His Majesty Sultan Qaboos Bin Said

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3 His Majesty Sultan Qaboos Bin Said 3

4 BOARD OF DIRECTORS Sayyid Khalid Hamed Saif Al-Busaidi Chairman Mr. Ali Mohamed Ali Al-Mahruqi Vice Chairman Sheikh Saleh Ahmed Mohamed Al Harthy Director Ms. Budoor Mohammed Rashid Al Fanna Al Araimi Director Mr. Ahmed Ali Mohamed Al Araimi Director Mr. Mohammed Ali Al Fannah Al Araimi Director Mr. Ishaq Zaid Khalifa Al Mawali Director

5 6 A SHARQIYA INVESTMENT HOLDING CO. (SAOG) AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 Contents Page Chairman s report 7 Report of the auditors 9 Corporate governance report for the year Report of factual findings 14 Management discussion and analysis report for Consolidated financial position 19 Consolidated statement of comprehensive income 20 Consolidated statement of cash flows 21 Consolidated statement of changes in equity 22 Consolidated notes to the financial statements 23-46

6 7 CHAIRMAN S REPORT Dear Shareholders, It gives me great pleasure to welcome you to the annual general meeting of your company. On behalf of the Board of Directors, I would like to present before you the annual report for the year 2010 along with the audited consolidated financial statements of A Sharqiya Investment Holding Co. (SAOG) and its subsidiary Qalhat Real Estate Investments & Services (LLC). Achievements & Financial Highlights A Sharqiya Investment Holding Co (SAOG) has generated an operating income of RO 1,292,180 for the full year ended December , as compared to RO 1,469,338 last year, a decrease of 12 %. This has translated into a net profit of RO 614,493 up from RO 542,370 in 2009, an increase of 13.30%. This is after a provision of RO 61,249 being made as impairment loss on the Company s available for sale holdings as RO 263,238 provisioned for in The earnings per share have increased to Bz on a share capital base of RO 8 million as against Bz in 2009, an increase of 13.30%. The total shareholders funds have increased by 9.8% during the period to RO million from RO million last year. The book value per share has increased to RO per share from per share in Performance Review and Company s position The FY 2010 witnessed steady performance in global financial markets. Stimulus programs of governments managed to hold the economy from going into a double dip recession. However Euro zone debt concerns, fiscal deficits in US and several developed countries, and specter of inflation in emerging markets kept the markets on a tight leash for most of the year. Amidst high volatility and uncertainty, the company achieved 9.8% growth in net worth which is a steady and reasonable achievement for an investment company in the turbulent environment that existed in This performance is consistent with the goals of capital preservation, liquidity, and risk minimization we set for ourselves in the beginning of As we are an investment company investing shareholders funds we are not reliant on any particular clients or suppliers locally or externally to generate our revenues. Future Outlook & Co s Plans The world economy is forecast to grow at 3.5-4% in While deflation and double dip threats have receded in the US, China and othe remerging markets face inflationary pressures that could slow down growth. Tensions in Egypt and elsewhere in the Middle East may push oil prices above $ 100/bbl. This will benefit oil producing countries while many economies will be hit by such a rise. Company plans to focus on Oman, US and a few Asian markets that would perform relatively better. We also plan to take advantage of increasing project opportunities in Oman in the days to come. Financing Structure: No significant changes were made to the financing structure of the company during the year. Currently no plans have been finalized to change the financing structure during There are no decisions by governments or international organizations which will have direct material impact on the company s business except which are of macro economic in nature and already in the public domain of information. Dividend Policy: The Company has proposed a cash dividend of 7% which amounts to RO 560,000 despite global financial market collapse which has led to reduced profits. The records of dividend payments for last 5 years were as follows:

7 8 (RO) Cash *560, ,200, ,000 Bonus Shares ,000,000 *Proposal to be approved by AGM Corporate Governance I am pleased to confirm that the company has been fully committed to the Corporate Governance Code issued by the Capital Market Authority (CMA). The Board has established a fully empowered Audit Committee, which has been effectively performing its role in accordance with the code. A report on Corporate Governance and a Management Discussion and Analysis forms a part of our Annual Report. The corporate governance report has been audited by the statutory auditor whose report has also been included in this Annual report. Acknowledgement On behalf of the Board of Directors, I would like to express our sincere gratitude to His Majesty Sultan Qaboos bin Said for his wise leadership of the country. The policies of His Majesty s government continue to provide a stable and enabling environment for business. I sincerely thank the shareholders for your confidence and trust in the Board and Management and look forward to receiving your continued support. I also thank the Management and staff of the group for their commitment and contributions to the objectives of the company. Sayyid Khalid Hamed Saif Al-Busaidi Chairman

8 9 PricewaterhouseCoopers LLP P.O. Box 3075, Ruwi 112 Suites Hatat House Wadi Adai, Muscat Sultanate of Oman Telephone +(968) Facsimile +(968) 2456 Independent auditor s report to the members of A Sharqiya Investment Holding Co. SAOG and its subsidiary We have audited the accompanying consolidated financial statements of A Sharqiya Investment Holding Co. SAOG and its subsidiary (together the group) which comprise the consolidated statement of financial position as at 31 December 2010 and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The Directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the disclosure requirements of the Capital Market Authority and the Commercial Companies Law of 1974, as amended and for such internal control as they determine necessary to enable the preparation of consolidated financial statements that are free from material misstatement, 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 financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the 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 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 management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 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 2010, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Other legal and regulatory requirements Further, as required by the Rules and Guidelines on Disclosure by Issuers of Securities and Insider Trading ( R&G ) issued by the Capital Market Authority ( CMA ) of the Sultanate of Oman, we report that the consolidated financial statements of the group have been properly prepared, in all material respects, in accordance with the R&G, with the Rules for Disclosure and Proformas issued by the CMA and with the Commercial Companies Law of 1974, as amended. PricewaterhouseCoopers LLP 5 March 2011 Muscat, Sultanate of Oman

9 10 Corporate Governance report for the year 2010 COMPANY S PHILOSOPHY ON CORPORATE GOVERNANCE A SHARQIYA INVESTMENT HOLDING CO. SAOG (SIHC) acknowledges the need for good governance and healthy corporate practices for the company to succeed in the long run and to fulfil its mission and realise its vision. The company is fully abiding by the corporate governance code issued by the Capital Market Authority (CMA) literally as well as in spirit. The company has taken all necessary steps to fulfill the objective of good corporate governance. The company s Board of Directors consist of experienced personnel hailing from varied backgrounds such as business, investments and general management with professional expertise in finance, engineering and other related areas. The company gains immensely from the diversified experience and knowledge of the Board. All the directors of the company are independent and none of them play any executive role in the company. The Board is responsible for achieving the business objectives of the company in coordination with the executive management. For this purpose, the Board is assisted by various committees and the senior management of the company. The Board has constituted various sub-committees Investment Committee and the Audit Committee and other ad hoc committee when the need arises such as the technical committee. In addition, there is a well-structured management whose duties and obligations are defined in the manual of authority approved by the Board. The primary functions of the Board may be summarised as follows: Approve the commercial, financial and budget of the company in a manner that would realize its objectives and maximize the shareholders equity. Lay down the required plans and update them from time to time in order to achieve the objectives and perform the activities of the company. Adopt disclosures policy of the company and follow up their implementation in accordance with the disclosure requirements of the Capital Market Authority. Monitor the performance of the executive management to ensure that is carried out in line with the purposes for which the company was established. Provide information to the shareholders in an accurate and prompt manner in accordance with the CMA instructions. Appraise the performance of the employees and the activities of the board committees. Review the internal controls of the company periodically and update them as and when required. The scope of the authority of the Boards of Directors, its functions and limitations are mainly governed by the Articles and Memorandum of Association of the company. BOARD OF DIRECTORS The Board of Directors is composed of the Chairman and six other directors. All the directors are independent and nonexecutives. The current board of directors includes Mr. Ishaq Zaid Khalifa Al Mawaly who was appointed by the Board of Directors to fill in the seat vacated by the resignation of former Vice chairman Dr. Salim Nasser Al Ismaily as of 14 May Composition of the Board of Directors and membership of affiliate committees Name Designation Category Membership in committees Sayyid Khalid Hamed Saif Al-Busaidi Chairman Independent, Non-executive - Mr. Ali Mohamed Ali Al-Mahruqi Vice Chairman Independent, Non-executive Investment Committee Sheikh Saleh Ahmed Mohamed Al Harthy Director Independent; Non-executive Audit Committee Ms. Budoor Mohammed Rashid Al Fanna Al Araimi Director Independent; Non-executive Audit Committee Mr. Ahmed Ali Mohamed Al Araimi Director Independent; Non-executive Investment Committee Mr. Mohammed Ali Al Fannah Al Araimi Director Independent; Non-executive Investment Committee Mr. Ishaq Zaid Khalifa Al Mawali Director Independent; Non-executive Investment Committee Dr. Salem Nasser Said Al Ismaily resigned May 2010 Mr. Ishaq Zaid Khalif Al Mawaly was appointed on temporary basis until the convening of the shareholders AGM Meetings of the Board of Directors The Board held five meetings during the year The meetings were held on January 25, February 16, May 09, August 14 and October 25. The details of the attendance by the directors, directorship in other listed companies and their designations in those companies are given below:

10 11 Director s Attendance Record and other directorship held during the year Name Position No of meetings attended Whether attended last AGM Directorship in other public companies Designation Sayyid Khalid Hamad Saif Al Busaidi Chairman 4 Yes Asharqiya University (SAOC) Chairman Mr. Ali Mohammed Ali Al Mahrouky Vice Chairman* 5 Yes Galfar Engineering Director Sheikh Saleh Ahmed Mohammed Al Harthy Director 5 Yes - Director Ms. Budoor Mohammed Rashid Al Araimi Director 4 No Galfar Engineering Gulf Plastic Director Director Mr. Ahmed Ali Mohamed Al Araimi Director 3 No Mr. Mohammed Ali Al Fannah Al Araimi Director 5 Yes Gulf Plastic Industries Director Galfar Engineering Director Mr. Ishaq Zaid Khalifa Al Mawali Director 1 No Gulf Custody Director Al Sawadi Energy Director * Took over as Vice Chairman after resignation of Dr. Al Ismaily No director is a member of more than four public companies whose shares are listed on the Muscat Securities Market (MSM) and no director is chairman of more than two such companies. None of the directors is a member of the Board of Directors of a public company which carries out similar business and whose principal office is located in the Sultanate of Oman. All members of the board of directors are eligible for re-election for similar periods in accordance with the company s articles of association and the regulations promulgated by the capital market authority. The tenure of this board of directors expires on 24 March 2011 and a new board shall be elected. COMMITTEES Audit Committee The audit committee is entrusted with compliance with corporate governance code as stipulated by the Capital Market Authority (CMA). This mainly involves review of financial statements before submission to the Board, review of internal audit plans and reports, assessment of internal controls, assessment of risk management policies and evaluation of related party transactions and acting as medium of communication between the Board and internal auditor and statutory auditor. The audit committee is also responsible for recommending the appointment or reappointment of statutory auditor to the Board. During the year 2010 the committee held four meetings on the following dates: February 16, May 09, August 14, and October 24. The details of the composition of the committee and the members attendance are given below: Name of the Director Meetings attended Sheikh Saleh Ahmed Mohammed Al Harthy (Chairman) 4 Ms. Budoor Mohamed Rashid Al Araimi (member 4 Mr. Mohammed Ali Al Fannah Al Araimi (member) 4 Investment Committee This committee has been set up for defining investment policy and guidelines to be followed for financial investments in local and overseas markets. The committee prescribes norms for investments with respect to risk, return, exposure level and other relevant parameters. The committee takes decisions on specific investments and refers to the Board those matters which are outside its scope. The company has in place and investment policy manual. During the year 2010 the committee held three meetings on January 16, April 11 and November 24. The details of the composition of the committee and the members attendance are given below: Name of the Director Meetings attended Dr. Salem Nasser Said Al Ismaily* 2 Mr. Ali Mohamed Ali Al-Mahruqi (member) 2 Mr. Ahmed Ali Mohamed Al Araimi (member) 2 Mr. Mohammed Ali Al Fannah Al Araimi (member)** 3 Mr. Ishaq Zaid Khalifa Al Mawali 1 *Resigned 15 May 2010 ** Took over after resignation of chairman

11 12 REMUNERATION The Board of Directors is entitled to a sitting fee for attendance of the meetings and remuneration which are governed by the prevailing laws and the decision of the Board of Directors. All the board members are non-executive members and no fixed remuneration or incentive is payable to them. They are paid fees for attending the meetings of the Board and other committees which amounted to RO 27,300 during the year The Board has proposed a sum of RO 22,700 (Rials Omani twenty six thousand three hundred) towards directors remuneration for the year ended 31 December 2010, subject to the approval of the shareholders at the Annual General Meeting. The aggregate salaries and other benefits of the top four executives for the year 2010 stood at RO 135,900. All employees have employment contracts as per the Omani Labour Law which stipulates the notice period for each party in the case of termination or resignation. COMPLIANCE There have been no strictures, penalties or fines or any other restrictive orders imposed on the company by CMA, MSM or any other statutory body on any matter related to CMA since its inception. MEANS OF COMMUNICATION WITH THE SHAREHOLDERS The company maintains good communication relations with the shareholders through responding promptly to their enquiries and furnishing them with the required information. The company publishes its unaudited financial results in the newspapers on a quarterly basis and the audited financial statements annually. Detailed financial statements are sent to shareholders on request. The company publishes its quarterly and annual results in MSM website and has taken the necessary steps to have its own website. The company has not so far made any presentation to the investors or analysts. The Management Discussion & Analysis (MDA) for 2010 has been enclosed as part of the Annual Report for the year. MARKET PRICE DATA AND DISTRIBUTION OF SHAREHOLDING Monthly stock prices and comparison with relevant index The company s share price movement can be compared with the movement in the index of the banking and investment sector. The following table shows the monthly high and low and the closing prices of the company s shares. It also gives the comparative movement in the relevant index (banking and investment sector) of the Muscat Securities Market (MSM). Year 2011 High (RO) Low (RO) Closing price (RO) Relevant index (banking and investment Sector) January February March April May June July August September October November December

12 13 Distribution of Shareholding Set out below are the details of the shareholders of the company who own company s shares whether in their name or through a nominee account. No. of shares Number of shareholders Total number of shares Percentage of share capital Above 10% 5% to 9.9% 1% to 4.9% Below 1% ,326,014 4,786,910 22,949,537 26,937,539 31, , GRAND TOTAL ,000, % * % are owned directly or indirectly by Sheikh Salem bin Said bin Hamad Al Fanna Al Araimi and other nominee accounts % are owned by Al Siraj Investment Holding. Outstanding securities or instruments The company has not issued any instrument or security that will have an impact on the capital structure of the company. PROFESSIONAL PROFILE OF THE STATUTORY AUDITOR PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See pwc.com for more information. Established in the region for over 30 years, PwC s Middle East network has offices in 12 countries: Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Palestine, Qatar, Saudi Arabia and the United Arab Emirates, with around 2,500 people. Complementing our depth of industry expertise and breadth of skills is our sound knowledge of local business environments across the Middle East. PricewaterhouseCoopers LLP is one of the leading accredited accounting firms in Oman with 4 partners and over 150 employees. They have a reputation for providing quality professional services to a well-diversified client portfolio, both in the public and private sectors. The total fee paid or due to PricewaterhouseCoopers for audit services in 2010 is RO 7,000. ACKNOWLEDGMENT The board of directors confirm their liability for the preparation of the financial statement in accordance with the applicable standards and rules. During the year, the board of directors have reviewed the efficacy and adequacy of the internal controls and there is no material things that affect the company s continuity and its ability to continue its business during the upcoming financial year. Khalid bin Hamad bin Seif Al Busaidi Chairman, Board of Directors 27 February 2011

13 14 PricewaterhouseCoopers LLP P.O. Box 3075, Ruwi 112 Suites Hatat House Wadi Adai, Muscat Sultanate of Oman Telephone +(968) Facsimile +(968) 2456 REPORT OF FACTUAL FINDINGS TO THE SHAREHOLDERS OF A SHARQIYA INVESTMENT HOLDING CO. SAOG We have performed the procedures prescribed in Capital Market Authority (CMA) circular no. 16/2003, dated 29 December 2003 with respect to the Board of Directors corporate governance report of A Sharqiya Investment Holding Co. SAOG (the company) as at and for the year ended 31 December 2010 and application of the corporate governance practices in accordance with CMA Code of Corporate Governance issued under circular no. 11/2002 dated 3 June 2002 and its amendments and as supplemented by the Rules and Guidelines on Disclosure by Issuer of Securities and Insider Trading approved by Administrative Decision No. 5/2007 dated 27 June 2007 and the Executive Regulation of the Capital Market Law issued under the Decision no. 1/2009 dated 18 March 2009 (collectively the Code and additional regulations and disclosures). Our engagement was undertaken in accordance with the International Standard on Related Services applicable to agreed-upon procedures engagements. The procedures, as stated in circular no. 16/2003, were performed solely to assist you in evaluating the company s compliance with the code as issued by the CMA. We report our findings on the procedures performed in the following paragraph. We found the Board of Directors corporate governance report reflects the company s application of the provisions of the code and additional regulations and disclosures and is free from any material misrepresentation. Because the above procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on Review Engagements, we do not express any assurance on the accompanying corporate governance report. Had we performed additional procedures or had we performed an audit in accordance with International Standards on Auditing or International Standards on Review Engagements, other matters might have come to our attention that would have been reported to you. Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is not to be used for any other purpose. This report relates only to the Board of Directors corporate governance report included in its annual report for the year ended 31 December 2010 and does not extend to any financial statements of A Sharqiya Investment Holding Co. SAOG taken as a whole. PricewaterhouseCoopers LLP 9 March 2011 Muscat, Sultanate of Oman

14 15 MANAGEMENT DISCUSSION AND ANALYSIS REPORT FOR 2010 INTRODUCTION I am pleased to present the management report for the year A Sharqiya Investment Holding Co is engaged in investment activities across a wide range of local and international securities, projects and subsidiary investments. Our objective is to provide risk adjusted returns to shareholders and contribute to the development of local communities while conducting our business in a professional way. We strive to achieve our objectives by trading in securities on MSM and other international securities exchanges, investing in different funds, developing subsidiaries around projects, and making long term strategic investments in select Omani firms. OPERATIONAL AND FINANCIAL PERFORMANCE Operating Results A detailed analysis of the company s operating results for the year 2010 is presented in the following paragraphs. Income The operating income for 2010 was RO 1,292,180 and registered a decrease of 12.05% compared to RO 1,469,338 in The largest contributor to income was the lease rental income of RO 669,194 compared to RO 819,765 for the previous year, from Oman LNG under the finance lease transaction for the Qalhat Housing Complex; the same registered a decline of 18.37%. Our investment suffered erosion in value which necessitated impairment provisioning and consequent loss of income. The following table provides a break-up of the income for the year: (In RO) For the year Lease rent from QHC 669, ,765 Interest income 22, Trading investment income 95, ,253 Available for sale investment income 358, ,989 Other income 146, ,817 Total income 1,292,180 1,469,338 The lease income for the year was lower than in the previous year in line with the schedule, as the project cost amortization increases and the income component comes down with every progressing year. Other income includes income received through the maintenance contract for Qalhat Housing, including certain unscheduled services and exchange rate gains. Trading and Available for sale incomes also include the dividends received in each category. Expenses The significant components of the expenses for the company are the interest costs, staff cost, general and administrative expenses, and impairment on available for sale. The total interest costs RO 38,821 accounted for 6% of total operating expenses. The interest expense does not include interest on loans availed from various banks for overseas investments as there were no loans in our books in 2010; therefore, this interest expense has decreased by 48%. Staff costs increased to RO 324,290 from RO 271,696 an increase of 19%. Total operating expenses have been reduced by 23% in spite of impairment provisioning of RO 61,249. The company has taken careful steps to reduce operating costs wherever possible. Profitability The profit before tax for the year was RO 659,202 against the previous year figure of RO 646,236. This is an increase of 2% from the previous year s figure despite uncertain market conditions. It is to be noted that the profit before tax was RO 720,451 but due to a decline in value of investments, the Company has to provide for an impairment cost of RO 61,249 on the available for sale investments. This has impacted the declared profits and thus the net profit after tax amounted to RO 614,493. This corresponds to an increase of 13.30% compared to The earnings per share have increased to Bz on a share capital base of RO 8 million as against Bz in 2009, an increase of 13.30%.

15 16 Financial position Assets The aggregate asset base of the group increased from RO million to RO million during the year, an increase of 11% primarily because of increase in Financial Assets at fair value from RO 921,705 to RO 2,179,692 in Cash and bank balances amounted to RO 916,817 at the end of the year from RO 725,133 for the previous year. Capital and Liabilities The shareholders funds as on December 31, 2010 stood at RO 14,322,015 up from RO 13,042,727 at the end of the previous year, an increase of 9.8%. This increase has resulted mainly from increases in fair value reserve, and retained earnings. The Book Value per Share works out to RO as against RO 0.163, at the end of the previous year, an increase of 9.8%. The company s liabilities are limited to short term overdraft and payables, and no long term debt exists on the books as on December 31, This is in line with the policy of the Company to deleverage in the aftermath of the financial down turn in 2008 and thus reduce the risk of the investment portfolio. The overdraft at the end of 2010 was RO 1,057,747. The general policy for 2010 was to keep leverage and overdrafts to the minimum so as to minimize risk and interest costs. Financial highlights Key financial indicators for the year 2010, along with the comparative figures for the previous year are presented in the following table: For the year Increase in Net worth 9.8% 6.80% Debt to equity ratio 0.074x 0.089x Earnings per share (EPS), RO Book value per share,(bv) RO Dividend * 560,000 - * There is a proposed dividend of 7% amounts to RO 560,000 for the year The 2010 Financial year has been one of consolidation. Co s net worth increased by 9.8% in 2010 compared to 6.80% in This is a significant improvement in overall performance. Earnings per Share and Book Value improved as well. The company has managed its portfolio proactively with a focus on risk minimization, and preservation of capital while seeking returns. With no long term debt in the books, the company now has a very strong balance sheet and this will enable us to take advantage of low interest rates in the international markets and borrow if necessary to invest in potential value opportunities that may come up in the coming days across any asset class. The company s profits/ losses, dividends, and net equity for the last six years are as follows (All figures in RO): Year Profit(Loss) 614, ,370 73,938 2,408, ,499 1,647,339 Dividends a) Cash * 560, ,200, ,000 1,050,000 b) Bonus Shares ,000,000 - Net Equity 14,322,015 13,042,727 12,212,645 14,061,762 10,979,649 10,839,153 * There is a proposed dividend of 7% amounts to RO 560,000 for the year In conclusion, the Company has performed well on a relative basis and is positioned to take advantage of emerging opportunities in the new financial environment as the next economic cycle picks up. Risk Management

16 17 The two main businesses of the group, viz. Qalhat Housing and Investments, are exposed to different kinds of risks. In the case of Qalhat Housing, the risks associated with the operational phase of the project have been adequately addressed by means of a proper agreement with Oman LNG, which has been working satisfactorily. Consequent to the complete repayment of the refinancing transaction, the Qalhat Housing business is no longer exposed to interest rate risk. The investment business of the company faces risks associated with financial markets such as market risk, currency risk and interest rate risk. To address these issues, we follow a proactive investment management policy overseen by well qualified and experienced personnel. The Company tracks markets & related news/events closely and tries to anticipate market scenarios and their effects on the Company s portfolio to help take investment decisions with oversight by the Investment Committee of the Board. The decision making is based on a rigorous and disciplined analytical process and careful attention to risk/ reward payoffs. Investment decisions are made in accordance with a well-defined investment policy formulated after taking into account the specific risks inherent in different investment products and categories. The investment policy consequently mandates a proper diversification in terms of asset class, geographical region, investment strategy and tenure of investments. The investment decisions are made under the supervision of the Investment Committee. Since most of the overseas investments are denominated in Omani Rials, and US Dollars, the currency risk is minimized in view of the Rials Omani being linked to the US Dollar. Investments denominated in other currencies are closely monitored for currency movements. In a similar manner, impact of interest rate movements on various investments is assessed in an ongoing manner and actions taken wherever required Outlook, Opportunities, and Threats The outlook for the 2011 financial year will be one of caution. While there are clear indications of a global economic recovery based on government stimulus programs, there are also concerns that government deficits, high Eurozone debt, and structural imbalances in developed countries may throw up unexpected shocks to the global financial system. Emerging Markets have lost some of their sheen with high inflation in countries such as India and asset bubbles in China threatening to act as dampeners. With political unrest in Egypt and elsewhere in the Middle East coming to focus, there are concerns of oil prices going up significantly which could affect recovery of many countries. Against this backdrop, we anticipate the following opportunities and threats to the company s business in Opportunities The world economy is forecast to grow at 3.5-4% in Inflation is not an immediate concern in developed markets keeping G3 central banks to hold interest rates low at least until US is definitely moving away from a recession and deflation scenario to reduction in unemployment and growth. Emerging Markets will continue to grow and this in turn should translate into higher asset prices in these markets. North Asian economies of Taiwan, Hong Kong and South Korea are likely to outperform in early 2011 while India is likely to deliver good returns in the second half. The Omani economy is expected to grow at 6% with a credit growth of 12% in This has led to increased outlays for projects both by public and private sectors. With a conservative, $50/bbl oil price budgeted by the Govt of Oman, the local economy is on a sound footing and should help companies to produce good results in We expect this to reflect in MSM prices and our investments both in held for trading and long term strategic portfolio should benefit from this outlook. We also expect similar opportunities from US markets both in equities and high grade corporate credit. We are well positioned to take advantage of these opportunitiesboth in terms of global portfolio investments and local projects. Threats The Company s performance is dependent on the performance of the global financial markets and their underlying returns. The volatile state of these markets makes the company subject to threats that affect them. The structural economic imbalances in the developed world, soaring government deficits in US and many Euro zone countries, inflation and governance issues in the developing world, political upheavals such as the one being witnessed in Egypt, and sovereign debt concerns in Greece, Ireland, Italy, Portugal, and Spain continue to pose risks to global equities, bonds, and other asset classes as investors may revert back to extreme risk averse behavior. Within the GCC region, spillover effects from Tunisia and Egypt may create extreme uncertainties and slow down economic activity. A further tightening of fiscal and interest rate regimes by governments to fight inflation and asset bubbles is also a clear possibility. All these will have a bearing on company s ability to achieve its goals for We constantly monitor adverse movements in the above key variables and, take necessary actions to minimize losses and preserve capital in such scenarios.

17 18 OTHER MATTERS Corporate governance The Company has taken all necessary steps to comply with the corporate governance norms in line with the guidelines of the Capital Market Authority. The Corporate Governance Report for the year 2010 has been audited by the company s statutory auditor and forms part of the annual report. Internal controls The company has designed and implemented its internal control systems and mechanisms based on the specific business requirements and these have been working satisfactorily. These include manuals for different operating functions outlining the policies and procedures. Adherence to these is monitored on a regular basis. Personnel and Omanisation The company is staffed by personnel who are well qualified, skilled and trained. The Omanisation level presently is 64%, as compared to 62.5% in the previous year. The company is constantly striving to improve on this level. Constant efforts are undertaken to improve the skill base of the personnel through internal and external training. Abdulla Suleiman Al-Harthy Chief Executive Officer February 27, 2011

18 19 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2010 USD USD Note RO RO ASSETS Non-current assets 17,686 17,081 Property and equipment 5 6,576 6,809 10,830,210 10,750,418 Lease receivables 6 4,138,911 4,169,631 4,301 - Deferred tax asset 7-1,656 21,492,992 21,751,499 Available-for-sale financial assets 8 8,374,327 8,274,802 32,345,189 32,518,998 Total 12,519,814 12,452,898 Current assets 38,164 79,792 Lease receivables 6 30,720 14,693 1,010,270 1,172,283 Prepayments and other receivables 451, ,954 2,394,039 5,661,538 Financial assets at fair value through profit or loss 9 2,179, ,705 1,883,462 2,381,343 Cash and bank balances , ,133 5,325,935 9,294,956 Total 3,578,558 2,050,485 37,671,124 41,813,954 Total assets 16,098,372 14,503,383 EQUITY Capital and reserves 20,779,221 20,779,221 Share capital 11 8,000,000 8,000,000 2,961,013 3,120,621 Legal reserve 12 1,201,439 1,139,990 4,569,364 6,296,104 Fair value reserve 13 2,424,000 1,759,205 5,567,616 7,004,093 Retained earnings 2,696,576 2,143,532 33,877,214 37,200,039 Total 14,322,015 13,042,727 LIABILITIES Non-current liabilities - 62,904 Deferred tax liabilities 7 24, , ,948 End of service benefits 14 58,115 46, , ,852 82,333 46,854 Current liabilities 2,995,501 2,747,395 Borrowings 15 1,057,747 1,153, ,887 1,540,439 Accruals and other payables , , , ,229 Taxation 19 43,208 94,642 3,672,211 4,400,063 Total 1,694,024 1,413,802 3,793,910 4,613,915 Total liabilities 1,776,357 1,460,656 37,671,124 41,813,954 Total equity and liabilities 16,098,372 14,503, Net assets per share

19 20 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2010 USD USD Note RO RO INCOME 128, ,787 Net gain on sale of available-for-sale financial assets ,393 49,625 2,129,260 1,738,166 Lease income 669, ,765 Net gain/(loss) on financial assets at fair value through profit or loss 478,727 97,151 - realised 37, ,310 80,597 (4,501) - unrealised 9 (1,733) 31,030 1,335 57,813 Interest income 22, , ,691 Dividend income 250, , , ,205 Other income 146, ,817 3,816,462 3,356,312 Operating income 1,292,180 1,469,338 EXPENSES (193,566) (100,834) Interest expense (38,821) (74,523) (705,704) (842,312) Staff cost 17 (324,290) (271,696) (19,714) (14,270) Depreciation 5 (5,494) (7,590) (466,896) (468,634) General and administrative expenses 18 (180,424) (179,755) (68,312) (58,961) Directors remuneration 23 (22,700) (26,300) (683,735) (159,088) Impairment on available-for-sale financial assets 13 (61,249) (263,238) (2,137,927) (1,644,099) Operating expenses (632,978) (823,102) 1,678,535 1,712,213 Profit before taxation 659, ,236 (269,782) (116,127) Taxation 19 (44,709) (103,866) 1,408,753 1,596,086 Profit for the year 614, , ,303 1,726,740 2,156,056 3,322,826 Other comprehensive income: Net change in fair value of availablefor-sale financial assets 13 Total comprehensive income for the year 664, ,712 1,279, , Earnings per share

20 21 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER Note USD USD Operating activities: RO RO 1,678,535 1,712,213 Profit before taxation 659, ,236 Adjustments for: 19,714 14,270 Depreciation 5 5,494 7,590 (80,597) 4,501 Net unrealised/(loss)/ gain on financial assets at fair value through profit or loss 9 1,733 (31,030) 683, ,088 Impairment on available-for-sale financial assets 13 61, ,238 26,158 29,512 End of service benefits 14 11,362 10,071 (2,327) - Profit on disposal of property and equipment - (896) 193, ,834 Interest expense 38,821 74,523 2,518,784 2,020, , ,732 Changes in working capital: (467,348) (162,013) Prepayments and other receivables (62,375) (179,929) (83,104) 1,109,551 Accruals and other payables 427,177 (31,995) 2,445,421 38,164 Lease receivables 14, ,487 (616,390) (3,272,000) Financial assets at fair value through profit or loss (1,259,720) (237,310) 1,373,330 1,372,049 Available-for-sale financial assets 528, ,732 5,170,693 1,106,169 Cash generated from operations 425,875 1,990,717 (334,488) (245,421) Income tax paid (94,487) (128,778) (5,491) (262) End of service benefits paid 14 (101) (2,114) (193,566) (100,834) Interest paid (38,821) (74,523) 4,637, ,652 Net cash from operating activities 292,466 1,785,302 Investment activities: 2,514 - Proceeds from disposal of property and equipment (11,865) (13,665) Additions to fixed assets 5 (5,261) (4,568) (9,351) (13,665) Net cash used in investment activities (5,261) (3,600) Financing activities: (658,766) (248,106) Borrowings (95,521) (253,625) (658,766) (248,106) Net cash used in financing activities (95,521) (253,625) 3,969, ,881 Net change in cash and cash equivalents 191,684 1,528,077 (2,085,569) 1,883,462 Cash and cash equivalents at beginning of the year 725,133 (802,944) 1,883,462 2,381,343 Cash and cash equivalents at end of the year , ,133

21 22 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009 Note Share capital Legal Reserve Fair value reserve Retained earnings At 1 January ,000,000 1,085,753 1,471,493 1,655,399 12,212,645 Comprehensive income: Profit for the year , ,370 Other comprehensive income Net release to statement of comprehensive income on sale of available-for-sale - - )33,268( - )33,268( Change in fair value of available-for-sale financial assets ,742-57,742 Impairment of available-for-sale financial assets , ,238 Total other comprehensive income , ,712 Total comprehensive income , , ,082 Transfer to legal reserve 12-54,237 - )54,237( - At 31 December ,000,000 1,139,990 1,759,205 2,143,532 13,042, December USD 20,779,221 2,961,013 4,569,364 5,567,616 33,877,214 At 1 January 2010 Comprehensive income 8,000,000 1,139,990 1,759,205 2,143,532 13,042,727 Profit for the year , ,493 Other comprehensive income: Net release to statement of comprehensive income on sale of available-for-sale - - )293,319( - )293,319( Change in fair value of available-for-sale financial assets , ,892 Impairment of available-for-sale financial assets ,249-61,249 Net exchange difference - - )10,809( )10,809( Deferred tax liabilities - - )24,218( - )24,218( Total other comprehensive income , ,795 Total comprehensive income , ,493 1,279,288 Transfer to legal reserve 12-61,449 - )61,449( - At 31 December ,000,000 1,201,439 2,424,000 2,696,576 14,322, December USD 20,779,221 3,120,621 6,296,104 7,004,093 37,200,039 Total

22 23 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER Legal status and principal activities A Sharqiya Investment Holding Co. SAOG (the Parent Company) is incorporated in the Sultanate of Oman as a public joint stock company and is principally engaged in investment related activities. The shares of the Parent Company are listed on the Muscat Securities Market. The Company has an investment in a wholly owned subsidiary Qalhat Real Estate Investments & Services LLC (the Subsidiary), a limited liability company incorporated in the Sultanate of Oman. The principal activities of the Subsidiary are real estate investment and development and the leasing and maintenance of real estate properties. The Parent company and its subsidiary are together referred to as the group. 2 Summary of significant accounting policies These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the requirements of the Commercial Companies Law of 1974, as amended and the disclosure requirements of the Capital Market Authority of the Sultanate of Oman. 2.1 Basis of preparation The consolidated financial statements are prepared on the historical cost basis, as modified by the revaluation of available-forsale financial assets and financial assets at fair value through profit or loss. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group s accounting policies. The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The areas where accounting assumptions and estimates are significant to the financial statements are disclosed in 4. (a) Standards and amendments effective in 2010 and relevant for the group s operations: The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January IFRS 3 (revised), Business combinations, and consequential amendments to IAS 27, Consolidated and separate financial statements, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. IAS 27 (revised) has had no impact on the current period, as there have been no transactions with non-controlling interests. (b) New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2010 but not currently relevant to the group: Other than (a) above, all other new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB effective for periods beginning on 1 January 2010 are not relevant to the group operations.

23 24 (c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the group: The following standards, amendments and interpretations to existing standards have been published and are mandatory for the group s accounting periods beginning on or after 1 January 2011 or later periods, but the group has not early adopted: IFRS 1 (Amendment), Presentation of financial statements, (effective from 1 January 2011); IFRS 7 (Amendment), Financial instruments: Disclosures, (effective from 1 January 2011); IFRS 9, Financial instruments part 1: Classification and measurement, (effective on or after 1 January 2013); IAS 24 (Revised), Related party disclosures, (effective from 1 January 2011); IFRIC 14 (Amendment), Prepayments of a minimum funding requirement, (effective from 1 January 2011); and IFRIC 19, Extinguishing financial liabilities with equity instruments, (effective from 1 July 2011). 2.2Basis of consolidation The consolidated financial statements comprise those of the Parent Company and its Subsidiary (together the group ). (a) Changes in accounting policy The group has changed its accounting policy for transactions with non-controlling interests and the accounting for loss of control or significant influence from 1 January 2010 when revised IAS 27, Consolidated and separate financial statements, became effective. Previously transactions with non-controlling interests were treated as transactions with parties external to the group. Disposals therefore resulted in gains or losses in profit or loss and purchases resulted in the recognition of goodwill. On disposal or partial disposal, a proportionate interest in reserves attributable to the subsidiary was reclassified to profit or loss or directly to retained earnings. Previously, when the group ceased to have control or significant influence over an entity, the carrying amount of the investment at the date control or significant influence became its cost for the purposes of subsequently accounting for the retained interests as associates, jointly controlled entity or financial assets. The group has applied the new policy prospectively to transactions occurring on or after 1 January As a consequence, no adjustments were necessary to any of the amounts previously recognised in the financial statements. (b) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the acquiree s net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisitiondate fair value of any previous equity interest in the acquiree over the fair value of the group s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.