AL JABR FINANCING COMPANY (A SAUDI CLOSED JOINT STOCK COMPANY) FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT

Transcription

1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT

2 FINANCIAL STATEMENTS WITH INDEPENDENT AUDITOR S REPORT INDEX PAGE Independent auditor s audit report 1-2 Statement of financial position 3 Statement of comprehensive income 4 Statement of changes in shareholders equity 5 Statement of cash flows 6 Notes to the financial statements 7-32

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5 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER Note ASSETS Current assets Cash and cash equivalents 4 37,646,137 19,592,694 Investment in financing contracts, net - current portion 5 181,240, ,199,534 Assets repossessed held for sale 6 1,780, ,346 Prepayment and other receivables 7 2,448,045 1,818,616 Due from a related party 8 354,000 - Total current assets 223,469, ,030,190 Non-current assets Property and equipment, net 9 5,416,895 4,923,303 Investment- available for sale ,850 - Investment in financing contracts, net non-current portion 5 493,686, ,990,989 Total non-current assets 499,996, ,914,292 TOTAL ASSET 723,466, ,944,482 LIABILITIES AND EQUITY Current Liabilities Borrowings - current portion 11 50,000,000 - Accounts payable and other liabilities ,011, ,016,517 Zakat provision 13 1,451,686 1,682,602 Total current liabilities 180,462, ,699,119 Non-current liabilities Borrowing - non-current portion ,000,000 - End-of-service indemnities 14 2,402,976 1,144,088 TOTAL LIABILITIES 332,865, ,843,207 SHAREHOLDERS EQUITY Share capital ,000, ,000,000 Statutory reserve 16 6,318,392 3,816,924 Retained earnings 39,547,566 34,284,351 Actuarial loss reserve on end-of-service indemnities 14 (265,324) - TOTAL SHAREHOLDERS EQUITY 390,600, ,101,275 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 723,466, ,944,482 The accompanying notes form an integral part of these financial statement - 3 -

6 STATEMENT OF COMPREHENSIVE INCOME Note Year ended 31 December Period from 12 January 2015 to (Re-stated) NET REVENUE AND FINANCE INCOME Net sales revenue 18 10,685,363 42,806,837 Finance income 18 83,153,322 51,730,831 93,838,685 94,537,668 Insurance cost (26,049,861) (14,687,948) Finance cost 19 (782,993) - Gross profit 67,005,831 79,849,720 General and administration expenses 20 (22,614,323) (23,424,685) Selling and marketing expenses 21 (2,272,668) (1,886,340) Allowance for credit loss 5 (18,067,293) (12,323,024) Other income 22 2,258,935 3,649,587 NET PROFIT 26,310,482 45,865,258 Earnings per share (basic and diluted) OTHER COMPREHENSIVE LOSS Items that will not be reclassified to profit and loss Actuarial loss reserve on end-of-service indemnities 14 (265,324) - Total other comprehensive loss for the year (265,324) - TOTAL COMPREHENSIVE INCOME FOR THE YEAR 26,045,158 45,865,258 The accompanying notes form an integral part of these financial statements

7 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Share Capital Payments under Capital Increase Statutory Reserve Retained Earnings Actuarial loss reserve on end-ofservice indemnities Balance as at 12 January , ,900,006 - ) 67,969( - 344,932,031 Payments to increase capital 344,900,006 ) 344,900,006( Net Profit for the period ,169,244-38,169,244 Re-statement (note 26) ,696,014-7,696,014 Total comprehensive income for the period (re-stated) - 45,865,258-45,865,258 Zakat for the period (7,696,014) - (7,696,014) Net profit after zakat - 38,169,244-38,169,244 Transfer to statutory reserve - - 3,816,924 (3,816,924) - - Balance as at 345,000,000-3,816,924 34,284, ,101,275 Total Balance as on 1 January 345,000,000-3,816,924 34,284, ,101,275 Net Profit for the year ,310,482-26,310,482 Other comprehensive income for the year (265,324) (265,324) Total comprehensive income for the year ,310,482 (265,324) 26,045,158 Zakat for the year (1,295,799) - (1,295,799) Net profit after zakat ,014,683 (265,324) 24,749,359 Transfer to statutory reserve - - 2,501,468 (2,501,468) - Dividends distributed (17,250,000) - (17,250,000) Balance as at 345,000,000-6,318,392 39,547,566 (265,324) 390,600,634 The accompanying notes form an integral part of these financial statements

8 For the year ended, Period from 12 January 2015 to (Re-stated) OPERATING ACTIVITIES Net profit 26,310,482 45,865,258 Adjustments for: Depreciation 2,417,524 1,537,656 Provision for end-of-service indemnities 1,172, ,591 Allowance for credit loss 18,067,293 12,323,024 Changes in operating assets and liabilities: Investment in financing contracts, net (227,804,473) (477,513,547) Prepayment and other receivables (629,429) (167,505) Assets repossessed held for sale (1,207,888) ) 419,346( Due from a related party (354,000) - Accounts payable and other liabilities 22,994, ,737,774 Cash used in operations (159,033,334) (312,944,095) Zakat paid during the year / period (1,526,715) (6,013,412) End-of-service indemnities paid (178,999) (88,834) Net cash used in operating activities (160,739,048) (319,046,341) INVESTING ACTIVITIES Investment -available for sale (892,850) - Purchase of property and equipment (3,064,659) (6,460,959) Net cash used in investing activities (3,957,509) (6,460,959) FINANCING ACTIVITIES Borrowings 200,000,000 - Dividends paid during the year (17,250,000) - Net cash from financing activities 182,750,000 - NET CHANGE IN CASH AND CASH EQUIVALENTS 18,053,443 (325,507,300) Cash and cash equivalents at the beginning of the year / period 19,592,694 - Transfer from Al Jabr Installment Company - 345,099,994 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR / PERIOD 37,646,137 19,592,694 Non- cash transactions Actuarial loss reserve on end-of-service indemnities 265,324 - Transfer from Property and equipment to assets repossessed held for sale 153,543 - The accompanying notes form an integral part of these financial statements

9 1. LEGAL STATUS Al Jabr Financing Company ("the Company") is a Saudi Closed Joint Stock Company registered in the Kingdom of Saudi Arabia under Commercial Registration No issued in Dammam on 21 Rabi Al Awwal 1436 H (12 January 2015). The approval of the Saudi Arabian Monetary Agency (SAMA) in its letter No, dated 18 Dhul Hijjah 1435 H (12 October 2014) and the issuance of Ministerial Decision No, 394 / S dated 21/3/1436 H corresponding to 12/1/2015 approving the transfer of Al Jabr Company for Installment from a limited liability Company to a closed joint stock Company and to amend its name to become Al-Jabr Financing Company while maintaining the same commercial registration number of the Company prior to the conversion. The principal activity of the Company is finance lease under the license number 42/Ash/ dated 3 Rabi Ul Awwal 1437 H (corresponding to 14/12/2015) granted by Saudi Arabia Monetary Authority (SAMA). The Company s Head Office is located at the following address; Al Jabr Financing Company Dammam, Kingdom of Saudi Arabia 2. BASIS OF PREPARATION Statement of compliance These financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as modified by Saudi Arabian Monetary Authority ( SAMA ) for the accounting of zakat and income tax. The Ministry of Commerce and Investment commenced the implementation of the new Companies Regulations effective 25 Rajab1437H corresponding to 2 May ( the effective date ) promulgated by Royal Decree No. M/3 dated 28 Muharram 1437H. The new regulations shall replace the Companies Regulations promulgated by Royal Decree No. M/6 dated 22 Rabi I 1385H and it shall supersede all provisions that are inconsistent therewith. Companies existing as at the effective date of the regulations shall make all necessary amendments to their bylaws to comply with the requirements of the provisions of the new companies regulations within a period of one year of the effective date of the companies regulations. The Company is in the process to make the necessary amendments to the Company s by Laws as required by the new regulations. Basis of measurement These financial statements have been prepared under the historical cost convention. Functional and presentational currency These financial statements have been presented in Saudi Riyals (SAR) which is the Company's functional and presentation currency. All financial information presented in Saudi Arabian Riyals has been rounded to the nearest Riyal, unless otherwise mentioned

10 2. BASIS OF PREPARATION (Continued) Significant accounting estimates and judgments The preparation of financial statements in conformity with approved accounting standards require management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In the process of applying the Company s accounting policies, management has made the following estimates and judgments which are significant to the financial statements: Going concern The Company's management has made an assessment of the Company's ability to continue as a going concern and is satisfied that the Company has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt on the Company s ability to continue as a going concern. Therefore, the financial statements have been prepared on a going concern basis. Actuarial valuation of employee benefits liabilities The cost of the end-of-service ("employee benefits") under defined unfunded benefit plan is determined using actuarial valuation. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and rate of employee turnover. Due to the complexity of the valuation and its long-term nature, a defined unfunded benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed on an annual basis or more frequently, if required. Impairment of net investment in financing contracts An estimate of the collectible amount of financing contracts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and an allowance applied according to the length of time past due, based on historical recovery rates. Any difference between the amounts actually collected in future periods and the expected uncollectible amounts will be recognised in the statement of profit or loss of those periods. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies applied in the preparation of these financial statements are set forth below. These accounting policies have been applied consistently to all the years presented, unless otherwise specified. Change in accounting policy in relation to accounting for zakat Based on the accounting framework mentioned in note 2 (statement of compliance section), the Company amended its accounting policy relating to zakat and have started to charge it directly to retained earnings with a corresponding liability recognised in the statement of financial position. Previously, zakat was charged to the statement of profit of loss with a corresponding liability recognised in the statement of financial position. The Company has accounted for this change in the accounting policy relating to zakat and income tax retrospectively and the effects of the above change are disclosed in note 26 to the financial statements

11 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Change in accounting policy in relation to accounting for zakat (Continued) Amendments in existing standards The adoption of the following amendments to existing standard mentioned below which had no significant financial impact on the financial statements of the Company on the current period or prior period and is expected to have no significant effect in future periods: IAS 7 Disclosure Initiative - Amendments to IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in the opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. Property and equipment Property and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Cost includes expenditure that is directly attributable to the acquisition of the asset. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Cost incurred to replace a component of an item of property and equipment is capitalised and the asset so replaced is retired from use. All other repairs and maintenance expenditure are charged to the profit and loss account during the period in which they are incurred. Depreciation is charged using the straight-line method over its estimated useful life as mentioned below, after taking into account residual value. Depreciation rates applied are as follows: Vehicle tracking devices 33% Vehicles 25% Furniture, fixtures and office equipment 20% Computer and software 33% Leasehold buildings developments 50% Depreciation for leasehold improvements is calculated on the lower of the estimated useful life and the lease term. Depreciation on additions is charged from the month the assets are available for use. No depreciation is charged in the month of disposal. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains / losses on disposal of fixed assets, if any, are taken to the profit and loss account in the period in which they arise. Assets having an indefinite useful life are stated at acquisition cost less accumulated impairment losses, if any. The assets residual values, useful lives and methods are reviewed and adjusted, if appropriate, at each balance sheet date

12 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment in assets' value At each statement of financial position date, the carrying amounts of tangible assets are reviewed regularly to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the assets or cash-generating unit is reduced to its recoverable amount. Impairment loss is recognised as an expense in the statement of profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the assets or cash-generating unit in prior period. The reversal of an impairment loss is recognised in the statement of profit or loss immediately. Asset repossessed held for sale The Company in the ordinary course of its business, acquires certain vehicles and other assets against settlement of financing contracts. Such assets are considered as assets held for sale and are initially recorded at the lower of the net realizable value of related financing contract or the current fair value of the related assets, less any cost to sell. Subsequent to the initial recognition, these assets owned are periodically revalued and are carried at lower of their carrying values or the related net realizable value. Rental income, realized gain or losses on disposal and unrealized losses on evaluation are credited or charged to the comprehensive income/loss, if any. Financial instruments Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Company loses control of the contractual rights that comprise the financial assets. Financial liabilities are derecognised when they are extinguished, that is, when the obligation specified in the contract is discharged, cancelled, or expires. On derecognition of a financial asset or financial liability, the difference between the carrying amount and the consideration received (and receivable) or paid (and payable) is recognised in the statement of profit or loss. Financial assets a) Initial recognition and measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, financing contracts, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Management determines the classification of the financial asset at the time of initial recognition. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Murabaha receivables Murabaha is an agreement whereby the Company sells to a customer an asset, which the Company has purchased and acquired based on a promise received from the customer to buy. The selling price comprises the cost plus an agreed profit margin. Gross amounts due under the Murabaha sale contracts include the total of future sale payments on the Murabaha agreement. The Company is acting as dealer to its suppliers, accordingly the difference between the Murabaha sales value and the cost of the sold asset, is recognised as earned profit

13 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial assets (Continued) Finance Lease receivables Finance lease is an agreement wherein gross amounts due under originated Lease finance includes the total of future payments on lease finance, plus estimated residual amounts receivable. The Company is acting as dealer to its suppliers, accordingly the difference between the lease contracts sales value and the cost of the lease assets is recognized as earned profit. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. Available-for-sale financial assets are carried at fair value. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognized in other comprehensive income. b) Subsequent measurement Lease financing assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, lease financing assets are measured at amortised cost using the effective interest rate method, less any impairment. Restructured/ rescheduled receivables are recorded at revised terms and conditions as approved by the management. Restructuring policies and practices are based on indicators or criteria which, indicate that payment will most likely continue. c) Derecognition of financial assets Any financial asset or, where applicable a part of a financial asset or part of a group of similar financial assets is derecognised when: 1. the contractual right to receive cash flows from the asset has expired; or 2. the contractual right to receive cash flows from the asset has expired; but the Company has assumed an obligation to pay them in full without material delay to a third party under a "pass through" arrangement; or 3. the Company has transferred its contractual right to receive cash flows from the asset and either: (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Any resulting gains or losses on derecognition of financial assets are recognised at the time of derecognition of financial assets. d) Impairment of financial assets An assessment is made at each statement of financial position date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the statement of profit or loss. Impairment is determined as follows: 1. for assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the statement of profit or loss; 2. for assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; and, 3 for assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective profit rate

14 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial liabilities a) Initial recognition and measurement Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss or other financial liabilities, as appropriate. The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and, in the case of borrowings, net of directly attributable transaction costs. The Company's financial liabilities include trade and other payables, bank overdrafts, borrowings, financial guarantee contracts, and derivative financial instruments. b) Subsequent measurement The measurement of financial liabilities depends on their classification as financial liabilities at fair value through profit or loss or "amortised cost". The Company has not designated any financial liability as fair value through profit or loss. Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest rate method. Transaction costs relating to long-term borrowings are being amortised over the period of agreement using the effective interest rate method. c) Derecognition of financial liability A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss. Fair value management Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: a) In the principal market for the asset or liability; or b) In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset 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. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs

15 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair value management (continued) All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: a) Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities. b) Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. c) Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are set off and the net amount is reported in the financial statements only when the Company has a legally enforceable right to set off and the Company intends to either settle on a net basis, or to realise the assets and to settle the liabilities simultaneously. Income and expense items of such assets and liabilities are also offset and the net amount is reported in the financial statements. Regular way Contracts All "regular way" purchases and sales of financial assets are recognised on trade date, i.e. the date on which the asset is delivered to or by the Company. Long term borrowings Long term borrowings are initially recognised at cost being the fair value of consideration received together with the associated transaction costs. Subsequently, these are carried at amortised cost using the effective interest rate method. Transaction costs relating to long term borrowings are being amortised over the period of agreement using the effective interest rate method. Foreign currency transactions Foreign currency transactions are translated into Saudi Riyals at exchange rates prevailing at the date of transaction and the resulting gain / loss recognised in the statement of profit or loss Monetary assets and liabilities in foreign currencies are translated at the rates of exchange which approximate those prevailing on the statement of financial position date. Gains and losses on translation are taken to statement of profit or loss currently except for difference arising on translation of equity accounted associates which are recognised directly in equity through other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. Provisions for non-financial assets Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimates. When the Company expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement. Proposed dividend and transfer between reserves Dividends and appropriations to reserves, except appropriations which are required by law, made subsequent to the balance sheet date are considered as non-adjusting events and are recorded in the financial statements in accordance with the requirements of International Accounting Standard (IAS) 10, 'Events after the Reporting Period' in the year in which they are approved / transfers are made

16 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue recognition Sale of Vehicles The Company is acting as a dealer for its suppliers, accordingly revenue from the sale of vehicles is recognized when the significant risks and rewards of ownership have been transferred, which is considered to occur when title passes to the customer. Revenue is measured at the fair value of the consideration received or receivable, which can be measured as the net present value of the finance agreement plus the customer s down payments. Revenue is generally recognized when all the following conditions are met: - Neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained; - The amount of revenue can be measured reliably; - It is probable that the economic benefits associated with the sale will flow to the Company; and - The costs incurred or to be incurred in respect of the sale can be measured reliably. Income from financing contracts Income from financing contracts is recognised in the statement of profit or loss using the effective yield method, using the applicable effective profit rate "EPR", on the outstanding balance over the term of the contract. The calculation of EPR includes transaction costs and fees and commission income received that represent an integral part of the EPR. Transaction costs include incremental costs that are directly attributable to the acquisition of the financial assets Administration fees charged in respect of processing and other services are recognised as income over the period of the financing agreements. Cash and cash equivalents Cash and cash equivalents include cash in hand, if any, and at banks including bank overdrafts and investments with original maturity of less than three months from the contract date. Post-employment benefits This represents end of service benefits plan. End-of-service benefits as required by Saudi Arabian Labor Law are required to be provided based on the employees length of service. The Company s net obligations in respect of defined unfunded benefit plans (End-of-service-benefits) ( the obligations ) is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and any un-recognised past service costs. The discount rate used is the market yield on government bonds at the reporting date that have maturity dates approximating the terms of the Company s obligations. The cost of providing benefits under the defined benefit plans is determined using the projected unit credit method to determine the Company s present value of the obligation. The defined benefit liability comprises the present value of defined benefit obligation as adjusted for any past service cost not yet recognised and any un-recognised actuarial gains/losses. Impairment of non-financial assets The carrying amount of assets is reviewed at each reporting date for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. If such indication exists, and where the carrying value exceeds the estimated recoverable amount, assets are written down to their recoverable amount. The resulting impairment loss is taken to the profit and loss account

17 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Selling and marketing expenses Selling and marketing expenses principally comprise of costs incurred in the sale and marketing of the Company s products / services. All other expenses are classified as general and administrative expenses. Contingent liabilities The Company receives legal claims through its normal cycle. Management has to make estimates and judgments about the possibility to set aside a provision to meet claims. The end of the legal claims date and the amount to be paid is uncertain. The timing and costs of legal claims depends on the statutory procedures. Lease arrangements where the Company is a lessee Finance leases are those where the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. As lessee, the Company classifies its leases as operating leases and the rentals payable are charged to the statement of profit or loss on a straight line basis. 4. CASH AND CASH EQUIVALENTS Cash at banks 37,646,137 19,592,

18 5. NET INVESTMENT IN FINANCING CONTRACTS Investment in financings contract comprised of investment in finance lease and murabaha contracts as mentioned below: Current Portion Non-Current Portion Total Finance lease contracts receivables, net 167,545, ,163, ,708,190 Murabaha contracts receivables, net 13,695,876 2,523,637 16,219, ,240, ,686, ,927,703 Current Portion Non-Current Portion Finance lease contracts receivables, net 105,623, ,882, ,505,962 Murabaha contracts receivables, net 27,576,233 10,108,328 37,684,561 Total 133,199, ,990, ,190,523 Finance lease contracts receivables, net Current Portion Non-Current Portion Total Finance lease contracts receivables, gross 281,738, ,914, ,653,205 Less: unearned revenues (106,632,289) (174,592,666) (281,224,955) 175,106, ,322, ,428,250 Less: Allowance for credit loss (7,561,184) (9,158,876) (16,720,060) Finance lease contracts receivables, net 167,545, ,163, ,708,190 Current Portion Non-Current Portion Finance lease contracts receivables, gross 167,378, ,793, ,171,285 Less: unearned revenues (60,332,500) (109,056,909) (169,389,409) 107,045, ,736, ,781,876 Less: Allowance for credit loss (1,422,321) (1,853,593) (3,275,914) Finance lease contracts receivables, net 105,623, ,882, ,505,962 Total

19 5. NET INVESTMENT IN FINANCING CONTRACTS-Continued Murabaha contracts receivables, net Current Portion Non-Current Portion Total Murabaha contracts receivables, gross 22,989,188 2,829,434 25,818,622 Less: unearned revenues (2,388,552) (215,300) (2,603,852) 20,600,636 2,614,134 23,214,770 Less: Allowance for credit loss (6,904,760) (90,497) (6,995,257) Murabaha contracts receivables, net 13,695,876 2,523,637 16,219,513 Current Portion Non-Current Portion Total Murabaha contracts receivables, gross 33,965,119 11,042,103 45,007,222 Less: unearned revenues (4,103,082) (847,469) (4,950,551) 29,862,037 10,194,634 40,056,671 Less: Allowance for credit loss (2,285,804) (86,306) (2,372,110) Murabaha contracts receivables, net 27,576,233 10,108,328 37,684, Movement in allowance for credit losses during the year /period is as follows: Period from 12 January 2015 to Opening balance 5,648,024 - Charge for the year /period 18,067,293 12,323,024 Written off during year /period - (6,675,000) 23,715,317 5,648, The Company's effective profit rate on financing contracts (exclusive of insurance) ranges between 8% to 20% (: 8% to 20%) per annum. 5.3 The Company in ordinary course of its business, holds collateral in respect of the financing contracts (being the title of assets leased out) in order to mitigate the credit risk associated with them. These collaterals are not readily convertible into cash and are intended to be repossessed and disposed of in case the customer defaults. 5.4 Investment in financing contracts include net non-financing receivable balances amounting to. 1.5 million which related to direct charges to customers accounts for other additive services or insurance reimbursements / payables

20 6. ASSETS REPOSSESSED HELD FOR SALE During, the Company has acquired certain vehicles in satisfaction of a claim in order to achieve an orderly realization of finance lease receivables to have a balance of 1,780,777 at the end of year (: 419,346). 7. PREPAYMENT AND OTHER RECEIVABLES Employees receivable 102, ,076 Security deposits 120, ,000 Prepayments 955,932 98,491 Unsettled insurance claims, net 1,269,498 1,468,049 2,448,045 1,818, RELATED PARTY BALANCES AND TRANSACTIONS In the normal course of its business, the Company buys and pays for the cars purchased from a related Company on a commercial basis. Details of significant transactions with related parties during the period and related balances are as follows: Name Al Jabr Trading Company (KIA) Al Jabr Investment Company Relation Affiliate Affiliate Related party Nature of transactions For the period from 12 January 2015 to Al Jabr Trading Company (KIA) (Affiliate) Al Jabr Investment Company Board of Directors Purchase of cars from Al Jabr Trading, Net 280,078, ,361,845 Transfer of end of service indemnities - 649,961 Expenses Paid by Al Jabr Trading - 439,100 Expenses paid on behalf of Al Jabr investment Company 354,000 - Remuneration and meetings attendance allowance 607,000 36,500 Key management Salaries and benefits 2,106,250 2,401,479 End of service indemnities 497, ,

21 8. RELATED PARTY BALANCES AND TRANSACTIONS- (Continued) Balance due from a related party is as follows: Al Jabr Investment Company 354,000 - Balance due to a related party is as follows: Al Jabr Trading Company (KIA) 117,831,375 93,331,

22 9. PROPERTY AND EQUIPMENTS, NET Cost Vehicle tracking devices Vehicles Furniture, fixture and office equipment Computers and software Leased hold buildings developments As at 1 January 3,229, ,337 1,091, ,218 1,344,832 6,460,959 Additions during the year 1,630, , , ,164 3,064,659 Transfer to assets repossessed-held for sale - (198,337) (198,337) As at 4,859, ,000 1,416,198 1,374,811 1,490,996 9,327,281 Accumulated Depreciation As at 1 January 486,707 54, ,314 94, ,481 1,537,656 Charge for the year 809,378 83, , , ,353 2,417,524 Transfer to assets repossessed-held for sale - (44,794) (44,794) As at 1,296,085 93, , ,201 1,344,834 3,910,386 Net Book Value As at 3,563,191 93, , , ,162 5,416,895 Cost Vehicle tracking devices Vehicles Furniture, fixture and office equipment Computers and software Leased hold buildings developments As at 12 January Additions during the period 3,229, ,337 1,091, ,218 1,344,832 6,460,959 As at 3,229, ,337 1,091, ,218 1,344,832 6,460,959 Accumulated Depreciation As at 12 January Charge for the year 486,707 54, ,314 94, ,481 1,537,656 As at 486,707 54, ,314 94, ,481 1,537,656 Net Book Value As at 2,742, , , , ,351 4,923,303 Total Total

23 10. INVESTMENT- AVAILABLE FOR SALE Beginning of the year / period - - Purchased during the year / period 892,850 - End of the year / period 892,850 - In accordance with the requirement of SAMA, the Company during the year ended had an investment which represents Company s ownership of 2% in a non-listed entity, which is still in the pre-operating stage. 11. BORROWINGS Current portion 50,000,000 - Non-current portion 150,000, ,000, During the year, the Company obtained a bank facility in the form of term borrowings from local bank for financing leased assets. The outstanding balance as of amounted to 200 million (: nil). These bank facilities bear an interest rate of SIBOR plus 1.5% These facilities are collateralized against the personal guarantees of owners. 12. ACCOUNTS PAYABLE AND OTHER LIABILITIES Note Due to a related party 8 117,831,375 93,331,735 Vehicles suppliers 7,981,787 7,279,171 Insurance claims payable 1,692,747 - Employees salaries and vacations 360, ,779 Accrued Interest on borrowings 253,215 - Accrued expenses 209, ,806 Advances from financing contracts - 3,869,216 Other Payables 681, , ,011, ,016,517 21

24 13. ZAKAT PROVISION The movement in provision for zakat and income tax for the year / period is as follows Balance at the beginning of the year / period Provided during for the year / period Payment during the year / period Note Period from 12 January 2015 to 1,682,602-1,295,799 7,696,014 (1,526,715) (6,013,412) Balance at the end of the year / period 1,451,686 1,682, Charge for the year Zakat is payable by the Saudi Shareholders and is calculated based on the higher of Zakat base or the adjusted profit for the year. Computation of Zakat base: Shareholders' equity opening balance 383,101,275 Opening provisions and adjustments 6,613,113 Borrowings, net 125,813,162 Book value of long-term assets (6,309,745) Investment in financing contract-long term (502,936,167) 6,281,638 Adjusted zakatable profit 45,550,338 Zakat base 51,831,976 Zakat 2.5% 1,295, Computation for adjusted zakatable profit Profit for the year 26,310,482 Adjustments: Provision for end of service benefits, net 1,172,563 Other adjustments 18,067,293 Adjusted profit for the year 45,550, Zakat has been computed based on the Company's understanding and interpretation of the zakat and income tax regulations enforced in the Kingdom of Saudi Arabia. The GAZT continues to issue circulars to clarify certain zakat and tax regulations, which are usually enforced on all open years. The zakat liability as computed by the Company could be different from zakat as assessed by the GAZT for years for which assessments have not yet been raised by the GAZT. 22

25 14. END OF SERVICE INDEMNITIES Note Present value of employees post-employment benefits 2,402,976 1,144,088 The major financial assumptions used to calculate the employees' post-employment benefits liabilities are as follows: Principal Actuarial Assumptions Salary increase rate - short term (year 1 to 5) 5% - long term (year 6 onwards) 4.25% Discount rate 3.25% Mortality Rate WHOSA15 75% Rate of Employee Turnover Heavy 14.1 The movement in employees' post-employment benefits recognized in the statement of financial position is as follows: Net liability at the beginning of the year 1,144,088 Interest cost 79,323 Current service cost 1,093,240 Benefits paid during the year (178,999) Actuarial losses recognized during the year 265,324 Net liability at the end of the year 2,402, The amounts recognised in the statement of profit or loss in respect of employees' post-employment benefits are as follows: Current service and interest costs 1,172, The sensitivity of the employees' post-employment benefit to changes in the weighted principal assumptions is: Change in assumptions Discount rate Increase / (decrease) in present value of employees post-employment benefit liability Percentage Amount - Increase +0.5% 1,927,633 - Decrease -0.5% 2,177,369 Salary growth rate - Increase +0.5% 2,133,626 - Decrease -0.5% 1,965,706 23

26 15. SHARE CAPITAL The Company s subscribed and paid-in share capital of 345,000,000 (: 345,000,000) is divided into 34,500,000 (: 34,500,000) equity shares of. 10 each fully subscribed and paid, and distributed among shareholders. 16. STATUTORY RESERVE In accordance with Company s Article of Association, the Company establishes a statutory reserve by appropriation of 10% of net income until the reserve equaled 50 % of the share capital. This statutory reserve is not available for dividend distribution. 17. CONTINGENCIES AND COMMITMENTS The Company had no contingencies and commitments other than the rent. Premises rent under operating lease arrangements represent rentals payable by the Company for certain office properties. Leases are negotiated for an average term of one year and rentals are fixed for the same period. 18. REVENUES For the period from 12 January 2015 to 31 December Sales revenue of cars 404,643, ,112,242 Cost of sold cars (393,958,146) (592,305,405) Net sales revenue 10,685,363 42,806,837 Finance lease contracts income 78,954,374 42,397,763 Murabaha contracts income 3,079,482 7,379,846 Administration fee revenue 1,119,466 1,953,222 Finance income 83,153,322 51,730,831 Total revenue 93,838,685 94,537, FINANCE COST For the period from 12 January 2015 to 31 December Finance cost on bank borrowings 782,993-24

27 20. GENERAL AND ADMINISTRATIVE EXPENSES For the period from 12 January 2015 to 31 December Salaries, wages and other benefits 11,590,383 11,676,591 Technical service of vehicles 2,889,921 3,090,810 Rent & Utilities 1,593,000 2,477,132 Depreciation 2,417,524 1,537,656 Legal & professional fees 175,050 1,194,879 Commission bank guarantee - 1,064,861 Governmental fees 671, ,270 Fees and bonuses Shariah Committee and Board of Directors 607, ,500 Medical expenses 401, ,806 SIMAH 414, ,022 Travelling expenses 126, ,793 Bank charges 184,875 65,748 Miscellaneous 1,541, ,617 22,614,323 23,424, SELLING AND MARKETTING EXPENSES Advertising Expense Promotion Expense For the period from 12 January 2015 to 31 December 795,486 1,603,874 1,477, ,466 2,272,668 1,886, OTHER INCOME 23. EARNINGS PER SHARE - basic and diluted For the period from 12 January 2015 to 31 December Gain on sale of repossessed vehicles 80,975 - Post execution and income from other services charges 2,177,960 3,649,587 2,258,935 3,649,587 Basic earnings per share from net income for the year is calculated by dividing net income for the year by the number of shares for the year amounting to 34,500,000 shares (: 34,500,000 shares). There were no dilution effects during the year. 25

28 24. RISK MANAGEMENT Risk is inherent in the Company's activities and is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Company's continuing profitability. The Company's activities are exposed to a variety of financial risks, which mainly include market risk, credit risk and liquidity risk Risk management structure Board of Directors The Board of Directors is responsible for establishing the Company's policies, including risk management framework, and to review the performance of the Company to ensure compliance with these policies. Credit and risk management committee The credit and risk management committee is appointed by the Board of Directors. The credit and risk management committee assists the Board in reviewing overall risks, which the Company might face, evaluate and review operational and non-operational risks and decide on mitigating factors related therewith. Audit committee The audit committee is appointed by the Board of Directors. The audit committee assists the Board in carrying out its responsibilities with respect to assessing the quality and integrity of financial reporting, the audit thereof and the soundness of the internal controls of the Company. Internal audit All key operational, financial and risk management processes are audited by the Internal Audit. Internal audit examines the adequacy of the relevant policies and procedures, the Company's compliance with the internal policies and regulatory guidelines. Internal audit discusses the results of all assessments with management and reports its findings and recommendations to the Audit Committee. The risks faced by the Company and the way these risks are mitigated by management are summarized below: 24.2 Market risk Market risk is the risk that the fair value or the future cash flows of a financial instrument may fluctuate as a result of changes in market profit rates or the market prices of securities due to change in credit rating of the issuer or the instrument, change in market sentiments, speculative activities, supply and demand of securities and liquidity in the market. Market risk comprises of three types of risk: currency risk, profit rate risk and other price risk Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Company is subject to fluctuations in foreign exchange rates in the normal course of its business. The Company did not undertake significant transactions in currencies other than Saudi Riyals during the year. Accordingly, the Company is not exposed to any significant currency risk Profit rate risk Profit rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market profit rates. The Company's exposure to the risk of changes in market profit rates relates primarily to the Company's long-term debt obligations with floating profit rates. There were no financial liabilities subject to profit rate risk as at Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from profit rate risk or currency risk) whether those changes are caused by factors specific to the individual financial instruments or it's issuer, or factors affecting all similar financial instruments traded in the market. The Company does not have any financial instruments, which are subject to other price risk. 26