Al Yusr Leasing and Financing Company (Closed Joint Stock Company) Riyadh Saudi Arabia Financial Statements and Auditors' Report For the year ended

Transcription

1 Riyadh Saudi Arabia Financial Statements and Auditors' Report For the year ended 31 December 2016

2 Riyadh Saudi Arabia Financial Statements and Auditors Report Table of Contents Page Independent Auditors report 1 Statement of Profit or Loss 2 Statement of Other Comprehensive Income 3 Statement of Financial Position as at 31 December Statement of Cash Flows 5 Statement of Changes in Shareholders Equity 6 Notes to the Financial Statements 7 32

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4 Statement of Profit or Loss Note Revenues 3&15 724,822, ,793,282 Cost of revenues 16 (473,677,254) (425,142,361) Net revenues 251,145, ,650,921 Fees and commissions 17 34,996,225 24,014,211 Gross profit 286,141, ,665,132 Selling and distribution expenses 3&18 (2,458,496) (5,203,919) General and administrative expenses 3&19 (160,829,082) (145,082,131) Provision for credit losses and doubtful debts of finance lease and accounts receivable for installment 20 (47,974,225) (36,840,722) Net income for the year before Zakat 74,879, ,538,360 Zakat charge 3&12 - (17,750,000) Net income for the year 74,879, ,788,360 Earnings per Share (EPS) Share interest from net income for the year The accompanying notes from 1 to 28 are an integral part of these financial statements -2-

5 Statement of Other Comprehensive Income Note Net income for the year 74,879, ,788,360 Other comprehensive income: Items not be reclassified into profit or loss in subsequent period: Re-measurement loss on employee s terminal benefits 3&13 (5,512,205) - Total comprehensive income for the year 69,367, ,788,360 The accompanying notes from 1 to 28 are an integral part of these financial statements -3-

6 Statement of Financial Position as at 31 December 2016 Assets Note Bank balances 96,559, ,021,189 Other receivables and prepayments 7 225,637, ,381,434 Margin deposits 6 222,675, ,250,165 Net investment in finance lease 3&4 2,142,186,165 2,136,841,742 Accounts receivables for installments 3&5 1,234,267,251 1,065,807,908 Due from related party 8 9,156,048 2,128,832 Property and equipment, net 3&9 17,992,510 18,759,733 Total assets 3,948,475,040 3,703,191,003 Shareholders Equity and Liabilities Shareholders equity: Share capital 1 500,000, ,000,000 Statutory reserve 14 88,500,556 81,012,602 Retained earnings 547,407, ,016,402 Actuarial losses 3&13 (5,512,205) - Total shareholders equity 1,130,396,343 1,061,029,004 Liabilities Trade payable 357,882, ,587,695 Other payables and accruals ,439, ,389,171 Due to related parties 8 421,412,663 - Bank Loans 3&10 1,453,804,178 1,875,740,382 Provision for Zakat 3&12 85,349,432 92,648,555 Employees terminal benefits 3&13 24,190,000 14,796,196 Total liabilities 2,818,078,697 2,642,161,999 Total shareholders equity and liabilities 3,948,475,040 3,703,191,003 The accompanying notes from 1 to 28 are an integral part of these financial statements -4-

7 Statement of Cash Flows Cash Flows from Operating Activities: Net income for the year 74,879, ,788,360 Adjustments to reconcile net income to net cash from / (used in) operating activities: Provisions for credit losses and doubtful debts of finance lease, accounts receivable for installment and margin deposits 223,259, ,392,852 Depreciation 4,774,687 1,878,022 Employees terminal benefits 4,801,069 4,113,471 Change in provision in fair value of margin deposits 6,598,922 12,593,787 Zakat charge for the year - 17,750,000 Loss on disposal of property and equipment - 5, ,313, ,521,630 Changes in components of working capital: Increase in investment in finance lease, net (55,545,724) (850,397,263) Increase in accounts receivable for installment, net (195,641,192) (464,812,609) Increase in margin deposits (66,024,404) (59,275,426) (Increase) / decrease in other receivables and prepayments (65,256,001) 60,412,434 Net change in related parties balances 414,385,447 (97,232,853) Increase in accounts payable 143,295, ,831,769 Decrease in other payables and accruals (114,825,909) (108,266,801) Zakat paid (7,299,123) (5,287,783) End of service indemnities paid (919,470) (1,169,729) Net cash from / (used in) operating activities 366,482,463 (963,676,631) Cash Flows from Investing Activities: Acquisition of property and equipment (4,007,464) (11,100,633) Cash used in investing activities (4,007,464) (11,100,633) Cash Flows from Financing Activities: Net change in loans (421,936,204) 835,615,839 Cash (used in) / from financing activities (421,936,204) 835,615,839 Net cash used during the year (59,461,205) (139,161,425) Bank balances at the beginning of the year 156,021, ,182,614 Bank balances at the end of the year 96,559, ,021,189 The accompanying notes from 1 to 28 are an integral part of these financial statements -5-

8 Statement of Changes in Shareholders Equity Share capital Statutory reserve Retained earnings Actuarial loss Total 2015 Balance as of 31 December ,000,000 58,733, ,506, ,240,644 Net income for the year ,788, ,788,360 Transfer to statutory reserve - 22,278,836 (22,278,836) Balance as of 31 December ,000,000 81,012, ,016,402-1,061,029,004 Net income for the year ,879,544-74,879,544 Transfer to statutory reserve - 7,487,954 (7,487,954) - - Other comprehensive loss for the year (5,512,205) (5,512,205) Balance as of 31 December ,000,000 88,500, ,407,992 (5,512,205) 1,130,396,343 The accompanying notes from 1 to 28 are an integral part of these financial statements -6-

9 1. Legal Status and Activities Al Yusr Leasing and Financing Company ( the Company ) is a closed joint stock Company registered in Riyadh in the Kingdom of Saudi Arabia under CR. No issued on 20 Shawal, 1424H corresponding to 14 December 2003G. The Company s subscribed and paid-in share capital of SR. 500,000,000 is divided into 50,000,000 equity shares of SR. 10 each fully subscribed and paid, and distributed among shareholders as follows: Name No. of shares Value Amount Abdullatif Alissa Group Holding Company ("Parent Company") 49,500, ,000,000 General Automotive Company 100, ,000,000 Abdullatif Alissa Automotive Company 100, ,000,000 Gulf Development Company 100, ,000,000 Durar Universal Company 100, ,000,000 Banan Universal Company 100, ,000,000 50,000, ,000,000 The main activity of the Company is to engage in the lease for the financing of small and medium-sized enterprises and the financing of productive assets and consumer finance under the Saudi Arabian Monetary Agency (SAMA) license No.(10 / AO / ) issued on 27 Rabi II, 1435H corresponding to 28 February 2014G. -7-

10 1. Legal Status and Activities (Continued) The Company s registered office is located in Riyadh. The Company has the following branches: Branch C.R. NO. Date Riyadh-Salaheddin Road /04/1435H Riyadh-Dammam Road /04/1435H Riyadh-Exit /04/1435H Riyadh-Exit /04/1435H Riyadh-Exit /04/1435H Riyadh-Khurais Road /04/1435H Riyadh-Badeah /04/1435H Riyadh-Mansourah /03/1436H Hafr Al Baten /11/1434H Burayadah /10/1425H Oniza /04/1435H Hail /02/1434H Sekaka /04/1435H Tabouk /04/1435H Dammam /04/1435H Al Khobar /11/1424H Al Qateef /11/1431H Al-Jubail /04/1435H Al Ihsaa /05/1428H Jeddah- Rowda Road /06/1428H Jeddah-Al Jawahra /04/1436H Makkah /11/1431H Yanbou /06/1435H Madinah Monawarah-Aziziah /05/1433H Khamis Mshait /06/1433H Jazan /04/1435H 2. Basis of Preparation Statement of compliance These financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) as required by the Implementing Regulation of the Finance Companies Control Law and not in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. Assets and liabilities in the statement of financial position are presented in the order of liquidity. Basis of measurement These financial statements have been prepared on a historical cost basis. Functional and presentation currency These financial statements have been presented in Saudi Riyals (SR) which is the Company's functional and presentation currency. -8-

11 2. Basis of Preparation (continued) Significant accounting judgments, estimates and assumptions The preparation of the Company s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company s management. Such changes are reflected in the assumptions when they occur. Going concern The Company s management has made an assessment of the Company s ability to continue as a going concern and is satisfied that the Company has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt on the Company s ability to continue as a going concern. Therefore, the financial statements have been prepared on a going concern basis. Determination of servicing assets / liabilities The Company enters into factorization and agency arrangements with banks. Under these arrangements, the Company has been appointed by the banks to service the receivables purchased by the banks. Assumptions used to calculate the servicing assets / liability are based on estimates of collection costs to be incurred by the Company over the life of the individual factorization and agency transaction, executed under the respective factorization and agency agreement. Determination of discount rate for present value calculations Discount rate represents the current market assessment of the risks specific to the Company, taking into consideration the tenure of the agreement and the individual risks of the underlying assets. The discount rate calculation is based on the specific circumstances of the Company. Actuarial valuation of employee benefits liabilities The cost of the end-of-service ( employee benefits ) under defined unfunded benefit plan is determined using actuarial valuation. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, and mortality rates. Due to the complexity of the valuation and its long-term nature, a defined unfunded benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed on an annual basis or more frequently, if required. Impairment of net investment in lease receivables and installments An estimate of the collectible amount of lease receivables is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and an allowance applied according to the length of time past due, based on historical recovery rates. Any difference between the amounts actually collected in future periods and the amounts expected will be recognized in the statement of profit or loss of those periods. -9-

12 3. Summary of Significant Accounting Policies The accounting policies adopted in the preparation of these financial statements are consistent with those used in the preparation of the Company s financial statements for the year ended 31 December 2015, except for the adoption of the following new standards and other amendments to an existing standard mentioned below which had no significant financial impact on the financial statements of the Company on the current period or prior period and is expected to have no significant effect in future periods: a- New standard IFRS 14 Regulatory Deferral Accounts, applicable for the annual periods beginning on or after 1 January 2016, allows an entity, whose activities are subject to rate regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first time adoption of IFRS. The standard does not apply to existing IFRS preparers. Also, an entity whose current GAAP does not allow the recognition of rate-regulated assets and liabilities, or that has not adopted such policy under its current GAAP, would not be allowed to recognise them on first-time application of IFRS. b- Amendments to existing standards - Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates, applicable for the annual periods beginning on or after 1 January 2016, address three issues that have arisen in applying the investment entities exception under IFRS 10. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures its subsidiaries at fair value. Furthermore, only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. - Amendments to IFRS 11 Joint Arrangements, applicable for the annual periods beginning on or after 1 January 2016, require an entity acquiring an interest in a joint operation, in which the activity of the joint operation constitutes a business, to apply, to the extent of its share, all of the principles in IFRS 3 Business Combinations and other IFRSs that do not conflict with the requirements of IFRS 11 Joint Arrangements. Furthermore, entities are required to disclose the information required by IFRS 3 and other IFRSs for business combinations. The amendments also apply to an entity on the formation of a joint operation if, and only if, an existing business is contributed by one of the parties to the joint operation on its formation. Furthermore, the amendments clarify that, for the acquisition of an additional interest in a joint operation in which the activity of the joint operation constitutes a business, previously held interests in the joint operation must not be remeasured if the joint operator retains joint control. - Amendments to IAS 27 Separate Financial Statements, applicable for the annual periods beginning on or after 1 January 2016, allows an entity to use the equity method as described in IAS 28 to account for its investments in subsidiaries, joint ventures and associates in its separate financial statements. - Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets, applicable for the annual periods beginning on or after 1 January 2016, restricts the use of ratio of revenue generated to total revenue expected to be generated to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. -10-

13 3. Summary of Significant Accounting Policies (Continued) - Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture, applicable for the annual periods beginning on or after 1 January 2016, change the scope of IAS 16 to include biological assets that meet the definition of bearer plants. Agricultural produce growing on bearer plants will remain within the scope of IAS 41. In addition, government grants relating to bearer plants will be accounted for in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, instead of IAS Annual improvements to IFRS cycle, applicable for annual periods beginning on or after 1 January A summary of the amendments is as follows: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, amended to clarify that changing from one disposal method to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. IFRS 7 Financial Instruments: Disclosures has been amended to clarify that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. The nature of the fee and the arrangement should be assessed in order to consider whether the disclosures are required under IFRS 7 and the assessment must be done retrospectively. IFRS 7 has been further amended to clarify that the offsetting disclosure requirements do not apply to interim condensed financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. IAS 19 Employee Benefits amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. - Amendments to IAS 1- Presentation of Financial Statements, applicable for the annual periods beginning on or after 1 January 2016, clarify, existing IAS 1 requirements in relation to: The materiality requirements in IAS 1. That specific line items in the interim condensed statement(s) of profit or loss and Other Comprehensive Income ( OCI ) and the interim condensed statement of financial position may be disaggregated. That entities have flexibility as to the order in which they present the notes to interim condensed financial statements. That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to interim condensed statement of profit or loss. Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the interim condensed statement of financial position and the interim condensed statement(s) of profit or loss and OCI. -11-

14 3. Summary of Significant Accounting Policies (Continued) The significant accounting policies adopted for the preparation of these financial statements are as follows: Property and equipment: Property and equipment are stated at cost less accumulated depreciation. Expenditure on maintenance and repairs is expensed, while expenditure for betterment is capitalized. Depreciation is provided over the estimated useful lives of the applicable assets using the straight line method. The estimated rates of depreciation of the principal classes of assets are as follows: Percentage Furniture and fixtures 20% Tools and equipment 20% Computers and software 25% Leasehold improvements 20% Depreciation on additions is charged from the month the assets are available for use. No depreciation is charged in the month of disposal. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. The assets residual values, useful lives and methods are reviewed and adjusted, if appropriate, at each statement of financial position date. All assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment in assets value At each statement of financial position date, the carrying amounts of tangible assets are reviewed regularly 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 assets is estimated in order to determine the extent of the impairment loss. 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. 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 assets or cash-generating unit is reduced to its recoverable amount. Impairment loss is recognized as an expense in the statement of profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or 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 assets or cash-generating unit in prior period. The reversal of an impairment loss is recognized in the statement of profit or loss immediately. -12-

15 3. Summary of Significant Accounting Policies (Continued) Net investment in finance leases The determination of whether an arrangement contains a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Gross investment in leases represents the gross lease payments receivable by the Company, and the net investment represents the present value of these lease payments, discounted at commission rate implicit in the lease. The difference between the gross investment, provision for lease losses and the net investment is recognized as unearned finance income. Accounts receivable for installment: Accounts receivable from installments represent the amount due from customers resulted from finance type transactions with extended credit terms. Gross accounts receivables for installment represents the gross installment payments receivable by the Company, and the net accounts receivables for installment represents the present value of these installment payments, discounted at commission rate implicit in the installment dues. The difference between the gross accounts receivables, provision for installment losses and the net accounts receivables is recognized as unearned finance income. Provision for lease / installment losses The Company reviews its delinquent lease / receivables on a regular basis to assess whether specific provisions for impairment should be recorded in the statement of profit or loss. In particular, considerable judgment by management is required in the estimation of the amount and timing of future cash inflows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such provisions. In addition to specific provisions against significant lease / installment receivables, the Company also makes a collective impairment provision against lease / installment receivables which, although not specifically identified as requiring a specific provision, have a greater risk of default than when originally granted. This collective provision is based on the historical loss pattern for lease / installment receivables and is adjusted to reflect current economic changes. Financial instruments Financial assets Initial recognition and measurement: Financial assets are classified, at initial recognition as loans and receivables, held-to-maturity, or as derivatives, as appropriate. All financial assets are recognized initially at fair value plus, in case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. -13-

16 3. Summary of Significant Accounting Policies (Continued) Financial instruments (Continued) Financial assets Derecognition of financial assets: Any financial asset or, where applicable a part of a financial asset or part of a group of similar financial assets is derecognised when: the contractual right to receive cash flows from the asset has expired; or the contractual right to receive cash flows from the asset has expired; but the Company has assumed an obligation to pay them in full without material delay to a third party under a pass through arrangement; or the Company has transferred its contractual right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Any resulting gains or losses on derecognition of financial assets are recognized at the time of derecognition of financial assets. When the Company has transferred its contractual right to receive cash flows from an asset but has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company s continuing involvement in the asset. Continuing involvement takes the form of a guarantee over the transferred assets, which was provided by the Company to banks. This guarantee represents the blocked margin deposits or bank guarantees provided to the banks, as the case may be, till the end of the agreements. Where the Company is appointed to service the derecognized financial asset for a fee, the Company recognises either a net servicing asset or a net servicing liability for that servicing contract. If the fee to be received is not expected to compensate the Company adequately for performing the service, a net servicing liability for the servicing obligation is recognised at its fair value. If the fee to be received is expected to be more than adequate compensation for the services to be provided, a servicing asset is recognised for the servicing right. The total amount of such net servicing assets has been classified separately under assets in these financial statements. The Company s net servicing assets and related liabilities are calculated separately for each agreement by calculating the present value of servicing assets, as per the terms of the agreements, and by estimating the present value of servicing liabilities and related provisions. The discount rate used is the rate agreed as per the terms of the respective factorization agreement. The change in present values of servicing assets, servicing liabilities and related provisions will be reassessed at each period end and the impact, if any, will be taken to the statement of profit or loss. Following initial recognition, net servicing assets, being intangibles assets, are carried at cost less any accumulated amortisation and any accumulated impairment losses. Net servicing assets are amortised over their definite useful economic life (in conformity with the collection arrangements with the banks or private investors) and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation of net servicing asset is charged to the statement of profit or loss. -14-

17 3. Summary of Significant Accounting Policies (Continued) Financial instruments (Continued) Impairment and uncollectability of financial assets An assessment is made at each statement of financial position date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the statement of profit or loss. Impairment is determined as follows: (a) for assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the statement of profit or loss; (b) for assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; and, (c) for assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective commission rate. Financial liabilities Initial recognition and measurement The Company determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognised initially at fair value plus, directly attributable transaction costs (where applicable) and thereafter stated at their amortized cost. Financial liabilities are classified according to the substance of contractual arrangements entered into. Significant financial liabilities include due to related parties, short term loans and accounts payable. Subsequent measurement Financial liabilities are subsequently recognized for amounts to be paid in the future for services received, whether billed by the supplier or not. Derecognition of financial liability A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Company. -15-

18 3. Summary of Significant Accounting Policies (Continued) Fair value measurement (Continued) The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. Loans Loans are recognized at the value of proceeds received by the Company. Employees terminal benefits - Net employee defined benefit liabilities This represents end of service benefits plan. End-of-service benefits as required by Saudi Arabian Labor Law need to be provided based on the employees length of service. The Company s net obligations in respect of defined unfunded benefit plans (End-of-service-benefits is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and any unrecognized past service costs. The discount rate used is the market yield on government bonds at the reporting date that have maturity dates approximating the terms of the Company s obligations. The cost of providing benefits under the defined benefit plans is determined using the projected unit credit method to determine the Company s present value of the obligation. The defined benefit liability comprises the present value of defined benefit obligation as adjusted for any past service cost not yet recognized and any unrecognized actuarial gains / losses. Currently there are no past service costs. There are also no unrecognised re-measurement gains and losses as the entire re-measurement gains and losses are recognised as income or expense in the statement of other comprehensive income during the year in which they arise. Provision for Zakat: The Company is subject to the Regulations of the General Authority of Zakat and Income Tax ( GAZT ) in the Kingdom of Saudi Arabia. Zakat is provided on an accruals basis. The Zakat charge is computed on the Zakat base or the adjusted net income, whichever is higher. Any difference in the estimate is recorded when the final assessment is approved, at which time the provision is cleared. -16-

19 3. Summary of Significant Accounting Policies (Continued) Contingent liabilities The Company receives legal claims through its normal cycle. Management has to make estimates and judgments about the possibility to set aside a provision to meet claims. The end of the legal claims date and the amount to be paid is uncertain. The timing and costs of legal claims depends on the statutory procedures. Provisions: Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, 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. When the Company expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement. Offsetting Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Income and expenses are presented on a net basis only when permitted under International Financial Reporting Standards, or for gains and losses arising from a group of similar transactions. Revenue recognition: Gross investment in lease and installments represents the gross lease / installments payments receivable by the Company, and the net investment represents the present value of these lease / installments payments discounted at interest rate implicit in the lease. The difference between the gross investment and the net investment is recognised as unearned lease / installments income. Lease / installments income is recognised over the period of the lease on a systematic basis, which results in a constant periodic rate of return on the net investment outstanding. Income from factorization and agency arrangements represents gains or losses on de-recognition of financial assets including income on amortization of net servicing asset. Lease arrangements where the Company is a lessee Finance leases are those where the terms of the lease transfer, substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. As lessee, the Company classifies its leases as operating leases and the rentals payable are charged to the statement of profit or loss on a straight line basis. Selling and distribution expenses: Selling and distribution expenses principally comprise of costs incurred in the sale and distribution of the Company s products / services. All other expenses are classified as general and administrative expenses. General and administrative expenses: General and administrative expenses include expenses related to management and not related to production or services provided as required under generally accepted accounting principles. Allocations between cost of sales, and general and administrative expenses, when required, are made on consistent basis. -17-

20 3. Summary of Significant Accounting Policies (Continued) Foreign currency translation: Transactions in foreign currencies are recorded in Saudi Riyals at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the statement of financial position date. All differences are taken to the statement of profit or loss.non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. 4. Investment in Finance Lease Gross investment in finance leases 3,034,419,623 3,058,586,137 Unearned lease finance income (802,051,639) (854,748,432) Net investment in finance leases 2,232,367,984 2,203,837,705 Provision for credit losses of finance lease (90,181,819) (66,995,963) 2,142,186,165 2,136,841,742 Current portion (731,338,113) (537,539,071) Non-current portion 1,410,848,052 1,599,302,671 a. The maturity of the gross investment in leases (i.e., minimum finance lease payments ( MLPs ) and net investment in finance leases (i.e., present value of MLPs) is as follows: Not later than one year Later than one year but not later than five years MLPs PV of MLPs MLPs PV of MLPs 1,108,679, ,287, ,307, ,741,498 1,925,739,826 1,468,080,321 2,136,278,869 1,646,096,207 3,034,419,623 2,232,367,984 3,058,586,137 2,203,837,705 b. The movement in provision for credit losses of finance lease is as follows: Balance at the beginning of the year Provided during the year (Note 20) Written off during the year Balance at the end of the year 66,995,963 38,498,246 50,201,301 60,104,279 (27,015,445) (31,606,562) 90,181,819 66,995,963 c. The Company has transacted in the normal course of their business with relate parties (Tania for Bottled Drinking Water Limited - affiliate company) which has resulted on a due finance lease balance of SR.15,865,180 (2015: SR. 13,283,861). Such transaction were conducted at an arm s length. d. As at 31 December 2016, the net outstanding lease receivable were SR 2,232 million (2015: SR 2,203 million) and the provision for lease losses was SR 90 million (2015: SR 67 million). Moreover the past due lease receivables as at 31 December 2016 were SR 251 million (2015: 140). Out of these past due lease receivables, SR 139 million (2015: 89 million) were past due for a period of 6 months or less, SR 56 million (2015: 26 million) were past due for a period of more than six months but less than twelve months and SR 56 million (2015: 25 million) were past due more than one year. -18-

21 5. Accounts Receivable for Installment: Gross accounts receivable for installment 1,423,539,235 1,291,483,761 Unearned finance income (165,079,267) (191,017,841) Net accounts receivable for installment 1,258,459,968 1,100,465,920 Provision for credit losses of accounts receivable for installment (24,192,717) (34,658,012) 1,234,267,251 1,065,807,908 Current portion (815,418,768) (580,799,204) Non-current portion 418,848, ,008,704 a. The maturity of the installment receivables (i.e., minimum installment payments ( MIPs ) and net installment payments (i.e., present value of MIPs) is as follows: MIPs PV of MIPs MIPs PV of MIPs Not later than one year 939,494, ,385, ,442, ,079,187 Later than one year but not later than five years 484,044, ,074, ,041, ,386,733 1,423,539,235 1,258,459,968 1,291,483,761 1,100,465,920 b. The movement in provision for credit losses of accounts receivable for installment is as follows: Balance at the beginning of the year 34,658,012 32,500,000 Provided during the year (Note 20) 27,181,849 8,053,155 Written off during the year (37,647,144) (5,895,143) Balance at the end of the year 24,192,717 34,658,012 c. The Company has transacted in the normal course of their business with related parties (Tania for Bottled Drinking Water Limited - affiliate company) which has resulted on a due accounts receivables for installment balance of SR. 3,729,854 (2015: SR. 500,087). Such transaction were conducted on arm s length basis. d. As at 31 December 2016, the net outstanding installment were SR 1,258 million (2015: SR 1,100 million) and the provision for losses was SR 24 million (2015: SR 35 million). Moreover the past due receivables as at 31 December 2016 were SR 364 million (2015: 141). Out of these past due receivables, SR 187 million (2015: 88 million) were past due for a period of 6 months or less, SR 99 million (2015: 24 million) were past due for a period of more than six months but less than twelve months and SR 78 million (2015: 29 million) were past due more than one year. -19-

22 6. Margin Deposits (a) Margin deposits with banks, net as of December 31 comprises of the followings: 2016 Current Non-current Total Margin deposits with banks 93,637, ,290, ,928,164 Less: Provision against expected defaults in respect of sold receivables (29,827,658) (83,232,150) (113,059,808) Less: Provision in respect of fair value of margin deposit (5,063,457) (14,129,252) (19,192,709) As of December 31, ,746, ,928, ,675, Current Non-current Total Margin deposits with banks 49,043, ,832, ,875,759 Less: Provision against expected defaults in respect of sold receivables (14,804,238) (61,227,569) (76,031,807) Less: Provision in respect of fair value of margin deposit (2,452,150) (10,141,637) (12,593,787) as of December 31, ,786, ,463, ,250,165 (b) Movement in the Provision against expected defaults in respect of sold receivables for the year ended December 31, is as follows: Balance at the beginning of the year 76,031,807 71,169,236 Provided during the year 145,876,195 97,235,418 Written of during the year (108,848,194) (92,372,847) Balance at the end of the year 113,059,808 76,031,807 The Company has placed these funds in restricted bank accounts against receivables sold to the banks as required under certain factorization and agency agreements. This amount represents the maximum liability (against defaulted receivables, if any) of the Company according to the relevant factorization and agency agreements (see Note 21). 7. Other Receivables and Prepayments Advances to suppliers 6,248,419 60,308,683 Inventory in transit 10,781,419 41,690,550 Claims receivable 64,284,213 46,477,070 Prepaid rent 5,022,767 4,119,046 Due from employees 1,303,654 1,718,470 Others 137,996,963 6,067, ,637, ,381,

23 8. Related Parties Transactions Related parties represent major shareholders, directors and key management personnel of the Company, and entities controlled or significantly influenced by such parties (other related parties). During the period, the Company transacted with the following related parties. The terms of those transactions are approved by the board of directors: Balance 2015 Movement during the year Related party Abdullatif Alissa Group Holding Company ( Parent Company ) Nature of relationship Shareholder Balance 2016 Nature of transactions Debit Credit Debit Credit Debit Credit Financing and Exchange of 2,128,832-5,015,106,035 5,009,322,979 7,911,888 - services General Automotive Company Shareholder Trading - - 1,212,183,759 1,545,866, ,682,637 Abdullatif Alissa Automotive Company Shareholder Trading ,764, ,149,122 78,384,782 Alissa Universal Motor Company Affiliate Trading ,907, ,252,287-9,345,244 Best Trading Company Affiliate Trading - - 3,121,476 2,555, ,431 - Auto Express Company Affiliate Trading , ,912 - Auto Spare Parts Company Affiliate Trading , ,331 - Alissa Investment Company Affiliate Trading - - 2,594-2,594 - Alissa Real Estate Company Affiliate Trading - - 8,317-8,317 - National Automotive Trading Company Affiliate Trading ,575-42,575-2,128,832-7,034,760,382 7,449,145,829 9,156, ,412,663 During 2016, the Company has conducted transactions with the above related parties that include financing, exchange of services and trading transactions in a form of purchases, these transactions were made at arm's length and approved by board of directors. Such balances are not subject to commission, and there are no specific terms of settlement. -21-

24 8. Related Parties Transactions (continued) The significant transactions and the related amounts for the year ended December 31, are as follows: Nature of transactions Customers purchases financed by the Company 806,128, ,122,889 Information technology support expense 6,918,697 6,221,300 Compensation of key management personnel of the Company Remuneration and compensation of the key management executives was SR 5.1 million (2015: SR 4.3 million). Remuneration, amounting to SR 1.0 million, was paid to a director during the year ended 31 December 2016 (2015: SR 0.6 million). 9. Property and Equipment, net Furniture and fixtures Tools and equipment Computer and software Leased hold improvements Total Cost As of December 31, ,753,598 6,057,807 8,150,923 7,417,219 28,379,547 Additions 587, , ,515 2,321,167 4,007,464 Disposals as of December 31, ,340,888 6,609,299 8,698,438 9,738,386 32,387,011 Accumulated depreciation As of December 31, 2015 (4,175,715) (3,322,196) (2,121,903) - (9,619,814) Charge for the year (877,633) (934,850) (1,359,446) (1,602,758) (4,774,687) Disposals as of December 31, 2016 (5,053,348) (4,257,046) (3,481,349) (1,602,758) (14,394,501) Book value: as of December 31, ,287,540 2,352,253 5,217,089 8,135,628 17,992,510 as of December 31, ,577,883 2,735,611 6,029,020 7,417,219 18,759,

25 10. Loans Maturity Due to banks 49,961,222 - Medium-term loans current portion (Less than one year) 621,077,633 1,141,257,091 Medium-term loans non-current portion (1 3 years) 406,070, ,541,977 Long-term loans - current portion (Less than one year) 136,486, ,754,147 Long-term loans non-current portion (1 4 years) 240,208, ,187,167 1,453,804,178 1,875,740,382 The Company obtained bank facilities in the form of bank overdrafts and term loans from local commercial banks for the purpose of financing working capital needs. The outstanding balance as of December 31, 2016 amounted to SR. 1,453,804,179 (2015: SR. 1,875,740,382). These bank facilities bear commission at market prevailing rates. These facilities are collateralized against the guarantees of Abdullatif Alissa Group Holding Company ( Parent Company ). 11. Other Payables and Accruals Accrued expenses 17,234,761 11,873,812 Advances from customers 4,644,979 5,978,939 Advance payment, net Net servicing liability for sold lease receivables (Note 22) Others 52,745, ,275,408 95,538, ,957, ,873,134 18,705, ,439, ,389, Provision for Zakat The movement in provision for Zakat for the year ended 31 December is as follows: Balance at the beginning of the year 92,648,555 80,186,338 Provided during for the year* 3,329,176 17,750,000 Reversal of excess Zakat provision* (3,329,176) - Payment during the year (7,299,123) (5,287,783) Balance at the end of the year 85,349,432 92,648,555 - The Company has received on 15 February 2015, the Zakat assessments for the years 2004 up to 2012 where GAZT asked the Company to pay additional Zakat of SR. 72,623,212. The company has filed on 12 October 2016 an appeal for the said due balance and provided a bank guarantee accordingly. - The Zakat returns for the years ended 31 December 2013, 2014 and 2015 have been filed and are currently under review by the GAZT. Accordingly, the Company have obtained a restricted Zakat certificate from GAZT for the year ended December 31, * The company have reversed the zakat charge provided for the year since it has an excess provision from prior years. -23-