Financial Statements together with the Independent Auditors Report to the Unitholders
FINANCIAL STATEMENTS TOGETHER WITH THE INDEPENDENT AUDITORS REPORT FOR THE YEAR ENDED 31 DECEMBER 2015 INDEX PAGE Auditors report -- Balance Sheet 1 Statement of income 2 Statement of cash flows 3 Statement of changes in net assets attributable to the unitholders 4 Notes to the financial statements 5 9
BALANCE SHEET As at 31 December 2015 Assets Notes 2015 2014 Cash at banks 9,099,402 2,462,721 Murabaha placements 5 1,347,872,807 95,849,938 Accrued special commission income 2,563,116 48,161 Total assets 1,359,535,325 98,360,820 Liabilities Accrued expenses 32,276 16,044 Total liabilities 32,276 16,044 Net assets attributable to unitholders 1,359,503,049 98,344,776 Units in issue 12,398,175.50 902,950.56 Net assets value attributable to each unit 109.65 108.91 The accompanying notes 1 to 10 form an integral part of these financial statements - 1 -
STATEMENT OF INCOME Note 2015 2014 Income Special commission income 4,371,035 417,360 Expenses Other expenses 1 (b) (32,336) (16,074) Net income for the year 4,338,699 401,286 The accompanying notes 1 to 10 form an integral part of these financial statements - 2 -
Cash flows from operating activities JADWA SAUDI RIYAL MURABAHA FUND STATEMENT OF CASH FLOWS Note 2015 2014 Net income for the year 4,338,699 401,286 Changes in operating assets and liabilities: Murabaha placements made during the year (2,215,332,275) (343,013,960) Murabaha placements matured during the year 1,450,761,068 353,171,011 Accrued special commission income (2,514,955) 13,208 Accrued expenses 16,232 (28,327) Net cash (used in)/ generated from operating activities (762,731,231) 10,543,218 Cash flows from financing activities Proceeds from issuance of units 1,325,279,960 102,101,609 Payments against redemption of units (68,460,386) (97,501,394) Net cash generated from financing activities 1,256,819,574 4,600,215 Net increase in cash and cash equivalents 494,088,343 15,143,433 Cash and cash equivalents at beginning of the year 88,312,659 73,169,226 Cash and cash equivalents at end of the year 4 582,401,002 88,312,659 The accompanying notes 1 to 10 form an integral part of these financial statements - 3 -
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO THE UNITHOLDERS 2015 SAR 2014 SAR Net assets attributable to unitholders at beginning of the year 98,344,776 93,343,275 Net income for the year 4,338,699 401,286 Changes from units transactions: Proceeds from issuance of units 1,325,279,960 102,101,609 Payments against redemption of units (68,460,386) (97,501,394) Net change from units transactions 1,256,819,574 4,600,215 Net assets attributable to unitholders at end of the year 1,359,503,049 98,344,776 Units Transactions 2015 Units 2014 Units Units in issue at beginning of the year 902,950.56 861,240.92 Units issued 12,121,957.08 939,384.91 Units redeemed (626,732.14) (897,675.27) Units in issue at end of the year 12,398,175.50 902,950.56 The accompanying notes 1 to 10 form an integral part of these financial statements - 4 -
NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL (a) Jadwa Saudi Riyal Murabaha Fund (the Fund ) is a trade transactions fund established and managed as per terms and conditions between the Jadwa Investment Company (the Fund Manager ) and the Fund Investors (the Unitholders ). The Capital Market Authority s ( CMA ) approval for the establishment of the Fund was granted in its letter number 443 dated Jumad Awal 9, 1428 H (corresponding to 26 May 2007). The Fund commenced its operations on 30 June 2007. The Fund aims to generate market returns from short-term Murabaha based trade transactions that are compliant with Shariah standards approved by the Fund Manager s Shariah Committee. In dealing with the unitholders, the Fund Manager considers the Fund as an independent accounting unit. Accordingly, the Fund Manager prepares separate financial statements for the Fund. The Fund is governed by the Investment Fund Regulations (the Regulations ) published by CMA on Dhul Hijja 3, 1427 H (corresponding to 24 December 2006) detailing requirements for all funds within the Kingdom of Saudi Arabia. The Fund manager, administrator and custodian of the Fund is Jadwa Investment Company. The books and records of the Fund are maintained in Saudi Arabian Riyals. (b) The management of the Fund is the responsibility of the Fund Manager. However, in accordance with the Fund s terms and conditions, the Fund Manager can delegate or assign its duties to one or more of the financial institutions in the Kingdom of Saudi Arabia and overseas. The Fund Manager is entitled to charge management fee of 0.5% per annum of net assets value of the Fund at each valuation day. However, for the year ended 31 December 2015 and 31 December 2014, the Fund Manager did not charge the Fund any management fee. The Fund Manager has the right to collectively charge the Fund all other expenses related to the management of the Fund, including but not limited to audit fee, legal charges for a percentage not to exceed 1% per annum of the net assets value of the Fund at each valuation day. 2. BASIS OF PRESENTATION Statement of compliance These financial statements have been presented in accordance with generally accepted accounting standards applicable in the Kingdom of Saudi Arabia issued by the Saudi Organization of Certified Public Accountants ( SOCPA ). Basis of measurement These financial statements have been prepared under the historical cost convention using accrual basis of accounting and the going concern concept. - 5 -
NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. BASIS OF PRESENTATION (Continued) Functional and presentation currency These financial statements are presented in Saudi Arabian Riyals (SAR), which is also the functional and presentation currency of the Fund. All financial information presented has been rounded to the nearest SAR. Use of estimates and judgments In the ordinary course of business, the preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised on prospective basis. 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these financial statements are set out below: Murabaha placements Murabaha placements are stated at amortised cost as at the date of the balance sheet. Special commission income Special commission income is recognized on an effective yield basis. Trade date accounting All purchase and sale of financial assets are recognized and derecognized on the trade date. Cash and cash equivalents Cash and cash equivalents comprise cash at banks having sound credit rating. Zakat and income tax Zakat and income tax are the obligations of the unitholders and are not provided for in the accompanying financial statements. - 6 -
NOTES TO THE FINANCIAL STATEMENTS (Continued) 4. CASH AND CASH EQUIVALENTS 2015 2014 Cash at bank 9,099,402 2,462,721 Murabaha placements with original maturity of three months or less Note 5 573,301,600 85,849,938 5. MURABAHA PLACEMENTS 582,401,002 88,312,659 The investments portfolio is summarized as follows: Special Commission Description Rate 2015 2014 Murabaha placements with original maturity of three months or less 1.4% - 2% 573,301,600 85,849,938 Murabaha placements with original maturity of more than 0.9% - 2.1% three months 774,571,207 10,000,000 6. RELATED PARTY TRANSACTIONS 1,347,872,807 95,849,938 Related party of the Fund includes the Fund manager. In the ordinary course of its activities, the Fund transacts business with the Fund manager (refer to Note 1). The unitholders accounts as at 31 December include: 2015 2014 Units SAR Units SAR Fund Manager 1,733,553 190,090,144 - - Jadwa Multi Asset Private Fund 2 445,089 48,805,528 - - Jadwa Saudi Equity Private Fund #1 57,192 6,271,270 - - Jadwa Saudi Equity Private Fund #3 85,166 9,338,712 - - Jadwa Saudi Equity Private Fund #4 143,940 15,783,531 - - Jadwa Saudi Equity Private Fund #5 201,538 22,099,357 - - Jadwa Saudi Equity Private Fund #7 67,349 7,385,047 - - Jadwa Saudi Equity Private Fund #8 64,604 7,084,026 - - - 7 -
7. RISK MANAGEMENT JADWA SAUDI RIYAL MURABAHA FUND NOTES TO THE FINANCIAL STATEMENTS (Continued) Special commission rate risk Special commission rate risk arises from the possibility that changes in market commission rates may affect future profitability or the fair value of the financial instruments. The Fund is subject to special commission rate risk on its commission bearing assets, including Murabaha deposits. The sensitivity of the income is the effect of the assumed changes in commission rates, with all other variables held constant, on the Fund s profit for one year, based on the floating rate financial assets held at 31 December 2015. Credit risk Credit risk is the risk that one party to a financial instrument may fail to discharge an obligation and cause the other party to incur a financial loss. The Fund is exposed to credit risk for cash at bank and its investment portfolio. Cash is maintained with the banks having sound credit ratings. The Fund Manager seeks to limit its credit risk by monitoring credit exposures and setting limits for individual investments. Liquidity risk Liquidity risk is the risk that the Fund may encounter difficulty in releasing funds to meet commitments associated with financial liabilities. The Fund s terms and conditions provide for the subscriptions and redemptions of units on all business days and it is, therefore, exposed to the liquidity risk of meeting unitholders redemptions. The Fund s investments are considered to be readily realizable as they are investments in short-term Murabaha placements which can be easily redeemed at any time. The Fund Manager monitors the liquidity requirements on a regular basis and ensures that sufficient funds are available to meet any commitments as they arise. Currency risk Currency risk is the risk that the value of a financial instrument may fluctuate due to a change in foreign exchange rates. The Fund primarily transacts in SAR which is the functional currency of the Fund and accordingly does not have exposure to currency risks. 8. FAIR VALUES OF FINANCIAL INSTRUMENTS Financial instruments comprise financial assets. The Fund s financial assets consist of cash at bank, murabaha placements and accrued special commission income. 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. Investments are carried at amortized cost, however, since substantially all of the Murabaha placements are short-term hence fair value is not considered to be significantly different than carrying value. - 8 -
9. VALUATION DAYS JADWA SAUDI RIYAL MURABAHA FUND NOTES TO THE FINANCIAL STATEMENTS (Continued) The Fund s units are valued every business day and unit price is announced on the following business day. 10. APPROVAL OF FINANCIAL STATEMENTS These financial statements were approved by the Fund Board on 15 Jumaada Al Akhir 1437 corresponding to 24 March 2016. - 9 -