Annual Report 2006

Annual Report 2006
Annual Report
2006
Amwal International Investment Company, K.S.C.C
P.O. Box 4871, Safat 13049, Kuwait
Tel.: +965 297 1000, Fax: +0965 240 3573
www.amwal-invest.com
His Highness
Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah
Amir of the State of Kuwait
His Highness
Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah
Crown Prince
His Highness
Sheikh Naser Al-Mohammed Al-Ahmad Al-Sabah
Prime Minister
Board Members
Bader Al-Rezaihan
Chairman
Abdulaziz Almeshal
Vice Chairman & CEO
Mansour Al-Nassar
Board Member
Youssef Al-Matrook
Board Member
Bader Abul
Board Member
Khalid Al-Ghanim
Board Member
Ammar Alkhudairy
Board Member
Executive Management
Abdulaziz Abdulaziz AlMeshal
Vice Chairman & C.E.O
Fahed Sulaiman Al-Habshi
Senior Vice President - Asset Management
Muthanna Abdulwahab Al-Saleh
Senior Vice President - Business Development
Dalal Marzouk Al-Dousari
Vice President - Investments
Ghadeer Ahmad Al-Omran
Vice President - Asset Management
Board of Directors Report - 2006
Dear Shareholders,
The company's Board of Directors is pleased to
welcome you to the ordinary general assembly
meeting, to present Amwal’s�Annual Report for
the period ended 31/12/2006 including the
major achievements which took place during
the year as well as the profit and loss statement.
The 2006 fiscal year was a distinct year to the
company in terms of successful achievements in
various ways. The company has achieved outstanding
results, in terms of profitability and growth in
such a short period of time. The past year is
considered a crucial starting point for the
company since the targeted investment assets
Bader Al-Rezaihan
have been partially formed, which will be seeds
Chairman
of fruitful achievements generating unique
profit to shareholders in the coming years.
Below are the major accomplishments which
were achieved during the past year:
• The company has realized a net profit of 7.6 %,
of which the total revenue is KD 2,154,262 and
total expenses of KD 1,010,532 and the net profit
is KD 1,143,730. The earning per share is 7.62 fils.
The Board of Directors recommended not to
declare any dividends for the financial year
ended 2006.
• During last year an alliance including Amwal
acquired
AlShamel
International
Holding.
AlShamel is considered the biggest and most
successful company in the travel and tourism
sector. AlShamel is a leading reputable large player
within the industry. AlShamel has a clear vision
and a promising strategic planning in the future.
AlShamel focuses on the various segments of
aviation as well as travel and tourism. In addition,
the company has a large variety of client base and
holds independent subsidiaries specialized in each
sector such as tourism, holidays, corporate service
segment, as well as the travel service technology.
AlShamel has presence in several countries such as
Kuwait, Bahrain, UAE, Qatar, Jordan and Syria.
the first marina in AlKhobar area.� The estimated
cost of the project is approximately SR 1 billion .
• The company added another success by
The targeted exit strategy is to list Abraj AlOula
investing in the Emirates Float Glass Factory
on the Saudi Stock Exchange Market.
which is considered the first in the Middle East
region in terms of the unique technology being
• Amwal was seeking to obtain an Islamic
used to produce the float glass which is highly
Commercial Bank license in the Kingdom of
used in the building construction.
Bahrain with a capital of $200 Million US dollars.
The company has conducted the relevant feasibility
• During the fiscal year 2006, the company has
and market studies and met and fulfilled all the
studied and reviewed several projects which fall
requirements and conditions of Bahrain Monetary
within the company's establishment purposes
Agency. The company is expected to receive the
and strategy. Currently, the company is in the
license during the second quarter of 2007.
final stages of completing the legal due diligence
for some pursued projects such as, establishing
• The company has proved its presence in the
electric power station in the Islamic Republic of
Kuwaiti
Pakistan, in which the alliance group, which
investing in an in-house equity portfolios and
consists of Amwal has won the project. Amwal is
creating new investment funds. The company
also planning and evaluating to penetrate the
has obtained the approvals from the local
industrial sector which will be announced in the
authorities to establish two investment funds of
near future. One of the projects that the
which one of them will be launched during the
company is considering is in the regional cement
second quarter of 2007. Such investments will
industry and in partnership with an international
have a great implication on the company's
leading specialized company in this field.
projected financial results in the future.
• To achieve its goal of regional expansion,
In closing, the company's management teams are
especially in the Kingdom of Saudi Arabia, Amwal
putting their best efforts by dedicating the
invested in 40% of the capital of Abraj AlOula
required resources and energy to establish and
Company in partnership with AlOula Real Estate
keep up the continuous success as well as
Development Company one of the leading and
achieving financial returns which both appreciate
specialized real estate developer companies in
and adds value to shareholders which are highly
the KSA. The company’s�first project was the
regarded and thankful for being part of this
acquisition of a 40,000 square meter land which
successful journey. Shareholders kind generous
overlooks the Arabian Gulf. The company intends
inputs and suggestions were highly appreciated
to develop a mega real estate project that will be
in all aspects to the company. We would also like
considered a landmark in the Eastern province of
to
the Kingdom of Saudi Arabia. The project is
employees of the company for the highly
located in the heart of AlKhobar commercial
appreciated efforts for such achievements during
district and constitute of constructing a 60 story
the past year. Thank you and we will continue
tower divided into a 5-star hotel and offices. The
seeking better achievements at all times.
thank
Stock
the
Exchange
executive
Market
through
management
and
remaining portion consists of shopping mall
targeting high-end and luxurious brands. The
mall will also include fancy restaurants and cafes,
going along with the mall�high end style, facing
Chairman of the Board,
Contents
Independent Auditor�Report
1
Balance Sheet
2
Statement of Income
3
Statement of Changes in Equity
4
Statement of Cash Flows
5
Notes to the Financial Statements
6 - 14
Independent Auditor�Report to the Shareholders
Report on the Financial Statements
We have audited the accompanying financial
statements of Amwal International Investment
Company K.S.C. (Closed) “(the Company)”� which
comprise the balance sheet as of 31 December 2006,
and the statement of income, statement of changes
in equity and statement of cash flows for the period
from 23 October 2005 (date of inception) to 31
December 2006, and a summary of significant
accounting policies and other explanatory notes.
Management�responsibility for the Financial Statements
Management is responsible for the preparation
and fair presentation of these financial
statements in accordance with International
Financial
Reporting
Standards.
This
responsibility includes: designing, implementing
and maintaining internal control relevant to the
preparation and fair presentation of financial
statements that are free from material
misstatement, whether due to fraud or error;
selecting and applying appropriate accounting
policies; and making accounting estimates that
are reasonable in the circumstances.
Auditor’s�responsibility
Our responsibility is to express an opinion on these
financial statements based on our audit. We
conducted our audit in accordance with
International Standards on Auditing. Those
Standards require that we comply with ethical
requirements and plan and perform the audit to
obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts and
disclosures in the financial statements. The
procedures selected depend on the auditor’s�
judgment, including the assessment of the risks
of material misstatement of the financial
statements, whether due to fraud or error. In
making those risk assessments, the auditor
considers internal control relevant to the
entity's preparation and fair presentation of the
financial statements in order to design audit
procedures that are appropriate in the
circumstances, but not for the purpose of
expressing an opinion on the effectiveness of
the entity's internal control. An audit also
includes evaluating the appropriateness of
accounting policies used and the reasonableness
of accounting estimates made by the
management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present
fairly, in all material respects, the financial position
of the Company as of 31 December 2006, and of its
financial performance and its cash flows for the
period from 23 October 2005 (date of inception) to
31 December 2006 then ended in accordance with
International Financial Reporting Standards.
Report on other Legal and Regulatory Requirements
Furthermore, in our opinion proper books of
account have been kept by the Company and
the financial statements, together with the
contents of the report of the Board of Directors
relating to these financial statements, are in
accordance therewith. We further report that
we obtained all the information and
explanations that we required for the purpose
of our audit; and that the financial statements
incorporate all information that is required by
Commercial Companies Law of 1960, as
amended, and by the Company’s�Articles of
Association; that an inventory was duly carried
out; and that, to the best of our knowledge and
belief, no violations of the Commercial
Companies Law of 1960, as amended, or of the
Articles of Association have occurred during the
period from 23 October 2005 (date of inception)
to 31 December 2006 that might have had a
material effect on the business of the Company
or on its financial position.
We further report that, during the course of our
audit we have not become aware of any
material violations of the provisions of Law 32
of 1968, as amended, concerning currency, the
Central Bank of Kuwait and the organisation of
banking business, and its related regulations
during the period ended 31 December 2006.
Bader A. Al-Wazzan
Licence No. 62A
Kuwait
26 March 2007
1
Balance Sheet
31 December 2006 - ( Kuwaiti Dinars )
Note
2006
Cash and bank balances
3
9,813,685
Investments at fair value through profit or loss
4
3,333,542
Trade and other receivables
5
392,066
ASSETS
Current assets
13,539,293
Non- Current assets
Investments available for sale
6
3,551,635
Investments in associates
7
6,685,978
Investments in unconsolidated subsidiaries
8
37,500
Equipment
121,890
10,397,003
TOTAL ASSETS
23,936,296
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables
Term loans
9
639,346
10
6,416,684
7,056,030
Non-current liabilities
Term loans
10
750,000
Post employment benefits
29,981
779,981
Equity
11
Share capital
15,000,000
Legal reserve
118,759
Foreign currency translation reserve
(43,445)
Retained earnings
1,024,971
Equity
16,100,285
Total liabilities and equity
23,936,296
The accompanying notes form an integral part of these financial statements
BADER F. AL-REZAIHAN
Chairman
2
ABDULAZIZ ABDULAZIZ AL MESHAL
Vice Chairman & CEO
Statement of Income
23 October 2005 to 31 December 2006 - ( Kuwaiti Dinars )
Note
Income
2006
Realised gain from investments at fair value
through statement of income
744
Interest income
797,090
Unrealised loss on investments at fair value
through statement of income
(193,054)
Dividend income
Share of profit from an associate
33,220
933,281
7
Management fee
6,012
Other income
576,969
2,154,262
Operating expenses and other charges
Staff cost
(497,247)
General and administrative expenses
13
(351,430)
Depreciation
(16,025)
Finance cost
(85,158)
Loss on foreign exchange revaluation
(16,817)
Board of Directors remuneration
(42,500)
Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS)
(1,355)
(1,010,532)
Profit for the period
1,143,730
The accompanying notes form an integral part of these financial statements
3
Statement of Changes in Equity
23 October 2005 to 31 December 2006 - ( Kuwaiti Dinars )
Share
capital
Legal
reserve
Foreign currency
translation reserve
Retained
earnings
Total
Share capital issued
15,000,000
-
-
-
15,000,000
Profit for the period
-
-
-
1,143,730
1,143,730
Net exchange differences
-
-
(43,445)
-
(43,445)
Transfer to legal reserve
-
118,759
-
(118,759)
-
15,000,000
118,759
(43,445)
1,024,971
Balance as at 31 December 2006
The accompanying notes form an integral part of these financial statements.
4
16,100,285
Statement of Cash Flows
23 October 2005 to 31 December 2006 - ( Kuwaiti Dinars )
1,143,730
Profit for the period
Adjustments:
(797,090)
Interest income
16,025
Depreciation
Share of profit from an associate
(933,281)
Other income
(569,528)
Provision for post employment benefits
29,981
Finance cost
85,158
Operating loss before changes in operating assets and liabilities
(1,025,005)
Changes in operating assets and liabilities
Investments at fair value through profit or loss
(3,333,542)
Trade and other receivables
(251,090)
Trade and other payables
Net cash used in operating activities
639,346
(3,970,291)
Cash flows from investing activities
(137,915)
Purchase of equipment
Investments available for sale
(3,588,705)
Investments in associates
(5,330,520)
Investments in unconsolidated subsidiaries
(37,500)
Interest income received
797,090
Finance cost paid
(85,158)
Net cash used in investing activities
(8,382,708)
Cash flows from financing activities
7,166,684
Borrowings from banks
Issue of share capital
15,000,000
Net cash from financing activities
22,166,684
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
9,813,685
9,813,685
The accompanying notes form an integral part of these financial statements.
5
Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
1. Incorporation and activities
have not yet been adopted by the Company:
Amwal International Investment Company KSC
IFRS 7 Financial Instruments: Disclosures
Closed (incorporated as CIC Investment Com-
IFRIC Interpretation 8 Scope of IFRS 2
pany K.S.C.C.) (the Company) was incorporated
IFRIC Interpretation 9 Reassessment of Embed-
in accordance with Commercial Companies Law
ded Derivatives
No. 15 of year 1960 and was registered in the
IFRIC Interpretation 10 Interim Financial Report-
Ministry of Commerce commercial register on
ing and Impairment
9 November 2005 as CIC Investment Company.
IFRIC Interpretation 11 IFRS 2 �group and
The Company is registered as an investment
Treasury Share Transactions
company with the Central Bank of Kuwait.
The application of IFRS 7, which will be effective
On 27 November 2005, the extraordinary
for the year ending 31 December 2007 will result
general assembly of shareholders approved
in amended and additional disclosures relating
change of the Company’s�name to Amwal Inter-
to financial instruments and associated risks. The
national Investment Company KSCC. This amend-
application of IFRIC 8, 9, 10 and 11, which will be
ment was registered in the Ministry of Com-
effective for the year ending 31 December 2007,
merce commercial register on 4 December 2005.
is not expected to have a material impact on the
The registered office of the Company is at Al-
financial statements of the Company.
Sahab Tower �kuwait �P.O. Box 4871, Safat 13049.
The principal activities of the Company are to
2.2 Financial instruments
own and manage investments for its own
Classification, recognition/de-recognition and
account and for clients.
measurement of financial instruments
These financial statements were authorized for
issue by the Board of Directors on 26 March 2007
and are subject to the approval of shareholders
at the annual general meeting.
2. Summary of Significant Accounting Policies
2.1 Basis of preparation
The financial statements of the Company have been
prepared in accordance with International Financial
Reporting Standards. The financial statements are
prepared under the historical cost convention,
except for the measurement at fair value of �
”Investments at fair value through statement of
income” and “available for sale investments”.�
The financial statements are presented in
Kuwaiti Dinars (KD) which is the functional
currency of the Company.
Classification
The Company classifies its financial assets as �
”carried at fair value through statement of
income”, ”loans and receivables”�and �”available
for sale”;�and its financial liabilities as �”nontrading financial liabilities”.�
Financial assets �”carried at fair value through
statement of income”�are divided into two sub
categories: financial assets held for trading, and
those designated at fair value through statement
of income at inception. A financial asset is classified in this category if acquired principally for the
purpose of selling in the short term or if they are
managed and their performance is evaluated and
reported internally on a fair value basis in accordance with a documented investment strategy.
Loans and receivables are non-derivative finan-
6
IASB Standards and Interpretations issued but
cial assets with fixed or determinable payments
not yet effective
that are not quoted in an active market.
The following IASB Standards and Interpretations
Financial assets which are not classified as above
have been issued but are not yet mandatory, and
are classified as �”available for sale”,�and are
Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
principally those acquired to be held for an
ment of income”�are carried at fair value with
indefinite period of time, which may be sold in
resultant unrealised gains or losses arising from
response to needs for liquidity or changes in
changes in fair value included in the statement of
interest rates, exchange rates or equity prices.
income. “Loans and receivables”�are carried at
Financial liabilities, which are not held for trading,
amortised cost using the effective yield method
are classified as �”non-trading financial liabilities”.
less any provision for impairment. Those classified
Management determines the classification of these
as “available for sale”�are subsequently measured
financial instruments at the time of acquisition.
and carried at fair values. Unrealised gains and
losses arising from changes in fair value of those
Recognition/de-recognition
classified as �”available for sale”�are taken to fair
A financial asset or a financial liability is recog-
valuation reserve in equity. Investments in equity
nised when the Company becomes a party to
instruments that do not have a quoted market
the contractual provisions of the instrument.
price in an active market and whose fair value
A financial asset (in whole or in part) is de-
cannot be reliably measured are carried at cost
recognised when the contractual rights to
less impairment loss, if any. “Non-trading finan-
receive cash flows from the financial asset has
cial liabilities”�are carried at amortised cost using
expired
the effective interest method.
or
the
Company
has
transferred
substantially all risks and rewards of ownership
When the �”available for sale”�asset is disposed
and has not retained control. If the Company
of, or impaired, the related accumulated fair
has retained control, it shall continue to recog-
value adjustments previously recognised in
nise the financial asset to the extent of its
equity are transferred to the statement of
continuing involvement in the financial asset.
income as gains or losses.
A financial liability is de-recognised when the
obligation
specified
in
the
contract
is
Fair values
discharged, cancelled or expired.
Fair values of quoted instruments are based on
All regular way purchases and sales of financial
quoted closing bid prices or using the current
assets are recognised using settlement date
market rate of interest for that instrument. Fair
accounting. Changes in fair value between the
values for unquoted instruments are based on
trade date and settlement date are recognised
net asset values provided by the fund managers
in the statement of income. Regular way
or are estimated using applicable price/earnings
purchases or sales are purchases or sales of
or price/cash flow ratios refined to reflect the
financial assets that require delivery of assets
specific circumstances of the issuer.
within the time frame generally established by
value of investments in mutual funds, unit trusts
regulations or conventions in the market place.
or similar investment vehicles are based on the
The fair
last published bid price.
Measurement
The fair value of financial instruments carried at
All financial instruments are initially recognised at
amortised cost is estimated by discounting the
fair value. Transaction costs are included only for
future contractual cash flows at the current market
those financial instruments that are not measured
interest rates for similar financial instruments.
at fair value through the statement of income.
On subsequent re-measurement, financial assets
Impairment of financial assets
classified as “carried at fair value through state
An assessment is made at each balance sheet
7
Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
date to determine whether there is objective
associate. Appropriate adjustments such as depre-
evidence that a specific financial asset or a group
ciation, amortisation and impairment losses are
of similar financial assets may be impaired. If
made to the Company’s�share of profit or loss after
such evidence exists, any impairment loss is
acquisition to account for the effect of fair value
recognised in the statement of income.
adjustments made at the time of acquisition.
Impairment is determined as follows:
a) for financial assets carried at fair value,
When the Company’s�share of losses in an
associate equals or exceeds its interest in the
impairment is the difference between cost and
associate, including any other unsecured receiv-
fair value, less any impairment loss previously
recognised in the statement of income;
b) for financial assets carried at cost, impairment
is the difference between the carrying value and
present value of future cash flows discounted at
the current market rate of return for a similar
financial asset.
able, the Company does not recognise further
losses unless it has incurred obligations or made
payments on behalf of the associate.
2.5 Goodwill
Goodwill represents the excess of the cost of an
acquisition over the fair value of the Company’s�
share of identifiable net assets acquired in a
For available for sale equity investments, rever-
business combination or of an associate at the
sals of impairment losses are recorded as
date of acquisition. Goodwill on acquisition of associ-
increases in fair valuation reserve through equity.
ates is included in investments in associates. If the
Financial assets are written off when there is no
Company’s�share of the net fair value of the associate
realistic prospect of recovery.
�identifiable net assets exceeds the cost of acquisition, it is recognized in the statement of income in
2.3 Cash and cash equivalents
the period in which the investment is acquired.
Cash on hand and time deposits with banks
whose original maturities do not exceed three
2.6 Equipment
months are classified as cash and cash equiva-
Equipment are stated at cost less accumulated
lents in the statement of cash flows.
depreciation and any impairment in value. The
2.4 Investments in associates
straight-line method at rates sufficient to write
Associates are those entities over which the
Company has significant influence but not
control, generally accompanying a shareholding
of between 20% and 50% of the voting rights.
Investments in associates are initially recognised
at cost and are subsequently accounted for by
the equity method of accounting from the date
of significant influence to the date it ceases.
Under the equity method, the Company recognises in the statement of income, its share of the
associate’s�post acquisition results of operations
and in equity, its share of post acquisition movements in reserves that the associate directly
recognises in equity. The cumulative post acquisition adjustments, and any impairment, are
directly adjusted against the carrying value of the
8
Company depreciates its equipment using the
off the assets over their estimated useful
economic lives.
2.7 Provisions
Provisions for liabilities are recognized when as
a result of past events it is probable that an
outflow of economic resources will be required
to settle a present legal or constructive obligation; and the amount can be reliably estimated.
Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
2.8 Post employment benefits
resultant exchange differences are taken to the
The Company is liable under Kuwait’s�employ-
consolidated statement of income. Translation
ment laws to make defined contributions to
difference on non-monetary asset classified as �
State Plans and to make payments under
”fair value through statement of income”�are
defined benefit plans to employees on cessation
reported as part of the fair value gain or loss in
of employment.
the statement of income and �”available for
The defined benefit plan is unfunded and is
sale”�are included in the cumulative changes in
based on the liability that would arise on invol-
fair value, in equity.
untary termination of all employees on the
and changes in defined benefit plan liabilities are
2.13 Significant accounting judgments
and estimates
Judgments
charged to the statement of income.
In the process of applying the Company’s�account-
balance sheet date and approximates the present
value of this liability. Payments under State Plans
ing policies, management has made the following
2.9 Fiduciary assets
judgments, apart from those involving estima-
Assets held in trust or a fiduciary capacity are
tions, which have the most significant effect in the
not treated as assets of the Company and
amounts recognised in the financial statements:
accordingly, they are not included in these
financial statements.
Classification of financial instruments
Management has to decide on acquisition of a
2.10 Revenue recognition
financial instrument whether it should be classi-
Revenue is recognised to the extent that it is
fied as carried at fair value through statement
probable that the economic benefits will flow to
of income, available for sale or as loans and
the Company and the revenue can be reliably
receivables. In making that judgment the Com-
measured. Dividend income is recognized when
pany considers the primary purpose for which it
the right to receive payment is established.
is acquired and how it intends to manage and
Interest income is recognized on a time propor-
report its performance. Such judgment deter-
tion basis using the effective yield method.
mines whether it is subsequently measured at
cost or at fair value and if the changes in fair
2.11 Accounting for leases
Where the Company is the lessee
value of instruments are reported in the income
statement or directly in equity.
Leases of assets under which all the risks and
benefits of ownership are effectively retained
Evidence of impairment in investments
by the lessor are classified as operating leases.
The Company treats available for sale equity
Payments made under operating leases are
investments as impaired when there has been a
charged to the statement of income on a
significant or prolonged decline in their fair
straight-line basis over the period of the lease.
value below cost or where other objective
evidence of impairment exists. The determina-
2.12 Foreign currencies
tion of what is �”significant”�or �”prolonged”�
Transactions in foreign currencies are translated
requires considerable judgment.
into Kuwaiti Dinars at the rate ruling at the date
of transaction. Monetary assets and liabilities
Contingent liabilities
denominated in foreign currencies are trans-
Contingent liabilities are potential liabilities
lated into Kuwaiti Dinars at the rate of
that arise from past events whose existence will
exchange ruling at the balance sheet date. The
be confirmed. Provisions for liabilities are
9
Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
recorded when a loss is considered probable and
can be reasonably estimated. The determination
of whether or not a provision should be
recorded for any potential liabilities is based on
management’s�judgment.
Estimation uncertainty
The key assumptions concerning the future and
other key sources of estimation uncertainty at
the balance sheet date, that have a significant
risk of causing a material adjustment to the
carrying amounts of assets and liabilities within
the next financial year are discussed below:
Accounts receivable
The Company estimates an allowance for doubtful
receivables based on past collection history and
expected cash flows from debts that are overdue.
Valuation of unquoted equity investments
Valuation of unquoted equity investments is
normally based on one of the following:
• the expected cash flows discounted at current
rates applicable for items with similar terms and
risk characteristics;
• recent arm length market transactions;
• current fair value of another instrument that is
substantially the same; or
• other valuation models.
The determination of the cash flows and
discount factors for unquoted equity investments requires significant estimation.
10
Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
3. Cash and bank balances
Cash and bank balances include the following cash and cash equivalents.
2006
Cash on hand and at banks
Short-term deposits with banks with original maturities of less than three months
225,300
9,588,385
9,813,685
The bank has a lien on the term deposits of KD 6,613,090 for the term loan no. I and II granted by them (See Note
10). The effective interest rate on short-term deposits as of 31 December 2006 was 6.8% per annum.
4. Investments at fair value through profit or loss
Local listed equities
Foreign listed equity
2,079,000
1,254,542
3,333,542
5. Trade and other receivables
Due from Kuwait Clearing Company
137,526
Due from directors
26,691
Accrued income
63,420
Refundable deposits
20,492
Others
143,937
392,066
6. Investments available for sale
Foreign unlisted equities
3,551,635
3,551,635
Foreign unlisted equities include KD 1,091,130 being the Company’s�share of funding collectively
provided by all the shareholders of the investee Company. It has been classified as an equity instrument
since there is no interest and no contractual obligation for its repayment.
7. Investments in associates
On 30 May 2006, the Company acquired 50% shares in Al Shamel International Holding Company K.S.C.C.,
Kuwait (Al Shamel) with a fair value of KD 2,819,528 for KD 2,250,000 and later transferred 2.5% to related
parties. The negative goodwill of KD 569,528 is recognized in the statement of income under �’other income’.�
On 26 December 2006 the Company agreed with a third party to establish a real estate development
company Al Oula Towers Company W.L.L. (Al Oula) in the Kingdom of Saudi Arabia with a capital of Saudi
Riyals 1 million. The Company owns 40% of the shares in this newly established entity.
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Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
2006
Movements in investments in associates are as follows:
Capital contribution/ acquisition of associates
5,759,072
Share of profit for the period
933,281
Net exchange differences
(6,375)
Closing balance
6,685,978
Summarized financial information of associates is as follows:
Assets
2006
18,342,394
Liabilities
2,953,166
Revenue
5,921,446
Net profit
2,459,989
8. Investments in unconsolidated subsidiaries
Percentage of
Ownership
2006
Al Bareeq International W.L.L., Kuwait
100 %
7,500
Al Diwan International W.L.L., Kuwait
100 %
7,500
Al Rawdatain W.L.L., Kuwait
100 %
7,500
Al Danah International W.L.L., Kuwait
100 %
7,500
Al Badiyah International W.L.L., Kuwait
100 %
7,500
37,500
These are Kuwaiti limited liability companies incorporated in 2006 and are carried at cost since they are
not material to the Company�financial statements.
9. Trade and other payables
2006
Accounts payable
170,551
1,355
Payable to Kuwait Foundation for Advancement of Sciences
Accrued expenses
104,940
Other payables
362,500
639,346
10. Term loans
This represents three Kuwaiti Dinar loans availed
from a local bank as follows:
Effective rate of
interest per annum
2006
Loan I
8.75 %
3,134,784
Loan II
8.75 %
2,906,900
Loan III
9.25 %
1,125,000
Loans I and II are secured by fixed deposits at 110% of the loan amounts and are repayable in January 2007
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Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
Loan III is secured by the Company’s�47.5% investment in an associate - Al Shamel. This loan is repayable in three annual installments of KD 375,000 each starting from 30 June 2007. The first installment
of KD 375,000 due on 30 June 2007 is shown under �’current liabilities’.
�
11. Share capital and reserves
Share capital
The authorized, issued and paid up capital of the Company comprises of 150,000,000 shares of 100 fils each.
Legal reserve
In accordance with the Commercial Companies Law and the Company’s�Articles of Association, 10% of the
net profit has been appropriated as legal reserve. The legal reserve can be utilized only for distribution of
a maximum dividend of 5% in years when retained earnings are inadequate for this purpose.
Voluntary reserve
The Company’s�Articles of Association stipulates that the Board of Directors may propose appropriations to
voluntary reserve for shareholders’�approval. The Board of Directors has not proposed any appropriations to
voluntary reserve in 2006.
12. Share-based compensation plan
The Company‘s�shareholders approved an Employee Share Option Plan (ESOP) for its senior executive management
in the Annual General Assembly meeting of 18 December 2006. The plan however is subject to the approval of the
Ministry of Commerce. The plan is equity settled and there are no cash settlement alternatives. The Company has
granted 1,575,000 options at an exercise price of 100 fils per share on 1 January 2006. The ESOP is not material to the
Company and therefore full disclosure of the plan has not been made in the financial statements.
13. General and administrative expenses
2006
Legal and other professional fees
117,097
Office rent
118,773
Advertising
21,517
Insurance
17,045
Subscription
18,289
Travel
11,987
Others
46,722
351,430
14. Related party transactions
The Company has entered into transactions with related parties on terms approved by management. Transactions and balances with related parties (in addition to those disclosed in other notes) are as follows:
13
Notes to the financial statement
31 December 2006 - ( Kuwaiti Dinars )
Key management compensation
2006
Salaries and other short term employee benefits
195,312
Other long term benefits
11,507
15. Fiduciary assets
The Company manages portfolios on behalf of third parties and maintains securities in fiduciary accounts which are not
reflected in the Company’s�balance sheet. Assets under management at 31 December 2006 amounted to KD 4,072,000.
16. Financial instruments, risk management and fair values
The Company’s�use of financial instruments exposes it to a variety of financial risks such as credit risk, market
risk and liquidity risk. The Company continuously reviews its risk exposures and takes measures to limit it to
acceptable levels. The significant risks that the Company is exposed to are discussed below:
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation causing the other
party to incur a financial loss. Financial assets, which potentially subject the Company to credit risk, consist principally
of bank balances and trade and other receivables. The Company’s�bank balances are placed with financial institutions of high credit rating and transacting principal business with counter parties of repute.
Market risk
Market risk, comprising of price risk, interest rate risk and currency risk arises due to movements in market
prices of assets, interest rates and foreign currency rates. The Company manages market risk by setting
limits on exposures to investments, currency and counterparty and transacting business in Kuwaiti Dinars
and other major currencies with counterparties of repute.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its funding requirements. The Company manages this risk by monitoring on a regular basis that sufficient funds are available to meet
maturing obligations.
Fair value
Fair value represents the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s�length transaction. The fair values of financial instruments
carried at amortised cost are not significantly different from their carrying values.
14