Finance House annual report for the financial year 2013

Page 1

H.H. Sheikh Khalifa Bin Zayed Al Nahyan PRESIDENT OF THE UNITED ARAB EMIRATES

H.H. Sheikh Mohammed Bin Rashid Al Maktoum VICE-PRESIDENT AND PRIME MINISTER OF THE UAE, AND RULER OF DUBAI

H.H. General Sheikh Mohammed Bin Zayed Al Nahyan CROWN PRINCE OF ABU DHABI AND DEPUTY SUPREME COMMANDER OF THE UAE ARMED FORCES

Oud wood is one of the most distinctive aspects of the UAE culture. It has long been used in the production of oud oil, incense and perfumes that are highly valued by Emiratis who have, for centuries, bought those products for their multiple uses and their association with holidays and other occasions. Oud is reputed to be the most expensive type of wood in the world, mainly due [V P[Z ZJHYJP[` [OL KPMĂ„J\S[` VM WYVK\JPUN P[ HUK [OL V]LY^OLSTPUN KLTHUK P[ OHZ always witnessed. The Arab Gulf countries are the top consumers of oud, especially the United Arab Emirates, whose citizens are well known for their love and passion for this kind of pleasant scent. Oud wood is composed when a certain type of trees in South Asia, known as Aquilaria, is infected by a certain type of fungus, producing a resinous and aromatic substance. Nowadays, with their increasing scarcity, oud trees are being cultivated in large-scale plantations to meet the huge demand. It is worth mentioning that producing it comprises many stages and requires a high level of accuracy, professionalism and patience. As part of the continued efforts of Finance House to focus on the UAE culture, and because oud is closely related to this culture, we showcase in our Annual Report for the year 2013, the stages involved in the process of oud production, starting from land preparation and planting, maintenance, inoculation, harvesting, until VI[HPUPUN [OL Ă„UHS WYVK\J[

CONTENTS OUR PURPOSE

10 - 11

CHAIRMAN’S STATEMENT

12 - 17

BOARD OF DIRECTORS

19

FINANCIAL HIGHLIGHTS

20

BUSINESS REVIEW

21 - 23

FINANCIAL REVIEW

24 - 27

INDEPENDENT AUDITOR’S REPORT

28 - 29

FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 - 31

CONSOLIDATED INCOME STATEMENT

33

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

35

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

36 - 37

CONSOLIDATED STATEMENT OF CASH FLOWS

38 - 39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

40 - 102

FINANCE HOUSE ANNUAL REPORT 2013

OUR PURPOSE To service and serve all our stakeholders by offering L_JLW[PVUHS ÄUHUJPHS L_WLYPLUJLZ KLSP]LYLK [OYV\NO a dedicated team of professionals.

11

12

FINANCE HOUSE ANNUAL REPORT 2013

Chairman’s Statement

CHAIRMAN’S STATEMENT

ON BEHALF OF THE BOARD OF DIRECTORS, I AM PLEASED TO PRESENT FINANCE HOUSE’S 9TH ANNUAL REPORT, WITH A COMBINED SENSE OF PRIDE AND SATISFACTION.

MR. MOHAMMED ABDULLA ALQUBAISI CHAIRMAN

FINANCE HOUSE ANNUAL REPORT 2013

13

Chairman’s Statement

On behalf of the Board of Directors, it is my pleasure and privilege to present the 9th Annual Report of Finance House PJSC. In 2013, UAE - the Arab world’s second largest economy, registered a GDP growth of 4% p.a., which is in line with the IMF forecast in October 2013. The much acclaimed Expo 2020 win by Dubai and the imminent prospect of an upgrade to the coveted emerging market status have added dynamism to the economy that is already on an upward trajectory, spurred by huge non-oil sector investments, the buoyant trade and services sector and the booming tourism industry. Political stability, economic growth and a balanced foreign policy were key incentives luring world’s leading businesses to the UAE. This rapid improvement in UAE’s economic environment helped us to NYV^ WYVÄ[HIS` HJYVZZ HSS THQVY I\ZPULZZ ZLNTLU[Z ^OPSL THPU[HPUPUN YVI\Z[ ÄUHUJPHS health. >L HYL WYV\K [V THPU[HPU V\Y WYVÄ[HISL Z[HUJL MVY [OL UPU[O Z\JJLZZP]L `LHY ZPUJL inception. Global Economic Environment -P]L `LHYZ HM[LY [OL LY\W[PVU VM [OL NSVIHS ÄUHUJPHS JYPZPZ PU :LW[LTILY NSVIHS economic growth remains weak. The IMF continues to predict “a subdued medium term growth trajectory” due to marked slowdown in growth predictions for so-called emerging markets, which between them have accounted for three quarters of total NYV^[O PU [OL ^VYSK LJVUVT` V]LY [OL WHZ[ Ä]L `LHYZ Notwithstanding this realistic assessment of global growth by the IMF, for much of 2013, the world’s big stock-markets soared upwards - America’s S&P 500 index rose by 30% last year, and Japan’s Nikkei by 57% - buoyed by monetary stimulus and bullish expectations. Our take on the situation is as follows. The bottom is not falling out of the world economy. At the same time, global economic recovery in 2014 will be modest, too reliant on the US, still at risk from China and other emerging markets and largely dependent on loose monetary policy in one form or the other. GCC Economic Environment )HJRLK I` OPNO VPS WYPJLZ Z[YVUN ÄUHUJPHS WVZP[PVU VM NV]LYUTLU[Z HUK H JVU[PU\LK wave of public spending on infrastructure projects and social programs, GCC countries witnessed further solid economic growth in 2013. .P]LU [OL SV^ YLSPHUJL VU MVYLPNU JHWP[HS MVY LJVUVTPJ NYV^[O ZPNUPÄJHU[ J\YYLU[ account surpluses, highly liquid banking system, tax-free regimes and stable currencies, GCC markets in general and UAE in particular are likely to attract accelerated foreign investment into non-oil as well as oil & gas related industrial ventures, in 2014 and beyond. The stellar performance of ADX and DFM over the past 14 months is a manifestation of this bullish perception about the true economic growth potential of the UAE. Being a UAE company with prime focus on serving the UAE and broader GCC markets, we are ideally positioned to exploit these opportunities, as and when they unfold.

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FINANCE HOUSE ANNUAL REPORT 2013

Chairman’s Statement

Group Financial Performance in 2013 0 Z\TTHYPaL ILSV^ [OL RL` Ă„UHUJPHS V\[JVTLZ VM V\Y HJ[PVUZ MVY [OL `LHY!

‡ Total Comprehensive Income of AED 117.6 million - up by a whopping 52.3% compared to AED 77.2 million in 2012.

‡ 5L[ 7YVÄ[ VM (,+ TPSSPVU \W JVTWHYLK [V (,+ TPSSPVU PU ‡ Net Fee and Commission income jumped 50.3% to AED 43.5 million compared to AED 28.9 million in 2012.

‡ Total Assets grew to AED 4.12 billion - up 10. 6% compared to AED 3.72 billion in 2012.

‡ Shareholders’ Equity grew by nearly 12% to AED 729 million from AED 651 million as at the end of the previous year. This is after paying a cash dividend of AED 36.3 million during 2013.

‡ Customer deposits grew by a robust 20.8% to reach an all-time high of AED 2.18 billion compared to AED 1.80 billion as at the end of the previous year, bearing [LZ[PTVU` [V [OL JVU[PU\LK JVUÄKLUJL [OH[ [OL THYRL[ WSHJLZ PU -PUHUJL /V\ZL

‡ Net Loans & Advances including Islamic Financing & Investing Assets grew by 8.4% to reach AED 1.58 billion compared to AED 1.46 billion as at the end of the previous year.

‡ 9PZR HKQ\Z[LK *HWP[HS (KLX\HJ` 9H[PV Z[VVK H[ H YVI\Z[ ZPNUPÄJHU[S` HIV]L the regulatory requirement of 15%.

‡ Cash and cash equivalents as at 31 December 2013 swelled to AED 817 million compared to AED 599 million at the end of the previous year, representing a healthy 19.8% of Total Assets.

‡ 3VHU SVZZ JV]LYHNL I` ^H` VM ZWLJPÄJ WYV]PZPVUZ [V JV]LY UL[ L_WVZ\YL HNHPUZ[ individually impaired loans and loans that are not impaired but past due for 91 days or more improved to 94% as at 31 December 2013, compared to 81% as at the end of the previous year. Key Achievements in 2013 The following are some of the key achievements and noteworthy developments that OH]L THKL H TLTVYHISL `LHY MVY -PUHUJL /V\ZL!

‡ Secured an “investment grade� Corporate Credit Rating of BBB- (Long Term) and A3 (Short Term), both with a Stable Outlook from Capital Intelligence, an internationally recognized credit rating agency.

‡ Continued reinforcement of the Finance House brand as a reputed and professionally THUHNLK ÄUHUJPHS ZLY]PJLZ WYV]PKLY HUK H [OV\NO[ SLHKLY ^P[OPU [OL UVU IHURPUN ÄUHUJL JVTWHUPLZ ZLNTLU[ HJYVZZ [OL .**

FINANCE HOUSE ANNUAL REPORT 2013

15

Chairman’s Statement

Developed and implemented a comprehensive strategic planning and management system.

Recognized for the second successive year as the “Best Corporate Finance Company in the Middle East” at the Banker Middle East Industry Awards - 2013.

Our subsidiary Insurance House PSC was recognized as the “Best Local Insurance Company in the Middle East” and their innovative motor insurance offering was recognized as the “Best Motor Insurance Product in the Middle East” at the Banker Middle East Product Awards 2013.

Launched Value House, a dedicated online portal to promote spending on Finance House Credit Cards by offering exceptional value and amazing deals at several leading and popular merchant outlets throughout the UAE.

Successfully implemented a Direct Debit System solution and seamlessly integrated the same with the Central Bank of UAE’s DDS Systems.

Implemented a state-of-the-art online platform to support Margin Trading activities at Finance House Securities LLC, our stock broking arm.

Enhanced the security of our Information Systems Infrastructure & Network through the successful implementation of a leading Security Information and Events Management System (SIEM).

9LUL^LK MVY H M\Y[OLY WLYPVK VM `LHYZ V\Y 0:6 JVTWSPHUJL JLY[PÄJHtion relating to Information Security Management Systems & Controls.

,_LJ\[LK WYVÄ[HISL HUK ^LSS WSHUULK L_P[Z MYVT ZLSLJ[ Ä_LK PUJVTL WYP]H[L LX\P[` and listed equity positions, to lock - in robust capital gains.

Improved Cost/Income Ratio by 1.4% in comparison to the previous year through better economies of scale. An Integrated Portfolio of Businesses Within Finance House, our three main business areas - Commercial & Corporate Finance, Retail Finance and Treasury & Investments - continue to complement each other, together making up an integrated portfolio of business activities. 6\Y JVTTLYJPHS SLUKPUN HYT ZLLZ JVU[PU\PUN WV[LU[PHS MVY ZPNUPÄJHU[ VYNHUPJ NYV^[O PU [OL <(, ;OL YL[HPS ÄUHUJPUN HJ[P]P[` WYV]PKLZ H WV^LYM\S HUK JVTWSLTLU[HY` L_[LUZPVU [V JVTTLYJPHS SLUKPUN HJ[P]P[PLZ ^P[O KP]LYZPÄLK YPZR HUK YL^HYK JOHYHJ[LYPZ[PJZ ;YLHZ\Y` manages our liquidity prudently while also seeking out opportunities to strengthen the Company’s funding platform and providing value-added risk management services to other business segments. (Z H .YV\W ^L OH]L OHYULZZLK [OL HIPSP[` [V ZLHTSLZZS` VMMLY H ^PKL YHUNL VM ÄUHUJPHS services to our discerning customers including conventional and Shari’a compliant ÄUHUJPUN ZVS\[PVUZ H IV\X\L[ VM UVU SPML PUZ\YHUJL ZVS\[PVUZ PU]LZ[TLU[ WVY[MVSPV advisory & asset management solutions as well as securities brokerage services relative to Abu Dhabi Securities Exchange & Dubai Financial Market.

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FINANCE HOUSE ANNUAL REPORT 2013

Chairman’s Statement

Risk Management Risk is inherent to our activities but it is managed through a process of ongoing PKLU[PÄJH[PVU TLHZ\YLTLU[ HUK TVUP[VYPUN Z\IQLJ[ [V YPZR SPTP[Z HUK YLSH[LK JVU[YVSZ Comprehensive discussion and analysis of exposure to risks, coupled with periodic reviews of the quality and adequacy of risk controls throughout the year enabled us to manage risks in a rapidly changing economic and regulatory environment. We JVU[PU\L [V YL]PL^ VU HU VUNVPUN IHZPZ [OL VYNHUPaH[PVU»Z YPZR WYVÄSL YLSH[P]L [V P[Z risk appetite and changes in local economic conditions. Our rigorous internal controls, internal audit and compliance regimen ensure that our risk mitigation processes remain robust and dependable. Our Customer Focus Our business strategy is built on three key principles - clear vision, hard work and value for the customer. In this entrepreneurial setting, our employees are armed with the MYLLKVT HUK HIPSP[` [V KL]LSVW PUUV]H[P]L ÄUHUJPUN ZVS\[PVUZ [OH[ KLSP]LY V\[Z[HUKPUN value to our customers. Our corporate culture is one that tends to break silos and encourages teamwork. It reinforces a “one company” mindset across the Group. Leading Finance House to where it is today, in terms of deep rooted customer relationships, would not have been possible without our employees’ passion for outstanding customer service and unwavering commitment to customer satisfaction. CSR Activities in 2013 Since inception Finance House is humbly committed to making a positive difference to the community in which we operate. During 2013 we participated in a wide range of corporate social responsibility (CSR) activities such as cultural, sporting and musical events as well as Emiratization programs. Looking Ahead We enter 2014 with a strong capital base, robust & proven business model, clearly KLÄULK PTWSLTLU[H[PVU Z[YH[LNPLZ KP]LYZPÄLK WVY[MVSPV VM HZZL[Z YLTHYRHIS` Z[HISL sources of funding and in pursuit of interesting opportunities thrown up by a rapidly evolving market. We remain deeply rooted in our core businesses viz. Commercial & Corporate Finance, Retail Finance, Proprietary Investments & Treasury activities. ;OYV\NO V\Y .YV\W JVTWHUPLZ ^L VMMLY HU L_[LUKLK YHUNL VM ÄUHUJPHS WYVK\J[Z HUK services ranging from insurance solutions to securities brokerage services and from HZZL[ THUHNLTLU[ WVY[MVSPV HK]PZVY` ZLY]PJLZ [V :OHYP»H JVTWSPHU[ ÄUHUJPUN ZVS\[PVUZ As a cumulative result of the strengths we have built over the years, we stand on solid ground to exploit attractive opportunities in the future. However, we will continue to be selective in our approach to fresh opportunities, bearing in mind the need to balance rewards against the various risks such opportunities may entail. We remain optimistic about our ability to continue delivering respectable results for our ZOHYLOVSKLYZ 0U [OL ÄUHS HUHS`ZPZ V\Y \U^H]LYPUN MVJ\Z PZ VU LUOHUJPUN [OL Z[YLUN[O VM Finance House Group and in creating sustained long term value for our shareholders.

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FINANCE HOUSE ANNUAL REPORT 2013

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FINANCE HOUSE ANNUAL REPORT 2013

Financial Highlights

FINANCIAL HIGHLIGHTS *2005

2006

2007

2008

2009

2010

2011

2012

2013

36,476

33,806

39,216

90,617

125,130

117,521

120,775

128,677

128,399

Non-Interest Income

237,804

181,982

255,598

401,956

80,219

90,571

48,880

114,757

138,021

Total Operating Income

274,280

215,788

294,814

492,573

205,349

208,092

169,655

243,434

266,420

7YVÄ[ MVY [OL `LHY

190,454

160,604

202,809

248,849

112,409

115,088

60,008

72,230

83,706

1,058,786

1,313,615

2,159,660

2,423,725

2,719,965

3,124,157

3,506,963

3,722,065 4,116,210

Due from Banks

230,380

372,800

629,098

535,742

696,927

950,243

823,673

1,053,635 1,093,081

Investments

619,376

543,787

755,349

494,973

649,955

674,348

1,009,160

Loans & Advances (net)

165,782

348,226

708,159

1,153,378

1,143,277

1,117,540

1,277,691

1,457,080 1,578,843

Customer Deposits

126,492

404,535

707,422

1,059,065

1,495,635

1,569,503

1,548,430

1,803,671 2,178,142

77,122

150,000

321,725

272,267

67,356

207,428

422,950

289,985

207,528

808,222

724,338

949,467

794,687

639,593

556,494

634,853

651,058

729,013

Return on equity (%)

23.6

22.2

21.4

31.3

17.6

20.7

9.5

11.1

11.5

Return on average assets (%)

18.0

13.5

11.7

10.9

4.4

3.9

1.8

2.0

2.1

Earnings per share - Basic (AED)

0.95

0.80

1.01

1.14

0.41

0.38

0.21

0.23

0.26

27.7

20.0

22.7

22.1

41.3

42.6

59.9

55.4

54.0

-

-

0.10

0.38

0.08

0.19

0.16

0.20

0.18

Total Liabilities to Shareholders' Equity (times)

0.31

0.81

1.27

2.05

3.25

4.61

4.52

4.72

4.65

Capital Adequacy Ratio (%)

72.0

67.0

43.0

37.0

23.4

18.0

26.0

26.6

24.6

FH Financial Highlights (Consolidated) EARNINGS Net Interest Income **

Financial Position Total Assets

Due to Banks Shareholders' equity

692,420

855,702

Ratios Earnings

Cost Cost to Income (%) Capital Debt to Equity (times)

* Covers 17 months (inception to 31 December 2005) 0UJS\KLZ PUJVTL MYVT 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z

FINANCE HOUSE ANNUAL REPORT 2013

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Business Review

BUSINESS REVIEW Economic and Market Review Global economic activity grew approximately 3% in 2013, down from around 3.3% in 2012 as advanced economies contributed less than emerging markets. The UAE economy grew at an overall pace of 4%, fuelled by accelerated growth in the nonoil sector. Entering 2014, there are several trends which are favorable for the nearterm economic outlook including easy monetary policy, record low interest rates and elevated government spending on infrastructure projects and social programs. The UAE, which is the 2nd largest economy in the Arab world, will become part of the 4:*0 ,TLYNPUN 4HYRL[ 0UKL_ PU 4H` ;OL <(, OHZ JVU[PU\LK [V ILULĂ„[ MYVT P[Z safe haven status during periods of instability in the region. The economy has shown signs of resilience amidst global and regional uncertainty and is beginning to generate YL[\YUZ MYVT P[Z KP]LYZPĂ„JH[PVU LMMVY[Z 0U [OL UVU VPS ZLJ[VY JVUZ[P[\[LK ULHYS` 60% of nominal GDP, with strength coming from a recovery in real estate, trade and tourism sectors. Against the back-drop of steadily improving market conditions, we have registered WYVĂ„table top and bottom -line growth in all major business segments while maintaining YVI\Z[ Ă„UHUJPHS OLHS[O Commercial and Corporate Finance Our strategy in this business segment is to build a robust portfolio of high quality corporate entities by leveraging long-established relationships within the UAE’s business JVTT\UP[` HUK I` VMMLYPUN J\Z[VTPaLK Ă„UHUJPHS ZVS\[PVUZ [V TLL[ [OLPY M\UKLK HUK unfunded requirements. We continued to implement our strategy of progressively reallocating the portfolio towards a larger number of smaller exposures, in an attempt [V HJOPL]L YPZR KP]LYZPĂ„JH[PVU >L MVJ\ZLK V\Y LULYNPLZ VU JYVZZ ZLSSPUN HKKP[PVUHS products and services to existing customers with a satisfactory track record, coupled ^P[O ZLSLJ[ PU[HRL VM OPNO X\HSP[` UL^ JSPLU[Z ^P[O YVI\Z[ YLJ\YYPUN JHZO Ă…V^ TVKLSZ We widened customer relationships beyond lending to cover term deposits, trade Ă„UHUJL N\HYHU[LLZ ^VYRLY WH`TLU[ ZVS\[PVUZ >7: HUK LZJYV^ HYYHUNLTLU[Z 0U recognition of our focused strategy, customized solutions and superior service delivery, we were adjudged as the “Best Commercial Finance Company in the Middle Eastâ€? by Banker Middle East Industry Awards, for 2 consecutive years- 2012 & 2013. Retail Finance ;OL VIQLJ[P]L VM V\Y YL[HPS Ă„UHUJL I\ZPULZZ PZ [V KL]LSVW JVTWLSSPUN WYVK\J[ propositions aimed at niche customer segments that are underserved. Our focus is on designing products and services which offer outstanding value and back that up with consistent, reliable and responsive customer service quality. Our credit card portfolio continued to grow steadily through the year on the basis of ZLSLJ[P]L PU[HRL HZ KPK [OL ,_LJ\[P]L -PUHUJL WVY[MVSPV V\Y WLYZVUHS Ă„UHUJL VMMLYPUN for the middle and upper-middle class salaried segments. In 2013 we introduced a new product line focused on the SME segment, which has been received well by the target market. During the year we further strengthened our collection and recovery efforts in [OL YL[HPS Ă„UHUJL HYLH HUK YLHJOLK HTPJHISL ZL[[SLTLU[ YLZJOLK\SPUN HYYHUNLTLU[Z with customers who had fallen behind in their debt repayments.

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FINANCE HOUSE ANNUAL REPORT 2013

Business Review

Investments 6\Y WYVWYPL[HY` WVY[MVSPV VM PU]LZ[TLU[Z PZ ^LSS KP]LYZPÄLK HJYVZZ HZZL[ JSHZZLZ HUK across economic sectors. Our investment activity is regulated internally on the basis VM H JVTWYLOLUZP]L PU]LZ[TLU[ WVSPJ` +\YPUN [OL `LHY ^L OH]L THKL WYVÄ[HISL L_P[Z MYVT ZL]LYHS PU]LZ[TLU[ WVZP[PVUZ HJYVZZ HZZL[ JSHZZLZ PUJS\KPUN Ä_LK PUJVTL WYP]H[L equity and listed equities. 6]LYHSS WYVÄ[ MYVT PU]LZ[TLU[ HJ[P]P[` K\YPUN ^HZ YVI\Z[ PU JVTWHYPZVU [V WYPTHYPS` K\L [V ZPNUPÄJHU[S` PTWYV]LK LX\P[` THYRL[ JVUKP[PVUZ PU [OL <(, Treasury Throughout the year, our customer deposits (from corporate, institutional and government entities) registered a steady upward trend and as of 31 December 2013, it touched an all-time high of AED 2.18 billion. As a result, we remained highly liquid at all times and were a net-lender to the UAE inter-bank market throughout the year, with positive spreads on our inter-bank placements. All the same, our efforts to secure further short, medium and long-term funded lines from banks continued unabated. :PNUPÄJHU[ SL]LSZ VM JVTTP[[LK I\[ \U KYH^U IHUR SPULZ WYV]PKL \Z [OL JVUÄKLUJL [V grow our assets in line with our growth targets. Operations Our business is supported by detailed standard operating procedures covering all products & services, and is matched by a fast processing cycle that results in quicker YLZWVUZL [PTLZ [V V\Y JSPLU[Z +\YPUN [OL `LHY ^L M\Y[OLY YLÄULK V\Y WYVJLZZLZ YLSH[PUN [V [YHKL ÄUHUJL JYLKP[ HKTPUPZ[YH[PVU JVSSLJ[PVU YLJV]LY` HUK JVU[YVSZ VU HJJLZZ to information. Compliance matters, anti-money laundering and corporate governance measures continue to receive our highest attention. We are a registered member of the UAE Central Bank’s electronic funds transfer system which is used to effect domestic inter-bank payments on a real-time basis. In addition, we also use our SWIFT membership for safe and reliable electronic funds transfers across the globe. The Company is well supported by independent and competent internal audit & compliance functions that report directly into the Audit & Compliance Committee of the Board. Risk Management We manage our risks by seeking to ensure that our exposures in each business segment remain within our acceptable risk tolerance and that they provide an equal or higher return than the risk assumed. The risk tolerances are translated into risk limits for operational purposes. The risk appetite is collectively managed throughout the organization through adherence to our risk management policies and procedures. Risk Limits are periodically reviewed to ensure that they remain within the risk appetite of the Company.

FINANCE HOUSE ANNUAL REPORT 2013

23

Business Review

;OL RL` LSLTLU[Z VM V\Y YPZR THUHNLTLU[ MYHTL^VYR HYL!

% Achieving stability in earnings through tight controls over credit and market exposures.

% Maintaining capital adequacy in excess of the regulatory requirement of 15%. % Sound management of liquidity risk and interest rate risk. % Adherence to regulatory requirements. >L OH]L UV[ ILLU HMMLJ[LK I` J\YYLUJ` Å\J[\H[PVUZ ZPUJL [OL THQVYP[` VM V\Y L_WVZ\YLZ are in AED and nearly all of our remaining exposures are in USD and USD-pegged currencies.

CORPORATE GOVERNANCE The Board The members of the Board are prominent UAE nationals from Abu Dhabi. The Board has been instrumental in establishing a strong corporate governance culture in [OL *VTWHU` 0[ WSH`Z HU PTWVY[HU[ YVSL PU KLÄUPUN HUK LUMVYJPUN Z[HUKHYKZ VM accountability that enable Management to manage the Company in the best interests of its shareholders. The Board has a formal schedule of matters reserved to it and holds regular and frequent meetings. It is responsible for overall Company strategy, acquisition and divestment policy, approval of capital expenditure proposals and consideration of ZPNUPÄJHU[ ÄUHUJPUN TH[[LYZ 0[ TVUP[VYZ [OL *VTWHU`»Z L_WVZ\YL [V RL` I\ZPULZZ YPZRZ and reviews the annual budget of the Company, and monitors its progress towards achievement of the budget. The Board also considers environmental and employee issues and key appointments. All directors are required to submit themselves for re-election at least once every three years. Committees of the Board The two Board Committees – the Investment and Credit Committee, and the Audit and Compliance Committee – between them cover all aspects of the Company’s business. The Investment and Credit Committee reviews major credit proposals, investment recommendations and matters of credit & investment policy. The Audit and Compliance Committee regularly meets to review the reports and recommendations of the independent internal audit team as well as external auditors. It also oversees compliance with applicable laws and regulatory requirements. Human Resources We believe that the Management of Finance House has successfully integrated its people and its operations with the Board’s strategy in order to deliver successfully VU P[Z JVYWVYH[L TPZZPVU (Z H KPYLJ[ ILULÄ[ VM Z\JO PU[LNYH[PVU [OL *VTWHU` OHZ been able to develop a loyal employee base. Our remuneration packages are carefully designed to attract, motivate and retain employees of high caliber, to reward them for achieving business goals and thereby enhance shareholders’ value. Looking ahead, the development and retention of UAE nationals is a prime objective for the Group.

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FINANCE HOUSE ANNUAL REPORT 2013

Financial Review

FINANCIAL REVIEW Robust and sustained growth in Total Assets, Total Shareholders’ Equity, Core Business Earnings, Customer Deposits and Loans & Advances was maintained throughout 2013our ninth year of operations, demonstrating the fundamental strengths of the Group’s integrated business model and implementation strategy.

BALANCE SHEET Total Assets Total Assets registered a healthy increase of 10.6% in 2013 to reach AED 4.12 billion as at 31 December 2013 compared to AED 3.72 billion as at 31 December 2012. Loans and Advances Net Loans and Advances including Islamic Financing & Investing Assets grew by 8.4% during the year to reach AED 1.58 billion compared to AED 1.46 billion as at the end of the previous year. Our Loans to Deposits ratio as at 31 December 2013 stood at a healthy 72.5% compared to 80.8% as at the end of the previous year, YLÅLJ[PUN both our cautious approach to loan book growth and the ZPNUPÄJHU[ headroom available for sustained loan book growth in 2014 and beyond. Our bad debt provisioning policy continues to be conservative and as of 31 December 2013, we maintain loan loss coverage of 94% (2012! 81%) by way of ZWLJPÄJ provisions to cover net exposure against individually impaired loans and loan balances that are past due for 91 days or more but are not impaired. In addition, we also maintain collective provision of 1.25% of the Performing Portfolio. Investments Total Investments as at 31 December 2013 increased to AED 855.7 million compared to AED 692.4 million as at 31 December 2012. The increase is primarily in our listed equity and listed Ä_LK income portfolios. Aggregate investment income from our well KP]LYZPÄLK proprietary investment portfolio consisting of listed equity, private equity, Ä_LK income and investment properties was up by 11.2% to AED 94.7 million in 2013 compared to AED 85.1 million in the previous year. Deposits During the year, Customer deposits grew by a robust 20.8% to reach an all-time high of AED 2.18 billion compared to AED 1.80 billion as at the end of the previous year. Of this, AED 1.39 billion represents deposits from corporate customers in the private sector and the balance AED 0.79 billion constitutes deposits from public sector companies and institutions. This sustained growth in customer deposits is a remarkable achievement and bears testimony to the continued JVUÄKLUJL that the market places in Finance House.

FINANCE HOUSE ANNUAL REPORT 2013

25

Financial Review

Capital Strength Shareholders’ Equity as at 31 December 2013 improved to AED 729 million registering a robust year on year increase of nearly 12%; this is after distributing a 12% cash dividend amounting to AED 36.3 million to shareholders in April 2013. Capital Adequacy The risk adjusted capital adequacy ratio computed in accordance with the guidelines of the Central Bank of the UAE (as applied to commercial banks) was a robust 24.6%, compared to the regulatory requirement of 15%. Liquidity We continue to manage liquidity throughout the Group in a prudent manner. Since the onset of the ÄUHUJPHS crisis in Oct 2008, we have remained net lenders to the UAE interbank market and continue to maintain this position till date. Cash and cash equivalents as at 31 December 2013 swelled to AED 817 million compared to AED 599 million as at the end of the previous year, representing a healthy 19.8% of Total Assets. Income Statement Total Operating Income for the year ended 31 December 2013 was AED 266.4 million, up 9.4% compared to AED 243.4 million in the previous year. Net 7YVÄ[ for 2013 was AED 83.7 million, up 15.9% compared to AED 72.2 million in the previous year. This translates to earnings of 26 ÄSZ per share, compared to 23 ÄSZ per share in the previous year (Paid Up Value! AED 1 per share). Total Comprehensive Income for the year ended 31 December 2013 grew by a whopping 52.3% to reach AED 117.6 million compared to AED 77.2 million in the previous year. This is primarily on account of the robust performance of our Strategic Listed Equity Portfolio, which is UAE centric. Due to unavoidable margin compression in a low interest rate environment, Net Interest Income and Income from Islamic Financing & Investing Assets was ÅH[ at AED 128.4 million in 2013 compared to AED 128.7 million in 2012. However, Net Fee and Commission income jumped by 50.3% to AED 43.5 million in 2013, compared to AED 28.9 million in 2012. Total operating expenses were higher by 6.7% in 2013 compared to 2012 mainly on account of hiring new employees and higher establishment costs, in line with increased business volumes across all business segments. Despite higher operating expenses, the Cost/ Income ratio improved by 1.4% in 2013 compared to 2012.

FINANCE HOUSE ANNUAL REPORT 2013

Shareholders' Equity (AED Millions) 949

808

795

724

729 640

2005

2006

2007

2008

2009

556

2010

635

2011

651

2012

2013

Total Operating Income (AED Millions) 493 295 194

2005*

216

205

243

208

266

170

2006

2007

2008

2009

2010

2011

2012

2013

* Total Operating Income of AED 274 million is for 17 months; annualized to AED 194 million for comparison purposes 5L[ 7YVĂ„[ (,+ 4PSSPVUZ 203

190

249

161 112

115 60

134

26

2005*

2006

2007

2008

2009

2010

2011

5L[ 7YVĂ„[ VM (,+ 190 million is for 17 months; annualized to AED 134 million for comparison purposes

72

2012

84

2013

FINANCE HOUSE ANNUAL REPORT 2013

Non - Interest Income as a % of Total Operating Income

86.7

84.3

86.7 81.6

39.1

2005

2006

2007

2008

2009

43.5

2010

47.1 28.8

2011

2012

Loan and Advances (AED Millions)

1,143

2013

1,579 1,278

1,153

51.8

1,457

1,118

708 166

2005

348

2006

2007

2008

2009

2010

2011

2012

Customer Deposits (AED Millions)

2013

2,178 1,804

1,570 1,496

1,548

1,059 707 126

2005

405

2006

2007

2008

2009

2010

2011

2012

2013

27

28

FINANCE HOUSE ANNUAL REPORT 2013

Independent Auditors’ Report to the Shareholders of Finance House

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF FINANCE HOUSE P.J.S.C. Report on the Consolidated Financial Statements >L OH]L H\KP[LK [OL HJJVTWHU`PUN JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z VM -PUHUJL House P.J.S.C. (the “Company”) and its subsidiaries (the “Group”), which comprise the JVUZVSPKH[LK Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU HZ H[ +LJLTILY HUK [OL YLSH[LK consolidated income statement, consolidated statement of comprehensive income, JVUZVSPKH[LK Z[H[LTLU[ VM JOHUNLZ PU LX\P[` HUK JVUZVSPKH[LK Z[H[LTLU[ VM JHZO ÅV^Z MVY [OL `LHY [OLU LUKLK HUK H Z\TTHY` VM ZPNUPÄJHU[ HJJV\U[PUN WVSPJPLZ HUK V[OLY explanatory information. 4HUHNLTLU[»Z YLZWVUZPIPSP[` MVY [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z Management is responsible for the preparation and fair presentation of these consolidated ÄUHUJPHS Z[H[LTLU[Z PU HJJVYKHUJL ^P[O 0U[LYUH[PVUHS -PUHUJPHS 9LWVY[PUN :[HUKHYKZ and the applicable provisions of the articles of association of the Company and the UAE Commercial Companies Law of 1984 (as amended), and for such internal control as management determines is necessary to enable the preparation of consolidated ÄUHUJPHS Z[H[LTLU[Z [OH[ HYL MYLL MYVT TH[LYPHS TPZZ[H[LTLU[ ^OL[OLY K\L [V MYH\K VY error. Auditor’s responsibility 6\Y YLZWVUZPIPSP[` PZ [V L_WYLZZ HU VWPUPVU VU [OLZL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated ÄUHUJPHS Z[H[LTLU[Z HYL MYLL MYVT TH[LYPHS TPZZ[H[LTLU[Z An audit involves performing procedures to obtain audit evidence about the amounts HUK KPZJSVZ\YLZ PU [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z ;OL WYVJLK\YLZ ZLSLJ[LK depend on the auditor’s judgement, including the assessment of the risks of material TPZZ[H[LTLU[ VM [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z ^OL[OLY K\L [V MYH\K VY LYYVY In making those risk assessments, the auditor considers internal control relevant to [OL LU[P[`»Z WYLWHYH[PVU HUK MHPY WYLZLU[H[PVU VM [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as L]HS\H[PUN [OL V]LYHSS WYLZLU[H[PVU VM [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z >L ILSPL]L [OH[ [OL H\KP[ L]PKLUJL ^L OH]L VI[HPULK PZ Z\MÄJPLU[ HUK HWWYVWYPH[L [V provide a basis for our audit opinion.

FINANCE HOUSE ANNUAL REPORT 2013

29

Independent Auditors’ Report to the Shareholders of Finance House

Opinion 0U V\Y VWPUPVU [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z WYLZLU[ MHPYS` PU HSS TH[LYPHS YLZWLJ[Z [OL ÄUHUJPHS WVZP[PVU VM [OL .YV\W HZ VM +LJLTILY HUK P[Z ÄUHUJPHS WLYMVYTHUJL HUK JHZO ÅV^Z MVY [OL `LHY [OLU LUKLK PU HJJVYKHUJL ^P[O 0U[LYUH[PVUHS Financial Reporting Standards. Report on Other Legal and Regulatory Requirements >L HSZV JVUÄYT [OH[ PU V\Y VWPUPVU [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z PUJS\KL PU all material respects, the applicable requirements of the UAE Commercial Companies Law of 1984 (as amended) and the articles of association of the Company; proper books of account have been kept by the Company; and the contents of the report of [OL *OHPYTHU YLSH[PUN [V [OLZL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z HYL JVUZPZ[LU[ ^P[O the books of account. We further report that we have obtained all the information and explanations which we required for the purpose of our audit and, to the best of our knowledge and belief, no violations of the UAE Commercial Companies Law of 1984 (as amended) or of the articles of association of the Company have occurred during the year which would have had a material effect on the business of the Company or on its ÄUHUJPHS WVZP[PVU

:PNULK I`! Andre Kasparian Partner Ernst & Young Registration No. 365 5 February, 2014 Abu Dhabi

30

FINANCE HOUSE ANNUAL REPORT 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION Year Ended 31 December 2013

FINANCE HOUSE ANNUAL REPORT 2013

31

2013 AED’000

2012 AED’000

4 4

9,497 1,093,081

8,395 1,053,635

5

258,240

242,362

5 5 6 7 8 9 10 11 12 13

201,355 284,485 1,478,401 100,442 30,422 6,000 288,082 15,596 81,200 269,409

305,340 1,378,785 78,295 43,155 6,000 235,491 11,678 101,563 257,366

4,116,210

3,722,065

2,178,142 207,528 864,645 7,882 129,000

1,803,671 289,985 228,831 612,359 7,561 128,600

3,387,197

3,071,007

302,500 (7,213) (1,750) 123,797 18,962

302,500 (4,689) (1,750) 116,112 18,962

(25,336)

(66,788)

171,461 5,404

149,355 4,578

587,825 141,188

518,280 132,778

729,013

651,058

4,116,210

3,722,065

1,274,622

1,080,414

Notes

A S S ET S Cash balances Due from banks Investments carried at fair value through other comprehensive income Investments carried at fair value through WYVÄ[ VY SVZZ Investments carried at amortised cost Loans and advances, net 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z Investment in associates Statutory deposit 7YVWLY[` Ä_[\YLZ HUK LX\PWTLU[ Intangibles Investment properties Interest receivable and other assets

TOTAL ASSETS LIABILITIES

Customers’ deposits Due to banks Term loans Interest payable and other liabilities 7YV]PZPVU MVY LTWSV`LLZ» LUK VM ZLY]PJL ILULÄ[Z Non-convertible sukuk

14 15 16 17

TOTAL LIABILITIES EQUITY

Share capital Treasury shares Employees’ share-based payment scheme Statutory reserve Revaluation reserve Cumulative changes in fair value of investments carried at fair value through other comprehensive income Retained earnings Proposed directors’ remuneration

18 22 19 20

Non-controlling interests

3

TOTAL EQUITY TOTAL LIABILITIES AND EQUITY Commitments and contingent liabilities

23

Mr. Mohammed Abdulla Alqubaisi

Mr. Hamid Taylor

CHAIRMAN

GENERAL MANAGER

The attached notes 1 to 35 MYVT WHY[ VM [OLZL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z

32

FINANCE HOUSE ANNUAL REPORT 2013

FINANCE HOUSE ANNUAL REPORT 2013

33

CONSOLIDATED INCOME STATEMENT Year Ended 31 December 2013 Notes

2013 AED’000

2012 AED’000

0U[LYLZ[ PUJVTL HUK PUJVTL MYVT 0ZSHTPJ Ă„UHUJPUN and investing assets

24

177,733

193,836

0U[LYLZ[ L_WLUZL HUK WYVĂ„[ KPZ[YPI\[HISL [V KLWVZP[VYZ

(49,334)

(65,159)

128,399

128,677

43,476 (2,077) 6,336 (8,063) 89,294 11,890 3,706 (16,070) 5,872 3,657

28,925 2,735 284 (4,130) 76,663 7,570 9,000 (8,085) 1,795

266,420

243,434

6

(92,125) (6,071) (45,636) (37,541)

(86,050) (7,109) (41,682) (35,153)

7

(1,341)

(1,210)

(182,714)

(171,204)

5L[ PU[LYLZ[ PUJVTL HUK PUJVTL MYVT 0ZSHTPJ Ă„UHUJPUN and investing assets Net fee and commission income Net contract (loss) income Net insurance income 7YVĂ„[ KPZ[YPI\[HISL [V Z\R\R OVSKLYZ Net income from investments Net income from investment property Gain on fair valuation of investment properties Share of results of associates Gain on disposal of associate Other operating income, net

25 26 27 28 12 8 8

Total operating income Salaries and employees related expenses +LWYLJPH[PVU VM WYVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ General and administrative expenses Allowance for impairment of loans and advances, net (SSV^HUJL MVY PTWHPYTLU[ VM 0ZSHTPJ Ă„UHUJPUN and investing assets

Total operating expenses and allowances 7YVĂ„[ MVY [OL `LHY ([[YPI\[HISL [V! Equity holders of the parent Non-controlling interests

Basic and diluted earnings per share attributable to ordinary shares (AED)

The attached notes 1 to 35 MYVT WHY[ VM [OLZL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z

3

29

72,230

76,853 6,853

67,667 4,563

83,706

72,230

0.26

0.23

34

FINANCE HOUSE ANNUAL REPORT 2013

FINANCE HOUSE ANNUAL REPORT 2013

35

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year Ended 31 December 2013

2013 AED’000

Notes

7YVÄ[ MVY [OL `LHY

2012 AED’000

72,230

38,449 (4,578)

9,161 (4,179)

33,871

4,982

-

-

33,871

4,982

117,577

77,212

108,369 9,208

73,369 3,843

117,577

77,212

Other comprehensive income 0[LTZ [OH[ ^PSS UV[ IL YLJSHZZPÄLK [V Z[H[LTLU[ VM PUJVTL! 5L[ NHPU VU ÄUHUJPHS HZZL[Z TLHZ\YLK H[ MHPY ]HS\L [OYV\NO other comprehensive income Directors’ remuneration paid

0[LTZ [OH[ TH` IL YLJSHZZPÄLK [V Z[H[LTLU[ VM PUJVTL

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ([[YPI\[HISL [V! Equity holders of the parent Non-controlling interests

The attached notes 1 to 35 MYVT WHY[ VM [OLZL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z

3

36

FINANCE HOUSE ANNUAL REPORT 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year Ended 31 December 2013

-

Proposed directors’ remuneration Cash dividend paid (note 21) Transfer to statutory reserve Purchase of treasury shares

-

Proposed directors’ remuneration Cash dividend paid (note 21) Transfer to statutory reserve Purchase of treasury shares Change in non-controlling interest

The attached notes 1 to 35 MYVT WHY[ VM [OLZL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z

302,500

-

Total comprehensive income (expense) for the year

Balance at 31 December 2013

-

-

(7,213)

(2,524) -

-

-

(4,689)

302,500

(4,689)

(507)

7YVÄ[ MVY [OL `LHY Increase in fair value of investments carried at fair value through other comprehensive income Directors’ remuneration paid

2013 Balance at 1 January 2013 Loss on disposal of investments carried at fair value through other comprehensive income

302,500

-

Total comprehensive income (expense) for the year

Balance at 31 December 2012

-

-

-

(4,182)

302,500

AED ‘000

AED ‘000

7YVÄ[ MVY [OL `LHY Increase (decrease) in fair value of investments carried at fair value through other comprehensive income Directors’ remuneration paid

Balance at 1 January 2012 Loss on disposal of investments carried at fair value through other comprehensive income

2012

Treasury shares

Share Capital

(1,750)

-

-

-

-

(1,750)

(1,750)

-

-

-

-

(1,750)

AED ‘000

Employees’ share-based payment scheme

123,797

7,685 -

-

-

-

116,112

116,112

6,767 -

-

-

-

109,345

AED ‘000

Statutory reserve

18,962

-

-

-

-

18,962

18,962

-

-

-

-

18,962

AED ‘000

Revaluation reserve

(25,336)

-

36,094

36,094 -

5,358

(66,788)

(66,788)

-

9,881

9,881 -

59,531

(136,200)

AED ‘000

Cumulative changes in fair value

171,461

(5,404) (36,300) (7,685) -

76,853

-

(5,358)

149,355

149,355

(4,578) (60,500) (6,767) -

67,667

-

(59,531)

213,064

AED ‘000

5,404

5,404 -

(4,578)

(4,578)

-

4,578

4,578

4,578 -

(4,179)

(4,179)

-

4,179

AED ‘000

Proposed Retained directors’ earnings remuneration

587,825

(36,300) (2,524) -

108,369

36,094 (4,578)

-

518,280

518,280

(60,500) (507)

73,369

9,881 (4,179)

-

505,918

AED ‘000

Attributable to shareholders of the parent company

141,188

(798)

9,208

2,355 -

-

132,778

132,778

-

3,843

(720) -

-

128,935

AED ‘000

Non controlling interests

729,013

(36,300) (2,524) (798)

117,577

38,449 (4,578)

-

651,058

651,058

(60,500) (507)

77,212

9,161 (4,179)

-

634,853

AED ‘000

Total

38

FINANCE HOUSE ANNUAL REPORT 2013

CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended 31 December 2013

FINANCE HOUSE ANNUAL REPORT 2013

39

2013 AED’000

2012 AED’000

83,706

72,230

6,071 (3,706) 759 16,070 (5,872) (4,297) (13,671) (14,231) (62,151) 37,541 1,341 321 41,881

7,109 (9,000) (41,093) 8,085 (11,370) (11,441) (12,759) 35,153 1,210 883 39,007

60,289 (23,488) (137,157) (12,043) (228,831) 34,582 374,471 252,286

(25,202) (10,671) (205,081) (59,407) (179,369) (265,866) 255,241 126,507

361,990

(324,841)

(4,454)

(9,804)

27,025 (149,171) 329,538 (310,004) 24,760 28,366 (58,662) (3,918) (13,666) 16,201 13,671

51,767 (16,690) 29,814 (726,259) 1,068,245 (4,964) (69,071) 11,370

(100,314)

334,408

(4,578) 400 (2,524) (798) (36,300)

(4,179) 128,600 (507) (60,500)

5L[ JHZO \ZLK PU MYVT Ă„UHUJPUN HJ[P]P[PLZ

(43,800)

63,414

NET INCREASE IN CASH AND CASH EQUIVALENTS

217,876

72,981

Notes OPERATING ACTIVITIES 7YVĂ„[ MVY [OL `LHY 5VU JHZO HKQ\Z[TLU[Z MVY! Depreciation Gain on fair valuation of investment property Loss (gain) on sale of investments carried at amortised cost Share of results of associates Gain on disposal of associate Gain on disposal of investment property Dividend income from investments .HPU VU KPZWVZHS VM PU]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ <UYLHSPZLK NHPU VU PU]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ Allowance for impairment of loans and advances (SSV^HUJL MVY PTWHPYTLU[ VM 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z 5L[ TV]LTLU[ PU WYV]PZPVU MVY LTWSV`LLZÂť LUK VM ZLY]PJL ILULĂ„[Z

10 12 8 8

6 7

>VYRPUN JHWP[HS HKQ\Z[TLU[Z! Decrease (increase) in due from banks maturing after three months 0UJYLHZL PU 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z Increase in loans and advances Increase in interest receivable and other assets Decrease in term loans Increase (decrease) in due to banks maturing after three months Increase in customers’ deposits Increase in interest payable and other liabilities Net cash from (used in) operating activities INVESTING ACTIVITIES Purchase of investments carried at fair value through other comprehensive income Proceeds from sale of investments carried at fair value through other comprehensive income 7\YJOHZL VM PU]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ 7YVJLLKZ MYVT ZHSL VM PU]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ Purchase of investments carried at amortised cost Proceeds from sale of investments carried at amortised cost Proceeds from sale of investment property Addition to investment property 7\YJOHZL VM WYVWLY[` Ä_[\YLZ HUK LX\PWTLU[ Purchase of intangible asset Purchase of investment in associates Proceeds from sale of investment in associates Dividend income received

10 8

Net cash (used in) from investing activities FINANCING ACTIVITIES Directors’ remuneration paid Non-convertible sukuk Purchase of treasury shares Change in non-controlling interest Dividend paid

21

Cash and cash equivalents at 1 January

4

599,074

526,093

CASH AND CASH EQUIVALENTS AT 31 DECEMBER

4

816,950

599,074

The attached notes 1 to 35 MYVT WHY[ VM [OLZL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z

40

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 31 December 2013 1. ACTIVITES Finance House P.J.S.C. (the “Companyâ€?) is a Public Joint Stock Company incorporated in Abu Dhabi, United Arab Emirates (U.A.E.) in accordance with the provisions of the U.A.E. Federal Commercial Companies Law No. (8) of 1984 (as amended), the U.A.E. Central Bank, the Monetary System and Organization of Banking Law No. (10) of 1980 and under authority of resolutions of the Board of Directors of the U.A.E. Central Bank relating to Finance Companies. The Company was established on 13 March 2004 and commenced its operations on 1\S` ;OL *VTWHU` WLYMVYTZ P[Z HJ[P]P[PLZ [OYV\NO P[Z OLHK VMĂ„JL PU (I\ Dhabi and its Abu Dhabi, Dubai and Sharjah branches. The principal activities of [OL *VTWHU` JVUZPZ[ VM PU]LZ[TLU[Z JVUZ\TLY HUK JVTTLYJPHS Ă„UHUJPUN HUK V[OLY related services. ;OL YLNPZ[LYLK OLHK VMĂ„JL VM [OL *VTWHU` PZ H[ 7 6 )V_ (I\ +OHIP < ( , ;OL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z VM [OL .YV\W ^LYL H\[OVYPZLK MVY PZZ\L I` [OL Board of Directors on 5 February 2014.

2. SIGNIFICANT ACCOUNTING POLICES 2.1 BASIS OF PREPARATION ;OL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z OH]L ILLU WYLWHYLK PU HJJVYKHUJL ^P[O International Financial Reporting Standards and applicable requirements of the laws in the U.A.E. ;OL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z OH]L ILLU WYLWHYLK VU [OL OPZ[VYPJHS JVZ[ IHZPZ L_JLW[ MVY JLY[HPU Ă„UHUJPHS PUZ[Y\TLU[Z HUK WYVWLY[PLZ ^OPJO HYL JHYYPLK at fair value and land which is carried at revalued amount. ;OL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z VM [OL .YV\W HYL WYLWHYLK PU < ( , Dirhams (AED) which is the functional currency of the Group. All values are rounded to the nearest thousand (AED ‘000), except otherwise indicated.

FINANCE HOUSE ANNUAL REPORT 2013

41

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK

2.2 BASIS OF CONSOLIDATION ;OL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z JVTWYPZL [OL Ă„UHUJPHS Z[H[LTLU[Z VM [OL Company and its subsidiaries (the “Groupâ€?) as at 31 December each year. The Ă„UHUJPHS Z[H[LTLU[Z VM [OL Z\IZPKPHYPLZ HYL WYLWHYLK MVY [OL ZHTL YLWVY[PUN year as the Company, using consistent accounting policies. All intra-group IHSHUJLZ PUJVTL HUK L_WLUZLZ HUK WYVĂ„[Z HUK SVZZLZ YLZ\S[PUN MYVT PU[YH NYV\W transactions, are eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. :WLJPĂ„JHSS` [OL .YV\W JVU[YVSZ HU PU]LZ[LL PM HUK VUS` PM [OL .YV\W OHZ! ‹ 7V^LY V]LY [OL PU]LZ[LL P L L_PZ[PUN YPNO[Z [OH[ NP]L P[ [OL J\YYLU[ HIPSP[` [V direct the relevant activities of the investee) ‹ ,_WVZ\YL VY YPNO[Z [V ]HYPHISL YL[\YUZ MYVT P[Z PU]VS]LTLU[ ^P[O [OL investee, and ‹ ;OL HIPSP[` [V \ZL P[Z WV^LY V]LY [OL PU]LZ[LL [V HMMLJ[ P[Z YL[\YUZ When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing ^OL[OLY P[ OHZ WV^LY V]LY HU PU]LZ[LL PUJS\KPUN! ‹ ;OL JVU[YHJ[\HS HYYHUNLTLU[ ^P[O [OL V[OLY ]V[L OVSKLYZ VM [OL PU]LZ[LL ‹ 9PNO[Z HYPZPUN MYVT V[OLY JVU[YHJ[\HS HYYHUNLTLU[Z ‹ ;OL .YV\WÂťZ ]V[PUN YPNO[Z HUK WV[LU[PHS ]V[PUN YPNO[Z The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. 7YVĂ„[ VY SVZZ HUK LHJO JVTWVULU[ VM V[OLY JVTWYLOLUZP]L PUJVTL ¸6*0š are attributed to the equity holders of the parent of the Group and to the noncontrolling interests, even if this results in the non-controlling interests having H KLĂ„JP[ IHSHUJL >OLU ULJLZZHY` HKQ\Z[TLU[Z HYL THKL [V [OL Ă„UHUJPHS statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, PUJVTL L_WLUZLZ HUK JHZO Ă…V^Z YLSH[PUN [V [YHUZHJ[PVUZ IL[^LLU TLTILYZ VM the Group are eliminated in full on consolidation.

42

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements )HZPZ VM *VUZVSPKH[PVU *VU[PU\LK

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a Z\IZPKPHY` P[! ‹ +LYLJVNUPZLZ [OL HZZL[Z PUJS\KPUN NVVK^PSS HUK SPHIPSP[PLZ VM [OL Z\IZPKPHY`" ‹ +LYLJVNUPZLZ [OL JHYY`PUN HTV\U[ VM HU` UVU JVU[YVSSPUN PU[LYLZ[Z" ‹ +LYLJVNUPZLZ [OL J\T\SH[P]L [YHUZSH[PVU KPMMLYLUJLZ YLJVYKLK PU LX\P[`" ‹ 9LJVNUPZLZ [OL MHPY ]HS\L VM [OL JVUZPKLYH[PVU YLJLP]LK" ‹ 9LJVNUPZLZ [OL MHPY ]HS\L VM HU` PU]LZ[TLU[ YL[HPULK" ‹ 9LJVNUPZLZ HU` Z\YWS\Z VY KLÄJP[ PU WYVÄ[ VY SVZZ" HUK ‹ 9LJSHZZPÄLZ [OL WHYLU[»Z ZOHYL VM JVTWVULU[Z WYL]PV\ZS` YLJVNUPZLK PU 6*0 [V WYVÄ[ VY SVZZ VY YL[HPULK LHYUPUNZ HZ HWWYVWYPH[L HZ ^V\SK IL YLX\PYLK PM the Group had directly disposed of the related assets or liabilities.

2.3 CHANGES IN ACCOUNTING POLICIES The accounting policies adopted are consistent with those of the previous ÄUHUJPHS `LHY L_JLW[ MVY [OL MVSSV^PUN UL^ Z[HUKHYKZ HUK HTLUKTLU[Z [V 0-9: LMMLJ[P]L HZ VM 1HU\HY` ^OPJO KV UV[ OH]L HU` ZPNUPÄJHU[ PTWHJ[ VU [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z! IAS 1 Presentation of Financial Statements — Presentation of Items of Other Comprehensive Income (Amendments) The amendments to IAS 1 introduce a grouping of items presented in other JVTWYLOLUZP]L PUJVTL 0[LTZ [OH[ ^PSS IL YLJSHZZPÄLK ºYLJ`JSLK» [V WYVÄ[ VY SVZZ H[ H M\[\YL WVPU[ PU [PTL L N UL[ SVZZ VY NHPU VU ÄUHUJPHS HZZL[Z JSHZZPÄLK HZ fair value through other comprehensive income) have to be presented separately MYVT P[LTZ [OH[ ^PSS UV[ IL YLJSHZZPÄLK L N YL]HS\H[PVU VM SHUK HUK I\PSKPUNZ The amendments affect presentation only and have no impact on the Group’s ÄUHUJPHS WVZP[PVU VY WLYMVYTHUJL 0(: 7YLZLU[H[PVU VM -PUHUJPHS :[H[LTLU[Z · *SHYPÄJH[PVU VM [OL YLX\PYLTLU[ for comparative information (Amendment) These amendments clarify the difference between the voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the ÄUHUJPHS Z[H[LTLU[Z ^OLU P[ ]VS\U[HYPS` WYV]PKLZ JVTWHYH[P]L PUMVYTH[PVU beyond the minimum required comparative period. The amendments clarify [OH[ [OL VWLUPUN Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU WYLZLU[LK HZ H YLZ\S[ VM YL[YVZWLJ[P]L YLZ[H[LTLU[ VY YLJSHZZPÄJH[PVU VM P[LTZ PU ÄUHUJPHS Z[H[LTLU[Z does not have to be accompanied by comparative information in the related notes. The amendments affect presentation only and have no impact on the .YV\W»Z ÄUHUJPHS WVZP[PVU VY WLYMVYTHUJL

FINANCE HOUSE ANNUAL REPORT 2013

43

Notes to the Consolidated Financial Statements *OHUNLZ PU (JJV\U[PUN 7VSPJPLZ *VU[PU\LK

0(: ,TWSV`LL )LULĂ„[Z 9L]PZLK 0(: 9 PUJS\KLZ H U\TILY VM HTLUKTLU[Z [V [OL HJJV\U[PUN MVY KLĂ„ULK ILULĂ„[ WSHUZ PUJS\KPUN HJ[\HYPHS NHPUZ HUK SVZZLZ [OH[ HYL UV^ YLJVNUPZLK PU V[OLY JVTWYLOLUZP]L PUJVTL 6*0 HUK WLYTHULU[S` L_JS\KLK MYVT WYVĂ„[ HUK SVZZ" L_WLJ[LK YL[\YUZ VU WSHU HZZL[Z [OH[ HYL UV SVUNLY YLJVNUPZLK PU WYVĂ„[ VY SVZZ PUZ[LHK [OLYL PZ H YLX\PYLTLU[ [V YLJVNUPZL PU[LYLZ[ VU [OL UL[ KLĂ„ULK ILULĂ„[ SPHIPSP[` HZZL[ PU WYVĂ„[ VY SVZZ JHSJ\SH[LK \ZPUN [OL KPZJV\U[ YH[L \ZLK [V TLHZ\YL [OL KLĂ„ULK ILULĂ„[ VISPNH[PVU HUK" \U]LZ[LK WHZ[ ZLY]PJL JVZ[Z HYL UV^ YLJVNUPZLK PU WYVĂ„[ VY SVZZ H[ [OL LHYSPLY VM ^OLU [OL HTLUKTLU[ occurs or when the related restructuring or termination costs are recognised. Other amendments include new disclosures, such as, quantitative sensitivity disclosures. The application of this revised standard had no impact on the Group. 0-9: -HPY =HS\L 4LHZ\YLTLU[ IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. The standard does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. IFRS 13 requires an entity to KPZJSVZL PUMVYTH[PVU [OH[ OLSWZ \ZLYZ VM P[Z Ă„UHUJPHS Z[H[LTLU[Z HZZLZZ IV[O VM [OL MVSSV^PUN! H -VY HZZL[Z HUK SPHIPSP[PLZ [OH[ HYL TLHZ\YLK H[ MHPY ]HS\L VU H YLJ\YYPUN VY UVU YLJ\YYPUN IHZPZ PU [OL Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU HM[LY initial recognition, the valuation techniques and inputs used to develop those TLHZ\YLTLU[Z I -VY MHPY ]HS\L TLHZ\YLTLU[Z \ZPUN ZPNUPĂ„JHU[ \UVIZLY]HISL PUW\[Z [OL LMMLJ[ VM [OL TLHZ\YLTLU[Z VU WYVĂ„[ VY SVZZ VY V[OLY JVTWYLOLUZP]L income for the period. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group. ,HYS` HKVW[PVU VM :[HUKHYKZ YLSH[PUN [V JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z In May 2011, the International Accounting Standards Board (“IASBâ€?) issued an amended version of IAS 27 with a new title together with IFRS 10 and IFRS 12. In addition, as a result of its project on joint ventures, the IASB issued, at the same time, IFRS 11 (to replace IAS 31 – Interests in Joint Ventures) and an amended IAS 28. These new standards are mandatory for annual periods beginning on or after 1 January 2013. In 2012, the Group had voluntarily early adopted these standards for the year ended 31 December 2012 with 1 January 2012 as its date of initial application.

44

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE The standards and interpretations that are issued, but not yet effective, up to the KH[L VM PZZ\HUJL VM [OL .YV\W»Z ÄUHUJPHS Z[H[LTLU[Z HYL KPZJSVZLK ILSV^ Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS IFRIC Interpretation 21 - Levies (IFRIC 21) The Group intends to adopt these standards, if applicable, when they become effective. Furthermore, the Group has assessed the impact from the adoption of [OL HIV]L UL^ HUK HTLUKLK Z[HUKHYKZ VU P[Z ÄUHUJPHS WVZP[PVU HUK WLYMVYTHUJL [V IL PUZPNUPÄJHU[

2.5 SIGNIFICANT ACCOUNTING POLICIES Cash and cash equivalents Cash and cash equivalents comprise of cash and balances with the U.A.E. Central Bank, due from banks which mature within three months from the date of placement, net of balances due to banks maturing within three months from the date of acceptance. Due from banks Due from banks are stated at amortised cost using the effective interest rate less any amounts written off and provision for impairment. Investment in associates The Group’s investments in associates are accounted for under the equity method VM HJJV\U[PUN (U HZZVJPH[L PZ HU LU[P[` PU ^OPJO [OL .YV\W OHZ ZPNUPÄJHU[ PUÅ\LUJL HUK ^OPJO PZ ULP[OLY H Z\IZPKPHY` UVY H QVPU[ ]LU[\YL Under the equity method, the investment in the associate is carried in the Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU H[ JVZ[ WS\Z WVZ[ HJX\PZP[PVU JOHUNLZ PU [OL Group’s share of net assets of the associate. Losses in excess of the cost of the investment in an associate are recognised when the Group has incurred obligations on its behalf. The Group’s share of the result of operations of associates is included in the JVUZVSPKH[LK PUJVTL Z[H[LTLU[ <UYLHSPaLK WYVÄ[Z HUK SVZZLZ MYVT [YHUZHJ[PVUZ between the Group and an associate are eliminated to the extent of the Group’s interest in the associate.

FINANCE HOUSE ANNUAL REPORT 2013

45

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK

Financial assets Financial assets – initial recognition and subsequent measurement Date of recognition (SS ÄUHUJPHS HZZL[Z HYL PUP[PHSS` YLJVNUPZLK VU [OL [YHKL KH[L P L [OL KH[L [OH[ the Group becomes a party to the contractual provisions of the instrument. This PUJS\KLZ ºYLN\SHY ^H` [YHKLZ! W\YJOHZLZ VY ZHSLZ VM ÄUHUJPHS HZZL[Z [OH[ YLX\PYL delivery of assets within the time frame generally established by regulation or convention in the market place. Initial measurement (SS ÄUHUJPHS HZZL[Z HYL PUP[PHSS` TLHZ\YLK H[ [OLPY MHPY ]HS\L WS\Z [YHUZHJ[PVU JVZ[Z L_JLW[ MVY [OVZL ÄUHUJPHS HZZL[Z TLHZ\YLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY loss. Subsequent measurement ;OL Z\IZLX\LU[ TLHZ\YLTLU[ VM ÄUHUJPHS HZZL[Z KLWLUKZ VU [OL .YV\WZ I\ZPULZZ TVKLS MVY THUHNPUN [OVZL ÄUHUJPHS HZZL[Z HUK [OLPY JVU[YHJ[\HS JHZO ÅV^ JOHYHJ[LYPZ[PJZ ;YHUZHJ[PVU JVZ[Z L_WLJ[LK [V IL PUJ\YYLK VU [YHUZMLY VY KPZWVZHS VM H ÄUHUJPHS PUZ[Y\TLU[ HYL UV[ PUJS\KLK PU [OL TLHZ\YLTLU[ VM [OL ÄUHUJPHS PUZ[Y\TLU[ Financial assets measured at amortised cost Financial assets are measured at amortised cost only if the asset is held within a business model whose objective is to hold the asset to collect its contractual JHZO ÅV^Z HUK [OH[ [OL JVU[YHJ[\HS [LYTZ VM [OL ÄUHUJPHS HZZL[ NP]L YPZL VU ZWLJPÄLK KH[LZ [V JHZO ÅV^Z JVUZ[P[\[PUN ZVSLS` WYPUJPWHS HUK PU[LYLZ[ VU [OL outstanding principal amount. An inability to meet these two criteria requires [OL ÄUHUJPHS HZZL[ [V IL Z\IZLX\LU[S` TLHZ\YLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY loss. However, even where both conditions are met, the Company may elect \WVU PUP[PHS YLJVNUP[PVU [V TLHZ\YL [OL ÄUHUJPHS HZZL[ H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ PM KVPUN ZV LSPTPUH[LZ VY ZPNUPÄJHU[S` YLK\JLZ HU HJJV\U[PUN TPZTH[JO +LI[ PUZ[Y\TLU[Z PUJS\KPUN KLYP]H[P]LZ LTILKKLK PU ÄUHUJPHS OVZ[ HZZL[Z meeting these criteria are subsequently measured at amortised cost using the effective interest rate method, adjusted for any impairment charges and transaction costs incurred upon initial recognition. The effective interest rate method calculates an interest rate which exactly discounts estimated future JHZO YLJLPW[Z [OYV\NO [OL L_WLJ[LK SPML VM [OL ÄUHUJPHS HZZL[ VY H ZOVY[LY WLYPVK ^OLYL HWWYVWYPH[L [V [OL UL[ JHYY`PUN HTV\U[ VM [OL ÄUHUJPHS HZZL[ (M[LY PUP[PHS measurement at fair value, amounts due from banks and loans and advances are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate method. The amortisation is included in interest income in the income statement. The losses arising from impairment are recognised in the income statement in allowance for impairment of loans and advances.

46

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK -PUHUJPHS (ZZL[Z *VU[PU\LK

6[OLY ÄUHUJPHS HZZL[Z TLHZ\YLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ HUK SVZZ Financial assets which do not meet the amortised cost criteria such as derivatives HUK ÄUHUJPHS HZZL[Z OLSK MVY [YHKPUN HYL TLHZ\YLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ .HPUZ VY SVZZLZ HYPZPUN VU Z\IZLX\LU[ TLHZ\YLTLU[ VM [OLZL ÄUHUJPHS assets are recognised in the income statement. The Company determines an asset’s fair value in accordance with the Company’s accounting policy on fair value as discussed in note 34. -PUHUJPHS HZZL[Z OLSK MVY [YHKPUN HYL YLJVYKLK PU [OL Z[H[LTLU[ VM ÄUHUJPHS position at fair value. Changes in fair value are recognised in net trading income. Interest and dividend is recorded in net trading income according to the terms of the contract, or when the right to the payment has been established. 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z 0ZSHTPJ ÄUHUJPUN HZZL[Z HYL ÄUHUJPHS HZZL[Z ^P[O Ä_LK VY L_WLJ[LK WYVÄ[ payments. These assets are not quoted in an active market. They arise when the Company provides funds directly to a customer with no intention of trading the receivable. Murabaha is stated at amortised cost less any provisions for impairment and deferred income. 0Z[PZUHH JVZ[ PZ TLHZ\YLK HUK YLWVY[LK PU [OL ÄUHUJPHS Z[H[LTLU[Z H[ H ]HS\L UV[ exceeding the cash equivalent value. ;OL 0QHYH PZ JSHZZPÄLK HZ H ÄUHUJL SLHZL ^OLU [OL *VTWHU` \UKLY[HRLZ [V ZLSS [OL leased assets to the lessee using an independent agreement upon the maturity of the lease and the sale results in transferring all the risks and rewards incident to HU V^ULYZOPW VM [OL SLHZLK HZZL[Z [V [OL SLZZLL 3LHZLK HZZL[Z YLWYLZLU[Z ÄUHUJL lease of assets for periods, which either approximate or cover a major part of the estimated useful lives of such assets. Leased assets are stated at amounts equal to the net investment outstanding in the leases including the income earned thereon less impairment provisions. Equity investments at fair value through other comprehensive income Equity investments not held for trading can be designated as being measured at fair value through other comprehensive income at initial recognition and such an election is irrevocable. This designation is made on an instrument-byinstrument basis. Gains or losses arising on subsequent measurement of these equity investments are recognised in other comprehensive income. The gain VY SVZZ VU KPZWVZHS VM [OL HZZL[ PZ YLJSHZZPÄLK [V YL[HPULK LHYUPUNZ HUK PZ UV[ YLJ`JSLK [V WYVÄ[ VY SVZZ ;YHUZHJ[PVU JVZ[Z VU KPZWVZHS HYL [HRLU [V [OL PUJVTL statement. Dividends received on these equity investments are recognised in the income statement unless the dividend represents recovery of the cost of the investment.

FINANCE HOUSE ANNUAL REPORT 2013

47

Notes to the Consolidated Financial Statements :PNUPÄJHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK -PUHUJPHS (ZZL[Z *VU[PU\LK

-PUHUJPHS HZZL[Z KLZPNUH[LK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ -PUHUJPHS HZZL[Z JSHZZPÄLK PU [OPZ JH[LNVY` HYL [OVZL [OH[ OH]L ILLU KLZPNUH[LK I` THUHNLTLU[ H[ PUP[PHS YLJVNUP[PVU 4HUHNLTLU[ TH` KLZPNUH[L H ÄUHUJPHS HZZL[ H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ \WVU PUP[PHS YLJVNUP[PVU VUS` ^OLU [OL ÄYZ[ VM [OL MVSSV^PUN JYP[LYPH PZ TL[ +LZPNUH[PVU PZ KL[LYTPULK VU HU PUZ[Y\TLU[ I` PUZ[Y\TLU[ IHZPZ! ‹ ;OL KLZPNUH[PVU LSPTPUH[LZ VY ZPNUPÄJHU[S` YLK\JLZ [OL PUJVUZPZ[LU[ [YLH[TLU[ that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis. ‹ ;OL HZZL[Z HUK SPHIPSP[PLZ HYL WHY[ VM H NYV\W VM ÄUHUJPHS HZZL[Z ÄUHUJPHS liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. ‹ ;OL ÄUHUJPHS PUZ[Y\TLU[ JVU[HPUZ VUL VY TVYL LTILKKLK KLYP]H[P]LZ ^OPJO ZPNUPÄJHU[S` TVKPM` [OL JHZO Ã…V^Z [OH[ V[OLY^PZL ^V\SK IL YLX\PYLK I` [OL contract. -PUHUJPHS HZZL[Z KLZPNUH[LK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ -PUHUJPHS HZZL[Z H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ HYL YLJVYKLK PU [OL Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU H[ MHPY ]HS\L *OHUNLZ PU MHPY ]HS\L HYL YLJVYKLK PU UL[ NHPU VY SVZZ VU ÄUHUJPHS HZZL[Z KLZPNUH[LK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ 0U[LYLZ[ earned is accrued in interest income, using the effective interest rate method, while dividend income is recorded in other operating income when the right to the payment has been established. -PUHUJPHS HZZL[Z V[OLY [OHU [OVZL KLZPNUH[LK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ are assessed for indicators of impairment at the end of the reporting period. Individually assessed loans Individually assessed loans represent mainly corporate and commercial loans ^OPJO HYL HZZLZZLK PUKP]PK\HSS` HUK JSHZZPÄLK I` [OL JYLKP[ YPZR \UP[ PU VYKLY to determine whether any objective evidence exists that a loan is impaired. Impaired loans are measured based on the present value of expected future JHZO Ã…V^Z KPZJV\U[LK H[ [OL SVHU»Z LMMLJ[P]L PU[LYLZ[ YH[L 0TWHPYTLU[ SVZZ PZ calculated as the difference between the loan’s carrying value and its present impaired value.

48

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK -PUHUJPHS (ZZL[Z *VU[PU\LK

Collectively assessed loans Impairment losses of collectively assessed loans include the allowances JHSJ\SH[LK VU! ‹ 7LYMVYTPUN SVHUZ ‹ 9L[HPS SVHUZ ^P[O JVTTVU MLH[\YLZ HUK ^OPJO HYL UV[ PUKP]PK\HSS` ZPNUPÄJHU[ Performing loans Where individually assessed loans are evaluated and no evidence of loss has ILLU PKLU[PÄLK [OLZL SVHUZ HYL JSHZZPÄLK HZ WLYMVYTPUN SVHUZ WVY[MVSPVZ ^P[O common credit risk characteristics based on industry, product or loan rating. Impairment loss includes losses which may arise from individual performing loans that were impaired at the end of the reporting period but were not ZWLJPÄJHSS` PKLU[PÄLK HZ Z\JO HZ H[ [OH[ KH[L ;OL LZ[PTH[LK PTWHPYTLU[ PZ JHSJ\SH[LK I` [OL .YV\WZ THUHNLTLU[ MVY LHJO PKLU[PÄLK WVY[MVSPV IHZLK VU OPZ[VYPJHS L_WLYPLUJL HUK [OL HZZLZZLK PUOLYLU[ SVZZLZ ^OPJO HYL YLÅLJ[LK I` the economic and credit conditions. 9L[HPS SVHUZ ^P[O JVTTVU MLH[\YLZ HUK ^OPJO HYL UV[ PUKP]PK\HSS` ZPNUPÄJHU[ Impairment of retail loans is calculated by the Group’s management for each PKLU[PÄLK WVY[MVSPV IHZLK VU OPZ[VYPJHS L_WLYPLUJL HUK [OL HZZLZZLK PUOLYLU[ SVZZLZ ^OPJO HYL YLÅLJ[LK I` [OL LJVUVTPJ HUK JYLKP[ JVUKP[PVUZ Impaired loans are written off only when all legal and other avenues for recovery or settlement are exhausted. ;OL JHYY`PUN HTV\U[ VM SVHUZ HK]HUJLZ 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z is reduced through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in consolidated income statement. +LYLJVNUP[PVU VM ÄUHUJPHS HZZL[Z ( ÄUHUJPHS HZZL[ VY ^OLYL HWWSPJHISL H WHY[ VM H ÄUHUJPHS HZZL[ VY WHY[ VM H NYV\W VM ZPTPSHY ÄUHUJPHS HZZL[Z PZ KLYLJVNUPZLK ^OLU! ‹ ;OL YPNO[Z [V YLJLP]L JHZO ÅV^Z MYVT [OL HZZL[ OH]L L_WPYLK ‹ ;OL .YV\W OHZ [YHUZMLYYLK P[Z YPNO[Z [V YLJLP]L JHZO ÅV^Z MYVT [OL HZZL[ VY OHZ HZZ\TLK HU VISPNH[PVU [V WH` [OL YLJLP]LK JHZO ÅV^Z PU M\SS ^P[OV\[ TH[LYPHS KLSH` [V H [OPYK WHY[` \UKLY H ºWHZZ [OYV\NO HYYHUNLTLU[! HUK LP[OLY! - the Group has transferred substantially all the risks and rewards of the asset, or - the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

FINANCE HOUSE ANNUAL REPORT 2013

49

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK -PUHUJPHS (ZZL[Z *VU[PU\LK

+LYLJVNUP[PVU VM ÄUHUJPHS HZZL[Z >OLU [OL .YV\W OHZ [YHUZMLYYLK P[Z YPNO[Z [V YLJLP]L JHZO ÅV^Z MYVT HU HZZL[ 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 to the extent of the Group’s continuing involvement in the asset. In that case, the group also recognises an associated liability. The transferred asset and the associated liability are measured on a IHZPZ [OH[ YLÅLJ[Z [OL YPNO[Z HUK VISPNH[PVUZ [OH[ [OL .YV\W OHZ YL[HPULK 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 Group could be required to repay. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or H[ [OL WYVWVY[PVUH[L ZOHYL VM [OL HJX\PYLLZ PKLU[PÄHISL UL[ HZZL[Z (JX\PZP[PVU costs incurred are expensed and included in administrative expenses. >OLU [OL .YV\W HJX\PYLZ H I\ZPULZZ P[ HZZLZZLZ [OL ÄUHUJPHS HZZL[Z HUK SPHIPSP[PLZ HZZ\TLK MVY HWWYVWYPH[L JSHZZPÄJH[PVU HUK KLZPNUH[PVU PU HJJVYKHUJL with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to MHPY ]HS\L H[ [OL HJX\PZP[PVU KH[L [OYV\NO WYVÄ[ VY SVZZ Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be YLJVNUPZLK PU HJJVYKHUJL ^P[O 0(: LP[OLY PU WYVÄ[ VY SVZZ VY HZ H JOHUNL [V V[OLY JVTWYLOLUZP]L PUJVTL 0M [OL JVU[PUNLU[ JVUZPKLYH[PVU PZ JSHZZPÄLK HZ equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling PU[LYLZ[ V]LY [OL UL[ PKLU[PÄHISL HZZL[Z HJX\PYLK HUK SPHIPSP[PLZ HZZ\TLK 0M [OPZ consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement.

50

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK )\ZPULZZ *VTIPUH[PVU HUK .VVK^PSS *VU[PU\LK

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the .YV\WÂťZ JHZO NLULYH[PUN \UP[Z [OH[ HYL L_WLJ[LK [V ILULĂ„[ MYVT [OL JVTIPUH[PVU irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. 7YVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ 7YVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ HYL Z[H[LK H[ JVZ[ SLZZ HJJ\T\SH[LK KLWYLJPH[PVU and any impairment in value. The carrying amounts are reviewed at each Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU KH[L [V HZZLZZ ^OL[OLY [OL` HYL YLJVYKLK PU L_JLZZ of their recoverable amount and, where carrying values exceed the recoverable amount, assets are written down. Land is measured at fair value. Valuations are performed frequently to ensure that the fair value of revalued land does not differ materially from its carrying amount. Any revaluation surplus is credited to the revaluation reserve included in the LX\P[` ZLJ[PVU VM [OL JVUZVSPKH[LK Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU L_JLW[ [V the extent that it reverses a revaluation decrease of the same asset previously recognised in the consolidated income statement, in which case the increase PZ YLJVNUPZLK PU [OL JVUZVSPKH[LK PUJVTL Z[H[LTLU[ ( YL]HS\H[PVU KLĂ„JP[ PZ recognised in the consolidated income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the revaluation reserve. Depreciation is provided on a straight-line basis on all property and equipment, V[OLY [OHU MYLLOVSK SHUK ^OPJO PZ KL[LYTPULK [V OH]L HU PUKLĂ„UP[L SPML The estimated useful lives of the assets for the calculation of depreciation are as MVSSV^Z! Motor vehicles -\YUP[\YL Ă„_[\YLZ HUK LX\PWTLU[ Computer hardware and software

4 years `LHYZ 3-4 years

Capital work-in progress is initially recorded at cost, and upon completion is transferred to the appropriate category of property and equipment and thereafter depreciated.

FINANCE HOUSE ANNUAL REPORT 2013

51

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK

Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised KL]LSVWTLU[ JVZ[Z HYL UV[ JHWP[HSPZLK HUK L_WLUKP[\YL PZ YLĂ…LJ[LK PU [OL consolidated income statement in the year in which the expenditure is incurred. ;OL \ZLM\S SP]LZ VM PU[HUNPISL HZZL[Z HYL HZZLZZLK HZ LP[OLY Ă„UP[L VY PUKLĂ„UP[L 0U[HUNPISL HZZL[Z ^P[O Ă„UP[L SP]LZ HYL HTVY[PZLK V]LY [OL \ZLM\S LJVUVTPJ SPML and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method MVY HU PU[HUNPISL HZZL[ ^P[O H Ă„UP[L \ZLM\S SPML HYL YL]PL^LK H[ SLHZ[ H[ LHJO Ă„UHUJPHS `LHY LUK *OHUNLZ PU [OL L_WLJ[LK \ZLM\S SPML VY [OL L_WLJ[LK WH[[LYU VM JVUZ\TW[PVU VM M\[\YL LJVUVTPJ ILULĂ„[Z LTIVKPLK PU [OL HZZL[ PZ HJJV\U[LK for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The estimated useful economic life of the intangible asset for the calculation of HTVY[PaH[PVU PZ HZ MVSSV^Z! License

5 years

0U[HUNPISL HZZL[Z ^P[O PUKLĂ„UP[L \ZLM\S SP]LZ HYL UV[ HTVY[PZLK I\[ HYL [LZ[LK MVY impairment annually, either individually or at the cash-generating unit level. ;OL HZZLZZTLU[ VM PUKLĂ„UP[L SPML PZ YL]PL^LK HUU\HSS` [V KL[LYTPUL ^OL[OLY [OL PUKLĂ„UP[L SPML JVU[PU\LZ [V IL Z\WWVY[HISL 0M UV[ [OL JOHUNL PU \ZLM\S SPML MYVT PUKLĂ„UP[L [V Ă„UP[L PZ THKL VU H WYVZWLJ[P]L IHZPZ Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised. Investment properties Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value ^OPJO YLĂ…LJ[Z THYRL[ JVUKP[PVUZ H[ [OL Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU KH[L Gains or losses arising from changes in the fair values of investment properties are included in the consolidated income statement in the year in which they arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and UV M\[\YL LJVUVTPJ ILULĂ„[ PZ L_WLJ[LK MYVT P[Z KPZWVZHS (U` NHPUZ VY SVZZLZ on the retirement or disposal of an investment property are recognised in the consolidated income statement in the year of retirement or disposal.

52

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK

Insurance receivables Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost, using the effective interest rate method. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the statement of income. Reinsurance contracts held 0U VYKLY [V TPUPTPaL ÄUHUJPHS L_WVZ\YL MYVT SHYNL JSHPTZ [OL .YV\W LU[LYZ into agreements with other parties for reinsurance purposes. Claims receivable from reinsurers are estimated in a manner consistent with the claim liability and in accordance with the reinsurance contract. Once the claim is paid the amount due from the reinsurer in connection with the paid claim is transferred to receivables arising from insurance and reinsurance companies. At each reporting date, the Group assesses whether there is any indication that a reinsurance asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of a reinsurance asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Ceded reinsurance arrangements do not relieve the Group from its obligations to policy holders. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire when the contract is transferred to another party. Financial liabilities and equity instruments +LI[ HUK LX\P[` PUZ[Y\TLU[Z HYL JSHZZPÄLK HZ LP[OLY ÄUHUJPHS SPHIPSP[PLZ VY HZ equity in accordance with the substance of the contractual arrangement. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Financial liabilities (SS ÄUHUJPHS SPHIPSP[PLZ HYL PUP[PHSS` YLJVNUPZLK VU [OL [YHKL KH[L P L [OL KH[L that the Group becomes a party to the contractual provisions of the instrument. ;OPZ PUJS\KLZ ºYLN\SHY ^H` [YHKLZ! W\YJOHZLZ VY ZHSLZ VM ÄUHUJPHS SPHIPSP[PLZ [OH[ require delivery of liabilities within the time frame generally established by regulation or convention in the market place. Financial liabilities, including customers’ deposits, due to banks, wakala deposits, term loans and other payables are initially measured at fair value, net of transaction costs.

FINANCE HOUSE ANNUAL REPORT 2013

53

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK -PUHUJPHS 3PHIPSP[PLZ HUK ,X\P[` 0UZ[Y\TLU[Z *VU[PU\LK

Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of H Ă„UHUJPHS SPHIPSP[` HUK VM HSSVJH[PUN PU[LYLZ[ L_WLUZL V]LY [OL YLSL]HU[ WLYPVK The effective interest rate is the rate that exactly discounts estimated future JHZO WH`TLU[Z [OYV\NO [OL L_WLJ[LK SPML VM [OL Ă„UHUJPHS SPHIPSP[` VY ^OLYL appropriate, a shorter period. +LYLJVNUP[PVU VM Ă„UHUJPHS SPHIPSP[PLZ ( Ă„UHUJPHS SPHIPSP[` PZ KLYLJVNUPZLK ^OLU [OL VISPNH[PVU \UKLY [OL SPHIPSP[` PZ KPZJOHYNLK VY JHUJLSSLK VY L_WPYLZ >OLYL HU L_PZ[PUN Ă„UHUJPHS SPHIPSP[` PZ replaced by another from the same lender on substantially different terms, or [OL [LYTZ VM HU L_PZ[PUN SPHIPSP[` HYL Z\IZ[HU[PHSS` TVKPĂ„LK Z\JO HU L_JOHUNL VY TVKPĂ„JH[PVU PZ [YLH[LK HZ H KLYLJVNUP[PVU VM [OL VYPNPUHS SPHIPSP[` HUK [OL recognition of a new liability. The difference between the carrying value of the VYPNPUHS Ă„UHUJPHS SPHIPSP[` HUK [OL JVUZPKLYH[PVU WHPK PZ YLJVNUPZLK PU WYVĂ„[ VY loss. Repurchase agreements (ZZL[Z ZVSK ^P[O H ZPT\S[HULV\Z JVTTP[TLU[ [V YLW\YJOHZL H[ H ZWLJPĂ„LK M\[\YL date (“Repoâ€?) are not derecognised. The counterparty liability for amounts received under these agreements is included in term loans in the consolidated Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU HZ HWWYVWYPH[L ;OL KPMMLYLUJL IL[^LLU [OL ZHSL and repurchase price is treated as interest expense which is accrued over the life of the repo agreement using the effective interest rate. Operating segment reporting An operating segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment) which is subject to risks and rewards that are different from those of other segments and whose operating results are regularly reviewed by the Group’s Chief Operating decision maker to make decisions about allocation of resources and assess its performance. Provisions Provisions are recognised when the Group has a present 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. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the party or not.

54

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK

,TWSV`LLZ LUK VM ZLY]PJL ILULÄ[Z ;OL .YV\W WYV]PKLZ LUK VM ZLY]PJL ILULÄ[Z MVY P[Z LTWSV`LLZ ;OL LU[P[SLTLU[ [V [OLZL ILULÄ[Z PZ IHZLK \WVU [OL LTWSV`LLZ SLUN[O VM ZLY]PJL HUK JVTWSL[PVU VM H TPUPT\T ZLY]PJL WLYPVK ;OL L_WLJ[LK JVZ[Z VM [OLZL ILULÄ[Z HYL HJJY\LK over the period of employment. With respect to its U.A.E. national employees, the Group makes contributions to the relevant government pension scheme, calculated as a percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are expensed when due. Foreign currencies Foreign currency transactions are recorded at rates of exchange ruling at the value dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into AED at the rates of exchange ruling at the JVUZVSPKH[LK Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU KH[L (U` YLZ\S[HU[ NHPUZ HUK SVZZLZ are recognised in the consolidated statement of income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Fair values ;OL .YV\W TLHZ\YLZ ÄUHUJPHS PUZ[Y\TLU[Z Z\JO HZ PU]LZ[TLU[ JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ HUK PU]LZ[TLU[ JHYYPLK H[ MHPY ]HS\L [OYV\NO V[OLY JVTWYLOLUZP]L PUJVTL HUK UVU ÄUHUJPHS HZZL[Z Z\JO HZ PU]LZ[TLU[ WYVWLY[PLZ H[ MHPY ]HS\L H[ LHJO IHSHUJL ZOLL[ KH[L (SZV MHPY ]HS\LZ VM ÄUHUJPHS PUZ[Y\TLU[Z measured at amortised cost are disclosed in note 5. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption [OH[ [OL [YHUZHJ[PVU [V ZLSS [OL HZZL[ VY [YHUZMLY [OL SPHIPSP[` [HRLZ WSHJL LP[OLY! ‹ 0U [OL WYPUJPWHS THYRL[ MVY [OL HZZL[ VY SPHIPSP[` VY ‹ 0U [OL HIZLUJL VM H WYPUJPWHS THYRL[ PU [OL TVZ[ HK]HU[HNLV\Z THYRL[ MVY [OL asset or liability The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

FINANCE HOUSE ANNUAL REPORT 2013

55

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK -HPY =HS\LZ *VU[PU\LK

( MHPY ]HS\L TLHZ\YLTLU[ VM H UVU Ă„UHUJPHS HZZL[ [HRLZ PU[V HJJV\U[ H THYRL[ WHY[PJPWHU[ÂťZ HIPSP[` [V NLULYH[L LJVUVTPJ ILULĂ„[Z I` \ZPUN [OL HZZL[ PU P[Z highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances HUK MVY ^OPJO Z\MĂ„JPLU[ KH[H HYL H]HPSHISL [V TLHZ\YL MHPY ]HS\L TH_PTPZPUN the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the Ă„UHUJPHS Z[H[LTLU[Z HYL JH[LNVYPaLK ^P[OPU [OL MHPY ]HS\L OPLYHYJO` KLZJYPILK HZ MVSSV^Z IHZLK VU [OL SV^LZ[ SL]LS PUW\[ [OH[ PZ ZPNUPĂ„JHU[ [V [OL MHPY ]HS\L TLHZ\YLTLU[ HZ H ^OVSL! ‹ 3L]LS ¡ 8\V[LK \UHKQ\Z[LK THYRL[ WYPJLZ PU HJ[P]L THYRL[Z MVY PKLU[PJHS assets or liabilities ‹ 3L]LS ¡ =HS\H[PVU [LJOUPX\LZ MVY ^OPJO [OL SV^LZ[ SL]LS PUW\[ [OH[ PZ ZPNUPĂ„JHU[ [V [OL MHPY ]HS\L TLHZ\YLTLU[ PZ KPYLJ[S` VY PUKPYLJ[S` VIZLY]HISL ‹ 3L]LS ¡ =HS\H[PVU [LJOUPX\LZ MVY ^OPJO [OL SV^LZ[ SL]LS PUW\[ [OH[ PZ ZPNUPĂ„JHU[ [V [OL MHPY ]HS\L TLHZ\YLTLU[ PZ \UVIZLY]HISL -VY HZZL[Z HUK SPHIPSP[PLZ [OH[ HYL YLJVNUPZLK PU [OL Ă„UHUJPHS Z[H[LTLU[Z VU H recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level PUW\[ [OH[ PZ ZPNUPĂ„JHU[ [V [OL MHPY ]HS\L TLHZ\YLTLU[ HZ H ^OVSL H[ [OL LUK VM each reporting period. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. An HUHS`ZPZ VM MHPY ]HS\LZ VM Ă„UHUJPHS PUZ[Y\TLU[Z HUK M\Y[OLY KL[HPSZ HZ [V OV^ [OL` are measured are provided in note 34. The management determines the policies and procedures for both recurring fair value measurement and for non-recurring measurement. External valuers are PU]VS]LK MVY ]HS\H[PVU VM ZPNUPĂ„JHU[ HZZL[Z Z\JO HZ PU]LZ[TLU[ WYVWLY[` :LSLJ[PVU criteria for valuers include market knowledge, reputation, independence and whether professional standards are maintained. The management decides, after discussions with the Group’s external valuers, which valuation techniques and inputs to use for each case. The management, in conjunction with the Group’s external valuers, also compares changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable.

56

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK

Recognition of income and expenses Interest -VY HSS ÄUHUJPHS PUZ[Y\TLU[Z TLHZ\YLK H[ HTVY[PZLK JVZ[ HUK PU[LYLZ[ ILHYPUN ÄUHUJPHS PUZ[Y\TLU[Z PU[LYLZ[ PUJVTL VY L_WLUZL PZ YLJVYKLK H[ [OL LMMLJ[P]L interest rate, which is the rate that exactly discounts estimated future cash WH`TLU[Z VY YLJLPW[Z [OYV\NO [OL L_WLJ[LK SPML VM [OL ÄUHUJPHS PUZ[Y\TLU[ VY H ZOVY[LY WLYPVK ^OLYL HWWYVWYPH[L [V [OL UL[ JHYY`PUN HTV\U[ VM [OL ÄUHUJPHS HZZL[ VY ÄUHUJPHS SPHIPSP[` ;OL JHSJ\SH[PVU [HRLZ PU[V HJJV\U[ HSS JVU[YHJ[\HS [LYTZ VM [OL ÄUHUJPHS PUZ[Y\TLU[ HUK PUJS\KLZ HU` MLLZ VY PUJYLTLU[HS JVZ[Z that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The carrying amount of the ÄUHUJPHS HZZL[ VY ÄUHUJPHS SPHIPSP[` PZ HKQ\Z[LK PM [OL .YV\W YL]PZLZ P[Z LZ[PTH[LZ of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in carrying amount is recorded as interest income or expense. 6UJL [OL YLJVYKLK ]HS\L VM H ÄUHUJPHS HZZL[ VY H NYV\W VM ZPTPSHY ÄUHUJPHS HZZL[Z has been reduced due to an impairment loss, interest income is suspended and not recognised. Fees and commission Fees and commission income and expenses that are integral to the effective PU[LYLZ[ YH[L VU H ÄUHUJPHS HZZL[ VY SPHIPSP[` HYL PUJS\KLK PU [OL TLHZ\YLTLU[ VM the effective interest rate. Other fees and commission income, including account servicing fees, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commission expense relates mainly to transaction and service fees, which are expensed as the services are received. Murabaha Murabaha income is recognised on a time apportioned basis over the period of the contract based on the principal amounts outstanding. Istisna’a 0Z[PZUHH YL]LU\L HUK [OL HZZVJPH[LK WYVÄ[ THYNPU KPMMLYLUJL IL[^LLU [OL JHZO price of al-masnoo to the customer and the Company’s total Istisna’a cost) is accounted for on a time apportioned basis. Ijara Ijara income is recognised on a time apportioned basis over the lease term. 6UJL [OL YLJVYKLK ]HS\L VM H ÄUHUJPHS HZZL[ VY H NYV\W VM ZPTPSHY ÄUHUJPHS assets has been reduced due to an impairment loss, income is suspended and not recognised.

FINANCE HOUSE ANNUAL REPORT 2013

57

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK 9LJVNUP[PVU VM PUJVTL HUK L_WLUZLZ *VU[PU\LK

0UJVTL VU IHSHUJLZ ^P[O Ă„UHUJPHS PUZ[P[\[PVUZ 0UJVTL VU IHSHUJLZ ^P[O Ă„UHUJPHS PUZ[P[\[PVUZ PZ JHSJ\SH[LK VU HJJV\U[ IHZLK VU [OL L_WLJ[LK HU[PJPWH[LK WYVĂ„[ YH[LZ UL[ VM YLSL]HU[ MLLZ HUK L_WLUZLZ Dividend income Revenue is recognised when the Group’s right to receive the payment is established. Contract revenue Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the surveys of work performed and completion of a physical proportion of the contracts. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Insurance income Insurance contract Insurance contracts are those contracts where the Group has accepted ZPNUPĂ„JHU[ PUZ\YHUJL YPZR MYVT HUV[OLY WHY[` [OL ¸WVSPJ`OVSKLYZš I` HNYLLPUN [V JVTWLUZH[L [OL WVSPJ`OVSKLYZ PM H ZWLJPĂ„LK \UJLY[HPU M\[\YL L]LU[ [OL ¸PUZ\YLK eventâ€?) adversely affects the policyholders. 6UJL H JVU[YHJ[ OHZ ILLU JSHZZPĂ„LK HZ HU PUZ\YHUJL JVU[YHJ[ P[ YLTHPUZ HU insurance contract for the remainder of its lifetime, even if the insurance risk YLK\JLZ ZPNUPĂ„JHU[S` K\YPUN [OPZ WLYPVK \USLZZ HSS YPNO[Z HUK VISPNH[PVUZ HYL extinguished or expire. Premiums earned Premiums written are taken into income over the terms of the policies to which they relate on a pro-rata basis. Unearned premiums represent the portion of premiums written relating to the unexpired periods of coverage. Commissions earned 7YVĂ„[ JVTTPZZPVU PZ HJJV\U[LK MVY HZ HUK ^OLU YLJLP]LK ^OPSL V[OLY commissions are accounted for when earned.

58

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 7VSPJPLZ *VU[PU\LK 0UZ\YHUJL 0UJVTL *VU[PU\LK

Claims Claims comprising amounts payable to contract holders and third parties and related loss adjustment expenses, net of salvage and other recoveries, are charged to income as incurred. Claims comprise the estimated amounts payable, in respect of claims reported to the Group. The Group generally estimates its claims based on previous experience. Claims requiring court or arbitration decisions are estimated individually. Independent loss adjusters normally estimate property claims. Any difference between [OL WYV]PZPVUZ H[ [OL Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU KH[L HUK ZL[[SLTLU[Z HUK provisions for the following year is included in the underwriting account for that year. The Group does not discount its liability for unpaid claims as these are expected to be settled within one year of reporting date.

2.6 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES Consolidation of entities in which the Group holds less than majority of voting rights The Group considers that it controls Islamic Finance House P.J.S.C. and Insurance House P.S.C. even though it owns less than 50% of the voting rights in both the entities as the Group is the largest shareholder of Islamic Finance House P.J.S.C. and Insurance House P.S.C. with a 47.83% and 44.38% equity interest respectively. *SHZZPĂ„JH[PVU VM WYVWLY[PLZ Management decides, on acquisition of a property, whether it should be JSHZZPĂ„LK HZ PU]LZ[TLU[ WYVWLY[` WYVWLY[` HUK LX\PWTLU[ VY HZ WYVWLY[` OLSK for sale. Properties acquired by the Group are recorded as investment properties if these were acquired for rental purposes or capital appreciation. 7YVWLY[PLZ OLSK MVY V^U \ZL HYL YLJVYKLK HZ WYVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ Properties are recorded as held for sale if their carrying amounts will be recovered through a sale transaction.

FINANCE HOUSE ANNUAL REPORT 2013

59

Notes to the Consolidated Financial Statements :PNUPÄJHU[ (JJV\U[PUN 1\KNLTLU[Z HUK ,Z[PTH[LZ

Fair value of investment properties The Group carries its investment properties at fair value, with changes in fair value being recognised in the consolidated income statement. The Group engaged an independent valuation specialist to assess fair value at 15 December 2013 for its investment property using a valuation methodology based on the ‘income method’. The key assumptions used to determine the fair value of the property and sensitivity analyses are disclosed in note 12. *SHZZPÄJH[PVU VM PU]LZ[TLU[Z ;OL .YV\W JSHZZPÄLZ PU]LZ[TLU[Z HZ MHPY ]HS\L [OYV\NO WYVÄ[ HUK SVZZ PM [OL` HYL HJX\PYLK WYPTHYPS` MVY [OL W\YWVZL VM THRPUN H ZOVY[ [LYT WYVÄ[ I` [OL KLHSLYZ *SHZZPÄJH[PVU VM PU]LZ[TLU[Z HZ MHPY ]HS\L [OYV\NO WYVÄ[ HUK SVZZ KLWLUKZ VU how management monitors the performance of these investments. When they HYL UV[ JSHZZPÄLK HZ OLSK MVY [YHKPUN I\[ OH]L YLHKPS` H]HPSHISL YLSPHISL MHPY ]HS\LZ HUK [OL JOHUNLZ PU MHPY ]HS\LZ HYL YLWVY[LK HZ WHY[ VM WYVÄ[ HUK SVZZ PU [OL THUHNLTLU[ HJJV\U[Z [OL` HYL JSHZZPÄLK HZ MHPY ]HS\L [OYV\NO WYVÄ[ HUK SVZZ Equity investments not held for trading can be designated as being measured at fair value thorough other comprehensive income at initial recognition. 0U]LZ[TLU[Z HYL JSHZZPÄLK H[ HTVY[PZLK JVZ[ VUS` PM [OL HZZL[ PZ OLSK ^P[OPU H business model whose objective is to hold the asset to collect its contractual JHZO ÅV^Z HUK [OH[ [OL JVU[YHJ[\HS [LYTZ VM [OL ÄUHUJPHS HZZL[ NP]L YPZL VU ZWLJPÄLK KH[LZ [V JHZO ÅV^Z JVUZ[P[\[PUN ZVSLS` WYPUJPWHS HUK PU[LYLZ[ VU [OL outstanding principal amount. 0TWHPYTLU[ SVZZLZ VU SVHUZ HK]HUJLZ HUK 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z ;OL .YV\W YL]PL^Z P[Z WYVISLTH[PJ SVHUZ HK]HUJLZ HUK 0ZSHTPJ ÄUHUJPUN and investing portfolio on a quarterly basis to assess whether a provision for impairment should be recorded in the consolidated income statement. In particular, considerable judgment by management is required in the estimation VM [OL HTV\U[ HUK [PTPUN VM M\[\YL JHZO ÅV^Z ^OLU KL[LYTPUPUN [OL SL]LS VM provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such provisions. *VSSLJ[P]L PTWHPYTLU[ WYV]PZPVUZ VU SVHUZ HK]HUJLZ HUK 0ZSHTPJ ÄUHUJPUN HUK investing assets 0U HKKP[PVU [V ZWLJPÄJ WYV]PZPVUZ HNHPUZ[ PUKP]PK\HSS` ZPNUPÄJHU[ SVHUZ HK]HUJLZ HUK 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z [OL .YV\W HSZV THRLZ H JVSSLJ[P]L PTWHPYTLU[ WYV]PZPVU HNHPUZ[ SVHUZ HK]HUJLZ HUK 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z ^OPJO HS[OV\NO UV[ ZWLJPÄJHSS` PKLU[PÄLK HZ YLX\PYPUN H ZWLJPÄJ WYV]PZPVU OH]L H NYLH[LY YPZR VM KLMH\S[ [OHU ^OLU VYPNPUHSS` NYHU[LK The amount of the provision is based on the historical loss pattern for loans and HK]HUJLZ HUK PZ HKQ\Z[LK [V YLÅLJ[ J\YYLU[ LJVUVTPJ JOHUNLZ

60

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :PNUPĂ„JHU[ (JJV\U[PUN 1\KNLTLU[Z HUK ,Z[PTH[LZ *VU[PU\LK

Contract cost estimates When the outcome of a construction contract can be estimated reliably, revenues and costs are recognised by reference to stage of completion of the contract activity at the end of the reporting period. In judging whether the outcome of the construction contract can be estimated reliably, management has considered the detailed criterion for determination of such outcome as set out in IAS 11 ‘Construction Contracts’. For the purpose of estimating the stage of completion of contract activity, management has considered the forecasts for revenue and costs related to each construction contract. When it is estimated that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Management has considered the costs to be incurred based on analysis and forecast of construction work to be executed. Fair value of unquoted investments As described in note 34, the management uses their judgment in selecting an HWWYVWYPH[L ]HS\H[PVU [LJOUPX\L MVY Ă„UHUJPHS PUZ[Y\TLU[Z UV[ X\V[LK PU HU active market. Valuation techniques commonly used by market practitioners HYL HWWSPLK :\JO Ă„UHUJPHS PUZ[Y\TLU[Z HYL ]HS\LK \ZPUN KPZJV\U[LK JHZO Ă…V^ HUK JHWP[HSPZH[PVU VM Z\Z[HPUHISL LHYUPUNZ HUHS`ZPZ IHZLK VU HZZ\TW[PVUZ supported, where possible, by observable market prices or rates. The estimation of fair value of unquoted shares includes some assumptions not supported by observable market prices or rates. Details of assumptions used and of the results of sensitivity analyses regarding these assumptions are provided in note 34. Provision for outstanding claims Considerable judgement by management is required in the estimation of amounts due to contract holders arising from claims made under insurance contracts. :\JO LZ[PTH[LZ HYL ULJLZZHYPS` IHZLK VU ZPNUPĂ„JHU[ HZZ\TW[PVUZ HIV\[ ZL]LYHS MHJ[VYZ PU]VS]PUN ]HY`PUN HUK WVZZPISL ZPNUPĂ„JHU[ KLNYLLZ VM Q\KNLTLU[ HUK uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated liabilities. The Group generally estimates its claims based on previous experience. Claims requiring court or arbitration decisions are estimated individually. Independent loss adjusters along with the Group’s internal legal counsel normally estimate such claims. Management reviews its provisions for claims incurred on a quarterly basis. Reinsurance The Group is exposed to disputes with, and possibility of defaults by its reinsurers. The Group monitors on a quarterly basis the evolution of disputes with and the strength of its reinsurers.

FINANCE HOUSE ANNUAL REPORT 2013

61

Notes to the Consolidated Financial Statements

2.7 DEFINITIONS ;OL MVSSV^PUN [LYTZ HYL \ZLK PU [OL ÄUHUJPHS Z[H[LTLU[Z ^P[O [OL TLHUPUN ZWLJPÄLK! Commodities Murabaha ( ZLSSPUN JVU[YHJ[ MVY JVTTVKP[PLZ H[ [OL W\YJOHZL WYPJL ^P[O H KLÄULK HUK HNYLLK WYVÄ[ THYR \W ;OL THYR \W TH` IL H WLYJLU[HNL VM [OL W\YJOHZL WYPJL VY H Ä_LK HTV\U[ Istisna’a A sale contract, in which the Group (Al Saanee) sells an asset to be developed using its own materials to a customer (Al Mustasnee) according to pre-agreed \WVU WYLJPZL ZWLJPÄJH[PVU H[ H ZWLJPÄJ WYPJL PUZ[HSSTLU[Z KH[LZ HUK [V IL KLSP]LYLK VU H ZWLJPÄJ KH[L ;OPZ KL]LSVWLK HZZL[ JHU IL LP[OLY KL]LSVWLK directly by the Group or through a subcontractor and then it is handed over to the customer on the pre-agreed upon date. Ijara A lease agreement whereby the Group (as lessor) leases an asset to the Customer HZ SLZZLL HM[LY W\YJOHZPUN HJX\PYPUN [OL ZWLJPÄLK HZZL[ HJJVYKPUN [V [OL customer’s request and promise to lease, either from a third party seller or from [OL J\Z[VTLY P[ZLSM HNHPUZ[ JLY[HPU YLU[HS WH`TLU[Z MVY ZWLJPÄLK SLHZL [LYT WLYPVKZ >OLYLHZ \WVU M\SÄSSTLU[ VM HSS [OL VISPNH[PVUZ I` [OL J\Z[VTLY SLZZLL under the lease agreement, the ownership of the subject asset is transferred from the Group (lessor) to the customer (lessee). Sukuk 0U [OL JVU[LU[ VM [OLZL UV[LZ [OLZL JVTWYPZL :OHYPHH JVTWSPHU[ ÄUHUJPHS instruments representing debt under Murabaha contracts. Wakala An agreement between the Group and a customer whereby one party (the WYPUJPWHS! [OL 4\^HRRPS HWWVPU[Z [OL V[OLY WHY[` [OL HNLU[! >HRPS [V PU]LZ[ JLY[HPU M\UKZ HJJVYKPUN [V [OL [LYTZ HUK JVUKP[PVUZ VM [OL >HRHSH MVY H Ä_LK MLL PU HKKP[PVU [V HU` WYVÄ[ L_JLLKPUN [OL L_WLJ[LK WYVÄ[ HZ HU PUJLU[P]L MVY the Wakil for the good performance. Any losses as a result of the misconduct or negligence or violation of the terms and conditions of the Wakala are borne by the Wakil; otherwise, they are borne by the principal.

62

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

3. SUBSIDIARIES AND PARTLYOWNED SUBSIDIARIES ;OL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z JVTWYPZL [OL Ă„UHUJPHS Z[H[LTLU[Z VM [OL *VTWHU` HUK [OL MVSSV^PUN Z\IZPKPHYPLZ!

Country of incorporation

Name of subsidiary Third Vision Investment L.L.C. Finance House Holding L.L.C.* National Project House L.L.C.** Benyan Development Company L.L.C. Emirates National Electromechanical L.L.C. FH Capital Limited (D.I.F.C.) Finance House Sukuk Company 1 Islamic Finance House P.J.S.C. Insurance House P.S.C. Finance House Securities Co L.L.C. CAPM Investment P.J.S***

U.A.E. U.A.E. U.A.E. U.A.E. U.A.E. U.A.E. Cayman Islands U.A.E. U.A.E. U.A.E. U.A.E.

Ownership interest % 2013

2012

100 100 100 100 100 100 100 47.83 44.38 65 100

100 100 100 100 100 44.38 65 -

Principal activity Management Investment and development Construction Construction Electromechanical contracting Investment and asset management Sukuk issuance 0ZSHTPJ Ă„UHUJPUN ZLY]PJLZ Insurance Brokerage Investment and asset management

* The Group established a new subsidiary Finance House Holding L.L.C. during the year. The purpose of this subsidiary is to engage in investment and development activities across multiple business sectors. ** The Group established another subsidiary National Project House L.L.C. during the year. The purpose of this subsidiary is to engage in the construction of real estate projects. *** During the year, the Group acquired an investment banking license through CAPM Investment P.J.S. :\TTHYPZLK Ă„UHUJPHS PUMVYTH[PVU VM Z\IZPKPHYPLZ ^P[O TH[LYPHS UVU JVU[YVSSPUN interests is provided below. This information is based on amounts before interJVTWHU` LSPTPUH[PVUZ!

Net increase (decrease) in cash and cash equivalents

Operating Investing Financing 7,732

(3,892) 96,256 (84,632)

7,830

Total comprehensive income (expense) allocated to noncontrolling interest

:\IZPKPHYPLZÂť Z\TTHYPaLK JHZOĂ…V^ PUMVYTH[PVU

14,382

5,317

5L[ WYVĂ„[ SVZZ MVY [OL `LHY allocated to non-controlling interest

Total comprehensive income (expense) for the year

9,558

5L[ WYVĂ„[ SVZZ MVY [OL `LHY

Revenue, net

66,205

140,270

Net assets

Subsidiaries’ revenues HUK WYVÄ[Z SVZZLZ

254,608 114,338

76,836

55.62

Subsidiaries’ statement of ÄUHUJPHS WVZP[PVU Assets Liabilities

Accumulated balance of material non-controlling interests

Non-controlling interests %

(39,162)

17,929 (179,533) 122,442

4,981

9,752

5,570

10,012

35,393

126,684

302,566 175,882

70,233

55.62

5,145

10,320 (5,175) -

422

809

580

1,112

10,355

102,040

247,371 145,331

53,240

52.17

1,641

751 890 -

152

291

283

541

11,677

100,621

263,549 162,928

52,494

52.17

58,210

58,293 (166) 83

956

2,731

956

2,732

12,790

31,747

151,191 119,444

11,112

35

(638)

(12,396) (2,101) 13,859

(1,290)

(3,686)

(1,290)

(3,686)

2,356

28,715

70,794 42,079

10,051

35

71,087

64,721 90,915 (84,549)

9,208

17,922

6,853

13,402

53,498

274,057

653,170 379,113

141,188

(38,159)

6,284 (180,744) 136,301

3,843

6,357

4,563

6,867

49,426

256,020

636,909 380,889

132,778

Insurance Finance Islamic Finance Finance House /V\ZL 7 : * /V\ZL 7 1 : * :LJ\YP[PLZ *V 33* ;V[HS 2013 2012 2013 2012 2013 2012 2013 2012 AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000 AED ‘000

FINANCE HOUSE ANNUAL REPORT 2013

63

Notes to the Consolidated Financial Statements :\IZPKPHYPLZ HUK 7HY[S` 6^ULK :\IZPKPHYPLZ *VU[PU\LK

64

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

4. CASH AND CASH EQUIVALENTS 2013 AED’000

2012 AED’000

143,474 745,000 13,100 191,507

60,376 963,538 29,721

Due from banks

1,093,081

1,053,635

Cash balances Due from banks with original maturity of more than three months Due to banks with original maturity of less than three months

9,497 (218,100) (67,528)

8,395 (278,389) (184,567)

816,950

599,074

Current and demand accounts Fixed placements Wakala deposits with banks Call accounts

Net cash and cash equivalents

-P_LK WSHJLTLU[Z ^P[O IHURZ VM (,+ [OV\ZHUK ! (,+ [OV\ZHUK HUK K\L [V IHURZ VM (,+ [OV\ZHUK ! (,+ thousand) are due to mature after three months from the date of placement and are not included in cash and cash equivalents.

FINANCE HOUSE ANNUAL REPORT 2013

65

Notes to the Consolidated Financial Statements

5. INVESTMENTS 2013 ,X\P[` PUZ[Y\TLU[Z! - Quoted - Unquoted +LI[ PUZ[Y\TLU[Z! 8\V[LK Ă„_LK YH[L Investment in managed funds

UAE Outside UAE

2012 ,X\P[` PUZ[Y\TLU[Z! - Quoted - Unquoted +LI[ PUZ[Y\TLU[Z! 8\V[LK Ă„_LK YH[L Investment in managed funds

UAE Outside UAE

At fair value [OYV\NO 6*0 AED’000

At fair value through WYVÄ[ VY SVZZ AED’000

At amortised JVZ[ AED’000

;V[HS AED’000

98,415 149,416

198,917 -

-

297,332 149,416

-

2,438

284,485

286,923

10,409

-

-

10,409

258,240

201,355

284,485

744,080

248,618 9,622

198,917 2,438

180,189 104,296

627,724 116,356

258,240

201,355

284,485

744,080

78,562 148,131

50,053 -

-

128,615 148,131

15,669

-

-

15,669

242,362

305,340

-

547,702

228,724 13,638

93,752 211,588

-

322,476 225,226

242,362

305,340

-

547,702

The fair value of the investments carried at amortised cost at 31 December 2013 PZ (,+ ! UPS The Group enters into asset repurchase transactions whereby it retains substantially all of the risks and rewards of ownership of the assets and accordingly, the assets are not derecognized from the consolidated statement of Ă„UHUJPHS WVZP[PVU ;OL .YV\W OHZ LU[LYLK PU[V YLW\YJOHZL HNYLLTLU[Z YLSH[PUN [V PU]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ HTV\U[PUN [V (,+ UPS ! (,+ [OV\ZHUK ;OL YLSH[LK SPHIPSP[` HTV\U[PUN [V (,+ UPS ! AED 56,295 thousand) is included in term loans.

66

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

6. LOANS AND ADVANCES, NET Commercial loans 9L[HPS ÄUHUJL 3LZZ! HSSV^HUJL MVY PTWHPYTLU[ :WLJPÄJ Collective

2013 AED’000

2012 AED’000

1,366,828 277,543

1,267,289 298,008

1,644,371

1,565,297

(149,439) (16,531)

(170,765) (15,747)

1,478,401

1,378,785

Loans and advances are stated net of allowance for impairment. The movement PU [OL HSSV^HUJL K\YPUN [OL `LHY PZ HZ MVSSV^Z! 2013 AED’000

2012 AED’000

At 1 January Charge for the year, net Written off during the year

186,512 37,541 (58,083)

162,184 35,153 (10,825)

At 31 December

165,970

186,512

FINANCE HOUSE ANNUAL REPORT 2013

67

Notes to the Consolidated Financial Statements

7. ISLAMIC FINANCING AND INVESTING ASSETS Commodities Murabaha Covered card and drawings Purchase & lease back Ijarah 3LZZ! HSSV^HUJL MVY PTWHPYTLU[ :WLJPÄJ Collective

2013 AED’000

2012 AED’000

45,931 28,114 19,588 10,037

35,242 19,239 12,403 13,298

103,670

80,182

(2,113) (1,115)

(1,339) (548)

100,442

78,295

0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z HYL Z[H[LK UL[ VM HSSV^HUJL MVY PTWHPYTLU[ ;OL TV]LTLU[ PU [OL HSSV^HUJL K\YPUN [OL `LHY PZ HZ MVSSV^Z! 2013 AED’000

2012 AED’000

At 1 January Charge for the year

1,887 1,341

677 1,210

At 31 December

3,228

1,887

The gross Ijara and purchase and leaseback and the related present value of TPUPT\T 0QHYH HUK W\YJOHZL HUK SLHZLIHJR WH`TLU[Z HYL HZ MVSSV^Z!

Gross Ijara and purchase & lease-back Less than one year Between one and three years )L[^LLU [OYLL HUK Ä]L `LHYZ 4VYL [OHU Ä]L `LHYZ 3LZZ! KLMLYYLK PUJVTL Net Ijara and purchase and lease-back

2013 AED’000

2012 AED’000

10,960 14,140 7,752 3,222

8,287 12,298 6,745 4,774

36,074 (6,449)

32,104 (6,403)

29,625

25,701

Net present value of minimum Ijara and purchase & lease-back payments Less than one year Between one and three years )L[^LLU [OYLL HUK Ä]L `LHYZ 4VYL [OHU Ä]L `LHYZ

8,624 11,421 6,574 3,006

6,272 9,660 5,486 4,283

29,625

25,701

FINANCE HOUSE ANNUAL REPORT 2013

69

Notes to the Consolidated Financial Statements

8. INVESTMENT IN ASSOCIATES ;OL .YV\W OHZ [OL MVSSV^PUN PU]LZ[TLU[Z PU HZZVJPH[LZ! Country of incorporation

Percentage of holding 2013 2012

Principal activity

Mainland Management L.L.C.

United Arab Emirates

33.33%

33.33%

Hospitality management services

Universal Hospital L.L.C.

United Arab Emirates

-

30.00%

Owns and manages a hospital

The Group’s interest in associates is accounted for using the equity method in [OL JVUZVSPKH[LK ÄUHUJPHS Z[H[LTLU[Z 4V]LTLU[ PU PU]LZ[TLU[ PU HZZVJPH[LZ PZ HZ MVSSV^Z! At 1 January Share of results for the year Additions during the year (i) Disposed off during the year (ii) At 31 December

2013 AED’000

2012 AED’000

43,155 (16,070) 13,666 (10,329)

51,240 (8,085) -

30,422

43,155

:\TTHYPZLK ÄUHUJPHS PUMVYTH[PVU VM [OL HZZVJPH[L PZ ZL[ V\[ ILSV^ 2013 AED 000

2012 AED 000

211,553 (120,287)

316,894 (196,663)

Net assets

91,266

120,231

Group’s share of net assets

30,422

39,296

-

3,859

30,422

43,155

22,003

15,660

Loss for the year

(47,850)

(24,508)

Group’s share of results for the year

(16,070)

(8,085)

(ZZVJPH[LZ» Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU Assets Liabilities

Goodwill arising on acquisition Carrying amount of investment in associates Associates’ revenue and loss: Revenue

(i)

During the year, the Group subscribed for its share of the additional capital in Mainland Management L.L.C. amounting to AED 13,666 thousand. This transaction did not change the Group’s ownership percentage in the associate.

(ii)

During the year, the Group disposed its investment in Universal Hospital L.L.C. Gain on disposal of investment amounting to AED 5,872 thousand was recognised in the consolidated statement of income.

70

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

9. STATUTORY DEPOSIT In accordance with the requirement of Federal Law No.6 of 2007, concerning Insurance Companies and Agents, the Group maintains a bank deposit HTV\U[PUN [V (,+ [OV\ZHUK ! (,+ [OV\ZHUK HUK P[ JHUUV[ be utilised without the consent of the UAE Insurance Authority.

10. PROPERTY, FIXTURES AND EQUIPMENT Freehold land AED ‘000

Furniture Ä_[\YLZ and equipment AED’000

Motor vehicles AED’000

Computer OHYK^HYL and software AED’000

*HWP[HS work in progress AED’000

Total AED’000

85,667 -

34,753 1,757 (171)

6,882 590 (681)

21,359 1,671 171

135,816 54,644 -

284,477 58,662 (681)

85,667

36,339

6,791

23,201

190,460

342,458

-

27,253 3,510 (171)

4,816 494 (681)

16,917 2,067 171

-

48,986 6,071 (681)

At 31 December 2013

-

30,592

4,629

19,115

-

54,376

5L[ IVVR ]HS\L! At 31 December 2013

85,667

5,747

2,162

4,046

190,460

288,082

2012 Cost or valuation At 1 January 2012 Additions during the year Disposals

85,667 -

31,327 3,426 -

6,728 453 (299)

19,449 1,910 -

72,534 63,282 -

215,705 69,071 (299)

85,667

34,753

6,882

21,359

135,816

284,477

-

22,705 4,548 -

4,398 717 (299)

15,073 1,844 -

-

42,176 7,109 (299)

At 31 December 2012

-

27,253

4,816

16,917

-

48,986

5L[ IVVR ]HS\L! At 31 December 2012

85,667

7,500

2,066

4,442

135,816

235,491

2013 Cost or valuation At 1 January 2013 Additions during the year Disposals / transfer At 31 December 2013 (JJ\T\SH[LK KLWYLJPH[PVU! At 1 January 2013 Charge for the year Relating to disposals / transfer

At 31 December 2012 (JJ\T\SH[LK KLWYLJPH[PVU! At 1 January 2012 Charge for the year Relating to disposals

71

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements 7YVWLY[` -P_[\YLZ HUK ,X\PWTLU[ *VU[PU\LK

The freehold land is a plot of land purchased by the Group on which the Group is building its premises. Capital work in progress mainly pertains to the JVUZ[Y\J[PVU VM [OL VMÄJL WYLTPZLZ VU [OL MYLLOVSK WSV[ VM SHUK The fair value of land represents management’s best estimate of the fair value HZ VM [OL Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU KH[L ^P[O YLMLYLUJL [V [OL ]HS\H[PVU performed by an accredited independent valuer with a recognized and relevant WYVMLZZPVUHS X\HSPÄJH[PVU HUK YLJLU[ L_WLYPLUJL PU [OL SVJH[PVU HUK JH[LNVY` VM the land being valued.

11. INTANGIBLES License AED’000

Goodwill AED’000

Total AED’000

2013 Carrying value At 1 January 2013 Addition during the year

3,918

11,678 -

11,678 3,918

At 31 December 2013

3,918

11,678

15,596

-

11,678

11,678

2012 At 1 January 2012 and 31 December 2012

License This item represents the amount paid by the Group during the year to acquire an existing investment banking license issued by the Central Bank of UAE. Goodwill Goodwill acquired through business combinations relates to the following Z\IZPKPHYPLZ!

0ZSHTPJ ;OPYK =PZPVU -PUHUJL /V\ZL 71:* 0U]LZ[TLU[ 3 3 * 2013 2012 AED ‘000 AED ‘000

Goodwill

6,705

6,705

2013 2012 AED ‘000 AED ‘000 4,973

4,973

;V[HS 2013 AED ‘000

2012 AED ‘000

11,678

11,678

FINANCE HOUSE ANNUAL REPORT 2013

73

Notes to the Consolidated Financial Statements 0U[HUNPISLZ *VU[PU\LK

Impairment testing of goodwill The Group performs impairment testing of the goodwill annually on 31 December. .VVK^PSS YLSH[PUN [V 0ZSHTPJ -PUHUJL /V\ZL 71:* Goodwill arising on the acquisition of Islamic Finance House PJSC has been allocated to the subsidiary as a cash generating unit. This represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. During the year the Group has performed a goodwill impairment review based VU H MVYLJHZ[ VM [OL Z\IZPKPHY`ÂťZ JHZO Ă…V^Z ;OL YLJV]LYHISL HTV\U[ VM [OL cash generating unit was estimated on the basis of its value in use, which is KL[LYTPULK I` KPZJV\U[PUN M\[\YL JHZO Ă…V^Z MYVT [OL JVU[PU\PUN VWLYH[PVU VM [OL JHZO NLULYH[PUN \UP[ ;OL KPZJV\U[ YH[L HWWSPLK [V [OL JHZO Ă…V^ WYVQLJ[PVUZ PZ HUK [OL NYV^[O YH[L \ZLK [V L_[YHWVSH[L [OL JHZO Ă…V^Z IL`VUK [OL Ă„]L year period is 3%. Based on the results of the goodwill impairment assessment the Group has concluded that the recoverable amount of the cash generating unit is higher than its carrying value. Goodwill relating to Third Vision Investment L.L.C Goodwill arising on the acquisition of Third Vision Investment L.L.C. has been allocated to the subsidiary as a cash generating unit. This represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. During the year the Group has performed a goodwill impairment review based on fair value less cost to sell. The Group estimated the fair values of the net assets of the subsidiary which primarily consist of land and property under development and some other assets and liabilities. The fair value of land and property under development has been determined with reference to the valuation performed by an accredited independent valuer using market approach which is a valuation technique that estimates the fair value of assets based on market prices in actual transactions and on asking prices for assets currently available for sale less any related cost to sell the assets. Based on the results of this analysis, the Group has concluded that the recoverable amount of the cash generating unit is higher than its carrying value.

74

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

12. INVESTMENT PROPERTIES At 1 January Addition during the year Disposed off during the year Gain on fair valuation of investment property At 31 December

2013 AED’000

2012 AED’000

101,563 (24,069) 3,706

87,599 4,964 9,000

81,200

101,563

Investment properties are stated at fair value, based on the valuation performed by an accredited independent valuer with a recognized and relevant professional X\HSPÄJH[PVU HUK YLJLU[ L_WLYPLUJL PU [OL SVJH[PVU HUK JH[LNVY` VM PU]LZ[TLU[ properties being valued. Income method is adopted by the independent valuer for the valuation of the investment property. This method calculates the value of the property by taking the estimated net income of property and capitalising this with an appropriate `PLSK ^OPJO YLÅLJ[Z THYRL[ ZLU[PTLU[ HUK ZP[\H[PVU 0U [OPZ PUZ[HUJL ;LYT HUK Reversion approach to the Income method is used as subject property is tenanted by a single tenant for the term of 5 years since 2011. Estimated annual market rent income is calculated according to the prevailing market for the reversion. The prime location, maintenance and occupancy levels are also considered. -VSSV^PUN PZ [OL KLZJYPW[PVU VM [OL ]HS\H[PVU [LJOUPX\L \ZLK HUK ZPNUPÄJHU[ unobservable inputs;

Valuation technique Investment property

Income method

:PNUPÄJHU[ unobservable input

Range

Estimated annual market rent income

AED 7.6 – 8.7 million

Yield

8.5% - 9.5%

Occupancy level

95% - 100%

FINANCE HOUSE ANNUAL REPORT 2013

75

Notes to the Consolidated Financial Statements

13. INTEREST RECEIVABLE AND OTHER ASSETS Interest receivable 7YVĂ„[ YLJLP]HISL P Prepayments Accounts receivable, net of provision for impairment (ii) Amounts due from customers under construction contracts (note 31) Insurance receivables Re-insurance contract assets Advance for investments Other assets

2013 AED’000

2012 AED’000

9,629 746 15,130 128,536 26,801 54,063 11,438 302 22,764

54,383 1,104 18,400 70,245 25,991 22,756 6,271 42,733 15,483

269,409

257,366

(i)

7YVĂ„[ YLJLP]HISL YLSH[LZ [V [OL >HRHSH KLWVZP[Z ^P[O IHURZ HUK Ă„UHUJPHS PUZ[P[\[PVUZ 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z HUK 4\YHIHOH HNYLLTLU[Z

(ii)

As at 31 December 2013, accounts receivable at nominal value of AED 8,723 ! (,+ ^LYL PTWHPYLK HUK M\SS` WYV]PKLK MVY (Z H[ +LJLTILY [OL HNLPUN HUHS`ZPZ VM HJJV\U[Z YLJLP]HISL PZ HZ MVSSV^Z! Past due but not impaired Neither past due nor Total impaired

< 30 days

30 – 60 days

61 – 90 days

>90 days

AED

AED

AED

AED

AED

AED

2013

128,536

65,780

57,966

93

-

4,697

2012

70,245

40,102

13,778

401

1,266

14,698

76

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

14. CUSTOMERS’ DEPOSITS Call and demand deposits Time deposits Wakala deposits

2013 AED’000

2012 AED’000

85,289 1,989,249 103,604

65,111 1,593,290 145,270

2,178,142

1,803,671

(UHS`ZPZ VM J\Z[VTLYZ» KLWVZP[Z I` ZLJ[VY PZ HZ MVSSV^Z! Government Corporate

785,365 1,392,777

673,351 1,130,320

2,178,142

1,803,671

2013 AED’000

2012 AED’000

-

90,000 138,831

-

228,831

15. TERM LOANS From local commercial banks From international commercial banks

16. INTEREST PAYABLE AND OTHER LIABILITIES Interest payable 7YVÄ[ WH`HISL Trade payables Accrued expenses Margin accounts Retention under Istissna Unearned premiums Gross claims outstanding Other liabilities

2013 AED’000

2012 AED’000

11,534 292 145,821 59,080 438,882 604 53,860 10,593 143,979

12,587 582 26,184 67,171 353,163 30,615 10,976 111,081

864,645

612,359

FINANCE HOUSE ANNUAL REPORT 2013

77

Notes to the Consolidated Financial Statements

17. NON CONVERTIBLE SUKUK 0U 1\UL [OL *VTWHU` YHPZLK Ă„UHUJPUN I` ^H` VM H :OHYPÂťH JVTWSPHU[ subordinated sukuk issued by Finance House Sukuk Company 1 (the issuer and a special purpose vehicle) amounting to AED 150 million and maturing in 1\UL ;OL Z\R\R JHYYPLZ H WYVĂ„[ YH[L VM TVU[OZ ,0)69 WS\Z VY per annum whichever is higher, payable semi annually as periodic distribution HTV\U[ 7YVĂ„[ KPZ[YPI\[PVU HJJY\LK HZ VM +LJLTILY YLSH[PUN [V Z\R\R OLSK I` L_[LYUHS WHY[PLZ HTV\U[LK [V (,+ [OV\ZHUK ! (,+ [OV\ZHUK :\R\R HTV\U[PUN [V (,+ TPSSPVU ! (,+ TPSSPVU were held by subsidiaries of the Group and, accordingly, eliminated in the JVUZVSPKH[LK Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU

18. SHARE CAPITAL (\[OVYPZLK PZZ\LK HUK M\SS` WHPK TPSSPVU ZOHYLZ ! TPSSPVU ZOHYLZ VM (,+ LHJO ! (,+ LHJO

Issue and fully paid 2013 AED’000

2012 AED’000

302,500

302,500

19. EMPLOYEES’ SHARE-BASED PAYMENT SCHEME The share-based payment scheme is administered by a trustee and gives the Board of Directors the authority to determine which employees of the Group will be granted the shares. The values of shares granted to employees are expensed in the period in which they are granted, and that of the remaining shares are included within shareholders’ equity. +\YPUN [OL `LHY UPS ZOHYLZ ! UPS ZOHYLZ ^LYL NYHU[LK [V LTWSV`LLZ HUK outstanding shares not yet granted to employees as of 31 December 2013 were [OV\ZHUK +LJLTILY ! [OV\ZHUK

78

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

20. STATUTORY RESERVE In line with the provisions of the UAE Federal Commercial Companies Law No. (8) of 1984, (as amended) and the Company’s Articles of Association, the Company is required to transfer annually to a statutory reserve account HU HTV\U[ LX\P]HSLU[ [V VM P[Z WYVÄ[ \U[PS Z\JO YLZLY]L YLHJOLZ VM the share capital of the Company. The statutory reserve is not available for distribution.

21. DIVIDEND 0U H KP]PKLUK VM (,+ Ă„SZ WLY ZOHYL [V[HS KP]PKLUK VM (,+ thousand) was paid to holders of fully paid ordinary shares. In 2012, the dividend WHPK ^HZ Ă„SZ WLY ZOHYL [V[HS KP]PKLUK VM (,+ [OV\ZHUK

22. TREASURY SHARES Treasury shares represent the cost of 2,041 thousand shares of the Company OLSK I` H Z\IZPKPHY` HZ H[ +LJLTILY ! [OV\ZHUK ZOHYLZ

23. COMMITMENTS AND CONTINGENT LIABILITIES ;OL .YV\W WYV]PKLZ SL[[LYZ VM JYLKP[ HUK Ă„UHUJPHS N\HYHU[LLZ VU ILOHSM VM J\Z[VTLYZ [V [OPYK WHY[PLZ ;OLZL HNYLLTLU[Z OH]L Ă„_LK SPTP[Z HUK HYL NLULYHSS` for a certain period of time. Capital commitments represent future capital expenditures that the Group has committed to spend on assets over a period of time. Irrevocable commitments to extend credit represent contractual irrevocable commitments to make loans and revolving credits. The Group had the following commitments and contingent liabilities outstanding H[ `LHY LUK! 2013 2012 Letters of credit Letters of guarantee Capital commitments Irrevocable commitments to extend credit

AED’000

AED’000

45,540 1,014,802 70,838 143,442

62,176 858,612 70,837 88,789

1,274,622

1,080,414

(SS Ă„UHUJPHS N\HYHU[LLZ ^LYL PZZ\LK PU [OL VYKPUHY` JV\YZL VM I\ZPULZZ

FINANCE HOUSE ANNUAL REPORT 2013

79

Notes to the Consolidated Financial Statements

24. NET INTEREST INCOME AND INCOME FROM ISLAMIC FINANCING AND INVESTING ASSETS 2013 AED’000

2012 AED’000

Due from banks Loans and advances 0UJVTL MYVT 0ZSHTPJ ÄUHUJPUN HUK PU]LZ[PUN HZZL[Z Others

10,326 139,079 9,886 18,442

27,008 138,490 8,260 20,078

0U[LYLZ[ PUJVTL HUK PUJVTL MYVT 0ZSHTPJ ÄUHUJPUN and investing assets

177,733

193,836

Customer deposits 7YVÄ[ KPZ[YPI\[HISL [V KLWVZP[VYZ Due to banks

(40,211) (2,688) (6,435)

(50,762) (1,828) (12,569)

0U[LYLZ[ L_WLUZL HUK WYVÄ[ KPZ[YPI\[HISL [V KLWVZP[VYZ

(49,334)

(65,159)

5L[ PU[LYLZ[ PUJVTL HUK PUJVTL MYVT 0ZSHTPJ ÄUHUJPUN HUK investing assets

128,399

128,677

No interest income is recognised on impaired loans and advances.

25. NET FEE AND COMMISSION INCOME Fee and commission income *VYWVYH[L HUK JVTTLYJPHS ÄUHUJL HJ[P]P[PLZ 9L[HPS ÄUHUJL HJ[P]P[PLZ

Fee and commission expense Net fee and commission income

2013 AED’000

2012 AED’000

26,875 26,925

12,705 26,299

53,800

39,004

(10,324)

(10,079)

43,476

28,925

80

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

26. NET CONTRACT (LOSS) INCOME 2013 AED’000

2012 AED’000

Contract revenue Contract costs

7,437 (9,514)

112,028 (109,293)

Net contract (loss) income

(2,077)

2,735

27. NET INSURANCE INCOME 2013 AED’000

2012 AED’000

94,085 (15,650)

55,173 (19,869)

78,435

35,304

Re-insurance premiums ceded Change in re-insurance portion of unearned premium provision

(28,708) 11,438

(13,456) 5,335

Re-insurance premium ceded

(17,270)

(8,121)

61,165

27,183

(66,173) (1,596) (3,513) 26,409

(21,817) (9,266) (1,998) 13,364

(44,873)

(19,717)

1,516 (11,472)

1,037 (8,219)

(9,956)

(7,182)

6,336

284

Net insurance premiums earned Gross premiums written Change in unearned premium provision Premium income earned

Net insurance claims incurred Claims paid Outstanding claims expenses Movements in reserves Claims recovered from re-insurers

Net insurance commission expense Insurance commission income Insurance commission expense

Net insurance income

FINANCE HOUSE ANNUAL REPORT 2013

81

Notes to the Consolidated Financial Statements

28. NET INCOME FROM INVESTMENTS

2013 AED’000

2012 AED’000

14,231

11,441

62,151

12,759

2,973

792

Net income from investments carried at MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ

79,355

24,992

Dividend income from investments carried at fair value through other comprehensive income

10,698

10,578

(759)

41,093

89,294

76,663

Gain on disposal of investments carried at MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ Unrealised gain on investments carried at MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ Dividends from investments carried at MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ

(Loss) gain on disposal of investments carried at amortised cost Net income from investments

29. BASIC AND DILUTED EARNINGS PER SHARE ,HYUPUNZ WLY ZOHYL PZ JHSJ\SH[LK I` KP]PKPUN [OL WYVĂ„[ MVY [OL `LHY I` [OL ^LPNO[LK average number of shares outstanding during the year. Diluted earnings per ZOHYL PZ KL[LYTPULK I` HKQ\Z[PUN [OL WYVĂ„[ HUK [OL ^LPNO[LK H]LYHNL U\TILY of shares outstanding, adjusted for the effects of all dilutive potential ordinary shares. As of 31 December 2013, the Company has not issued any instruments which would have a dilutive impact on earnings per share when converted or exercised. The calculation of basic and diluted earnings per share is based on the following KH[H!

7YVĂ„[ MVY [OL `LHY H[[YPI\[HISL [V LX\P[` OVSKLYZ VM [OL WHYLU[ (,+ Âş Number of ordinary shares in issue (‘000) 3LZZ! ;YLHZ\Y` ZOHYLZ Âş 3LZZ! ,TWSV`LLZÂť ZOHYL IHZLK WH`TLU[ ZJOLTL Âş

Earnings per share (AED)

2013

2012

76,853

67,667

302,500 (2,041) (1,750)

302,500 (1,219) (1,750)

298,709

299,531

0.26

0.23

82

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

30. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Group enters into transactions with associates, major shareholders, directors, senior management and their related concerns at commercial interest and commission rates. The year end balances in respect of related parties included in the statement of Ă„UHUJPHS WVZP[PVU HYL HZ MVSSV^Z!

2013 AED’000

2012 AED’000

343

166

To others

46,492

39,045

Other assets To others

38,000

-

-

261

9,590

926

4

5

1,154

558

-

5

40

-

21,598

17,956

Loans and advances To key management staff

Customers’ deposits From associates From others :PNUPÄJHU[ [YHUZHJ[PVUZ ^P[O YLSH[LK WHY[PLZ K\YPUN [OL `LHY ^LYL HZ MVSSV^Z! Interest income From key management From others Interest expense To associates To others Key management remuneration :OVY[ [LYT ILULÄ[Z ZHSHYPLZ ILULÄ[Z HUK IVU\ZLZ

83

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements

31. CONSTRUCTION CONTRACTS *VUZ[Y\J[PVU JVZ[Z PUJ\YYLK WS\Z YLJVNUPaLK WYVĂ„[Z less recognised losses to date 3LZZ ! 7YVNYLZZ IPSSPUNZ [V KH[L

9LJVNUPZLK HUK PUJS\KLK PU [OL JVUZVSPKH[LK Ă„UHUJPHS Z[H[LTLU[Z as amounts due from customers under construction contracts (note 13)

2013 AED’000

2012 AED’000

736,020 709,219

668,270 642,279

26,801

25,991

26,801

25,991

At 31 December 2013, retentions held by customers for contract work amounted [V (,+ [OV\ZHUK ! (,+ [OV\ZHUK (K]HUJLZ YLJLP]LK MYVT J\Z[VTLYZ MVY JVU[YHJ[ ^VYR HTV\U[LK [V (,+ [OV\ZHUK ! AED 11,888 thousand).

32. SEGMENTAL INFORMATION For management purposes, the Group is organised into six major business ZLNTLU[Z! (i)

*VTTLYJPHS HUK YL[HPS Ă„UHUJPUN ^OPJO WYPUJPWHSS` WYV]PKLZ SVHUZ HUK V[OLY credit facilities for institutional and individual customers.

(ii)

Investment, which involves the management of the Group’s investment portfolio and its treasury activities.

(iii) 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN ^OPJO PU]VS]LZ VUL VM [OL .YV\WÂťZ Z\IZPKPHYPLZ

WYPUJPWHSS` WYV]PKPUN PU]LZ[TLU[ JVUZ\TLY HUK JVTTLYJPHS ÄUHUJPUN HUK other related services based on Islamic Sharia’s rules and principles. (iv) Insurance, which involves one of the Group’s subsidiaries providing non-life

insurance services.

(v)

Construction, which involves the Group’s subsidiaries performing real estate construction related activities.

(vi) Brokerage, which involves one of the Group’s subsidiaries providing brokerage

services. These segments are the basis on which the Group reports its primary segment information. Transactions between segments are conducted at rates determined by management taking into consideration the cost of funds.

(5,219) (5,219) 96,937 96,937 1,889,468 1,430,099 6,840

(30,679) (30,679) 101,842 (37,541) 64,301 1,517,342 1,476,762 -

+LWYLJPH[PVU VM WYVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ Other expenses and charges

Total expenses and other charges

7YVĂ„[ SVZZ MVY [OL `LHY ILMVYL PTWHPYTLU[

Allowance for impairment of loans and advances, net (SSV^HUJL MVY PTWHPYTLU[ VM 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z

Segmental assets

Segmental liabilities

Additions to non-current assets during the year

7YVĂ„[ SVZZ MVY [OL `LHY HM[LY PTWHPYTLU[

102,156

132,521

Total operating income

14,340 (7,194) 89,294 (16,070) 21,786

0U]LZ[TLU[ AED’000

147,159 (38,790) 30,419 (8,063) 1,796

*VTTLYJPHS and retail ÄUHUJPUN AED’000

0UMVYTH[PVU YLNHYKPUN [OL .YV\WÂťZ YLWVY[HISL ZLNTLU[Z PZ WYLZLU[LK ILSV^!

110

145,331

247,371

(1,425)

(1,341)

(84)

(7,590)

(422) (7,168)

7,506

9,886 (2,688) 349 (41)

Islamic ÄUHUJPUN and PU]LZ[PUN AED’000

4,687

101,223

56,230

(8,137)

-

(8,137)

(6,089)

(1,585) (4,504)

(2,048)

(2,077) 29

-

*VUZ[Y\J[PVU AED’000

17

119,444

151,191

2,798

-

2,798

(9,935)

(246) (9,689)

12,733

12,708 25

)YVRLYHNL AED’000

944

114,338

254,608

(5,379)

-

(5,379)

(18,931)

(826) (18,105)

13,552

6,348 (662) 6,336 1,530

0UZ\YHUJL AED’000

49,982

-

-

(65,389)

-

(65,389)

(65,389)

(2,992) (62,397)

-

-

<UHSSVJH[LK AED’000

Year ended 31 December, 2013

Products and services from which reportable segments derive their revenues

0U[LYLZ[ PUJVTL HUK PUJVTL MYVT 0ZSHTPJ Ă„UHUJPUN and investing assets 0U[LYLZ[ L_WLUZL HUK WYVĂ„[ KPZ[YPI\[HISL [V KLWVZP[VYZ Net fee and commission income Net contract (loss) income Net insurance income 7YVĂ„[ KPZ[YPI\[HISL [V Z\R\R OVSKLYZ Net investment income Share of results of associates Other operating income

32.1

62,580

3,387,197

4,116,210

83,706

(37,541) (1,341)

122,588

(143,832)

(6,071) (137,761)

266,420

177,733 (49,334) 43,476 (2,077) 6,336 (8,063) 89,294 (16,070) 25,125

;V[HS AED’000

84 FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements :LNTLU[HS 0UMVYTH[PVU *VU[PU\LK

93,568 (6,290) (6,290) 87,278 87,278 1,775,104 1,245,732 4,972

128,390 (16,212) (16,212) 112,178

1,540,725 1,261,129 -

+LWYLJPH[PVU VM WYVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ Other expenses and charges

Total expenses and other charges

7YVĂ„[ SVZZ MVY [OL `LHY ILMVYL PTWHPYTLU[

Allowance for impairment of loans and advances, net (35,153) (SSV^HUJL MVY PTWHPYTLU[ VM 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z 77,025

Total operating income

7YVĂ„[ SVZZ MVY [OL `LHY HM[LY PTWHPYTLU[

Segmental assets

Segmental liabilities

Additions to non-current assets during the year

19,043 (10,667) 76,663 (8,085) 16,614

0U]LZ[TLU[ AED’000

159,384 (52,664) 25,387 (4,130) 413

*VTTLYJPHS and retail ÄUHUJPUN AED’000

0UMVYTH[PVU YLNHYKPUN [OL .YV\WÂťZ YLWVY[HISL ZLNTLU[Z PZ WYLZLU[LK ILSV^!

1,446

162,928

29,449

(8,768)

(1,210)

(7,558)

(15,130)

(14,258)

7,572

8,875 (1,828) 145 380

Islamic ÄUHUJPUN and PU]LZ[PUN AED’000

69

183,257

106,098

(13,011)

-

(13,011)

(16,542)

(13,972)

3,531

2,735 796

*VUZ[Y\J[PVU AED’000

58

42,079

70,794

(3,741)

-

(3,741)

(6,186)

(5,873)

2,445

2,356 89

)YVRLYHNL AED’000

885

175,882

199,895

(11,542)

-

(11,542)

(19,470)

(18,872)

7,928

6,534 1,037 284 73

0UZ\YHUJL AED’000

61,641

-

-

(55,011)

-

(55,011)

(55,011)

(52,255)

-

-

<UHSSVJH[LK AED’000

Year ended 31 December, 2012

Products and services from which reportable segments derive their revenues

0U[LYLZ[ PUJVTL HUK PUJVTL MYVT 0ZSHTPJ Ă„UHUJPUN and investing assets 0U[LYLZ[ L_WLUZL HUK WYVĂ„[ KPZ[YPI\[HISL [V KLWVZP[VYZ Net fee and commission income Net contract (loss) income Net insurance income 7YVĂ„[ KPZ[YPI\[HISL [V Z\R\R OVSKLYZ Net investment income Share of loss in associates Other operating income

32.1

69,071

3,071,007

3,722,065

72,230

(35,153) (1,210)

108,593

(134,841)

(127,732)

243,434

193,836 (65,159) 28,925 2,735 284 (4,130) 76,663 (8,085) 18,365

;V[HS AED’000

FINANCE HOUSE ANNUAL REPORT 2013

85

Notes to the Consolidated Financial Statements :LNTLU[HS 0UMVYTH[PVU *VU[PU\LK

86

FINANCE HOUSE ANNUAL REPORT 2013

FINANCE HOUSE ANNUAL REPORT 2013

87

Notes to the Consolidated Financial Statements :LNTLU[HS 0UMVYTH[PVU *VU[PU\LK 32.1 Products and services from which reportable segments derive their revLU\LZ JVU[PU\LK

Revenue reported above represents revenue generated from external customers. The inter-segment revenues and expenses have been eliminated in full. For the purposes of monitoring segment performance and allocating resources IL[^LLU ZLNTLU[Z! ‹ HSS HZZL[Z HYL HSSVJH[LK [V YLWVY[HISL ZLNTLU[Z (ZZL[Z \ZLK QVPU[S` I` reportable segments are allocated on the basis of the revenues earned by individual reportable segments; and ‹ HSS SPHIPSP[PLZ HYL HSSVJH[LK [V YLWVY[HISL ZLNTLU[Z 3PHIPSP[PLZ MVY ^OPJO reportable segments are jointly liable are allocated in proportion to segment assets.

32.2 Geographical information The Group primarily operates in the U.A.E. (country of domicile).

32.3 Information about major customers There is no single customer accounting for more than 10% of the Group’s revenues from external customers.

33. RISK MANAGEMENT 33.1 Introduction Risk is inherent in the Group’s activities but it is managed through a process VM VUNVPUN PKLU[PÄJH[PVU TLHZ\YLTLU[ HUK TVUP[VYPUN Z\IQLJ[ [V YPZR SPTP[Z and other controls. This process of risk management is critical to the Group’s JVU[PU\PUN WYVÄ[HIPSP[` HUK LHJO PUKP]PK\HS ^P[OPU [OL .YV\W PZ HJJV\U[HISL MVY the risk exposures relating to his or her responsibilities. The Group is exposed to credit risk, liquidity risk and market risk, the latter being subdivided into trading and non-trading risks. It is also subject to operational risks.

88

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK 0U[YVK\J[PVU *VU[PU\LK

Risk management structure 0U SPUL ^P[O [OL ILZ[ WYHJ[PJL MVSSV^LK PU ^VYSK JSHZZ ÄUHUJPHS PUZ[P[\[PVUZ the overall risk management responsibility lies with the Board of Directors of the Group, under which there is a Board Investment and Credit Committee )0** JVTWYPZPUN VM ZP_ IVHYK TLTILYZ HUK [OL *OPLM 9PZR 6MÄJLY ^OV [HRL responsibility for identifying and controlling the risks. Board of Directors The overall risk management responsibility lies with the Board of Directors of the Group. It provides the direction, strategy and oversight of all the activities through various committees. Audit Committee The Audit Committee comprises three independent members who represent the Board of Directors of the Group. The Audit Committee has the overall YLZWVUZPIPSP[` VM HZZLZZPUN [OL PU[LYUHS H\KP[ ÄUKPUNZ KPYLJ[PUN PTWSLTLU[H[PVU of audit recommendations and overseeing the internal audit activities undertaken within the internal control environment and regulatory compliance framework of the Group. Duties and responsibilities of the Audit Committee are governed by a formally approved Audit Committee Charter which is in line with best practice and control governance. Asset Liability Committee The asset liability management process is an act of planning, acquiring, and KPYLJ[PUN [OL ÅV^ VM M\UKZ [OYV\NO HU VYNHUPaH[PVU ;OL \S[PTH[L VIQLJ[P]L VM this process is to generate adequate and stable earnings and to steadily build an organization’s equity over time, while taking measured business risks. The .YV\W OHZ H ^LSS KLÄULK HZZL[ SPHIPSP[` THUHNLTLU[ WVSPJ` K\S` KLZJYPIPUN [OL objective, role and function of the Asset Liability Committee which is the body within the Group that holds the responsibility to make strategic decisions to manage balance sheet related risks. The Asset Liability Committee, consisting of the Group’s senior management, meets at least once a month. Board Investment and Credit Committee All major business proposals of clients are approved through the BICC. The BICC is a sub-committee of the Board of Directors. The approval process and [OL H\[OVYP[PLZ ]LZ[LK ^P[O [OL )0** TLTILYZ HYL ^LSS KLÄULK PU H JYLKP[ WVSPJ` manual. The policy manual enumerates various procedures to be followed by relationship managers in bringing relationships to the Group. Various aspects VM [OL JYLKP[ HWWYV]HS WYVJLZZ OH]L ILLU KLÄULK PU [OL WVSPJ` ^OPJO LUHISLZ LMÄJPLU[ HWWYV]HS VM [OL WYVWVZHSZ 9PZR 4HUHNLTLU[ <UP[ 94< The RMU is an independent unit reporting to the General Manager. The RMU is responsible for identifying, measuring, monitoring and controlling the risks arising out of various activities in the Group by the different business units. The process is through partnering with the units in identifying and addressing the risks by setting limits and reporting on the utilization thereof.

FINANCE HOUSE ANNUAL REPORT 2013

89

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK 0U[YVK\J[PVU *VU[PU\LK

The RMU also monitors compliance with the regulatory procedures and antimoney laundering monitoring procedures of the Group. Treasury Group Treasury is responsible for managing the Group’s assets and liabilities HUK [OL V]LYHSS ÄUHUJPHS Z[Y\J[\YL 0[ PZ HSZV WYPTHYPS` YLZWVUZPISL MVY THUHNPUN the funding and liquidity risks of the Group. Internal Audit Risk management processes throughout the Group are audited annually by the internal audit function that examines both the adequacy of the procedures and the Group’s compliance with the procedures. Internal Audit discusses [OL YLZ\S[Z VM HSS HZZLZZTLU[Z ^P[O THUHNLTLU[ HUK YLWVY[Z P[Z ÄUKPUNZ HUK recommendations to the Audit Committee. The Head of Internal Audit has direct reporting lines to the Audit Committee in order to secure independence and objectivity in all audit engagements undertaken within the Group. Risk measurement and reporting systems Monitoring and controlling risks is primarily performed based on limits LZ[HISPZOLK I` [OL .YV\W ;OLZL SPTP[Z YLÅLJ[ [OL I\ZPULZZ Z[YH[LN` HUK THYRL[ environment of the Group as well as the level of risk that the Group is willing to accept, with additional emphasis on selected industries. In addition, the Group monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and activities. Information compiled from all the businesses is examined and processed in order to analyse, control and identify early risks. This information is presented and explained to the RMU, and the head of each business division. The report PUJS\KLZ HNNYLNH[L JYLKP[ L_WVZ\YL SPTP[ L_JLW[PVUZ HUK YPZR WYVÄSL JOHUNLZ On a monthly basis detailed reporting of industry, customer and geographic risks takes place. Senior management assesses the appropriateness of the provision for credit losses on a quarterly basis. RMU receives a comprehensive risk report once a quarter which is designed to provide all the necessary information to assess and conclude on the risks of the Group. -VY HSS SL]LSZ [OYV\NOV\[ [OL .YV\W ZWLJPÄJHSS` [HPSVYLK YPZR YLWVY[Z HYL WYLWHYLK and distributed in order to ensure that all business divisions have access to extensive, necessary and up-to-date information. Risk mitigation As part of its overall risk management, the Group uses certain instruments to manage exposures resulting from changes in interest rates and foreign currencies. The Group actively uses collateral to reduce its credit risks.

90

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK 0U[YVK\J[PVU *VU[PU\LK

Risk concentration Concentrations of credit risk arise when a number of counter parties 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 of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographic location. ;OL .YV\W ZLLRZ [V THUHNL P[Z JYLKP[ YPZR L_WVZ\YL [OYV\NO KP]LYZPÄJH[PVU VM lending activities to avoid undue concentrations of risks with individuals or NYV\WZ VM J\Z[VTLYZ PU ZWLJPÄJ PUK\Z[YPLZ VY I\ZPULZZLZ +L[HPSZ VM [OL JVTWVZP[PVU VM [OL SVHUZ HK]HUJLZ HUK 0ZSHTPJ ÄUHUJPUN HUK investing portfolio are provided in Note 6 and 7. Information on credit risk relating to investments is provided in Note 33.3.

33.2 Market risk 4HYRL[ YPZR PZ [OL YPZR [OH[ [OL MHPY ]HS\L HUK M\[\YL JHZO ÅV^Z VM ÄUHUJPHS PUZ[Y\TLU[Z ^PSS Å\J[\H[L K\L [V JOHUNLZ PU THYRL[ ]HYPHISLZ Z\JO HZ PU[LYLZ[ YH[LZ MVYLPNU L_JOHUNL YH[LZ HUK WYPJLZ VM LX\P[` HUK Ä_LK PUJVTL ZLJ\YP[PLZ Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will HMMLJ[ M\[\YL JHZO ÅV^Z VY [OL MHPY ]HS\LZ VM ÄUHUJPHS PUZ[Y\TLU[Z The Group is exposed to interest rate risk on its interest bearing assets and liabilities. The following table demonstrates the sensitivity of the income statement to reasonably possible changes in interest rates, with all other variables held constant, of the Group’s result for the year. The sensitivity of the income statement is the effect of the assumed changes PU PU[LYLZ[ YH[LZ VU [OL .YV\WZ WYVÄ[ MVY VUL `LHY IHZLK VU [OL ÅVH[PUN YH[L ÄUHUJPHS HZZL[Z HUK ÄUHUJPHS SPHIPSP[PLZ OLSK H[ +LJLTILY ,MMLJ[ VU WYVÄ[ AED 000

2013 +100 increase in basis point -100 decrease in basis point

2,531 (2,531)

2012 +100 increase in basis point -100 decrease in basis point

4,768 (4,768)

FINANCE HOUSE ANNUAL REPORT 2013

91

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK 4HYRL[ 9PZR *VU[PU\LK

Currency risk *\YYLUJ` YPZR PZ [OL YPZR [OH[ [OL ]HS\L VM H ÄUHUJPHS PUZ[Y\TLU[ ^PSS Å\J[\H[L due to changes in foreign exchange rates. The Board of Directors has set limits on positions by currency. Positions are monitored on a daily basis and it is ensured these are maintained within established limits. -VYLPNU J\YYLUJ` YPZR PZ SPTP[LK ZPUJL H ZPNUPÄJHU[ WYVWVY[PVU VM [OL .YV\WZ transactions, monetary assets and liabilities are denominated in U.A.E. Dirham and U.S. Dollar. As the U.A.E. Dirham is pegged to the U.S. Dollar, balances in < : +VSSHY HYL UV[ JVUZPKLYLK [V YLWYLZLU[ ZPNUPÄJHU[ J\YYLUJ` YPZR Price risk 7YPJL YPZR PZ [OL YPZR [OH[ [OL MHPY ]HS\LZ VM LX\P[PLZ HUK Ä_LK PUJVTL ZLJ\YP[PLZ KLJYLHZL HZ [OL YLZ\S[ VM JOHUNLZ PU [OL SL]LSZ VM LX\P[` HUK Ä_LK PUJVTL PUKPJLZ and the value of individual instruments. The price risk exposure arises from the Group’s investment portfolio. The following table estimates the sensitivity to a possible change in equity and Ä_LK PUJVTL THYRL[Z VU [OL .YV\WZ PUJVTL Z[H[LTLU[ ;OL ZLUZP[P]P[` VM [OL income statement is the effect of the assumed changes in the reference equity HUK Ä_LK PUJVTL ILUJOTHYRZ VU [OL MHPY ]HS\L VM PU]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ

%

Impact on net income 2013 AED 000

Impact on net income 2012 AED 000

2% 2% 2%

2,003 1,975 49

644 357 5,106

Assumed level of change

0U]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ Abu Dhabi Securities Market Index Dubai Financial Market Index Fixed income securities

The effect on equity (as a result of a change in the fair value of equity instruments carried at fair value through other comprehensive income) due to a reasonably possible change in equity indices, with all other variables held constant, is as follows.

%

Impact on LX\P[` 2013 AED 000

Impact on equity 2012 AED 000

2% 2% 2%

1,472 475 21

902 633 36

Assumed level of change

Investments carried at fair value through other comprehensive income Abu Dhabi Securities Market Index Dubai Financial Market Index Amman Stock Exchange

;OL LMMLJ[ VM KLJYLHZLZ PU WYPJLZ VM LX\P[` HUK Ă„_LK PUJVTL ZLJ\YP[PLZ PZ L_WLJ[LK to be equal and opposite to the effect of the increases shown above.

92

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK

33.3 Credit risk *YLKP[ YPZR PZ [OL YPZR [OH[ VUL WHY[` [V H Ă„UHUJPHS PUZ[Y\TLU[ ^PSS MHPS [V KPZJOHYNL HU VISPNH[PVU HUK JH\ZL [OL V[OLY WHY[` [V PUJ\Y H Ă„UHUJPHS SVZZ ;OL .YV\W attempts to control credit risk by monitoring credit exposures, limiting transactions ^P[O ZWLJPĂ„J JV\U[LY WHY[PLZ HUK JVU[PU\HSS` HZZLZZPUN [OL JYLKP[^VY[OPULZZ VM counter-parties. In addition to monitoring credit limits, the Group manages the credit exposure relating to its trading activities by collateral arrangements with counter-parties in appropriate circumstances, and limiting the duration of exposure. In certain cases, the Group may also close out transactions or assign them to other counter-parties to mitigate credit risk. The Group has established a credit quality review process to provide early PKLU[PĂ„JH[PVU VM WVZZPISL JOHUNLZ PU [OL JYLKP[^VY[OPULZZ VM JV\U[LYWHY[PLZ including regular collateral revisions. The credit quality review process allows the Group to assess the potential loss as a result of the risks to which it is exposed and take corrective action. Credit-related commitments risks The Group makes available to its customers guarantees which may require that the Group makes payments on their behalf. Such payments are collected from customers based on the terms of the letters of guarantee. They expose the Group to similar risks to loans and these are mitigated by the same control processes and policies. Maximum exposure to credit risk without taking account of any collateral and other credit enhancements The table below shows the maximum exposure to credit risk for the components VM [OL Z[H[LTLU[ VM Ă„UHUJPHS WVZP[PVU ;OL TH_PT\T L_WVZ\YL PZ ZOV^U NYVZZ before the effect of mitigation through the use of collateral agreements. Gross TH_PT\T L_WVZ\YL 2013 AED 000

Gross maximum exposure 2012 AED 000

12,129 1,080,952 1,478,401 100,442 286,923 6,000 253,977

4,369 1,049,266 1,378,785 78,295 255,287 6,000 196,233

3,218,824

2,968,235

Contingent liabilities Commitments

1,060,342 143,442

920,788 88,789

Total

4,422,608

3,977,812

Balances with U.A.E. Central Bank +\L MYVT IHURZ HUK Ă„UHUJPHS PUZ[P[\[PVUZ Loans and advances 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z Investments (Debt instruments) Statutory deposit Other assets subject to credit risk

FINANCE HOUSE ANNUAL REPORT 2013

93

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK *YLKP[ 9PZR *VU[PU\LK

Credit risk concentration Concentration of risk is managed by customer / counterparty, by geographical region and by industry sector. The funded and non-funded credit exposure to the [VW IVYYV^LYZ HZ VM +LJLTILY ^HZ (,+ [OV\ZHUK ! AED 421,750 thousand) before taking account of collateral or other credit LUOHUJLTLU[Z HUK (,+ [OV\ZHUK ! (,+ [OV\ZHUK UL[ VM such protection, respectively. ;OL KPZ[YPI\[PVU VM [OL .YV\WÂťZ Ă„UHUJPHS HZZL[Z I` NLVNYHWOPJ YLNPVU HUK PUK\Z[Y` ZLJ[VY PZ HZ MVSSV^Z! 2013 AED 000

2012 AED 000

Geographic region U.A.E. Other Arab countries Europe U.S.A. Rest of the world

3,102,845 41,658 5,202 38,921 30,198

2,831,570 1,018 3,591 2,056 130,000

Financial assets subject to credit risk

3,218,824

2,968,235

Industry sector Commercial and business Personal )HURZ HUK Ă„UHUJPHS PUZ[P[\[PVUZ Others

1,340,028 238,815 1,093,081 546,900

1,300,582 237,479 1,053,634 376,540

Financial assets subject to credit risk

3,218,824

2,968,235

Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. ;OL THPU [`WLZ VM JVSSH[LYHS VI[HPULK HYL HZ MVSSV^Z! ‹ -VY YLW\YJOHZL HUK YL]LYZL YLW\YJOHZL [YHUZHJ[PVUZ JHZO VY ZLJ\YP[PLZ ‹ -VY JVTTLYJPHS SLUKPUN JOHYNLZ V]LY YLHS LZ[H[L WYVWLY[PLZ PU]LU[VY` [YHKL receivables and securities ‹ -VY WLYZVUHS SLUKPUN HNHPUZ[ WVZ[ KH[LK JOLX\LZ HUK ZLJ\YP[` JOLX\LZ The Group also obtains guarantees from parent companies for loans to their subsidiaries. Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and assesses the market value of collateral obtained during its review of the adequacy of the provision for impairment losses. Management estimates the fair value of collaterals and V[OLY JYLKP[ LUOHUJLTLU[Z OLSK HNHPUZ[ PUKP]PK\HSS` PTWHPYLK ÄUHUJPUN HZZL[Z HWWYV_PTH[PUN [V IL (,+ [OV\ZHUK HZ H[ +LJLTILY ! AED 66,213 thousand).

94

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK *YLKP[ 9PZR *VU[PU\LK

It is the Group’s policy to dispose of repossessed assets, other than investment properties, in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Group does not occupy repossessed properties for business use. *YLKP[ X\HSP[` WLY JSHZZ VM ÄUHUJPHS HZZL[Z ;OL JYLKP[ X\HSP[` VM ÄUHUJPHS HZZL[Z PZ THUHNLK I` [OL .YV\W \ZPUN PU[LYUHS credit ratings. The table below shows the credit quality by class of asset, based on the Group’s credit rating system. The amounts presented are net of impairment provisions. Neither past due nor impaired

2013 Cash and balances with U.A.E. Central Bank +\L MYVT IHURZ HUK Ă„UHUJPHS PUZ[P[\[PVUZ Loans and advances 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z Investments (Debt instruments) Statutory deposit Other assets

Total 2012 Cash and balances with U.A.E. Central Bank +\L MYVT IHURZ HUK Ă„UHUJPHS PUZ[P[\[PVUZ Loans and advances 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z Investments carried at fair value through WYVĂ„[ VY SVZZ +LI[ PUZ[Y\TLU[Z Statutory deposit Other assets Total

Pass grade AED 000

Watch grade AED 000

Past due or individually impaired AED 000

21,626 1,080,952 1,363,641 97,379 286,923 6,000 253,977

44,579 -

70,181 3,063 -

21,626 1,080,952 1,478,401 100,442 286,923 6,000 253,977

3,110,498

44,579

73,244

3,228,321

12,764 1,069,195

160,335

149,255

12,764 1,378,785

6,000 196,233

-

-

6,000 196,233

2,664,310

163,065

149,255

2,976,630

Total AED 000

(U HUHS`ZPZ VM WHZ[ K\L SVHUZ HUK 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z I` HNL is provided below.

FINANCE HOUSE ANNUAL REPORT 2013

95

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK *YLKP[ 9PZR *VU[PU\LK

(NPUN HUHS`ZPZ VM WHZ[ K\L VY PTWHPYLK SVHUZ HUK 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN assets. Less than 30 days AED 000

31 to 60 days AED 000

61 to 90 days AED 000

More than 91 days AED 000

Total AED 000

2013 Past due but not impaired Impaired

6,858 -

6,059 -

952 -

9,253 50,122

23,122 50,122

Total past due or impaired

6,858

6,059

952

59,375

73,244

2012 Past due but not impaired Impaired loans

18,871 -

10,802 -

12,685 -

43,840 63,057

86,198 63,057

Total past due or impaired

18,871

10,802

12,685

106,897

149,255

96

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK

33.4 Liquidity risk and funding management Liquidity risk is the risk that an institution will be unable to meet its funding requirements. Liquidity risk can be caused by market disruptions or a credit downgrade which may cause certain sources of funding to dry up immediately. ;V N\HYK HNHPUZ[ [OPZ YPZR THUHNLTLU[ OHZ KP]LYZPĂ„LK M\UKPUN ZV\YJLZ HUK assets are managed with liquidity in mind, maintaining a healthy balance of cash, cash equivalents, and readily marketable securities. (UHS`ZPZ VM Ă„UHUJPHS HZZL[Z HUK Ă„UHUJPHS SPHIPSP[PLZ I` YLTHPUPUN JVU[YHJ[\HS maturities ;OL [HISL ILSV^ Z\TTHYPZLZ [OL TH[\YP[` WYVĂ„SL VM [OL .YV\WÂťZ HZZL[Z HUK liabilities at 31 December 2013 based on contractual maturities. Less than 3 months AED 000

3 months to 1 year AED 000

1 year to 5 years AED 000

Over 5 years AED 000

Total AED 000

ASSETS Cash and balances with U.A.E. Central Bank Due from banks and Ă„UHUJPHS PUZ[P[\[PVUZ Loans and advances, net 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z Investments, including associates Statutory deposit Other assets

21,626

-

-

-

21,626

1,080,952 784,349 31,394 245,569 218,960

302,624 23,020 27,000 35,017

361,154 43,022 131,433 -

30,274 3,006 370,500 6,000 -

1,080,952 1,478,401 100,442 774,502 6,000 253,977

Financial assets

2,382,850

387,661

535,609

409,780

3,715,900

5VU Ă„UHUJPHS HZZL[Z

15,432

-

288,082

96,796

400,310

Total assets

2,398,282

387,661

823,691

506,576

4,116,210

LIABILITIES Due to banks Customers’ deposits Other liabilities

67,528 1,278,705 148,642

140,000 866,937 83,651

32,500 648,412

-

207,528 2,178,142 880,705

Financial liabilities

1,494,875

1,090,588

680,912

-

3,266,375

5VU Ă„UHUJPHS SPHIPSP[PLZ

120,822

-

-

-

120,822

Total liabilities

1,615,697

1,090,588

680,912

-

3,387,197

FINANCE HOUSE ANNUAL REPORT 2013

97

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK 3PX\PKP[` 9PZR HUK -\UKPUN 4HUHNLTLU[ *VU[PU\LK

;OL TH[\YP[` WYVĂ„SL VM [OL .YV\WÂťZ HZZL[Z HUK SPHIPSP[PLZ H[ +LJLTILY ^HZ HZ MVSSV^Z! Less than 3 months AED 000

3 months to 1 year AED 000

1 year to 5 years AED 000

Over 5 years AED 000

Total AED 000

12,764

-

-

-

12,764

310,801 128,615 138,988

510,589 121,810 39,069

486,793 317,739 18,176

70,602 22,693 6,000 -

1,378,785 590,857 6,000 196,233

Financial assets

1,420,246

919,080

868,227

104,647

3,312,200

5VU Ă„UHUJPHS HZZL[Z

Total assets

1,420,246

919,080

880,792

501,947

3,722,065

LIABILITIES Due to banks Customers’ deposits Term loans Other liabilities

183,690 1,153,600 228,831 197,800

106,295 617,871 56,668

32,200 381,144

7,561

289,985 1,803,671 228,831 643,173

Financial liabilities

1,763,921

780,834

413,344

7,561

2,965,660

5VU Ă„UHUJPHS SPHIPSP[PLZ

Total liabilities

1,869,268

780,834

413,344

7,561

3,071,007

ASSETS Cash and balances with U.A.E. Central Bank Due from banks and Ă„UHUJPHS PUZ[P[\[PVUZ Loans and advances, net 0ZSHTPJ Ă„UHUJPUN HUK PU]LZ[PUN HZZL[Z Investments, including associates Statutory deposit Other assets

The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and commitments. Less than 3 months AED 000

3 to 12 months AED 000

1 to 5 years AED 000

Over 5 years AED 000

Total AED 000

831,405 214,280

202,726 -

26,211 -

-

1,060,342 214,280

1,045,685

202,726

26,211

-

1,274,622

2012 Contingent liabilities Commitments

562,593 159,626

324,771 -

33,424 -

-

920,788 159,626

Total

722,219

324,771

33,424

-

1,080,414

2013 Contingent liabilities Commitments Total

The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments.

98

FINANCE HOUSE ANNUAL REPORT 2013

Notes to the Consolidated Financial Statements 9PZR 4HUHNLTLU[ *VU[PU\LK

33.5 Operational risk Operational risk is the risk of direct or indirect loss arising from inadequate or failed internal processes, systems failure, human error, fraud or external events. When required controls fail, operational risks can cause damage to reputation, OH]L SLNHS VY YLN\SH[VY` PTWSPJH[PVUZ VY SLHK [V Ă„UHUJPHS SVZZ >OPSL [OL .YV\W cannot expect to eliminate all operational risks, through a control framework and by continuous monitoring and responding to potential risks, the Group is able to manage these risks. Controls include effective segregation of duties, appropriate access, authorisation and reconciliation procedures, staff training and robust assessment processes. The processes are reviewed by risk management and internal audit on an ongoing basis.

33.6 Insurance risk The principal risk the Group faces under insurance contracts is that the actual JSHPTZ HUK ILULÄ[ WH`TLU[Z VY [OL [PTPUN [OLYLVM KPMMLY MYVT L_WLJ[H[PVUZ ;OPZ PZ PUÅ\LUJLK I` [OL MYLX\LUJ` VM JSHPTZ ZL]LYP[` VM JSHPTZ HJ[\HS ILULÄ[Z paid and subsequent development of long–term claims. Therefore, the objective VM [OL .YV\W PZ [V LUZ\YL [OH[ Z\MÄJPLU[ YLZLY]LZ HYL H]HPSHISL [V JV]LY [OLZL liabilities. ;OL YPZR L_WVZ\YL PZ TP[PNH[LK I` KP]LYZPÄJH[PVU HJYVZZ H SHYNL WVY[MVSPV VM insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. 0U JVTTVU ^P[O V[OLY PUZ\YLYZ PU VYKLY [V TPUPTPaL ÄUHUJPHS L_WVZ\YL HYPZPUN from large insurance claims, the Group, in the normal course of business, enters into arrangements with other parties for reinsurance purposes. Such YLPUZ\YHUJL HYYHUNLTLU[Z WYV]PKL MVY NYLH[LY KP]LYZPÄJH[PVU VM I\ZPULZZ HSSV^ management to control exposure to potential losses arising from large risks, and WYV]PKL HKKP[PVUHS JHWHJP[` MVY NYV^[O ( ZPNUPÄJHU[ WVY[PVU VM [OL YLPUZ\YHUJL is effected under treaty, facultative and excess of loss reinsurance contracts. ;V TPUPTPaL P[Z L_WVZ\YL [V ZPNUPÄJHU[ SVZZLZ MYVT YLPUZ\YLY PUZVS]LUJPLZ [OL .YV\W L]HS\H[LZ [OL ÄUHUJPHS JVUKP[PVU VM P[Z YLPUZ\YLYZ HUK TVUP[VYZ concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers.

FINANCE HOUSE ANNUAL REPORT 2013

99

Notes to the Consolidated Financial Statements

34. FAIR VALUE MEASUREMENT >OPSL [OL .YV\W WYLWHYLZ P[Z Ă„UHUJPHS Z[H[LTLU[Z \UKLY [OL OPZ[VYPJHS JVZ[ JVU]LU[PVU TVKPĂ„LK MVY TLHZ\YLTLU[ [V MHPY ]HS\L VM PU]LZ[TLU[Z JHYYPLK H[ MHPY value and investment properties, in the opinion of management, the estimated JHYY`PUN ]HS\LZ HUK MHPY ]HS\LZ VM Ă„UHUJPHS HZZL[Z HUK SPHIPSP[PLZ [OH[ HYL UV[ JHYYPLK H[ MHPY ]HS\L PU [OL Ă„UHUJPHS Z[H[LTLU[Z HYL UV[ TH[LYPHSS` KPMMLYLU[ ZPUJL assets and liabilities are either short term in nature or in the case of deposits and performing loans and advances, frequently repriced. For impaired loans and HK]HUJLZ L_WLJ[LK JHZO Ă…V^Z PUJS\KPUN HU[PJPWH[LK YLHSPZH[PVU VM JVSSH[LYHS were discounted using the original interest rates, considering the time of JVSSLJ[PVU HUK H WYV]PZPVU MVY [OL \UJLY[HPU[` VM [OL JHZO Ă…V^Z The following table shows the analysis of assets recorded at fair value by level VM [OL MHPY ]HS\L OPLYHYJO` MVY [OL `LHY LUKLK +LJLTILY ! Date of valuation

Level 1 AED 000

Level 2 AED 000

Level 3 AED 000

Total AED 000

Investment property

15 December 2013

-

-

81,200

81,200

7YVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ SHUK

+LJLTILY

-

85,667

-

85,667

([ MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ Quoted equities Quoted debt instruments

31 December 2013 31 December 2013

198,917 2,438

-

-

198,917 2,438

201,355

-

-

201,355

98,415 -

54,303 10,409

95,113 -

98,415 149,416 10,409

98,415

64,712

95,113

258,240

266,852

-

-

266,852

ASSETS MEASURED AT FAIR VALUE

At fair value through other comprehensive income Quoted equities Unquoted equities Investment in managed funds

31 December 2013 31 December 2013 31 December 2013

ASSETS FOR WHICH FAIR VALUE IS DISCLOSED Investment carried at amortised cost

31 December 2013

100 FINANCE HOUSE ANNUAL REPORT 2013 Notes to the Consolidated Financial Statements -HPY =HS\L 4HUHNLTLU[ *VU[PU\LK

The following table shows the analysis of assets recorded at fair value by level VM [OL MHPY ]HS\L OPLYHYJO` MVY [OL `LHY LUKLK +LJLTILY ! Date of valuation

Level 1 AED 000

Level 2 AED 000

Level 3 AED 000

Total AED 000

7 January 2013

-

-

101,563

101,563

7YVWLY[` Ă„_[\YLZ HUK LX\PWTLU[ SHUK

+LJLTILY

([ MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ Quoted equities Quoted debt instruments

31 December 2012 31 December 2012

50,053 255,287

-

-

50,053 255,287

305,340

-

-

305,340

78,562 -

51,661 15,669

96,470 -

78,562 148,131 15,669

78,562

67,330

96,470

242,362

-

-

-

-

ASSETS MEASURED AT FAIR VALUE Investment property

At fair value through other comprehensive income Quoted equities Unquoted equities Investment in managed funds

31 December 2012 31 December 2012 31 December 2012

ASSETS FOR WHICH FAIR VALUE IS DISCLOSED Investment carried at amortised cost

31 December 2012

The following is a description of the determination of fair value for assets which are recorded at fair value using valuation techniques. These incorporate the Group’s estimate of assumptions that a market participant would make when valuing the assets. 0U]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ VY SVZZ 0U]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVÄ[ HUK SVZZ HYL SPZ[LK LX\P[PLZ HUK debt instruments in local as well as international exchanges. Valuations are based on market prices as quoted in the exchange. Investments carried at fair value through other comprehensive income Investments carried at fair value through other comprehensive income, the revaluation gains / losses of which are recognized through equity, comprise long term strategic investments in listed equities, companies and private equity funds. Listed equity valuations are based on market prices as quoted in the exchange while funds are valued on the basis of net asset value statements received from M\UK THUHNLYZ -VY JVTWHUPLZ [OL ÄUHUJPHS Z[H[LTLU[Z WYV]PKL [OL ]HS\H[PVUZ VM [OLZL PU]LZ[TLU[Z ^OPJO HYL HYYP]LK H[ WYPTHYPS` I` KPZJV\U[LK JHZO ÅV^ analysis. Fair value of the unquoted ordinary shares has been estimated using DCF model and Price Earning Multiple basis valuation. The valuation requires management to make certain assumptions about the model inputs, including MVYLJHZ[ JHZO ÅV^Z [OL KPZJV\U[ YH[L JYLKP[ YPZR HUK ]VSH[PSP[` HUK WYPJL LHYUPUN

FINANCE HOUSE ANNUAL REPORT 2013

101

Notes to the Consolidated Financial Statements -HPY =HS\L 4HUHNLTLU[ *VU[PU\LK

multiples. The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments. -VSSV^PUN PZ [OL KLZJYPW[PVU VM [OL ZPNUPÄJHU[ \UVIZLY]HISL PUW\[Z \ZLK PU [OL valuation of unquoted equities categorized under level 3 fair value measurement.

Unquoted equities

=HS\H[PVU [LJOUPX\L

:PNUPĂ„JHU[ \UVIZLY]HISL PUW\[Z [V ]HS\H[PVU

9HUNL >LPNO[LK H]LYHNL

:LUZP[P]P[` VM [OL PUW\[ [V MHPY ]HS\L

DCF Method

Long term growth rate

2%

1.5% increase (decrease) in the long term growth rate would result in increase (decrease) in the fair value by AED 2.1 million and (AED 0.3 million) respectively.

Discount rate

15%

1% increase (decrease) in the discount rate would result in (decrease) increase in fair value by (AED 0.8 million) and AED 2.6 million respectively.

4% - 6%

1% increase (decrease) in the NYV^[O YH[LZ PU JHZO Ă…V^Z would result in increase (decrease) in fair value by AED 7.9 million and (AED 6 million) respectively.

Growth rate in revenue projections

Unquoted equities

Price Earning Multiple Valuation Basis

PE Multiple

7 – 13

Increase (decrease) in the PE Multiples by 1 would result in increase (decrease) in fair value by AED 5 million

Transfers between categories During the year, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements ! 5VUL However, during the year, the Group transferred investments carried at amortized JVZ[ HTV\U[PUN [V (,+ UPS ! (,+ [V PU]LZ[TLU[Z JHYYPLK H[ MHPY ]HS\L [OYV\NO WYVĂ„[ VY SVZZ JH[LNVYPaLK \UKLY SL]LS MHPY ]HS\L TLHZ\YLTLU[

102 FINANCE HOUSE ANNUAL REPORT 2013 Notes to the Consolidated Financial Statements

35. CAPITAL ADEQUACY Capital management The primary objective of the Group’s capital management is to ensure that the Group maintains healthy capital ratios in order to support its business, to maximise shareholders’ value and to ensure that the Group complies with externally imposed capital requirements. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years. The capital adequacy ratio calculated in accordance with the U.A.E. Central )HUR»Z N\PKLSPULZ MVY JVTTLYJPHS IHURZ PZ HZ MVSSV^Z!

2013 AED 000

2012 AED 000

833,148

783,623

9PZR ^LPNO[LK HZZL[Z! :[H[LTLU[ VM ÄUHUJPHS WVZP[PVU P[LTZ 6MM Z[H[LTLU[ VM ÄUHUJPHS WVZP[PVU L_WVZ\YLZ

3,021,461 364,951

2,633,156 310,707

Total risk weighted assets

3,386,412

2,943,863

24.6%

26.6%

Total capital base

Total assets ratio (%)

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