in the Name of Allah, The Most Gracious, The Most Merciful

Transcription

1 in the Name of Allah, The Most Gracious, The Most Merciful 1

2 2

3 H. H Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Amir of the State of Kuwait H. H. Sheikh Nawaf Al-Ahmad Al-Sabah Crown Prince of the State of Kuwait H. H. Sheikh Jaber Mubarak Al Hamad Al-Sabah The Prime Minister of the State of Kuwait 3

4 Contents 4

5 Board Of Directors Board of Director s Message Shari ah Supervisory Committee Report Independent Auditor s Report along with Consolidated Financial Statements 5

6 Board of Directors 6

7 Dr. Nabeel jaafer Abdul-Raheem Chairman & Managing Director Mr. Musaed Mohammed Almukhaiter Vice Chairman Mr. Fawaz Abdullah Al-Said Board Member Mr. Khalid Bader Al - Roumi Board Member Mr. Zeyad Abdullatif Janahi Board Member 7

8 Chairman s Message The Board of Director s Message 8

9 In the name of Allah, the most gracious, the most merciful Dear Shareholders, Peace be upon you, I am pleased to present to you, on behalf of my colleagues, members of the Board of Directors and the administrative body of the company, the company s annual report for the year ended 31st December, Dear Shareholders, Despite the continuation of the appalling economic situation on the international level and its negative influence on the real estate market in our region, our company still owns its real estate assets in each of United Arab Emirates represented by OQYANA World First project in Dubai and the Kingdom of Bahrain represented by Water Garden City project. The company continued to remain committed to its strategy like it has been doing during the past years in order to keep the assets of the company away from disintegration and sale. As for the conditions in Dubai, ever since the real estate sector was subject to the international financial crisis, which led to a significant increase in supply against the demand and to sudden decrease in prices. However, with the large real estate companies announcing that they shall continue the execution of their projects, the markets were relieved. Regardless the continuous affirmation of showing real signs of recovery at the different structures of real estate markets in Dubai, the expectations suggest that the complete recovery of this sector would require much more time and even several years. On the other hand, the real estate sector in the Kingdom of Bahrain is witnessing intensive offers and a high decrease in foreign investments concerning the real estate sector and its development. But it is expected that the real estate sector will recover when the investors who were affected by the latest situation in the region will recover their trust. The company was diligently trying to obtain the funding required to start the executive works of some elements of the projects in Dubai and Bahrain, but the financial institutions were very reluctant in offering financial facilities. In addition, recently most of the companies were facing a lack of liquidity and an abstention from the part of the investors from buying or investing. For these reasons, the company shall continue looking for other financing sources or new investment opportunities. 9

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11 Dear Shareholders, The company is pursuing its demand presented to the Kuwait Stock Exchange and it is still awaiting for the results of its inclusion demand especially after creating the new Kuwait Capital Markets Authority. Dear Shareholder, The total asset of the company amounted to about Kuwaiti Dinars 417 million as compared to Kuwaiti Dinars 429 million last year, a 3 percent decrease. Moreover, the shareholder s equity decreased from Kuwaiti Dinars 355 million last year as compared to Kuwaiti Dinars 337 this year, a 5 percent decrease. This is due to the fact that the company evaluated its assets according to their market values, which were evaluated by independent professional valuators at the end of The net loss for the current year reached around Kuwaiti Dinars 15 million. Acknowledgements At the end, I kindly offer my deepest acknowledgements and appreciation to the Shareholders, the members of the Board of Directors, the members of the legal supervisory body and to all the members of the executive administration of the company for all their efforts and support. May Allah keep bestowing His blessings upon us and our associates in order to achieve the goals and expectations of the company and to guard our country under the guidance of His Highness, the Amir, Sheikh Sabah Al Ahmad Al-Jaber Al-Sabah, His Highness, the Crown Prince, Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah and His wise government. May Allah protect them. Peace and Allah s mercy and blessings be upon you. The Chairman and the Members of the Board of Directors. 11

12 Shari ah Supervisory Committee Report 12

13 We have reviewed OQYANA Real Estate s activities as it s contracts and investment transactions and studied the Shari ah controllers report during the year ended 31 December, We hereby certify that all OQYANA Real Estate activities and transactions were practiced in compliance with the Islamic Shari ah principles and provisions, and no violations have occured, to the best of our knowledge. Dr. Khalid Mathkour Al-Mathkour Chairman DR. Ajeal Jasem Al-Nashmi Board member Sheikh DR. Issam Khalaf Al Enizi Board member 13

14 Independent Auditor s Report 14

15 Independent Auditor s Report The Shareholders Oqyana Real Estate Company K.S.C. (Closed) State of Kuwait Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Oqyana Real Estate Company K.S.C. (Closed) ( the Parent company ) and its subsidiaries (together referred to as the Group ) which comprise the consolidated statement of financial position as at December 31, 2011 and the related consolidated statements of income, comprehensive income, cash flows and changes in equity for the year then ended and a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements The Parent company s management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatements, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Parent company s preparation and fair presentation of the consolidated financial statements 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 Parent company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion on the consolidated financial statements. 15

16 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group (Oqyana Real Estate Company and its subsidiaries) as at December 31, 2011 and of its financial performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Report on other legal and regulatory requirements Furthermore, in our opinion, proper books of account have been kept by the Parent company and the consolidated financial statements together with the financial contents of the report of the Parent company s board of directors are in accordance therewith. We further report that we obtained the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate the information that is required by the Commercial Companies Law of 1960, as amended, and by the Parent company s articles of association and physical counting was conducted in accordance with recognized practice, to the best of our knowledge and belief, no violations have occurred during the year ended December 31, 2011 of the Commercial Companies Law of 1960 or of the Parent company articles of association that might have had a material effect on the business of the Group or on its financial position, except what is mentioned in notes (5) and (6) to the consolidated financial statements. Ali A. Al Hasawi License No (A) Rodl Middle East Burgan International Accounts 16

17 Consolidated Statement of Financial Position As at December 31, 2011 Assets Notes Cash and cash equivalents 4 127, ,563 Investments at fair value through statement of income 5 2,550,900 2,558,652 Investments available for sale 6 4,450,000 4,450,000 Receivables and other debit balances 7 64,406 70,491 Lands and properties under development 8 37,266,387 36,996,818 Investment properties 9 372,264, ,438,389 Intangible assets 1 1 Property and equipment 128 1,913 Total assets 416,723, ,618,827 Liabilities and equity Liabilities Payables and accrued expenses 10 6,633,565 6,550,978 Term financing 11 72,430,797 66,970,637 Provision for staff indemnity 198, ,395 Total liabilities 79,262,373 73,636,010 Equity Share capital ,500, ,500,000 Statutory reserve 13 18,839,156 18,839,156 Voluntary reserve 14 18,839,156 18,839,156 Foreign currency translation reserve (1,528,023) 512,374 Retained earnings 38,810,858 54,292,131 Total equity 337,461, ,982,817 Total liabilities and equity 416,723, ,618,827 Dr. Nabeel Jaafar Abdul Raheem Chairman and Manager Director The accompanying notes form an integral part of the consolidated financial statements. 17

18 Consolidated Statement of income For the year ended December 31, 2011 Revenues Gains/(losses of impairment) in value of lands and properties under development Unrealized (losses)/gains on change in fair value of investment properties Unrealized losses on change in fair value of investment at fair value through statement of income Note ,794 (3,281,314) 9 (11,216,102) 470,549 (7,753) (34,653) Other income ,673 1,323,216 (10,403,388) (1,522,202) Expenses and other charges Finance cost (4,356,301) (6,068,985) General and administrative expenses 16 (717,138) (639,854) Depreciation and amortization (1,946) (44,246) Management and custody fees (2,500) (1,665) Net loss for the year (15,481,273) (8,276,952) Loss per share (fils) 17 (6) (3) The accompanying notes form an integral part of the consolidated financial statements. 18

19 Consolidated Statement of Comprehensive income For the year ended December 31, Net loss for the year (15,481,273) (8,276,952) Other comprehensive income: Foreign currency translation differences (2,040,397) (6,195,738) Total other comprehensive loss for the year (2,040,397) (6,195,738) Total comprehensive loss for the year (17,521,670) (14,472,690) The accompanying notes form an integral part of the consolidated financial statements. 19

20 Consolidated Statement of Cash flows For the year ended December 31, 2011 Note Operating activities Net loss for the year (15,481,273) (8,276,952) Adjustments for: Depreciation and amortization 1,946 44,246 Provision for end of services indemnity 83,616 23,053 Unrealized losses/(gains) on change in fair value of investment properties 11,216,102 (470,549) (Gains)/losses impairment in value of lands and properties under development (418,794) 3,281,314 Unrealized losses on change in fair value of investment at fair value through income statement 7,753 34,653 Finance cost 4,356,301 6,068,985 Operating (loss)/profit before working capital changes (234,349) 704,750 Receivables and other debit balances 6, ,593 Payables and accrued expenses 82,587 (247,500) Net cash (used in)/from operating activities (145,677) 604,843 Investing activities Paid for lands and properties under development (121,001) - Proceed from sale of property and equipment 4,977 3,718 Paid for investment properties (826,806) (155,354) Net cash used in investing activities )942,830( (151,636) Financing activities Term finance 1,500, ,351 Net cash from financing activities 1,500, ,351 Foreign currency translation (386,379) (836,991) Net increase/(decrease) in cash and cash equivalents 25,114 (269,433) Cash and cash equivalents at beginning of the year 102, ,996 Cash and cash equivalents at end of the year 4 127, ,563 The accompanying notes form an integral part of the consolidated financial statements. 20

21 Consolidated Statement of changes in equity For the year ended December 31, 2011 Share capital Statutory reserve Voluntary reserve Foreign currency translation reserve Retained earnings Total Balance at January 1, ,500,000 18,839,156 18,839,156 6,708,112 62,569, ,455,507 Total comprehensive loss for the year (6,195,738) (8,276,952) (14,472,690) Balance at December 31, ,500,000 18,839,156 18,839, ,374 54,292, ,982,817 Balance at January 1, ,500,000 18,839,156 18,839, ,374 54,292, ,982,817 Total comprehensive loss for the year (2,040,397) (15,481,273) (17,521,670) Balance at December 31, ,500,000 18,839,156 18,839,156 (1,528,023) 38,810, ,461,147 The accompanying notes form an integral part of the consolidated financial statements. 21

22 1 - Incorporation and activities Oqyana Real Estate Company Kuwaiti Shareholding Company (Closed) [previously known as Dimnat Al Khalej Real Estate Company] Kuwaiti Shareholding Company (Closed)), is registered in the State of Kuwait and was incorporated and authenticated on April 7, 2002 at the Ministry of Justice Real Estate Registration and Authentication Department under no. 1254/ Volume 1. The main activities of the Parent company are as follows: Owning, buying and selling real estate and land as well as developing them inside Kuwait and abroad, also managing properties for others without breaching the articles stipulated in the existing laws that prohibit the trading in private residential plots as stipulated in those laws. Owning, buying and selling shares and real estate bonds for the benefit of the Company only inside Kuwait and abroad. Preparing studies and offer consultations in all kinds of real estates aspects if only the required conditions are met concerning the parties that perform such services. Performing maintenance works related to buildings and real estates owned by the Company and others including maintenance work, execution of civil, mechanical, electrical, elevators, and air conditioning work to ensure the protection and safety of the buildings. Organizing real estate exhibitions related to real estate projects in accordance with Ministry s applicable regulations. Utilizing financial surplus available to the Company, by investing it in financial and real estate portfolios managed by specialized companies. The Parent company is permitted to conduct the above mentioned activities inside Kuwait and aboard. The Parent company has the right to have an interest or participate, in any way, in other firms or institutions which operate in the same fields or those which would assist in achieving its objectives in Kuwait or abroad and to establish, purchase these firms and institutions or merge them with the Parent company. The subsidiaries have the same activities of the Parent company. As at December 31, 2011 the Group had 13 employees (14 employees as at December 31, 2010). The Parent company s registered address is Sharq, Al-Shuhadaa Street, KRE Tower, P.O. Box Safat State of Kuwait. The consolidated financial statements of Oqyana Real Estate Company K.S.C. (Closed) and its subsidiaries for the year ended December 31, 2011 were authorized for issue in accordance with a resolution of the Board of directors on March 27, The shareholders General Assembly has the power to amend these consolidated financial statements after issuance. 22

23 2 - Adoption of new and revised International Financial Reporting Standards (IFRS) 2 /1) Standards and interpretations adopted during the year: The Group has adopted the new standards, interpretations and amendments to IFRS issued by International Accounting Standards Board (IASB), which are effective for the consolidated financial statements for the annual period beginning on or after January 1, Annual improvements for accounting standards: The IASB has issued improvements for IFRS which have led to a number of changes in the detail of the Group s accounting policies some of which are changes in terminology only, and some of which are substantive but have had no material effect on amounts reported. Most of these amendments become effective in annual periods beginning on or after July 1, 2010 or January 1, 2011: The new requirements in respect of these amendments are summarized below: IAS 1 Presentation of Financial Statements (Revised): The amendments to IAS 1 clarify that an entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements. The Group has applied the amendments in advance of their effective date (annual periods beginning on or after January 1, 2011). The amendments have been applied retrospectively. Amendments to IFRS 3 Business Combinations : As part of improvements to IFRSs issued in 2010, IFRS 3 was amended to clarify that the measurement choice regarding non-controlling interests at the date of acquisition is only available in respect of non-controlling interests that are present ownership interests and that entitle their holders to a proportionate share of the entity s net assets in the event of liquidation. All other types of non-controlling interests are measured at their acquisition-date fair value, unless another measurement basis is required by other standards. In addition, IFRS 3 was amended to provide more guidance regarding the accounting for share-based payment awards held by the acquiree s employees. Specifically, the amendments specify that sharebased payment transactions of the acquiree that are not replaced should be measured in accordance with IFRS 2 Share-based Payment at the acquisition date ( market-based measure ). 23

24 Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards : (Effective for annual periods beginning on or after July 1, 2010) Limited exemption from comparative IFRS 7 Disclosures for first-time Adopters. Amendments to IFRS 7 Financial Instruments Disclosures : (Effective for the periods beginning on or after July 1, 2011) The amendments to IFRS 7 increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the year. IAS 24 Related Party Disclosures (as revised in 2010): (Effective for annual periods beginning on or after January 1, 2011) The amendment modifies the definition of a related party and simplifies disclosures for government-related entities, and introduces a partial exemption from the disclosure requirements for government-related entities. Amendments to IAS 32 Financial Instruments Presentation : (Effective for annual periods beginning on or after February 1, 2010) The amendments to IAS 32 titled Classification of Rights Issues address the classification of certain rights issues denominated in a foreign currency as either an equity instrument or as a financial liability. To date, the Group has not entered into any arrangements that would fall within the scope of the amendments. However, if the Group entered into any rights issues within the scope of the amendments in future accounting periods, the amendments to IAS 32 will have an impact on the classification of those rights issues. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments : (Effective for annual periods beginning on or after July 1, 2010) IFRIC 19 provides guidance regarding the accounting for the extinguishment of a financial liability by the issue of equity instruments. To date, the Group has not entered into transactions of this nature. However, if the Group entered into any such transactions in the future, then IFRIC 19 will affect the required accounting. In particular, under IFRIC 19, equity instruments issued under such arrangements will be measured at their fair value, and any difference between the carrying amount of the financial liability extinguished and the fair value of equity instruments issued will be recognized in profit or loss. 2 /2) New and revised IFRSs in issue but not yet effective: The Group has not applied the following new and revised IFRS that have been issued but are not yet effective: Amendments to IFRS 7 Financial Instruments: Disclosures : Effective for annual periods beginning on or after 1 July IFRS 9 Financial Instruments : Effective for annual periods beginning on or after 1 January

25 IFRS 10 Consolidated Financial Statements : Effective for annual periods beginning on or after 1 January IFRS 11 Joint Arrangements : Effective for annual periods beginning on or after 1 January IFRS 12 Disclosure of Interests in Other Entities : Effective for annual periods beginning on or after 1 January IFRS 13 Fair Value Measurement : Effective for annual periods beginning on or after 1 January Amendments to IAS 1 Financial Statements Presentation: Presentation of items of other comprehensive income : Effective for annual periods beginning on or after 1 July Amendments to IAS 12 Income Tax: Deferred taxes recovery of underlying assets : Effective for annual periods beginning on or after 1 January IAS 19 Employee Benefits (as revised in 2011): Effective for annual periods beginning on or after 1 January IAS 27 Separate Financial Statements (as revised in 2011): Effective for annual periods beginning on or after 1 January IAS 28 Investments in Associates and Joint Ventures (as revised in 2011): Effective for annual periods beginning on or after 1 January The management anticipates that the new standards and interpretations will be adopted in the Group s accounting policies for the period beginning on or after the effective date of the pronouncement. Certain other new standards and interpretations that have been issued but are not relevant to the Group s operations and therefore not expected to have a material impact on the Group consolidated financial statements. 3- Significant accounting policies The principals accounting policies applied in the preparation of these consolidated financial statements are set out below: 3 /1) Basis of preparation These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and Interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and state of Kuwait Commercial Companies law requirements. 25

26 3 /2) Accounting convention These consolidated financial statements are prepared under the historical cost convention, adjusted through the revaluation of some assets according to fair value as explained in detail in the accompanying policies and disclosures. The accounting policies have been consistently applied during the year, as a similar base for the policies applied in the previous year, except for the adoption of new and revised standards (note 2). The consolidated financial statements are presented in Kuwaiti Dinar. 3 /3) Basis of consolidation The consolidated financial statements include the financial statements of the Parent company and its subsidiaries referred to as ( the Group ) as per the following ownership percentage: Company Country Ownership percentage Main activities Oqyana Jersey Company - W.L.L England 100% Real estate Oqyana Real estate Company - W.L.L Bahrain 100% Real estate North Capricorn Company - W.L.L England 100% Real estate South Capricorn Company - W.L.L England 100% Real estate North Ballard Company - W.L.L England 100% Real estate South Ballard Company - W.L.L England 100% Real estate Leopold North Company - W.L.L England 100% Real estate Leopold South Company - W.L.L England 100% Real estate Impataka Company - W.L.L England 100% Real estate Gibson North Company - W.L.L England 100% Real estate Isa Company - W.L.L England 100% Real estate Alice Company - W.L.L England 100% Real estate Uluru Company - W.L.L England 100% Real estate North Victoria Company - W.L.L England 100% Real estate South Victoria Company - W.L.L England 100% Real estate Tasman Company - W.L.L England 100% Real estate Sirius Point Company - W.L.L England 100% Real estate Fraser Company - W.L.L England 100% Real estate New North Company - W.L.L England 100% Real estate New South Company - W.L.L England 100% Real estate 26

27 Celebs Company - W.L.L England 100% Real estate Gibson South Company - W.L.L England 100% Real estate Great Barrier Company - W.L.L England 100% Real estate During the year the Group has transferred the ownership of world islands companies (represents 21 companies) from Oqyana Jersey Company (subsidiary company with limited liability - England) to the Parent company (Oqyana Real Estate - Kuwait). Subsidiaries are the companies controlled by the Parent company. Control exists when the Parent company has the power, directly or indirectly, to govern the financial and operating policies of the subsidiaries as to obtain benefits from its activities. The financial statements of the subsidiaries acquired or (disposed of) during the year are included in the consolidated financial statements from the date of acquisition or (up to the date of disposals). Non-controlling interests in the net assets of consolidated subsidiaries is identified separately from the Group s equity therein. Non-controlling interests consists of the interest at the date of the original business combination and the non-controlling interest share of changes in equity since the date of the combination. Profits and losses attributed to the owners of the Parent company and to the non-controlling interests in the ratio of their respective shareholdings even if that resulted in the non-controlling interests having a deficit balance. 3 /4) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Parent company in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognized at their fair values at the acquisition date. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in the consolidated statement of comprehensive income. 3 /5) Recognition and de-recognizing of financial assets A financial asset or a financial liability is recognized when the Group becomes a party to the contractual provisions of the instrument. Financial asset (in whole or in part) is derecognized when the contractual rights to the cash flows from the financial asset expire or when the Group transfers substantially all the risks and rewards of ownership or when the Group has neither transferred retained substantially all the risks and rewards of ownership and when it no longer has control over the asset or a proportion of the assets. A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired. 27

28 3 /6) Impairment of tangible and intangible assets At each financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the impairment is recorded in the statement of income. The impairment loss represents the difference between the carrying value of the asset and the estimated recoverable amount of the asset. Recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use. Value in use represents the estimated future cash flows discounted at an appropriate discount rate. An impairment loss recognized in prior periods for an asset, other than goodwill, shall be reversed, if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognized. The carrying amount of the asset shall be increased to its recoverable amount. Reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. 3 /7) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at banks and short term bank deposits with a maturity date not exceeding three months from the date of deposit. 3 /8) Financial instruments Classification The classification depends on the purpose for which the investments were acquired. Management determines the classification of its financial instrument at initial recognition and re-evaluates this designed every reporting date. The Group has classified its financial instruments as follows: Financial assets at fair value through statement of income This category has two sub-categories financial assets held for trading and those designated at fair value through statement of income. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designed by management. Receivables There are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides goods and services directly to a debtor with no intention of trading the receivables. Assets available for sale These are non derivative financial assets that are either designated in this category or not included in any of the above categories and are principally, those acquired to be held, for an indefinite period of time which could be sold when liquidity is needed or upon changes in rates of profit. 28

29 Recognition and de-recognition Regular purchase and assets of financial assets are recognized on settlement date the date on which the Group delivers or receives the asset. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Measurement Financial assets are initially recognized at fair value plus transaction cost for all financial assets not carried at fair value through statement of income. Financial assets carried at fair value through statement of income are initially recognized at fair value and transaction costs are expensed in the statement of income. Subsequently, investment available for sale and financial assets at fair value through statement of income are carried at fair value, and receivables are carried at amortized cost using the effective yield method. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets at fair value through statement of income category, are included in the statement of income for the period in which they arise. Changes in the fair value of financial assets classified as investments available for sale are recognized in equity, when available for sale financial assets are sold or impaired; the accumulated changes in fair value recognized in equity are included in the statement of income. Fair values The fair values of financial instruments in regular financial market are bases on last bid prices. For the unquoted investment, the Group establishes fair value by reference to others that are substantially the same, or by using the expected discounted cash flow analysis after adjustment to reflect the same circumstances of the issuing Group. investments available for sale, which its fair value have not been determined are carried at cost less impairment losses. Impairment in value The Group assesses at each financial position date whether there is objective evidence that a financial asset or a Group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from equity and recognized in the statement of income. Impairment losses recognized in the statement of income on equity instruments are not reversed through the statement of income. 29

30 A specific provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts of receivable. The amount of the specific provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, including amounts recoverable from guarantees and collateral, discounted at the effective rate of return. The amount of the provision is recognized in the statement of income. 3 /9) Intangible assets Acquisition costs of other intangible assets are capitalized and amortized on straight-line bases over its estimated useful life, which expected to be three years. 3 /10) Property, plant and equipment Property and equipment are stated at the historical cost less accumulated depreciation. The realizable values of property and equipment are reviewed at each consolidated financial position date to determine whether the book value exceeds the realizable value in which case the book value is written down to the realizable value. If the useful lives of property and equipment are different from the estimated lives of those properties, then the useful lives are adjusted from the beginning of the year in which the change occurred in without going into retroactive periods. Property and equipment are depreciated on straight-line bias to reduce the value of the property to its residual value over their estimated lives as follows: Vehicles Equipments Furniture 3 years 3 years 3 years 3 /11) Lands and properties under development Lands and properties under development are recognized at fair value as at consolidated financial position date, when the development process completed. The lands and properties are classified as investment properties as per management intention regarding the future use of properties. Gains or losses arising from changes in the fair value of lands and properties under development are included in the statement of income for the period in which they arise. 3 /12) Investment properties Investments properties, which are properties held to earn rentals and/or for capital appreciation, are stated at their fair value at the financial position date. Gains or losses arising from changes in the fair value of investment properties are included in the statement of income for the period in which they arise. 30

31 3 /13) Impairment of non financial assets Property, plant and equipment, investment in subsidiaries, investment in associates, goodwill and other intangible assets are reviewed as at the date of preparing the statements of financial position in order to determine whether there is an objective evidence of impairment in value if such evidence exists, the estimated recoverable amount of the assets are determined and any impairment loss is recognized in the statement of comprehensive income when the carrying amount of the asset is in excess of the recoverable amount. The recoverable amount is the higher of an asset s net selling price or its value in use. The net selling price represents the amount obtainable from the sale of an asset in an arm s length transaction, while the asset value in use represents the present value of estimated future cash flows expected to arise from the continuing use of an assets, and with its disposal at the end of it useful life. Recoverable amounts are estimated for each item of the assets on an individual basis or if this is impractical for the cash flows generating unit. Reversal of impairment losses recognized in prior years is recorded as income when there is an indication that the impairment losses for the asset no longer exist or has decreased net book value of an item and impairment loss should not be exceed its net book value in case that the loss has not been initially recognized. 3 /14) Payables and accrued expenses Liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. 3 /15) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. The capitalized of borrowing costs should commence when expenditures for the asset have been incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Borrowing costs that are not directly attributable to a qualifying asset should be recognized as an expense in the period in which they are incurred and accounted for on an accrual basis. 3 /16) End of service indemnity Provision is made for amounts payable to employees under the Kuwaiti Labor Law in the private sector and employees contracts. This liability, which is unfunded, represents the amount payable to each employee as a result of involuntary termination on the financial position date, and approximates the present value of the final obligation. 31

32 3 /17) Revenue recognition Wakala income is recognized when it is earned, on a periodic basis distribution so as to achieve a fixed rate of return. Gain on sale of investments is measured by the difference between the sale proceeds and the carrying amount of the investment at the date of disposal, and is recognized at the same time of the sale. Other categories of income are recognized when earned, at the time the related services are rendered and / or on the basis of the terms of the contractual agreement of each activity. 3 /18) Foreign currencies transactions Transactions and balances The Group s books are kept in Kuwaiti Dinars. Foreign currency transactions are accounted for at the prevailing exchange rates at the date of the transaction. Monetary assets and liabilities balances denominated in foreign currencies are translated at the prevailing rate at consolidated financial position date. Resultant differences in currency changes are taken to the consolidated statement of comprehensive income. A resultant difference in currency changes from translating non-monetary financial assets which is measured with fair value is considered a part of the differences of changes in the fair value. Financial statements translation Transactions of subsidiaries and associations are not present part of the Group transaction. The assets and liabilities for these companies are translated to Kuwaiti Dinar by using the prevailing rate at the consolidated financial position date, the revenue and expenses are translated using the average of the exchange rates during the year. Resultant differences in currency change are taken to the consolidated equity statement directly under the Foreign currency translation reserve. 3 /19) Dividends Dividends are recognized as a liability in the Group s consolidated statements of financial position in the period in which the dividends are approved by the shareholders. 3 /20) Segment reporting A segment is a distinguishable component of the Group that is engaged in providing products or services, business segment or providing products or services within a particular economic environment, geographical segment, where it is subject to risks and rewards that are different from other segments. 3 /21) Contingencies Contingent liabilities are not recognized but disclosed in the financial statements except when the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. 32

33 3 /22) Critical accounting estimates and judgments According to the accounting policies applied by the Group and in conformity with IFRS require management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Classification of land Upon acquisition of a land, the management classifies the land into one of the following categories, based on the intention of the management for the use of the land. Properties under development When the intention of the management is to develop a land in order to rent it in the future, both the land and the construction costs are classified as investment properties till the properties are ready for use at which time. Investment properties When the intention of the management is to earn rentals from land or hold land for capital appreciation or if the intention is not determined for land by Group. Impairment of investments The Group treats available for sale investments as impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires significant judgment. In addition, the Group also evaluates among other factors, normal volatility in the share price for quoted investments and the future cash flows and the discount factors for unquoted investments. Classification of investments Management decides on acquisition of an investment whether it should be classified as held for trading or at fair value through statement of income, or available for sale. The Group classifies financial assets as held for trading if the acquired primarily for the purposes of short-term profit making. Classification of investments as investments at fair value through statement of income depends on how management monitors the performance of these investments. When they are not classified as held for trading but have readily available reliable fair values and the changes in fair values are reported as part of statement of income in the management accounts, they are classified as at fair value through statement of income. All other investments are classified as investments available for sale. Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the consolidated financial statements 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: 33

34 Valuation of unquoted equity investments. Valuation of unquoted equity instrument is normally based on one of the following recent arm s length market transactions: Fair value of other similar instruments The expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics. Other valuation models. The determination of the cash flows and discount factors for unquoted equity investments requires significant estimation. 3 /23) Taxation Zakat The Zakat is computed in accordance with law no / and Ministerial Decree no / related to Zakat imposed on the general and closed shareholding companies for the year at 1% of net profit before deducting the Group s provisions and reserves. Kuwait Foundation for Advancement of Science The contribution to Kuwait Foundation for Advancement of Science is computed at 1% of net profit after deducting the current year appropriation to statutory reserve. 4- Cash and cash equivalents Cash on hand Cash at bank 127, , , , Investments at fair value through statement of income Investments in quoted shares Listed 2,509,170 2,510,024 Investments in funds 41,730 48,628 2,550,900 2,558,652 The investments at fair value through statement of income represents local quoted shares in Kuwait and shares in unquoted local funds. Investments at fair value through statement of income include an amount of KD 2,550,900 (2010: KD 2,543,852) that has been pledged against Murabaha payables (note 11). The Group s direct investment amounting to KD 2,473,911 is not included in the Parent company s objectives stated in the articles of association. Subsequently, the management will take the necessary procedures to add these objectives to the Parent company s activities or transfer the investments to a financial portfolio to be managed by specialized institutions. 34

35 6- Investments available for sale Investments in unquoted shares 4,450,000 4,450,000 4,450,000 4,450,000 The investments in unquoted shares are carried at cost, less impairment in the value, due to the nature of their future cash flows as there is no other a reliable method to measure its fair value. The Group intention is to keep these investments for long period and there is no active market for these financial assets. The management believe that no further impairment is required for the year ended December 31, Investments in unquoted shares include an amount of KD 4,446,663 (2010: KD 4,450,000) has been pledged against Tawaroq contracts (note 11). The investments available for sale are not included in the Parent company s objectives stated in the articles of association. Subsequently, the management will take the necessary procedures to add these objectives to the Parent company s activities or transfer the investments to a financial portfolio to be managed by specialized institutions. 7- Receivables and other debit balances Advance payment to suppliers 50,103 50,471 Staff receivable 1, Refundable deposits 7,201 6,608 Prepaid expenses 5,524 13,177 Other debit balances ,406 70,491 The carrying amount of receivables and other debit balances approximates its fair value, and do not include impaired assets that should be decreased. The maximum exposure to credit risk at the consolidated financial statement date is the fair value of each item of receivables mentioned above. 8- Lands and properties under development Balance at beginning of the year 36,996,818 41,179,131 Additions 121,001 - Foreign currency translation differences (270,226) (900,999) Gains/(losses of impairment) in value 418,794 (3,281,314) 37,266,387 36,996,818 Lands and properties under development represents the amounts paid on acquiring and developing one of the world islands project Dubai. The land and properties under development have been recorded at fair value, on the basis of valuation carried out by two independent valuators resulting in gains in value amounting to KD 418,794 charged to the consolidated statement of income. 35

36 9- Investment properties Balance at beginning of the year 384,438, ,036,828 Additions 826, ,354 Foreign currency translation differences (1,785,073) (5,224,342) Change in fair value (11,216,102) 470, ,264, ,438,389 The investment properties consist of 20 islands in the world islands project Dubai for the value of KD 246,440,484 and another property in Kingdom of Bahrain for the value of KD 125,823,537. The legal owner of the investment properties in Kingdom of Bahrain is Oqyana Real Estate Company (100% owned subsidiary), which assigned in writing the ownership of the properties in favor of the Parent company. The investment properties have been recorded at fair value, on the basis of valuation carried out by two independent valuators from Kingdom of Bahrain and United Arab Emirates. Investment properties with a value of KD 195,031,108 (2010: KD 155,118,244) has been pledged against Murabaha payables (note 11) Payables and accrued expenses Trade payables 2,755,752 2,784,072 Due to related parties 1,153,820 1,018,651 Accrued expenses 227, ,050 Kuwait foundation for advancement of science 1,330,348 1,330,348 Zakat tax 983, ,750 Advance payment from customers 112, ,769 Staff leave provision 69,783 35,338 6,633,565 6,550, Term financing Tawaroq contracts 22,471,911 19,543,694 Wakala payable 540, ,678 Murabaha payables 49,417,946 46,919,265 72,430,797 66,970,637 Tawaroq contracts are completely due in 2012, with average cost rate equal to 8% (7.4% for the year ended December 31, 2010). Wakala payable is due in 2012, with average cost rate 7% (year ended December 31, 2010: 8.5%). Murabaha payable include an amount of KD 5,078,057 accrued during the year 2011 and currently the Group is negotiating with the creditors to restructuring the debt, as well as Murabaha payable include an amount of KD 13,541,485 due in 2012, and the remaining amount of KD 30,798,405 is due during the years 2013, 2014 and 2015 with average cost of 9.5% (9.4% for the year ended December 31, 2010). 36