TRUST WORTHY SINCE 1961

Transcription

1 TRUST WORTHY SINCE 1961 Annual Report 2015

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3 IN THE NAME OF GOD, MOST GRACIOUS, MOST MERCIFUL

4 His Highness Sheikh Sabah Al Ahmed Al Jaber Al Sabah The Amir of The State of Kuwait

5 His Highness Sheikh Nawaf Al Ahmed Al Jaber Al Sabah The Crown Prince

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7 INDEX Board of Director s report 10 Executive Management s Report 12 Independent auditor s report 18 Consolidated statement of financial position 20 Consolidated statement of profit or loss 21 Consolidated statement of profit or loss and other comprehensive income 22 Consolidated statement of changes in equity 23 Consolidated statement of cash flows Notes to the consolidated financial statement CRS activity 63

8 BOARD OF DIRECTORS Waleed Abdullah Al-Roumi Chairman Mishari Zaid Al-Khaled Deputy Chairman Jamal Abdullah Al-Saleem Director Rana Ahmed Al-Muzaini Director Salah Abdulaziz Al-Muraikhi Director Adel Nahabah Hamadah Director Mishari Fahad Al-Oda Director Khaled Qusai Al-Meshri Board of Director s Secretary Basma Khaled Al-Jassem Director

9 MANAGEMENT Bader Naser AlSubaiee Chief Executive Officer Fawaz Sulaiman Al-Ahmad General Manager Imad Ahmed Tifouni Assistant General Manager Asset Management Sector Faisal Yousef Al-Mishari Assistant General Manager Direct Investment and Corporate Finance Sector Wael Sami Al-Ebrahim Assistant General Manager Operation Sector

10 BOARD OF DIRECTOR S REPORT Dear Kuwait Investment Company Shareholders, May Allah`s peace, mercy and blessing be upon you It is my pleasure to present to you on behalf of my colleagues at the Board of Directors Kuwait Investment Company s annual report for 2015, which highlights major events that the company and markets in general have went through, as well as the stages that the company went through in order to apply its new strategy. It is no secret that the company is going through a difficult operational environment in light of the ongoing drop in oil prices and budget deficit, which forced the state to consider rationalizing subsides, and collecting income taxes from companies and individuals. In this regard, I would like to reassure you that the company has exerted and continues to exert efforts towards improving its activities and income according to what best serves shareholders interests, despite the critical period we are currently going through. In general, economic events have dominated regional and global markets in Markets could not avoid the impact of the falling oil prices, despite some periods in which oil prices saw slight recovery, yet it was not enough to prevent the markets slide to their lowest points in years. The continued drop in oil prices has affected the budgets of Gulf Cooperation Council countries, forcing many of them to intensify efforts to cover the deficit through offering bonds and rationalizing subsidies. Meanwhile, the global economic scene was not much different compared to its Gulf counterpart given their intertwined markets. A series of events have heavily impacted the markets, most notably the US Federal Reserve s decision to increase the interest rate and the effect it had left on other markets, the concerns surrounding the Chinese economy s growth, the continuation of OPEC s strategy to protect its market share, and finally, lifting the Iranian sanctions and the fallouts of that decision during the next phase. Kuwait and the region In light of the unstable economic and regional circumstances, the performance of regional markets, including that of Kuwait, was parallel to the performance of stock prices or companies.investors lack of confidence in markets was evidently clear, which put further pressure on oil prices, sending them to fresh lows. Meanwhile, topics such as reducing subsidies and increasing the fees of fuel, electricity and other services gained momentum in light of these developments. And as a result, the Kuwait Investment Company was very keen on cooperating and coordinating between its departments and parties that are cooperating with it in an attempt to limiting the direct and indirect effects caused by the difficult past few months, and to support all activities and projects it carries out, in addition to solving all problems it faced. It is worth mentioning that the Kuwait Investment Company spared no efforts in meeting the requirements and laws that govern investment companies in the State of Kuwait. In addition, the company went ahead with its existing activities and investments according to what best serves the shareholders interests. As for other recent developments, discussion over imposing taxes highlighted the main events in Kuwait s Ministry of Finance is studying collecting a 10 percent income tax from companies and individuals. Meanwhile, the drop in oil prices forced Gulf countries to come up with other reforms to prevent budget deficits, such as reducing fuel subsidies and rationalization of consumption. We would like to point out that the company exerts all efforts and supports all potentials to find ways to protect its activities in line with the latest developments, and to meet both the aspirations of investors and shareholders, as well as its directions, while establishes its role in the investment sector in accordance with the strategy that was put together after consulting with major companies specialized in the field. 10

11 KUWAIT INVESTMENT COMPANY ANNUAL REPORT 2015 Financial indicators With regard to financial indicators, and despite the difficult circumstances that local, regional and global markets have gone and is still going through, the company managed to achieve 0.99 million in operational profits in Our net profit, after calculating the precautionary allocations and exchange rate differences and drop of value, have reached around 1,511 million, with a 2.8 fils per share profit, compared to 6,385 million and fils per share profit recorded in the same period in The company s assets in December 31, 2015 reached around 297 million, recording a 5% increase compared to The total of liabilities reached 134 million in December 31, 2015, while shareholders equity reached 163 million in December 31, 2015, recording a 3.1% drop compared to It is worth noting that the company s global indicators are considered positive in light of the unusual conditions that global markets are witnessing. Meanwhile, and in accordance with the transparency principle that the company adopts as an approach in all of its works and activities, the Board of Directors decided to disclose to its shareholders its recommendation to pay 26,000 as fees for committees, while bonuses will not be paid to members of the Board of Directors for the year ending in December 31, a focal year The year 2016 could be a focal point for countries of the region, especially that different trends such as the oil prices drop and governmental plans to rationalize subsidies and cut spending, and the requirements that result from such plans like creating job opportunities for citizens began to loom as urgent reforms that must be addressed as soon as possible. Therefore, investors must take into account well deliberation before entering in any investments unless they were thoroughly studied, in order to come out with less risks and good profits that guarantee its long-term continuation without serious consequences. In conclusion, we would like to express gratitude to His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, His Highness the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah and His Highness the Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al- Sabah, may God Almighty protect them and bestow his blessings upon them. We would also like to thank His Excellency the Deputy Prime Minister, Finance Minister and Acting Oil Minister, and to the company s main shareholder, the Kuwait Investment Authority for their continued support in line with the company s certified policies and controls. In this regard, we would also like to thank all of the company s staff for their performance last year, and to its shareholders and clients. We renew our commitment to exerting all efforts to maintain the company s position and history. May Allah`s peace, mercy and blessing be upon you Waleed Abdullah Shamlan Al-Roumi Chairman of the Board 11

12 EXECUTIVE MANAGEMENT S REPORT Dear shareholders, Special greetings and appreciation from the executive management to all of the company s shareholders and employees We are glad to inform you that Kuwait Investment Company managed in 2015 to achieve important accomplishments in various fields, thanks to steps to move forward with the strategic plan that we put together in cooperation with leading financial institutions. The company benefited from the positive impact of the strategic plan, and based on that, it carried out several deals, restructuring for activities and other operations, which led to increasing revenues, thus promising for more positive results in the future. It is not a secret that Kuwait Investment Company went in 2015 through a critical period in its history after it put together a strategy to go forward with efforts to improve its performance and profits. Based on that, the company carried out intensive contacts and meetings with global investment houses to produce new liquidity and deposits management products, in order to enhance the revenues for the company and its clients, meet the company s future requirements and plans and implement the new adopted strategy. Increasing revenues Despite the burdens that the company bore due to the restructuring of some of its investments according to the new strategy, Kuwait Investment Company managed to achieve 17,836 million in revenues in 2015, recording a 3,024 million increase compared to Intact assets On the level of corporate financing activity, the company continued to restructure loans, as some loans were renewed and settled while taking into account applying the Central Bank of Kuwait s policies and following credit foundations and standards. More than 500,000 were collected in 2015 from the total corporate financing portfolio. Meanwhile, financing through margin lending increased in 2015 in the framework of the corporate finance department s activities in offering credit facilities to clients of the asset department s portfolios and funds according to the company s management plan and strategy. Kuwait Investment Company s assets reached 297 million by the end of 2015, which is considered the largest in the investment sector compared to around 283 by the end of In addition to the above, the Al-Raed Investment Fund for local stocks recorded a -7% performance, beating all indicators of the Kuwait Stock Exchange which ended 2015 with a sharp decline that reached -15%. The sharp decline during the fourth quarter of 2015, did not only affect Kuwait s market, but covered all markets in the region due to the sharp fall in oil prices and geopolitical unrest. Also, the Kuwait Investment Fund for stocks compliant with the Islamic Sharia recorded a -4.75% performance, beating all other investment funds, as well as Al Mashora & Al Raya for Islamic Financial Consulting s index which recorded -16% in The performance of portfolios run by the assets management department was better compared to the man market s indicators, outperforming the market s weighted and price indexes, as well as the Kuwait 15 index. As for the performance of Kuwait Investment Company s global strategic funds, the European Equity Fund finished last year with a 12.34% increase compared to the MSCI EAFE Index which recorded 3.89%. Meanwhile, the Global Bond Fund finished last year with a -1.6% decrease, beating Citigroup s World Government Bond Index that 12

13 KUWAIT INVESTMENT COMPANY ANNUAL REPORT 2015 recorded -3.5%. in the meantime, the Diversified Equity Fund finished last year with a -2.3% decrease, beating the MSCI World index that recorded -2.7%. Moreover, the North American Equities Fund finished last year with a -4.5% performance, compared to Standard & Poor s 500 Index which recoded -0.73%. furthermore, the Pacific Equities Fund recorded -4.9% compared to the MSCI Pacific Index which recorded 0.4%. And despite the negative performance of the global markets, most of our investment products outperformed its counterparts, which reflects our successful management to our global funds and portfolios. Strategy and achievements in 2015 The company s future investment strategy, which was put together three years ago in cooperation with leading international institutes, helped improve the company s performance in some of the key areas of growth that it focuses on. In direct investment management, the company achieved several accomplishments with high efficiency, most notably exiting six investments at a value of around 6 million, and with a million profit. In addition, the company worked on restructuring the investment portfolio and a number of subsidiaries and associate companies. Treasury Department In early 2015, Kuwait Investment Company s Treasury Department purchased the first instrument in line with the company s new strategy, with hope of continuing to form a special portfolio for the purpose of investment in instruments and bonds in medium and long terms and with good returns to diversify the company s sources of income. The company s Treasury Department continued to invest in the cash surpluses so as to achieve the highest returns for the cash surpluses. Furthermore, the Treasury Department continued to carry out Islamic transactions such as Murabaha and Tawarruq with banks and institutions in Kuwait and the Gulf, in order to help the company present more products to its current and potential clients by signing deals with them and brokerage firms certified to trade in international products in global markets. And out of the company s keenness to achieve the highest value for shareholders and investors, the Treasury Department continued to attract new funds from the local and Gulf markets, and to open lines of credit for deposits and currencies with them. It is worth mentioning here that after continuous contacts with local and international banks and institutions to issue medium and long term bonds or sukuk for the company, these financing institutions were largely receptive to this approach, which allows us to finance the company s future needs in competitive prices if needed. Successful auction At the business development level, the company organized last year a successful auction to sell the Kuwait Investment Authority s share in the Agriculture Food Products Company, which reached 77.8%. The total bid value reached nearly 8.2 million. Strong compliance with the laws It is important to assert here that the Kuwait Investment Company is committed to comply with the laws and regulations issued by all regulatory and legislative authorities in Kuwait, out of its belief that such regulations serve the investor and shareholder alike. Therefore, the company carried out necessary amendments to the policies and measures and policies pertaining with fighting money laundry and 13

14 terrorism funding, according to the amendments issued by the Capital Markets Authority on July 23, We are glad to inform you that no suspicious transactions have been discovered or reported, while consultation was provided to all of the company s departments with regards to the principles of applying the requirements of control and fighting money laundry. Solid internal auditing The internal auditing department, and under supervision of the company s internal auditing committee, carries out periodic evaluation for the company s internal auditing systems, and improves them if necessary. It also verifies whether the Board of Directors decisions, the company s policies and measures, the local regulations, the guidelines and instructions of foreign auditing bodies and the international auditing policies and standards are being followed. Risk management The company s executive management bears in mind studying potential risks that the company might face through its works and activities, in order to put together the best risk management procedures and limit their negative impacts. In this context, the risk management office updated the risk policies pertaining with the market, investment, concentration, liquidity and operational risks. The risk management office also prepares and updates pressure tests on liquidity, investment, credit, and priced portfolio to evaluate their effect on the company s financial position. Training and development The company s human resources department is preparing the succession plan project in order to maintain its best experienced and qualified personnel. The training and development department has finished creating and activating the electronic training system. It also carried out more than 48 training program for 98 students, which include internal, external and contractual programs. The department also developed the electronic training project, and provided more than 400 programs for officials and staff to reinforce competencybased training, as 102 employees benefited by finishing 1,011 programs. In addition, more than 30 videos of leadership and management skills by international trainers were distributed as part of the electronic education program. The company s staff were also provided with more than 40 summaries for the most important modern administrative thinking publications to boost the existing competencies of both officials and employees. Information technology As for the information technology department, the entire infrastructure was updated to the modern information technology. The information technology department also developed an internal system to track all operational tasks, network systems, as well as all new development and renovation operations and contractual obligations. By the end of 2015, the manual preparation of the annual budget was completely replaced with an integrated electronic system to prepare the 2016 budget. Media and public relations Based on the company s leading role in the investment activity in the State of Kuwait and the region, two economic conferences were organized in coordination with Candriam Investors Group, in which a number of CEOs of local companies, banks and financial industry 14

15 KUWAIT INVESTMENT COMPANY ANNUAL REPORT 2015 enthusiasts were invited. And out of belief in the company s social role, the company organized several social and sports activities, including a juniors football tournament in Ramadan held under the patronage and attendance of the Deputy Prime Minister, Finance Minister and Acting Oil Minister. New activities Based on the company s strategy to enter new activities and products, it established an electronic trading unit. It also attracted and hired a specialized team in this field, which established the database and prepared the system s requirements in accordance with the market s regulations and capital markets requirements, and according to what best serves a large number of clients, in addition to facilitating the company s future work. The service is expected to be launched in mid Before concluding, the management reiterates that 2015 was not an easy year. But despite that, we managed to overcome it with good results and high confidence, and continued with the growth that we hope would continue with our cooperation and encouragement. The company is considered in a good position today to continue the strategy it had put together a few years ago, achieve its designated goals and provide value to shareholders for years to come. I would like to give special thanks to the Chairman and members of the Board of Directors of the Kuwait Investment company for the dear trust that they bestowed upon me, and for their continuous support, direction and advice. I would also like to thank all of the company s employees for the relentless efforts they exerted during the past year. I would like to reiterate my gratitude to the company s shareholders and staff, renew our commitment to exerting all efforts to maintain the company s position and history. Bader Naser AlSubaiee Chief Executive Officer 15

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17 CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT TRUSTWORTHY SINCE 1961

18 INDEPENDENT AUDITORS REPORT Al Shaheed Tower, 6th Floor Khaled Ben Al Waleed Street, Sharq P.O. Box 25578, Safat 13116, Kuwait Tel. : Fax : Al-Shatti & Co. Arraya Tower II, 23rd-24th floor, Sharq P.O. Box 1753, Safat 13018, Kuwait Tel. : Fax : INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF KUWAIT INVESTMENT COMPANY S.A.K. Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Kuwait Investment Company S.A.K. ( the Parent Company ) and subsidiaries (together referred to as the Group ), which comprise the consolidated statement of financial position as at 31 December 2015, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows 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 these consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted for use by the State of Kuwait, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors 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 about 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 auditors 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 entity 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the 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 basis for our audit opinion. 18

19 KUWAIT INVESTMENT COMPANY ANNUAL REPORT 2015 Opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2015, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted for use by the State of Kuwait. Report on Other Legal and Regulatory Matters In our opinion, proper books of account have been kept by the Parent Company and the consolidated financial statements, together with the contents of the report of the Parent Company s board of directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Kuwait Companies Law No. 1 of 2016, and its Executive Regulations, as amended, and by the Parent Company s Memorandum and Articles of Association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Kuwait Companies Law No. 1 of 2016, and its Executive Regulations, as amended, or of the Parent Company s Memorandum and Articles of Association, as amended, have occurred during the year ended 31 December 2015 that might have had a material effect on the business of the Group or its consolidated financial position. We further report that, during the course of our audit, we have not become aware of any material violations, during the year, of the provisions of Law No. 32 of 1968, as amended, concerning currency, the Central Bank of Kuwait and the organisation of banking business, and its related regulations, and Law No. 7 of 2010 regarding Establishment of Capital Markets Authority and Organisation of Security Activity and its Executive Regulations. Qais M. Al-Nisf Licens e No. 38-A BDO Al Nisf & Partners Khalid Ibrahim Al-Shatti License No. 175-A PricewaterhouseCoopers (Al-Shatti & Co.) Kuwait: 4 April

20 CONSOLIDATD STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 Notes ASSETS Cash and bank balances 4 29,290,704 14,517,923 Placements 5 5,404,215 3,073,688 Financial assets at fair value through profit or loss 6 29,141,043 29,305,238 Accounts receivable and other assets 7 6,000,051 6,591,927 Wakala receivables 3,437,554 3,819,505 Loans and advances 8 3,738,600 3,865,692 Available for sale financial assets 9 119,604, ,348,095 Investments held to maturity 3,009,353 4,875,000 Investments in associates 26 17,624,989 16,695,113 Investment properties 10 18,441,222 17,779,819 Intangible assets 11 11,042,602 15,000,000 Property and equipment 12 21,481,177 18,332, ,215, ,204,757 Assets of disposal group classified as held for sale 13 29,033,302 24,954,683 Total assets 297,248, ,159,440 LIABILITIES AND EQUITY Liabilities Deposits from banks 25,418,449 27,043,376 Customers deposits 80,107,717 59,469,540 Accounts payable and other liabilities 14 10,484,338 11,876,641 Islamic financing payables 15 14,239,164 12,161, ,249, ,550,956 Liabilities of disposal group classified as held for sale 13 3,630,200 4,039,363 Total liabilities 133,879, ,590,319 Equity Share capital 16 55,125,000 55,125,000 Treasury shares 17 (734,629) (734,629) Statutory reserve 18 26,770,996 26,616,863 Voluntary reserve 19 16,805,110 16,650,977 Revaluation reserve 5,488,831 5,488,831 Fair value reserve 21,639,614 23,000,955 Foreign currency translation reserve 2,237,473 1,083,673 Retained earnings 3,184,684 7,462,139 Equity attributable to owners of the Parent Company 130,517, ,693,809 Non-controlling interests 25 32,852,036 33,875,312 Total equity 163,369, ,569,121 Total liabilities and equity 297,248, ,159,440 Waleed Abdullah Al-Roumi Chairman Bader N. AlSubaiee Chief Executive Officer Meshari Zaid Al Khaled Deputy Chairman 20 The notes on pages 26 to 61 form an integral part of these consolidated financial statements.

21 KUWAIT INVESTMENT COMPANY ANNUAL REPORT 2015 CONSOLIDATD STATEMENT OF PROFIT OR LOSS Notes Continuing operations Income Management fees and commission income 5,873,033 6,255,682 Dividend income 2,907,407 1,694,265 Gain on redemption / sale of available for sale financial assets 5,030,171 6,526,043 Interest income 925, ,823 Rental income / (expense) (net) 20 2,993,365 (486,592) Unrealised loss on financial assets at fair value through profit or loss (net) (2,619,409) (1,838,677) Gain on sale of financial assets at fair value through profit or loss (net) 143,006 43,134 Change in fair value of investment properties , ,993 Share of results of associates , ,461 Loss on sale of a subsidiary 24 - (1,777) Gain on reclassification of associate to subsidiary ,154 Foreign exchange loss (2,191,166) (1,712,671) Total income 14,121,514 12,045,838 Expenses and other charges General and administrative expenses 21 (7,844,324) (5,919,489) Impairment loss on available for sale financial assets 9 (2,506,999) (1,288,069) Impairment loss on intangible assets 11 (3,957,398) - (Provision for) / release of provision for credit losses 22 (1,207,423) 772,955 Interest expense (1,301,396) (571,609) Total expenses and other charges (16,817, 540) (7,006,212) Operating (loss) / profit (2,696,026) 5,039,626 Other income 324, ,431 (Loss) / profit before contribution to Kuwait Foundation for the Advancement of Science ( KFAS ), National Labour Support Tax (2,371,540) 5,185,057 ( NLST ) Zakat and Board of Directors remuneration KFAS - (47,474) NLST (30,639) (169,699) Zakat - (58,820) Board of Directors remuneration 27 - (99,000) (Loss) / profit for the year from continuing operations (2,402,179) 4,810,064 Discontinued operations Profit for the year from discontinued operations 13 3,389,575 2,620,372 Profit for the year 987,396 7,430,436 Attributable to: Owners of the Parent Company 1,510,695 6,385,483 Non-controlling interests 25 (523,299) 1,044, ,396 7,430,436 Earnings/(loss) per share attributable to owners of the Parent Company (Basic and diluted) (fils) 23 From continuing and discontinued operations From continuing operations (0. 398) From discontinued operations The notes on pages 26 to 61 form an integral part of these consolidated financial statements.

22 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Profit for the year 987,396 7,430,436 Other comprehensive income: Items that will not be reclassified to the consolidated statement of profit or loss: Share on gain on property revaluation of associate - 1,288,764 Items that may be reclassified subsequently to the consolidated statement of profit or loss: Available for sale financial assets: - Change in fair value 1,054,780 1,069,640 - Gain on redemption / sale of available for sale financial assets (5,030,171) (6,526,043) - Transferred to consolidated statement of profit or loss on impairment 2,506,999 1,288,069 Share of associates other comprehensive income 48,074 99,806 Foreign exchange translation adjustments 1,153, ,634 Other comprehensive loss for the year (266,518) (2,276,130) Total comprehensive income for the year 720,878 5,154,306 Total comprehensive income attributable to: Owners of the Parent Company 1,303,154 4,041,328 Non-controlling interests (582,276) 1,112, ,878 5,154,306 Total comprehensive income attributable to Owners of the Parent Company arises from: Continuing operations (2,559,117) 2,673,689 Discontinued operations 3,279,995 2,480, ,878 5,154, The notes on pages 26 to 61 form an integral part of these consolidated financial statements.

23 KUWAIT INVESTMENT COMPANY ANNUAL REPORT 2015 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Treasury shares Statutory reserve Voluntary reserve Revaluation reserve Fair value reserve Foreign currency translation reserve Retained earnings Equity attributable to owners of the Parent Company Noncontrolling interests Total equity Balance at 1 January ,125,000 (734,629) 25,940,815 15,974,929 4,200,067 27,137, ,039 2,428, ,652,481 27,417, ,069,996 Profit for the year ,385,483 6,385,483 1,044,953 7,430,436 Other comprehensive income / (loss) for the year Total comprehensive income / (loss) for the year ,288,764 (4,136,553) 503,634 - (2,344,155) 68,025 (2,276,130) ,288,764 (4,136,553) 503,634 6,385,483 4,041,328 1,112,978 5,154,306 Transfer to reserves , , (1,352,096) Effect of consolidation of a new subsidiary ,804,587 7,804,587 Movement in non-controlling interests (2,018,768) (2,018,768) Dividends to non-controlling interests (441,000) (441,000) Balance at 31 December ,125,000 (734,629) 26,616,863 16,650,977 5,488,831 23,000,955 1,083,673 7,462, ,693,809 33,875, ,569,121 Profit / (loss) for the year ,510,695 1,510,695 (523,299) 987,396 Other comprehensive (loss) / income for the year (1,361,341) 1,153,800 - (207,541) (58,977) (266,518) Total comprehensive (loss) / income for the year (1,361,341) 1,153,800 1,510,695 1,303,154 (582,276) 720,878 Transfer to reserves , , ,266) Dividends declared (note 27) (5,479,884) (5,479,884) - (5,479,884) Dividends to non-controlling interests (441,000) (441,000) Balance at 31 December ,125,000 (734,629) 26,770,996 16,805,110 5,488,831 21,639,614 2,237,473 3,184, ,517,079 32,852, ,369,115 The notes on pages 26 to 61 form an integral part of these consolidated financial statements. 23

24 CONSOLIDATED STATEMENT OF CASH FLOWS OPERATING ACTIVITIES (Loss) / profit from continuing operations (2,402,179) 4,810,064 Profit from discontinuing operations 3,389,575 2,620,372 Adjustments for: Dividend income (2,907,407) (1,694,265) Gain on redemption / sale of available for sale financial assets (5,030,171) (6,526,043) Interest income (925,572) (482,823) Unrealised loss of financial assets at fair value through profit or loss (net) 2,619,409 1,838,677 Gain on sale of financial assets at fair value through profit or loss (net) (143,006) (43,134) Change in fair value of investment properties 10 (507,854) (532,993) Share of results of associates 26 (551,681) (349,461) Loss on sale of a subsidiary 24-1,777 Foreign exchange loss 2,191,166 1,712,671 Impairment loss on available for sale financial assets 9 2,506,999 1,288,069 Impairment loss on intangible assets 11 3,957,398 - Provision for / (release of provision) for credit losses 22 1,207,423 (772,955) Interest expense 1,301, ,609 Depreciation 12 3,448, ,824 8,153,593 2,611,389 Changes in operating assets and liabilities: Placements 5,514,593 2,539,751 Financial assets at fair value through profit or loss (2,312,208) (7,759,020) Accounts receivable and other assets 180,488 42,298 Wakala receivables 381,951 - Loans and advances (947,282) - Investments held to maturity (286,689) 2,357,722 Accounts payable and other liabilities (2,071,753) 1,218,148 Net cash generated from operating activities 8,612,693 1,010,288 INVESTING ACTIVITIES Proceeds from sale of a subsidiary 24-50,781 Arising from consolidation of subsidiaries - 1,860,437 Placements (13,374,900) - Disposal / (Additions) of investment properties 10 50,000 (9,183,985) Purchase of property and equipment 12 (10,886,658) (1,872,622) Proceeds from sale of property and equipment 3,904,965 - Purchase of available for sale financial assets (21,421,479) (23,058,245) Proceeds from sale of available for sale financial assets 30,018,556 36,285,502 Dividend income received 3,541,811 1,850,994 Interest income received 801, ,416 Net cash generated (used in) / from investing activities (7,366,163) 6,429, The notes on pages 26 to 61 form an integral part of these consolidated financial statements.

25 KUWAIT INVESTMENT COMPANY ANNUAL REPORT 2015 CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) FINANCING ACTIVITIES Net movement in banks and customers deposits 16,618,535 (14,482,184) Net movement in islamic financing payables 2,077,765 - Dividend paid to shareholders (5,380,875) - Dividend paid to non-controlling interests (441,000) (441,000) Interest expenses paid (1,130,120) (635,159) Movement in non-controlling interests - (2,018,768) Net cash from / (used in) financing activities 11,744,305 (17,577,111) Effect of foreign currency translation adjustments 19,924 59,280 Net increase / (decrease) in cash and cash equivalents 13,010,759 (10,078,265) Cash and cash equivalents at beginning of the year 17,224,803 27,303,068 Cash and cash equivalents at end of the year 4 30,235,562 17,224,803 Non-cash transactions Transfer from Investments held to maturity to available for sale financial assets 2,152,336 - Transfer from available for sale financial assets and financial assets at fair value through profit or loss to investment in associates - 2,828,728 Settlement of other financial assets by swap of assets - 2,970,000 Purchase - 2,209, The notes on pages 26 to 61 form an integral part of these consolidated financial statements.

26 1. GENERAL INFORMATION Kuwait Investment Company S.A.K. ( the Parent Company ) is a public shareholding investment company incorporated under the laws of the State of Kuwait on 25 November 1961 and registered in the commercial registry under No on 22 May The Parent Company s major shareholder is Kuwait Investment Authority. The Parent Company is listed on the Kuwait Stock Exchange and is governed under the directions of the Central Bank of Kuwait ( CBK ) and Capital Markets Authority of Kuwait ( CMA ). The Parent Company s registered office is at Souk Al Manakh, Mubarak Al Kabeer Street, Kuwait City and its mailing address is P.O. Box 1005, Safat-13011, Kuwait. The Parent Company s objectives as per the Articles of Association are as follows: Investment and increase of its shareholders and clients savings and the loans concluded through employing them in financial securities, rights, royalties, properties, equipment, assets and other movables and immovable of all types at its own discretion. Participating in the incorporation of other companies to realise profit in accordance with law and assisting in incorporation of these companies. Sale of shares and bonds of companies, governmental and semi-governmental institutions. To conduct research and surveys related to the employment of capital and provide all the services related to investment operations and third party investments. The Parent Company may have interests or participate in any suitable way with entities that are engaged in similar business activities or that the Parent Company to achieve its objectives inside Kuwait and abroad without conflict with the article of the parent company. The Companies Law was issued on 24 January 2016 by Decree Law No. 1 of 2016 (the Companies Law ), which was published in the official gazette on 1 February 2016, and cancelled Decree Companies Law No. 25 of 2012 as amended. This Law shall be applicable as of 26 November The Minister of Commerce and Industry shall issue the executive regulations of this law, along with the required resolutions for its implementation within two months as of the date of its publication in the official gazette. Other regulatory bodies shall issue, during the mentioned period, their resolutions required to be issued by them, in accordance with the provisions of this law. Effectiveness of the executive regulations of Decree Law No. 25 of 2012, as amended, shall be continued until commencement of this new Law executive regulations effectiveness. The executive regulations shall specify rules and controls of regularizing companies current affairs in accordance with provisions of the new law. These consolidated financial statements of the Group for the year ended 31 December 2015 were authorised for issue in accordance with a resolution of the Board of Directors of the Parent Company on 2 February The shareholders general assembly has the power to amend these consolidated financial statements after issuance. The Parent Company had 124 employees as at 31 December 2015 (2014: 125 employees). 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These consolidated financial statements have been prepared under the historical cost convention except for financial assets at fair value through profit or loss, available for sale financial assets and investment properties which have been measured at fair value. These consolidated financial statements have been presented in Kuwaiti Dinars ( ), which is the functional and presentation currency of the Group. Statement of compliance These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRSs ) as issued by the International Accounting Standards Board ( IASB ), IFRIC interpretations, and applicable requirements of Ministerial Order No. 18 of 1990, as modified for use by the State of Kuwait for financial services institutions regulated by the Central Bank of Kuwait. These regulations require the adoption of all IFRSs except for the International Accounting Standard ( IAS ) 39 requirement for collective impairment provision, which has been replaced by the CBK requirement for a minimum general provision as described under the accounting policy for impairment of financial assets. 26

27 KUWAIT INVESTMENT COMPANY ANNUAL REPORT BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) a) New standards, interpretations and amendments effective from 1 January 2015 The accounting policies applied by the Group are consistent with those used in the previous year except for the changes due to implementation of the following new and amended International Financial Reporting Standards: Amendments to IAS 19 Employee benefits The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. If the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the related service is rendered. But if those contributions depend on the number of years of service, those contributions must be allocated to the periods of service using the same attribution method as used for the gross benefit. These amendments became effective on 1 July These amendments had no impact on the Group. Annual improvements to IFRS Cycle: Amendments to IFRS 2 Share based Payment The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarify the definition of vesting conditions by separately defining a performance condition and a service condition. Those clarifications include the following: A performance condition must contain a service condition A performance target must be met while the counterparty is rendering service A performance target may relate to the operations or activities of an entity, or to those of another entity in the same group A performance condition may be a market or non-market condition If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied Amendments to IFRS 3 Business Combinations The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarify that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable). Amendments to IFRS 8 Operating Segments The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarify that: An entity must disclose the judgments made by management in applying the aggregation criteria in IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are similar The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker. Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets The amendments to these standards which are effective for annual periods beginning on or after 1 July 2014 clarify that the determination of the accumulated depreciation or amortisation under the revaluation method does not depend on the selection of the valuation technique. They also clarify that the accumulated depreciation or amortisation is computed as the difference between the gross and the net carrying amounts. Consequently, when the residual value, the useful life or the depreciation or amortisation method has been reestimated before a revaluation, restatement of the accumulated depreciation or amortisation is not proportionate to the change in the gross carrying amount of the asset. Amendments to IAS 24 Related Party Disclosures The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarify that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. 27

28 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) a) New standards, interpretations and amendments effective from 1 January 2015 (Continued) Annual Improvements to IFRS Cycle: Amendments to IFRS 3 Business Combinations The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarify for the scope exceptions within IFRS 3 that: Joint arrangements, not just joint ventures, are outside the scope of IFRS 3 This scope exception only applies to the financial statements of the joint venture or the joint operation itself. Amendments to IFRS 13 Fair Value Measurement The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarify that the portfolio exception in IFRS 13 applies to all contracts within the scope of IFRS 9 (or IAS 39, as applicable), regardless of whether they meet the definitions of financial assets or financial liabilities. Amendments to IAS 40 Investment Property The amendments to this standard which are effective for annual periods beginning on or after 1 July 2014 clarifies that IFRS 3, and not the description of ancillary services in IAS 40 (which differentiates between investment property and owner-occupied property (i.e., property, plant and equipment)), is used to determine if the transaction is the purchase of an asset or a business combination. These improvements are effective from 1 July 2014 and did not have a material impact on the Group. b) Standards and interpretations issued but not effective The following new and amended IASB Standards have been issued but are not yet effective, and have not been adopted by the Group: IFRS 9 - Financial Instruments The standard, effective for annual periods beginning on or after 1 January 2018, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 specifies how an entity should classify and measure its financial instruments and includes a new expected credit loss model for calculating impairment of financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The directors of the Company anticipate that the application of IFRS 9 in the future may not have a material impact on amounts reported in respect of the Company s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until the Group undertakes a detailed review. Amendments to IFRS 11 Accounting for acquisitions of interests in joint operations The amendments clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business requiring the acquirer to apply all the principles on business combinations accounting in IFRS 3 and other IFRSs. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with earlier application being permitted. These amendments are not expected to have any material impact to the Group. IFRS 14 Regulatory Deferral Accounts This standard, effective for an entity s first annual IFRS financial statements for a period beginning on or after 1 January 2016, permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for regulatory deferral account balances in accordance with its previous accounting standards, both on initial adoption of IFRS and in subsequent financial statements. Regulatory deferral account balances, and movements in them, are presented separately in the statement of financial position and statement of profit or loss and other comprehensive income, and specific disclosures are required. Since the Group is an existing IFRS preparer, this standard would not apply. IFRS 15 - Revenue from contracts with customers The standard, effective for annual periods beginning on or after 1 January 2018, establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces the following existing standards and interpretations upon its effective date: IAS 18 Revenue, IAS 11 Construction Contracts, IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and, SIC 31 Revenue-Barter Transactions Involving Advertising Services The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date. 28