International Petroleum Investment Company PJSCApr 30, 2018 · residential, hotel (including...

International Petroleum Investment Company PJSC

BOARD OF DIRECTORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

31 DECEMBER 2017


Consolidated financial statements Contents Page Report on the audit of the consolidated financial statements 1 - 5 Board of Directors’ report 6 Consolidated statement of comprehensive income 7 - 8 Consolidated statement of financial position 9 - 10 Consolidated statement of changes in equity 11 - 12 Consolidated statement of cash flows 13 - 14 Notes to the consolidated financial statements 15 - 115

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of International Petroleum Investment Company PJSC (“IPIC” or “the Company”) and its subsidiaries (together the “Group”), comprising of the consolidated statement of financial position as at 31 December 2017 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. 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 (“IFRSs”). 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 Auditor’s responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with 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 judgment, were of most significance in our audit of the consolidated financial statements of the current period. 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. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC continued Report on the Audit of the Consolidated Financial Statements continued Key audit matter How our audit addressed the area of focus

Valuation of investment properties

The Group's investment properties consist mainly of residential, hotel (including serviced apartments), offices, retail and mixed use properties, which are measured and recognised at fair value in the consolidated financial statements. Fair values are determined at each reporting period by reference to valuations performed by external experts. The valuers are accredited with recognised and relevant professional qualifications and with recent experience in the location and category of investment properties being valued. The fair values have been determined in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation Standards. The valuation of the investment properties was significant to our audit due to significant estimates involved in the assessment of the fair value of the investment properties. Significant estimates made by management include average daily rates, occupancy rates, discount rates, capitalisation rates, Gross Development Values (GDV) and construction costs in light of overall market and economic conditions. Refer to note 16 for further information on investment properties.

Our audit procedures included, among others, involving internal real estate valuation specialists to assist us in evaluating the appropriateness of the fair values including an evaluation of the significant estimates made by management (as described above) and the valuation methodologies used by the Group. Our work focused on five properties as of 31 December 2017, located in Abu Dhabi and Dubai. In respect of the significant assumptions, we compared the investment yields used by management to an estimated range of expected yields, average daily rates, occupancy rates and terminal values determined via reference to published benchmarks of comparable assets and internal EY databases based on past transactions and projects. We assessed the valuer’s qualifications and expertise and read their terms of engagement with the Group to determine whether there were any matters that might have affected their objectivity or may have imposed limitations upon their work. We also assessed the disclosures relating to the assumptions as we consider them likely to be important to users of the consolidated financial statements given the estimation uncertainty and sensitivity of the valuations.

Other information included in the Board of Directors’ Report Other information consists of the information included in Board of Directors’ Report other than the consolidated financial statements and our auditor’s report thereon. Management is responsible for the other information. 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 and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC continued Report on the Audit of the Consolidated Financial Statements continued Responsibilities of the management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with IFRSs and in compliance with the applicable provisions of the Company’s Articles of Association and the UAE Federal Law No. (2) of 2015, 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. Auditor’s responsibilities for the audit of the consolidated financial statements Our objective is 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 auditor’s 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 judgment and maintain professional scepticism 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, misrepresentations, or the override of internal control.

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.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC continued Report on the Audit of the Consolidated Financial Statements continued Auditor’s 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 auditor’s report to the related disclosures in the 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 auditor’s 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 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 or

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 auditor’s 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. Other matter The consolidated financial statements of the Group for the year ended 31 December 2016 were audited by another auditor, who expressed an unqualified opinion, with an emphasis of matter paragraph, on those consolidated financial statements on 10 May 2017.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF INTERNATIONAL PETROLEUM INVESTMENT COMPANY PJSC continued Report on Other Legal and Regulatory Requirements Further, as required by the UAE Federal Law No. (2) of 2015, we report that: i) we have obtained all the information and explanations we considered necessary for the purposes of our

audit; ii) the consolidated financial statements have been prepared and comply, in all material respects, with the

applicable provisions of the Articles of Association of the Company and the UAE Federal Law No. (2) of 2015;

iii) the Group has maintained proper books of account; iv) the consolidated financial information included in the Board of Directors’ report is consistent with the

books of account and records of the Group; v) investments in shares and stocks are included in notes 4, 6, 18 and 19 to the consolidated financial

statements and include purchases and investments made by the Group during the year ended 31 December 2017;

vi) note 41 reflects the material related party transactions and the terms under which they were conducted;

and vii) based on the information that has been made available to us nothing has come to our attention which

causes us to believe that the Company has contravened, during the financial year ended 31 December 2017, any of the applicable provisions of its Articles of Association or of the UAE Federal Law No. (2) of 2015 which would have a material impact on its activities or its consolidated financial position as at 31 December 2017.

For Ernst & Young Signed by Anthony O’Sullivan Partner Ernst & Young Registration No. 687 24 April 2018 Abu Dhabi


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BOARD OF DIRECTORS’ REPORT For the year ended 31 December 2017 The Board of Directors is pleased to present the consolidated financial statements for the year ended 31 December 2017, covering the overall performance of the Group. Financial Highlights Revenue were US $ 15.1 billion in 2017 compared to US $ 13.9 billion in 2016. Profit for the year attributable to the owner of the Group was US $ 863 million in 2017, compared to US $ 446 million in 2016 driven by the increase in share of results of equity accounted investees and increased fair values of certain financial investments. Total comprehensive income attributable to the owner of the Group was US $ 1.97 billion in 2017, compared to US $ 262 million in 2016. Total assets were US $ 40.4 billion in 2017, compared to US $ 54.8 billion in 2016. Total liabilities were US $ 33.6 billion in 2017, compared to US $ 43.0 billion in 2016. On 19 January 2017, the President, His Highness Sheikh Khalifa bin Zayed Al Nahyan, as the ruler of Abu Dhabi, issued a law creating Mubadala Investment Company PJSC, a company wholly owned by the government of Abu Dhabi and comprising of the assets of Mubadala Development Company PJSC and International Petroleum Company PJSC. Mubadala Development Company PJSC and International Petroleum Investment Company PJSC remain legal entities with ongoing reporting obligations under the umbrella of the new Mubadala Investment Company Group. For and on behalf of the Board of Directors,

Chairman Group Chief Financial officer Homaid Abdulla Al Shimmari Carlos Obeid Date: 24 April 2018

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December 2017 2017 2017 2016 2016 Notes US $ ‘000 AED ‘000 US $ ‘000 AED ‘000 CONTINUING OPERATIONS Revenue 9 15,085,156 55,415,319 13,912,019 51,105,802 Cost of sales 10 (12,013,938) (44,133,202) (10,745,500) (39,473,594) Gross profit 3,071,218 11,282,117 3,166,519 11,632,208 Share of results of equity accounted investees 18 807,955 2,968,021 197,941 727,136 Dividend income from equity securities 59,673 219,209 88,238 324,142 Other income (net) 131,776 484,079 94,245 346,209 Research and development expenses 11 (179,972) (661,127) (233,915) (859,287) Selling and marketing expenses 12 (788,400) (2,896,187) (751,038) (2,758,938) General and administrative expenses 13 (1,300,728) (4,778,227) (1,075,076) (3,949,289) Profit before unrealised fair value changes, impairments, net finance expenses and taxes 1,801,522 6,617,885 1,486,914 5,462,181

Unrealised gains / (losses) from financial investments (net) 564,438 2,073,467 (844,617) (3,102,701) Decrease in fair value of investment properties (net) 16 (27,399) (100,650) (92,748) (340,710) Impairment of loans and receivables (net) (5,711) (20,979) (125,431) (460,771) Impairment of property, plant and equipment (net) 14 (101,126) (371,486) (74,546) (273,845) Reversal of (impairment) of intangible assets (net) 15 3,889 14,286 (34,102) (125,274) Profit before net finance expense and taxes 2,235,613 8,212,523 315,470 1,158,880 Finance income 139,289 511,678 122,465 449,875 Finance expense (753,622) (2,768,430) (775,875) (2,850,177) Net foreign exchange (losses) / gains (852,421) (3,131,369) 636,661 2,338,774 Net finance expense (1,466,754) (5,388,121) (16,749) (61,528) Profit before income tax 768,859 2,824,402 298,721 1,097,352 Income tax expense (net) 42 (251,730) (924,729) (514,498) (1,890,008) Profit (loss) for the year from continuing operations 517,129 1,899,673 (215,777) (792,656) DISCONTINUED OPERATIONS

Profit for the year from discontinuing operations 7 808,647 2,970,565 619,567 2,275,979 Profit for the year 1,325,776 4,870,238 403,790 1,483,323

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME continued Year ended 31 December 2017 2017 2017 2016 2016 US $ ‘000 AED ‘000 US $ ‘000 AED ‘000 Other comprehensive income Items that may be reclassified to profit or loss in subsequent periods Exchange gains / (losses) on translation of foreign operations 1,486,604 5,461,043 (353,186) (1,297,429)

Net losses arising on hedge of net investments in foreign operations (1,119,945) (4,114,118) (37,010) (135,956)

Effective portion of changes in fair value of cashflow hedges and other reserves (net of tax) 36,531 134,196 12,637 46,422

Increase in fair value of available-for-sale financial assets (net) 844,662 3,102,864 177,489 652,006

Impairment losses on available-for-sale financial assets reclassified from equity to profit or loss - - 73,394 269,613

Share in other comprehensive income of associates and joint ventures 67,427 247,692 3,477 12,773 1,315,279 4,831,677 (123,199) (452,571)

Items that will not be reclassified to profit or loss in subsequent periods Net movement in defined benefit plans (35,943) (132,036) (75,523) (277,434)

Other comprehensive income / (loss) for the year, net of tax 1,279,336 4,699,641 (198,722) (730,005) Total comprehensive income for the year, net of tax 2,605,112 9,569,879 205,068 753,318 Profit for the year 1,325,776 4,870,238 403,790 1,483,323 Less: (profit) / loss attributable to non-controlling interests (462,717) (1,699,791) 42,158 154,867

Profit for the year attributable to the Owner of the Group 863,059 3,170,447 445,948 1,638,190 Total comprehensive income for the year 2,605,112 9,569,879 205,068 753,318 Less: total comprehensive (income) / loss attributable to non-controlling interests (634,213) (2,329,782) 57,288 210,447

Total comprehensive income for the year attributable to the Owner of the Group 1,970,899 7,240,097 262,356 963,765 The attached notes 1 to 47 form part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 December 2017 31 December 31 December 2017 2017 2016 2016 Notes US $ ‘000 AED ‘000 US $ ‘000 AED ‘000 ASSETS Non-current assets Property, plant and equipment 14 10,435,839 38,336,056 13,603,328 49,971,825 Intangible assets 15 1,545,107 5,675,950 2,595,490 9,534,533 Investment properties 16 1,742,230 6,400,083 1,863,636 6,846,067 Investments in equity accounted investees 18 8,876,325 32,607,180 8,756,203 32,165,912 Other financial investments 19 3,371,412 12,384,882 2,575,355 9,460,567 Loans receivable 20 1,594,923 5,858,948 1,022,906 3,757,645 Trade receivables 21 204,209 750,163 155,566 571,472 Other receivables and prepayments 22 11,903 43,726 37,270 136,911 Other assets 23 192,631 707,628 5,044,245 18,530,034 Defined benefit plan assets 33 53,096 195,048 46,521 170,895 Deferred tax assets 42 89,559 328,994 1,091,356 4,009,096 Total non-current assets 28,117,234 103,288,658 36,791,876 135,154,957 Current assets Inventories 24 1,858,866 6,828,543 3,180,889 11,684,996 Other financial investments 19 2,484,964 9,128,517 1,389,672 5,104,960 Loans receivable 20 777,206 2,855,067 1,165,558 4,281,677 Trade receivables 21 2,547,858 9,359,555 3,488,859 12,816,324 Other receivables and prepayments 22 1,382,634 5,079,106 1,073,255 3,942,602 Other assets 23 388,048 1,425,493 1,761,960 6,472,560 Cash and cash equivalents 25 2,847,217 10,459,251 5,951,053 21,861,193 12,286,793 45,135,532 18,011,246 66,164,312 Assets classified as held for sale 25,015 91,893 25,015 91,893 Total current assets 12,311,808 45,227,425 18,036,261 66,256,205 TOTAL ASSETS 40,429,042 148,516,083 54,828,137 201,411,162 EQUITY AND LIABILITIES Equity Share capital 34 3,500,000 12,857,250 3,500,000 12,857,250 Additional shareholder contribution 35 1,000,000 3,673,500 1,000,000 3,673,500 Shareholder current account 7 (7,210,534) (26,487,898) - - Retained earnings 5,180,561 19,030,791 7,910,614 29,059,641 Other reserves 36 1,016,132 3,732,761 (3,657,678) (13,436,480) Total equity attributable to the Owner of the Group 3,486,159 12,806,404 8,752,936 32,153,911 Non-controlling interests 3,385,948 12,438,278 3,028,028 11,123,461 Total equity 6,872,107 25,244,682 11,780,964 43,277,372 The attached notes 1 to 47 form part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION continued At 31 December 2017 31 December 31 December 2017 2017 2016 2016 Notes US $ ‘000 AED ‘000 US $ ‘000 AED ‘000 EQUITY AND LIABILITIES continued Non-current liabilities Interest bearing borrowings 32 20,189,211 74,165,065 22,104,284 81,200,087 Derivative financial liabilities 31 395,956 1,454,545 145,051 532,845 Other liabilities 28 307,241 1,128,651 423,770 1,556,719 Other payables and accruals 27 83,396 306,355 - - Provisions 29 243,623 894,951 771,619 2,834,542 Provision for 1MDB guarantees 40 - - 3,500,000 12,857,250 Defined benefit liabilities 33 742,226 2,726,567 660,909 2,427,849 Deferred tax liabilities 42 1,081,889 3,974,318 1,558,390 5,724,746 Total non-current liabilities 23,043,542 84,650,452 29,164,023 107,134,038 Current liabilities Interest bearing borrowings 32 2,508,681 9,215,639 3,573,552 13,127,443 Trade payables 26 3,627,608 13,326,020 6,028,051 22,144,045 Other payables and accruals 27 3,537,982 12,996,777 2,832,092 10,403,691 Income tax payable 101,971 374,590 187,820 689,958 Derivative financial liabilities 31 77,256 283,798 104,633 384,369 Provisions 29 14,565 53,505 162,684 597,620 Other liabilities 28 645,330 2,370,620 994,318 3,652,626 Total current liabilities 10,513,393 38,620,949 13,883,150 50,999,752 Total liabilities 33,556,935 123,271,401 43,047,173 158,133,790 TOTAL EQUITY AND LIABILITIES 40,429,042 148,516,083 54,828,137 201,411,162

Chairman Group Chief Financial officer

Homaid Abdulla Al Shimmari Carlos Obeid

The attached notes 1 to 47 form part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2017 Equity attributable to the Owner of the Group _

Additional Shareholder Non- Share shareholder current Retained1 Other controlling Total capital contribution account earnings reserves Total interests equity US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Balance at 1 January 2016 (Restated) 3,500,000 1,000,000 - 7,472,314 (3,473,337) 8,498,977 3,290,334 11,789,311 Profit (loss) for the year - - - 445,948 - 445,948 (42,158) 403,790 Other comprehensive loss for the year - - - - (183,592) (183,592) (15,130) (198,722) Total comprehensive income (loss) for the year - - - 445,948 (183,592) 262,356 (57,288) 205,068 Dividends paid to non-controlling shareholders - - - - - - (230,669) (230,669) Acquisition of additional interest in subsidiaries - - - (5,240) - (5,240) (5,178) (10,418) Disposal of interest in a subsidiary - - - (727) - (727) 11,511 10,784 Other movements - - - (1,681) (749) (2,430) 19,318 16,888 Balance at 1 January 2017 3,500,000 1,000,000 - 7,910,614 (3,657,678) 8,752,936 3,028,028 11,780,964 Profit for the year - - - 863,059 - 863,059 462,717 1,325,776 Other comprehensive income for the year - - - - 1,107,840 1,107,840 171,496 1,279,336 Total comprehensive income for the year - - - 863,059 1,107,840 1,970,899 634,213 2,605,112 Dividends paid to non-controlling shareholders - - - - - - (328,412) (328,412) Contribution by non-controlling interest - - - - - - 234,711 234,711 Acquisition of additional interest in subsidiaries - - - (34,523) - (34,523) 25,368 (9,155) Transfer of a non-current asset to an entity under common control (note 14) - - (300,236) - - (300,236) - (300,236) Transfer of a subsidiary to an entity under common control (note 7) - - (6,910,298) (3,565,560) 3,565,560 (6,910,298) (194,014) (7,104,312) Other movements - - - 6,971 410 7,381 (13,946) (6,565) Balance at 31 December 2017 3,500,000 1,000,000 (7,210,534) 5,180,561 1,016,132 3,486,159 3,385,948 6,872,107 1 Includes statutory reserve of certain subsidiaries registered in UAE, which is not distributable. The attached notes 1 to 47 form part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY continued Year ended 31 December 2017 Equity attributable to the Owner of the Group

Additional Shareholder Non- Share shareholder current Retained1 Other controlling Total capital contribution account earnings reserves Total interests equity AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000 Balance at 1 January 2016 (Restated) 12,857,250 3,673,500 - 27,449,545 (12,759,303) 31,220,992 12,087,042 43,308,034 Profit (loss) for the year - - - 1,638,190 - 1,638,190 (154,867) 1,483,323 Other comprehensive loss for the year - - - - (674,425) (674,425) (55,580) (730,005) Total comprehensive income (loss) for the year - - - 1,638,190 (674,425) 963,765 (210,447) 753,318 Dividends paid to non-controlling shareholders - - - - - - (847,363) (847,363) Acquisition of additional interest in subsidiaries - - - (19,249) - (19,249) (19,021) (38,270) Disposal of interest in a subsidiary - - - (2,671) - (2,671) 42,286 39,615 Other movements - - - (6,174) (2,752) (8,926) 70,964 62,038 Balance at 1 January 2017 12,857,250 3,673,500 - 29,059,641 (13,436,480) 32,153,911 11,123,461 43,277,372 Profit for the year - - - 3,170,447 - 3,170,447 1,699,791 4,870,238 Other comprehensive income for the year - - - - 4,069,650 4,069,650 629,991 4,699,641 Total comprehensive income for the year - - - 3,170,447 4,069,650 7,240,097 2,329,782 9,569,879 Dividends paid to non-controlling shareholders - - - - - - (1,206,421) (1,206,421) Contribution by non-controlling interest - - - - - - 862,211 862,211 Acquisition of additional interest in subsidiaries - - - (126,819) - (126,819) 93,189 (33,630) Transfer of a non-current asset to an entity under common control (note 14) - - (1,102,918) - - (1,102,918) - (1,102,918) Transfer of a subsidiary to an entity under common control (note 7) - - (25,384,980) (13,098,085) 13,098,085 (25,384,980) (712,710) (26,097,690) Other movements - - - 25,607 1,506 27,112 (51,234) (24,122) Balance at 31 December 2017 12,857,250 3,673,500 (26,487,898) 19,030,791 3,732,761 12,806,404 12,438,278 25,244,682 1 Includes statutory reserve of certain subsidiaries registered in UAE, which is not distributable. The attached notes 1 to 47 form part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 31 December 2017 31 December 31 December 2017 2017 2016 2016 Notes US $ ‘000 AED ‘000 US $ ‘000 AED ‘000 OPERATING ACTIVITIES Profit (loss) for the year Profit (loss) from continuing operations 517,129 1,899,673 (215,777) (792,656) Profit from discontinuing operations 7 808,647 2,970,565 619,567 2,275,979 Adjustments for: Share of results of equity accounted investees (net) 18 (862,006) (3,166,579) (133,089) (488,902) Dividend income from equity securities (61,789) (226,982) (88,511) (325,145) Other income (175,184) (643,538) (182,552) (670,606) Depreciation and amortisation of property, plant, equipment and intangible assets 14 &15 1,792,853 6,586,045 1,712,587 6,291,188 Unrealised (gain) loss on financial assets at fair value through profit or loss (net) (472,865) (1,737,070) 813,951 2,990,049 Decrease in fair value of investment properties (net) 16 27,399 100,650 92,748 340,710 Impairment of loans and receivables (net) 43(a) 16,830 61,825 125,431 460,771 Impairment of property, plant and equipment (net) 14 244,145 896,867 75,588 277,673 Impairment of intangible assets (net) 15 165,269 607,116 112,223 412,251 Finance income (173,169) (636,136) (154,398) (567,181) Finance expense 856,995 3,148,171 884,294 3,248454 Net foreign exchange loss (gain) 730,366 2,683,000 (611,177) (2,245,159) Income tax expense (net) 42 568,955 2,090,056 717,590 2,636,067 3,983,575 14,633,663 3,768,475 13,843,493 Changes in: Inventories (543,608) (1,996,944) (429,977) (1,579,521) Receivables, prepayments and other assets (1,044,091) (3,835,468) (192,708) (707,913) Payables, accruals and other liabilities 1,184,576 4,351,538 879,792 3,231,916 Cash generated from operating activities 3,580,452 13,152,789 4,025,582 14,787,975 Taxes paid (571,802) (2,100,515) (420,327) (1,544,071) Net cash from operating activities 3,008,650 11,052,274 3,605,255 13,243,904 The attached notes 1 to 47 form part of these consolidated financial statements

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CONSOLIDATED STATEMENT OF CASH FLOWS continued Year ended 31 December 2017 31 December 31 December 2017 2017 2016 2016 Notes US $ ‘000 AED ‘000 US $ ‘000 AED ‘000 INVESTING ACTIVITIES Acquisition of associates and joint ventures (149,754) (550,122) (90,468) (332,334) Acquisition of financial investments (831,862) (3,055,846) (448,593) (1,647,906) Proceeds from disposal of financial investments 285,159 1047,532 1,304,772 4,793,080 Cash outflow on acquisition of the Geismar Business 6 (2,111,511) (7,756,636) - - Acquisition of subsidiaries (net of cash acquired) (34,821) (127,914) (20,222) (74,286) Purchase of property, plant and equipment and intangible assets (2,206,903) (8,107,058) (1,593,978) (5,855,478) Purchase of investment properties 16 (32,746) (120,292) (100,014) (367,401) Proceeds from disposal of property, plant and equipment and intangible assets 15,855 58,244 36,752 135,008 Proceeds from disposal of investment properties 115,532 424,408 91,369 335,644 Receipt against asset held for sale 279,699 1,027,474 27,046 99,353 Settlement against 1MDB receivable 1,274,208 4,680,802 - - Advance paid against non-current asset - - (102,725) (377,360) Transfer of a subsidiary to an entity under common control (net of cash disposed) 7 (654,947) (2,405,948) - - Dividends received from equity accounted investees and other financial investments 713,167 2,619,819 335,927 1,234,028 Interest received 270,450 993,498 61,458 225,766 Net cash used in investing activities (3,068,474) (11,272,039) (498,676) (1,831,886) FINANCING ACTIVITIES Proceeds from interest bearing borrowings 32 4,309,381 15,830,511 7,331,016 26,930,487 Repayments of interest bearing borrowings 32 (6,458,706) (23,726,056) (8,772,659) (32,226,363) Contribution by non-controlling interest 234,711 862,211 - - Interest paid (1,002,538) (3,682,823) (767,356) (2,818,882) Dividends paid to non-controlling interest (328,412) (1,206,421) (230,669) (847,363) Net cash used in financing activities (3,245,564) (11,922,581) (2,439,668) (8,962,121) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,305,388) (12,142,343) 666,911 2,449,897 Cash and cash equivalents at 1 January 2017 5,951,053 21,861,193 5,355,927 19,674,998 Net foreign exchange fluctuation 201,552 740,401 (71,785) (263,702) CASH AND CASH EQUIVALENTS AT 31 DECEMBER 25 2,847,217 10,459,251 5,951,053 21,861,193 The attached notes 1 to 47 form part of these consolidated financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 1 LEGAL STATUS AND PRINCIPAL ACTIVITIES International Petroleum Investment Company PJSC (the “Company”) is a public joint stock company established on 29 May 1984 in Abu Dhabi, United Arab Emirates (“UAE”) by Emiri Decree No 3/1984 (subsequently replaced by Emiri Decree No 2/1986). The Company’s registered head office is P O Box 7528, Abu Dhabi, UAE. The principal activity of the Company is to invest, on a long-term basis, in overseas energy and energy-related assets and to undertake infrastructure projects. Additionally the Company’s subsidiary, Aabar Investments PJS (“Aabar”), a diversified investment company, with investments across a broad range of sectors including aerospace, construction, commodities, financial services and real estate. The principal activities of the Company and its subsidiaries (the “Group”) are further described in note 4. On 19 January 2017, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, as the Ruler of Abu Dhabi, issued a law creating Mubadala Investment Company, a company wholly owned by the Government of Abu Dhabi. Mubadala Investment Company comprises both International Petroleum Investment Company PJSC (“IPIC”) and Mubadala Development Company PJSC (“MDC”) and their respective assets. The immediate parent of the Company is Mubadala Investment Company PJSC (“Shareholder”) and the ultimate parent is the Government of the Emirate of Abu Dhabi (“Ultimate parent”). The consolidated financial statements for the year ended 31 December 2017 were authorised for issue in accordance with the resolution of the Board of Directors on 24 April 2018. 2 BASIS OF PREPARATION a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and applicable requirements of the UAE Federal Law No.2 of 2015. b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis, except for financial assets at fair value through profit or loss, available-for-sale investments, derivative financial instruments and investment properties that have been measured at fair value and certain non-current assets received as government grants which are stated at nominal value. c) Functional and presentation currency These consolidated financial statements are presented in US Dollars (“US $”), which is the functional currency of the Company and presentation currency of the Group. All values are rounded to the nearest thousand (US $ ‘000) except when otherwise indicated. The consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity and consolidated statement of cash flows are also presented in United Arab Emirates Dirham (“AED”) solely for the convenience of the Shareholder of which reporting currency is AED. The exchange rate used to translate the US $ amounts to AED is 3.6735.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued d) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates with a significant risk of material adjustment in the subsequent years are disclosed in note 45. e) New and revised IFRS i) New and revised IFRSs adopted in the consolidated financial statements The following new and revised IFRSs, which became effective for annual periods beginning on or after 1 January 2017, have been adopted in these consolidated financial statements. The application of these new and revised IFRSs did not have any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. • Statement of Cash Flows: Disclosure initiative (Amendments to IAS 12) • Recognition of deferred tax assets for unrealised losses (Amendments to IAS 12) • Annual Improvements to IFRS Standards 2014–2016 Cycle (Amendments to IFRS 12) ii) New and revised IFRSs in issue but not yet effective and not early adopted The Group has not yet adopted the following new and revised IFRSs that have been issued but are not yet effective: IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018) a) Classification and measurement The Group expects to continue measuring at fair value all financial assets currently held at fair value but expects a significant impact on its profit or loss in 2018 on applying the classification and measurement requirements of IFRS 9 on available-for-sale (AFS) investments. Gains and losses on re-measurement of AFS securities currently recorded in OCI will, instead, be recorded as fair value through profit or loss, which will increase volatility in recorded profit or loss. The AFS reserve of US $ 3,257,211 thousand related to those securities, will be reclassified to retained earnings. Fair value movements on these available-for-sale investments were US $ 842,525 thousand during 2017. There was no impairment recorded on these investments during the period. Investment in debt securities held for trading and those designated at fair value through profit or loss will continue to be measured at fair value through profit or loss. Therefore, reclassification for these instruments is not required. Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest (“SPPI”). The Company analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9, except for loans amounting to US $ 599,465 thousand at 31 December 2017, which failed the SPPI test and will be carried at fair value through profit or loss. The fair value adjustment on these loans as of 1 January 2018 will be recognised in retained earnings.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued e) New and revised IFRS continued ii) New and revised IFRSs in issue but not yet effective and not early adopted continued IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018) continued b) Impairment IFRS 9 requires the Group to record expected credit losses on all of its loans and trade receivables, either on a 12 month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all loans and trade receivables. In addition, the Group will be impacted by expected credit losses (“ECL”) relating to term loans and receivables, the amount of which has not yet been determined as at 31 December 2017. c) Hedge accounting The Group determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under IFRS 9. The Group has chosen not to retrospectively apply IFRS 9 on transition to the hedges where the Group excluded the forward points from the hedge designation under IAS 39. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 9 will not have a significant impact on Group’s financial statements. d) Other adjustments In addition to the adjustments described above, on adoption of IFRS 9, other items of the primary financial statements such as deferred taxes, assets held for sale and liabilities associated with them, investments in the associate and joint venture, will be adjusted as necessary. The exchange differences on translation of foreign operations will also be adjusted. e) Disclosure IFRS 9 will require extensive new disclosures, in particular about hedge accounting, credit risk and expected credit losses (“ECLs”). The Group’s assessment included an analysis to identify data gaps against current processes and the Group is in the process of implementing the system and controls changes that it believes will be necessary to capture the required data. f) Transition Changes in accounting policies resulting from the adoption of IFRS 9 will generally be applied retrospectively, except as described below. The Group will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Difference in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 will generally be recognized in retained earnings and reserves as at 1 January 2018. The new hedge accounting requirements should generally be applied prospectively. However, The Group

has decided to apply the accounting for the forward element of forward contracts retrospectively. The following assessments have to be made on the basis of the facts and circumstances that exist at the date

of initial application. o The determination of the business model within which a financial asset is held. o The designation and revocation of previous designations of certain financial assets and financial

liabilities as measured at FVTPL. o The designation of certain investments in equity instruments not held for trading as at FVOCI.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued e) New and revised IFRS continued ii) New and revised IFRSs in issue but not yet effective and not early adopted continued IFRS 15 Revenue from Contracts with Customers IFRS 15 established a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programme. a) Sale of goods For contracts with customers in which the sale of goods is generally expected to be the only performance obligation, adoption of IFRS 15 is not expected to have significant impact on the Group’s revenue and profit or loss. The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods. In preparing to adopt IFRS 15, the Group has considered the various elements of revenue including variable consideration (such as rights of return, volume rebates) and warranty obligations. b) Rendering of services Revenue from services rendered are recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to the proportion of the service rendered. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, the associated costs or the rejection of the services provided. Under IFRS 15, the total consideration in the service contract will be allocated to all services based on their stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Group sells the services in separate transactions. Based on the Group’s assessment, the fair value and the stand-alone selling prices of the services are broadly similar. Therefore, the Group does not expect the application of IFRS 15 to result in significant differences in the timing of revenue recognition for these services. c) Construction contracts Contract revenue currently includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. When a claim or variation is recognised, the measure of contract progress or contract price is revised and the cumulative contract position is reassessed at each reporting date. Based on its assessment, the Group does not expect the application of IFRS 15 to have a significant impact on its consolidated financial statements. d) Presentation and disclosure requirements The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in the Group’s financial statements. Many of the disclosure requirements in IFRS 15 are new and the Group has assessed that the impact of some of these disclosures requirements will be significant. In particular, the Group expects that the notes to the financial statements will be expanded because of the disclosure of significant judgements made when determining the transaction price of those contracts that include variable consideration, how the transaction price has been allocated to the performance obligations, and the assumptions made to estimate the stand-alone selling prices of each performance obligation.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued e) New and revised IFRS continued ii) New and revised IFRSs in issue but not yet effective and not early adopted continued IFRS 15 Revenue from Contracts with Customers continued d) Presentation and disclosure requirements continued Also, extended disclosures are expected as a result of the significant judgement made when assessing the contracts where the Group has concluded that: it acts as an agent instead of a principal, there is a significant financing component, and service-type warranties are provided. In addition, as required by IFRS 15, the Group will disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. It will also disclose information about the relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment. In 2017 the Group continued testing of appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information. e) Other adjustments In addition to the major adjustments described above, on adoption of IFRS 15, other items of the primary financial statements such as deferred taxes, assets held for sale and liabilities associated with them, profit or loss after tax for the year from discontinued operations, investments in associate and joint venture, as well as share of profit of an associate and a joint venture, will be affected and adjusted as necessary. Furthermore, exchange differences on translation of foreign operations would also be adjusted. The recognition and measurement requirements in IFRS 15 are also applicable for recognition and measurement of any gains or losses on disposal of non-financial assets (such as items of property and equipment and intangible assets), when that disposal is not in the ordinary course of business. However, on transition, the effect of these changes is not expected to be material for the Group. Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective. IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The amendment to IFRS 2 will not have any impact on the Group since the Group does not have share-based payment transactions.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued e) New and revised IFRS continued ii) New and revised IFRSs in issue but not yet effective and not early adopted continued IFRS 16 Leases IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. In 2018, the Group will assess the impact of IFRS 16 on its consolidated financial statements, mainly relating to operating leases in certain business units which would be recognised on the consolidated statement of financial position. IFRS 17 Insurance Contracts In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued e) New and revised IFRS continued ii) New and revised IFRSs in issue but not yet effective and not early adopted continued IFRS 17 Insurance Contracts continued A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) • A simplified approach (the premium allocation approach) mainly for short-duration contracts. IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. The Group will assess the potential effect of IFRS 17 on its consolidated financial statements. Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9, before implementing IFRS 17 Insurance Contracts, which replaces IFRS 4. The amendments introduce two options for entities issuing insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. The temporary exemption is first applied for reporting periods beginning on or after 1 January 2018. An entity may elect the overlay approach when it first applies IFRS 9 and apply that approach retrospectively to financial assets designated on transition to IFRS 9. The entity restates comparative information reflecting the overlay approach if, and only if, the entity restates comparative information when applying IFRS 9. The Group is currently assessing the impact of this standard. Transfers of Investment Property – Amendments to IAS 40 The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with IAS 8 is only permitted if it is possible without the use of hindsight. Effective for annual periods beginning on or after 1 January 2018. Early application of the amendments is permitted and must be disclosed. The Group will apply amendments when they become effective. However, since Group’s current practice is in line with the clarifications issued, the Group does not expect any effect on its consolidated financial statements. IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued e) New and revised IFRS continued ii) New and revised IFRSs in issue but not yet effective and not early adopted continued IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration continued Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope that are initially recognised on or after: (i) The beginning of the reporting period in which the entity first applies the interpretation; or (ii) The beginning of a prior reporting period presented as comparative information in the financial statements

of the reporting period in which the entity first applies the interpretation. The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application of interpretation is permitted and must be disclosed. However, since the Group’s current practice is in line with the Interpretation, the Group does not expect any effect on its consolidated financial statements. IFRIC Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: • Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax

rates • How an entity considers changes in facts and circumstances An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date. Since the Group operates in a complex multinational tax environment, applying the Interpretation may affect its consolidated financial statements and the required disclosures. In addition, the Group may need to establish processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis. Long term interests in associates and joint ventures – Amendments to IAS 28 The amendments clarify that an entity applies IFRS 9 Financial Instruments to long term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long term interests). These also clarify that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures. The amendments should be applied retrospectively and are effective from 1 January 2019, with earlier application permitted. If an entity applies those amendments for an earlier period, it must disclose that fact. The Group is currently assessing the impact of this amendment.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 2 BASIS OF PREPARATION continued e) New and revised IFRS continued ii) New and revised IFRSs in issue but not yet effective and not early adopted continued Annual Improvements Cycle-2014 - 2016 Amendments to IFRS 12 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12: The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10–B16, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. The application has no effect on the Group. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies applied by the Group in these consolidated financial statements are set out below. a) Basis of consolidation i) Subsidiaries Subsidiaries are entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: power over the entity (i.e. existing rights that give it the current ability to direct the relevant activities of the

investee); exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: the contractual arrangement with the other vote holders of the investee; rights arising from other contractual arrangements; and the Group’s voting rights and potential voting rights. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. The accounting policies of the subsidiaries are adjusted where necessary to ensure conformity with the policies adopted by the Group. Profit or loss and each component of other comprehensive income are attributed to the Owner of the Group and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

24


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued a) Basis of consolidation continued ii) Changes in Group's ownership interest in existing subsidiaries Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group‘s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the Owner of the Group. When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. Disposals of interest in entities to parties under common control Disposals of interest in entities to parties under common control of the Shareholder, which lack commercial substance and are based on a decision by the Shareholder are accounted for on the date of transfer without restatement of prior years. Any gain or loss arising including recycling of reserves on such transaction is recorded directly in equity similar to assets held for distribution. When disposals of interest in entities to parties under common control of the Shareholder have commercial substance, the difference between the fair value of the consideration received and the net carrying value of interest in such entities is recorded in profit or loss. Disposals of interest in a subsidiary to an equity accounted investee Gain or loss on the disposal of interest in a subsidiary to an equity accounted investee is eliminated to the extent of the retained indirect interest in that disposed entity by the Group. iii) Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred except if related to the issue of debt securities. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are

recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;

• liabilities or equity instruments related to share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and

• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

25


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued a) Basis of consolidation continued iii) Business combinations continued Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS. When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date. Acquisition of interest in entities under common control Acquisition of interest in entities that are under common control of the Shareholder which lack commercial substance and are based on a decision by the Shareholder are accounted for in accordance with the pooling of interest method of accounting using predecessor values method. The consolidated financial statements of the combined entities are presented as if the business had been combined from the date when the combining entities were first brought under common control without restating and presenting the prior period. The assets and liabilities are accounted for at carrying amounts previously recorded in the books of the transferor. The components of equity of the acquired entities are added to the same components within the Group’s equity. Any transaction cost paid for acquisition is recognised directly in equity. Acquisition of interest in entities that are under common control of the Shareholder which have commercial substance are recorded for using the acquisition method. iv) Investment in associates and joint arrangements Associates are those entities over which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. For the purpose of accounting for its interests in joint arrangements, the Group segregates its investments in joint arrangements into two types – joint ventures and joint operations. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

26


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued a) Basis of consolidation continued iv) Investment in associates and joint arrangements continued Joint ventures are joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint ventures are those investments in distinct legal entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Joint operations are joint arrangements whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. In relation to its interests in joint operations, the Group recognises its: • assets, including its share of any assets held jointly • liabilities, including its share of any liabilities incurred jointly • revenue from the sale of its share of the output arising from the joint operation • share of the revenue from the sale of the output by the joint operation • expenses, including its share of any expenses incurred jointly Investments in associates and joint ventures are accounted for using the equity method and are initially recognised at cost, which includes transaction costs. When the investor has previously held an investment in the entity (generally accounted for under IAS 39), the deemed cost of the associate or joint venture is the fair value of the original investment at the date that significant influence or joint control is obtained plus the consideration paid for the additional stake. When the original investment has been classified previously as an available-for-sale financial asset under IAS 39, the revaluation gain or loss recognised in other comprehensive income is not reclassified from equity to profit or loss until such time that there is a realisation event. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences, until the date that significant influence or joint control ceases. In addition, when there has been a change recognised directly in the equity (other than due to other comprehensive income) of the associate or joint venture, the Group recognises its share of any changes, when applicable, in profit or loss and corresponding effect would be reflected in the net carrying value of interest in such investees. When the Group’s share of losses exceeds its interest in an associate or joint venture, the carrying amount of that interest (including any long term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has a constructive or legal obligation to contribute to such losses or has made payments on behalf of the investee. Any excess of the acquisition cost over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate or joint venture is at the acquisition date as goodwill, which is included within the carrying amount of the investment and is neither amortised nor individually tested for impairment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities over the acquisition cost, after reassessment, is recognised immediately in profit or loss representing gain on acquisition. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets (see note 3(v)).

27


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued a) Basis of consolidation continued iv) Investment in associates and joint arrangements continued The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment is classified as held for sale. Upon disposal of equity accounted investees that results in a loss of significant influence or joint control, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with IAS 39. The difference between the previous carrying amount of the equity accounted investee attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the equity accounted investee. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to equity accounted investee on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by the equity accounted investees would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. When a Group's entity undertakes its activities under joint operations, the Group as a joint operator recognises in relation to its interest in a joint operation: • its assets, including its share of any assets held jointly; • its liabilities, including its share of any liabilities incurred jointly; • its revenue from the sale of its share of the output arising from the joint operation; • its share of the revenue from the sale of the output by the joint operation; and • its expenses, including its share of any expenses incurred jointly. The Group, as a joint operator, accounts for the assets, liabilities, income and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, income and expenses. v) 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 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) Revenue from sale of goods and services Accounting policies for revenue from sale of goods and services and land are set out below. Accounting policies for investments in securities and financial instruments are set out in notes 3(a) and 3(f), and those for investment properties are set out in note 3(p). Revenue from sale of goods and services include income from sale of hydrocarbons, commission and fee income from banking and financial services and licensing revenue. Revenue from such sales is recognised as follows:

28


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued b) Revenue from sale of goods and services continued i) Sale of goods and services rendered Revenue from the sale of goods, other than hydrocarbons, is recognised when the goods are delivered and title has passed, at which time all the following conditions are satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Group retains neither continuing managerial involvement to the degree usually associated with

ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is measured net of returns, trade discounts and volume rebates. Revenue from services rendered are recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to the proportion of the service rendered. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, the associated costs or the possible return of the goods or the rejection of the services provided. ii) Sale of hydrocarbons Revenue from the sale of hydrocarbons is recognised when the significant risks and rewards of ownership have been transferred, which is when title passes to the customer. This generally occurs when product is physically transferred into a vessel, pipe or other delivery mechanism. Revenue from the production of hydrocarbons in which the Group has an interest with other producers is recongised based on the Group’s share of liftings or offtake arrangements. Lifting or off-take arrangements for hydrocarbons produced by certain of the Group’s joint operations are such that each participant may not receive its precise share of the overall production, which is based on the Group’s working interest and the terms of the relevant production sharing contracts (also known as “entitlements”). There may be an imbalance between cumulative entitlement and cumulative liftings that is termed as ‘underlift’ or ‘overlift’. Underlift and overlift are valued at market value and included within current assets and current liabilities, respectively. Movements during an accounting period are adjusted through cost of sales such that gross profit is recognised on an entitlements basis. Where forward sale and purchase contracts for oil or natural gas have been determined to be for trading purposes, the associated sales and purchases are reported net.

29


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued b) Revenue from sale of goods and services continued iii) Commission and fee income from banking and financial services The Group earns commission and fee income from securities and investing activities (asset management, brokerage and custody) and other services rendered, as well as lending activities. Fees earned for the provision of services over a period of time are recognised over that period. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan. iv) Construction contract revenue Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs. Variations in contract work are recognised to the extent that it is probable that they will result in revenue and such revenue can be reliably measured, while contract claims and incentive payments are included only to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. Losses on contracts are assessed on an individual contract basis. When it is probable that total contract costs will exceed total contract revenue, total expected loss is recognised as an expense immediately, as soon as foreseen, whether or not work has commenced on these contracts. Due from customers or contract work-in-progress is stated at cost plus attributable profit, less provision for any anticipated losses and progress payments received and receivable. Where these payments received and receivable for any contract exceed the cost plus attributable profit or less anticipated losses, the excess is shown as due to customers or excess billings. c) Exploration, evaluation and development expenditures i) Oil and gas exploration, evaluation and development expenditures The Group follows the successful efforts method of accounting for its oil and gas exploration, evaluation, appraisal and development expenditures. Under this method, costs of acquiring properties, drilling successful exploration and appraisal wells, and all development costs are capitalised. All other costs are charged to profit or loss as and when incurred. Licence and property acquisition costs Exploration licence and leasehold property acquisition costs are capitalised within exploration and evaluation assets. If no future activity is planned, the remaining balance of the licence and property acquisition costs is written off. These costs are initially amortised over the term of the agreement on a straight-line basis during exploration phase. Upon recognition of proven reserves, including internal approval for development, the relevant expenditure is transferred to property, plant and equipment and is then amortised based on unit of production method (once production is underway).

30


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c) Exploration, evaluation and development expenditures continued i) Oil and gas exploration, evaluation and development expenditures continued Exploration and appraisal expenditures Annual lease rentals, exploratory geological and geophysical costs including seismic costs incurred during exploration phase, are charged to profit or loss as and when incurred. Costs associated directly with drilling of exploratory wells are capitalised within exploration and evaluation assets until the drilling of well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, rig costs, delay rentals, drilling services and payments made to contractors. If potentially commercial quantities of hydrocarbons are not found, the exploration expenditures are written off as a dry hole. If hydrocarbons are found and, subject to further appraisal activity, are likely to be capable of commercial development, the costs continue to be carried as an asset. Costs directly associated with appraisal activity, including the costs of drilling appraisal wells and additional seismic, geological and geophysical activities, undertaken to determine the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, are initially capitalised as part of exploration and evaluation assets. All such carried costs are subject to technical, commercial and management review at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When such intent no longer exists, or if there is a change in circumstances signifying an adverse change in initial judgment, these costs are written off and classified under “exploration costs”. When commercial reserves of hydrocarbons are determined and development is approved by management, the relevant expenditure is transferred to property, plant and equipment. Development expenditures Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including service, recompletion and unsuccessful development or delineation wells, is capitalised within property, plant and equipment and is depreciated upon the commencement of production as described in the accounting policy for property, plant and equipment (see note 3(n)(iii)). Depreciation, depletion and amortisation of oil and gas assets Oil and gas assets are depreciated using a unit-of-production method, using estimated proven and probable reserves. The unit-of-production rate for the amortisation of field development costs takes into account expenditures incurred to date, together with approved future development expenditure required to develop reserves. The impact of changes in estimated reserves is dealt with prospectively by amortising the remaining carrying value of the asset over the expected future production. If reserves estimates are revised downwards, earnings could be affected by higher depreciation expense or an immediate write-down of the property’s carrying value. For amortisation of licence and property acquisition costs (see note 3(c)(i) above).

31


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued d) Research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • its intention to complete and its ability to use or sell the asset; • how the asset will generate future economic benefits; • the availability of resources to complete the asset; and • the ability to measure reliably the expenditure during development. Upon initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use over the expected future benefit. During the period of development, the asset is tested for impairment annually. No development costs have been recognised as intangible assets to date, as in management’s opinion it cannot be demonstrated with sufficient probability how intangible assets created as a result of the Group’s development activities will generate probable future economic benefits. Development costs which do not meet the above criteria are expensed as incurred. e) Foreign currency i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Foreign currency gains or losses on monetary items is the difference between the amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the translation of available-for-sale financial assets or a financial liability designated as a hedge of the net investment in a foreign operation that is effective, or qualifying cash flow hedges to the extent hedges are effective, which are recognised in other comprehensive income.

32


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued e) Foreign currency continued ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisitions, are translated to the presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to presentation currency at average exchange rates. Foreign currency differences are recognised in other comprehensive income and presented in the foreign currency translation reserve (“FCTR”) in equity. However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented within equity in the FCTR. Goodwill and fair value adjustments to identifiable assets acquired and liabilities assumed through acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences are recognised in other comprehensive income. f) Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. i) Non-derivative financial assets The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The Group classifies non-derivative financial assets into the following categories: • financial assets at fair value through profit or loss; • held to maturity financial assets; • loans and receivables; and • available-for-sale financial assets.

33


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued f) Financial instruments continued i) Non-derivative financial assets continued Non-derivative financial assets comprise fair value through profit or loss investments, available-for-sale financial assets, trade and other receivables, cash and cash equivalents, loans and receivables, due from banks and amounts due from related parties. The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. (refer IAS 39 paragraph 44). The Group derecognises a financial asset only when the contractual rights to the cash flows of the asset expire, or it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Fair value measurement The determination of fair values of financial assets and liabilities is based on quoted market prices or dealer quotations for financial instruments traded in active markets. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. Quoted bid prices are used for financial assets and quoted ask prices are used for financial liabilities. For financial instruments not traded on an active market, fair value is determined based on recent transactions, brokers’ quotes or a widely recognised valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

34


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued f) Financial instruments continued i) Non-derivative financial assets continued Financial assets at fair value through profit or loss A financial asset is classified as held for trading if the Group has acquired it principally for the purpose of selling it in the near term, or on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking, or it is a derivative that is not designated and effective as a hedging instrument. Financial assets are designated at fair value through profit or loss (“FVTPL”) if the Group manages such investments and their performance is evaluated on a fair valuation basis, or if the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise, in accordance with the Group’s documented risk management or investment strategy, or if it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL. Upon initial recognition, attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, including any interest or dividend income, are recognised in profit or loss. The fair value of quoted securities is arrived at based on the closing bid price of the shares in the capital markets. Fair value of funds is provided by the fund manager. The fair value of bonds and convertible bonds are determined with reference to quoted market prices. Where such prices are not available, valuation is performed based on discounted cash flows analysis using applicable yield curves for the duration of the investment. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and not classified in any of the other categories. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3 (v)) and foreign currency differences on available-for-sale debt instruments (see note 3(e)(i)), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss. The fair value of available-for-sale financial assets is determined by reference to their quoted bid price at the reporting date. If a quoted market price is not available, the fair value is based on an appropriate valuation technique.

A significant or prolonged decline in the fair value of investments in equity instruments below their cost is considered as impairment in the carrying amount of the instrument, and is accordingly charged to profit or loss.

35


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued f) Financial instruments continued i) Non-derivative financial assets continued Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. The losses arising from impairment are recognised in the consolidated statement of profit or loss. Loans and receivables comprise due from banks and loans and other receivables due from banking customers, trade and other receivables, including service concession receivables, amounts due from related parties, receivable against sale of land, other receivables, and loans to related parties and third parties. Due from banks and loans and other receivables due from banking customers, include non–derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: • those that the Group intends to sell immediately or in the near term and those that the Group upon initial

recognition designates as at fair value through profit or loss; • those that the Group, upon initial recognition, designates as available-for-sale; and, • those for which the Group may not recover substantially all of its initial investment, other than because of

credit deterioration. The Group may enter into certain lending commitments where the loan, on drawdown, is expected to be classified as held–for–trading because the intent is to sell the loans in the short term. These commitments to lend are recorded as derivatives and measured at fair value through profit or loss. Where the loan, on drawdown, is expected to be retained by the Group, and not sold in the short term, the commitment is recorded only when the commitment is an onerous contract and it is likely to give rise to a loss (for example, due to a counterparty credit event). The Group recognises a financial asset arising from a service concession arrangement when it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction or upgrade services provided. Such financial assets are measured at fair value upon initial recognition. Subsequent to initial recognition the financial assets are measured at amortized cost. If the Group is paid for the construction services partly by a financial asset and partly by an intangible asset, then each component of the consideration received or receivable is accounted for separately and is recognised initially at the fair value of the consideration received or receivable (see note 3(o)). Cash and cash equivalents Cash and cash equivalents comprise cash and bank balances, call deposits and term deposits which are readily convertible into known amount of cash and cash equivalents and are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. Cash and cash equivalents have an original maturity of three months or less. The carrying amount of these assets approximates fair value. Amounts due from banks arising from banking activities maturing within three months or less are considered as cash and cash equivalents at the Group level.

36


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued f) Financial instruments continued ii) Non-derivative financial liabilities Classification as debt or equity Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Financial liabilities The Group initially recognises debt securities issued on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. For offsetting with financial assets (see note 3(f)(i)). The Group derecognises a financial liability when its contractual obligations are discharged, or cancelled or expired.

The Group has the following non-derivative financial liabilities: interest bearing borrowings, due to banks, payables and accruals and amounts due to related parties. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Financial guarantee contracts Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recongised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recongised less cumulative amortisation. iii) Derivative financial instruments including hedge accounting The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps and cross currency swaps. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately, unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. (refer IAS 39 paragraph 46). Any directly attributable transaction costs are recognised in profit or loss as they are incurred. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued f) Financial instruments continued iii) Derivative financial instruments including hedge accounting continued The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instrument for non-option derivatives and option pricing models or quotes from counterparties for option derivatives. Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contract derived from readily available market data. Interest rate and currency swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. Embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Other non-trading derivatives When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss. Hedge accounting On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment and documents, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80% - 125%. Cash flow hedges For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net income. When a derivative is designated as a hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the consolidated statement of comprehensive income as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. When a derivative instrument or a non-derivative financial liability is designated as a hedging instrument in a hedge of a net investment in a foreign operation, the effective portion of the changes in the fair value of the hedging instrument is recognised in other comprehensive income in the translation reserve. Any ineffective portion of the changes in the fair value of the derivative is recognised immediately in profit or loss. The amount recognised under other comprehensive income is reclassified to profit or loss on disposal of the foreign operation.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued f) Financial instruments continued iii) Derivative financial instruments including hedge accounting continued Cash flow hedges continued If the hedging instrument no longer meets the criteria for hedge accounting, expires, or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction affects profit or loss. When the hedged item is a non-financial asset or non-financial liability, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in profit or loss. In other cases the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss. Fair value hedges The change in the fair value of a hedging derivative is recognised in the consolidated statement of profit or loss. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in profit or loss. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the consolidated statement of profit or loss over the remaining term to maturity. Effective interest rate amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss. When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss. Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in other comprehensive income while any gains or losses relating to the ineffective portion are recognised in the consolidated statement of profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in other comprehensive income is transferred to the consolidated statement of profit or loss. Economic hedges Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in profit or loss as part of foreign currency gains and losses. Short selling In certain instances the Group sells securities that it does not own and therefore, it will be obliged to purchase such securities at a future date. When the Group sells a security short, an amount equal to the proceeds received is recorded as a liability and is subsequently adjusted to the current market value of the securities sold short. Upon the closing of the short position, the difference between the proceeds originally received and the cost of the securities purchased to close the short position is recognised as a realised gain or loss. This is disclosed on the consolidated statement of financial position in liabilities under financial liabilities through profit or loss. These positions are shown as financial liabilities at fair value through profit or loss until they are realised. Upon realisation, they are shown in the consolidated statement of comprehensive income as loss or income from financial investments.

39


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued g) Government grants Monetary government grants Monetary grants that compensate the Group for expenses to be incurred are initially recognised in the consolidated statement of financial position as a deferred liability. Subsequent to initial recognition, such grants are released to profit or loss on a systematic basis over the periods in which the related expenses are recognised. Other non-monetary government grants Other non-monetary government grants are recognised in the consolidated statement of financial position at nominal value, and the granted assets are classified with other assets of the same nature as the granted item. Where government grants compensate for the cost of assets, such assets are carried at cost, less the value of the grants received. Asset values so derived are depreciated over the useful life of the relevant asset. Monetary grants for investments in other business enterprises are credited directly to the consolidated statement of changes in equity. h) Greenhouse gas emission allowances In the absence of a current IFRS standard or interpretation on accounting for greenhouse gas emission allowances, the following principles have been applied: • Emission rights granted free of charge are accounted for at market price prevailing at the beginning of the

year to which it relates and are recognised with a credit to other liabilities; • Emission rights acquired from the market are measured at acquisition cost; • Liabilities resulting from potential differences between available quotas and quotas to be delivered at the

end of the compliance period are accounted for as liabilities and measured at acquisition cost; • Spot market transactions are recognised in income at cost. Emission rights are recognised as non-amortisable intangible assets and are derecognised when they are delivered, transferred to third parties or expire. At the end of the compliance period the Group delivers CO2 emission rights equal to the volume of emissions made during the year. If the net realisable value of the emissions rights is less than their carrying amount, the value of the emission rights owned will be reduced to market value. i) Finance income and expenses i) Finance income from loans Finance income from loans comprises interest income on loans given to third parties and equity accounted investees. Finance income from loans is recognised in profit or loss as they accrue using the effective interest method. ii) Net finance expense Net finance expense comprises interest income on short term deposits and advances, effective interest on service concession receivables; and interest expenses on term loans, amortization of loan arrangement fees and foreign exchange gains and losses that are recognized in profit or loss. Interest income and expenses are recognized in profit or loss as they accrue using the effective interest method. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued j) Income tax Income tax expense / credit comprise current and deferred tax. Current and deferred taxes are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and joint arrangements to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, unused 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. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Additional income taxes that arise from the distribution of dividends are recognised at the same time that the liability to pay the related dividend is recognised. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it is incurred during the measurement period or recognised in profit or loss. k) Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: • Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation

authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable;

• In accordance with the legislation applicable to companies operating in the oil and gas industry, the excise tax on oil and gas sales is recorded as part of the selling price and as an addition to cost under "Revenue" and "Cost of sales" respectively, in the consolidated statement of comprehensive income;

• Receivables and payables that are stated with the amount of sales tax included; and • The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of

receivables or payables in the consolidated statement of financial position.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued l) Investment tax credits The Group accounts for investment tax credits using the cost-reduction approach. Investment tax credits related to the acquisition of assets are deducted from the related assets with depreciation calculated on the net amount. Investment tax credits related to current expenses are included in the determination of profit or loss for the period. m) 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 as the assets are substantially ready for their intended use or sale. Other borrowing costs are recognised as an expense in the period in which they are incurred (see note 3(i)). Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. n) Property, plant and equipment i) Recognition and measurement Owned assets Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the assets. The cost of property, plant and equipment acquired in a business combination is stated at fair value as at the date of acquisition.

The cost of self-constructed assets 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 costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Leased assets Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased assets are measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued n) Property, plant and equipment continued 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. The carrying amount of the replaced part is derecognised. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognizes such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. The costs of the day-to day servicing of property, plant and equipment are recognised in profit or loss as incurred. iii) Depreciation Oil and gas assets are depreciated using the unit-of-production method by reference to the ratio of production in the period and the related proved and probable reserves in the field, taking into account future development expenditure necessary to bring those reserves into production. See note 3(c) for accounting policy on depreciation, depletion and amortisation of oil and gas assets. Land is not depreciated. Leased assets are depreciated over the shorter of the lease term and their estimated useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Depreciation on assets other than oil and gas assets, land and leased assets, is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current period are as follows:

Estimated useful lives

Buildings, structures and plants 5 - 40 years Office equipment, furniture and fittings 2 - 40 years Machinery, tools and technical equipment 2 - 40 years Aircraft materials 10 - 30 years Computers 2 - 15 years Land improvements 20 years Leasehold land Period of lease Distribution network 50 years and above Others 3 - 15 years

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate (see note 45(b)). iv) Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised within “other income (net)” in profit or loss in the period in which the asset is derecognised.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued n) Property, plant and equipment continued v) Capital work in progress The Group capitalises all costs relating to the construction of property, plant and equipment as capital work in progress, up to the date of the completion and commissioning of the asset. These costs are transferred from capital work in progress to the appropriate asset classification upon completion and commissioning, and are depreciated over the useful economic life applicable to the respective asset category, from the date of such completion and commissioning. o) Intangible assets i) Goodwill Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition (see note 3(a)(iii)). Following initial recognition, goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee. Goodwill is reviewed for impairment annually or more frequently if events and circumstances indicate that the carrying value may be impaired. The recoverable amounts of the cash-generating units are estimated based on the higher of the fair value less cost to sell and value in use. Value in use is determined with the assistance of independent valuers, as well as by internal estimates. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or group of cash-generating units) which is expected to benefit from the synergies of the combination. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. ii) Brands and trademarks Acquired brands, trademarks and licences are shown at historical costs. Trademarks and licences primarily have indefinite useful lives and are subject to impairment testing which is performed annually or in case of triggering events. iii) Service concession arrangements The Group recognises an intangible asset arising from a service concession arrangement when it has a right to charge for usage of the concession infrastructure. An intangible asset received as consideration for providing construction or upgrade services in a service concession arrangement is measured at fair value upon initial recognition (which is regarded as their cost). Subsequent to initial recognition, the intangible asset is measured at cost, which includes capitalised borrowing costs, less accumulated amortisation and accumulated impairment losses. iv) Other intangible assets Other intangible assets, which includes patents, customer contracts and other intangible assets, have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses, if any.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued o) Intangible assets continued v) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. vi) Business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, if any. vii) Derecognition An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. viii) Amortisation License fees relating to mineral exploration and production rights and oil reserves are amortised using the unit-of-production method (see note 3(c)). Favourable supply contracts acquired in a business combination are amortised on a straight-line basis over the life of the contract. Possible and contingent hydrocarbon reserves acquired in a business combination are amortised on a straight-line basis over the life of the project until the reserves move to the proved and probable category. After the reserves move to the proved and probable category, they are amortised based on the unit-of-production method. Amortisation of other intangible assets is recognised in profit or loss on a straight-line basis over the estimated useful lives of the intangible assets, from the date that they are available for use. The estimated useful lives for the current period are as follows:

Estimated useful lives

Brands and trademarks Indefinite Technology, licence and software 2 - 10 years Customer contracts 3 – 20 years Patents 7 years Capitalised development costs 3- 25 years Others 3 – 50 years and unit of production

Amortisation methods, useful lives and residual values are reviewed at each financial year end date and adjusted if appropriate. The estimated useful life of an intangible asset in a service concession arrangement is the period from when the Group is able to charge the tenants for the use of the infrastructure to the end of the concession period.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued p) Investment properties Investment properties are properties held to earn rental and / or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gain and losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised. Amounts paid to purchase investment properties are initially recorded as advances on investment properties and the related capital commitments are disclosed in the commitments and contingencies. When the investment property recognition criteria are met, advances on investment properties are reclassified to investment properties. Investment property portfolio is valued through a mix of internal valuations and / or independent external valuations. Where external independent valuation is used management engages external independent valuation companies, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued. The fair values are based on market values, being the estimated price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The fair value measurement takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Where appropriate, the specific approved usage of the investment property is given due consideration. In the absence of reliable estimates of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated future cash flows expected to be received from the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation. Valuations reflect, when appropriate, the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, the allocation of maintenance and insurance responsibilities between the Group and the lessee, and the remaining economic life of the property. q) Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date whether the 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. At the inception or on re-assessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group’s incremental borrowing rate.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued q) Leases continued i) Group as lessee Finance leases, which transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Minimum lease payments are apportioned between the finance charges and reduction of the lease obligation so as to achieve a constant periodic rate of interest on the remaining balance of the liability. Finance charges are reflected in the consolidated statement of comprehensive income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the consolidated statement of comprehensive income on a straight-line basis over the lease term. Lease incentives are recognised as an integral part of the total lease exposure, over the term of the lease. ii) Group as lessor Leases where the Group transfers substantially all of the risks and benefits of ownership of the asset through its contractual arrangements to the customer are considered as a finance lease. The amounts due from the lessee are recorded in the statement of financial position as financial assets (finance lease receivables) and are carried at the amount of the net investment in the lease after making provision for impairment, if any. Initial direct costs are included in the initial measurement of the finance lease receivable and reduce the amount of income recognised over the lease term. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. Leases in which the Group does not transfer substantially all of the risks and benefits of ownership of the asset are classified as operating leases. Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight line basis over the lease term. r) Inventories For inventories other than petrochemicals and land and building held for sale, cost is based on the weighted average cost method (or standard costs approximately equal to cost based on weighted average cost method) and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In case of refinery products, the costs are allocated to income in proportion to the selling price of the related products due to the complexity of allocating production costs to each item. Cost also comprises directly attributable productions costs and a proportionate share of fixed and variable overhead production costs. Allocated overhead costs are primarily calculated based on normal capacity utilisation. Financing costs are not included in production costs. For inventories of finished goods, work-in-progress and raw materials relating to petrochemicals cost is determined on first-in first-out basis (FIFO method). The cost of land and building held for sale is determined based on the specific identification method. Where land and building held for sale is transferred from another asset category, the carrying value at the date of change is the deemed cost of inventory for subsequent accounting.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued r) Inventories continued The Group assesses the net realisable value of the inventories at the end of each year and recognises the appropriate loss if this value is lower than the carrying amount. When the circumstances that previously caused inventories to be written down no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down is reversed. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated selling expenses. s) Contract work in progress Contract work in progress represents the gross amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure directly related to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Contract work in progress is presented as part of receivables and prepayments in the consolidated statement of financial position. If payments received from customers exceed costs incurred plus recognised profits, then the difference is presented as deferred income in payables and accruals or other liabilities in the consolidated statement of financial position. t) Provisions and contingent liabilities Provisions are recognised if, as a result of past events, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. i) Product warranties The Group warrants that products will meet the stated functionality as agreed to in each sale arrangement. The Group provides for the estimated warranty costs under these guarantees based upon historical experience, a weighting of possible outcomes against their associated probabilities, and management’s estimates of the level of future claims and accrues for specific items at the time their existence is known and the amounts can be estimated. The initial estimate of warranty-related cost is revisited annually. ii) Decommissioning liabilities Liabilities for decommissioning costs are recognised when the Group becomes legally or constructively obliged to dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reasonable estimate of that liability can be made. The amount of the obligation is estimated at current prices and in accordance with local conditions and requirements. Liabilities for decommissioning costs are provided for at the present value of expected costs to settle the obligation using estimated cash flows. A corresponding item of property, plant and equipment in an amount equivalent to the provision is included in the respective class of asset. This is subsequently depreciated or depleted as part of the capital costs of the facility or item of plant. Subsequent to initial recognition, any change, other than unwinding of discount, is recognised in property, plant and equipment.

48


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued t) Provisions and contingent liabilities continued iii) Legal provisions The Group is involved in litigation from time-to-time in the ordinary course of business. At each reporting date, the Group evaluates litigation matters and review with the Group’s legal department and external counsel, the status of various outstanding legal cases and, where appropriate, establish provisions and disclose any contingent liabilities as required by IAS 37, Provisions, Contingent Liabilities and Contingent Assets. In order to make an assessment for legal provisions and contingent liabilities, the Group considers various factors including, but not limited to, reviewing, on a case-by-case basis, the underlying facts of pending or threatened litigation, the Group’s history with prior claims, the actual or possible claim assessment by internal and external counsel and the status of negotiations. Based on the Group’s overall assessment of the case, if the Group believes it is probable that an outflow of resources will be required to settle the obligation, the Group then determines whether a reliable estimate can be made. If so, the Group makes an estimate of the provision under various scenarios, ranging from best case to worst case. The Group uses the “best estimate” outcome and records a provision in the consolidated financial statements. iv) Contingent liabilities Contingent liabilities are possible obligations, whose existence will only be confirmed by future events not wholly within the Group’s control or present obligation where it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured with sufficient reliability. Contingent liabilities are not recognised in the consolidated financial statements but are disclosed unless the possibility of an outflow of economic resources is considered remote. Also, to the extent any information required is not disclosed because it is not practicable to do so, that fact is stated. If disclosure of some or all of the information is expected to prejudice seriously the Group’s position in a dispute with other parties on the subject matter of a provision or contingent liability, the Group does not disclose such information, but does disclose the general nature of the dispute, together with the fact that, and the reason why, the information has not been disclosed. u) Staff terminal benefits and pensions i) Entities domiciled in UAE For the Group entities domiciled in UAE, a provision for staff terminal benefits is made in accordance with the UAE Federal Labour Law and is determined as the liability that would arise if the employment of all staff were terminated at the reporting date. Monthly pension contributions are made in respect of UAE National employees, who are covered by Law No. 2 of 2000. The contribution made by the Company is recognised in profit or loss. The pension fund is administered by the Government of Abu Dhabi, Finance Department, represented by the Abu Dhabi Retirement Pensions and Benefits Fund. Other than the monthly pension contributions, there is no further obligation on the Group. An actuarial valuation is not performed on staff terminal and other benefits in respect of UAE employees as the net impact of the discount rate and future salary and benefits level on the present value of the benefits obligation are not expected by management to be significant.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued u) Staff terminal benefits and pensions continued ii) Entities domiciled outside UAE For the Group entities domiciled outside the UAE, provision for staff terminal benefits is made in accordance with the applicable provisions under the regulations prevalent in countries in which the respective entity operates. The Group companies operate various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodical actuarial calculations and legally independent from the Group. The Group has both defined benefit and defined contribution schemes. A defined contribution plan is a plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The cost of defined contribution benefits is expensed as earned by employees. Certain group companies also provide medical care and life insurance to eligible retirees and their dependents. These benefits are unfunded and are expensed as the employees provide service. Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements. 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 immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. For certain defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligation once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued v) Impairment i) Financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults, the disappearance of an active market for a security and observable data indicating that there is a measurable decrease in expected cash flows from a group of financial assets. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. 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 asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the decrease in impairment loss is reversed through profit or loss. Impairment losses on available-for-sale financial assets are recognised by transferring to profit or loss the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity. The cumulative loss that is removed from other comprehensive income and recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. In respect of available-for-sale equity instruments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of fair value reserve. In respect of available-for-sale debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued v) Impairment continued ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than investment properties and inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. 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 discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (“the cash-generating unit”, or “CGU”). The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. The Group bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Group’s cash-generating units to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year. An impairment loss in respect of goodwill is not reversed. In respect of other assets, 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 that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. In determining the value in use of the investments, the Group estimates: • its share of the present value of the estimated future cash flows expected to be generated by the equity

accounted investees, including the cash flows from the operations of the equity accounted investees and the proceeds from the ultimate disposal of the investment; or

• the present value of the estimated future cash flows expected to arise from dividends to be received from

the investment and from its ultimate disposal. Goodwill that forms part of the carrying amount of an equity accounted investee is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of such investment is tested for impairment as a single asset when there is objective evidence that the investment may be impaired.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued w) Dividend income Dividend income from investments is recognised when the Group’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. x) Assets and liabilities classified as held for sale Non-current assets and disposal groups comprising assets and liabilities are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. Non-current assets and liabilities (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated statement of financial position. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment properties or biological assets, which continue to be measured in accordance with the Group’s other accounting policies. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on re-measurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. Intangible assets and property, plant and equipment once classified as held for sale or distribution are not amortised or depreciated. In addition, equity accounting of associates or joint ventures ceases once classified as held for sale or distribution. A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and: • Represents a separate major line of business or geographical area of operations • Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of

operations; or • Is a subsidiary acquired exclusively with a view to resale Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of comprehensive income.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued y) Client and fiduciary assets Assets under management comprise assets which are placed with the Group for investment purposes and include discretionary and advisory counterparty assets. Discretionary assets are assets for which the customer fully transfers the discretionary power to the Group with a management mandate. Advisory assets include assets placed with the Group where the client is provided access to investment advice but retains discretion over investment decisions. The Group provides fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity are reported in the consolidated financial statements as off balance sheet items, as they are not the assets of the Group. z) Operating segments The accounting policies of the reportable segments are the same as the Group’s accounting policies described above. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 8). 4 SUBSIDIARIES These consolidated financial statements include the financial performance and position of the following significant subsidiaries: Subsidiaries Domicile Ownership interest 31 December 31 December 2017 2016 Borealis AG (“Borealis”) Austria 64% 64% NOVA Chemicals Corporation (“NOVA”) New Brunswick, Canada 100% 100% Compañía Española de Petróleos, S.A.U. (“CEPSA”) Spain - 100% Aabar Investments PJS (“Aabar”) United Arab Emirates 98.62% 98.52% Falcon Private Bank Ltd. (“Falcon Private Bank”) Switzerland 100% 100% Arabtec Holding PJSC (“Arabtec”) United Arab Emirates 37.68% 36.11% Borealis Involved in Polyolefins and Base Chemicals business. Within Polyolefins, Borealis focuses on three specific market sectors i.e. infrastructure, automotive and advanced packaging. Base Chemicals include the product range phenol and aromatics, feedstock and olefins, melamine and fertiliser.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 4 SUBSIDIARIES continued NOVA Involved in polyethylene and expandable polystyrene resins, which are used in a wide range of applications including rigid and flexible packaging, containers, plastic bags, plastic pipe, consumer electronics, building and construction materials, housewares and other industrial and consumer goods. CEPSA Involved in exploration and extraction of crude oil, the production of petrochemical and energy products, asphalts, lubricants and polymers, their distribution and marketing, as well as gas distribution and electricity generation. CEPSA was transferred to an entity under common control on 31 December 2017 (see note 7 for details). Accordingly, these financial statements include the financial performance of CEPSA for 2017. However, the financial position has not been consolidated at 31 December 2017. Aabar Involved in investing activities in various growth industries. Falcon Private Bank Its main activities comprise the provision of investment advisory services, asset and fund management for private clients as well as the trading and lending activities associated with these activities. Falcon Private Bank also conducts proprietary trading activities, mainly in foreign exchange and exchange-quoted debt instruments. Arabtec Engaged in construction of high-rise towers, buildings and residential units, in addition to the execution of related services such as drainage, electrical and mechanical works, provision of ready mix concrete and construction equipment supply and rental. 5 MATERIAL PARTLY-OWNED SUBSIDIARIES The table below shows details of material partly-owned subsidiaries of the Group that have material non-controlling interests (“NCI”): 2017 2016 __________________________________________________ _______________________________________________________

Profit Profit Ownership (loss) Ownership (loss) interest held allocated Accumulated interest held allocated Accumulated Principal place by NCI to NCI NCI by NCI to NCI NCI of business US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Subsidiary: Borealis Austria 36.00% 445,746 2,899,396 36.00% 440,072 2,471,340 Arabtec 1 UAE 62.32%1 (7,279) 505,169 63.89% (490,185) 252,710

1The Group considers that it has de-facto control over Arabtec even though it owns less than 50% of the voting rights. This is because the Group is the single largest shareholder of Arabtec with a 37.68% (31 December 2016: 36.11%) equity interest with the remainder of the equity shares widely held by many other shareholders.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 5 MATERIAL PARTLY-OWNED SUBSIDIARIES Summarised financial information in respect of each of the Group’s subsidiaries that have material non-controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations. Borealis Arabtec 2017 2016 2017 2016 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Summarised statement of profit or loss: Revenue 8,564,804 7,988,052 2,511,090 2,221,288 Profit/ (loss) for the year 1,237,328 1,225,598 14,480 (956,086) Other comprehensive (loss)/ income (538,407) 128,877 1,047 6,536 Total comprehensive income/ (loss) 698,921 1,354,475 15,527 (949,550) Dividend paid to non-controlling interests 306,231 190,403 1,199 - Borealis Arabtec

2017 2016 2017 2016 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Summarised statement of financial position: Non-current assets 8,210,877 7,470,537 894,995 770,377 Current assets 3,066,123 2,974,664 2,481,575 1,980,477 Non-current liabilities (1,899,122) (1,838,417) (468,710) (247,741) Current liabilities (1,717,450) (1,755,635) (2,529,879) (2,571,376) Non-controlling interests (20,196) (24,853) (66,521) (57,478) Summarised cash flow information: Net cash generated from/ (used in) operating activities 874,648 1,329,332 (363,935) 159,807 Net cash used in investing activities (163,007) (289,817) (49,170) (35,449) Net cash (used in)/ generated from financing activities (1,312,962) (802,991) 402,645 126,865 Net (decrease)/ increase in cash and cash equivalents (601,321) 236,524 (10,460) 251,223 6 BUSINESS COMBINATION Acquisition of the Geismar Business On 6 July 2017, Nova Chemicals completed the acquisition of Williams Partners L.P.'s (“Williams”) indirect interest in the Geismar Business (“the Acquisition”). The Acquisition includes an 88.46% interest in the Geismar, Louisiana olefins plant, approximately 525 acres of undeveloped land adjacent to the plant, and Williams’ interest in the Ethylene Trading Hub in Mt. Belvieu, Texas (“Geismar business”). The Acquisition qualifies as a joint operation under IFRS 11 Joint Arrangement and the assets, liabilities, revenues and expenses relating to the Group’s interest in the joint operation are recognised line-by-line in the consolidated financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 6 BUSINESS COMBINATION continued Acquisition of the Geismar Business continued Assets acquired and liabilities assumed The following table summarises the consideration paid for the Acquisition and management’s assessment of the fair value of the assets acquired and liabilities assumed recognised at the acquisition date. Goodwill arising from the acquisition was calculated using the residual method. At 6 July 2017 US $ ‘000 Property, plant and equipment 1,886,689 Trade and other receivables 66,054 Other intangible assets 23,770 Inventories 19,094 Total assets 1,995,607 Trade and other payables (37,775) Provisions (24,695) Total liabilities (62,470) Fair value of net assets acquired 1,933,137 Less: purchase consideration (2,096,011) Goodwill 162,874 Cash outflow on the acquisition of Geismar business is as follows: Consideration paid 2,096,011 Transaction costs 15,500 2,111,511 The revenue and operating profit contributed by the Geismar Business for the period from 6 July 2017 to 31 December 2017 was US $ 241,716 thousand and US $ 27,034 thousand respectively. If the above mentioned acquisition had taken place on 1 January 2017, management estimates that the Group’s consolidated revenue from sale of goods and services would have been US $ 15,349,440 thousand and the Group’s consolidated profit for the year would have been US $ 1,420,258 thousand.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 7 TRANSFER OF A SUBSIDIARY TO AN ENTITY UNDER COMMON CONTROL On 31 December 2017, the Shareholder instructed the Company to transfer its 100% interest in CEPSA to a subsidiary of MDC, an entity under common control, as part of a group restructuring activity. The consideration outstanding for the transfer is recorded as ‘Shareholder current account’ within equity and has been excluded from investing activities presented in the consolidated statement of cash flows. The Company has not applied “IFRS 3 Business Combinations” since the business combination has been effected between companies under common control and therefore, is excluded from the scope of the said IFRS. The carrying values of the assets and liabilities of CEPSA on the date of transfer are set out below: 31 December 2017 US $ ‘000 Non-current assets 9,009,322 Other current assets 5,277,116 Cash and cash equivalents 654,947 Total assets 14,941,385 Non-current liabilities (3,468,740) Current liabilities (4,368,333) Non-controlling interest (194,014) Net assets 6,910,298 Consideration debited to shareholder current account (6,910,298) Upon transfer, the Company reclassified certain reserves of CEPSA directly to retained earnings amounting to US $ 3,565,560 thousand (see note 36), as the transaction is not considered a commercial transaction and is a transaction with the Shareholder in its capacity as a shareholder. The results of operations of CEPSA are presented below: 2017 2016 US $ ‘000 US $ ‘000 Revenue 20,572,922 17,081,886 Cost of sales (17,433,434) (14,409,236) Gross profit 3,139,488 2,672,650 Net income and expense (2,330,841) (2,053,083) Profit for the year from discontinued operations 808,647 619,567 Other comprehensive loss for the year from discontinued operations 790,242 (207,960)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 7 TRANSFER OF A SUBSIDIARY TO AN ENTITY UNDER COMMON CONTROL continued Summarised cash flows of CEPSA are presented below: 2017 2016 US $ ‘000 US $ ‘000 Net cash generated from operating activities 1,613,706 1,557,523 Net cash used in investing activities (1,014,621) (524,044) Net cash used in financing activities (1,438,864) (1,655,312) Net decrease in cash and cash equivalents (839,779) (621,833) 8 OPERATING SEGMENTS Information about reportable segments The Group has four reportable segments, as described below, which are the Group’s strategic business units. These strategic business units are responsible for the screening, due diligence, development and implementation of all business ideas, investment opportunities and acquisitions. All items accounted on IFRS basis are attributed to specific projects mapped to a segment. The following summary describes the operations in each of the Group’s reportable segments: Aerospace, Renewables & ICT (includes Aerospace, Defence Services, Renewables, Utilities and

Information and Communications Technology) - Aerospace focused on developing the Aeronautics. The operating assets incorporate international industry leaders and emerging domestic players, while maximising the potential from shared partnerships and relationships in these industries. The Utilities sector includes investments in power.

Petroleum and Petrochemicals - focused on diversification in the oil and gas sector, in particular hydrocarbon exploration and production, and creation of a globally competitive oil and gas exploration and production business. It includes Upstream, midstream and downstream investments.

Alternative Investments & Infrastructure (includes Real Estate, Infrastructure, Capital and Healthcare) -

Real Estate and Infrastructure is focused on residential, commercial and retail real estate developments and investments both in Abu Dhabi and internationally. Capital is responsible for the Group’s financial investments. Investing throughout the capital structure in a diversified portfolio of global public and private securities, it uses a value oriented investment approach with a primary focus on the creation of long-term value and a bias towards capital preservation.

Corporate - develops and drives the strategy for the Group as a whole as well as focusing on the economic development by establishing business in service-based sectors, such as financing.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 8 OPERATING SEGMENTS continued In order to maximise portfolio synergies and asset management, the Group reorganised some of its internal business units and asset reporting lines which has resulted in a change to the composition of certain reportable segments. Midstream, Power and Utilities investments segments has been split with Midstream moved to Petroleum and Petrochemicals segment and Power and Utilities moved to the Aerospace, Renewables & ICT segment. Upstream and Integrated, Midstream, Projects and Downstream segments were merged into Petroleum and Petrochemicals. Diversified investments segment and its respective assets, except certain aerospace asset which moved to Aerospace, Renewables & ICT segment, was moved to Alternative Investments & Infrastructure. Corporate and others was renamed as Corporate. Aerospace Petroleum and Petrochemicals Alternative renewables Upstream Petrochemicals investments & & ICT & integrated Midstream & refining infrastructure Corporate Consolidated US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US$ ‘000 US $ ‘000 Year ended 31 December 2017 Revenue from external customers - - - 12,390,751 2,694,405 - 15,085,156 Net finance expense 46,496 - - (229,846) (467,796) (815,608) (1,466,754) Depreciation and amortisation - - 1,083 854,222 98,861 5,336 959,502 Share of results of equity accounted investees - 33,898 (13,741) 686,497 101,301 - 807,955 Profit (loss) for the year from continuing operations 74,948 38,338 39,018 1,138,852 (448,284) (325,743) 517,129 Profit for the year from discontinued operations - 808,647 - - - - 808,647 As at 31 December 2017 Total assets 1,074,475 3,899,131 259,361 21,310,509 12,814,016 1,071,550 40,429,042 Total liabilities - - 35,801 9,107,981 11,938,309 12,474,844 33,556,935 Investment in equity accounted investees - 2,703,147 57,430 4,427,857 1,687,891 - 8,876,325 Additions to non-current assets* - 828,113 - 1,355,112 73,136 2,758 2,259,119

*Non-current assets consist of property, plant and equipment, intangible assets and investment properties

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 8 OPERATING SEGMENTS continued Aerospace Petroleum and Petrochemicals Alternative renewables Upstream Petrochemicals investments & & ICT & integrated Midstream & refining infrastructure Corporate Consolidated US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US$ ‘000 US $ ‘000 Year ended 31 December 2016 Revenue from external customers - - - 11,500,428 2,411,591 - 13,912,019 Net finance expense 63,950 - - (122,823) 97,472 (55,348) (16,749) Depreciation and amortisation - - - 730,642 97,147 15,615 843,404 Share of results of equity accounted investees - (94,878) (43,167) 614,726 (278,740) - 197,941 Profit (loss) for the year from continuing operations 91,018 (38,803) 16,525 1,881,227 (1,849,813) (315,931) (215,777) Profit for the year from discontinued operations - 619,567 - - - - 619,567 As at 31 December 2016 Total assets 1,014,582 16,911,479 855,946 17,840,797 12,546,889 5,658,444 54,828,137 Total liabilities - 7,634,572 353,275 6,751,533 11,672,208 16,635,585 43,047,173 Investment in equity accounted investees - 2,889,359 78,083 4,303,792 1,484,969 - 8,756,203 Additions to non-current assets* - 687,204 - 1,021,651 154,195 3,750 1,866,800 *Non-current assets consist of property, plant and equipment, intangible assets and investment properties

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 8 OPERATING SEGMENTS continued Geographical information The following tables present geographical information on revenue and certain non-current assets: UAE Austria USA Canada Spain Others Total US $ '000 US $ '000 US $ '000 US $ '000 US $ '000 US $ '000 US $ '000 Year ended 31 December 2017 Revenue from external customers: continuing operations 1,936,327 361,079 2,626,155 1,236,971 208,322 8,716,302 15,085,156 Revenue from external customers: discontinued operations (see note 7) 297,245 11,608 703,759 141,891 12,422,470 6,995,949 20,572,922 Year ended 31 December 2016 Revenue from external customers: continuing operations 1,613,357 350,909 2,302,202 1,183,436 197,099 8,265,016 13,912,019 Revenue from external customers: discontinued operations (see note 7) 158,905 10,544 527,089 117,877 12,974,794 3,292,677 17,081,886 2017 Non-current assets Property, plant and equipment 298,278 839,348 1,906,143 4,736,017 - 2,656,053 10,435,839 Intangible assets 457,179 457,179 182,199 347,740 - 100,810 1,545,107 Investment properties 1,742,230 - - - - - 1,742,230 2016 Non-current assets Property, plant and equipment 625,603 758,617 25,138 4,441,222 3,774,072 3,978,676 13,603,328 Intangible assets 489,565 266,672 1,869 328,100 606,000 903,284 2,595,490 Investment properties 1,863,636 - - - - - 1,863,636

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 9 REVENUE 2017 2016 US $ ‘000 US $ ‘000 Sale of petrochemicals 12,390,751 11,500,428 Construction activities 2,477,522 2,199,325 Other revenue 216,883 212,266 15,085,156 13,912,019 10 COST OF SALES 2017 2016 US $ ‘000 US $ ‘000 Staff costs 774,369 745,745 Raw materials consumed 7,115,513 5,853,130 Contract costs 2,223,209 2,190,124 Depreciation of property, plant and equipment (see note 14) 778,382 662,790 Amortisation of intangible assets (see note 15) 38,341 32,079 Other costs 1,084,124 1,261,632 12,013,938 10,745,500 11 RESEARCH AND DEVELOPMENT EXPENSES 2017 2016 US $ ‘000 US $ ‘000 Staff costs 99,428 94,787 Depreciation of property, plant and equipment (see note 14) 16,537 16,973 Amortisation of intangible assets (see note 15) 28,044 18,841 Other costs 35,963 103,314 179,972 233,915

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 12 SELLING AND MARKETING EXPENSES 2017 2016 US $ ‘000 US $ ‘000 Distribution and transportation costs 452,516 440,929 Staff costs 157,734 123,165 Depreciation of property, plant and equipment (see note 14) 10,605 10,337 Amortisation of intangible assets (see note 15) 2,586 2,631 Other costs 164,959 173,976 788,400 751,038 13 GENERAL AND ADMINISTRATIVE EXPENSES 2017 2016 US $ ‘000 US $ ‘000 Staff costs 458,424 463,362 Depreciation of property, plant and equipment (see note 14) 35,331 48,793 Amortisation of intangible assets (see note 15) 49,676 50,960 Other costs 757,297 511,961 1,300,728 1,075,076

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 14 PROPERTY, PLANT AND EQUIPMENT Building Capital Oil and plant and work in Land gas assets equipment Computers progress Others Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Cost: At 1 January 2017 460,235 5,869,552 19,584,499 96,352 2,148,925 119,347 28,278,910 Additions 4,839 55,184 889,657 6,116 928,048 2,506 1,886,350 Acquisitions through business combination 34,861 - 1,876,611 888 2,338 - 1,914,698 Transfer of a subsidiary to an entity under common control (note 7) - (1,347,324) (8,233,592) (57,902) (1,037,151) (88,361) (10,764,330) Transfer of non-current asset to an entity under common control3 - - (356,347) - - - (356,347) Transfers (to)/ from intangible assets (note 15) 205 (4,556,689) 454,159 5,766 (260,001) 1,563 (4,354,997) Disposals (1,793) (104,765) (497,019) (119) (8,025) (3,506) (615,227) Borrowing costs capitalised - - 17,189 - 16,744 - 33,933 Write off - - - - (91,070) - (91,070) Other movements - 327,926 969,247 9,436 (1,310,581) 2,223 (1,749) Foreign exchange adjustments 45,944 (243,884) 1,906,923 7,321 274,536 3,117 1,993,957 At 31 December 2017 544,291 - 16,611,327 67,858 663,763 36,889 17,924,128 Accumulated depreciation and impairment: At January 2017 - 5,704,827 8,847,088 53,390 15,884 54,393 14,675,582 Charge for the year 1 - 107,321 1,379,930 19,023 - 18,736 1,525,010 Disposals - (62,696) (477,215) - - (2,267) (542,178) Impairment (net) 2 - - 153,075 - 91,070 - 244,145 Transfer of a subsidiary to an entity under common control (note 7) - (953,377) (4,049,481) (31,463) - (53,509) (5,087,830) Transfers (to)/ from intangible assets (note 15) - (4,427,072) 397,076 1,792 - 170 (4,028,034) Transfer of non-current asset to an entity under common control3 - - (56,111) - - - (56,111) Write off - - - - (96,797) - (96,797) Other movements - - 4,309 1,874 - (273) 5,910 Foreign exchange adjustments - (369,003) 1,216,871 2,438 - (1,714) 848,592 At 31 December 2017 - - 7,415,542 47,054 10,157 15,536 7,488,289 Net book value: At 31 December 2017 544,291 - 9,195,785 20,804 653,606 21,353 10,435,839

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 14 PROPERTY, PLANT AND EQUIPMENT continued Building Capital Oil and plant and work in Land gas assets equipment Computers progress Others Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Cost: At 1 January 2016 466,773 6,277,784 18,475,650 74,634 2,101,257 121,813 27,517,911 Additions 2,825 71,624 257,587 8,581 1,202,759 4,221 1,547,597 Borrowing costs capitalised - - 2,710 - 40,479 - 43,189 Acquisitions through business combination - - 7,731 - 671 - 8,402 Transfers 3,894 (401,678) 1,555,078 15,666 (1,159,001) 2,241 16,200 Disposals (441) (34,953) (159,893) (772) (9,288) (4,954) (210,301) Foreign exchange adjustments (12,816) (43,225) (554,364) (1,757) (27,952) (3,974) (644,088) At 31 December 2016 460,235 5,869,552 19,584,499 96,352 2,148,925 119,347 28,278,910 Accumulated depreciation and impairment: At January 2016 - 5,558,350 7,853,353 39,484 34,537 45,171 13,530,895 Charge for the year1 - 324,318 1,217,223 16,656 - 17,290 1,575,487 Impairment (net) 2 - 1,042 74,546 - - - 75,588 Disposals - (452) (137,536) (746) - (4,578) (143,312) Transfers - (85,000) 140,355 (1,165) (18,658) 149 35,681 Foreign exchange adjustments - (93,431) (300,853) (839) 5 (3,639) (398,757) At 31 December 2016 - 5,704,827 8,847,088 53,390 15,884 54,393 14,675,582 Net book value: At 31 December 2016 460,235 164,725 10,737,411 42,962 2,133,041 64,954 13,603,328

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 14 PROPERTY, PLANT AND EQUIPMENT continued 1 Depreciation charge for the year was allocated as follows: 2017 2016 US $ ‘000 US $ ‘000 Cost of sales 778,382 662,790 General and administrative expenses 35,331 48,793 Research and development expenses 16,537 16,973 Selling and marketing expenses 10,605 10,337

Continuing operations 840,855 738,893

Discontinued operations 684,155 836,594

1,525,010 1,575,487 2 Impairment charge (net) includes charges from discontinued operations of US $ 143,019 thousand (31 December 2016: US $ 1,042 thousand). During year, the Group has impaired certain oil and gas exploration and production assets because of the prolonged low crude oil and gas prices coupled with depletion on commercial reserves and other unfavourable economic and political events in regions where those assets are located. The impairment during 2017 amounted to US $ 144,859 thousand (31 December 2016: US $ nil). For the purposes of this impairment review, cash flow projections were used for a period that covers the economically productive lives of these oil and gas fields, limited by the contractual expiration of the operating permits, agreements or contracts. Following assumptions were used to determine the recoverable amounts of these production units: • cash flows were projected for each field based on the projected production plan of the fields 2P (proved and probable) reserves; • oil prices are based on forecasted Brent prices and are adjusted for quality, transportation fees and regional price differences; and • post-tax discount rates between 7.8% – 11% were applied in determining the recoverable amount of the respective units. 3On 29 June 2017, the Company has transferred its rights and interests in its owned building to MDC General Services Holding Company LLC, an entity under common control. The net carrying amount of the building at the date of transfer was US $ 300,236 thousand. The consideration for the transfer is treated as shareholder current account classified within equity and has been excluded from investing activities presented in the consolidated statement of cash flows. Property, plant and equipment having carrying value of US $ 1,900,958 thousand (31 December 2016: to US $ 1,983,987 thousand), has been pledged as security (see note 32). Property, plant and equipment having carrying value of US $ 1,477 thousand (31 December 2016: to US $ 6,563 thousand), are held under finance lease (see note 32).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 15 INTANGIBLE ASSETS Exploration Technology, and Brands and Oil and gas licence and Customer evaluation trademarks reserves Goodwill software contracts assets Patents Others Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘0000 US $ ‘000 US $ ‘000 US $ ‘000 Cost: At 1 January 2017 591,273 - 2,392,915 276,384 373,248 - 32,472 1,560,221 5,226,513 Additions - 31,381 - 40,156 - 60,976 - 173,577 306,090 Acquisition through business combination - - 217,019 362 23,770 - - 164,072 405,223 Transfer (to)/ from property, plant and equipment (see note 14) - 3,771,066 - 68,923 (121,218) 582,831 - 53,395 4,354,997 Transfer of a subsidiary to an entity under common control (note 7) (458,770) (3,897,672) (1,550,356) (243,330) - (604,995) (36,934) (713,946) (7,506,003) Disposals - - - (43,836) (5,078) (84,267) - (10,018) (143,199) Write off (5,354) - - - (7,865) - - (1,269) (14,488) Other movements 2 - - 8,075 325,854 - - (371,881) (37,950) Foreign exchange adjustments 59,067 95,225 73,432 28,231 4,339 45,455 4,462 71,095 381,306 At 31 December 2017 186,218 - 1,133,010 134,965 593,050 - - 925,246 2,972,489 Accumulated amortisation and impairment: At 1 January 2017 28,811 - 1,577,765 158,526 147,257 - 709 717,955 2,631,023 Charge for the year - 30,879 - 37,796 59,072 78,589 4,050 57,457 267,843 Transfer (to)/ from property, plant and equipment (see note 14) - 3,445,139 - 68,923 (14,059) 490,461 - 37,570 4,028,034 Transfer of a subsidiary to an entity under common control (note 7) - (3,768,257) (1,147,649) (149,042) - (555,336) (4,302) (223,449) (5,848,035) Disposals - - - (43,625) (5,078) (83,320) - (10,007) (142,030) Impairment/ (reversal of impairment)1 - (43) 175,540 - - - - (10,228) 165,269 Write off (5,354) - - - (7,865) - - (1,269) (14,488) Other movements - - - 742 55,391 - (15,631) (57,044) (16,542) Foreign exchange adjustments 173 292,282 4,792 14,819 1,115 69,606 15,174 (41,653) 356,308 At 31 December 2017 23,630 - 610,448 88,139 235,833 - - 469,332 1,427,382 Net book value: At 31 December 2017 162,588 - 522,562 46,826 357,217 - - 455,914 1,545,107

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 15 INTANGIBLE ASSETS continued Exploration Technology, and Brands and Oil and gas licence and Customer evaluation trademarks reserves Goodwill software contracts assets Patents Others Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘0000 US $ ‘000 US $ ‘000 US $ ‘000 Cost: At 1 January 2016 604,459 - 2,384,866 243,839 377,383 322,535 28,768 1,237,443 5,199,293 Additions - - - 34,638 11,218 - 5,350 124,794 176,000 Acquisition through business combination - - 23,041 7 - - - - 23,048 Disposals - - - (4,734) (425) - (16) (59,158) (64,333) Other movements - - (11,887) 9,861 (216) (338,984) (2,174) 301,045 (42,355) Foreign exchange adjustments (13,186) - (3,105) (7,227) (14,712) 16,449 544 (43,903) (65,140) At 31 December 2016 591,273 - 2,392,915 276,384 373,248 - 32,472 1,560,221 5,226,513 Accumulated amortisation and impairment: At 1 January 2016 - - 1,503,392 136,808 99,620 165,515 47 509,899 2,415,281 Charge for the year - - - 31,554 44,589 - 635 60,322 137,100 Disposals - - - (3,558) - - (16) (5,130) (8,704) Impairment 1 28,811 - 74,372 146 3,478 - - 5,416 112,223 Other movements - - (11,764) (2,595) 11,010 (172,925) 6 170,512 (5,756) Foreign exchange adjustments - - 11,765 (3,829) (11,440) 7,410 37 (23,064) (19,121) At 31 December 2016 28,811 - 1,577,765 158,526 147,257 - 709 717,955 2,631,023 Net book value: At 31 December 2016 562,462 - 815,150 117,858 225,991 - 31,763 842,266 2,595,490

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 15 INTANGIBLE ASSETS continued Amortisation charges for the year was allocated as follows: Cost of sales 38,341 32,079 General and administrative expenses 49,676 50,960 Research and development expenses 28,044 18,841 Selling and marketing expenses 2,586 2,631

Continuing operations 118,647 104,511

Discontinued operations 149,196 32,589

267,843 137,100

1 Impairment charge (net) includes charges from discontinued operations of US $ 169,158 thousand (31 December 2016: US $ 78,121 thousand). Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to the following cash generating units for impairment testing purposes: Carrying amount of goodwill allocated to each of the cash-generating units: Borealis Falcon Arabtec CEPSA Geismar Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Carrying amount at 1 January 2017 183,153 27,487 129,341 475,169 - 815,150 Additions during the year from business combination - - - 54,145 162,874 217,019 Transfer of a subsidiary to an entity under common control - - - (402,707) - (402,707) Impairment - - - (175,540) - (175,540) Foreign exchange adjustments 19,749 (42) - 48,933 - 68,640 Carrying amount at 31 December 2017 202,902 27,445 129,341 - 162,874 522,562 The Group performed its annual impairment testing at 31 December 2017.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 15 INTANGIBLE ASSETS continued Impairment testing of goodwill continued CEPSA CEPSA constitutes the lowest aggregation of assets that generate largely independent cash inflows. At 31 December 2017, the recoverable amount of CEPSA has been determined based on a fair value less cost to sell approach, derived from financial projections covering a five year period. The main methodology used for the estimation of the referred fair values has been discounted cash flows ("DCF"). In addition, market multiples were also used as a secondary method and to cross check to the fair value determined under the DCF method. For each of the company´s businesses, the DCF methodology considered financial projections for five years plus a terminal value thereafter, except for the Exploration & Production ("E&P") business, where the remaining useful life of each of the producing fields/assets was considered. As a result of the impairment testing, goodwill arising on the acquisition of one of the CEPSA’s subsidiary was partially impaired for an amount of US $ 175,540 thousand (31 December 2016: to US $ 74,372 thousand). The recoverable amount of the subsidiary dropped significantly due to the lower crude oil and gas prices compared to the high prices at the acquisition date, coupled with depletion on commercial reserves and other unfavourable economic and political events. The fair values less cost to sell is not likely to be significantly different from the value in use. For impairment testing, goodwill is allocated to the producing fields which represent the lowest level cash generating unit within the Group at which the goodwill is monitored for internal management purposes. Value in use was determined by discounting the future cash flows from the continuing use of the unit and was based on the following key assumptions: • Financial projections: The financial projections for each of the company’s businesses were obtained from

the company's five year business plan based on management expectations and industry research. • Terminal value: Except for the E&P terminal values have been estimated following the perpetual growth

rate methodology. • Growth rate: Except for the E&P business, growth rates have been estimated for each of the company's

businesses based on industry research. Growth rate considered is in a range from 0.0% to 2.5% (31 December 2016: 0.0% - 1.2%).

• Discount rate: The discount rate represents the current market assessment of the risks specific to CEPSA. The discount rate has been estimated according to the Weighted-Average Cost of Capital (“WACC”) calculated for each of the company's businesses and countries in which the company operates, and ranges from 6.0% to 13.3% (31 December 2016: 6.5% - 14.3%).

With regards to the estimated fair value less cost to sell, management assessed that no reasonably possible change in any of the above key assumptions would cause the carrying value of CEPSA to materiality exceed its recoverable amount as of 31 December 2017.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 15 INTANGIBLE ASSETS continued Impairment testing of goodwill continued Borealis During the year ended 31 December 2017, management performed its annual impairment review for goodwill. The recoverable amount of Borealis has been determined based on a fair value less cost to sell calculation determined using cash flow projections from financial projections approved by senior management. The following key assumptions were used in calculating fair value less cost to sell: • Terminal value: Sustainable earnings include a terminal growth rate of 1.0% – 2.0% (31 December 2016:

1.2% - 3.4%). which was derived on basis of analyses of inflation expectations and sustainable GDP growth of Borealis’ key sales regions and long term growth expectations for the end market industries for Polyolefin, Infrastructure, Automotive, and Advanced Packaging.

• Discount rates: Market and peer group data were utilized in addition to the specific financing conditions to

obtain WACC. The post-tax discount rate applied to cash flow projections ranged from 9.1% to 12.1% (31 December 2016: 9.2% - 12.1%).

With regard to the assessment of fair value less cost to sell, management concluded that no reasonably possible change in any of the above key assumptions would cause the carrying value to materiality exceed its recoverable amount as of 31 December 2017. Arabtec Aabar performed its annual impairment test as at 31 December 2017 and no impairment was recognised for Arabtec goodwill (31 December 2016: US $ nil). The recoverable amount of Arabtec at 31 December 2017 was determined based on recoverable amount which was concluded to be commensurate with the fair value as determined based on observable share price. Per management fair value exceeded value in use at 31 December 2017. The market price of Arabtec was AED 2.38 per share at 31 December 2017 (31 December 2016: AED 1.31 per share). The concluded fair value of Arabtec (100%) was US $ 971,825 thousand (AED 3,570,000 thousand) as at 31 December 2017 (31 December 2016: US $ 1,645,842 thousand (AED 6,046,000 thousand)). Falcon The Group performed its annual impairment test as at 31 December 2017. No impairment was identified. The recoverable amount of Falcon Private Bank at 31 December 2017 was determined based on fair valuation performed by management using a range of valuation methodologies relevant for private banking. Sensitivity to changes in assumptions With regard to the assessment of fair value, management assessed that no reasonably possible change in any of the assumptions would cause the carrying value of Falcon Private Bank to materiality exceed its recoverable amount as of 31 December 2017.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 15 INTANGIBLE ASSETS continued

Impairment testing of intangible assets with an indefinite useful life Brands relate to trade names within the Group that have been assigned an indefinite useful life because of the businesses’ long history and strong market position. The brand values are tested for impairment annually, at 31 December.

The fair value of the trade name was estimated using a relief from royalty approach. In applying this methodology, the value of the trade name was estimated by capitalising the royalties saved due to the Group owning the trade name. The trade name is being used in various businesses in the Group. An appropriate trade name royalty rate was identified as a percentage of revenue or for certain businesses as a percentage of gross margin over variable costs level which translated into approximately 4.0% to 8.0% (31 December 2016: 4.0% - 8.0%) of gross margin over variable costs depending on the location of the use of the brand, the significance of its presence in the specific country, and the focus on marketing and advertising of the brand. A discount rate for the trade name was calculated and ranged from 8.0% to 8.5% (31 December 2016: 9.5% - 11.0%). Terminal value was calculated with a long-term growth rate of 1.5%.(31 December 2016: 1.0%). A tax amortisation benefit was applied for the trade name as the value will be amortisable for tax purposes.

Sensitivity to changes in assumptions With regard to the assessment of fair value less cost to sell, management assessed that no reasonably possible change in any of the above key assumptions would cause the carrying value of the brand to materiality exceed its recoverable amount as of 31 December 2017. 16 INVESTMENT PROPERTIES 2017 2016 US $ ‘000 US $ ‘000 Investment properties 1,204,182 1,364,185 Investment properties under development 448,367 406,835 Advances on investment properties 89,681 92,616 1,742,230 1,863,636 Movements in investment properties are as follows: Investment properties Advances on Investment under Investment properties development properties Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 2017 At 1 January 2017 1,364,185 406,835 92,616 1,863,636 Additions 584 32,124 38 32,746 Transfers 8,056 - (8,056) - Disposals (126,753) - - (126,753) (Decrease)/increase in fair value (41,890) 9,408 5,083 (27,399) At 31 December 2017 1,204,182 448,367 89,681 1,742,230 2016 At 1 January 2016 (Restated) 1,020,069 826,199 97,217 1,943,485 Additions 2,045 97,969 - 100,014 Transfers 480,196 (480,196) - - Disposals (87,115) - - (87,115) Decrease in fair value (51,010) (37,137) (4,601) (92,748)

At 31 December 2016 1,364,185 406,835 92,616 1,863,636

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 16 INVESTMENT PROPERTIES continued Investment properties with a carrying value of US $ 201,388 thousand (31 December 2016: US $ 161,386 thousand) have been pledged as security for related borrowings and mortgages. Investment properties of Aabar include land, buildings and property under development mainly in Abu Dhabi and Dubai. Management determined that these investment properties consist of five classes of asset categories i.e. residential, hotel (including serviced apartments), offices, retail and mixed use, based on the nature, characteristics and risks of each property. These properties valuation were performed by independent professional valuers. The valuers are accredited with recognised and relevant professional qualifications and with recent experience in the location and category of investment properties being valued, in accordance with International Valuation Standards. The valuation technique used for land bank is comparable method while other classes of assets are valued using residual value approach. Sensitivity analysis was conducted for land bank and hospitality projects under construction in the investment property portfolio with an aggregate value of US $ 917,642 thousand (31 December 2016: US $ 938,766 thousand). The valuation techniques used for land bank is comparable method whilst hospitality projects are valued using residual value approach. The sensitivity analysis is conducted on the land fair values for land bank and Gross Development Value (GDV) and construction cost for the hospitality projects. Sensitivity to significant changes in unobservable inputs: An increase / decrease in the land market value by 10% would result in an increase/decrease in fair value of

US $ 66,412 thousand (31 December 2016: US $ 70,449 thousand). An increase in the GDV by 5% in hospitality projects under construction would result in an increase in fair

value of US $ 26,167 thousand (31 December 2016: US $ 28,761 thousand), whilst a decrease in the GDV by 5% would result in decrease of US $ 26,162 thousand (31 December 2016: US $ 28,778 thousand).

An increase in the construction cost by 10% in hospitality projects under construction would result in decrease in fair value of US $ 26,926 thousand (31 December 2016: US $ 34,073 thousand), whilst a decrease in the construction cost by 10% would result in an increase of US $ 26,931 thousand (31 December 2016: US $ 34,056 thousand). There are reasonable interrelationships between the above unobservable inputs as they are determined by market conditions. The existence of an increase in more than one unobservable input would be to magnify the impact on the valuation. However, the impact on the valuation is expected to be mitigated by the interrelationship of these two unobservable inputs moving in opposite directions, for example an increase in rent may be offset by an increase in the discount / capitalisation rate, resulting in no net impact on the valuation. The cash flows from the assets are discounted using discount rates ranging from 7% – 10% that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. Capitalisation rates range from 5.9% – 8% have been used.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 17 INTEREST IN JOINT OPERATIONS The Group, through CEPSA, had joint ownership and control of certain oil and gas assets through exploration, development and/or production sharing agreements entered into with other parties, for the exploitation of mineral rights, under concession agreements with the governments of the respective countries in which such operations are conducted. On 31 December 2017, the Group’s joint ownership and control of certain oil and gas assets of CEPSA was transferred to an entity under common control (see note 7). Details of significant joint operations and certain wholly controlled concession assets are set out below. Contract Area Description Group’s working interest 31 December 2017 2016 % % Concession blocks in Algeria RKF Exploration and production stage - 100.001 Ourhoud Exploration and production stage - 39.76 Timimoun Exploration and production stage - 11.25 BMS Exploration and production stage - 45.00 Rhourde Rouni II Exploration stage - 100.00 Concession blocks in Colombia Tiple Exploration stage - 70.00 Garibay Exploration stage - 50.00 Jilguero Exploration and production stage - 57.86 Puntero - Manatus Exploration and production stage - 70.00 Puntero - Onca Exploration and production stage - 100.00 Merecure Exploration stage - 70.00 El Porton Exploration stage - 50.00 Llanos 22 Exploration and production stage - 55.00 Balay Exploration and production stage - 30.00 Cpo 14 Exploration stage - 37.50 Cpo 12 Exploration stage - 42.50 Rio Paez Exploration and production stage - 16.67 San Jacinto Exploration stage - 16.67 PPN Exploration stage - 30.00 Caracara Research and production stage - 70.00 CPR Espinal Research and production stage - 16.67 Concession blocks in Peru Block 127 Exploration stage - 80.00 Block 114 Exploration stage - 60.00 Block 130 Exploration stage - 100.00 Block 131 Exploration and production stage - 100.00 Concession blocks in Spain Rodaballo Exploration and production stage - 15.00 Casablanca Exploration and production stage - 7.40 Montanazo Exploration and production stage - 7.25 Boqueron Exploration and production stage - 4.50 Concession blocks in Brazil Block CE-M-717 Exploration stage - 50.00 Block CE-M-665 Exploration stage - 50.00 1 Contract areas wherein the Group’s effective working interest is at 100% are included in the details of joint operations for presentation purposes only in order to disclose a list of significant contract areas being held by the Group as at the end of the reporting period. They are not to be construed as joint operations since there are no joint operating contracts with other partners at the end of the reporting year.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 17 INTEREST IN JOINT OPERATIONS continued Further, the Group has joint ownership and control of certain construction assets and activities (Arabtec) and petrochemical facilities (NOVA). The Group’s share of the assets, liabilities, income and expenses in such joint operations is recognised in the consolidated financial statements. Details of significant joint operations are set out below. Name Country Group’s working interest 31 December 2017 2016 % % Arabtec Samsung/Arabtec UAE 40.00 40.00 Six Contruct/Arabtec UAE 50.00 50.00 Samsung/Six Contruct/ Arabtec UAE 50.00 30.00 Arabtec/Max Bogl UAE 50.00 30.00 Arabtec/Aktor joint operation projects UAE 60.00 60.00 Arabtec/ Emirates Sunland UAE 50.00 50.00 Arabtec/WCT Engineering UAE 50.00 50.00 Arabtec/Engineering and Construction Company Jordan 50.00 50.00 Arabtec/Dubai Contracting Company UAE 50.00 50.00 Target Engineering and Construction Company LLC/ Marintek Middle East and Asia FLE UAE 65.00 65.00 Arabtec Engineering Services/ WCT Engineering UAE 50.00 50.00 Arabian Construction Company/ Arabtec Syria 50.00 30.00 Arabtec/National Projects and Construction UAE 50.00 30.00 Arabtec/Al Isaad KSA 66.66 66.66 Arabtec/Combined Group Contracting Company Kuwait 66.66 66.66 TAV/CCC/Arabtec UAE 33.00 33.00 Oger Abu Dhabi LLC/ Constructora San Jose SA/ Arabtec UAE 33.00 33.00 CCC/Arabtec Kazakhstan 50.00 50.00 ATC/CCC/DSC Joint Venture Limited Jordan 33.00 33.00 ATC/SIAC Joint operations projects Egypt 55.00 55.00 ATC/Constructora San Jose SA UAE 50.00 50.00 EFECO/ACC Kazakhstan 40.00 40.00 Arabtec Al Mukawilon Palestine 60.00 60.00 ACC/ Arabtec Joint operations Lebanon 50.00 50.00 NOVA Joffre ethylene production Canada 50.00 50.00 Joffre natural gas-fired cogeneration power plant Canada 20.00 20.00 Geismar ethylene production (see note 6) United States 88.46 -

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 18 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES Carrying value Share of results 2017 2016 2017 2016 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Associates 8,519,981 8,219,550 754,327 258,820 Joint ventures 356,344 536,653 53,628 (60,879) 8,876,325 8,756,203 807,955 197,941 The share of profit or loss of equity accounted investees from discontinued operations amounted to US $ 54,051 thousand (31 December 2016: US $ 64,852 thousand loss). Investment in associates The Group has the following material investments in associates, which are accounted for using the equity method: Associates Domicile Ownership Principal business activity 2017 2016 Abu Dhabi Polymers Company UAE 40.00% 40.00% Production of innovative, value creating Limited (“Borouge”) plastic solutions OMV AG (“OMV”) Austria 24.90% 24.90% Integrated oil and gas listed company, involved in exploration and production, refining and marketing and petrochemicals Summarised financial information in respect of each of the Group’s material associates is set out below. The summarised financial information below represents amounts shown in the associates’ financial statements (not adjusted for the percentage ownership of the Group) prepared in accordance with IFRSs, except for Group’s share of profit and dividends received, which represent the dividends received by the Group from the associates. 2017 2016 OMV Borouge OMV Borouge US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Revenue 22,848,471 3,941,408 21,316,005 3,978,863 Profit / (loss) for the year 963,789 1,464,320 (202,535) 1,297,033 Other comprehensive income / (loss) 244,055 - (243,485) - Total comprehensive income/ (loss) 1,207,844 1,464,320 (446,020) 1,297,033 Group’s share of profit/ (loss) 33,898 586,369 (94,878) 522,160 Dividends received by the Group 109,646 540,312 90,577 -

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 18 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES continued Investment in associates continued Summarised financial information continued 2017 2016 OMV Borouge OMV Borouge US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Current assets 11,528,021 1,877,687 11,836,811 2,267,107 Non - current assets 26,373,769 8,709,130 22,129,871 9,184,073 Current liabilities (8,269,110) (627,563) (8,239,018) (893,337) Non - current liabilities (12,425,872) (62,838) (10,889,302) (808,188) Hybrid capital (2,677,948) - (2,346,343) - Non-controlling interests (3,742,646) - (3,165,617) - Net assets 10,786,214 9,896,416 9,326,402 9,749,655 Reconciliation of the above summarised financial information to the carrying amount of the interest in the above associates recognised in the consolidated financial statements is as follows: 2017 2016 OMV Borouge OMV Borouge US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Net assets 10,786,214 9,896,416 9,326,402 9,749,655 Ownership % 24.90% 40.00% 24.90% 40.00% Group’s share of net assets on basis ownership interest 2,685,767 3,958,566 2,322,274 3,899,862 Reconcilling items: Purchase price allocation adjustments (net) 17,697 - 49,430 - Other adjustments - (4,085) - (4,277) Carrying amount 2,703,464 3,954,481 2,371,704 3,895,585 Certain of the Group’s associates are listed on various stock exchanges. The fair value of these listed associates was US $ 6,133,740 thousand at 31 December 2017 (31 December 2016: US $ 3,714,484 thousand) while their carrying values were US $ 3,806,338 thousand at 31 December 2017 (31 December 2016: US $ 3,335,898 thousand). Aggregate information of associates that are not individually material: 2017 2016 US $ ‘000 US $ ‘000 Group’s share of profit/ (loss) (net) 134,060 (168,462) Group’s share of carrying amount 1,862,036 1,952,261

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 19 OTHER FINANCIAL INVESTMENTS 2017 2016 US $ ‘000 US $ ‘000 Financial assets at fair value through profit or loss Financial assets designated at FVTPL Quoted investments 2,104,968 906,386 Unquoted investments 167,736 159,583 2,272,704 1,065,969 Financial assets held for trading Quoted investments 259,308 357,916 Unquoted investments 53,104 61,394 312,412 419,310 Total financial assets at fair value through profit or loss 2,585,116 1,485,279 Available-for-sale financial assets Quoted investments Equity securities 3,048,361 2,275,530 Unquoted investments Equity 222,899 198,700 Total available-for-sale financial assets 3,271,260 2,474,230 Held to maturity investments Unquoted investments - 5,518 Total other financial investments 5,856,376 3,965,027 Disclosed as: Current 2,484,964 1,389,672 Non-current 3,371,412 2,575,355 5,856,376 3,965,027 a) Financial assets at fair value through profit or loss The fair value of quoted securities is arrived at, based on the closing bid price of the shares in the capital markets, except for certain quoted equity securities for which fair value is based on a valuation technique based on unobservable inputs due to lack of an active market. Fair values of the investment funds are provided by the fund manager. The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instrument for non-options derivatives and option pricing models or quotes from counterparties for options derivatives. Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contract, derived from readily available market data. Interest rate swaps are measured at the present value of estimated future cash flow and are discounted based on the applicable yield curves derived from quoted interest rates. Swaps which are not traded through a clearing firm or an exchange are valued on the basis of the latest available counterparty valuation. The fair value of bonds and convertible bonds are determined with reference to quoted market prices. Where such prices are not available valuation is performed based on discounted cash flows analysis using applicable yield curves for the duration of the investment.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 19 OTHER FINANCIAL INVESTMENTS continued b) Available-for-sale financial assets The fair value of quoted securities is arrived at, based on the closing bid price of the shares in the capital markets. A significant or prolonged decline in the fair value of investments in equity instruments below their original cost is considered an impairment in the carrying amount of the instrument, and is accordingly charged to profit or loss. 20 LOANS RECEIVABLE 2017 2016 US $ ‘000 US $ ‘000 Loans to joint ventures - 207,364 Loans to associates 575,987 554,008

575,987 761,372 Less: allowance for impairment (see note 43) - (12,040) Loans to related parties 575,987 749,332 Loans to third parties 1,052,989 312,559 Loans and amounts due from banking customers 816,872 1,172,361 1,869,861 1,484,920 Less: allowance for impairment (see note 43) (73,719) (45,788) 1,796,142 1,439,132 2,372,129 2,188,464 Disclosed as: Current 777,206 1,165,558 Non-current 1,594,923 1,022,906 2,372,129 2,188,464 Loans to related parties Significant loans to related parties include the following: Loans to joint ventures include an amount of US $ 152,288 thousand (31 December 2016: US $ 174,376

thousand) which was provided by CEPSA to one of its joint ventures. The loan is repayable in 2018 and 2019 with an interest rate at a margin over EURIBOR. At 31 December 2017, CEPSA was transferred to an entity under common control (see note 7).

Loans given to an associate include an amount of US $ 559,465 thousand (31 December 2016: US $ 545,752 thousand), which carry fixed and variable interest (LIBOR plus margin) and is repayable on 2019-2023. The loan is secured by certain physical assets and investments.

Loans to third parties During the year, certain balance outstanding of Aabar was reclassified out of “other assets” to “loans to third parties” based on completion of legal documentation.

Loans and amounts due from banking customers

These receivables arose from the lending activities of Falcon Private Bank which carry interest at varying rates and having different maturities. The Group holds collateral against these commercial loans in the form of security interests over certain liquid assets. As of 31 December 2017, the fair value of the collateral against the loans is US $ 599,321 thousand (31 December 2016: US $ 937,206 thousand).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 21 TRADE RECEIVABLES 2017 2016 US $ ‘000 US $ ‘000 Trade receivables 1,190,399 2,560,482 Amounts due from customers for contract work (see note 30) 811,540 591,119 Receivable from construction works 466,851 441,332 Retentions held by customers 378,416 299,936 2,847,206 3,892,869 Less: allowance for impairment (see note 43) (95,139) (248,444) 2,752,067 3,644,425 Disclosed as: Current 2,547,858 3,488,859 Non-current 204,209 155,566 2,752,067 3,644,425 22 OTHER RECEIVABLES AND PREPAYMENTS 2017 2016 US $ ‘000 US $ ‘000 Amounts due from related parties (see note 41) 395,696 242,651 Prepaid expenses 111,903 94,048 Income tax receivable 179,208 217,007 Other taxes receivable 251,778 421,048 Other receivables 455,952 135,771 1,394,537 1,110,525 Disclosed as: Current 1,382,634 1,073,255 Non-current 11,903 37,270 1,394,537 1,110,525

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 23 OTHER ASSETS 2017 2016 US $ ‘000 US $ ‘000 Advances 466,868 486,788 Receivable on the transfer of ADCOP1 - 400,000 Receivable from 1MDB and/or MOF (see note 40) - 5,222,728 Other receivable from third party2 - 1,230,283 Other assets 113,811 239,263 580,679 7,579,062 Less: allowance for impairment (see note 43) - (772,857) 580,679 6,806,205 Disclosed as: Current 388,048 1,761,960 Non-current 192,631 5,044,245 580,679 6,806,205 1 During the year, the Company settled the amount receivable and transferred Abu Dhabi Crude Oil Pipeline (“ADCOP”) to ADNOC. 2 During the year, the Group reclassified US $ 295,666 thousand net of its related allowance for impairment out of “other receivable from third party” to “loans to third parties” based on completion of legal documentation. 24 INVENTORIES 2017 2016 US $ ‘000 US $ ‘000 Finished goods 1,195,004 1,749,852 Raw materials 506,534 962,664 Consumables 141,258 338,807 Work in progress 7,082 5,121 In transit 33,694 153,476 Others 29 326 1,883,601 3,210,246 Allowance for obsolescence / net realisable value adjustments (24,735) (29,357) 1,858,866 3,180,889

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 25 CASH AND CASH EQUIVALENTS 2017 2016 US $ ‘000 US $ ‘000 Bank balances: deposit accounts 1,558,406 1,906,634 call and current accounts 1,284,077 3,761,853 Cash in hand 4,734 282,566 Cash and short term deposits 2,847,217 5,951,053 Deposit and call accounts are placed with commercial banks and are short-term in nature. Deposit and call accounts earn interest at prevailing market rates. Bank balances include US $ 503,054 thousand (2016: US $ 1,006,538 thousand) held with entities under common control (see note 41). The Group’s exposure to credit, currency and interest rate risk related to cash and short term deposits is disclosed in note 43. 26 TRADE PAYABLES 2017 2016 US $ ‘000 US $ ‘000 Trade payables 2,063,881 3,645,308 Deposits and other amounts due to banking customers 1,404,728 2,303,566 Amounts due to customers for contract work (see note 30) 158,999 79,177 3,627,608 6,028,051 27 OTHER PAYABLES AND ACCRUALS 2017 2016 US $ ‘000 US $ ‘000 Amounts due to related parties (see note 41) 1,850,393 408,368 Accruals 1,448,804 1,689,869 Staff cost payable 175,883 340,218 Taxes 13,030 352,361 Others 133,268 41,276 3,621,378 2,832,092 Disclosed as: Current 3,537,982 2,832,092 Non- current 83,396 - 3,621,378 2,832,092

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 28 OTHER LIABILITIES 2017 2016 US $ ‘000 US $ ‘000 Advances from customers for contract work 534,415 499,329 Advances and deposits received 7,452 60,541 Retentions payable 215,249 177,108 Deferred income 195,455 213,925 Others - 467,185 952,571 1,418,088 Disclosed as: Current 645,330 994,318 Non- current 307,241 423,770 952,571 1,418,088 29 PROVISIONS Decommissioning Other liabilities provisions Total US $ ‘000 US $ ‘000 US $ ‘000 At 1 January 2017 282,227 652,076 934,303 Additions 67,035 100,812 167,847 Reversals (612) (58,381) (58,993) Provisions utilised (3,925) (195,355) (199,280) Transfer of a subsidiary to an entity under common control(see note 7) (173,034) (507,688) (680,722) Foreign exchange and other movements (19,831) 114,864 95,033 At 31 December 2017 151,860 106,328 258,188 2017 2016 US $ ‘000 US $ ‘000 Disclosed as: Current 14,565 162,684 Non-current 243,623 771,619 258,188 934,303 (i) Provision for decommissioning mainly relates to asset retirement obligations of the Group and expected

costs to be incurred upon termination of operations, the closure of active manufacturing plant facilities and the abandonment of crude oil production fields.

(ii) Others cover mainly provision for restructuring, warranty provisions arising from the Group’s ordinary

operations that might give rise to actual liabilities with their dealings with third parties, and environmental provisions relating to legal or contractual liabilities or commitments acquired by the Group to prevent, reduce or repair damage to the environment. It also includes the estimated amounts for environmental action to remedy the risk of gradual soil pollution. Furthermore, others include provision for legal disputes covers the best estimate of the Group’s exposure to the outcome of several litigations from the area of product liability, patent infringement, tax lawsuits, etc. (see note 39 for litigations and contingencies).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 30 AMOUNTS DUE FROM / (TO) CUSTOMERS FOR CONTRACT WORK 2017 2016 US $ ‘000 US $ ‘000 Amounts due from customers for contract work

included in trade receivables (see note 21) 811,540 591,119 Amounts due to customers for contract work

included in trade payables (see note 26) (158,999) (79,177) 652,541 511,942 Contract costs incurred plus recognised profit less

recognised losses to date on projects in progress 9,967,586 10,067,264 Less: progress billings (9,315,045) (9,555,322) 652,541 511,942 31 DERIVATIVE FINANCIAL LIABILITIES 2017 2016 US $'000 US $'000 Derivatives held-for-trading Interest rate swaps - 1,982 Currency forwards 4,508 20,205 Currency options - 1,987 Commodity swaps 44,234 14,238 Commodity futures - 4,489 48,742 42,901 Fair value hedges Currency forwards 4,034 20,751 Currency swaps 1,217 - Commodity swaps 2,089 - 7,340 20,751 Derivatives used as cash flow hedges Interest rate swaps1 386,757 135,808 Currency forwards 3,576 12,915 Commodity swaps 11,192 19,573 Others 15,605 17,736 417,130 186,032 473,212 249,684 Disclosed as Current 77,256 104,633 Non-current 395,956 145,051 473,212 249,684 1 Includes cross currency swaps.

85


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 31 DERIVATIVE FINANCIAL LIABILITIES continued The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instrument for non-optional derivatives and option pricing models or quotes from counterparties for optional derivatives. Currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contract derived from readily available market data. Interest rate and currency swaps are measured at the present value of future cash flow estimated and discounted based on the applicable yield curves derived from quoted interest rates. 32 INTEREST BEARING BORROWINGS 2017 2016 US $ ‘000 US $ ‘000 Borrowings 22,696,971 25,674,069 Obligations under finance lease 921 3,767 Total 22,697,892 25,677,836 Disclosed as: Current 2,508,681 3,573,552 Non-current 20,189,211 22,104,284 22,697,892 25,677,836 Details of borrowings are as follows: 2017 2016 US $ ‘000 US $ ‘000 Secured bank loan 508,769 586,947 Unsecured bonds 1,008,815 1,710,413 Unsecured bank loan 990,702 1,273,741 Current portion 2,508,286 3,571,101 Secured bank loan 936,594 679,955 Unsecured bonds 13,488,173 11,579,829 Unsecured bank loan 5,763,918 9,843,184 Non-current portion 20,188,685 22,102,968 Total 22,696,971 25,674,069

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 32 INTEREST BEARING BORROWINGS continued Borrowings at the reporting date, analysed by each significant sub-group of companies, are as follows: 2017 2016 US $ ‘000 US $ ‘000 The Company 10,297,568 12,544,700 Aabar 8,106,057 7,069,004 NOVA 3,070,926 997,448 Borealis 1,222,420 1,485,117 CEPSA - 3,577,800 22,696,971 25,674,069 Movement in borrowings during the year is as follows: 2017 2016 US $ ‘000 US $ ‘000 At 1 January 2017 25,674,069 27,572,820 Additions 4,309,381 7,331,016 Repayments (6,458,706) (8,772,659) Transfer of a subsidiary to an entity under common control (see note 7) (2,715,507) - Foreign exchange differences 1,858,668 (537,727) Others 29,066 80,619 22,696,971 25,674,069 The terms and conditions of outstanding borrowings are as follows: 2017 2016 Particulars Currency Nominal interest rate Year of maturity US $ '000 US $ '000 Secured bank loans AED EIBOR+margin 2018-2031 804,662 695,443 Secured bank loans EUR EURIBOR+margin 2019-2020 600,149 525,943 Secured bank loans MAD Fixed 2022 5,177 5,633 Secured bank loans CAD Fixed 2020 5,441 6,934 Secured bank loans US $ LIBOR+margin 2029 29,934 27,691 Secured bank loans BRL BRAZILIAN LIBOR+margin 2018-2021 - 5,258 Unsecured bonds EUR Fixed/EURIBOR+margin 2018-2025 6,009,753 5,450,166 Unsecured bonds GBP Fixed 2018-2026 778,539 710,112 Unsecured bonds US $ Fixed 2019-2041 7,708,696 7,129,964 Unsecured bank loans EUR Fixed/EURIBOR+margin 2018-2030 6,081,400 6,677,646 Unsecured bank loans US $ Fixed/LIBOR+margin 2018-2029 65,251 3,401,958 Unsecured bank loans BRL Fixed/BRAZILIAN LIBOR+margin 2021-2025 9,117 17,631 Unsecured bank loans JPY LIBOR+margin 2018 598,852 576,255 Unsecured bank loans CNY PBOC +margin 2018-2024 - 443,435 22,696,971 25,674,069

The secured bank loans are secured over property, plant and equipment with a carrying amount of US $ 1,900,958 thousand, (31 December 2016: US $1,983,987 thousand) and investment properties with a carrying value of US $ 201,388 thousand (31 December 2016: US $ 161,386). In addition, certain loans are secured through pledges on project proceeds (receivables), net investment in a joint operation and equity shares.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 33 EMPLOYEES’ BENEFIT LIABILITIES Employees’ defined benefit plan asset and liabilities amounts recognised in the consolidated statement of financial position are as follows: 2017 2016 US $ ‘000 US $ ‘000 Employee end of service benefits 60,872 63,396 Pensions 681,354 597,513 Defined benefit plan liabilities 742,226 660,909 Defined benefit plan asset 53,096 46,521 Defined benefit plan liabilities are analysed as follows: 2017 2016 US $ ‘000 US $ ‘000 Unfunded 230,830 162,497 Partly funded 497,122 409,135 Wholly funded 14,274 89,277 742,226 660,909 Most companies within the Group have benefit plans. The forms and benefits vary with conditions and practices in the countries concerned. The plans include both defined contribution plans and plans that provide defined benefits based on years of service and estimated salary at retirement. The following table summarises the components of net defined benefit expense recognised in the consolidated statement of profit or loss: 2017 2016 US $ ‘000 US $ ‘000 Current service cost 50,396 48,783 Interest cost on benefit obligation 48,288 50,963 Interest income on plan assets (36,987) (38,218) Past service pension adjustment 4,926 4,745 Others (7,723) 1,721 Net defined benefit expense1 58,900 67,994 1 Net defined benefit expense includes expense from discontinued operations of US $ 207 thousand (31 December 2016: US $ 3,053 thousand).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 33 EMPLOYEES’ BENEFIT LIABILITIES continued The following table summarises the amounts recognised in the consolidated statement of financial position for the respective plans: 2017 2016 US $ ‘000 US $ ‘000 Defined benefit obligations (1,923,320) (1,766,563) Fair value of plan assets 1,241,966 1,169,050 Benefit liabilities (681,354) (597,513) Changes in the present value of the defined benefit obligation are as follows: 2017 2016 US $ ‘000 US $ ‘000 Benefit obligations at beginning of year (1,766,563) (1,549,535) Current service costs (50,396) (48,783) Current interest costs (48,288) (50,963) Contributions by employees (4,756) (3,871) Past service pension adjustment 4,926 (4,745) Actuarial losses on obligation due to: Changes in demographic assumptions (27,564) (13,617) Changes in financial assumptions (29,627) (75,258)

Experience losses (575) (17,631) Acquisition of business - (57,653) Transfer of a subsidiary to an entity under common control (see note 7) 12,120 - Benefits paid from plan 90,103 77,718 Liabilities extinguished on settlements 63,061 5,419 Foreign exchange differences (165,761) (27,644) Benefit obligations at end of the year (1,923,320) (1,766,563) Changes in the fair value of plan assets are as follows: 2017 2016 US $ ‘000 US $ ‘000 Fair value of plan assets at beginning of year 1,169,050 1,067,849 Interest income on plan assets 36,987 38,218 Contributions by employees 4,756 3,871 Employer’s contributions 70,094 78,716 Actuarial gains (losses) on obligation due to changes in financial assumptions 11,961 (10,368)

Experience gains 7,485 7,823 Acquisition of business - 57,267 Benefits paid from plan (90,103) (77,718) Assets distributed on settlement (62,126) (958) Foreign exchange differences 93,862 4,350 Fair value of plan assets at end of year 1,241,966 1,169,050 The present value of defined benefit obligation is significantly dependent upon the discount rate and rate of salary increases.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 33 EMPLOYEES’ BENEFIT LIABILITIES continued The major categories of plan assets are as follows: 2017 2016 US $ ‘000 US $ ‘000 Investments quoted in active markets Cash and cash equivalents 13,459 10,688 Equity instruments 41,980 36,920 Fixed income securities 28,330 22,873 Real estate 3,069 3,637 Investment funds 11,566 9,526 Others 1,441 3,445

Unquoted investments Cash and cash equivalents 4,086 6,791 Equity instruments 87,571 119,550 Fixed income securities 784,236 733,000 Others 266,229 222,620

Fair value of plan assets at end of year 1,241,967 1,169,050 The overall expected return on assets is determined based on the market expectations prevailing on that date, applicable to the period over which the obligation is to be settled. These are reflected below in the principal assumptions used in determining pension and post-employment medical obligations for the Group’s plans as shown below: 2017 2016 % % Rate of salary increases 2.2% -3.5% 3.1% - 4.2% Rate of increase in pensions payments 0.5% - 1.8% 0.5% - 1.8% Discount rate 0.7% - 3.4% 1.7% - 3.8 % A quantitative sensitivity analysis for significant assumptions as at 31 December 2017 is shown below: Impact on Impact on defined defined % benefit % benefit Increase obligation Decrease obligation US $ ‘000 US $ ‘000

Rate of salary increases +1.0% 48,796 -1.0% (41,848) Rate of increase in pensions payments +1.0% 74,768 -1.0% (64,585) Discount rate +0.5% (11,756) -0.5% 16,390 The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in the key assumptions occurred as at 31 December 2017. The Group’s expected payment contributions to defined benefit obligations within the next 12 months amounts to US $ 45,805 thousand (2016: US $ 70,539 thousand). The average duration of the defined benefit obligations at 31 December 2017 is 14 years (2016: 14 years).

90


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 34 SHARE CAPITAL Authorised Issued and fully paid 2017 2016 2017 2016 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Ordinary shares of US $ 1,000 each (31 December 2016: US $ 1,000 each) 5,000,000 5,000,000 3,500,000 3,500,000 35 ADDITIONAL SHAREHOLDER CONTRIBUTION Additional shareholder contributions as at 31 December 2017 represents interest free loans from the Government of Abu Dhabi. As per the terms of the agreements for the amounts received from 2010 to 2011, any repayments are at the discretion of the Board of Directors of the Company, who do not intend to repay any such amounts in the foreseeable future. In addition, the terms of the agreements specify that on dissolution of the Company the rights, benefits and obligations in the residual net assets and liabilities, attached to these loans, shall rank pari passu with those attached to the share capital of the Company. Therefore, these loans are more akin to equity instruments rather than liabilities, and accordingly are presented within equity. On 19 January 2017 these loans were transferred by the Government of the Emirate of Abu Dhabi to Mubadala Investment Company PJSC (the “Shareholder”) as part of the merger (see note 1). 36 OTHER RESERVES Foreign Hedging currency and Fair value translation Pension other reserve reserve reserve reserves Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 At 1 January 2016 2,177,648 (5,405,479) (224,945) (20,561) (3,473,337) Exchange losses on translation of foreign operations - (325,302) - - (325,302) Net losses arising on hedge of net investments in foreign operations - (37,010) - - (37,010) Increase in fair value of available-for-sale financial assets (net) 245,546 - - - 245,546 Effective portion of changes in fair values of cash flow hedging instruments and other reserves (net of tax) - - - (19,224) (19,224) Share of other comprehensive income of associates and joint ventures - - - 3,623 3,623 Net movement in defined benefits plan - - (51,225) - (51,225) Other movements 2,068 (609,778) 7,857 599,104 (749) Balance at 31 December 2016 2,425,262 (6,377,569) (268,313) 562,942 (3,657,678) Exchange gains on translation of foreign operations - 1,311,113 - - 1,311,113 Net losses arising on hedge of net investments in foreign operations - (1,119,945) - - (1,119,945) Increase in fair value of available-for-sale financial assets (net) 842,525 - - - 842,525 Effective portion of changes in fair values of cash flow hedging instruments and other reserves (net of tax) - - - 30,746 30,746 Share of other comprehensive income of associates and joint ventures - - - 68,014 68,014 Net movement in defined benefits plan - - (24,203) - (24,203) Transferred to retained earnings (see note 7) (10,576) 4,145,418 - (569,282) 3,565,560 At 31 December 2017 3,257,211 (2,040,983) (292,516) 92,420 1,016,132

91


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 36 OTHER RESERVES continued Fair value reserve The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired. Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the Company’s net investment in foreign operations. Hedges of a net investment in a foreign operation, including a hedge of monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Borrowings amounting to US $ 8,143,977 thousand (EUR 6,784,751 thousand) (31 December 2016: US $ 4,747,113 thousand (EUR 5,698,128 thousand)) have been designated as hedge of the net investments in certain foreign operations with EUR functional currencies. These borrowings are being used to hedge the Group’s exposure to EUR foreign exchange risk on those investments. Losses on the retranslation of these borrowings amounting to US $ 995,191 thousand (31 December 2016: US $ 10,576 thousand) were recognised in other comprehensive income to offset gains on translation of foreign operations. There was no ineffectiveness recorded during the year. The Group has also designated the fixed to fixed US $/EUR and GBP/EUR swap derivatives of the Group as hedging instruments against the hedge of net investments in certain foreign operations with EUR functional currencies, with notional amounts of US $ 2,295,324 thousand (EUR 1,912,235 thousand) (31 December 2016: US $ 2,539,763 thousand (EUR 2,115,878 thousand)). A portion of the fair value losses on the hedging instruments that relates to foreign exchange losses amounting to US $ 284,225 thousand (31 December 2016: US $ 4,644 thousand) was recognised in other comprehensive income to offset gains on translation of foreign operations. The difference between the fair value of the swaps derivatives and related foreign exchange difference of US $ 30,239 (31 December 2016: US $ 125,175 thousand loss) thousand was recorded in profit or loss within unrealised gain/ (loss) from financial investments. On 31 December 2017, the Shareholder instructed the Company to transfer its 100% interest in CEPSA to a subsidiary of MDC, an entity under common control, as part of a group restructuring activity (see note 7). Accordingly, the hedging relationships between borrowings amounting to US $ 5,789,261 thousand (EUR 4,823,036 thousand), the fixed to fixed GBP/EUR swap derivatives amounting to US $ 771,243 thousand (EUR 642,523 thousand) and the net investment in CEPSA, which had been designated as hedge of net investment in a foreign operation have been discontinued in these consolidated financial statements as of the transfer date. Also, certain subsidiaries whose functional and reporting currency is in Euro have designated certain US $ denominated loans , cross currency interest swaps and foreign exchange forwards as hedges of net investments in their foreign operations. The designated hedging instruments amounted to US $ 1,783,906 thousand (31 December 2016: US $ 3,009,310 thousand). The related foreign exchange gains amounted to US $ 159,471 thousand (31 December 2016: US $ 21,790 thousand loss) was recognised in other comprehensive income to offset the losses on translation of foreign operations. Pension reserve The pension reserve comprises of actuarial gains and losses, the effect of the asset ceiling, excluding net interest (not applicable to the Group) and the return on plan assets (excluding net interest) which are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Hedging and other reserve Hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedges related to hedged transactions that have not yet affected profit or loss.

92


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 37 ASSETS UNDER MANAGEMENT 2017 2016 US $ ‘000 US $ ‘000 Real estate (including mutual funds) 167,747 386,786 Cash and cash equivalents 1,409,991 1,905,770 Fixed income instruments (bonds, loans and mutual funds) 1,229,823 1,612,483 Equities (stocks and mutual funds) 7,960,302 7,478,860 Assets under management and custody by the Group 10,767,863 11,383,899 Assets not in the custody of the Group 2,026,752 1,726,313 12,794,615 13,110,212 These amounts are not reported in the consolidated financial statements, as they are not assets of the Group. The Group has no client assets which are held for custody only. For all of the assets listed above, additional services are provided, which go beyond pure custody services. Of the assets not within the custody of the Group, US $ 2,026,752 thousand (31 December 2016: US $1,726,000 thousand) are related to client assets held by Bank Zweiplus, which is an associate of the Group. The client assets equal to 42.5 % (31 December 2016: 42.5%) (the Group’s share) of the total client assets are reported by Bank Zweiplus. Earnings from managing or custody services with respect to these client assets are not included in the revenue of the Group but are captured in the share of profit of associate in the consolidated statement of comprehensive income. 38 COMMITMENTS 2017 2016 US $ ‘000 US $ ‘000 Operating lease commitments Up to 1 year 160,648 300,799 1 to 5 years 412,698 776,170 Beyond 5 years 302,372 747,355 875,718 1,824,324 Capital commitments Property, plant and equipment 425,850 1,078,611 Investment properties 652,461 676,158 Investments in equity instruments 3,832 69,978 Intangible assets - 2,228 1,082,143 1,826,975 Fiduciary assets 77,299 62,490 A fiduciary asset is a placement made with another bank or loan granted to an institution in the name of Falcon Private Bank, but for the account and the risk of the customer of the bank. Assets held in fiduciary capacity are reported as off balance sheet items in the consolidated financial statements, as they are not the assets of the Group.

93


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 39 LITIGATIONS AND CONTINGENCIES a) Contingencies Contingencies at the end of the reporting year are as follows: 2017 2016 US $ ‘000 US $ ‘000

Contingent liabilities* 5,957,512 5,009,541 Group’s share of contingent liabilities of joint venture and associates 77,095 67,563 *Contingent liabilities include bank guarantees, performance bonds issued by the Group companies advance payment bonds and completion guarantees. b) Litigations The Group is involved in litigations from time-to-time in the ordinary course of business. Legal claims often involve highly complex issues, actual damages, and other matters. These issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimate of damages are often difficult to determine. The Group has recorded a provision for claims for which it is able to make an estimate of the expected loss or range of possible loss, but believe that the publication of this information on a case-by-case basis would seriously prejudice its position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, for these claims, the Group has disclosed information with respect to the nature of the claim, but not an estimate of the range of potential loss or any provision accrued. The Group believes that the aggregate provisions recorded for these matters are adequate based upon currently available information as of the statement of financial position date, which may be subject to ongoing revision of existing estimates. However, given the inherent uncertainties related to these claims, the Group could, in the future, incur judgments that could have a material adverse effect on its results of operations, liquidity, financial position or cash flows in any particular period. For contingent liabilities, the Group has disclosed the claims, but has not recorded a provision of the potential outcome of these claims and is unable to make an estimate of the expected financial effect that will result from ultimate resolution of the proceedings. A summary of the major litigations of the Group are set out below: Dow Litigations In December 2010, Dow Chemicals had filed a claim against Nova Chemicals in the Federal Court in Canada alleging that certain grades of Nova Chemicals’ SURPASS polyethylene film resins infringe a Dow Chemicals’ Canadian patent. In June 2017, the judges of the Federal Court issued an adverse judgement against Nova Chemicals. On 6 July 2017, Nova Chemicals paid to Dow Chemicals an amount of US $ 501,000 thousand for the litigation award which has been charged under general and administrative expenses. On 28 July 2017, Nova Chemicals filed an appeal with the Federal Court of Appeal. In 2006, a claim was filed against Nova Chemicals in the Court of Queen's Bench of Alberta by Dow Chemical Canada ULC and its European affiliate (collectively, "Dow Canada") concerning the jointly owned third ethylene plant at NOVA Chemicals’ Joffre site. Dow Canada has amended its initial statement of claim and has claimed for further losses and damages in an amount to be proven at trial of this action. The Group expects the court ruling on this case in 2018.

94


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 39 LITIGATIONS AND CONTINGENCIES continued b) Litigations continued Borealis Tax contingencies During 2017, Borealis received decisions from the Finnish Board of Adjustment, with regards to the ongoing tax cases for Borealis Technology OY (“TOY”) and Borealis Polymers OY (“BOY”). For the TOY case, the Board of Adjustment confirmed the Finnish tax authority’s (“FTA”) view that the license agreements between TOY and Borealis AG should be re-characterized into transfers of business. The amount of tax assessed is EUR 297,000 thousand including interest and penalties). In relation to the BOY case, the Board of Adjustment has recognized the license agreement between BOY and Borealis AG, however, are of the view that this should be a higher license percentage. Additionally, the Board of Adjustment decided that in the course of the toll manufacturing set up “something of value” amounting to US $ 170,400 thousand (EUR142,000 thousand) has been transferred, thereby resulting in an additional tax assessment for the year 2009 of US $ 74,400 thousand (EUR 62,000 thousand) (including interest and penalties). In both cases, Borealis believes that the decisions fail to properly apply Finnish and international tax law and do not adequately consider the relevant facts of the case. Therefore, Borealis has appealed both decisions to the Helsinki Administrative Court on 6 March 2017 (TOY) and on 15 December 2017 (BOY). A suspension of payment was obtained for TOY and requested for the BOY case. Several group companies are currently subject to routine tax audits performed by their respective tax authorities. Managements’ opinions are that the companies are in compliance with all applicable regulations. Given the preliminary nature of the proceedings, potential impacts, if any, cannot be currently reliably estimated. 40 1MALAYSIA DEVELOPMENT BERHAD (1MDB) TRANSACTIONS Financial guarantees In 2012, IPIC agreed to guarantee the obligations (principal and associated interests) (the “Guarantee”) of certain subsidiaries of 1Malaysia Development Berhad (“1MDB”), a company wholly owned by the Government of Malaysia, in respect of two financings in the energy and power sector. The aggregate principal amount of these obligations is US $ 3,500,000 thousand, which comprised: US $ 1,750,000 thousand fixed rate 5.75% notes due 2022 issued by 1MDB Energy (Langat) Limited and

unconditionally and irrevocably guaranteed by 1MDB (“1MDB Energy (Langat) Notes”); and US $ 1,750,000 thousand fixed rate 5.99% notes due 2022 issued by 1MDB Energy Limited and

unconditionally and irrevocably guaranteed by 1MDB (“1MDB Energy Notes” and, together with the 1MDB Energy (Langat) Notes, the “Notes”).

The guarantees were initially recognised as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantees. Subsequent to initial recognition, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised less cumulative amortisation. In accordance with the requirements of International Financial Reporting Standards, the Group must consider whether payment under the Guarantee is probable (more likely than not) for a provision to be recognised under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and accordingly the Group was required to make a provision of the present value of the total amount (principal and interest), estimated at US $ 3,500,000 thousand, probable under the Guarantees at 31 December 2016. A corresponding reimbursement asset was recorded on balance sheet for that period.

95


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 40 1MALAYSIA DEVELOPMENT BERHAD (1MDB) TRANSACTIONS continued Financial guarantees continued At 31 December 2017, the Group has re-assessed whether payment under the Guarantee is still probable, and has determined that no provision is required to continue to be recognised on balance sheet, considering that (a) 1MDB has settled all amounts due under the Notes during 2017, (b) 1MDB has settled all of its obligations to the Company under the Settlement and (c) under the terms of the Settlement and the Consent Award, 1MDB and the Ministry of Finance (Incorporated) Malaysia (“MOF”), are responsible for all future interest and principal payments under the Notes. Accordingly, the Group has derecognised the provision for the Guarantee and has correspondingly derecognised the reimbursement asset. Settlement Pursuant to a binding term sheet (“BTS”) entered between IPIC, Aabar, MOF and 1MDB, IPIC provided US $ 1 billion to 1MDB group on 4 June 2015 and paid interests amounting to US $ 50,312 thousand and US $ 52,413 thousand on 16 October 2015 and 10 November 2015, respectively, due under the Notes up to 31 December 2015. On 18 April 2016, IPIC announced that 1MDB and MOF had failed to perform certain payments and other obligations owed by them to the IPIC group pursuant to the terms of the BTS. On 13 June 2016, IPIC and Aabar submitted a Request for Arbitration to the London Court of International Arbitration concerning the failure by 1MDB and MOF to perform their contractual obligations under the BTS. On 22 April 2017, IPIC and Aabar reached agreement with 1MDB and MOF (the "Settlement") pursuant to which 1MDB and MOF have agreed to withdraw their counterclaims and to settle the Group's claims in the arbitration and the arbitral tribunal made a Consent Award on 9 May 2017. Under the terms of the Settlement, IPIC will receive an amount of US $ 602,725 thousand by 31 July 2017 and a further amount of US $ 602,725 thousand by 31 December 2017, with an amount of interest accruing on the receivable balance. On 8 August 2017, IPIC announced that it has granted MOF and 1MDB until 31 August 2017 to complete the performance of the payment obligations of MOF and 1MDB that were due to be performed by 31 July 2017 under the Settlement and the Consent Award and to pay default interest on the delayed payment of US $ 602,725 thousand). During August 2017, IPIC received the whole amount which was due till 31 August 2017. On 27 December 2017, IPIC announced that it has now received all the funds required to be paid to IPIC by 31 December 2017 under the Settlement with 1MDB and MOF and the Consent Awards made on 9 May 2017. Separately, under the terms of the Settlement and the Consent Award, 1MDB and MOF, are responsible for all future interest and principal payments under the two bonds issued by 1MDB Group companies that are guaranteed by 1MDB and IPIC under the Guarantee of the Notes. The parties have provided suitable undertakings and indemnities in respect of the performance of obligations under the Settlement. The parties have also agreed to enter into good faith discussions in relation to payments made by 1MDB Group to certain entities.

96


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 41 SIGNIFICANT TRANSACTIONS AND BALANCES WITH RELATED PARTIES a) Identification of related parties The Group has related party relationship with its shareholder, joint ventures and associates, and with its directors, executive officers and parties which are under common control of the above parties. b) Transactions with key management personnel Key management personnel compensation of the Group is as follows: 2017 2016 US $ ‘000 US $ ‘000 Key management personnel Short term and post-employment benefits 25,743 15,300 c) Other related party transactions In the ordinary course of business the Group provides services to, and receives services from related parties on terms agreed by management. Significant transactions with related parties during the year were as follows: 2017 2016 US $ ‘000 US $ ‘000 Revenue Entities under common control 1,144,465 636,654 Associates 480,707 462,743 Joint ventures 88 125,963 Others 27,413 16,314 1,652,673 1,241,674 Interest income Entities under common control 20,399 5,266 Purchases Associates 1,644,119 1,503,314 Joint ventures 6,791 5,914 Others - 33,617 1,650,910 1,542,845 Interest expense Entities under common control 66,793 33,799

97


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 41 SIGNIFICANT TRANSACTIONS AND BALANCES WITH RELATED PARTIES continued d) Related party balances 2017 2016 US $ ‘000 US $ ‘000 Loans receivable Associates 575,987 554,008 Joint ventures - 195,324 575,987 749,332 Amounts due from related parties Entities under common control 111,411 - Associates 98,246 94,947 Joint ventures 178,146 4,025 Others 7,893 143,679 395,696 242,651 Amounts due to related parties Entities under common control1 1,442,415 - Associates 243,692 210,507 Joint ventures 126,253 102,094 Others 38,033 95,767 1,850,393 408,368 1In 2017, the Company entered into a US $ 1,425,000 thousand 3 year interest free callable US $ loan facility agreement with an entity under common control. At 31 December 2017, the facility has an undrawn amount of US $ 225,000 thousand. 2017 2016 US $ ‘000 US $ ‘000 Interest bearing borrowings with entities under common control 397,242 1,659,072 Bank balances with entities under common control 503,054 1,006,538 Trade receivables with entities under common control 576,999 339,981 Trade payables with entities under common control 266,565 255,918

98


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 42 INCOME TAX 2017 2016 US $ ‘000 US $ ‘000

Income tax recognised in the consolidated profit or loss: Current tax expense On taxable profit of the period (515,544) (477,742) Adjustment in respect of prior periods’ current tax 29,125 (23,029)

(486,419) (500,771)

Deferred tax benefit / (expense) Origination and reversal of temporary differences 29,866 (182,479) Reduction / (increase) in tax rate 6,554 (495) Impact of tax losses and tax credits carry forwards 79,069 - Deferred tax effect on impairment1 (198,025) (33,845)

Net deferred tax charge (82,536) (216,819)

Income tax expense recognised in profit or loss (net) 2 (568,955) (717,590) 1 In 2017, the deferred tax charge represents impairment on certain oil and gas exploration and production assets (see note 14) and the partial impairment of goodwill recognised on the acquisition of one of CEPSA’s subsidiary (see note 15). 2 Income tax charge includes tax expense from discontinued operations of US $ 317,225 thousand (31 December 2016: US $ 203,092 thousand). The United Arab Emirates does not enforce any domestic income tax decrees and, therefore, the domestic tax rate is nil. Income tax is calculated at tax rates prevailing in the respective jurisdictions, and primarily arises from CEPSA, NOVA and Borealis. The total income tax recognised in profit or loss for the year can be reconciled to the results of the Group as follows: 2017 2016 US $ ‘000 US $ ‘000

Profit before tax from continuing operations 768,859 298,721 Profit before tax from discontinued operations 1,125,872 822,659

Profit before tax 1,894,731 1,121,380

Effect of different tax rates of subsidiaries operating in other jurisdictions (568,419) (336,414) Tax effect of share of profit of equity accounted investees reported net of tax 13,513 39,926 Effect of income (loss) that is exempt from taxation 208,436 (476,203) Effect of expenses that are not deductible in determining taxable profit (61,153) (55,271) Effect of unused tax losses and tax offsets not recognised as deferred tax assets (70,187) - Effect on deferred tax balances due to the change in tax rate (66,268) 55,978 Effect of tax credits 39,823 98,963 Impairment losses on goodwill that are not deductible (43,885) - Others (49,940) (21,540)

(598,080) (694,561) Adjustments recognised in the current year in relation to the current tax of prior year 29,125 (23,029)

Income tax expense recognised in profit or loss (net) (568,955) (717,590)

99


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 42 INCOME TAX continued Current tax liabilities 2017 2016 US $ ‘000 US $ ‘000 Income tax payable 101,971 187,819 Deferred income tax assets and liabilities 2017 2016 US $ ‘000 US $ ‘000 Deferred tax assets 89,559 1,091,356 Deferred tax liabilities (1,081,889) (1,558,390) Net deferred tax liabilities (992,330) (467,034) The movements for the year in the net deferred tax position are as follows: 2017 2016 US $ ‘000 US $ ‘000 At 1 January (467,034) (255,501) Tax benefit recognised in profit or loss (82,536) (216,819) Fair value adjustments arising from acquisition through business combination (44,668) - Transfer of a subsidiary to an entity under common control (see note 7) (285,759) - Foreign currency adjustments 20,406 (1,031) Other adjustments (132,739) 6,317 At 31 December (992,330) (467,034) Subject to the agreement of the relevant tax authorities, the Group’s unrecognised tax losses, investment allowances or unrecovered cost pools in various jurisdictions as at 31 December 2017 amounted to US $ 485,055 thousand (31 December 2016: US $ 154,117 thousand) and are available for offset against future taxable income. These losses, allowances and cost pools have expiry periods up to unlimited carry forward period. Deferred tax liabilities in certain jurisdictions are primarily in respect of the excess of the carrying amount over the tax written down value of property, plant and equipment and intangible assets. The Group has entered into various exploration and production sharing agreements. These agreements prescribe that any income tax liability of the Group will be discharged by the governments of the countries in which the agreements are executed. As there will be no cash outflow in relation to taxation, the Group does not recognise any income, expense, tax asset or liability for either current or deferred taxation in relation to these operations. The Group has not recognized deferred tax liabilities in relation to taxable temporary differences associated with investments in subsidiaries and joint ventures for an amount of US $ 184,178 thousand (31 December 2016: US $ 338,643 thousand). This liability was not recognised as the Group controls the dividend policy of its subsidiaries and is able to veto the payment of dividends of its joint ventures, as the Group controls the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

100


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 42 INCOME TAX continued Income tax recognised in other comprehensive income: 2017 2016 US $ ‘000 US $ ‘000 Consolidated statement of other comprehensive income Net change in fair value of available-for-sale financial assets (82) (46) Effective portion of changes in fair value of cash flow hedges and other reserves 11,764 (4,398) Net losses arising on hedge of net investments 59,925 17,411 Net movement in defined benefit plan 3,146 28,359 Income tax credit directly to equity 74,753 41,326 43 FINANCIAL RISK MANAGEMENT Overview The Group has exposure to the following risks from its use of financial instruments: 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, and the Group’s management of capital. Further quantitative disclosures are detailed below. Financial risk management framework The Board of Directors has 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. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. 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’s Audit, Risk and Compliance 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.

101


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, investment securities and other financial assets. Loans and receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country, as these factors may have an influence on credit risk, particularly in the currently deteriorating economic circumstances. Approximately 12% (31 December 2016: 6%) of the receivables and 24% (31 December 2016: 34%) of loans receivables are from related parties which are primarily parties under common control of the Company’s Shareholder, joint ventures and associates. However, this concentration of credit risk is mitigated by the fact that the overall exposure is being spread over a number of customers. Investments The Group invests in various financial instruments, both quoted and unquoted, generally based on detailed due diligence conducted by experts. All investments are approved by the Board of Directors or the Investment Committee as per delegation of authority. As adequate background checks and financial and legal due diligence are conducted, to ascertain that the risk that the counterparty to the financial instrument will fail to meet its contractual obligations is low. Guarantees Other than guarantees provided by a banking subsidiary in its normal course of business, the Group provides guarantees to third parties on behalf of its wholly owned subsidiaries and on behalf of joint ventures in proportion to the Company’s wholly owned subsidiaries’ interests in the joint ventures (see note 40). Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is set out below: 2017 2016 US $ ‘000 US $ ‘000 Financial investments at fair value through profit or loss Debt securities 301,204 393,751 Derivative assets 115,622 125,401 Receivables Amounts due from related parties 395,696 242,651 Trade receivables 2,752,067 3,644,425 Loans receivable 2,372,129 2,188,464 Other financial assets - 2,536,895 Cash at bank 2,842,483 5,668,487 8,779,201 14,800,074

102


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (a) Credit risk continued Exposure to credit risk continued For collateral held against loans receivable, refer to note 20. The ageing of the loans receivable is as follows: 2017 2016 Gross Impairment Gross Impairment US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Neither past due nor impaired 2,372,129 - 2,188,464 - Not past due but impaired 34,053 (34,053) 32,017 (32,017) Past due above 180 days 39,666 (39,666) 25,811 (25,811)

2,445,848 (73,719) 2,246,292 (57,828) Approximately 24% (31 December 2016: 34%) of loans neither past due nor impaired are loans receivable from associates and joint ventures. The ageing of the financial assets, other than loans receivable is as follows: 2017 2016 Gross Impairment Gross Impairment US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Receivables and others: Neither past due nor impaired 5,350,836 - 8,261,958 - Past due 0 – 120 days 577,720 - 822,803 - Past due above 121 days 573,655 (95,139) 1,238,398 (248,444)

Other assets: Past due above 121 days - - 3,309,752 (772,857)

6,502,211 (95,139) 13,632,911 (1,021,301) The entities within the Group have their respective credit policies. Geographically, there is relatively higher concentration of credit risk in United Arab Emirates, Europe and North America.

103


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (a) Credit risk continued Exposure to credit risk continued The movement in allowance for impairment in respect of loans, trade receivables and other financial assets during the period is as follows: Impairment Impairment Impairment on on loans on trade other financial receivables receivables assets Total US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 2017 At 1 January 2017 57,828 248,444 772,857 1,079,129 Provision for the year 2,615 14,215 - 16,830 Transfers 34,053 - (34,053) - Written off during the year - (3,947) (738,804) (742,751) Reversal during the year - (11,504) - (11,504) Transfer of a subsidiary to an entity under common control (31,317) (168,443) - (199,760) Effect of exchange rate difference 10,540 16,374 - 26,914 At 31 December 2017 73,719 95,139 - 168,858 2016 At 1 January 2016 79,049 205,429 772,765 1,057,243 Provision for the year 39,855 85,576 - 125,431 Written off during the year (19,604) (1,350) - (20,954) Reversal during the year (14,405) (35,222) - (49,627) Effect of exchange rate difference (27,067) (5,989) 92 (32,964) At 31 December 2016 57,828 248,444 772,857 1,079,129 (b) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity in the form of short-term liquid assets to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group ensures that it has sufficient cash and liquid assets on demand to meet its expected operational expenses, this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.

104


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (b) Liquidity risk continued The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting arrangements: 2017

Carrying Contractual 1 year 1-5 More than value cash flows or less years 5 years Notes US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Trade and other payables 5,653,884 (5,893,172) (5,893,172) - - Interest bearing borrowings 32 22,697,892 (27,589,303) (3,241,953) (16,875,865) (7,471,485) Derivative financial liabilities 31 473,212 (517,366) (58,172) (230,338) (228,856) Total financial liabilities 28,824,988 (33,999,841) (9,193,297) (17,106,203) (7,700,341) 2016

Carrying Contractual 1 year 1-5 More than value cash flows or less years 5 years Notes US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Trade and other payables 6,776,637 (6,776,637) (6,776,637) - - Interest bearing borrowings 32 25,677,836 (30,430,933) (4,338,589) (17,814,617) (8,277,727) Derivative financial liabilities 31 249,684 (263,268) (9,108) (110,396) (143,764) Total financial liabilities 32,704,157 (37,470,838) (11,124,334) (17,925,013) (8,421,491)

The total undrawn borrowing facilities as at the reporting date amount to US $ 6,937,304 thousand (31 December 2016: US $ 8,943,843 thousand). To the extent that interest is based on floating rates, the undiscounted amount is derived from spot rates at the reporting date. For the derivative instruments, where the payable or receivable is not fixed, the amount disclosed has been determined by reference to the spot rates at the reporting date. The maturity profile of the financial assets is as follows: 2017

Carrying Expected 1 year 1-5 More than value cash flows or less years 5 years Notes US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Financial assets Trade and other receivables 3,147,763 3,147,763 2,943,554 160,725 43,484 Loans receivable 20 2,372,129 2,605,339 823,848 1,771,498 9,993 Cash at bank 25 2,842,483 2,842,483 2,842,483 - - Financial assets at fair value through profit or loss 19 2,585,116 2,662,827 2,436,962 217,181 8,684 Available-for-sale financial assets 19 3,271,260 3,271,260 28,106 591,179 2,651,975 Total financial assets 14,218,751 14,529,672 9,074,953 2,740,583 2,714,136 2016

Carrying Expected 1 year 1-5 More than value cash flows or less years 5 years Notes US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Trade and other receivables 3,887,076 3,887,076 3,731,510 155,566 - Loans receivable 20 2,188,464 2,468,316 1,212,200 1,256,116 - Other financial assets 2,536,895 2,536,895 2,536,895 - - Cash at bank 25 5,668,487 5,668,487 5,668,487 - - Financial assets at fair value through profit or loss 19 1,485,279 1,584,777 1,408,561 164,043 12,173 Held to maturity investment 5,518 5,518 - - 5,518 Available-for-sale financial assets 19 2,474,230 2,474,230 29,764 518,184 1,926,282 Total financial assets 18,245,949 18,625,299 14,587,417 2,093,909 1,943,973

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and equity prices, will affect the Group’s profit or loss 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. Where appropriate, the Group manages its market risks with approved financial derivatives. All such transactions are carried out within the policies set by the Board of Directors. Currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense are denominated in a different currency from the Group’s functional currency), interest bearing borrowings, financial assets at fair value through profit or loss and the Group’s net investments in foreign subsidiaries. The following table demonstrates the sensitivity of US $ to a reasonably possible 0.05% increase against the following foreign currencies, with all other variables held constant, on the Group’s profit and equity. The impact of translating the net assets of foreign operations into AED and US $ is excluded from the sensitivity analysis. Effect on profit Effect on before tax equity US $ ‘000 US $ ‘000 2017 EUR (21,213) (7,284) GBP 165 2,618 CHF 1,724 - JPY (2,942) 3,323 Others (1,588) 5,980 2016 EUR (103,552) (29,861) GBP (4) 7,048 CHF 696 - JPY (91) (11) Others 2,229 14,957 The effect of a decrease in US $ against the above foreign currencies is expected to be equal but opposite impact. The movement in equity will offset the translation of the foreign operations to the Group’s functional currency.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (c) Market risk continued Interest rate risk The Group exposure to interest rate risk primarily arises from its variable rate borrowings and financial assets. The Group adopts a policy of ensuring that its exposure to significant changes in interest rates is reduced by hedging such risks. This is achieved by natural offsets and where appropriate by the use of derivatives. Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in market interest rates would not affect profit or loss. Cash flow sensitivity analysis for variable rate instruments An increase of 100 basis points (“100bps”) in interest rates at the reporting date would have decreased equity and profit or loss by an amount of US $ 83,293 thousand (31 December 2016: US $ 113,348 thousand). This assumes that all other variables, in particular foreign currency rates, remain constant. Other market price risk Equity price risk Equity price risk arises from financial assets at fair value through profit or loss and available-for-sale equity securities. Management of the Group monitors the mix of debt and equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Investment Committee or Board of Directors based on the delegation of authority. The primary goal of the Group’s investment strategy is to maximise investment returns. Management is assisted by external advisors in this regard. In accordance with this strategy, certain investments are designated at fair value through profit or loss because their performance is actively monitored and they are managed on a fair value basis. The following table demonstrates the sensitivity of the Group’s equity and profit or loss to a 5% decrease in the price of its equity holdings, assuming all other variables, in particular foreign currency rates, remain constant. 2017 2016 ________________________________________________________ ______________________________________________________

Effect on Effect on Effect on Effect on profit or loss equity profit or loss equity US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Effect of change in equity portfolio of the Group (107,941) (160,442) (48,839) (118,901) The following table demonstrates the sensitivity of the Group’s equity and profit or loss to a 5% increase in the price of its equity holdings, assuming all other variables, in particular foreign currency rates, remain constant. 2017 2016 ________________________________________________________ ______________________________________________________

Effect on Effect on Effect on Effect on profit or loss equity profit or loss equity US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Effect of change in equity portfolio of the Group 107,941 160,442 48,839 118,901

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (c) Market risk continued Other market price risk continued Commodity price risk The Group is affected by the volatility of certain commodities. Its operating activities require the on-going purchase and manufacturing of mainly petrochemical feedstock. Due to the significant volatility of the price of the underlying, the Group’s management has a commodity risk management strategy for commodity price risk and its mitigation. The Group actively monitors commodity price risks and where appropriate enters into derivative contracts to mitigate such risks. The Group does not enter into physical commodity contracts other than to meet the Group’s expected usage and sale requirements. Fluctuations in crude oil prices also have an inverse effect on product refining and marketing operations, the extent of which depends on the speed with which price changes in energy products or base petrochemical products at source is relayed to the international and local finished goods markets. The following table shows the effect of price changes after the impact of hedge accounting: 2017 2016 Change Effect on Effect on profit before Effect on profit before Effect on tax equity tax equity US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Crude oil +10% - - 4,126 - Natural gas +10% - 664 - 1,494 Electricity +10% - 33,252 - 26,430 Petrochemical feedstock Propylene +10% 9,295 2,265 10,516 (394) Polyethelene +10% 166,229 - 169,513 - Other petrochemical feedstock* +10% (60,552) (2,297) (41,545) (4,119)

*Other petrochemical feedstock includes products such as ethane, naphtha, ethylene, propane, butane and others. The effect of decreases in commodity prices is expected to be equal and opposite to the effect of the increases shown. (d) Fair value The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy, which analyses financial instruments carried at fair value by valuation method. The different levels are defined as follows: Level 1: Quoted prices in active markets for assets and 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); and Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (d) Fair value continued As at 31 December 2017 Carrying amount Fair value Level 1 Level 2 Level 3 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Financial assets measured at fair value Financial assets designated at FVTPL Quoted investments 2,104,968 2,104,968 2,104,968 - - Unquoted investments 167,736 167,736 - 105,809 61,927 Financial assets held for trading Quoted investments 259,308 259,308 259,308 - - Unquoted investments 53,104 53,104 - 42,851 10,253 Available-for-sale financial assets Quoted investments 3,048,362 3,048,362 3,048,362 - - Unquoted investments 1 222,898 175,000 - - 175,000 5,856,376 5,808,478 Financial assets not measured at fair value Receivables 3,147,763 3,147,763 Loans receivable 2,372,129 2,372,129 Cash and cash equivalents 2,847,217 2,847,217 8,367,109 8,367,109

Financial liabilities measured at fair value Fair value hedges Currency forwards 4,034 4,034 - 4,034 - Currency swaps 1,217 1,217 - 1,217 - Commodity swaps 2,089 2,089 - 2,089 - Cash flow hedges Commodity swaps 11,192 11,192 - 11,192 - Currency forwards 3,576 3,576 - 3,576 - Interest rate swaps 386,757 386,757 - 386,757 - Others 15,605 15,605 - 15,605 - Financial liabilities held for trading Commodity swaps 44,234 44,234 - 44,234 - Currency forwards 4,508 4,508 - 4,508 - 473,212 473,212 Financial liabilities not measured at fair value Trade and other payables 5,653,884 5,653,884 Obligation under finance lease 921 921 - - 921 Borrowings 22,696,971 24,078,438 14,600,316 - 9,478,122 28,351,776 29,733,243

1 Certain unquoted securities are carried at cost less impairment, since no reliable measure of fair value is available.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (d) Fair value continued As at 31 December 2016 Carrying amount Fair value Level 1 Level 2 Level 3 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 US $ ‘000 Financial assets measured at fair value Financial assets designated at FVTPL Quoted investments 906,386 906,386 906,386 - - Unquoted investments 159,583 159,583 - 124,443 35,140 Financial assets held for trading Quoted investments 357,916 357,916 357,916 - - Unquoted investments 61,394 61,394 - 38,142 23,252 Available-for-sale financial assets Quoted investments 2,275,530 2,275,530 2,275,530 - - Unquoted investments 1 198,700 155,287 - - 155,287 Held to maturity investments Unquoted investments 1 5,518 5,518 - - - 3,965,027 3,921,614 Financial assets not measured at fair value Receivables 3,887,076 3,887,076 Loans receivable 2,188,464 2,188,464 Other assets 2,536,895 2,536,895 Cash and cash equivalents 5,951,053 5,951,053 14,563,488 14,563,488

Financial liabilities measured at fair value Fair value hedges Currency forwards 20,751 20,751 - 20,751 - Cash flow hedges Commodity swaps 19,573 19,573 - 19,573 - Currency forwards 12,915 12,915 - 12,915 - Interest rate swaps 135,808 135,808 - 135,808 - Others 17,736 17,736 - 17,736 - Financial liabilities held for trading Commodity swaps 14,238 14,238 - 14,238 - Commodity futures 4,489 4,489 - 4,489 - Interest rate swaps 1,982 1,982 - 1,982 - Currency options 1,987 1,987 - 1,987 - Currency forwards 20,205 20,205 - 20,205 - 249,684 249,684 Financial liabilities not measured at fair value Trade and other payables 6,776,637 6,776,637 Obligation under finance lease 3,770 3,770 - - 3,770 Borrowings 25,674,066 27,141,550 11,247,711 - 15,893,839 32,454,473 33,921,957 1 Certain unquoted securities are carried at cost less impairment, since no reliable measure of fair value is available.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (d) Fair value continued There were no transfers between Level 1 and 2 during the period. The following table shows the valuation techniques used in measuring Level 1, Level 2 and Level 3 fair values, as well as the significant unobservable inputs used. Type of financial asset / liability Valuation techniques and key inputs Significant unobservable inputs Financial assets designated at FVTPL - Quoted equity and debt securities

Quoted bid prices in an active market N/A

Financial assets held for trading - Quoted equity securities


Available-for-sale investments - Quoted equity securities


Available-for-sale investments - Unquoted equity securities

Market multiples approach based on Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

Country risk premium for lack of marketable securities of 20% applied

Derivative assets designated at FVTPL Market approach. Value is based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates

N/A

The following table demonstrates the movement in the level 3 of fair value hierarchy: 2017 2016 US $ ‘000 US $ ‘000 At 1 January 213,679 193,448 Additions during the year 12,964 106,533 Increase (decrease) in fair value recognised in profit or loss (net) 37,537 (81,054) Disposals (17,000) (5,248) 247,180 213,679 (e) Capital management The Board of Directors’ 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. The Board of Directors monitors the return on capital. 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. There were no significant changes in the Group’s approach to capital management during the year. Certain subsidiaries are subject to debt covenants requiring the maintenance of specific debt to equity ratios.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 43 FINANCIAL RISK MANAGEMENT continued (e) Capital management continued The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group’s policy is to keep the gearing ratio within a range to meet the business needs of the Group. The Group includes within net debt, interest bearing borrowings and finance lease less cash and cash equivalents. Capital includes issued share capital, reserves, additional shareholder contributions, shareholder current account, and non-controlling interest. 2017 2016 US $ ‘000 US $ ‘000 Interest bearing loans and borrowings (note 32) 22,697,892 25,677,836 Less cash and short term deposits (note 25) (2,847,217) (5,951,053) Net debt 19,850,675 19,726,783 Total equity 6,872,107 11,780,964 Equity and net debt 26,722,782 31,507,747 Gearing ratio 74% 63% 44 OTHER RISK MANAGEMENT OBJECTIVES AND POLICIES Risks relating to changes in the legislation applicable to activities and/or the industry The activities carried on by the Group are subject to various legislations. The changes that might arise could affect the structure under which activities are performed and the results generated by operations. Industrial risks, prevention and safety The Group ensures that the safety control system applied is in accordance with international specifications. Also in place are action procedures that reflect the standards developed in accordance with best practices, which ensure the maximum possible level of safety, paying special attention to the elimination of risk at source. The objective of this system is ongoing improvement in risk reduction, focused on various activities, such as work planning, the analysis and monitoring of corrective actions derived from incidents and accidents, internal audits, periodic inspections of the facilities and supervision of maintenance work and operations. Environmental risks Certain activities of companies within the Group, may give rise to an impact on the environment through emissions into the air, water, soil and ground water and also through the handling and treatment of waste. In this connection, the Group ensures that all its industrial plants are awarded their integrated environmental permits, which involve rigorous control over their processes with the aim of minimizing impact on the environment. Further, the Group’s objective is to minimize the impact of its activities on the environment where it operates its industrial plants, which is reflected in internal environmental protection policies of the group companies and is regulated by the relevant authorities.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 45 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods. (a) Significant accounting judgements In the process of applying the Group’s accounting policies, management has made the following significant judgments, apart from those involving estimations, which have the most significant effect on the amounts recognised in the consolidated financial statements: Classification of investments The Group’s principal activity is in investing and managing investments through different holdings in investees. The Group applies significant judgement with respect to the classification of investments with respect to control (including de-facto control), joint control and significant influence exercised on those investments or an investment is simply a financial investment. For assessing control, the Group has considered power over the investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect its returns. In case, where the Group has less than majority of the voting or similar rights in an investee, the Group has considered all relevant facts and circumstances in assessing whether it has power over an investee, including the contractual arrangement with the other vote holders of the investee and de-facto control on listed securities. For assessing joint control, the Group has considered the contractual agreement of sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. For the purpose of assessing whether a joint arrangement is a joint venture or joint operation, the Group has considered whether it has joint control on rights to the net assets of the arrangements, in which case these are treated as joint ventures or rights to the assets, and obligations for the liabilities, relating to the arrangement, in which case these are treated as joint operations. For assessing significant influence, the Group has considered the ability to participate in the financial and operating policy decisions of the investee. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of investee. The Group has further considered the extent of representation on the board of directors, including the ability of other vote holder to operate the investee without regard to the views of the Group, or equivalent governing body of the investee, participation in policy-making processes, including participation in decisions about dividends or other distributions, material transactions between the Group and its investee, interchange of managerial personnel and provision of essential technical information.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 45 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS continued (b) Significant estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Quantities of proved oil and gas reserves Depreciation on certain property, plant and equipment is estimated based on oil and gas reserves. The level of estimated commercial reserves is a key determinant in assessing whether the carrying value of any of the Group’s development and production assets has been impaired. There are numerous uncertainties inherent in estimating quantities of proved and probable oil reserves. Oil reserve engineering is a subjective process of estimating underground volumes of oil that cannot be precisely measured, and estimates of other engineers might differ materially from the estimates utilised by the Group. The accuracy of any reserve estimate is a function of the quality of available data and associated engineering and geological interpretations and judgments. Results of drilling, testing, and production subsequent to the date of the estimate may justify the revision of such estimates. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. The Group’s share of the oil and gas reserves that may be ultimately recovered from the joint ventures is subject to the production sharing agreements. Impairment losses and determination of fair values The Group reviews its investments in equity accounted investees, financial investments and receivables to assess impairment losses at each reporting date (see note 3(v)). The Group’s credit risk is primarily attributable to its unquoted available-for-sale investments, trade and other receivables and other items disclosed in note 43. In determining whether impairment losses should be recorded in profit or loss, the Group makes judgments as to whether there is any observable data including revised business plans of investee companies, indicating that there is a measurable decrease in the estimated future cash flows on a case by case basis. Accordingly, an allowance for impairment is made where there is an identified loss event or a condition which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated 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. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 45 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS continued (b) Significant estimates and assumptions continued Uncertain tax positions Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of international business relationships and the long term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. As of 31 December 2017, the Group has recognised a balance of US $ 89,559 thousand (31 December 2016: US $ 1,091,356 thousand) as deferred tax asset. The uncertain tax positions, for example tax disputes, are accounted for by applying the most likely amount. The most likely amount is the single most likely amount in a range of realistically possible options. The Group evaluates the unit of account related to the uncertain tax positions on a case-by-case basis. Provision for decommissioning The Group recognised a provision for decommissioning obligations associated with its manufacturing facilities. In determining the amount of the provision, assumptions and estimates are made in relation to discount rates, the expected cost to dismantle and remove the facility, restore the site, and the expected timing of those obligations. Legal claims and contingencies When assessing the possible outcomes of legal claims and contingencies, the Group rely on the opinions of the legal counsel. The opinions of the Group’s legal counsel are based on the best of their professional judgment and take into consideration the current stage of the proceedings and legal experience accumulated with respect to the various matters. As the results of the claims may ultimately be determined by courts, or otherwise settled, they may be different from such estimates. Further details on legal claims and contingencies are disclosed in notes 38 and 39. Estimated useful lives of property, plant and equipment The management assigns useful lives and residual values to the items of property, plant and equipment based on the intended use of the assets and the expected economic lives of those assets. Subsequent changes in circumstances such as technological advances or prospective utilisation of the assets concerned could result in the actual useful lives or residual values differing from the initial estimates. Management has reviewed the residual values and useful lives of the major items of property, plant and equipment and has determined that no adjustment is necessary. Refer to note 3(n(iii)) for details of the estimated useful lives of property, plant and equipment. Business combinations Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets and liabilities of the acquired business. For most assets and liabilities, the purchase price allocation is accomplished by recording the asset or liability at its estimated fair value. Determining the fair value of assets acquired and liabilities assumed requires judgment by management and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, the useful lives of licences and other assets and market multiples. The Group’s management uses all available information to make these fair value determinations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 December 2017 46 COMPARATIVE FIGURES Certain amounts in the consolidated financial statements for the year ended 31 December 2016 and supporting note disclosures have been reclassified to conform with the current year’s presentation. Such reclassifications do not have an impact on the previously reported consolidated statement of comprehensive income and consolidated statement of financial position. 47 EVENTS AFTER THE REPORTING DATE On 15 February 2018, Nova Chemicals (“Nova”), Borealis AG ("Borealis") and Total S.A. ("Total") signed definitive agreements to form a joint venture. The joint venture will be owned 50% by Total and 50% by Novealis Holdings LLC (a joint-venture 50% owned by Borealis and 50% owned by Nova, which was formed in Q3 2017), and will commence subject to customary closing conditions, including receipt of regulatory approvals. Total investment of Nova and Borealis in this project is expected to be around US $ 1.8 billion.

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