Accounts

Financial Accounting

By:

Siddhartha Meherish

Contents

Topic Page

Introduction on Tabreed 3

Note on Financial Items 4

Net worth, Capital Employed, Working Capital 5

Accounting Policies 7

The Cash Flow Statement 9

PBDITA, PBDIT, PAT 10

ROI, EPS, Market Value, Book Value 12

Share Capital 15

Bibliography 16

Appendix 17

The Company

Tabreed was established in 1998 as an offset company to provide cooling solutions. One of its major projects is to establish a district cooling system. Dating back to the Romans, two millenniums ago, the system works by pumping chilled water Ð'- pumped by a cooling plant Ð'- through a network of pipes to buildings and residential areas in the neighborhood. Considering the temperature in the UAE rises to around 49 degrees centigrade during the summer, the cooling system, which has the pipes running underground and away from the blazing heat, is a good solution to the traditional existing solutions available.

Tabreed monitors the network round the clock which helps them keep a check on the system and so that none of the tenants or the service users are affected. The design of the network is such that, it takes into consideration the fact that there might be problems with the network and that one of the pumping units might have to shut down. Even though such unforeseen events are a possibility, Tabreed ensures that none of its tenants will be affected and the cooling system will continue to work. The agreement which Tabreed works on is between 20 and 30 years which ensures' long term benefits and support from the Tabreed technical team. The system can be connected to buildings which use existing traditional cooling systems. This is a totally environmentally friendly system and does not emit any ozone depleting refrigerants. And due to the increasing fear of global warming, such services are picking up pace. Tabreed is the pioneer of such system in the Gulf region.

Fee is levied as per the consumption along with the meter readings every month. A service fee is charged initially when connecting the system. Tabreed agrees to the fact that the fee may increase in the future due to inflation, rise in fuel costs (which is required to run the cooling pumps) and increase in production costs due to any reason. However, Tabreed promises to keep the charges competitive in order to retain the existing customer and attract the new ones.

My case study is based on Tabreed's annual report from 2003 and 2002. Tabreed is the ticker name on the Dubai Financial Market and is registered as National Central Cooling Company PJSC.

Financial Items

Assets

Continuing from the brief introduction provided above, Tabreed has to have a big infrastructure if it plans to proceed as it has planned. As of 2002, Tabreed had plants, furniture, motor vehicles and equipment worth AED 351,592,695. At the end of 2003 (December 31st) the worth had increased by AED 510,809,542 to AED 862,402,237. The capital at the end of 2002 was AED 392,023,088 but because of the growing infrastructure the capital reduced to AED 129,174,890. other non-current assets include intangibles such as goodwill and trademarks. They had also invested in an associate company, Qatar Central Cooling Company during 2003.

Current assets include the bank balance and cash (or cash equivalents), inventories, contract work which was in progress between 2002 and 2003, trade and other receivables. The total of assets rose from AED 1,146,423,317 to AED 1,242,806,370, an increase of AED 93 million.

Liabilities

The equities for Tabreed include the share capital, which is AED 500,000,000 (50,000,000 ordinary shares @ 10 each). The statutory preserve Ð'- according to Commercial Companies Law of 1984, 10% of the net profit of the year has to be transferred to the statutory preserve Ð'- rose from AED 3,065,840 to AED 5,160,205. The proposed dividend is AED 15,000,000 or AED 0.3 per share in 2003 where as there was no proposal for dividend in 2002.

Current liabilities include bank overdrafts worth AED 20,464,466 in 2003, and repayment of loans which are due within this period. Non-current liabilities include mainly the loans taken under various Islamic conditions, such as Islamic Ijara loan, Islamic Istisna'a loan and Islamic Muqawala loan. Other liability under this section is the employees' end of service benefits which is according to the employees' contract. The amount of liabilities was equal to AED 1,242,806,370 at end of 2003.

Income

Tabreeds' income came in the form of revenues which were AED 190,975,051 in 2003 and AED 85,380,040 in 2002. Their other income source include the interest they collect and miscellaneous. This amounts to AED 2,090,671 in 2003 and AED 3,396,042 in 2002. The basic earnings per share in 2003 were AED 0.4675 which was increase from 2002's AED 0.1624.

Expense

The expenses include the operating costs. Like we have been seeing from the above statistics, the increase in operating costs was eminent. It rose from AED 55,177,204 to AED 128,544,291. But even though the costs increased, the gross profit for 2003 was AED 62,430,760 whereas in 2002 it was AED 30,202,836. Other expenses like salaries, administration expenses, minority expenses, amortization of goodwill and finance costs. The net profit for the accounting period for 2003 was AED 23,373,321 which was an increase of AED 17 million from the previous year.

Receipts

These include the loans which Tabreed rececived from the banks. As mentioned earlier, there were three types of loans which Tabreed took. Along with the loans, share capital worth AED 71,176,740 was received in 2003 compared to AED 178,823,260 in 2002. They also received cast from their financing activities which amounted to AED 97 million in 2003 compared to AED 556 million in the year before.

Payments

Major