Growing with the glory of Qatar

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3 60 lessons What is the secret to continued success through the decades? Is it remaining true to the founder s vision? Or is it humility in triumph and resolve in the face of hardship? Is it the spirit of entrepreneurship embracing perpetual change and transformation? This year marks 60 years in the company s history, a significant milestone both in terms of our history and the defining moment we have reached as an organisation. To celebrate the occasion, the concept for this year s annual report centres on our commemorative emblem, entitled Sixty Lessons. Comprising 60 words, each represents a year on our journey, the anniversary emblem forms part of a larger company-wide campaign to focus and define our path, both individually and collectively, to deliver beyond expectations.

4 Growing with the glory of Qatar

5 TABLE OF CONTENTS Chairman s Introduction 04 Board of Directors Background 07 Board of Directors Report 10 CORPORATE GOVERNANCE 15 Company Overview 22 Corporate Social Responsibility 24 FUTURE Direction 28 Subsidiaries & Head Office 32 Financial Results 37 Independent Auditor s Report 37 Statement of Financial Position 38 Income Statement 40 Statement of Comprehensive Income 41 Statement of Changes in Shareholders Equity 42 Statement of Cash Flows 44 Notes to the Consolidated Financial Statements 46

6 4 SALAM INTERNATIONAL ANNUAL REPORT 2011 Legacy 10 The true test of a legacy is the endurance of one s example.

7 Growing with the glory of Qatar 5 CHAIRMAN S INTRODUCTION Dear Shareholders It gives me great pleasure to present you with our Annual Report for Salam International reached a significant milestone in the organisation s history in Our legacy is divided into two distinct eras. The first 30 years saw our founder, the late Abdul Salam Mohammed Abu Issa, take Salam from its inception to a group built on the solid foundations of success. Under the discerning leadership of our founder, Salam grew from a Qatar-based company to a pan-national organisation by establishing department stores in Abu Dhabi in 1966 and Dubai in His vision and foresight set Salam on the path to prosperity. Thirty years ago almost to the day, the second generation took over leadership of Salam International, with my brother Hussam and I sharing the sole ambition of building on our father s legacy, and continuing the expansion and diversification that he started. From its humble beginnings as a photo studio and processing laboratory, today Salam has been transformed from a family business to a public shareholding family of businesses. This anniversary offers us a moment of pause an opportunity to reflect on the triumphs and blessings that our history has bestowed. In some cultures, the 60th birthday is seen as a rebirth, a new beginning and the start of a second life. This is how we view our 60th anniversary. As a company built on entrepreneurship, innovation drives our every action. In 2001, we began a journey of transformation that is moving us from a focus exclusively on profitable growth towards broad-based value creation for all our stakeholders. This transformation process saw us become the first familyowned business in Qatar to be publicly listed, and we are confident that it had delivered a strategy, both resource and market-based, that will present exceptional competitive advantage and maximise growth in key areas of our business going forward. This year will be remembered for its challenges and opportunities, obstacles and accomplishment. We made great progress in many sectors, and met unexpected setbacks in others. In the coming financial year, we are committed to building on the positives, growing our achievements, and reaping the rewards of a nation and region that is alive with possibility. Yours truly, Issa Abdul Salam Abu Issa Chairman & CEO

8 Harmony 47 The art of balance begins with the people around you

9 Growing with the glory of Qatar 7 BOARD OF DIRECTORS BAckground Mr. Issa Abdul Salam Abu Issa Chairman of the Board of Directors of Salam International and Salam Bounian. Mr. Issa Abdulsalam Abu Issa is also the Vice-Chairman of Serene Real Estate Co. Lebanon and the Secretary General of Qatari Businessmen Association. He is a member of the World Economic Forum Davos, the Arab Business Council and the Board of Trustees on the Al-Shaqab Equestrian Academy. He is also a Board Member in many other esteemed organisations in the region. Mr. Issa holds a degree in Business Administration from San Diego University - USA, and has more than 30 years of professional experience. Mr. Hussam Abdul Salam Abu Issa Vice-Chairman of the Board of Directors for Salam International, Board Member of Salam Bounian and Acting Managing Director of Salam Industry and Energy. He is on Doha Insurance Company s Board of Directors, an advisory council member to the College of Management & Economics at Qatar University, a former Director on the Al-Ballagh Cultural Association Board, a member of the International Dean Council of Harris School of Public Policy at Chicago University, a member of the GCC Chamber of Commerce Manufacturing Committee. He is also a member of the Islamic Chamber of Commerce and the Qatari-Syrian Businessmen Council and German Business Council, Qatar. He holds a Bachelor s Degree in Marketing from the United States, and has more than 30 years of professional experience.

10 8 SALAM INTERNATIONAL ANNUAL REPORT 2011 Mr. Sharida Saad Jubran Al-Kaabi Member of the Board of Directors, held several governmental posts as Qatar s ambassador to India, Egypt and the United Kingdom, in addition to being Qatar s ambassador to the Arab League in Tunisia. Formerly Undersecretary of the Ministry of Labor and Social Affairs and a member of the Consultative Commission of the Gulf Cooperation Council. Board Director for Al-Balagh Trading & Contracting Company, a former Vice-Chairman of the Mannai Corporation Board of Directors and a former board member of Ahli Bank Qatar. Mr. Al-Kaabi took part in conferences in the Arab region and abroad. He holds a law degree from Beirut Arab University and attended various training courses in senior and middle management. He has almost 50 years work experience. Sheikh Nawaf Bin Nasser Al-Thani Member of the Board of Directors representing Doha Insurance Company. HE Sheikh Nawaf is considered one of the most important business figures in Qatar. He is an active participant in the real estate and economic renaissance witnessed in Qatar today. He is Chairman of the Board of Directors of NBK Holding, Al Waab City and Doha Insurance Company. He is on the Board of Directors of Abraaj Capital, Arabtec, Samena Capital and the Qatari Businessmen Association, as well as Vice President of the German Arab Friendship Society. He has been awarded the French Presidential Medal and bestowed the rank of Knight in appreciation of his unique efforts in promoting commercial relationships between Qatar and France. Mr. Nasser Suleiman Haidar Member of the Board of Directors and Chairman of the Board of Directors of Al Sulaiman Holding. Mr Nasser is also a board member of Qatar s Advisory Council as well as a member of the Registration Committee at the Qatari Chamber of Commerce and Industry. Mr. Nasser holds a Bachelor s Degree in Political Science and International Relationships from Aquinas University, Michigan. Mr. Mohammed Khaled Al Mana Member of The Board of Directors, Vice Chairman of Salam Bounian s Board of Directors, member of Board of Directors of Gulf Commercial Bank, former Chairman of the Qatari Chamber of Commerce & Industry, former member of the Board of Directors at The Supreme Education Council, member of the Advisory Board of the Gulf Excellence Forum, Mr. Al-Mana holds a Bachelor s Degree in Finance from Indiana State University, USA.

11 Growing with the glory of Qatar 9 Mr. Masoud Ibrahim Mohammed Nabina Member of the Board of Directors. He is the Executive Director of Nabco Group for Trading & Real Estate. Mr. Nabina holds a BA degree in Business Administration from the United States, with work experience spanning more than ten years. Mr. Bassam Abdul Salam Abu Issa Member of the Board of Directors and Member of Salam Bounian Board of Directors representing Salam International. He previously held senior management positions in Salam Group in Oman, Qatar and the United Arab Emirates. He is currently the Executive Director Corporate Centre for Salam International Investment Ltd. He graduated with a Bachelor of Arts in Industrial Relations from the University of Kent at Canterbury, England and has more than 17 years of professional experience. Mr. Fouad Soliman Diab Member of the Board of Directors, representing Arab Jordan Investment Bank, Qatar. He is the General Manager of the Arab Jordan Investment Bank, Qatar. He held several Directorships, including Palestine Investment Bank, Palestine, Cairo Amman Bank, Palestine. He holds a Masters Degree in Office Management from Transworld College, UK. He has almost 29 years of experience. Dr. Adnan Ali Steitieh Executive Director for Corporate Legal Affairs, Investment and Real Estate at Salam International Investment Ltd. He is secretary to the Board of Directors and advisor to the Board of Directors of Salam Bounian. He represents Salam International on Boards of Directors in Qatar, Saudi Arabia, Jordan, Palestine and Lebanon. Dr. Steitieh is an International arbitrator appointed by The Qatari Int l Center for Arbitration. He is also a member of the Syrian-Qatari businessmen council. Dr. Steitieh holds a Ph.D in Economics and Business Administration from Leipzig University in Germany and a Bachelor s Degree in Law from the Arab University of Beirut, Lebanon, in addition to higher certificates in international relations, sustainable development, and public policy with over 30 years experience.

12 10 SALAM INTERNATIONAL ANNUAL REPORT 2011 BOARD OF DIRECTORS REPORT ANNUAL GENERAL MEETING FEBRUARY 18, 2012 Dear Shareholders On behalf of the Board of Directors of Salam International Investment Limited (SIIL) and myself, I wish to welcome you to this meeting. I would like also to extend my warmest welcome to the representatives of the Ministry of Business and Trade - the Department of Companies Control, as well as to the attendants from KPMG, the Company s financial Auditors. Thank you very much indeed for attending this meeting and allow me to present you as hereafter the Thirteenth Annual Report with regard to the Company s activities, performance and financial results for the year 2011 together with its future scope as we envision it. First The Company s activities All along 2011, the Company has maintained its cautious risk assessment policy and investment strategy, which is directed towards selecting investment opportunities that complement the company s and its subsidiaries activities. Moreover, we aim to exploit the growth opportunities offered by new activities and fields, which would create better prospects and enhance the Company diversified operations and geographic distribution. SIIL was incontestably able to maintain its operations sound level in terms of revenues, cash flow as well as in employing the greatest possible advantage of the productive forces for a higher performance achievement. In pursuance of the acquisition up to 80% of Salam Bounian capital duly approved by your General Assembly, SIIL has so far purchased 8 million shares during 2011, thus raising its stake in SB s capital from 40% to 54.28%. Risks on the short run about acquiring the above additional shares are worth noting. This transaction could further affect SIIL cash flow for the coming two years. However, we believe that Salam Bounian Projects potential will mitigate these risks and generate cash flow sufficient to cover the expenses and produce profit on the long run. Second The Company s future scope The Company s plans focus on the opportunities emerging from the development projects in connection with Qatar National Vision 2030, of which the essential guiding principles were laid down by His Highness the Emir, to provide the ultimate framework for future development.

13 Growing with the glory of Qatar 11 Synergy 30 Only through cooperation can man and nation progress.

14 12 SALAM INTERNATIONAL ANNUAL REPORT 2011 We will capitalise as well on the unprecedented GDP growth induced by Mundial 2022 projects within the framework of diversification, complementarity and geographic distribution. Doha, becoming a fundamental destination for important business activities, international sports events crowned by the World Cup 2022, will witness grand and ambitious national projects for the modernisation and development of infrastructure. We will leave no stone unturned to take advantage of these motivations, new expertise and technology within the coming decade. For keeping with SIIL legacy of institutional performance, the Company will carry on implementing its long term corporate governance and institutional discipline processes. The company will continue as well, during 2012, living up to its discerned social and economic interaction through its contribution to the social welfare, notwithstanding the allocation of 2.5% of 2011 net profit to support social, educational and charitable activities, in accordance the law No 13, enacted in Third Persistence of the Company s share trading suspension During the General Assembly held on February 28, 2011, we have informed you about the legal proceedings instituted against the Company by one of the shareholders requesting the invalidation of the executive implementation measures with regard to 2002 and 2005 mergers. This decision did not challenge the rightfulness of the General Assembly resolutions in form or content. Qatar Financial Markets authorities suspended the Company s shares trading as from October 31, 2011 despite all preventive measures taken in avoidance of this suspension; namely revealing the verdict s content to the General Assembly and receiving a copy of the same. QFMA announced the suspension decision without declaring any legal justifications or judicial basis. This suspension has persisted even though we have informed QFMA about your acknowledgement of the verdict s causes and content and our provisional plan to abide by the court s final judgement, as well as your request to urge the shares trading restoration. Following your resolution to empower the Board of Directors to take all necessary measures for the protection of the Company and shareholders interest, we have initiated all due legal proceedings against QFMA through a competent lawyer. Fourth the Company s Financial Results The consolidated financial statement for the year ended on 31/12/2011, showed a net profit tantamount to QR Million, out of which QR are SIIL shareholders rights. These profits are net after deducting all provisions for some Company s investments eventual impairment, as well as the incentives and bonuses for the management and the Board members. Consequently, earnings per share reached QR Further to the Company s conservative financial policy, all relevant real estate investments have been recorded at book value. The Company did not register the growth achieved by those assets in its books. Related clarifications are stated in the financial statements footnotes. This practice will spare the Company s capital losses in case of assets impairment.

15 Growing with the glory of Qatar 13 Based on the above-stated financial results, the Board of Directors recommends your esteemed Assembly to approve 20% profit distribution for the year 2011, to the Company s shareholders, as per following scheme: Many thanks to the Board members and all the Company s employees, for their sincere efforts in the best interest of the Company and its shareholders. 10% worth of cash dividends 10% of bonus shares out of the Company s paid up capital A part of the previous years profit having been capitalised. On behalf of the Board of Directors, I avail myself of this opportunity to express my greatest gratitude to H.H the Emir, Sheikh Hamad Bin Khalifa Al Thani, H.H the Heir Apparent, Sheikh Tamim Bin Hamad Al Thani and H.H the Prime Minister, Minister of Foreign Affairs Sheikh Hamad Bin Jassim Al Thani, for their continuous support in the development of our beloved country, Qatar. Moreover, I wish to extend my sincere thanks to Their Excellencies, the Minister of Business and Trade, the Secretary and the Undersecretary and all the staff in the Department of Companies Control, for their unfaltering efforts in backing the private sector with all its institutions and the economic development in our beloved country, Qatar.

16 14 SALAM INTERNATIONAL ANNUAL REPORT 2011 Determination 51 When success as the only option, obstacles fall away.

17 Growing with the glory of Qatar 15 corporate governance Based on the system of corporate governance of listed companies ( System ) that is under the control of the Qatar Financial Markets Authority, issued by the Board of Directors of the Qatar Financial Markets Authority (QFMA) in 2009, in particular Article 30 thereof, Salam International Investment Limited ( Company ) prepared its First Annual Report 2010, which included the procedures followed by the Company to comply with the provisions of the System, the names of the members of the Board of Directors ( Board ), and reaffirmed the need for abiding by the rules and conditions governing the disclosure and listing on Qatar Exchange. Salam International is pleased to release its Second Annual Report 2011 ( Report ) containing the Board s assessment of the compliance of Salam International to the System provisions. 1: The procedures followed by the company to comply with the provisions of the System: 1-1 The company continued to study the extent of meeting the System requirements, and compliance with its rules and provisions. 1-2 The Committee on Corporate Governance developed frameworks for committees provided for in the System and submitted them to the Board for consideration, adoption and promulgation. 1-3 The Board studied the frameworks of committees provided for in the System, namely: Audit Committee, Remuneration Committee, Board of Directors Nomination Committee, in addition to the Charter of the Board of Directors and the Internal Audit Department, provided that the frameworks are completely approved in the current year 2012, after the election of new Board of Directors which is expected to take place by the end of the first quarter of current year. 1-4 On 15/01/2012, the Board decided to form a Committee for nominating the members of the Board. The Committee includes: Mr. Sherida Saad Jubran Al Kaabi - Chairman Mr. Nasser Sulaiman Haider Mohammed Al Haydar - Member Mr. Mohammed Khalid Mohammed Al Mana - Member Dr Adnan Ali Steitieh is entrusted perform the tasks the Secretary of the Commission. 1-5 As stated in the first report (2010), a Compliance Officer was appointed in order to coordinate between the Company and QFMA with respect to compliance with the provisions of the system and its applications.

18 16 SALAM INTERNATIONAL ANNUAL REPORT 2011 Name of the Compliance Officer: Dr. Adnan Ali Steitieh Designation: Executive Director, Secretary of the Board of Directors Phone: Mobile: a. steitieh@salaminternational.com 2- The composition of the Board of Directors: 2-1 Members and the ownership of shares: Name Number of shares % Mr. Issa Abdul Salam Abu Issa 21,051, Mr. Husam Abdul Salam Abu Issa 10,315, Doha Insurance Company, represented by Sheikh Nawaf bin Nasser bin Khaled Al Thani Arab Jordan Investment Bank - Qatar, represented by Mr. Fuad Suleiman Diab 259, , Mr. Mohammed Khalid Almana 153, Mr. Nasser Sulaiman Haider Mohammed Al Haider 232, Mr. Sherida Saad Jubran Al Kaabi 105, Mr. Massoud Ibrahim Nabina 105, Mr. Bassam Abdul Salam Abu Issa 486,084, Members of the Board according to their status: Executive (independent) Members: Mr. Issa Abdul Salam Abu Issa (Chairman( Mr. Husam Abdul Salam Abu Issa (Vice Chairman( Mr. Bassam Abdul Salam Abu Issa (CEO( The membership of the current Board of Directors expires once the financial results for the year 2011 are approved. It is expected that a new Board of Directors will be elected by the end of the first quarter of this year The shareholders and investors can review out the curriculum vitae of each member of the Board of Directors on the website of the Company: Independent Members: Mr. Sherida Saad Jubran Al Kaabi Sheikh Nawaf bin Nasser bin Khaled Al Thani (representing Doha Insurance Company( Mr. Nasser Sulaiman Haider Al Haider Mr. Mohammed Khalid Mohammed Almana Mr. Masoud Ibrahim Mohammad Nabina Mr. Fuad Suleiman Diab (representing Arab Jordan Investment Bank Qatar( Independent and Non-executive Members: None 2-3 The Board bonuses: Board Members are not entitled for a bonus for attending the meetings of the Board of Directors. However, they are entitled for an annual bonus in proportion to the performance after the General Assembly s approval. The bonus is calculated as a percentage of the net profit pursuant to the provisions of Article 118 of the Commercial Companies Law No. (5) for the year However, in future, the Company will adopt specific

19 Growing with the glory of Qatar 17 criteria to assess performance. Such criteria may include some of the following suggested factors: Percentage of attendance at meetings. Percentage of completion of the topics of the agenda. Percentage of compliance with disclosure and transparency and the announcement of the decisions of the Board. The extent of interaction with the various committees emanating from the Board and the implementation of its recommendations. Achieving a minimum level of earnings and economic value added (EVA). 2-4 Meetings of the Board of Directors: The Board of Directors held 11 meetings during the year Thus, the Board of Directors has met the requirements of Article 103 of the Commercial Companies Law No. (5) of 2002 and Article 27 of the Statute of the Company. 2-5 Election of Board Members: In accordance with the provisions of the Commercial Companies Law No. (5) for the year 2002, the members of the Board of Directors are elected by the General Assembly of the Company. For the membership of the Board of Directors, it is mandatory that the member owns one hundred thousand of the Company s shares in addition to meeting the conditions set forth in the Article (96) of the aforesaid article. According to the above articles, the Company can not apply the provisions of the Governance System that contradict the provisions of the law. 2-6 Cumulative vote: the company hasn t implemented the principle of cumulative vote in the Board of Directors elections as it contradicts with the Commercial Companies Law in force. 2-7 Chairman and Chief Executive Officer: The administrative and organisational structure of Salam International is designed on a decentralised basis, where subsidiaries are grouped into four heterogeneous key sectors, each is managed by an Executive Director with the authority of determining the work goals, plan and budget, as well as the authority of appointment. So, although the Chairman retains his position as Chief Executive Officer, it can be argued that there is a separation between the two positions, due to the decentralisation of the decision, according to the above. 3- Adherence to the rules and conditions governing the disclosure and listing in Qatar Exchange: 3-1 The Company is committed to the rules and conditions governing the disclosure and listing in Qatar Exchange (QE), and it complies with all disclosure requirements, including disclosure of the number of shares owned by the Board of Directors, executives and top or influencing shareholders. 3-2 The Company is also committed to disclose any essential information concerning the company s current projects, projects that the Company intends to undertake or any projects or information influencing the share price. 3-3 In the year 2011, the Company issued 16 press releases that included the disclosure of important and relevant information such as the disclosure of financial results, new projects and strategic partnerships, the disclosure of a court case and the relevant court decision. 3-4 Financial reports are prepared in accordance with the international standards IFRS, IAS, ISA. The company is publishing those reports in local newspapers, on QE website and on the Company website.

20 18 SALAM INTERNATIONAL ANNUAL REPORT The Company will disclose later the names of the members of the committees emanating from the Board once they and their frameworks are established. 3-6 The Company has designed and implemented a website that contains general information about the Company, its activities and investments, in addition to a window for the affairs of the shareholders, including: The Amiri Decree on the establishment of the Company. Memorandum of Association and the Statute of the Company. The financial statements of the Company. The disclosures and press releases. Calls of the General Assembly on a regular basis and the annual report. Information on how the shareholders can buy and sell stocks in general, in addition to the names of brokerage firms accredited by Qatar Exchange. The company will continue to publish all information, disclosures and data periodically and / or when available. 3-7 The Company places at the shareholders disposal an annual report that includes a detailed account of financial data related to members of the Board of Directors, including the following: All amounts received by the Chairman and members of the Board of Directors. Benefits in kind enjoyed by the Chairman and members of the Board of Directors. Remuneration of the Board members. Operations in which one of the members of the board of directors or managers might have an interest that is conflicting with the company s. 3-8 The Company publishes annually its budget and profit and loss account, the report of the Board of Directors and the auditors report in full, including the notes, and the company s disclosures contained therein. 4- Impartiality and conflict of interest: 4-1 The Company prohibits the Chairman, members of its Board of Directors and all its employees to take advantage of any information they have come to know, as a result of dealing in shares of the Company, for their own interest or the interest of their immediate relatives. Pursuant to the above policy, the Company will issue a regular circular for the members of the Board of Directors and Executives prior to the announcement of interim financial results. This circular includes the announcement for the period of restriction of the sale and purchase of shares provided for in Article (173) of the QE Bylaws, with an emphasis on the need for informing the QE in advance about any sale or purchase when there is no restriction period so as to ensure fairness in trading and equal opportunities. The company is also committed to the provisions of the Commercial Companies Law No. (5) for the year 2002 relating to conflict of interest, particularly the provisions of Article 108 of the Law. 4-2 Once elected, each member of the Board of Directors shall sign an undertaking to keep the confidentiality of the information and data and abstain from disclosing, leaking or revealing them to third parties or using them for their own benefit or any of their relatives. 4-3 Actual practice: Pursuant to the principles of transparency, disclosure and equality of opportunities, and in order to avoid conflict of interest, some members of the Board of Directors withdrew from the

21 Growing with the glory of Qatar 19 General Assembly convened on 23/10/2010 before the Assembly considered purchasing additional shares of Salam Bounian and voted on the subject. The mentioned members came out of the Assembly because they were owners of Salam Bounian shares and they had managerial positions in both companies. After making sure that those members had left the meeting hall, the General Assembly voted on the relevant topic. 5- The right of the shareholder to call the General Assembly for a meeting: 5-1 Any shareholder(s) owning at least 10% of the capital of the company can call the Ordinary General Assembly to convene. 5-2 Shareholders that represent at least 25% of the capital can call the extraordinary General Assembly to convene. 5-3 Any shareholder(s) representing at least 10% of the capital of the Company can request the inclusion of new topics on the agenda of the General Assembly. 6- Dividend Policy: The policy of distribution of profits depends on the financial results achieved in each financial year, the Company s plans for expansion and growth, the cash flow needs of the Company and the availability of excess liquidity. The dividends are Limited to a proportion of net profit, after deduction of legal depreciations, provisions and reserves, in addition to the retained earnings from previous years. The Company shall decide the nature and percentage of dividends based on the factors mentioned above that change from year to year, according to the data or the circumstances prevailing at the time. In the years when the Company has surplus cash, it adopts cash dividends. In the years in which the Company has opportunities to grow and expand, the Company resorts to either the recycling of profits, or capitalising them partly or completely, so it distributes bonus shares and raises the capital by the issued shares. 7- The Policies of risk management and internal control: Risk Management: The Company prepared a general framework for risk management policy. The relevant department is still compiling, updating and documenting the risk management policy which includes the following risks: Operational risks: These include, among other things, defects in products and services, interruption of work, performance gap, efficiency and productivity, customer satisfaction, health and safety, unexpected changes in the market and the business cycle. Financial risks: These include: pricing, liquidity, credits and debt risks. Honesty and integrity risks: include: fraud, illegal practices, unauthorised use, and reputation. Information technology risks. Environmental risks. Crisis management. The risk management policy will also define the preventive and curative procedures to prevent those risks, or, if the risks occur, to contain them and prevent their effects from exacerbating. The risk management policy is expected to be approved by the Board in Internal control: The internal control is designed to ascertain the extent of compliance with the approved regulations and procedures, compliance with the policies, plans, systems and laws in force, in addition to asset protection and the efficient use of resources.

22 20 SALAM INTERNATIONAL ANNUAL REPORT 2011 The Company s internal control is done through several individual units including Financial Department, Department of Legal Affairs and Department of Development. However, the company will aggregate all the activities of the Internal Control in a separate department which is either one of the major departments of the Company, or an expert agency from out of the Company. External audit: With regard to external audit, the General Assembly shall annually appoint an external auditor from one of the top accredited external auditors. Their task includes auditing the Company according to the International Accounting Standards, which consists of assessing the following: the consolidated financial position at the end of each financial year, the consolidated income, the consolidated comprehensive income, the consolidated changes in equity, the consolidated cash flows for the ended year in addition to the inclusion of notes containing a summary of significant accounting policies and other explanatory comments. The task of the external auditor does not include currently assessing the compliance to internal control systems. 8- Public policies and regulations of human resources: The Company continued during 2011 to apply adopted HR regulations and policies, which include general policies such as work ethics, protecting the Company s assets and facilities and non-disclosure of the secrets of the work. These policies also include the right of communication to all staff without fear of any consequences. 9- The failure of the internal control and irregularities: The internal control did not register during the year 2011 any defect or failure that could substantially impact the financial performance of the Company. It also did not show any substantial defects or irregularities in the Company s management. 10- The disclosure of the law case: In 2010, one shareholder filed a lawsuit requesting to invalidate the proceedings of 2002 and 2005 mergers. Court of First Instance reached a decision that was approved by the Court of Appeal in The court ruling invalidated the legal, administrative and financial procedures of implementing the resolutions of the Extraordinary General Assembly by merger of a number of companies in 2002 and 2005, and the eradication of all related marks and restrictions. The decision stipulates that the case is... not a request for the invalidity of resolutions the General Assembly of the third defendant (the Company) issued in the years 2002 and 2005 about merging the companies mentioned in the 2 resolutions by the defendant, and there is no fault affecting the validity of these decisions and the legality of the substance or form The shareholder that filed the case wasn t a shareholder in the company, neither at the time of the first merger in 2002, or at the time of the second merger in The first time he bought shares in the company was when he purchased a thousand shares on 06/01/2010. He was also the defense lawyer of another shareholder that the company sued. He bought those shares after he started defense process of the aforementioned shareholder and examined the facts and documents of the Company. The Company filed an appeal by cessation within the legal deadlines. The Company believes that it has strong reasons for its discrimination appeal to be accepted. It also requested to stop the execution of the court decision pending a ruling on the discrimination appeal. The Company s

23 Growing with the glory of Qatar 21 appeal by cessation is expected to be considered in the near future. As usual, the Company will endeavor to take all legal measures to protect its interests and the rights of the shareholders. In harmony with its heritage of transparency, disclosure and equal opportunities, the Company disclosed the ruling of the Court of Appeals as soon as it knew about it on 30/10/2011 so that all interested shareholders and investors could access that information without any delay. Despite the above-mentioned early disclosure, even before the Company received a copy of the ruling and before knowing the causes, and despite the precautionary measures taken by QFMA in conjunction with the issuance of the ruling of the First Instance Court, QFMA suspended trading of the Company s shares on 31/10/2011, without the knowledge of the Company. It also extended the suspension of share trading until they had a certified copy of the judgment. The suspension of trading was extended without the knowledge of the Company, or without notifying the Company of that decision at the time officially, without even receiving a copy of the resolution, stating its legal reasons and grounds. Although QFMA received a copy of the ruling immediately once it was printed, signed and issued on 20/11/2011, thus meeting the stated reason for the extension of the trading halt, i.e. receiving a copy of the judgment, and in spite of the Company s repeated request to restore the share trading, QFMA hasn t responded so far and hasn t disclosed and declared to the shareholders the cause of the continuation of the trading suspension. Share trading was suspended, and its duration was extended and exceeded the time limits announced by QFMA, although all stated reasons had been met, and the Company didn t receive the QFMA s decision stating the legal grounds, reasons and justifications of extending the duration of cessation of share trading, despite the demands the company made repeatedly to QFMA to provide a copy of the resolution and state the legal reasons and grounds. The General Assembly was called to convene on 18/01/2012 in order to be briefed about the ruling and its grounds and to take decisions and actions to protect the rights of shareholders and the interests of the Company. 11- The company s plan for the year 2012: After the election of the Board of Directors, expected to take place by the end of the first quarter of the current year 2012, the Company will adopt of the Charter of the Board, form the Board committees and adopt their frameworks of action. The Company will continue to meet the requirements of the System and comply to its rules and other provisions, in conjunction with the QFMA s efforts to update the system, enforce it in part or in full and adjust the legal framework to eliminate any conflicts and align the system rules to the provisions of the Commercial Companies Law No. (5) for the year The company will follow up procedures of the appeal by cassation regarding the Court of Appeals ruling that invalidates the executive procedures for a merger in 2002 and Finally, the Board of Directors of Salam International wishes to reaffirm its commitment and complete compliance with the rules of governance in the past, present and future. It looks forward to being enabled to fully comply with the provisions of appropriate amendments to the legal framework. Issa Abdul Salam Abu Issa Chairman

24 22 SALAM INTERNATIONAL ANNUAL REPORT 2011 COMPANY OVERVIEW Salam s roots were founded by Abdul Salam Mohammed Abu Issa, an aspiring businessman who at a very early age left his birthplace in Palestine to seek better opportunities in the Arabian Peninsula. When he arrived in Doha in 1950 he brought with him a camera. More importantly, he brought a talent for capturing on film the personality of the land and its people a concept entirely new in Qatar which captured the imagination of Qataris. The Late Abdul Salam Abu Issa The history of the Salam organisation dates back to 1952 when Abdul Salam Abu Issa opened the first studio and film processing laboratory in Doha with the name Salam Studio. In 1954 he converted the adjoining restaurant into a gift shop and jointly, the establishment was named Salam Studio & Stores. The business flourished. By 1963 the original showroom became too small and a move was made to larger premises. discerning clientele. The rapid growth of Salam Studio & Stores accelerated in tandem with the economy. The pace continued through an ever increasing programme of diversification and international expansion into the United Arab Emirates and Oman. Within a few years, Salam s operations would encompass studios, stores and companies for wholesale, retail merchandise and services serving the entire Gulf region under the umbrella of Salam Holdings. In June of 2002, Salam Holdings merged into Salam International Investment Limited and furthermore, in October 2005, Salam Group merged into Salam International, both landmark examples in transforming family-owned businesses into public shareholding companies. The next ten years saw a consolidation of business, with much travel to distant countries in pursuit of manufacturers and new products for an increasingly

25 Growing with the glory of Qatar 23 Potential 39 Only effort changes reality today into possibility tomorrow

26 24 SALAM INTERNATIONAL ANNUAL REPORT 2011 corporate social responsibility Lebanese American University Gala dinner SIIL seizes the opportunity to extend a hand of support to multiple initiatives associated with the education field. In this regard, Salam International was proud for the contribution and support it extended to the Gala Dinner organised by Lebanese American University Association (LAU). LAU is a leading private higher education institution in Lebanon, a non-sectarian institution guided by a deep-rooted sense of shared ethical values provides access to superior education attracting students from Lebanon and Middle East around the world. The principal objective of the Gala Dinner was to raise money towards the student scholarship fund. As the worldwide economic situation is fragile, and as less fortunate students are struggling to afford their costly tuition fees, it is the most dignifying act we can do to help them reach their goals and provide them an opportunity to seek higher education. Qatar society for rehabilitation of people with special needs The General Assembly of Rehabilitation International was held in Beirut, Salam international is grateful to extend its support by donating a huge amount of money. The financial support submitted is of great importance, but the moral support and embracing the Assembly work remains the most important for the continuation of the Assembly to do its duty towards persons with special needs and secure their rights in the Arab World. Rehabilitation International is one of the largest and most active organisations in the field, working hand in hand with all stakeholders in promoting the rights of persons with disabilities and/or health problems, through means including advocacy, and rehabilitation to achieve an inclusive world where all people can enjoy active participation and full human rights. Texas A&M University capstone sponsorship Texas A&M University at Qatar welcomed representatives from Salam International to the Texas A&M Engineering Building at Education City for an event honouring a donation by the community partner to the University s Shell EcoMarathon Europe student engineering project. The donation marks Salam International as Platinum Sponsor of the eco-friendly endeavor. The donation will support the two student teams efforts as it races to build two Urban Concept cars; one powered by a gas to liquid fuel and another by petrol. The project helps students develop their engineering and project management skills, as well as promote more sustainable uses of energy. Students are required to

27 Growing with the glory of Qatar 25 Vision 45 With purpose and intent, you will achieve what you foresee.

28 26 SALAM INTERNATIONAL ANNUAL REPORT 2011 develop business plans for their teams, including securing funding from sponsors and technical partnerships. Salam International is extremely proud to be part of this unique project. We feel very privileged to be able to show our commitment towards our society, particularly the education sector the primary pillar of Qatar s 2030 vision. We intend to further develop a long-term relationship with Texas A&M and increase our involvement by working closely with its community relationship office. Salam will include this prestigious university in its future Corporate Social Responsibility program along with other similar initiatives. Furthermore we look forward to train and hire Texas A&M engineers within our operating business units in Qatar soon. Takreem arab achievement awards Salam International was delighted to be a sponsor of Takreem 2011: the leading Arab Achievement Awards ceremony held this year in Qatar. Takreem honored Arab achievers, and celebrated the strides made by Arab intellectuals through their contributions in various fields and categories such a science, youth, culture, philanthropy, advancement of peace, women, education, environment, corporate leadership and technology. The Takreem awards are committed to becoming an annual landmark that will shape a brighter perception of Arabs worldwide and this was envisioned by Takreem Chairman and Chief Executive Officer Ricardo Karam. By honoring Arab excellence and leadership around the world the Takreem awards seeks to contribute in creating role models and in inspiring present and future generations. Since the Takreem Arab Achievement Awards ceremony envisaged the revitalisation of Arab consciousness and aims to help to rebuilt Arab pride in the region, SIIL found it a joy to come forward as one of the sponsors of the event. Palestinian association for children s encouragement of sports (PACES) Salam International was pleased to donate and be of partner with Palestinian Association for Children s Encouragement of Sports (PACES). PACES was founded in 2006 with the central aim of providing healthy, structured after school sports programs for Palestinian girls and boys; for boys who would otherwise be on the streets and exposed to extremism and violence, and for girls as a means of getting them out of their homes and into programs that empower them. These are values that SIIL wholeheartedly believes in. PACES partners with local and international NGOs to provide the children with workshops and exposure beyond sports that give them additional development opportunities. Palestinian night Salam International was happy to support the Palestinian Night at the Educational City Qatar. This event was held on March 31 to raise a donation to the people on Palestine. Traditional dance such as the Dabkeh, Palestinian poems and songs marked the occasion. Palestinian Club aims to revive the Palestinian culture between the students in the Educational City as well as organising gatherings and social networking for student to support their families in Palestine financially. Reach out to asia Salam International is grateful to extend its support to Reach Out To Asia 4th Gala Dinner. The event was a fundraising with a theme dedicated to celebrate Asia s diverse cultures, united voices and sports and took place at the newly established Katara Cultural Village. Charity auction was held also in order to raise funds for the future ROTA initiatives and projects within the continent of Asia. The Gala Dinner was held under the Patronage of the Amir of Qatar, His Highness Sheikh Hamad bin Khalifa al Thani while Her Highness Sheikha Moza bint Nasser, Chairperson of Qatar Foundation graced the event with her presence.

29 Diversity 54 To find what unites us, one must first understand our differences.

30 28 SALAM INTERNATIONAL ANNUAL REPORT 2011 FUTURE DIRECTION Corporate Overview and Direction for Overview Driven by its innate entrepreneurial culture and the overarching corporate strategy of sustained profitable growth, Salam further reinforced its position as a major regional conglomerate during the year While the existing business units within and outside Qatar delivered a steady performance, the company continued to keep its eyes and ears open for other attractive business opportunities and this approach will continue in the coming years as well. We will pursue both organic growth in terms of adjacencies, and by entering into new business frontiers that would be complementary to our existing business activities, and suit our culture and value system, while offering long term growth potential. The year also saw some strategic capital investments being made in some of our business units to strengthen their technological capabilities so that they can compete for more challenging customer engagements and deliver them successfully. We pursue strategic growth in such a prudent manner that inherently balances between the seizing of attractive market opportunities, and mitigation of associated business risks so as to optimise value for our shareholders and sustained return on their investment. Our diversification & investment strategy is designed to provide maximum protection against economic downturns in specific industries through a sagacious spread. We monitor the success of our strategies with the help of a broad set of key performance indicators such as turnover, net profit, ROE and shareholder value. Strategic Business Planning Process Over the years, we have evolved a structured and clearly orchestrated strategic planning process that ensures that despite our diversified portfolio, all our business units are strategically aligned to the corporate vision and mission and uphold the Salam values. All operating business units provide Salam Head Office with 3 years strategic plans on standard templates, which form part of the Corporate Strategic Plan. The basic guiding principles of our strategic planning process are as follows: Corporate Vision & Strategic Alignment Shareholder Value Sustainable Profitable Growth Maximising Market Opportunities Developing Human Capital Identification of most likely business scenarios and preparedness to exploit them Short Term Vs. Long Term balance Regional vs. Local Business Revenue With Qatar s successful bid to host World Cup 2022, the business optimism in the country is touching newer heights. Even as the country s visionary administration gears itself to prepare for the mega event, we have identified specific areas where Salam companies could make significant contribution and benefit from the same. The GMs of the business units in Qatar are being motivated and empowered to seize the profitable business opportunities that are likely to emerge in the coming years. At the same time, keeping in mind the volatile situation in UAE, the business units there would strive to optimise their business operations yet remain as competitive as before. These business units will also look to seize opportunities outside UAE, using their Dubai base as the launch pad. Wherever possible, they will also lend their expertise and resources to their sister organisations in Qatar. SIIL generates profits through three broad sources, namely: Operational profits: Generated from investments in SIIL business units that possess excellent competence and distinct competitive advantage Investment Portfolio profits: Generated from management of a balanced portfolio of investments in both local shares and direct investments and

31 Achievement 18 The size of achievement is limited only by the imagination.

32 30 SALAM INTERNATIONAL ANNUAL REPORT 2011 additional indirect investment in selected companies Real Estate profits: Generated from the value appreciation of existing assets and development of new assets Corporate Restructuring Initiatives The Salam management realises that in order to sustain and build on its profitable growth, there are certain prerequisites: There should be adequate strategic focus in all the sectors & territories of operation We must derive synergistic advantage through collaboration and interaction among business units in related or complementary businesses Each of the business units must have sufficient autonomy to function as a stand-alone organisation, while maintaining the Salam identity and upholding the corporate values the group is renowned for. In order to achieve these, we have been carefully restructuring our organisation, while ensuring that such changes are managed and implemented successfully. Some of the key aspects of this restructuring are: Logical grouping of the operational business units into four broad sectors, viz, Salam Industry and Energy, Salam Contracting, Salam Technology and Salam Luxury Retail and Hospitality. Appointment of Managing Directors for each of the sectors of operation, who will provide strategic direction to the business units under their purview. Decentralisation of Accounting & Personnel activity at Business Unit/ Divisions level, with the central Finance & HR departments continuing to provide strategic & policy directions. The centre will directly look after acquisition and management of profit generating assets, investment portfolio management and management of mega projects and JVs, besides the corporate support functions like Corporate Finance, Corporate Business Development, Corporate Legal Affairs, Corporate Development (HR, Personnel, Marketing & Communications and Strategic Planning.) Salam One The full potential of a diversified organisation such as Salam can only be achieved by creating a win-win synergy among the different business units, using their complementarities. To this end, we have recently launched the Salam One initiative whereby a number of SIIL companies can come together and work-offering a unified set of services. This is expected to help us bid, win and successfully execute large turnkey projects that draw upon the core competencies of two or more of SIIL companies. The first set of Business Units have already started using the financial module of Oracle ERP & they will be using the HRMS module as well. Meanwhile, work is progressing at rapid pace to roll out these modules to the other Business Units and to implement the other modules of the Oracle ERP System. The company wide ERP implementation will: Enable top management to efficiently & effectively monitor the execution of strategies Achieve data integrity & consistency through seamless integration of all operations under one umbrella Automate & standardise business processes throughout the organisation Our Diversified Investments Types Investment in Operation The main operational activity of SIIL is represented in four sectors as outlined in the preceding paragraph. SIIL has managed to be safe from the effects of the global economic crisis so far, thanks to the diversity of its operations

33 Growing with the glory of Qatar 31 both geographically and across several sectors, which helps Salam balance the investment risk and also increase return in areas of competence and clear value added services. The company aims to tide over any further effects of the crisis by exploiting available resources, enhancing performance, optimising expansion in the region and by carefully seizing strategic investment opportunities resulting from this crisis. SIIL intends to keep its technical & specialised workforce intact, as they represent one of the most important intangible assets of the company SIIL will continue enhancing & empowering its human capital to ensure optimal performance standards and enhanced competitive advantage. The company has adopted a very sound cash management policy that ensures a healthy cash flow so that all its operations are safe from the financial crunch. The long experience of the company has endowed it with all the resilience needed to survive and grow in turbulent times. Investment Portfolio One of the key profit generating streams is the investment portfolio owned and managed by Salam based on a corporate investment strategy where again multi-level protection is generated by the diversification of the type and geographical spread of shares, locally, regionally and internationally. Salam s Investment portfolio is of two kinds, direct and indirect. The direct portfolio represents the strategic investments that Salam regularly makes by way of equity stakes in some promising companies in the region, thereby enabling it to have an influential role in the management of such companies through participation of Salam s top executives in their boards. The Indirect portfolio consists of the broad-based equity shares held by Salam in the local, regional, and international stock markets. As a result of the Global economic crisis the market value of local shares portfolio decreased. In this regard, appropriate provisions have been taken into the financial statements for the period ending on 31/12/2011 based on IAS. Real Estate Sector Investments in real estate provide a solid asset base where, SIIL has adopted a conservative financial & investment policy in stating the company s properties investment and fixed assets at cost value without revaluation, which strengthens the company in mitigating the negative effects of the real estate sector turmoil.

34 32 SALAM INTERNATIONAL ANNUAL REPORT 2011 SUBSIDIARIES & HEAD OFFICE Corporate Central Functions Office of the Chairman & CEO Salam Tower, 16th Floor TEL: FAX: P.O. BOX: 15224, DOHA - QATAR Office of the Vice Chairman & COO Salam Tower, 15th Floor TEL: FAX: P.O. BOX 15224, DOHA-QATAR h.abuissa@salaminternational.com Corporate Finance Office of the Chief Financial Officer Salam Plaza Tower, 4th Floor TEL: (Qatar) FAX: TEL: (UAE) FAX: P.O. BOX 15224, DOHA-QATAR h.alyounis@salaminternational.com Corporate Information Technology Salam Plaza Tower, 3rd Floor TEL: FAX: P.O. BOX: 15224, DOHA-QATAR k.mahgoub@salaminternational.com Salam Tower Salam Tower 3rd Floor TEL: FAX: P.O. BOX: 15224, DOHA-QATAR i.ahmad@salaminternational.com Corporate Development ( Corporate Human Resources, Corporate Personnel, Marketing & Communications & Corporate Strategic Planning ) Salam Plaza Tower, 3rd Floor TEL: FAX: P.O. BOX: 12027, DOHA-QATAR s.alkhateeb@salaminternational.com Corporate Legal Affairs ( Corporate Legal Litigation, Corporate Commercial & Contracting, Para Services) Salam Tower, 15th Floor TEL: FAX: P.O. BOX: 12026, DOHA-QATAR a.steitieh@salaminternational.com Corporate Business Development Salam One Salam Tower 11th Floor TEL: FAX: P.O. BOX: 15224, DOHA-QATAR f.beicken@salaminternational.com Investment (Investor Relations) Salam Plaza Tower 3rd Floor TEL: FAX: PO. BOX 12026, DOHA-QATAR Activity: Investments & Real Estate investor@salaminternational.com Contracting Sector Qatar s construction sector has been expanding rapidly, propelled by the country s stable economy, and a vibrant real estate sector. Even in the face of an international slow down of the economy, Qatar continues its commitment to growth and expansion. Most planned multi-billion dollar development projects are on track in Qatar with more developments in the pipeline. Given this scenario, SIIL has positioned itself well with its diversified portfolio of business units that target different segments within the Contracting sector. Our business units operate in such diverse areas such as engineering & design, project management, basic construction, aluminium, steel & glass works, MEP, specialised flooring, construction materials, interior design & fit out, branded furniture, landscaping etc. With such a wide variety of services being offered under one umbrella Salam s Contracting sector is positioned to deliver turnkey solutions to existing and new clients alike and operate to maximise shareholder value.

35 Growing with the glory of Qatar 33 SIIL also has a significant presence regional presence in this sector, with business units in UAE and Bahrain that have excellent market standing. Alu Nasa - Qatar TEL: FAX: P.O. BOX 22120, DOHA-QATar Activity: Aluminum Fabrication info@alu-nasa.com Alu Nasa - Dubai TEL: FAX: P.O. BOX 5560, DUBAI-uae Activity: Aluminum Fabrication mail@alu-nasa.com Atelier 21 TEL: FAX: P.O. BOX 50797, DUBAI-uae Activity: Interior Designers mail@atelier-salam.com Modern Decoration Company TEL: FAX: P.O. BOX 10497, DUBAI-uae Activity: Specialized Joinery Manufacturers mail@mdc-salam.com Gulf Industries TEL: FAX: P.O. BOX: 22028, DOHA-QATAR Activity: Refrigeration & Catering Equipment info@gulfindustry.com Salam Industries TEL: FAX: P.O. BOX 22120, DOHA- QATAR Activity: Interior Decorators info@salamindustries.com International Trading & Contracting TEL: FAX: P.O. BOX: 23924, DOHA-QATAR Activity: General Contracting info@itcqatar.com Qatar Gardens TEL: FAX: P.O. BOX: 23924, DOHA-QATAR Activity: General Contracting info@qatargardens.com Gulf Steel & Engineering TEL: FAX: P.O. BOX 22028, DOHA-QATar Activity: Structural Steel Fabrication info@gulf-steel.com Salam Enterprises - Qatar TEL: FAX: P.O. BOX 15224, DOHA-QATar Activity: General Trading info@salamenterprises.com Salam Enterprises - Dubai TEL: FAX: P.O. BOX 28326, DUBAI-uae Activity: Construction & Environment Specialists mail@salamenterprisesllc.com Salam Enterprises - Abu Dhabi TEL: FAX: P.O. BOX 32767, Abu Dhabi uae Activity: General Trading salamfur@emirates.net.ae Salam Enterprises - Bahrain TEL: FAX: P.O. BOX 3143, MANAMA-BAHRAIn Activity: General Trading h.gomaa@salamenterprises.com

36 34 SALAM INTERNATIONAL ANNUAL REPORT 2011 Energy & Industry Sector With huge Oil & Gas reserves and related hydrocarbon resources, about 60 percent of the Qatar s Gross Domestic Product (GDP) comes from this sector. Qatar is now the largest exporter of Liquefied Natural Gas (LNG) and has the third largest proven reserves of LNG. Moreover, there are some large power generation and distribution infrastructure projects which are already underway. In the wake of the above, SIIL places significant importance on the Industry & Energy sector. The SIIL business units in this sector have a wide range of products, equipments and services for the Oil & Gas industry (both upstream and downstream) and for power generation and transmission. Our portfolio also includes a business unit that provides highly specialised services like Non-Destructive Testing, Precision Engineering, Rope Access services etc. to serve Oil & Gas companies. SIIL is also in the process of establishing some SMEs in Qatar that will engage in indigenous manufacturing of electrical equipments and products. Qatari German Switchgear TEL: Fax: P.O. Box 23661, DOHA - QATAR Activity: Switchgear Manufacturing info@qgc-qatar.com Stream Industrial & Engineering TEL: FAX: P.O. BOX 22647, DOHA-QATar Activity: Electro Mechanical Contracting info@stream-qatar.com Salam Petroleum Services TEL: FAX: P.O. BOX 22084, DOHA-QATar Activity: Oilfield Equipment Products & Services sales@salam-petrol.com Technology Sector Qatar is gradually emerging as a knowledge based economy. Backed up by the infrastructure development and burgeoning consumer, industrial and institutional segments, there is an unprecedented demand for information, communication and media technology. Similar trends are observed in most of the other GCC countries, though the pace of growth differs from country to country. The SIIL business units in Qatar operating in the areas of Information Technology, Office Automation are leading market players in their respective domains, representing many leading names like Canon, Motorola, Autodesk etc. In the area of media technology, Salam is a widely recognised regional player, with operations in Qatar, UAE, Saudi Arabia & Sultanate of Oman. Our business units are fast emerging as major system and technology integrators, being recognised as preferred suppliers/ partners by leading companies. Salam Technologies ( Omnix, Salam Technical Services ) TEL: FAX: P.O. BOX 22658, DOHA-QATar info@omnix.com sales_bs@salam-tech.com

37 Growing with the glory of Qatar 35 Luxury Retail & Hospitality Sector Retail & wholesale distribution of Luxury & Consumer products continues to be SIIL s flagship business. Given that the retail industry in the Middle East is expected to grow by 13-15% over the next 35- years and exceed US$ 500 billion in 2013, and Qatar being the star performer in the region, Salam is certain that this predominance is unlikely to change in the near future. Possessing a wide ranging portfolio of leading fashion luxury brands of apparels, perfumes, cosmetics and accessories, Salam enjoys a significant market presence in the region. Salam intends to expand this portfolio, while opening new outlets in strategic locations in the region, in order to emphasise its core operational strength and presence. Salam Studio & Stores - Qatar TEL: FAX: P.O. BOX 121, DOHA-QATar Activity: Luxury Retail info@salams.com SALAM STUDIO & STORES - DUBAI TEL: FAX: P.O. BOX 4199, DUBAI-uae Activity: Luxury Retail sss@salam.ae Salam Studio & Stores - Abu Dhabi TEL: FAX: P.O. BOX 417, ABU DHABI-uae Activity: Luxury Retail sss@salam.ae Salam Studio & Stores - Al Ain TEL: FAX: P.O. BOX 1342, AL AIN-uae Activity: Luxury Retail salam-oman@salams.com Salam Studio & Stores - Oman TEL: FAX: P.O. BOX 438, MUSCAT-Oman Activity: Luxury Retail salam-oman@salams.com Salam Hospitality TEL: Fax: P.O. BOX 15224, DOHA-QATar Activity: Hospitality Services alan.massouh@salamhospitality.com ADabisc TEL: FAX: P.O. BOX 23177, DOHA-QATar Activity: Marketing & Advertising Agency info@adabisc.com Joint Ventures & Franchises Salam Bounian TEL: FAX: P.O. BOX 10805, DOHA-QATar Activity: Investments & Real Estate info@salam-bounian.com Gulf Facility Management TEL: FAX: P.O. BOX 10805, DOHA-QATar Activity: Facility Management f.wagner@gfm-co.com RBG Middle East TEL: FAX: P.O. BOX 22084, DOHA-QATar Activity: Instrumentation & Engineering Services for Oil & Gas Industry graeme.shirreffs@rbg-group.com PC DEAL NET TEL: FAX: P.O. BOX Industrial Area QATar info.qatar@pcdealnet.com

38 36 SALAM INTERNATIONAL ANNUAL REPORT 2011 Growing with the glory of Qatar

39 Growing with the glory of Qatar 37 Financial Results Independent Auditors Report To The Shareholders Salam International Investment Limited Q.S.C. Doha, State of Qatar Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Salam International Investment Limited Q.S.C.( the Company ) and its subsidiaries (together referred to as the Group ), which comprise the consolidated statement of financial position as at 31 December 2011 and the consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Responsibility of the Directors for the Consolidated 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 for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Group s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of 31 December 2011 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 38 to the consolidated financial statements with regards to a court verdict issued by the court of appeal on 30 October 2011 against the Company invalidating the executive procedures of mergers involving the Company in 2002 and Without compromising the authenticity and legality of these decisions in terms of subject or form, for the legal grounds supporting its legal position, the Company has submitted a cassation against this verdict of the court of appeal before the court of cassation on 27 December The ultimate outcome of the matter cannot presently be determined and, accordingly, no adjustments have been made in these consolidated financial statements for any effects on the Company or the Group that may arise from the outcome of this matter. Report on Other Legal and Regulatory Requirements We have obtained all the information and explanation which we considered necessary for the purpose of our audit. The Group has maintained proper accounting records and the consolidated financial statements are in agreement therewith, and we confirm that a physical count for the inventory at year-end was carried out as per the established principles. We reviewed the report of the Board of Directors and confirm that the financial information contained therein is in agreement with the books and records of the Group. We are not aware of any violations of the provisions of Qatar Commercial Companies Law No 5 of 2002, or the terms of Articles of Association having occurred during the year which might have had a material effect on the business of the Company or its consolidated financial position as of 31 December January 2012 Doha State of Qatar Gopal Balasubramaniam KPMG Qatar Auditors Registry Number 251

40 38 SALAM INTERNATIONAL ANNUAL REPORT 2011 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 Riyals In Qatari Note 31 December December 2010 ASSETS Non-current assets Property, plant and equipment 5 427,397, ,398,655 Investment properties 6 2,188,419, ,378,465 Intangible assets 7 87,911, ,709,056 Investment in associates 8 121,906, ,979,582 Available-for-sale investments 9 132,090,933 84,438,750 Retention receivables non current 10(a) 41,101,969 29,822,583 Loan to associate companies 78,808,382 5,572,014 Other assets non current 11 2,036,063 5,466,093 Total non-current assets 3,079,671,921 1,606,765,198 Current assets Inventories ,920, ,234,625 Excess of revenue over billings 202,989, ,002,565 Other assets current ,674,983 96,098,022 Retention receivables current 10(a) 85,503,553 66,642,611 Due from related parties 13(a) 47,617, ,083,116 Trade and other receivables ,575, ,935,105 Investments at fair value through profit or loss ,520 8,723,067 Cash and bank balances ,655, ,229,878 Total current assets 1,284,240,592 1,207,948,989 TOTAL ASSETS 4,363,912,513 2,814,714,187 (Continued) These consolidated financial statements were approved by the Board of Directors and were signed on its behalf by the following on 24 January 2012 Mr. Issa Abdul Salam Abu Issa Chairman and Chief Executive Officer Mr. Hussam Abdul Salam Abu Issa Vice Chairman and Chief Operating Officer The attached notes 1-39 form an integral part of these consolidated financial statements.

41 Growing with the glory of Qatar 39 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 (Continued) Riyals In Qatari Note 31 December December 2010 EQUITY AND LIABILITIES Equity Share capital 17 1,039,223, ,736,680 Legal reserve ,824, ,869,019 Available-for-sale fair value reserve 3,085,478 6,272,078 Property revaluation reserve , ,431 Proposed cash dividend ,922,352 98,973,668 Proposed issue of bonus shares ,922,350 49,486,830 Retained earnings 39,056, ,714,315 Total equity attributable to owners of the Parent 1,670,285,347 1,617,552,021 Non-controlling interests ,816,567 2,354,132 Total equity 1,927,101,914 1,619,906,153 LIABILITIES Non-current liabilities Employees end of service benefits 21 39,824,210 32,668,866 Retention payables non current 10(b) 47,827,856 5,328,528 Borrowings non current ,303, ,854,566 Notes payable 4,776,970 7,318,754 Other liabilities 17,420, ,624 Total non-current liabilities 1,054,153, ,508,338 Current liabilities Due to related parties 13(b) 9,258,194 6,193,254 Excess of billings over revenues 62,614,793 39,732,436 Advances from customers 8,444,061 20,230,150 Retention payables -current 10(b) 53,676,902 22,459,651 Trade and other payables 259,150, ,817,634 Notes payable 16,989,468 31,984,906 Other liabilities ,699, ,688,575 Bank overdrafts 16 42,264,609 36,106,719 Borrowings current ,559, ,086,371 Total current liabilities 1,382,657, ,299,696 TOTAL LIABILITIES 2,436,810,599 1,194,808,034 TOTAL EQUITY AND LIABILITIES 4,363,912,513 2,814,714,187 These consolidated financial statements were approved by the Board of Directors and were signed on its behalf by the following on 24 January 2012 Mr. Issa Abdul Salam Abu Issa Chairman and Chief Executive Officer Mr. Hussam Abdul Salam Abu Issa Vice Chairman and Chief Operating Officer The attached notes 1-39 form an integral part of these consolidated financial statements.

42 40 SALAM INTERNATIONAL ANNUAL REPORT 2011 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2011 Riyals In Qatari Note Operating income 26 1,867,356,443 1,688,383,368 Operating cost (1,330,234,147) (1,197,875,278) Gross profit 537,122, ,508,090 Investment income 27 83,936,166 78,873,106 Other operating income 7,037,339 7,191,977 Service and consultancy income 4,476,366 3,686,317 Other income 28 19,951,382 42,834,514 Gain on previously held equity interest in an associate 25(b) 15,737,229 - Gain on bargain purchase 25(b) 12,672,010 - Salaries and staff benefits (214,389,557) (203,778,733) General and administrative expenses 29 (177,206,119) (165,406,130) Amortisation / impairment of intangible assets 7 (3,022,744) (1,877,956) Depreciation of investment properties 6 (5,355,042) (4,063,265) Depreciation of property, plant and equipment 5(a) (50,773,132) (54,762,979) Impairment on available-for-sale investments 9(b) (8,128,267) (2,850,000) Share of results of associates 8 (23,859,028) (6,440,976) Finance costs (27,013,105) (31,530,369) Profit before executive managers bonus 171,185, ,383,596 Executive managers bonus 13(c) (7,135,583) (7,374,389) Proposed Directors remuneration 13(c) (4,500,000) (3,850,000) Profit for the year 159,550, ,159,207 Attributable to: Owners of the Parent 158,865, ,281,607 Non-controlling interests , ,600 Profit for the year 159,550, ,159,207 Basic and diluted earnings per share The attached notes 1-39 form an integral part of these consolidated financial statements.

43 Growing with the glory of Qatar 41 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011 Riyals In Qatari Profit for the year 159,550, ,159,207 Other comprehensive income: Transfer to profit on disposal of available-for-sale investments (1,706,528) (5,652,838) Net movement in cumulative changes in fair value of available-for-sale investments (9,608,339) 2,220,752 Impairment loss on available-for-sale investments transferred to profit 8,128,267 2,850,000 Revaluation reserve realised 247, ,879 Other comprehensive income for the year (2,938,720) (334,207) Total comprehensive income for the year 156,611, ,825,000 Attributable to: Owners of the Parent 155,926, ,947,400 Non-controlling interests 684, ,600 Total comprehensive income for the year 156,611, ,825,000 The attached notes 1 to 39 form an integral part of these consolidated financial statements.

44 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011 In Qatari Riyals Equity Attributable to owners of the parent Year ended 31 December 2011 Share capital Legal reserve Investments fair value reserve Property revaluation reserve Proposed cash dividend Proposed issue of bonus shares Retained earnings Total Noncontrolling interests Total equity Balance as at 1 January ,736, ,869,019 6,272, ,431 98,973,668 49,486, ,714,315 1,617,552,021 2,354,132 1,619,906,153 Profit for the year ,865, ,865, , ,550,211 Other comprehensive income for the year Transfer to profit on disposal of available-for-sale investments - - (1,706,528) (1,706,528) - (1,706,528) Revaluation reserve realized , , ,880 Net movement in cumulative changes in fair value of available-for-sale investments Impairment loss on available-for-sale investments transferred to profit Other comprehensive income for the year - - (9,608,339) (9,608,339) - (9,608,339) - - 8,128, ,128,267-8,128, (3,186,600) ,880 (2,938,720) - (2,938,720) Bonus shares issued * 49,486, (49,486,830) Cash dividend paid (98,973,668) - - (98,973,668) - (98,973,668) Proposed cash dividend ,922,352 - (103,922,352) Proposed issue of bonus shares ,922,350 (103,922,350) Transfer to legal reserve - 15,955, (15,955,021) Transferred from revaluation reserve to retained earnings (247,880) (247,880) - (247,880) Provision for social contribution (3,971,630) (3,971,630) - (3,971,630) Addition due to business combinaton ,225, ,225,288 Movement in non-controlling interests (1,447,850) (1,447,850) Balance at 31 December ,039,223, ,824,040 3,085, , ,922, ,922,350 39,056,056 1,670,285, ,816,567 1,927,101,914 *Includes an adjustment of QR 10 to match the share capital as per the Commercial Registration. The attached notes 1 to 39 form an integral part of these consolidated financial statements.

45 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011 In Qatari Riyals Equity Attributable to owners of the parent Year ended 31 December 2010 Share capital Legal reserve Investments fair value reserve Property revaluation reserve Proposed cash dividend Proposed issue of bonus shares Retained earnings Total Non-controlling interests Total equity Balance as at 1 January ,736, ,753,099 6,854, ,310 69,281, ,268,287 1,550,641,108 3,473,840 1,554,114,948 Profit for the year ,281, ,281, , ,159,207 Other comprehensive income for the year Transfer to profit on disposal of available-for-sale investments - - (5,652,838) (5,652,838) - (5,652,838) Revaluation reserve realized , , ,879 Net movement in cumulative changes in fair value of available-for-sale investments Impairment loss on available-for-sale investments transferred to profit Other comprehensive income for the year - - 2,220, ,220,752-2,220, ,850, ,850,000-2,850, (582,086) ,879 (334,207) - (334,207) Cash dividend paid (69,281,568) - - (69,281,568) - (69,281,568) Proposed cash dividend ,973,668 - (98,973,668) Proposed issue of bonus shares ,486,830 (49,486,830) Transfer to legal reserve - 14,115, (14,115,920) Transferred from revaluation reserve to retained earnings (247,879) (247,879) - (247,879) Provision for social contribution (3,507,040) (3,507,040) (3,507,040) Disposal loss of control (1,699,015) (1,699,015) Movement in non-controlling interests (298,293) (298,293) Balance at 31 December ,736, ,869,019 6,272, ,431 98,973,668 49,486, ,714,315 1,617,552,021 2,354,132 1,619,906,153 The attached notes 1 to 39 form an integral part of these consolidated financial statements.

46 44 SALAM INTERNATIONAL ANNUAL REPORT 2011 CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31 DECEMBER 2011 Riyals In Qatari Cash flows from operating activities Profit for the year 159,550, ,159,207 Adjustments for : Provision for doubtful receivables 4,597,927 4,992,323 Provision for slow moving inventories 4,517,647 4,358,868 Impairment on investments 8,128,267 2,850,000 Gain on sale of available-for-sale investments (1,953,908) (6,656,069) Unrealised gain on investments at fair value through profit or loss (59,677) (1,838,073) Gain on sale of investments at fair value through profit or loss (386,559) (41,356) Amortisation / impairment of intangible assets 3,022,744 1,877,956 Depreciation of investment properties 5,355,042 4,063,265 Depreciation of property, plant and equipment 56,132,758 58,986,696 Loss on sale of property, plant and equipment & investment property 453,299 4,320,252 Write off of property, plant & equipment 10,568,397 3,552,890 Provision for employees end of service benefits 11,671,226 9,161,095 Finance costs 27,013,105 31,530,369 Interest income (2,130,108) (12,899,252) Dividend income (4,412,319) (3,208,556) Share of results from investments in associates 23,859,028 6,440,976 Gain on bargain purchase (12,672,010) - Gain on previously held equity interest in an associate (15,737,229) - Profit on sale of subsidiaries (23,093,359) - Operating profit before working capital changes 254,424, ,650,591 Changes in: excess of revenue over billings (78,830,544) (36,682,929) other assets (32,236,863) (9,411,080) inventories (84,266,874) 132,980 retentions receivables (30,725,478) (6,169,607) due from related parties (33,538,921) (63,800,393) trade and other receivables (36,911,690) 61,289,081 trade payables and other liabilities 74,330,801 (24,939,424) due to related parties (20,417,971) (3,967,617) excess of billings over revenue 26,470,895 3,452,631 retention payables 39,668,806 (10,587,080) loan to associate company - (2,719,538) advances from customers (11,786,089) 10,910,348 Cash generated from operating activities 66,180, ,157,963 Employees end of service benefits paid (4,432,676) (5,389,164) Net cash from operating activities 61,747, ,768,799 (Continued) The attached notes 1 to 39 form an integral part of these consolidated financial statements.

47 Growing with the glory of Qatar 45 CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31 DECEMBER 2011 (Continued) Riyals In Qatari Cash flows from investing activities Payments for purchase of property, plant and equipment (110,272,603) (70,601,296) Proceeds from sale of property, plant and equipment and investment property 5,714,100 4,290,569 Payments for purchase of investment properties (18,976,893) (3,250,528) Payments for available-for-sale investments (37,720,508) (1,383,096) Proceeds from sale of available- for- sale investments 8,074,140 14,691,986 Net movement in intangible assets (4,610,380) (911,540) Purchase of investments at fair value through profit or loss - (1,935,498) Proceeds from sale of investments at fair value through profit or loss 8,864,783 1,073,896 Net cash outflow on acquisition of subsidiaries (65,760,779) (4,132,413) Net proceeds from sales of subsidiaries 65,297,402 - Net movement in investment in associate companies (153,000) (2,325,533) Loan given to a related party (123,117,397) (144,247,750) Dividends received from an associate 6,720,397 4,089,735 Dividends received from investments 4,412,319 3,208,556 Interest received 2,130,108 12,899,252 Net cash used in investing activities (259,398,311) (188,533,660) Cash flows from financing activities Net movement in borrowings 406,842, ,177,683 Net movement in notes payable (17,490,341) (35,582,080) Net movement in non-controlling interests (1,447,850) (1,997,308) Finance costs paid (27,013,105) (31,530,369) Dividends paid (98,973,668) (69,281,568) Cash flows from/(used in) financing activities 261,917,677 (29,213,642) Net increase/(decrease) in cash and cash equivalents 64,267,244 (56,978,503) Cash and cash equivalents at the beginning of the year 67,123, ,101,662 Cash and cash equivalents at the end of the year (Note 16) 131,390,403 67,123,159 The attached notes 1 to 39 form an integral part of these consolidated financial statements.

48 46 SALAM INTERNATIONAL ANNUAL REPORT 2011 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER REPORTING ENTITY Salam International Investment Limited Q.S.C. (the Company ) is a public shareholding company incorporated in the State of Qatar under Amiri Decree No. (1) on 14 January These consolidated financial statements as at and for the year ended 31 December 2011 comprise the Company and its subsidiaries (together referred to as the Group and individually Group entities ) and the Group s investment in associates and jointly controlled entities. The main activities of the Company are to establish, incorporate, acquire, and own enterprises in the commercial, industrial, educational, real estate, financial and services sectors. 2. BASIS OF PREPARATION a. Statement of compliance The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by International Accounting Standards Board (IASB) and the applicable provisions of the Qatar Commercial Companies Law no 5 of These consolidated financial statements as at and for the year ended 31 December 2011 comprise the Company and its subsidiaries (together referred to as the Group ) b. Basis of measurement These consolidated financial statements have been prepared on the historical cost basis except for available-for-sale investments, investments at fair value through profit or loss which are carried at fair value. c. Functional and presentation currency The consolidated financial statements are presented in Qatari Riyals, which is the Group s functional currency and all values are rounded to the nearest Qatari Riyal except when otherwise indicated. d. Use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 37 to these consolidated financial statements. e. New Standards, amendments and interpretations that effective on or after 1 January 2011 The following standards, amendments and interpretations, which became effective 01 January 2011 are relevant to the Group: i. IAS 24 (Revised) Related party disclosures The revised standard was issued in November This standard clarifies and simplifies the definition of a related party. The adoption of the revised standard did not have any significant impact on the related party disclosure of the Group. ii. Improvements to IFRSs (2010) Improvements to IFRS issued in 2010 contained numerous amendments to IFRS that the IASB considers non-urgent but necessary. Improvements to IFRS comprise amendments that result in accounting changes to presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. There were no significant changes to the current accounting policies of the Group as a result of these amendments. 3. SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies have been applied in the preparation of these consolidated financial statements: a. Basis of consolidation i. Subsidiaries Subsidiaries are those entities including special purpose entities controlled by the Group. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity and has power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is transferred to the Group and de-consolidated from the date that control ceases. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill.

49 Growing with the glory of Qatar SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e. Basis of consolidation (Continued) If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated income statement as gain on bargain purchase. The accounting policies of subsidiaries have been changed where necessary to align them with the Group. Details of changes in Group s subsidiaries during the year ended 31 December 2011 are disclosed in note 24. ii. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. It is neither a subsidiary nor an interest in joint venture. Investments in associates are accounted for using the equity method (equity accounted investees) and are recognised initially at cost. The Group s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. iii. Jointly controlled entities Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. The Company recognises its share in the joint venture using proportionate consolidation method. iv. Transactions eliminated on consolidation Intra-group balances, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. v. Non controlling interests Non controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated financial position, separately from parent shareholders equity. Losses applicable to the minority in excess of the minority s interests are allocated against the interest of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover losses. The interest of the minority shareholders in the acquiree is initially measured at the minority s proportion of net fair value of the assets, liabilities and contingent liabilities recognized. vi. Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. vii. Business combinations and goodwill Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operational policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The Group measures goodwill at the acquisition date as: The fair value of the consideration transferred; plus The recognized amount of any noncontrolling interests in the acquiree; plus If the business combination is achieved in stages, the fair value of the preexisting equity interest in the acquiree; less The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognized immediately in the consolidated income statement.

50 48 SALAM INTERNATIONAL ANNUAL REPORT SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d. Basis of consolidation (Continued) ii. Business combinations and goodwill (continued) Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated: represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and is not larger than a segment based on either the Group s primary or the Group s secondary reporting format determined in accordance with IFRS 8 Operating Segment. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognized in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in the profit and loss. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit (or group of cashgenerating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit (group of cash-generating units) to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill at year-end. Where goodwill forms part of a cashgenerating unit (group of cash generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash generating unit retained. If subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and unamortized goodwill is recognized in the consolidated income statement. e. Foreign currency i. Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated income statement. The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency. f. Revenue recognition Revenue is measured at fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. The following specific recognition criteria must also be met before revenue is recognised: i. Sale of goods Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the

51 Growing with the glory of Qatar SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d. Revenue recognition (continued) i. Sale of goods (continued) discount is recognised as a reduction of revenue as the sales are recognised. ii. Dividend and interest revenue Dividends from investments are recognised when the shareholder s right to receive payment has been established. Interest is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount. iii. Construction contract revenue Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity. The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in consolidated income statement. iv. Rental income Rental income from investment property is recognised in the consolidated income statement on a straight-line basis over the term of the lease. e. Property plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, including the capitalised borrowing costs (see note 3k). Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalized and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalized only when it increases future economic benefits of the related item of property, plant and equipment. All other expenditure is recognized in the consolidated income statement as the expense is incurred. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated income statement in the year the asset is derecognized. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If any such indication exists and where the carrying value of an asset exceeds the estimated recoverable amount, the asset is written down to its recoverable amount. Depreciation is recognised in profit or loss on a straight line basis over the estimated useful lives of each component of an item of property plant and equipment. Land is not depreciated. Estimated useful lives of property, plant and equipment for the current and comparative years are as follows: Building Leasehold improvement Furniture and fixture Motor vehicles Equipment and tools years 3-4 years 4-7 years 5 years 3-5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. f. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, if any, are not capitalized and expenditure is reflected in the consolidated income statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are

52 50 SALAM INTERNATIONAL ANNUAL REPORT SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d. Intangible assets (continued) amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated income statement in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. e. Investment property Investment property is property held either to earn rentals or for capital appreciation or both, but not for sale in ordinary course of business, use in production in the production or supply of goods or services or for administrative purpose. Investment property is stated at cost less accumulated depreciation and impairment losses, if any. Investment properties, other than land, are depreciated on a straight-line basis over their estimated useful lives as follows: Building years Salam Tower 50 years Salam Plaza years Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of selfconstructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. Property that is being constructed for future use as investment property is accounted for as investment property. Property under construction is designated as investment property only if there are unambiguous plans by management to subsequently utilize the property for rental activities upon completion of development. f. Financial Instruments Financial instruments represent the Group s financial assets and liabilities. Financial assets and financial liabilities are recognized on the Company s statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Financial instruments also include commitments not recognized but adequately disclosed in the respective notes to the consolidated financial statements. Non-derivative financial assets Non-derivative financial assets include trade receivables, due from related parties, investments at fair value through profit or loss, available-for-sale investments and cash and bank balances. i. Trade Receivables and due from related parties Trade receivables and due from related parties are stated at cost being the fair value, net of provisions for amounts estimated to be non-collectable. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. ii. Investments at fair value through profit or loss An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value. Financial instruments at fair value through profit or loss are measured at fair value and changes therein are recognized in the consolidated income statement. iii. Available-for-sale investments Available-for-sale investments are non-derivative financial assets that are designated as available for sale and are not classified as an investment at fair value through profit or loss or held to maturity or loans or receivables. Available for sale investments are initially recognised at cost being the fair value of the consideration given. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale equity instruments are recognized in other comprehensive income and presented within equity in fair value reserve. When an investment is derecognized, cumulative gains and loss in other comprehensive income is transferred to the consolidated income statement.

53 Growing with the glory of Qatar SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g. Financial Instruments (continued) Non-derivative financial assets (continued) iv. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. For the purpose of consolidated statement of cash flows, cash and cash equivalents consists of bank balances and cash, net of bank overdrafts. De-recognition of financial assets A financial asset is derecognised where: the right to receive cash flows from the asset have expired or the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass through arrangement and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Non-derivative financial liabilities Non derivative financial liabilities comprise borrowings, due to related parties, bank overdrafts, trade and other payables. Group recognizes these financial liabilities at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. i. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. ii. Borrowings All the borrowings are initially recognised at the fair value of the consideration received plus directly attributable transaction costs. After initial recognition, interest bearing borrowings are subsequently measured at amortised cost using the effective interest method. De-recognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognised in the profit or loss. h. Fair values For available for sale investments traded in organised financial markets, fair value is determined by reference to the quoted market price at the close of business on statement of financial position date. For investments which are listed in inactive stock markets, traded in small quantities or have no current prices, the fair value is measured using the current value of cash flows or other applicable methods. If there is no reliable method for the measurement of fair value of these investments, then they are stated at cost less any impairment in their value. Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable and willing parties at arm s length basis. Since the consolidated financial statements have been prepared under the historical cost convention, except for available for sale and fair value through profit or loss investments which are re-measured at their fair value, the carrying value of the Group s financial instruments as recorded could, therefore, be different from the fair value. The fair values of the financial assets and liabilities are not considered significantly different from their book values as most of these items are either short-term in nature or re-priced frequently. i. Impairment Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. All impairment losses are recognized in the consolidated income statement. Any cumulative loss in respect of an available-for-sale financial asset recognized previously in equity is transferred to the consolidated income statement. For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the income statement;

54 52 SALAM INTERNATIONAL ANNUAL REPORT SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i. Impairment (continued) Financial assets (continued) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of the estimated future cash flows discounted at the original effective finance cost rate. Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost and available-for-sale financial assets that are debt securities, the reversal is recognized in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognized directly in equity. Non-financial assets The carrying amounts of the Group s nonfinancial assets, other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit ). An impairment loss is recognized if the carrying amount of an asset or its cashgenerating unit exceeds its estimated recoverable amount. Impairment losses are recognized in the consolidated income statement. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. j. Inventories Inventories are stated at the lower of cost and net realisable value. Costs are those expenses incurred in bringing each product to its present location and condition on specific identification basis for items easily identifiable and on a weighted average basis for other items. Net realisable value is based on estimated selling price less any further costs expected to be incurred on completion and disposal. k. Borrowing cost Borrowing costs are finance cost and other costs that the Group incurs in connection with the borrowing of funds. A qualifying asset for finance cost capitalization is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Group capitalizes borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Group recognizes other borrowing costs as an expense in the period in which it incurs them. The Group begins capitalizing borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalization is the date when the Group first meets all of the following conditions: (a) incurs expenditures for the asset; (b) incurs borrowing costs; and (c) undertakes activities that are necessary to prepare the asset for its intended use or sale. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings, if any. 3. SIGNIFICANT ACCOUNTING

55 Growing with the glory of Qatar 53 POLICIES (CONTINUED) k. Borrowing cost The borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than those specific borrowings mentioned above as made specifically for the purpose of obtaining a qualified asset, are capitalized by applying a capitalization rate to the expenditures on that asset. The amount of borrowing costs that the Group capitalizes during the period is not to exceed the amount of borrowing costs it incurred during that period. The Group suspends capitalization of borrowing costs during extended periods in which it suspends active development of a qualifying asset, and ceases capitalizing borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. l. Excess of Revenue over billings Excess of revenue over billings are stated at cost, plus attributable profit, less progress payments received and receivable. Cost includes material, labour and other direct costs plus an appropriate allocation of overheads. Attributable profit is not recognised until the contract has progressed to the point where the ultimate realisable profit can be reasonably determined. Provision is made for contingencies and any anticipated future losses. m. Employees end of service benefits The Group provides end of service benefits to its expatriate employees in accordance with Qatar labour law. The entitlement to these benefits is based upon the employees final salary and length of service, subject to the completion of minimum service period. The expected costs of these benefits are accrued over the period of employment. With respect to its national employees, the Group makes contributions to the General Pension Fund Authority calculated as a percentage of the employees salaries. The Group s obligations are limited to these contributions, which are expensed when due. n. Provision A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows that reflects current market assessments of the time value of money and the risks specific to the liability. o. New standards and interpretations not adopted i. IAS 1 Presentation of financial statement (amendment) - Presentation of items of other comprehensive income The amendments to IAS 1 require that an entity present separately the items of other comprehensive income that would be reclassified to profit or loss in the future if certain conditions are met from those that would never be reclassified to profit or loss. The amendment is effective for annual periods beginning on or after 1 July 2012 with an option of early application. ii. IAS 19 (2011) - Employee benefits The amended IAS 19 includes the following requirements: actuarial gains and losses are recognised immediately in other comprehensive income; this change will remove the corridor method and eliminate the ability for entities to recognise all changes in the defined benefit obligation and in plan assets in profit or loss, which currently is allowed under IAS 19; and expected return on plan assets recognised in profit or loss is calculated based on the rate used to discount the defined benefit obligation. The amended standard is effective for annual periods beginning on or after 1 January 2013 with an option of early adoption. Group is yet to assess the full impact of the standard iii. IAS 28 (2011) Investment in Associates and Joint ventures IAS 28 (2011) supersedes IAS 28 (2008). IAS 28 (2011) has been amended to include: IFRS 5 applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale; and on cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the entity does not remeasure the retained interest. The standard is effective for annual periods beginning on or after 1 January 2013 and is applied retrospectively. Early adoption is permitted provided that the entire suite of consolidation standards is adopted at the same time.

56 54 SALAM INTERNATIONAL ANNUAL REPORT SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) o. New standards and interpretations not adopted (continued) the entity s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment and hedge accounting continues to apply. The 2009 standard did not address financial liabilities. variable returns from its involvement with that investee; it has the ability to affect those returns through its power over that investee; and there is a link between power and returns. Control is reassessed as facts and circumstances change. iii. IAS 28 (2011) Investment in Associates and Joint ventures (continued) The application of this amendment has no significant impact on the financial statements of the Group. iv. IFRS 7 Financial instruments : Disclosures (amendment ) Transfer of financial assets The amendments to IFRS 7 introduce new disclosure requirements about transfers of financial assets including disclosures for financial assets that are not derecognised in their entirety; and financial assets that are derecognised in their entirety but for which the entity retains continuing involvement. The amendments are effective for annual periods beginning on or after 1 July 2011, but entities are not required to provide the disclosures for any period presented that begins before the date of initial application of the amendments. Early adoption is permitted. The application of this amendment has no significant impact on the financial statements of the Group. v. IFRS 9 - Financial Instruments Standard issued November 2009 IFRS 9 (2009) Financial Instruments is the first standard issued as part of a wider project to replace IAS 39 Financial instruments: recognition and measurement. IFRS 9 (2009) retains and simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on Standard issued October 2010 IFRS 9 (2010) adds the requirements related to the classification and measurement of financial liabilities, and de-recognition of financial assets and liabilities to the version issued in November It also includes those paragraphs of IAS 39 dealing with how to measure fair value and accounting for derivatives embedded in a contract that contains a host that is not a financial asset, as well as the requirements of IFRIC 9 reassessment of Embedded Derivatives. The Company is considering the implications of the standard, the impact on the Company and timing of its adoption by the Company. While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permitted. Prior periods need not be restated if an entity adopts the standard for reporting periods beginning before 1 January In its November 2011 meeting, the IASB tentatively decided to defer the mandatory effective date to 1 January vi. IFRS 10 - Consolidated financial statements and IAS 27 Separate Financial Statements (2011) IFRS 10 introduces a new approach to determining which investees should be consolidated and provides a single model to be applied in the control analysis for all investees. An investor controls an investee when; it is exposed or has rights to IFRS 10 supersedes IAS 27 (2008) and SIC-12 Consolidation Special Purpose Entities. The Company is yet to assess IFRS 10 s full impact. The standard is effective for annual periods beginning on or after 1 January Early adoption is permitted provided that the entire suite of consolidation standards is adopted at the same time. IFRS 10 is applied retrospectively when there is a change in the control conclusion between IAS 27/ SIC-12 and IFRS 10. IAS 27 (2011) supersedes IAS 27 (2008). IAS 27 (2011) carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor clarifications. vii. IFRS 11 Joint Arrangements IFRS 11 focuses on the rights and obligations of joint arrangements, rather than the legal form (as is currently the case). It distinguishes joint arrangements between joint operations and joint ventures; and always requires the equity method for jointly controlled entities that are now called joint ventures; they are stripped of the free choice of using the equity method or proportionate consolidation. IFRS 11 supersedes IAS 31 and SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers. The Company is yet to assess IFRS 11 s full impact. The standard is effective for annual periods beginning on or after 1 January Early adoption is permitted provided that the entire suite of consolidation standards is all adopted at the same time.

57 Growing with the glory of Qatar SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) o. New standards and interpretations not adopted (continued) viii. IFRS 12 - Disclosures of interests in other entities IFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities, aiming to provide information to enable users to evaluate the nature of, and risks associated with, an entity s interests in other entities; and the effects of those interests on the entity s financial position, financial performance and cash flows. The Company is yet to assess IFRS 12 s full impact. The standard is effective for annual periods beginning on or after 1 January Early adoption is permitted provided that the entire suite is adopted at the same time. Entities are encouraged to provide information required by IFRS 12 before the effective date, but this early disclosure would not compel the entity to apply either IFRS 12 in its entirety or the other new consolidation standards. ix. IFRS 13 - Fair value measurement IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. It explains how to measure fair value when it is required or permitted by other IFRSs. It does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards. The standard is effective for annual periods beginning on or after 1 January 2013 with an option of early adoption. Early adoption of standards The Group did not early adopt new or amended standards/interpretations in FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from its use of financial instruments: Credit risk Liquidity risk Market risk This note presents information about the Group s exposure to each of the above risks, the Group s objectives, policies and processes for measuring and managing risk, and the Group s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group s risk management framework and internal audit activities. The Board is in the process of establishing committees for Risk Management and Internal Audit, which will be responsible for developing and monitoring the Group s risk management policies and internal audit activities. The committees will be reporting regularly to the Board of Directors on their activities. i. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group s receivables from customers and bank balances. a. Trade and other receivables The Group s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk. The majority of the Group s revenue is attributable to customers originating from the Gulf Cooperative Council countries. There is no concentration on credit risk attributable to a single customer. Accounts receivable are stated at original invoice amount less a provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when there is no possibility of recovery. ii. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group s reputation. iii. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group s income or the value of its holdings of financial instruments.

58 56 SALAM INTERNATIONAL ANNUAL REPORT 2011 a. Currency risk The Group s exposure to currency risk on transactions with related parties and borrowings that are denominated in a currency other than the respective functional currency are limited to those currencies which are pegged against USD such as AED, RO, JD etc. The Group s exposure to other currency risk is minimal. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level. b. Interest rate risk The Group adopts a policy of ensuring that finance cost rates on interest rate exposures are reviewed quarterly, and that finance cost rates are not subject to present fluctuations. c. Equity price risk Equity price risk is the risk that the fair values of equity decreases as a result of changes in price indices of investments in other entities equity instruments as part of the Group s investment portfolio. Capital management The Board s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as net operating income divided by total shareholders equity, excluding minority interests. The Board of Directors also monitors the level of dividends to ordinary shareholders. The details of the financial instruments risk management tools are described in Note 36.

59 5 PROPERTY, PLANT AND EQUIPMENT In Qatari Riyals Cost: Buildings Land and building Leasehold improvement Furniture and fixtures Motor Vehicles Equipment and tools Capital work in progress Balance 1 January 67,005,569 91,947,867 49,130, ,403,559 34,853, ,888,323 77,111, ,341, ,055,645 Additions 14,740, ,517 2,931,643 5,304,301 15,632,052 71,034, ,272,603 72,875,335 Acquired in business combination , , ,361 87, ,571 1,748,585 14,324,375 Transfers - 4,387, ,277 50,616,953-3,578,579 (59,387,855) - - Transfer to investment property (72,456,793) Disposal through change in control of subsidiaries (1,212,430) (186,713) (724,778) - (2,123,921) (3,106,742) Disposals / write offs (16,100) - (8,183,978) (5,022,869) (1,956,596) (4,436,201) (8,175,382) (27,791,126) (23,350,288) Total 2011 Total 2010 At 31 December 81,729,484 96,334,913 42,623, ,089,315 38,158, ,025,627 81,486, ,447, ,341,532 Depreciation: At 1 January 16,473,425 7,871,338 33,744, ,708,730 22,441,656 63,703, ,942, ,975,461 Charge for the year 4,833,539 1,479,692 3,066,852 25,737,908 5,179,046 15,835,721-56,132,758 58,986,696 For disposal through change in control of subsidiaries (1,184,962) (128,862) (639,586) - (1,953,410) (832,703) For disposals (9,616) - (3,870,027) (2,453,714) (1,526,742) (3,212,092) - (11,072,191) (11,186,577) At 31 December 21,297,348 9,351,030 32,941, ,807,962 25,965,098 75,687, ,050, ,942,877 Net carrying value: At 31 December ,432,136 86,983,883 9,681, ,281,353 12,193,837 42,338,374 81,486, ,397,639 - At 31 December ,532,144 84,076,529 15,386, ,694,829 12,411,926 40,185,113 77,111, ,398,655 (i) (ii) (iii)

60 58 SALAM INTERNATIONAL ANNUAL REPORT PROPERTY, PLANT AND EQUIPMENT (continued) i. Buildings costing QR 79,467,743 (2010: 67,005,569) have been constructed on land leased from the Governments of Qatar and Dubai, UAE. ii. Salam Plaza Building and Land is mortgaged in favor of the financing banks according to the Musharaka agreement. Refer to Note 6 (v) iii. Management is of the opinion that the recoverable amounts of the property, plant and equipment are higher than their carrying amounts a.) Depreciation charge has been allocated as follows: Operating cost 5,359,626 4,223,717 Depreciation expenses 50,773,132 54,762,979 Total 56,132,758 58,986,696

61 6. INVESTMENT PROPERTIES In Qatari Riyals Land in Ramallah Land in Dubai Building in Dubai Salam Tower Salam Plaza Cost: Land and buildings in Doha Total 2011 Total 2010 Investment property under development Balance 1 January 4,795,529 89,008,229 72,456,793 87,088, ,049, ,652, ,050, ,342,968 Additions/transfers ,976,893 18,976,893 75,707,321 Acquired in business ,444,435,544 1,444,435,544 - combination Disposals/other (231,399) - (231,052) - adjustment At 31 December 4,795,529 89,008,229 72,456,793 87,088, ,817,714 1,672,064,958 2,211,231, ,050,289 Depreciation: At 1 January - - 1,847,022 12,930,660 2,894,142-17,671,824 13,608,559 Charge for the year - - 3,150,295 1,663, ,358-5,355,042 4,063,265 On disposals (214,200) - (214,200) - At 31 December - - 4,997,317 14,594,049 3,221,300-22,812,666 17,671,824 Net carrying value: At 31 December ,795,529 89,008,229 67,459,476 72,494, ,596,414 1,672,064,958 2,188,419,008 At 31 December ,795,529 89,008,229 70,609,771 74,157, ,154, ,652, ,378,465 (i) (ii) (iii) (iv) (v) (vi)

62 60 SALAM INTERNATIONAL ANNUAL REPORT INVESTMENT PROPERTIES (CONTINUED) i. This land was acquired in Ramallah, Palastine for the purpose of constructing an international trade centre. Until the date of these consolidated financial statements, this project has not commenced. The fair value of the land was QR13,390,526 (2010: QR.13,390,526) based on a valuation carried out on 10 January 2012 by M/s. Omary Real Estate, an external valuer based in Ramallah, Palestine. ii. These represent the four plots of land in Dubai, UAE. The fair value of the first plot of land was QR. 5,148,059 (2010: QR. 5,283,540) based on a valuation carried out on 10 January 2012 by M/s. AI Izdhar Real Estate, an external valuer based in Dubai, UAE. The original cost of this plot of land was QR. 3,760,793. The remaining represents the three plots of lands purchased from Salam Bounian Development Company (Salam Bounian), an associate in 2008 (a subsidiary by end of 2011) for QR. 85,247,436 as per the three sale and development agreements entered between the Company and Salam Bounian. According to these agreements, the Company purchased three plots of land in Jumeirah Village-Dubai, UAE from Salam Bounian which were originally purchased by Salam Bounian from a developer in Dubai. The Company reimbursed Salam Bounian Development Company for the installments already made by them in addition to interest. The Company has paid the remaining installments directly to the developer in Dubai. According to the agreements, if the Company decides to develop and sell these three plots, Salam Bounian will share 30% of the resulting net profit with the Company. If the Company decides to sell the three plots of land without development, Salam Bounian will share 60% of the resulting net profit. The original sale agreement with the developer is still in the name of Salam Bounian. Title of these plots is still with the developer and expected to be transferred in The fair value of these three plots of land was QR. 85,285,473 (2010: QR 84,762,250) based on a valuation carried out on 10 January 2012 by M/s. Al Izdhar Real Estate, an external valuer based in Dubai, UAE. iii. The fair value of this property was QR 70,297,030 based on a valuation carried out on 10 January 2012 by M/s. Al Izdhar Real Estate, an external valuer based in Dubai, UAE. iv. The fair value of Salam Tower was QR 339,274,400 (2010: QR. 334,492,000) based on a valuation carried out on 11 January 2012 by M/s. AI Haque Rental and Real Estate, an external valuer based in Doha - Qatar. i. These represent the properties of Salam Group W.L.L, a fully owned subsidiary of the Company. The fair value of these properties was QR 748,561,400 (2010: QR. 621,897,000) based on a valuation carried out on 11 January 2012 by M/s. AI Haque Rental and Real Estate, an independent external valuer based in Doha Qatar. The carrying amount of these properties as at 31 December 2011 was QR 369,379,843 (2010: QR. 367,031,045), out of which QR 86,783,429 (2010: QR. 83,876,075) are owner occupied and classified under property, plant and equipment. The title deeds of the lands are registered in the name of the parent company (Salam International Investment Limited Q.S.C.). The Company entered into a lease agreement with Salam Bounian. According to this agreement, a portion of the above land is leased to Salam Bounian, who in turn will develop the land and construct The Gate project on it. The lease is for 25 years renewable subject to new conditions to be agreed later. The Board of Directors of the Company agreed on 17 June 2007 to mortgage the land and the properties to secure in part the obligation of Salam Bounian under the Musharaka agreement between Salam Bounian and Salam Bounian Sukuk Limited (the issuer of Sukuk). The land and properties is mortgaged in favor of the financing banks according to the Musharaka agreement. The Company holds a second degree mortgage in its favor on the project. ii. Investment property under development comprise following properties; a. Plots of land in Lusail city, Doha b. Gate project c. Jumana tower a. This includes five plots of land in Lusail City, Doha, Qatar. The fair value of four plots was QR. 476,016,000 (2010: QR. 357,012,000) based on a valuation carried out on 11 January 2012 by M/s. AI Haque Rental and Real Estate, an independent external valuer based in Doha Qatar. The original cost of these plots of land was QR 206,293,600. For present value calculation, refer to note 33. The fair value of the other plot of land,

63 Growing with the glory of Qatar INVESTMENT PROPERTIES (CONTINUED) a. Plots of land in Lusail city, Doha (continued) acquired in business combination, was QR 43,766,000 based on a valuation carried out on 14 December 2011 by M/s Aqar Real Estate Development and Investment, an independent external valuer based in Doha, Qatar. The carrying value of this plot of land as at 31 December 2011 is equal to its fair value. b. The fair value of the gate project was QR 1,021,947,100 based on a valuation carried out on 8 January 2012 by M/s. AI Haque Rental and Real Estate, an external valuer based in Doha, Qatar. The carrying value of the property as at 31 December 2011 is equal to its fair value. c. The fair value of the Jumana Tower was QR 413,529,000 based on a valuation carried out on 16 January 2012 by M/s. AI Haque Rental and Real Estate, an external valuer based in Doha, Qatar. The carrying value of the property as at 31 December 2011 is QR 396,423,525 which includes interest capitalized amounting to QR 227,321 in vii. The Group earned rental income of QR million from investment properties during the year ended 31 December 2011 (2010: QR million). These rentals are included in the consolidated income statement. Direct operating expenses arising from these investment properties were insignificant. 7. INTANGIBLE ASSETS Goodwill (i) 81,821, ,670,382 Development cost (ii) 6,090,029 3,038,674 Total 87,911, ,709,056 i. Goodwill At 1 January 110,670, ,670,382 Disposals during the year (27,553,094) - Impairment loss (1,295,393) - At 31 December 81,821, ,670,382

64 62 SALAM INTERNATIONAL ANNUAL REPORT INTANGIBLE ASSETS (CONTINUED) i. Goodwill (continued) Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. The allocations of the carrying amounts of goodwill to the Company s CGU s (the subsidiary companies and branches) are as follows: Alu Nasa Company W.L.L., Qatar 4,229,639 4,229,639 Gulf Industries for Refrigration and Catering Company W.L.L., Qatar 1,270,814 1,270,814 International Trading & Contracting Company W.L.L., Qatar (I.T.C.) 4,845,446 4,845,446 Qatar Gardens Company (a branch of I.T.C.) Qatar 4,646,571 4,646,571 Omnix Qatar Company W.L.L., Qatar 4,741,192 4,741,192 Salam Industries W.L.L., Qatar 7,531,543 7,531,543 Salam Media Cast W.L.L., Qatar - 14,564,903 Salam Petroleum Services W.L.L., Qatar 12,937,048 12,937,048 Salam Technical Services W.L.L., Qatar 4,854,968 4,854,968 Stream Industries and Engineering Company W.L.L., Qatar 15,178,083 15,178,083 Salam Enterprises (a branch of I.T.C.), Qatar 1,615,149 1,615,149 Atelier 21 L.L.C., UAE 10,711 10,711 Modern Decoration Company L.L.C., UAE 6,193,199 6,193,199 Middle East Marketing Company L.L.C., UAE - 1,295,393 Salam Enterprises Company L.L.C., UAE 11,062,279 11,062,279 Salam Media Cast L.L.C., UAE - 12,988,191 Qatari German Switchgear Company W.L.L. 2,705,253 2,705,253 81,821, ,670,382

65 Growing with the glory of Qatar INTANGIBLE ASSETS (CONTINUED) ii. Development Cost Development costs include costs incurred for computer software and branding and developing of policies and procedures. The costs incurred for computer software is amortised over a period of three years while the costs related to branding and developing of policies and procedures manual are amortized over a period of five years, being their expected useful lives Cost: At 1 January 18,392,740 16,386,200 Additions during the year 4,850,178 2,022,941 Deletion (71,471) (16,401) At 31 December 23,171,447 18,392,740 Amortization At 1 January 15,354,066 13,476,110 Amortization during the year 1,727,352 1,877,956 At December 31 17,081,418 15,354,066 Carrying amount 6,090,029 3,038, INVESTMENT IN ASSOCIATES a. The outstanding balance of the investment in associates is represented as follows: Ownership SAJ Emirates Trading L.L.C (U.A.E) 43% 43% 3,497,357 5,882,214 Salam Bounian Development Company (Qatar) % - 232,995,368 PC Deal Net Qatar (i) 51% 51% 102, ,000 Qatar Aluminum Extrusion Company Q.S.C 20% 20% 10,000,000 10,000,000 Serene Real Estate S.A.L % - 99,681,704 - Salam Sice Tech Solutions W.L.L.(ii) 51% - 45,376 - Salam Media Cast W.L.L. (Qatar) 20% - 5,948,451 - Salam Media Cast L.L.C (U.A.E) 20% - 2,631, ,906, ,979,582 The carrying values of the investment in associates have been adjusted for the results of associates for the year ended 31 December 2011 which are based on the audited / management financial statements.

66 64 SALAM INTERNATIONAL ANNUAL REPORT INVESTMENT IN ASSOCIATES (CONTINUED) i. The profit sharing entitlement of the Group is 45%, and further the Group does not have control or joint control over this entity and hence treated as an associate. ii. As per the shareholders agreement, the Group does not have either control or joint control over the investee and accordingly treated as an associate. b. The movement in investment in associates during the year is presented as follows: Balance at 1 January 248,979, ,389,499 Acquisition during the year 153,000 98,750 Acquisition on business combination 99,681,704 - Addition due to loss of control in subsidiaries 9,726,661 - Transferred during the year - 10,000,000 Dividends received during the year (6,720,397) (4,089,735) Adjustment as a result of acquisition of an associate (206,055,519) (2,204,739) Share of results from associates during the year (23,859,028) (6,440,976) Transfer to due from a related party - 2,226,783 Balance at end of the year 121,906, ,979,582 c. Details of addition to Group s associates during the year ended 31 December 2011 are as follows: i. Salam Sice Tech Solutions W.L.L. During the period, the Group has entered into a Shareholders Agreement with Sociedad Iberica De Construcciones Electricas SA.(a Company incorporated under the Laws of Spain) to jointly establish a Limited Liability Company, namely, Salam Sice Tech Solutions W.L.L. ( SSTS ). The Group has a 51% stake in the Company. However, SSTS has been accounted for as an associate as per the terms of Shareholders Agreement and Articles of Association. ii. Serene Real Estate S.A.L During the period, the Group has acquired Salam Bounian Development Company which had invested in Serene Real Estate S.A.L, an associate Company. Consequently, with this acquisition, Serene Real Estate S.A.L. has become an associate of the Group. Other changes in Group s investment in associates during the year ended 31 December 2011 are disclosed in note 24.

67 Growing with the glory of Qatar AVAILABLE-FOR-SALE INVESTMENTS Quoted equity instruments i. Equity Securities - Qatar. 29,076,370 37,361,661 ii. Equity Securities UAE 230, ,446 iii. Equity Securities Jordan 28,626,154 1,859,102 iv. Equity Securities - Palestine (i) 4,780,756 4,928,614 v. Equity Securities Bahrain 1,055,261 2,029,349 63,769,530 46,579,172 Unquoted equity instruments 68,321,403 37,859, ,090,933 84,438,750 i. Quoted shares of Palestine Investment Bank include 10,000 shares pledged against its membership of the Board of Directors. a. Available-for-sale investments are denominated in the following currencies: Currencies vi. Qatari Riyals. 29,076,370 37,361,661 vii. US Dollars 56,018,787 44,397,141 viii. Jordanian Dinars 30,096,562 2,279,502 ix. Emirati Dirham 230, ,446 x. Bahraini Dinars 5,004,225 - xi. Saudi Riyals 11,664, ,090,933 84,438,750 b. The movement in available-for-sale investments during the year is presented as follows; Balance at 1 January 84,438, ,523,657 Additions during the year 37,720,508 1,383,096 Additions due to business combination 27,366,774 - Disposals during the year (6,120,232) (8,035,917) Movement in fair value during the year (3,186,600) (582,086) Impairment loss recognized during the year (8,128,267) (2,850,000) Transferred during the year - (10,000,000) Balance at end of the year 132,090,933 84,438,750

68 66 SALAM INTERNATIONAL ANNUAL REPORT RETENTIONS a. Retention receivables Retention receivable represents amounts withheld from the Group s issued invoices as maintenance guarantees by the clients. A portion of the retention is released at the completion date of the contract and the remaining portion is released 365 to 490 days afterwards unless otherwise stated in the respective contracts. The amounts withheld are usually 5 to 10% of each invoice. b. Retention payables Retention payable represents amounts withheld from subcontractors invoices as maintenance guarantees. A portion of the retention is paid at the completion date of the contract and the remaining portion is paid after 365 to 490 days unless otherwise stated in the respective contracts. The amounts withheld are usually 5 to 10% of each invoice. 11. OTHER ASSETS Current Non Current Prepayments 27,709,727 24,288,112-1,026,638 Notes receivables ,000 Advance payments 63,896,086 46,928, Other receivables 36,832,842 24,323, Accrued income 236, , Other assets - - 2,036,063 4,370,455 Total 128,674,983 96,098,022 2,036,063 5,466, INVENTORIES Finished goods and goods for resale 401,269, ,809,443 Goods in transit 3,483,495 2,768, ,753, ,577,984 Less: provision for slow moving inventories (61,832,671) (62,343,359) Total 342,920, ,234,625 Provision for slow moving items is determined based on the age, moveability and management s historical experience with respect to various items of inventories. Movement of provision for slow moving inventories Opening balance as at 01 January 62,343,359 58,204,256 Provisions during the year 4,517,647 4,358,868 Deletion due to sale of subsidiaries (1,330,443) - Write-offs during the year (3,697,892) (219,765) Balance as at 31 December 61,832,671 62,343,359

69 Growing with the glory of Qatar RELATED PARTY DISCLOSURES Transactions with related parties These represent transactions with related parties, such as the major shareholders, senior management of the Company and the companies of which they are the principal owners. The transactions with related parties consist principally of rents, purchase of computer software and accounting services. During the year, the Group entered into the following trading transactions with related parties: Revenue 43,152,898 70,549,073 Cost of sales 13,205,226 11,552,956 Rent income from investment properties 19,445,571 16,583,252 Other income 542,655 10,794,162 Other expenses 3,580, ,770 Finance costs recovered 13,103,451 - Loan to related parties 123,117, ,247,750 For transactions with related parties in relation to business combinations, refer to note 25. a. Due from related parties Bin Omran Trading & Contracting W.L.L 2,503,048 1,088,062 Salam Holdings W.L.L. 1,544, ,502 Salam Tourism Services - 2,345,254 Salam Interconsult W.L.L. 200, ,218 Burhan ITC joint venture 1,837, ,421 PC Dealnet Qatar W.L.L. 1,918,798 1,852,074 Salam Media Cast Saudi Arabia - 534,361 Holmesglen Australia 35,635,693 34,551,279 Gulf Facility Management - 1,200 Leisure Marine Me, Dubai 323, ,350 Al Hussam Holding Company 1,018,972 1,579,192 Salam RBG 2,052,812 1,623,365 Salam Bounian Development Company - 191,510,838 Salam Media Cast - Doha 485,302 - United Metal Treatment 80,000 - Burhan Group 17,362 - Total 47,617, ,083,116

70 68 SALAM INTERNATIONAL ANNUAL REPORT RELATED PARTY DISCLOSURES (CONTINUED) b. Due to related parties Omnix International 1,259,785 1,475,585 RBG UK 6,733,326 4,299,887 Al Nooh Wood Industries 135, ,418 Rayyan System and Solution - 275,364 Luat Mahmoud Darwish 566,122 - Riyadh George Maqiss 465,390 - Sasse Facility Management 98,000 - Total 9,258,194 6,193,254 c. Compensation of key management personnel Short-term benefits Executive managers bonus 7,135,583 7,374,389 Proposed Directors remuneration 4,500,000 3,850,000 Salaries and other short-term benefits 25,664,206 24,088,448 Long-term benefits 1,097, ,266 Total 38,396,918 36,279, TRADE AND OTHER RECEIVABLES Trade receivables 341,952, ,577,045 Provision for doubtful debts (52,830,999) (52,215,590) 289,121, ,361,455 Notes receivables 13,453,249 5,573,650 Total 302,575, ,935,105 Ageing of trade receivables Trade receivables not past due 201,502, ,020,075 Trade receivables past due and not impaired Up to 30 days 20,158,402 23,537, to 60 days 16,981,586 16,908, to 90 days 17,996,163 11,948, to 120 days 8,906,545 6,345,444 Beyond 121 days 23,576,771 24,601, ,121, ,361,455 Trade receivables past due and impaired Beyond 121 days 52,830,999 52,215,590 Total 341,952, ,577,045

71 Growing with the glory of Qatar TRADE AND OTHER RECEIVABLES (CONTINUED) Movement of provision for doubtful debts Opening balance as at 1 January 52,215,590 48,049,278 Provisions during the year 4,597,927 4,992,323 Deletion due to sale of subsidiaries (3,563,988) - Write-offs during the year (418,530) (826,011) Balance as at 31 December 52,830,999 52,215,590 The average credit period for sale of goods and rendering of services is 60 days for private sectors and 90 days for governmental sectors. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. 15. INVESTMENTS AT FAIR VALUE THROUGH PROFIT & LOSS Listed Securities Equity securities Qatar 304,520 8,723, CASH AND CASH EQUIVALENTS For the purpose of the consolidated cash flow statement, cash and cash equivalents include cash and bank balances, net of bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows can be reconciled to the related items in the statement of financial position as follows: Cash and bank balances 173,655, ,229,878 Less: bank overdraft (i) (42,264,609) (36,106,719) Cash & cash equivalents 131,390,403 67,123,159 Bank overdrafts carried an average interest rate of 5.5 % in 2011 (2010: 7.25%). 17. SHARE CAPITAL Authorised, issued and fully paid up QR 10 each 989,736, ,736,680 Bonus shares issued during the year 49,486,840 - Total 1,039,223, ,736, LEGAL RESERVE In accordance with Qatar Commercial Companies Law No.5 of 2002 and the Company s Articles of Association, 10% of the net profit for each year and premium on share issuance by the Company is to be transferred to legal reserve until the reserve equals 50% of the paid up share capital and is not available for distribution except in circumstances specified in the above Law.

72 70 SALAM INTERNATIONAL ANNUAL REPORT PROPERTY REVALUATION RESERVE Balance as at 1 January 499, ,310 Transferred to retained earnings (247,880) (247,879) Balance as at 31 December 251, ,431 The property revaluation reserve arises on the revaluation of land and buildings. When revalued land or buildings are sold/ impaired, the portion of the property revaluation reserve that relates to that asset, and is effectively realized/ impaired, is transferred directly to retained earnings. 20. NON-CONTROLLING INTERESTS Balance as at 01 January 2,354,132 3,473,840 Addition due to business combination 255,225,288 - Share of profit for the year 684, ,600 Net gains from previous years distribution (1,447,850) (298,293) Disposal - loss of control - (1,699,015) Balance as at 31 December 256,816,567 2,354, EMPLOYEES END OF SERVICE BENEFITS This represents provision for end of service benefits for the employees of the Group. Movement in the provision is as follows: Balance as at 1 January 32,668,866 28,829,384 Provision during the year 11,671,226 9,161,095 Addition due to business combination 1,110,002 - Deletion due to disposal of subsidiaries (1,193,208) - Payments / transfers during the year (4,432,676) (5,321,613) Balance as at 31 December 39,824,210 32,668,866

73 Growing with the glory of Qatar BORROWINGS Bank loans are detailed as follows: Maturity Loan 1 (i) 30 September ,657,258 19,314,516 Loan 2 (ii) 30 September ,570,000 5,610,000 Loan 3 (iii) 30 April ,125,412 16,501,650 Loan 4 (iv) 30 June ,037,026 25,019,912 Loan 5 (v) 30 August ,214,563 38,690,938 Loan 6 31 December ,025,293 1,704,095 Loan 7 31 August ,429 1,887,860 Loan 8 (vi) 15 September ,566,000 20,392,400 Loan 9 (vii) 30 June ,397,649 15,462,367 Loan 10 (viii) 19 April ,860,822 39,929,452 Loan December ,562,497 2,372,710 Loan November ,967,184 7,458,980 Loan May ,247,718 5,357,494 Loan 14 (ix) 28 February ,783, ,000,000 Loan 15 (x) 30 April ,316,444 58,264,000 Loan 16 (xi) 01 July ,000,000 - Loan 17 (xii) 06 September ,891,375 - Loan 18 (xiii) 01 December ,051,658 - Loan 19 (xiv) 31 December ,296,611 - Loan 20 (xv) 30 September ,000,000 - Loan 21 (xvi) 15 March ,947,603 - Loan 22 (xvii) 31 July ,875,000 - Loan August , ,093 Loan 24(xviii) 15 March ,870,000 - Loan June ,034,122 - Loan December ,846,986 Loan November ,834,875 Loan 28 (xiii) 27 Jan 2012 (Refinance) 222,175,663 - LTR/Cont. Finance ,522, ,897,609 1,549,863, ,940,937

74 72 SALAM INTERNATIONAL ANNUAL REPORT BORROWINGS (CONTINUED) Presented in the statement of financial position as follows: Current Portion of Murabaha loan (a) 222,175,663 - Current Portion of other loans 383,383, ,086,371 Total current portion 605,559, ,086,371 Non- current portion 944,303, ,854,566 Total 1,549,863, ,940,937 a. This loan (Loan 28) has been obtained on Murabaha terms from an Islamic Bank which is due for settlement on 27 January On 19 October 2011, the bank has granted a new loan for QR 222,175,663 to settle this loan with a new maturity date of 27 January 2019 [refer (xiii) below]. Borrowings include the following: i. A loan of USD million (equivalent to QR. 48 million) was granted in January 2007 for financing working capital of some subsidiaries. The tenor of the loan is 6 years including one year grace period. This loan principal is to be repaid in semi-annual installments of USD million (equivalent to QR million) and the final installment will be made in September ii. An initial loan of QR. 11 million was granted in October 2007 for financing construction of a building for one of the subsidiaries. The total amount utilized was QR million. The loan principal is to be repaid in monthly installment of QR. 170,000 and the final installment will be made in September iii. A loan of AED 50 million (equivalent to QR 49.5 million) was granted in March 2007 for financing the expansion of one of the subsidiaries premises in UAE. The loan principal is to be repaid in monthly installment of AED Million (Equivalent QAR Million) and final installment will be made in April iv. A loan of AED 50 million (equivalent to QR million) was granted in September 2008 to settle an outstanding loan of QR. 20 million and for financing the working capital of Salam Group Companies (in Qatar, UAE, and Oman). The loan principal is to be repaid in semi-annual installment of AED 5 million (equivalent to QR. 4,950,500) and the final installment will be made in June v. A loan of USD 17 million (equivalent to QR 61,905,500) was granted for financing the opening of four new DeBeers outlets in the GCC region and Turkey. The loan principal is to be repaid in quarterly installment of USD1,062,500 (equivalent to QR 3,869,094) and the final installment will be made in August vi. A loan of USD 8 million (equivalent to QR. 29,132,000) was granted in August 2008 for financing the working capital and routine capital expenditure requirement of the subsidiaries. The loan principal is to be repaid in semiannual installment of USD 800,000 (equivalent to QR. 2,913,200) and final installment will be made in September vii. A term loan of QR. 20 million was granted on 10 June 2009 for general corporate purposes. The tenure of this loan is 5 years. The loan is to be repaid over 19 quarterly installments of QR 1,240,000 and the final installment will be made in June viii. A term loan of QR. 50 million (interest accumulates during the grace period) was granted for financing the expansion of one of the subsidiaries. The loan principal is to be repaid in monthly installment of QR 1,585,678 and the final installment will be made in April ix. A term loan of QR. 227 million was granted partly for early repayment of a loan and partly for general corporate purposes. The loan is to be repaid in quarterly installment of QR 11,297,000 and the final installment will be made in February x. A loan of USD 16 million was granted for financing new business developments. The loan principal is to be repaid in quarterly installment of USD 888,889 (equivalent to QR million) and the final installment will be made in April xi. A term loan of QR 50 Million was granted on 2 August 2011 for investment in subsidiaries. The loan principal is to be repaid in 20 quarterly

75 Growing with the glory of Qatar BORROWINGS (CONTINUED) installment of QR. 2.5 million and the final installment will be made in July xii. A term loan of USD 15 Million (Equivalent to QR 54,622,500) was granted on 23 June 2011 to partially finance fit-outs and interiors of boutiques of Salam Studio & Stores W.L.L. The principal is to be repaid in quarterly installment over a period of three years extendable up to five years with final installment will be made in September xiii. The International Murabaha for QR 265 Million was granted on 19 October 2011 to refinance outstanding Salam Bounian facility (Loan 28) and for general investment purposes. Partial drawdown of QR 42,824,337 was made on 1 December 2011 (Loan 18). The remaining amount of QR 222,175,663 will be utilized on 27 January 2012 to settle the loan of Salam Bounian (Loan 28). The loan principal is to be repaid over seven years in semi-annual installment of QR 3,568,695 starting from June 2013 and QR 18,514,639 from August 2013 respectively. The loan will be fully repaid by January xiv. A term loan of QR 250 million was granted on 18 September 2011 to increase the Company s shareholding in Salam Bounian Development Company by way of acquisition of shares of other shareholders. The un-utilized amount of the loan will be drawn in The loan is to be repaid in 28 quarterly installments with a grace period of one year. The final installment will be made in December xv. A term loan of QR 26 million was granted on 22 August 2011 for the purpose of acquiring shares in Al Tajamouat Co, Jordan. The loan is to be repaid in 28 quarterly installments commencing from 31 December 2012 and the final installment will be made in September xvi. A term loan of QR 50 million was granted during the year for financing construction of fashion boutiques in Salam Plaza and other places. The loan is to be repaid in 10 semi-annual installments commencing from 30 September 2011 and the final installment will be made in March xvii. A term loan of QR 34 million was granted during the year for financing Salam Plaza renovation. The loan is to be repaid in 16 quarterly installments of QAR 2,125,000 commencing from 31 October 2011and the final installment will be made in July xviii. The sukuk amounting to USD million was obtained for the construction of the Gate Project. The Sukuk is repayable in semi-annual installments with a final maturity date of March The Sukuk financers are holding USD 12.5 million out of the sukuk in General Reserve Account as a security for the sukuk. The above facilities obtained from financial institutions are secured by: Corporate guarantee of the Company Corporate guarantee of some of the subsidiaries Mortgage over stock and receivables of certain subsidiaries Mortgage over certain properties of the Company The average rate of interest of the above borrowing facilities is between 2.5% to 6.25% 23. OTHER LIABILITIES-CURRENT Customer advances 92,180, ,031,018 Provision for supplier dues 69,911,114 36,095,966 Provision for completed jobs 33,434,342 43,812,151 Provision for social contribution 3,971,630 3,507,040 Dividend payable 9,027,003 5,554,571 Accrued expenses 19,933,582 8,390,888 Staff dues and incentives 49,300,900 43,292,999 Other payables 46,939,894 36,003,942 Total 324,699, ,688,575

76 74 SALAM INTERNATIONAL ANNUAL REPORT SUBSIDIARIES a. Details of changes in Group s subsidiaries during the year ended 31 December 2011 are as follows: i. Sale of subsidiaries During the year, the Company has entered into a Sale Agreement with Ghanim Bin Saad Al Saad and Sons Group L.L.C. for the sale of 80% of the shares in 4 of its 100% owned group entities listed below for a total consideration of QR 65 million. The remaining 20% interest has been considered as an investment in associate in these consolidated financial statements. These 4 Group entities are as follows: a. Salam Media Cast W.L.L., Doha b. Salam Media Cast L.L.C., Dubai c. Salam Media Cast Limited, Saudi Arabia d. Salam Media Cast L.L.C., Oman ii. Salam Hospitality W.L.L. During the year, the Group has acquired the remaining 50% shareholding in Salam Hospitality W.L.L. from Salam Bounian Development Company. Prior to this acquisition, the Group had owned 50% in Salam Hospitality W.L.L. and accounted this as an investment in associate. With the acquisition of the remaining 50% shareholding, Salam Hospitality W.L.L. has become a fully owned subsidiary of the Group. iii. Salam Bounian Development Company On 10 July 2011, The Board of Directors of the Company announced the Company s intention to acquire 22 million additional shares of Salam Bounian Development Company (Salam Bounian) at Qatari Riyal 8.5 per share from shareholders willing to sell their shares. Accordingly the Company has acquired 7,964,707 additional shares from shareholders of Salam Bounian who were willing to sell. With the acquisition of these additional shares, the Company s interest in Salam Bounian has reached 54.28%. This resulted in the Company having control over the financial and operating policies of Salam Bounian and hence this has been treated as a subsidiary in these consolidated financial statements since the acquisition date of 15 December Subsequent to the reporting date up to the date of the financial statements are authorised for issue, the Company has increased its interest in Salam Bounian to 62.55% iv. Jumana Real Estate and Development Company W.L.L. During the year, the Company has acquired 100% shareholding of Jumana Real Estate Development W.L.L. for a total consideration of QR 200,000 from Salam Bounian Development Company. Jumana Real Estate Development W.L.L. owns the Jumana Tower situated in the Pearl, Qatar. Details of the Group s subsidiaries (direct and indirect) at 31 December 2011 are as follows: Name of the Company Proportion of ownership interest % Proportion of voting power held % Principal Activity Salam Technical Services W.L.L Office Equipment Trading Stream Industrial & Engineering Company W.L.L Mechanical Services Qatari German Switchgear Company W.L.L Switchgear Manufacturing Ominx Qatar W.L.L Information Technology Salam Petroleum Services W.L.L Oil/Gas Trading Gulf Steel and Engineering W.L.L Steel Works International Trading & Contracting Company W.L.L Civil Contracting Salam Enterprise Company W.L.L Furniture Trading Qatar Gardens (Branch of International Trading and Contracting Company W.L.L.) Landscapes Salam Industries W.L.L Furniture/Decoration Alu Nasa Company W.L.L Aluminium Works

77 Growing with the glory of Qatar SUBSIDIARIES (CONTINUED) Name of the Company Proportion of ownership interest % Proportion of voting power held % Principal Activity Gulf Industries For Refrigeration and Catering Company W.L.L Kitchen Equipment Holmsglen, Qatar Training Services Qatar Transformer Company W.L.L Manufacture of transformers Jumana Real Estate and Development Company W.L.L Real estate Salam Hospitality W.L.L Restaurant & bakery Salam Bounian Development Company Real estate Salam Enterprises L.L.C.(i) Trading in construction/ water equipment Atelier 21 L.L.C.(i) Interior Design Modern Decoration Company L.L.C.(i) Furniture Manufacturing Alu Nasa Aluminium Industry L.L.C (i) Aluminium Works Salam Interior ((Branch of Salam Studio & Stores L.L.C) Interior Decoration Salam Group W.L.L An intermediary holding Company Salam Studio & Stores W.L.L. Doha Retail and Wholesale of luxury consumer products Salam Studio & Stores L.L.C Dubai (i) Retail and Wholesale of luxury consumer products Salam Studio & Stores Muscat (iii) Retail of luxury consumer products Salam Arabia Trading Establishment Kuwait (ii) General Trading Adabisc Future Qatar W.L.L Advertising Services Salam Trading Enterprises Jordan (iv) Office Equipment Trading Salam Enterprise Company Bahrain Furniture Trading Salam Amwal Holding SAL Investments Salam Capital Holding SAL Investments i. 51 % of the share capital of these companies is commercially registered under the name of UAE Nationals. ii. Salam Arabia Trading Establishment Kuwait is in the process of liquidation. iii. 30% of the share capital of this Company is commercially registered under the name of an Omani national. iv. 50% of the share capital of Salam Trading Enterprises Jordan is commercially registered in the name of the Jordanian national. This Company is in the process of liquidation. The Company has taken all legal procedures necessary to secure its right in ali of these Companies as the partners and shareholders to those companies have signed irrevocable affidavits that Salam International Investment Limited (Q.S.C.) fully owns these Companies.

78 76 SALAM INTERNATIONAL ANNUAL REPORT BUSINESS COMBINATIONS a. Salam Hospitality W.L.L. The fair values of identifiable assets and liabilities of Salam Hospitality W.L.L. as at the date of acquisition which as per the management of the Company equalled their carrying amounts as of the same date were as follows: Fair values on acquisition Assets: Property, plant and equipment 939,566 Financial assets 4,711,606 Total assets 5,651,172 Liabilities: Employees end of service benefits (183,093) Financial liabilities (468,079) Total liabilities (651,172) Total fair value of net assets at the date of acquisition 5,000,000 Fair value of the net assets acquired by the group (100%) 5,000,000 Acquisition cost (2,500,000) Fair value of previously held equity interest in Salam Hospitality (50%) (2,500,000) Goodwill on acquisition - Total acquisition cost of QR 2,500,000 was settled in cash and setting off with the receivable balance from Salam Bounian Development Company. The details of net cash flows arising due to the acquisition are as follows; Acquisition cost settled in cash (1,000) Less: Net cash acquired with the subsidiary 150,103 Net cash inflow 149,103

79 Growing with the glory of Qatar BUSINESS COMBINATION (CONTINUED) b. Salam Bounian Development Company The fair values of identifiable assets and liabilities of Salam Bounian Development Company (Salam Bounian) as at the date of acquisition were as follows: Fair values on acquisition Assets: Property, plant and equipment 809,018 Intangible assets 168,341 Investment properties 1,065,713,100 Investment in associates 99,681,704 Financial assets 127,864,300 Total assets 1,294,236,463 Liabilities: Employees end of service benefits 926,909 Borrowings 610,079,784 Retention payable 68,792,784 Other financial liabilities 56,708,415 Total liabilities 736,507,892 Fair value of identifiable net assets 557,728,571 Non-controlling interests in Salam Bounian as at the acquisition date (384,844) Fair value of identifiable net assets after non-controlling interests 557,343,727 Fair value of net assets acquired by the group (54.28%* 557,343,727) 302,503,283 Fair value of previously held equity interest in Salam Bounian (39.795%* 557,343,723) Note (i) (221,792,747) Fair value of additional net assets acquired 80,710,536 Cost of additional net assets acquired (68,038,526) Gain on bargain purchase 12,672,010 Note (i) Fair value of previously held equity interest is represented as follows; Net carrying value of the investment in Salam Bounian prior to the additional share 206,055,518 acquisition Gain on previously held equity interest in Salam Bounian 15,737,229 Fair value of previously held equity interest 221,792,747 Note (ii) Total acquisition cost of QR 68,038,526 was settled in cash. The details of net cash outflows arising due to the acquisition are as follows; Acquisition cost settled in cash (68,038,526) Less: Net cash acquired with the subsidiary 2,128,644 Net cash outflow (65,909,882)

80 78 SALAM INTERNATIONAL ANNUAL REPORT BUSINESS COMBINATION (CONTINUED) c. Jumana Real Estate and Development Company W.L.L. The fair values of identifiable assets and liabilities of Jumana Real Estate and Development Company W.L.L. as at the date of acquisition which as per the management of the Company equalled their carrying amounts as of the same date were as follows: Fair values on acquisition Assets: Investment property under development 378,722,444 Total assets 378,722,444 Liabilities (a) 378,522,444 Fair value of the net assets acquired by the group 100% 200,000 Total acquisition cost 200,000 This represents amount payable to Salam Bounian Development Company. Upon acquisition, the Company has assumed these liabilities to pay to Salam Bounian Development Company. 26. OPERATING INCOME Contract revenue 941,072, ,088,526 Revenue from sale of goods 880,336, ,707,400 Service and other revenue 45,948,053 65,587,442 1,867,356,443 1,688,383, INVESTMENT INCOME Rental income from investment properties 51,900,236 54,229,800 Profit on sale of available for sale investments 1,953,908 6,656,069 Profit on sale of available for investments at fair value through profit or loss 386,559 41,356 Unrealised gain (loss) on investments at fair value through profit or loss 59,677 1,838,073 Interest income 2,130,108 12,899,252 Dividend income 4,412,319 3,208,556 Gain on disposal of subsidiaries 23,093,359-83,936,166 78,873,106 Investment income earned on financial assets and non financial assets, analyzed by category of asset, is as follows: Available for sale financial assets 6,366,227 9,864,625 Investments at fair value through profit and loss 446,236 1,879,429 Loans and receivables (including cash and bank balances) 2,130,108 12,899,252 Investment income earned on financial assets 8,942,571 24,643,306 Investment Income earned on non financial assets 74,993,595 54,229,800 83,936,166 78,873,106

81 Growing with the glory of Qatar OTHER INCOME Loss on sale of property, plant and equipment (453,299) (4,320,252) Gain on foreign currency exchange rate fluctuation 2,361,092 3,163,810 Rent income from sub-lease arrangements 908,696 4,169,743 Sale of scrap 947, ,882 Miscellaneous income 5,224,665 15,865,492 Others 10,962,927 23,036,839 19,951,382 42,834, GENERAL AND ADMINISTRATIVE EXPENSES Provision for bad and doubtful debts 4,597,927 4,992,323 Provision for slow moving inventories 4,517,647 4,358,868 Office, showroom and warehouse rent 64,270,646 69,606,292 Advertising expenses 7,046,035 9,614,508 Marketing expenses 31,072,156 21,729,939 Repairs and maintenance expenses 11,807,744 9,275,453 Travelling expenses 4,644,645 3,887,863 Communication expenses 5,152,475 5,254,494 Electricity and water expenses 7,498,936 7,549,209 Business development expenses 3,051, ,386 Entertainment expenses 1,485,399 1,523,748 Tender fee 885,237 1,015,861 Insurance expenses 3,013,870 3,044,401 Legal and registration charges 5,843,770 4,557,560 Printing and stationery expenses 2,442,912 2,261,754 Professional fees 2,981,769 2,129,785 Meeting and conference expenses 204, ,965 Fuel expenses 2,835,614 2,221,304 Subscription and catalogues 688, ,429 Transportation expenses 748, ,049 Donations 1,370,084 1,485,823 Write-off of property, plant and equipment 10,568,397 3,552,891 Others 478,400 4,922,225 Total 177,206, ,406, PROVISION FOR SOCIAL CONTRIBUTION In accordance with law number 13 of 2008, the Group has taken a provision for the support of sports, social, cultural and charitable activities with an amount equivalent to 2.5% of the net profit of the Group. As per the instruction issued by the Ministry of Economy and Finance during 2010, this social contribution is considered as an appropriation of retained earnings of the Group and presented in statement of changes in equity.

82 80 SALAM INTERNATIONAL ANNUAL REPORT EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing the profit for the year attributable to owners of the parent by the weighted average number of ordinary shares outstanding at the statement of financial position date. The basic and diluted earnings per share are the same as there were no dilutive effects on earnings (Re-stated) Profit for the year attributable to owners of the parent 158,865, ,281,607 Adjusted weighted average number of outstanding shares 103,922, ,922,352 Basic and diluted earnings per share PROPOSED DIVIDEND AND BONUS SHARES In their meeting held on 15 January 2012, the Board of Directors proposed an issue of bonus shares of 10% amounting to QR 103,922,350 and a cash dividend of 10% amounting to QR 103,922,352 (2010: bonus shares of QR 49,486,840 and cash dividend of QR 98,973,668) as the dividend distribution for the current financial year which are subject to the approval of the shareholders at the General Assembly. The cash dividend and the bonus share issue for 2010 were approved by the shareholders at the General Assembly held on 28 February NOTES PAYABLE Minimum Payments 2011 Present Value of Minimum Payments 2011 Minimum Payments 2010 Present Value of Minimum Payments 2010 No later than 1 year 7,735,260 7,735,260 30,941,040 30,171,274 Later than 1 year not later than 3 years - - 7,735,260 7,229,214 7,735,260 7,735,260 38,676,300 37,400,488 Less: future finance charges - - (1,275,812) - Present value of minimum payments 7,735,260 7,735,260 37,400,488 37,400,488 (i) (i) This represents the payable (included under notes payable) related to the purchase of four pieces of land having an area of 317,344 sq. ft located in Lusail District Qatar. The total purchase price of the four pieces of land is QR. 206,293,600 (refer to Note 6.vi). The Group used a discount rate of 7% (2010: 7%) to calculate the present value of these future payments, which represents the average borrowing rate of the Group. 34. CONTIGENT LIABILITIES Letters of credit 144,308, ,712,524 Letters of guarantee 416,111, ,389,856 The Company has given corporate guarantees on behalf of certain subsidiaries to avail banking facilities.

83 35. OPERATING SEGMENTS The Group operates in the areas of contracting, energy and power, consumer and luxury products, technology and communication and real estate and investments. Transactions between segments are conducted at estimated market rates, as approved by management, and are eliminated on consolidation. The following table shows the distribution of the Group s revenue, expenditure and summary of assets and liabilities: Consumer and 31 December 2011 Contracting Energy & Power luxury products Operating income Technology and telecommunication Real estate and investments Total From external customers 707,257, ,755, ,219, ,754,792 3,369,314 1,867,356,443 Inter-segment 64,488,438 7,724,840 4,630,748 2,591,122 12,748,948 92,184,096 Total operating income 771,745, ,480, ,850, ,345,914 16,118,262 1,959,540,539 Segment results 50,668,757 4,956,076 59,196,541 17,491,499 27,237, ,550,211 Assets and liabilities Segment assets 559,709, ,139, ,729,011 70,992,897 2,533,341,595 4,363,912,513 Segment liabilities 375,081, ,768, ,801,316 42,835,534 1,442,323,655 2,436,810,599 Other segment information Capital expenditures: Tangible assets 20,586,016 5,373,007 69,266, ,277 33,468, ,249,496 Acquired through business combinations ,444,435,544 1,444,435,544 Intangible assets 941,591 1,446,738 1,786, , ,370 4,850,178 21,527,607 6,819,745 71,052, ,943 1,478,292,986 1,578,535,218 Depreciation 14,383,320 4,876,816 31,616,830 1,845,651 8,765,183 61,487,800 Amortisation / impairment 215, ,803 2,381,916 55, ,431 3,022,744

84 35. OPERATING SEGMENT(CONTINUED) Consumer and luxury products Technology and telecommunication Real estate and investments Total 31 December 2010 Contracting Energy & Power Operating income From external customers 575,579, ,664, ,626, ,724,587 1,787,950 1,688,383,368 Inter-segment 25,740,972 3,826,744 5,771,528 1,841,682 13,097,894 50,278,820 Total operating income 601,320, ,491, ,397, ,566,269 14,885,844 1,738,662,188 Segment results 42,352,446 14,869,431 22,845,126 17,551,260 43,540, ,159,207 Assets and liabilities Segment assets 472,890, ,626, ,007, ,968,528 1,111,221,685 2,814,714,187 Segment liabilities 307,641, ,409, ,496,213 67,266, ,995,162 1,194,808,034 Other segment information Capital expenditures: Tangible assets 9,953,698 17,355,213 29,427,855 3,026,797 16,362,300 76,125,863 Intangible assets 158,868 1,095, , ,022,941 10,112,566 18,450,213 30,196,928 3,026,797 16,362,300 78,148,804 Depreciation 15,256,056 4,710,109 34,038,167 1,990,620 7,055,009 63,049,961 Amortisation 75,989 29, ,649 47,369 1,011,526 1,877,956

85 Growing with the glory of Qatar FINANCIAL RISK MANAGEMENT i. Credit risk The Group s credit risk is primarily attributable to its trade receivables, other receivables, due from related parties and retention receivable and bank balances. The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables. Credit evaluations are performed on all customers requiring credit and are approved by the Group s management. The credit risk on bank balances is limited because the counterparties are banks with high credit ratings assigned by international creditrating agencies. Bank balances are held with reputed banks in and outside Qatar. Given these reputation management do not expect these banks to fail on their obligations. The Group maintains a provision for doubtful accounts receivable; the estimation of such provision is reviewed periodically and established on a case by case basis. Please refer note 14 for trade receivables ageing. ii. Liquidity risk The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The following are the contractual maturities of financial liabilities including finance cost payments and excluding the impact of netting agreements, if any: Gross un-discounted 31 December 2011 Carrying Amounts contractual cash out flows Less than 1 year 1 5 Years Due to related parties (9,258,194) (9,258,194) (9,258,194) - Retention payables (101,504,758) (101,504,758) (53,676,902) (47,827,856) Trade and other payables (259,150,730) (259,150,730) (259,150,730) - Notes payables (21,766,438) (21,766,438) (16,989,468) (4,776,970) Other liabilities (70,918,325) (70,918,325) (70,580,701) (337,624) Bank overdrafts (42,264,609) (42,264,609) (42,264,609) - Borrowings (1,549,863,362) (1,549,863,362) (605,559,606) (944,303,756) (2,054,726,416) (2,054,726,416) (1,057,480,210) (997,246,206) 31 December 2010 Carrying Amounts Gross un-discounted contractual cash out flows Less than 1 year 1 5 Years Due to related parties (6,193,254) (6,193,254) (6,193,254) - Retention payables (27,788,179) (27,788,179) (22,459,651) (5,328,528) Trade and other payables (171,817,634) (171,817,634) (171,817,634) - Notes payables (39,303,660) (39,303,660) (31,984,906) (7,318,754) Other liabilities (44,732,454) (44,732,454) (44,394,830) (337,624) Bank overdrafts (36,106,719) (36,106,719) (36,106,719) - Borrowings (532,940,937) (532,940,937) (243,086,371) (289,854,566) (858,882,837) (858,882,837) (556,043,365) (302,839,472)

86 84 SALAM INTERNATIONAL ANNUAL REPORT FINANCIAL RISK MANAGEMENT (CONTINUED) iii. Market risk a. Equity price risk The Group is subject to equity price risk in relation to available for sale investments and investment at fair value through profit or loss. The Group evaluates the current market value and other factors including normal volatility in share price for quoted equities and other relevant factors such as investment manager s periodical reports relating to unquoted equities in order to manage its market risk. A 10% increase in market values of the Group s quoted portfolio of available for sale investment is expected to result in an increase in the asset by QR 6,376,953 (2010: QR 4,657,917) an equal change in the opposite direction would have decreased the equity by QR 6,376,953 (2010: QR 4,657,917). A 10% increase in market values of the Company s portfolio of investment at fair value through profit or loss is expected to result in an increase of QR 30,452 (2010: 872,307) in the assets and profit of the Company and an equal change in the opposite direction would have decreased the assets and profit by QR 30,452 (2010: 872,307) b. Interest rate risk The Group is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. Management does not hedge its interest rate risk. Profile At the reporting date the interest rate profile of the Group s profit-bearing financial instruments was: Carrying amounts Fixed rate instruments Bank loans 423,970, ,516,211 Variable rate instruments Bank overdrafts 42,264,609 36,106,719 Bank loans 1,125,892, ,424,726 1,168,157, ,531,445 The following table demonstrates the sensitivity of the Group s profit to reasonably possible changes in interest rates, with all other variables held constant. The sensitivity of the profit is the effect of the assumed changes in interest rate on the Group s profit for one year, based on the floating rate financial assets and financial liabilities held at 31 December Profit or (loss) Profit or (loss) bps 100 bps 100 bps 100 bps Increase Decrease Increase Decrease Variable rate financial liabilities (11,681,574) 11,681,574 (2,525,314) 2,525,314

87 Growing with the glory of Qatar FINANCIAL RISK MANAGEMENT (CONTINUED) iii. Market risk (continued) c. Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Group s functional currency and significant foreign currency transactions are denominated in currencies pegged with United States Dollar ( USD ). Therefore the Management is of the opinion that the Group s exposure to currency risk is minimal. Fair values versus carrying amounts The fair values of financial instruments, with the exceptions of available-for-sale investments and investments at fair value through profit or loss, carried at cost are not materially different from their carrying values. Capital risk management The Group manages its capital to ensure that it will be able to continue on a going concern basis while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group s overall strategy remains unchanged from The capital structure of the Group consists of debt, which includes the borrowing disclosed in note (22), net of cash and cash equivalents and equity, comprising issued share capital, reserves and retained earnings. Gearing Ratio The Group s management reviews the capital structure on a regular basis. As part of this review, the management considers the cost of capital and the risks associated with each class of capital. The gearing ratios at the year end are as follows: Debt (a) 1,549,863, ,940,937 Cash and cash equivalents (Note 16) (131,390,403) (67,123,159) Net debt 1,418,472, ,817,778 Equity (b) 1,927,101,914 1,619,906,153 Net debt to equity 73.61% 28.80% a. Debt is defined as long and short term borrowing, as detailed in note 22. b. Equity includes all share capital and reserves of the Group.

88 86 SALAM INTERNATIONAL ANNUAL REPORT ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: i. Contracts in progress In accordance with accounting for contracts, in case the Group expects a loss at the end of the contract, the expected loss should be recorded at the time it becomes known to management. In this respect, management has estimated the cost-to-complete on contracts in progress as of 31 December Based on the expected cost to complete management is confident that the contracts will result in a profit at completion and accordingly no provision for expected losses is required. ii. Impairment of receivables An estimate of the collectible amount of trade accounts receivable and due from related parties is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. At the statement of financial position, there was no allowance for impairment of due from related parties or other receivables as the Group does not have collection concern with regards to its receivables from its related parties. iii. Provision for slow moving stock The Group s management determines the estimated amount of slow moving inventories. This estimate is based on the age of items in inventories. This provision is subject to change as a result of technical innovations and the usage of items. iv. Impairment of available-for-sale equity investments The Group treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in fair value below its cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires considerable judgment. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities, if any. v. Fair value of unquoted equity investments If the market for a financial asset is not active or not available, the Group establishes fair value by using valuation techniques which include the use of recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models refined to reflect the issuer s specific circumstances. This valuation requires the Group to make estimates about expected future cash flows and discount rates that are subject to uncertainty. vi. Classification of investment securities On acquisition of an investment security, the Group decides whether it should be classified as investments at fair value through profit or loss or available-forsale. The Group follows the guidance of IAS 39 on classifying its investments. The Group classifies investments as held for trading if they are acquired primarily for the purpose of short term profit making and cash generation. All other investments are classified as available-for-sale. The Group accounts for investments in equity securities as investment in associate only when significant influence over the investee s operations can be proved to exercise, else and regardless of the ownership share, the investment is classified as available for sale.

89 Growing with the glory of Qatar LITIGATION On 27th December 2010, the court of first instance in Qatar issued its verdict against the Company invalidating the executive procedures of mergers involving the Company that took place in 2002 and This ruling was based on a case filed by a shareholder who owns 1,000 shares that he acquired on 6 January This case was filed after the said shareholder represented another shareholder sued by the Company. The Company had filed an appeal against this ruling before the court of appeal requesting to stop the execution of the ruling of the court of first instance. However, on 30 October 2011, the court of appeal upheld the verdict of the court of first instance that invalidates the executive procedures for the said mergers. Without compromising the authenticity and legality of these decisions in terms of subject or form, for the legal grounds supporting its legal position the Company has submitted a cassation against this verdict of the court of appeal before the court of cassation on 27 December Preliminary hearings in this regard are expected to take place in the near future. 39. COMPARATIVE FIGURES The corresponding figures presented for 2010 have been reclassified where necessary to preserve consistency with the 2011 figures. However, such reclassifications did not have any effect on the consolidated net profit or the total consolidated equity for the comparative year.

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