His Majesty Sultan Qaboos Bin Said

Transcription

His Majesty Sultan Qaboos Bin Said
Co ntents
Philosophy
4
Chairman’s Report
5
Board of Directors
9
Report on Corporate Governance
10
Management Team
17
Management Discussion & Analysis Report
18
Auditor’s Report
25
Statement of Financial Position
26
Statement of Comprehensive Income
27
Statement of Changes in Equity
28
Cash Flow Statement
29
Notes
30
3
Philosophy
Our guiding philosophy is a system of fundamental beliefs and principles of our business. Our statement of the corporate philosophy
attempts to capture the essence.
We believe
We believe the purpose of our business is to create superior value for all our Stakeholders with Increased profitability that reflects the
positive aspects of effective corporate governance and evolve a culture that brings out the best in our employees, through empowerment
and sell-realization.
What we want to be
Al Omaniya Financial services’ mission is to be the best financial services company through ethics and excellence today and tomorrow.
What we want to do
It is the sum of our decision about what we will do to achieve our mission in the environment we operate. Our strategy is to position the
company as a specialized financial services company, which will serve select markets and optimize the productivity of our capital base.
The principal components of our strategy are...
Specialized financial services company
The provision of financial services to consumers and corporate customers is the principal set of skills, which combine our activities. The core
competency of our people is to put to test into areas where our skills are compatible with the requirements for success.
Which will serve select markets
The ability to identify potential markets where a sustainable advantage can be created is another concept in our strategy. When selecting
markets, we choose the ones where we believe we have or can establish sustainable competitive advantages based upon a dedication to
customer service, responsive decision-making and product innovation.
Optimize the productivity of our capital base
Balancing growth between businesess that requires us to carry assets and business that produce additional revenues and profits without
adding to asset size. This produces a large stream of revenue and profits from a given capital base than a strategy focused principally on
asset growth.
The environment in which we operate changes constantly. Customer needs and expectations evolve in new directions. We review our
strategies and remain flexible to prosper and grow in the years to come.
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Chairman’s Repo rt
It is my pleasure, on behalf of the Board of Directors, to present our 12th Annual Report, for the year ended 31st December 2009.
Current Economic Scenario
The acute phase of the financial meltdown has passed and the global economic recovery is underway both in the United States and
worldwide due to the unprecedented fiscal stimulus and financial rescue efforts by the governments and the central banks. The world
succeeded in avoiding large-scale contagion effects, including sovereign debt crisis, competitive exchange rate devaluations and trade wars.
The latest IMF’s World Economic Report projects a modest but optimistic world output growth rate of 3.1% in 2010 as compared to 1.1%
contraction in 2009, supported by the fundamentally strong emerging economies.
In the year 2009, the Omani economy has been relatively resilient to the global slowdown and managed to clock a 3.7% growth in the Gross
Domestic Product despite low oil prices and subdued capital flow. Increased oil production rates and continued infrastructure spending along
with the favorable monetary policies helped in boosting investment and domestic demand and in taming the ill effects of the financial crisis.
5
For the year 2010, the country has budgeted an ambitious layout of RO 7.18 billion, an increase of 11.8% over the previous year. The
budgeted increase in investment expenditure for 2010 is 10.9%. The number of development projects and the encouraging oil prices, provide
stability to the economy which is expected to record a growth rate of 6.1% at constant prices in the year ahead.
Financial Highlights
In the year 2009 the company achieved moderate growth in earnings and profitability despite the limited offtake. The company has
achieved a profit after tax of RO 3.753 million as compared to RO 3.302 million in the previous year, resulting in a growth of 13.65%.
The company’s net installment finance receivables stand at RO 114.5 million against RO 119 million in the previous year, with a marginal
decline of 3.76%. The total assets size as of 31st December 2009 is RO 116.86 million. Given the economic climate, as a matter of abundant
precaution, the company consolidated its position and focused on asset quality and house keeping rather than on aggressive growth.
The company has provided RO 503,000/- towards allowance for impairments, for the year 2009. The total provision against impairment
stands at RO 5.434 million as of 31st December 2009. During the year, the bonds were converted into equity and with this the company’s
net worth stood at RO 33.923 million by Dec 2009. The company emerges as the largest NBFC in terms of assets size and net worth.
The company continues to manage its treasury dynamically with a mix of borrowing instruments, enhancing the facilities, successfully
renegotiating the prices competitively and realigning the maturities despite the volatility in the cost of funds and the tight credit market. The
company had no cash flow distress, or serious deterioration in its asset quality, or any liquidity crunch during the year.
Proposed Dividend
It is our intention to continue the sustainable and progressive dividend policy that the company has followed since inception. Your directors
have proposed a dividend of 25% for the year 2009 comprising 15% cash and 10% bonus stock bonds with face value of RO 1.000 (subject
to the approval at the AGM), thus maintaining its track record of paying consistent dividends without interruption since inception. The bonus
stock bond will be paid from the share premium reserve and will carry an annual coupon rate of 5.5% payable semi-annually and will be
unsecured and listed on the Muscat Securities Market. The bonus stock bonds will be compulsorily converted into specific number of equity
shares at the end of 24 months from the date of allotment at 80% of the weighted average closing price of the company’s equity traded
on the Muscat Securities Market over the preceding three months prior to the record date of such conversion, subject to a minimum 100%
of the book value as per the audited accounts of the company for the immediately preceding financial year of the company. This takes
the cumulative dividend paid to shareholders to 228% since inception.
Capital Enhancement
During the year 2009, the company’s bonds got converted into fully paid up equity shares. The equity capital of the company stands at RO
15,557,787/- as of 31st December 2009. In order to comply with the Central Bank of Oman’s requirement of minimum paid up capital of
RO 20 million by 2012, and to ensure funds for the long term growth and expansion needs, the company is in the final stage of raising
partly convertible bonds of RO 20 million subject to the approvals of the shareholders and regulatory authorities. I thank the shareholders
for their support and confidence reposed in the company.
Concerns
Diminishing margins due to intense competition, increase in the cost of funds and higher delinquencies due to reduced cash flow at the
individual borrower level are causes of concern. The impact of the credit crunch and slow recovery could see increase in delinquencies
resulting in dilution of the NPA coverage.
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Prognosis
We foresee a challenging yet optimistic year ahead, given the expected economic turn around and the positive economic indicators. The
company is very well poised to take advantage of the new spurts given the right capital structure, high net worth, free leverage and fresh
funds.
In addition to maintaining the good performance of the retail and corporate portfolios, the company has plans to diversify and concentrate
more on good quality business in the new product lines like working capital, bridge loans, debt factoring , bills discounting and project
and construction loans.
Acknowledgement
On behalf of the company and the Board of Directors, I would like to express my deep gratitude to His Majesty Sultan Qaboos bin Said for
his vision and leadership, which is taking the Sultanate on the new path of development and prosperity.
We are also grateful to the Central Bank of Oman, Capital Market Authority and other regulatory authorities for their guidance and support.
We also thank our shareholders, bankers, dealers and customers for their continued trust, confidence and support. Last, but not the least,
we acknowledge the dedication and commitment of the management and staff of the company.
Khalid Said Al Wahaibi
Chairman
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8
Boards of Directo r s
Khalid Said Salim Al Wahaibi
Chairman of Board
& Chairman of Audit Committee
Shk. Khalid Mustahil Ahmed Al Mashani
Deputy Chairman, Chairman of
Executive Committee
Shk. Hamood Mustahil Ahmed Al Mashani
Director
Zaki Hassan Ihsan Al Naseeb
Director
K.K. Abdul Razak
Director
Ibrahim Said Salim Al Wahaibi
Director
Saleh Nasser Aboud Al Habsi
Director
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Report on Corporate Governance for the Year ended 31st December 2009
COMPANY PHILOSOPHY ON CORPORATE GOVERNANCE
The Company has adopted the Corporate Governance framework introduced vide CBO circular no. BM/932 dated 4 February 2002, CMA
regulations vide CMA circular no. 11/2002 and Capital Market Authority Administrative Decision No.5/2007. Good corporate governance is
about commitment to ethical business standards, culture and ensuring that adequate standards exist to promote such behaviour through out
the organisation by a pro-active governance culture that has consistently adopted industry leading standards.
Al Omaniya Financial Services SAOG Board upholds the highest ethical, moral and legal standards and emphasis quality, transparency,
integrity and honesty in all its dealing with strategic and business partners which are critical to our ongoing success and enhancement of
all stakeholders’ value on a long term.
BOARD OF DIRECTORS
Al Omaniya Financial Services SAOG Board is an active well-informed and independent Board consisting of seven members all of them being
non-executive and independent directors. The members were elected to Board at the Ordinary General Meeting held on 15 March 2009, for
a term of 3 years ending 15 March 2012. The Board members are qualified and experienced professionals and businessmen, who provide
effective guidance, motivation and broad based frame work, which enable the organisation to perform at high standards.
The main responsibilities of the Board are to oversee the corporate strategies, review performance, ensure regulatory compliance and
safeguard the interest of the shareholders.
BRIEF PROFILE OF THE BOARD OF DIRECTORS
Mr. Khalid Said Al Wahaibi, Chairman, has a Degree in Business Administration: International Business and majored in Arts & Political
Science both through Pacific Lutheran University, Tacoma, Washington, USA with an experience of more than 15 years in several senior
management positions in a large conglomerate business group. He is also on the board of National Gas Company SAOG.
Sheikh Khalid Mustahail Ahmed Al-Mashani, Deputy Chairman, is a Graduate in Economics and Masters in International Bounderies.
He is also on the board of joint stock companies including the Deputy Chairman of Bank Muscat.
Mr. K.K. Abdul Razak, Director, has Masters Degree in Economics and has an experience of more than three decades in senior
management position. He holds directorship in various joint stock companies including Bank Muscat.
Mr. Ibrahim Al Wahaibi, Director, has a Degree in Bachelor of Business Administration through University of San Diego, California, USA
with an experience of more than 13 years in various senior positions in a large conglomerate business group.
Mr. Saleh Nasser Aboud Al Habsi, Director, is MBA and M.Sc. in Finance both from University of Maryland of College Bark (USA), BSBA
and BA from Boston University (USA) and the Director of MOD Pension Fund having 19 years experience in the Financial sector. He is also
on the board of joint stock companies including National Bank of Oman.
Mr. Zaki Hassan Al Naseeb, Director, is MBA from University of Salford (UK) and BSBA from Western International University (UK). He
works in the finance department with Ministry of Defence. He also holds directorship in various joint stock companies.
Sheikh Hamood Mustahail Ahmed Al-Mashani, Director, has a Diploma in Management from Kent University and Business & Economics
from Yermuk, Jordan and is the CEO of Muscat Overseas LLC. He also holds directorship in various joint stock companies including Deputy
Chairman of Bank Dhofar.
BRIEF PROFILE OF TOP MANAGEMENT WITH EXECUTIVE POWERS
Mr. Aftab Patel, Chief Executive Officer, is a Commerce Graduate and a Chartered Accountant with an experience of over 2 decades in
several areas of banking, financial services, investments and general management. He was associated with reputable organization like A. F.
Ferguson & Co. and ‘Associated Cement Co.’ in India. In Oman he was involved with a major corporate group and with a leading commercial
bank as a profit centre head. He is head of the company since inception.
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Mr. Salim Al Awadi, General Manager is a management accountant and MBA from University of Lincoln, with a rich experience in banking,
oil and gas.
Mrs. Latha Ramakrishnan, Assistant General Manager – Operations & Risk Management is a Cost Accountant and has worked with the
company for the last 10 years in various capacities including Chief Accountant, Finance Manager and also co-ordinated in the company’s
new IT system.
Mr. Braik Al Amri, Assistant General Manager – Products & Services is a post graduate diploma holder in terminal management and
has been with the company since November 2007. He has 10 years of experience in senior position.
Details of the Board members, whom they are representing and details of their directorship in other SAOG companies excluding Al Omaniya
Financial Services are set out in Table I
No. of meetings attended
Attendance at
the last AGM
Board
Executive
committee
Audit
committee
Number of
directorship in
other public
companies
Mr. Khalid Said AlWahaibi, Chairman,
representing Assarain Enterprise LLC
Yes
5
-
2
1
Sheikh Khalid Mustahail Al Mashani,
Deputy Chairman, representing himself
Yes
4
3
-
3
Mr. Ibrahim Said Al Wahaibi, Director
representing himself
Yes
3
1
3
-
Mr. Zaki Hassan Al Naseeb
Yes
5
-
4
3
Mr. K. K. Abdul Razak, Director
Yes
5
3
5
3
Mr. Saleh Nasser Aboud Al Habsi, Director
representing MOD Pension Fund
Yes
5
3
-
2
Sheikh Hamood Mushtahil Al Mashani, Director,
representing Gulf Investment Services SAOG
No
3
2
-
3
TABLE I
BOARD MEETINGS
The meetings are generally scheduled in advance and the notice of each Board meeting is given in writing to each director. The Board
meets at least 4 times in a year with a minimum gap of 4 months between the meetings. The Company’s management, in consultation
with the Chairman prepares the detailed agenda for the meeting. The CEO functions as the Board’s secretary. The Board papers and other
explanatory notes are circulated well in advance. The Board has complete access to all information of the Company.
During the year under review, the Board met 5 times. The meetings were held on 11 February, 15 March, 09 June, 28 September and 13
December 2009.
The attendance of each director at the last AGM and Board meetings is set out in Table - I.
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BOARD COMMITTEES
EXECUTIVE COMMITTEE
The Executive Committee consists of five Directors, who are appointed by the Board. It is chaired by an independent director, who is
nominated by the Board. The Executive Committee takes decisions on matters concerning the operations of the Company as per the powers
conferred on them by the Board. The minimum quorum is 3 members and the committee functions within defined terms of reference and
the minutes of the committee meetings are circulated and discussed with the Board.
The Committee Chairman is Sheikh Khalid Mustahil Al Mashani and other members are Mr. Ibrahim Al Wahaibi, Mr. K. K. Abdul Razak, Mr.
Saleh Nasser Al Habsi and Sheikh Hamood Mustahail Al Mashani. Sheikh Hamood was appointed as a member of the Executive Committee
effective 15th March 2009.
The Committee met 3 times during the year 2009 on 26 April, 28 September and 11 November 2009. The number of meetings attended
by the members are set out in Table - 1.
AUDIT COMMITTEE
The Audit Committee consists of four independent and non-executive directors, who are appointed by the Board.
The Audit Committee is constituted in accordance with the provisions of the Corporate Governance requirement.
The Committee Chairman is Mr. Khalid Said Al Wahaibi and other members are Mr. Zaki Hassan Al Naseeb, Mr.Ibrahim Al Wahaibi and
Mr.K.K. Abdul Razak. Mr. Khalid Al Wahaibi was nominated to the Audit Committee as the Chairman effective 15th March 2009 and before
his nomination Mr. Zaki Hassan Al Naseeb was holding this position.
All the members of the Audit Committee are qualified and experienced in the fields of finance and accounts. The quorum for the Audit
Committee is two members. The Committee meets at least 4 times in a year. The working plan of the committee is approved by the Board.
The terms of reference of the Audit Committee are as per the Annexure 3 of the code of Corporate Governance.
The Audit Committee met 5 times during the year 2009 on 11 February, 14 April, 29 July, 20 October and 28 December 2009 and the number
of meetings attended by the members are set out in Table - 1.
INTERNAL CONTROL
The Audit Committee, on behalf of the Board has regularly reviewed the internal control environment of the Company. The scope of internal
audit is to obtain sufficient knowledge of specific business, risks and control status within the company, obtain sufficient data to support the
risk assessment of the company, review of the economy, efficiency and effectiveness of operations and of the internal controls and identify
and test the key internal controls.
The Audit Committee has met the internal auditors during the year to review the internal audit reports, recommendations and management
comments thereupon. They have also met the external auditors to review audit findings and management letter. The Audit Committee
has also met the internal and external auditors in absence of management as required under the code of Corporate Governance. The
Audit Committee has further briefed the Board on a quarterly basis at the board meeting about the effectiveness of internal controls in the
company. The Audit Committee and the Board are pleased to inform the shareholders that an adequate and effective internal control system
is in place and that there are no significant concerns.
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Process of Nomination Of Directors
The formation of the Board of Directors is subject to the provision of the Commercial Companies Law and as per CMA directives.
REMUNERATION MATTERS
During the year 2009, the Directors were paid sitting fees for the Board meetings, Executive Committee meetings and Audit Committee
meetings, fees paid to each director is as follows –
Director
Sitting Fees in RO
Mr. Khalid Said Al Wahaibi
4,000
Shiekh Khalid Musthail Al Mashani
3,900
Mr. Ibrahim Al Wahaibi
3,800
Mr.Saleh Nasser Aboud Al Habsi
4,500
Mr. K.K. Abdul Razak
7,000
Mr. Sheikh Hamood Mustahail Al Mashani
2,800
Mr. Zaki Hassan Ihsan Naseeb
5,000
The Board has proposed RO.125,564 as Directors’ Remuneration subject to the approval of the Shareholders at the AGM.
The gross remuneration paid to the top 5 officers of the Company including variable components, traveling expenses outside Sultanate of
Oman and cost of local transport during the year 2009 was RO.880,674
The severance notice period for these officers ranges from one to three months with end of service benefits payable as per Omani Labour
Law.
DETAILS OF NON-COMPLIANCE BY THE COMPANY
The Company has complied with all the regulatory requirements during the year 2009.
MEANS OF COMMUNICATIONS WITH THE SHAREHOLDERS
Al Omaniya Financial Services SAOG has 304 shareholders; most of the major shareholders are institutional investors. The main channel of
communication is through the annual report, which is mailed to them well before the AGM. The quarterly and annual results of the Company
are published in both the Arabic and English newspapers. Quarterly results are mailed to the shareholders based on their request.
The AGM is the principle forum for face-to-face communication with the shareholders and the Company. The Board acknowledges its
responsibilities towards the shareholders and encourages open dialogue with them, whenever approached. The Company is in the process
of developing its web site.
Management Discussion and Analysis is given as part of annual report, which assures the fair presentation of the financial statements.
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COMPULSORILY CONVERTIBLE BONDS
In 2007, the company issued compulsorily convertible bonds on rights basis amounting to RO. 7.70 million. The bonds have been converted
into 3,567,321 equity shares at the end of two years i.e. in July 2009. After this conversion, the total equity capital of the Company is RO
15,557,787
MARKET DATA
a)The monthly high/low price of Company’s share during the year 2009 and performance in comparison to MSM banking sector index
is given in the graph below:
PERFORMANCE OF COMPANY COMPARED WITH BANKING SECTOR INDEX
3.200
16000
2.800
14000
2.400
12000
2.000
10000
1.600
8000
1.200
6000
0.800
4000
0.400
2000
AOFS SHARE HIGH PRICE
AOFS SHARE LOW PRICE
BANK SECTOR INDEX HIGH
BANK SECTOR INDEX LOW
0.000
0
Jan-09
b)
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
The distribution of Shareholding is as under:
15
MAJOR SHAREHOLDERS AS ON 31 DECEMBER 2009
Sl.No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
285
304
Shareholder Name
Muscat Overseas
HSBC - Ministry of Defence Pension Fund
Assarain Enterprise LLC
Al Taman Trading Establishment
Gulf Investment Services
Bank Muscat & Trust
Al Ahlia Insurance Co.
Dharamsey Nensey
Hassan Ihsan Naseeb
Civil Service Pension Fund
National Life Insurance Co.
Al Saoud Limited
Oman Arab Bank Trust
National Shares Investment Fund
Public Authority for Social Insurance
Royal Court Affairs
ROP Pension Fund
Qais Al Omaniya Establishment
Haitham Awadh Bakhit Al Amri
Sub-Total
Other Shareholders
TOTAL
Number of Shares
Percentage
2,433,268
1,733,936
1,337,411
1,116,171
729,000
752,747
345,950
630,694
624,985
1,614,088
340,351
286,907
360,176
246,208
378,415
263,471
241,516
303,216
245,612
13,984,122
1,573,665
15,557,787
15.64
11.15
8.60
7.17
4.69
4.84
2.22
4.05
4.02
10.37
2.19
1.84
2.32
1.58
2.43
1.69
1.55
1.95
1.58
89.88
10.12
100.00
Professional Profile of the statutory auditor
Ernst & Young is one of Oman’s oldest established accounting firms, having had a permanent office in the country since 1974. The practice
comprises one hundred and eighty professionals, and is working under the direction of three partners.
The Oman office forms part of Ernst & Young’s Middle East practice, with over 135 partners and nearly 5,700 other professionals in 23 offices
in 17 countries throughout the region.
The Middle East practice is member firm of Ernst & Young Global, operating in more than 140 countries with approximately 144,000
personnel world-wide.
The audit and other professional fees for the financial year 2009 is RO 11,000
The Company has prepared the financial statements in accordance with the applicable standards and rules and it has also complied with
the provisions of the Corporate Governance and has reported it as per reporting requirements of Capital Market Authority. The Board hereby
acknowledges that there is no material things that affect the continuation of the company and its ability to continue its operations during
the next financial year.
KHALID SAID AL WAHAIBI Chairman AFTAB PATEL
Chief Executive Officer
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Management Team
Management Team
Aftab Patel
Salim Abdullah Al Awadi
General Manager
Latha Ramakrishnan
AGM - Operations and Risk Management
Braik Musallam Al Amri
AGM - Products and Services
A. K. Mukundan
Manager - Remedial Credit and Collection
A. Raj Kumar
Manager - Corporate Credit
S. Chandrasekar
Finance Manager
Mohammad Ibrahim Abdulla
Manager - IT
Abdulla Al Houqani
Manager - Personnel and Administration
M.V.V. Ram Kumar
Manager - Retail Credit
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MANAGEMENT DISCUSSION
AND
ANALYSIS REPORT
18
management discussion and analysis report
Overview
Al Omaniya Financial Services (AOFS) has completed thirteen
years of successful operations in the leasing and financial
services industry. Over its tenure of 13 years, the company
has established a strong market presence and good systems
and processes through its experience, and has crossed many
significant milestones. It continues to demonstrate its excellence
in its business strategies as a leading player in the country by
offering a range of products and services.
related notes appearing elsewhere in this report.
The following discussion and analysis provides information
that the management believes, is useful in understanding
AOFS’s operating results and financial position. The discussion
is based on AOFS’s continuing operations and should be read
in conjunction with our consolidated financial statements and
Certain statements in the MD&AR describing the company’s views, objectives, projections, estimates, expectations, etc. may be extrapolative
within the ambit of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors
like changes in government regulations, tax laws, interest rates in the domestic and international markets, demand and supply of capital
goods, etc. may influence the company’s operating results.
Economic Overview
The first half of Year 2009 saw a world wide economic crisis and sharp falls in crude prices resulting in fall in demand for capital goods.
However, with specific reference to the Sultanate of Oman which follows an anti cyclical fiscal policy and its conservative, prudent and well
regulated financial sector, the stress and decline was largely contained. The MSM 30 Index was at its lowest level in January 2009. The
government launched an Investment Stabilization Fund in February 2009, which brought back liquidity and investors’ confidence in the
market. Amid the global financial crisis, Oman is one of the few countries which improved its domestic outlook. The continuous oil rally in
the international market and the improvement in commodity markets increased the business activity and corporate spending in the later
part of 2009. We believe that the stable oil prices together with accumulated surpluses gave the region a better prospect to recover than
other nations.
The Oman government is expecting a growth of 6.1% in the Gross Domestic Product in the year 2010 as against a growth of 3.7% during
the year 2009. The government expects a 14% increase in revenue, mainly from oil and gas. There are several developmental projects in
the pipeline for the year 2010 and this will create additional job opportunities.
Finance and Leasing Sector
The business remained subdued during the first six months. Beginning the third quarter, the volumes are showing a growing trend. The
potential for this sector is huge and we expect that the growth will begin to reflect in the growth of assets of the company. In the third
quarter, the personal credit segment has also seen a growth of 10 to 15% and we expect this growth to continue. Further the government
has awarded several infrastructure projects like new airports, seaport, roads, dry docks, etc amounting to around US$ 2 billion.
With reasonable oil prices, growth in the country’s budget, the execution of new projects and reasonable liquidity combined with softening
of interest rates, we believe that the sector will continue to show growth and we maintain extremely positive outlook for the future.
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Opportunities and Threats
The company’s prudent and aggressive provisioning policy has given it an
advantage and the NPA coverage of 229 % will help it in the current economic
scenario to tide over any unforeseen losses.
Assets in HP Financing
140
Figures in RO Million
The company’s core competency is retail and corporate lending. In order to
retain its competitive edge, the company has developed and strengthened its
knowledge of the market and converted this knowledge into superior risk appraisal
mechanisms and has a focused marketing approach towards selected customer
segments especially the corporates. The focus during the year was consolidating
and maintaining asset quality. The company added new credit lines of working
capital loans to large corporate houses. Project financing, working capital and
bill discounting are expected to provide momentum to company’s portfolio in the
coming years.
125
120
100
91
80
60
40
119
64
43
20
0
2005
2006
2007
2008
2009
NBFC’s are permitted a leverage of 5 times the net worth which means a capital adequacy of 20%. NBFC’s cannot grow on the strength of
deposits as deposits are considered as part of leverage. This requires constant infusion of capital into the business and therefore could limit
growth unless supported by inflows of fresh capital.
The fiscal and economic policies of the government for the coming year 2010 are encouraging with increased oil revenues. The increased
public spending on infrastructure will boost the growth both in economy and employment.
However, shrinking cash flows and reduced liquidity could increase delinquencies and could require higher provisioning levels.
The company has over the period, planned the necessary human resources, enhanced the capital base and developed new IT systems for
profiting from the business opportunities that will arise.
The intense unhealthy competition created by the players outside the industry contributes to the continuing decline in the yields bringing the
bottom line under severe pressure.
Changes in the laws and regulations, including their interpretation or implementation could affect the company’s financing opportunities and
may limit the products or services it can provide.
The company is properly geared up and confident to meet the challenges and exploit the available opportunities for a profitable and
sustained growth.
Product Wise Performance
The company is primarily engaged in retail and corporate asset financing, offering a variety of specialised finance products under the
brand name ‘Lifeline’ for self employed, salaried individuals, transport operators, small and large businesses.
During the year, the company consolidated its position in the leasing segment and realigned its product mix by widening its base of
small and big corporates. It regularly monitors the product mix to ensure a balanced risk portfolio, maximising the returns.
The ‘Lifestyle’ loan segment (micro credit program) continues to do well and the company is in the process of extending the network
and expanding the customer base. The company launched this product at the Sohar branch also to cater to the customers of the Sohar
region.
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Our service has the unique attributes of speed, transparency, quick response,
empathy, understanding customer concerns and ethical fair practices. We
endeavour to build products and services around customer needs. Our
deliverables of simple documentation, quick credit approvals, competitive
interest rates and other value added services have created a large satisfied
clientele for the company.
Net Proﬁt
4
3.5
The company foresees changes in the product lines and plans to develop
working capital, bills discounting and project finance as other revenue streams
and the company hopes to have 20 to 25% of its total assets in these products.
The company has already conducted an initial market survey and has also
written some business on these products. This should allow much more
portfolio diversification and reduce the maturity mismatch as the tenure of this
product is short to medium term.
3.8
3.3
3
2.5
2
1.5
2.2
1.6
1.8
1
0.5
0
2005
2006
2007
2008
2009
Risks and Concerns
Managing risks means understanding the static and dynamic risks involved in our businesses and assessing the potential impacts and
likelihood of each risk. The overall risk governance framework of the company includes strong corporate oversight, independent audit
function and well laid down policies and processes. The company is exposed to strategic risk, credit risk, liquidity risk and interest rate risk.
Strategic Risk
Strategic risk is the potential for loss arising from ineffective business strategies, the absence of integrated business strategies, the
inability to implement those strategies, and the inability to adapt the strategies to changes in the business environment.
The company’s overall strategy is established and approved by the Board in consultation with the Management and the Senior Executive
Team. The most significant strategic risks faced by the company are identified, assessed, managed and mitigated by Senior Management,
with oversight by the Board.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and will cause the other party to incur a
financial loss.
The company attempts to control credit risk by setting limits for individual borrowers, monitoring credit exposures, limiting transactions with
specific counter parties and assessing continually the creditworthiness of counter parties.
The default risk for the company is at an acceptable level. The company has substantially lowered its NPA percentage and has one of the
lowest NPA levels in the industry.
Liquidity Risk
Liquidity risk is the risk that the company will be unable to meet its liabilities when they fall due. The business of lending has an inherent
risk of liquidity arising from the mismatch of tenure of funds borrowed Vis a Vis lent, in addition to unforeseen adverse recovery patterns.
To limit the liquidity risk, the Management through their carefully drawn up strategies, has diversified sources of funds, avoids undue
concentration on a single lender, periodically reviews cash flows and manages its collection in a systematic manner.
21
Interest Rate Risk
The company manages this risk by matching the re-pricing of assets and
liabilities through risk management strategies.
Internal Control and Adequacy
The company believes that Internal Control is a necessary concomitant
of the principle of governance and has made conscious efforts to ensure
quality in its deliverables and processes.
Net Worth
40
33.9
35
Interest rate risk arises from the possibility that changes in interest rates
will affect future profitability or the fair values of financial instruments.
The company is exposed to interest rate risk as a result of mismatches
or gaps in the amounts of assets and liabilities and off balance sheet
instruments that mature or re-price in a given period.
30
24.9
25
20
15
10
11.6
12.1
13.1
2005
2006
2007
5
0
2008
2009
The company has Board committees and Management committees,
which are charged with strategic decision making, efficient and effective
operations of the company and ensuring that good corporate governance policies, conforming to regulatory requirements are in place.
The company has a well defined organization structure, clearly defined authority levels well documented policies and guidelines approved
by the Board and good inhouse IT systems to ensure process efficiency.
The company has put in place a mechanism to minimise operational risk by way of effective Internal Control Systems, Systems Review and
an on–going Internal Audit programme. The company has a well balanced In house Internal Audit department and the internal auditor
undertakes comprehensive audits and reports directly to the Audit Committee of the Board. The Audit Committee of the Board reviews the
internal audit reports, the adequacy of the internal controls and reports on the same to the Board.
Financial Performance 2009
Operational Performance
The year 2009 saw the company as emerging the largest NBFC in terms of asset size, profit, EPS, net worth and market capitalisation. Looking
back, we take pride in the achievements of the company as a leading player in the industry with strong fundamental ratios, in earnings,
yields, assets and lowest NPA’s. Today’s position has been achieved with careful planning and clear strategies, supported by sound vision
and guidance by the Board.
Following the aggressive growth in the last 2 years, the company consolidated its growth in the first six months of the year 2009 in view
of the difficult economic environment. In this period the company focussed on asset quality and house keeping rather than on aggressive
growth without affecting its top or bottom line. The company did not experience cash flow distress, liquidity crunch or serious deterioration
in its asset quality. In fact the company has made more than adequate cash surpluses during the year.
During the first half of the year 2009, the company’s strategies were directed towards
Consolidating its position
Retaining its market share from a smaller demand pool
Maintaining the earnings.
Focusing on remedial credit and collection
22
From the beginning of the third quarter of 2009, as the economic climate showed some improvement, the company’s focus included:
Good quality business volumes
Introducing new product lines.
Enhancing the credit facilities for funding requirements
Raising long term funds for future expansion.
The company’s hire purchase assets were moderately reduced by 3.76% over the last year and stand at RO 114.5 million at the year end.
The gross revenue during the year 2009 grew by 6.9 % and stood at RO 12.508 million as compared to RO 11.7 million in the previous
year. Due to intense and unhealthy competition and increased cost of funds, the spread has come under severe pressure in spite of
which, the company was able to register yet another record profit of RO 3.75 million for the year 2009 producing an earnings per share
of 277 baisas on the increased share capital. The company’s net worth now stands at RO 33.92 million, 36.3% higher than the previous
year. The Book Value / Net Asset Value of the company’s share stands at RO 2.180 per share, which is one of the highest in the industry.
The company has proposed a dividend of 25% (15% cash and 10% stock bonds) for the year 2009 and with this the total payout since
inception works out to 228%. The non-performing loans of the company are under control and the company has more than adequate
provisions as per the Central Bank of Oman’s requirements as well as the requirements of IFRS. Our coverage of non-performing assets
stands at 229%.
Performance review
Details
Total income
Interest expenses
Net Income
Operating expenses
Provision for doubtful debts
Profit before taxation
Taxation
Net profit
Gross HP assets
Less: - Provisions
Net HP assets
Total Assets
Net bank borrowings
Net worth
Earnings per share
Debt Equity ratio (net bank borrowing)
Return on net worth
Provision as a percentage of assets
Dividend %
(in RO ‘000)
2004
4,132
(722)
3,410
(1,189)
(508)
1,713
(202)
1,511
36,994
(4,801)
32,193
38,760
17,675
11,358
0.252
1.56
15.72%
12.98%
20%
2005
4,459
(834)
3,625
(1,265)
(520)
1,840
(224)
1,616
43,261
(5,004)
38,257
42,147
22,948
11,676
0.249
1.97
14.03%
11.57%
21%
Years
2006
5,677
(1,587)
4,090
(1,454)
(525)
2,111
(250)
1,861
64,248
(5,135)
59,113
60,500
36,730
12,175
0.276
3.02
15.66%
7.99%
25.038%
2007
8,313
(2,867)
5,446
(1,965)
(906)
2,575
(302)
2,273
90,947
(5,256)
85,691
88,783
48,035
13,085
0.337
3.67
18%
5.78%
25%
2008
11,700
(3,913)
7,787
(2,572)
(1,467)
3,748
(446)
3,302
124,832
(5,831)
119,001
123,584
65,196
24,890
0.317
2.62
17.40%
4.67%
25%
2009
12,508
(5,269)
7,239
(2,561)
(503)
4,175
(422)
3,753
119,952
(5,434)
114,518
116,861
59,464
33,923
0.277
1.75
13.66%
4.53%
*25%
* Dividend For 2009 (15% cash and 10% bonus stock bonds)
Highlights - 2009
The gross income has grown by 6.9% from the previous year, though the average effective yield on assets has fallen from 10.55%
in the previous year to 10.36% in the year 2009.
23
The net assets have reduced moderately by 3.76%.
The company has made a provision of 7.21% of its net instalment finance income towards doubtful debts and the cumulative
provision including reserved finance interest represents 229% of the gross impaired outstandings.
The cumulative provision for doubtful debts including reserved finance interest stands at RO 5.434 million which is 4.53% of the
gross instalment finance debtors.
Human Resources
Employees are a critical part of our competitive advantage. We have sound Human Resource policies, on and off the job training, counselling
and a scientifically designed reward system, which helps us create a dependable, highly skilled and motivated work force. Our Omanisation
percentage stands at 61.2 %.
Our Customer
AOFS is committed to delivering superior value through a powerful, distinctive branding which ensures better customer retention, better value
and increased business with each customer. Our huge client base stands testimony to this fact.
Capital Structure
During the year the compulsorily convertible bonds issued in 2007 were converted, taking the share capital of the company to RO 15.557
million and the net worth to Ro 33.9 million, the highest in the industry. The company has a sound capital structure giving it the advantage
of huge leveraging ability and at the same time low service cost on the equity capital. This allows for flexibility and trust of lenders,
consistency on earnings and dividends and low cost pricing.
The company has proposed to raise long term funds by issuing partly convertible bonds up to RO 20 million subject to all necessary
approvals. The issue process is in the final stage and the funds will help the company meet its long term capital needs for expansion and
to comply with the minimum capital requirement of Central Bank of Oman.
Future Outlook
The company believes that its integrated business model has provided a solid foundation to the company enabling it to perform effectively
in spite of the present economic scenario.
Given the following strong advantages, the company shall be able to take advantage of the significant growth opportunities with cautious
approach depending upon the general business conditions.
Highly automated and sophisticated business processes and systems to service both individual and corporate clients.
Tie up with all major suppliers of capital goods and automobiles
Ability to attract high quality business and the ability to assume appropriate risk and volume with the well developed credit analysis
and monitoring system in place.
Well established sophisticated automated remedial credit and monitoring system in place.
Ability to offer value added products to the large base of good corporate clients in addition to existing product lines.
The company has developed its infrastructure in the new IT system and continues to develop new processes and innovative operating
methodologies, creating new product lines, strengthening the back office procedures, updating the policy manuals and practising sound
corporate governance.
From inception till date the company has been delivering on its commitment of increasing shareholders’ wealth. It’s a relentless pursuit of
excellence and a commitment to continual improvement. Our endeavor is to constantly seek out new processes, products and efficiencies
aimed at making things better for our customers. Our success is attributable to the dedication of our employees and our continued focus
on keeping commitments to our stakeholders, viz. shareholders, customers and the community. We recognize that we are only as good as
our last commitment and our aim is to build on our heritage of success and to make AOFS, the leading service provider for today and the
next generation.
AFTAB PATEL
24
Statement of Financial position
AT 31st December 2009
Notes
ASSETS
Bank balances and cash
Deposit with the Central Bank of Oman
Instalment finance debtors
Other assets and prepayments
Property and equipment
Deferred tax asset
6
7
8
9
10
5
TOTAL ASSETS
2009
RO
2008
RO
663,260
50,000
114,518,067
149,198
868,341
612,039
2,742,748
50,000
119,000,839
126,375
1,007,329
656,540
116,860,905
123,583,831
33,500,000
12,350,000
26,627,083
9,746,707
713,976
27,450,000
9,600,000
40,539,114
7,701,845
12,620,526
782,510
82,937,766
98,693,995
15,557,787
6,148,576
5,185,929
7,030,847
11,529,294
3,818,055
3,843,098
5,699,389
33,923,139
24,889,836
116,860,905
123,583,831
2.180
2.159
LIABILITIES AND EQUITY
LIABILITIES
Short term loans
Deposits
Term loans
Compulsorily convertible bonds
Other liabilities
Income tax payable
11
12
13
14
15
5
Total liabilities
EQUITY
Share capital
Share premium
Legal reserve
Retained earnings
16
17
18
Total equity
TOTAL LIABILITIES AND EQUITY
Net assets per share
The report of the Auditors is set forth on page 25.
The attached notes 1 to 27 form an integral part of these financial statement.
The financial statements were authorised for issue in accordance with a resolution of the board of directors on 9 February 2010.
Chairman
Director
26
statement of comprehensive income
For the year ended 31 December 2009
Notes
Instalment finance income
Interest expense
NET INSTALMENT FINANCE INCOME
Other income
Operating expenses
Depreciation
Allowance for impairment (net)
3
4
10
8
PROFIT BEFORE TAX
Income tax expense
5
PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2009
2008
RO
RO
12,248,750
(5,269,244)
11,425,315
(3,913,085)
6,979,506
7,512,230
259,691
(2,390,429)
(170,756)
(503,000)
274,920
(2,407,019)
(164,971)
(1,467,000)
4,175,012
3,748,160
(422,402)
(446,179)
3,752,610
3,301,981
Basic earnings per share
20
0.277
0.317
Diluted earnings per share
21
0.277
0.314
There were no items of other comprehensive income applicable for 2008 and 2009.
27
statement of changes in equity
Notes
Balance at 1 January 2008
Issue of bonus shares
Proceeds from rights issue
Dividends paid
Profit and total comprehensive
income for the year
Transfer to legal reserve
Balance at 31 December 2008
Conversion of compulsory
convertible bonds
Issue of bonus shares
Dividends paid
Profit and total comprehensive
income for the year
Transfer to legal reserve
Balance at 31 December
2009
19
16
19
18
14
19
19
18
Share
capital
RO
6,750,000
270,000
4,509,294
-
Share premium
RO
Legal
reserve
RO
Retained
earnings
RO
Total
RO
5,411,153
-
2,250,000
-
4,084,908
(270,000)
(1,417,500)
13,084,908
9,920,447
(1,417,500)
(1,593,098)
1,593,098
3,301,981
-
3,301,981
-
11,529,294
3,818,055
3,843,098
5,699,389
24,889,836
3,567,321
461,172
-
4,134,524
(461,172)
-
-
(2,421,152)
7,701,845
(2,421,152)
(1,342,831)
1,342,831
3,752,610
-
3,752,610
-
6,148,576
5,185,929
7,030,847
33,923,139
-
-
15,557,787
28
statement of cash flows
2009
RO
2008
RO
4,175,012
3,748,160
170,756
(7,536)
503,000
164,971
(144)
1,467,000
4,841,232
5,379,987
3,979,772
(22,823)
(2,873,819)
(446,435)
(34,776,792)
87,656
(1,259,801)
(224,459)
5,477,927
(30,793,409)
(32,732)
8,500
(121,690)
380
Net cash used in investing activities
(24,232)
(121,310)
FINANCING ACTIVITIES
Short term loans (net)
Deposits
Term loans (net)
Dividends paid
Proceeds from issue of right shares
6,050,000
2,750,000
(13,912,031)
(2,421,152)
-
(4,500,000)
5,250,000
23,205,780
(1,417,500)
9,920,447
(7,533,183)
32,458,727
(2,079,488)
1,544,008
2,742,748
1,198,740
663,260
2,742,748
Notes
OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Depreciation
Profit on disposal of property and equipment
Allowance for impairment (net)
10
3
8
Operating profit before changes in operating assets and liabilities:
Other liabilities
Income tax paid
Cash from (used in) operating activities
INVESTING ACTIVITIES
Purchase of property and equipment
Proceeds from disposal of property and equipment
10
19
16
Net cash (used in) from financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
6
29
notes to the financial statements
31st December 2009
1
LEGAL STATUS AND PRINCIPAL ACTIVITIES
Al Omaniya Financial Services SAOG is an Omani General Joint Stock Company, licensed by the Central Bank of Oman and registered under the
Commercial Companies Law of the Sultanate of Oman. The company is engaged in the hire purchase and lease finance for vehicles and other
assets. The Company’s registered office is at PO. Box 1087, Jibroo, Postal Code 114, Muscat, Sultanate of Oman.
The Company operates in the Sultanate of Oman and employed 98 employees as of 31 December 2009 (2008- 93)
2
ACCOUNTING POLICIES
The significant accounting policies adopted are as follows:
2.1
Basis of preparation
The financial statements are prepared under the historical cost convention. The accounting records are maintained in Rial Omani which is
the functional and reporting currency for these financial statements.
2.2
Statement of compliance
The financial statements of the company have been prepared in accordance with International Financial Reporting Standards (IFRS),
applicable regulations of the Central Bank of Oman, applicable requirements of the Commercial Companies Law and the Capital Market
Authority of the Sultanate of Oman.
2.3
Significant accounting judgments and estimates
In the process of applying the company’s accounting policies, management has used its judgments and made estimates in determining
the amounts recognised in the financial statements. The most significant use of judgments and estimates are as follows:
Going concern
The company’s management has made an assessment of the company’s ability to continue as a going concern and is satisfied that the
company has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material
uncertainties that may cast significant doubt upon the company’s ability to continue as a going concern. Therefore, the financial statements
continue to be prepared on the going concern basis.
Impairment losses on instalment finance debtors
The company reviews its individually significant loans and advances at each statement of financial position date to assess whether an
impairment loss should be recorded in the statement of comprehensive income. In particular, judgment by management is required in
the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the
company makes judgments about the borrower’s financial situation and the net realisable value of collateral. These estimates are based on
assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.
Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances
are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to
30
31st December 2009
2
ACCOUNTING POLICIES (Continued)
incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of
data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.), concentrations of risks and
economic data (including levels of unemployment, real estate prices indices and the performance of different individual groups).
Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against
which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be
recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.
2.4
Changes in accounting policy and disclosures
The accounting policies are consistent with those used in the previous financial year, except for where the company has adopted certain
new standards, amendments and interpretations to IFRS.
New standards, amendments and interpretations to IFRS relevant to the company
The adoption of these standards, amendments and interpretations did not have any effect on the financial performance or position of the
company. They did, however, give rise to additional disclosures.
IAS 1 Presentation of Financial Statements
This standard requires an entity to present all owner changes in equity and all non-owner changes to be presented in either in one statement
of comprehensive income or in two separate statements of income and comprehensive income. The revised standard also requires that the
income tax effect of each component of comprehensive income be disclosed. In addition, it requires entities to present a comparative statement
of financial position as at the beginning of the earliest comparative period when the entity has applied an accounting policy retrospectively,
makes a retrospective restatement, or reclassifies items in the financial statements. The company has elected to present comprehensive income
in one statement of comprehensive income.
Amendments to IFRS 7 Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments
The amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements related
to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial
instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance for level 3 fair value
measurements is now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the
requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value
measurement disclosures are presented in note 24. The liquidity risk disclosures are not significantly impacted by the amendments and are
presented in note 27.
IFRS 8 Operating Segments effective 1 January 2009
IFRS 8 replaced IAS 14 Segment Reporting upon its effective date. The Company concluded that IFRS 8 has no major implication on the
financial reporting as the Company operates in finance sector and its operations are confined to the Sultanate of Oman. Related details are
set out in note 22.
31
31st December 2009
2
2.4
ACCOUNTING POLICIES (continued)
Changes in accounting policy and disclosures (continued)
Standards, amendments and interpretations effective in 2009 but not relevant for
company operations are as follows:
The following interpretations of published standards are mandatory for accounting periods beginning on or after 1 January 2009 but are
not relevant to the company’s operations:
IFRS 2
IAS 20
IAS 29
IAS 32
IAS 40
IAS 41
IFRIC 9
IFRIC 15 IFRIC 18 Share-based Payment: Vesting Conditions and Cancellations;
Accounting for Government Grants and Disclosure of Government Assistance;
Financial Reporting In Hyperinflationary Economies;
Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation;
Investment Properties;
Agriculture;
Remeasurement of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement;
Agreements for the Construction of Real Estate; and
Transfers of Assets from Customers
The following standards, amendments and interpretations are not yet effective:
Phase 1 of IFRS 9
On 12 November 2009, the International Accounting Standard Board (IASB) published phase 1 of IFRS 9 Financial Instruments, the accounting
standard that will eventually replace IAS 39: Financial Instruments: Recognition and Measurement. Whilst IFRS 9 is not mandatory until 1
January 2013, entities may adopt for reporting periods ending on or after 31 December 2009. The phase 1 of the standard when adopted
is not expected to have any significant impact on the company’s financial statements.
IFRIC 17 Distributions of Non-cash Assets to Owners
This interpretation is effective for annual periods beginning on or after 1 July 2009 with early application permitted. It provides guidance
on how to account for non-cash distributions to owners. The interpretation clarifies when to recognise a liability, how to measure it and
the associated assets, and when to derecognise the asset and liability. The company does not expect IFRIC 17 to have an impact on the
financial statements.
Other IASB Standards and Interpretations that have been issued but are not yet mandatory, and have not been adopted by the company,
are not expected to have a material impact on the company’s financial statements.
2.5
Summary of significant accounting polices
Revenue recognition
Interest income is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial
asset. Interest, which is doubtful of recovery, is reserved and excluded from income until it is received in cash. Penal charges and other fees
are recognised when earned.
32
31st December 2009
2
ACCOUNTING POLICIES (continued)
Directors’ remuneration
The board of directors’ remuneration is accrued within the limits specified by the Capital Market Authority and the requirements of the
Commercial Companies Law of the Sultanate of Oman.
Taxation
Taxation is provided for in accordance with Omani fiscal regulations.
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the profit or loss except to the
extent that it relates to items recognised directly to equity, in which case it is recognised as other comprehensive income/expense.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance
sheet date, and any adjustment to tax payable in respect of previous years.
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases
of assets and liabilities and their carrying amounts.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised
or the liability is settled, based on laws that have been enacted at the balance sheet date.
Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused
tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the
carry-forward of unused tax assets and unused tax losses can be utilised.
Cash and cash equivalents
All bank balances with maturity of three months or less from the date of placement are considered to be cash equivalents.
Installment finance debtors are stated at amortised cost using the effective interest rate method less any amounts written off, provision for
impairment and reserved interest.
Property and equipment are stated at historical cost, less accumulated depreciation. Cost represents purchase cost together with any
incidental costs of acquisition. Land is not depreciated. The cost of property and equipment is depreciated on the straight-line method over
the estimated useful lives of the assets. The estimated useful lives are:
Motor vehicle
Furniture and office equipment
Buildings
5 years
5 years
25 years
The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying
value may not be recoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down
immediately to its recoverable amount. Gains and losses on disposals of property and equipment are determined by reference to their
carrying amounts and are recognised in the income statement.
33
31st December 2009
2
SIGNIFICANT ACCOUNTING POLICIES (continued)
Compulsorily convertible bonds are non derivative financial instruments for which the entity is obliged to deliver a variable number of the entity’s
own share. These are recorded as financial liabilities until conversion to shares and are carried on the balance sheet at their principal amounts.
Interest is charged as it accrues, with unpaid amounts included in other liabilities.
Bank borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest
method.
Deposits
Customer deposits are carried at cost less amounts repaid.
Other liabilities
Liabilities are recognised for amounts to be paid for goods and services received, whether or not billed to the company.
Employees end of service benefits
End of service benefits are accrued in accordance with the terms of employment of the company’s expatriate employees at the balance sheet
date, having regard to the requirements of the Oman Labour Law 2003. Payment is made to the Omani Government Social Security Scheme
under the Royal Decree 71/91 for Omani employees.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the income
statement.
Derecognition of financial assets and financial liabilities
Financial assets:
A financial asset (in whole or in part) is derecognised where:
(a)
(b) (c) the right to receive cash flows from the asset have expired; or
the company has transferred it rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and
either (i) the company has transferred substantially all the risks and rewards of ownership, or (ii) the company has
neither transferred nor retained substantially all the risks and rewards of the assets but has transferred control over the
asset or a proportion of the asset.
When the company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has
neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised
34
31st December 2009
2
SIGNIFICANT ACCOUNTING POLICIES (continued)
to the extent of the company’s continuing involvement in the asset. In that case, the company also recognises an associated liability. The
transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that the company could be required to repay.
Financial liabilities:
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and
the difference in the respective carrying amounts is recognised in profit or loss.
Impairment of financial assets
The company assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of
impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that
loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be
reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant
financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes
in arrears or economic conditions that correlate with defaults. If such evidence exists, the impairment loss is recognized in the statement of
comprehensive income.
Impairment of installment finance debtors
For installment finance debtors carried at amortised cost, the company first assesses individually whether objective evidence of impairment
exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If
the company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or
not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included
in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been
incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in
the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and
all collateral has been realised or has been transferred to the company. If, in a subsequent year, the amount of the estimated impairment
loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss
is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the impairment
loss provision.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the company’s risk exposures that
considers credit risk characteristics such as asset type, industry, collateral type, past-due status and other relevant factors.
35
31st December 2009
Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss
experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current
observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based
and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect,
and are directionally consistent with, changes in related observable data from year to year (such as changes in, asset prices, payment
status, repeated requests for reschedulement or other factors that are indicative of incurred losses in the group and their magnitude). The
methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates
and actual loss experience.
Renegotiated installement finance debtors
The company closely monitors its non performing loans in order to regularise them. If unsuccessful, the company seeks to restructure
loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan
conditions. Once the terms have been renegotiated, the loan is no longer considered past due subject to regulatory guidance. Management
continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue
to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.
Provisions
Provisions are recognised when the company has an obligation (legal or constructive) arising from a past event, and the costs to settle the
obligation are both probable and able to be reliably measured.
Dividend on ordinary shares
Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the company’s shareholders.
Interim dividends are deducted from equity when they are paid.
Fair values
The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk
characteristics.
3
OTHER INCOME
2009
RO
Interest on deposits
Documentation and related charges
Profit on sale of property and equipment
Other income
2008
RO
31,617
16,646
153,582
196,465
7,536
144
66,956
61,665
259,691
274,920
36
31st December 2009
4
OPERATING EXPENSES
2009
2008
RO
RO
Salary costs
870,476
777,319
Other staff related costs
989,981
988,709
Board of directors’ remuneration (note 23)
125,564
114,985
Advertising
24,735
101,228
Rent
15,341
21,330
Telephone and postage
32,010
50,650
Employees’ end of service benefits (note 15)
48,190
42,369
Miscellaneous expenses
63,401
59,903
Professional fees
23,604
58,824
Fuel and maintenance
40,915
48,350
Directors’ sitting fees and travelling expenses (note 23)
31,000
28,669
Contribution towards the Public Authority for Social Insurance Scheme
33,933
29,878
Printing and stationery
17,469
25,364
Fees and other charges
24,631
14,586
Annual general meeting expenses
15,000
10,440
Insurance
19,100
17,100
Travelling
15,079
17,315
2,390,429
2,407,019
2009
2008
RO
RO
454,933
523,869
Deferred tax relating to temporary differences
44,501
(77,690)
Prior years
(77,032)
5
TAXATION
Income statement:
Current year
-
422,402
446,179
Current year
454,933
523,869
Prior years
259,043
258,641
713,976
782,510
Current liability:
37
31st December 2009
5
TAXATION (continued)
2009
2008
RO
RO
Deferred tax asset:
At 1 January
656,540
578,850
Movement for the year
(44,501)
77,690
At 31 December
612,039
656,540
616,006
659,358
(3,967)
(2,818)
612,039
656,540
The deferred asset comprises the following temporary differences:
Loan loss provisions
Fixed assets
The relationship between the tax expense and the accounting profit can be explained as follows:
Accounting profit
Expenses that are not deductible in determining taxable profit:
Loan loss provision movement
Depreciation
Taxable profit
Effective rate of income tax
2009
2008
RO
RO
4,175,012
3,748,160
1,643
785
(351,580)
649,360
(3,967)
(2,726)
3,821,108
4,395,579
10.89%
13.97%
The tax rate applicable to the company is 12% (2008 - 12%). For the purpose of determining the tax expense for the year, the accounting
profit has been adjusted for tax purposes. Adjustments for tax purposes include items relating to both income and taxes. After giving effect
to these adjustments, the average effective tax rate is estimated to 11.94% (2008 – 13.97%).
The difference between the applicable tax rate of 12% (2008 - 12%) and the effective tax rate of 11.94 % (2008 – 13.97%) arises due to the
tax effect of income not considered to be taxable and expenses that are not considered to be deductible. The adjustments are based on the
current understanding of the existing tax laws, regulations and practices.
During the year, the company has received a judgement from the Tax Committee rejecting the appeal filed by the company against the
disallowance of provision for doubtful debts for the years 2004 and 2005. There is no additional tax liability on account of the rejection of the
appeal. Tax assessments of the company for the year 2006 to 2009 has not been finalised by the tax department. The management believe
that additional taxes, if any, that may become payable on finalisation of the assessments in respect of the open years would not be material
to the company’s financial position as at 31 December 2009.
The deferred tax asset has been recognised at the effective tax rate of 12% (2008 - 12%).
38
31st December 2009
6
CASH AND CASH EQUIVALENTS
Bank and cash balances
Short term deposit with commercial banks
2009
2008
RO
RO
663,260
635,383
-
2,107,365
663,260
2,742,748
Deposit with commercial banks are short term in nature, denominated in Rial Omani and carries an effective annual interest rate of 4%.
7
DEPOSITS WITH THE CENTRAL BANK OF OMAN
The deposit represents a capital deposit with the Central Bank of Oman made in accordance with the Banking Law of 1974. The deposit is
only repayable if the company terminates its instalment finance business within the Sultanate of Oman and settles all outstanding obligations
and claims arising from that business.
8
INSTALLMENT FINANCE DEBTORS
2009
2008
RO
RO
Gross investment in finance leases:
Corporate debtors
79,984,049
89,097,420
Retail debtors
57,379,216
55,373,882
137,363,265
144,471,302
(17,411,155)
(19,638,838)
119,952,110
124,832,464
(5,434,043)
(5,831,625)
114,518,067
119,000,839
59,012,024
54,058,623
Later than one year and not later than three years
63,090,373
70,160,571
Later than three years
15,260,868
20,252,108
137,363,265
144,471,302
Less: unearned finance interest
Less: Allowance for impairment
Lease payments receivable at 31 December
Gross investment in finance leases comprise:
Not later than one year
39
31st December 2009
8 INSTALLMENT FINANCE DEBTORS (continued)
Instalment finance debtors are stated net of accumulated allowance for impairment and reserved finance interest. The movements in accumulated
allowance for impairment and reserved finance interest for the year is analysed as follows:
2009
2008
RO
RO
Accumulated allowance for impairment
At 1 January
5,497,050
4,845,291
Provided during the year
1,040,415
1,616,145
Released during the year
(537,415)
(149,145)
Amounts written off
(866,664)
(815,241)
5,133,386
5,497,050
334,575
410,999
Reserved during the year
65,843
21,628
Released during the year
(65,843)
(21,628)
Amounts written off
(33,918)
(76,424)
At 31 December
300,657
334,575
5,434,043
5,831,625
At 31 December
Reserved finance interest
At 1 January
Total impairment allowances
Instalment finance debtors include amounts advanced to clients, interest on the amounts advanced and related charges. In the event of default
in the settlement of debts, the company has recourse to the client.
Finance interest is reserved by the company to comply with the rules, regulations and guidelines issued by the Central Bank of Oman against
impaired instalment finance debtors. As of 31 December 2009 instalment finance debtors on which interest is not being accrued, or where interest
is reserved, amounted to RO 2,371,211 (2008 - RO 1,158,770).
The instalment finance debtors are denominated in Rial Omani and, are charged an effective annual interest rate of 10.36% (2008 - 10.55%).
The effective annual interest rate bands of instalment finance debtors are as follows:
2009
2008
RO
RO
Less than 10%
60,573,570
89,177,179
More than 10%
59,378,540
35,655,285
119,952,110
124,832,464
40
31st December 2009
9
OTHER ASSETS AND PREPAYMENTS
2009
RO
124,141
25,057
---------------149,198
----------------
Prepaid expenses
Other receivables
10 PROPERTY AND EQUIPMENT
Land and
building
Cost
1 January 2009
Additions
Disposals
RO
Furniture
and office
equipment
RO
Vehicles
RO
Construction
work in
progress
RO
2008
RO
80,617
45,758
---------------126,375
----------------
Total
RO
619,384
-
799,526
25,483
-
230,111
(19,248)
7,249
-
1,649,021
32,732
(19,248)
619,384
825,009
210,863
7,249
1,662,505
Depreciation
1 January 2009
Charge for the year
Disposals
43,810
23,897
-
485,021
105,591
-
112,861
41,268
(18,284)
-
641,692
170,756
(18,284)
31 December 2009
67,707
590,612
135,845
-
794,164
551,677
234,397
75,018
7,249
868,341
Vehicles
Total
RO
RO
31 December 2009
Net book value
31 December 2009
Cost
1 January 2008
Additions
Disposals
RO
Furniture
and office
equipment
RO
619,384
-
693,430
109,290
(3,194)
217,711
12,400
-
1,530,525
121,690
(3,194)
31 December 2008
619,384
799,526
230,111
1,649,021
Depreciation
1 January 2008
Charge for the year
Disposals
19,914
23,896
-
391,545
96,434
(2,958)
68,220
44,641
-
479,679
164,971
(2,958)
31 December 2008
43,810
485,021
112,861
641,692
Net book value
31 December 2008
575,574
314,505
117,250
1,007,329
Land and
building
41
31st December 2009
11
SHORT TERM LOANS
Short term loans are obtained from local commercial banks and are secured by a mortgage over the company’s assets (2008 – secured by a
mortgage over the company’s assets). The mortgage is registered with the Ministry of Commerce and Industry. Short term loans carry interest at
an effective annual interest rate of 6.76% (2008 – 6.24%) and are due to mature within 12 months from the balance sheet date (2008 - within
12 months).
12
DEPOSITS
Deposits include deposits from Ministry of Defence Pension Fund, a related party, amounting to RO 10,000,000 (2008: RO 6,500,000). Deposits
carry interest in the range of 5.20% to 6.80% (2008 – 4.50% to 6.35%) are due to mature within 12 to 24 months from the balance sheet
date.
13
TERM LOANS
Long term loans – RO
Long term loans – US $
Annual
2009
2008
interest rate
RO
RO
7% to 7.50%
26,627,083
38,616,666
-
1,922,448
26,627,083
40,539,114
3.28%
The company’s bankers hold a pari passu charge over all the assets of the company for the credit facilities granted. In addition, the company
is required to maintain certain performance and coverage ratios.
The related maturity profile and interest rate risk are given in note 25 and 26 respectively.
14
COMPULSORILY CONVERTIBLE BONDS
In 2007, the company issued compulsorily convertible bonds on rights basis amounting to RO 7.70 million. The bonds carry an annual coupon
rate of 7.5% payable every six months, in arrears. The bonds were compulsorily converted into equity shares in July 2009 at a conversion price
of RO. 2.159 per share. The conversion price was derived based on 82.5% of the average closing price of the shares of the company, prevailing
during the last three months immediately preceding the conversion dates. Accordingly 3,567,321 equity shares of RO 1 were allotted to the
bondholders resulting in increases in share capital and share premium accounts by RO 3,567,321 and RO 4,134,524 respectively.
42
31st December 2009
15
OTHER LIABILITIES
2009
2008
RO
RO
Accounts payable
7,769,367
10,713,774
Accrued expenses
1,612,098
1,599,779
Board of directors’ remuneration (note 23)
125,564
115,485
Employees’ end of service benefits
239,678
191,488
9,746,707
12,620,526
Accounts payable are normally settled within 90 days.
During the year unclaimed dividend amounting to RO 2,964 pertaining to year 2008 and unclaimed bond interest (due for the second and third
six monthly payments) amounting to RO 686 have been transferred to Investors Trust Fund with Capital Market Authority.
In accordance with Oman labour law the Company accrues for end of service benefit for its non Omani employees. Movements in the related
liability recognised in the balance sheet are as follows:
Balance at 1 January
Provided during the year (note 4)
End of service benefits paid
Balance at 31 December
16
2009
2008
RO
RO
191,488
152,938
48,190
42,369
-
(3,819)
239,678
191,488
SHARE CAPITAL
Authorised - shares of RO 1 each
2009
RO
20,000,000
2008
RO
20,000,000
Issued and fully paid - shares of RO 1 each
15,557,787
11,529,294
During the year, following the approval of the shareholders at the annual general meeting the company issued bonus shares of RO 461,172
by utilising the share premium reserve account (2008 – RO 270,000). The details regarding conversion of compulsory convertible bonds into
equity are included in note 14.
According to the confirmations received from the Muscat Depository and Securities Registration Company SAOC (MDSRC) details of major
shareholders who own 10% or more of the company’s shares, whether in their name, or through a nominee account are as follows:
Muscat Overseas Co. LLC
2009
% of holding
2009
Number of shares
2008
% of holding
2008
Number of shares
15.64%
2,433,268
12.26%
1,288,402
Ministry of Defence Pension Fund
11.15%
1,733,936
11.05%
1,413,875
Civil Service Pension Fund
10.37%
1,614,088
3.95%
455,297
43
31st December 2009
17
SHARE PREMIUM RESERVE
The share premium account represents premium collected by the company at the time of rights issue during 2008 and conversion of
compulsorily convertible bonds (note 14) amounting to RO 5,411,153 and RO 4,134,524 respectively. The share premium reserve of RO
1,342,831 (2008 - RO 1,593,098) has been transferred to legal reserve.
During the year, share premium reserve of RO 461,172 was utilised to issue bonus shares.
18
LEGAL RESERVE
In accordance with the Commercial Companies Law of the Sultanate of Oman, 10% of the profit for the year is required to be transferred to the
legal reserve. At 31 December 2009 the legal reserve has reached one third of the issued share capital after the transfer of RO 1,342,831 to the
reserve from the share premium account, on conversion of compulsory convertible bonds into equity. The company has resolved to discontinue
such further transfers as the reserve totals one third of the issued capital.
The reserve is not available for distribution.
19
DIVIDENDS PAID AND PROPOSED
A stock dividend of 4% totalling to 461,172 shares of RO 1 each and cash dividend of RO 0.210 per ordinary share totalling to RO 2,421,152
proposed for the financial year 2008 was approved at the Annual General Meeting held in March 2009 and subsequently credited to
shareholders account during the year (Dividend for the year 2007 – RO 0.210 per share totalling RO 1,417,500 and stock dividend of 4%
totalling 270,000 shares).
For the year 2009, a cash dividend of 15% (RO 0.150 per ordinary share) amounting to RO 2,333,668 and a bonus stock bond of 10%
totalling to 1,555,779 of RO 1 each has been proposed by the Board of Directors and will be submitted for the formal approval at the
Annual General Meeting of the company to be held in March 2010. These bonus stock bonds will carry an annual coupon rate of 5.5%,
payable semi annually. The interest will be calculated on the basis of 365 days per year on the nominal value of the bonus stock bond.
These bonus stock bonds will be unsecured and listed on the Muscat Securities Market (MSM). The bonus stock bonds will be compulsorily
converted into specific number of equity shares at the end of 24 months from the date of allotment at 80% of the weighted average closing
price of the company’s equity traded on the MSM over the preceding three months prior to the record date of such conversion, subject to a
minimum 100% of the book value as per the audited accounts of the company for the immediately preceding financial year of the company.
20
BASIC EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit for the year by the weighted average number of shares outstanding during
the year are as follows:
Profit for the year
Weighted average number of shares outstanding during the year
Basic earnings per share
2009
2008
RO
RO
3,752,610
3,301,981
13,543,541
10,401,971
0.277
0.317
44
31st December 2009
During the year ended 31 December 2009, the company issued 461,172 (2008: 270,000) bonus shares of RO 1 each to the existing shareholders.
As the bonus issue was without consideration, the number of ordinary shares outstanding before the event is adjusted for the proportionate
change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented.
21
DILUTED EARNINGS PER SHARE
The diluted earnings per share has been presented for the previous year as the company had issued compulsorily convertible bonds, which
would have an impact on earnings per share when exercised. As per the original terms of issue the bonds were compulsorily converted into
equity in July 2009 (note 14).
Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the company (after adjusting interest
on the convertible bonds, net of tax) by the weighted average number of ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Profit for the year adjusted for the effect of interest on convertible bonds (net of tax)
Weighted average number of shares adjusted for the effect of dilution
Diluted earnings per share
2009
RO
2008
RO
3,752,610
3,811,697
13,543,541
0.277
12,148,421
0.314
The diluted earnings as of 31 December 2009 is same as basic earnings per share. The company has not issued any instruments which
would have an impact on earnings per share when exercised.
22
SEGMENT INFORMATION
The company operates in the finance industry and its operations are confined to the Sultanate of Oman. Details regarding the company’s
corporate and retail loans are included in note 8.
None of the company’s single customer contributed more than 10% of its instalment finance income.
23
RELATED PARTY TRANSACTIONS
These represent transactions with related parties as set out in accordance with International Accounting Standard 24, related party disclosures.
Pricing policies and the terms of the transactions are approved by the company’s board of directors and are considered by the board of
directors to be at arm’s length consistent with the standard terms applied by the company.
Transactions with related parties or holders of 10% or more of the company’s shares or their family members, included in the income statement
are as follows:
2008
2009
RO
RO
Income statement
Instalment finance income (major shareholder)
8,797
11,927
Directors’ sitting fees and remuneration including travelling expenses
143,654
156,564
Employees related cost of senior management
829,290
880,674
Details of board of directors’ remuneration and sitting fee are disclosed in notes 4 and 15.
45
31st December 2009
Balance sheet
At 31 December 2009, the following balances were outstanding of related parties or holders of 10% or more of the company’s shares:
2008
2009
Members of the board of directors
Receivables
Payables
Receivables
Payables
RO
RO
RO
RO
124,594
121,469
83,038
115,485
Deposits from Ministry of Defence Pension Fund
(major shareholder)
24
-
10,000,000
-
6,500,000
124,594
10,121,469
83,038
6,615,485
FAIR VALUE OF FINANCIAL INSTRUMENTS
It is the company’s intention to hold loans and advances to customers to maturity. As a result the fair value of performing loans is arrived at
using the discounted cash flow analysis based on a discount rate equal to the prevailing market rates of interest for loans having similar terms
and conditions. The company considers that the fair value of financial instruments at 31 December 2009 and 2008 are not significantly different
to their carrying value at each of those dates.
Fair value hierarchy
The company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or
indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
As at 31 December 2009 and 2008, the company had no financial instruments which were recorded at fair values.
46
31st December 2009
25
MATURITY PROFILE OF THE ASSETS AND LIABILITIES
The maturity profile of the assets, liabilities and equity as of 31 December 2009 was as follows:
Up to
1 month
2 to 3
Months
4 to 6
months
RO
RO
RO
6 months Subtotal
to 1 year less than
12 months
RO
1 to 3
Years
Over
3 years
Subtotal
over 12
months
Total
RO
RO
RO
RO
RO
ASSETS
Bank balances and cash
and deposit with Central
Bank
663,260
9,553,580
7,820,206
10,035,248
22,504,651
49,913,685
55,460,936
9,143,446
13,125
26,250
39,375
85,998
164,748
223,605
479,988
Other assets and
prepayments
40,554
30,944
39,917
37,783
149,198
Deferred tax asset
-
-
-
Total assets
10,270,519
-
-
-
-
663,260
-
-
50,000
50,000
713,260
64,604,382 114,518,067
703,593
868,341
-
-
-
149,198
-
612,039
612,039
612,039
7,877,400 10,114,540 22,628,432 50,890,891 55,684,541 10,285,473
65,970,014 116,860,905
Short term loans
8,400,000
25,100,000
-
-
33,500,000
-
-
-
33,500,000
Deposits
1,500,000
1,000,000
3,750,000
6,100,000
12,350,000
-
-
-
12,350,000
762,500
166,666
2,310,416
6,472,915
9,712,497
13,308,336
3,606,250
16,914,586
26,627,083
3,009,582
2,878,783
2,828,404
79,344
8,796,113
783,399
167,195
950,594
9,746,707
422,402
291,574
291,574
713,976
33,923,139
33,923,139
Term loans
Other liabilities
Income tax payable
-
422,402
-
-
Equity
-
-
-
-
Total liabilities and
equity
13,672,082
29,567,851
Net
(3,401,563) (21,690,451)
-
-
33,923,139
8,888,820 12,652,259 64,781,012 14,383,309 37,696,584
52,079,893 116,860,905
1,225,720
13,890,121
9,976,173 (13,890,121) 41,301,232 (27,411,111)
47
31st December 2009
25
MATURITY PROFILE OF THE ASSETS AND LIABILITIES (continued)
The maturity profile of the assets and liabilities as of 31 December 2008 is as follows:
ASSETS
Bank balances and
cash and deposit with
Central Bank
Instalment finance
debtors
Other assets and
prepayments
Deferred tax asset
Up to
1 month
RO
2 to 3
Months
RO
4 to 6
months
RO
2,742,748
-
-
3,899,121
7,496,444
14,287
56,936
28,574
22,478
1 to 3
Years
RO
-
2,742,748
-
10,262,910
22,624,481
44,282,956
42,861
28,526
85,721
18,435
171,443
126,375
Over
3 years
RO
Subtotal
over 12
months
RO
Total
RO
50,000
50,000
2,792,748
61,402,818
13,315,065
74,717,883
119,000,839
332,002
-
503,884
-
835,886
-
1,007,329
126,375
656,540
656,540
656,540
-
-
-
-
-
6,713,092
7,547,496
10,334,297
22,728,637
47,323,522
61,734,820
14,525,489
76,260,309
123,583,831
13,000,000
500,000
966,666
-
8,100,000
750,000
-
6,350,000
2,000,000
8,487,500
-
1,500,000
8,306,250
-
27,450,000
4,000,000
18,510,416
-
5,600,000
20,359,948
-
1,668,750
7,701,845
5,600,000
22,028,698
7,701,845
27,450,000
9,600,000
40,539,114
7,701,845
5,888,747
-
5,528,678
446,179
-
611,068
-
-
12,028,493
446,179
-
254,901
336,331
-
337,132
24,889,836
592,033
336,331
24,889,836
12,620,526
782,510
24,889,836
Total liabilities and
equity
20,355,413
14,824,857
17,448,568
9,806,250
62,435,088
26,551,180
34,597,563
61,148,743
123,583,831
Net
(13,642,321)
(7,277,361)
(7,114,271)
12,922,387
(15,111,566)
35,183,640 (20,072,074)
15,111,566
Total assets
LIABILITIES AND
EQUITY
Short term loans
Deposits
Term loans
Compulsorily convertible
bonds
Other liabilities
Income tax payable
Equity
-
Subtotal
6 months less than
to 1 year 12 months
RO
RO
48
31st December 2009
26
INTEREST RATE RISK
The interest rate charged and paid by the company are similar to the prevailing market interest rates. The company’s interest
rate sensitivity position, based on the contractual re-pricing or maturity dates is set out below:
Floating
rate or
within three
months
RO
4 to 6 6 months to
Months
one year
RO
RO
1 to 3
years
RO
Over Non interest
3 years
sensitive
RO
RO
50,000
46,818
Total
RO
ASSETS
Bank balances and cash and deposit
with central bank
Deferred tax asset
13,373,785
-
14,035,248
-
22,504,653
-
55,460,936
-
9,143,445
-
Total assets
13,990,227
14,035,248
22,504,653
55,460,936
9,193,445
1,676,396
116,860,905
Short term loans
Deposits
Term loans
Other liabilities
Income tax payable
Equity
33,500,000
1,500,000
929,166
-
4,750,000
2,310,416
-
6,100,000
6,472,915
-
13,308,336
-
3,606,250
-
9,746,707
713,976
33,923,139
33,500,000
12,350,000
26,627,083
9,746,707
713,976
33,923,139,
Total liabilities and equity
35,929,166
7,060,416
12,572,915
13,308,336
3,606,250
44,383,822 116,860,905
Interest rate sensitivity gap
(21,938,939)
6,974,832
9,931,738
-
42,152,600
-
5,587,195
-
(42,707,426)
-
-
Cumulative interest rate
sensitivity gap
(21,938,939)
(14,964,107)
(5,032,369)
37,120,231
42,707,426
-
-
616,442
-
-
-
713,260
114,518,067
868,341
868,341
149,198
149,198
612,039
612,039
49
31st December 2009
26
INTEREST RATE RISK (continued)
The company’s interest sensitivity position based on contractual repricing arrangements at 31 December 2008 is as follows:
ASSETS
Bank balances and cash and deposit with
central bank
Deferred tax asset
Floating
rate or within
three months
RO
4 to 6
Months
RO
6 months to
one year
RO
1 to 3
years
RO
Over
3 years
RO
Non interest
sensitive
RO
Total
RO
50,000
27,782
2,792,748
2,714,966
-
-
-
11,395,565
-
10,262,910
-
22,624,481
-
61,402,818
-
13,315,065
-
1,007,329
126,375
656,540
119,000,839
1,007,329
126,375
656,540
Total assets
14,110,531
10,262,910
22,624,481
61,402,818
13,365,065
1,818,026
123,583,831
Short term loans
Deposits
Term loans
Other liabilities
Income tax payable
Equity
27,450,000
500,000
1,716,666
-
2,000,000
8,487,500
-
1,500,000
8,306,250
-
5,600,000
20,359,948
-
1,668,750
7,701,845
-
12,620,526
782,510
24,889,836
27,450,000
9,600,000
40,539,114
7,701,845
12,620,526
782,510
24,889,836
Total liabilities and equity
29,666,666
10487,500
9,806,250
25,959,948
9,370,595
38,292,872
123,583,831
Interest rate sensitivity gap
(15,556,135)
(224,590)
12,818,231
35,442,870
3,994,470
(36,474,846)
-
Cumulative interest rate
sensitivity gap
(15,556,135)
(15,780,725)
(2,962,494)
32,480,376
36,474,846
-
-
50
31st December 2009
27
FINANCIAL RISK MANAGEMENT
The primary objective of the risk management system is to safeguard the company’s capital, its financial resources and from various risks.
The company has exposure to the following risk from its use of financial instruments:
•
•
•
•
Credit risk
Liquidity risk
Market risk
Operational risk
The Board of Directors has overall responsibility for the establishment and oversight of the company’s risk management framework. The
Board has established the policies and procedures and internal checks and balances to keep the risk at an acceptable level.
(a) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a
financial loss.
The company attempts to control credit risk by setting limits for individual borrowers, monitoring credit exposures, limiting transactions with
specific counter parties and assessing continually the creditworthiness of counter parties. In addition, the company obtains security where
appropriate, enters into collateral arrangements with counter parties, and limits the duration of the exposures.
Exposure to credit
The credit exposure of the company at 31 December is as follows:
Installment finance debtors
past due but not impaired
1 - 89 days
2009
RO
2008
RO
6,533,506
4,350,738
90 – 179 days
180 – 269 days
270 – 364 days
365 days and above
1,570,757
717,804
82,538
112
814,157
227,799
101,872
14,942
Past due and impaired
2,371,211
1,158,770
Neither past due nor impaired
111,047,393
119,322,956
Total installment finance debtors
119,952,110
124,832,464
Less: allowance for impairment:
Specific
Collective
(320,577)
(5,113,466)
(153,798)
(5,677,827)
Total allowance for impairment
(5,434,043)
(5,831,625)
114,518,067
119,000,839
Lease payments receivable
51
31st December 2009
27
FINANCIAL RISK MANAGEMENT (continued)
Risk concentrations of the maximum exposure to credit risk
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region,
or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in
economic, political or other conditions. Concentrations indicate the relative sensitivity of the company’s performance to developments affecting
a particular industry or geographic location. There is no significant industry concentration.
Concentration of risk is managed by client/counterparty and by industry sector exposures. There is no significant credit exposure relating
to instalment finance debtors to any single counterparty as of 31 December 2009 and 2008. An industry sector analysis of the company’s
instalment finance debtors before taking into account collateral held is as follows:
Gross maximum
Gross maximum exposure
exposure
2008
2009
RO’000
RO’000
Personal loans
Business loan
- Services
- Trading
- Manufacturing
- Construction
48,454
51,224
6,469
1,436
12,369
46,357
56,291
8,494
1,784
11,906
119,952
124,832
Delinquency risk
Delinquency risk refers to instalment finance debtor and other credit exposures that have become non-performing during the period of
the credit term. An instalment finance debtor is considered impaired when, in the management’s opinion, it can no longer be reasonably
assured that it will be able to collect the full amount of principal and interest when due.
The company treats an instalment finance debtor as non-performing as per the established norms of the Central Bank of Oman and creates
specific impairment allowances individually based on the regulatory guidelines. The company as per International Financial Reporting
Standard establishes specific allowances for all impaired instalment finance debtor when the estimated value of the instalment finance
debtor is less than its recorded value, based on discounting of expected future cash flows. In addition collective provision is created.
The company writes off an instalment finance debtor when it determines that the instalment finance debtor is uncollectible. This determination
is reached after considering information such as the occurrence of significant changes in the customer’s financial position such that the
borrower can no longer pay the obligation, or proceeds from the sale of the asset or collateral security will not be sufficient to pay back the
entire exposure. Upon approval from the Board of Directors the amount is written off.
Collateral securities
The company holds collateral securities against the instalment finance debtor in the form of mortgage interests over property. Estimate of fair
value are based on the value of the collateral assessed at the time of borrowing, except when an instalment finance debtor is individually
assessed as impaired.
52
31st December 2009
27
Settlement risk
The settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as
contractually agreed. To avoid settlement risks, the company ensures that all control systems are in place to keep the errors to a minimum.
(b) Liquidity risk
Liquidity risk is the risk that the company will be unable to meet its liabilities when they fall due. The business of lending has an inherent
risk of liquidity arising from the mismatch of tenure of funds borrowed vis-à-vis lent, in addition to unforeseen adverse recovery patterns.
The company is constantly on the vigil and judiciously manages the funds with an innovate mix of borrowing instruments. Liabilities are
contracted and structured based on the behavioral pattern of the assets in terms of maturity and re-pricing structure. To limit the liquidity
risk, the management through their carefully drawn up strategies, has diversified sources of funds, avoids undue concentration on a single
lender and manages its collection in a systematic manner.
During the year, the company completed medium to long term funding arrangements that have effectively addressed and mitigated the
apparent mismatch in the maturity of assets and liabilities. Cash flows are monitored continuously and appropriate steps are taken to set
right mismatches if any, to address the liquidity risk.
The table below summarises the maturity profile of the company’s assets and liabilities based on contractual repayment arrangements. The
contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the
contractual maturity date and do not take account of the effective maturities as indicated by the company’s deposit retention history and
the availability of liquid funds.
The maturity profile of assets and liabilities is set out in note 25.
Residual contractual maturities of financial liabilities
The table below summarises the maturity profile of the company’s liabilities as at 31 December 2009 based on contractual repayment
arrangements. The contractual maturities of liabilities have been determined on the basis of the remaining period at the balance sheet
date to the contractual maturity date and after taking into account of the effective maturities as indicated by the company’s deposit retention
history and the availability of liquid funds.
Short term loans
Deposits
Term loans
Other liabilities
Income tax payable
Total
Carrying
amount
RO
Gross nominal
outflow
RO
Within 3
months
RO
3 - 12 months
RO
Over 1 year
RO
33,500,000
12,350,000
26,627,083
9,746,707
713,976
33,816,125
12,773,580
29,903,337
9,746,707
713,976
33,816,125
2,515,463
931,976
5,888,365
422,402
10,258,117
9,238,197
2,907,748
-
19,733,164
950,594
259,043
82,937,766
86,953,725
43,574,331
22,404,062
20,942,801
53
31st December 2009
27
Residual contractual maturities of financial liabilities as of 31 December 2008:
Carrying amount
RO
Gross nominal
outflow Within 3 months
RO
RO
3 - 12 months
RO
Over 1 year
RO
Short term loans
Deposits
Term loans
Other liabilities
Income tax payable
27,450,000
9,600,000
40,539,114
7,701,845
12,620,526
713,976
27,870,384
10,458,245
44,179,984
8,277,901
12,620,526
713,976
21,310,144
577,212
1,746,340
291,193
11,417,426
446,179
6,560,240
6,586,114
19,320,402
284,863
611,067
-
3,294,919
23,113,242
7,701,845
592,033
267,797
Total
98,625,461
104,121,016
35,788,494
33,362,686
34,969,836
(c) Market risk
Market risk is the risk that changes in market prices, such as interest rate, equity prices and foreign exchange rates will affect the company’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future profitability of the fair values of financial instruments.
The company is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities and off balance sheet
instruments that mature or re-price in a given period. The company manages this risk by matching the re-pricing of assets and liabilities
through risk management strategies.
Revision in the interest rates by the existing lenders and changes in the interest rates consequent to economic forces is a risk faced by any
financial institution. Though the company’s loan portfolio comprises predominantly of fixed interest rates the company manages its treasury
in such a way that the targeted margin is maintained and the risk is kept within acceptable levels.
The following table shows the sensitivity to the company’s net interest income that would result out of a possible change in interest rates
Change in Interest rate
Increase in interest rate
Increase in interest rate
Decrease in interest rate
Change in basis points
Sensitivity to net interest
income (RO ‘000)
+100 bps
+150 bps
- 25 bps
601
902
(150)
54
31st December 2009
27
(d) Operational risk
The Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the company’s processes,
personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising
from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the
company’s operations and are faced by all business entities.
The company has put in place the mechanism to minimise operational risk by way of effective internal control systems, systems review and
an on-going internal audit programme. During the year one of the leading audit firms was appointed to provide internal audit services
in addition to the in house internal audit function and evaluate the major risk areas. The internal auditors of the company undertake
comprehensive audits and report directly to the Audit Committee of the Board. The Audit Committee of the Board review the internal audit
reports, the adequacy of the internal controls and report on the same to the Board.
(e) Capital management
The primary objective of the company’s capital management is to ensure that it maintains healthy capital ratios in order to support its
business and maximise shareholder value.
The company manages its capital structure and makes adjustments to it in the light of changes in business conditions. No changes were
made in the objectives, policies or processes during the year ended 31 December 2009 and 31 December 2008.
The company’s lead regulator Central Bank of Oman sets and monitors capital requirements as a whole. In implementing current capital
requirements Central Bank of Oman requires the company to increase its minimum paid up share capital to RO 10 million by June 2009. The
company has achieved the minimum paid up capital requirement set by the regulatory authority well in advance and the current capital is
well above the minimum capital requirement set by the regulatory authority. Going forward the company is required to increase its paid up
share capital to RO 20 million by year 2012. To achieve the minimum capital requirement and to meet the long term funding requirement
the company is considering to raise RO.20 Million partly convertible bonds with the tenor of five years through book building exercise.
(f) Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The company’s assets
and liabilities are denominated in Rial Omani and hence there is no currency risk. The foreign currency loan is denominated in United States
Dollar, which is pegged to Rail Omani.
55
NOTES
56

His Majesty Sultan Qaboos Bin Said

Transcription

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