A N N U A L R E P O R T

Transcription

1 A N N U A L R E P O R T

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3 In the Name of Allah, The Most Gracious, The Most Merciful "And Say, Work and God and His Messenger and Believers will see your work." The Holy Qu'ran, Altawba (105)

4 His Highness Sheikh Sabah AlAhmad AlJaber AlSabah Amir of the State of Kuwait

5 His Highness Sheikh Nawaf AlAhmad AlJaber AlSabah Crown Prince of the State of Kuwait His Highness Sheikh Nasser AlMohammad AlAhmad AlSabah Prime MInister of the State of Kuwait

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7 T A B L E O F C O N T E N T S Board of Directors Chairman's Statement Shari'ah Supervisory Board Financial Statements

8 B O A R D O F D I R E C T O R S Mustafa E. AlSaleh Chairman & Managing Director Abdullah Yousef AlSeif Vice Chairman Amr Abou El Seoud Board Member 6

9 C H A I R M A N ' S S T A T E M E N T Dear Shareholders, The Board of Directors is pleased to present you with the Annual Report of Credit Rating & Collection Company, for the year ended 31st December First, the process for the capital increase of the Company, from KWD. 3,000,000/ to KWD. 15,000,000/ was successfully completed during the year 2006 through: a. 40% bonus shares issuance amounting to KWD. 1,200,000/. b. cash payments to shareholders totalling KWD. 10,800,000/. The process of cash payment to shareholders resulted in savings of KWD. 5,400,000/ being the value of shares issued at premium. During 2006, with regard to the operational and nonoperational revenues, the Board of Directors continued to reactivate the Company s objectives, in addition, to the introduction of new sources of revenue generation either through revenues related to debts collected from third parties or debts purchased or investments so as to increase the total revenues of the company and realize an increased level of profitability in line with the Islamic Shariah principles. Consequently, we observed that the Company's total assets increased to KWD. 23,909,000/ in 2006 compared to KWD. 6,670,000/ in The net equity position reached KWD. 23,580,000/ in 2006 compared to KWD. 6,059,000/ in 2005, thereby, representing an increase of KWD. 17,521,000/. As for the operational revenues, we noted an increase in the operational revenue from collections related to third parties, amounting to KWD. 1,251,508/ in 2005 compared to KWD. 1,587,604/ in 2006, representing an increase of 26.86%. We can also observe the increase in revenues from Murabaha and Wakala activities carried out by the company amounting to KWD. 635,920/ in 2006 compared to KWD. 11,715/ in Furthermore, there was a remarkable and a significant increase in the revenues classified under Provision no longer required. The provision no longer required in 2005 was nil compared to KWD. 175,000/ in Other revenues did not exceed KWD. 944/ in 2005 compared to KWD. 30,690/ in This gives an indication that the operational revenues are associated with the business volume levels conducted by the company and reflects the performance and the efficiency levels which have remarkably increased. It is to be noted that upon an analysis of the total revenues, there has been a reduction amounting to KWD. 2,440,000/ in 2006 compared to KWD. 3,717,000/ in 2005, on account of the following reasons: 1. Reduction in the operational revenues by 22.5%, with regard to debts purchased in which the income was KWD. 69,044/ in 2005 compared to KWD. 53,506/ in 2006 representing a decline in most of the old debts purchased that have been collected during the previous two years. 2. Reduction of nonoperational revenues, related to part of the investments that reflect the volatilities of the stock exchange. In 2005, the company achieved record gains amounting to KWD. 2,374,190/, contrary to 2006, in which the decline in the market led to a loss amounting to KWD. 42,477/. This shows the variance between the years 2005 and 2006 with regard to the nonoperational revenues that were reflected in the total revenues. 7

10 In terms of operational expenditure, we observe that these expenses have been reduced in most of the major items by more than 50%, though the financial statements show an increase in the total expenditure, particularly in wages, salaries and other administrative expenses by nearly 73.04%. In 2005, these expenses amounted to KWD. 494,868/ compared to KWD. 856,352/ in This is attributed to the restructuring of the company s operations and the salary increase of senior and medium level management personnel after their move to the company by the end of 2005, during which the total number of personnel in the Company increased from 35 representing an increase in the senior and administrative level jobs where salaries are relatively high in order to match the increased volume of business and upgrade the performance levels in quality and quantity. It can also be observed that investment provisions for the purchase of debts decreased to KWD. 9,986/ in 2006 compared to KWD. 500,000/ in In addition, there was a decrease in the depreciation and amortization expenses in 2006 by more than 50%, amounting to KWD. 30,733/ compared to KWD. 66,437/ in Furthermore, there was a decrease to the extent of 30%, with regard to remuneration for the Board of Directors amounting to KWD. 21,000/ in 2006 compared to KWD. 30,000/ in The contribution to Kuwait Foundation for the Advancement of Sciences reduced from KWD. 23,424/ in 2005 to KWD. 13,888/ in Similarly, the National Labor Support Tax also reduced to KWD. 32,250/ in 2006 from KWD. 57,974/ in Consequently, we observed that total expenditure has been reduced to KWD. 964,209/ in 2006 compared to KWD. 1,225,447/ in 2005 despite the company's expansion and increase in manpower. This reflects the Board s commitment to shareholders to minimize the company's operational and non operational expenses. The foregoing detailed explanation outlines the reasons which contributed to the company's net profits in 2006 amounting to KWD. 1,476,034/ compared to KWD. 2,491,266/ in Accordingly, this result was reflected in the Earnings Per Share ratio which was fils in 2005 compared to fils in This shall not be considered as an indication of the company's poor performance or low levels of productivity of its personnel. It reflects an analysis of the changes that took place within the company and a rise in the performance and productivity levels in As evidence, reference can be made to the above mentioned details as well as to the rise in operational profits. Regarding the domestic achievements of the company, seven branches have opened up in all the governorates of Kuwait during On the regional level, crc has signed a memorandum of association with AlQudra Company for Credit Rating & Collections in the UAE, in partnership with AlQudra Holding Company in which AlQudra Holding Company has a share capital of AED 60 million. Also, a memorandum of understanding was concluded with Al Bayan Holding Group to establish AlBayan Credit Rating & Collection Company in the Kingdom of Saudi Arabia with a capital of SAR 100 million. The Company has also started consultations with several parties to establish similar companies in the Kingdom of Bahrain, Arab Republic of Egypt, in line with the implementation of the Board of Directors commitment to this effect. On this occasion, the Board of Directors would like to emphasize that Credit Rating & Collection company was established in Kuwait as a financial services provider to various sectors of the local economy. Diversification and maintaining a balance among the various revenue generating divisions of the company shall be the basis for the company's success in the long term in pursuit of the Company s commitment to move forward towards the next stage of profit generation and profit growth. Eventually, the Board Of Directors would like to extend their sincere thanks and appreciation to all shareholders for their continued support and assistance, to all staff members for their efforts exerted towards the interests of the company in order to push forward the march towards progress. Wishing everyone success and prosperity in all endeavours. Mustafa E. AlSaleh Chairman & Managing Director 8

11 SHARI'AH SUPERVISORY BOARD Sheikh Yousef Hassan AlSharrah Chairman Sheikh Esam Khalaf AlAnzi Board Member Sheikh Ali Ibrahim AlRashed Board Member 9

12 S H A R I ' A H S U P E R V I S O R Y B O A R D R E P O R T We have reviewed the Credit Rating & Collection Company's activities as well as its contracts and investment transactions and studied the Shari'ah controller's report during the year ended 31 December We hereby certify that all Credit Rating & Collection Company's activities and transactions were practiced in compliance with the Islamic Shari'ah principles and provisions, and no violations have occured, to the best of our knowledge. Sheikh Yousef Hassan AlSharrah Chairman Sheikh Esam Khalaf AlAnzi Board Member Sheikh Ali Ibrahim AlRashed Board Member 10

13 Net Profit 1.48 Million KWD. 11

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15 F I N A N C I A L S T A T E M E N T S Auditors' Report to the Shareholders Balance Sheet Statement of Income Statement of Cash Flows Statement of Changes in Shareholders' Equity Notes to the Financial Statements

16 BDO Burgan International Accountants Ali Al Hassawi & Co. Member of BDO International P.O. Box Safat Kuwait Sharq Dasman Complex Block 2 9 Floor Tel: / Fax: (965) info@bdokuwait.com Al Waha Auditing Office Ali Owaid Rukheyees Member of the International Group of Accounting Firms P.O. Box Safat, State of Kuwait Tel: (965) / 7, Fax: (965) A U D I T O R S ' R E P O R T T O T H E S H A R E H O L D E R S The Shareholders Credit Rating and Collection Company K.S.C. (Closed) Kuwait Report on the Financial Statements We have audited the accompanying financial statements of Credit Rating and Collection Company K.S.C. (Closed) which comprise the balance sheet as at December 31, 2006, and the related statements of income, cash flows and changes in shareholders equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. The financial statements for the pervious year were audited by Al Waha Auditing Office and other auditor whose report were unqualified dated on February 12, Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted in the State of Kuwait. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these 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 from 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 auditors judgment, 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 financial statements present fairly, in all material respects, the financial position of Credit Rating and Collection Company K.S.C. (Closed) as at December 31, 2006 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted in the State of Kuwait. Other legal and regulatory requirements Furthermore, in our opinion proper books of account have been kept by the company and the financial statements together with the contents of the report of the board of directors relating to these financial statements, are in accordance therewith. We further report that we obtained all the information and explanation that we required for the purpose of our audit and that the financial statements incorporate all information that is required by the Commercial Companies Law as amended, and by the company s articles of association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law nor of the company s articles of association have occurred during the year ended December 31,2006 that might have had a material effect on the business of the company or on its financial position. Ali Awaid Rukhaeyes Licence No. 73 (A) BDO Burgan International Accountants January 23, 2007 State of Kuwait Ali A. Al Hasawi Ali Awaid Rukhaeyes Licence No. 30 (A) BDO Burgan International Accountants Member of Certified public Accountants Society of (Montana) Member of The International Group of Accounting Firms(igaf) 14

17 Exhibit A Balance Sheet As of December 31, 2006 (All amounts are in Kuwaiti Dinars) Note Adjusted Assets Current assets Cash and cash equivalent Investments at fair value income statement Murbahat and Wakala investments Accounts receivable and other debit balances ,067 18,846,132 3,418, ,475 23,102, ,644 5,404,875 43,529 6,099,048 Noncurrent assets Investments available for sale Investment in purchased debts Property and equipment Intangible assets Due from related party Total assets , ,697 53,985 5, , ,532 23,909, , ,505 65,451 7, ,406 6,670,454 Liabilities and shareholders equity Current liabilities Due to banks Accounts payable and other credit balances Due to related party Noncurrent liabilities End of service indemnity , , ,608 69, , , ,733 39,970 Shareholders equity Share capital Share premium Statutory reserve Voluntary reserve Retained earrings Total liabilities and shareholders equity ,000,000 5,400, , ,747 2,391,091 23,579,685 23,909,184 3,000, , ,530 2,423,691 6,058,751 6,670,454 The accompanying notes form an integral part of the financial statements. Mustafa Ibrahim AlSaleh Chairman & Managing Director Abdullah Yousef AlSeif Vice Chairman 15

18 Exhibit B Statement of Income For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars) Note Adjusted Revenues Collection commission Income from purchased debts collected Income from loans rating (Loss) / gain from investment income Murbahat and Wakala income Provision no longer required Other revenue Total revenues 16 1,587,604 53,506 (42,477) ,000 30,690 2,440,243 1,251,508 69,044 9,312 2,374,190 11, ,716,713 Expenses and other charges General and administrative expenses Provision for investment in purchased debts Provision for bad debits Depreciation and amortization Board of directors remuneration Contribution to Kuwait Foundation for the advancement of Sciences National Labor Support Tax Total expenses and other charges Net profit for the year Earnings per share (fils) ,352 9,986 30,733 21,000 13,888 32, ,209 1,476, , ,000 52,744 66,437 30,000 23,424 57,974 1,225,447 2,491, The accompanying notes form an integral part of the financial statements. 16

19 Exhibit C Statement of Cash Flows For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars) Adjusted Cash flows from operating activities Net profit for the year Adjustments Depreciation and amortization Loss from sale of property and equipment Change in fair value of investments at fair value income statement Gain on sale of investments at fair value income statement Provision for investment in purchased debts profit from purchased debts collected Provision no longer required Provision for doubtful depts. Cash dividend Murbahat and Wakala income Provision for end of service indemnity Operating profit before changes in operating assets and liabilities Accounts receivable and other debit balances Accounts payable and other credit balances Related parties Cash (used in) / generated from activities End of service indemnity paid Net cash (used in) / generated from operating activities Cash flows from investing activities Purchased of investments at fair value income statement Proceeds from sale of investments at fair value income statement Purchase of property and equipment Proceeds form sale of property and equipment Purchase of intangible assets Purchase of Murbahat and Wakala investment Purchase of Investments available for sale Proceeds from investment in purchased debts Cash dividend received Murbahat and Wakala income received Net cash used in investing activities Cash flows from financing activities Due to banks Share capital Share premium Net cash generated from financing activities Changes in foreign currencies Net increase in cash and cash equivalent Cash and cash equivalent at beginning of the year Cash and cash equivalent at end of the year 1,476,034 30, ,859 (6,586) 9,986 (53,506) (175,000) (90,862) (635,920) 29, ,659 (114,946) (83,271) (691,642) (124,200) (124,200) (15,171,747) 1,556,217 (17,767) (3,418,978) 258,328 90, ,920 (16,067,165) 16,928 10,800,000 5,400,000 16,216,928 2,860 28, , ,067 2,491,266 66, (2,091,495) (214,120) 500,000 (69,044) 52,744 (68,575) (11,715) 28, , , , ,782 1,714,020 (3,847) 1,710,173 (3,286,390) 2,337,091 (54,805) 303 (7,500) (291,450) 87,165 68,575 11,715 (1,135,296) 574,877 75, ,644 The accompanying notes form an integral part of the financial statements. 17

20 Exhibit D Statement of Changes in Shareholders' Equity For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars) NOTE Share capital Balance at January 1, 2005 Net profit for the year Transferred to reserves Balance at December 31, 2005 (restated) (as previously stated) Adjustments for previous years Balance at January 1, 2006 (restated) Cash share capital increase Issue of bonus shares Net profit for the year Transferred to reserve Transfer from voluntary reserve to Zakat Balance at December 31, ,000,000 3,000,000 3,000,000 3,000,000 10,800,000 1,200,000 15,000,000 The accompanying notes form an integral part of the financial statements. Share premium 5,400,000 5,400,000 Statutory reserve 57, , , , , , ,847 Voluntary reserve 57, , , , , ,317 )155,100( 316,747 Retained earnings 452,957 2,491,266 )520,532( 2,423,691 2,453,691 )30,000( 2,423,691 )1,200,000( 1,476,034 )308,634( 2,391,091 Total 3,567,485 2,491,266 6,058,751 6,088,751 )30,000( 6,058,751 16,200,000 1,476,034 )155,100( 23,579,685 18

21 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 1 Company Formation & Activities The Credit Rating and Collection Company K.S.C. (Closed) was incorporated on December 5, 1998 and is listed in the Kuwait Stock Exchange and its principal activities are as follows: Collecting and purchasing of trade debts on behalf of its client and for their account. Developing, utilizing and providing collection and debt purchase methods for its customers and others. Gathering, providing, and updating the financial information and credit rating for others. Utilizing the monetary surplus of the company by investing it in portfolios managed by specialized parties. Applying the authorized international standards in assessing and rating all securities, shares, bonds and other instruments of debt and investment companies, financially independent entities which are dealing with the financial market and its instruments. Providing independent professional opinions about competence of the institutions and abilities to fulfill their financial obligations and follow up the rules of transparency an increase the declaration of the procedures and instructions which organize the administration, accountancy, auditing affairs applied with the market and its management. Providing economic specialized professional information necessary for knowing the performance of markets and institiusions it deals with and sustaining to promote the financial market in Kuwait and others, for facilitating the utility of capital materials therein. Developing, utilizing and providing evaluation methods, securitization and recovery of client assets and others. The Company s activities are conducted according to Islamic shari a. The company has the right to participate and subscribe in any way, in other firms or institutions which operate in the same field or those which would assist in achieving its objectives in Kuwait or abroad and to purchase these firms, institutions or participate in their equity. The Company s registered address is P.O. Box 1432 Safat Kuwait. The Company has employed 55 employees as of December 31, 2006 (2005: 50 employees) The Board of Directors approved these financial statements for the year ended December 31, 2006 for issue on January 23, The shareholders have the authority to amend these financial statements in the assembly meeting of shareholders. 19

22 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 2 Significant accounting policies 2 /1 Basis of Preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and Interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and state of Kuwait Commercial Companies law requirements. The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Although these estimates are based on management best knowledge taking into consideration that the actual results may differ from those estimates. 2 /2 Accounting convention These financial statements are prepared under the historical cost convention, adjusted through the revaluation of some assets according to fair value as explained in detail in the accompanying policies and disclosures. The accounting policies have been consistently applied during the year, as a similar base for the policies applied in the previous year. The financial statements are presented in Kuwaiti Dinar. 2 /3 Cash and cash equivalents Cash and cash equivalents for the purpose of preparing the statement of cash flows comprise cash on hand and at banks and short term bank deposits with a maturity date not exceeding three months from the date of deposit. 2 /4 Investments Investments in securities have been classified as either investments at fair value through income statement or available for sale. Investments are initially recognized at cost, which represents the fair value of the consideration given. After initial recognition, investments are measured in accordance with fair value. For investments at fair value through income statement in organized financial markets, fair value is determined by reference to the last quoted bid price at the close of business on the balance sheet date. For investments where there is no quoted market price, a reasonable estimate of fair value is determined by reference to the current market value of another instrument which is substantially the same or based on the expected cash flows for the investment or the underlying net asset base of the investment. 20

23 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) The gains or losses arising from changes in fair value of investments at fair value through income statement are included in the statement of income for the period at which they arise. 2 /5 Investment in Purchased Debts These investments are recorded in the amounts paid in purchased debts from customers according to contractual provisions, and the difference between the amount paid to/and collected from customers are recognized directly in the income statement as collection commissions. 2 /6 Accounts Receivable Accounts receivable are stated at their nominal value, less an allowance for any doubtful debts. Management determines the adequacy of the allowance based upon reviews of individual customers, current economic conditions, past experience and other pertinent factors. 2 /7 Property & Equipment Property & equipment are stated at cost less accumulated depreciation. The recoverable value of property and equipment are reviewed at the balance sheet date. If the recoverable value for property and equipment decreased from the book value in which case the book value is written down to the recoverable value. If the useful lives are different from its estimated lives then the useful lives are adjusted from the beginning of the year in which the change occurred in without going into retroactive periods. Property & equipment are depreciated on straight line basis over their estimated useful lives as follows: Machinery and equipment Computers Programs of computers Furniture & fixtures Motor vehicles 5 years 5 years 5 years 5 years 5 years 2 /8 Impairment of Assets At each balance sheet date, the company reviews the carrying amounts of its financial assets, property, equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any), and an allowance is recognized in the statement of income. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses, recognized for the asset no longer exist or has decreased. The reversal is recorded in income. 2 /9 Intangible assets Intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight line basis over their estimated useful life. 21

24 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 2 /10 Accounts Payable Accounts payable are stated at their nominal value 2 /11 Staff Indemnity Provision for staff end of service indemnity is computed as per the Labour Law in the private sector and on the assumption of ending the services of all staff at the balance sheet date. This obligation is not funded. The management expects that based on this method of calculation a reasonable estimate is made of the obligation of the company towards employees indemnity for past and current periods. 2 /12 Treasury Shares Treasury shares consist of the company's own shares that have been issued, subsequently reacquired by the Company and not yet reissued or canceled. The treasury shares are accounted for using the cost method. Under the cost method, the weighted average cost of the shares reacquired is charged to a contra shareholders equity account. When the treasury shares are reissued, gains are credited to a separate account in shareholders equity (gain on sale of treasury shares) which is not distributable. Any realized losses are charged to same account to the extent of the credit balance on that account. Any excess losses are charged to retained earnings then reserves. Realized gains subsequently on the sale of treasury shares are first used to offset any previously recorded losses in the order of reserves, retained earnings and gain on sale of treasury shares account respectively. No cash dividends are paid on these shares. The issue of bonus shares increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares. 2 /13 Revenue Recognition Collection commission is recognized based on actual collections from the debts of customers according to contractual provisions, also collection commission of debts purchased from the other is recognized by the difference between amounts collected and amounts paid to purchase these debts. Income from Murabaha and Mudaraba is recognized as it is earned, on a time apportionment basis. Dividend income from shares is recognized when the right to receive payment is established. Gain on sale of investments in securities is measured by the difference between the sale proceeds and the net book value of the investment sold. Other categories of income are recognized when earned, at the time the related services are rendered and/or on the basis of the terms of the contractual agreement of each activity. 2 /14 Foreign Currencies The functional currency of the Company is the Kuwaiti Dinar ("KD") and accordingly, the financial statements are presented in KD. Transactions denominated in foreign currencies are translated into KD at the average rates of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into KD at rates of exchange prevailing at the balance sheet date. The resultant exchange differences are taken to the statement of income. 22

25 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 2 /15 Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. 3 Investments at fair value income statement Portfolios held for trading (quote) 6,693,538 5,404,875 Investment in Local fund (unquote) 12,152,594 18,846,132 5,404,875 4 Murbahat and Wakala investments The balance represents the amounts deposited in local financial institutions in accordance with Murabahat agreements. The average effective rate of return on this balance as of December 31, %. 5 Accounts receivables and other debit balances Receivables 135, ,818 Less: provision for doubtful debts (95,744) (95,744) 40,072 6,074 Staff receivables 30,387 4,674 Refundable deposits 1,219 1,219 Prepayments 17,676 15,899 Others 69,121 15, ,475 43,529 6 Investments available for sale The investments available for sale are investments in securities portfolio. It was not possible to measure the fair value of the investment available for sale, which do not have a quoted market price on active market, there is no another measurement method reliable to measure this fair value for this investment. 7 Investment in purchased debts Purchased debts 167, ,505 Less: provision for investment in purchased debts (655,000) 167, ,505 23

26 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 8 Property and equipment Machinery & Equipment Cost Balance at January 1, 2006 Additions Balance at December 31, ,470 9,182 18,652 Depreciation Balance at January 1, 2006 Charges for the year Balance at December 31, ,790 1,833 8,623 Net Book Value Balance at December 31, 2006 Balance at December 31, ,029 2,680 The accompanying notes form an integral part of the financial statements. Computers 51,889 1,385 53,274 33,532 6,833 40,365 12,909 12,301 Programs of Computers 229, , ,712 13, ,730 4,482 23,556 Furniture & Fixture 73,829 7,200 81,029 50,115 6,269 56,384 24,645 23,714 Motor Vehicles Total 6,399 6, ,799 17, ,566 3,199 1,280 4, ,348 29, ,581 1,920 3,200 53,985 65,451 24

27 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 9 Intangible assets Cost Balance at January 1 Additions Balance at December 31 7,500 7,500 7,500 7,500 Accumulated amortization Balance at January 1 Charges for the year Balance at December ,500 2, Net Book Value Balance at December 31 5,500 7, Due from / to related parties The related parties included (Associates Companies, Shareholders, Board of Directors Members, company s senior Management Employees, Partners Relatives and Companies having significant share and executive their officers). Transactions of the company with related parties are within the normal course of business entered on normal commercial terms and with Management approval. All related parties transactions are subject to the General Assembly meeting of shareholders. Transaction balances with related parties included in the balance sheet are as follows: 10 Due from / to related parties Investments at fair value income statement Murbahat and Wakala investments Debtors Creditors 16,329,338 3,418, ,760 5,404, ,882 Transaction balances with related parties included in the income statement are as follows: Change of investments at fair value income statement Dividend Collection commission Murbahat and wakala income (51,946) 161,106 1,491, ,920 2,091,495 41,500 1,163,109 11,715 25

28 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 11 Accounts payables and other credit balance adjusted Trade payables Provision for staff leave Contribution to KFAS National Labour support tax Staff payable Board of Directors Remuneration Others 33,783 30,560 13,888 32,250 3,785 21, , ,680 34,751 14,086 23,424 57,974 30,000 10, , Adjustments for previous years This item represent the Board of Directors Remuneration for the year ended December 31, 2005 which was approved during the year according to the general assembly held on March 19, Share capital The Ordinary and Extraordinary General Assembly held on March 19, 2006 approved an increase in the authorized and paid up capital from KD 3,000,000 to KD 4,200,000 by way of an issue of 40 % bonus shares amounting to KD 1,200,000. The Ordinary and Extraordinary Shareholders General Assembly approved to increase the share capital of the company amounted to KD 10,800,000 in cash to the issued and fully paid up capital become KD 15,000,000 distributed on 150,000,000 shares value of each fils 100 and share premium KD 5,400,000 of 50 fils for each. All the cash increase are paid during the period. 14 Statutory reserve As required by the Commercial Companies Law and the Company s Articles of Association 10 % (ten percent) of the net profit for the year is transferred to statutory reserve. The company may resolve to discontinue such annual transfer when the reserve equals 50 % of paid up share capital. 15 Voluntary reserve As required by the Company s Articles of association, 10 % of the year net profit is transferred to voluntary reserve. Such annual transfer may discontinue by a resolution of the General Assembly based on a recommendation from the Company s Board of Directors. 26

29 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 16 (Loss)/gain from investment income Cash and non cash dividend Change in fair value of investment at fair value income statement (portfolio held for trading (quote) Change in fair value of investment at fair value income statement in local fund (unquote) Gain from sale investments at fair value income statement Cash dividend for investment available for sale Portfolios expenses ,231 )272,799( 91,940 6,586 26,887 )61,322( 42,477 41,500 2,091, ,120 27,075 2,374, General and administrative expenses Staff Cost Others , , , , , , Deprecation and amortization Deprecation of property and equipment Amortization of intangible assets ,233 1,500 30,733 65, , Earnings per share (fils) Earnings per share calculation based on the weighted average number of shares outstanding during the period (restated by the effect of right issue for shareholders during the year) is as follow: Net profit for the year Weighted average numbers of outstanding shares during the year Effect of right issue on weighted average of outstanding share Weighted average numbers of outstanding shares during the year (restated by right issue) Earnings per share (restated by right issue)/fils ,476, ,151,236 21,444, ,595, )Adjusted( 2,491,266 42,000,000 70,350, ,350,

30 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) The weighted average number of shares outstanding during the year December 31, 2005 has been adjusted to reflect the issue of bonus shares of 12,000,000 approved by the Shareholders General Assembly held on March 19, The dominator was adjusted for the during and comparing year for calculating the basic earring per share to reflect the right issue in the shares approved by the shareholders General Assembly to the shareholders dated March 19, 2006 Note (13). 20 Zakat In accordance with the resolution of the Ordinary General Assembly held on March 19, 2006 Zakat for the year ended December 31, 2005 has been calculated on behalf of the shareholders at KD 155,100. This amount has been deducted from the balance of voluntary reserve in conformity with the policy of the Company. 28

31 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 21 Segment reporting Segment reporting operating segment The company is divided into business divisions to manage its various activities. For the purposes of primary segment reporting, the company s management has classified the company s activities into the following business segments: Credit rating and collection Investments )Adjusted( Credit rating & collection Investment Total Credit rating & collection Investment Total Segment operating revenue Other expenses Profit for the year before other income and unallocated expenses Other income Unallocated expenses Profit for the year before Board of Directors Remuneration, distribution to Kuwait Foundation for the Advancement of Sciences and National Labor Support Tax 1,816,110 9,986 1,806, , ,443 2,409,553 9,986 2,399,567 30, ,085 1,543,172 1,260,820 )52,744( 1,208,076 2,454,949 )500,000( 1,954,949 3,715,769 )552,744( 3,163,025 1,601 )561,962( 2,602,664 There is no reciprocal transactions between the above segments. The secondary information geographical sectors The company operates mainly in the state of Kuwait and hence doesn t have secondary segments. 29

32 Notes to the Financial Statements For the year ended December 31, 2006 (All amounts are in Kuwaiti Dinars unless stated otherwise) 22 Proposed dividend The Board of Directors on January 23, 2007 proposed bonus shares of 10 shares for every 100 Shares (40 shares for every 100 shares :2005). This proposed is subject to the approval of the shareholders, General Assembly. 23 Off balance sheet items The company collects commercial debts on behalf of the clients, these debts do not appear in the company balances sheet which amounted to KD 147,548,898 as of December 31, 2006 (December 31, 2005 KD 156,692,812). 24 Financial instruments In the normal course of business, the Company uses primary instruments such as cash on hand and banks, investments, accounts receivable and accounts payable and as a result, is exposed to the risks indicated below. The Company currently does not use derivative financial instruments to manage its exposure to such risks because it contradicts with the Company s commitments to Sharia a Credit risk Credit risk is the risk that a party of financial instrument, will fail to discharge an obligation and cause the other party to incur a financial loss. To limit this risk, the Company primarily deals with creditworthy financial institutions and related parties and has policies and procedures in place to limit the amount of credit exposure to any counter party other than related parties. These procedures include nonconcentration of credit risk, other than related parties, by under taking transaction with a number of financial institutions and different customers in various industries. Foreign currency risk Foreign currency is the risk on transactions that are denominated in a currency other than Kuwaiti Dinar, the Company is not significantly exposed to currency risk as the major portion of its financial instruments are denominated in Kuwaiti Dinars. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated with financial instruments and for managing these risks, the company evaluate the financial availability for it s clients periodically. 25 Comparative figures Certain operative figures were reclassified to conform to the current year presentation. 30