AL-SALAM HOLDING ANNUAL REPORT 2009

Transcription

1 AL-SALAM HOLDING

2 Al Salam Holding Group AlSoor St. Jassem Al Asfour Tower Beside Social Security Bldg. Tel :

3 His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah The Amir Of The State Of Kuwait His Highness Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah The Crown Prince His Highness Sheikh Nasser Al-Mohammed Al-Ahmad Al-Sabah The Prime Minister 2 3

4 Board Of Directors 6 Chairman s Speech 8 Management Report On The Activities Of 9 Sharea a Board Report 12 The Colsolidated Financial Statements For the Year Ended 31 December 13 Contents Independent Auditors Report Consolidated Statement Of Financial Position Consolidated Statement Of Income 17 Consolidated Statement Of Comprehensive Income 18 Consolidated Statement Of Cash Flows 19 Consolidated Statement Of Changes In Equity 20 Notes To The Consolidated Financial Statements

5 Meshari A. AL Majed Chairman Sheikh Humoud Al Sabah Vice Chairman Board Of Directors Talal Al Yousuf Member Khaled Al Shemali Member Zainab A Marafie Member 6 7

6 Chairman s Speech In The Name of Allah, the Compassionate, the all merciful. Praise be to Allah, peace and prayers be upon, the prophet of the two worlds Muhammad, his family and companions. Dear Shareholders Management Report on activities The following is an analysis of the financial position as on 31/12/ and the performance of the company for the fiscal year. The content of the analysis relies on the audited financial statements of the fiscal years 2008 and. Revenues The total revenues of the company during the year amounted to KD 556,860 with an increase of KD1,189,511 over 2008 as the total revenue figure stood at KD (632,651) during that year. The Following table shows the details of the company s revenues. On behalf of my colleagues, members of the board of directors, the executive body and all company employees, it is my pleasure to welcome you and share with you the accomplishments for your company for the fiscal year ended December. Distribution of Revenues The Company has achieved better results in and a net profit of KD 289,535, this figure reflects a 147% increase over net profits of the preceding year which saw spending at KD (604,259). Consequently, the earning per share increased from (10.03) to 1.99 an increase equivalent to 119%.Total Company assets increased by 462% in and reached KD 42,836,338. Research conducted by the World Bank on the prospects for the global economy showed a decrease in growth rate from 2.25% in 2008 to 0.5% in, at the same time the Arab countries registered higher rates than the global average as well as the average for developed countries but in some cases slightly lower than rates from the emerging and developing countries. The business and consumer confidence, which was very low in the first half of which was, revived thanks to the rally in oil prices and the GCC equity markets. Following the 70% fall in prices since it touched an all time high of USD147 per barrel in July 2007, oil prices have recovered to trade in the range of USD70-75 per barrel. In Kuwait, the economy achieved success after the low GDP in 2008 from 5% it climbed to 9%. The economic growth in Kuwait and the GCC countries in general has had a favorable effect on the performance of Al- Salam Group Holding Company. Expenses: losses on Investments Finance and Musharka Income Total expenses reached KD for the year, increasing by KD 206,634 as compared to year Such increase is mainly due to the increase of financing costs due to the increase of financial leverage. Distribution of Expenses I would finally like to express my sincere thanks and gratitude to members of the board of directors, the Shari a committee and executive management for their support and efforts. Peace Be Upon You. General and Administrative Expenses Meshari A Al Majed Chairman Zakat & National Labor Support Tax Finance Charges 8 9

7 Profitability Indicator 2008 Assets The total assets of the company witnessed an increase in reaching 42,836,338 compared to 7,609,567 in 2008 with the assets distributed as follows. Net Profit (loss) (KD) (604,259) 289,535 Earnings (loss) Per Share (Fils) (10.03) 1.99 Book Value Per Share Return on Shareholders Equity Assets Earnings Per Share Cash and cash equivalents Financial Investments at Fair Value Other Debit Balances Investments in an Associate Finance and Musharka Available for Sale Investments Earnings Per Share 2008 Financing Structure and Equity of Share Holders Shareholders equity represents 56.28% of the total financing sources of the company as at 31 Dec. The Company s liabilities and other credit balances represent 43.72% of the total financing sources. The structure of the shareholders equity is as follows Total Assets Shareholders Equity 50,000,000 40,000,000 30,000,000 20,000,000 10,000, Share Capital Reserves Total Assets Accumulated Losses 10 11

8 Sharea a Board Report Allah s Peace & Blessing on you, Praise is only to Allah and Peace & Blessing on the last Prophet, his family and companions. To the shareholders of Al-Salam Group Holding Allah s Peace & Blessings may be upon you. As per Engagement Contract Signed with us, we have audited the contracts and transactions executed by the Company to express our opinion on extent of Company compliance with the provisions of Islamic Sharea a as described on the opinions, guidelines and Sharea a decisions issued by us during the fiscal year ended 31/12/. Compliance with implementation of contracts and transactions in accordance with the provisions of Islamic Sharea a shall be the responsibility of the Company management. However, our liability is limited to expression of independent opinion on the extent of the Company compliance with same based on our audit. AL SALAM GROUP HOLDING COMPANY (Burgan Group Holding Company Previously) K.S.C (Holding) Kuwait Consolidated Financial Statements for the year ended December 31, with Independent Auditors Report We have conducted our audit according to the standards and controls criteria issued by Accounting & Auditing Organization for Islamic Financial Institutions, which require us to plan, implement audit procedures and review in order to obtain all information, interpretations and declarations that we deem necessary for providing us sufficient evidence to give reasonable confirmation that the company is in compliance with the provisions of Islamic Sharea a as stated by us. We have conducted our audit on the basis of examining samples of each type of contracts and transactions executed during the period. We believe that audit activities we have undertaken provide a proper basis for expressing our opinion. In our opinion: 1. The Company, during the specified fiscal period, has conducted its duties towards execution of contracts and transaction in accordance with the provisions of Islamic Sharea a as described on opinions, guidelines and Sharea a decisions by us. 2. The Company is not authorized to perform Zakat and the responsibility of the same shall reside on the shareholders. Sharea a Board Committee CONTENTS Exhibit Page Independent Auditors Report 14 Consolidated Statement of Financial Position A 16 Consolidated Statement of Income B 17 Consolidated Statement of Comprehensive Income C 18 Consolidated Statement of Cash Flows D 19 Consolidated Statement of Statement of Cash Flows E 20 Notes to the Consolidated Financial Statements Prof. Abdul Razzaq Khalifa Al-Shaiji Board Chairman Dr. Abdul Aziz Al-Qassar Member Mr. Abdul Aziz Al-Jaralla Executive Member 12 13

9 Ali Al Hassawi & Partners P.O. Box: Safat Kuwait Sharq Dasman Complex Block 2 9 Floor Tel: / Fax: info-kuwait@rodlme.com Independent Auditors Report The Board of Directors, Al Salam Group Holding Company (Burgan Group Holding Company Previously) K.S.C (Holding) and its subsidiary Kuwait Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Al Salam Group Holding Company - K.S.C (Holding) - (the Parent Company) and its subsidiary (together referred to as the group ) - which comprise the consolidated statement of financial position as of December 31, and the consolidated statements of income, comprehensive income, cash flows and changes in equity for the year then ended and a summary of significant accounting policies and other explanatory notes. The financial statements for the previous year were audited by another auditors whose report dated March 29, expressed an unqualified opinion. We did not audit the financial statements of Syria for General Trading and Contracting Company - (W.L.L), a wholly owned subsidiary - as of December 31,. The total assets of the subsidiary included in these consolidated financial statements equals 57% of the Group s total assets. The financial statements of this subsidiary have been audited by another auditor whose report expressed an unqualified opinion, and our opinion, insofar as it relates to the amounts included in the subsidiary is based solely on the report of the other auditor. Management of the Parent Company responsibility for the consolidated financial statements Management of the Parent Company 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. 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 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 reasonable basis for our audit opinion on the consolidated financial statements. Opinion In our opinion based on our audit and the report of the other auditor - the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Al Salam Group Holding Company - K.S.C (Holding) - and its subsidiary - as of December 31, 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 stocktaking was carried out in accordance with recognized practices and the consolidated financial statements, together with the contents of the report of the Parent Company s Board of Directors relating to these consolidated financial statements, are in accordance therewith. We further report that we have obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Commercial Companies Law, as amended, and by the Parent Company s Articles of Association. According to the best of our knowledge and belief, no violations of the Commercial Companies Law or of the Parent Company s Articles of Association have occurred during the year that might have had a material effect on the business of the Parent Company or on its financial position. Ali A. Al-Hasawi License No. 30 (A) Rödl Middle East Burgan - International Accountants March 14, 2010 State of Kuwait Ali Khalid Al-Faraj Licence No. 28 (A) Al-Faraj Auditing Office 14 15

10 Consolidated Statement of Financial Position as of December 31, All amounts are in Kuwaiti Dinars Consolidated Statement of Income for the year ended December 31, All amounts are in Kuwaiti Dinars Exhibit A Exhibit B Note 2008 Assets Current assets Cash and cash equivalents 22,973 13,183 Investments at fair value - statement of income 4 105, ,000 Finance and Musharka 5 6,800,000 6,800,000 Accounts receivable and other debit balances 6 1,387, ,384 8,315,512 7,609,567 Non-current assets Available for sale investments 7 9,945,442 - Investment in an associate 8 24,575,384-34,520,826 - Total assets 42,836,338 7,609,567 Liabilities and equity Current liabilities Accounts payable and other credit balances 9 1,574, ,396 Current portion of Islamic debt instruments 10 5,525,151-7,099, ,396 Non-current liabilities Non-current portion of Islamic debt instruments 10 11,624,307 - Note 2008 Revenue Losses on investments 15 (21,140) (1,022,644) Gains on sale of investments in associates - 87,533 Finance and Musharka income 5 578, ,460 Other income ,081 General and administrative expenses 16 (53,193) (61,351) Finance charges 18 (204,291) - Net profit / (loss) for the year before Contribution to Zakat and National Labor Support Tax 300,036 (673,921) Zakat (3,000) - National Labor Support Tax (7,501) - Profit / (loss) for the year from continued operations 289,535 (673,921) Profit for the year from discontinued operations - 69,662 Net profit / (loss) for the year 289,535 (604,259) Earning / (loss) per share from continued operations / (fils) (11.19) Earning per share from discontinued operations / (fils) Earning / (loss) per share / (fils) (10.03) The accompanying notes form an integral part of these consolidated financial statements. Equity Share capital 11 24,000,000 6,114,338 Share premium 11 5,904,559 1,196,030 Statutory reserve , ,785 Voluntary reserve 13 17,978 17,978 Cumulative changes in fair value (4,466,788) - Treasury shares 14 (1,680,000) - Gains on sale of treasury shares 396, ,537 Accumulated losses (239,962) (529,497) 24,112,109 7,375,171 Total liabilities and equity 42,836,338 7,609,567 Meshari Ahmed Al Majed chairman The accompanying notes form an integral part of these consolidated financial statements

11 Consolidated Statement of Comprehensive Income for the year ended December 31, All amounts are in Kuwaiti Dinars Consolidated Statement of Cash Flows for the year ended December 31, All amounts are in Kuwaiti Dinars Exhibit D Exhibit C 2008 Net profit / (loss) for the year 289,535 (604,259) Other comprehensive income Gains on sale of treasury shares - 118,258 Change in fair value of available for sale investments (4,466,788) - Total other comprehensive (loss)/profit (4,466,788) 118,258 Total comprehensive loss for the year (4,177,253) (486,001) The accompanying notes form an integral part of these consolidated financial statements Cash flows from operating activities Net profit / (loss) for the year 289,535 (604,259) Adjustments Depreciation Change in fair value of investments at fair value - statement of income - 3,041 Losses on sale of investments at fair value - statement of income 21, ,344 Finance charges 204,291 - Gains on sale of investments in subsidiaries - (69,662) Losses on sale of available for sale investments - 902,340 Finance and Musharka income (578,000) (302,460) Gains on sale of investments in associates - (87,533) Cash dividends - (19,081) Operating loss before calculating the effect of change in working capital items (63,034) (40,282) Investments at fair value - income statement 14, ,465 Accounts receivable and other debit balances 309,656 1,681,514 Accounts payable and other credit balances 262,995 2,232,604 Islamic debt instruments 16,945,167 - Cash generated from operations 17,469,644 4,447,301 End of service indemnity paid - (6,088) Net cash generated from operating activities 17,469,644 4,441,213 Cash flows from investing activities Acquisition of subsidiary (24,434,695) - Finance and Musharka - (6,800,000) Proceeds from sale of investments in associates - 385,956 Proceeds from sale of investments in subsidiaries - 1,611,014 Cash dividends received - 19,081 Advance payments for purchasing investments - 568,296 Available for sale investments (13,939,350) (902,340) Net cash used in investing activities (38,374,045) (5,117,993) Cash flows from financing activities Increase in share capital 22,594,191 - Paid for purchasing treasury shares (1,680,000) (589,670) Proceeds from sale of treasury shares - 1,077,794 Net cash generated from financing activities 20,914, ,124 Net increase / (decrease) in cash and cash equivalents 9,790 (188,656) Cash and cash equivalents at beginning of the year 13, ,839 Cash and cash equivalents at end of the year 22,973 13, The accompanying notes form an integral part of these consolidated financial statements. 19

12 for the year ended December 31, All amounts are in Kuwaiti Dinars Consolidated Statement of Changes in Equity 20 Exhibit E Equity Gains on attributable Cumulative minority Accumulated sale of Treasury Voluntary Statutory Share Total to Parent changes in Share interests losses treasury shares reserve reserve capital Company s fair value premium shares shareholders Balance at January 1, ,661,424 1,196, ,785 17,978 - (369,866) 278, ,676 7,491, ,226 8,345,532 Net loss for the year (604,259) (604,259) - (604,259) Other comprehensive income , , ,258 Total comprehensive loss ,258 (604,259) (486,001) - (486,001) Bonus shares distribution 452, (452,914) Purchasing of treasury shares (589,670) - - (589,670) - (589,670) Selling of treasury shares , , ,536 net movement on minority interests (854,226) (854,226) Balance at December 31, ,114,338 1,196, ,785 17, ,537 (529,497) 7,375,171-7,375,171 Balance at January 1, 6,114,338 1,196, ,785 17, ,537 (529,497) 7,375,171-7,375,171 Net profit for the year , , ,535 Other comprehensive loss (4,466,788) (4,466,788) - (4,466,788) Total comprehensive loss (4,466,788) ,535 (4,177,253) - (4,177,253) increase in share capital (Note - 11) 17,885,662 4,708, ,594,191-22,594,191 Purchasing of treasury shares (1,680,000) - - (1,680,000) - (1,680,000) Balance at December 31, 24,000,000 5,904, ,785 17,978 (4,466,788) (1,680,000) 396,537 (239,962) 24,112,109-24,112,109 The accompanying notes form an integral part of these consolidated financial statements. Notes to the Consolidated Financial Statements 1. Group s incorporation and activity Al Salam Group Holding Company the Parent Company was incorporated under the name of Burgan Group Holding Company Previously - K.S.C (Holding) on November 9, According to the resolution of the Shareholders Extraordinary General Assembly held on May 31, and the registration in the Commercial Register, the Article (2) of the Memorandum of Association of the Parent Company and Article (1) of the Articles of Association of the Parent Company were amended by changing the Company s name from Burgan Group Holding Company - K.S.C (Holding) - to become Al Salam Group Holding Company - K.S.C (Holding). The Group s main objectives are as follow: - Owning shares in Kuwaiti or Foreign shareholding or limited liability companies, or participating in establishing these companies and managing and lending them and providing guarantees on their behalf to others. - Lending the companies in which it owns shares and providing guarantees on behalf of those companies to others, providing that the holding Company s ownership percentage in the share capital of the borrowed Company must be at least 20%. - Owning industrial equity of patents, industrial trademarks, industrial fees or any other rights related to that and franchise them to other companies to utilize them inside Kuwait or abroad. - Owning the necessary movables and properties to carry out its activity in accordance with the Law. The Group may have an interest in, or may participate in any form with the institutions that have a similar business or that will assist the Group to achieve its objectives inside or outside Kuwait. Also it may establish or participate in or acquire these institutions or join them. The registered address of the Group is: Shuwaikh - Plot 24 (A) and 24 (B) - P.O Box 135 Safat Kuwait. These consolidated financial statements for the year ended December 31, have been authorized for issue on March 14, Adoption of new and revised International Financial Reporting Standards (IFRS) 2.1 Standards and interoperations adopted during the year: The Group has adopted the new standards, interpretations, and amendments to (IFRS issued by International Accounting Standards Board (IASB), which are effective for the financial statements for the annual period beginning on or after January 1,. The new requirements in respect of these amendments are summarized below: IAS 1 presentation of financial statements (Revised) for the year ended December 31, All amounts are in Kuwaiti Dinars unless stated otherwise 21

13 The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the standard introduces the statement of comprehensive income: it presents all items of recognized income and expenses, either in a single statement, or in two linked statements. The Group elected to present two statements. IFRS 8 operation segments The new standard which replaced IAS 14: Segment reporting requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This has resulted in the segments being reported in a manner that is more consistent with the internal reporting provided to the Chief Operating Decision Maker. Amendment to IFRS 7: Financial Instruments: Disclosures The amendments of IFRS 7 expand the disclosures required in respect of fair value measurements of financial instruments and liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments. IAS 23 Borrowing Costs (Revised) IAS 23 Borrowing Costs (Revised 2007) requires the capitalization of borrowing costs to the extent they are directly attributable to the acquisition, production or construction of qualifying assets that need a substantial period of time to get ready for their intended use or sale. The adoption of the revised standard did not have any effect on the measurement and recognition of the Group s assets, liabilities, income and expenses. IAS 40 Investment Property (Revised) IAS 40 has been amended as part of improvements to IFRS (2008), to include within its scope investment property in the course of construction. Therefore, following the adoption of the amendments and in line with the general accounting policy, investment property under construction is measured at fair value (where that fair value is reliably determinable), with changes in fair value recognized in profit or loss. The adoption of the amendment did not have any effect on the measurement and recognition of the Group s assets, liabilities, income and expenses. 2.1 Standards and interpretations issued, but not yet effective: At the date of authorization of these financial statements, certain new standards, amendments and interpretations have been issued but are not yet effective, and have not been adopted. IFRS 3 Business Combinations (Revised) The standard is applicable for business combinations occurring in reporting periods beginning on or after July 1, and will be applied prospectively. The new standard introduces changes to the accounting requirements for business combinations, but still requires use of the purchase method, and will have a significant effect on business combinations occurring in future reporting periods. IFRS 9 Financial Instruments The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety by the end of 2010, with the replacement standard to be effective for annual periods beginning January 1, 2013 and earlier application is permitted. IFRS 9 is the first part of Phase 1 of this project. The main phases are: Phase 1: Classification and Measurement Phase 2: Impairment methodology Phase 3: Hedge accounting As per the instructions of Ministry of Commerce and Industry of Kuwait dated on December 31,, the technical committee of the Ministry which is responsible for adopting the accounting standards decided to postpone the application of International Financial Reporting Standard 9 until another notice, due to the non-completion of its remaining stages. IAS 27 Consolidated and Separate Financial Statements (Revised) Effective from July 1, The revised standard introduces changes to the accounting requirements for the loss of control of a subsidiary and for changes in the Group s interest in subsidiaries. These changes are effective form July 1, and will be applied prospectively in accordance with the transitional provisions and so do not have an immediate effect on the Group s financial statements. IAS 28 Investments in Associates (Revised) Effective from July 1, The revised standard introduces changes to the accounting requirements for the loss of significant influence of an associate and for changes in the Group s interest in associates. These changes are effective form July 1, and will be applied prospectively in accordance with the transitional provisions and so do not have an immediate effect on the Group s financial statements. IFRIC 17 Distributions of Non-Cash Assets to Owners The Interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders. Annual Improvements for accounting standards The IASB has issued Improvements for International Financial Reporting Standards which have led to a number of changes in the detail of the Group s accounting policies some of which are changes in terminology only, and some of which are substantive but have had no material effect on amounts reported. Most of these amendments become effective in annual periods beginning on or after July 1, or January 1, 2010: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Effective for the periods beginning on or after January 1, 2010 As part of Improvements to IFRSs during () disclosures in the financial statements have been modified to reflect the IASB s clarification that the disclosure requirements in Standards other than IFRS 22 23

14 5 do not generally apply to non-current assets classified as held for sale and discontinued operations. IAS 7 Statement of Cash Flows Effective for the periods beginning on or after January 1, 2010 The amendments of IAS 7 (as a part of improvements to IFRSs ()) specify that only expenditures that result in a recognized asset in the statement of financial position can be classified as investing activities in the statement of cash flows. Consequently, cash flows in respect of development costs that do not meet the criteria in IAS 38 Intangible Assets for capitalization as part of an internally generated intangible assets (and, therefore, are recognized in profit or loss as incurred) have been reclassified from investing to operating activities in the statement of cash flows. The management anticipates that the new standards and interpretations will be adopted in the Group s accounting policies for the period beginning on or after the effective date of the pronouncement. Certain other new standards and interpretations have been issued but are not relevant to the Group s operations and therefore not expected to have a material impact on the Group s consolidated financial statements. 3. Significant accounting policies The significant accounting policies applied in the preparation of these consolidated financial statements are set out below: 3.1 Basis of preparation - The 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 Interpretations Committee (IFRIC) and Commercial Companies Law requirements in State of Kuwait. - The accounting policies have been consistently applied during the year, as similar base for the policies applied in the previous year. 3.2 Accounting convention These consolidated financial statements are prepared under the historical cost convention, adjusted through the revaluation of some assets according to fair value as explained in detail in the accompanying policies and disclosures. The consolidated financial statements are prepared in Kuwaiti Dinars. 3.3 Critical accounting estimates and judgments The preparation of consolidated financial statements in conformity with International Financial Reporting Standards requires the use of estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Although these estimates are based on management best knowledge, the actual results may differ from those estimates. 3.4 Cash and cash equivalents Cash and cash equivalents comprise of cash on hand, at banks and short term deposits with a maturity date not exceeding three months from the date of deposit. 3.5 Basis of consolidation The consolidated financial statements include the financial statements of the following subsidiary: Country of incorporate Shareholding percentage Syria for General Trading and Contracting Company (W.L.L) Kuwait 100% During the year, the Group has acquired Syria for General Trading and Contracting Company (W.L.L) as per an agreement contracts, accordingly and the Group has control over financial and operating policies of the subsidiary, therefore this Company has been classified as a subsidiary and its financial statements have been consolidated from the date of acquisition. Currently, the transfer of ownership is being under process with the concerned authorities. 3.6 Investment in subsidiaries Subsidiaries are the companies controlled by the group. Control is achieved where the Group - directly or indirectly- has the power to govern the financial and operating policies of subsidiary and obtain benefits from its activities. The financial statements of 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 subsidiaries are consolidated on a line-by-line basis by adding together alike items of assets, liabilities, revenues and expenses. All inter-companies balances and transactions, including unrealized profits or losses, are eliminated when preparing the consolidated financial statements. The consolidated financial statements are prepared using consistent accounting policies for similar transactions and for other events in the same circumstances. The financial statements of subsidiary are prepared in the same date or within three months before the reporting period of the group, using consistent accounting policies. Adjustments are made to reflect the impact of significant transactions or other events that occurred between the dates of end of the financial year of the subsidiaries and end of the financial year of the group. Minority interests represent 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 financial position separately from the equity of the Group s shareholders. Acquisition of subsidiaries are accounted according to the purchasing method as the cost of acquisition represents the fair value of the amounts paid, assets acquired and liabilities that carried to acquire the subsidiary in addition to the direct costs related to the acquisition

15 Any excess of the cost of acquisition over the fair value of the identifiable net assets acquired is recorded as goodwill, if the acquisition cost is less than the fair value of the net identifiable assets acquired the difference is recognized directly in the consolidated statement of income at the period in which the acquisition occurred. 3.7 Financial instruments Classification The classification of investments based upon the purpose of acquisition of these investments. Management determines the classification of the financial instrument at initial recognition in the preparation of consolidated financial statements. The Group classified its financial instruments as follows: Financial assets at fair value - statement of income A financial asset is classified as financial asset at fair value if it acquired principally for the purpose of selling in the short term or if the management decides to classify it in the initial recognition. Financial assets available for sale These are non - derivative financial assets that are either designated in this category or not included in any of the above categories and are principally those acquired to be held for an indefinite period of time which could be sold when liquidity is needed or upon changes in rates of profit. Recognition and de-recognition Financial instrument is recognized when the Group becomes a party to a contracted commitment of a financial instrument. Regular purchase and sale of financial assets are recognized on settlement date - the date on which the Group receives or delivers the asset. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership to another party. Measurement Investments are initially recognized at fair value plus transaction cost for all investments not carried at fair value - statement of income. Where the cost of transaction related is recognized in the consolidated income statement. Subsequently, financial assets at fair value statement of income and financial assets available for sale are measured at fair value. Unrealized gains and losses arising from changes in the fair value of financial assets at fair value - statement of income are included in the consolidated statement of income for the period in which they arise. Changes in fair value of financial assets available for sale are recognized in equity. When available for sale investments are sold or impaired, the accumulated changes in fair value recognized in equity are included in the consolidated statement of income. Fair value The fair value of financial instruments in a regular financial market is based on last bid prices. For the unquoted investments, the Group establishes fair value by reference to other instruments that are substantially similar or by using the expected discounted cash flows discounted by the current ratios applied for similar items that have similar risks and circumstances. Available for sale investments, with no available reliable estimations to calculate its fair value and no available information of its fair value are carried at cost less impairment. Impairment in value The Group assesses at each consolidated financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of these investments below its cost is considered as an indicator that these investments are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in prior years - is removed from equity and recognized in the consolidated statement of income. Impairment losses recognized in the consolidated statement of income on equity instruments are not reversed through the consolidated statement of income. 3.8 Investment in associates An associate is the company over which the group exerts significant influence. Investment in associates is accounted under the equity method. Under the equity method, the investment in associate is initially recorded at cost and adjusted with changes after acquisition in the group s share of the associate s equity. The goodwill related to acquire an associate is included in the book value of the investment and not amortized. The group recognizes its share in profits or losses of an associate realized in the consolidated statement of income from the date that the influence started effectively until the date that influences effectively ended.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 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. There were adjustments made to reflect the effects of significant transactions and other events that occurred between the associate financial year end and the Group s financial year end. 3.9 Impairment of non-financial assets At each consolidated financial position date, the Group reviews the carrying amounts of its non

16 financial assets, to determine whether there is any objective evidence that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount is estimated and an impartment loss recognized in the consolidated statement of income for the difference between the assets recoverable amount is estimated and the carrying amount. Reversal of impairment losses recognized in prior years is recorded as revenue, when there is an indication that the impairment losses, recognized for the asset no longer exist or has decreased Trade payables Trade payables are stated at their nominal value Islamic debt instruments The Islamic debt instruments are initially recognized at value which received from the contracts less transactions costs incurred. Islamic debt instruments are subsequently re-measured at amortized cost and the difference between net proceeds and the payable amount are recognized in the consolidated statement of income using actual yield method over the finance period Treasury shares The treasury shares represents the shares of the Group purchased and were issue and then rebuy them later by the Group and has not been reissued or canceled so far. Treasury shares are processed using the cost method. Under the cost method, the weighted average cost of the treasury shares is charged to an account in equity. When the treasury shares are sold, gains are credited in a separate account in equity (Gain on sale of treasury shares) which is not distributable. Any realized losses are charged to the same account to the extent of the credit balance on the same account. Any excess losses are charged to retained earnings then voluntary reserve then statutory reserve. Realized gains subsequently on the 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. No cash dividends are paid on these shares. 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 Finance expenses Interest on murabahat payables is calculated on the accrual basis and is recognized in the consolidated statement of income in the period in which it is incurred Provisions Provision is recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each consolidated financial position date and adjusted to reflect the current best estimate Revenue recognition - Revenue from Finance and Musharka is recognized, based on periodic distribution to achieve consistent return on outstanding transactions. - Dividends income is recognized when the Group s right to receive it is established. - Gains on sale of investments are recognized by the difference between the cash sale proceeds and the net book value of the investment sold. - Other categories of income are recognized when earned, at the time the related services are rendered and / or based on the terms of the contractual agreement of each activity Foreign currencies The functional currency of the Group is the Kuwaiti Dinars ( KD ) and accordingly, the financial statements are presented in KD. Transactions denominated in foreign currencies are translated into KD at the average rates of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are retranslated into KD at rates of exchange prevailing at the consolidated financial position date. The resultant exchange differences are taken to the consolidated statement of income Contingencies Contingent 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. Contingent assets are not recognized but disclosed when an inflow of economic benefits is probable. 4. Investments at fair value - statement of income 2008 Investments in local shares - quoted - 36,000 Investments in local shares - unquoted 105, , , ,000 Investments in unquoted shares are evaluated in accordance with the estimated operations based on the available information on the financial position, results of operations of the investee companies, the expected future profits of these companies and also recent transactions prices on the shares with other parties in investee or similar companies. 5. Finance and Musharka The balance of KD 6,800,000 represents Finance and Musharka contract with a related party with a profit margin not less than 8.5% the gains resulted from this Finance and Musharka contract amounting to KD 578,000 were recorded in the consolidated statement of income

17 6. Accounts receivable and other debit balances 2008 Due from related parties (Note - 18) 1,358, ,000 Accrued income - 302,460 Other 28,574 10,924 1,387, ,384 The carrying value of accounts receivable and other debit balances approximates its fair value. The other classes within accounts receivable and other debit balances do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivables mentioned above. 7. Available for sale investments 2008 Investments in local shares quoted 5,998,430 - Investments in local shares unquoted 3,947,012-9,945,442 - Investments in unquoted shares are valuated based on the available information on the financial position, results of operations of the investee companies, the expected future profits of these companies and also recent transactions prices on the shares as of December 31,, and the management believes that no significant changes in these values. 8. Investment in an associate During the year ended December 31,, the Group has acquired interest equals 23% of Al Madina for Finance and Investment Company - K.S.C (Closed), the parent company is currently taking the necessary studies to determine the fair value of the identified net assets and liabilities of the acquired Company as of the purchasing date for the purpose of determining the value of goodwill. 9. Accounts payable and other credit balances 2008 Due to related parties (Note - 18) 995,300 8,450 Payables for purchasing financial investments 546, ,946 Trade payables 22,500 20,000 National Labor Support Tax 7,501 - Zakat provision 3,000-1,574, , Islamic debt instruments - This item represents the Mudrabat and Musharka contracts due over periods ranging from one year to tow years. The average effective yield rate ranged from 7% to 7.5%. - The fair value of the Islamic debt instruments approximates its carrying value as of December 31, as it bears rates approximates yield rates prevailing in the market. - The installments of Islamic debt instruments which are due within one year from the date of the consolidated financial position are classified as current liabilities and witch due afterwards are classified as a non-current liabilities as follow: 2008 Current portion of Islamic debt instruments 5,525,151 - Non-current portion of Islamic debt instruments 11,624, Share capital 17,149, The increase in capital proposed by the Board of Directors on May 2, from KD 6,114,338 (61,143,387 shares) to KD 24,000,000 (240,000,000 shares) have been approved by the Ordinary and the Extraordinary Shareholders General Assembly Meeting held on May 31, as follows: - Increasing the Group s share capital with KD 12,228,676 equivalent to 122,286,756 shares with a nominal value 125 fils each (100 fils nominal value in addition to 20 fils share premium) and the priority right in this increase is given to the Shareholders recorded in the Group s book before the recall of the share capital increase. - Increasing the Group s share capital with KD 5,656,986 equivalent to 56,569,857 shares with a nominal value 145 fils each (100 fils nominal value in addition to 40 fils share premium). This increase is assigned for the new Shareholders with a waiver from the existing Shareholders of the priority right of subscription in these shares and the subscription in the increase of the share capital is cash and one-time payment. - All shares assigned for the Shareholders recorded in the Group s books (at the recall of the share capital date) were fully subscribed with number of 122,286,756 shares, and 56,569,857 shares of which were assigned for new shareholders have been subscribed in full, therefore the authorized and fully paid share capital of the Group become KD 24,000,000 distributed on 240,000,000 shares. 12. Statutory reserve In accordance with the Commercial Companies Law and the Parent Company s Articles of Association, 10% of net profit for the year before contribution to Kuwait Foundation for the Advancement of Science, Zakat and Board of Directors remuneration has been transferred to the statutory reserve. The General Assembly may discontinue such annual transfer if the reserve excesses half of the share capital. Distribution of the reserve is limited to the amount required to enable distribution of dividends reached 5 % in years when retained earnings of the Group are not sufficient that amount

18 13. Voluntary reserve As required by the Parent Company s Articles of Association a percentage of the net profit for the year is transferred to the voluntary reserve proposed by the Board of Directors and approved by the General Assembly. Such transfer may discontinue by a resolution of the Ordinary General Assembly of the Shareholders based on a recommendation from the Board of Directors. 14. Treasury shares 2008 Number of shares (Share) 8,000,000 - Shareholding percentage (%) Market value (Kuwaiti Dinars) 640, Losses on investments 2008 Change in fair value of investments at fair value -statement of income - (3,041) Losses on sale of investments at fair value - statement of income (21,140) (136,344) Losses on sale of available for sale investments - (902,340) Dividends income - 19, General and administrative expenses (21,140) (1,022,644) 2008 Net profit / (loss) for the year 289,535 )604,259( Weighted average of outstanding shares during the year / (share) 147,876,594 61,143,387 Weighted average of treasury shares / (share) (2,389,041) )921,329( Weighted average of outstanding shares less the treasury shares / (share) 145,487,553 60,222,058 Earning / (loss) per share from continuing operations / (fils) 1.99 (11.19) Earning per share from discontinued operations / (fils) Earning / (loss) per share / (fils) 1.99 )10.03( 18. Related parties transactions Related parties comprise of associates, major shareholders, Board of Directors, key management personnel of the group, companies which they control, jointly controlled or significantly influence. The Group s management determines the pricing policies and terms of these transactions. The balances and amounts due from/to related parties are interest free and have no fixed maturity date. The balances and movement of transactions with related parties which are included in the consolidated financial statements are as follows: Consolidated statement of financial position 2008 Finance and Musharka (Note - 5) 6,800,000 6,800,000 Due from related parties (Note - 6) 1,358, ,000 Accrued income - 302,460 Due to related parties (Note - 9) 995,300 8,450 Islamic debt instruments (Note - 10) 16,624, Staff costs 6,517 32,689 Depreciation Other 46,676 27,674 53,193 61,351 Consolidated statement of income 2008 Finance and Musharka income 578, ,460 Finance charges 204, Acquisition of subsidiary 17. Earning / (loss) per share / (fils) Earning / (loss) per share is computed by dividing the net profit / (loss) for the year by the weighted average of ordinary shares outstanding during the year as follow: - During the year, the Group has acquired Syria for General Trading and Contracting Company (W.L.L) and accordingly the Group has the power to govern the financial and operating policies of this Company therefore the company has been classified as a subsidiary and its financial statements have been consolidated from the date of acquisition