RAK INVESTMENT AUTHORITY GOVERNMENT OF RAS AL KHAIMAH RAS AL KHAIMAH UNITED ARAB EMIRATES CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT FOR THE YEAR ENDED DECEMBER 31, 2008
RAK INVESTMENT AUTHORITY GOVERNMENT OF RAS AL KHAIMAH RAS AL KHAIMAH UNITED ARAB EMIRATES Table of Contents Page Exhibit Independent Auditor s Report 1 -- Consolidated Balance Sheet as at December 31, 2008 2 A Consolidated Statement of Income for the year ended December 31, 2008 3 B Consolidated Statement of Changes in Equity for the year ended December 31, 2008 4 C Consolidated Statement of Cash Flows for the year ended December 31, 2008 5 D Notes to the Consolidated Financial Statements for the year ended December 31, 2008 6-34 --
RAK INVESTMENT AUTHORITY GOVERNMENT OF RAS AL KHAIMAH RAS AL KHAIMAH UNITED ARAB EMIRATES CONSOLIDATED STATEMENT OF INCOME EXHIBIT B Note Revenue 28 253,983 152,460 Direct expenses 29 (87,740) (60,096) Gross profit 166,243 92,364 Other income 30 35,552 13,218 Marketing expenses 31 (20,763) (29,569) Administrative expenses 32 (54,519) (40,134) Sukuk issuance costs -- (9,033) Finance costs 33 (24,943) (24,328) Income from associates 15 82,296 38,673 Profit on sale of investment in an associate 34 33,189 -- Profit for the year Exhibit C 217,055 41,191 ====== ====== ATTRIBUTABLE TO: Equity holder of the Parent Exhibit C 215,909 42,382 Minority interest Exhibit C 1,146 (1,191) Profit for the year 217,055 41,191 ======= ====== The attached notes 1 to 40 form part of these consolidated financial statements. -3-
RAK INVESTMENT AUTHORITY GOVERNMENT OF RAS AL KHAIMAH RAS AL KHAIMAH UNITED ARAB EMIRATES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY EXHIBIT C Capital Reserve Cumulative changes in fair value of availablefor-sale investments Government Current Account Retained Earnings Total Government Equity Minority Interest Total Equity AED 000 Balance at December 31, 2006 635,794 -- -- 8,046 643,840 282 644,122 Profit for the year Exhibit B -- -- -- 42,382 42,382 (1,191) 41,191 Difference resulting from re-measurement of available-for-sale investments Note 16 -- 18,300 -- -- 18,300 -- 18,300 Balance at December 31, 2007 Exhibit A 635,794 18,300 -- 50,428 704,522 (909) 703,613 Capital reserve against land Note 21 262,157 -- -- -- 262,157 -- 262,157 Capital reserve on acquisition of shares Note 21 199 -- -- -- 199 (199) -- Net movement minority interest -- -- -- -- -- 147 147 Net movement in RAK Govt. current account -- -- (65,004) -- (65,004) -- (65,004) Transferred to RAK Govt. current account -- -- 65,004 (65,004) -- -- -- Difference resulting from re-measurement of available-for-sale investments Note 16 -- (44,700) -- -- (44,700) (44,700) Profit for the year Exhibit B -- -- -- 215,909 215,909 1,146 217,055 Balance at December 31, 2008 Exhibit A 898,150 (26,400) -- 201,333 1,073,083 185 1,073,268 ======== ======== ======== ======== ========= ====== ========= The attached notes 1 to 40 form part of these consolidated financial statements. -4-
RAK INVESTMENT AUTHORITY GOVERNMENT OF RAS AL KHAIMAH RAS AL KHAIMAH UNITED ARAB EMIRATES CONSOLIDATED STATEMENT OF CASH FLOWS EXHIBIT D CASH FLOWS FROM OPERATING ACTIVITIES: AED 000 AED 000 Profit for the year Exhibit B 217,055 41,191 Adjustments for: Depreciation 5,067 5,486 Amortization 54 49 End of service benefits 76 205 Sukuk issuance costs -- 9,033 Finance costs 24,943 24,328 Provision for doubtful debts 5,076 5,000 Investment written-off 126 -- Provision for impairment of investments 11,147 -- Interest income (2,156) (4,739) Profit from associates (82,296) (38,673) Profit on sale of investment in an associate (33,189) -- Dividend income (5,896) (11) Operating profit before working capital changes 140,007 41,869 Inventories Decrease 1,037 102 Trade and other receivables (Increase) (34,716) (25,137) Loans and advances (Increase) (768,251) (70,455) Trade and other payables Increase 129,255 57,155 Net cash used/ provided by operating activities (532,668) 3,534 ====== ====== CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (3,293) (1,935) Purchase of land (76,121) -- Land improvement (4,773) (17,322) Purchase of intangible assets (23) (173) Capital work-in-progress (270,291) (68,951) Advances for capital work-in-progress (109,813) (13,676) Advances for investment projects (573,078) (137,153) Trading properties under development (1,091,121) (403,757) Advances for trading properties under development (73,601) -- Advances from customers 1,805,220 405,134 Investments in unconsolidated subsidiaries (330,615) (12,822) Investments in associates (40,808) (78,514) Purchase of available-for-sale investments (162,514) (77,349) Sale proceeds of a subsidiary 510 -- Sale proceeds of an associate 69,692 -- Income from investments in associates 55,125 36,850 Dividend received 5,896 11 Interest income 2,156 4,739 Net cash used in investing activities (797,452) (364,918) ======= ======= CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Sukuk -- 1,193,887 Proceeds from unsecured loans 488,980 23,739 Payment of unsecured loans (74,760) (11,003) Proceeds from medium-term bank loans 72,424 105,000 Payment of medium-term bank loans (28,749) (10,252) Proceeds from short-term borrowings from banks 36,706 115,171 RAK Government current account (65,004) Finance costs paid (23,149) (9,665) Sukuk issuance costs paid -- (9,033) Minority interest 147 -- Net cash provided by financing activities 406,595 1,397,844 ======= ======= Net Decrease/Increase in cash and cash equivalents (923,525) 1,036,460 Cash and cash equivalents at beginning of the year 1,046,383 9,923 CASH AND CASH EQUIVALENTS AT END OF THE YEAR Note 4 (k) & Exhibit A 122,858 1,046,383 ======== ======= The attached notes 1 to 40 form part of these consolidated financial statements. -5-
1. LEGAL STATUS AND ACTIVITIES: RAK Investment Authority, a government owned Entity ( the Parent Entity ) was established by the Government of Ras Al Khaimah, U.A.E. under Emiri Decree No. 2 dated February 1, 2005 issued by H.H. Sheikh Saqr Bin Mohammad Bin Salim Al Qassimi, Ruler of the Emirate of Ras Al Khaimah. The Parent Entity and its subsidiaries constitutes the Group ( the Group ). The domicile of the Parent Entity is in Ras Al Khaimah City, Emirate of Ras Al Khaimah, United Arab Emirates. The principal activities of the Parent Entity are: 1. Investments in various projects. 2. Developing and promoting industrial, tourism & real estate activities in the Emirate of Ras Al Khaimah. 3. Issuing licenses and collecting lease rents from companies registered in Free Zone and Industrial Zone in the Emirate of Ras Al Khaimah. 4. Attracting investments in industrial sectors in the Emirate of Ras Al Khaimah. 2. BASIS OF PREPARATION: a) Statement of compliance: The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). b) Basis of measurement: The consolidated financial statements have been prepared on a historical cost basis except for the available-for-sale investments which are measured at fair value. The method used to measure fair value of available-for-sale investment is discussed in Note 4 (g). c) Functional and presentation currency: The consolidated financial statements are presented in United Arab Emirates Dirhams ( AED ), which is the Group s functional currency. All financial information presented in AED has been rounded to the nearest thousand unless otherwise stated. d) Basis of consolidation: Subsidiaries are those enterprises controlled by the Parent Entity. Control exists when the Parent Entity owns directly or indirectly more than 50% of the capital and has the power, directly or indirectly, to govern the financial and operating policies of an enterprises so as to obtain benefits from its activities. -6-
2. BASIS OF PREPARATION: (continued ) The consolidated financial statements incorporate the financial statements of the Parent Entity and its subsidiaries ( the Group ). The details of the consolidated subsidiaries are as follows: Name of Subsidiary Incorporated in Principal Activities Ownership Ratio Beaufort RAK LLC UAE Manufacturing, marketing, distributing and selling of disposable diapers, feminine hygiene products and related products. 99.996 % Al Jazeera Farm Products LLC UAE Agricultural production activity and marketing the same within UAE. 56.000 % All intra-group balances, transactions, income and expenses, and profits and losses resulting from intra-group transactions that are recognized in assets are eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. 3. ADOPTION OF NEW AND REVISED STANDARDS (Deemed Appropriate): In the current year, the Group has adopted the new and revised International Financial Reporting Standards (IFRSs) including the International Accounting Standards (IASs) and their interpretations that are relevant to its operations and effective for annual reporting periods beginning on or after January 1, 2008, and the consequential amendments thereon. The Group has adopted the revised IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after January 1, 2008, and the consequential amendments to IAS 1 Presentation of Financial Statements. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements: a) Land: Land has been alloted to the Parent Entity by the Government of Ras Al Khaimah at free of cost to set up Free Zones and Industrial Zones in the Emirate of Ras Al Khaimah. Land is stated as per valuation report of valuer and surplus has been transferred to capital reserve account. b) Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Cost comprises the purchase price and any attributable cost of bringing the assets to its working condition for its intended use as per IAS 16. -7-
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued ) c) Depreciation: The Group applies the straight-line method in depreciating its property, plant and equipment over their estimated useful lives of service. Annual rates of depreciation used are as follows: Asset Category Percentage Building 10% Plant and machinery 15% - 33.33% Tools and equipment 25% Motor vehicles 25% EDP System and office equipment 25% - 50% Furniture and fixtures 25% d) Intangible assets: The Group policy is to recognize intangible assets initially at cost. Intangible assets are tested annually for impairment and any estimated reduction in value is charged to the Consolidated Income Statement for the current year. The Group s intangible assets include logo and packing design. e) Trading properties under development: Properties in the process of construction or development for the purpose of sale on completion are classified as trading properties under development. Trading properties under development are measured at the lower of cost and net realizable value. Cost of trading properties under development is determined on the basis of specific identification of their individual costs. The classification of trading properties under development as current and non-current depends upon the expected date of their completion. f) Investments in associates: Investments in associates are accounted for using the equity method depending on the most recent available financial statements of the associated company. Any gain or loss resulting from investment in the associated company is recognized in Consolidated Income Statement for the current year. g) Available-for-sale investments: Available-for-sale investments are initially recognized at cost being the fair value of the consideration given. After initial recognition, available-for-sale investments are measured at fair value. The fair value of the available-for-sale investment is its market value. Investment in shares with no market prices are recognized at cost price. Any differences resulting from re-measurement of these investments are reported as a separate component in equity as changes in fair value of available-for-sale investments. When these investments are sold, the gain or loss, if any, which was previously reported in the equity within changes in fair value of the available-for-sale investments, is transferred to consolidated income statement in the current year -8-
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued ) h) Inventories: Inventories are stated at lower of actual cost and net realizable value. Cost is determined on average basis. Finished goods are valued at the lower of average cost and net realizable value. Cost comprises direct cost of production. i) Trade accounts receivable: Trade accounts receivable are stated at original invoice amount less provision for any doubtful or uncollectible amount. An estimate of doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off when there is no possibility of recovery. j) Postdated cheques received: Postdated cheques received are recognized and accounted for in the books of account upon their actual collection. k) Cash and cash equivalents: Cash represents cash on hand and checking accounts with banks. Cash equivalents represent all highly liquid investments that are readily convertible into known amounts of cash which are subject to an insiginificant risk of changes in value and include call deposits and fixed deposits with maturities of three months or less from the date of placement. Bank overdraft balances (if any) that fluctuate from debit to credit during the year are deducted from cash and cash equivalents. l) Impairment of financial assets: Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is an objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been impacted. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 120 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written-off against the allowance account. Subsequent recoveries of amounts previously written-off are credited to other income. Changes in the carrying amount of the allowance account are recognized in the consolidated income statement. If, in a subsequent period, the amount of the impairment loss decreases and decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the consolidated income statement to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Unquoted available-for-sale investments are carried at cost due to the unpredictable nature of future cash flows and the lack of other suitable methods for arriving at a reliable fair value. -9-
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued ) m) Trade and settlement date accounting: The Group adopts the trade date accounting for the regular way purchase and sale of various categories of financial assets. Trade date accounting requires recognition of the financial assets on the date of its acquisition or sale by the Group. n) Minority Interests: Minority intrests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from the Parent Entity s equity. o) Medium-term bank loans: Medium-term bank loans are stated in the consolidated balance sheet at the amounts received after deducting the installments paid. The interests on these loans are at the effective market interest rate which was recorded in the books of account. p) End of service benefit obligation: The employees end of service benefit obligation (indemnity) is accounted for non UAE national employees on the basis of UAE Federal Labour Law. q) Short-term employees benefits : The short-term employees benefits are accounted for on the basis of U.A.E. Federal Labour Law. The leave obligation thereof is calculated on basic salary plus house and car allowance of each employee and 30 leave days for each year of service completed. Air-ticket obligation is accounted for individually for eligible employees as per the terms and conditions of employment contracts. Computation is based on the quoted market prices currently available to the Group for air tickets to various destinations of employees native countries. r) Trade accounts payable: Trade accounts payable are measured at original received invoice amount. s) Provisions: Provisions are recognized when the Group has a legal or constructive obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. t) Borrowing costs: Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. Capitalization commences from the later of the start of acquistion, or development of the asset and the date from which funds were borrowed. Capitalization will be ceased once the asset is substantially complete. Capitalization will be suspended if the development of the asset is suspended. -10-
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued ) u) Revenue recognition: Revenue is recognized in the consolidated income statement when the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is generally recognized in the consolidated income statement as follows: Income from sale of trading properties are recognized on the basis of transfer of title deed of the properties. Visa and licensing income is recognized when these services are provided and invoices are raised to the clients. Lease rental income is recognized when lease contract is signed and invoices are raised according to the terms of the relevant lease. Interest income is accrued on a timely basis, by reference to the principal outstanding and effective interest rate applicable. Revenue of other services is recognized when the services are provided and are invoiced to the clients. Revenue of sales is generally recognized upon issuance of sales invoices to customers. v) Foreign Currency: Transactions arising in foreign currencies during the year are converted at the rates closely approximating those prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are restated at the year-end exchange rates. All exchange differences are included in current year s consolidated income statement. w) Financial instruments: The Group s financial instruments are principally comprised of trade and other receivables, loans and advances, cash and cash equivalents, Sukuk payable, medium-term bank loans, unsecured loans, end of service benefits obligation, trade and other payables, advances from customers and short-term borrowings from banks. The Group uses different assumptions to estimate the fair value of the financial instruments. The significant assumptions underlying the estimation of fair value of financial instruments, include, reference to quoted market prices, estimating the net realizable value, applying the discounted cash flows approach using current market interest rate, and other assumption depending on the management past experience. If an objective evidence exists that a financial instrument may be impaired, then the impairment losses are recognized in the consolidated income statement for the current year. -11-
5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY: In the application of the Group s accounting policies, which are described in Note 4, the management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Annual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgments in applying accounting policies: In the process of applying the Group s accounting policies, the management is of the opinion that there is no instance of application of judgments which is expected to have effect on the amounts recognized in the consolidated financial statements: Classification of investments Management decides on acquisition of an investment whether it should be classified as held-for-trading (fair value through profit and loss) or available-for-sale. The Group classifies investments as held-for-trading (fair value through profit and loss) if they are acquired primarily for the purpose of making a short term profit by the dealers. Other investments are classified as available-for-sale. Valuation of unquoted equity investments The available-for-sale investments in unquoted securities are carried at cost due to the unpredictable nature of future cash flows and lack of other suitable methods for arriving at a reliable fair value. Impairment of financial assets The Group determines whether available-for-sale equity financial assets are impaired when there has been a significant or prolonged decline in their fair value below cost. This determination of what is significant or prolonged requires judgment. In making this judgment and to record whether an impairment occurred, the Group evaluates among other factors, the normal volatility, the financial health of the investee, industry and sector performance, changes in technology and operational and financial cash flows. -12-
5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY: (continued ) Key sources of estimation uncertainty: The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the consolidated balance sheet date: Estimated useful lives of property, plant and equipment The cost of items of property, plant and equipment are depreciated on a systematic basis over the estimated useful lives of the assets. Management has determined the estimated useful lives of each asset and/or category of assets based on expected usage of the assets, expected physical wear and tear which depends on operational and environmental factors, the repairs and maintenance program, technological obsolescence arising from changes and the residual value. Management has not made estimates of residual values for any items of property, plant and equipment at the end of their useful lives as these have been deemed to be insignificant. Allowance for doubtful debts Allowance for doubtful debts is determined using a combination of factors to ensure that the trade receivables are not overstated due to uncollectability. The allowance for irrecoverable debts for all customers is based on a variety of factors, including the overall quality and aging of receivables, continuing credit evaluation of the customers financial conditions and collateral requirements from customers. Also, specific allowances for individual accounts are recorded when the Group become aware of the customer s inability to meet its financial obligation. -13-
6. LAND: a) This item comprises of the following: Land Note 6 (b) 975,072 635,794 Land leveling 24,950 20,177 Total Exhibit A 1,000,022 655,971 ======= ======= b) The details of land is as follows Balance as of January 1, 635,794 635,794 Additions 77,121 -- Revaluations Note 6 (d) & Exhibit C 262,157 -- Total Note 6 (a) above 975,072 635,794 ====== ======= c) This details of land area and valuation during year 2008 are as follows: Area Amount (in Sqr. Mts.) AED 000 Land granted by RAK Govermnent and value stated as per valuation report of the independent valuer 18,985,653 946,757 Purchased land 18,887 28,315 Area of land carrying at zero value 15,314,660 -- Total 34,319,200 975,072 ======== ======= d) The off-setting amount of land revaluation is credited to capital reserve. e) The land as shown in Note 6 (b) above includes amounting to AED 666,074 thousands, with service area 6,458,484 square meters, comprises of various parcel of land which are presently mortgaged with different banks against financing of various projects of the Parent Entity. -14-
7. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost less accumulated depreciation as follows: Cost: Building Plant and machinery Tools & equipment Motor vehicles EDP system & office equipment Furniture & Fixtures Total AED 000 At January 1, 2008 2,135 28,477 -- 1,061 1,234 190 33,097 Additions 998 450 1,053 381 1,280 90 4,252 At December 31, 2008 3,133 28,927 1,053 1,442 2,514 280 37,349 Accumulated Depreciation: At January 1, 2008 197 6,944 -- 494 595 32 8,262 Charged for the year 214 3,730 -- 359 641 123 5,067 At December 31, 2008 411 10,674 -- 853 1,236 155 13,329 Carrying Amount: At December 31, 2007 Exhibit A 1,938 21,533 -- 567 639 158 24,835 ===== ====== ====== ===== ===== ===== ===== At December 31, 2008 Exhibit A 2,722 18,253 1,053 589 1,278 125 24,020 ===== ====== ====== ===== ===== ===== ===== -15-
8. INTANGIBLE ASSETS: Intangible assets are stated at cost less accumulated amortization as follows: Patent & Cost: Art & trade design mark Total AED 000 At January 1, 2008 102 154 256 Additions -- 23 23 At December 31, 2008 102 177 279 ==== ==== ==== Accumulated amortization: At January 1, 2008 51 -- 51 Amortized during the year 51 3 54 At December 31, 2008 102 _ 3 105 Carrying amount: At December 31, 2007 Exhibit A 51 154 205 ===== ==== ===== At December 31, 2008 Exhibit A -- 174 174 ===== ==== ===== 9. CAPITAL WORK-IN-PROGRESS: This item comprises of the following: Al Hamra Industrial Zone Infrastructure 56,608 33,284 Al Hamra Free Zone Infrastructure 24,548 17,636 Labour accomodation 20,787 8,845 Al Ghayl Infrastructure 28,666 7,477 RAK Financial City 12,447 2,664 Customs Building 2,364 1,480 Al Hamra Amenity Centre 66,443 901 Al Hamra Power Project 133,934 -- Al Hamra Commercial Centre 6,884 -- Vacuum Sewerage System 2,475 -- Other projects 1,546 1,448 Total - Exhibit A 356,702 73,735 ====== ====== -16-
10. ADVANCES FOR CAPITAL WORK-IN-PROGRESS: This item comprises of the following: Advances for infrastructure 12,676 12,676 Advances for land 1,000 1,000 Advances to contractors 109,813 --. Total 123,489 13,676 Transferred to capital work-in-progress (12,676) -- Transferred to land (1,000) -- Total Exhibit A 109,813 13,676 ======= ====== 11. ADVANCES FOR INVESTMENT PROJECTS: a) This item comprises of the following: Advances for investment in subsidiaries Note 11 ( b) 573,096 113,348 Advances for investment in associates 85,491 15,145 Advances for other investment 51,644 8,660 Total Exhibit A 710,231 137,153 ====== ====== b) Advances for investment in subsidiaries: This item comprises of the following: Advance to RAK Infra Holding Ltd. 257,320 -- Advance to RAK Vision Ltd. 146,960 -- Advance to RAKIA Georgia Free Industrial Zone L.L.C. 40,811 355 Advance to RAK Investment Authority, Georgia 80,482 80,482 Advances for other investment in subsidiaries 47,523 32,511 Total Note 11 (a) above 573,096 113,348 ====== ====== -17-
12. TRADING PROPERTIES UNDER DEVELOPMENT: a) Trading properties under development represent the costs of the following projects: Al-Marjan Island Note 12 (b) 946,912 371,100 Al Dana Island 357,723 32,657 Gateway Project 126,242 3,550 Projects in RAK Financial City 50,668 -- Al-Hamra Views 12,992 -- Other projects 4,785 894 Total Exhibit A 1,499,322 408,201 ======= ====== b) The cost of Al-Marjan Island amounting to AED 946,912 thousands includes an amount of AED 53,051 thousands being the capitalized cost of profit on Sukuk. c) The movement details of trading properties under development are as follows: Balance at January 1, 408,201 -- Additions of new projects 765,118 295,870 Sale of a parcel of land (53,547) -- Deferred commission on projects 379,550 112,331 Net Note 12 (a) above 1,499,322 408,201 ======== ====== 13. ADVANCES FOR TRADING PROPERTIES UNDER DEVELOPMENT: This item comprises of the following: Advances for reclamation 37,480 -- Advances for construction contracts 36,121 _ -- Total Exhibit A 73,601 -- ====== ======= -18-
14. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES: a) This item comprises of the following: Ownership Ratio London International Television Ltd. Note 14 (c) (d) & (e) 53 11,612 11,612 RAK Power LLC Note 14 (c) & (d) 70 700 700 Consolidated Consultant RAK LLC 51 -- 510 Condor Distribution & Services LLC 80 -- 126 Corporation Poti Sea Port Note (e) 100 330,615 -- Total 342,927 12,948 Provision for impairment of investment in subsidiaries (7,347) -- Net - Exhibit A 335,580 12,948 ====== ======= b) The movement details of investment in unconsolidated subsidiaries are as follows: At January 1, 12,948 126 Additions 330,615 12,822 Sold during the year (510) -- Written-off during the year (126) -- Provisions for impairment (7,347) -- Total Note 14 (a) above 335,580 12,948 ====== ======= c) These subsidiaries have not started their commercial activities as of the consolidated financial statements date. d) These subsidiaries investment value represents the share of RAK Investment Authority as of the consolidated financial statements date. e) This represents the investment in subsidiary located in a foreign country. -19-
15. INVESTMENTS IN ASSOCIATES: a) This item comprises of the following: Ownership Ratio Falcon Technologies International L.L.C. 33 16,617 33,398 AN RAK Aluminium Ltd. Note 15 (c) & (e) 30 73,511 36,761 Pioneer Cement Industries L.L.C. 50 121,213 73,374 Polo RAK Amusement L.L.C. Note 15 (c) 25.5 8,509 8,925 Spira International L.L.C. Note 15 (c) 20 6,388 7,347 RAK Ghani Glass L.L.C. Note 15 (c) 25 6,809 6,726 Petropack L.L.C. 40 896 2,800 RAK Warehouse & Leasing L.L.C. 50 2,300 -- JBF RAK L.L.C. 40 -- 36,503 Al Ahmadah RAK International Logistics Services L.L.C. 10 -- 392 Total 236,243 206,226 Provision for impairment of investments in associates (3,800) -- Net - Exhibit A 232,443 206,226 ====== ======= -20-
15. INVESTMENTS IN ASSOCIATES: (continued ) b) Movements over these accounts are as follows: Balance at Dec. 31, 2007 Additions Dividend received Profit /(Loss) during the year Transfers to other investment Disposed during the year Balance at Dec. 31, 2008 AED 000 Falcon Technologies International L.L.C 33,398 -- -- (16,781) -- -- 16,617 AN RAK Aluminium Ltd. 36,761 36,750 -- -- -- -- 73,511 Pioneer Cement Industries L.L.C 73,374 -- (55,125) 102,964 -- -- 121,213 Polo RAK Amusement L.L.C 8,925 1,275 -- (1,691) -- -- 8,509 Spira International L.L.C 7,347 -- -- -- -- (959) 6,388 RAK Ghani Glass L.L.C. 6,726 83 -- -- -- -- 6,809 Petropack L.L.C 2,800 200 -- (2,104) -- -- 896 RAK Warehouse & Leasing L.L.C. -- 2,500 -- (200) -- -- 2,300 JBF RAK L.L.C 36,503 -- -- -- -- (36,503) -- Al Ahmadah RAK International Logistics Services L.L.C 392 -- -- 108 (500) -- -- Total Note 15 (a) above 206,226 40,808 (55,125) 82,296 (500) (37,462) 236,243 ====== ====== ======= ===== ==== ======= ======= c) These associate companies have not started their commercial activities as of the consolidated financial statements date. d) The value of above investments in associates represents the share of RAK Investment Authority as of the consolidated financial statements date. e) This represents the investment in associate company located in foreign country. -21-
16. AVAILABLE-FOR-SALE INVESTMENTS: a) The movements over these investments are as follows: Balance at January 1, 96,125 475 Purchase during the year 162,514 77,365 Transferred from investment in associates 500 -- Sale during the year -- (15) Difference resulting from remeasurement of available-for-sale investments Exhibit C (44,700) 18,300 Net - Exhibit A 214,439 96,125 ====== ====== b) Available-for-sale investments are classified as follows: Quoted investments 49,500 94,200 Unquoted investments 164,939 1,925 Total Note 16 (a) above 214,439 96,125 ====== ===== c) Available-for-sale investments are classified into the following business segments: Banking sector 49,500 94,200 Construction sector 155,000 -- Service sector 4,193 1,040 Industrial sector 5,746 885 Total Note 16 (a) above 214,439 96,125 ====== ====== Unquoted available-for-sale investments are carried at cost due to the unpredictable nature of future cash flow and lack of other suitable methods for arriving at a reliable fair value. 17. INVENTORIES: This item comprises of the following: Raw materials 5,908 5,955 Finished goods 1,262 2,252 Total Exhibit A 7,170 8,207 ===== ==== -22-
18. TRADE AND OTHER RECEIVABLES: a) This item comprises of the following: Trade accounts receivable Note 18 (b) 61,960 32,129 Other receivables Note 18 (d) 1,618 1,809 Total Exhibit A 63,578 33,938 ====== ===== b) Trade accounts receivable: This item comprises of the following: Trade accounts receivable Note 18 (c) 72,036 37,129 Provision for doubtful debts (10,076) (5,000) Net Note 18 (a) above 61,960 32,129 ====== ===== c) Trade accounts receivable amounting to AED 72,036 thousands include an amount of AED 47,309 thousands being due from nine clients only which is 66% of the total balance thereof. d) Other receivables: This item comprises of the following: Prepaid expenses 533 543 Refundable deposits 426 164 Due from associates 315 681 Sundry receivables 344 421 Total Note 18 (a) above 1,618 1,809 ===== ===== e) Postdated cheques received amounting to AED 644,744 thousands as of December 31, 2008. These cheques will be recognized upon their actual collection. 19. LOANS AND ADVANCES: a) This item comprises of the following: Advance to suppliers 38,475 43,857 Loan to a subsidiary Note 19 (b) 3,333 1,483 Loan to associates Note 19 (c) 116,043 14,978 Loan to others Note 19 (d) 681,070 11,095 Advances to others 1,538 795 Total Exhibit A 840,459 72,208 ======= ===== -23-
19. LOANS AND ADVANCES: ( continued ) b) Loan to a subsidiary: Loan to a subsidiary as shown in Note 19 (a) above amounting to AED 3,333 thousands represents the loan to London International Television Ltd. This subsidiary has not started its commercial activities as of the consolidated financial statements date. c) Loan to associates: This item comprises of the following: Falcon Technologies International LLC 113,543 11,000 Polo RAK Amusement LLC 2,500 -- JBF RAK LLC -- 3,978 Total Note 19 (a) above 116,043 14,978 ====== ===== d) Loan to others: This item comprises of the following: Rakeen Development PJSC 282,433 -- Dana Executive Air 185,186 -- Ras Al Khaimah Ceramics Co. PSC 210,410 -- Others 3,041 11,095 Total Note 19 (a) above 681,070 11,095 ====== ====== 20. CASH AND CASH EQUIVALENTS: This item comprises of the following: Cash on hand 902 1,395 Bank checking accounts 71,645 26,038 Fixed deposit with maturity of less than three months 50,311 1,018,950 Cash and cash equivalents Exhibit A 122,858 1,046,383 ====== ======= -24-
21. CAPITAL RESERVE: a) This item comprises of the following: Capital reserve emerged from recognition of land granted by Govt. of RAK (Refer to Notes 6 (c) & (d) ) 897,951 635,794 Capital reserve emerged from acquisition of a subsidiary s shares at free of cost 199 -- Total Exhibit A 898,150 635,794 ======= ======== b) The movement details of capital reserve during the year are as follows: Balance at January 1, 635,794 635,794 Additions: Land reserve 262,157 -- Acquisition of Beaufort shares 199 -- Balance at December 31, Exhibit A 898,150 635,794 ======= ======== 22. SUKUK PAYABLE: RAKIA Sukuk Company Limited, for which the Parent Company acts as a managing agent for the purpose of issuing Sukuk, is a Cayman Islands exempted company with limited liability incorporated on July 24, 2007 with all of its issued shares being fully paid and held by Maples Finance Limited as share trustee. In December 2007, RAKIA Sukuk Company Limited issued bonds in the form of Trust Certificates/Sukuk (the "Sukuk") for a total value of AED 1,193,888 thousands (equivalent to US$ 325,000 thousands). The Sukuk is structured to conform with the principles of Islamic Sharia. The Sukuk have a profit rate which is calculated on the basis of LIBOR plus 1.50% per annum paid quarterly and due for repayment in December 2012. The Government of Ras Al-Khaimah guaranteed payment obligations on the closing date of the Sukuk". 23. MEDIUM-TERM BANK LOANS: The Goup had entered into following medium-term bank loans: a) A loan amounting to AED 35,000 thousands has been obtained to finance the development of RAK Industrial Free Zone Phase-II. The loan will be repaid in 8 equal semi-annual installments commencing from January 2008 alongwith interest. The interest charged on the above loan is 3.5% plus EIBOR. b) A loan amounting to AED 112,500 thousands has been obtained for the purpose of partly financing the cost of infrastructure development and promoting Phase-I Al Ghayl Industrial City, Ras Al Khaimah. The loan will be repaid in 10 equal semiannual installments commencing from October 10, 2008 alongwith interest. The interest charged on above loan is 3.5% over and above 3 month EIBOR. -25-
23. MEDIUM-TERM BANK LOANS: ( continued ) c) A Musharaka (Islamic Loan) amounting to AED 90,000 thousands has been sanctioned for the purpose of financing twin office towers in RAK Free Zone. Out of the loan sanctioned, an amount of AED 29,924 thousands has been withdrawn as of the consolidated financial statements date. The loan will be repaid in 17 quarterly installments commencing from 24 th month of signing of the facility documentation. d) Term loan amounting to AED 110,000 thousands has been sanctioned for the purpose of financing construction of residential complex and AED 40,000 thousands for the purpose of construction of road in Al Ghail Industrial Area. This loan has not been withdrawn as of the consolidated financial statements date. e) The detail of medium-term bank loans are as follows: Balance at January 1, 109,410 14,662 Loans obtained during the year 72,424 105,000 Installments paid during the year (28,749) (10,252) Balance at December 31, 153,085 109,410 ======= ====== e) The maturity-wise details of medium-term bank loans are as follows: Medium-term maturity of bank term loans Exhibit A 112,283 90,829 Current maturity of bank term loans Exhibit A 40,802 18,581 Balance at December 31, 153,085 109,410 ====== ====== f) The above medium-term bank loans are secured by: First degree registered mortgage over plots of land in favour of bank (Note No. 6 (c), (d), (e), (f), & (g). 16 postdated cheques covering the quarterly and semi-annual installment plus interest in favour of bank. Mortgage over machinery and equipment and assignment of insurance policy of plant and machinery. Hypothecation of stocks (raw-materials and finished goods) duly insured with bank. Corporate guarantee of RAK Investment Authority. Joint personal guarantee of shareholders. -26-
24. UNSECURED LOANS: a) The unsecured loans amounting to AED 580,046 thousands had been obtained at market rate to provide funding support to the Parent Entity for on-going investment projects in the Emirate of Ras Al Khaimah. The loans will be repaid according to loan agreements, in various repayment schedules. The details are as follows: Investment and Development Office Government of RAK 477,555 -- Emirates Rock & Marbles 97,146 160,356 Al Hamra Construction 3,195 3,000 Al Hamra Fort Hotel 2,150 -- Al Hamra Real Estate -- 2,470 Total 580,046 165,826 ====== ====== The movements over unsecured loans during the year were as follows: Balance at January 1, 165,826 136,909 Loans obtained during the year 481,834 23,739 Interest accrued 7,146 16,181 Loans settled during the year (74,760) (11,003) Balance at December 31, 580,046 165,826 ======= ======= b) The maturity-wise detail of unsecured loans is as follows: Medium-term maturity of unsecured loans Exhibit A 520,046 86,861 Current maturity of unsecured loans Exhibit A 60,000 78,965 Total 580,046 165,826 ======= ====== -27-
25. ADVANCES FROM CUSTOMERS: This item comprises of the following: Advances from Al Marjan Island s customers 1,156,544 335,802 Advances from Al Dana Island s customers 752,249 -- Advances from Gateway s customers 116,989 -- Advances from RAK Financial City s customers 125,377 14,908 Advances from Al Hamra View s customers 24,958 -- Advances from other customers 34,237 54,424 Total - Exhibit A 2,210,354 405,134 ======== ====== 26. TRADE AND OTHER PAYABLES: a) This item comprises of the following: Trade accounts payable Note 26 (b) 150,912 39,272 Advance lease rent 44,458 27,045 Trust receipts 2,940 397 Other payables Note 26 (e) 29,191 29,738 Total Exhibit A 227,501 96,452 ====== ===== b) Trade accounts payable amounting to AED 150,912 thousands include an amount of AED 55,640 thousands being due to nine suppliers and creditors only which is 37 % of total balance thereof. c) Other Payables: This item comprises of the following: Advances from customers 12,024 11,602 Accrued Sukuk profit 3,148 5,950 Accrued salaries 445 645 Provision for employees bonus 829 767 Provision for short-term employees benefits 854 350 Provision for expenses 6,097 6,438 Visa security deposit payable 1,379 1,753 Due to unconsolidated subsidiaries 934 844 Due to associates 38 13 Interest on unsecured loan 1,794 -- Other payables 1,649 1,376 Total Note 26 (a) above 29,191 29,738 ===== ===== -28-
27. SHORT TERM BORROWINGS FROM BANKS: Short-term borrowings amounting to AED 151,877 thousands as shown in Exhibit A include an amount of AED 149,140 thousands which represents the overdraft balance of the Parent Entity. The Parent Entity entered into a borrowing agreement with a bank which sanctioned a short-term and medium-term credit facility of AED 150,000 thousands. According to the bank credit facility agreement, this facility will be utilized as bank overdraft for the first two years and the balance of total utilized facility will be treated as medium-term bank loan which will be repaid in the next four years. Another bank overdraft facility is limited to AED 3,000 thousands as of the consolidated financial statements date. 28. REVENUE: This item comprises of the following: Sale of trading properties 86,650 -- Visa income 40,150 69,253 Lease rental income 57,265 34,333 License services income 21,913 19,336 Management fees income 9,040 3,688 Legal services income 8,233 2,796 Sales revenue 25,600 15,922 Other services income 5,132 7,132 Total - Exhibit B 253,983 152,460 ====== ====== 29. DIRECT EXPENSES: This item comprises of the following: Cost of real estate projects 55,443 -- Visa expenses 3,541 38,650 Direct materials 19,185 12,270 Direct labour 1,790 1,932 Depreciation 3,935 3,445 Manufacturing overhead 1,201 3,543 Other direct expenses 2,645 256 Total - Exhibit B 87,740 60,096 ===== ===== -29-
30. OTHER INCOME: This item comprises of the following: AED 000 AED 000 Interest income 2,156 4,739 Legal department income -- 3,092 Registration fees 3,303 1,824 Technical charges 21,549 -- Dividend received 5,896 11 Miscellaneous services income 2,648 3,552 Total - Exhibit B 35,552 13,218 ====== ====== 31. MARKETING EXPENSES: This item comprises of the following: AED 000 AED 000 Salaries and wages 1,072 797 Exhibition charges 6,704 9,948 Advertisement expenses 7,914 11,281 Business promotion expenses 3,363 5,804 Travelling expenses 941 1,183 Shipping expenses 416 100 Other expenses 353 456 Total Exhibit B 20,763 29,569 ===== ====== 32. ADMINISTRATIVE EXPENSES: This item comprises of the following: AED 000 AED 000 Salaries and related benefits 10,872 7,952 Consultancy charges 9,038 2,600 Provision for doubtful debts 5,074 5,000 Provision for impairment of investments 11,147 -- Professional fees 1,918 4,126 Project expenses 3,497 3,379 Cancellation charges -- 8,621 Depreciation 1,133 2,090 Website development expenses 241 304 Security expenses 789 796 Travelling & conveyance 575 294 Research & development expenses 546 665 Miscellaneous expenses 9,689 4,307 Total Exhibit B 54,519 40,134 ====== ======= -30-
33. FINANCE COSTS: This item comprises of the following: AED 000 AED 000 Interest on unsecured loans 6,283 8,641 Interest on bank loans 8,592 3,518 Interest on bank overdraft 5,433 5,529 Other finance costs 4,635 6,640 Total Exhibit B 24,943 24,328 ===== ====== 34. PROFIT ON SALE OF INVESTMENT IN AN ASSOCIATE: Profit on sale of investment in an associate amounting to AED 33,189 thousands as shown in Exhibit B represents income received on disposal of shares in JBF RAK LLC. 35. TRANSACTIONS WITH RELATED PARTIES: The Group in the ordinary course of business enters into transactions, at agreed terms and conditions with other business enterprises or individuals that fall within the definition of related parties contained in International Accounting Standard No. 24. For the purpose of these consolidated financial statements, parties are considered to be related to the Group, if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party and making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. The balances with related parties are shown in foregoing Notes 18, 19, and 26. 36. FINANCIAL RISK MANAGEMENT: The Groups provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group by analyzing exposures by degree and magnitude of risks. These risks include credit risk, interest rate risk, foreign currency risk, market risk and liquidity risk. The Group seeks to minimize the effects of these risks arising from the Group s financial risk management as follows: a) Credit Risk Management: Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties to mitigate the risk of financial loss from defaults. However, the Group does not require its clients to provide collateral for credit extended to them. -31-
36. FINANCIAL RISK MANAGEMENT: (continued ) a) Credit Risk Management:(continued ) The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Concentration of credit risk with respect to trade accounts receivable is discussed in foregoing Note 18 (c). Trade accounts receivable are reviewed on an ongoing basis and provision made for doubtful debts as and when required. At December 31, 2008, fixed deposit amounting to AED 50,311 thousands was placed with only one bank. Management is confident that this concentration at year end does not result in any credit risk to the Group as the said bank is a major bank operating in the UAE. b) Interest Rate Risk Management: The Group is exposed to interest rate risk with respect to Sukuk loan obligation, medium-term bank loans, unsecured loans and short-term borrowings from banks. The risk is managed by the Group by maintaining appropriate floating rate borrowings. As and when it is appropriate, interest rate risks are managed through hedging instruments based on prudent risk management policies. The Group s exposures to interest rates on financial assets and financial liabilities are detailed in Notes 22, 23, 24, and 27. c) Foreign Currency Risk Management: The Group has cross-border trading transactions and therefore, is exposed to foreign currency risk. However, majority of foreign exchange transactions are in US Dollars for which foreign currency risk is negligible as the exchange rate between UAE Dirhams and US Dollars is fixed. d) Market Risk: The Group s activities are exposed primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Market risk exposures are measured using sensitivity analysis. There has been no change to the Group s exposure to market risks or the manner in which it manages and measures the risk. However, the Group is exposed to market risk with respect to its availablefor-sale investments amounting to AED 214,439 thousands. e) Liquidity Risk: Ultimate responsibility for liquidity risk management rests with the Government of Ras Al Khaimah which has built an appropriate liquidity risk management framework for the management of the Group s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. -32-