In The Name of Allah, The Most Gracious, The Most Merciful

Transcription

1 In The Name of Allah, The Most Gracious, The Most Merciful

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3 HIS HIGHNESS Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah AMIR OF THE STATE OF KUWAIT HIS HIGHNESS Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah CROWN PRINCE OF THE STATE OF KUWAIT HIS HIGHNESS Sheikh Naser Al-Mohammad Al-Ahmad Al-Sabah PRIME MINISTER OF THE STATE OF KUWAIT

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5 Contents Shari ah Supervisory Committee Report 6 Board of Directors 7 Chairman s Message 8 5

6 Esteemed Shareholders, According to our signed contract, we have applied the required auditing for Stehwaz Holding s achieved transactions and concluded contracts to ensure their compliance to Islamic Shari ah principles, as already revealed by our submitted reviews, Shari ah instructions and decisions during the period ended 31 st December, The commitment to execute these transactions and contracts in compliance with Shari ah guidelines is Stehwaz s liability, whereas our responsibility is restricted to reviewing the submitted models and agreements. We hereby certify that all Stehwaz s activities and transactions as well as Zakat calculations were practiced in compliance with the Islamic Shari ah principles and provisions, and no violations have occurred to the best of our knowledge. Sheikh Dr. Essa Zaki Shaqra Chairman Sheikh Dr. Nayef Hajaj Al Ajmi Member Sheikh Dr. Essam Khalaf Al Inizi Member 6

7 Board of Directors Hani Abdulaziz Hussain Al-Turkait Chairman Nader Hamad Sultan Al-Essa Vice Chairman Dherar Khaled Al-Rabah C.E.O & Managing Director Hala Abdullah Al-Ghanim Board Member Abdullateef Abdul Wahab Al-Rifa e Board Member Mahmoud Abdul Samad Bu Shihri Board Member 7

8 Chairman s Message In the name of God most merciful, most gracious! Dear Shareholders, On behalf of myself and my colleagues, the members of the Board of Directors, I have great pleasure to welcome you and present our company s Annual Report for the year ending, 31 December 2008 which includes the facts and figures related to Stehwaz Holding s performance and achievements. I feel it expedient to mention in this context, a review of the financial crisis that hit the economy worldwide and its impact at the local and regional levels as well. It is well known to all by now, what the world economy suffered in 2008, an alarming financial situation never witnessed before since the great depression of the twenties (the 1920s) of the last century. According to prominent economy experts, last year s financial crisis in its severity has surpassed all economical crisis witnessed not only by the early decades of the last century but the present one as well, notably, the 2008 crisis is marked off by ambiguity of features and consequences. Others believe that the consequences of this crisis is only at its beginnings and that its real impact is still not fully reflected on global market despite the major losses incurred because of this dilemma. The consequences of the global crisis in 2008 have had severe impacts not only on the world economy but on the GCC economy as well especially with the severe decrease in oil prices. The crisis also had its negative impacts on the stock exchange markets which lost a great deal of its value because of the panic that hit the investors and the non-interference of specialized authorities to regain the lost trust of these investors not to mention its major impact on the real estate sector followed by a decrease in cash flow and the slow movement in real estate development. As a result, this negative impact of the financial crisis affected major reputed enterprises, their glory becoming an old saga in the history of the economical activities after having been leaders in the global financial sectors for decades together. No doubt, Kuwait economy was not far from other economies, notably, the major ones. Kuwait Stock Exchange has suffered great losses owing to the crucial financial crisis in 2008 where all indices dropped down the scale and the price index closed at points marking a decrease of 38% and 4776 compared to the closing as of 31December 2007 at points. At the same time the Saudi financial market dropped by 55.7% whereas other Gulf markets witnessed a drop of %. This drop was accompanied by a major asset value decrease. It may be noted that the industrial and the investment sectors suffered major losses as well where the industrial sector profits dropped to 184 % and the investment sector profits dropped by 148 % compared to 2007 results where most companies of these two sectors did not achieve any profit whatsoever. 8

9 These negative impacts and, notably, the decrease in asset value had its disadvantages on Stehwaz Holding Co. as well where we are closely linked to these indicators. The company s total assets reached, as of 31 December 2008, KD million compared to KD million of 2007, with a decrease rate of 8%. It is worth mentioning that by end of June 2008 our asset value rose to KD 480 million. Shareholders equity recorded KD million as of 31 December 2008 compared to KD 311million in 2007 with a decrease rate by 23% denoting that on 30 June 2008 Shareholders equity increased to KD million. These negative impacts had reflected on our total revenue which witnessed a severe decrease as per criteria 39 of the international account criteria that indicates to list any stock loss which decreases percentage of more than 30% with the income list. Hence the company recorded an accumulated loss of KD 78.8 million in 2008 compared to profits of KD 29.2 million in The main reason for this major loss accounts for the decrease in the stock/share market value where a loss worth KD 46.7 million under the continuous exchange account of the available financial investment fair value were recognized and a loss worth KD28.7 million listed under investment losses account, included in the income statement. In spite all these difficulties, the company had promised by the end of last year to accomplish the establishment of Stehwaz Real Estate Co. with a capital of KD5 million where all the real estate company investments would be transferred to the newly established company. Due to this Stehwaz Real Estate Co. became the real estate arm of the company and managed to acquire 21.4% sharers of the Real Estate & Tourism Investment Manazal Co. located in Arab Republic of Egypt. Manazal claims a huge investment residential project covering a million sq.mts of land in New Cairo area (Assembly 5). The newly established company managed as well to acquire 10% assets of Al Bilad Real Estate Co. located in Bahrain, a giant investment project covering 300,000 sq.mts for constructing an outstanding Touristic Resort. Stehwaz Real Estate managed to purchase a land block unit of 10,000 sq.mts in the Shuwaikh Industrial area that is expected to attract huge industrial & handicrafts investment projects in Kuwait. By the end of 2008, it has been initially agreed to purchase a land block unit of 82,000 sq.mts in Gila a. Thus the total land possessed by the company in that area amounts to 164,000 sq.mts. Moreover, the company is contemplating to construct a prestigious touristic resort, once the economy improves an initiative that will contribute to achieving remarkable financial returns in the years to come. Details of these investments will be mentioned in the company s results of next year with God s will. Despite the credit crunch and the halt of credit resources in all the market sectors, Stehwaz which had only a limited finance of KD60 million constituting 24% of its capital, had tried to deploy a number of available investment opportunities and to manipulate that finance at its best. Please note in this connection that our company will continue to strive to settle that debt or credit at the right time after concluding the agreement with the offering of the local bank after ascertaining that this bank has submitted to the company a certificate of its financial potential and operational efficiency. At the same time in 2008, we have achieved in co operation with international consultants the final study of our strategic future plans. But in respect of the previously mentioned economic difficulties and conditions we have decided to postpone this study till a more conducive atmosphere sets in. 9

10 Esteemed Shareholders, It is worth mentioning and as promised, Stehwaz Holding has in store, many promising future plans to continue its success march. The company s Management will strive to achieve its goals with the support of you, our esteemed shareholders and your honest understanding of the nature of the present state of the company in particular and the world economy in general. We, God willing, will surpass this leap year safely and we do hope that 2009 will be more promising and better than 2008 referring to the company s promise with regard to listing in the Kuwait Stock Exchange. In fact, the listing was ready to be executed by early September, But the unexpected decrease of all the stock indices resulted in taking a bold and timely decision by our esteemed Board members not to proceed with the listing and to wait until the economy improves and recovers whereas such recovery will be positively reflected in the company s assets and then, to discuss the right decision of listing which will contribute to the interests of the shareholders. On the short and very close terms, the company s priorities are to be prepared to face the global and local hard economy situations in 2009 & 2010 and meanwhile, be ready to seize rewarding opportunities to purchase assets at the time when these opportunities feature low value. In parallel and in 2009 we are targeting to reduce costs at both levels, the parent company and its subsidiaries, which we have already applied. To conclude, let me extend, on behalf of myself, my fellow members of the Board of Directors, the Executive Management and our employees of all divisions, our sincere appreciation and profound gratitude to our honourable shareholders for their great efforts and trust, praying to God Almighty to maintain His continued blessings and safeguard our beloved country under the wise leadership of H.H. Sheikh Sabah Al Ahmed Al Jaber Al Sabah, the Amir of Kuwait and H.H. Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah. Chairman. 10

11 Contents Independent Auditor s Report 12 Consolidated balance sheet 14 Consolidated statement of income 15 Consolidated statement of changes in equity 16 Consolidated statement of cash flows 17 Notes to the consolidated financial statements 18 11

12 Independent Auditor s Report The Shareholders Stehwaz Holding Company K.S.C. (Holding) State of Kuwait Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Stehwaz Holding Company K.S.C. (Holding) ( the Parent company ) and its subsidiaries ( together to as the Group ) which comprise the consolidated balance sheet as of and the related consolidated statements of income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Consolidated Financial Statements The Parent Company s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Parent company s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Parent company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 12

13 Opinion In our opinion, the consolidated financial statements mentioned above present fairly, in all material respects, the financial position of the Group, as of, and its financial performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements Furthermore, in our opinion proper books of account have been kept by the Parent company and the consolidated financial statements, together with the contents of the report of the board of Parent company directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate the information that is required by the Commercial Companies Law of 1960 as amended, and the Parent company s Memorandum of Association, and stock taking was duly conducted in accordance with recognized practices. To the best of our knowledge and belief, no violations of the Commercial Companies Law of 1960 nor of the Parent company s Memorandum of Association have occurred during the year ended December 31,2008 that might have had a material effect on the business of the Group or on its financial position. Ali A. Al Hasawi License No. 30 (A) Rödl Middle East Burgan International Accountants May 18, 2009 State of Kuwait 13

14 Consolidated balance sheet Exhibit -A Note Assets Non-current assets Property and equipment 403, ,309 Investment properties 4 64,958,989 62,297,528 Land and real estate under development 5 17,094,828 11,760,432 Investments available for sale 6 16,990,633 51,388,651 Investments in unconsolidated subsidiaries 7 3,225,231 2,703,614 Investment in associates 8 13,698,922 - Goodwill 9 48,027,994 53,672, ,400, ,220,809 Current assets Receivables and other debit balances 10 87,598,582 99,886,442 Investments receivables in Wakala, Tawaroq and Murabha 11 58,770,946 69,441,087 Investments at fair value through statement of income 12 97,169,904 94,885,881 Due from related parties 26 3,066,764 - Cash and cash equivalents 13 2,323,625 4,056, ,929, ,269,473 Total assets 413,330, ,490,282 Equity and liabilities Equity Share capital ,000, ,000,000 Statutory reserve 15 4,777,258 4,777,258 Voluntary reserve 16 4,777,258 4,777,258 Treasury shares 17 (5,861,332) - Employees stock option reserve - subsidiary 91,598 45,770 Foreign currency translation reserve 287,621 - Change in fair value reserve )42,579( (8,754,368) (Accumulated loss)/retained earnings (38,347,855) 37,596,062 Equity attributable to Parent company s shareholders 215,681, ,441,980 Minority interest 23,598,006 22,529,818 Total equity 239,279, ,971,798 Liabilities Non-current liabilities Wakala payable and Tawaroq 18 6,607,157 80,053,956 Employees end of service indemnity 959, ,234 7,566,576 80,779,190 Current liabilities Wakala payable and Tawaroq ,519,224 53,354,537 Payables and other credit balances 19 25,964,262 3,966,933 Due to related party 26-1,417, ,483,486 58,739,294 Total liabilities 174,050, ,518,484 Total equity and liabilities 413,330, ,490,282 The accompanying notes form an integral part of these consolidated financial statements Nader Hamad Sultan Al-Essa Vice Chairman Dherar Khalid Al-Rabah Managing Director 14

15 Consolidated statement of income Exhibit -B Note Revenue Unrealized (loss)/gain from changes in fair value of investment properties )1,248,866( 12,607,228 Realized gain from sale of investment properties 1,122,417 1,039,283 (Loss)/gain from sale of land under development )10,211( 914,241 Gain from sale of land for trading - 138,978 Gain from investments available for sale 20 1,623,685 6,145,671 (Loss)/gain from investments at fair value through statement of income 21 (28,735,799) 6,942,441 Impairment loss of financial investments (46,705,442) (450,000) Gain from investments in Wakala and Tawaroq 15,202,076 20,527,941 Impairment loss of goodwill (5,644,281) - Gain from sale of share in consolidated subsidiary 565,632 - Share of results from associates )20,985( - Consultancy fees 685, ,077 Leasing income 538, ,543 Gain/(loss) from foreign currency differences 233,666 )38,058( Other income 1,160, ,059 (61,233,295) 49,857,404 Expenses and other charges General and Administrative expenses 22 )5,134,724( 4,304,122)) Depreciation )101,689( )106,457( Allowance for doubtful debts )293,082( )120,734( Charges on Wakala payables and Tawaroq )11,969,622( )9,714,800( )17,499,117( )14,246,113( (Loss)/profit for the year before board of directors remuneration, Kuwait Foundation for the Advancement (78,732,412) 35,611,291 of Science and Zakat Board of directors remuneration - )60,000( Kuwait Foundation for the Advancement of Science 23 - )259,250( Zakat 24 - )21,727( Net (loss)/profit for the year (78,732,412) 35,270,314 Net (loss)/profit for the year attributable to: Shareholders of the Parent company (75,923,480) 29,205,396 Minority interest (2,808,932) 6,064,918 (78,732,412) 35,270,314 (Loss)/earnings per share attributable to the Shareholders of the Parent company (Fils) 25 (30.99) The accompanying notes form an integral part of these consolidated financial statements 15

16 Consolidated statement of changes in equity Exhibit -C Share capital Statutory reserve Voluntary reserve Treasury shares Employees stock option reserve -subsidiary Foreign currency translation reserve Change in fair value reserve (Accumulated loss)/ retained earnings Total Minority interest Total equity Balance at January 1, ,000,000 1,831,633 1,831, (7,989,193) 14,281, ,955, ,955,989 Realized from sale of ,327,592-3,327,592-3,327,592 investments available for sale Change in fair value of (4,900,742) - (4,900,742) - (4,900,742) investments available for sale Reversal of reserve related to , , ,975 subsidiary at acquisition date Net loss recognized directly in equity (765,175) - (765,175) - (765,175) Net profit for the year ,205,396 29,205,396 6,064,918 35,270,314 Total recognized profit for the year (765,175) 29,205,396 28,440,221 6,064,918 34,505,139 Net change in subsidiaries , ,770 16,464,900 16,510,670 Transfer to reserves - 2,945,625 2,945, (5,891,250) Balance at December 31, ,000,000 4,777,258 4,777,258-45,770 - (8,754,368) 37,596, ,441,980 22,529, ,971,798 Balance at January 1, ,000,000 4,777,258 4,777,258-45,770 - (8,754,368) 37,596, ,441,980 22,529, ,971,798 Purchase of treasury shares Parent company (note 17) (5,612,650) (5,612,650) - (5,612,650) Realized from sale of investments available for sale (148,923) - (148,923) - (148,923) Impairment loss of financial investments ,258,730-43,258,730-43,258,730 Change in fair value of investments available for sale (34,355,439) - (34,355,439) - (34,355,439) Foreign currency translation reserve , , ,878 Net loss recognized directly in equity ,878 8,754,368-9,043,246-9,043,246 Net losses for the year (75,923,480) (75,923,480) (2,808,932) (78,732,412) Total recognized loss for the year ,878 8,754,368 (75,923,480) (66,880,234) (2,808,932) (69,689,166) Net change in subsidiaries (248,682) 45,828 (1,257) (42,579) (20,437) (267,127) 3,877,120 3,609,993 Balance at 250,000,000 4,777,258 4,777,258 (5,861,332) 91, ,621 (42,579) (38,347,855) 215,681,969 23,598, ,279,975 The accompanying notes form an integral part of these consolidated financial statements 16

17 Consolidated statement of cash flow Exhibit -D Cash flows from operating activities Net (loss)/profit for the year )78,732,412( 35,270,314 Adjustments: Loss/(gain) from investments at fair value through statement of income 28,735,799 )6,942,441( Gain from investments available for sale )1,623,685( )6,145,671( Realized gain from sale of investment properties )1,122,417( )1,039,283( Loss/(gain) from sale of land under development 10,211 )914,241( Charges on Wakala payables and Tawaroq 11,969,622 9,714,800 Impairment loss of goodwill 5,644,281 - Share of results from associates 20,985 - Gain from sale of share in consolidated subsidiary )565,632( - Gain from sale of properties held for trading - )138,978( Impairment loss of financial investments 46,705, ,000 Unrealized loss/(gain) from changes in fair value of investment properties 1,248,866 )12,607,228( Allowance for doubtful debts 293, ,734 Depreciation 101, ,457 Property and equipment written off 51,840 - Provision for employees end of service indemnity 234,185 90,900 Operating profit before changes in working capital 12,971,856 17,965,363 Changes in working capital: Receivables and other debit balances 12,032,246 8,215,595 Related parties Net )4,484,588( - Investments at fair value through statement of income (1,956,170) )35,177,154( Payables and other credit balances )2,473,762( 217,097 Net cash from/(used in) operating activities 16,089,582 )8,779,099( Cash flows from investing activities Purchase of investments available for sale )2,681,640( )1,323,591( Proceeds from sale of investments available for sale 4,752,435 21,863,939 Investments receivables in Wakala, Tawaroq and Morabha )21,445,000( 86,330,963 Proceeds from sale of (paid for acquisition) share in a subsidiary 565,632 )99,411,014( Investment in unconsolidated subsidiaries )522,874( )2,478,614( Investment in associates )3,350,000( - Purchase of investment properties )8,516,090( )17,483,949( Proceeds from sale of investment properties 18,483,985 10,999,985 Purchase of Land and real estate under development )11,729,363( )7,586,203( Proceeds from sale of Land and real estate under development 3,414,901 5,761,460 Paid for purchase of properties held for trading - )900,000( Proceeds from sale of properties held for trading - 1,359,113 Cash dividends received 3,554,102 2,307,086 Purchase of property and equipment )158,839( )166,064( Net cash used in investing activities )17,632,751( )726,889( Wakala payables and Tawaroq 13,236,850 22,649,537 Employees stock options 45,828 45,770 Purchase of treasury shares (5,612,650) - Minority interest 3,629,287 - Paid charges on Wakala payables and Tawaroq (11,488,584) (9,714,800) Net cash generated from financing activities (189,269) 12,980,507 Net (decrease)/increase in cash and cash equivalents (1,732,438) 3,474,519 Cash and cash equivalents at January 1 4,056, ,544 Cash and cash equivalents at December 31 2,323,625 4,056,063 The accompanying notes form an integral part of these consolidated financial statements 17

18 Notes to the consolidated financial statements 1. Incorporation and activities The Company was established in accordance with Articles of Association No. 1879/ Volume 1 dated June 2, 2001 under the name of Amwag Al-Kuwait for Computer and Management Consulting Company K.S.C (Closed), several subsequent amendments had been executed where the latest was on March 12, 2006 and June 26, 2007 respectively for the change of the Company s name to Stehwaz Holding Company K.S.C. (Holding) and amending the Company s objectives Owning shares in Kuwaiti or foreign shareholding companies. Also, owning shares or quotas in Kuwaiti or foreign limited liability companies or the participation in establishing these companies, managing them, lending them and guaranteeing them to others. Lending and guaranteeing companies in which it holds its shares, providing that the ownership of the Holding company in the borrowing company must be at least 20%. Owning that industrial property rights comprising of patent, industrial trademark, industrial charges or any other relating rights and leasing them to other companies for use whether inside Kuwait or abroad. Ownership of movables and real estates necessary to commence its activities within the applicable laws. The exploitation of the Companies financial surpluses through investing them in portfolios managed by experts and specialized companies. The Company is permitted to conduct the above-mentioned activities inside Kuwait and abroad by it self or through an agent. The Company shall have the right to have an interest or to take part in any manner with the authorities that practice similar operations, or that may help the Company to achieve its objectives inside Kuwait and abroad. The Company shall also establish or participate or acquire these authorities or merge them with the Company. According to Article No. 53 of the Company s memorandum of association, the Company has to establish Shari ah Supervisory Board consists of three specialized persons in Islamic regulations. The boards objective is to express the islamic opinion in respect of the Company s activities and objective and ensure the adherence with Islamic regulations principals The financial statements were approved for issue by the board of directors on May 18, The shareholders general assembly meeting has the right to amend these financial statements after their issuance. 2. Adoption of new and revised standards and interpretations Standards and interpretations effective during the year IFRIC 11 IFRS 2: Group and Treasury Share Transactions. IFRIC 12: Service Concession Arrangements. 18

19 IFRIC 13: Customer Loyalty Programmes. IFRIC 14 IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirement and their Interaction. IAS 39 (Revised): Financial Instruments Recognition and Measurement. IFRS 7 (Revised): Financial Instruments Disclosures. The adoption of these standards and interpretation has not led to any changes in the Group s accounting policies. Standards and interpretation issued but not yet adopted The following represents new and revised issued standards and interpretations that are not yet effective: Standards and interpretations effective for annul periods beginning on or after January 1, 2009: IAS 1 (Revised): Presentation of Financial Statement IAS 28 (Revised): Investments is Associates IAS 32 (Revised): Financial Instruments Presentation IAS 36 (Revised): Impairment of Assets IAS 38 (Revised): Intangible Assets IAS 39 (Revised): Financial Instruments Recognition and Measurement IAS 40 (Revised): Investment Property IFRS 2 (Revised): Share-Based Payments IFRS 8: Operating Segments Standards and interpretations effective for annul periods beginning on or after July 1, 2009: IAS 27 (Revised): Consolidated and Separate Financial Statement IFRS 3 (Revised): Business Combinations IFRS 5 (Revised): Non-current Assets Held for Sale and Discontinued Operations The management of the Group anticipates that the adoption of these standards and interpretation will not have a material financial impact on the financial statement of the Group in the period of initial application. 3. Significant accounting policies The significant accounting policies applied in the preparation of these consolidated financial statements are summarized as follows: 3/1) Basis of preparation - These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and Interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and state of Kuwait Commercial Companies law requirements. - The accounting policies have been consistently applied during the year, and consistent with those policies applied in previous year, except for the Group s adoption of new and revised standards mentioned in note No. (2). 19

20 3/2) Accounting convention - These consolidated financial statements are prepared under the historical cost convention, adjusted through the revaluation of some assets according to the fair value as explained in detail in the accompanying policies and disclosures. - The consolidated financial statements are presented in Kuwaiti Dinar. 3/3) Basis of consolidation - The consolidated financial statements include the financial statements of the Parent company and its subsidiaries, together are referred to as ( the Group ), which are detailed below: Country Ownership 2008 Ownership 2007 Main activity 100% Stehwaz Real Estate K.S.C.C. Kuwait (0.8% by concession) - Real Estate Al-Madar Finance and Investment K.S.C (closed) and its subsidiaries Kuwait % % Investments Subsidiaries of Al-Madar Finance and Investment K.S.C (Closed) are as follows: Country Ownership 2008 Ownership 2007 Main activity Kuwait Premises Real Estate K.S.C.C (Previously Al-Shomoukh Al Arabi for General Trading and Contracting Co. W.L.L) Dar Al-Thuraya Real Estate Co. (K.S.C.C) Pack & Move Company for General Trading & Contracting W.L.L. Kuwait 100% 100% Real estate Kuwait 71.74% 100% Real estate Kuwait 90% 90% Transport The consolidated financial statements include the financial statements of Stehwaz Real Estate Company for the period from February 20, 2008 to which was founded in January 27, 2008, where the subsidiary s Constituent Assembly was held on February 20, Subsidiaries are the companies controlled by the Parent Company. Control exists when the Parent Company has the power, directly or indirectly, to govern the financial and operating policies of the subsidiaries as to obtain benefits from its activities. The financial statements of the subsidiaries acquired or (disposed of) during the year are included in the consolidated financial statements from the date of acquisition or (up to the date of disposals). The financial statements of the subsidiary are consolidated on a line-by-line basis by adding together alike items of assets, liabilities, revenues and expenses. All inter-company balances and transactions, including unrealized profits or losses arising from intra-company 20

21 transactions, are fully eliminated when preparing the consolidated financial statements using uniform accounting policies for similar transactions and other events which accrue in similar conditions. The financial statements of the subsidiary are prepared for the same date or within three months of the reporting period of the Parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist between the subsidiary s financial year date and the Parent company s financial year date. Minority interests represented the portion of profit or loss and net assets not held by the Group and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet separately from the equity of the Parent company s shareholders. 3/4) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the company in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognized at their fair values at the acquisition date. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after reassessment, the Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in the consolidated statement of income. The interest of minority shareholders in the acquiree is initially measured at the minority s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized. 3/5) Property and equipment Property and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is charged to statement of income on straight-line basis over the estimated useful lives of property and equipment as follows: Years Computers & software 3, 5 Furniture & fixtures 5 Equipment & vehicles 3, 5 21

22 The initial cost of property and equipment includes cost of purchase and any directly attributable cost of bringing these assets to their current location and condition. The estimated useful lives of the property and equipment are reviewed periodically. If there is a change in the estimated useful lives, such change takes place starting from the year of change without retroactive effect. 3/6) Investment properties Properties which are held by the Group for the purpose of capital appreciation or for leasing it to others are included in investment properties. Properties are stated on acquisition at cost, which represents the fair value given including the fees of acquisition. Subsequently, the properties are re-measured at fair value that is being determined annually based on market value estimates by independent evaluators. Profits and losses arising from change in fair value are included in the consolidated statement of income. 3/7) Land and real estate under development Lands and real estate under development are recognized at cost, which includes development costs. When the development process completed, the land and real estate are classified either as investment property, land and real estate held for trading or property for the Group s Self-Occupation as per management intention regarding the future use of properties. 3/8) Properties held for trading Land and properties required for resale are classified as held for trading and are carried out at the lower of cost and net recoverable value. Net recoverable value is the estimated selling price less estimated selling cost. 3/9) Investment in associates An associate is an entity over which the Group exercises significant influence. Investment in associates is accounted for by applying the equity method. According to equity method, the investment in associate is initially recorded at cost and then adjusted after acquisition for the Group s share of the associate s equity. The Group recognizes its share of profits or losses of an associate in the consolidated statement of income from the date that the influence effectively commences until the date that influence effectively ceases.dividends received from the associate reduces the carrying amount of the investment. Adjustments on the carrying amount may also be necessary to reflect the changes in the Group s share in the associate arising from changes in the associate s equity. The Group share as a result of these changes is recognized in the equity. Unrealized gains from transactions with associates are eliminated to the extent of the Group s share in the associate, unrealized losses are eliminated unless the transaction provides evidence of impairment in value of the asset transferred. An assessment for 22

23 impairment in investments in associates is performed when there is an indication that the asset has been impaired, or that impairment losses recognized in prior years no longer exist. The associate s financial statements are prepared at the same date of the Parent company s reporting date or to a date not earlier than three months of the Parent company s reporting date using consistent accounting policies. Adjustments are made to reflect the effects of significant transactions and other events that occurred between the associate financial year end and the Parent company s financial year end. 3/10) Goodwill Goodwill represents the excess of the cost of acquisition over the Group s share in the fair value of net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill resulting from acquiring subsidiaries is included in the intangible assets. Recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. 3/11) Trade receivables Trade receivables are stated at their nominal value, less an allowance for any doubtful debts. Management determines the adequacy of the allowance based upon reviews of individual customers, current economic conditions, past experience and other related factors. 3/12) Investments in receivables Wakala, Tawaroq and Murabha Represent investments with specific maturity dates and the management has the intention and the ability to keep these investments till maturity date. Investments are stated at amortized cost. 3/13) Cash and cash equivalents Cash and cash equivalents represent cash on hand and current accounts at banks and cash in investments portfolios. 3/14) Financial instruments Classification Financial assets are classified at the acquisition date based on the purpose of acquisition. Financial assets are classified as financial investments at fair value statement of income and available for sale investments. Investments at fair value statement of income This classification is divided into two sub-categories: Investments held for trading and those designated at fair value through statement of income at acquisition. Investments held for trading are those assets acquired principally for the purpose of selling in the short term. The investments designated at fair value through statements of income at 23

24 acquisition are classified in this category, if they are managed and re-valued based on the fair value in accordance with risk management or investment strategy approved by the management. Investments available for sale Investments available for sale are those investments, except for derivative financial instruments that have not been categorized in one of the above categories and are principally, held for an indefinite period of time and can be sold when liquidity is needed or upon changes in profit rates. Recognition and de-recognition of investments and financial liabilities A financial assets or a financial liability is recognized when the Group become a party to the contractual provisions of the instrument. A financial asset is de-recognized either when the contractual rights to cash flows from the financial asset expire, the Group has transferred substantially all the risks and rewards of ownership or when the Group has neither transferred nor retained substantially all the risks and rewards, but no longer has control over the asset or a proportion of the asset. A financial liability is de-recognized when the obligation specified in the contract is discharged, cancelled or expired. Measurement Financial assets are initially recognized at fair value plus transaction cost except for investments at fair value through statement of income, whereby the related transaction costs are charged to consolidated statement of income. Subsequently, investments available for sale and financial assets at fair value through income statement are re-measured at fair value and receivables are carried at amortized cost using the effective yield method. Realized and unrealized gains and losses arising from changes in the fair value of financial assets at fair value through income statement are included in the consolidated statement of income for the period in which they arise. Changes in the fair value of financial assets classified as available for sale investments are recognized directly in equity. When available for sale investments are sold or impaired, the related accumulated amounts recognized in equity are transferred to the consolidated statement of income. Fair value The fair value of financial instruments registered in organized financial market is determined by reference to the last offered bid prices. For unquoted investments, the fair value is determined by reference to current fair value of another instrument that is substantially the same or based on the expected discounted cash flows which is adjusted to reflect the specific circumstances of the issuing Company. Investments available for sale that do not have fair value are carried at cost less impairment in value, if any. 24

25 Impairment in value of financial assets The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or Group of financial assets is impaired. For investments in an equity instruments classified as available for sale investments, the significant or permanent decline in value is considered as an indication for impairment in value of the investment. If any such evidence exists, the cumulative losses are measured by the difference between the acquisition cost and the fair value, less any impairment losses recognized in the previous years, which then transferred from equity to consolidated statement of income. Impairment losses recognized in the consolidated statement of income from equity instruments are not reversed again in the consolidated statement of income. - For assets carried at amortized cost, the impairment in value is based on the value of estimated cash flows discounted at actual yield. - For assets carried at fair value, impairment is the difference between cost and fair value less any impairment loss previously recognized in the statement of income. - For assets carried at cost, impairment is the difference between cost and present value of future cash flows discounted at the current market rate of return for a similar financial asset. 3/15) Impairment of tangible and intangible assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the estimated recoverable amount of the asset is determined and the impairment loss is recognized in the consolidated statement of income when the carrying value of the asset exceeds the estimated recoverable amount. The recoverable amount represents the higher of an asset s net selling value or its value in use. The net selling value represents the exchange amount that can be obtained from an arm s length commercial transaction. The value in use represents the asset s current value of discounted estimated cash flows resulting from estimated continuous usage of the asset and the value of disposal at the end useful life. The recoverable amount is estimated for each item of assets separately or if not applicable for each cash-generating units. Reversal of impairment losses recognised in prior years is recorded as income when there is an indication that the impairment losses for the asset is no longer exist or has decreased. Such reversal shall not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. 3/16) Treasury shares Treasury shares consist of the Company s own shares that have been issued and subsequently reacquired by the Company and not yet reissued, sold or cancelled. Gain or loss from acquiring, selling, reissuing or cancelling treasury shares is not recognized in the statement of income. Gain from sale of treasury shares is recognized separately in shareholders equity under Gain from sale of treasury shares, which is not available for distribution, and loss from sale is charged to the same account to the extent of the available credit balance. Any excess losses are charged to retained earnings then to 25

26 reserves. Subsequently realized gains from sale of treasury shares are first used to offset any previously recorded losses in reserves, retained earnings and gain on sale of treasury shares account respectively. The issue of bonus shares increases the number of treasury shares with the same percentage and reduces the average cost per share without affecting the total cost of treasury shares. 3/17) Wakala payables and Tawaroq Finance by others acquired by the Group is recognized at fair value less transaction costs. Subsequently such finance is stated at amortised cost. The difference between the amount collected (less any transaction cost) and amount to be paid is recognized over the contract term in the consolidated statement of income using effective cost rate. 3/18) Employees end of service indemnity The Group is liable under Kuwait labour law to make payments to the employees at their end of service through a defined benefit plan. Such payments are made on a lump sum at the end of an employees service. This liability is unfunded and has been computed on the basis of amount payable as a result of involuntary termination of employees contracts at the balance sheet date. The management believes that this method results in an adequate approximation of the present value of this obligation. 3/19) Payables Payables are stated at cost, and represent due balances to be paid for services or goods received, whether billed by the supplier or not. 3/20) Provisions Provisions are recognized in the balance sheet when the Group has legal or constructive obligations as a result of past events, and it is probable that an outflow of economic benefits will be required to settle these obligations. If the effect is material, provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and, where appropriate, the specific risks to the obligation. 3/21) Revenue recognition - Income from investments in wakala is recognized when earned, on periodic basis distribution to recognize fixed rate of return. - Gain from sale of investments is measured by the difference between the sale proceeds and the carrying amount of the investment at the date of disposal. Gain is recognized at the same date of sale. - Other categories of income are recognized when earned, at the time the related services are rendered and/or on the basis of the terms of the contractual agreement of each activity. 3/22) Foreign currencies Transactions and balances The functional currency of the group is the Kuwaiti Dinar ( KD ) and accordingly, the 26

27 consolidated financial statements are presented in KD. Transactions denominated in foreign currencies are translated into KD at the average rates of exchange prevailing during the year. Monetary assets and liabilities denominated in foreign currencies are translated into KD at rates of exchange prevailing at the consolidated balance sheet date. The resultant exchange differences are taken to the consolidated statement of income. Non- monetary assets and liabilities measured at fair value in a foreign currency are translated to Kuwaiti Dinar at the exchange rates prevailing at the date of determining fair value. For non-monetary assets, changes in fair value are recognized directly within equity, all foreign exchange differences are recognized directly in equity. In addition, for non-monetary assets where the changes in fair value are recognized in the consolidated statement of income, are recognized in the consolidated statement of income. Exchange differences arising on translation of financial statements of parent company s foreign subsidiaries are taken to the consolidated statement of changes in equity under foreign currency translation reserve. 3/23) Zakat The Zakat is computed in accordance with law No 46/2006 related to Zakat imposed on the general and closed shareholding companies for the year as 1 % of net profit before deducting the Group s provisions and reserves. 3/24) Contingent assets and liabilities Contingent and liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. 3/25) Accounting judgments and estimates uncertainty The preparation of consolidated financial statements in conformity with International Financial Reporting Standards requires the use of estimates and assumptions that affect the reported balances of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the recorded amounts of revenues and expenses during the year. The management assumes this estimates are based on management best knowledge, also we must put into consideration that the actual results may differ from those estimations. When applying the accounting policies, the management takes these critical accounting judgments without put into consideration others that include estimations, which have significant influence on the reported amounts in the consolidated financial statements: Classification of investments Management decides on acquisition investment whether it should be classified as investment held for sale or investment at fair value - statement of income, or available for 27