Saudi Finance Company (Closed Saudi Joint Stock Company)

Transcription

1 Saudi Finance Company (Closed Saudi Joint Stock Company) INTERIM CONDENSED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S LIMITED REVIEW REPORT FOR THE THREE MONTHS PERIOD ENDED 31 MARCH

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3 INTERIM STATEMENT OF COMPREHENSIVE INCOME - UNAUDITED For the three months period ended Notes Restated (Note 17) Special commission income from Murabaha contracts 15,211,705 17,531,032 Financing facility cost and charges (special commission expenses) (2,208,094) (1,972,211) NET INCOME FROM MURABAHA 13,003,611 15,558,821 Other operating income Management fees ,000 Other income 603,590 10,508 13,607,201 16,101,329 Operating expenses General and administrative expenses 5 (7,271,621) (7,022,342) Selling and marketing expenses 6 (1,442,382) (1,634,767) Impairment loss on Murabaha receivable 8 (2,420,000) (2,480,000) Unrealised loss on profit rate swap (13,730) (223,857) NET PROFIT FOR THE PERIOD 2,459,468 4,740,363 OTHER COMPREHENSIVE INCOME - - TOTAL COMPREHENSIVE INCOME 2,459,468 4,740,363 The attached notes 1 to 19 form part of these interim condensed financial statements 2

4 INTERIM STATEMENT OF FINANCIAL POSITION As at Notes Restated (Note 17) ASSETS Cash and cash equivalents 18,526,165 20,258,398 Restricted cash deposits 7 5,244,409 5,484,409 Murabaha receivables, net 8 343,103, ,936,528 Prepayments, accrued income and other receivables 9 3,183,464 4,297,350 Assets acquired in satisfaction of claims 6,087,234 6,087,234 Property and equipment 5,409,986 5,869,566 Intangible assets 2,054,206 2,324,078 TOTAL ASSETS 383,609, ,257,563 LIABILITIES AND SHAREHOLDERS EQUITY Financing from financial institutions ,845, ,399,696 Provision for zakat 11 18,066,346 16,839,346 Accounts payable, accruals and other payables 12 9,114,007 6,661,800 Employees' terminal benefits 2,273,631 2,279,183 TOTAL LIABILITIES 251,299, ,180,025 SHAREHOLDERS EQUITY Share capital ,000, ,000,000 Statutory reserve 3,301,038 3,301,038 Retained earnings 29,008,968 27,776,500 TOTAL SHAREHOLDERS EQUITY 132,310, ,077,538 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 383,609, ,257,563 The attached notes 1 to 19 form part of these interim condensed financial statements 3

5 INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY For the three months period ended Share Capital Statutory reserve Retained earnings Total Balance at beginning of the period 100,000,000 1,639,144 17,428, ,067,458 Net income for the period before adjustment - - 3,589,134 3,589,134 Prior period adjustment (Note 17) - - 1,151,229 1,151,229 Net income for the period after adjustment - - 4,740,363 4,740,363 Total comprehensive income after adjustment - - 4,740,363 4,740,363 Zakat for the period - - (1,151,229) (1,151,229) Balance at 100,000,000 1,639,144 21,017, ,656,592 Balance at beginning of the period before adjustment 100,000,000 2,840,152 28,237, ,077,538 Prior period adjustment (Note 17) - 460,886 (460,886) - Balance at beginning of the period after adjustment (Note 17) 100,000,000 3,301,038 27,776, ,077,538 Net income for the period - - 2,459,468 2,459,468 Total comprehensive income - - 2,459,468 2,459,468 Zakat for the period - - (1,227,000) (1,227,000) Balance at 100,000,000 3,301,038 29,008, ,310,006 The attached notes 1 to 19 form part of these interim condensed financial statements 4

6 INTERIM STATEMENT OF CASH FLOWS - UNAUDITED For the three months period ended Notes OPERATING ACTIVITIES Net profit for the period 2,459,468 4,740,363 Non-cash adjustment to reconcile profit to net cash used in operation activities: Depreciation 5 503, ,906 Amortisation of intangible assets 5 295, ,359 Provision for employees terminal benefits 143, ,505 Impairment loss on Murabaha receivable 8 2,420,000 2,480,000 Unrealised loss on profit rate swap 13, ,227 Operating cash flows before working capital changes 5,835,827 8,363,360 Working capital adjustments: Murabaha receivable 18,412,618 (16,535,034) Prepayments, accrued income and other receivables 1,113,886 1,205,450 Accounts payable, accruals and other payables 2,438,477 2,466,821 Net cash from (used in) operations 27,800,808 (4,499,403) Employees terminal benefits paid (149,043) (7,061) Net cash from (used in) operating activities 27,651,765 (4,506,464) INVESTING ACTIVITY Purchase of property and equipment (43,712) (156,540) Purchase of intangible assets (25,974) (503,152) Cash used in investing activity (69,686) (659,692) FINANCING ACTIVITY Restricted cash deposits 240,000 - Financing from financial institutions - 200,000,000 Repayment of financing from financial institutions (29,554,312) (185,443,373) Net cash (used in) from financing activity (29,314,312) 14,556,627 NET CHANGES IN CASH AND CASH EQUIVALENTS (1,732,233) 9,390,471 Cash and cash equivalents at beginning of the period 20,258,398 12,726,130 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 18,526,165 22,116,601 Supplementary information: Special commission income from Murabaha contracts received 16,560,114 14,399,288 Supplemental non-cash information: Murabaha receivable settled against collateralised asset - 7,040,792 The attached notes 1 to 19 form part of these interim condensed financial statements 5

7 NOTES TO FINANCIAL STATEMENTS For the three months period ended 1 LEGAL STATUS AND ACTIVITIES Saudi Finance Company (the Company ) is a Closed Saudi Joint Stock Company registered in the Kingdom of Saudi Arabia under commercial registration numbered dated 23 Muharram 1411H (corresponding to 14 August 1990). The main activities of the Company is to engage in finance lease, financing of small and medium-sized enterprises, financing of productive assets and consumer finance in accordance with the Saudi Arabian Monetary Authority ( SAMA ) license No. (201411/SA/26) issued on 27 Muharram 1436 H (corresponding to 20 November 2014). The Company s Head Office is located at the following address; Saudi Finance Company Korais Street P.O. Box Riyadh Kingdom of Saudi Arabia These interim condensed financial statements include the results, assets and liabilities of the following branches: Branch Commercial Registration Number Date Location Rabi Thani 1416H Khurais, Riyadh Rabi Thani 1434H Olaya, Riyadh Dhul-Hijjah 1417H Buraidah Jumad Awal 1435H Al-Ahsa Rabi Thani 1434H Jeddah Sha aban 1435H Madina Rabi Awal 1423H Damam Sha aban 1435H Hail The results for the three month period ended are not necessarily indicative of the results that may be expected for the financial year ending. 2 BASIS OF PREPARATION 2.1 STATEMENT OF COMPLIANCE These interim condensed financial statements of the Company have been prepared in accordance with Accounting Standards for Financial Institutions issued by SAMA and with International Accounting Standard ( IAS ) 34 Interim Financial Reporting. These interim condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company s financial statements for the year ended. Assets and liabilities in the interim statement of financial position are presented in the order of liquidity. 2.2 BASIS OF MEASUREMENT The interim condensed financial statements are prepared under the historical cost convention modified to include the measurement of Profit rate swaps at fair values. 2.3 FUNCTIONAL AND PRESENTATION CURRENCY These interim condensed financial statements have been presented in Saudi Riyals, as it is the functional currency of the Company. 6

8 For the three months period ended 3 SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of the interim condensed financial statements are consistent with those followed in the preparation of the Company's annual financial statements as at, except for the following: ZAKAT On 14 Rajab 1438 (corresponding to 11 April ), SAMA has issued a new circular (number ) regarding the accounting policy of Zakat and income tax in which it is mentioned that they should be charged directly to the retained earnings of all finance companies irrespective of their ownership structure for the current and comparative periods and this will be effective starting from 1 January. Therefore, the Company has adopted the above policy in the preparation of these interim condensed financial statements. CREDIT LOSS PROVISIONING AND SUSPENSION OF INCOME FOR DELINQUENT ACCOUNTS On 27 Rabie Alakher 1438 (corresponding to 25 January ), SAMA has issued a new circular (number ) regarding the accounting policy of credit loss provisioning in which it is mentioned that the Company is required to set specific and general provisions, also, it is required to suspend the recognition of future period income from delinquent accounts where delinquencies are more than 90 days until actually received. Therefore, the Company has adopted the above policy in the preparation of these interim condensed financial statements. 4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Company s interim condensed financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The key assumptions concerning the future and other key sources of estimation uncertainty at the interim 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 period, are described below. The Company based its assumptions and estimates on parameters available when the interim condensed financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company s management. Such changes are reflected in the assumptions when they occur. 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 upon the Company s ability to continue as a going concern. The going concern assessment of the Company is based on a number of factors including availability of financing lines from various financial institutions including related parties and the growth of its Murabaha portfolio. Therefore, the financial statements of the Company have been prepared on going concern basis. Impairment losses on Murabaha receivables The Company reviews its non-performing Murabaha receivables at each reporting date to assess whether a specific provision for credit losses should be recorded in the statement of comprehensive income. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of provision required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the specific provision. The Company reviews its Murabaha financing portfolio to assess an additional collective impairment provision on each reporting date. In determining whether an impairment loss should be recorded, the Company makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of Murabaha financing. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when estimating its cash flows. The methodology and assumptions used for estimating both the amount and the timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. 7

9 For the three months period ended 4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (Continued) Useful lives of property and equipment The Company's management determines the estimated useful lives of its property and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual value and useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ from previous estimates. 5 GENERAL AND ADMINISTRATIVE EXPENSES Salaries and employee related cost 4,261,243 4,095,622 Rent expense 645, ,125 Depreciation 503, ,906 Utilities expense 311, ,157 Amortisation of intangible assets 295, ,359 Maintenance expense 164, ,562 Professional fee 711, ,902 Government relations 103, ,064 Other expenses 274, ,645 7,271,621 7,022,342 6 SELLING AND MARKETING EXPENSES Salaries and employee related cost 1,138,241 1,408,204 Commission expense 250, ,672 Advertising and promotion expense 54,141 44,891 1,442,382 1,634,767 7 RESTRICTED CASH DEPOSITS Restricted cash deposits of 5,244,409 ( : 5,484,409) are kept as call margins for certain financing facilities granted to the Company by counterparty finance providers. 8

10 For the three months period ended 8 MURABAHA RECEIVABLES, NET Gross Murabaha receivable 475,481, ,362,194 Less: Deferred profit (116,365,495) (123,833,880) Murabaha receivable before impairment provision, net 359,115, ,528,314 Less: Impairment provision against Murabaha receivable (16,011,786) (13,591,786) Murabaha receivable, net 343,103, ,936,528 The Murabaha finance includes related parties balance amounting to 48,868 ( : 122,170) and related deferred profit amounting to 252 ( : 2,520) (Note 14). Murabaha receivable above also include Ijara receivable aggregating to 1,422,784 ( : 1,533,821). As at, Murabaha finance at nominal value of 16,011,786 ( : 13,591,786) were impaired. The unimpaired Murabaha finance includes 205,990,437 ( : 195,680,892) which is past due more than normal collection cycle, but not impaired. Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. Movements in the provision for Murabaha receivable losses were as follows: Three months ended Year ended Three months ended At beginning of the period / year 13,591,786 19,563,463 19,563,463 Charge for the period / year 2,420,000 9,080,000 2,480,000 Written of during the period / year - (15,051,677) - At end of the period / year 16,011,786 13,591,786 22,043,463 9 PREPAYMENTS, ACCRUED INCOME AND OTHER RECEIVABLES Prepaid expenses 2,399,598 3,254,738 Due from a related party (note 14) 33, ,752 Special commission income receivable 60,058 51,074 Other receivables 690, ,786 3,183,464 4,297,350 9

11 For the three months period ended 10 FINANCING FROM FINANCIAL INSTITUTIONS This includes facilities obtained from local financial institutions in the form of medium term Islamic financing (Tawarruq). These facilities are secured by assignment of receivables arising from financing contracts and a comfort letter issued by the shareholders and carry commission at commercial rates. These facilities are repayable on a monthly/quarterly basis. Financing from financial institutions also include various short term facilities of eleven months obtained from Abu Dhabi Islamic Bank PJSC, a related party, UAE carrying commission at commercial rates (note 14). 11 ZAKAT The movement in the zakat provision for the period / year were as follows: Three months ended Year ended Three months ended 31March At beginning of the period / year 16,839,346 12,825,846 12,825,846 Provided during the period / year 1,227,000 4,608,861 1,151,229 Paid during the period / year - (595,361) - At end of the period / year 18,066,346 16,839,346 13,977,075 Status of assessments Subsequent to the year end, zakat assessments have been raised by the General Authority of Zakat and Income Tax ("GAZT") for the years 2005 to 2007 assessing an additional zakat of 2,621,509 and no provision has been recorded in these financial statements as the Company is confident of a favorable outcome. The Company has filed zakat returns and has obtained provisional zakat certificate for all the years up to 2015 and these are still under review by the GAZT. During, the Company received certain queries related to the year 2014 from GAZT and has sent its responses to the GAZT. 12 ACCOUNTS PAYABLE, ACCRUALS AND OTHER PAYABLES Accrued expenses 6,391,719 5,395,962 Trade payables 2,066, ,175 Unrealised loss on profit rate swap "PRS" (see note 12.1) 328, ,365 Amount due to a shareholder (note 14) 103,390 95,335 Other payables 224, ,963 9,114,007 6,661, This represents mark to market unrealised (loss)/gain on PRS with a notional principal amounting 37,344,482 as of ( 42,814,719). PRS often involve at their inception only a mutual exchange of promises with little or no transfer of consideration. However, these instruments frequently involve a high degree of leverage and are very volatile. A relatively small movement in the value of the rate underlying a PRS contract may have a significant impact on the income of the Company. 10

12 For the three months period ended 13 SHARE CAPITAL Paid in share capital as at and is as follows: Capital Shareholders Number of shares ADIB Two Financial Invest LLC, U.A.E 5,100,000 51,000,000 Abdullah Ibrahim Al Khorayef Sons' Company, K.S.A 4,600,000 46,000,000 Mohamed Abdullah Al Khorayef 100,000 1,000,000 Saad Abdullah Al Khorayef 100,000 1,000,000 Hamad Abdullah Al Khorayef 100,000 1,000,000 Total 10,000, ,000, RELATED PARTY TRANSACTIONS AND BALANCES (a) Significant transactions with related parties during the period are as follows: Related party Nature of transaction Transactions Shareholders Rent expense 55,500 55,500 Financing 103, ,495 Collection fee income 16,010 15,340 Affiliates Special commission expenses 1,176, ,715 Management fees* - 532,000 Special commission income from Murabaha contracts 2,268 47,103 * The Company charges management fees to a related party at terms approved by the Company s management. (b) The compensation of key management personal for the period amounts to SAR 502,500 (three months ended 31 March : SAR 929,500). (c) The Company obtains financing from related party to meet its financing requirements. (d) The following receivables and payables balances arose as a result of transactions with related parties: Related party Due from: Name Affiliates Abu Dhabi Islamic Bank PJSC 33, ,752 Various (Murabaha receivable) 48, ,650 Due to: Shareholders Abdullah Ibrahim Al Khorayef Sons Company K.S.A 103,390 95,335 Affiliates Abu Dhabi Islamic Bank PJSC (Financing from financial institutions) 145,000, ,000,000 11

13 For the three months period ended 15 FAIR VALUES OF FINANCIAL INSTRUMENTS Financial instruments comprise financial asset, financial liabilities. Financial assets consist of bank balances and cash and receivables. Financial liabilities consist of term financing and payables. Fair value hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Following table indicates fair value level hierarchy of the financial instruments of the Company. Level 2 Financial assets Cash and cash equivalents 18,526,165 20,258,398 Restricted cash deposits 5,244,409 5,484,409 Murabaha receivables, net 343,103, ,936,528 Prepayments, accrued income and other receivables 3,183,464 4,297,350 Financial liabilities Financing from financial institutions 221,845, ,399,696 Accounts payable, accruals and other payables 9,114,007 6,661,800 For assets and liabilities that are recognised in the interim financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. The Company s management determines the policies and procedures for both recurring fair value measurement, and for non-recurring measurement, such as assets held for distribution in discontinued operation. Management believes that the fair values of the financial assets and liabilities of the Company at the reporting dates approximate their carrying values. There have been no transfers to and from Level 2 during the period. 12

14 For the three months period ended 16 SIGNIFICANT STANDARDS ISSUED BUT NOT YET EFFECTIVE A number of new standards and interpretations have been issued but are not yet effective. The Company intends to adopt all the applicable standards and interpretations when these become effective. Management has assessed the impact of these new standards and interpretations and believes that none of these would have any effect on the future financial statements of the Company except for the following: IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2019 with early adoption permitted. The Company is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February The adoption of IFRS 9 will have an effect on the classification and measurement of the Company s financial assets, but no impact on the classification and measurement of the Company s financial liabilities. The Company is currently assessing the impact of IFRS 9 and plans to adopt the new standard on the required effective date. IFRS 16 Leases In January, the IASB issued the final version of IFRS leases which sets out the principles of recognition, measurement, presentation and disclosure of lease for parties to a contract, i.e. the costumer ("lessee") and the supplier ("lessor"). IFRS 16 is effective for annual periods beginning on or after 1 January 2019 which early application is permitted but only if it also applies IFRS 15 Revenue from Contracts with Costumers. The adoption of IFRS 16 will have an effect on the classification and measurement on the Company's leased assets. The Company is currently is assessing the impact of IFRS 16 and plan to adopt the new standard on the required effective date. 13

15 For the three months period ended 17 PRIOR PERIOD RESTATMENT Further to the new SAMA s circular (number ) regarding the accounting policy of Zakat and income tax (Note 3), the below is the restatement impact on the comparative financial statements: Financial Position - shareholders equity as at, the below is the restatement impact on the comparative financial statements: Before adjustment Adjustment After Adjustment Income before Zakat for the year 16,618,941-16,618,941 Zakat (4,608,861) 4,608,861* - Net income for the year 12,010,080 4,608,861* 16,618,941 Statutory reserve as at 2,840, ,886 3,301,038 Retained earnings as at 28,237,386 (460,886) 27,776,500 * The above mentioned adjustment was carried out to the net income/comprehensive income for the period ended as a result of the Zakat restatement from income statement to the statement of shareholders equity following the new accounting policy of Zakat and Income Tax as disclosed in Note 3. Interim statement of changes in shareholders equity (For the period ended ) Before adjustment Adjustment After Adjustment Net income before Zakat for the period 4,740,363-4,740,363 Zakat for the period (1,151,229) 1,151,229* - Net income for the period 3,589,134 1,151,229* 4,740,363 * The above mentioned adjustment was carried out to the net income/comprehensive income for the period ended as a result of the Zakat restatement from income statement to the statement of shareholders equity following the new accounting policy of Zakat and Income Tax as disclosed in Note COMPARATIVE INFORMATION Other than the prior period restatement being disclosed in note 17, certain of the prior period amounts have been reclassified to conform to the current period s presentation. 19 APPROVAL OF THE INTERIM CONDENSED FINANCIAL STATEMENTS The interim condensed financial statements have been approved by the Management on 15 Sha aban 1438H (corresponding to 11 May ). 14