ’ Report 31 December 2017 Key audit matter (continued) Accounting for business acquisitions and disposal (continued) For the acquisitions, the accounting involves estimating the fair value of the assets and liabilities at the acquisition date and the identification and valuation of intangible assets. Significant judgement is involved in relation to the assumptions used in the valuation and purchase price allocation process. Due to the inherent uncertainty involved in discounting future cash flows, there is a risk that these assumptions are inappropriate. For the monetisation, due to the complex contractual terms and the significance to the Group, there is a risk that the appropriate accounting treatment is not followed for the completed transaction specifically in respect of calculating the profit or loss on monetisation and the recognition of non-controlling interest. Furthermore, an assessment is required to be made for classification of an investment as a subsidiary, joint venture or associate based on whether the Group has determined to have control, joint control or significant influence respectively. Our response to address the key audit matter Our procedures included: We inspected the key terms in the share purchase and sale agreements to assess the control classification of the investments as per IFRS 10 – Consolidated Financial Statements. We agreed the consideration paid or received by comparing relevant amounts to bank records and considered the appropriateness of costs associated with the purchase or sale. For the acquisitions, we challenged the Group’s critical assumptions in relation to the identification and recognition of the assets and liabilities acquired and the associated fair values by involving our valuation specialists to assess the reasonableness of the key assumptions used in the fair value and purchase price allocation as determined by the Group. We reviewed the resulting adjustments for reasonableness and assessed the appropriateness of the disclosures made. For the monetisation, we assessed whether the key terms and pricing were appropriately reflected in the calculation of profit on monetisation. We also assessed the accounting entries used to record the monetisation, the appropriateness of the disclosures made and the recognition of non-controlling interests. Key audit matter Litigation and claims Refer to notes 3, 33 and 34 of the consolidated financial statements. The Group enters into individually significant contracts which may extend to many years and are often directly or indirectly associated with governments. As a result, the Group is subject to a number of material ongoing litigation actions and claims, therefore, the recognition and measurement of provisions and the measurement and disclosure of contingent liabilities in respect of litigation and claims requires significant judgement and accordingly is a key area of focus in our audit. 3
15. DP World Limited Independent Auditors ’ Report 31 December 2017 Key audit matter (continued) Litigation and claims (continued) Our response to address the key audit matter Our procedures included: Evaluation of the Group’s policies, procedures and controls in relation to litigations, claims and provision assessments. Furthermore, we obtained representations from the Group’s legal counsel, made independent enquiries and obtained confirmations from external lawyers to understand the legal positions and exposure to the Group. The outcome of our evaluation was used as a basis to determine the adequacy of the level of provisioning and disclosure in the consolidated financial statements. Key audit matter Taxation provisions Refer to notes 3 and 8 of the consolidated financial statements. The Group operates in a number of tax jurisdictions whereby the Group has to estimate the tax effect of applying local legislation which can be complex, uncertain and involve cross border transactions, including transfer pricing arrangements. Where the precise nature of the tax legislation is unclear, the Group has to make reasonable estimates of the likely tax charge that will arise. Some of the Group’s uncertain tax positions are at various stages of resolution, from preliminary discussions with tax authorities through to tax tribunal or court proceedings where the matters can take a number of years to resolve. Tax provisions have been estimated by the Group with respect to the tax exposures identified but there is the potential risk that the eventual resolution of a matter with the tax authorities is at an amount materially different to the provision recognised. Our response to address the key audit matter Our procedures included: We, together with our tax specialists, considered any large or unusual items affecting the effective tax rate and whether or not any current year items would result in an increased or reduced provision. We have assessed the Group’s deferred tax position and ensured that any change in tax rates enacted as at the reporting date have been appropriately considered. In considering the judgements and estimates of tax provisions, we used our tax specialists to assess the Group’s tax positions including assessing correspondence with the relevant tax authorities. We challenged the positions taken by the Group based on our knowledge and experience of the jurisdiction in which the Group operates specifically relating to the adequacy of provisions and disclosure within the consolidated financial statements. 4
16. DP World Limited Independent Auditors ’ Report 31 December 2017 Key audit matter Pensions Refer to notes 3 and 20 of the consolidated financial statements. The Group operates a number of defined benefit pension schemes. The valuation of the pension deficit requires significant levels of judgement and technical expertise in choosing the appropriate assumptions. Changes in a number of the key assumptions including salary increases, inflation, discount rates and mortality assumptions can have a material impact on the calculation of the pension position. As a result of the size of the pension scheme deficit and the judgements inherent in the actuarial assumptions used in the valuation of the pension benefit obligations, we considered this to be an area of focus. Our response to address the key audit matter Our procedures included: The Group engages an independent actuary to assist them in calculating the appropriate pension scheme position. We obtained the actuary’s report and, with the assistance of our pension specialists, assessed the discount and inflation rates used in calculating the pension deficit to our internally developed benchmarks, which are based on externally available data to assess whether these assumptions were within our expected range. We compared the mortality assumption to national and industry averages to assess that these were reasonable. We also compared the assumptions with those used in previous years, to assess whether the methodology used in arriving at the assumptions year on year was consistent. We agreed the material assets of the scheme to third party confirmations and where applicable, recalculated asset valuations based on the quoted prices. We assessed the adequacy of the disclosures in this area. Other Information Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditors’ report thereon. The Annual report is expected to be made available to us after the date of this auditors’ report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. 5
17. DP World Limited Independent Auditors ’ Report 31 December 2017 Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and their preparation in compliance with the applicable provisions of the Companies Law pursuant to DIFC Law No. 2 of 2009 and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 6
18. DP World Limited Independent Auditors ’ Report 31 December 2017 Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements (continued) • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements We further report that the consolidated financial statements comply, in all material respects, with the applicable provisions of the Companies Law pursuant to DIFC Law No. 2 of 2009. KPMG LLP Rohit Rajvanshi Dubai, United Arab Emirates Date: 15 March 2018 7
19. DP World Limited and its subsidiaries Consolidated statement of profit or loss Year ended 31 December 2017 Separately Before separately disclosed items Note disclosed items (Note 9) USD’000 USD’000 Revenue Cost of sales Gross profit General and administrative expenses Other income Loss on disposal and change in ownership of business Share of profit/ (loss) from equity-accounted investees (net of tax) Results from operating activities Finance income Finance costs Net finance costs 5 9 16 7 7 Total USD’000 Year ended 31 December 2016 Separately Before separately disclosed items disclosed items (Note 9) USD’000 USD’000 Total USD’000 4,714,733 (2,359,467) 2,355,266 14,053 (14,053) - 4,728,786 (2,373,520) 2,355,266 4,163,325 (2,010,490) 2,152,835 68,243 (68,243) - 4,231,568 (2,078,733) 2,152,835 (693,878) 51,844 - (14,699) 3,433 (28,234) (708,577) 55,277 (28,234) (628,411) 49,301 (2,966) (776) 3,878 (12,524) (629,187) 53,179 (15,490) 149,435 1,720,194 (2,957) (12,379) 123,592 1,836,824 4,172 (35,328) 127,764 1,801,496 146,478 1,707,815 95,540 (425,410) (329,870) 550 (98,100) (97,550) 96,090 (523,510) (427,420) 100,247 (438,357) (338,110) 47,462 (139,521) (92,059) 147,709 (577,878) (430,169) Profit before tax Income tax expense 8 1,506,954 (144,406) (132,878) 101,076 1,374,076 (43,330) 1,382,084 (122,579) (104,438) - 1,277,646 (122,579) Profit for the year 6 1,362,548 (31,802) 1,330,746 1,259,505 (104,438) 1,155,067 1,208,517 154,031 1,362,548 (31,802) (31,802) 1,176,715 154,031 1,330,746 1,126,554 132,951 1,259,505 (102,300) (2,138) (104,438) 1,024,254 130,813 1,155,067 141.77 141.77 135.73 132.11 Profit attributable to: Owners of the Company Non-controlling interests Earnings per share Basic earnings per share – US cents Diluted earnings per share – US cents 11 11 145.60 141.58 The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. 8 123.40 117.16
20. DP World Limited and its subsidiaries Consolidated statement of other comprehensive income Note Profit for the year 2017 USD ’000 2016 USD’000 1,330,746 1,155,067 Other comprehensive income (OCI) Items that are or may be reclassified to profit or loss: Foreign exchange translation differences – foreign operations* Foreign exchange translation differences recycled to profit or loss due to change in ownership resulting in control Net change in fair value of available-for-sale financial assets Share of other comprehensive income of equity-accounted investees Cash flow hedges – effective portion of changes in fair value Related tax on fair value of cash flow hedges Items that will never be reclassified to profit or loss: Re-measurements of post-employment benefit obligations** Related tax 20 Other comprehensive income for the year, net of tax * 16 616,653 (586,792) 46,949 (779) 3,988 49,255 (6,262) 48,913 5,176 3,416 (21,178) 3,170 131 (1,026) (204,987) 5,699 708,909 (746,583) Total comprehensive income for the year 2,039,655 408,484 Total comprehensive income attributable to: Owners of the Company Non-controlling interests 1,837,558 202,097 282,472 126,012 A significant portion of this includes foreign exchange translation differences arising from the translation of goodwill and purchase price adjustments which are denominated in foreign currencies at the Group level. The translation differences arising on account of translation of the financial statements of foreign operations whose functional currencies are different from that of the Group's presentation currency are also reflected here. There are no differences on translation from functional to presentation currency as the Company’s functional currency is pegged to the presentation currency. ** 2016 includes re-apportionment of pension fund deficit contribution from a related party and increase in pension actuarial loss on account of the decrease in discount rate at the reporting date. The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. 9
21. DP World Limited and its subsidiaries Consolidated statement of financial position 2017 USD ’000 2016 USD’000 8,697,371 1,323,179 7,920,654 2,172,683 72,759 481,741 20,668,387 7,522,077 1,280,325 7,289,138 1,951,658 60,644 428,627 18,532,469 90,282 871,542 1,483,679 2,445,503 23,113,890 79,124 793,345 1,299,391 2,171,860 20,704,329 1,660,000 2,472,655 2,000,000 6,759,367 (1,503,980) (573,881) 10,814,161 811,201 11,625,362 1,660,000 2,472,655 2,000,000 5,495,181 (2,124,021) (705,964) 8,797,851 721,834 9,519,685 29 21 8 19 20 7,437,270 482,218 907,860 122,230 187,570 9,137,148 6,874,777 392,127 945,257 112,594 314,691 8,639,446 29 21 8 20 301,708 1,947,781 94,567 7,324 2,351,380 11,488,528 743,482 1,663,809 129,722 8,185 2,545,198 11,184,644 23,113,890 20,704,329 Note Assets Non-current assets Property, plant and equipment Investment properties Intangible assets and goodwill Investment in equity-accounted investees Other investments Accounts receivable and prepayments Total non-current assets Current assets Inventories Accounts receivable and prepayments Cash and cash equivalents Total current assets Total assets Equity Share capital Share premium Shareholders’ reserve Retained earnings Translation reserve Other reserves Equity attributable to owners of the Company Non-controlling interests Total equity Liabilities Non-current liabilities Interest bearing loans and borrowings Accounts payable and accruals Deferred tax liabilities Employees’ end of service benefits Pension and post-employment benefits Total non-current liabilities Current liabilities Interest bearing loans and borrowings Accounts payable and accruals Income tax liabilities Pension and post-employment benefits Total current liabilities Total liabilities 12 13 14 16 17 17 18 27 28 22 Total equity and liabilities The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. The consolidated financial statements were authorised for issue on 15 March 2018. .......................................................... Sultan Ahmed Bin Sulayem Chairman and Chief Executive Officer .......................................................... Yuvraj Narayan Chief Financial Officer 10
22. DP World Limited and its subsidiaries Consolidated statement of changes in equity Share capital and premium USD ’000 Balance as at 1 January 2016 Profit for the period Other comprehensive income, net of tax Transactions with owners, recognised directly in equity Dividends paid (refer to note 10) Acquisition of non-controlling interests without change in control Transactions with non-controlling interests, recognised directly in equity Contributions by non-controlling interests Dividends paid Acquisition of subsidiary with non-controlling interests Balance as at 31 December 2016 Profit for the period Other comprehensive income, net of tax Transactions with owners, recognised directly in equity Change in ownership interests without change in control of subsidiaries (refer to note 24) Pension obligation borne by Parent Company * Dividends paid (refer to note 10) Acquisition of non-controlling interests without change in control Transactions with non-controlling interests, recognised directly in equity Contributions by non-controlling interests Dividends paid Acquisition of subsidiary with non-controlling interests Balance as at 31 December 2017 Attributable to equity holders of the Company Shareholders’ Retained Translation Other reserve earnings reserve reserves USD’000 USD’000 USD’000 USD’000 (1,593,342) (530,679) 4,722,382 1,024,254 - - (249,000) - - (249,000) - (249,000) - - (2,455) - - (2,455) 722 (1,733) 4,132,655 - 2,000,000 - 5,495,181 1,176,715 - - - 403,497 (315,400) - 91,281 - 403,497 91,281 (315,400) - - (626) - - (626) 4,132,655 2,000,000 6,759,367 (1,503,980) 8,797,851 1,176,715 660,843 (573,881) 10,814,161 367,764 130,813 (4,801) Total equity USD’000 2,000,000 - (705,964) 40,802 8,766,834 1,024,254 (741,782) Non-controlling interests USD’000 4,132,655 - (2,124,021) 620,041 (494,861) (211,103) Total USD’000 9,134,598 1,155,067 (746,583) 2,000 (25,222) 250,558 721,834 154,031 48,066 2,000 (25,222) 250,558 9,519,685 1,330,746 708,909 119,890 - 523,387 91,281 (315,400) (4,191) (4,817) 21,880 (253,697) 3,388 811,201 21,880 (253,697) 3,388 11,625,362 * In 2016, Group accounted for USD 91,281 thousand additional defined benefit obligation in relation to the reapportionment of pension fund deficit from a related party. The re-apportioned liability was subsequently paid by the Parent company in the current year. The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. 11
23. DP World Limited and its subsidiaries Consolidated statement of cash flows Cash flows from operating activities Gross cash flows from operations Changes in : Inventories Accounts receivable and prepayments Accounts payable and accruals Provisions, pensions and post-employment benefits Note 2017 USD’000 2016 USD’000 18 2,332,606 2,115,609 (3,844) 71,583 127,555 (115,452) (11,192) (62,671) 52,784 (92,907) Cash provided by operating activities Income taxes paid 2,412,448 (204,575) 2,001,623 (157,086) Net cash provided by operating activities 2,207,873 1,844,537 Cash flows from investing activities Additions to property, plant and equipment Additions to investment properties Additions to port concession rights Additions to/ advance towards other investments Proceeds from disposal of property, plant and equipment and port concession rights Proceeds from disposal of other investments Proceeds from disposal of a subsidiary Cash outflow on acquisition of subsidiaries (net of cash acquired) Cash inflow on monetisation of stake in subsidiaries without change in control Net cash outflow on acquisition of non-controlling interests without change in control Interest received Dividends received from equity-accounted investees Additional investment in equity-accounted investees Net loan from equity-accounted investees 12 13 (945,201) (98,884) (45,566) (28,026) (1,073,725) (136,901) (87,502) (23,305) 42,579 (179,114) 7,414 21,554 6,965 (142,950) 523,387 - (4,817) 38,030 114,695 (4,415) 1,347 (1,733) 32,140 151,146 (13,071) 1,091 Net cash used in investing activities (585,985) (1,258,877) Cash flows from financing activities Repayment of interest bearing loans and borrowings Drawdown of interest bearing loans and borrowings Proceeds from issue of bonds (2023 Sukuk) Redemption of issued bonds (2017 Sukuk) Transaction cost paid on issuance of bonds (2023 Sukuk) Interest paid Dividend paid to the owners of the Company Contribution by non-controlling interests Dividend paid to non-controlling interests (504,809) 290,361 (387,300) (332,420) (315,400) 21,880 (253,697) (1,287,412) 1,262,089 1,200,000 (1,174,455) (10,505) (418,769) (249,000) 2,000 (25,222) (1,481,385) (701,274) Net cash used in financing activities Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents as at 1 January Effect of exchange rate fluctuations on cash held Cash and cash equivalents as at 31 December 18 140,503 (115,614) 1,299,391 43,785 1,436,595 (21,590) 1,483,679 1,299,391 The accompanying notes 1 to 34 form an integral part of these consolidated financial statements. 12
24. DP World Limited and its subsidiaries Notes to the consolidated financial statements 1 . Corporate information DP World Limited (“the Company”) was incorporated on 9 August 2006 as a Company Limited by Shares with the Registrar of Companies of the Dubai International Financial Centre (“DIFC”) under the Companies Law, DIFC Law No. 3 of 2006. The consolidated financial statements for the year ended 31 December 2017 comprise the Company and its subsidiaries (collectively referred to as “the Group”) and the Group’s interests in equity-accounted investees. The Group is engaged in the business of development and management of international marine and inland terminal operations, maritime services, industrial parks and economic zones, logistics and ancillary services to technology-driven trade solutions. Port & Free Zone World FZE (“the Parent Company”), which originally held 100% of the Company’s issued and outstanding share capital, made an initial public offer of 19.55% of its share capital to the public and the Company was listed on the Nasdaq Dubai with effect from 26 November 2007. The Company was further admitted to trade on the London Stock Exchange with effect from 1 June 2011 and voluntarily delisted from the London Stock Exchange on 21 January 2015. Port & Free Zone World FZE is a wholly owned subsidiary of Dubai World Corporation (“the Ultimate Parent Company”). The Company’s registered office address is P.O. Box 17000, Dubai, United Arab Emirates. 2. Basis of preparation of the consolidated financial statements The consolidated financial statements have been prepared on going concern basis in accordance with International Financial Reporting Standards (“IFRS”) and the applicable provisions of the Companies Law pursuant to DIFC Law No. 2 of 2009. The consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments, investment at fair value through profit or loss and available-for-sale financial assets which are measured at fair value. a) Use of estimates and judgements The management makes estimates and judgements affecting the application of accounting policies and reported numbers in the consolidated financial statements. The significant estimates and judgements are listed below: i. ii. iii. iv. v. vi. vii. viii. ix. x. Estimate of useful lives of property, plant and equipment and port concession rights with finite lives. Estimate of expected future cash flows and discount rate for calculating present value of such cash flows used to compute value-in-use of cash-generating units. Judgement on recognition of an identifiable intangible asset separate from goodwill in case of business combination at its estimated fair value. This is based on information available and management’s expectations on the date of acquisition. Estimate of collectible amount of accounts receivables where the collection of full amount is not probable. Estimate of fair value of derivatives for which an active market is not available is computed using various generally accepted valuation techniques. Such techniques require inputs from observable markets and judgements on market risk and credit risk. Judgements by actuaries in respect of discount rates, future salary increments, mortality rates and inflation rate used for computation of defined benefit liability. Estimate of level of probability of a contingent liability becoming an actual liability and resulting cash outflow based on the information available on the reporting date. Consolidation of entities in which the Group holds less than 50% shareholding and non-consolidation of entities in which the Group holds more than 50% shareholding (refer to note 24). Significant judgement is required in determining the worldwide provision for income taxes. Significant judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The actual results may differ from the estimates and judgements made by the management in the above matters. Revisions to the accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. b) New standards and interpretations not yet effective A number of new standards, amendments to standards and interpretations are not effective for annual periods beginning 1 January 2017, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. 13
25. DP World Limited and its subsidiaries Notes to the consolidated financial statements 2 . Basis for preparation of the consolidated financial statements (continued) b) New standards and interpretations not yet effective (continued) i. IFRS 9 Financial Instruments (effective from 1 January 2018) IFRS 9 sets out requirements for recognising, classifying and measuring financial assets and financial liabilities and introduces a new expected credit loss model. The new guidance has also substantially reformed the existing hedge accounting rules. It provides a more principles-based approach that aligns hedge accounting closely with risk management policies. The adoption of IFRS 9 will not affect the classification and measurement of the Group’s financial instruments, and the new standard does not fundamentally change the hedging relationships. Management has assessed that the effect of change from the incurred loss model to the expected credit loss model is considered immaterial due to the low credit risk in the Group. ii. IFRS 15 Revenue from contracts with customers (effective from 1 January 2018) IFRS 15 replaces IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. The standard provides a single principles-based fivestep model to be applied to all contracts with customers. The Group’s current practices for recognising revenue have shown to comply in all material aspects with the concepts and principles encompassed by the new standard and impact on the financial statements is considered immaterial. iii. IFRS 16 Leases (effective from 1 January 2019) IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC-15 Operating lease incentives and SIC-27 Evaluating the substance of transaction involving the legal form of lease. The new standard requires the lessee to recognise the operating lease commitment on the balance sheet. The Group, as a lessee, has substantial operating leases and commitments as disclosed in note 31. The standard would require future lease commitments to be recognised as a liability, with a corresponding right of use asset. This will impact the EBITDA and debt to equity ratios of the Group. In addition, depending on the stage of lease, there would be a different pattern of expense recognition on leases. Currently, lease expenses are recognised in cost of sales, however, in future the lease expense would be replaced by an amortisation charge and finance expense. The Group is in the process of collating its leases and computing the impact. The impact of this standard's application is expected to be significant. The actual impact of applying IFRS 16 at 1 January 2019 will, among other factors, depend on future economic conditions – including the composition of the lease portfolio at that date as well as the level of time charter rates, incremental borrowing rates, etc. c) i. New standards, amendments and interpretations adopted by the Group Amendment to IAS 7, Statement of cash flows (effective from 1 January 2017) The amendments require entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The adoption of this standard is not expected to have any significant impact on the Group’s financial statements. ii. Amendments to IAS 12, Income taxes (effective from 1 January 2017) The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. The adoption of this standard is not expected to have any significant impact on the Group’s financial statements. 14
26. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies The following significant accounting policies have been consistently applied in the preparation of these consolidated financial statements throughout the Group to all the years presented, unless otherwise stated. a) Basis of consolidation i. Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The acquisition method of accounting is used to account for business combinations by the Group on the date of acquisition. ii. Business combination achieved in stages If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at the acquisition date fair values and any resulting gain or loss is recognised in profit or loss. iii. Change in ownership interests in subsidiaries without loss of control Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The difference between the fair value of any consideration paid or received and relevant shares acquired or disposed off in the carrying value of net assets of the subsidiary is recorded in equity under retained earnings. iv. Disposal of subsidiaries (loss of control) On the loss of control, the Group derecognises the subsidiary and recognises any surplus or deficit arising on the loss of control in the consolidated statement of profit or loss. Any retained interest is re-measured at fair value on the date control is lost and is subsequently accounted as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. v. Non-controlling interests For each business combination, the Group elects to measure any non-controlling interests at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. vi. Structured entities The Group established DP World Crescent Limited (a limited liability company incorporated in the Cayman Islands) as a structured entity (“SE”) for the issue of Sukuk Certificates. These certificates are listed on Nasdaq Dubai and London Stock Exchange. The Group does not have any direct or indirect shareholding in this entity. The Group has also incorporated JAFZ Sukuk (2019) Limited as a SE for issuing New JAFZ Sukuk which are currently listed on Nasdaq Dubai and the Irish Stock Exchange. The Group consolidates the above SE’s based on an evaluation of the substance of its relationship with the Group. This relationship results in the majority of the benefits related to the SE’s operations and net assets being received by the Group. It also exposes the Group to risks incident to the SE’s activities and retains the majority of the residual or ownership risks related to the SE or its assets. vii. Investments in associates and joint ventures (equity-accounted investees) The Group’s interest in equity-accounted investees comprise interest in associates and joint ventures. An associate is an entity over which the Group has significant influence. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Investments in equity-accounted investees are accounted for using the equity method and are initially recorded at cost including transaction costs. The Group’s investment includes fair value adjustments (including goodwill) net of any accumulated impairment losses. At each reporting date, the Group determines whether there is any objective evidence that the investments in the equityaccounted investees are impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the equity-accounted investees and its carrying value and recognises the same in the consolidated statement of profit or loss. 15
27. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) a) Basis of consolidation (continued) viii. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from the transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. b) Foreign currency i. Functional and presentation currency The functional currency of the Company is UAE Dirhams. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary environment in which it operates (functional currency). These consolidated financial statements are presented in USD, which is the Group’s presentation currency. ii. Foreign currency transactions and balances Transactions in foreign currencies are translated to the functional currency of each entity at the foreign exchange rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency of each entity at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currency are translated to the functional currency of each entity at the foreign exchange rate ruling at the date of transaction with no further re-measurement in future. Foreign currency differences are generally recognised in the profit or loss. iii. Foreign operations For the preparation of consolidated financial statements, the differences arising on translation of financial statements of foreign operations into USD are recognised in other comprehensive income and accumulated in the translation reserve except to the extent of share of non-controlling interests in such differences. Accumulated translation differences are recycled to profit or loss on de-recognition of foreign operations as part of the gain or loss on such derecognition. In case of partial derecognition, accumulated differences proportionate to the stake derecognised are recycled. If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency differences arising from such item form part of the net investment in the foreign operation. Accordingly, such differences are recognised in other comprehensive income and accumulated in the translation reserve. Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised in the consolidated statement of other comprehensive income, to the extent that the hedge is effective. c) Financial instruments i. Non-derivative financial assets Initial recognition and subsequent measurement The Group classifies non-derivative financial assets into the following categories: held to maturity financial assets, loans and receivables, financial assets at fair value through profit or loss and available-for-sale financial assets. The Group determines the classification of its financial assets at initial recognition. All non-derivative financial assets are recognised initially at fair value, plus, any directly attributable transaction costs. The Group’s non-derivative financial assets comprise investments in an unquoted infrastructure fund, debt securities held to maturity, trade and other receivables, due from related parties and, cash and cash equivalents. The subsequent measurement of non-derivative financial assets depends on their classification. Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred and it does not retain control of the financial asset. 16
28. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) c) Financial instruments (continued) ii. Non-derivative financial liabilities Initial recognition and measurement The Group’s non-derivative financial liabilities consist of loans and borrowings, bank overdrafts, amounts due to related parties, and trade and other payables. All non-derivative financial liabilities are recognised initially at fair value less any directly attributable transaction costs. The Group classifies all its non-derivative financial liabilities as financial liabilities to be carried at amortised cost using effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs to the extent there is evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Subsequent measurement The subsequent measurement of non-derivative financial liabilities are carried at their amortised cost using the effective interest method. Convertible bond Convertible bonds issued by the Group are denominated in USD and can be converted into ordinary shares. Convertible bonds are split into two components: a debt component and a component representing the embedded derivative in the convertible bond. The debt component represents a non-derivative financial liability for future coupon payments and the redemption of the principal amount. The embedded derivative, a financial derivative liability, represents the value of the option that bond holders can convert into ordinary shares. The Group has not recorded the embedded derivative within equity due to the existence of cash settlement terms with the Company. Derecognition The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expired. iii. Derivative financial instruments The Group holds derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its cash flows exposed to risk of fluctuations in foreign currencies and interest rates. Initial recognition On initial designation of the derivatives as the hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and hedged risk together with the methods that will be used to assess the effectiveness of the hedging relationship. Derivatives are recognised initially at fair value and attributable transaction costs are recognised in the consolidated statement of profit or loss when incurred. Derivative instruments that are not designated as hedging instruments in hedge relationships are classified as financial liabilities or assets at fair value through profit or loss. Subsequent measurement Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in consolidated statement of other comprehensive income to the extent that the hedge is effective and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the consolidated statement of profit or loss. When the hedged item is a non-financial asset, the amount recognised in the consolidated statement of other comprehensive income is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in consolidated statement of other comprehensive income is transferred to the consolidated statement of profit or loss in the same period that the hedged item affects the consolidated statement of profit or loss. Derecognition If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in consolidated statement of other comprehensive income remains there until the forecast transaction or firm commitment occurs. If the forecast transaction or firm commitment is no longer expected to occur, then the balance in equity is reclassified to the consolidated statement of profit or loss. 17
29. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) d) Property, plant and equipment i. Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses (refer to note 3(j) (i)). Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of a self-constructed asset includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use and the cost of dismantling and removing the items and restoring the site on which they are located. Such property, plant and equipment does not directly increase the future economic benefits of any particular existing item of property, plant and equipment, but may be necessary for an entity to obtain the future economic benefits from its other assets. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Capital work-in-progress is measured at cost less impairment losses and not depreciated until such time the assets are ready for intended use and transferred to the respective category under property, plant and equipment. Dredging Dredging expenditure is categorised into capital dredging and major maintenance dredging. Capital dredging is expenditure which includes creation of a new harbour, deepening or extension of the channel berths or waterways in order to allow access to larger ships which will result in future economic benefits for the Group. This expenditure is capitalised and amortised over the expected period of the relevant concession agreement. Major maintenance dredging is expenditure incurred to restore the channel to its previous condition and depth. Maintenance dredging is regarded as a separate component of the asset and is capitalised and amortised evenly over 10 years. ii. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. iii. Depreciation Land and capital work in progress is not depreciated. Depreciation on other assets is recognised in the consolidated statement of profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment and is based on cost less residual value. Leased assets are depreciated on straight-line basis over their estimated useful lives or lease term whichever is shorter. The estimated useful lives of assets are as follows: Assets Buildings Plant and equipment Vessels Dredging (included in Land and buildings) Useful life (years) 5 – 50 3 – 25 10 – 30 10 – 99 Dredging costs are depreciated on a straight line basis based on the lives of various components of dredging. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted prospectively, if appropriate. 18
30. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) d) Property, plant and equipment (continued) iv. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time, the assets are substantially ready for their intended use or sale. e) Investment properties Investment property is measured initially at cost, including related transaction costs and where applicable borrowing costs. After initial recognition, investment property is carried at cost less accumulated depreciation and impairment, if any. Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of the item can be measured reliably. Investment property under construction is not depreciated until such time as the relevant assets are completed and commissioned. Land is not depreciated. Depreciation is calculated using the straight-line method to allocate the cost to the residual values over the estimated useful lives, as follows: Assets Buildings Infrastructure Useful life (years) 20 – 35 5 – 50 The useful lives and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from these assets. f) Land use rights Land use rights represents the prepaid lease payments of leasehold interests in land under operating lease arrangements. These rights are amortised using the straight-line method to allocate the cost over the term of rights of 99 years. g) Goodwill Goodwill arises on the acquisition of subsidiaries and equity-accounted investees. Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill is measured at cost less accumulated impairment losses (refer to note 3(j) (i)). Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. An impairment loss in respect of goodwill is not reversed. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment and is not tested for impairment separately. 19
31. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) h) Port concession rights The Group classifies the port concession rights as intangible assets as the Group bears demand risk over the infrastructure assets. Substantially all of the Group’s terminal operations are conducted pursuant to long-term operating concessions or leases entered into with the owner of a relevant port for terms generally between 25 and 50 years (excluding the port concession rights relating to equity-accounted investees). The Group commonly starts negotiations regarding renewal of concession agreements with approximately 5-10 years remaining on the term and often obtains renewals or extensions on the concession agreements in advance of their expiration in return for a commitment to make certain capital expenditures in respect of the subject terminal. In addition, such negotiations may result in the re-basing of rental charges to reflect prevailing market rates. However, based on the Group’s experience, incumbent operators are typically granted renewal often because it can be costly for a port owner to switch operators, both administratively and due to interruptions to port operations and reduced productivity associated with such transactions. Port concession rights consist of: i. Port concession rights arising on business combinations The cost of port concession rights acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, port concession rights are carried at cost less accumulated amortisation and any accumulated impairment losses (refer to note 3(j)(i)). The useful lives of port concession rights are assessed to be either finite or indefinite. Port concession rights with finite lives are amortised on a straight-line basis over the useful economic life and assessed for impairment whenever there is an indication that the port concession rights may be impaired. The amortisation period and amortisation method for port concession rights with finite useful lives are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the assets are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expenses on port concession rights with finite useful lives are recognised in the consolidated statement of profit or loss on a straight-line basis. Port concession rights with indefinite lives (arising where freehold rights are granted) are not amortised and are tested for impairment at least on an annual basis or when the impairment indicator exists, either individually or at the cashgenerating unit level. The useful life of port concession rights with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. ii. Port concession rights arising from Service Concession Arrangements (IFRIC 12) The Group recognises port concession rights arising from a service concession arrangement, in which the grantor (government or port authorities) controls or regulates the services provided and the prices charged, and also controls any significant residual interest in the infrastructure such as property, plant and equipment, if the infrastructure is existing infrastructure of the grantor or the infrastructure is constructed or purchased by the Group as part of the service concession arrangement. Port concession rights also include certain property, plant and equipment which are reclassified as intangible assets in accordance with IFRIC 12 ‘Service Concession Arrangements’. These assets are amortised based on the lower of their useful lives or concession period. Gains or losses arising from de-recognition of port concession rights are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of profit or loss when the asset is derecognised. The estimated useful lives for port concession rights range within a period of 5 – 50 years (including the concession rights relating to equity-accounted investees). i) Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. 20
32. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) i) Leases (continued) i. Group as a lessee Assets held by the Group under leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are recognised in the consolidated statement of profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance lease. Contingent payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. ii. Group as a lessor Leases where the Group retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as income in the period in which they are earned. iii. Leasing and sub-leasing transactions Leasing and sub-leasing transactions are designed to achieve certain benefits for the third parties in overseas locations in return for a cash benefit to the Group. Such cash benefit is accounted in the consolidated statement of profit or loss based on its economic substance. iv. Leases of land in port concession Leases of land have not been classified as finance leases as the Group believes that the substantial risks and rewards of ownership of the land have not been transferred. Accordingly, these are accounted as operating leases. The existence of a significant exposure of the lessor to performance of the asset through contingent rentals is the basis of concluding that substantially all the risks and rewards of ownership have not passed. j) Impairment i. Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed for impairment whenever there is an indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, the assets are grouped together into smallest group of assets (cash generating unit or “CGU”) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU’s. Goodwill and port concession rights with infinite useful lives, as part of their respective cash-generating units, are also reviewed for impairment at each reporting date or at least once in a year regardless of any indicators of impairment. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis. In respect of non-financial assets (other than goodwill), impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount, which would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 21
33. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) j) Impairment (continued) ii. Financial assets Financial assets not classified at fair value through profit or loss are assessed by management at each reporting date to determine whether there is objective evidence of impairment. Loans and receivables and held to maturity investments The Group considers evidence of impairment for loans and receivables and held to maturity investment securities at both a specific asset level and collective level. All individually significant receivables and held to maturity investment securities are assessed for specific impairment. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Available-for-sale financial assets A significant or prolonged decline in the fair value of an equity investment is considered as objective evidence of impairment. The Group considers that generally a decline of 20% will be considered as significant and a decline of over 9 months will be considered as prolonged. k) Employee benefits i. Pension and post-employment benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan in which the Company pays the fixed contribution to a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an expense in the consolidated statement of profit or loss during which the services are rendered by employees. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine the present value, and the fair value of any plan asset is deducted to arrive at net obligation. The calculation is performed annually by a qualified actuary using the projected unit credit method which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice. Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest) are recognised directly in the consolidated statement of other comprehensive income. The cost of providing benefits under the defined benefit plans is determined separately for each plan. Contributions, including lump sum payments, in respect of defined contribution pension schemes and multi-employer defined benefit schemes where it is not possible to identify the Group’s share of the scheme, are charged to the consolidated statement of profit or loss as they fall due. ii. Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. 22
34. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) l) Provisions Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost in the consolidated statement of profit or loss. m) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. Revenue mainly consists of containerised stevedoring, other containerised revenue, non-containerised revenue, service concession revenue and lease rentals. Non-containerised revenue mainly includes logistics and handling of break bulk cargo. The following specific recognition criteria must also be met before revenue is recognised: i. Rendering of services Revenue from providing containerised stevedoring, other containerised services and non-containerised services is recognised on the delivery and completion of those services. ii. Service concession arrangements (IFRIC 12) Revenues relating to construction contracts which are entered into with government authorities for the construction of the infrastructure necessary for the provision of services are measured at the fair value of the consideration received or receivable. Revenue from service concession arrangements is recognised based on the fair value of construction work performed at the reporting date. iii. Lease rentals and related services A lease rental is recognised on a straight line basis over the lease term. Where the consideration for the lease is received for subsequent period, the attributable amount of revenue is deferred and recognised in the subsequent period. Unrecognised revenue is classified as deferred revenue under liabilities in the consolidated statement of financial position. Revenue from administrative service, license, registration and consultancy is recognised as the service is provided. n) Finance income and costs Finance income comprises interest income on cash and cash equivalents and gains on hedging instruments that are recognised in the consolidated statement of profit or loss. Interest income is recognised as it accrues, using the effective interest method. Finance costs comprises interest expense on borrowings, unwinding of discount on provisions, impairment losses recognised on financial assets, losses on hedging instruments and fair value changes of debt instruments that are recognised in the consolidated statement of profit or loss. Finance income and costs also include realised and unrealised exchange gains and losses on monetary assets and liabilities (refer to note 3(b) (ii)). 23
35. DP World Limited and its subsidiaries Notes to the consolidated financial statements 3 . Significant accounting policies (continued) o) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in the consolidated statement of profit or loss except to the extent that it relates to a business combination, or items recognised directly in consolidated statement of other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. It also includes any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Current tax and deferred tax assets and liabilities are offset only if certain criteria are met. p) Earnings per share The Group presents basic and diluted earnings per share (“EPS”) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company (after adjusting for interest on the convertible bond and other consequential changes in income or expense that would result from the assumed conversion) by the weighted average number of ordinary shares outstanding during the year including the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares (refer to note 11). q) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components for which discrete financial information is available. All operating segments’ operating results are reviewed regularly by the Company’s Board of Directors (‘Chief Operating Decision Maker’) to assess performance. r) Separately disclosed items The Group presents, as separately disclosed items on the face of the consolidated statement of profit or loss, those items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow users to understand better, the elements of financial performance in the period, so as to facilitate a comparison with prior periods and a better assessment of trends in financial performance. Segment information The Group has identified the following geographic areas as its basis of segmentation. • • • Asia Pacific and Indian subcontinent Australia and Americas Middle East, Europe and Africa Each of these operating segments have an individual appointed as Segment Director responsible for these segments, who in turn reports to the Chief Operating Decision Maker. In addition to the above reportable segments, the Group reports unallocated head office costs, finance costs, finance income and tax expense under the head office segment The Group measures segment performance based on the earnings before separately disclosed items, interest, tax, depreciation and amortisation (“Adjusted EBITDA”). Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, investment property, and port concession rights other than goodwill. Information regarding the results of each reportable segment is included below. 24
36. DP World Limited and its subsidiaries Notes to consolidated financial statements 4 . Segment information (continued) The following table presents certain results, assets and liabilities information regarding the Group’s segments as at the reporting date. Asia Pacific and Indian subcontinent 2017 2016 USD’000 USD’000 Revenue Adjusted for separately disclosed items Revenue before separately disclosed items Adjusted EBITDA Finance income Finance costs Tax expense Depreciation and amortisation Adjusted net profit/ (loss) before separately disclosed items Adjusted for separately disclosed items Profit/ (loss) for the year Australia and Americas 2017 2016 USD’000 USD’000 682,272 501,496 762,151 659,020 (14,053) (68,243) - - 668,219 433,253 762,151 659,020 434,989 (101,760) 316,476 (67,260) 291,485 (94,046) 333,229 249,216 (13,313) 319,916 (6,284) 242,932 Middle East, Europe and Africa 2017 2016 USD’000 USD’000 3,284,363 Head office 2017 2016 USD’000 USD’000 Inter-segment 2017 2016 USD’000 USD’000 3,071,052 - - - - - - - - - 3,284,363 3,071,052 - - - 293,052 (77,389) 1,917,640 (427,169) 1,791,269 (391,184) (175,080) 95,540 (425,410) (144,406) (9,235) (137,720) 100,247 (438,357) (122,579) (7,050) - 197,439 215,663 1,490,471 1,400,085 (658,591) (605,459) (32,384) 165,055 2,076 217,739 10,369 1,500,840 (8,171) 1,391,914 3,526 (655,065) (92,059) (697,518) Net finance cost and tax expense from various geographical locations and head office have been grouped under head office. 25 - Total 2017 USD’000 2016 USD’000 4,728,786 4,231,568 (14,053) (68,243) 4,714,733 4,163,325 - 2,469,034 95,540 (425,410) (144,406) (632,210) 2,263,077 100,247 (438,357) (122,579) (542,883) - - 1,362,548 1,259,505 - - (31,802) 1,330,746 (104,438) 1,155,067
37. DP World Limited and its subsidiaries Notes to consolidated financial statements 4 . Segment information (continued) Segment assets Segment liabilities Tax liabilities* Total liabilities Capital expenditure Depreciation Amortisation/ impairment Share of profit/(loss) of equity accounted investees before separately disclosed items Tax expense Asia Pacific and Indian subcontinent 2017 2016 USD’000 USD’000 Australia and Americas 2017 2016 USD’000 USD’000 Middle East, Europe and Africa 2017 2016 USD’000 USD’000 4,576,571 661,767 661,767 4,350,319 605,616 605,616 3,103,562 2,092,970 643,515 379,373 643,515 379,373 18,062,307 15,333,720 4,042,232 3,455,870 4,042,232 3,455,870 87,670 43,022 58,738 81,068 22,801 44,459 163,999 64,801 29,245 156,457 55,527 21,862 835,695 339,645 91,127 1,057,844 310,077 81,883 117,365 - 125,215 - (14,894) - 6,418 - 21,121 - 17,802 - *Tax liabilities and tax expenses from various geographical locations have been grouped under head office. 26 Head office 2017 2016 USD’000 USD’000 Inter-segment 2017 2016 USD’000 USD’000 Total 2017 USD’000 2016 USD’000 9,345,615 8,693,264 1,002,427 9,695,691 9,205,350 8,524,199 1,074,979 9,599,178 (11,974,165) (3,554,677) (3,554,677) (10,278,030) (2,855,393) (2,855,393) 23,113,890 10,486,101 1,002,427 11,488,528 20,704,329 10,109,665 1,074,979 11,184,644 2,287 9,234 - 2,759 7,050 - - - 1,089,651 456,702 179,110 1,298,128 395,455 148,204 - - - - 123,592 149,435 43,330 122,579 - - 43,330 122,579
38. DP World Limited and its subsidiaries Notes to the consolidated financial statements Revenue 2017 USD ’000 2016 USD’000 Revenue consists of: Containerised stevedoring revenue Containerised other revenue Non-containerised revenue Service concession revenue (refer to note 9) Lease rentals and related services 1,856,806 1,450,110 821,751 14,053 586,066 1,535,059 1,315,186 759,516 68,243 553,564 Total 4,728,786 4,231,568 2017 USD’000 2016 USD’000 933,712 632,210 399,968 3,602 826,947 542,883 364,365 776 2017 USD’000 2016 USD’000 66,400 29,140 56,420 43,827 Finance income before separately disclosed items Separately disclosed items (refer to note 9) 95,540 550 100,247 47,462 Finance income after separately disclosed items 96,090 147,709 (372,950) (375,065) (57,672) (5,620) 6. Profit for the year Profit for the year is stated after charging the following costs: Staff costs Depreciation and amortization Operating lease rentals Impairment loss (refer to note 9) 7. Finance income and costs Finance income Interest income Exchange gains Finance costs Interest expense Exchange losses Other net financing expense in respect of pension plans (46,550) (5,910) Finance costs before separately disclosed items Separately disclosed items (refer to note 9) (425,410) (98,100) (438,357) (139,521) Finance costs after separately disclosed items (523,510) (577,878) (427,420) (430,169) Net finance costs after separately disclosed items 27
39. DP World Limited and its subsidiaries Notes to the consolidated financial statements 8 . Income tax The major components of income tax expense for the year ended 31 December: 2017 USD’000 Current tax on profits for the year Adjustments for change in estimates related to prior years 2016 USD’000 193,987 (24,506) 175,195 (39,193) 169,481 (126,151) 43,330 48,963 136,002 (13,423) 122,579 47,130 Total tax expense 92,293 169,709 Income tax balances included in the consolidated statement of financial position: Current income tax receivable (included within accounts receivable and prepayments) Current income tax liabilities 31,551 94,567 32,318 129,722 Deferred tax credit Income tax expense Share of income tax of equity-accounted investees The relationship between the total tax expense and the accounting profit can be explained as follows: 2017 USD’000 Net profit before tax 2016 USD’000 1,374,076 1,277,646 Tax at the Company’s domestic rate of 0% (2016: 0%) Income tax on foreign earnings Net current year tax losses incurred, on which deferred tax is not recognised Tax charge on equity-accounted investees Effect of rate change Deferred tax in respect of fair value adjustments Others 139,118 121,342 15,699 48,963 2,188 (15,198) 20,971 27,189 47,130 (11,035) (11,436) 37,226 Tax expense before prior year adjustments 211,741 210,416 Change in estimates related to prior years: - current tax - deferred tax (24,507) 6,135 (39,193) (1,514) 193,369 (101,076) 169,709 - 92,293 169,709 1,374,076 132,878 48,963 1,277,646 104,438 47,130 (B) 1,555,917 1,429,214 (A/B) 12.43% 11.87% Total tax expense from operations before separately disclosed items Separately disclosed items (A) Total tax expense Net profit before tax Separately disclosed items Share of income tax of equity-accounted investees Adjusted profit before tax and before separately disclosed items Effective tax rate before separately disclosed items 28
40. DP World Limited and its subsidiaries Notes to the consolidated financial statements 8 . Income tax (continued) Unrecognised deferred tax assets Deferred tax assets are not recognised on trading losses of USD 786,799 thousand (2016: USD 656,449 thousand) where utilisation is uncertain, either because they have not been agreed with tax authorities, or because the likelihood of future taxable profits is not sufficiently certain, or because of the impact of tax holidays. Under current legislation, USD 598,892 thousand (2016: USD 420,692 thousand) of these trading losses can be carried forward indefinitely. Deferred tax assets are also not recognised on capital and other losses of USD 208,342 thousand (2016: USD 221,394 thousand) as their utilisation is uncertain. Group tax rates The Group is not subject to income tax on its UAE operations. The total tax expense relates to the tax payable on the profit earned by the overseas subsidiaries and equity-accounted investees as adjusted in accordance with the taxation laws and regulations of the countries in which they operate. The applicable tax rates in the regions in which the Group operates are set out below: Geographical segments Applicable corporate tax rate Asia Pacific and Indian subcontinent Australia and Americas Middle East, Europe and Africa 10% to 34.6% 0% to 36.0% 0% to 34.0% Movement in temporary differences during the year: 1 January 2017 USD’000 Recognised in consolidated statement of profit or loss USD’000 Deferred tax liabilities Property, plant and equipment 92,599 Investment in equity-accounted investees 47,458 Fair value of acquired intangibles 441,415 Others 410,768 Total before set off 992,240 Set off of deferred tax asset against liabilities Net deferred tax liabilities Deferred tax assets Pension and post-employment benefits Financial instruments Provisions Tax value of losses carried forward recognised Total before set off Set off of deferred tax asset against liabilities Net deferred tax assets (included within non-current account receivables and prepayments) 8,633 (22,826) (15,980) (105,061) (135,234) (46,983) 945,257 - Acquisitions Translation in the and other period movements USD’000 USD’000 50,512 (1,245) 49,267 - 3,348 (1,653) 42,856 1,423 45,974 - 31 December 2017 USD’000 104,580 22,979 518,803 305,885 952,247 (44,387) 907,860 13,075 8,366 3,912 (3,068) (787) (760) 47 87 1,463 (897) (872) 11,517 6,682 2,367 21,630 46,983 418 (4,197) 134 1,773 1,467 23,821 44,387 - - - - - - (46,983) - 29 (44,387) -
41. DP World Limited and its subsidiaries Notes to consolidated financial statements 9 . Separately disclosed items 2017 USD’000 2016 USD’000 14,053 68,243 (14,053) (68,243) (3,602) (11,097) 3,433 (28,234) 4,172 (776) 3,878 (12,524) (2,957) Revenue Construction contract revenue relating to service concessions Cost of sales Construction contract costs relating to service concessions General and administrative expenses Impairment of property, plant and equipment and investment properties Acquisition related costs and restructuring provisions (net) Other income Loss on conversion of an associate to a subsidiary Share of profit/ (loss) from equity-accounted investees Finance income Change in fair value of convertible bond option Ineffective swaps Finance costs Change in fair value of convertible bond option Finance costs related to convertible bond Ineffective swaps Sukuk redemption costs Transaction costs Income tax (77,034) (21,066) 101,076 (20,110) (3,432) (61,755) (54,224) - Total (31,802) (104,438) 550 47,462 - Construction contract revenue and costs: In accordance with IFRIC 12 ‘Service Concession Arrangements’, the Group has recorded revenue on the construction of a port in the ‘Asia Pacific and Indian subcontinent’ region. The construction revenue represents the fair value of the construction services provided in developing the port. No margin has been recognised, as in management’s opinion the fair value of the construction services provided approximates the construction cost. Impairment of property, plant and equipment and investment properties relates to subsidiaries in the ‘Middle East, Europe and Africa’ region. Acquisition related costs and restructuring provisions represent advisory, legal, valuation, professional consulting, general and administrative costs directly related to various business acquisitions in the Group and reversal of excess restructuring provisions in a subsidiary in the ‘Middle East, Europe and Africa’ region. Other income represents non-recurring income in a subsidiary in the ‘Middle East, Europe and Africa’ region. (2016 represents the gain on sale of other investments in the ‘Asia Pacific and Indian subcontinent’ region and in the ‘Middle East, Europe and Africa’ region). Loss on conversion of an associate to a subsidiary relates to the loss on re-measurement to fair value of the existing stake resulting from the acquisition of a controlling stake in an equity-accounted investee in the ‘Australia and Americas’ region. (2016 relates to the loss on sale of a subsidiary in the ‘Middle East, Europe and Africa’ region and loss on re-measurement to fair value of the existing stake resulting from the acquisition of a controlling stake in an equity-accounted investee in the ‘Asia Pacific and Indian subcontinent’ region). Share of loss from equity-accounted investees relates to release of deferred tax liability of USD 15,985 thousand due to tax rate change in an equity-accounted investee in the ‘Middle East, Europe and Africa’ region offset by impairment of goodwill of USD 11,813 thousand in an equity-accounted investee in the ‘Asia Pacific and Indian subcontinent’ region. (2016 represents the non-recurring expenses incurred in the ‘Middle East, Europe and Africa’ region). Change in fair value of convertible bond option relates to the movement based on re-measured fair value of the embedded derivative liability of the convertible bonds. 30
42. DP World Limited and its subsidiaries Notes to consolidated financial statements 9 . Separately disclosed items (continued) Ineffective swaps relates to an ineffective element of cash flow hedge in a subsidiary in the ‘Middle East, Europe and Africa’ region. (2016: ineffective element of a cash flow hedge in a subsidiary in the ‘Middle East, Europe and Africa’ region and the loss on termination of interest rate swap in a subsidiary in the ‘Australia and Americas’ region). Finance costs related to convertible bond represents the accretion of liability component as at the reporting date to the amount that will be payable on redemption of the convertible bond. Sukuk redemption costs represents the redemption premium paid on an early redemption of sukuk bond liability. Transaction costs relates to costs on restructuring and termination of loans in subsidiaries in the ‘Middle East, Europe and Africa’ region. Income tax credit relates to the release of deferred tax liability on account of a tax rate change. 10. Dividends Declared and paid during the year: Final dividend: 38 US cents per share/ 30 US cents per share Proposed for approval at the annual general meeting (not recognised as a liability as at 31 December): Final dividend: 41 US cents per share/ 38 US cents per share 2017 USD’000 2016 USD’000 315,400 249,000 340,300 315,400 11. Earnings per share The calculation of basic and diluted earnings per share is based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding. 2017 2017 2016 2016 Before Adjusted for Before separately Adjusted for separately separately disclosed items separately disclosed items disclosed items disclosed items USD’000 USD’000 USD’000 USD’000 Profit attributable to the ordinary shareholders of the Company (a) 1,208,517 1,176,715 1,126,554 1,024,254 Adjustment for costs/ (income) related to convertible bonds saved as a result of the conversion 18,772 116,872 18,666 (8,686) Profit attributable to the ordinary shareholders of the Company after conversion (b) 1,227,289 1,293,587 1,145,220 1,015,568 Weighted average number of basic shares outstanding as at 31 December (c) 830,000,000 830,000,000 830,000,000 830,000,000 Weighted average numbers of shares due to conversion of convertible bond 36,846,510 36,846,510 36,846,510 36,846,510 Total weighted average number of ordinary shares (diluted) outstanding – (d) 866,846,510 866,846,510 866,846,510 866,846,510 Basic earnings per share US cents – (a/c) 145.60 141.77 135.73 123.40 Diluted earnings per share US cents – (b/d) 141.58 141.77* 132.11 117.16 Anti-diluted earnings per share US cents – (b/d) 149.23 * Diluted earnings per share (adjusted for separately disclosed items) for the year ended 31 December 2017 is equal to basic earnings per share (adjusted for separately disclosed items) as it is antidilutive. 31
43. DP World Limited and its subsidiaries Notes to consolidated financial statements 12 . Property, plant and equipment Cost As at 1 January 2016 Acquired through business combination Additions during the year Transfers from capital work-in-progress Transfer from investment properties Disposals Translation adjustment As at 31 December 2016 As at 1 January 2017 Acquired through business combination Additions during the year Transfers from capital work-in-progress Transfer from investment properties Disposals Translation adjustment As at 31 December 2017 Depreciation and impairment As at 1 January 2016 Acquired through business combination Charge for the year Impairment loss On disposals Translation adjustment As at 31 December 2016 Land and buildings USD’000 Plant and equipment USD’000 Vessels USD’000 Capital workin-progress USD’000 Total USD’000 3,884,675 3,927,182 279,549 1,056,958 9,148,364 14,964 11,324 327,868 62,225 2,960 1,649 997,216 344,481 1,073,725 381,421 282,300 2,013 (665,734) (30,296) (90,513) 4,171,575 270 (48,649) (285,415) 4,265,781 (2,455) (3,817) 278,250 (64,484) 1,325,605 270 (81,400) (444,229) 10,041,211 4,171,575 4,265,781 278,250 1,325,605 10,041,211 8,579 33,332 544,824 65,452 93,962 20,267 826,150 647,365 945,201 346,474 573,461 42,404 (962,339) (14,897) 85,339 4,630,402 892 (79,407) 187,437 5,558,440 (7,494) 21,345 448,734 869,521 1,251,777 57,940 - 2,179,238 1,289 130,858 4 (21,966) (10,479) 969,227 125,875 212,027 772 (44,699) (70,089) 1,475,663 19,392 (1,370) (1,718) 74,244 - 127,164 362,277 776 (68,035) (82,286) 2,519,134 41,298 1,230,714 - 892 (101,798) 335,419 11,868,290 As at 1 January 2017 969,227 1,475,663 74,244 2,519,134 Acquired through business combination 2,037 153,652 53,255 208,944 Charge for the year 144,389 252,720 21,826 418,935 Impairment loss 1,515 1,515 On disposals (7,485) (49,412) (7,494) (64,391) Translation adjustment 20,160 56,008 10,614 86,782 As at 31 December 2017 1,128,328 1,890,146 152,445 3,170,919 Net book value At 31 December 2016 3,202,348 2,790,118 204,006 1,325,605 7,522,077 At 31 December 2017 3,502,074 3,668,294 296,289 1,230,714 8,697,371 In the prior years, the Group had entered into agreements with third parties pursuant to which the Group participated in a series of linked transactions including leasing and sub-leasing of certain cranes of the Group (“the Crane French Lease Arrangements”). At 31 December 2017, cranes with aggregate net book value amounting to USD 210,017 thousand (2016: USD 225,756 thousand) were covered by these Crane French Lease Arrangements. These cranes are accounted for as property, plant and equipment as the Group retains all the risks and rewards incidental to the ownership of the underlying assets. At 31 December 2017, property, plant and equipment with a carrying amount of USD 1,917,423 thousand (2016: USD 2,180,671 thousand) are pledged to bank loans (refer to note 29). Borrowing costs capitalised to property, plant and equipment amounted to USD 5,121 thousand (2016: USD 20,510 thousand) with a capitalisation rate in the range of 0.16% to 0.53% per annum (2016: 2.27% to 3.84% per annum). The fair value of property, plant and equipment recognised as a result of business combination was determined using the market approach model. 32
44. DP World Limited and its subsidiaries Notes to consolidated financial statements 13 . Investment properties Buildings and infrastructure USD’000 Land USD’000 Under development USD’000 Total USD’000 Cost As at 1 January 2016 Additions during the year Transfers Transfer to property, plant and equipment Translation adjustment As at 31 December 2016 30,378 3,491 (260) 33,609 970,094 88,801 11,716 1,070,611 205,016 44,609 (11,716) (270) (97) 237,542 1,205,488 136,901 (270) (357) 1,341,762 As at 1 January 2017 Additions during the year Transfers Transfer to property, plant and equipment Disposals Translation adjustment As at 31 December 2017 33,609 2,450 (251) 1,609 37,417 1,070,611 92,736 (15,500) 1,147,847 237,542 96,434 (92,736) (892) (1,196) 54 239,206 1,341,762 98,884 (892) (16,947) 1,663 1,424,470 Depreciation and impairment As at 1 January 2016 Depreciation charge for the year As at 31 December 2016 - 28,259 33,178 61,437 - 28,259 33,178 61,437 As at 1 January 2017 Depreciation charge for the year Impairment loss As at 31 December 2017 - 61,437 37,767 1,746 100,950 341 341 61,437 37,767 2,087 101,291 33,609 37,417 1,009,174 1,046,897 237,542 238,865 1,280,325 1,323,179 Net book value: As at 31 December 2016 As at 31 December 2017 Revenue on lease rentals from investment properties recognised in profit or loss amounted to USD 466,677 thousand (2016: USD 460,865 thousand) while associated costs related to these investment properties amounted to USD 114,478 thousand (2016: USD 109,790 thousand). Land: At 31 December 2017, the fair value of land was estimated to be USD 76,900 thousand (2016: USD 65,941 thousand) compared to the carrying value of USD 37,417 thousand (2016: USD 33,609 thousand). Buildings and infrastructure: At 31 December 2017, the fair value of buildings and infrastructure was USD 2,271,513 thousand (2016: USD 2,107,291 thousand) compared to the carrying value of USD 1,046,897 thousand (2016: USD 1,009,174 thousand). The buildings and infrastructure are constructed on a land for which the Economic Zones and Logistics park business obtained land use rights for a period of 99 years. Investment properties under development: Investment properties under development mainly include infrastructure development, staff accommodation and office building in Jebel Ali Free Zone, UAE. Based on management’s assessment, the fair value of investment properties under development approximates their carrying value as at the reporting date. Key assumptions used in determination of the fair value of investment properties On an annual basis, the Group engages external, independent and qualified valuers who have the relevant experience to value such properties in order to determine the fair value of the Group’s investment properties. The external valuation of the investment properties has been performed using income capitalization, comparable and residual methods of valuation. The external valuers, in discussion with the Group’s management, have determined these inputs based on the current lease rates, specific market conditions and comparable benchmarking of rents and capital values and rentals in the wider corresponding market. The significant unobservable inputs used in the fair value measurement are as follows: 33
45. DP World Limited and its subsidiaries Notes to consolidated financial statements 13 . Investment properties (continued) • • • • Market rent (per square metre per annum) Rent growth per annum Historical and estimated long term occupancy rate Yields, discount rates and terminal capitalization rates The fair value of investment properties are categorised under level 3 hierarchy and the Group considers the current use of these properties as their highest and best use. 14. Intangible assets and goodwill Land use rights USD’000 Goodwill USD’000 Port concession rights and other intangible assets USD’000 2,677,717 1,460,386 4,042,167 8,180,270 2,677,717 61,519 (166,122) 1,355,783 498,400 87,502 (194,357) 4,433,712 559,919 87,502 (360,479) 8,467,212 2,677,717 1,355,783 4,433,712 8,467,212 2,677,717 114,598 1,470,381 365,287 87,662 331,731 5,218,392 365,287 87,662 446,329 9,366,490 Amortisation and impairment As at 1 January 2016 Charge for the year Translation adjustment As at 31 December 2016 23,096 29,212 52,308 - 1,022,257 118,216 (14,707) 1,125,766 1,045,353 147,428 (14,707) 1,178,074 As at 1 January 2017 Charge for the year Translation adjustment As at 31 December 2017 52,308 29,200 81,508 - 1,125,766 146,308 92,254 1,364,328 1,178,074 175,508 92,254 1,445,836 Net book value: As at 31 December 2016 As at 31 December 2017 2,625,409 2,596,209 1,355,783 1,470,381 3,307,946 3,854,064 7,289,138 7,920,654 Cost As at 1 January 2016 Acquired through business combinations Additions Translation adjustment As at 31 December 2016 As at 1 January 2017 Acquired through business combinations Additions Translation adjustment As at 31 December 2017 Total USD’000 Port concession rights include concession agreements which are mainly accounted for as part of business combinations and acquisitions. These concessions were determined to have finite and indefinite useful lives based on the terms of the respective concession agreements and the income approach model was used for the purpose of determining their fair values. At 31 December 2017, port concession rights with a carrying amount of USD 374 thousand (2016: USD 11,790 thousand) are pledged to bank loans (refer to note 29). 34
46. DP World Limited and its subsidiaries Notes to consolidated financial statements 15 . Impairment testing Goodwill acquired through business combinations and port concession rights with indefinite useful lives have been allocated to various cash-generating units, for the purpose of impairment testing. Impairment testing is done at an operating port (or group of ports) level that represents an CGUs by operating segment are shown below: Carrying amount of Carrying amount of port goodwill concession rights with indefinite useful life 2017 2016 2017 2016 USD’000 USD’000 USD’000 USD’000 Cash-generating units aggregated by operating segment Asia Pacific and Indian subcontinent 233,570 219,919 Australia and Americas 342,650 320,926 Middle East, Europe and Africa 894,161 814,938 848,880 776,919 Total 1,470,381 1,355,783 848,880 776,919 individual CGU. Details of the Discount rates Perpetuity growth rate 6.50% - 11.50% 6.00% - 14.50% 2.50% 2.50% 6.00% - 16.00% 2.50% The recoverable amount of the CGU has been determined based on their value in use calculated using cash flow projections based on the financial budgets approved by management covering a three year period and a further outlook for five years, which is considered appropriate in view of the outlook for the industry and the long-term nature of the concession agreements held i.e. generally for a period of 25-50 years. Key assumptions used in value in use calculations The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill and port concession rights with indefinite useful lives. Budgeted margins – The basis used to determine the value assigned to the budgeted margin is the average gross margin achieved in the year immediately before the budgeted year, adjusted for expected efficiency improvements, price fluctuations and manpower costs. Discount rates – These represent the cost of capital adjusted for the risks associated with the cash flows of the CGU being valued. The Group uses the post-tax Weighted Average Cost of Capital that represents a market participant discount rate. Cost inflation – The forecast general price index is used to determine the cost inflation during the budget year for the relevant countries where the Group is operating. Perpetuity growth rate – In management’s view, the perpetuity growth rate is the minimum growth rate expected to be achieved beyond the eight year period. This is based on the overall regional economic growth forecasted and the Group’s existing internal capacity changes for a given region. The Group also takes into account competition and regional capacity growth to provide a comprehensive growth assumption for the entire portfolio. The values assigned to key assumptions are consistent with the past experience of management. Sensitivity to changes in assumptions The calculation of value in use for the CGU is sensitive to future earnings and therefore a sensitivity analysis was performed. The analysis demonstrated that a 10% decrease in earnings for a future period of three years from the reporting date would not result in significant impairment. Similarly, an increase of 0.25% in discount rate and decrease of 0.25% in perpetuity growth rate would not result in significant impairment. 35
47. DP World Limited and its subsidiaries Notes to consolidated financial statements 16 . Investment in equity-accounted investees The following table summarises the segment wise financial information for equity-accounted investees, adjusted for fair value adjustments (using the income approach model) at acquisition together with the carrying amount of the Group’s interest in equity-accounted investees as included in the consolidated statement of financial position: Asia Pacific and Indian subcontinent 2017 2016 USD’000 USD’000 Australia and Americas 2017 USD’000 2016 USD’000 2017 USD’000 2016 USD’000 2017 USD’000 2016 USD’000 Cash and cash equivalents Other current assets Non-current assets Total assets 619,948 186,374 6,396,749 7,203,071 432,726 232,754 6,167,755 6,833,235 138,293 106,289 1,586,116 1,830,698 147,176 111,735 2,146,178 2,405,089 239,142 265,891 2,813,120 3,318,153 203,733 186,858 2,459,574 2,850,165 997,383 558,554 10,795,985 12,351,922 783,635 531,347 10,773,507 12,088,489 Current financial liabilities Other current liabilities Non-current financial liabilities Other non-current liabilities Total liabilities Net assets (100%) Group’s share of net assets in equity-accounted investees 25,951 434,519 973,497 430,311 1,864,278 5,338,793 317,386 1,092,416 466,819 1,876,621 4,956,614 17,027 181,136 1,282,768 17,105 1,498,036 332,662 595,272 170,598 1,009,024 137,061 1,911,955 493,134 61,144 293,921 579,555 583,467 1,518,087 1,800,066 37,734 249,081 534,625 520,062 1,341,502 1,508,663 104,122 909,576 2,835,820 1,030,883 4,880,401 7,471,521 633,006 737,065 2,636,065 1,123,942 5,130,078 6,958,411 2,172,683 1,951,658 Revenue Depreciation and amortisation Other expenses Interest expense Other finance income Income tax expense Net profit/ (loss) (100%) 1,375,504 (263,768) (566,946) (70,211) 21,225 (138,080) 357,724 1,489,325 (292,542) (605,441) (70,090) 19,860 (146,669) 394,443 656,529 (92,531) (458,788) (223,476) 51,386 (26,530) (93,410) Group’s share of profit (before separately disclosed items) Dividends received Group’s share of other comprehensive income 36 599,720 (107,201) (410,974) (241,971) 149,040 (3,295) (14,681) Middle East, Europe and Africa 746,085 (107,066) (526,943) (46,505) (646) (17,487) 47,438 587,559 (93,828) (448,606) (42,015) 1,753 25,503 30,366 Total 2,778,118 (463,365) (1,552,677) (340,192) 71,965 (182,097) 311,752 2,676,604 (493,571) (1,465,021) (354,076) 170,653 (124,461) 410,128 123,592 114,695 149,435 151,146 3,988 3,416
48. DP World Limited and its subsidiaries Notes to consolidated financial statements 17 . Accounts receivable and prepayments 2017 Non-current USD’000 2017 Current USD’000 2016 Non-current USD’000 2016 Current USD’000 167,886 313,855 481,741 454,052 69,776 298,160 49,554 871,542 137,789 290,838 428,627 410,334 81,966 220,515 80,530 793,345 2017 USD’000 2016 USD’000 651,675 815,854 16,150 1,483,679 619,251 614,618 65,522 1,299,391 Trade receivables (net) Advances paid to suppliers Other receivables and prepayments Due from related parties (refer to note 25) Total The Group’s exposure to credit and currency risks are disclosed in note 26. 18. Cash and cash equivalents Cash at banks and in hand Short-term deposits Deposits under lien Cash and cash equivalents for consolidated statement of cash flows Short-term deposits are made for varying periods between one day and three months depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit market rates. The deposits under lien are placed to collateralise some of the borrowings of the Company’s subsidiaries. Cash flow information Note Cash flows from operating activities Profit for the year Adjustments for: Depreciation and amortization Impairment loss Share of profit from equity-accounted investees (net of tax) Finance costs Gain on disposal of other investments Gain on sale of property, plant and equipment Loss on disposal and change in ownership of business Finance income Income tax expense Gross cash flows from operations 6 6 7 9 7 8 2017 USD’000 2016 USD’000 1,330,746 1,155,067 632,210 3,602 (127,764) 523,510 (5,172) 28,234 (96,090) 43,330 2,332,606 542,883 776 (146,478) 577,878 (3,878) (999) 15,490 (147,709) 122,579 2,115,609 19. Employees’ end of service benefits Movements in the provision recognised in the consolidated statement of financial position are as follows: 2017 USD’000 As at 1 January Acquired through business combinations Provision made during the year * Amounts paid during the year Translation As at 31 December * 112,594 20,560 (12,607) 1,683 122,230 2016 USD’000 97,762 8,422 17,647 (11,237) 112,594 The provision for expatriate staff gratuities, included in Employees’ end of service benefits, is calculated in accordance with the regulations of the Jebel Ali Free Zone Authority. This is based on the liability that would arise if employment of all staff were terminated at the reporting date. 37
49. DP World Limited and its subsidiaries Notes to consolidated financial statements 19 . Employees’ end of service benefits (continued) The UAE government had introduced Federal Labour Law No.7 of 1999 for pension and social security. Under this Law, employers are required to contribute 15% of the ‘contribution calculation salary’ of those employees who are UAE nationals. These employees are also required to contribute 5% of the ‘contribution calculation salary’ to the scheme. The Group’s contribution is recognised as an expense in the consolidated statement of profit or loss as incurred. 20. Pension and post-employment benefits The Group participates in a number of pension schemes throughout the world. a) P&O UK Scheme This principal scheme is located in the UK (the “P&O UK Scheme”). The P&O UK Scheme is a funded defined benefit scheme and was closed to routine new members on 1 January 2002 and to future accrual on 31 December 2015. The pension fund is legally separated from the Group and managed by a Trustee board. The assets of the scheme are managed on behalf of the Trustee by independent fund managers. Formal actuarial valuations of the P&O UK scheme are normally carried out triennially by qualified independent actuaries, the most recent valuation was at 31 March 2016 using the projected unit credit method. The deficit on a statutory funding objectives basis was USD 123,078 thousand. The Group agreed with the Trustee to a new monthly deficit payment plan effective from 1 April 2016 of USD 12,173 thousand until 31 March 2020, then increasing to a total of USD 13,863 thousand until 31 March 2024 and then increasing to USD 16,230 thousand a year until 30 November 2026. In December 2007, as part of a process developed with the Group to de-risk the pension scheme, the Trustee transferred USD 1,600,000 thousand of P&O UK Scheme assets to Paternoster (UK) Ltd, in exchange for a bulk annuity insurance policy to ensure that the assets (in the Company's statement of financial position and in the Scheme) will always be equal to the current value of the liability of the pensions in payment at 30 June 2007, thus removing the funding risks for these liabilities. In December 2017, the Group entered into a Flexible Apportionment Arrangement which enabled a related party to withdraw as an employer from the P&O Pension Scheme, following which all current and future deficit liabilities of the Scheme were taken over by the Group with an additional cash contribution of USD 17,583 thousand. b) Merchant Navy Officers’ Pension Fund (“MNOPF”) The Group participates in various industry multi-employer schemes, the most significant of which is the MNOPF Scheme and is in the UK. These generally have assets held in separate trustee administered funds which are legally separated from the Group. It is an industry wide multi-employer defined benefit scheme in which officers employed by companies within the Group have participated. The most recent formal actuarial valuation of the New Section of MNOPF scheme was carried out as at 31 March 2015. This resulted in a deficit of USD 4,058 thousand. The Trustee Board believe their investment strategy will address this deficit and therefore has not issued deficit contribution notices to employers in respect of the 2015 actuarial valuation. The New Section closed to future accrual in April 2016. Following earlier actuarial valuations in 2009 and 2012 the Trustee and Employers agreed contributions to be paid to the Section by participating employers over the period to 30 September 2023. These contributions included an allowance for the impact of irrecoverable contributions in respect of companies no longer in existence or not able to pay their share. In September 2017, the Trustee offered a settlement sum of USD 19,926 thousand to the Group which would clear the outstanding contributions (due payable bi-annually to September 2023) and save the Group USD 2,807 thousand in future interest payments. The Group agreed and settled the payment on 28 September 2017. There are no outstanding contributions due by Group in 2018. In 2016, Group has accounted for an amount of USD 91,281 thousand as an additional defined benefit obligation with regards to reapportionment of deficit contribution from a related party. In April 2017, this liability was borne and paid by the Parent Company. The Group's share of the net deficit of the New Section at 31 December 2017 is estimated at 5.36%. 38
50. DP World Limited and its subsidiaries Notes to consolidated financial statements 20 . Pension and post-employment benefits (continued) c) Merchant Navy Ratings’ Pension Fund (“MNRPF”) The MNRPF Scheme is an industry wide multi-employer defined benefit pension scheme in which sea staff employed by companies within the Group have participated. The scheme has a significant funding deficit and has been closed to further benefit accrual from 2001. Certain Group companies, which are no longer current employers in the MNRPF had settled their statutory debt obligation and were not considered to have any legal obligation with respect to the on-going deficit in the fund. However, following a legal challenge, by Stena Line Limited, the High Court decided that the Trustee could require all employers that had ever participated in the scheme to make contributions to fund the deficit. Although the Group appealed, the decision was not overturned. The Group’s deficit contributions arising from the 31 March 2014 valuation totalled USD 38,276 thousand (equating to 7.0% share of the net deficit). The contributions due to the Scheme in respect of this valuation will be paid over the period to 31 October 2022. Deficit contributions of USD 4,795 thousand were paid into the Scheme in 2017. The Group’s aggregated outstanding contributions from this valuation are payable as follows: 2018 to 2022 USD 4,797 thousand per annum. The most recent formal actuarial valuation was carried out as at 31 March 2017. The Group’s deficit contributions arising from this valuation totalled USD 11,796 thousand. A consultation regarding the valuation assumptions, factors and outcome is currently underway. The Group has submitted a response to the consultation. A final decision by the Trustee is expected to be communicated at the end of Q1 2018. The Trustee set the payment terms for each participating employer in accordance with the Trustee’s Contribution Collection Policy which includes credit vetting. d) Others The Group also operates a number of smaller defined benefit and defined contribution schemes. The board of a pension scheme in the UK is required by law to act in the best interests of the fund participants and is responsible for setting certain policies (e.g. investment, contributions and indexation policies) and determining recovery plans, if appropriate. These defined benefit schemes expose the Group to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk. In addition, by participating in certain multi-employer industry schemes, the Group can be exposed to a pro-rata share of the credit risk of other participating employers. Reconciliation of assets and liabilities recognised in the consolidated statement of financial position 2017 USD’000 2016 USD’000 187,037 331 202 187,570 313,980 406 305 314,691 7,324 8,185 Net liabilities 194,894 322,876 Reflected in the consolidated statement of financial position as follows: Employee benefits assets (included within non-current receivables) Employee benefits liabilities: Non-current Employee benefits liabilities: Current 187,570 7,324 314,691 8,185 Non-current Defined benefit schemes net liabilities Liability in respect of long service leave Liability for other non-current deferred compensation Current Liability for current deferred compensation 39
51. DP World Limited and its subsidiaries Notes to consolidated financial statements 20 . Pension and post-employment benefits (continued) Long term employee benefit expense recognised in consolidated statement of profit and loss consist of following: 2017 2016 USD’000 USD’000 7,722 11,664 1,545 20,931 Defined benefit schemes Defined contribution schemes Other employee benefits Total 6,617 10,215 11,623 28,455 The re-measurements of the net defined benefit liability gross of tax recognised in the consolidated statement of other comprehensive income is as follows: 2017 2016 USD’000 USD’000 Actuarial (gain)/loss recognised in the year Return on plan assets greater/(lesser) than the discount rate Change in share in multi-employer scheme Movement in minimum funding liability (51,610) (58,045) 643 108,881 Total (131) 368,269 (150,722) (270) (12,290) 204,987 Actuarial valuations and assumptions The latest valuations of the defined benefit schemes have been updated to 31 December 2017 by qualified independent actuaries. The principal assumptions are included in the table below. The assumptions used by the actuaries are the best estimates chosen from a range of possible actuarial assumptions, which, due to the timescale covered, may not necessarily be borne out in practice. Discount rates Discount rates bulk annuity asset Expected rates of salary increases Pension increases: deferment payment Inflation P&O UK scheme 2017 MNOPF scheme 2017 Other schemes 2017 P&O UK scheme 2016 MNOPF scheme 2016 Other schemes 2016 2.50% 2.30% -* 2.50% -* 2.50% 2.4% 2.50% 2.40% -* 2.50% -* 2.70% 3.00% 3.00% 3.00% 3.45% 2.45% 3.35% 3.45% 2.80% 3.10% 3.30% 3.00% 3.00% 3.50% 2.50% 3.40% 3.50% 3.20% 3.20% 3.30% * The P&O UK Scheme and MNOPF were closed to future accrual as at 31 December 2016, so future pay increases are not relevant. 40
52. DP World Limited and its subsidiaries Notes to consolidated financial statements 20 . Pension and post-employment benefits (continued) The assumptions for pensioner longevity under both the P&O UK scheme and the MNOPF scheme are based on an analysis of pensioner death trends under the respective schemes over many years. For illustration, the life expectancies for the two schemes at age 65 now and in the future are detailed in the table below. Male Age 65 now Female Age 65 Age 65 in 20 now years’ time Age 65 in 20 years’ time 2017 P&O UK scheme MNOPF scheme 21.9 23.0 23.7 26.0 23.8 26.4 25.6 29.3 2016 P&O UK scheme MNOPF scheme 22.3 23.0 24.5 25.9 24.3 26.4 26.6 29.2 At 31 December 2017, the weighted average duration of the defined benefit obligation was 15.6 years (2016: 17.3 years). Reasonably possible changes to one of the actuarial assumptions, holding other assumptions constant (in practice, this is unlikely to occur, and changes in some of the assumptions may be correlated), would have increased the net defined benefit liability as at 31 December 2017 by the amounts shown below: USD’000 5,400 2,200 2,600 0.1% reduction in discount rate 0.1% increase in inflation assumption and related assumptions 0.25% p.a. increase in the long term rate of mortality improvement The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period. The schemes’ strategic asset allocations across the sectors of the main asset classes are: P&O UK scheme USD’000 MNOPF scheme USD’000 Other schemes USD’000 Total group schemes fair value USD’000 2017 Equities Bonds Other Value of insured pensioner liability 260,221 349,486 190,432 1,033,581 89,400 164,735 - 66,002 184,887 38,005 2,840 415,623 699,108 228,437 1,036,421 Total 1,833,720 254,135 291,734 2,379,589 443,643 188,987 27,404 984,557 51,721 74,928 - 79,866 144,424 19,504 - 575,230 408,339 46,908 984,557 1,644,591 126,649 243,794 2,015,034 2016 Equities Bonds Other Value of insured pensioner liability Total With the exception of the insured pensioner liability, all material investments have quoted prices in active markets. 41
53. DP World Limited and its subsidiaries Notes to consolidated financial statements 20 . Pension and post-employment benefits (continued) Reconciliation of the opening and closing present value of defined benefit obligations for the period ended 31 December 2017 and 31 December 2016: P&O UK scheme 2017 USD’000 Present value of obligation at 1 January Employer’s interest cost Employer’s current service cost Contributions by scheme participants Effect of movement in exchange rates Benefits paid Experience gains/(losses) on scheme liabilities Change in share in multi-employer scheme Actuarial gain on scheme liabilities due to change in demographic assumptions Actuarial gains/(losses) on scheme liabilities due to change in financial assumptions Present value of obligation at 31 December MNOPF scheme 2017 USD’000 Other schemes 2017 USD’000 Total group schemes 2017 USD’000 P&O UK scheme 2016 USD’000 MNOPF scheme 2016 USD’000 Other schemes 2016 USD’000 Total group schemes 2016 USD’000 (1,763,587) (223,797) (317,436) (2,304,820) (1,871,200) (220,700) (304,389) (2,396,289) (45,046) (164,505) 92,022 9,653 (7,979) (5,663) (20,534) 10,811 8,366 3,346 (8,668) (4,118) (1,158) (30,484) 10,167 (1,287) - (59,377) (4,118) (1,158) (215,523) 113,000 16,732 (4,633) (61,450) 331,852 91,298 29,577 - (7,293) 40,661 9,994 135 (3,376) (10,345) (2,836) (1,215) 61,238 11,210 810 - (79,088) (2,836) (1,215) 433,751 112,502 30,522 (3,376) 2,574 36,551 70,046 1,891 33,977 - 3,089 386 (5,148) (1,673) (353,710) (45,109) (71,909) (470,728) (227,085) (355,558) (2,425,019) (1,763,587) (223,797) (317,436) (2,304,820) (1,842,376) 42 - 71,937
54. DP World Limited and its subsidiaries Notes to consolidated financial statements 20 . Pension and post-employment benefits (continued) Reconciliation of the opening and closing present value of fair value of scheme assets for the period ended 31 December 2017 and 31 December 2016: P&O UK scheme 2017 USD’000 MNOPF scheme 2017 USD’000 Other schemes 2017 USD’000 Total group schemes 2017 USD’000 Fair value of scheme assets at 1 January Interest income on assets Return on plan assets greater/ (lesser) than the discount rate Contributions by employer Contributions by scheme participants Effect of movement in exchange rates Benefits paid Change in share in multi-employer scheme Administration costs incurred during the year 1,644,591 42,214 126,649 5,148 243,794 6,821 2,015,034 54,183 3,346 116,217 17,704 (10,811) (3,732) (386) 9,267 17,375 1,158 24,516 (10,167) (1,030) Fair value of scheme assets at 31 December 1,833,720 254,135 291,734 27,050 (27,050) (63,824) (10,685) (45,430) (141,607) (74,509) (187,037) 45,432 28,958 159,013 (92,022) 7,722 (2,188) Defined benefit schemes net liabilities Minimum funding liability (8,656) (103,872) Net liability recognised in the consolidated statement of financial position at 31 December (112,528) - * This includes reapportionment of pension fund deficit contribution from a related party at the reporting date. 43 58,045 162,550 1,158 201,233 (113,000) 3,990 (3,604) 2,379,589 MNOPF scheme 2016 USD’000 Other schemes 2016 USD’000 Total group schemes 2016 USD’000 220,374 7,293 243,296 8,508 2,258,153 74,820 (68,338) 5,672 (31,464) (9,994) 3,646 (540) 31,603 19,853 1,215 (48,391) (11,210) (1,080) 126,649 243,794 (118,996) - (97,148) (14,936) (73,642) (9,258) (289,786) (24,194) (118,996) (112,084)* (82,900) (313,980) P&O UK scheme 2016 USD’000 1,794,483 59,019 187,457 11,345 (314,254) (91,298) (2,161) 1,644,591 150,722 36,870 1,215 (394,109) (112,502) 3,646 (3,781) 2,015,034
55. DP World Limited and its subsidiaries Notes to consolidated financial statements 20 . Pension and post-employment benefits (continued) A minimum funding liability arises where the statutory funding requirements are such that future contributions in respect of past service will result in a future unrecognisable surplus. The below table shows the movement in minimum funding liability:2017 USD’000 2016 USD’000 Minimum funding liability as on 1 January Employer’s interest cost Actuarial (loss)/gain during the year Effect of movement in exchange rates (24,194) (643) (108,881) (7,889) (41,000) (1,350) 12,290 5,866 Minimum funding liability as on 31 December (141,607) (24,194) It is anticipated that the Group will make the following contributions to the pension schemes in 2018: P&O UK scheme USD’000 MNOPF scheme USD’000 12,173 - 12,443 24,616 2017 Non-current USD’000 2017 Current USD’000 2016 Non-current USD’000 2016 Current USD’000 Trade payables Other payables and accruals Provisions* Fair value of derivative financial instruments Amounts due to related parties (refer to note 25) 141,363 889 339,966 - 197,946 1,698,238 39,355 12,242 112,047 1,313 278,767 - 170,181 1,420,813 56,767 6,144 9,904 As at 31 December 482,218 1,947,781 392,127 1,663,809 Pension scheme contributions 21. Other Total group schemes schemes USD’000 USD’000 Accounts payable and accruals * During the current year, additional provision of USD 21,227 thousand was made (2016: USD 43,269 thousand) and an amount of USD 39,063 thousand was utilised (2016: USD 81,470 thousand). 44
56. DP World Limited and its subsidiaries Notes to consolidated financial statements 22 . Non-controlling interests (‘NCI’) The following table summarises the financial information for the material NCI of the Group: Middle East, Europe and Africa region 2017 USD’000 Balance sheet information: Non-current assets Current assets Non-current liabilities Current liabilities Net assets (100%) Carrying amount of fair value adjustments excluding goodwill Total Carrying amount of NCI as at 31 December Statement of profit or loss information: Revenue Profit after tax Other comprehensive income, net of tax Total comprehensive income (100%), net of tax Profit allocated to NCI Other comprehensive income attributable to NCI Total comprehensive income attributable to NCI Cash flow statement information: Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Dividends paid to NCI Asia Pacific and Indian Australia and subcontinent Americas 2017 2017 USD’000 USD’000 Other individually immaterial subsidiaries* 2017 USD’000 Middle East, Asia Pacific Europe and and Indian Total Africa region subcontinent 2017 2016 2016 USD’000 USD’000 USD’000 292,405 117,453 (912) (19,565) 389,381 531,769 155,497 (20,163) (31,056) 636,047 939,020 393,979 (851,750) (325,951) 155,298 302,327 320,003 (18,058) (48,773) 555,499 472,361 113,765 (13,259) (21,761) 551,106 389,381 259,837 205,144 841,191 285,727 170,147 325,445 146,450 555,499 370,597 186,545 737,651 250,580 237,235 130,309 546 224,141 63,569 95,976 310,274 30,233 32,318 233,524 130,174 2,994 - 130,855 86,903 364 87,267 159,545 21,594 32,603 54,197 62,551 13,605 14,543 28,148 133,168 86,798 1,996 88,794 - (30,806) (10,072) (151,995) 198,375 105,407 (64,858) (50,425) 17,332 49,291 (99,666) 55,902 - 149,437 (7,143) (50,877) - - * There are no material subsidiaries with NCI in the other operating segments of the Group. 45 119,187 31,929 556 32,485 811,201 154,031 48,066 202,097 Other individually immaterial subsidiaries* 2016 USD’000 Total 2016 USD’000 100,657 721,834 44,015 (6,797) 37,218 130,813 (4,801) 126,012
57. DP World Limited and its subsidiaries Notes to consolidated financial statements 23 . Business combinations Acquisition of new subsidiaries (a) On 26 July 2017, the Group acquired a 93% stake in Remolques y Servicios Maritimos, S.L. Group (“Reyser”) Spanish business and a controlling stake in International business through an existing subsidiary Remolcadores de Puerto y Altura, S.A. (“Repasa”). The carrying value and fair value of the identifiable assets and liabilities on the date of the acquisition were as follows: Assets Property, plant and equipment Concession rights Deferred tax assets Investment in equity-accounted investees Accounts receivables and prepayments Inventory Bank balances and cash Liabilities Interest bearing loans and borrowings Deferred tax liabilities Accounts payable and accruals Net assets Acquiree's carrying amount USD’000 Fair value recognised on acquisition USD’000 10,398 308 1,428 14,273 20,054 890 3,754 44,719 145,684 1,428 36,625 20,054 890 3,754 (6,036) (49) (19,387) (6,036) (50,561) (19,387) 25,633 177,170 Less: Non-controlling interests (3,388) Total 173,782 From the date of acquisition, Reyser has contributed a loss of USD 3,359 thousand to the Group. If the acquisition had taken place at the beginning of the year, the profit of the Group would have decreased by USD 7,068 thousand and revenue would have increased by USD 56,333 thousand. (b) On 30 November 2017, the Group acquired the remaining 66.67% stake in Empresa Brasileira de Terminais Portuarious S.A. (“Embraport”) in Brazil from Odebrecht Transport S.A. increasing the shareholding in Embraport to 100%. This acquisition has resulted in recognition of port concession rights of USD 219,603 thousand. From the date of acquisition, Embraport has contributed revenue of USD 7,891 thousand and loss of USD 8,691 thousand. If the acquisition had taken place at the beginning of the year, the profit of the Group would have reduced by USD 28,218 thousand and revenue would have increased by USD 74,160 thousand. 46
58. DP World Limited and its subsidiaries Notes to consolidated financial statements 24 . Significant group entities The extent of the Group’s ownership in its various subsidiaries, equity-accounted investees and their principal activities are as follows: a) Significant holding companies Legal Name DP World FZE Ownership interest 100% Thunder FZE The Peninsular and Oriental Steam Navigation Company Limited 100% 100% Economic Zones World FZE 100% DP World Australia (POSN) Pty Ltd DPI Terminals Asia Holdings Limited DPI Terminals (BVI) Limited DPI Terminals Asia (BVI) Limited DP World Ports Cooperatieve U.A. DP World Maritime Cooperatieve U.A. 100% 100% 100% 100% 100% 100% Principal activities Country of incorporation United Arab Emirates Development and management of international marine and inland terminal operations United Arab Emirates Holding company United Kingdom Management and operation of international marine terminal operations United Arab Emirates Development, management and operation of free zones, economic zones, industrial zones and logistics parks Australia Holding company British Virgin Islands Holding company British Virgin Islands Holding company British Virgin Islands Holding company Netherlands Holding company Netherlands Holding company 47
59. DP World Limited and its subsidiaries Notes to consolidated financial statements 24 . Significant group entities (continued) b) Significant subsidiaries – Ports Legal Name Terminales Rio de la Plata SA Empresa Brasileira de Terminais Portuarious S.A. (refer to note 23) DP World (Canada) Inc. DP World Prince Rupert Inc. DP World Saint John, Inc. DP World Limassol Limited DP World Sokhna SAE DPWorld Posorja S.A. Chennai Container Terminal Private Limited India Gateway Terminal Private Ltd Mundra International Container Terminal Private Limited Nhava Sheva International Container Terminal Private Limited Nhava Sheva (India) Gateway Terminal Private Limited DP World Middle East Limited DP World Maputo S.A. Qasim International Container Terminal Pakistan Ltd DP World Callao S.R.L. Doraleh Container Terminal S.A. Integra Port Services N.V. Suriname Port Services N.V. Constanta South Container Terminal SRL DP World Dakar SA DP World Berbera Pusan Newport Co., Ltd DP World Tarragona SA DP World Yarımca Liman İşletmeleri AS DP World UAE Region FZE London Gateway Port Limited Southampton Container Terminals Limited Saigon Premier Container Terminal Ownership interest 55.62% 100% Country of incorporation Argentina Brazil 55%* 55%* 100% 75% Canada Canada Canada Cyprus 100% 78% 100% Egypt Ecuador India 81.63% 100% India India Container terminal operations Container terminal operations 100% India Container terminal operations 100% India Container terminal operations 100% Container terminal operations 60% 75% Kingdom of Saudi Arabia Mozambique Pakistan 100% 33.34%** 60% 60% Peru Republic of Djibouti # Republic of Suriname Republic of Suriname 100% 90% 65% 66.03% 60% 100% 100% 100% 100% Romania Senegal Somaliland South Korea Spain Turkey United Arab Emirates United Kingdom United Kingdom Container terminal operations Container terminal operations Container terminal operations General cargo terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations 80% Vietnam Container terminal operations 48 Principal activities Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Multi-purpose and general cargo terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations
60. DP World Limited and its subsidiaries Notes to consolidated financial statements 24 . Significant group entities (continued) c) Associates and joint ventures – Ports Legal Name Djazair Port World Spa DP World DjenDjen Spa DP World Australia (Holding) Pty Ltd Antwerp Gateway N.V Caucedo Investments Inc. Ownership interest 50% 50% 25% 60%*** 50% Eurofos SARL Generale de Manutention Portuaire S.A Goodman DP World Hong Kong Limited 50% 50% 25% Visakha Container Terminals Private Limited PT Terminal Petikemas Surabaya Rotterdam World Gateway B.V. Qingdao Qianwan Container Terminal Co., Ltd 26% 49% 30% 29% Tianjin Orient Container Terminals Co., Ltd Yantai International Container Terminals Ltd Asian Terminals Inc Laem Chabang International Terminal Co. Ltd d) Country of incorporation Algeria Algeria Australia Belgium British Virgin Islands France France Hong Kong India Indonesia Netherlands People’s Republic of China 24.50% People’s Republic of China 12.50% People’s Republic of China 50.54%**** Philippines 34.50% Thailand Principal activities Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations and warehouse operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Container terminal operations Other non-port business Legal Name Ownership interest P&O Maritime Services Pty Ltd 100% DP World Antwerp Terminals N.V. 100% DP World Germersheim GmbH and Co. KG 100% DP World Germany B.V. 100% Container Rail Road Services Pvt Limited 100% Empresa de Dragagem do Porto de Maputo, SA 25.50% Maputo Intermodal Container Depot, SA 50.00% Country of incorporation Australia Belgium Germany Netherlands India Mozambique Mozambique Sociedade de Desenvolvimento do Porto de Maputo, S.A. DP World Peru S.R.L. Port Secure FZCO 24.74% Mozambique 100% 40% Remolcadores de Puerto y Altura, S.A. Remolques y Servicios Marítimos, S.L. Dubai International Djibouti FZE 57.01% 93% 100% Peru Republic of Djibouti # Spain Spain United Arab Emirates United Arab Emirates United Arab Emirates United Arab Emirates United Arab Emirates Dubai Trade FZE 100% P&O Maritime FZE 100% World Security FZE 100% Jebel Ali Free Zone FZE 100% LG Park Freehold Limited 100% United Kingdom 49 Principal activities Maritime services Ancillary container services Inland container terminal operations Inland container terminal operations Container rail freight operations Dredging services Inland container depot and warehousing Port management and cargo handling Terminal related activities Port security services Maritime services Maritime services Port management and operation Trade facilitation through integrated electronic services Maritime services Security services Management, operation and development of free zones, economic zones and industrial zones Management and operation of industrial parks
61. DP World Limited and its subsidiaries Notes to consolidated financial statements 24 . Significant group entities (continued) * Ownership change from 100% to 55% effective 19 January 2017. ** Although the Group only has a 33.34% effective ownership interest in this entity, it is treated as a subsidiary, as the Group is able to govern the financial and operating policies of the company by virtue of an agreement with the other investor. *** Although the Group has more than 60% effective ownership interest in this entity, it is not treated as a subsidiary, but instead treated as an equity-accounted investee. The underlying shareholder agreement does not provide control to the Group. **** Although the Group has more than 50% effective ownership interest in this entity, it is not treated as a subsidiary, but instead treated as an equity-accounted investee. The underlying shareholder agreement does not provide control to the Group. # Refer note 34 (b). 25. Related party transactions Other related party transactions Transactions with related parties included in the consolidated financial statements are as follows: Ultimate EquityOther Parent accounted related Company investees parties 2017 2017 2017 USD’000 USD’000 USD’000 Total 2017 USD’000 Ultimate EquityParent accounted Company investees 2016 2016 USD’000 USD’000 Other related parties 2016 USD’000 Total 2016 USD’000 Expenses charged: Concession fee Shared services Other services - - 49,517 736 19,923 49,517 736 19,923 - - 47,292 931 18,864 47,292 931 18,864 Revenue earned: Management fee income Interest income - 19,366 28,368 30,659 - 50,025 28,368 - 25,855 24,276 27,540 - 53,395 24,276 Balances with related parties included in the consolidated statement of financial position are as follows: Due from related parties 2016 2017 USD’000 USD’000 Due to related parties 2016 2017 USD’000 USD’000 Ultimate Parent Company Parent Company Equity-accounted investees Other related parties 2,217 902 347,289 13,001 2,220 18,972 336,722 13,454 219 5 3,107 8,911 361 194 2,168 7,181 Total 363,409 371,368 12,242 9,904 The Group has also issued guarantees on behalf of equity-accounted investees which are disclosed in note 33(a). 50
62. DP World Limited and its subsidiaries Notes to consolidated financial statements 25 . Related party transactions (continued) Compensation of key management personnel The remuneration of directors and other key members of the management during the year were as follows: Short-term benefits and bonus Post-retirement benefits Total 26. 2017 USD’000 2016 USD’000 13,658 451 14,109 13,521 1,411 14,932 Financial risk management Overview The Group has exposure to the following risks from its use of financial instruments: a) b) c) credit risk liquidity risk market risk This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk. The Board of Directors have overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. The Group has exposure to the following risks arising from financial instruments: a) Credit risk Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, amounts due from related parties and investment securities. Trade and other receivables The Group trades mainly with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures and are required to submit financial guarantees based on their creditworthiness. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. 51
63. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) a) Credit risk (continued) Other financial assets Credit risk arising from other financial assets of the Group comprises cash and cash equivalents and certain derivative instruments. The Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group manages its credit risks with regard to bank deposits, throughout the Group, through a number of controls, which include assessing the credit rating of the bank either from public credit ratings, or internal analysis where public data is not available and consideration of the support for financial institutions from their central banks or other regulatory authorities. Financial guarantees The Group’s policy is to consider the provision of a financial guarantee to wholly-owned subsidiaries, where there is a commercial rationale to do so. Guarantees may also be provided to equity-accounted investees in very limited circumstances for the Group’s share of obligation. The provision of guarantees always requires the approval of senior management. i. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure as at 31 December: 2017 USD’000 2016 USD’000 Other investments Derivative assets Trade and other receivables excluding prepayments Cash and cash equivalents 72,759 8,952 1,218,037 1,483,679 60,644 1,095,895 1,299,391 Total 2,783,427 2,455,930 The maximum exposure to credit risk for trade receivables (net) at the reporting date by operating segments are as follows: 2017 2016 USD’000 USD’000 Asia Pacific and Indian subcontinent Australia and Americas Middle East, Europe and Africa 45,369 97,593 311,090 50,169 62,303 297,862 Total 454,052 410,334 52
64. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) a) Credit risk (continued) i. Exposure to credit risk (continued) The ageing of trade receivables (net) at the reporting date was: 2017 USD’000 2016 USD’000 Neither past due nor impaired on the reporting date: Past due on the reporting date Past due 0-30 days Past due 31-60 days Past due 61-90 days Past due > 90 days 247,923 221,685 135,340 44,286 13,430 13,073 107,788 42,957 22,880 15,024 Total 454,052 410,334 The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on the historic collection trends. Movement in the allowance for impairment in respect of trade receivables during the year was: 2017 USD’000 2016 USD’000 As at 1 January Acquired through business combinations Provision (reversed)/ recognised during the year 108,435 976 (2,726) 67,032 340 41,063 As at 31 December 106,685 108,435 Based on historic default rates, the Group believes that, apart from the above, no impairment allowance is necessary in respect of trade receivables not past due or past due. Trade receivables with the top ten customers represent 54% (2016: 59%) of the trade receivables. b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient cash to meet its liabilities as they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank facilities and by ensuring adequate internally generated funds. The Group’s terms of business require amounts to be paid within 60 days of the date of provision of the service. Trade payables are normally settled within 45 days of the date of purchase. 53
65. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) b) Liquidity risk (continued) The following are the undiscounted contractual maturities of financial liabilities, including estimated interest payments and the impact of netting agreements. Carrying Contractual Less than 1–2 2–5 amount cash flows 1 year years years USD’000 USD’000 USD’000 USD’000 USD’000 Non derivative financial liabilities Issued bonds 4,524,844 (7,551,859) (642,102) (230,727) (1,703,519) Convertible bonds 803,075 (1,131,250) (17,500) (17,500) (52,500) Bank loans 2,255,558 (3,186,388) (452,062) (397,504) (648,790) Loans from non-controlling shareholders 13,233 (13,233) (13,233) Finance lease liabilities 21,549 (28,728) (8,551) (6,227) (4,311) Trade and other payables 1,587,252 (1,587,543) (1,495,597) (55,064) (22,562) Financial guarantees and letters of credit* (133,748) Derivative financial liabilities Interest rate swaps used for hedging 111,431 (152,685) (27,804) (27,400) (69,377) Embedded derivative option 173,480 Total 9,490,422 (13,785,434) (2,656,849) (734,422) (2,501,059) Non derivative financial liabilities Issued bonds Convertible bonds Bank loans Loans from non-controlling shareholders Finance lease liabilities Trade and other payables Financial guarantees and letters of credit* Derivative financial liabilities Interest rate swaps used for hedging Embedded derivative option Total More than 5 years USD’000 2016 (4,975,511) (1,043,750) (1,688,032) (9,639) (14,320) (28,104) (7,759,356) 4,119,001 825,412 2,609,656 151,134 33,775 1,706,464 - (6,903,324) (1,113,750) (3,977,590) (151,134) (41,794) (1,711,148) (152,315) (230,552) (17,500) (400,133) (151,134) (11,437) (1,589,903) - (857,756) (17,500) (198,386) (7,344) (26,387) - (1,014,968) (52,500) (645,307) (15,441) (30,119) - 2017 (4,800,048) (1,026,250) (2,733,764) (7,572) (64,739) - 89,453 250,513 9,785,408 (124,302) (14,175,357) (26,180) (2,426,839) (25,528) (1,132,901) (60,886) (1,819,221) (11,708) (8,644,081) *Refer to note 33 for further details. 54
66. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group enters into derivative contracts, in order to manage market risks. All such transactions are carried out within the guidelines set by the Board of Directors in the Group Treasury policy. Generally, the Group seeks to apply hedge accounting in order to manage the volatility in the consolidated statement of profit or loss. i. Currency risk The proportion of the Group’s net operating assets denominated in foreign currencies (i.e. other than the functional currency of the Company, UAE Dirhams) is approximately 64.4% (2016: 63.5%) with the result that the Group’s USD consolidated statement of financial position, and in particular shareholder’s equity, can be affected by currency movements when it is retranslated at each year end rate. The Group partially mitigates the effect of such movements by borrowing in the same currencies as those in which the assets are denominated. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying foreign operations of the Group. This provides an economic hedge without derivatives being entered into and therefore hedge accounting is not applied in these circumstances. The impact of currency movements on operating profit is partially mitigated by interest costs being incurred in foreign currencies. The Group operates in some locations where the local currency is fixed to the Group’s presentation currency of USD further reducing the risk of currency movements. A portion of the Group’s activities generate part of their revenue and incur some costs outside their main functional currency. Due to the diverse number of locations in which the Group operates there is some natural hedging that occurs within the Group. When it is considered that currency volatility could have a material impact on the results of an operation, hedging using foreign currency forward exchange contracts is undertaken to reduce the short-term effect of currency movements. When the Group’s businesses enter into capital expenditure or lease commitments in currencies other than their main functional currency, these commitments are hedged in most instances using foreign currency forward exchange contracts in order to fix the cost when converted to the functional currency. The Group classifies its foreign currency forward exchange contracts hedging forecast transactions as cash flow hedges and states them at fair value. 55
67. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) c) Market risk (continued) i. Currency risk (continued) Exposure to currency risk The Group’s financial instruments in different currencies were as follows: Cash and cash equivalents Trade receivables Secured bank loans and debenture stock Unsecured bank loans and loan stock Loan from non-controlling shareholders Unsecured bonds Finance lease liabilities Trade payables Net consolidated statement of financial position exposures USD* USD’000 GBP USD’000 EUR USD’000 AUD USD’000 INR USD’000 CAD USD’000 KRW USD’000 Others USD’000 2016 Total USD’000 855,526 226,038 122,232 39,131 114,908 46,093 14,059 4,960 49,519 14,248 33,589 42,025 69,918 31,812 39,640 6,027 1,299,391 410,334 (228,192) (791,195) (34,802) - - - (48,040) (1,439,855) (734,308) - - - - - (815,703) (2,083) (5,327,919) (81,987) (2,022) (15,716) (11,150) (9,735) (27,799) (5,076) (2,439) (19,434) (3,487) (4,774) (9,285) (1,229) (8,747) (13,233) (5,327,919) (21,549) (170,181) (5,292,925) (647,570) 77,515 11,504 (37,062) (270,273) 92,445 (12,349) (6,078,715) 56 (81,395) (337,626) -
68. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) c) Market risk (continued) i. Currency risk (continued) Cash and cash equivalents Trade receivables Secured bank loans and debenture stock Unsecured bank loans and loan stock Loan from non-controlling shareholders Unsecured bonds Finance lease liabilities Trade payables Net consolidated statement of financial position exposures USD* USD’000 GBP USD’000 EUR USD’000 AUD USD’000 INR USD’000 CAD USD’000 881,314 207,503 (396,959) (475,907) (1,491) (4,944,413) (19,335) (68,794) 129,348 49,201 (867,370) (1,213) (15,558) 139,926 72,528 (28,430) (242) (21,399) (8,109) (45,308) 16,949 4,589 (1,568) (5,203) 57,143 13,635 (98,791) (14,600) 86,869 61,282 (436,840) (128,244) (3,550) (7,413) (4,818,082) (705,592) 108,966 14,767 (42,613) (427,896) Others USD’000 2017 Total USD’000 112,753 27,629 (13,519) 59,377 17,685 (305,117) (27,551) 1,483,679 454,052 (2,034,716) (574,940) (151,134) (4,944,413) (33,775) (197,946) 126,863 (255,606) (5,999,193) KRW USD’000 * The functional currency of the Company is UAE Dirham. UAE Dirham is pegged to USD and therefore the Group has no foreign currency risk on these balances. 57
69. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) c) Market risk (continued) i. Currency risk (continued) Sensitivity analysis A 10 percent strengthening of the USD against the following currencies at 31 December would have increased/ (decreased) the consolidated statement of profit or loss and the consolidated statement of other comprehensive income by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. Furthermore, as each entity in the Group has its own functional currency, the effect of translating financial assets and liabilities of the respective entity would mainly impact the consolidated statement of other comprehensive income. Consolidated statement of profit or loss 2017 2016 USD’000 USD’000 GBP EUR AUD INR CAD KRW 4,657 7 (2) 644 1,396 (139) 3,745 46 (5) 195 489 - Consolidated statement of other comprehensive income 2017 2016 USD’000 USD’000 (78,399) 12,107 1,641 (4,735) (47,544) 14,096 (71,952) 8,614 1,278 4,118 (30,030) 10,272 A 10 percent weakening of the USD against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. ii. Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with a fixed/ floating interest rate and bank deposits. The Group’s policy is to manage its interest cost by entering into interest rate swap agreements, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 31 December 2017, after taking into account the effect of interest rate swaps, approximately 91% (2016: 94%) of the Group’s borrowings are at a fixed rate of interest. Profile At the reporting date the interest rate profile of the Group’s interest bearing financial instruments was: Carrying amounts 2017 2016 USD’000 USD’000 Fixed rate instruments Financial liabilities (loans and borrowings) (5,410,891) (5,570,832) Interest rate swaps hedging floating rate debt (1,612,491) (1,611,585) Total (7,023,382) (7,182,417) Variable rate instruments Financial assets (short term deposits) Financial liabilities (loans and borrowings) Interest rate swaps hedging floating rate debt Total 832,004 (2,328,087) 1,612,491 116,408 58 680,140 (2,047,427) 1,611,585 244,298
70. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) c) Market risk (continued) ii. Interest rate risk (continued) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points (“bp”) in interest rates at the reporting date would have increased/ (decreased) consolidated statement of profit or loss and the consolidated statement of other comprehensive income by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Consolidated statement of profit or loss 100 bp 100 bp increase decrease USD’000 USD’000 2017 Variable rate instruments Interest rate swaps Cash flow sensitivity (net) Consolidated statement of other comprehensive income 100 bp 100 bp increase decrease USD’000 USD’000 1,164 (1,300) (1,164) 1,300 14,825 (14,825) (136) 136 14,825 (14,825) 2016 Variable rate instruments Interest rate swaps 2,443 - (2,443) - 16,116 (16,116) Cash flow sensitivity (net) 2,443 (2,443) 16,116 (16,116) 59
71. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) d) Fair value Fair value versus carrying amount The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement of financial position are as follows: 2017 Fair value Carrying hierarchy amount USD’000 Assets carried at fair value Available-for-sale financial assets Financial assets at fair value through profit or loss Interest rate swaps used for hedging 2 Liabilities carried at amortised cost Issued bonds Convertible bonds Bank loans* Loans from non-controlling shareholders* Finance lease liabilities* Trade and other payables** 2016 Carrying amount USD’000 2016 Fair value USD’000 70,452 70,452 57,339 57,339 2,307 8,952 2,307 8,952 3,305 - 3,305 - 1,218,037 1,483,679 - 1,095,895 1,299,391 - 2 2 Assets carried at amortised cost Trade and other receivables** Cash and cash equivalents* Liabilities carried at fair value Interest rate swaps used for hedging Embedded derivative option 2017 Fair value USD’000 2 2 (89,453) (250,513) (89,453) (250,513) (111,431) (173,480) (111,431) (173,480) 1 2 (4,119,001) (825,412) (2,609,656) (151,134) (33,775) (1,706,464) (4,618,701) (796,170) - (4,524,844) (803,075) (2,255,558) (13,233) (21,549) (1,587,252) (4,783,315) (814,013) - Fair value hierarchy The table above analyses assets and liabilities that require or permits fair value measurements or disclosure about fair value measurements. • • • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) * These financial assets and liabilities carry a variable rate of interest and hence, the fair values reported approximate carrying values. ** These financial assets and liabilities have short term maturity and thus, the fair values reported approximate carrying values. The fair value of foreign currency forward exchange contracts and interest rate swaps is based on the bank quotes at the reporting dates. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments. The fair value of trade and other receivables and trade and other payables approximates to their carrying values. Embedded derivative option liability of convertible bond is fair valued based on a valuation model with market assumptions. The fair value of the host liability component in the convertible bond is arrived at after deducting the fair value of the embedded derivative option liability from the stock exchange quoted closing bid price of convertible bond as at the reporting date. 60
72. DP World Limited and its subsidiaries Notes to consolidated financial statements 26 . Financial risk management (continued) d) Fair value (continued) The fair value for quoted bonds is based on their market price (including unpaid interest) as at the reporting date. Other loans include term loans and finance leases. These are largely at variable interest rates and therefore, the carrying value normally equates to the fair value. 27. Share capital The share capital of the Company as at 31 December was as follows: 2017 USD’000 2016 USD’000 Authorised 1,250,000,000 of USD 2.00 each 2,500,000 2,500,000 Issued and fully paid 830,000,000 of USD 2.00 each 1,660,000 1,660,000 28. Reserves Share premium Share premium represents surplus received over and above the nominal cost of the shares issued to the shareholders and forms part of the shareholder equity. The reserve is not available for distribution except in circumstances as stipulated by the law. Shareholders’ reserve Shareholders’ reserve forms part of the distributable reserves of the Group. Other reserves The following table shows a breakdown of ‘other reserves’ and the movements in these reserves during the year. A description of the nature and purpose of each reserve is provided below the table. Hedging and other reserves USD’000 Actuarial reserve USD’000 Total other reserves USD’000 Balance as at 1 January 2016 Other comprehensive income, net of tax Balance as at 31 December 2016 (83,320) (11,815) (95,135) (411,541) (199,288) (610,829) (494,861) (211,103) (705,964) Balance as at 1 January 2017 Other comprehensive income, net of tax Pension obligation borne by Parent Company Balance as at 31 December 2017 (95,135) 41,697 91,281 37,843 (610,829) (895) (611,724) (705,964) 40,802 91,281 (573,881) Hedging and other reserves The hedging reserve comprises the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedge transactions that have not yet occurred. The other reserves mainly include statutory reserves of subsidiaries as required by applicable local legislations. This reserve also includes the unrealised fair value changes on available-for-sale investments. Actuarial reserve The actuarial reserve comprises the cumulative actuarial losses recognised in the consolidated statement of other comprehensive income. 61
73. DP World Limited and its subsidiaries Notes to consolidated financial statements 28 . Reserves (continued) Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the Group's presentation currency. It mainly includes foreign exchange translation differences arising from the translation of goodwill and purchase price adjustments which are denominated in foreign currencies at the Group level. 29. Interest bearing loans and borrowings 2017 USD’000 2016 USD’000 4,119,001 825,412 2,609,656 151,134 33,775 7,738,978 4,524,844 803,075 2,255,558 13,233 21,549 7,618,259 of which: Classified as non-current Classified as current 7,437,270 301,708 6,874,777 743,482 of which: Secured interest bearing loans and borrowings Unsecured interest bearing loans and borrowings 2,068,490 5,670,488 1,461,405 6,156,854 2017 USD’000 2016 USD’000 7,618,259 7,670,278 Issued bonds* Convertible bonds** Bank loans Loans from non-controlling shareholders Finance lease liabilities The below table provides movement of interest bearing loans and borrowings: Balance at 1 January Cash flow items Acquired through business combinations Additional borrowings during the year Proceeds from issue of bonds (2023 Sukuk) Repayment of borrowings during the year Redemption of issued bonds (2017 Sukuk) Transaction cost paid on issuance of bonds (2023 Sukuk) Other non-cash items Interest accretion on convertible bonds Transaction cost on convertible bonds amortised during the year Fair value adjustments and transaction cost on issued bonds amortised during the year Translation adjustments Balance at 31 December * 615,861 290,361 (504,809) (387,300) - 1,262,089 1,200,000 (1,287,412) (1,174,455) (10,505) 21,066 1,271 (18,543) 102,812 20,110 1,166 (20,280) (42,732) 7,738,978 7,618,259 On 3 July 2017, the Group settled the remaining USD 387.3 million 6.25 percent 2017 Sukuk Trust Certificates. ** These 10 year USD 1 billion unsecured convertible bonds have an option of converting into 36.85 million ordinary shares of DP World Limited. These bonds are currently listed on the Frankfurt Stock Exchange with a coupon rate of 1.75% per annum. These bonds include an investor put option which can be exercised at par in June 2018 (Year 4) and in June 2021 (Year 7). There is also an issuer call option which can be exercised on or after July 2017 (Year 3), subject to a 130% trigger on the conversion price of USD 27.14. 62
74. DP World Limited and its subsidiaries Notes to consolidated financial statements 29 . Interest bearing loans and borrowings (continued) Certain property, plant and equipment and port concession rights are pledged against the facilities obtained from the banks (refer to note 12 and note 14). The deposits under lien amounting to USD 16,150 thousand (2016: USD 65,522 thousand) are placed to collateralise some of the borrowings of the Company’s subsidiaries (refer to note 18). At 31 December 2017, the undrawn committed borrowing facilities of USD 2,055,686 thousand (2016: USD 2,101,827 thousand) were available to the Group, in respect of which all conditions precedent had been met. Information about the Group’s exposure to interest rate, foreign currency and liquidity risk are described in note 26. 30. Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of share capital, share premium, shareholders’ reserve, retained earnings, hedging and other reserves, actuarial reserve and translation reserve. The primary objective of the Group’s capital management strategy is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. The key performance ratios as at 31 December are as follows: 2017 USD’000 2016 USD’000 7,738,978 (1,483,679) 7,618,259 (1,299,391) 6,255,299 6,318,868 11,625,362 9,519,685 2,469,034 2,263,077 329,870 338,110 Net debt/ equity Net debt/ adjusted EBITDA 0.54 2.53 0.66 2.79 Interest cover before separately disclosed items (Adjusted EBITDA/ net finance cost before separately disclosed items) 7.48 6.69 Total interest-bearing loans and borrowings (refer to note 29) Less: cash and cash equivalents (refer to note 18) Total net debt Total equity Adjusted EBITDA (refer to note 4) Net finance cost before separately disclosed items 63
75. DP World Limited and its subsidiaries Notes to consolidated financial statements 31 . Operating leases Operating lease commitments – Group as a lessee Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows: 2017 USD’000 2016 USD’000 Within one year Between one to five years Between five to ten years Between ten to twenty years Between twenty to thirty years Between thirty to fifty years Between fifty to seventy years More than seventy years 326,223 1,273,277 1,195,744 1,833,876 1,396,953 1,134,517 914,908 800,551 305,993 1,168,634 1,218,846 1,746,874 1,294,886 1,143,660 1,027,867 846,290 Total 8,876,049 8,753,050 The above operating leases (Group as a lessee) mainly consist of terminal operating leases arising out of concession arrangements which are long term in nature. In addition, there are also leases of plant, equipment and vehicles included above. Operating lease commitments – Group as a lessor Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows: 2017 2016 USD’000 USD’000 Within one year Between one to five years More than five years Total 360,983 816,391 950,846 335,327 696,737 791,775 2,128,220 1,823,839 The above operating leases (Group as a lessor) mainly consist of commercial properties leased consisting of land, office accommodation, warehouses and staff accommodation. Besides these, certain property, plant and equipment are also leased out by the Group. The leases contain renewal options for additional lease periods and at rental rates based on negotiations or prevailing market rates. 32. Capital commitments Estimated capital expenditure contracted for as at 31 December 33. 2017 USD’000 2016 USD’000 661,305 732,378 Contingencies a) The Group has the following contingent liabilities arising in the ordinary course of business at 31 December: 2017 2016 USD’000 USD’000 Performance guarantees Payment guarantees Letters of credit Guarantees issued on behalf of equity-accounted investees Total 86,920 36,533 3,025 25,837 83,276 23,000 2,395 25,077 152,315 133,748 The Group has entered into certain agreements with landlords and port authorities which may contain specific volume or payment commitments that could result in minimum concession/lease fees being payable on failure to meet those targets. 64
76. DP World Limited and its subsidiaries Notes to consolidated financial statements 33 . Contingencies (continued) b) Chennai Port Trust (“CPT”) had raised a demand for an amount of USD 18,709 thousand (2016: 17,609 thousand), from Chennai Container Terminal Limited (“CCTL”), a subsidiary of the Company, on the basis that CCTL had failed to fulfil its obligations in respect of non-transhipment containers for a period of four consecutive years from 1 December 2003. CCTL had subsequently paid USD 9,996 thousand (2016: USD 9,408 thousand) under dispute in 2008. CCTL had initiated arbitration proceedings against CPT in this regard. The arbitral tribunal passed its award on November 26, 2012 ruling in favour of CCTL. However, CPT appealed against this order, which was upheld by Madras High Court on 8 January 2014 and accordingly a provision has been recognised against the above receivable. CCTL lodged an appeal before the Division Bench of Madras High Court along with a stay petition on 31 January 2014. The Appeal was taken up for hearing and admitted on 3 February 2014. CPT also made a statement before the Court that no further action would be taken by CPT against CCTL. The Court has admitted the matter and is pending for final hearing and disposal before the Division Bench of Madras High Court. During 2017, CPT raised further demands amounting to USD 35,615 thousand towards its obligations in respect of non-transhipment containers for the years 2008 to 2014. With this the cumulative demand as of 31 December 2017 amounts to USD 54,324 thousand. The Group is confident that the case will be in favour of CCTL. 34. Subsequent events a) On 11 January 2018, the Group acquired Maritime World LLC, the 100% owner of Dubai Maritime City (DMC), for a purchase consideration of USD 180,000 thousand and 100% of Drydocks World LLC (Drydocks) by means of a capital injection of USD 225,000 thousand from the ultimate parent company, Dubai World Corporation. b) On 22 February 2018, the Government of Djibouti illegally seized control of Doraleh Container Terminal S.A. The Group has commenced arbitration proceedings before the London Court of International Arbitration to protect its rights, or to secure damages and compensation for breach or expropriation. 65