Consolidated Financial Statements & Auditor's Report

Transcription

1 Annual Report 13 Consolidated Financial Statements & Auditor's Report Year Ended December 31,

2 14 Annual Report

3 Annual Report 15

4 16 Annual Report CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, Note ASSETS Current assets Cash and cash equivalents 3 178,561, ,273,184 Trade receivable 294,625, ,479,180 Prepaid expenses and other receivables 4 76,645,704 57,611,860 Inventories 5 132,291, ,183,514 Total current assets 682,124, ,547,738 Non-current assets Equity investments 6 83,156,077 - Investments in available for sale securities 7-4,104,570 Property, plant and equipment 8 654,915, ,773,239 Intangible assets 9 364,978, ,142,858 Total non-current assets 1,103,050, ,020,667 TOTAL ASSETS 1,785,174,893 1,397,568,405 LIABILITIES AND EQUITY Current liabilities Murabaha and short term borrowings 10 10,000,000 51,560,351 Current portions of Murabaha and term loans 11 13,333,332 11,757,912 Deferred revenue 13 14,364,926 13,402,839 Obligations under capital lease current portion 14 46,800,000 18,800,000 Deferred gains on a sale and leaseback transactions current portion 14 60,578,375 22,090,651 Trade payables and other credit balances ,553, ,609,211 Zakat and income tax 15 14,118,036 14,199,949 Total current liabilities 361,748, ,420,913 Non-current liabilities Murabaha and term loans 11 20,000,001 - Customers deposits 16 26,088,921 25,167,208 Trade payables 17 12,961,073 3,958,841 Obligations under capital lease non current portion 14 44,374,092 28,200,000 Deferred gains on a sale and leaseback transactions non current portion 14 51,256,145 31,651,390 End-of-service indemnities 18 73,854,523 63,804,185 Total non-current liabilities 228,534, ,781,624 TOTAL LIABILITIES 590,283, ,202,537 The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.

5 Annual Report 17 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, SHAREHOLDERS EQUITY Note Share capital 1 800,000, ,000,000 Statutory reserve ,985,072 86,826,712 Contractual reserve 21 22,150,911 9,071,731 Unrealized gains on revaluation of investments in available for sale securities - 2,448,052 Foreign currency translation adjustments on investments in overseas subsidiaries 22 8,283,032 (1,891,386) Retained earnings 251,419,503 29,073,438 Total shareholders equity 1,194,838, ,528,547 Minority interest 20 53,041 3,837,321 TOTAL LIABILITIES AND EQUITY 1,785,174,893 1,397,568,405 The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.

6 18 Annual Report CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, Note Revenues 1,161,074,760 1,062,968,710 Costs of revenues (685,420,116) (663,909,601) GROSS PROFIT 475,654, ,059,109 Income (losses) from equity investments 2,793,834 (678,806) Selling and marketing expenses 23 (34,713,633) (20,826,255) General and administration expenses 24 (148,598,373) (132,407,282) Professional and consulting fees (17,793,533) (14,916,034) Amortization of intangible assets (2,380,952) (2,380,952) Depreciation (20,599,087) (20,685,102) INCOME FROM MAIN OPERATIONS 254,362, ,164,678 Financial charges (13,294,022) (11,587,085) Other income, net 25 49,551,718 7,639,440 INCOME FROM CONTINUING OPERATIONS 290,620, ,217,033 Non recurring expenses (15,857,040) (3,793,499) Loss from discontinued operations, net - (6,707,756) INCOME BEFORE MINORITY INTEREST AND ZAKAT AND INCOME TAX 274,763, ,715,778 Minority interest ,037 (633,684) INCOME BEFORE ZAKAT AND INCOME TAX 274,932, ,082,094 Zakat and income tax 15 (13,348,988) (10,647,467) NET INCOME 261,583, ,434,627 Earnings per share The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.

7 Annual Report 19 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY YEAR ENDED DECEMBER 31, Note Share capital Statutory reserve General reserve Contractual reserve Unrealized gains on revaluation of investments in available for sale securities Foreign currency translation adjustments on investments in overseas subsidiaries Retained earnings Total January 1, 600,000,000 80,777,002 90,780,000 7,126,247 1,194,540 5,266,173 6,854, ,997,967 Transfer to share capital 200,000,000 (12,093,753) (90,780,000) (7,126,247) - - (90,000,000) - Net income for ,434, ,434,627 Transfer to statutory reserve - 18,143, (18,143,463) - Transfer to contractual reserve ,071, (9,071,731) - Unrealized gains on revaluation of investments in available for sale securities ,253, ,253,512 Foreign currency translation adjustments, net (7,157,559) - (7,157,559) Dividends (42,000,000) (42,000,000) December 31, 1 800,000,000 86,826,712-9,071,731 2,448,052 (1,891,386) 29,073, ,528,547 Net income for ,583, ,583,605 Transfer to statutory reserve 21-26,158, (26,158,360) - Transfer to contractual reserve ,079, (13,079,180) - Unrealized losses on revaluation of investments in available for sale securities, net (2,448,052) - - (2,448,052) Foreign currency translation adjustments, net ,174,418-10,174,418 December 31, 800,000, ,985,072-22,150,911-8,283, ,419,503 1,194,838,518 The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.

8 20 Annual Report CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, OPERATING ACTIVITIES Income before zakat and income tax 274,932, ,082,094 Adjustments for: Depreciation, amortization and impairment losses 45,227,189 38,827,073 Employees end-of-service indemnities 14,951,258 12,789,381 Income (loss) from equity investments (2,793,834) 678,806 Gain from investments in available for sale securities (2,443,529) (466,658) Changes in operating assets and liabilities: Receivables, prepayments and other receivables (38,180,660) (40,089,468) Inventories (13,108,372) (65,343,870) Trade payables and other credit balances 27,946, ,220 Deferred revenue 962,087 1,569,478 Customers deposits 921,713 1,117,533 Cash from operations 308,415, ,933,589 End-of-service indemnities paid (4,900,920) (26,831,727) Zakat and income tax paid (13,430,901) (6,650,197) Net cash from operating activities 290,083, ,451,665 INVESTING ACTIVITIES Purchase of property, plant and equipment, net (93,275,517) (20,090,483) Leased assets (130,000,000) (55,226,628) Foreign currency adjustment on property, plant and equipment, net (7,712,670) 5,291,022 Exclusion of subsidiaries property, plant and equipment, net - 2,039,194 Equity investments (80,362,243) 1,034,062 Goodwill (10,216,884) - Proceeds from sale of investments in available for sale securities 4,100, ,747 Dividends received from investments in available for sale securities - 75,938 Net cash used in investing activities (317,467,267) (65,999,148) The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.

9 Annual Report 21 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, FINANCING ACTIVITIES Murabaha, short term borrowing and term loans (19,984,930) (141,142,260) Minority interests (3,784,280) 9,070,523 Foreign currency translation adjustments on investments in overseas subsidiaries 10,174,418 (7,157,559) Deferred gains on sale and lease back transactions 58,092,479 53,742,041 Obligation under capital lease 44,174,092 47,000,000 Dividends paid - (42,000,000) Net cash from (used in) financing activities 88,671,779 (80,487,255) NET CHANGE IN CASH AND CASH EQUIVALENTS 61,288,067 (38,034,738) Cash and cash equivalents at the beginning of the year 117,273, ,307,922 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 178,561, ,273,184 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1. ORGANIZATION AND ACTIVITIES Saudi Research and Marketing Group (the Company) is a Saudi Joint Stock Company registered in Riyadh, Kingdom of Saudi Arabia under Commercial Registration number dated Rabi Al Awal 29, 1421 H (corresponding to July 1, 2000) with a branch in Jeddah with sub commercial registration number /001 dated Dhul Quada 12, 1408 H (corresponding to June 27, 1988) and its registered head office is at P.O. Box 53108, Riyadh The Saudi Research and Marketing Group was converted from a limited liability company to a Joint Stock Company with subscription that is limited to its partners, as per the Ministry of Commerce and Industry s Resolution No. 92 dated Muharram 27, 1421 H (corresponding to May 1, 2000) and under the commercial registration mentioned above. 30% of the

10 22 Annual Report Company s share capital had been offered to the public on April 8,. The share capital of the Company amounting to 800 million is divided into 80 million shares of 10 each as of December 31,. ( 800 million is divided into 80 million shares of 10 each as of December 31, after share split) (Note 28). The Company is engaged in trading, marketing, advertising, distribution, printing and publishing. The Company operates mainly in the Middle East, Europe and North Africa. 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in accordance with the Standard of General Presentation and Disclosure issued by the Ministry of Commerce and in compliance with the Accounting Standards issued by the Saudi Organization for Certified Public Accountants. The following is a summary of significant accounting policies applied by the Company: Accounting convention The consolidated financial statements are prepared under the historical cost convention except for investments in available for sale securities which are measured at fair value and investments in associates are accounted using the equity method. Use of estimates The preparation of consolidated financial statements by management requires the use of estimates and assumptions that affect the financial position and the results of operations and actual results ultimately may differ from those estimates.

11 Annual Report 23 Basis of consolidation These consolidated financial statements include assets, liabilities and the results of the operations of Saudi Research and Marketing Group and its subsidiaries after eliminating all inter-company balances and transactions for the purpose of consolidation. Investment in investee company is classified as a subsidiary based on the level of control exercised by the Company compared to other owners from the actual date of exercising control. Following are the details of consolidated subsidiaries: The company effectively owns the following subsidiaries which are engaged in the same activities. Subsidiary companies Intellectual Holding Company for Advertisement and Publicity L.L.C. Commercial Registration number Country of incorporation Direct and indirect shareholding Saudi Arabia 100% Scientific Works Holding Company L.L.C Saudi Arabia 100% Saudi Printing and Packaging Company (formerly known as Al Madina Printing and Publication Company) L.L.C Saudi Arabia 100%

12 24 Annual Report The following subsidiaries are jointly owned by Intellectual Holding Company for Advertisement and Publicity and by Scientific Works Holding Company: Subsidiary companies Saudi Research and Publishing Company and its subsidiaries (i) Principal field of activities Publishing Country of incorporation Saudi Arabia Saudi Distribution Company and its subsidiaries (ii) Distribution Saudi Arabia Arab Media Company Limited and its subsidiaries (iii) Al Khaleejiah Advertising and Public Relations Company Saudi Commercial Company Limited Ofoq Information Systems and Communication Company (in liquidation) Media and papers advertising and promotional services Media and papers advertising and promotional services Trading in cosmetics, household instruments and printing supplies Trading in communication equipment and developing of software Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Specialized Publishing Company Specialized Publishing Saudi Arabia (i) This company owns 100% of subsidiaries registered outside the Kingdom of Saudi Arabia. (ii) This company owns subsidiaries registered in Kuwait and United Arab Emirates at 100% and 90% respectively. (iii) This company owns subsidiaries registered in Lebanon and Egypt at 100%. In addition, the Saudi Printing and Packaging Company owns 95% of Hala Printing Company (established in ) and 50% of Teabah Printing and Publishing Company (established in ); the remaining shares are owned by Saudi Research and Publishing Company. On Zul Qa dah 27, 1427 H (corresponding to December 18, ) the partners of the Company resolved to proceed with the plan of offering 30% of the company s shares to the public and resolved to change the name of the company from Al Madina Printing and Publication

13 Annual Report 25 Company to Saudi Printing and Packaging Company. The legal formalities for changing the Company s name have been completed subsequent to the balance sheet date. Revenue Revenue is recognized upon delivery of goods to customers and is stated net of trade or quantity discounts, while subscription revenues are recognized over the period of subscriptions. Expenses Selling and marketing expenses principally comprise of costs incurred to sell and market the Company s products. All other expenses are classified as general and administration expenses. General and administration expenses include direct and indirect costs not specifically part of production costs as required under generally accepted accounting principles. Allocations between general and administrative expenses and cost of revenue, when required, are made on a consistent basis. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined, for work in progress, on a weighted average cost basis and includes cost of materials, labor and an appropriate proportion of direct overheads. Paper, printing materials, spare parts and other inventories are valued on a weighted average cost basis. 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 depreciation rates of the principal classes of assets are as follows: % Buildings 2 3 Leasehold improvements Computer and communication equipments Printing machinery and equipments 5 10 Furniture and fixtures Vehicles 15 25

14 26 Annual Report Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining term of the lease. Intangible assets Mastheads: Mastheads represent the recorded value of the mastheads of the newspapers and magazines published by the Group. The Group, at each balance sheet date, tests the mastheads for impairment using fair value method. If any such indication exists, the recoverable amount of the asset is estimated in order to determine that the book value of masthead is recoverable. Impairment losses of mastheads are recognized as an expense in the consolidated statement of income once its book value exceeds its recoverable amount. Impairment loss shall not be subsequently reversed, unless such loss originally occurred as a result of special external events of an exceptional nature that not expected to be repelled, and the recoverable amount clearly related to such events. Goodwill: The goodwill represents the excess of the investment cost over the Company s share in the fair value of the net assets of the subsidiary at the date of acquisition. The carrying amount of the goodwill is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the goodwill is reduced to the estimated recoverable amount and an impairment loss is recognized in the consolidated statement of income. Distribution and advertising rights: Capitalized distribution and advertising rights, being treated as intangible assets, are amortized over the estimated period of benefit, which is five years. Impairment of non financial assets At each balance sheet date, the carrying amounts of tangible and intangible assets are reviewed 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 assets or cashgenerating 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

15 Annual Report 27 amount. Impairment loss is recognized as an expense in the consolidated statement of income 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 cashgenerating unit in prior years. A reversal of an impairment loss is recognized as income immediately in the consolidated statement of income. Investment in associated companies Investments in companies which are at least 20% owned and in which the Company exercises significant influence are accounted for using the equity method of accounting. The Company s share in the associated companies net income/losses for the year is included in the consolidated statement of income. Equity method of accounting is stopped if the investment balance for the investee company becomes nil due to continuing losses of such companies (unless the Group has guaranteed the obligations of such a company or is obliged to provide additional financial support). Investments in available for sale securities Investments, that are bought neither with the intention of being held to maturity nor for trading purposes, are stated at fair value and are included under current assets unless they will not be sold in the next fiscal year. Changes in fair value are credited or charged to the consolidated statement of changes in shareholders equity. Any decline in value considered to be other than temporary is charged to the consolidated statement of income. Fair value is determined by reference to the market value if an open market exists. Otherwise, cost is considered to be the fair value. Where partial holdings are sold, these are accounted for on a weighted average basis. Derivative financial instruments and hedging The Group uses derivative financial instruments such as currency options to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognized at cost on the date on which a derivative contract is entered into and are subsequently re measured at fair value. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the consolidated statement of income. The fair value of currency options is calculated by reference to quoted market prices. If market prices are not readily available, fair value determined by using other estimated basis, as appropriate.

16 28 Annual Report In relation to cash flow hedges which meet the criteria for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized initially under shareholders equity and the ineffective portion, if any, is recognized in the statement of income. Hedges of a net investment in foreign operations resulting in translation adjustment from translating obligations to Saudi Riyals are recognized directly in equity. Hedge accounting is discontinued when the hedging instrument is expired or sold. At that point of time, any cumulative gain or loss on the cash flow hedging instrument that was recognized is retained in shareholders equity until the forecasted transaction occurs. Where the hedged forecasted transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the consolidated statement of income. Operating leases Leases are classified as a capital lease when 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. Any excess of the selling price over the carrying amount is deferred and amortized on a straight line basis over the lease term. The sale and leaseback transaction is capitalized at the present value of the minimum lease payments at the inception of the lease term. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Operating lease payments are recognized as an expense in the consolidated statement of income on a straight line basis over the lease term. Zakat and income tax The Company and its subsidiaries are subject to the Regulations of the Directorate of Zakat and Income Tax ( DZIT ) in the Kingdom of Saudi Arabia. The zakat charge is computed on the zakat base. Any difference in the estimate is recorded when the final assessment is approved, at which time the provision is cleared. Overseas subsidiaries, provide for income tax liabilities, if any, in accordance with the regulations of the countries in which they operate. Zakat and income tax provision is charged to the consolidated statement of income. Foreign currency transactions Transactions in foreign currencies are recorded in Saudi Riyals at the rate ruling at the date of the

17 Annual Report 29 transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income. For consolidation purposes, the financial statements of overseas subsidiaries operations are translated into Saudi Riyals using the exchange rate at the balance sheet date, for assets and liabilities, and the average exchange rate for each period for revenues, expenses, gains and losses. Components of equity, other than retained earnings, are translated at the rate ruling at the date of occurrence of each component. Translation adjustments are recorded as a separate component of shareholders equity, if significant. End-of-service indemnities End-of-service indemnities are provided in the financial statements based on the Company s internal policy and Saudi Arabia labor law and applicable laws for employees working with subsidiaries outside Saudi Arabia. Cash and cash equivalents Cash and cash equivalents consist of bank balances, cash on hand and time deposits with original maturities of three months or less. Dividends Profit distributions are recorded in the year in which the General Assembly approves such distributions. 3. CASH AND CASH EQUIVALENTS Bank balances and cash 84,277,414 65,007,075 Time deposits 94,283,837 52,266, ,561, ,273, PREPAID EXPENSES AND OTHER RECEIVABLES Prepaid expenses 46,195,898 25,044,649 Accrued income 6,266,257 4,916,328 Other receivables 24,183,549 27,650,883 76,645,704 57,611,860

18 30 Annual Report 5. INVENTORIES Printing papers 105,812,831 72,475,740 Goods in transit 2,668,844 20,921,453 Work in progress 5,919,015 12,934,973 Spare parts 6,934,253 6,797,580 Printing materials 10,430,541 5,646,156 Others 526, , ,291, ,183,514 The spare parts inventory primarily relates to plant and machineries, accordingly this inventory is expected to be utilized over a period exceeding one year. 6. EQUITY INVESTMENTS Equity investments comprise of the following: United Printing & Publishing Company (a) 83,156,077 - Moutamarat Company (b) ,156,077 - (a) During the year, the Company acquired 40% of the share capital of United Printing & Publishing Company (UPP), registered in Abu Dhabi, with a capital amounting to AED 20 million divided into 20,000 shares. On May 15,, the shareholders of UPP resolved to increase the company s capital to AED 192,625,226. The Company has paid in full its share in the company s capital amounting to AED 77,050,090. The legal formalities relating to the capital increase was in process as of the balance sheet date. (b) During the year, the Company acquired 49% of the share capital of Moutamarat Company (limited liability company), registered in Dubai. The capital of Moutamarat Company is AED 1.5 million divided into 1,500 shares each AED 1,000. As of December 31,, the Company has provided in full against the investment.

19 Annual Report INVESTMENTS IN AVAILABLE FOR SALE SECURITIES This represents investments in quoted securities. Cost January 1 1,656,518 2,143,545 Disposals (1,656,518) (487,027) December 31-1,656,518 Valuation adjustment January 1 2,448,052 1,194,539 Unrealized (loss)/gains during the year (4,523) 1,644,233 Transfer to the statement of income (2,443,529) (390,720) December 31-2,448,052 Book value - 4,104,570

20 32 Annual Report 8. PROPERTY, PLANT AND EQUIPMENT Cost Land Buildings Leasehold improvements Printing machinery and equipments Computers and communication equipment Furniture and fixtures Motor vehicles Capital projects January 1, 82,898, ,941,874 23,857, ,135, ,751,508 74,412,925 46,760, ,690 1,120,594,295 Foreign currency adjustment, net - 4,592,796 1,046,679 4,630,140 6,444,103 6,222 75,726-16,795,666 Additions - 5,230,880 13,642,802 83,303,907 4,555,796 6,319,066 10,680,962 4,720, ,454,056 Disposals (12,656,250) (22,297,274) - (13,612,331) (3,969,987) (900,605) (6,811,679) (687,401) (60,935,527) Transfers , (53,924) 191,427 Leased assets 108,875,560 21,124, ,000,000 December 31, Depreciation and impairment losses 179,117, ,592,716 38,792, ,457, ,781,420 79,837,608 50,705,939 4,815,008 1,335,099,917 January 1, 23,797, ,077,186 17,524, ,067, ,842,334 66,757,822 27,754, ,821,056 Foreign currency adjustment, net - 960, ,841 1,570,394 5,994,241 16,454 43,657-9,082,996 Additions - 5,410, ,968 12,585,994 7,266,146 3,401,411 6,949,901-36,583,178 Disposals - (1,173,286) - (13,612,323) (3,774,149) (792,108) (6,213,695) - (25,565,561) Impairment losses ,263, ,263,059 December 31, 23,797, ,275,067 18,991, ,874, ,328,572 69,383,579 28,534, ,184,728 Total Net book value December 31, December 31, 155,320, ,317,649 19,800, ,583,136 18,452,848 10,454,029 22,171,240 4,815, ,915,189 59,101, ,864,688 6,332, ,068,544 20,909,174 7,655,103 19,006, , ,773,239 Property, plant and equipments includes assets sold and leased back, which has cost and net book value amounting to 185 million and 183 million respectively (Note 14) as of December 31,.

21 Annual Report INTANGIBLE ASSETS Mastheads 350,000, ,000,000 Goodwill 10,216,884 - Distribution rights 4,761,906 7,142, ,978, ,142, MURABAHA AND SHORT TERM BORROWINGS Saudi Research and Marketing Group (the Company) has a Group Treasury Department to which most of the subsidiaries remit their receipts as and when necessary. The Group Treasury Department obtains credit facilities on behalf of these subsidiaries under a master bank facility with local banks. The Murabaha and short term loans balance represents credit facilities outstanding and used by the Group companies. 11. MURABAHA AND TERM LOANS Murabaha/term loans 33,333,333 11,757,912 Less: Current portion from Murabaha/term loans (13,333,332) (11,757,912) 20,000,001 - Following is a repayment schedule of the Murabaha installments: Year ,333, ,333, ,666,669 33,333,333 The Murabaha is repayable in 5 equal semi annual installments of 6,666,667 each commencing March 27, 2007 with the last installment maturing on September 27, Installments due within one year from the balance sheet date are shown under current liabilities.

22 34 Annual Report 12.TRADE PAYABLE AND OTHER CREDIT BALANCES Trade and notes payable 46,608,306 68,967,870 Accrued expenses 122,309,862 93,959,839 Other payables 33,635,742 20,412,807 Amounts due to related parties - 268, DEFERRED REVENUE 202,553, ,609,211 Deferred revenue represents subscriptions received in advance. This amount will be recognized as revenue in the subsequent period over the period of subscriptions. 14. OBLIGATIONS UNDER CAPITAL LEASE During the year ended December 31,, the Group has sold and leased back the shares of Media Investment Limited (a leased subsidiary company) for an amount of 66,000,000, which has resulted in a deferred gain of 55,226,628. The excess of the present value of the minimum lease payments over the carrying amount of the leased subsidiary company s net assets (asset adjustments) amounting to 55,226,628 was allocated to the leased subsidiary s building and depreciated over 40 years. The asset adjustments depreciation for the year ended December 31, was amounted to 1,385,089 (: 115,424). During, one of the Group s subsidiaries sold its land and building to a local bank for 130 million through sale-leaseback agreement with the option-to-buy at the end of the lease period, which resulted in a deferred gain of 96,219,760. Minimum lease payments under capital leases are as follows: ,192,446 21,561, ,360,143 20,261, ,120,575 9,646,638 Net minimum lease payments under capital lease 103,673,164 51,468,862 Less: Financial charges (12,499,072) (4,468,862) Present value of net minimum lease payments 91,174,092 47,000,000 Less: Current portion (46,800,000) (18,800,000) 44,374,092 28,200,000

23 Annual Report 35 The unrecognized gains on the sale and leaseback transactions represent deferred gains for the shares of Media Investment Limited and for land and building for one of the Group s subsidiaries, which is recognized on a straight line basis. Total deferred gains on the sale and leaseback transactions 149,961,801 55,226,628 Gains recognized during the year (38,127,281) (1,484,587) 111,834,520 53,742,041 Less: Current portion (60,578,375) (22,090,651) 51,256,145 31,651, ZAKAT AND INCOME TAX Zakat 12,597,029 11,981,915 Income tax 1,521,007 2,218,034 14,118,036 14,199,949 The consolidated zakat liability of the Group for the year represents the zakat on Saudi Research and Marketing Group, in addition to the Group s share in the zakat liabilities of its subsidiaries. The movement in the zakat provision during the year is as follows: January 1 11,981,915 7,252,130 Provision for the year 14,114,917 10,370,474 Payments during the year (13,499,803) (5,640,689) December 31 12,597,029 11,981,915 The Company and its subsidiaries has filed the zakat returns up to year. Management believes that adequate provision has been made for any liability to the Department of Zakat and Income Tax (DZIT) that may arise upon the settlement of any amounts due, based on the final zakat assessments.

24 36 Annual Report 16. CUSTOMERS DEPOSITS These represent amounts received from the distribution outlets for selling newspapers and other publications. 17. LONG TERM PAYABLES These represent amounts relating to equipments and vehicles purchased on installment basis. No commission is charged on these amounts. The balance is payable in variable monthly installments. The installments due in 2007 are included as part of trade payables and other credit balances. 18. END-OF-SERVICE INDEMNITIES The movement in the provision during the year is as follows: January 1 63,804,185 77,846,531 Provision for the year 14,951,258 12,789,381 Payments during the year (4,900,920) (26,831,727) December 31 73,854,523 63,804, RELATED PARTY TRANSACTIONS No major transactions have been made with related parties during the year, except for: Purchase of property and equipment 8,847,000 6,453,600 Executive Board of directors salaries and remunerations Allowance and board of directors expenses 8,630,000 8,265, , MINORITY INTEREST Minority interest represents the part of the net results of operations and of net assets of the subsidiaries attributable to interests, which are not owned, directly or indirectly through subsidiaries, by the parent company.

25 Annual Report 37 The minority partners share in subsidiaries is analyzed as follows: At the beginning of the year Exclusion of unconsolidated subsidiaries Share in subsidiaries earnings/(losses) Settlements and payments during the year Kuwaiti Group for Publishing and Distribution Company Emirates Printing, Publishing and Distribution Company 3,615, ,078 3,837,321 (5,233,202) ,562,166 - (169,037) (169,037) 633,684 (3,615,243) - (3,615,243) - Dividends (1,125,327) - 53,041 53,041 3,837, RESERVES Statutory reserve In accordance with Saudi Arabian Regulations for Companies, 10% of net income for the year has been transferred to the statutory reserve. The Company may resolve to discontinue such transfers when the reserve totals 50% of the share capital. The statutory reserve is not available for distribution. Contractual reserve In accordance with the Articles of Association, the Company must set aside 5% of its net income for the year to the contractual reserve until it has built up a reserve equals to 25% of the share capital. The contractual reserve may be used for any purpose authorized by the Board of Directors. 22. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON INVESTMENTS IN OVERSEAS SUBSIDIARIES The translation adjustments comprise all

26 38 Annual Report foreign exchange differences arising from translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the Group s net investments in foreign subsidiaries. 23. SELLING AND MARKETING EXPENSES Salaries, wages and benefits 7,075,690 4,967,367 Promotion 16,009,937 8,877,953 Seminars and advertising 1,426, ,181 Marketing research - 472,541 Provision for doubtful debts 8,175,239 6,028,669 Other 2,026, ,544 34,713,633 20,826, GENERAL AND ADMINISTRATION EXPENSES Salaries, wages and benefits 99,533,791 88,030,332 Rent 10,298,982 7,394,063 Maintenance 7,601,290 5,548,032 Postal, telephone and fax 4,987,056 4,256,855 Insurance 3,390,295 3,507,279 Travel expenses 3,431,057 3,187,138 Electricity and water 2,595,253 2,325,693 Stationery 2,202,970 2,118,091 Shipping, packing and customs 1,749,583 1,593,030 Provision for slow moving inventories 550,000 1,000,000 Other 12,258,096 13,446, ,598, ,407,282

27 Annual Report OTHER INCOME - NET Gain (loss) on foreign currency translation 405,083 (2,759,135) Earned commission 1,814,889 2,528,600 Freight income 2,047,923 1,905,768 Gains on a sale and leaseback transactions Gains from investments in available for sale securities Unrealized gain on revaluation of financial instruments 38,127,281 1,484,587 2,443, ,658-1,136,048 Rental income 1,016, ,018 Gain on disposal of property, plant and equipment 1,398, ,696 Miscellaneous net 2,298,530 1,438,200 49,551,718 7,639, SEGMENT INFORMATION These are attributable to the Group s activities and business as approved by the management to be used as a basis for the financial reporting and being consistent with the internal reporting process. Transactions between the business segments are conducted on an arm length basis. The segment results and assets comprise items that are directly attributable to certain segment and items that can reasonably be allocated between various business segments. Unallocated items are included under other. The Group is organized into the following main business segments: Publishing incorporating the local and international publishing works, researches and marketing of the products of the Group and others. Distribution comprises distribution of newspapers, magazines, publications and books locally and internationally and to the Group and others.

28 40 Annual Report As of December 31, Publishing Advertising includes local and international advertising, production, representation and marketing of the audio visual and machine readable advertising media, advertising signs and books locally and internationally. Printing comprises printing works to the Group and to others. Other comprises head office, general management, investing activities and others. Distribution Advertising Printing Other Total Elimination Consolidation Revenue 930,717, ,605, ,047, ,853, ,757 2,181,820,685 (1,020,745,925) 1,161,074,760 Gross profit 187,315,195 53,347, ,075, ,710, , ,044,856 (3,390,212) 475,654,644 Net book value of property, plant and equipment 180,570,344 28,520,198 20,634, ,453,819 14,736, ,915, ,915,189 Total assets 415,539, ,661, ,133, ,959,993 1,351,232,919 2,996,528,201 (1,211,353,308) 1,785,174,893 Total liabilities 201,579,187 88,852, ,509, ,366, ,011, ,319,374 (259,036,040) 590,283,334 As of December 31, Revenue 851,162, ,675, ,927, ,247, ,346 2,004,781,382 (941,812,672) 1,062,968,710 Gross profit 138,642,229 55,829, ,676,719 93,828, , ,745,539 (1,686,430) 399,059,109 Net book value of property, plant and equipment 165,470,401 26,731,239 22,254, ,492,401 14,824, ,773, ,773,239 Total assets 288,485, ,625, ,016, ,360,876 1,016,878,369 2,294,367,215 (896,798,810) 1,397,568,405 Total liabilities 173,694,078 85,408, ,793, ,782, ,403, ,081,909 (168,879,372) 468,202,537 Substantially, all the Group s operating assets are located in the Kingdom of Saudi Arabia. Principal markets for the Group s products are the Middle East, Europe and North Africa. It is not practicable to disclose information to individual geographic areas. 27. CONTINGENT LIABILITIES Certain of the Group s subsidiaries are involved in various litigation matters in the ordinary course of business, which are being defended. While the ultimate results of these matters cannot be determined with certainty, management does not expect that they will have a material adverse effect on the consolidated financial statements of the Group.

29 Annual Report 41 The Group s bankers have issued on its behalf, bank guarantees amounting to 43.2 million (: 59.8 million), in the normal course of business. 28. EARNINGS PER SHARE In accordance with the Capital Market Authority s resolution No. 4/154/ dated Safar 27, 1427 H (corresponding to March 27, ) based on the Council of Minister s resolution for shares split of the joint stock companies, the nominal value of the Company s share would be 10 instead of 50 and accordingly, the Company s shares became 80 million effective April 8,. Earnings per share is calculated by dividing the net income for the year by weighted average number of shares outstanding for the year ended December 31, of 80 million shares. The earnings per share for have been adjusted retrospectively to reflect the bonus shares of and the split of shares on April 8,. 29. OPERATING LEASES Minimum committed non cancelable lease payments for operating leases are: Less than one year 2,037,130 5,778,935 Between one and five years 4,116,799 5,089,212 More than five years 5,726,820 1,272,303 11,880,749 12,140,450 During the current year 10,298,982 (: 7,394,063) was recognized as an expense in the consolidated statement of income in respect of operating leases. 30. RISK MANAGEMENT Interest rate risk The Group has no significant interest bearing long term assets, but has interest bearing liabilities at December 31,. The Group manages its interest rate risk by keeping floating rate long term loans at an acceptable level. Credit risk The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables. Investments are allowed only in liquid securities with counterparties that have a sound credit rating. At the balance sheet date, no significant concentration of credit risk was assessed.

30 42 Annual Report Liquidity risk The Group limits its liquidity risk by ensuring bank facilities are available. Currency risk Exposure currency risk arises in the normal course of the Group s business. Derivative financial instruments are used to reduce exposure to fluctuations in foreign exchange rates. While these are subject to the risk of market rates changing subsequent to acquisition, such changes are generally offset by opposite effects on the items being hedged. The Group is exposed to foreign currency risk on expenses that are denominated in a currency other than Saudi Riyal. The currency giving rise to this risk is primarily Pounds Sterling. At any point in time the Group hedges all of its estimated foreign currency exposure in respect of forecasted expenses over the following months. The Group uses currency options to hedge its foreign currency risk. Most of the currency options contracts have expiration dates of less than one year. The Group classifies its currency options as cash flow hedges and states them at fair value. The fair value of currency option at the balance sheet date was nil. In respect of other monetary assets and liabilities held in currencies other than Saudi Riyals, the Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rate where necessary. The Group s Pound Sterling denominated payable balance is designated as a hedge of the Group s investments in its subsidiaries in the United Kingdom. A foreign exchange gain of 3.7 million (Loss in : 1.3 million) was recognized in equity as translation of the payable balance to Saudi Riyal. 31. FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm s length transaction. Financial instruments comprise of financial assets, financial liabilities and derivatives. The Group s financial assets consist of cash and cash equivalents and receivables. Its financial liabilities consist of term loans, payables, accrued expenses and obligations under capital lease. Its derivatives consist of currency options and commission rate swaps. The fair values of financial instruments are not materially different from their carrying values.

31 Annual Report APPROVAL OF FINANCIAL STATEMENTS AND APPROPRIATION OF NET INCOME The Board of Directors, in its meeting held on Muharram 19, 1428 H (corresponding to February 7, 2007), approved the consolidated financial statements and proposed distribution of dividends of 160 million ( 2 per share) and transfer the remaining balance of the net income for the year after the appropriations of the statutory and the contractual reserves to the retained earnings. The above are subject to the approval of the shareholders at the Annual General Meeting. 33. COMPARATIVE FIGURES Certain figures for have been reclassified to conform with the presentation in the current year.