ANNUAL REPORT

Transcription

1 ANNUAL REPORT

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3 In the Name of Allâh, the Most Gracious, the Most Merciful {Rise up Allah will rise up, to (suitable) ranks (and degrees), those of you who believe and who have been granted (mystic) Knowledge} Mujadilah (11) Translation of the meaning of the Holy Qur ân

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5 H.H. SHAIKH SABAH AL-AHMAD AL-JABER AL-SABAH The Amir of the State of Kuwait H.H. SHAIKH NAWAF AL-AHMAD AL-JABER AL-SABAH Crown Prince of the State of Kuwait HH SHAIKH JABER AL-MUBARAK AL-HAMAD AL-SABAH Prime Minister of the State of Kuwait 5

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7 Annual Report CONTENTS Pages Board Of Directors 9 Chairman s Message 10 Associate Companies 13 The Fatwa & Shari a Supervisory Board 14 Report Of The Fatwa & Shari a Supervisory Board 15 Executive Management 17 Financial Statements For The Year Ended December 31, 2013 With Independent Auditor s Report

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9 BOARD OF DIRECTORS Mr. Abdulaziz Abdullah Dekhail Al-Shaya Chairman Mr. Zamel Abdulrahman Mansour Al-Zamel Vice Chairman Shaikh Waleed Khalid Abdullah Al-Sabah Director Mr. Hamed Abdullah Khalid Al-Bader Director Eng. Mijbil Suleman Abdulaziz Al-Mutawa Director Mr. Abdullatif Abdullah Dekhail Al-Shaya Director Mr. Khalid Abdullah Dekhail Al-Shaya Director 9

10 CHAIRMAN S MESSAGE Dear distinguished brother and sisters; We welcome you to the Ninth and renewed Annual General Assembly Meeting of Orient Holding Company (formally Orient Investment Company). It pleases me to place between your hands the company s annual report for the year ended 31/12/2013, which is the first to be published after changing Orient s activities from an investment company to a holding company. Throughout 2013, the Kuwait Stock Market achieved excellent gains during the year on its three indices, especially its price index, which closed at a level of points and recorded an increase of 27.2% compared to its previous close in This increase had been a result of speculative trading on small stocks which distinguished the trades of the overall market during the year amid relative calm trading of blue chips and the heavier valued companies. While the market cap closed the year at a level of points gaining an increase of 8.43% compared to the previous year close of The Kuwait 15 index closed the year at points recording a gain of 5.88% from its previous year close for the year Furthermore, the Kuwait stock Exchange came in third place in terms of gains achieved during 2013 after Dubai Financial Market and Abu Dhabi Securities Exchange, while the markets of Saudi Arabia, Qatar, Oman and Bahrain came in the last four positions respectively. On the other hand, the local real estate market was able to achieve record gains during 2013 in terms of total value of trades totaling 3.9 billion K.D compared to 3.3 billion K.D recorded during the year 2012 which is an increase of about 18%. In spite of the positive developments seen, which suggest a relative improvement in the domestic economic environment, as well as the favoring stability of oil prices and the country s increases its fiscal surpluses, the economic performance in general did not rise to the level required to meet the aspirations of the Kuwaiti economic society. As for the company s accomplishments in 2013, of the developments that occurred were as follows: During the first quarter of 2013, the company s activities were converted from an investment company to a holding company, and all procedures related to government authorities and jurisdictions were completed. During the last quarter of 2013, the company subscribed to the increase in capital of Orient Education Services Company, an associated company that has undertaken the partnership and construction of the Canadian Algonquin College in Kuwait. Completion of the first phase at the end of the year is about 34%. The contribution of 20% of the establishment of Sinan Kuwait Real Estate Company. A company that specializes in real estate development in particular selected geographic location such as Turkey, Britain and Saudi Arabia. The company has already begun development of two residential projects in Turkey that will be offered to interested customers in the GCC during the first quarter of Through its subsidiary Bawabat Al-Faiha Real Estate Company, Orient Holding purchased a commercial property in a prime location in Kuwait City. This development comes in light of the company s strategy to seize opportunities feasible in the real estate market and to diversify the company s asset base and sources of income. 10

11 During the year the company was able to capitalize on its financial position and asset base obtaining credit facilities from a local Islamic bank at reasonable terms to finance future investments and real estate projects. As for the company s performance during the year, Orient Holding continued its excellent performance during The company achieved a net profit of 3.1 million K.D in 2013 (5.9 million K.D in 2012). The company s return on capital in 2013 was 12.8% (25.7% in 2012), while ROA and ROE were 6.6% and 6.9 respectively (23.9% and 13.6% respectively in 2012). Based on the mentioned results, I am pleased to inform you that the Board of Directors has raised its recommendation to the General Assembly of the company to distribute cash dividends of 10% of the company s capital, at 10 fils per share. To conclude, on my own behalf, and on behalf of the Members of the Board and all departments and employees of your company, I am pleased to express my deepest gratitude to His Highness the Emir and Crown Prince and His Highness the Prime Minister for all the support, guidance and care. I would like to further extend my greetings and sincere thanks to our shareholders, our clients, and to the Chairman and members of the Fatwa & Shari a Supervisory Board, and to all Orient Holding employees. Our last prayer Praised to Allah Almighty, Lord of the Worlds. Abdulaziz Abdullah Al-Shaya Chairman 11

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13 Associate Companies Company Orient Educational Services Company k.s.c.c Incorporation 2005 Country Kuwait Capital 3 million KD ownership 49% Sector Education The Company was founded for the purpose of creating, establishing and administering educational institutions, as well as investing in the educational sector in Kuwait and abroad. The Algonquin College Canada, in Kuwait which has been approved by the Council of Private Universities of the Ministry of Higher Education is considered the main project of the company. Currently, the project is in its first phase and the percentage of completion is 34%. Company Orient International Health Care Company k.s.c.c Incorporation 2007 Country Kuwait Capital 1 million KD ownership 41% Sector Health The company was established for the purpose of investing in the health care and medical laboratories sector. The company currently owns the Health Care Clinic located in Bnied Al-Gar/ Kuwait which provides integrated health care facilities such as the ear, nose and throat clinic, general surgery, a dermatology clinic and pediatric surgery, in addition to the laboratory for medical analysis. Company Sinan Kuwait Real Estate Company w.l.l Incorporation 2013 Country Kuwait Capital 1.5 million KD ownership 20% Sector Real estate The Company was founded for the purpose of investing and developing real estate in Kuwait and abroad, specifically in Turkey, The United Kingdom and Saudi Arabia. The company is currently in the process of developing two residential projects in the Republic of Turkey that started during the first quarter of 2014, offering the sale of its units to interested clients in the GCC. Company Al Nama a Real Estate Company o.s.c Incorporation Country Oman Capital 500 thousand Omani Riyals ownership 30% Sector Real estate The company was founded for the purpose of investing and developing real estate in the Sultanate of Oman. The company is considered the window to the real estate sector in the Sultanate. It currently owns distinctive properties in the area of Al- Khuwair and is currently studying the best case scenario for the development of the property. 13

14 THE FATWA & SHARI A SUPERVISORY BOARD His Eminence Shaikh Dr. Ali M. Al-Qurra Daghi Chairman of the Fatwa & Shari a Supervisory Board Shaikh Dr. Abdull Aziz Khalifa Al-Qasar Member Shaikh Dr. Easa Zaki Easa Member 14

15 REPORT OF THE FATWA & SHARI A SUPERVISORY BOARD Praise is to Allah, Lord of the worlds; and prayers & peace be upon Our Prophet Muhammad, and upon his kinsfolk, companions and those who followed his teachings up to the Day of Judgment We, the Fatwa & Shari a Supervisory Board at Orient Holding Company, have carried out the review and preparation of all the contracts and agreements presented to us; and we have also supervised the applicable principles and the contracts related to the transactions and applications offered by the company during the year ending as at 31 st. December, Moreover, we have conducted the diligent supervision for giving our opinion on whether the company has complied with the provisions and principles of Islamic Shari a as well as abiding by the specific legal advice, decisions and directions issued by us; and that the liability for the execution of these provisions, principles and legal advice is borne by the management. As far as our responsibility is concerned, it is limited only to expressing an independent point of view, based on what has been referred to us and which we have been acquainted with. The Board, represented by its Shari a Department, has carried out the relevant supervision that consisted of examining the documentation and the followed procedures on the basis of testing every type of operation separately. In Our Opinion: We believe that all the contracts, operations and transactions concluded by the company during the year ending as at 31 st. December, 2013, which we have examined, were totally performed in conformity with Islamic Shari a provisions. Therefore, we avail ourselves of this opportunity to express our thanks and appreciation to the management of the company for its response and cooperation with the Board, praying for Almighty Allah to bless all their efforts for the service of Islamic economy and development of our country in a way that realizes good for all. With Best Regards, Shaikh Dr. Ali Mohi - Aldeen Al - Qurra Daghi Chairman of the Fatwa & Shari a Supervisory Board Shaikh Dr. Abdulaziz Khalifa Al-Qassar Member Shaikh Dr. Easa Zaki Easa Member 15

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17 EXECUTIVE MANAGEMENT Hassan Mohammed Abdulrahim Acting General Manager Basel Talat Khafash Finance Manager 17

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19 Annual Report 2013 Financial Statements For The Year Ended December 31, 2013 With Independent Auditor s Report CONTENTS Pages Statement of financial position Statement of income 22 Statement of comprehensive income 24 Statement of changes in equity 25 Statement of cash flows Notes to financial statements

20 INDEPENDENT AUDITOR S REPORT The Shareholders Orient Holding Company - K.S.C. (Closed) State of Kuwait Report on the financial statements I have audited the accompanying financial statements of Orient Holding Company - K.S.C. (Closed) the Company which comprise the statement of financial position as of December 31, 2013, and the statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows for the financial year then ended and a summary of significant accounting policies and other explanatory notes. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with International Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion on the financial statements. Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of Orient Holding Company - K.S.C. (Closed) as of December 31, 2013, and of its financial performance and its cash flows for the 20

21 financial year then ended in accordance with International Financial Reporting Standards. Report on other Legal and Regulatory Requirements Also in my opinion, the financial statements include the disclosures required by the Companies Law No. 25 of 2012 and its amendments and its executive regulation and the Company s Articles of Association and Article of Incorporation, and I obtained the information required to perform my audit. Proper books of account have been kept, physical stocktaking was carried out in accordance with recognized practice, and the accounting information given in the Director s Report is in agreement with the Company s books. According to the information available to me, no violation of the Companies Law No. 25 of 2012 and its amendments and its executive regulation and the company s Articles of Association and Articles of Incorporation of the Company have occurred during the financial year ended December 31, 2013 that might have had a material effect on the Company s financial position or its results of operations. State of Kuwait February 13, 2014 Dr. Shuaib A. Shuaib Licence No. 33-A RSM Albazie & Co. 21

22 STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2013 ASSETS Note Cash on hand and at banks 87, ,849 Investments at fair value through statement of profit or loss 3 14,342,368 15,085,996 Accounts receivable and other debit balances 57,831 51,202 Lands held for trading 4-2,339,341 Investments available for sale 5 23,619,456 22,640,187 Investment in associates 6 1,290, ,404 Investment in joint ventures 7 7,281,319 - Investment in unconsolidated subsidiaries 267, ,754 Musharaka Investment 8 87, ,445 Properties under development - 15,628 Investment properties 9-3,876,500 Fixed assets 10,189 9,205 Total assets 47,044,156 45,533,511 LIABILITIES AND EQUITY Liabilities: Accounts payable and other credit balances 528, ,912 Finance facilities 10 1,474,264 1,474,264 2,002,856 2,105,176 Provision for end of service indemnity 44,208 44,031 Equity: Share capital 11 24,167,462 23,016,630 Share premium 12 70,500 70,500 Statutory reserve 13 2,678,275 2,360,606 Voluntary reserve 14 2,264,676 2,264,676 Cumulative changes in fair value 11,524,242 10,706,826 Effect of changes in associate s equity 2,316 2,316 Retained earnings 4,289,621 4,962,750 Total equity 44,997,092 43,384,304 Total liabilities and equity 47,044,156 45,533,511 The accompanying notes (1) to (23) form an integral part of the financial statements. Abdulaziz A. Al-Shaya Chairman Zamel Abdulrahman Al - Zamel Vice Chairman 22

23 CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2013 Note Revenue: Net investments income 16 2,140,589 5,764,409 Impairment loss of investments available for sale (12,616) (8,723) Company s share of results from associates 6 113, ,901 Gain (loss) on sale of investment in an associate 6 4,180 (256,299) Gain (loss) on sale of investment in a subsidiary 2 - b 28,000 (81,125) Company s share of result from joint ventures 7 1,202,635 - Gain on sale of properties under development ,115 Change in fair value of investment properties - 169,821 Other income 227, ,359 Total revenue 3,704,187 6,789,458 Expenses and other charges: General and administrative expenses 17 (458,876) (546,294) Finance cost (65,008) (164,465) Depreciation (3,610) (25,921) Profit for the year before contribution to KFAS, Zakat and Board of Directors remuneration 3,176,693 6,052,778 Contribution to KFAS 18 (27,456) (53,953) Contribution to Zakat 19 (24,202) (56,945) Board of directors remuneration (28,000) (28,000) Net profit for the year 3,097,035 5,913,880 The accompanying notes (1) to (23) form an integral part of the financial statements 23

24 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, Net profit for the year 3,097,035 5,913,880 Other comprehensive income: Items that may be reclassified subsequently to profit or loss Change in fair value of investments available for sale 1,307,283 7,092,259 Effect of sale of investments available for sale (489,867) - Other comprehensive income for the year 817,416 7,092,259 Total comprehensive income for the year 3,914,451 13,006,139 The accompanying notes (1) to (23) form an integral part of the financial statements 24

25 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2013 Share capital Share premium Statutory reserve Voluntary reserve Cumulative changes in fair value Effect of changes in associates equity retained earnings Total Balance as of December 31, ,131,375 70,500 1,755,328 1,659,398 3,614,567 2,316 2,029,936 31,263,420 Share dividends and cash dividends 885, (1,770,510) (885,255) Total comprehensive income for the year ,092,259-5,913,880 13,006,139 Transfer to reserves , , (1,210,556) - Balance as of December 31, ,016,630 70,500 2,360,606 2,264,676 10,706,826 2,316 4,962,750 43,384,304 Share dividends and cash dividends (Note 15) 1,150, (3,452,495) (2,301,663) Total comprehensive income for the year ,416-3,097,035 3,914,451 Transfer to reserves , (317,669) - Balance as of December 31, ,167,462 70,500 2,678,275 2,264,676 11,524,242 2,316 4,289,621 44,997,092 The accompanying notes (1) to (23) form an integral part of the financial statements. 25

26 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2013 Cash flows from operating activities Profit for the year before contribution to KFAS, Zakat and Board of Directors remuneration Adjustments: ,176,693 6,052,778 Net investments income (2,140,589) (5,764,409) Impairment loss of investments available for sale 12,616 8,723 Group s share of results from associates (113,471) (648,901) (Gain) loss on sale of investment in an associate (4,180) 256,299 (Gain) loss on sale of investment in a subsidiary (28,000) 81,125 Company s share of results from joint ventures (1,202,635) - Gain from sale of properties under development (782) (86,115) Change in fair value of investment properties - (169,821) Returns income (294) (1,050) Finance cost 65, ,465 Depreciation 3,610 25,921 Provision for end of service indemnity 7,622 21,135 Changes in operating assets and liabilities : (224,402) (59,850) Paid to purchase investments at fair value through statement of profit or loss - (269,610) Proceeds from sale of investments at fair value through statement of profit or loss 1,714,033 1,638,512 Accounts receivable and other debit balances 33,120 (1,362) Accounts payable and other credit balances (225,503) (54,618) Cash generated from operations 1,297,248 1,253,072 End of service indemnity paid (7,445) (9,200) Net cash generated from operating activities 1,289,803 1,243,872 Cash flows from investing activities: Paid to purchase investments available for sale (905,806) (596,776) Proceeds from sale of investments available for sale 1,218,557 - Net movement of Musharaka investment 27,015 (114,445) Paid for inventory in joint venture (141,783) - Joint ventures dividends received 278,940 - Paid to purchase investment in an associate (303,000) - Proceeds from sale of investment in an associate 21,999 4,975,809 Proceeds from sale of investment in a subsidiary 28,000 33,000 Proceeds from sale of properties under development 16, ,280 Paid to purchase of fixed assets (4,534) (800) Proceeds from sale of fixed assets (60) (7,150) Cash dividends received 643, ,783 26

27 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, Returns income received 294 1,050 Net cash generated from investing activities 879,247 5,116,751 Cash flows from financing activities Finance facilities - (6,175,736) Finance cost paid (65,008) (164,465) Paid cash dividends (2,258,138) (885,255) Net cash used in financing activities (2,323,146) (7,225,456) Net decrease in cash on hand and at banks (154,096) (864,833) Cash on hand and at banks at beginning of the year 241,849 1,106,682 Cash on hand and at banks at end of the year 87, ,849 The accompanying notes (1) to (23) form an integral part of the financial statements 27

28 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, Incorporation and activities Orient Holding Company - K.S.C. (Closed) The Parent Company was incorporated pursuant to its Article of incorporation authenticated at the Ministry of Justice Department of Registration and Documentation - in the State of Kuwait under Ref. No / Vol. 1 on November 29, On a resolution by the extraordinary general assembly held on March 10, 2013 Article (2) of the articles of Association and Articles No. (1) of the article of incorporation for the company has been amended to change the Commercial name of the company from Orient Investment Company K.S.C (Closed) to Orient Holding Company K.S.C (Closed), also changing the company s activity from an investment company to a holding company and amend the company s activities as follows: Management of subsidiaries or participation in the management of other companies that contribute to and providing the necessary support. Investing its funds in trading of shares, bonds and other securities. Acquiring real estate and chattels to conduct its activities in the permissible limits according to the law Financing or lending funds to companies in which it owns shares or stocks and guaranteeing them with others, and in this case the participation rate of the holding company should not be less than 20% in the capital of the borrowing company. Acquiring industrial property rights such as patents, trademarks and industrial designs or industrial fees or privilege rights or any other related rights related to that and lease them to its subsidiaries or to other companies, whether inside or outside the State of Kuwait. Investing surplus funds available with the company by investing in portfolios managed by specialized companies. The amendment was authenticated at the Commercial Register under No on April 7, The Parent Company is authorized to engage or participate, in any way, with other firms conducting similar activities or activities which may help the company in its objectives, either inside or outside Kuwait. The Company is also authorized to acquire such firms or participate in their equity. The Parent Company s registered address is P.O Box: 22866, Safat 13089, State of Kuwait. The total number of employees of the Parent Company as of December 31, 2013 is 13 employees (December 31, employees). The Companies Law issued on November 26, 2012 by Decree Law No. 25 of 2012 (the Companies Law ), cancelled the Commercial Companies Law No. 15 of Some articles of Companies Law No.25 were subsequently amended by decree law No.97 of The Executive Regulation of the new amended law was issued on September 29, 2013 and was published in the official Gazette on October 6, As per article three of the executive regulation, the companies have one year from the date of publishing the executive regulation to comply with the new amended law. The financial statements were authorized for issue by the Board of Directors on February 13, The Shareholders General Assembly has the power to amend these consolidated financial statements after issuance. 2. Significant accounting policies The accompanying financial statements have been prepared in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and applicable requirements of Ministerial Order No. 18 of Significant accounting policies are summarized as follows: 28

29 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 a) Basis of preparation The financial statements are presented in Kuwaiti Dinars and are prepared under the historical cost convention except for investments at fair value through statement of profit or loss and other investments available for sale which are stated at their fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting policies applied by the Company are consistent with those used in the previous year except for the changes due to implementation of the following new and amended International Financial Reporting Standards as of January 1, 2013: IAS 1 Presentation of items of other comprehensive income The amendments to IAS 1 require items of other comprehensive income to be grouped into two categories Items that will not be reclassified, subsequently to statement of profit or loss. Items that may be reclassified to statement of profit or loss when specific conditions are met. The amendments are effective for annual periods beginning on or after July 1, IAS 28 Investments in associates and joint ventures. As a consequence of the new IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in other entities IAS 28 Investments in Associates has been renamed IAS 28 Investments in Associates and Joint Ventures and describes the application of the equity method to investments in Joint Ventures in addition to associates. The revised standard becomes effective for annual periods beginning on or after January 1, IFRS 7 Offsetting financial assets and financial liabilities and related disclosures The amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements for financial instruments under an enforceable master netting agreement or similar arrangement. The amendments are effective for annual periods beginning on or after January 1, IFRS 11 Joint Arrangements The new Standard requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and then account for those rights and obligations in accordance with that type of joint arrangement. Joint arrangements are either joint operations or joint ventures: In a joint operation: Parties have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint operators recognise their assets, liabilities, revenue and expenses in relation to their interest in the joint operation In a joint venture: Parties have rights to the net assets of the arrangement. A joint venturer applies the equity method of accounting for its investment in a joint venture in accordance with IAS 28 Investments in Associates and Joint Ventures (2011). Unlike IAS 31, the use of proportionate consolidation is not permitted. 29

30 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 IFRS 11 is effective for annual periods beginning on or after 1 January IFRS 12 Disclosure of Interests in Other Entities The new Standard combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. It requires extensive disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, interests in other entities and the effects of those interests on the entityís financial position, financial performance and cash flows. IFRS 12 is effective for annual periods beginning on or after 1 January IFRS 13 Fair Value Measurement This IFRS: defines fair value. sets out in a single IFRS a framework for measuring fair value. requires disclosures about fair value measurements. IFRS 13 applies when other IFRSs require or permit fair value measurements. It does not introduce any new requirements to measure an asset or a liability at fair value, change what is measured at fair value in IFRS or address how to present changes in fair value. The new requirements are effective for annual periods beginning on or after 1 January The preparation of financial statements in conformity with International Financial Reporting Standards requires management to make judgments, estimates and assumptions in the process of applying the Companyís accounting policies. Significant accounting judgments, estimates and assumptions are disclosed in Note 2(r). Standards and Interpretations issued but not effective The following IASB Standards and Interpretations have been issued but are not yet effective, and have not yet been adopted by the Company: Amendments to IAS 32 offsetting financial assets and financial liabilities The amendments to IAS 32 clarify the meaning of ìcurrently has a legally enforceable right of set offî and ìsimultaneous realization and settlementî. These are effective for annual periods beginning on or after January 1, IFRS 9 Financial Instruments: The standard, which was earlier effective for annual periods beginning on or after January 1, 2015 and now deferred specifies how an entity should classify and measure its financial assets. It requires all financial assets to be classified entirely based on the entityís business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are measured either at amortized cost or fair value. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of IAS 39. They apply a consistent approach to classifying financial assets and replace the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. They also result in one impairment method, replacing the numerous impairment methods in IAS 39 that arise from the different classification categories. 30

31 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 b) Principles of consolidation The financial statements incorporate the financial statements of Orient Holding Company - K.S.C. (Closed) and the following subsidiaries: Name of Subsidiaries Country of incorporation Percentage of holding Orient Global Holding Company K.S.C. (Closed) State of Kuwait - 99% During the year ended December 31, 2013 the company has sold all its investment in Orient Global Holding Company K.S.C. (Closed) which resulted a gain of KD 28,000. c) Financial instruments Financial assets and financial liabilities carried on the Statement of Financial Position include cash at banks, investments receivables, payables and finance facilities. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Company has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously. 1) Investments The Company classifies its investments in the following categories: Investments at fair value through statement of profit or loss and available for sale investments. The classification depends on the purpose for which the investments were acquired and is determined at initial recognition by the management. (i) Investments at fair value through statement profit or loss This category has two sub-categories: investments held for trading, and those designated at fair value through statement of profit or loss at inception. - An investment is classified as held for trading if acquired principally for the purpose of selling in the short term or if it forms part of an identified portfolio of investments that are managed together and has a recent actual pattern of short-term profit making or it is a derivative that is not designated and effective as a hedging instrument. - An investment is designated by the management on initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise or; if they are managed and their performance is evaluated and reported internally on a fair value basis in accordance with a documented risk management or investment strategy. Investments in this category are classified as current assets if they are either held for trading or are expected to be realized within 12 months form the end of the financial period. (ii) Investments available for sale Investments available for sale are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months from the end of the financial period. 31

32 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 Purchases and sales of investments are recognized on trade date the date on which the Company commits to purchase or sell the assets. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through statement profit or loss. After initial recognition, investments at fair value through statement of profit or loss and investments available for sale are subsequently carried at fair value. The fair values of quoted investments are based on current bid prices. If the market for an investment is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances. Realized and unrealized gains and losses from investments at fair value through statement of profit or loss are included in the statement of profit or loss. Unrealized gains and losses arising from changes in the fair value of investments available for sale are recognized in cumulative changes in fair value in statement of comprehensive income. Where investments available for sale could not be measured reliably, these are stated at cost less impairment losses, if any. When an investment available for sale is disposed off or impaired, any prior fair value earlier reported in comprehensive income is transferred to the statement of profit or loss. An investment (in whole or in part) is derecognized either when: The contractual rights to receive the cash flows from the investment have expired. When the Company has transferred its rights to receive cash flows from the investment and either: (1) Has transferred substantially all the risks and rewards of ownership of the investment. (2) Has neither transferred nor retained substantially all the risks and rewards of the investment, but has transferred control of the investment. Where the Company has retained control, it shall continue to recognize the investment to the extent of its continuing involvement in the investment. The Company assesses at the end of each reporting period position 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 the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for investments available for sale, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the statement of profit or loss is removed from other comprehensive income and recognized in the statement of profit or loss. Impairment losses recognized in the statement of profit or loss on available for sale equity instruments are not reversed through the statement of profit or loss. 2) Accounts receivable Receivables are recognized initially at fair value and subsequently measured at amortized cost, using the effective rate of return, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability 32

33 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective rate of return. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of profit or loss. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the statement of profit or loss. 3) Accounts payable Accounts payables include trade and other payables. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non - current liabilities. 4) Finance facilities: Finance facilities represents an agreement whereby the Company receives a certain amount of cash from another party, and invests it according to specific conditions in return for a certain fee (percentage of the profit generated from investment). They are subsequently re-measured and carried out at amortized cost using the effective yield method. d) Associates: Associates are those enterprises in which the Company has significant influence, which is the power to participate in financial and operating policy decisions of the associate. The financial statements include the Company s share of the results and assets and liabilities of associates under the equity method of accounting from the date that significant influence effectively commences until the date that significant influence effectively ceases, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the statement of financial position at cost as adjusted for post-acquisition changes in the Company s share of the net assets of the associate, less any impairment in the value of individual investments. The Company recognizes in its other comprehensive income for its share of changes in other comprehensive income of associate. Losses of an associate in excess of the Company s interest in that associate (which includes any long-term interests that, in substance, form part of the Company s net investment in the associate) are not recognized except to the extent that the Company has an obligation or has made payments on behalf of the associate. Gains or losses arising from transactions with associates are eliminated against the investment in the associate to the extent of the Company s interest in the associate. Any excess of the cost of acquisition over the Company s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment in associates and is assessed for impairment as part of the investment. Any excess of the Company s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in the statement of profit or loss. Upon loss of significant influence over the associate, the Company measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognized in the statement of profit or loss. 33

34 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 After the application of the equity method, the Company determines whether it is necessary to recognize impairment loss on the Company s investment in its associate. The Company determines at each financial period whether there is any objective evidence that the investment in associate is impaired. If this is the case, The Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the statement of profit or loss. Joint Arrangements The Company classifies its interests in joint arrangements as either joint operations or joint ventures depending on the Company s right to the assets and obligations for the liabilities of the arrangements. Joint Ventures A joint venture is a joint arrangement, whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Investment in Joint Ventures is accounted based on equity method similar to associates. Joint Operations A joint operation is a joint arrangement, whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. When a company entity undertakes its activities under joint operations, the company as a joint operator recognizes in relation to its interest in a joint operation: Its assets, including its share of any assets held jointly. Its liabilities, including its share of any liabilities incurred jointly. Its revenue from the sale of its share of the output arising from the joint operation. Its share of the revenue from the sale of the output by the joint operation. Its expenses, including its share of any expenses incurred jointly. The company accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses. When a company entity transacts with a joint operation in which a company entity is a joint operator (such as a sale or contribution of assets), the Company is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognized in the company financial statements only to the extent of other parties interests in the joint operation. When a company entity transacts with a joint operation in which a company entity is a joint operator (such as a purchase of assets), the Company does not recognize its share of the gains and losses until it resells those assets to a third party. f) Investment properties: Investment properties comprise completed property, property under construction or re-development 34

35 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 held to earn rentals or for capital appreciation or both. Investment properties are initially measured at cost including purchase price and transaction costs. Subsequent to initial recognition, investment properties are stated at their fair value at the end of financial period. Gains or losses arising from changes in the fair value of investment properties are included in the statement of profit or loss for the period in which they arise. Property interest that is held under an operating lease is classified and accounted for as investment property when the property would otherwise meet the definition of an investment property and the lessee uses the fair value model. Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Gains or losses arising on the retirement or disposal of an investment property are recognized in the statement of profit or loss. Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner occupation or commencement of an operating lease to another party. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale. g) Properties under development: Properties acquired, constructed or in the course of construction for sale are classified as properties under development. Unsold properties are stated at cost. Sold properties in the course of development are stated at cost plus attributable profit / loss less progress billings. The cost of properties under development includes the cost of land and other related expenditures which are capitalized and when activities that are necessary to get the properties ready for its intended use. Net realizable value represents the estimated selling price less costs to be incurred in selling the property. The property is considered to be completed when all related activities, including the infrastructure and facilities for the entire project, have been completed. At that stage, the total asset value is eliminated from properties under development. h) Fixed assets: The initial cost of fixed assets comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to statement of income or loss in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of fixed assets beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of fixed assets. Fixed assets are stated at cost less accumulated depreciation and impairment losses. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in statement of profit or loss for the period. Depreciation is computed on a straight-line basis over the estimated useful lives of fixed assets as follows: Assets Useful life Furniture and fixtures 5 Decorations 5 Machines and equipment 3 35

36 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 The useful lives and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of fixed assets. i) Impairment of tangible and intangible assets excluding goodwill: At each statement of reporting period, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the statement of profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. j) Provision for end of service indemnity: Provision is made for amounts payable to employees under the Kuwaiti Labor Law in the private sector and employees contracts. This liability, which is unfunded, represents the amount payable to each employee as a result of involuntary termination at the statement of financial position date, and approximates the present value of the final obligation. k) Share capital: Ordinary shares are classified as equity. l) Revenue recognition: The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Company and specific criteria have been met for each of the Company s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Company basis its estimates on historical results taking into consideration the type of customer the type of transactions and the specifies of each arrangement. Dividend income Dividend income is recognized when the right to receive payment is established. Gain on sale of investments Gain on sale of investments is measured by the difference between the sale proceeds and the carrying amount of the investment at the date of disposal and is recognized at the time of sale. Sale of properties under development: 36