SASCO Annual Report ENGLISH 2017 by Paul Dominic Raña

Annual Report

2017

Annual Report 2017

Custodian of the Two Holy Mosques

King Salman bin Abdul Aziz Al Saud ( May Allah protect him )

His Royal Highness

Prince Mohammad bin Salman bin Abdul Aziz Crown Deputy Prime Minister & Minister of Defense ( May Allah protect him )

Table of Contents

Annual Report 2017

Board of Directors

Main Business Sectors

Chairman’s Statement

Plans and Decisions

Vice Chairman and Managing Director’s Statement

The Most Important Achievements During 2017

Chief Executive Officer’s Statement

Board of Director’s and Committees

Vision

Shareholders’ Meetings in 2017

Mission

Consolidated Financial Statements

SASCO Overview

Retail Sector

Zaiti Petroleum Services Company

108

SASCO franchise Co.

SASCO Palm Co.

110

Other Administrative and Operational Information

SASCO Oasis

114

Risks Management

Ostool Al-Naqil Co.

120

Internal Control

Saudi Automobile & Touring Association - SATA

124

Corporate Governance

102

Auto & Equipment Investment Co.

128

Financial Statements

106

Al-Nakhla Al-Oula Co.

Board of Directors

The Board of Directors is pleased to present to you SASCO Annual Report for the fiscal year ending on December 31st, 2017. It includes the Board of Directorsâ&#x20AC;&#x2122; Report on SASCO financial results, its various activities, as well as the achievements that achieved thanks to Allah, and the efforts of all members of the Board, the executive management, and all staff.

Annual Report 2017

Board of Directors Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman | Head of Executive Committee Qualifications and experience: He is a businessman, holding the Secondary school certificate and having more than 36 years in corporate management. He occupied many positions including the deputy Chairman of the Saudi Chambers of Commerce. He also participated in the boards of CMA-listed and unlisted shareholding companies such as Al-Madaen Star Group, Akwan Real Estate Co., Ibrahim bin Mohammed Al-Hudaithi Investment Co., Zawaya Real Estate Co., Nahaz Investment Co. and other companies working in the fields of real estate, services, investment and financial services inside and outside the Kingdom of Saudi Arabia.

Mr. Sultan bin Mohammed Al-Hudaithi Vice Chairman | Managing Director | Member of Executive Committee Qualifications and experience: He holds the Bachelor’s Degree in Accounting with honour degree from King Saud University and Master of Business Administration from London Business School. He held leading positions in many public and private companies in Saudi Arabia. He has experience in corporate restructure, strategic planning and investment management in securities, private ownership and real estate investment. He was a member of boards and committees in public and private companies including Saudi Chemical Co., Nahaz Investment Co., Zawaya Real Estate Co., Al-Madaen Star Group, Middle East Battery Company (MEBCO), Mulkia Investment Co. and United Wire Factories Company (ASLAK). Mr. Nasser bin Abdullah Al Awfi Board Member | Chairman of Audit Committee Qualifications and experience: He holds the Master’s Degree in Accounting, Master’s Degree in Business Administration from Southern New Hampshire University in the USA and the Bachelor’s Degree in Accounting from King Saud University. He has more than thirty years of experience as well as in the joint stock companies management as well as financial, administrative and strategic consultation. He also participated in many shareholding companies’ board and board committees (Audit Committee) such as Al Jouf Agricultural Development Company (JADCO), Taiba Holding Company and United Cement Industrial Company.

Mr. Suleiman Bin Ali Al Khudair Board Member | Member of Audit Committee Qualifications and experience: He holds a university degree in sciences from the USA. He held many administrative positions, as he worked as a computer engineer in the Ministry of Defence. Then, he moved to the private sector where he worked as a technical director, a sales director and deputy general director in Nahil Computers and now he is its General Director.

Current Jobs:

` SASCO Managing Director. ` Board member of United Wire Factories Company (ASLAK)

` Board member of Mulkia Investment Co. ` Board member of Nahaz Investment Co. Previous Jobs:

` CEO of Ibrahim Modern Investment Company. ` Chief Executive Officer of Zaiti Petroleum Services. ` Deputy General Manager for Financial and Administrative Affairs at Al Madaen Star Group.

` Board member of Saudi Chemical Co.

Current Jobs:

` Board member and Head of Audit Committee of United Cement Industrial Company.

` Head of Al Jouf Agricultural Development Company Audit Committee.

` Head of Saudi Ceramics Audit Committee. ` Member of Taiba Holding Company Audit Committee. Previous Jobs:

` Director of Financial, Administrative and Investment Department of Saudi Pharmaceutical Industries & Medical Appliances Corporation (SPIMACO). ` Vice General Director for Financial and Administrative Affairs of Saudi Livestock Trading Company. ` General Director for Financial and Administrative Affairs of Taiba Investment and Real Estate Development Company.

Current Jobs:

` General Director of Nahil Computers Co. Previous Jobs:

` Technical Director of Nahil Computers Co. ` Sales Director of Nahil Computers Co. ` Deputy General Director of Nahil Computers Co.

He participated in boards of many joint stock companies.

Mr. Ajlan bin Abdulrahman Al Ajlan Board Member | Chairman of Nomination and Remuneration Committee Qualifications and experience: He holds the Bachelor’s Degree in Industrial Management from Central Washington University. He enjoys more than twenty five years of experience in the field of industrial investment. He participated in boards of many joint stock companies such as Drake & Scull International KSA and Fawaz Abdulaziz Al Hokair Co.

Annual Report 2017

Current Jobs:

` Board member in Fawaz Abdulaziz Al Hokair Co. ` Board member in Drake & Scull International KSA. ` Board member in Gulf Insulation Group “GIG”. ` ` ` `

Previous Jobs: Board member in Saudi Lamino Co. Ltd. Board member in Olayan Food Services Company. Board member in Rana Investment Company (RIC). Board member in Indian Company For Co-Operative Insurance.

Current Jobs:

Previous Jobs:

` Chairman of Al-Madaen Star Group. ` Chairman of Mulkia Investment Co. ` Board member of Nahaz Investment Co. `

` ` ` `

Vice Chairman of the Saudi Chambers of Commerce. Chairman of Al Kharj Industrial Chambers of Commerce. Member of Al Kharj Governorate Local Council. Board member of Solidarity Company.

Mr. Majid bin Muhammad Al Othman Board Member | Member of Nomination and Remuneration Committee Qualifications and experience: He is a businessman, holding the Secondary school certificate and having more than thirty years in real estate, contracting and automobile services. He is the Managing Director of Al-Madaen Star Group and board member of Ibrahim bin Mohammed Al-Hudaithi Investment Co., Bilda Specialized Commercial Centers Co. and Zawaya Real Estate Co. Mr. Riyad bin Saleh Al Malik Board Member | Member of Executive Committee | Chief Executive Officer Qualifications and experience: He holds the Bachelor’s Degree in Business Administration from King Abdulaziz University. He has a vast experience in corporate management, particularly fuel stations. He served as the General Director of Al Tas’helat Marketing Company Ltd., Deputy General Director of Riyadh Development Company and board member of many companies. He is now the Head of Customs Council of Federation Internationale de l’Automobile and Head National Committee of Fuel Station Companies in the Council of Saudi Chambers. Mr. Ali bin Mohammed Aba Al Khail Board Member | Member of Nomination and Remuneration Committee Qualifications and experience: He holds the Bachelor’s Degree in Political Sciences from the Faculty of Administrative Sciences, King Saud University and the Master’s Degree in Government Management from Harvard University, United Sates of America. He is the secretary of the Head of the Royal Diwan, the Deputy Director of the Political Affairs Department of the Royal Diwan and secretary of Office of Presidency of Prime Minister. He was appointed in the Office of the Second Deputy of Prime Minister, Minister of Defense and Aviation and Inspector General. He also worked as an administrative counsellor in the High Commission for Administrative Organization and Deputy Chairman of the Board of Directors of Sanad Investment Company. Mr. Fawaz bin Suleiman Al Rajhi Board Member | Member of Audit Committee Qualifications and experience: He holds the Bachelor’s Degree in Accounting and Information Systems Management from King Fahd University of Petroleum and Minerals (KFUPM) and also holds the Master’s Degree in Business Management from Stanford University, USA. He is the Chairman of AlRajhi United Investment Holding Company; it is a company investing in capital markets and private transactions on the local, regional and international levels. He has been leading and directing the Company’s efforts since its inception based on the strategy of diversifying the investment portfolio through a deliberate choice of markets and industries in selected geographical locations, with focus being placed on emerging technology and income-generating real estates. He is also a board member

Current Jobs:

` Chairman of Al-Madaen Star Group. ` Chairman of Fun Gate Company. ` Managing Director of Al-Madaen Star Group. Previous Jobs:

` General Director of Al-Madaen Star Group for Contracting.

` General Director of Al-Madaen Star Group for Automobile Services.

Current Jobs:

` SASCO Chief Executive Officer. Previous Jobs:

` General Director of Al Tas’helat Marketing Company Ltd. ` Deputy General Director of Riyadh Development Company.

` Director of Marketing Department of Saudi Real Estate Company (Al Akaria).

` Sales Director of Saudi Hotels & Resorts Company.

Current Jobs:

` Vice Chairman of the Board of Directors of Sanad

Investment Company. Previous Jobs: ` Deputy Director of the Political Affairs Department of the Royal Diwan. ` Administrative counsellor in the High Commission for Administrative Organization.

and member of audit committees in a number of jointstock companies. He spent more than a decade in banking. He held many positions in Corporate Financing Division of Rajhi Bank. He took part in establishing the department of corporate loans and financing subscription of large corporations. He was the person in charge of establishing the Share and Subscription Department of Al Rajhi Capital Company. Current Jobs: ` Chairman of the Board of Directors of Union Al Rajhi. ` Chief Executive Officer of Al Rajhi Union. Previous Jobs: ` Chief Operating Officer of Al Rajhi Capital. ` Director of Sales and Distribution, Al Rajhi Capital. ` Head of Corporate Banking at Al Rajhi Bank. ` Chief Financial Analyst at Al Rajhi Bank. ` Systems analyst at Procter & Gamble.

Chairmanâ&#x20AC;&#x2122;s Statement Mr. Ibrahim bin Mohammed Al-Hudaithi

Messrs. / Shareholders of the Saudi Automotive Services Company (SASCO), the highly regarded, May Allahâ&#x20AC;&#x2122;s Peace, Mercy and Blessings be upon you, On behalf of the Board of Directors of the Saudi Automotive Services Company (SASCO) and my own, I am pleased to present to you SASCO Annual Financial Report for the fiscal year ended on December 31st, 2017. It includes the performance and achievements of SASCO and its subsidiaries as well as the financial results and key financial indicators. Thanks to Allah and the efforts of all members of the Board, the executive management, and staff, SASCO achieved in 2017 net operating sales of SAR 1,212,329,807 compared to SAR 1,094,122,754 in 2016, i.e. an increase of 10.8%, which reflected positively on the increase in gross and operating profit and net profit. In addition, in 2017, SASCO recorded a net profit of SAR 29,820,145 compared to SAR 25,980,831 in the previous year, 2016, i.e. an increase of 14.78%. This, in turn, led to an increase of 0.55 in share profits compared to 0.48 of last year. As a result, the Board recommended to distribute to SASCO shareholders a dividend of SAR 0,50 per share for the fiscal year ending on 31 Dec. 2017 with a total amount of SR 27,000,000 representing 5% of SASCO capital. The entitlement to these dividends would be for shareholders registered with the Securities Depository Center (Tadawul) by the end of the second day on which the General Assembly convened. In the Extraordinary General Assembly, the Board recommended to increase SASCO capital to SAR 600,000,000 through bonus shares to SASCO shareholders, by one share for every 9 shares.

Net operating income during the year 2017

SR 1,212,329,807 Net operating income during the year 2016

SAR 1,094,122,754 With an increase, of

10.8%

Annual Report 2017

Capital increase shall be done through capitalizing SR 60 million of the retained profits. The aim of this was to strengthen SASCO financial ability to meet the current and future expansions in all its activities to achieve better growth rates in the coming years and preserve financial solvency. The entitlement would be for shareholders registered with the Securities Depository Center Company (Idaa) by the end of the second trading day following the date on which the Extraordinary General Assembly convened; provided that such recommendation is conditional upon the approval of the official bodies and shareholders' Extraordinary General Assembly. Some of the most important achievements during 2017 are as follows: f Issuing all 2017 quarterly and annual financial statements according to the International Financial Reporting Standards (IFRS). f Compared to last year, SASCO assets rose to SR 1,5 billion at 2,90%. f Updating, preparing and approving the regulations, policies and standards required by the supervisory bodies. f Developing SASCO accounting and operating systems to cope up with the value added tax and applying the same as of 2018. f Completing the construction of (6) sites according to SASCO identity and (1) site according to Zaiti Petroleum Services Company identity. The most important sites of these is SASCO Plus on Mecca-Jeddah highway (El-Zaidy District) in Mecca and SASCO Plus station on King Fahd International Airport-Dammam road inside the airport campus. f Completing the development of (7) sites according to SASCO identity and (4) sites according to Zaiti Petroleum Services Company identity. f Expanding dry transport though contracting with various clients and companies. f Purchasing 15 new trucks to support fleet in addition to purchasing 6 fuel tanks and 15 containers to transport goods. f Saudi Automobile & Touring Association (SATA) started to issue international driving license through its website. f Opening Abu Hadreya, Al Adeed, Shalalha and Akhal motels for SASCO Al-Waha Co f Continuing to develop SASCO information technology systems and monitoring inventory using the state-of-the-art technologies. f Continuing to attract qualified cadres to meet SASCO need of various administrative functions, especially in leadership positions. f Continuing Saudization of jobs according to the Ministry of Labourâ&#x20AC;&#x2122;s requirements. f Continuing to study the options of selling some of SASCO owned sites and leasing them for long periods. Negotiations are still underway with a number of financial institutions and investment companies with the aim to obtain offers matching SASCO interests and goals. f Participating in many awareness campaigns confirming SASCO contribution to social responsibility.

Palm Co.' operating revenues rose by 17% compared to last year to reach SR 63,719,373. The operating revenues of Ostool Al-Naqil Co. increased by 16% compared to last year to SR 22,759,754. The operating revenues of Zaiti Petroleum Services Company increased by 7% compared to last year to SR 282,941,455. As for the Saudi Automobile & Touring Association, SATA, although its sales were affected by the political events experienced by some Arab countries, its operating revenues increased by 11% compared to last year to SR 22,723,350. This is in addition to the achievements across SASCO and all subsidiaries indicated in this report. In 2018, SASCO will continue to achieve its objectives according to its strategic plan developed by the Board of Directors, consider the horizontal and vertical acquisition opportunities at all operating levels in consistency with Saudi Vision 2030 and work toward overcoming all obstacle and challenges. In conclusion, on behalf of the members of the Board of Directors, I extend thanks and appreciation to all shareholders of the Saudi Automotive Services Company (SASCO) for their trust in SASCO management. I also thank all SASCO executive management and staff for their efforts and dedication in performing their jobs in the required manner, helping achieve the desired goals throughout this year. We are fully confident that the power and concerted efforts of the working team will result in achieving continuous success, God Willing. We look forward to achieving further successes in the coming years. I would also like to direct my sincere thanks and appreciation to the Custodian of the Two Holy Mosques, King Salman bin Abdul Aziz, may Allah protect him, His Highness the Crown Prince, His Royal Highness Prince Mohammed bin Salman bin Abdul Aziz, may Allah protect him, for all of the great efforts and unlimited assistance to develop this country, support its economy and stimulate the business environment in favor of Saudi Vision 2030.

May Allah Grant Us All Success, Chairman Ibrahim bin Mohammed Al-Hudaithi

f When it comes to the operating revenues of subsidiaries, SASCO

Vice Chairman and Managing Director’s Statement Mr. Sultan bin Mohammed Al-Hudaithi

Messrs. / Shareholders of the Saudi Automotive Services Company (SASCO), the highly regarded, May Allah’s Peace, Mercy and Blessings be upon you, It is thanks to Allah›s grace that 2017 witnessed SASCO continued achievements and expansions according to its approved strategic plan. The Board seeks to keep its promise and commitment to SASCO shareholders and customers and preserve its pioneering position in the field of operating fuel stations and retail as well as all sectors in which it operates. It gives me pleasure to present to you a brief overview highlighting the most important 2017 activities and developments on the operational and financial levels. SASCO achieved total operation revenues of SR1,212,329,807 compared to SR 1,094,122,754 in 2016, with an increase of 10,80%. This led to an increase of 2017 net profits which were SR 29,980,831 compared to SR 25,980,831 in 2016, i.e. increase of 14,78%. Such increase in operating revenues is attributed to many reasons, notably the continued expansion plan and opening a number of new sites. Earnings before interest, Zakat, depreciation and amortization at the end of 2017 were SR 84,508,044 compared to SR 68,439,549 at the end of 2016, i.e. an increase of 23%. As a result, share profit increased compared to last year and was SR 0,55 in 2017 compared to SR 0,48 IN 2016, with an increase of 12,7%.

Profit before interest, Zakat, amortization and amortization (EBITDA) at the end of 2017

SR 84,508,044 Profit before Interest, Zakat, Depreciation and Amortization (EBITDA) at the end of 2016

SR 68,439,549 With an increase, of

23%

Annual Report 2017

Following are some of the most important achievements in different sectors of SASCO and its subsidiaries: f Retail Sector: This sector provides a set of excellent services to clients through SASCO sites spread nationwide. The sites have increased to 220 sites compared to 213 in 2016, i.e. an increase of 7 sites. Operating sites and stations rose to 158, of which 94 are according to SASCO identity and 54 are operating according to Zaiti Petroleum Services Company identity. Other sites are under development or preparation and construction or stopped for lack of economic feasibility from operating them. f The Retail Sector offered its services to about 12,700,000 vehicles, with an increase of 11.8% compared to 2016, including 8,300,000 pilgrims whether inside or outside the Kingdom. f By God’s grace, we concluded strategic partnerships with many international and local companies specialized in operating restaurants and café and automotive maintenance with the aim to rent and operate some SASCO facilities to offer high quality and integrated services. These efforts led to increasing clients nationwide and raising their satisfaction and loyalty.

f SOCIAL RESPONSIBILITY: Based on its belief in its active role in the community and in highlighting our homeland›s achievements, SASCO participated in many awareness-raising campaigns, including: f “Express Your Homeland Campaign” in the Kingdom’s National Day. The Campaign highlighted the major achievements of our beloved homeland under the wise leadership of the Custodian of the Two Mosques and his Crown Prince. f Learn Early Campaign, in consistency with the Royal Decree of Women Driving. An infographic was posted on SASCO social media website. f Minutes Equal Years Campaign. It is an awareness campaign on the benefits of breast cancer early testing. f This comes in addition to several awareness campaigns and other communal participations.

f Supply Sector (SASCO Palm Co.): 6 new branches were added in 2017. At the end of 2017, the total number of branches was 67. SASCO Palm Stores contains a full basket of items that were carefully studied to meet clients› needs and achieve their satisfaction. Change of client basket reached 18,75%, rising from SR 16 to 19 in 2017. f Accommodation Sector (SASCO Al-Waha Co.): In 2017, two motels carrying Motel Al-Waha brand were opened. The first one is located on Abu Hadreya-Dammam Road and the second is located near Al Adeed outlet on Batha›a-Salwa road in addition to Motel Waha on Riyadh-Dammam highway at Kilo 154. So, the total number of SASCO Al-Waha motels rose to 3. f Transport Sector (Ostool Al-Naqil Co.): SASCO increased its truck fleet in 2017 to 108 compared to 95 trucks in 2016. The number of trailers rose to 121 in 2107 compared to 101 in 2016. f Ostool Al-Naqil Co. provides transport services of fuel, water and sewage to SASCO and Zaiti and transport services of fuel and cargo to other companies. It also expanded its business to include dry transport using multi-purpose containers. It also received qualification from the National Water Company and the Saudi Electricity Company. f Saudi Automobile & Touring Association SATA: In spite of the events experienced by the region which led to large depression in issuing transit books among the Arab countries, more than 32,000 customs transit books were issued to passengers in addition to 62,000 internal driving licenses. According to the Agreement on International Road Transport, SATA continued to encourage the official authorities in the Kingdom and in Gulf Cooperation Countries to activate the Agreement under the supervision of the International Road Transport Union (IRU). It also participated in some relevant seminars within the Gulf Cooperation Countries.

performance and strengthening efficiency. I extend thanks and appreciation to all shareholders and board members for their continued support, keenness and distinguished ideas. I also thank all brothers in the Executive Management and all SASCO employees for their great efforts, which contributed to achieving SASCO vision and goals and strengthening its pioneering position in the market.

f In conclusion, we ask Allah, the Almighty, to bless these efforts and grant us success in continuously achieving SASCO plans and goals and the aspirations of shareholders as well as improving

May Allah Grant Us All Success, Managing Director Sultan bin Mohammed Al-Hudaithi

Chief Executive Officer’s Statement Mr. Riyadh bin Saleh Al Malik

Messrs. / Shareholders, the highly regarded, May Allah’s Peace, Mercy and Blessings be upon you. Based on its efforts to implement the Board›s strategy and highlight the achievements recently accomplished, SASCO could in this fiscal year produce many achievements through its business including station and rest house sector and the business of its subsidiaries. In addition to qualitative and quantitative in all activities, greatest interest was paid to quality, safety and professional health standards and preservation of environment being one of the most important international development and growth standards. SASCO was also keen on different social participations and awareness campaigns such as «Express Your Homeland Campaign» in the Kingdom›s National Day and «Learn Early Campaign» in consistency with the Royal Decree of Women Driving in addition to many traffic safety campaigns and competitions offered to our clients. Financial Performance: In 2017, SASCO achieved an increase of net profits at 14,78% compared to 2016, raising the net income to SR 29,820,145. Total gross profit also increased at 36,82% due to to opening many sites and were SR 79,491,327. In addition, net operating profits scored an increase of 68,73% due to reducing the general and administrative expenses and recorded SR 32,751,403. Net sales recorded SR 1,212,329,807 compared to SR 1,094,122,754 last year scoring an increase of 10,80%. Shareholders› equity recorded SR 783 million compared to SR 782 million in 2016, i.e. an increase of 0,13%.

Total profit by the end of 2017

SAR 79,491,327 Total profit by the end of 2016

SR 58,099,376 With an increase, of

36.82%

Annual Report 2017

Operational Performance: During fiscal year 2017, SASCO opened and developed a number of service stations according to the plan for increasing the number of stations operating in station sector including the owned and long-term leased stations. Among the most important 2017-opened stations were SASCO Plus on Mecca-Jeddah road (El-Zaidy District) in Mecca, SASCO Plus station on King Fahd International Airport in Dammam and SASCO Plus station on Riyadh-Dammam road in Al Wasee’a area about 100 km2 away from Riyadh. These stations have all services a passenger needs with the best level of service to customers.

Based on the International Road Transport Agreement concluded in 2012 by SASCO with the International Road Transport Union (IRU) and Saudi Automobile & Touring Association’s accession as a union member, SASCO continued to encourage the official authorities in the Kingdom to activate the Agreement under the supervision of the International Road Transport Union (IRU). To this end, we participated in relevant local, regional and international road transport conferences and seminars and urged the competent authorities to enter into this international agreement.

We continued to sign new strategic partnerships with food companies to offer their services using SASCO sites. We also proceeded with introducing mechanization programs in our stations through using modern technology to automate all SASCO stations. At present, we work to introduce the online loading system through payment by Mada card or other payment cards.

SASCO is currently placing final touches on launching a project for granting franchise to SASCO Franchise Co. to run its stations. By so doing, SASCO aims to increase its revenues and improve its profitability by granting franchise to other operators under agreements it concludes with them to benefit from SASCO brands in light of successful development of its sites according to its identity and its distinguished position in the fuel station sector in the Kingdom. In addition, it developed another alternative to station

SASCO continued to achieve growth in supplies sector, which witnessed a remarkable progress thanks to SASCO Palm Stores. In the same regard, it expanded the scope of cooperation with major retail suppliers and made several alliances with different corporations to raise the level of items to ensure the quality and availability of services needed by those frequenting stations and rest houses. When it comes to hospitality sector which manages all SASCO motels, two motels carrying SASCO Al-Waha Co. brand were opened. The first one is located in Abu Hadreya on Dammam-Khafji road and the second is located in Al Adeed area on Batha’a-Salwa road. This came in addition to Super 8 Hotel at Riyadh, which won many excellence awards. In the transport sector, SASCO contracted with many commodity transport companies and consequently increased its truck fleet to 108 and trailers rose to 121 in 2107. Through these, SASCO provides transport services of fuel, water and sewage to SASCO and Zaiti sites. It also expanded its services to include dry transport using multi-purpose containers.

owners wishing not to sell or lease them. Many of the plans and achievements detailed in the Board’s annual report were implemented with the attempt to cope up with the developments witnessed by the Kingdom in its efforts to achieve Vision 2030. In conclusion, I extend thanks and appreciation to all shareholders of the Saudi Automotive Services Company (SASCO) for their trust in SASCO management. I also extend thanks and appreciation to SASCO Board of Directors for their continued support to the Executive Management. I also thank all SASCO employees for their great efforts in the recent period to improve all SASCO and subsidiaries’ activities, provide excellent services to its clients and contribute to strengthening the level of the national economy; a matter which would benefit to all shareholders. May Allah Grant Us All Success, Chief Executive Officer Riyadh bin Saleh Al Malik

Saudi Automobile & Touring Association, SATA, was largely affected in its sales by the events recently experienced by the Arab Region. It largely relies on offering the service of issuing customs transit books and international licenses to the Arab region particularly Yemen and Levant states which are all related to such events. SASCO endeavours to strengthen the business of this sector through exploring other growth-contributing activities.

Vision To be the first company in terms of the quality of the service and its integration, and to be the ideal model to be followed in the field of the service of vehicles, the equipment, and the management of guest houses and motels on highways in the Kingdom of Saudi Arabia.

Annual Report 2017

Mission To provide a range of integrated services to motorists and travellers, inside and outside the cities, to the highest domestic and international standards, always ensuring customer satisfaction with an emphasis on added value.

‫خلفية عامة عن‬ SASCO Overview ‫ساسكو‬

Annual Report 2017

SASCO Overview

f Manufacturing, re-manufacturing, and renewing auto parts, equipment, and car batteries after obtaining the necessary licenses from the competent authorities.

The Formation Saudi Automotive Services Co. (SASCO) is a Saudi joint stock company established under Ministerial Decision No. 563 dated 23/12/1402 AH corresponding to 12/10/1982 AD.

non-refrigerated boxes, and all kinds of tankers after obtaining the necessary licenses from the competent authorities. f Granting franchise to third parties in respect of SASCO trademarks. f Establishing, managing, maintaining, operating, and cleaning

The Activities f Establishing and operating auto and passenger service centres within cities and on the main and intercity roads. f Establishing and operating rest houses, motels, and restaurants on highways. f Providing first-aid means using the latest international methods, including the use of helicopters, with the approval of competent authorities. f Importing, selling and distributing spare parts, car hardware, and equipment as well as parts, accessories, and materials necessary to provide best maintenance and repair services for cars and equipment and to meet the needs of maintenance operations in workshops and service stations, and to sell them directly to the public. f Buying, selling, renting, and leasing lands and real estate properties required to serve SASCO purposes, and managing third partiesâ&#x20AC;&#x2122; properties. f Submitting

f Manufacturing light and heavy trailers, vehicles refrigerated and

contracting

tenders

car

and

equipment

maintenance for individuals, companies, and institutions. f Checking cars to issue the road ability certificates upon the approval of the Ministry of Interior. f Providing an automobile club to issue international driving licenses and customs transit (Trip-Tik) books and supporting motor sport and tourism. f Importing and exporting all types of vehicles for SASCO business as well as trading in them after obtaining the approval of the competent authorities.

residential and commercial buildings and third partiesâ&#x20AC;&#x2122; and SASCO-owned fuel stations. Capital SASCO capital amounts to five hundred forty million Saudi Riyals (SAR 540,000,000) (fully paid up) divided into 54,000,000 shares, each with a nominal value of SAR 10. The Fiscal Year SASCO fiscal year ends on December 31st of each calendar year. Auditor for the year 2017 Office Allied Accountants - Chartered Accountants and Auditors Investment Restrictions There are no restrictions on SASCO listed shares as stated in Article (14), sub-paragraphs (A/3) and (A/4) of the Rules for Qualified Foreign Financial Institutions Investment in Listed Shares amended by CMA Board of under Resolution No. (1-3-2018), dated 22/4/1439 AH, corresponding to 9/1/2018 AD. Additional Information f Please visit SASCO website: (www.sasco.com.sa) f Please read SASCO profile on Tadawul website: (www.tadawul.com.sa) under code (4050) f SASCO International Code (SA0007870070).

Main Business Sectors

22 200

S ES

160

60 80

180

100

Annual Report 2017

340

0 0

280

260

Main Business Sectors

Retail sector is the main sector manging all its stations. It also provides fuel, renting, café and restaurant services.

SASCO Palm Company It provides supply services through managing all SASCO Palm Stores spread nationwide with the aim to meet all needs of motorists and travellers inside and outside the cities.

SASCO Al-Waha Company It manages of all SASCO motels spread nationwide in addition to super 8 hotels.

Ostool Al-Naqil Company

Saudi Automobile & Touring Association It possesses licenses from Fédération Internationale de l’automobile (FIA) to issue Customs Transit Books (Trip-Tik) and international licenses. It works through many sale outlets and network of clients in all parts of the Kingdom of Saudi Arabia.

It provides transport services to SASCO and Zaiti locations (fuel, water, and sewage transport) in addition to provide transport services (fuel and cargo) to third parties.

Auto & Equipment Investment Company It was established with the aim to independently manage SASCO investment activities. It possesses 7,94% of the capital of Middle East Battery Company (MEBCO).

Al Nakhla Al Oula Contracting Company It was established with the aim to carry out operation, maintenance and cleaning works for SASCO sites in order to improve the quality of services provided to clients. It specializes in public contracting works of buildings, and constructing, managing, maintaining and operating residential and commercial buildings as well as road works.

SASCO Franchise Company

Zaiti Petroleum Services Company It builds, manages and operates fuel stations. It also possessing and manages many stations spread in the Central and Southern Provinces.

It grants franchise to other operators through concluding contracts to operate trademarks of (SASCO stations) and (SASCO Palm Stores)

Plans and Decisions

Annual Report 2017

Plans and Decisions The Strategic Plan Proceeding from the strategic plans adopted by the Board of Directors in its ninth session (June 30th, 2009 - June 29th, 2012) and tenth session (June 30th, 2012 - June 29th, 2015), and after a specialized third party reviewed the strategic plan within SASCO Governance and Strategy Evaluation Project, as well as restructuring posts and job descriptions and setting the powers of each function, the Board of Directors in its eleventh session (June 30th, 2015 - June 29th, 2018) adopted a comprehensive development business strategy that

of SASCO sites and the transport market in the Kingdom. f Establishing new alliances with international and leading companies operating in service sectors associated with the activities of SASCO and its subsidiaries. f Applying the concept of total quality (TQ) to all SASCO sectors. f Developing services provided by Saudi Automobile and Touring Association, increasing market share in Trip-Tik and international licenses sales, and activating its activity in the field of motor sport. f Activating the role of subsidiaries. f Strengthening control over operation and service quality. f Maintaining the competitive position of Saudi Automobile and Touring Association.

includes SASCO financial, administrative, and operational position.

f Enhancing SASCO financial efficiency.

The Board considered the priorities in achieving the goals set in the

f Continuing distribution of dividends to shareholders.

plan, whether they are qualitative, quantitative, administrative, or regulatory. The development strategic business plan included a list of these goals in addition to a mechanism to control it and measure the

f Disassociating from unexploited assets. f Continuing the utilization of technology and service automation. f Attracting distinctive administrative expertise and competencies.

achieved performance periodically.

The most important objectives achieved are as follows:

Main considerations of SASCO strategy considered were as follows:

f Continuing to develop the existing sites according to SASCO

f To identify the items in previous strategies that would remain appropriate and existing for the coming years. f To identify the items in the previous strategies that require updating or amendment, which fits with the coming years. f To define the way through which SASCO can manage its existing assets effectively. f To determine the human resources required to support growth. f To work towards providing excellent services in terms of value added and maintaining SASCO competitive position. f To identify strengths, weaknesses, opportunities, and threats. The most important objectives of the developmental plan are as follows: f Conducting a comprehensive market study for all sectors of SASCO and its subsidiaries. f Accelerating the decentralization plan to reduce costs, improve profitability, and increase operational efficiency. f Expanding and penetrating the market through strategic partnerships and acquisitions. f Providing logistics services and a comprehensive distribution network. f Concentrating on customer satisfaction. f Providing value-added services and innovative products. f Taking advantage of technology to facilitate service provision. f Concentrating on social responsibility. f Continuing the development of the quality of services provided. f Building a network of stations inside and outside cities so that SASCO be among the three largest companies operating in this field. f Continuing the development of stations, rest houses, and service

f Increasing the number of stations as per SASCO expansion policy. identity to cope with customer expectations. f Continuing to conduct general maintenance of all facilities at SASCO installations. f Continuing the establishment of strategic partnerships to raise the level of service provided to enhance customer satisfaction. f Branding the services offered by SASCO within its sites. f Continuing the distribution of dividends to shareholders. f Building a distinct work team. f Saudizing jobs and maintaining the green zone of SASCO and its subsidiaries according to the rating of Nitaqat Program issued by the Ministry of Labour. f Continuing to develop SASCO Enterprise Resource Planning (ERP) System. f Developing the operational and administrative systems for all SASCO business units. f Motivating employees and creating a distinguished work environment. f Continuing the dissociation from some untapped assets to enhance profitability and provide funding sources. f Signing Sharia-compliant credit facility agreements with local and international banks. f Social engagement. The Executive Plan: In light of SASCO developmental strategic business plan, SASCO management prepares an executive action plan annually through which it divides the basic activities and links them to an implementation timeline on an annual basis under the supervision of the Managing Director. The actual achievements are reviewed monthly to ensure the realization of the objectives set in the strategic plan. Most Important

centres on highways. f Developing the transport fleet in line with the increasing number

Future Expectations f Expanding SASCO sites according to well-studied plans with the aim to develop the network in sites of distinct investment income.

facility agreements of distinguished conditions to SASCO.

This includes running the competitions offered by different

f Expanding the field of transport to third parties (water transport,

government bodies in addition to investment opportunities

fuel transport, dry transport) and increasing the number of fleet

available by non-governmental bodies (individuals, institutions, bodies and corporations). f Establishing new sites in favor of SASCO Palm Co. inside and outside cities. f Continuing the development of all sites and establishing new sites carrying SASCO identity. f Establishing new strategic partnerships with service provision companies in the sites to continue to provide distinct services to customers.

f Continuing to negotiate with local banks in order to conclude

Annual Report 2017

trucks. f Opening and developing motels carrying SASCO Al-Waha Co. trademark. f Finding new sale outlets to customs transit books and international driving licenses. f Developing the services provided by Saudi Automobile and Touring Association (SATA) and expanding its business. f Activating the granting of commercial franchise to diffrent sites.

Most Important ‫والقرارات‬ ‫الخطط‬ Achievements in 2017

Annual Report 2017

The most important achievements during the year 2017

❖ A station on Sail Road (Taif/Mecca).

At the Level of Network Expansion and Development

❖ Running

❖ A station in Rafha’a Governorate on Hafr Al Batin/Rafha’a road.

❖ Completing the establishment of (6) sites according to SASCO

many

government

competitions

identity, and (1) site according to Zaiti Petroleum Services

f Acquiring (1) site in the Central Province.

Company identity. Following are the most important sites:

f Acquiring (8) sites in in the Western Province.

❖ SASCO Plus station on Mecca-Jeddah highway (El-Zaidy District)

establishing and operating fuel stations and service centers.

f Acquiring (2) sites in the Central Province and (1) site in the Southern

in Mecca City.

Province in favor of Zaiti Petroleum Services Company.

❖ SASCO Plus station on King Fahd International Airport in

f Expanding dry transport through contracting with several

Dammam inside the airport campus.

customers and companies and continuing to transport fuel and

❖ A station in Zalim area on Riyadh-Taif Road.

water to third parties.

❖ Continuing to develop many existing sites inside and outside cities according to SASCO. (11) 7 sites were developed according

f Purchasing (15) new trucks supporting SASCO fleet. f Purchasing (6) fuel tanks in addition to (15) containers to transport

to SASCO identity and (4) sites according to Zaiti Petroleum Services Company identity while work is underway to develop

goods. f Opening Abu Hadreya, Al Adeed, Shalalha and Akhal motels for

the rest of sites according to the established development plan.

SASCO Al-Waha Co.

Following are the most important sites: ❖ SASCO Plus station on Al Huda-Mecca road (Remal District).

The following table shows a summary of the number of sites

❖ SASCO Plus station on Al Qasim-Riyad road in Qasim area at the

(operating and under construction) depending on the nature of

beginning of the road leading to Riyadh City.

ownership (including Zaiti sites):

Statement

2013

2014

2015

2016

2017

Operating-Owned

Non-operating-Owned Sites

Non-Owned Sites

153

161

168

Total

130

137

205

213

220

The annual growth rate

2.36%

5.38%

49.64%

3.90%

3.29%

2017

158

2016

146

2015

147

2014

2013

89 0

Stopped

38 100

Under Construction Sites

20 34 37

20 13 3

3 150

200

250

Stopped for Development

Operating & leased sites

Site Distribution )SASCO & Zaiti(

Central Province

57 %

Western Province

13%

Northern Province

Eastern Province

18%

Southern Province

Owned Sites

2017

2016

2015 28

2014

Purchase during year

Annual Report 2017

2013

16 4

Owned & Under Construction

Owned & Existing

At Business Development Level f Continuing to study the options of selling some of SASCO owned sites and leasing them for long periods. Negotiations are still

concluded with it. f Renewing and amending the credit facility agreement concluded with the Saudi British Bank (SAB).

underway with a number of financial institutions and investment

f Approval of the 2016 budget.

companies with the aim to obtain offers matching SASCO interests

f Finalizing the procedures of increasing SASCO Al-Waha Co. from SR

and goals. f Renewing SASCO qualification certificate to manage, operate and maintain fuel stations and service centers on the regional roads. f Preparing feasibility studies for the projects SASCO wants to undertake after the final approval of these studies. f Following-up with the Consulting Office to develop the designs necessary for SASCO new headquarters. f Continuing to sign many agreements with international restaurant

500,000 to SR 5000,000. f Continuing to develop SASCO ERP system to achieve SASCO objectives. f Following up the implementation of fuel pump and tank automation project and using smart cards and RFID system Project with an international company specialized in fuel stations. f Opening new sale outlets for the Saudi Automobile and Touring Association (SATA).

and café companies to enhance services provided to SASCO clients

f Continuing preventive and periodic maintenance of SASCO sites in

and to achieve a qualitative and quantitative shift for all its sites

a way that does not hinder the planned development works within

inside and outside cities towards the realization of SASCO approach

Corporate Identity Application Project.

to develop the station and rest house sector in the Kingdom.

f Underwriting in several companies that offered their shares for

f Continuing the update of the website of SASCO and its subsidiaries.

subscription through SASCO investment portfolio managed by

f Developing SASCO application on smart phones (Apple and

Saudi Fransi Capital Company under the CMA-approved Portfolio

Android). f Starting Saudi Automobile & Touring Association, SATA, to issue international driving licenses via its website. f Contracting with more companies and tourist companies at “Super 8” hotel in Riyadh. f

At the Level of Finance, Service Quality, and Financial & Operational Control f Approval of SASCO final accounts and Board of Directors’ Report. f Finalizing all stages of shifting to the International Financial Reporting Standards (IFRS) and issuing financial statements in consistency with such standards. f Registering and its subsidiaries in the value-added tax and issuing a VAT Group Registration Certificate. f Continuing in Al Ahli Capital portfolio which is run by Mulkia Investment Co. within the limits of the agreement previously

Management Agreement. f Following up the evaluation of SASCO risks by a third party that submits periodic follow-up reports to the concerned bodies. f Improving the electrical recommendation and redistributing loads in SASCO sites to reduce electricity costs and limit electrical faults. f Using LED lighting to lower the consumption of electrical power and reduce operating expenses. f Establishing two water desalination plants in Halban rest house and Batha’a rest house to reduce water import costs. f Digging and operating 14 water wells to reduce purchase costs. f Granting “Super 8” Hotel Riyadh the Excellence Certificate Prize provided by Booking website for being one of the best hotels in terms of guest satisfaction for the year 2016. f Honouring “Super 8” Hotel from the Technical and Vocational Training Corporation (TVTC) on the margin of the Annual Heritage & Culture Festival (Janadriyah Festival 31).

At the Level of Organizational and Administrative

f Updating all Articles of Association of subsidiaries according to the

Development

Companies Law.

f Approval of the General Assembly to amend SASCO Articles of Association in accordance with the new Companies Law. f Appointing a vice chairman in implementation of Article 24 of SASCO Articles of Association which provides that the Board of Directors shall appoint, from among its members, a Vice Chairman. f Continuing to activate governance regulations and increasing

f Following up and applying any new legislations issued by the competent bodies. f Continuing to attract qualified cadres to meet SASCO need of various administrative functions, especially in leadership positions. f Developing training programs for all administrative levels. f Continuing Saudization of jobs and preserving SASCO and its subsidiaries classification within the green zone.

transparency and disclosure. f Updating, preparing and approving the required regulations, policies and standards from the supervisory authorities.

this is the Green Time

f Learn Early Campaign, in consistency with the Royal Decree of Women Driving. An infographic was posted on SASCO twitter website in the form of an educating photograph along with a competition.

Annual Report 2017

f Minutes Equal Years Campaign. It is an awareness campaign on the benefits of breast cancer early testing posted on SASCO twitter account. f An awareness campaign on traffic safety vi twitter account of Saudi Automobile & Touring Association.

At the Level of Corporate Social Responsibility (CSR):

To update SASCO application on (iOS / Android) smart phones.

SASCO provides many services including:

f https://appsto.re/sa/BVIaH.i

f Mosque service in different sites inside and outside cities and on

f https://appsto.re/sa/Hg1Ocb.i

highways. f Hajj and Omra service.

Organizing many marketing campaigns and competitions for SASCO

f Free toilet service.

customers and granting prizes to winners.

f Paying attention to health and cleanliness.

f SASCO Thursday Competition.

f Paying attention to environment.

f New Reasons for Stopping Campaign.

f Providing camps during Hajj in some of its sites on the highways.

f SASCO Plus Campaign. f Best Moment Competition.

At the Level of Marketing Activities and Social Media

f Captain Kareem Competition.

Continuous update of the website of SASCO and its subsidiaries

f SASCO Fawazeer in Ramadan.

(www.gasco.com.sa), in addition to their accounts on social media

f Express Your Homeland Competition.

on the following links:

f Learn Early Campaign.

f www.sataclub.com.sa

f Breast cancer early testing.

f https://twitter.com/sasco_ksa

f Your Speed is Waste Campaign.

f https://twitter.com/SATAclub f https://twitter.com/sasco_palm f https://twitter.com/Super8R f https://www.facebook.com/SaudiAutomotiveServicesCo/?fref=ts f /https://www.facebook.com/Sataksa_ f /https://www.facebook.com/sasco-palm-613438065491715_ f https://www.facebook.com/Super-8-Hotel-/ Riyadh-1777669312470879 f http://instagram.com/sasco_ksa_ f http://instagram.com/sata_ksa_ f http://instagram.com/sasco_palm_ f http://instagram.com/super8.riyadh_ f http://cutt.us/dxrT_ f https://plus.google.com/117174656605659302922_ f www.youtube.com/sasasco f www.flickr.com/photos/sasco

Board of Director’s ‫والقرارات‬ ‫الخطط‬ and Committees

Annual Report 2017

Board of Director’s and Committees Board Formation The Board of Directors was entrusted with SASCO management it the eleventh session as of 30/6/2015 for a period of three years ending on 30/6/2018.

Members’ Classification No.

Name

Position

Membership Category

Mr. Ibrahim bin Mohammed Al-Hudaithi

Chairman – Head of Executive Committee

Non-Executive

Mr. Sultan bin Mohammed Al-Hudaithi

Vice Chairman – Managing Director - Member of Executive Committee

Executive

Mr. Nasser bin Abdullah Al-Awfi

Board Member – Head of Audit Committee

Non-Executive

Mr. Suleiman bin Ali Al-Khudair

Board Member – Member of Audit Committee

Non-Executive

Mr. Ajlan bin Abdulrahman Al-Ajlan

Board Member – Chairman of Nomination and Remuneration Committee

Independent

Mr. Majid bin Mohammed Al-Othman

Board Member – Member of Nomination and Remuneration Committee

Non-Executive

Mr. Riyadh bin Saleh Al-Malik

Board Member – Member of Executive Committee - CEO

Executive

Mr. Ali bin Mohammed Aba Al-Khail

Board Member – Member of Nomination and Remuneration Committee

Independent

Mr. Fawaz bin Suleiman Al-Rajhi

Board Member – Member of Audit Committee

Independent

Annual Report 2017

24,000

30,252

45,000

1,000,000

1,045,000

63,147

Mr. Sultan bin

32,895

1,021,000

96,000

15,000

30,000

15,000

30,000

21,000

9,000

45,000

12,000

3,000

18,000

12,000

6,000

21,000

9,000

12,000

Expenditure Allowance

Grand total

Indemnity

Total

Granted shares

Long-term incentive plans

Short-term incentive plans

Periodic remuneration

Profit ratio

Total

Remuneration of Chairman, managing Director or Secretary if he is a Board member

Remuneration of technical, administrative or consulting works

In kind benefits

Total allowance for attending committee meetings

Allowance for attending Board meetings

Certain amount

Fixed Remuneration

1,000,000

21,000

Khudair

Mr. Suleiman bin Ali Al-

Al-Awfi

Mr. Nasser bin Abdullah

18,000

Mr. Ibrahim bin

18,000

Mohammed Al-Hudaithi

6,000

51,000

9,000

27,000

Al-Rajhi -

Mr. Fawaz bin Suleiman

Aba Al-Khail

12,000

Mr. Ali bin Mohammed

12,000

Mr. Ajlan bin

12,000

Abdulrahman Al-Ajlan

9,000

45,000

Mohammed Al-Othman -

Mr. Majid bin

Description

12,000

Total

12,000

Al-Malik

21,000

Mr. Riyadh bin Saleh

12,000

Mohammed Al-Hudaithi

24,000

Total

Allowances and Remunerations Paid to Board Members and Senior

Executives

The following statement shows the payments to Board members in 2017: Changing Remuneration

First: Independent Members

Second: Non-Executive Members

Third: Executive Members

Remunerations Paid to Senior Executives The following statement shows the payments to Top Five Senior Executives who received

Grand total 5,894,292

Indemnity 384,750

the Council if any

Total 1,025,418

Granted shares -

plans

Long-term incentive

plans

Short-term incentive

Profits

Remunerations

Periodic

1,025,418

Total

In kind benefits -

Changing Remuneration

4,484,124

Allowances 1,050,552

Total

Salaries

Statement

3,433,572

Fixed Remuneration

Total reward executives for

Allowances and Remunerations, including the CEO and CFO during 2017:

Remunerations Paid to Committee Members The following statement shows the payments to committee members in 2017:

Statement

Fixed remunerations except

Meeting attendance

meeting attendance allowance

allowance

Total

Executive Committee Members Mr. Ibrahim bin Mohammed Al-Hudaithi

9,000

Mr. Sultan bin Mohammed Al-Hudaithi

9,000

Mr. Riyadh bin Saleh Al-Malik

9,000

27,000

Total Audit Committee Members Mr. Nasser bin Abdullah Al-Awfi

50,000

18,000

68,000

Dr. Abdulrahman bin Ibrahim Al-Hamid

80,000

18,000

98,000

Mr. Suleiman bin Ali Al-Khudair

50,000

18,000

68,000

Mr. Fawaz bin Suleiman Al-Rajhi

37,500

3,000

40,500

Total

217,500

57,000

274,500

Remuneration & Nomination Committee Members Mr. Ajlan bin Abdulrahman Al-Ajlan

9,000

Mr. Majid bin Mohammed Al-Othman

6,000

Mr. Ali bin Mohammed Aba Al-Khail

6,000

3,000

24,000

Mr. Riyadh bin Saleh Al-Malik Membership to expire on 6 June 2017 Total

Remuneration Policy According to the payments made to the Board members, formed

Incentives, Bonuses and Commissions Policy Manual in a

committees and senior executives, the most important clauses of the

manner that does not conflict with their employment contracts.

Remuneration Policy are as follows:

A remuneration shall be approved before being paid by the

f paying (3) thousand Saudi Riyals (per each member / per meeting ) for board meeting attendance.

Remuneration after obtaining the Board’s recommendation. The Remuneration Policy of Board members, formed committees and

f Paying an annual remuneration to the Managing Director. It shall

senior executives, which was approved by the Thirty Sixth Ordinary

be determined by a board resolution upon a recommendation

General Meeting held on 24 Dec. 2017, can be accessed via SASCO

from the Remuneration Committee. The resolution is renewed at

website (www.sasco.com.sa).

the outset of each board session (3% of net profits at the end of

Deviation from Remuneration Policy

each fiscal year, being not less than SR 1000,000). f Paying a meeting attendance allowance of SR (3) thousand (per each member/per one meeting) to committee members.

There is no deviation between the granted remunerations, whether paid to Board members, committees or senior executives, and the

f Paying an annual remuneration of SR 80,000 to a non-board Audit

applicable Remuneration Policy.

Committee member. f Paying an annual remuneration of SR 50,000 to a board Audit Committee member.

Board Meetings The Board Members dedicated a sufficient time to undertake their

f Paying an annual remuneration to the CEO according to a

responsibilities and prepare for the Board meetings and committees.

mechanism that pays attention to quantitative and qualitative

The Board was keen on scheduling its meetings and preparing the

performance in accordance with his employment contract. Such

meetings in advance making sure that all board members attend the

mechanism shall be approved by the Remuneration Committee by

meetings and discuss all items of the proposed agenda.

a recommendation from the Managing Director.

The following table shows the attendance record of Board meetings

f Senior Executives’ remuneration is paid according to the Staff

in 2017 (eleventh session):

Number of Meetings (4) No.

1 2

Mr. Ibrahim bin Mohammed AlHudaithi Mr. Sultan bin Mohammed AlHudaithi

Meeting No. (2) 30/05/2017

Meeting No. (3) 10/10/2017

Meeting No. (4) 26/12/2017

✔

100%

✔

100%

Mr. Nasser bin Abdullah Al-Awfi

✔

100%

Mr. Suleiman Ali Al-Khudair

✔

100%

Mr. Ajlan Abdulrahman Al-Ajlan

✔

100%

✔

Apologized

75%

Mr. Majid bin Mohammed AlOthman

Mr. Riyadh bin Saleh Al-Malik

✔

100%

Mr. Ali bin Mohammed Aba Al-Khail

Apologized

✔

50%

Mr. Fawaz Suleiman Al-Rajhi

Apologized

✔

75%

No member has submitted a written request to hold a board meeting in 2017 and no member has objected to the Board’s agenda and resolutions (including resolutions passed by circulation).

Attendance Ratio

Meeting No. (1) 08/03/2017

❖

Member Name

Annual Report 2017

Number of SASCO requests for Shareholders Register The following table shows the number of SASCO requests for Shareholders Register as well as the dates and reasons for such requests:

No.

Request Date

Request Reasons

1 1/ 01/ 2017

Following up the change in Shareholders Register

07/ 05/ 2017

Eleventh Extraordinary General Meeting (first meeting)

06/ 06/ 2017

Eleventh Extraordinary General Meeting (second meeting)

20/ 07 / 2017

Following up the change in Shareholders Register

24/ 08 / 2017

Following up the change in Shareholders Register

29/ 10/ 201 7

Following up the change in Shareholders Register

24/ 1 2/ 2017

Thirty sixth Ordinary General Meeting

Board Declarations

Procedures taken by the Board to familiarize its members

f Account records were properly prepared.

(non-executive in particular) with the shareholders’

f The Internal Control System was established on sound foundations

proposals and remarks about SASCO performance.

and implemented effectively. f There is no doubt in SASCO ability to continue its activities.

f SASCO Investor Relation Department independently receives and submits shareholders’ proposals, if any, to the Board for discussion in its meetings and taking the appropriate resolution.

Board Confirmations

f SASCO didn’t receive any proposals or remarks from shareholders

f No Board member or a senior executive waived any salary or

about its performance in the current fiscal year other than that has

remuneration under any arrangements or assignment agreement.

been discussed in the shareholders general meetings and included

No shareholder waived any rights to profit under any arrangements or assignment agreement. f There is no description of classes and numbers of transferable debt instruments, contractual securities, rights memorandum, or

in the minutes of meetings. f In case of any proposals or remarks on SASCO performance, such proposals and remarks shall be discussed as part of the periodic board meetings agenda.

similar rights issued or granted by SASCO during the current fiscal year. There is no compensation gained by SASCO in return for this. f There is no description of any transfer or underwriting rights under transferable debt instruments, contractual securities, rights memorandum, or similar rights issued or granted by SASCO. f SASCO did not recover, purchase, or cancel any recoverable debt instruments. f SASCO did not establish any investments or reserves in the interest of its employees. f SASCO did not receive from shareholders possessing 5% or more of its capital or account auditor any request for holding a general meeting or for adding an item to the agenda of the meeting in the current fiscal year.

Transactions and Contracts in which Board Members and Executive Directors have an Interest Board of Directors There are interest-related transactions and contracts for some Board members as follows:

Statement

Contract Duration

Reporting to Board

Reporting to General Meeting

Contract Value is SAR 368,000 annually

One year

✔

Providing services in the field of promotion and advertising

Mr. Ibrahim bin Mohammed Al-Hudaithi (possessing 33.34% of capital). Mr. Majid bin Mohammed Al-Othman (possessing 33.33% of capital). Mr. Sultan bin Mohammed Al-Hudaithi (possessing 33.33% of capital).

Promotion and advertising of SAR 63.9 thousand

One year

✔

Mulkia Investment Co.

Managing an investment portfolio in Ahli Capital

Mr. Ibrahim bin Mohammed Al-Hudaithi (Board member possessing 17.67% of capital). Mr. Suleiman Ali Al-Khudair (possessing 0.67% of capital). Mr. Majid bin Mohammed Al-Othman (possessing 0.67% of capital). Mr. Sultan bin Mohammed Al-Hudaithi (Board member possessing 21.45% of capital).

A contract to manage a portfolio of SAR 50,000,000

To be terminated by a 30-day written notice

✔

Nahaz Investment Co.

Zaiti Petroleum Services Company rents stations No. 1 and 2 from Nahaz Investment Co.

Mr. Ibrahim bin Mohammed Al-Hudaithi Board member of Nahaz Investment Co. (possessing 0.02% of capital). Mr. Sultan bin Mohammed Al-Hudaithi Board member of Nahaz Investment Co. (possessing 0.02% of capital).

Contract value is SR 800,000

For five renewable years as of 01/01/2013

✔

Contract value is SR 300,000

One year

✔

Contract value is SR 400,000

One year

✔

Agency

Contracts/Business

Nahaz Investment Co.

A site lease from Nahaz Investment Co. to use as headquarters and labour accommodation for Ostool Al-Naqil Co. (subsidiary)

Mr. Ibrahim bin Mohammed Al-Hudaithi (Board member possessing 0.02% of capital). Mr. Sultan bin Mohammed Al-Hudaithi (Board member possessing 0.02% of capital).

DAKKIN Advertising and Design Consultancy

Zaiti Petroleum Madaen Star Real Estate

Zawaya Real Estate Co.

Services Company rents station No. 8 from Madaen Star Real Estate

Zaiti Petroleum Services Company rents station No. 9 from Madaen Star Real Estate

Annual Report 2017

Related Parties

Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman of Madaen Star Real Estate (possessing a direct and indirect share of 97.75% of capital). Mr. Majed bin Mohammed Al-Othman Board member of Madaen Star Real Estate. Mr. Sultan bin Mohammed Al-Hudaithi Board member of Madaen Star Real Estate. Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman of Zawaya Real Estate Co. (possessing a direct and indirect share 42.96% of capital). Mr. Majid bin Mohammed Al-Othman Board member of Zawaya Real Estate Co. (possessing a share 0.29% of capital). Mr. Sultan bin Mohammed Al-Hudaithi Managing Director of Zawaya Real Estate Co. (possessing a share 1.8% of capital).

Statement

Contract Duration

Reporting to Board

Reporting to General Meeting

Zaiti Petroleum Services Company rents station No. 10 from Madaen Star Real Estate

Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman of Madaen Star Real Estate (possessing a direct and indirect share of 97.75% of capital). Mr. Majid bin Mohammed Al-Othman Board member of Madaen Star Real Estate. Mr. Sultan bin Mohammed Al-Hudaithi Board member of Madaen Star Real Estate.

Contract value is SR 800,000

Five renewable years from 29 April 2015

✔

Zaiti Petroleum Services Company rents station No. 11 from Madaen Star Real Estate

Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman of Zawaya Real Estate Co. (possessing a direct and indirect share 42.96% of capital). Mr. Majid bin Mohammed Al-Othman Board member of Zawaya Real Estate Co. (possessing a share 0.29% of capital). Mr. Sultan bin Mohammed Al-Hudaithi Managing Director of Zawaya Real Estate Co. (possessing a share 1.8% of capital).

Contract value is SR 250,000

One year

✔

Madaen Star Real Estate

Zaiti Petroleum Services Company rents station No. 12 from Madaen Star Real Estate

Contract value is SR 150,000

Ten renewable years from 1 August 201

✔

Nahaz Investment Co.

Nahaz Investment Co. purchases fuel from Zaiti Petroleum Services Company

The value of 2017 fuel purchases was SR 98,600

One year

✔

Madaen Star Real Estate purchases fuel from Zaiti Petroleum Services Company

Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman of Madaen Star Real Estate (possessing a direct and indirect share of 97.75% of capital). Mr. Majid bin Mohammed Al-Othman Managing Director of Madaen Star Real Estate. Mr. Sultan bin Mohammed Al-Hudaithi Board member of Madaen Star Real Estate.

The value of 2017 fuel purchases was SR 199,700

One year

✔

Agency

Madaen Star Real Estate

Contracts/Business

Related Parties

Statement

Contract Duration

Reporting to Board

Reporting to General Meeting

The value of 2017 fuel purchases was SR 9,400

One Year

✔

The value of 2017 fuel purchases was SR 6,600

One Year

✔

Zawaya Real Estate Co. rents advertising boards at station No. (9)

2017 value was SR 25,000

One Year

✔

Fungate Co. rents 10 residential rooms at station No. 2.

Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman of Fungate Co. (possessing a direct and indirect share of 97.75% of capital). Mr. Majid bin Mohammed Al-Othman Managing Director of Fungate Co. Mr. Sultan bin Mohammed Al-Hudaithi Board member of Madaen Star Real Estate.

2017 value was SR 50,000

One Year

✔

Agency

Contracts/Business

Mr. Majed AlOthman

Mr. Majid Al-Othman purchases fuel from Zaiti Petroleum Services Company

Zawaya Real Estate Co.

Zawaya Real Estate Co. purchases fuel from Zaiti Petroleum Services Company

Related Parties

Mr. Majid bin Mohammed Al-Othman

Zawaya Real Estate Co.

Fungate Co.

✔ Reported. ❖ All above contracts and business were approved for a coming year in the eleventh extraordinary general meeting held on 6 June 2017. The renewal of the same shall be approved by the next shareholders’ general meeting. ❖ These contracts and business have no preferential terms.

Annual Report 2017

Executive Committee Includes: Mr. Ibrahim bin Mohammed Al-Hudaithi Chairman | Head of Executive Committee Qualifications & Experiences: He is a businessman, holding the Secondary school certificate and having more than 36 years in corporate management. He occupied many positions including the deputy Chairman of the Saudi Chambers of Commerce. He also participated in the boards of CMA-listed and unlisted shareholding companies such as Al-Madaen Star Group, Akwan Real Estate Co., Ibrahim bin Mohammed Al-Hudaithi Investment Co., Zawaya Real Estate Co., Nahaz Investment Co. and other companies working in the fields of real estate, services, investment and financial services inside and outside the Kingdom of Saudi Arabia.

Present Occupations: f Chairman of Al-Madaen Star Group. f Chairman of Mulkia Investment Co. f Board member of Nahaz Investment Co. Previous Occupations: f Vice Chairman of the Saudi Chambers of Commerce. f Chairman of Al Kharj Industrial Chambers of Commerce. f Member of Al Kharj Governorate Local Council. f Board member of Solidarity Company.

Mr. Sultan bin Mohammed Al-Hudaithi Vice Chairman | Managing Director | Member of Executive Committee Qualifications & Experiences: He holds the Bachelor’s Degree in Accounting with honour degree from King Saud University and Master of Business Administration from London Business School. He held leading positions in many public and private companies in Saudi Arabia. He has experience in corporate restructure, strategic planning and investment management in securities, private ownership and real estate investment. He was a member of boards and committees in public and private companies including Saudi Chemical Co., Nahaz Investment Co., Zawaya Real Estate Co., Al-Madaen Star Group, Middle East Battery Company (MEBCO), Mulkia Investment Co. and United Wire Factories Company (ASLAK).

Present Occupations: f SASCO Managing Director. f Board member of United Wire Factories Company (ASLAK) f Board member of Mulkia Investment Co. f Board member of Nahaz Investment Co. Previous Occupations: f Chief Executive Director of Ibrahim bin Mohammed Al-Hudaithi Investment Co. f Chief Executive Director of Zaiti Petroleum Services Company. f Deputy Director General of Financial and Administrative Affairs, Al-Madaen Star Group. f Board member of Saudi Chemical Co.

Mr. Riyadh bin Saleh Al-Malik Board Member | Member of Executive Committee | Chief Executive Officer Qualifications & Experiences: He holds the Bachelor’s Degree in Business Administration from King Abdulaziz University. He has a vast experience in corporate management, particularly fuel stations. He served as the General Director of Al Tas’helat Marketing Company Ltd., Deputy General Director of Riyadh Development Company and board member of many companies. He is now the Head of Customs Council of Federation Internationale de l’Automobile and Head National Committee of Fuel Station Companies in the Council of Saudi Chambers.

Present Occupations: f SASCO Chief Executive Officer. Previous Occupations: f General Director of Al Tas’helat Marketing Company Ltd. f Deputy General Director of Riyadh Development Company. f Director of Marketing Department of Saudi Real Estate Company (Al Akaria). f Sales Director of Saudi Hotels & Resorts Company.

Competencies and Duties

organizational structures and decisions that ensure the quick implementation and development thereof.

f To consider SASCO strategic and operational plans and budgets to

f To review the administrative regulations with SASCO management

submit them to the Board.

and make decisions that enable the management to put them in

f To review and follow up the implementation of all SASCO projects,

place.

make decisions under Committee authorized powers, and to discuss the obstacles facing the implementation of different

f To contact senior officers at governmental and national bodies to

projects to examine their reasons and remedies and recommend

facilitate the obstacles facing SASCO business and explain SASCO programs to them.

proper solutions. f To consider and present initial approvals to high importance issues

f To amend technical designs and specifications and present proper recommendations thereon.

that require Board decisions. f To make decisions on issues authorized to the Committee by the

f To make appropriate decisions on issues authorized by the Board to

Board outside the competency of SASCO Managing Director and

the Committee to discuss, address, and make appropriate decisions

CEO. These issues may include topics related to investments,

thereon.

human resources (HR), remuneration, information technology

f To perform all acts that would drive business and achieve SASCO

(IT), capital expenses (CAPEX), procurements, and other issues

objectives within the regulations, rules, and decisions issued by the Board.

authorized to the Committee.

f To conduct purchases and acquisitions of existing stations or

f To identify SASCO investment objectives and policies, including:

lands for constructing stations thereon within the limits of SASCO

❖ Assets subject to investment according to the adopted

competencies.

regulatory restrictions.

f To perform the activities referred by the Board or the Chairman for

❖ Asset types.

consideration or execution.

❖ Investment-related long-term policies and objectives, risk appetite, asset diversification, investment currencies, and

Most Important Achievements

internal or external investments.

f Following up the financial and operational performance of SASCO and its subsidiaries.

❖ Nature of investment management arrangements and related

f Following up the acquisition of new sites for SASCO.

controls. ❖ Appointment of investment portfolio managers and trustees,

f Approving the estimated budgets of SASCO and its subsidiaries and submitting recommendations to the Board for approval.

and evaluating their performance periodically.

f Evaluating SASCO investments and liquidity and submitting

❖ Method and frequency of performance analysis.

recommendations thereon to the Board.

❖ Approval of different investment processes as per the established investment policy. The Executive Committee can

f Coordinating with SASCO Management to find ways to reduce costs.

authorize their powers of approval within certain financial limits to the General Manager/FCO either jointly or severally

f Following the project of selling some sites and releasing them.

according to the conditions of the authorization granted.

f Following up the implementation of SASCO projects.

❖ Reviewing and examining SASCO investment policies based on

f Following up the approval of the Headquarters design. f Following up SASCO lawsuits.

performance evaluation. ❖ Evaluating investment outcomes to identify the success of

f Following up the governmental bodies concerned with SASCO lands and sites and submitting recommendations thereon.

implemented investment strategies, reporting investment outcomes to the Board as well as ensuring the adherence to the

Meetings

investment policy and key guidelines.

The following table shows the attendance record of Executive

f To follow up the implementation and development of SASCO

Committee meetings during 2017 (eleventh session):

Number of Meetings (3) No.

Member Name

Meeting No. (2) 9/10/2017

Meeting No. (3) 25/12/2017

Attendance Ratio

Mr. Ibrahim bin Mohammed Al-Hudaithi Head of Committee

✔

100%

Mr. Sultan bin Mohammed Al-Hudaithi Committee member

✔

100%

Mr. Riyadh bin Saleh Al-Malik Committee member

✔

100%

✔ Personal attendance 42

Meeting No. (1) 29/5/2017

Annual Report 2017

Audit Committee Includes: Mr. Nasser bin Abdullah Al-Awfi Board Member | Chairman of Audit Committee Qualifications & Experiences: He holds the Master’s Degree in Accounting, the Master’s Degree in Business Administration from Southern New Hampshire University in the USA and the Bachelor’s Degree in Accounting from King Saud University. He has more than thirty years of experience as well as in the joint stock companies management as well as financial, administrative and strategic consultation. He also participated in many shareholding companies’ board and board committees (Audit Committee) such as Al Jouf Agricultural Development Company (JADCO), Taiba Holding Company and United Cement Industrial Company.

Dr. Abdulrahman bin Ibrahim Al-Hamid Member of Audit Committee (Non-Board member) Qualifications & Experiences: He holds PhD in financial accounting and audit from Louisiana State University, USA. He has experience of more than 37 in accounting and auditing. He worked as a professor of accounting and auditing and was then appointed head of the Accounting Division in King Saud University. He is a member of Saudi Organization for Certified Public Accountants. He was member of many boards and committees and member of several local, regional and international professional societies.

Mr. Suleiman bin Ali Al-Khudair Board Member | Member of Audit Committee Qualifications & Experiences: He holds a university degree in sciences from the USA. He held many administrative positions, as he worked as a computer engineer in the Ministry of Defense. Then, he moved to the private sector where he worked as a technical director, a sales director and deputy general director in Nahil Computers and now he is its General Director. He participated in boards of many joint stock companies.

Mr. Fawaz bin Suleiman Al-Rajhi Board Member | Member of Audit Committee Qualifications & Experiences: He holds the Bachelor’s Degree in Accounting and Information Systems Management from King Fahd University of Petroleum and Minerals (KFUPM) and also holds the Master’s Degree in Business Management from Stanford University, USA. He is the Chairman of AlRajhi United Investment Holding Company; it is a company investing in capital markets and private transactions on the local, regional and international levels. He has been leading and directing the Company’s efforts since its inception based on the strategy of diversifying the investment portfolio through a deliberate choice of markets and industries in selected geographical locations, with focus being placed on emerging technology and income-generating real estates. He is also a board member and member of audit committees in a number of joint-stock companies. He spent more than a decade in banking. He held many positions in Corporate Financing

Present Occupations:

f Board member and Head of Audit Committee of United Cement Industrial Company.

f Head of Al Jouf Agricultural Development Company Audit Committee.

f Head of Saudi Ceramics Audit Committee. f Member of Taiba Holding Company Audit

Committee. Previous Occupations: f Director of Financial, Administrative and Investment Department of Saudi Pharmaceutical Industries & Medical Appliances Corporation (SPIMACO). f Deputy General Director for Financial and Administrative Affairs of Saudi Livestock Trading Company. f General Director for Financial and Administrative Affairs of Taiba Investment and Real Estate Development Company.

Present Occupations:

f Board member of several joint stock companies. f Member of many committees (Audit Committee) f Member of several local, regional and international professional societies. Previous Occupations: f Professor of accounting and auditing in King Saud University. f Head of Accounting Division in King Saud University. f Member of Saudi Organization for Certified Public Accountants.

Present Occupations:

f General Director of Nahil Computers Co.

Previous Occupations: f Technical Director of Nahil Computers Co. f Sales Director of Nahil Computers Co. f Deputy General Director of Nahil Computers Co.

Division of Rajhi Bank. He took part in establishing the department of corporate loans and financing subscription of large corporations. He was the person in charge of establishing the Share and Subscription Department of Al Rajhi Capital Company. Present Occupations: f Chairman of AlRajhi United Investment Holding Company. f Chief Executive Officer of AlRajhi United Investment Holding Company. Previous Occupations: f Head of Private Placement Operations in Al Rajhi Capital Company. f Director of Sales and Distribution in Al Rajhi Capital Company. f Head of Corporate Banking Services Team in Rajhi Bank. f Senior credit analyst in Rajhi Bank. f System Analyst of Procter & Gamble Co.

Competencies and Duties f To review the preliminary and annual financial statements before submitting them to the Board and present opinions and make recommendations thereon to ensure integrity, accuracy and transparency.

f To ensure that the account auditor is independent, just, fair and efficient, taking into account relevant rules and standards. f To review the account auditor’s plan and activities and make sure he does not perform any works beyond the limits of audit tasks

f To present technical opinions – upon request from the Board

commissioned to him and present opinions in this regard.

– whether the Board’s report and financial statements are fair,

f To Respond to the auditor’s questions.

balanced and understood and contain the information that allows

f Study the auditor’s report and remarks on the financial statements.

shareholders and investors to evaluate SASCO financial position,

f To review the results of supervisory reports and ensure SASCO takes

performance, business model and strategy.

the required procedures.

f To review any important or unfamiliar issue contained in the financial reports.

f To verify SASCO complies with the relevant laws, regulations and policies.

f To accurately consider any issues raised by Chief Financial Officer,

f Review contracts and transactions to be concluded by SASCO with

the persons assuming his duties, compliance officer or account

related parties and present recommendations thereon to the

auditor.

Board.

f To verify accounting estimations in major issues of financial reports.

f Submit to the Board the issues and matters for which necessary actions should be taken and recommend proper procedures.

f To review SASCO accounting policies and present opinions and make recommendations thereon to the Board.

Most Important Achievements f Approval and follow-up of SASCO internal audit action plan.

f To study and review systems of financial internal systems and risk management.

f Reviewing the different internal audit reports and submit recommendations thereon.

f To consider internal audit reports and follow-up the implementation of corrective procedures regarding the rema rks so raised.

f Following up risk assessment report with a consulting office and submit recommendations thereon.

f To submit recommendation to the Board of the need to hire an internal auditor.

f Examination of annual and quarterly financial statements and submit recommendations thereon.

f To submit recommendation to the Board concerning the

f Reviewing reports of Zakat declarations.

appointment and remuneration of Internal Audit Department

f Ensuring the independency of SASCO external auditor.

director or the internal auditor.

f Recommending SASCO chartered accountants.

f To monitor and supervise the internal auditor and Internal Audit Department’s performance and activities to verify their efficiency in undertaking their duties and responsibilities and the availability of the required resources.

f Examining the structure of Internal Audit Department and submit recommendations thereon. f Following up opening balances related to shifting to the International Accounting Standards.

f To recommend to the Board the appointment of account auditors,

Meetings

dismiss them, set their fees, assess their performance, make sure

The following table shows the attendance record of Audit Committee

of independence and review their scope of work and employment

meetings during 2017 (eleventh session):

conditions. Number of Meetings (6) No.

1 2 3 4

Member Name

Mr. Nasser bin Abdullah Al-Awfi Committee Head Dr. Abdulrahman bin Ibrahim Al-Hamid Non-Board Member Mr. Suleiman bin Ali Al-Khudair Committee member Mr. Fawaz bin Suleiman Al-Rajhi Committee member

✔ Personal attendance 44

Annual Report 2017

Attendance Ratio

Meeting No. (1) 17/1/2017

Meeting No. (2) 8/3/2017

Meeting No. (3) 9/5/2017

Meeting No. (4) 26/7/2017

Meeting No. (5) 18/10/2017

Meeting No. (6) 26/12/2017

✔

100%

✔

100%

✔

100%

Apologized

✔

66.67%

Date of committee membership:

6/6/2017

telephone

By telephone

Nomination and Remuneration Committee Includes:

Mr. Ajlan bin Abdulrahman Al-Ajlan Board Member | Chairman of Nomination and Remuneration Committee Qualifications & Experiences: He holds the Bachelor’s Degree in Industrial Management from Central Washington University. He has more than twenty five years of experience in the field of industrial investment. He participated in many joint stock companies’ board such as Drake & Scull International KSA and Fawaz Abdulaziz Al Hokair Co.

Mr. Majid bin Mohammed Al-Othman Board Member | Member of Nomination and Remuneration Committee Qualifications & Experiences: He is a businessman, holding the Secondary school certificate and having more than thirty years in real estate, contracting and automobile services. He is the Managing Director of Al-Madaen Star Group and board member of Ibrahim bin Mohammed Al-Hudaithi Investment Co., Bilda Specialized Commercial Centers Co. and Zawaya Real Estate Co.

Mr. Ali bin Mohammed bin Ali Aba Al-Khail Board Member | Member of Nomination and Remuneration Committee Qualifications & Experiences: He holds the Bachelor’s Degree in Political Sciences from the Faculty of Administrative Sciences, King Saud University and the Master’s Degree in Government Management from Harvard University, United Sates of America. He is the secretary of the Head of the Royal Diwan, the Deputy Director of the Political Affairs Department of the Royal Diwan and secretary of Office of Presidency of Prime Minister. He was appointed in the Office of the Second Deputy of Prime Minister, Minister of Defence and Aviation and Inspector General. He also worked as an administrative counsellor in the High Commission for Administrative Organization and Deputy Chairman of the Board of Directors of Sanad Investment Company.

Present Occupations:

f Board member in Fawaz Abdulaziz Al Hokair Co. f Board member in Drake & Scull International KSA. f Board member in Gulf Insulation Group “GIG”.

Previous Occupations: f Board member in Saudi Lamino Co. Ltd. f Board member in Olayan Food Services Company. f Board member in Rana Investment Company (RIC). f Board member in Indian Company for Co-Operative Insurance.

Present Occupations:

f Chairman of Al-Madaen Star Group. f Chairman of Fun Gate Company. f Managing Director of Al-Madaen Star Group.

Previous Occupations: f General Director of Al-Madaen Star Group for Contracting. f General Director of Al-Madaen Star Group for Automobile Services.

Present Occupations:

f Vice Chairman of the Board of Directors of Sanad

Investment Company. Previous Occupations: f Deputy Director of the Political Affairs Department of the Royal Diwan. f Administrative counsellor in the High Commission for Administrative Organization.

Competencies and Duties

f To review the structure of the Board and senior executive management in SASCO, as well as make recommendations

f To develop clear policies for remunerations and rewards of Board

regarding changes that can be made.

members, board committees and senior executives and present such policies to the Board for consideration and approval by the

f To ensure the independence of the independent members and the

General Meeting. Performance-related criteria when setting those

absence of any conflict of interest if the Board member is a member of another company’s board on a regular basis.

policies should be employed. f To define the relation between paid remunerations and the

f To develop a description of executive and non-executive members, independent members and senior executives.

applicable remuneration policy and clarify any major deviation. f To conduct periodic review of the remuneration policy and assess

f Develop procedures for the case where one position of a board member or a senior executive falls vacant.

to what extent it is efficient in achieving the desired outcomes. f To recommend to Board the remunerations and rewards of Board

f To identify weaknesses and strengths in the Board and propose solutions in line with SASCO best interests.

members, board committees and senior executives according to

Most Important Achievements

the approved policy. f To propose clear membership policies and criteria in Board and

f Approval of policies and regulations according to governance requirements.

Executive Management. f To recommend nominations to Board membership in accordance

f Periodical review of Board structure.

with the approved policies and standards, considering not to

f Ensuring the independence of Board members.

nominate any person who has previously been convicted with a

f Looking at the reporting of transactions and contracts in which a Board member may have an interest.

crime involving moral turpitude and dishonesty. f To prepare a description of capabilities and qualifications required for Board membership and occupying administrative management

f Approval of 2016 remunerations and incentives. f Adopting the 2017 quarterly incentives and remunerations according to the approved policies.

positions. f To set the time a member should devote to Board works.

f Obtainment of Board approval of the Committee’s 2018 plan.

f To conduct an annual review of the required needs in terms

Meetings

of adequate Board membership skills executive management

The following table shows the attendance record of the Nomination

functions.

and Remuneration Committee meetings in 2017 (eleventh session):

Number of meetings ( 3 ) No.

Member Name

Mr. Ajlan Abdulrahman Al-Ajlan Chairman of the Committee

Mr. Majid bin Mohammed Al-Othman Committee member

Mr. Riyadh bin Saleh Al-Malik Committee member

Mr. Ali bin Mohammed Aba Al-Khail Committee member

✔ Personal attendance

Annual Report 2017

‫نسبة الحضور‬

Meeting No. (1) 23/5/2017

Meeting No. (2) 20/9/2017

Meeting No. (3) 13/12/2017

✔

100%

✔

100%

Date of membership 7/6/2017

✔

Membership to expire on 6/6/2017

✔

Apologized

✔

100%

66.67%

Ownership of Substantial Shares The following table shows the bodies holding substantial shares in SASCO and the changes made during 2017:

Ownership Percentage No.

Name Beginning of period

Nahaz Investment Co.

Mr. Ibrahim bin Mohammed Al-Hudaithi

11.75% (6,348,046 shares) 11.56% (6,245,352 shares)

Change

December 31st, 2017

11.75% (6,348,046 shares) 11.56% (6,245,352 shares)

Change Ratio

â?&#x2013; Declaration: with respect to notices related to ownership of large shares and their change during the year according to Article 43 and Article 45 of Registration and Listing Rules issued by the Capital Market Authority (CMA), SASCO would like to advise you that it did not receive any notice from shareholders of any change to their ownership during the year. In stocktaking of information, SASCO relies on the information provided by Saudi Stock Exchange (Tadawul).

Statement of Board Membersâ&#x20AC;&#x2122; Participations on other Boards The following table shows the names of the Board members on Boards of other companies:

Mr. Sultan bin Mohammed Al-Hudaithi

Mr. Ibrahim bin Mohammed Al-Hudaithi

Name

Companies in which Board member is on their current boards or of their directors

Name of Company

Inside/outside the Kingdom

Legal entity Listed/unlisted joint stock/limited liability company

Al-Madaen Star Group

Inside KSA

Unlisted joint stock company

Akwan Real Estate

Inside KSA

Unlisted joint stock company

Ibrahim bin Mohammed Al-Hudaithi Investment Co.

Inside KSA

Unlisted joint stock company

Zawaya Real Estate Co.

Inside KSA

Unlisted joint stock company

Nahaz Investment

Inside KSA

Unlisted joint stock company

Bilda Specialized Commercial Centers Co.

Inside KSA

Unlisted joint stock company

Mulkia Investment Co.

Inside KSA

Unlisted joint stock company

DAKKIN Advertising and Design Consultancy

Inside KSA

Limited liability

Saudi Finance Company

Inside KSA

Limited liability

United Wire Factories Company

Inside KSA

Al-Madaen Star Group

Companies in which Board member was on their previous boards or of their

Name of Company

Inside/ outside the Kingdom

Legal entity Listed/unlisted joint stock/limited liability company

Solidarity Company

Inside KSA

Listed joint stock company

Saudi Chemical Company

Inside KSA

Listed joint stock company

Inside KSA

Unlisted joint stock company

Madaen Star Group

Inside KSA

Limited liability

Zawaya Real Estate Co.

Inside KSA

Unlisted joint stock company

Real Estate National Group

Inside KSA

Limited liability

Nahaz Investment Co.

Inside KSA

Unlisted joint stock company

Ibrahim bin Mohammed Al-Hudaithi Investment Co.

Inside KSA

Unlisted joint stock company

Mulkia Investment

Inside KSA

Unlisted joint stock company

DAKKIN Advertising and Design Consultancy

Inside KSA

Limited liability

Mulkia Investment Co.

Inside KSA

Limited liability

Ma'areb Company for Investment and Real Estate Development

Inside KSA

Limited liability

Middle East Battery Company (MEBCO)

Inside KSA

Limited liability

Annual Report 2017

Name

Companies in which Board member is on their current boards or of their directors

Name of Company

Inside/outside the Kingdom

Legal entity Listed/unlisted joint stock/limited liability company

Mulkia Investment Co.

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Ostool Al-Naqil Co.

Inside KSA

Limited Liability

SASCO Palm Co.

Inside KSA

Limited Liability

Al-Nakhla Al-Oula Co.

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Inside KSA

Limited Liability

SASCO Al-Waha Co.

Inside KSA

Limited Liability

SASCO Franchise Co.

Inside KSA

Limited Liability

Mulkia Gulf Real Estate REIT Fund Mulkia Investment Co. Mulkia Gulf Real Estate REIT Fund Knowledge & Childhood Company for Investment Tamadon Al Ola for Real Estate

Mr. Sultan bin Mohammed Al-Hudaithi

ARZAQ AGRICULTURAL Company Tamadon Al Hadeetha for Real Estate Dur Al Kuttab Limited Tamdeen Real Estate Company Auto & Equipment Investment co., LTD

Saudi Automobile & Touring Association Zaiti Petroleum Services Company

Companies in which Board member was on their previous boards or of their

Name of Company

Inside/ outside the Kingdom

Legal entity Listed/unlisted joint stock/limited liability company

Name

Companies in which Board member is on their current boards or of their directors

Mr. Majid bin Mohammed Al-Othman

Mr. Ajlan bin Abdulrahman Al-Ajlan

Mr. Suleiman bin Ali Al-Khudair

Mr. Nasser bin Abdullah Al-Awfi

Name of Company

United Cement Industrial Co.

Inside/outside the Kingdom

Inside KSA

Legal entity Listed/unlisted joint stock/limited liability company

Companies in which Board member was on their previous boards or of their

Name of Company

Inside/ outside the Kingdom

Legal entity Listed/unlisted joint stock/limited liability company

Unlisted joint stock

Al - Jouf Agricultural

Inside

Listed joint stock

company

Company

KSA

company

Inside

Listed joint stock

KSA

company

Inside

Unlisted joint stock

KSA

company

Food Products Company

Nahil Computers

Fawaz Abdulaziz Al Hokair Co. Drake & Scull International KSA Gulf Insulation Group â&#x20AC;&#x153;GIGâ&#x20AC;?

Inside KSA

Al-Madaen Star Group

Inside KSA

Zawaya Real Estate Co.

Inside KSA

Bilda Specialized Commercial Centers Co. Ibrahim bin Mohammed Al-Hudaithi Investment DAKKIN Advertising and

Inside KSA

Limited Liability

Listed joint stock company Unlisted joint stock

Olayan Food Services

Inside

Unlisted joint stock

company

Company (OFS)

KSA

company

Rana Investment

Inside

Unlisted joint stock

Company

KSA

company

Indian Company For Co-

Inside

Listed joint stock

Operative Insurance

KSA

company

Unlisted joint stock

Zaiti Petroleum Services

Inside

Unlisted joint stock

company

Company

KSA

company

Unlisted joint stock

Al-Madaen Star Group

Inside

company

for Automotive

KSA

Limited Liability

Unlisted joint stock company Unlisted joint stock company

Inside KSA

Limited Liability

Madaen Star Group

Inside KSA

Limited Liability

FUNGATE Company

Inside KSA

Limited Liability

Design Consultancy

Annual Report 2017

Saudi Lamino Co. Ltd.

Limited Liability

Name

Companies in which Board member is on their current boards or of their directors

Inside/outside the Kingdom

Legal entity Listed/unlisted joint stock/limited liability company

Name of Company

Inside KSA

Limited Liability

Al Tas'helat Marketing

Inside KSA

Limited Liability

Ostool Al-Naqil Co.

Inside KSA

Limited Liability

SASCO Palm Co.

Inside KSA

Limited Liability

Al-Nakhla Al-Oula Co.

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Zaiti Petroleum Services

Inside KSA

Limited Liability

SASCO Al-Waha Co.

Inside KSA

Limited Liability

SASCO Franchise Co.

Inside KSA

Limited Liability

Inside KSA

Limited Liability

Name of Company

Foroseya for Trading & Services Ltd. Auto & Equipment

Mr. Ali bin Mohammed Aba Al-Khail

Mr. Riyadh bin Saleh Al-Malik*

Investment Co.

Saudi Automobile & Touring Association

Sanad Investment Company Eskan Investment Company Al Rajhi United

Mr. Fawaz bin Suleiman Al-Rajhi

Companies in which Board member was on their previous boards or of their

Investment Holding Co Rak Ceramics Al Rajhi Alpha Investments

RAJ Real Estate

Inside KSA

Outside KSA

Inside/ outside the Kingdom Inside KSA

Sahl Transportation

Inside

Company

KSA

Sara Communications

Inside

Company.

KSA

Legal entity Listed/unlisted joint stock/limited liability company Limited Liability

Limited Liability

Unlisted joint stock company Unlisted joint stock company Listed joint stock company

Inside KSA

Limited Liability

Inside KSA

Limited Liability

* A member shall not be given remunerations, benefits or profits when he is a board member in any of SASCO subsidiaries.

Board Members’ and Senior Executives’ Ownership of Shares The following table shows the Board members’ and senior executives’ ownership of SASCO shares (including that of their wives and minor children): Ownership No.

Name

Beginning of Period

Change

December 31st, 2017

Change Ratio

6,245,352 shares

62,448 shares

342,000 shares

404,448 shares

547.66%

1,200 shares

198,658 shares

1,200 shares

67,249 shares

Mr. Ibrahim bin Mohammed Al-Hudaithi

Mr. Sultan bin Mohammed Al-Hudaithi

Mr. Nasser bin Abdullah Al-Awfi

Mr. Suleiman Ali Al-Khudair

Mr. Ajlan Abdulrahman Al-Ajlan

Mr. Majid bin Mohammed Al-Othman

Mr. Riyadh bin Saleh Al-Malik

1,200 shares

Mr. Ali bin Mohammed Aba Al-Khail

1,200 shares

Mr. Fawaz Suleiman Al-Rajhi

1,000 shares

Mr. Mohammed bin Abdullah Al-Mutlaq

Mr. David Wiles

Mr. Islam Mohammed Khairi Ahmad

Annual Report 2017

Shareholders’ ‫الخطط والقرارات‬ Meetings in 2017

Annual Report 2017

Shareholders’ Meetings in 2017 Eleventh Extraordinary General Meeting f

First meeting on 7 May 2017 Names of Attending Board Members

No.

Member Name

Capacity

Mr. Ibrahim bin Mohammed Al-Hudaithi

Chairman

Mr. Sultan bin Mohammed Al-Hudaithi

Vice Chairman – Managing Director

Mr. Nasser bin Abdullah Al-Awfi

Board Member

Mr. Majid bin Mohammed Al-Othman

Board Member

Mr. Riyadh bin Saleh Al-Malik

Board Member - CEO

Second Meeting on 6 June 2017 where all agenda items were approved as follows:

1. Approve the Board’s report for fiscal year ending on 31 Dec. 2016. 2. Approve Auditor’s report for fiscal year ending on 31 Dec. 2016. 3. Approve SASCO consolidated financial statements for fiscal year ending on 31 Dec. 2016. 4. Approve Board members’ acquittance for fiscal year ending on 31 Dec. 2016. 5. Approve and set the fees of the Audit Committee’s nominated auditor “Allied Accountants – Chartered Accountants and Auditors,” to audit the financial statements of fiscal year 2017 and the quarterly financial statements including the first quarter of fiscal year 2018. 6. Approve the contracts and business to be undertaken between SASCO and some Board members having direct and indirect interest in SASCO for a period of one year. 7. Approve the Audit Committee’s formation, functions, business controls and remunerations of its members for completion of the current session ending on 29 June 2018. 8. Approve Audit Committee’s business regulation, controls and procedures, functions, rules of member selection, way of member nomination, term of membership and members’ remunerations in accordance with the Corporate Governance Regulation. 9. Approve Nomination Committee’s business regulation, controls and procedures, functions, rules of member selection, way of member nomination, term of membership and members’ remunerations in accordance with the Corporate Governance Regulation. 10. Approve Remuneration Committee’s business regulation, controls and procedures, functions, rules of member selection, way of member nomination, term of membership and members’ remunerations in accordance with the Corporate Governance Regulation. 11. Approve the amendment of SASCO Articles of Association in accordance with the new Companies Law.

Names of Attending Board Members No.

Member Name

Capacity

Mr. Ibrahim bin Mohammed Al-Hudaithi

Chairman

Mr. Sultan bin Mohammed Al-Hudaithi

Vice Chairman – Managing Director

Mr. Nasser bin Abdullah Al-Awfi

Board Member

Mr. Suleiman bin Ali Al-Khudair

Board Member

Mr. Ajlan bin Abdulrahman Al-Ajlan

Board Member

Mr. Riyadh bin Saleh Al-Malik

Board Member – CEO

Mr. Ali bin Mohammed Aba Al-Khail

Board Member

Thirty Sixth Ordinary General Meeting First meeting on 24 December 2017 where all agenda items were approved as follows:

f 1.

Approve to authorize the Board to distribute interim cash profits to shareholders until the end of fiscal year 2018.

Approve the Remuneration Policy of Board members, Board committees and Executive Management.

Approve the update of Board’s and Executive Management’s membership policies, criteria and procedures. Names of Attending Board Members

No.

Member Name

Capacity

Mr. Sultan bin Mohammed Al-Hudaithi

Vice Chairman – Managing Director

Mr. Nasser bin Abdullah Al-Awfi

Board Member

Mr. Suleiman bin Ali Al-Khudair

Board Member

Mr. Riyadh bin Saleh Al-Malik

Board Member – CEO

Mr. Ali bin Mohammed Aba Al-Khail

Board Member

Mr. Fawaz bin Suleiman Al-Rajhi

Board Member

Mr. Ali bin Mohammed Aba Al-Khail

Board Member

Recommendation Regarding the Auditor The Board or the Audit Committee has no observations or reservations regarding the current auditor, “Allied Accountants – Chartered Accountants and Auditors,” noting that 2017 was the third year for this auditor to deal with SASCO. The auditor’s activities include auditing the financial statements of the Company for the fiscal year 2017 and the first quarter of the fiscal year 2018.

Annual Report 2017

Executive Directors Includes:

Mr. Islam Muhammed Khairi Ahmad Director of Finance Management Qualifications & Experiences: He holds the Bachelorâ&#x20AC;&#x2122;s Degree in Accounting from Ain Shams University, Egypt. He is a finance director more than ten years ago, enjoying a wide experience in leading and developing successful financing teams in several finance and accounting activities, including development of annual budgets, auditing major accounts. He is able to address functions and lead working teams.

Present Occupations: f SASCO Director of Finance Management. Previous Occupations: f Accounts Manager in Al-Madaen Star Group. f Chief Financial Officer of Zaiti Petroleum Services Company.

Mr. Mohammed bin Abdullah Al-Mutlaq General Director of Zaiti Petroleum Services Company Qualifications & Experiences: He holds the Bachelorâ&#x20AC;&#x2122;s Degree in Business Management from King Saud University. He held many administrative positions in the private sector. He is a member of National Committee of Fuel Stations Companies in the Council of Saudi Chambers of Commerce and a member of Audit Committee of Tabuk Fisheries Company (closed joint stock company).

Present Occupations: f General Director of Zaiti Petroleum Services Company (SASCO subsidiary). Previous Occupations: f General Director of Zaiti Petroleum Services Company (before acquisition).

Mr. David Wiles General Manager of SASCO Palm Co. Qualifications & Experiences: He holds the International General Certificate for Secondary Education (IGCSE). He worked for many British retailers and held many supplies jobs, including Director of Supplies Sector and Operations Manager at many British corporations. He acted as Vice President of Operations at City Center Hypermarket.

Present Occupations: f General Manager of SASCO Palm Co. Previous Occupations: f Director of Supplies Sector at many British corporations. f Regional Director of Operations at British corporations. f Vice President of Operations at City Center Hypermarket.

Transactions and Contracts in which Board Members and Executive Directors have an Interest _ There are no transactions or contracts in which the CEO, Chief Financial Officer, any executive director or

relevant person has interest.

Consolidated ‫والقرارات‬ ‫الخطط‬ Financial Statements

Annual Report 2017

Consolidated Financial Statements Balance Sheet The following table summarizes the data of the financial position statement for the past five years:

Statement

2013

2014

2015

2016 â&#x20AC;&#x153;Amendedâ&#x20AC;?

2017

Current assets

245,936,445

340,172,790

335,453,233

310,503,345

335,818,060

Non-current assets

839,560,351

791,550,290

946,464,664

1,182,055,527

1,200,103,273

1,085,496,796

1,131,723,080

1,301,917,897

1,492,558,872

1,535,921,333

Current Liabilities

148,098,913

242,486,686

233,134,630

364,594,629

389,998,524

Non-Current Liabilities

208,735,650

163,195,676

336,454,575

345,519,020

362,426,221

Total Liabilities

356,834,563

405,682,362

569,589,205

710,113,649

752,424,745

Total Assets

Total assets and liabilities 1,600,000,000 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 2013

2014

2015 Total assets

2016

2017

Total liabilities

Assets

1,600,000,000 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 2013 Cash and cash equivalents

2014

2015

Commercial Receivables

2016 Inventory

Total Assets

2017 Long-Term Assets

Change in Net Fixed Assets 1,800,000,000 1,600,000,000

Growth rate in total assets 41.49%

1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 2013

2014 Net Fixed Assets

Annual Report 2017

2015

2016 Total Assets

2017

Liabilities and Shareholders’ Equity

800,000,000 700,000,000 Growth Rate in Shareholders’ Equity 7,53%

600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 0 2013

2014

2015

Total Liabilities

2016

Capital

2017

Total Shareholders’ Equity

Income Statement The following table summarizes the data of the income statement for the past five years:

Statement

2013

2014

2015

2016 “Amended”

2017

368,906,614

453,370,500

665,048,902

1,094,122,754

1,212,329,807

(335,843,969)

(416,105,976)

(613,340,424)

(1,036,023,378)

(1,132,838,480)

33,062,645

37,264,524

51,708,478

58,099,376

79,491,327

General & Administrative Expenses

(24,621,845)

(28,717,195)

(35,285,668)

(38,686,162)

(46,739,924)

Other Revenue (Expenses)

35,687,812

76,539,300

5,584,757

10,222,617

863,742

(4,328,983)

(3,036,000)

(3,391,000)

(3,655,000)

(3,795,000)

39,799,629

82,050,629

18,616,567

25,980,831

29,820,145

Sales Direct Costs Income Margin

Zakat Net Income

1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 2013 Sales

2014 Direct Costs

2015

2016

Income Margin

2017 Net Income

80,000,000

60,000,000

40,000,000

20,000,000

0 2013

2014

General & Administrative Expenses

Annual Report 2017

2015

2016

Other Revenue (Expenses)

2017 Zakat

Analysis of Material Differences in Results The following table shows the most important differences in the financial results compared to the previous fiscal year:

Statement

2017

2016 “Amended”

Change + (-)

% of Change

1,212.329,807

1,094,122,754

118,207,053

10.80%

(1,132,838,480)

(1,036,023,378)

96,815,102

9.34%

79,491,327

58,099,376

21,391,951

36.82%

General & Administrative Expenses

(42,643,241)

(32,194,256)

10,448,985

32.46%

Provision Allowances

(4,096,683)

(6,491,906)

(2,395,223)

(36.90%)

Net Operating Income

32,751,403

19,413,214

13,338,189

68.71%

Investment Revenue (Loss)

3,603,408

9,689,273

(6,085,865)

(62.81%)

379,202

1,605,256

(1,226,054)

(76.38%)

(5,631,383)

(2,405,799)

3,225,584

134.08%

Other Income

2,512,515

1,333,887

1,178,628

88.36%

Net Income Before Zakat

33,615,145

29,635,831

3,979,314

13.43%

Zakat

(3,795,000)

(3,655,000)

140,000

3.83%

Net Income After Zakat

29,820,145

25,980,831

3,839,314

14.78%

Revenue Direct Costs Income Margin

Capital Profit (Loss) Financial Charges

The following is a description of the main justifications for fundamental changes in SASCO business results: f Increase of net income in the current period compared to the same

SR 12,23 million for the same period of last year at a decrease of 91.41% due to a decrease in reassessing investments. ❖ Shareholders’ equity recorded SR 783 million compared to SR 782

period of last year is attributed to:

million for the same person, i.e. an increase of 0.13% (there is no

❖ Increase of total income in the current period at 36.82% thanks

minority equity).

to the increase of net sales at 10.80%. This increase is due to opening new SASCO sites in addition to the increase of profit margin due to the change of sale prices of customs transit books. ❖ Increase of net operating profit at 68.71% in spite of the increase of general and administrative expenses, increase of sale and marketing expenses, the same period of last year’s investment revenues at a value of SR 11,29 million compared to investment revenues of SR 3,98 million this year due to SASCO disassociation from share of two full investment portfolios in the Saudi stocks, decrease of distributions from current investments and increase of financing costs and Zakat expenses. ❖ The total income of the current period was SR 1,05 compared to

Cash Flow Statement The following table summarizes the data of the cash flow statement for the past five years:

2013

2014

2015

2016 â&#x20AC;&#x153;Amendedâ&#x20AC;?

2017

Flows from Operating Activities

24,004,616

13,749,624

50,095,250

61,539,044

35,450,736

Flows from Investment Activities

(67,067,998)

116,172,277

(198,513,124)

(168,464,284)

(116,986,699)

83,220,510

(78,098,773)

141,373,640

66,933,168

65,280,554

Statement

Flows from Financial Activities

150,000,000 100,000,000 50,000,000 50,000,000 100,000,000 150,000,000 200,000,000

2013

2014

2015

Volume of Capital Spending

Annual Report 2017

2016

193,415,355

Flows from Investment Activities

130,462,199

200,000,000 180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 -

106,274,385

Flows from Operating Activities

2015

2016

2017 Flows from Financial Activities

117,203,850

2014

137,316,422

2013

2017

Earnings per Share The following table summarizes earnings per share for the past five years:

Statement

2013

2014

2015

2016

2017

Earnings per Share

0.74

1.52

0.34

0.48

0.55

2.00 1.52 1.50

0.74

1.00

0.55 0.48

0.50

0.34

2013

2014

2015

2016

2017

Earnings Per Share

Share Performance The following graph summarizes share performance for the past five years:

30.00 25.00 20.00 15.00 10.00 5.00 0 2013

2014

2015

2016

2017

Share Value in SAR

Key Financial Indicators The following tables show the key financial indicators for the past five years:

Growth Indicators

Statement

2013

2014

2015

2016 “Amended”

2017

6.94%

22.90%

46.69%

64.52%

10.80%

(11.67%)

106.16%

(77.31%)

39.56%

14.78%

Asset Growth

16.31%

4.26%

15.04%

14.64%

2.91%

Equity Growth

5.00%

(0.36%)

6.84%

0.13%

2013

2014

2015

2016 “Amended”

2017

Return on Sales

10.79%

18.10%

2.80%

2.37%

2.46%

Return on Capital

8.84%

18.23%

3.45%

4.81%

5.52%

Return on Investment

4.74%

10.37%

2.00%

2.20%

2.48%

Return on Total Assets

3.67%

7.25%

1.43%

1.74%

1.94%

Return on Equity

5.46%

11.30%

2.54%

3.32%

3.81%

Sales Growth Net Income Growth

Profit Indicators Statement

Profit Indicators 20.00%

18.10%

14.00%

18.23%

18.00% 16.00%

0.00%

Annual Report 2017

2014

2015

Return on Sales

Return on Capital

Return on Total Assets

Return on Equity

2016

Return on Investment

1.94% 3.81%

5.52% 2.48%

2.46%

3.32%

1.74%

4.81% 2.20%

2.37%

2.54%

2.00%

1.43%

11.30% 7.25%

10.37%

2013

5.46%

2.00%

4.74%

4.00%

3.67%

6.00%

8.84%

8.00%

10.79%

10.00%

2.80% 3.45%

12.00%

2017

Efficiency Indicators Statement

2013

2014

2015

2016 “Amended”

2017

Debtors Turnover

17.09

13.00

18.15

13.97

11.58

Inventory Turnover

19.47

19.53

22.15

37.92

31.18

Asset Turnover

0.34

0.40

0.51

0.73

0.79

Efficiency Indicators 40.00 37.92

35.00

31.58

30.00 25.00

0.79

0.73

0.51

0.40

0.34

11.58

13.97

18.15

19.53

19.47

5.00

13.00

10.00

17.09

15.00

22.15

20.00

0.00 2013

2014

Debtors Turnover

2015

2016

Inventory Turnover

2017

Asset Turnover

Liquidity & Indebtedness Indicators Statement

2013

2014

2015

2016 “Amended”

2017

Liquidity Ratio

1.66

1.40

1.52

0.85

0.86

Quick Liquidity Ratio

1.54

1.32

1.41

0.78

0.77

debt / Equity

48.97%

55.88%

57.56%

65.74%

70.90%

debt / Total Assets

32.87%

35.85%

32.38%

34.46%

36.17%

Items of Income Statement as a Percentage of Revenue Statement

2013

2014

2015

2016

2017

100%

Direct Costs

91.04%

91.78%

92.22%

94.69%

93.44%

Income Margin

8.96%

8.22%

7.78%

5.31%

6,56%

General & Administrative Expenses

6,67%

6.33%

5.31%

3.54%

3.86%

Other Revenue (Expenses)

9.67%

16.88%

0.84%

0.93%

0.07%

Zakat

1.17%

0.67%

0.51%

0.33%

0.31%

10.79%

18.10%

2.80%

2.37%

2.46%

Revenue

Net Income

Items of Income Statement as a Percentage of Revenue

100.00 % 93.44%

93.00%

94.69%

92.22%

70.00 %

91.78%

80.00 %

91.04%

90.00 %

60.00 % 50.00 %

Direct Costs

Annual Report 2017

Income Margin

2015

2016

General & Administrative Expenses

Other Revenue (Expenses)

2014

2.46%

0.31%

2.86% 0.07%

6.56%

2.37%

0,33%

3.54%

5.31%

2.80%

0.51%

5.31% 0.84%

7.78%

18.10%

8.22%

10.79%

2013

0.67%

0.00 %

1.17%

10.00 %

6.67% 9.67%

20.00 %

8.96%

30.00 %

6.33% 16.88%

40.00 %

2017 Zakat

Net Income

Zakat and Regulatory Payments Zakat is calculated in accordance with the Zakat and Income Tax

a consulting office specialized in Zakat and tax services to settle all

System applicable in the Kingdom of Saudi Arabia. The due Zakat is

issues concerning Zakat assessments for the period from 2009 to

applied to the income statement and the amendments to the final

2017.

Zakat assessment, if any, are recorded in the assessment period.

During fiscal year 2017, Zakat assessments outstanding with the Department of Zakat from 2000 to 2008 have been concluded

During the year ending on December 31st, 2017, SASCO established

with the payment of a settlement amount of SR 3,694,215. Bank

an allowance for regulatory Zakat dues of SAR (3,795,000). SASCO

guarantees of SR 4,730,935 have been released and the remaining

also paid SAR (4,378,030) from the Zakat allowance until 2017.

guarantee is about to be released.

SASCO follows up with the Department of Zakat and Income through

The following table summarizes regulatory payments:

2017 Statement

Brief Description

Description of Reasons

Paid

Due until end of annual financial period but not paid

Zakat

8,072,242

3,795,000

Amount of Zakat paid during the year

Tax

3,647,450

Paid amount of excise tax

Payment of amount due by SASCO

General Organization for Social Insurance

3,694,556

299,644

Year dues

The due amount belongs to December and is paid in January

Costs of visas, passports and labor office

1,730,762

Fees for visa, renewal of residence permit, exit and return

74,826

Customs fees of Saudi Automobile & Touring Association and clearance of other books

17,219,836

4,094,644

Customs Fees

Total

â?&#x2013; These payments are within SASCO activity.

Fines SASCO complies with all requirements of control bodies. CMA, or any other supervisory, regulatory or judiciary body did not impose any sanction on SASCO. No punishment, sanction, precautionary measure or precautionary attachment is imposed on SASCO.

Loans Article (22) of SASCO Articles of Association defines the powers of

note and/or securities or a deposit and pledge of title deeds. This

the Board of Directors. Paragraph (8) of the same article state as

was in addition to new facilities of SAR (265,107,316), of which SAR

follows: â&#x20AC;&#x153;The Board of Directors may contract loans with financing

(39,000,000) for various credit facilities and SAR (226,000,000) for

funds and institutions with whatever periods. It may also contract

long-term finance facilities guaranteed by a promissory note. The

commercial loans, obtain loans and other credit facilities from

agreement aims to finance the purchase of new lands and building

government institutions, commercial banks, financial institutions

new stations. SASCO amended the agreement amount on April

and any other credit companies, issue guarantee letters in favor of

16th, 2017, to be SAR (439,273,664). This included renewal of existing

any party if it sees it in SASCO interest, issue promissory notes and

facilities of which SAR (169,107,000) represent various credit facilities

other tradable documents and enter into all types of agreements

and SAR (270,166,664) represent medium and long-term finance

and banking transactions for any period of time not exceeding the

facilities guaranteed by a promissory note and/or securities or a

expiry of SASCO duration. Loans of maximum three years shall meet

deposit and pledge of title deeds. SASCO was given an additional

the following conditions:

grace period of one year and payment will be effective as of 1 June

a. The Board of Directors shall determine, in its resolution, ways

2018. The agreement aims to finance the purchase and building of

of use of loans and method of repayment.

new stations. During 2013, SASCO signed a Shariah-compliant credit

b. Loan conditions and provided guarantees shall not prejudice

facilities agreement with NCB of SAR (90,000,000) in the form of a

SASCO, shareholders and general guarantees of creditors.

long-term commercial loan to expand construction and acquisition

During the fiscal year 2010, SASCO signed a Sharia-compliant credit

of fuel stations. The agreement was renewed on May 1st, 2014 and its

facilities agreement with ANB for SAR (140,000,000) as a general

value became SAR (91,125,000) as a general credit ceiling, including

credit ceiling. This included letters of guarantee facilities of SAR

long-term loan facilities of SAR (90,000,000) and profit margin

(40,000,000) and real estate loan facilities of SAR (100,000,000).

swap of SAR (1,125,000) according to the needs of regular course of

The agreement amount was amended on December 2nd, 2013 to

business.

be SAR (120,000,000) as a general credit ceiling, including letters of

guarantee facilities of SAR (50,000,000) and real estate loan facilities

On August 25th, 2017, SASCO signed a new Shariah-compliant facilities

of SAR (70,000,000). The agreement amount was again amended

agreement with NCB of SAR (151,825,000), including long-term loans

on November 10th, 2016, to be SAR (98,758,575) as a general credit

of SAR (101,125,000), bank letters of guarantee of SAR (25,000,000),

ceiling, including letters of guarantee facilities of SAR (50,000,000)

short-term loans of SAR (25,700,000). The agreement aims to expand

and real estate loan facilities of SAR (48,758,575). On November 24th,

SASCO projects, support its core activities, and purchase new sites

2017, SASCO completed the early repayment procedures of the loan

to build fuel stations as well as to finance the working capital. The

by paying the outstanding amount of SAR (20,025,000) originally

agreement was renewed on May 1st, 2016 and its value became SAR

scheduled until February 28th, 2017. The rest of the facilities

(201,325,000), including long-term loan facilities of SAR (150,625,000)

agreement remained unchanged. During 2012, SASCO signed a

and bank letters of guarantee of SAR (25,000,000) and short-term

Sharia-compliant facilities agreement with BSF of SAR (225,000,000)

loans of SAR (25,700,000). The agreement aims to expand SASCO

as a general credit ceiling. This included letters of guarantee facilities

projects, support its core activities, and purchase new sites to build

of SAR (70,000,000), real estate loan facilities of SAR (90,000,000),

fuel stations. The agreement was amended on April 30st, 2017 and

loans to finance and develop fuel stations of SAR (55,000,000), a

its value became SAR (200,700,000), including long-term loans of

short-term finance of up to SAR (20,000,000), and multi-purpose

SAR (150,700,000) and bank letters of guarantee of SAR (25,000,000)

short-term import facilities of SAR (20,000,000). SASCO amended

and short-term loans of SAR (25,000,000). The agreement aims to

the agreement amount on April 28th, 2015, to be SAR (550,940,648).

expand SASCO projects, support its core activities, and purchase

This included renewal of existing facilities of SAR (245,833,332)

new sites to build fuel stations.

of which SAR (110,000,000) represent various credit facilities

On May 25th, 2015, SASCO signed a new Shariah-compliant facilities

and SAR (135,833,332) represent medium-term finance facilities

agreement with SABB of SAR (150,000,000) effective from the date of

guaranteed by a promissory note and/or securities or a deposit and

signing thereof, provided the use thereof before January 31st, 2016,

pledge of title deeds. This was in addition to new facilities of SAR

and guaranteed by a promissory note. This agreement includes a

(305,107,316), of which SAR (55,107,316) for various credit facilities and

long-term loan of SAR (100,000,000) and bank letters of guarantee

SAR (250,000,000) for long-term finance facilities guaranteed by a

of SAR (50,000,000). The agreement aims to partially finance capital

promissory note. The agreement aims to finance the purchase of

expenses, purchase land, and build new fuel stations. The agreement

new lands, building new stations, and improving and developing

was amended on Dec. 7th, 2017 and its value became SAR (177,967,726),

the existing stations. SASCO again amended the agreement amount

guaranteed by a promissory note, including a long-term loan of

on Feb. 17th, 2016, to be SAR (502,500,000). This included renewal of

SAR (150,700,000) in addition to SAR (80,000,000) as bank letters of

existing facilities of SAR (237,500,000) of which SAR (150,000,000)

guarantee and short-term loans of SAR (50,000,000). The agreement

represent various credit facilities and SAR (87, 500,000) represent

aims to partially finance capital expenses, purchase land, and build

medium and long-term finance facilities guaranteed by a promissory

new fuel stations as well as to finance the working capital. It will

Annual Report 2017

expire on January, 31th, 2019 On December 13th, 2015, SASCO signed

successive instalments. This is in addition to letters of guarantee of

a (Shariah-compliant) resales for profit facilities agreement with the

SAR (50,000,000). The agreement aims to expand SASCO projects,

Gulf International Bank (GIB) (a Bahraini joint-stock Corporation) of

support its core activities, purchase new sites to build fuel stations

SAR (150,000,000) guaranteed by a promissory note. This agreement

as well as to finance the working capital. On 24 October 2016, the

includes a medium-term loan of SAR (50,000,000) with a finance

guarantees clause was amended and the value of total guarantees

period of five (5) years (2-year grace period), provided the repayment

was SAR (40,000,000) in addition to documentary credits of SAR

of loan at equal quarterly instalments. This is in addition to issuing

(10,000,000). The agreement was renewed on Dec. 28st, 2017

letters of guarantee of SAR (100,000,000). The agreement aims to

and its total value became SAR (98,528,114) and the value of total

expand SASCO projects, support its core activities, purchase new

guarantees became SAR (50,000,000) including medium-term loans

sites to build fuel stations as well as to finance the working capital.

of SAR (48,528,114).

On December 21st, 2015, SASCO signed a (Shariah-compliant) resales

On December 21st, 2015, SASCO signed a (Shariah-compliant)

for profit facilities agreement with the Alawwal Bank (a Saudi

facilities agreement with Riyadh Bank (a Saudi joint-stock

joint-stock company). This agreement includes a general facility

company). The agreement includes bank letters of guarantee of SAR

limit of SAR (150,000,000) in the form of a medium-term loan of

(50,000,000), aiming at expanding SASCO projects and supporting

SAR (100,000,000) for a financing period of 54 months (18-month

its core activities.

grace period), provided the repayment of loan at equal semi-annual

Balance of loans at the end of year

246,000,000

BSF 122,500,000

National Commercial Bank (NCB)

97,967,724

Saudi British Bank (SABB) 50,000,000

Gulf International Bank (GIB)

0 25 0, 00 0, 00

0, 00 0 20 0, 00

0 ,0 00 ,0 0 15 0

10 0, 00

0 ,0 00 ,0 0 50

0, 00 0

39,051,206

Alawwal Bank

Loan Statement Bank

Loan Date

Balance at the end of 2017

Balance at the end of 2016

BSF

23/12/2012

30,000,000

BSF

22/03/2013

9,166,664

BSF

31/05/2013

101,324,000

BSF

30/06/2016

39,735,709

BSF

29/08/2016

24,654,233

BSF

29/08/2016

20,000,000

Bank

Loan Date

Balance at the end of 2017

Balance at the end of 2016

BSF

13/12/2016

23,274,737

BSF

28/12/2016

12,305,262

BSF

28/12/2016

6,252,169

BSF

12/01/2017

3,966,562

BSF

29/03/2017

13,235,873

BSF

24/08/2017

20,000,000

BSF

24/08/2017

1,251,455

NCB

03/12/2013

5,000,000

37,500,000

NCB

05/12/2015

Zero

NCB

30/12/2014

Zero

NCB

26/10/2015

22,500,000

27,500,000

NCB

31/10/2016

24,594,800

NCB

05/05/2017

70,000,000

NCB

15/10/2017

25,000,000

SABB

01/06/2015

13,181,625

25,173,556

SABB

19/04/2016

2,928,793

SABB

19/04/2016

11,846,787

SABB

03/05/2016

1,183,076

SABB

23/05/2016

2,313,569

SABB

07/06/2016

7,791,424

SABB

20/03/2017

5,147,780

SABB

28/03/2017

3,574,670

SABB

21/12/2017

50,000,000

GIB

27/12/2015

50,000,000

Alawwal Bank

28/12/2015

33,333,333

50,000,000

Alawwal Bank

13/12/2016

3,773,370

4,528,044

Alawwal Bank

20/12/2016

1,944,503

2,333,403

555,518,930

514,406,226

Total

Annual Report 2017

Loan Maturity 2017

2016

Less than 1 Year

204,479,080

178,638,617

1 Year to 2 Years

114,479,080

111,543,808

2 Years to 5 Years

224,894,103

221,723,801

More than 5 Years

11,666,667

2,500,000

Statement

Loan Movement Bank

Date of Issue

Term

Loan Value

Period in Months

Balance at year beginning

Paid during year

Due Date

BSF

23/12/2012

90,000,000

Long-term

30,000,000

30/09/2017

BSF

31/05/2015

101,324,000

Long-term

101,324,000

31/12/2022

BSF

22/03/2013

55,000,000

Medium-term

9,166,664

30/06/2017

BSF

30/06/2016

39,735,709

Long-term

39,735,709

31/12/2022

BSF

29/08/2016

24,654,233

Long-term

24,654,233

31/12/2022‫م‬

BSF

29/08/2016

20,000,000

Short-term

20,000,000

28/02/2017

BSF

26/02/2017

20,000,000

Short-term

24/08/2017

BSF

13/12/2016

23,274,737

Long-term

23,274,737

31/12/2022

BSF

28/12/2016

18,557,431

Long-term

18,557,431

31/12/2022

BSF

12/01/2017

3,966,562

Long-term

31/12/2022

BSF

29/03/2017

13,235,873

Long-term

31/12/2022

BSF

24/08/2017

20,000,000

Short-term

24/08/2018

BSF

24/08/2017

1,251,455

Long-term

31/12/2022

NCB

03/12/2013

90,000,000

Long-term

37,500,000

32,500,000

30/04/2018

NCB

26/10/2015

30,000,000

Long-term

27,500,000

5,000,000

26/04/2022

NCB

05/12/2015

25,000,000

Short-term

05/01/2016

NCB

29/02/2016

25,000,000

Short-term

25,000,000

27/06/2017

NCB

27/06/2016

25,000,000

Short-term

25,000,000

27/10/2017

NCB

31/10/2016

24,594,800

Short-term

24,594,800

27/02/2017

NCB

30/09/2014

10,000,000

Long-term

29/01/2015

NCB

29/12/2014

14,695,616

Long-term

28/04/2015

NCB

15/05/2017

70,000,000

Long-term

12/10/2023

Loan Movement (Continued) Bank

Date of Issue

Term

Loan Value

Period in Months

Balance at year beginning

Paid during year

Due Date

NCB

27/10/2017

25,000,000

Short-term

27/02/2018

SABB

01/06/2015

25,173,556

Long-term

25,173,556

11,991,931

28/11/2021

SABB

19/04/2016

2,928,793

Long-term

2,928,793

28/11/2021

SABB

19/04/2016

11,846,785

Long-term

11,846,787

28/11/2021

SABB

03/05/2016

1,183,076

Long-term

1,183,076

28/11/2021

SABB

23/05/2016

2,313,569

Long-term

2,313,569

28/11/2021

SABB

07/06/2016

7,791,424

Long-term

7,791,424

28/11/2021

SABB

20/03/2017

5,147,785

Long-term

03/11/2021

SABB

28/03/2017

3,574,670

Long-term

03/11/2021

SABB

21/12/2017

50,000,000

Short-term

03/21/2018

GIB

27/12/2015

50,000,000

Medium-term

50,000,000

24/11/2020

Alawwal Bank

31/12/2015

50,000,000

Medium-term

50,000,000

16,666,667

12/31/2019

Alawwal Bank

13/12/2016

4,528,044

Medium-term

4,528,044

754,674

06/28/2020

Alawwal Bank

20/12/2016

2,333,403

Medium-term

2,333,403

388,901

06/28/2020

514,406,226

201,063,637

Total

987,111,521

Debt Instruments

Pledged Assets There are no pledged assets.

SASCO and its subsidiaries did not issue debt instruments.

Other Guarantees

Dividend Distributions

Bank

Guarantee

BSF

A promissory note of SAR 502,500,000

NCB

A promissory note of SAR 200,700,000, deposit pledge of 17,281,000 (deposit was discharged at the end of year) and a promissory note of SAR 20,70,000

NCB

A promissory note of SAR 201,325,000

SAAB

A promissory note of SAR 177,967,726

GIB

A promissory note of SAR 150,000,000

Pursuant to Article 50 (Profit Distribution) of SASCO Articles of Association, SASCO annual net profits shall be distributed as follows: f Ten (10%) of net profit shall be retained to form a statutory reserve. The Ordinary General Assembly may stop retention when the said reserve reaches 30% of the capital. f The Ordinary General Assembly may, by proposal from the Board of Directors, retain a certain ratio of profits to form a consensual reserve to be allocated to supporting SASCO financial position. f The Ordinary General Assembly may decide to form other reserves to the extent that achieves SASCO interests or ensures the distribution of fixed profits to shareholders as much as possible. The Assembly may also deduct some amounts of net profits to establish social institutions in favor of SASCO workers or to assist the existing social institutions.

Alawwal Bank

A promissory note of SAR 98,528,114

f The rest is then distributed to shareholders at no less than (5%) of

Riyadh Bank

A promissory note of SAR 50,000,000

f In accordance with the provisions of Article (28) of SASCO Articles of

the paid capital. Association, after that, no more than (10%) of the rest is allocated

Annual Report 2017

to Board remuneration. The entitlement would be determined

f In the Extraordinary General Assembly dated March 13th, 2018, the

proportionately by the number of sessions attended by a member.

Board recommended to increase SASCO capital to SAR 600,000,000 through bonus shares to SASCO shareholders, by one share for every

According to Article (51) of SASCO Articles of Association (Interim

9 owned shares. Capital increase shall be done through capitalizing

Profits):

SR 60 million of the retained profits. The aim of this is to strengthen

f The Board of Directors have the authority to approve interim profit disbursement to shareholders on a quarterly or biannual basis if SASCO financial position so permits and liquidity is available according to the rules and procedures developed by competent authorities. f According to Article (52) of SASCO Articles of Association (Profit Entitlement):

SASCO financial ability to meet the current and future expansions in all its activities to achieve better growth rates in the coming years and preserve financial solvency. The entitlement would be for shareholders registered with the Securities Depository Center Company (Idaa) by the end of the second trading day following the date on which the Extraordinary General Assembly convened;

f A shareholder shall be entitled to receive his share of profits

provided that such recommendation is conditional upon the

according to the General Meeting's decision in this regard. The

approval of the official bodies and shareholders' Extraordinary

decision shall set the dates of entitlement and distribution.

General Assembly.

Entitlement to profits shall be for shareholders registered with the shareholders' records at the end of day established for entitlement. f According to Article (53) of SASCO Articles of Association (Profit Distribution to Preferred shares): f In case the profits of any fiscal year are not distributed, the profits of next years may be distributed only after disbursing the percentage

Deviations from Applying Accounting Standards

Accounting Standards applicable in the Kingdom of Saudi Arabia

stated in Article (10) of SASCO Articles of Association to preferred shareholders for that year.

SASCO applies the accounting standards issued by the Saudi

f In case SASCO fails to pay such percentage of profits for three successive years, the Special Meeting of Preferred Shareholders may decide to attend the General Meetings and vote or appoint representatives in the Board pro rata with their value of shares of capital. This shall apply until SASCO can pay all profits allocated to those shareholders for previous years. SASCO Policy of Share Profit Distribution is available on this link: www.sasco.com.sa

Organization for Certified Public Accountants, and there is no deviation from the application of those standards.

International Financial Reporting Standards (IFRS) With reference to the CMA letter No. S/1/12231/15 dated 27/10/1436 AH, corresponding to 12/8/2017, regarding the CMA Circular No. 4/2978 dated 25/3/2014, concerning the application of the International Financial Reporting Standards (IFRS) to the financial statements of listed companies as of 1/1/2017 in accordance with international

Cash Disbursements

standards adopted by the Saudi Organization for Certified Public Year

(SR/Share)

Year

(SR/Share)

2010

0.50

2013

0.75

2011

0.50

2014

1.50

2012

0.50

2015

0.50

Accountants, SASCO issued all its preliminary and annual financial statements according to the IFRS and the comparison figures of 2016.

Treasury Stocks There are no treasury stocks retained by SASCO.

Auditorâ&#x20AC;&#x2122;s Report f In its session held on March 13th, 2018, SASCO Board of Directors recommended to distribute cash dividends to shareholders for

The auditor issued its report on SASCO financial statements for the period ending on December 31st, 2017, without any reservations.

the fiscal year ending on December 31th, 2017, with a total of SAR (27,000,000), equivalent to (5%) of the nominal value of share and at a rate of SAR (0.50) per share. The entitlement to these dividends would be for shareholders registered with the Securities Depository Center (Tadawul) by the end of the second day on which the General Assembly convened; the date of convening will be later announced. 75

‫والقرارات‬ ‫الخطط‬ Retail Sector

Annual Report 2017

Retail Sector It is one of SASCO key sectors. It contains SASCO basic products offered

or under construction, (30) sites under pre-construction procedures,

to clients through (220) of which (57) are Zaiti Company (subsidiary)

as well as (3) sites stopped because the roads deviated away from

and (104) are SASCO sites divided into (94) operating stations and rest

them and for lack of economic feasibility from operating them at

houses and (6) quick service centers as well as (4) sites operated by

present.

third parties. This is in addition to (9) sites stopped for development

Mosques with a total area of more

More than 90 mosques

Covering more than 4,000 km

than 24,000 km In 2017, Retail Sector offered its services to about 12,7 vehicles, with an increase of 10,43% over the previous year, and 66,000,000 customers, with an increase of 6.45% over the previous year.

Statistics of Company Site Visitors

66,000 Number of Customers

Growth Ratio 6.45%

62,000 56,000

12,700 11,500

Number of Vehicles

Growth Ratio 10.43%

10,000

Thousand

20,00 40,00 60,00 80,00 2017

2016

2015

The Retail Sector manages all fuel stations and provides the following services:

Fuel Services

Diesel

Gasoline

According to the pricing approved by the Ministry of Commerce for

Aramco, fares of transport from the nearest reservoir supposed to

the sale of fuel to consumers in cities and governorates that have

supply fuel is added to the retail sale prices specified to consumers,

reservoirs of Saudi Aramco, and within a radius of 50 km from these

by adding SAR 0.01395/liter/km for paved roads and SAR 0.01815/litre/

reservoirs, prices are as shown in the following table. As for the cities,

km for non-paved roads, from the nearest reservoir of Saudi Aramco,

provinces and other centres where there are no reservoirs of Saudi

provided that this is done by competent local committees.

Before 2015 Product

Sale Price

Cost from

Profit Margin

Profit Margin Ratio

Gasoline 91

45 Halalah

36 Halalah

9 Halalah

20 %

Gasoline 95

60 Halalah

51 Halalah

9 Halalah

15 %

Diesel

25 Halalah

21.5 Halalah

3.5 Halalah

14 %

Amendment in 2015 Product

Sale Price

Cost from

Profit Margin

Profit Margin Ratio

Gasoline 91

75 Halalah

66 Halalah

9 Halalah

12 %

Gasoline 95

90 Halalah

81 Halalah

9 Halalah

10 %

Diesel

45 Halalah

41.55 Halalah

3.45 Halalah

7.67 %

Increase as of 1 January 2018 (without value-added tax) Product

Sale Price

Cost from Aramco

Profit Margin

Profit Margin Ratio

Gasoline 91

1.30 Halalah

1.21 Halalah

9 Halalah

6.92%

Gasoline 95

1.94 Halalah

1.85 Halalah

9 Halalah

4.64%

Diesel

45 Halalah

41.55 Halalah

3.45 Halalah

7.67%

The profit margin includes various expenses and costs borne by SASCO, most important of which are: f Transport cost in direct relation with the increase in diesel prices. f Costs of operation of stations due to the continued increase of power prices for services including electricity, logistics, maintenance and labour. f Water cost. f Costs of developing and improving the level of services according the requirements of the Ministry of Municipal and Rural Affairs in relation to companies qualified to manage fuel stations. f Increasing labour cost. f Costs of evaporation resulting during transport from Aramco to discharge site in the station. f Costs of bank guarantees issued to Aramco.

Annual Report 2017

Number of sold liters - SASCO 470,986,872 Change % of

397,089,800

Gasoline 91

18.61 %

298,952,411 191,839,875 Change % of

192,316,655

Gasoline 95

(0.25 %)

214,009,586 251,222,185 Change % of

265,985,213

Diesel

(5.55 %)

261,841,685

100,000,000

200,000,000

2017

300,000,000

2016

400,000,000

500,000,000

2015

Number of sold liters - SASCO & Zaiti Petroleum Services Company 470,986,872

Gasoline 91

Gasoline 95

191,839,875

Diesel

251,222,185

192,337,792

66,603,876

104,753,914

200,000,000

400,000,000

600,000,000

SASCO

800,000,000

Zaiti

Lease Sector Through competent departments in all areas, Retail Sector leases

range of snacks and pastries. Palm Café had (10) branches by the end

some facilities that SASCO authorizes third parties to manage, such

of 2017.

as restaurants, car maintenance workshops, oil and tire services, as

To offer a better service in this field, SASCO contracted with major

well as other shops serving clients and passengers.

international café companies to provide their services through SASCO sites throughout the Kingdom.

SASCO also signed strategic partnership agreements with several international and local competent companies specialized in operating

RENTAL

restaurants, cafes, and car maintenance workshops to manage some of SASCO site facilities. This has had a positive impact in providing integrated and high-quality service, leading to an increase in number of customers in SASCO sites throughout the Kingdom. Café Palm Café offers all types of coffee and hot drinks, in addition to a

Leasing spaces exceeding 100,000 m2

SASCO also signed strategic partnership agreements with several

Dining

international and local competent companies specialized in operating

SASCO restaurants offers convenient services to customers with

restaurants, cafes, and car maintenance workshops to manage some

different tastes.

of SASCO site facilities. This has had a positive impact in providing

SASCO restaurants offer the following meals:

integrated and high-quality service, leading to an increase in number

Breakfast

of customers in SASCO sites throughout the Kingdom.

Appetizers

Main courses

Café

Beverages

Palm Café offers all types of coffee and hot drinks, in addition to a

According to the priorities of SASCO strategy to attract companies

range of snacks and pastries. Palm Café had (10) branches by the end

specialized in restaurant management and reduce the number of

of 2017. To offer a better service in this field, SASCO contracted with

restaurants SASCO operates to improve service, provide a unique

major international café companies to provide their services through

experience, achieve a quantum shift, enhance customer satisfaction,

SASCO sites throughout the Kingdom.

assume leadership in this field, and advance the Stations and Rest Houses Sector in the Kingdom, SASCO continued to sign several agreements with global and local restaurant companies, which have already begun providing services in many SASCO sites inside and outside cities and at border crossing posts.

Pilgrims’ Services SASCO provides these services through its rest houses and stations at the Saudi border crossing posts (Salwa, Al-Adeed, Al-Hudaitha, Halat Amar, and Al-Batha), in addition to SASCO site network spreading on all highways, especially those linking the holy lands (Mecca and Medina). During 2017, SASCO served more than 8,300,000 pilgrims, whether inside or outside the Kingdom. SASCO most important stations and rest houses spread over the following highways: f

Al-Hijra Road (Mecca/Medina)

Riyadh/Taif highway

Riyadh/Dammam Road

Halat Amar/Tabuk/Medina Road

Pilgrims 1,000 1,200

Number of buses

1,000 8,300 9,700

Number of persons 8,700

4,000

2,000

2017 80

Annual Report 2017

6,000

2016

2015

8,000

10,000

The following table shows the most important financial results at the Retail Sector level as well as the contribution ratio in income margin compared to the previous fiscal year: Contribution Ratio (in revenue)

Direct Revenue

Direct Costs

Contribution Ratio (Income Margin)

Gross Profit

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

752,018,207

674,643,116

62.03%

61.66%

(714,273,623)

(651,561,382)

37,744,584

23,081,734

47.48%

39.73%

Retail Sector 752,018,207 Operating revenues

674,643,116 714,273,623

Operating costs

651,561,382

37,744,584 Gross Profit

23,081,734

200,000,000

400,000,000

2017

600,000,000

800,000,000

2016

The following table shows revenue analysis of Retail Sector for the past five years: 2013

2014

2015

2016

2017

327,228,376

416,266,722

523,058,172

674,643,116

752,018,207

Revenue Growth of Retail Sector 800,000,000 700,000,000 600,000,000

Annual Compound Growth rate 18%

500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 0 2013

2014

2015

2016

2017

Total Sector Revenue 81

Performance at Geographical Level (Retail Sector) The following table shows province-level revenue analysis: Sector

2017

2016

Central Province

276,631,388

36.79%

256,702,362

38.05%

Northern Province

38,660,546

5.14%

42,017,956

6.23%

Eastern Province

242,785,661

32.28%

231,120,557

34.26%

Western Province

193,940,612

25.79%

144,802,241

21.46%

Total

752,018,207

100%

674,643,116

100%

Geographical Revenue of Retail Sector

Annual Report 2017

Central Province

36.79%

Western Province

25.79%

Northern Province

5.14%

Eastern Province

32.28%

Zaiti Petroleum ‫والقرارات‬ ‫الخطط‬ Services Company

Annual Report 2017

Zaiti Petroleum Services Company The capital of Zaiti Petroleum Services Company - â&#x20AC;&#x153;a limited liability

By the end of 2017, the number of Zaiti stations was (57), of which (54)

companyâ&#x20AC;? - is SAR 37,500,000 divided into (3,750,000) cash shares each

were operating stations, as well as (3) stations under development.

of SR 10. This company specializes in the establishment, management,

These sites spread in the Central Province (50 sites) and Asir (7 sites).

and operation of fuel stations.

Number of sold liters

192,337,792 171,580,286

Gasoline 91 89,629,468 66,603,876 61,355,101

Gasoline 95

53,093,250

104,753,914 Diesel

107,524,774 63,623,748

100,000,000

50,000,000

2017

150,000,000

2016

200,000,000

2015

Site Distribution

Central Province

Southern Province

Operating and Leased Sites

Sites under Development

Site Ownership Zaiti Petroleum Services Company

Leased

Owned

The following table shows the most important financial results at Zaiti Petroleum Services Company level as well as the percentage of contribution and income margin compared to previous fiscal year:

% of Contribution (in revenues)

Direct Revenue

Direct Costs

% of Contribution (Income Margin)

Gross Profit

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

282,941,455

264,761,936

23.34%

24.20%

(270,983,387)

(252,751,876)

11,958,068

12,010,060

15.04%

20.67%

Zaiti Petroleum Services Company 300,000,000

11,958,068

100,000,000 50,000,000

12,010,060

252,751,876

270,983,387

150,000,000

264,716,936

200,000,000

282,941,455

250,000,000

0 Operating Revenue 2017

Annual Report 2017

Operating Costing 2016

Gross Profit

The following table shows revenue analysis at province level:

Sector

2017

2016

Central Province

242,361,688

85.66%

223,093,362

84.26%

Southern Province

40,579,767

14.34%

41,668,574

15.74%

Total

282,941,455

100%

264,761,936

100%

Geographical Revenues of Zaiti Petroleum Services Company

Southern Province

14.34%

Central Province

85.66%

‫والقرارات‬ ‫الخطط‬ SASCO Palm Co.

Annual Report 2017

SASCO Palm Co. SASCO Palm Co. is a limited liability company, with a capital of SAR

Palm) branches to (67) in various regions of the Kingdom at the end

500,000 divided into 50,000 equal cash shares, each of SAR 10. SASCO

of the year.

possesses 99% while Auto & Equipment Investment Co., Ltd possesses Revenue of SASCO Palm Co. square meters rose to SR 12,300 compared

the remaining 1%.

to SR 11,600 in 2017, i.e. an increase of 6.3% for all sites. Client basket SASCO offers supply service through (SASCO Palm), for which SASCO

change was 18.75% rising from SR 16 in 2016 to SR 19 in 2017.

opened (6) branches during 2017, bringing the total number of (SASCO

Geographical Distribution of Branches

Central

Western

Northern

Eastern

(SASCO Palm) contains an integrated basket of carefully selected

Prepaid communication cards.

products to meet the needs of our customers, whether travellers

Electronics.

on intercity roads, vehicle drivers, and passengers inside cities. The

Mobile phones accessories.

following are the classifications of these items:

Perfumes and cosmetics.

Food supplies.

Non-food supplies.

The following table shows the most important financial results at

Dairy products and cold drinks.

SASCO Palm level as well as the percentage of contribution and

Instruments, tools, and accessories.

income margin compared to previous fiscal year:

Trip supplies.

Direct Revenue

% of Contribution (in revenues)

Direct Costs

Gross Profit

% of Contribution (Income Margin)

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

163,719,373

139,506,664

13.50%

12.75%

(157,234,487)

(135,276,186)

6,484,886

4,230,478

8.16%

7.28%

SASCO Palm Co.

4٫230٫478

6٫484٫886

135٫276٫186

50٫000٫000

157٫234٫487

100٫000٫000

139٫506٫664

150٫000٫000

163.719.373

200٫000٫000

0 Operating Revenue

Operating costs 2017

Gross Profit

2016

Growth of SASCO Palm Stores Revenue 200٫000٫000

150٫000٫000

100٫000٫000

Annual Compound Growth rate 6%

50٫000٫000

0 2015

2016 Total Sector Revenue

❖ SASCO Palm accounts have been separated from the Retail Sector as of 2015.

Annual Report 2017

2017

The following table shows province-level revenue analysis:

Sector

2017

2016

Central Province

96,753,245

59.10%

73,792,196

52.90%

Northern Province

10,539,418

6.44%

12,293,205

8.81%

Eastern Province

24,333,262

14.86%

24,085,357

17.26%

Western Province

32,093,448

19.60%

29,335,906

21.03%

Total

163,719,373

100%

139,506,664

100%

SASCO Palm Co. Geographical Revenue

Central Province

59.10%

Western Province

19.60%

Northern Province

6.44%

Eastern Province

14.86%

SASCO ‫الخطط‬ ‫والقرارات‬ Al-Waha Co.

Annual Report 2017

SASCO Al-Waha Co. is a limited liability company with a capital of

When it comes to the exclusive franchise agreement signed between

SAR 5000,000 (it was increased this year) divided into 50,000 equal

SASCO and “Wyndham Hotel Group”, owner of “Super 8” hotels, the

cash shares, each of SAR 100. SASCO possesses 99% while Auto &

agreement was terminated on 31 December 2016 as the parties don’t

Equipment Investment Co., Ltd possesses the remaining 1%. SASCO Al-

wish to renew it. The brand of “Super 8” Hotel was retained and it

Waha Co. was established to manage this activity independently to

was opened on Thumama road in Riyadh. It includes meeting rooms,

achieve the best returns from it.

a gym, and a restaurant.

SASCO Al-Waha Co. manages all SASCO motels spread all over the Kingdom. SASCO integrated in its strategy the development of these

The following table shows the most important financial results at

motels to carry its own brand “Waha Motel”. During 2017, two motels

SASCO Al-Waha Co. level as well as the percentage of contribution and

were opened; the first is located on Dammam/Abu Hadreya and the

income margin compared to previous fiscal year:

second is located at Adeed border crossing with Qatar in addition to “Waha Motel” on Riyadh/Dammam Highway at kilometre 154.

Direct Revenue

% of Contribution

Direct Costs

(in revenues)

Gross Profit

% of Contribution (Income Margin)

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

2,651,845

2,488,626

0.22%

0.23%

(3,150,188)

(2,744,235)

(498,343)

(255,609)

(0.63%)

(0.44%)

SASCO Al-Waha Co.

4٫000٫000

0 -1٫000٫0000

Operating Revenue

Operating costs 2017

(255٫609)

(498٫343)

3,150,188

2٫744٫235

1٫000٫000

2٫488٫626

2٫000٫000

2٫651٫845

3٫000٫000

Gross Profit

2016

Ostool Al-Naqil ‫والقرارات‬ ‫الخطط‬ Company

Annual Report 2017

Ostool Al-Naqil Co. Ostool Al-Naqil Co. is a limited liability company with a capital of SAR

Thanks to the expansion of business, the fleet size increased at the

5,000,000 divided into 50,000 cash shares each of SAR 100. SASCO

end of 2017 to (108) tankers and (121) trailers through which the

possesses 99% while Auto & Equipment Investment Co., Ltd possesses

company provides transportation service to SASCO and Zaiti sites

the remaining 1%. Moreover, both the National Water Company and

(fuel, water, and sewage transport). Ostool Al-Naqil Co. continued to

the Saudi Electricity Company qualified Ostool Al-Naqil Co..

provide transport services (fuel and cargo) to a number of large retail

An integrated headquarters was prepared for Ostool Al-Naqil Co.

and distribution companies and expanded its business to include

in Riyadh, including fleet management buildings and integrated

dry transport using multi-purpose containers. Distance passed by

workshop for tankers maintenance. Ostool Al-Naqil Co. has two

Ostool Al-Naqil Co. tankers during 2017 in order to provide service to

branches, one in the Eastern Province and the other is in the Western

its clients exceeded 12 million km2 compared to 9,5 million in 2016, i.e.

Province.

an increase of 26.32%.

Fleet Size 140 120 100 80 60

101

108

121

40 20 0 2013

2014

2015

Tankers No.

2016

2017

Trailers No.

To offer service to our clients, we went a long drive of more than 12 million km2

The following table shows the most important financial results at Ostool Al-Naqil Co. level as well as the percentage of contribution and income margin compared to previous fiscal year:

% of Contribution (in revenues)

Direct Revenue

Direct Costs

% of Contribution (Income Margin)

Gross Profit

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

22,759,754

19,663,545

1.88%

1.80%

(15,375,734)

(13,390,332)

7,384,020

6,273,213

9.29%

10.80%

The following chart shows the number of litres transported by Ostool Al-Naqil Co. during the past five years:

Ostool Al-Naqil Co. 25,000,000

5,000,000

6,273,213

7,384,020

13,390,332

10,000,000

15,375,734

15,000,000

19,663,545

22,759,754

20,000,000

0 Operating Revenue

Operating costs

2017

Gross Profit

2016

The following chart shows the number of litres transported by Ostool Al-Naqil Co. during the past five years:

Transported Litres 1٫400٫000٫000

2013

572٫113٫400

2014 Transported in Liters

Annual Report 2017

2015

200٫000٫000

400٫000٫000

458٫997٫000

600٫000٫000

932٫724٫000

800٫000٫000

2016 Tankers No.

108

1٫116٫003٫000

1٫000٫000٫000

1٫377٫300٫000

1٫200٫000٫000

2017

Revenue Growth of Ostool Al-Naqil Co. 25٫000٫000

20٫000٫000

Annual Compound Growth rate 21%

15٫000٫000

10٫000٫000

5٫000٫000

0 2013

2014

2015

2016

2017

Total Revenue of Ostool Al-Naqil Co.

❖ Ostool Al-Naqil Co. revenues are geographically interrelated with the Retail Sector.

Saudi Automobile & ‫والقرارات‬ ‫الخطط‬

Touring Association - SATA

Annual Report 2017

Saudi Automobile & Touring Association - SATA Saudi Automobile & Touring Association SATA was established as a

As part of Saudi Automobile & Touring Association's agreement

limited liability company with a capital of SR 500,000 divided into

with the International Road Transport Union (IRU), an international

50,000 equal cash shares, each of SAR 10. SASCO possesses 99% while

body concerned with serving the interests of road transport industry

Auto & Equipment Investment Co., Ltd possesses the remaining 1%.

worldwide, it has continued to urge the concerned authorities in KSA

Saudi Automobile & Touring Association has a license from the

and the Gulf Cooperation Council states to enter into this agreement

Fédération Internationale de l’automobile (FIA) to issue Trip-Tik

to be effective in the Kingdom. In this context, several meetings were

customs books and works through many outlets widespread

held with these authorities in the presence of a representative of IRU.

throughout all regions of the Kingdom, in addition to a network of agents and distributors in the Kingdom. All of them adopt world-

The most important objectives of international transport system

class terms, specifications, and performance standards.

include: f

Facilitate harmonization of trade and customs procedures.

The most important services offered by Saudi Automobile & Touring

Improve cost level.

Association include the following:

Facilitate border crossing. Transport goods from door to door under international control.

Issuing Trip-Tik customs books

Issuing international driving licenses

Through managing car and motorcycle sports-related activities, and

Organizing sport activities for cars and motorcycles as well as

in coordination with concerned authorities, SATA seeks to obtain

holding, operating, and managing various categories of motor-

sport activities license to engage in this sport professionally.

racing tracks The number of passengers benefitting from customs transit books during 2017 was more than 32,000, and 62,000 passengers were issued international driving licenses. Sales of Saudi Automobile & Touring Association SATA were affected over the past years because of political events experienced by some neighbouring countries in addition to the existence of parallel clubs that do not have a license from the FIA to practice their business in the Kingdom but took a market share of sales of Trip-Tik customs books sales and international driving licenses.

More than 62 thousand passengers issued an international license

More than 32 thousand passengers through the books of the terrestrial

Saudi Automobile & Touring Association SATA plays a prominent role

The following table shows the most important financial results at the

in the FIA represented in reappointing its Chairman in December 2016

level of Saudi Automobile & Touring Association - SATA as well as the

as the Head of International Customs Committee in the FIA for a term

percentage of contribution and income margin compared to previous

of two years starting from appointment.

fiscal year:

Direct Revenue

% of Contribution (in revenues)

Direct Costs

Gross Profit

% of Contribution (Income Margin)

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

22,723,350

20,471,234

1.87%

(6,305,238)

(7,711,734)

16,418,112

12,759,500

20.65%

21.96%

Saudi Automobile & Touring Association

5,000,000

12,759,500

16,418,112

10,000,000

6,305,238

15,000,000

20,471,234

22,723,350

20,000,000

7,711,734

25,000,000

0 Operating costs

Operating Revenue

2017

Gross Profit

2016

The following table shows the revenue analysis for Saudi Automobile & Touring Association for the past five years:

Statement

2013

2014

2015

2016

2017

Trip-Tik Book Sales

23,350,990

21,592,590

18,814,150

18,441,204

20,509,672

International Driving License Sales

1,332,544

1,591,705

1,478,662

2,030,030

2,213,678

Total

24,683,534

23,184,295

20,292,812

20,471,234

22,723,350

â?&#x2013; SATA sales are centralized from its headquarters in Riyadh according to the nature of its activity.

Association Sales Per Type

26.90% 31.04%

Trip-Tik Yemen Trip-Tik International Trip-Tik Sudan International Driving Licenses

100

Annual Report 2017

32.32% 9.74%

101

Auto & Equipment ‫والقرارات‬ ‫الخطط‬ Investment Co.

102

Annual Report 2017

Auto & Equipment Investment Co. Auto & Equipment Investment Co. was established with a capital

Build rest houses, motels, and restaurants.

of SAR 500,000 divided into 50,000 cash shares each of SAR 10. The

Import, export, and trade in wholesale and retail spare parts,

company was established to provide infrastructure, human resources,

equipment, and others.

and expertise required to manage SASCO investments independently

and impartially and, thus, increase SASCO diversity of income sources

SASCO operates most of its investments in its subsidiaries through

and enable it to manage its operational and investment processes

Auto & Equipment Investment Co., since the latter holds 1% of the

efficiently and effectively. SASCO possesses 99% while Auto &

capital of Ostool Al-Naqil Co., 1% of the capital of Saudi Automobile

Equipment Investment Co., Ltd possesses the remaining 1%.

& Touring Association, 1% of the capital of SASCO Palm Co., 1 % of the

The most important activities of Auto & Equipment Investment Co.

capital of SASCO Al-Waha Co., 1% of the capital of SASCO Franchise Co.,

include:

1% of the capital of SASCO Al-Nakhla Al-Oula Co., as well as 5% of the

f f f

Execute general contracting.

Establish and own shares and stocks in subsidiary and associate

capital of Zaiti Petroleum Services Company.

companies.

When it comes to investment in other companies, Auto & Equipment

Possess land and real estate and erect buildings thereon for

Investment Co. holds 794 shares, i.e. 7.94% of the capital of Middle East

operation, sale, or lease.

Battery Company (MEBCO), a company specialized in the production

Build car and heavy equipment maintenance workshops as well

of ACDelco batteries in the Middle East.

as car and passenger service centres.

SASCO holds equity in other companies, and the following table shows the details of these investments:

Company Name

No.

Investment Amount

Ownership Ratio

Middle East Battery Company (MEBCO)*

4,565,500

7.94%

National Company of Tourism (Syahya)

1,500,000

0.36%

United Racing Company

125,000

25%

Total

6,190,500

â?&#x2013; The share in the Middle East Battery Company (MEBCO) is registered in the name of Auto & Equipment Investment Co. (a subsidiary).

Illustration of Investment Ratios of Total Investment Portfolio

National Company of Tourism (Syahya) United Racing Company Middle East Battery Company (MEBCO)*

24.23% 2.02% 73.75%

103

Dividends Received from Investments

8,000,000 7,000,000 7,669,741

6,000,000 5,000,000

2,000,000

3,624,788

3,000,000

3,603,408

4,000,000

1,000,000 0 Companies Investments

Securities Investments

2017

2016

Investment Portfolios according to Investment Regulations issued by CMA As of 2 Oct. 2016, the Balance of Al Ahli Capital portfolio has been transferred to the portfolio run by Mulkia Investment Co. in accordance with the agreement previously signed with them. This shall be undertaken in the same accounting treatment as securities held for sale, which financial impact is processed at the end of each financial period in shareholdersâ&#x20AC;&#x2122; equity in financial position statement, and difference of change between periods on comprehensive income statement when assessing the portfolio.

104

Agency

Investment Amount

31/12/2017

Accounting Treatment

Mulkia Investment Co.

SAR 50,000,000

Securities held for sale

Annual Report 2017

105

Al-Nakhla ‫والقرارات‬ ‫الخطط‬ Al-Oula Co.

106

Annual Report 2017

Al-Nakhla Al-Oula Co. It is a limited liability company, established to carry out the operation,

Al-Nakhla Al-Oula is specialized in:

maintenance, and cleaning of SASCO sites to improve the quality of

service provided to customers, with a capital of SAR 500,000 divided into 50,000 equal cash shares each of SAR 10. SASCO possesses 99%

restoration). f

while Auto & Equipment Investment Co., Ltd possesses the remaining 1%.

General contracting (construction, repair, demolition, and Construction, management, maintenance, and operation of residential and commercial buildings.

Road works.

107

‫والقرارات‬ ‫ الخطط‬Co. SASCO Franchise

108

Annual Report 2017

SASCO Franchise Co. After a specialized company completed the project of granting

improve its profitability by granting franchise to other operators

franchise to operate “SASCO fuel stations” and “Palm Stores”, the

under agreements it concludes with them to benefit from SASCO

establishment of “SASCO Franchise Co.” was completed with a capital

brands in light of successful development of its sites according to its

of SAR 500,000 divided into 50,000 equal cash shares each of SAR

identity and its distinguished position in fuel station sector in the

10. SASCO possesses 99% while Auto & Equipment Investment Co.,

Kingdom.

Ltd possesses the remaining 1%. “SASCO Franchise Co.” grants third parties a franchise to operate “SASCO fuel stations” and “Palm Stores”.

One of the goals of SASCO Franchise Co. is to be another alternative to

Through this subsidiary, SASCO aims to increase its revenues and

station owners who do not wish to sell or rent their stations.

109

Other Administrative & ‫والقرارات‬ ‫الخطط‬

Operational Information

110

Annual Report 2017

Other Administrative and Operational Information Lawsuits

United Racing Company Lawsuit The partners of the United Racing Company filed lawsuit No. 5475/2/k

SASCO is also following lawsuit No. 2136385/34 filed on 7/9/1434

before the Administrative Judicature Court in Jeddah versus SASCO.

AH before the General Court in Tabuk versus the Saudi Industrial

They demanded the liquidation of their company. The Court ordered

Property Authority (Modon) and the Secretariat of the City of Tabuk regarding the nullification of Modon title deed in relation

a stay of proceedings upon SASCO request until SASCO case versus

to the overlap with SASCO-owned land in Tabuk Industrial

one of the said partners regarding the sale of SASCO share, has

Zone, as well as claiming a compensation for the value of land

been decided. The Panel reviewing the case ordered compulsory

if SASCO cannot receive it. The case is still under review before

liquidation. It appointed Osama Abdullah Al-Khuraiji & Partner Chartered Accountants and Business Consultants, to carry out the liquidation procedures, and execution is still underway with the

Riyadh General Court. The lawsuit filed by SASCO versus Al Khaldi Holding Company,

lessor of SASCO site on Dammam-Riyadh road at 205 km

chartered accountantâ&#x20AC;&#x2122;s office.

because Al Khaldi failed to hand over the station after the expiry

As par the latest report of SASCO Law Firm, liquidation is subject to

of contract in 2014. The case is still under review before Khobar

the following: I.

Completing the requirements for opening United Racing

Court to pass a judgment of site evacuation. The lawsuit filed by SASCO versus Jubbah Municipality for

Company Zakat file at the Department of Zakat.

terminating contracts, releasing letters of guarantee and

II.

Approval of debt balances.

compensating SASCO against the damages it incurred due to

III.

SASCO Law Firmâ&#x20AC;&#x2122;s obtaining of the details and documents

non-handover of sites. In brief, on 3/8/1432 SASCO contracted

of lawsuits filed by or against SASCO.

with the Municipality to lease sites on Ha'el-Al Jouf International

The Administrative Judicature Court in Jeddah passed a judgement

Road, while SASCO did not finally receive the said sites as they

binding the United Racing Company to pay to one of the creditors

are not fit for the purposes of contracting. A judgment was

an amount of SR 2 million. On 19 Nov. 2017, the Firm stated that a

passed in favor of SASCO, binding Jubbah Municipality to pay SR 1,027,750 to SASCO, and execution of judgment is underway.

judgment effecting the amount was passed. For lack of liquidity, the liquidator requested partners to pay proportionately (each as per his shares of capital) pay the amount. SASCO Law Firm still follows up the case.

Other Miscellaneous Lawsuits

Human Resources The following table shows human resources analysis of SASCO and its subsidiaries:

SASCO filed some suits related to amounts due to it from some tenants and debtors to collect its dues for previous years. There are some other financial and labour lawsuits versus SASCO and its Legal Department follows up these financial rights and collection thereof, either by amicable or judicial means. Following are some of the most important lawsuits: f

One important case is the one SASCO filed before the Office of the Public Defender (Ombudsman) No. 6972/1/k on 12/5/1433 AH versus both the Ministry of Municipal and Rural Affairs

No.

Category

2017

2016

Senior Management

Middle & Executive Management

253

218

Workers and Technicians

1244

1226

1498

1445

Total

and the Ministry of Housing. SASCO possesses land in Hafr AlBatin area and the Ministry of Housing, through Hafr Al-Batin Municipality, took part of this land. The lawsuit was referred to Riyadh General Court and, then, to the Review Board, which in turn referred it to Hafr Al-Batin Municipality to check the site and determine the overlap between the two plots. Consequently, Hafr Al-Batin Municipality issued its letter stating that the Ministry of Housing had infringed upon (41,713 m2) of SASCO plot. Therefore, the assessment was referred to an authorized assessor. Based on its assessment, a judgment was passed in favor of SASCO, and a reasonable compensation for the usurped land was determined. The judgment was challenged by the Ministry of Housing. We are waiting for the confirmation or rejection of judgment by Riyadh Court of Cassation. 111

Subsidiaries The following table shows the summary of (limited liability) subsidiaries and their status of incorporation.

No.

% of Direct

Subsidiary Name

Core Business

Headquarters Foundation Country

Auto & Equipment Investment Co., Ltd (SAR 500,000)

Build car and equipment repair workshops – wash and lubricate cars - import and export spare parts - establish training centres - import and sell tools -buy and invest in lands.

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2010

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2010

Subscribe in local and international car and motorcycle clubs as well as local and international societies and bodies interested in car and motorcycle affairs, issue Trip-Tik customs books and international driving licenses, build, manage, maintain and operate car & motorcycles sports tracks - hold races and car & motorcycle sport events - participate in races and motorsport events.

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2012

General contracting for buildings, establish, maintain and operate residential and commercial buildings and road works.

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2012

Import and sale of foods.

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2014

Provide accommodation services.

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2016

& Indirect Ownership

Remarks

Transport goods and equipment - transport petroleum products 2

112

Ostool Al-Naqil Co., Ltd (SAR 5,000,000)

Saudi Automobile & Touring Association, Ltd SATA (SAR 500,000)

Al-Nakhla Al-Oula Co. (SAR 500,000)

SASCO Palm Co. (SAR 500,000)

SASCO Al Waha Co. (SAR 5,000,000)

Annual Report 2017

- import, export, and wholesale – establish, operate, and rent maintenance workshops – provide advertising services on tankers and vehicles.

No.

Subsidiary Name

SASCO Franchise Co. (SAR 500,000)

Zaiti Petroleum Services Company (SAR 37,500,000)

Core Business

Headquarters Foundation Country

% of Direct

& Indirect Ownership

Remarks

Grant franchise to operate “SASCO fuel stations” and “Palm Stores”.

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2015

Build, manage, and operate fuel stations.

Kingdom of Saudi Arabia Riyadh

100 % SASCO

Incorporated in 2007 and acquired in 2015

113

‫والقرارات‬ ‫الخطط‬ Risks Management

114

Annual Report 2017

Risks Management SASCO Risk Management Concept Risk management is the process of measuring and assessing possible

f Consistency of the activity objectives.

risks as well as developing strategies to manage them to ensure

f Adequacy of activity objectives with all important operations.

addressing mitigation and redressing thereof. It also means early

f Idiosyncrasy of the activity objectives.

detection of actual problems to reduce their negative impacts on

Sufficiency of Objective-Related Resources:

SASCO.

f Identifying important objectives (important success factors) to achieve SASCO objectives.

In the ideal risk management scenario, SASCO adopts prioritization, i.e. to address more likely and profoundly serious risks/ loss first. Risk management should integrate with SASCO culture as well as senior management effective policies and programs. SASCO risk management translates its strategy to measurable objectives, and SASCO determines policies and responsibilities towards risk management as part of job description of its entire staff. SASCO Risk Management Objectives f Achieve close control and monitoring of risks in activities and business. f Identify specific treatment for each type of risk at all levels. f Prevent and minimize losses through immediate control or by transferring them to external parties. f Identify actions and procedures to be taken in terms of certain risks to control incidents and monitor losses. f Prepare studies before and after losses to prevent or minimize likely losses, identify which risks are to be controlled, and use tools that help prevent recurrence of such risks. f Provide shareholders, creditors, and customers with confidence to protect the ability to generate profit despite any occasional losses that may lead to minimize profit or non-achievement thereof. SASCO Techniques to Address Risks

■ Assessment: An assessor focuses on the method the management adopts to set objectives, analyse risks, and manage change, including their relevance and adequacy to SASCO activities SASCO-Wise Objectives: f How far SASCO objectives provide profound data and guidance in terms of SASCO aims while sufficiently specific to be directly linked to SASCO. f Effectiveness of communicating objectives to staff and the Board. f Links between strategies and their consistency with SASCO objectives. f Consistency of business plans and budgets with SASCO objectives, strategic plans, and current conditions. Activity-Wise Objectives: f Link between activity objectives, SASCO objectives, and strategic

f Involvement of all management levels in setting objectives and the extent of their interest in achieving these objectives.

■ Risk: f Sufficiency of mechanisms to identify risks originating from external sources. f Sufficiency of mechanisms to identify risks originating from internal sources f Identifying important risks of every important activity. f Analysing risks at SASCO level and activity level and changing the method of risk analysis since many risks are difficult to quantify. Analysis includes: 1.

Asses risk significance.

Asses the possibility of risk occurrence (recurrence).

Impact of risk.

Consider how to manage risks and evaluate steps to be

taken. SASCO addresses risks within four key groups:

1. Avoidance of Risks: This means to attempt to avoid activities that lead to certain risks, such as not purchasing a property or not engaging in a certain work.

2. Minimization of Risks: By reducing investments facing a certain risk, which an investor does not like to take, or by involving others in risks.

3. Transfer of Risks: This consists of means that help another party accept risk, usually through contracts or financial hedging. Insurance is an example of risk transfer through contracts.

4. Acceptance: This means to accept losses when they happen. This method is an acceptable strategy in case of small risks in which the cost of insurance against risk by time is higher than total losses (accepted should be all risks that are not preventable or transferrable). Based on the Board belief in the importance of risk management being one of management foundations to protect shareholders’ investments and related parties’ rights, the Board continually develops risk management, policies, and procedures consistent with governance and internal control policies through setting a general

plans. 115

strategic plan for SASCO to face these risks and ensure expeditious

environment protection requirements shall increase its costs and

treatment thereof and providing necessary solutions in a manner

financial burdens.

that reduces their impacts. The most important risks SASCO may face and their mitigations are classified as follows:

Most Important Risks SASCO may Face and their Mitigations Operational Risks

To manage risks related to Ostool Al-Naqil Co., parameters have been developed for internal control through: f Covering operational objectives of transportation sector and helping officers improve, develop, and schedule supply. f Following up adherence to security and safety laws and procedures and recommending rectifications to violations.

■ Retail Sector Retail Sector is one of the sectors characterized by easy entry by

f Checking quality assurance procedures and complying with specific quality standards.

new competitors or expansion of existing ones, increasing the total competition therein, in addition to price fluctuations that affect land price, property lease, construction costs, or supply. Moreover, this sector mainly depends on providing petroleum services. Since the sector is linked to supplies received from the Arab Oil Company “Saudi Aramco”, any change in contract provisions negatively affects SASCO activity. To manage competition risks in the Retail Sector, parameters for internal control were set as follows: 1. Requiring the development of accurate studies for every site that include fixed standards to ensure the investment feasibility of these sites. 2. Conducting a comprehensive developmental program for the existing sites to ensure quality service and availability of all services the customer needs. This is in addition to approval of increase in market share inside cities and focus on acquiring relatively important sites, whether in terms of population density or traffic. 3. Setting financial goals and enforcing monthly control thereon to address or benefit from deviations. 4. Setting operational goals and enforcing the oversight role by supervisors in stations, provinces, and sectors, as well as by paying surprise periodical visits and monitoring customer complaints to address them through allocating a toll-free phone number to raise specific quality of services.

■ Ostool Al-Naqil Co. (Subsidiary) Ostool Al-Naqil Co. started its business as a SASCO sector in 2009. Following restructuring this sector, its name changed to “Ostool AlNaqil Co.”. SASCO increases its operational capacity continually in line with providing human cadres to manage and supervise the fleet in a manner that ensures maximum benefit from transportation services to SASCO sites, lowers the internal transport costs, and provides other customers with transport services. Ostool Al-Naqil Co. offers the following services: f Transportation services of all types of fuel. f Water and sewerage transport services. f Dry transport services. The most prominent risks faced by Ostool Al-Naqil Co. is the renewal of its license periodically from the Ministry of Transport. Although it does not encounter any difficulties in renewing the license, it does not guarantee to renew it in the future, which would affect its ability to continue operation in this field. In addition, any change in systems and regulations related to company business in terms of loading, transporting, unloading, and storing petroleum products as well as 116

Annual Report 2017

Saudi Automobile & Touring Association (Subsidiary)

Business of Saudi Automobile & Touring Association, which works under the umbrella of UN- controlled international bodies, is an essential cornerstone of SASCO operational business. Profit from its business, arising from sales of international driving licenses and TripTik customs books, represents a material share of SASCO operating revenue. This activity depends on holding an international license from the FIA to issue those documents for several years now in return for international financial obligations and burdens that greatly add to the cost of selling the document. Political events in some neighbouring countries, activities of some local competitors (parallel clubs) and the emergence of new organizations affect the financial performance of Saudi Automobile & Touring Association. To minimize competition risks and increase its market share, Saudi Automobile & Touring Association is in the process of developing an expansion plan to increase its branches and products, enhance its integration, and deal with strategic dealers. Parameters have been developed for the internal control through: 1. Holding periodical meetings with strategic dealers to increase coordination in terms of market shares. 2. Developing a plan to increase points of sale to market some products and follow up on them monthly. 3. Setting financial objectives and following them up monthly. 4. Conducting periodic monitoring of customs claims and trying to reduce them.

ERP-Related Risks All departments of SASCO and its subsidiaries depend mainly on the use of Enterprise Resource Planning (ERP) system in all their operational and financial processes. The ERP system may serve more than one department. SASCO departments use the following systems: f Finance Department: AX 2012. f Human Resources Management: AX 2012. f SASCO Palm Stores sales: NCR Aloha. f Fuel Sales: Gilbarco. f SASCO Al-Waha Co. Sales: Opera and Nazeel system for motels. f Maintenance Department: reporting system BMC. As SASCO is eager to avoid any expected problems, it monitors the

updating of department systems periodically through a specialized

main dependence on expatriate workforce. Therefore, it is difficult

office. Moreover, SASCO concluded a contract with a company

to achieve the Saudization ratio. Accordingly, risks in this regard

specialized in storing information to create a backup copy of SASCO

continue, particularly the higher cost of labour and recruitment.

data. Parameters have been developed for internal control through:

Risks of Issuing New Regulations on Fuel Stations and Service Centres

1. Continuous follow up of updates and requirements of Labour Office

The new Regulations on Fuel Stations and Service Centers, issued

2. Making sure that the staff get sufficient training to perform their

by the Ministry of Municipal and Rural Affairs, includes stringent

duties effectively.

standards for the geographical distribution of fuel stations and

3. Ensuring the periodical monitoring and assessment of performance.

service centres so that they would not cause any disturbance,

4. Following up Saudization of supervisory functions in all sectors to

traffic jams, or damage to nearby facilities. It also sets the area of

increase Saudization ratio.

stations inside cities, design standards, and safety and environment

Market-Related Risks

preservation conditions.

They comprise:

SASCO business may be affected in the future if it fails to obtain the necessary construction and operation licenses, whether for the existing or new stations. Legislative Environment Risks SASCO operates in a dynamic legislative environment, and changes to systems and laws applicable in the Kingdom of Saudi Arabia may affect SASCO business positively or negatively. To reduce the negative effect of these changes, if any, SASCO always gets timely access to amendments to regulations and studies their impact on its business. Accordingly, SASCO takes the necessary steps to minimize the impact of these amendments or attempt to exploit them to serve its business. The most prominent existing risks include the fact that SASCO should

in relation to Saudization and Nitaqat Program.

■ Growth and Expansion-Related Risks: Since SASCO growth depends to opening and adding new sites, SASCO, to realize its expansion policies, selects sties and review them comprehensively to make proper decisions of purchase or rent. SASCO ability to continue its growth relies on the availability of human resources, such as administrative competencies, operational expertise, and labour on time. SASCO exerts necessary efforts to provide these resources. Delay in construction and development projects because of contractors’ non-abidance by the set completion schedule leads to delay in operating sites according to the operational plan. SASCO concerned departments continually follows up the contractors’ works and implementation procedures.

obtain/renew the license to practice its business from the Ministry of Municipal and Rural Affairs and Civil Defence periodically; this is connected with the property insurance policy. SASCO business may be affected in the future if it fails to obtain or renew such licenses. Legal Risks In addition, SASCO faces legal risks in relation to financial claims due

■ Competitive Environment Risks: Station and rest house sector witnesses fierce competition to provide best services. SASCO growth and profit levels depends on its ability to compete successfully and maintain a leading position among other companies.

for it from some tenants and debtors, namely collecting amounts due for it for previous years. Moreover, there are some labour lawsuits filed

■ Risks Related to Highway Network Development

versus SASCO, and its Legal Department follows up these financial rights to collect them, either by amicable or judicial means.

(Transport Alternatives) The State develops highway networks continuously, which may

HR-Related Risks

change routes on which SASCO rest houses and stations are located.

Legislations in the Kingdom require a Saudization ratio of total staff

This is in addition to starting the execution of public transport

in companies through Nitaqat Program. SASCO has achieved the

projects, subway network, and railway lines to link the Kingdom

required Saudization ratio and continually seeks to Saudize various

regions with each other, which can adversely affect SASCO level of

administrative functions in line with its expansion plan that requires

operational profit.

many workers in its different sites.

In this regard, SASCO develops control in this regard through: f Studying new road and railway line projects and the road network

SASCO signed an agreement with the Human Resources Fund to

expansion plans in the Kingdom periodically to strategically plan

support the Saudization plan in accordance with the regulations

SASCO sites, examine options and solutions for existing sites, and

and laws issued in this respect. Although SASCO believes in the

check whether they are vulnerable due to the development of road

importance of Saudization as a national development requirement,

networks.

it faces difficulties and challenges because of the nature of its

■ Risks Related to Issuance of Auto and Motorcycle Club Act

business, inadequacy of its works to national jobseekers, and its

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The Act includes some points that would affect the business of

its obligations, resulting in a financial loss to the other party. In order

Saudi Automobile & Touring Association. SASCO studies the Act and

to reduce the impact of these risks, SASCO policy states that all post-

identifies the expected impact on the Association works to take the

paid customers are subject to credit due diligence and their ability to

necessary measures towards addressing the Act requirements.

meet the obligations.

■ Risks Related to Customs Claims of the Association

■ Financing Risks

covered by the FIA Insurance Policy There are customs claims not covered by the FIA insurance policy since some countries are not included in the insurance coverage. Saudi Automobile & Touring Association checks all supporting documents when issuing Trip-Tik customs books, and forms a provision in the form of a percentage of monthly sales of books to cover this claim.

SASCO obtained financing from several banks to expand its projects, support its core activities, purchase new sites to build fuel stations, and finance the working capital and, thus, make profits and maximize shareholders’ equity in the future. In this respect, SASCO developed controls by setting financial and operational objectives and activating controls on them on a monthly basis to address deviations or take advantage of them, including but

■ Risks Related to Granting Land and Land Handed over by

not limited to: f Monitoring the achievement of expansion targets - numerically.

State

f Monitoring the achievement of financial performance targets.

On 18/5/1401 AH, Royal Decree No. 11499 was issued to hand over to

f Conducting, analysing, and comparing budgets with the actual

SASCO the necessary lands while keeping its ownership to the State.

results and reasons for deviations.

Moreover, Royal Decree No. 214/M was issued on 8/2/1405 AH to grant

f Reviewing and improving cash flows continually.

SASCO (34) sites handed over to it. Therefore, SASCO requested the

f Scheduling expansions.

receipt of the sites to build rest houses thereon.

■ Investment Risks In relation to grants that have title deeds already received, SASCO

SASCO has investment portfolios in other companies, which may be

assessed them by a number of specialized companies, and listed them

vulnerable to financial, operational, or administrative risks related

in accounting records. As for lands granted with no title deeds, SASCO

to those companies or the market where they operate. To minimize

coordinates with the concerned authorities to get its title deeds and

the impact of these risks, SASCO conducts in-house or outsourced

receive these sites.

studies by specialist consultants on the status of these investments to assess the feasibility of keeping them. SASCO also gets continually

In addition to the granted lands, SASCO received some sites from

and periodically familiarized with the results of investee companies

the State against receipt minutes. SASCO has built fuel stations on

to determine their conditions in general.

some of these sites and is seeking to receive others to utilize them. Royal Decree No. 1315/M issued on 24/11/1420 AH limited SASCO sites

Although SASCO focuses on its core business, in case of an untapped

to those previously granted and lease out those already handed over

cash surplus, SASCO invests it by entering into new investment

or will be handed over to it in the future at an adequate fare while

portfolios or real estate investment funds or depositing it as a short-

emphasizing utilization of sites for the purpose for which they are

term bank deposit.

allocated. Currently, SASCO is working with government agencies to receive and determine the rent value of land. SASCO may be adversely

SASCO also possesses several investment portfolios in securities in the

affected in case of delayed handover of these sites by relevant

Saudi market managed by specialized companies. These investments

government authorities, or because of higher rent value. SASCO

are vulnerable to fluctuations in stock prices according to the

assesses the site and rent value initially before deciding whether to

prevailing market variables.

invest in the site.

■ Insurance-Related Risks Insurance policies cover all employees and properties of SASCO and its subsidiaries. SASCO financial results or subsidiaries may be affected by any future losses not covered under the insurance policies.

■ Credit-related Risks The credit-related risks comprise of the inability of one party to fulfil

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Annual Report 2017

To reduce the impact of these risks, SASCO: f Examines the financial position of the investee companies and assesses their performance quarterly and annually. f Works to dissociate from some investments to focus on its SASCO core business whenever the opportunity comes.

â&#x2013; Risks Related to Increased Energy Prices The increased sale tariff of electrical energy products and the rise in prices of fuel and water affect the margin of income from operations. The issuance of a ministerial decision to increase tariffs in the future

In this context, SASCO always gets timely access to amendments and resolutions and studies their impact on its business. Accordingly, SASCO takes the necessary steps to minimize the impact of these resolutions.

may lead to low income margin.

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Internal Control

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Annual Report 2017

Internal Control

Periodic Audit of Financial and Accounting Procedures and Financial Reporting

SASCO Internal Control Concept

In coordination with the external auditor, SASCO periodically ensures

Internal control is one of the basic pillars of the oversight system of any organization to assist it to evaluate management risks. It is considered an objective and independent business of a consultative nature designed to increase the value of an organization, enhance its operations, and achieve its goals. External parties can provide internal control services to ensure high quality of this service. Internal control is a series of procedures and processes conducted by the Board, management, and employees to provide a reasonable confirmation with regard to achieving the following objectives: f Effectiveness and efficiency of operations. f Reliability of financial reports. f Compliance with the related laws and instructions.

SASCO Roles and Responsibilities f Everyone in SASCO is responsible for part of internal control. However, the Board is the body responsible for SASCO internal control system. The CEO is the person finally responsible for the oversight system. f A number of parties provides internal control, each of whom has important responsibilities. The Board (either directly or through its committees), management, internal auditors, and other staff all submit important contributions to an effective internal control system.

Most Important Tools and Methods used in Annual Audit of Internal Control Effectiveness Departmentsâ&#x20AC;&#x2122; Monthly Report includes Key Performance Indicators (KPIs) 1. An analysis to compare budget with the actual results and reasons for deviations. 2. Ratio of sites achieving the budget. 3. Fuel interruptions. 4. Service-related customer complaints. 5. Surprise field visits. 6. Operation licenses. 7. Daily deposits. 8. Staff training. 9. Correct the views of products. 10. Supplies interruptions. 11. Develop supply plan. 12. Design and implement periodic maintenance program. 13. Achieve expansion targets -numerically. 14. Achieve financial performance targets. 15. Develop a marketing plan. 16. New products and alliances 17. Attraction and appointment. 18. Security and safety. 19. Inventory and property monitor.

the integrity of the financial and accounting procedures and that they are consistent with the widely accepted professional standards and the related laws governing financial and accounting practices and reporting.

Internal Audit SASCO management contracted a specialized office to carry out the internal audit based on risk assessment. SASCO works with the Internal Audit Department to develop a risk-based plan in coordination with the Audit Committee, SASCO management, and department officials. Based on this plan, an action internal audit plan was developed. The plan aims to describe how to deal with these risks and determine how and when their consequences will be avoided or reduced. The internal (risk-based) audit plan included the following objectives: f Evaluate the effectiveness and efficiency of the internal control system and processes. f Understand policies and procedures. f Ensure compliance with laws and regulations as well as SASCO contracts and policies. f Ensure the preservation of SASCO assets. f Ensure the reliability and integrity of financial and operational information. f Compare the current SASCO practices with the best practices followed. f Identify the opportunities available to enhance the internal control of activities and operations. All (field and periodic) audit reports filed to the Board, senior management, and various departments included observations and weaknesses of internal control procedures in the audited departments or operations along with their potential impact on the integrity of SASCO business processes and transactions with a focus on highvalue activities because of the increasing volume of risks. The reports also focused on the effectiveness of internal control system, since a weak control system increases the prospects of loss and the volume of risk, while an effective control system reduces the probability of such risks. In addition, every report included all recommendations on how to deal with these observations to raise the level of internal control procedures. The most important focus points in internal audit reports included the following: f Ensure that the department plans are consistent with the overall SASCO objectives. f Verify that fixed assets represent actual values owned by SASCO. f Ensure the provision of the necessary and adequate resources and skills to support business. f Ensure that the IT facilities and services both support SASCO strategic objectives and preserve its competitive features.

121

f Follow up inventory mechanism and the failure of current

Following are the most important recommendations raised by the Audit Committee:

automated software. f Ensure scheduling of operations to guarantee sufficient quantities

1. Disclose the investment portfolios opened in the note of unrealized loss from the re-evaluation of investments in the financial position

of stock. f Ensure that the available cash covers the continuity of planned

statement. 2. Work towards collection of the amounts due for SASCO.

operations. f Announce SASCO bylaws, instructions, and policies conspicuously.

3. Enforce the internal control systems in SASCO Palm Stores.

f Check the training of current employees to perform multiple tasks.

4. Consider the feasibility to convert current investments to available-

f Create

for-sale investments.

periodic/preventative

maintenance

programs

for

equipment and vehicles.

5. Revise the constituent appropriations to ensure their efficiency.

f Follow up expiry dates of operational licenses periodically.

6. Extend the term of SASCO Zakat Advisor.

f Check security and safety procedures.

7. Apply the International Accounting Standards (IAS) by the Finance

f Ensure the availability of financial analysis of the cash flow

Department and hire a consultant if required.

statement to make adequate financial and administrative

8. The need to provide functional competencies to cope up with the

decisions.

progress witnessed by SASCO.

f Avoid supply stoppage to the minimum.

9. The need for SASCO to cope up with the technological progress and

f Ensure the existence of registered contracts for all tenants

the use of technology and all its applications.

compatible with the conditions and objectives of SASCO plan.

10. The importance of considering and following up the observations of Internal Audit Department, particularly the specific ones having

Procedures undertaken by the Audit Committee

relation to enforcing the internal control system.

In the light of the internal audit risk assessment and the

On its part, SASCO works to close off all recommendations by the

recommendations raised by the Audit Committee regarding the

Audit Committee in a timely manner.

development of SASCO internal control system and given the contents

122

of chartered auditor’s letter to the management, SASCO is going to

Conflict with Audit Committee’s Recommendations

develop its internal control systems and risk management. Based

There are no Audit Committee recommendations in conflict with

on the reports received, the Committee did not note any important

the Board’s Resolutions or the Board refused to take into account

observations affecting the effectiveness of SASCO internal control

with respect to the appointment, dismissal, fee determination or

system.

performance assessment of the internal auditor.

Annual Report 2017

123

Corporate Governance

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Annual Report 2017

Corporate Governance Corporate Governance Regulations issued by the CMA under Decision

Regulation and Adopted Procedures

No. 8-16-2017 dated 16/05/1438 AH, corresponding to February 13th,

During the fiscal year 2009, SASCO developed “Corporate Governance

2017 pursuant to Companies Law passed by Royal Decree No. M/3

Regulation”, which includes the rules, standards, and controls of

dated 18/01/1437. SASCO Board approve the updated Corporate

managing SASCO to enhance and ensure the application of the best

Governance Regulations on 1 August 2017.

governance practices towards the protection of shareholders and stakeholders’ rights. In 2013, SASCO developed the said Regulation in

Application of Governance Regulation

accordance with the Corporate Governance Regulations issued by the

SASCO applies all articles of its Corporate Governance Regulations

CMA.

issued by the CMA Board except the following:

In 2017, SASCO developed the said Regulation in accordance with the No.

Regulation Article No.

Forty-one

Fifty-four

Seventy

Seventy-four

Paragraph

Article/Paragraph Text

Reasons of Non-Application

A Guiding

The Board shall develop, based on the proposal of the Nomination Committee, the necessary mechanisms to annually assess the performance of the Board, its members and committees and the Executive Management using key performance indicators linked to the extent to which the strategic objectives Guiding Article: the mechanism shall be of the Company have been achieved, the developed and approved during 2018. quality of the risk management and the efficiency of the internal control systems, among others, provided that weaknesses and strengths shall be identified and a solution shall be proposed for the same in the best interests of the Company.

B Guiding

Guiding Article: The Chairman of the Audit Committee in the current session The Chairman of the Audit Committee shall ending on 29 June 2018 has passed 9 be an independent director. years in SASCO. This is not consistent with independence and SASCO will address the matter in the future.

Guiding

The Company's Board shall, by resolution therefrom, form a committee to be named the “Risk Management Committee.”. Guiding Article: the formation of the Chairman and majority of its members shall committee shall be subsequently be Non-Executive Directors. The members of considered. that committee shall possess an adequate level of knowledge in risk management and finance.

a, b

a) For the purposes of implementing the approved internal control system, the Company shall establish units or departments for the assessment and management of risks and for internal auditing. b) The Company may utilize external entities to perform the duties and competencies of the units or departments of risk assessments and management and internal control without prejudice to the Company's responsibility for those duties

The Internal Audit Department is already existing. It has been assigned with carrying out risk management in consistency with the Company's contracting with an external office to conduct the same.

and competencies.

125

No.

126

Regulation Article No.

Eighty-five

Eighty-seven

Eighty-eight

Ninety-five

Annual Report 2017

Paragraph

Article/Paragraph Text

Reasons of Non-Application

1, 2 and 3 Guiding

The Company shall establish programs for developing and encouraging the participation and performance of the Companyâ&#x20AC;&#x2122;s employees. The programs shall particularly include the following: 1. Forming committees or holding specialized workshops to hear the opinions of the Companyâ&#x20AC;&#x2122;s employees and discuss the issues Guiding Article: it shall be subsequently and topics that are subject to important considered. decisions; 2. Establishing a scheme for granting Company shares or a percentage of the Company profits and pension programs for employees, and setting up an independent fund for such programs; and 3. Establishing social organizations for the benefit of the Companyâ&#x20AC;&#x2122;s employees.

Guiding

The Ordinary General Assembly, based on the Board recommendation, shall establish a policy that guarantees a balance between Guiding Article: it shall be subsequently its objectives and those of the community considered. for purposes of developing the social and economic conditions of the community.

1, 2, 3 and 4 Guiding

The Board shall establish programs and determine the necessary methods for proposing social initiatives by the Company, which include: 1. Establishing measurement indicators that link the Company's performance with its social initiatives and comparing it with other companies that engage in similar business; 2. Disclosing the objectives of the Company's Guiding Article: it shall be subsequently social responsibility to its employees and considered. raising their awareness and knowledge of social responsibility; 3. Disclosing plans for achieving social responsibility in the periodical reports on the activities of the Company; and 4. Developing awareness programs to the community to familiarize them with the Company's social responsibility.

Guiding

If the Board forms a corporate governance committee, it shall assign to it the competences stipulated in Article (94) of these Regulations (Corporate Governance Guiding Article: the formation of the Regulations). Such committee shall oversee committee shall be subsequently any matters relating to the implementation considered. of governance and shall provide the Board with its reports and recommendations at least annually.

Note:

Conclusion

With reference to paragraph 9 of Article (22) the Corporate

In conclusion, the Chairman, Board members and the executive

Governance Regulations issued by the CMA, which stipulates “Among

management extend their thanks and appreciation to the

the main functions and competencies of the Board are the following:

shareholders of the Saudi Automotive Services Company (SASCO), its

preparing the Company’s interim and annual financial statements

employees and all those who contributed to achieving its objectives

and approving them before publishing them; and whereas paragraph

and vision. They also extend heartfelt thanks and appreciation to the

(a/1) of Article (55) the Corporate Governance Regulations states

Custodian of the Two Holy Mosques, King Salman bin Abdul Aziz, may

“the duties of the Audit Committee shall particularly include the

Allah protect him, His Highness the Crown Prince, His Royal Highness

following: analyzing the Company’s interim and annual financial

Prince Mohammed bin Salman bin Abdul Aziz, Vice President of

statements before presenting them to the Board and providing its

the Council of Ministers, Minister of Defence and Chairman of the

opinion and recommendations thereon to ensure their integrity,

Council of Economic and Development Affairs, may Allah protect him,

fairness and transparency”;

for all great efforts and unlimited assistance to develop this country,

the Board adopted a mechanism to approve the interim financial

support its economy, and stimulate the business environment.

statements. The Audit Committee has the mandate to authorize

The Board of Directors is looking forward to the participation of its

interim financial statements and approve publication thereof on

shareholders in the General Assembly, and welcomes any suggestions

Tadawul website, provided these interim financial statements be

and views enhancing the Company’s business performance.

approved and signed by the Managing Director. After this approval, May Allah Grant Us All Success,

they shall be sent to the Board members to review in the meeting following the announced interim financial period.

Board of Directors

127

Financial Statements

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Annual Report 2017

Consolidated Accountants RSM

Dr. Abdelgadir Bannaga & Partners Company King Abdllah Road Al Saif Center-3rd floor P.O.Box 2227 Riyadh12253-7749 Tel: +966 114562974 Fax: +966 114940587 KSA www.rsmksa.com

Independent Auditors’ Report To: Messrs/ Shareholders Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Opinion We audited the consolidated financial statements of the Saudi Automotive Services Company (SASCO) “Saudi jointstock company”. They include the consolidated financial position statement as at 31 December 2017, statement of profit or loss and other comprehensive income, changes in consolidated shareholders› equity, consolidated cash flows for the year ending on that date, notes attached to consolidated financial statements and brief of important accounting policies. In our opinion, the attached consolidated financial statements fairly demonstrate, from all major aspects, the consolidated financial position of Saudi Automotive Services Company (SASCO) as at 31 December 2017, its financial performance and its consolidated cash flows for the year ending on that date according to the International Financial Reporting Standards (IFRS) approved in the Kingdom of Saudi Arabia and other standards issued by Saudi Organization for Certified Public Accountants.

Grounds of Opinion Our audit was conducted according to the International Financial Reporting Standards (IFRS) approved in the Kingdom of Saudi Arabia. Our responsibility according to the IFRS is detailed in this report in the paragraph titled “Auditor’s Responsibility for auditing consolidated financial statements”. We are independent from SASCO pursuant to the Professional Ethics approved in the Kingdom of Saudi Arabia relevant to our audit of these consolidated financial statements. We also met the requirements of other professional ethics. We believe that audit grounds we obtained are sufficient to constitute a basis for our opinion about the audit.

Core Audit Issues As per our professional assessment, core audit issues refer to such matters that had utmost importance in our audit of financial statements of the current year. Such matters have been addressed in the context of our audit of financial statements as a whole and in developing our opinion. We do not present a separate opinion about such matters. Following is a description of each separate audit issue and how it is addressed: How it is addressed in auditing Core Audit Issue Adoption of IFRS for first time As a result of legal and regulatory requirements in the Kingdom of Saudi Arabia an as of 1 January 2017, SASCO must develop the consolidated financial statements according to the IFRS adopted in Saudi Arabia and other standards issued by Saudi Organization for Certified Public Accountants.

With respect to shifting to the IFRS adopted in Saudi Arabia, we took the following steps: • We assessed to what extent it is consistent to apply the IFRS adopted in Saudi Arabia according to Standard No. 1 “First-time Adoption of International Financial Reporting Standards”. • We assessed the adequacy of adopted accounting policies.

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Consolidated Accountants RSM

Dr. Abdelgadir Bannaga & Partners Company

How it is addressed in auditing

Core Audit Issue

130

Adoption of IFRS for first time (continued) With respect to all previous years including that ending on 31 December 2016, SASCO developed its consolidated financial statements according to the professional standards widely accepted in Saudi Arabia and issued by Saudi Organization for Certified Public Accountants. The consolidated financial statements for the year ending on 31 December 2017 are the first to be developed according to the International Financial Reporting Standards (IFRS) approved in Saudi Arabia and other standards issued by Saudi Organization for Certified Public Accountants. Therefore, SASCO, for the first time, adopted the International Financial Reporting Standards (IFRS) approved in Saudi Arabia in developing its consolidated financial statements for the year starting on 1 January 2017. As per the requirements of Standard No. 1 “Adoption of IFRS for first time”, SASCO consolidated financial position statement was development as at 1 January 2016 after introducing the required settlements to reflect the shift to IFRS approved in Saudi Arabia. We deemed this a core audit issue as the adoption of the IFRS for the first time is very important for consolidated financial statements in terms of validation, measurement and disclosure. Please refer to Note No. 6 on consolidated financial statements for more details about shifting and settlements between financial statements prepared according to the accounting standards widely accepted in Saudi Arabia and issued by Saudi Organization for Certified Public Accountants and financial statements prepared according to the IFRS approved in Saudi Arabia.

•

Revenue Realization Revenues are a major and determinant factor of a company’s performance and profits. Here arises a risk when revenues are recorded higher than their real value to increase profits. Due to the importance of reporting and the risk of recording revenues higher than their real values, we see that realization of revenues are an important aspect of audit.

With respect to revenues, we took the following steps: • In our audit, we paid attention to what extent the accounting policies are consistent with generating revenues in favor of SASCO and assessing to what extent such policies are consistent with the IFRS. • We examined the internal control procedures with respect to revenue realization and studying the procedures taken by SASCO for purposes of completing the factors of revenue realization. • We conducted a substantive analysis on important revenue flows through developing expectations based on sizes and rates. We also got explanations of major differences. • We examined a sample of recorded revenue transactions and compared them to supporting documents to verify the registered revenues.

Annual Report 2017

•

We assessed action papers related to technical matters, detailed application plans and differences according to the accounting standards widely accepted in Saudi Arabia and issued by Saudi Organization for Certified Public Accountants which SASCO identified. We selected a sample of settlements (including calculation and registration) made to different balances and transactions in order to be in consistency with IFRS approved in Saudi Arabia. We assessed the consistency of disclosures related to the impact of shifting from the accounting standards widely accepted in Saudi Arabia and issued by Saudi Organization for Certified Public Accountants to the IFRS approved in Saudi Arabia.

Consolidated Accountants RSM

Dr. Abdelgadir Bannaga & Partners Company

Core Audit Issue

How it is addressed in auditing

Investments held for sale SASCO possesses fair value investments through items of consolidated other comprehensive income statement with a total value of SR 96 million as at 31 December 2017. The fair value of investments held for sale, not circulating in an active market, is determined through applying assessment methods which often include practicing discretions by the Management and the use of assumptions and estimates. The state of uncertainty of investments, not circulating in an active market, is estimated using the techniques of the following internal models: • Important observable assessment inputs (i.e. investments classified as per Level 3). • Important unobservable assessment inputs (i.e. investments classified as per Level 3). Investments at fair value are assessed through the items of consolidated other comprehensive income statement at fair value with registering profit or loss compared to difference of fair value within items of consolidated other comprehensive income statement to be added as part of reassessing investments held for sale with shareholders’ equity. Investments at fair value through consolidated other comprehensive income items are considered a core audit issue for being affected by price fluctuation of Capital Market Authority. Assessment of investments at fair value was considered in 2 and 3 Levels as a core audit issue due to the complexity of assessing these financial instruments and the importance of judgments and estimates conducted by the Management.

With respect to investments held for trading, we took the following steps: • Verify the fair value of listed investments and matching it to the prices announced by Capital Markets in the date of consolidated financial position and prices of units for funds. • Verify the calculation of difference in the fair value and adding it to the items of consolidated other comprehensive income as well as adding it to the reserve of reassessing investments held for trading. • Assess the sufficiency of SASCO disclosures towards these investments. • We assessed the design and application of Management’s control over the investments classified as held for trading and not traded in an active market. We also tested the efficiency of major procedures of these transactions. • We evaluated the methodology and consistency of assessment methods and inputs used in determining the value of investments held for trading. • We tested samples of operations used in assessing investments held for trading and not traded in an active market. As part of audit procedures, we assessed major inputs and assumptions used in determining values such as the anticipated cash flows, risk free rates, credit margins through comparing them with external data.

Other Information The Management is responsible for other information, including information stated in SASCO Annual Report, but not including the consolidated financial statements and our audit report about them. It is expected to have access to the annual report after the date of this report. Our opinion does not cover the consolidated financial statements of other information and we have no confirmation about them. When it comes to our audit of consolidated financial statements, our responsibility is to read the other information stated above when made accessible. When doing so, we taken into account whether such information is fundamentally inconsistent with the consolidated financial statements or our knowledge which we obtained during audit or it appears that it contains significant errors. When we read the annual report and find significant errors in such information, we are required to report these facts to Governance officers.

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Consolidated Accountants RSM

Dr. Abdelgadir Bannaga & Partners Company

Management’s & Governance Officers’ Responsibility for Consolidated Financial Statements Management is responsible for developing and fairly presenting consolidated financial statements as per the IFRS adopted in Saudi Arabia, the other standards issued by Saudi Organization for Certified Public Accountants, the provisions of Companies Law and the Company’s Articles of Association. It is also responsible for internal control systems that are deemed necessary for developing consolidated financial statements free from significant errors, whether such errors are arising from fraud or omission. The Management’s responsibility for developing consolidated financial statements includes an assessment of the company’s ability to continue business, disclosure, as the case may be, of matters related to company’s continuity and use of continuation basis in accounting unless the Management wishes to dissolve the company or cease its operations or no logical alternative is available. Governance officers are responsible for supervising the development of financial reports. Auditor’s Responsibility We aim to get a reasonable confirmation whether the consolidated financial statements as a whole are free from significant errors - whether such errors are arising from fraud or omission – and to issue the audit report that includes our opinion about such statements. A reasonable confirmation is a high level of confirmation. Our audit, which was conducted according to the IFRS adopted in Saudi Arabia, does not always guarantee the detection of significant errors, if any. Errors may arise out of fraud or omission. They are deemed significant if, individually or collectively, reasonably affecting the economic decisions of the users of consolidated financial statements. As part of the audit process, undertaken according to the IFRS adopted in Saudi Arabia, we practice professional judgment and apply the principle of professional scepticism in all aspects of audit in addition to the following:

132

•

Identify and assess the risks of significant errors of consolidated financial statements, whether are arising from fraud or omission, design and implement audit procedures responding to such risks and obtain sufficient evidences that provide a ground for our opinion. The risk of failing to detect significant errors arising out of fraud is higher than that arising out of omission. This is because fraud may include collusion or counterfeiting, deliberate deletion or misstatements, or intrusion of internal audit systems.

•

Understand audit-related internal control systems for the purpose of developing proper audit procedures according to the circumstances and not for raising an opinion about the efficiency of corporate internal control systems.

•

Assess the consistency of applicable accounting policies and the reasonability of relevant Managementprepared accounting estimates and notes.

•

Obtain a conclusion as to the consistency of Management’s use of the principle of continuity in accounting based on audit evidences we obtained. We work to know if there is a significant uncertainty in relation to events or circumstances that may raise big doubts about the Company’s ability to continue to run business as a continuous establishment. If it comes to our knowledge that there exists a significant uncertainty, we are required to attract attention in our audit report to the relevant notes outlined in the consolidated financial statements. If disclosure of such information is not sufficient, we will amend our opinion. Our deductions rely on audit evidences obtained until the date of our audit report. However, future events or circumstances may cause company’s discontinuity to run business as a continuous establishment.

•

Assess general presentation as well as structure and content of consolidated financial statements, including notes, and whether consolidated financial statements represent transactions and events in a manner that achieves fair presentation.

Annual Report 2017

Consolidated Accountants RSM

Dr. Abdelgadir Bannaga & Partners Company

We communicated with governance officers with respect to planned audit scope, timing and important notes, including any internal control system failure identified in our audit. We also provided them with a statement that we complied with independence-related ethical requirements, made them familiar with all matters that may reasonably affect our independence and present relevant commitment parameters if necessary. The issues reported to governance officers include such issues that had utmost importance when auditing consolidated financial statements of the current year. Therefore, they are considered core audit issues. We are going to highlight such issues in our report unless this is prohibited by a disclosure law or regulation. However, in very rare circumstances, we decide not to report the same as it is reasonably expected that negative consequences would overcome the public interest of reporting. Report on Legal & Regulatory Requirements Article 135 of Companies Law requires an auditor to include in its report the established violations of provisions of Law or companyâ&#x20AC;&#x2122;s Articles of Association. In the course of our audit of consolidated financial statements, it has been established to us that SASCO has violated the provisions of Law or its Articles of Association. Allied Accountants Dr. Abdelgadir Bannaga & Partners Company

Mohammed bin Farhan bin Nadir License No. (435) Riyadh, Kingdom of Saudi Arabia 8 Rajab 1439 AH, corresponding to 25 March 2018

133

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

31 Dec. 2017 (SR)

31 Dec. 2016

1 Jan. 2016 (SR) (Amended – Note 6)

1,068,977,536 10,064,600 25,000,017 96,061,120 -

(SR) 873,569,463 8,599,160 150,783,566 124,829,900 24,273,438

823,586,480 5,914,719 48,002,427 138,580,899 24,273,438

1,200,103,273

1,182,055,523

1,040,357,930

203,386,106 36,337,406 879,202, 95,215,346

171,708,591 27,323,999 111,470,755

125,767,135 27,696,790 21,520,881 151,462,827

Total current assets

335,818,060

310,503,345

326,446,633

Total assets

1,535,921,333

1,492,558,872

1,366,804,563

540,000,000 40,852,236 147,158,411 55,485,941

540,000,000 37,870,221 120,320,281 84,254,721

540,000,000 35,255,166 123,954,505 98,005,687

783,496,588

782,445,223

797,215,358

351,039,850 11,386,371

335,767,608 9,751,412

328,146,862 8,307,713

362,426,221

345,519,020

336,454,575

95,000,000 109,479,080 38,718,206 142,974,768 3,826,470

44,594,800 134,043,817 38,823,795 142,722,717 4,409,500

25,000,000 68,350,692 37,799,298 98,021,718 3,962,922

Total current liabilities

389,998,524

364,594,629

233,134,630

Total liabilities

752,424,745

710,113,649

569,589,205

Total shareholders’ equity and liabilities

1,535,921,333

1,492,558,872

1,366,804,563

Note Assets Non-current assets Net properties and equipment Net intangible assets Projects under execution Investments held for trading Recorded cash

7 8 9 10

Total non-current assets Current assets Net receivables, advance payments, and other receivables Net inventory Investments held for trading Cash and balances with banks

11 12 13 14

Shareholders’ equity and liabilities Capital Statutory reserve Retained earnings Reserve for reassessing investments held for trading

1 19 10

Total Shareholders’ equity Non-current liabilities Financing of resale for profit and long-term loans End of service gratuity

Total non-current liabilities Current liabilities Financing of resale for profit and short-term loans current portion of financing of resale for profit and longterm loans Dividends Payable to shareholders Payables and other creditors Provision for Zakah

15 15 17 16 18

*Notes from No. 1 to 31 constitute an integral part of these consolidated financial statements.

134

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

2017 (SR)

2016 (SR) (Amended â&#x20AC;&#x201C; Note 6)

1,212,329,807 (1,132,838,480)

1,094,122,754 (1,036,023,387)

79,491.327

58,099,376

(3,799,225) (42,940,699)

(1,030,495) (37,655,667)

Net year profit from core operations Financing costs Profit costs Profit from selling investments held for trading Profit from assessing investments held for trading Other revenues

13 22

32,751,403 (5,631,383) 3,603,408 369,991 9,211 2,512,515

19,413,214 (2,405,799) 9,689,273 1,605,256 1,333,887

Net year profit before Zakah Zakah

33,615,145 (3,795,000)

29,635,831 (3,655,000)

29,820,145

25,980,831

(28,768,780)

(13,750,966)

1,051,365

12,229,865

Note Revenues Costs of revenues

Total revenues Sale and marketing expenses General and administrative expenses

Net annual profit Other comprehensive income Items to be subsequently reclassified into income statement Fair value movement for investments held for trading

Total year comprehensive income Share profitability Actual dividend per share from core operations

0.61

0.36

Actual year dividend per share

0.55

0.48

*Notes from No. 1 to 31 constitute an integral part of these consolidated financial statements.

135

136

Annual Report 2017

540,000,000

Balance on 31 Dec. 2017

40,852,236

2,982,015 -

37,870,221

(111,337,578)

111,337,578

* The attached notes from No. (1) to (27) form an integral part of these consolidated financial statement

540,000,000

Balance on 1 Jan. 2017 as previously disclosed Impact of adopting International Financial Reporting Standards (IFRS)

Transfer to statutory reserve Net annual profit Other comprehensive income

37,870,221

540,000,000

Balance on 31 Dec. 2016

Balance on 1 Jan. 2017 as amended

2,615,055 -

Net annual profits as previously disclosed Impact of adopting International Financial Reporting Standards (IFRS) Other comprehensive income Transfer to statutory reserve Profit distributions 37,870,221

(111,337,578)

111,337,578

Land grants and donations (SR)

35,255,166

540,000,000

35,255,166

Statutory reserve (SR)

540,000,000

Balance on 1 Jan. 2016 as amended

Balance on 1 Jan. 2016 as previously disclosed Impact of adopting International Financial Reporting Standards (IFRS)

Capital (SR)

147,158,411

(2,982,015) 29,820,145 -

120,320,281

64,390,312

55,929,969

120,320,281

(169,722) (2,615,055) (27,000,000)

26,150,553

123,954,505

64,560,034

59,394,471

Retained profits (SR)

55,485,941

(28,768,780)

84,254,721

100,874,754

(16,620,033)

84,254,721

(13,750,966) -

98,005,687

111,664,210

(13,608,523)

Unrealized losses from investments revaluation (SR)

783,496,588

29,820,145 (28,768,780)

782,445,223

53,972,488

728,517,735

782,445,223

(169,722) (13,750,966) (27,000,000)

26,150,553

797,215,358

64,886,666

732,328692

Total (SR)

Notes to the consolidated financial statements For the year ended 31 December 2017 ____________________________________________________________________________________________________________________________________

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

31 Dec. 2017 (SR)

31 Dec. 2016 (SR) (As amended)

29,820,145

25,980,831

4,096,683 177,491 (9,211) (369,991) 140,826 44,096,294 1,165,222 2,835,680 3,795,000 (5,607)

6,491,906 98,535 875,200 (1,605,256) 35,869,852 528,067 2,297,126 3,655,000 (256,061)

85,742,532

73,935,200

(35,951,689) (9,013,407) 252,051 (4,378,030) (1,200,721)

(53,308,562) 273,256 44,700,999 (3,208,422) (853,427)

35,450,736

61,539,044

Net change in investments held for trading Purchase of properties and equipment Additions of projects under execution Sums collected from sale of properties and equipment

(500,000) (38,060,939) (79,142,911) 717,151

23,126,137 (37,664,607) (155,750.748) 1,824,934

Net cash used in investment activities

(116,986,699)

(168,464,284)

Paid distributions of shareholdersâ&#x20AC;&#x2122; profits Net change in shareholdersâ&#x20AC;&#x2122; entitlements Net change in loans and profits for sale Registered cash

(105,589) 41,112,705 24,273,438

(27,000,000) 1,024,497 92,908,671 -

Net cash available from operating activities

65,280,554

66,933,168

Net deficit in cash and balances with banks Cash and balances with banks at the beginning of year

(16,255,409) 111,470,755

(39,992,072) 151,462,827

95,215,346

111,470,755

204,785,634 (28,768,780) 2,630,662

52,969,609 (13,750,966) 3,212,508

Operating activities Net annual profit Amendments to settle net profit to net cash available from operating activities: Component of customs claims provision Component of dead stock provision Component of doubtedly-collected provision Profits of assessing investments held for trading Profits of sale of investments held for trading Closing of projects under execution Amortizations Extinguishments Component of end of service gratuity provision Component of Zakah provision Profits of selling properties and equipment

Changes in operating assets and liabilities Receivables, advance payments, and other receivables Inventory Payables and other creditors Paid part of Zakah provision Paid part of end of service gratuity Net cash available from operating activities Investment activities

Financing activities

Cash and balances with banks at the end of year Non-cash transactions Items changed from projects under execution to properties and equipment Unrealized loss from reassessing investments held for trading Properties and equipment changed into Intangible assets

*Notes from No. 1 to 31 constitute an integral part of these consolidated financial statements.

137

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

1. Composition & Business Saudi Automotive Services Company (SASCO) is a Saudi shareholding company established by the Ministerial Decree No. 563 dated 23/12/1402 H corresponding to 10/12/1982. It is headquartered in Riyadh under Commercial Register No. 1010054361 dated 28/07/1404 H corresponding to 30/4/1984. SASCO provides a variety of services which include car and passenger services through establishing central workshops for the highest level of maintenance and establishing car service stations. It also provides motels, restaurants, the import and sale of equipment, along with the provision of food, beverages, soft drinks and the raw materials required. It imports and trades in cars and all types of spare parts after obtaining the required licenses, implements all kinds of contacting with respect to constructing, managing, maintaining and operating residential and commercial buildings, undertakes contacting activities of car and equipment maintenance for individuals and corporations and contracts with institutions or corporations practicing similar business or merge with them or establishes subsidiaries possessed by SASCO or with third parties. SASCOâ&#x20AC;&#x2122;s capital is SR 540,000,000 divided into 54,000,000 shares, each with a value of SAR 10. Consolidated financial statements as at 31 Dec. 2017 include the financial statements of the following subsidiaries and branches: Name of Company

Core Business

Ostool Al-Naqil Co. Saudi Automobile & Touring Association, Ltd SATA Auto & Equipment Investment Co., Ltd Al-Nakhla Al-Oula Co.

SASCO Palm Co. SASCO Al Waha Co. Zaiti Petroleum Services Company SASCO Franchise Co.

Transporting oil products and derivatives Issuing transit books and international driving licenses Establishing car and heavy equipment repair workshops Undertaking general contracting for buildings, establishing, maintaining and operating residential and commercial buildings Import and sale of food, beverages, soft drinks and equipment Accommodation services (motels) Establishing, managing and operating fuel stations Marketing services for third parties

% of direct & indirect ownership 100% 100% 100% 100%

100% 100% 100% 100%

Attached consolidated financial statements include the accounts of SASCO and the following subsidiaries and branches:

138

No.

Commercial Register No.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

1018000425 2050093628 4030254775 1131030559 5850029530 5850064608 5850064609 1128010283 1011012857 2055025642 2050112261

Annual Report 2017

Core Business SASCO branch SASCO branch SASCO branch Zaiti branch Zaiti branch Zaiti branch Zaiti branch Zaiti branch Zaiti branch SASCO Palm Co. branch SASCO Palm Co. branch

City Riyadh Dammam Jeddah Buraidah Abha Abha Abha Unaizah Al Kharj Al Jubail Dammam

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

2. Grounds on which consolidated financial statements are developed These consolidated financial statements were developed according to the International Financial Reporting Standards (IFRS) approved in the Kingdom of Saudi Arabia and other standards approved by Saudi Organization for Certified Public Accountants. These consolidated financial statements were the first consolidated financial statements to be developed according to IFRS and included under the first annual consolidated financial statements according to the IFRS, particularly the first standard stating “Adoption of IFRS for first time” approved in the Kingdom of Saudi Arabia and other standards approved by Saudi Organization for Certified Public Accountants. Financial statements of subsidiaries were prepared according to the accounting standards widely accepted in Saudi Arabia. According to the Saudi Capital Market Authority (CMA), options of using reassessment model of properties, machinery, equipment and intangible assets in IFRS No. 16 and IFRS No. 38 and option of using fair value model for real estate investments in IFRS No. 40 will not be available in the first three years as of the date of transformation beginning from 2017 till 2019 for listed companies. Development of consolidated financial statements The attached consolidated financial statements were developed on the basis of historical costs according to maturity principle with the exception of investments held for sale at fair value. Items of consolidated financial statements appear in Saudi Riyal (SR). It is the currency of operation and disclosure. 3. New standards & issued amendments, not yet effected There is a number of new standards and amendments to standards and explanations applied to years starting from 1 Jan. 2018, which have not been applied when developing these consolidated financial statements as follows: 3-1 IFRS No. 15 - Revenue from Contracts with Customers IFRS No. 15 establishes a comprehensive concept framework to determine the amount and timing of revenue recognition. This Standard replaces the guidelines for demonstrating current revenues. IFRS No. 18 includes revenues while IFRS No. 11 includes construction contracts and international explanation No. 13 “customer loyalty programs”. It is not expected that the adoption of this Standard in subsequent periods will have a significant financial impact on company’s financial statements. 3-2 IFRS No. 9 – financial instruments (versions amended in 2009, 2010, 2013 and 2014). 3-2-1 Classification of financial assets IFRS No. 9 includes three main classification categories of financial assets: financial assets measured by amortized cost, fair value through other comprehensive income, fair value through profit or loss and consolidated other comprehensive income. This Standard excludes the current categories of International Accounting Standard No. 39, which are retained till date of maturity as well as loans and receivables held for trading. As per IFRS No. 9, contract-embedded derivatives in which the core instrument is financial assets within the standard scope are not divided. Instead, mixed financial instrument is assessed as a whole for classification purposes.

139

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

3-2-2 Depreciation The IFRS 9 replaces the incurred loss model of International Accounting Standard No. 39 with expected future credit loss model. This requires a major appreciation of how changes of economic factors affect the expected future credit loss model, which will be determined on the basis of weighted probability. The new depreciation model will be applied to financial assets measured by amortized cost or fair value through consolidated other comprehensive income with the exception of investments in equity instruments and also applied to contract assets. As per IFRS No. 9, loss appropriations will be measured according to one of the following principles: 1. ) Credit loss expected throughout 12 months. Such loss arises from payment default events which are likely to occur within 12 months after the report date. 2. ) Credit loss expected throughout the lifetime of a financial instrument. Such loss arises from all payment default events which occur throughout the expected lifetime of a financial instrument. As for credit loss expected throughout the lifetime, measurement is applied in case credit risks of financial assets largely increase on the report date since initial recognition thereof. Credit loss expected throughout 12 months in case these credit risks do not largely increase. An establishment may determine that credit risks do not largely increase if the instrument is subject to low credit risks at the report date. However, measurement of credit loss expected throughout the lifetime is always applied to commercial receivables and contract assets without any significant financing components. An establishment may choose to always apply this policy to commercial receivables and contract assets without significant financing components. 3-2-3 Classification of Financial Liabilities IFRS No. 9 largely retains the current requirements of IAS No. 39 with the aim to classify financial liabilities. However, IAS No. 39 signifies that all changes to fair value of liabilities classified by fair value through statement of profit or loss and other comprehensive income are recognized in statement of profit or loss and other comprehensive income. According to IFRS No. 9, the change to fair value related changes in credit risks of liabilities is demonstrated in the statement of profit or loss and other comprehensive income, while the remaining amount of change in fair value is presented in the statement of profit or loss and other comprehensive income. 3-2-4 Hedge Accounting IFRS No. 9 presents a new hedge accounting model designed to closely cope up with how the establishment practices risk management activities when hedging against financial and non-financial risks. 3-2-5 Disclosure IFRS No. 9 requires new special inclusive disclosures with respect to accounting at hedging, credit risks and expected credit risks. It is not expected that the adoption of this Standard during subsequent periods will have a major impact on companyâ&#x20AC;&#x2122;s financial statements. 3-3 IFRS No. 16 â&#x20AC;&#x201C; Lease Contracts IFRS No. 16 identifies the way a developer of consolidated financial statements according to the IFRS recognizes, measures, presents and discloses lease contracts. This Standard provides lessees with a single accounting model, which requires them to recognize assets and liabilities of lease contracts unless the lease term is 12 months or less or if the asset is of a little value. While lessors continue to classify lease contracts as operating or financing lease contracts, the approach of IFRS regarding lessor accounting did not significantly change from the previous one, namely IAS No. 17.

140

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

4. Basics of Consolidation These consolidated financial statements include the consolidated financial position statement, the statement of profit or loss and other comprehensive income consolidated shareholders’ equity change statement, consolidated cash flow statement, and notes complementing the consolidated financial statements of the group. They include assets, liabilities and results of and subsidiaries’ business as indicated in Note No. 1. Subsidiaries are those companies controlled by the group. The group controls the company when it is entitled with different revenues due to participating in the company and its ability to affect these revenues through controlling the company. Subsidiaries are consolidated as of the date of group’s acquisition over subsidiaries until ceasing to practice such control. The group uses the purchasing method to account for gathering operations when transferring control to the group. Acquisition cost is measured by fair value of obtained assets. The increased cost of acquisition is registered in addition to the fair value of non-controlling equity in the net assets specified and acquired as reputation in the consolidated financial position statement. Non-controlling equity is measured by its share of company’s net controlled assets at the date of acquisition. The group presents share of profit or loss and net non-controlled assets as an independent item in the statement of profit or loss and other comprehensive income and within the shareholders’ equity in the statement of profit or loss and other comprehensive income. All unrealized transactions, balances, profits and losses arising from dealings among the group’s companies. Subsidiaries’ accounting policies are amended when necessary to ensure they are consistent with the group’s policies. SASCO and its subsidiaries develop their financial statements for the same reporting periods. 5. Summary of Major Accounting Policies Following is a summary of SASCO major accounting policies: Use of estimates The development of consolidated financial statements according to IFRS’s approved in Saudi Arabia requires the Management to set judgments, estimates and assumptions that affect the application of accounting policies and disclosed amounts of assets, liabilities, revenues and expenses. These estimates and their related assumptions are based on previous experience and other factors believed to be reasonable in the current circumstances; which results constitute a basis for taking judgments related to the book value of assets and liabilities not easily made clear from their sources. Actual results may differ from these estimates. Estimates and their related assumptions are continuously audited. Amendments to accounting estimates are recognized with a future effect. Properties, machinery and equipment Properties, machinery and equipment appear in costs after entering accumulated amortizations. They include costs to expenses directly ascribed to acquisition of assets. When parts of one item of properties, machinery and equipment have different productive lives, they are counted as separate items (main components) of properties, machinery and equipment. Expenses of repair and maintenance are revenue expenses while improvement expenses are capital expenses. Amortizations are counted on the basis of their estimated productive life using the straight-line method. Sold or excluded assets and their accumulated amortization are deleted from accounts on the date of selling or exclusion.

141

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

Following is the amortization percentage of main items of these assets: Statement Buildings Furniture Cars and trucks Machinery, equipment, trailers and transport mechanisms Communication devices and phones Computer and software Electrical devices Advertising boards Improvements to buildings

% before re-estimation

% after re-estimation

2-3% 10% 20-10% 10% 25% 15% 10% 15% 10-3%

2-3% 10% 20-7% 10% 25% 15% 10% 15% 4%

Productive life and consumption method are periodically reviewed to make sure that method and period of consumption are consistent with the economic benefits expected from properties and equipment. Depreciation a. ) Financial assets Each financial position statement has a specific date. Values of financial assets are reviewed to know if there is something to indicate any depreciation. Financial assets are like receivables and assets that are individually assessed as not depreciating. They are assessed for depreciation on a collective basis. A substantive proof of depreciation of receivables portfolio may include the companyâ&#x20AC;&#x2122;s previous experience with respect to payment collection and increase of late payments which may exceed the period of debt. It may also include remarkable changes in local and international economic conditions related to default of receivables. The listed value of a financial asset is directly reduced by the amount of depreciation loss for all financial assets with the exception of commercial receivables. A listed value is reduced through creating a provision account. When one of receivables are considered uncollectable, the amount of receivable and the corresponding amount are deleted in the provision account. Changes to the value listed in the provision account are recognized in the statement of profit or loss and other comprehensive income. When it comes to instruments of shareholdersâ&#x20AC;&#x2122; equity held for sale, the previously acknowledged losses of depreciation are not reflected in the statement of profit or loss and other comprehensive income. Any increase in fair value comes after a depreciation loss that is directly recognized in the consolidated statement of change in shareholdersâ&#x20AC;&#x2122; equity. b. ) Non-financial assets On the date of each financial position statement, the company reviews the listed values of its assets to find any evidence that these assets have incurred depreciation losses. In case such evidence exists, the asset redeemable value is estimated to determine the depreciation loss, if any. In case it is not possible to estimate the redeemable value of a certain asset, the company estimates the redeemable value of cash generating unit to which the assets affiliates. When reasonable and fixed distribution bases are identified, joint assets are distributed to specific cash generating units or distributed to the smaller group of cash generating units for which it is possible to determine reasonable and fixed distribution bases. A redeemable value is the fair value of the asset minus selling cost or value of use, whichever higher. In case the redeemable value of an asset (cash generating unit) is estimated lower than the listed value, the listed value of asset (cash generating unit) is reduced to the redeemable value. Depreciation losses are directly recognized in the statement of profit or loss and other comprehensive income, unless the asset is reassessed, then the depreciation losses are recorded as a reduction from reassessment provision.

142

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

Cancellation of Recognition Each financial position statement has a specific date. Values of financial assets are reviewed to know if there is something to indicate The company cancels recognition of a financial asset only at the expiry of contractual rights related to receipt of cash flows from the financial asset, substantially the transfer of all ownership risks and benefits to another establishment. In company fails to transfer or chooses to substantially retain ownership risks and benefits and continuously control the transferred asset, the company recognizes its retained share in the transferred asset and related liabilities within limits of amounts expected to be paid. In case all ownership risks and benefits of a transferred asset are substantially retained by the company, it continues to recognize the financial asset. Financial Instruments Financial assets and liabilities are recognized when the company becomes a party to contractual provisions of these instruments. Financial assets and liabilities are initially assessed by fair value. Costs of transaction directly related to purchasing or issuing financial assets and liabilities (other than financial assets and liabilities with fair value through statement of profit or loss and other comprehensive income) are added to the fair value of financial assets and liabilities or deducted from the same, when necessary, at initial recognition. Costs of transaction directly related to purchasing financial assets and liabilities, which are measured by fair value through statement of profit or loss and other comprehensive income, are directly recognized in the statement of profit or loss and other comprehensive income. First: Financial Assets Financial assets are classified into the following categories: financial assets at fair value through statement of profit or loss and other comprehensive income, investments retained until maturity date, financial assets held for sale and loans and receivables. Classification depends on the nature and objective of financial assets and is determined at the time of initial recognition. Recognition of all financial asset sale and purchase operations is conducted by normal means on the basis of dealing date. Operations of sale or purchase by normal means are purchases and sales of financial assets requiring the delivery of assets within definite time framework pursuant to regulations or market norms. a. ) Financial Assets Retained for Trading Financial assets retained for trading are classified through statement of profit or loss and other comprehensive income when they are retained for trading purposes or selected to be so classified. Financial assets retained for trading are classified if they: - Are acquired mainly for being sold in the near future. - Represent a part of well-known financial instruments portfolio run by the company and includes a real pattern of a financial instrument that achieves profits on the short term. - Represent a financial derivative but not classified or active as a hedging instrument. Financial assets not retained for trading can be classified as financial assets determined at fair value through statement of profit or loss and other comprehensive income at initial registration in the following cases: - Such classification cancels or largely reduces any inconsistent measurement or calculation that may result unless classification is done this way. - A financial asset represents a part of a set of financial assets or liabilities or both, which are run and their performance is assessed on fair value basis as per the companyâ&#x20AC;&#x2122;s risk management or documented investment strategy. Information about the set of financial assets or liabilities is internally obtained on this basis.

143

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

- The financial asset represents a part of a contract that contains a derivative including one or more, and that IAS No. 39 related to financial instruments allows a turnkey compound contract to be classified as financial assets with fair value through statement of profit or loss and other comprehensive income. Financial assets determined by fair value through statement of profit or loss and other comprehensive income appear with their fair value. Any profit or loss resulting form reassessing through statement of profit or loss and other comprehensive income is recognized. Net profit or loss includes any profit or interest distributions that are due from the financial asset and is included in the statement of profit or loss and other comprehensive income. b. ) Financial Assets Determined by Fair Value through other comprehensive income statement SASCO owned listed shares – circulated in an active financial market as financial assets – are classified as held for trading and included at fair value. It also possesses investments in unlisted shares not traded in active markets but classified as financial assets held for trading and registered at fair value as Management sees it is possible to measure their fair value in an authentic manner. Profits and losses arising out of change in fair value are included within other comprehensive income items, which are added to the item of accumulated changes in fair value of investments within equity with the exception of depreciation losses. Such depreciation losses are included in the statement of profit or loss and other comprehensive income in case of excluding investment or there is a depreciation in its value. Profits or losses resulting from previous assessment and recorded in the reserve for reassessing investments are included in the other comprehensive income statement. Any revenues from distribution of profits of investments held for trading are recognized when the company has an emerging right to receive payments for profits of these investments. c. ) Receivables Receivables are underivative financial assets of fixed or identifiable payments, not listed in any active market. Receivables, including commercial and other receivables, bank balances and cash with amortized cost are measured using the actual interest method without any loss or depreciation, which is determined in profits or losses. Interest revenues are identified by applying the actual interest rate, with the exception of short-term receivables when the impact of deduction is not significant. Second: Financial Liabilities Financial liabilities (including loans and receivables) are initially and subsequently measured by amortized cost using actual interest method. SASCO ceases to recognize financial liabilities when an obligation is complied with, canceled or terminated. Difference between book value of excluded financial liabilities and paid amount is recorded in the statement of profit or loss and other comprehensive income. Method of Actual Interest Rate The method of actual interest rate is a means to calculate the amortized cost of debt instrument and distribute revenues of interests on the relevant year. The actual interest rate is the one that exactly discounts estimated future cash payments (including all fees and paid or received points, that constitute an integral part of actual interest rate, transaction costs, installments or other discounts) through the expected life of debt instrument or a short period – when necessary – to net book value at initial recognition. Cash and balances with banks Cash and balances with banks include balances with banks, resales for profit and other high liquidity investments transferrable into known cash amounts and payable within three months or less as of the date of purchase. SASCO has long-term financial obligations for which cash amounts have been credited. Such amounts are classified as cash recorded in non-current assets.

144

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

Inventory Inventory is valued by cost or net realizable value, whichever is less. Cost is determined by weighted average method. Provision of stagnant goods is recorded in the statement of profit or loss and other comprehensive income according to SASCO Policy. Reputation Reputation represents increase of investment costs on fair value of acquired assets at business combination. Reputation is annually assessed to determine depreciation and is recorded with costs minus depreciation losses. Depreciation losses are not reflected after being recorded. Profits or losses of establishment exclusion include the book value of reputation related to sold establishment. In case the cost of acquired investment is less than its fair value in the acquisition date, such difference is settled by reducing the fair value of non-current assets of acquired company on pro rata basis with their book value with the exception of long-term investments in securities. Realization of Revenues Sales are realized when performing service or delivering goods and issuing invoices. Other revenues are recoded when realized. Lease Contracts Lease contracts are classified as financing leases when risks and ownership benefits are substantially transferred to the lessee under lease contract terms and conditions. Other types of lease contracts are classified as operational lease contracts. Expenses All expenses that are direct and related to realization of business revenues consist of salaries, wages and commodity costs that are indirect and credited on sales costs. Expenses of selling and marketing include sales staff salaries and any other expense related to selling and marketing in the companyâ&#x20AC;&#x2122;s favor. Other expenses are classified within administrative and general expenses. Joint expenses are distributed between sales costs and administrative and general expenses. Joint expenses are distributed as per constant rules. Zakat Provision Discretionary Zakat is an obligation on the company. It is set right in the attached consolidated financial statements by allocating it to the statement of profit or loss and other comprehensive income according to Zakat Standard and opinion of Saudi Organization for Certified Public Accountants. It is credited by estimation to the year as per principle of maturity. Zakat is calculated at the end of year based on the amended net consolidated profit or loss or Zakat Base, whichever is larger, pursuant to the laws applicable in the General Authority for Zakat and Tax. SASCO obtained General Authority for Zakat and Taxâ&#x20AC;&#x2122;s approval to submit a consolidated Zakat declaration for both SASCO and its subsidiaries. Differences between provision and final assessment are addressed in the year in which assessment is received. Staff Remuneration - End of Service Gratuity End of service gratuity is determined using expected unit cost method along with conducting an actuarial evaluation at the end of each annual financial period. Remeasurement, which includes actuarial gains and losses, is included in the consolidated financial position statement. However, expenses or credit amounts are included in the statement of profit or loss and other comprehensive income of the period in which they were incurred. Recognized remeasurement is immediately included in other comprehensive income within retained profits and not reincluded in profit or loss. - Retirement Benefits SASCO pays retirement subscriptions in favor of its Saudi employees to the General Organization for Social Insurance, representing a certain contribution plan. Payments are considered expenses when incurred. - Short Term Staff Remuneration Commitment to benefits payable to employees in terms of wages, salaries, annual leave and sick leave is recognized in the year in which the relevant service is provided in the undiscounted amount for benefits expected to be paid in consideration of this service.

145

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

- Actuarial Study SASCO conducted an actuarial study to staff end of service benefits as at 31 December 2107. There was no substantial difference between the end of service balance according to the actuarial study and the end of service balance recorded in 31 December 2016 and 2017 in SASCO consolidated financial statements. - Intangible Assets Intangible assets, except reputation, are measured in costs minus accumulated amortization and depreciation losses. Intangible assets were amortized on a straight-line basis throughout the economic life. - Sector Information Business Sector represents a set of assets and operations both jointly provide products or services subject to risks and revenues different from that related to sectors of other activities, which are measured as per reports employed by the Chief Executive Director and senior decision maker in the company. The geographical sector provides products in a certain economic environment subject to risks and revenues different from that related to business sectors in economic environments. - Transfer of foreign currency Transactions conducted in foreign currency are transferred into Saudi Riyal at the exchange rates prevailing at the time of transaction. Cash assets and liabilities undertaken in foreign currency as at the date of the consolidated financial position statement are transferred into Saudi Riyal at the exchange rates prevailing at the end of year. Profits and losses arising out of payments or foreign currency exchange are included in the statement of profit or loss and other comprehensive income.

6. Application of new and amended International Financial Reporting Standards (IFRS) 6-1 Application of IFRS for the first time As indicated in Note No. 2 and Note No. 3, consolidated financial statements of the year ending on 31 December 2017 were developed by SASCO according to IFRS. For the year ending on 31 December 2016, SASCO developed its consolidated financial statements according to the accounting standards issued by Saudi Organization for Certified Public Accountants. Therefore, SASCO developed its consolidated financial statements to comply with the IFRS as at 31 December 2017, along with the comparative consolidated financial position statement as at 1 January 2016 which is the date for SASCO transformation to the IFRS and the consolidated financial position statement as at 1 January 2016 and 31 December 2016. Notes from 6-2 to 6-6 explain the amendments introduced by SASCO to amend the previously issued consolidated financial statements according to the accounting standards issued by Saudi Organization for Certified Public Accountants including the consolidated financial position statement as at 1 January 2016 and 31 December 2016 and consolidated financial statements as at 31 December 2016.

146

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

6-2 Impact of adopting IFRS on consolidated financial position statement as at 31 December 2016: Amounts previously recorded as per standards issued by Saudi Organization for Certified Public Accountants (31 Dec. 2016) (Saudi Riyal)

Impact of converting to IFRS (Saudi Riyal)

According to IFRS 31 Dec. 2016 (Saudi Riyal)

Net properties and equipment Net intangible assets Projects under execution Investments held for sale Recorded cash

902,592,948 8,131,256 150,783,566 37,613,669 -

(29,023,485) 467,904 87,216,231 24,273,438

873,569,436 8,599,160 150,783,566 124,829,900 24,273,438

Total non-current assets

1,099,121,439

82,934,088

1,182,055,527

Net receivables, advance payments, and other receivables Net inventory Cash and balances with banks

176,441,753 27,323,999 135,744,193

(4,733,162) (24,273,438)

171,708,591 27,323,999 111,470,755

Total current assets

339,509,945

(29,006,600)

310,503,345

Total assets

1,438,631,384

53,927,488

1,492,558,872

540,000,000 37,870,221 111,337,578 55,929,969 (16,620,033)

(111,337,578) 64,390,321 100,874,754

540,000,000 37,870,221 120,320,281 84,254,721

728,517,735

53,927,488

782,445,223

Financing of resales for profit and long-term loans End of service gratuity

335,767,608 9,751,412

Total non-current liabilities

345,519,020

Financing of resales for profit and short-term loans Current portion of financing of resales for profit and longterm loans Dividends Payable to shareholders Payables and other creditors Provision for Zakat

44,594,800 134,043,817

38,823,795 142,722,717 4,409,500

Total current liabilities

364,594,629

710,113,649

1,438,631,384

53,927,488

1,492,558,872

Assets Non-current assets

Current assets

Shareholders’ equity and liabilities Shareholders’ equity Capital Statutory reserve Land grants Retained earnings Reserve for reassessing investments held for sale Total Shareholders’ equity Non-current liabilities

Current liabilities

Total liabilities Total shareholders’ equity and liabilities

147

148

Annual Report 2017

728,517,735 111,337,578 (111,337,578) (13,658,523) (1,681,751) (4,733,162) (26,873,830) 13,658,523 87,216,231 783,445,223

Total shareholders’ equity according to IFRS

As at 1 January 2017 (Saudi Riyal)

37,870,221

540,000,000

37,870, 221

540,000,000

Statutory Reserve (Saudi Riyal)

Balance on 1 January 2017 according to standards issued by Saudi Organization for Certified Public Accountants Retained earnings Land grants Retained earnings Amortization and consumption Other receivable provision Asset depreciation Other - than – temporary impairment of investments held for sale Profits of reassessing investments held for sale in stocks and shares of non - trading companies

Settlement of Shareholders’ Equity

Balance on 1 January 2017 according to IFRS

Balance on 1 January 2017 according to standards issued by Saudi Organization for Certified Public Accountants Impact of adopting IFRS

Capital (Saudi Riyal)

6-3 Impact of adopting IFRS on consolidated shareholders’ equity statement as at 1 January 2017:

(111,337,578)

111,337,578

Land Grants (Saudi Riyal)

120,320,281

64,390,312

55,929,969

Retained earnings (Saudi Riyal)

84,254,721

100,874,754

(16,620,033)

Reserve for reassessing investments held for sale (Saudi Riyal)

782,445,223

53,927,488

728,517,735

Total (Saudi Riyal)

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

6-4 Impact of adopting IFRS on statement of profit or loss and other comprehensive income on 31 December 2016: Amounts previously recorded as per standards issued by Saudi Organization for Certified Public Accountants (31 Dec. 2016) (Saudi Riyal)

Impact of converting to IFRS (Saudi Riyal)

According to IFRS 31 Dec. 2016 (Saudi Riyal)

1,094,122,754 (1,035,882,720)

(140,658)

1,094,122,754 (1,036,023,378)

Total profit

58,240,034

(140,658)

58,099,376

Selling and marketing expenses General and administrative expenses

(1,030,495) (37,626,603)

(29,064)

(1,030,495) (37,655,667)

Net profit from core operations

19,582,936

(169,722)

19,413,214

Financing costs Profits of selling investments held for sale Revenues of financial investments and assets (dividends) Other revenues

(2,405,799) 1,605,256 9,689,273 1,333,887

Net annual profit before Zakat Zakat

29,805,553 (3,655,000)

(169,722) -

29,635,831 (3,655,000)

Net annual profit

26,150,553

(169,722)

25,980,831

(13,750,966)

26,150,553

(13,920,688)

12,229,865

Revenues Costs of revenues

Items of comprehensive income Items to be subsequently reclassified into profit and loss statement Movement from fair value to investments held for sale Net annual comprehensive income

149

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

6-5 Impact of adopting IFRS on consolidated financial position statement as at 1 January 2016: Amounts previously recorded as per standards issued by Saudi Organization for Certified Public Accountants (1 Jan. 2016) (Saudi Riyal)

Impact of converting to IFRS (Saudi Riyal)

According to IFRS (1 Jan. 2016) (Saudi Riyal)

849,397,457 8,489,601 48,002,427 40,575,179 -

(25,810,977) (2,574,882) 98,005,687 24,273,438

823,586,480 5,914,719 48,002,427 138,580,866 24,273,438

946,464,664

93,893,266

1,040,357,930

Net receivables, advance payments, and other receivables Net inventory Investments held for sale Cash and balances with banks

130,500,297 27,695,790 21,520,881 175,736,265

(4,733,162) (24,273,438)

125,767,135 27,695,790 21,520,881 151,462,827

Total current assets

355,453,233

(29,006,600)

310,503,345

1,301,917,897

64,886,666

1,366,804,563

Shareholders’ equity Capital Statutory reserve Land grants Retained earnings Reserve for reassessing investments held for sale

540,000,000 35,255,166 111,337,578 59,394,417 (13,658523)

(111,337,578) 64,560,034 111,664,210

540,000,000 35,255,166 123,954,505 98,005,687

Total Shareholders’ equity

732,328,692

64,886,666

797,215,358

Financing of resales for profit and long-term loans End of service gratuity

328,146,862 8,307,713

Total non-current liabilities

336,454,575

25,000,000 68,350,692

37,799,298 98,021,718 3,962,922

Total current liabilities

233,134,630

Total liabilities

569,589,205

Total shareholders’ equity and liabilities

1,301,917,897

64,886,666

1,366,804,563

Assets Non-current assets Net properties and equipment Net intangible assets Projects under execution Investments held for sale Recorded cash Total non-current assets Current assets

Total assets Shareholders’ equity and liabilities

Non-current liabilities

Current liabilities Financing of resales for profit and short-term loans Current portion of financing of resales for profit and longterm loans Dividends Payable to shareholders Payables and other creditors Provision for Zakat

150

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

6-6 Notes on settlements - Grants and government lands were reclassified at an amount of SR 111,337,578 as at 1 January 2016 as part of the retained profits according to the requirements of Accounting Standard No. 20 (Accounting for Government Grants and Disclosure of Government Assistance). - A provision of other - than – temporary impairment was formed in investments held for sale at an amount of SR 13,658,523 as at 1 January 2016 as part of retained profits according to the requirements of Accounting Standard No. 39 (Financial Instruments: Recognition and Measurement). - Intangible assets were reclassified under properties and equipment at an amount of SR 2,346,917 as at 1 January 2016 according to the requirements of Accounting Standard No. 1 (Presentation of Financial Statements). - Properties and equipment were reclassified under the intangible assets at an amount of SR 1,284,083 as at 1 January 2016 according to Accounting Standard No. 1 (Presentation of Financial Statements). - Investments held for sale in unlisted companies were reassessed. This resulted in an increase of these investments at an amount of SR 98,005,687 as at 1 January 2016 as part of consolidated shareholders’ equity as profits unrealized from investments held for sale. On 31 December 2016, the value of these investments increased to SR 87,216,231. The profits unrealized from investments held for sale as part of shareholders’ equity were decreased according to the requirements of Accounting Standard No. 39 (Financial Instruments: Recognition and Measurement). - The value of no-future-benefit assets was decreased according to the consolidated future cash flows as at 1 January 2016 at an amount of SR 26,873,830 as part of retained profits according to Accounting Standard No. 36 (Impairment of Assets). - Other receivables provision was formed as at 1 January 2016 at an amount of SR 4,733,162 as part of retained profits according to Accounting Standard No. 39 (Financial Instruments: Recognition and Measurement). - Restricted cash was reclassified at an amount of SR 24,273,438 as at 1 January 2016 into an independent item under non-current assets according to the requirements of Accounting Standard No. 1 (Presentation of Financial Statements). - Accounts of receivables, prepaid expenses and other liabilities were classified into the receivables, prepaid payments and other receivables with the aim to apply the view requirements stated in the Accounting Standard No. 1 (Presentation of Financial Statements). - Accounts of receivables, prepaid revenues, performance bond amounts and other liabilities were reclassified into payables and other creditors with the aim to apply the view requirements stated in the Accounting Standard No. 1 (Presentation of Financial Statements).

151

152

Annual Report 2017

(31,000) -

19,690,236 (12,902) -

419,802,172

31/12/2017

Net book value At 31/12/2017

457,045,866

196,154,224

149,476,890

626,200,090

3,997,828 180,712,287

419,802,172

441,520,975

419,803,172

Buildings (SR)

1 January 2017 (amended) Additions Exclusions Items Converted to intangible assets (Note 8a)

Accumulated consumptions

31/12/2017

1 January 2017 (amended) Additions Items Converted to projects (Note 9) Exclusions Items Converted to intangible assets (Note 8a)

Cost

Lands (SR)

7. Net Properties & Equipment

7,362,603

15,859,816

1,019,213 (146,037) -

14,986,640

23,222,419

(193,034) -

2,071,921 593,213

20,750,319

Furniture (SR)

23,668,262

18,194,196

2,909,020 (851,899) -

15,137,075

41,862,458

(1,218,175) -

5,857,965 -

37,222,668

Vehicles & trucks (SR)

41,961,890

27,378,531

5,167,624 (766,573) -

22,977,480

69,340,421

(777,581) -

3,906,138 7,011,458

59,200,406

Machines equipment trailers transportation equipment (SR)

276,564

1,506,635

59,107 -

1,447,528

1,783,199

18,017 -

1,765,182

Communication devices and telephones (SR)

5,253,031

4,980,638

1,447,111 (39,761) (1,969,350)

5,542,638

10,233,669

(43,259) (4,600,012)

2,587,344 56,110

12,233,486

Computers and software (SR)

18,922,633

15,380,470

2,533,939 (406,890) -

13,253,421

34,303,103

(546,205) -

4,772,479 1,274,916

28,801,913

Electrical equipments (SR)

9,189,060

10,462,810

1,934,581 (87,571) -

8,615,800

19,651,870

(107,697) -

2,331,908 93,051

17,334,609

Advert. Signs (SR)

85,495,455

26,469,382

8,335,463 (219,953) -

18,353,872

111,964,837

(326,179) -

12,517,340 15,044,599

84m729,077

Improving buildings (SR)

1,068,977,536

289,386,702

44,096,294 (2,531,586) (1,969,350)

249,791,344

1,358,364,238

(3,243,130) (4,600,013)

38,060,939 204,785,634

1,123,360,807

Total (SR)

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

153

419,802,172

Net book value At 31/12/2016 (amended)

419,802,172

31/12/2016

At 31/01/2016 (amended)

14,913,458 (5,896) -

277,004,197

292,044,085

14,476,890

134,569,328

441,520,975

2,171,625 27,775,825

419,802,172

411,573,525

419,802,172

Buildings (SR)

1 January 2016 (amended) Additions Exclusions Items Converted to intangible assets (Note 8a)

Accumulated consumptions

31/12/2016

1 January 2017 (amended) Additions Items Converted to projects (Note 9) Exclusions Items Converted to intangible assets (Note 8a)

Cost

Lands (SR)

7. Net Properties & Equipment (Continued)

5,344,967

5,763,679

14,986,640

893,570 (60,042) -

14,153,012

20,750,319

(60,291) -

997,623 315,018

19,497,969

Furniture (SR)

20,252,076

22,085,593

15,137,075

2,864,378 (1,898,831) -

14,171,528

37,222,668

(3,309,240) -

601,803,304 -

34,423,604

Vehicles & trucks (SR)

30,126,115

36,222,926

22,977,480

5,022,474 (2,847,625) -

20,802,631

59,200,406

(2,979,735) -

9,642,036 1,609,359

50,928,746

Machines equipment trailers transportation equipment (SR)

18,968

317,654

1,447,528

25,536 (3,624) -

1,425,616

1,765,182

(3,627) -

240,225 84,000

1,444,584

Communication devices and telephones (SR)

6,415,247

6,690,848

5,542,638

1,710,670 (2,276) (1,705,160)

5,539,404

12,233,486

(7,058) (4,917,668)

5,203,561 -

11,954,651

Computers and software (SR)

14,047,793

15,548,492

13,253,421

1,737,672 (80,118) -

11,595,867

28,801,913

(80,130) -

2,014,144 1,224,239

25,643,660

Electrical equipments (SR)

7,496,878

8,718,809

8,615,800

1,793,591 -

6,822,209

17,334,609

2,894,162 121,360

14319,087

Advert. Signs (SR)

43,078,077

66,375,205

18,353,872

6,908,403 (796) -

11,446,265

84,729,077

(28,000) -

8,392,927 21,839,808

54,524,342

Improving buildings (SR)

823,586,480

873,569,463

249,791,344

35,869,852 (4,899,208) (1,705,160)

220,525,860

1,123,360,807

(6,468,081) (4,917,668)

37,664,607 52,969,609

1,044,112,340

Total (SR)

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

8. Net intangible assets Following is the movement of projects under execution for year ended:

Software licenses (Note 8-a) Reputation (Note 8-b)

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (amended) (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

5,755,607 4,308,993

4,290,167 4,308,993

1,605,726 4,308,993

10,064,600

8,599,160

5,914,719

8-a- Software licenses 2017 (Saudi Riyal)

2016 (amended) (Saudi Riyal)

Cost at the beginning of year (amended) Items converted from properties and equipment (Note 7)

12,069,121 4,600,012

7,151,453 4,917,668

Cost at the end of year

16,669,133

12,069,121

Accumulated amortization at the beginning of year (amended) Year amortization Items converted from properties and equipment (Note 7)

(7,778,954) (1,165,222) (1,969,350)

(5,545,727) (528,067) (1,705,160)

Accumulated amortization at the end of year

(10,913,526)

(7,778,954)

As at 31 Dec.

5,755,607

4,290,167

As at 1 Jan.

4,290,167

1,605,726

8-b- Reputation Reputation was obtained thanks to acquiring Zaiti Petroleum Services Company in 2015 as follows:

Zaiti Petroleum Services Company

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (amended) (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

4,308,993

A reputation test is conducted on an annual basis. Assets are tested to make sure of any depreciation through comparing book value with redeemable value, which is determined on the basis of information used in calculating the present value that uses expected cash flows that are based on financial expectations approved by Senior Management for a period of five years. Key assumptions used in present value calculation The Management relied, in its expectations regarding sales growth and total margin, on previous performance and its expectations with respect to market developments. Discount rates reflect Managementâ&#x20AC;&#x2122;s expectations of sector-related specified risks. The relevant estimations relied on published information and movement of raw material prices in previous periods, which were used as indicators on future prices movement. Growth rates relied on average industry rates. Calculation of present value is largely impacted by assumptions related to sales growth rates and inflation in cost of sales used in extracting cash flows for the period following budget for a period of five years and other factors used for calculation of final value. A final value is calculated using the price-to-earnings ratio.

154

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

Sensitivity towards assumption changes With respect to estimating the current value, Management believes there are no reasonable possible changes in any of the above assumptions, that may lead to a major increase in unit book value including reputation compared to its redeemable value. Following are assumptions originating from changes to key assumptions: a. ) Sales growth-related assumptions b. ) Sales cost c. ) Final value ratio

9. Projects under execution Following is the movement of projects under execution for year ended:

Beginning of period balance Additions during the year Items converted from properties and equipment (Note 7) Closing of projects under execution

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

150,783,566 79,142,911 (204,785,634) (140,826)

48,002,427 155,750,748 (52,969,609) -

41,813,077 97,324,204 (91,134,854) -

25,000,017

150,783,566

48,002,427

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (amended) (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

65,637,302

93,406,731

104,196,187

30,423,818

31,423,169

34,384,679

96,016,120

124,829,900

138,580,866

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (amended) (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

84,254,721 (27,769,429)

98,005,687 (10,789,456)

(13,658,523) 98,005,687

(999,351)

(2,961,510)

10. Investments held for sale

Investments held for sale in stocks and shares of non - trading companies (10b) Investments held for sale in stocks of trading companies (10a)

Following is the movement on reserve of reassessing investments held for sale:

Balance at the beginning of year Fair value movement for investments of stocks and shares of non trading companies Fair value movement for investments of stocks of trading companies Provision of other - than â&#x20AC;&#x201C; temporary impairment

13,658,523

55,485,941

84,254,721

98,005,687

155

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

a. ) Investments held for sale in stocks of trading companies Investments held for sale are represented in stocks of Saudi shareholding companies listed in the Saudi Capital Market. Following is the movement of these investments during the year ending on: 31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (amended) (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

Balance at the beginning of year (amended) Provision of other - than â&#x20AC;&#x201C; temporary impairment Unrealized loss from reassessing investments *

31,423,169 (999,351)

34,384,679 (2,961,510)

48,043202 (13,658,523) -

Balance at the end of year

30,423,818

31,423,169

34,384,679

During the year ending on 31 December 2014, an agreement was signed for managing an investment portfolio with Al Ahli Capital portfolio which is run by Mulkia Investment Co. The aim was to diversify SASCO investments and sources. * These losses were recorded in a separate item in equity. SASCO does not believe that the year of depreciation is sufficient to decide on the continuity of depreciation. SASCO periodically considers and studies this depreciation and conducts necessary settlements, if any, when it is clear that such depreciation is not temporary.

b. ) Investments held for sale in stocks of non-trading companies SASCO possesses stocks and shares in non-trading companies. During 2017, SASCO contracted with ALDUKHEIL FINANCIAL GROUP, a company licensed by the Capital Market Authority, practicing its business in investment banking and consulting services. The aim of contract was to assess and valuate the market value of companies on the basis of future cash flows, financial analysis and expected growth rates. The market value of Middle East Battery Company (MEBCO) was SR 794,190,000 (2016: SR 1,144,000,000), while the market value of National Company of Tourism (Syahya) was SR 681,560,000 (2016: SR 680,036,372). SASCO did not assess investment in United Racing Company. Therefore, investment is processed by fair value method. As it was not possible to determine its fair value, the best way to determine fair value was the cost. As at 31 December 2017:

Statement

Middle East Battery Company (MEBCO) National Company of Tourism (Syahya) United Racing Company

156

Annual Report 2017

SASCO share

Value of Assessment (Saudi Riyal)

SASCO share at purchase cost (Saudi Riyal)

SASCO share at fair value (Saudi Riyal)

(loss) / profit of reassessment (Saudi Riyal)

7.94% 0.36% 25%

794,190,000 681,560,000 -

4,565,500 1,500,000 125,000

63,058,686 2,453,616 125,000

(27,774,914) 5,485 -

1,475,750,000

6,190,500

65,637,302

(27,769,429)

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

Following is SASCO share: As at 31 January 2016:

Statement

Middle East Battery Company (MEBCO) National Company of Tourism (Syahya) United Racing Company

SASCO share

Value of Assessment (Saudi Riyal)

SASCO share at purchase cost (Saudi Riyal)

SASCO share at fair value (Saudi Riyal)

(loss) / profit of reassessment (Saudi Riyal)

7.94% 0.36% 25%

1,144,000,000 680,036,3888 -

4,565,500 1,500,000 125,000

90,833,600 2,448,131 125,000

(10,798,400) 8,944 -

1,824,036,388

6,190,500

93,406,731

(10,789,456)

SASCO share

Value of Assessment (Saudi Riyal)

SASCO share at purchase cost (Saudi Riyal)

SASCO share at fair value (Saudi Riyal)

(loss) / profit of reassessment (Saudi Riyal)

7.94% 0.36% 25%

1,280,000,000 677,551,944 -

4,565,500 1,500,000 125,000

101,632,000 2,439,187 125,000

97,066,500 939,187 -

1,957,551,944

6,190,500

104,196,187

98,005,687

As at 1 January 2016:

Statement

Middle East Battery Company (MEBCO) National Company of Tourism (Syahya) United Racing Company

11. Net receivables, advance payments, and other receivables 31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

Client debts Doubtedly-collected debts provision

109,925,246 (5,214,808)

83,362,013 (5,037,317)

4,162,117 -

Net receivables Customs claims Prepaid leases Payments to providers Payments to contractors Staff advance payments and loans Guarantee letters (Note 27) Deposits with third parties Other

104,710,438 41,017,076 38,766,894 16,545,499 15,657,863 6,113,008 4,560,597 3,718,938 5,797,612

78,324,696 37,214,846 41,402,226 17,976,072 8,771,962 4,841,469 7,530,181 603,523 4,502,752

36,566,526 34,566,526 39,385,376 23,949,043 2,169,650 3,416,271 5,112,851 304,236 3,188,029

Customs claims provision Other receivables provision

236,941,925 (28,822,657) (4,733,162)

201,167,727 (24,725,974) (4,733,162)

148,734,465 (18,234,068) (4,733,162)

203,386,106

171,708,591

125,767,135

157

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

11. Net receivables, advance payments, and other receivables The movement of doubtedly-collected debts provision during the year was as follows: 31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (Saudi Riyal)

Balance at the beginning of year Component during the year

5,037,317 177,41

4,162,117 875,200

4,162,117 -

Balance at the end of year

5,214,808

5,037,317

4,162,117

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (Saudi Riyal)

56,105,953 36,887,905 9,860,997 7,070,391

36,546,852 29,177,965 6,762,530 10,874,666

16,064,436 6,730,761 7,134,637 10,784,666

109,925,246

83,362,013

40,804,500

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (Saudi Riyal)

Commodity and petroleum Inventory of spare parts Customs transit books and international driving licenses Other

27,275,876 6,310,043 1,321,215 1,430,272

23,960,389 1,250,512 1,338,957 872,676

26,643,167 484,992 1,719,175 -

Total Stagnant goods provision

36,337,406 -

27,422,534 (98,535)

28,847,334 (1,151,544)

36,337,406

27,323,999

27,690,790

Purchases during the year

Change of fair value

Fair value 31 Dec. 2017

98,535 (98,535)

1,151,544 98,535 (1,151,544)

1,151,544 -

98,535

1,151,544

Lives of receivables were as follows:

From 1 day – 90 days From 91 days – 180 days From 180 days – 360 days More than 360 days

12. Net inventory

Following is a statement of stagnant goods provision:

Balance at the beginning of year Component during the year Provision no longer required

158

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

13. Investments held for trading

Investments held for trading

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (Saudi Riyal)

879,202

21,520,881

Purchases during the year

Change of fair value

Fair value 31 Dec. 2017

869,991

9,211

879,202

869,991

9,211

879,202

Following is the movement of investments held for trading during the year:

* Investment funds

*They are investments in Al Rajhi Commodities Mudaraba Fund â&#x20AC;&#x201C; Saudi Riyal. It is an open investment fund run by Al Rajhi Capital Company. SASCO owns a number of 5,821,35 units, with a nominal value of SR 149,448 per each.

14. Cash and balance with banks

Cash with the fund Balances with banks

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

339,712 94,875,634

752,368 110,718,387

151,462,827

95,215,346

111,470,755

151,462,827

15. Financing of resales for profit and long-term loans a. ) Banque Saudi Fransi (BSF) On 13 August 2012, SASCO signed a Sharia-compliant facilities (profit for sale) agreement with BSF of SAR (255,000,000). The agreement included letters of guarantee facilities of SAR (70,000,000), real estate loan facilities of SAR (90,000,000), loans to finance and develop fuel stations of SAR (55,000,000), a short-term finance of up to SAR (20,000,000), and documentary credits of SAR (20,000,000). The agreement expired on 31 July 2015. SASCO amended the agreement amount on April 28th, 2015, to be SAR (550,900,000). This included renewal of existing facilities of SAR (245,800,000) (of which SAR 110,000,000 represent various credit facilities and SAR 135,800,000 represent medium-term finance facilities) guaranteed by a promissory note. The agreement aims to finance the purchase of new lands, building new stations, and improving and developing the existing stations. SASCO again on Feb. 17th, 2016, signing the same on 20 June 2016, amended the agreement amount to SAR (502,500,000). This included short-term financing of SAR (20,000,000), issuing letters of guarantee and documentary credits of SAR (120,000,000), long-term financing of SAR (338, 500,000) medium-term financing of SAR 24,000,000 guaranteed by a promissory note and/or securities or a deposit and pledge of title deeds. The agreement aims to finance the purchase of new lands, building new stations and improving stations. SASCO renewed and amended the agreement amount on April 16th, 2017, to be SAR (439,200,000). This included renewal of existing facilities of which SAR (169,100,000) represent various credit facilities and SAR (270,100,000) represent finance facilities.

159

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

b. ) NCB SASCO signed a Shariah-compliant credit facilities agreement with NCB of SAR (92,000,000) guaranteed by local share pledge with the aim to expand construction and acquisition of fuel stations. The agreement is valid until 1 June 2019. On August 25th, 2015, SASCO signed a new Shariah-compliant facilities agreement with NCB of SAR (151,800,000), including long-term loans of SAR (101,100,000), bank letters of guarantee of SAR (25,000,000), short-term loans of SAR (25,700,000). The agreement aims to expand SASCO projects, support its core activities, and purchase new sites to build fuel stations as well as to finance the working capital. The agreement was renewed on May 1st, 2016 and its value became SAR (201,300,000), including long-term loan facilities of SAR (150,600,000) and bank letters of guarantee of SAR (25,000,000) and short-term loans of SAR (25,700,000). The agreement is valid until 1 June 2019. The agreement was amended on April 30st, 2017 and its value became SAR (200,700,000), including long-term loans of SAR (150,700,000) and bank letters of guarantee of SAR (25,000,000) and short-term loans of SAR (25,000,000). The agreement aims to expand SASCO projects, support its core activities, and purchase new sites to build fuel stations.

c. ) SABB On May 25th, 2015, SASCO signed a new Shariah-compliant facilities agreement with SABB of SAR (150,000,000) effective from the date of signing thereof, provided the use thereof before January 31st, 2016, and guaranteed by a promissory note. This agreement includes a long-term loan of SAR (100,000,000) and bank letters of guarantee of SAR (50,000,000). The agreement aims to partially finance capital expenses, purchase land, and build new fuel stations. It expired on 31 January 2016 and was extended to be valid until 31 January 2017. The agreement was amended on Dec. 7th, 2017 and its value became SAR (177,900,000), guaranteed by a promissory note, including a long-term loan of SAR (47,900,000) in addition to SAR (80,000,000) as bank letters of guarantee and short-term loans of SAR (50,000,000). The agreement aims to partially finance capital expenses, purchase land, and build new fuel stations as well as to finance the working capital. It will expire on January, 31th, 2019 d. ) Gulf International Bank (GIB) On December 13th, 2015, SASCO signed a (Shariah-compliant) resales for profit facilities agreement with the Gulf International Bank (GIB) (a Bahraini joint-stock Corporation) of SAR (150,000,000) guaranteed by a promissory note. This agreement includes a mediumterm loan of SAR (50,000,000) with a finance period of five (5) years (2-year grace period), provided the repayment of loan at equal quarterly instalments. This is in addition to issuing letters of guarantee of SAR (100,000,000). The agreement aims to expand SASCO projects, support its core activities, purchase new sites to build fuel stations as well as to finance the working capital. e. ) Alawwal Bank On December 21st, 2015, SASCO signed a (Shariah-compliant) resales for profit facilities agreement with the Alawwal Bank (a Saudi joint-stock company). This agreement includes a general facility limit of SAR (150,000,000) in the form of a medium-term loan of SAR (100,000,000) for a financing period of 54 months (18-month grace period), provided the repayment of loan at equal semi-annual successive instalments. This is in addition to letters of guarantee of SAR (40,000,000) and documentary credits of SAR (10,000,000). The agreement aims to expand SASCO projects, support its core activities, purchase new sites to build fuel stations as well as to finance the working capital. The agreement was renewed on Dec. 28st, 2017 and its total value became SAR (98,500,000) and the value of total guarantees became SAR (50,000,000) including medium-term loans of SAR (48,500,000).

160

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

f. ) Riyadh Bank On December 21st, 2015, SASCO signed a (Shariah-compliant) facilities agreement with Riyadh Bank (a Saudi joint-stock company). The agreement includes bank letters of guarantee of SAR (50,000,000), aiming at expanding SASCO projects, supporting its core activities, purchasing new sites to build fuel stations as well as to finance the working capital.

Following is the loan movement: 31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

Balance at the beginning of year Amounts received during the year Amounts paid during the year

514,406,225 192,176,340 (151,063,635)

421,497,554 233,742,005 (140,833,334)

278,643,448 281,497,556 (138,643,450)

Balance

555,518,930

514,406,225

421,497,554

Financing of resales for profit and short-term loans Trading portion from financing of resales for profit and long-term loans Financing of resales for profit and long-term loans

95,000,000 109,479,080 351,039,850

44,594,800 134,043,817 335,767,608

25,000,000 68,350,692 328,146,862

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

49,632,844 36,856,497 26,215,742 13,220,647 8,653,180 2,471,569 5,924,289

64,154,935 33,926,435 8,428,718 11,468,643 9,575,547 9,768,068 5,400,371

36,363,317 24,405,736 15,352,392 6,426,446 7,041,367 4,477,816 3,954,644

142,974,768

142,722,717

98,021,718

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

16,838,220 15,959,366 2,262,950 2,199,778 1,537,892

16,869,688 16,020,787 2,275,650 2,199,778 1,537,892

16,939,350 14,870,578 2,331,700 2,199,778 1,537,892

38,718,206

38,823,795

37,799,298

16. Payables and other creditors

Petroleum providers Revenue received in advance Commodity and service providers Performance bond guarantee Due expenses Deposits with third parties Other

17. Distributions payable to shareholders

Shares sold by auction Dividends Subscription surplus â&#x20AC;&#x201C; at incorporation Surplus of capital decrease Subscription surplus â&#x20AC;&#x201C; second installment

161

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

18. Zakat Provision Following are the main elements of Zakat Base 31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

782,445,223 37,892,954 411,286,283 (1,106,591,205)

720,273,786 39,011,026 360,002,304 (996,552,300)

695,397,966 29,066,791 340,210,056 (948,195,660)

Total

125,033,255

122,734,816

116,461,153

Zakat base

125,033,255

122,734,816

116,461,153

31 Dec. 2017 (Saudi Riyal)

31 Dec. 2016 (Saudi Riyal)

1 Jan. 2016 (amended) (Saudi Riyal)

Balance at the beginning of year Amounts paid during the year Amounts transferred from Zaiti Petroleum Services Company Component during the year Component by increase over Zakat base during the year

4,409,500 (4,378,030) 3,125,831 669,169

3,962,922 (3,208,422) 3,655,000 -

4,333,155 (3,801,233) 40,000 3,391,000 -

Balance at the end of year

3,836,470

4,409,500

3,962,922

Shareholders’ equity Net amended income Additions Deductions

Following is the movement of Sharia Zakat provision during the year ending on 31 December:

During 2013, SASCO obtained the General Authority for Zakat and Tax’s approval to submit a consolidated Zakat declaration for both SASCO and its subsidiaries according to letter No. 19181/16-1437. SASCO submitted its Zakat declarations and paid the amounts due until the year ending on 31 December 2016 and was given a final Zakat certificate for 2014 and a restricted Zakat certificate for 2016. SASCO received final Zakat assessments from the General Authority for Zakat and Tax for years 2000 – 2008 according to Tax Appeals Commission’s Decision No. 1656 for 1438 AH approved by the Minister of Finance under Letter No. 2293 dated 19/3/1438 AH issued in the appeal submitted by SASCO against Decision No. 10 of 1435 AH issued by the First Instance Committee on Zakat and Tax Objection in Riyadh regarding Zakat assessment conducted by the General Authority on SASCO for year from 2002 to 2005 and appeal Decision No. 1669 of 1438 AH approved by the Minister of Finance under Letter No. 2832 dated 9/4/1438 AH issued in the appeal submitted by SASCO against Decision No. 11 of 1435 AH issued by the First Instance Committee on Zakat and Tax Objection in Riyadh regarding Zakat assessment conducted by the General Authority on SASCO for year 2008. Total Zakat differences were SR 3,694,215. SASCO paid the amount in full during the second quarter of 2017. The amount was included in Zakat item in the profit or loss and consolidated other comprehensive income statement. 19. Statutory Reserve In accordance with the Saudi Companies Law, SASCO transfers Ten (10%) of annual net profit to the statutory reserve. Such transfer shall continue until reserve reaches 30% of capital. The statutory reserve in no distributable as dividends for shareholders.

162

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

20. Revenues Revenues of two years ending on 31 December are as follows:

Fuel operation revenues Grocery revenues Lease revenues Other

2017 (Saudi Riyal)

2016 (Saudi Riyal)

892,673,753 163,719,373 129,165,765 26,770,916

832,623,098 139,506,664 90,046,817 31,946,175

1,212,329,807

1,094,122,754

2017 (Saudi Riyal)

2016 (Saudi Riyal)

22,820,117 4,096,683 3,694,215 2,973,689 1,609,708 1,016,682 973,989 650,001 187,867 177,491 175,252 130,971 4,434,034

19,539,797 6,491,906 1,661,773 2,129,896 530,709 2,509,699 1,474,265 139,168 875,200 242,025 119,000 98,535 96,122 1,747,572

42,940,699

37,655,667

2017 (Saudi Riyal)

2016 (Saudi Riyal)

1,521,291 270,685 5,607 714,932

381,677 293,456 256,061 402,693

2,512,515

1,333,887

21. General and administrative expenses

Staff salaries, wages and benefits Customs claims provision Amounts paid during the year against Zakat Consumption Professional fees and consultation Leases Bank expenses Amortizations Electricity and water Doubtedly-collected debts provision (Note 11) Maintenance expenses Stationery and publications Stagnant goods provision (Note 12) Insurance Other

22. Other revenues

Delay fines Deposit revenues Profits of property and equipment sale Other

163

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

23. Sector Information A sector is a main part of SASCO. It sells/provides specific services (business sector) or sells/provides services in a certain economic environment (geographical sector). Its profits and losses are different that of other sectors. In reporting its sector information, SASCO submits to the business sector. Following are SASCO sectors: • Retail and Operation Sector: it includes station operation activities, including selling fuel, foods, drinks and operation of residential and commercial buildings. • Investment Sector: it includes investment in other companies and investments in securities. • Saudi Automobile & Touring Association Sector: It issues customs transit books and international driving licenses and runs sport activities. • Transport Fleet Services Sector: it is the one that provides services of transporting dry and liquid materials. Franchise Sector: it grants franchise for using SASCO trademark.

164

Annual Report 2017

165

Total assets Total liabilities Net sales Income from core operations

31 December 2016

Total assets Total liabilities Net sales Income from core operations

31 December 2017

1,648,726,516 803,988,336 1,081,400,342 11,861,058

2,127,227,754 1,325,066,462 1,201,694,878 19,368,424

Retail and Operation Sector (Saudi Riyal)

25,390,396 10,000 (10,000)

94,533,574 66,500 -

Investment Sector (Saudi Riyal)

30,797,698 1,618,373 20,471,234 3,503,002

26,529,313 10,665,266 22,723,350 8,270,256

29,663,234 14,744,018 19,663,545 4,069,154

33,448,807 13,561,618 22,759,754 5,112,723

Saudi Automobile & Transport Fleet Touring Association Services Sector Sector (Saudi Riyal) (Saudi Riyal)

Following are some financial data of the above sectors for the period ending on 31 December:

500,000 32,000 (10,000)

500,000 42,000 -

Franchise Sector (Saudi Riyal)

(242,518,972) (110,279,078) (27,412,367) -

(746,318,115) (596,977,101) (34,848,175) -

Joint assets and liabilities (Saudi Riyal)

1,492,558,872 710,113,649 1,094,122,754 19,413,214

1,535,921,333 752,424,745 1,212,329,807 32,751,403

Total (Saudi Riyal)

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

24. Financial instruments and risk management Fair value A fair value covers financial assets and liabilities. Financial assets include cash, the like, receivables and securities. However, financial liabilities include payables, loans and other payable balances. Level One: market prices announced in active markets for the same financial instruments. Level Two: assessment methods depending on inputs affecting fair value and can be directly or indirectly noticed in the market. Level Three: assessment methods depending on inputs affecting fair value and cannot be directly or indirectly noticed in the market. As at 31 December 2017

Level One

Level Two

Level Three

Total

Investments held for sale Investments retained for trading

30,423,818 879,202

65,512,302 -

125,000 -

96,061,120 879,202

31,303,020

65,512,302

125,000

96,940,322

As at 31 December 2017

Level One

Level Two

Level Three

Total

Investments held for sale

31,423,169 31,423,169

93,281,731 93,281,731

125,000 125,000

124,829,900 124,829,900

The value indicated in Level Three reflects the purchase cost of these assets and not their fair value due to lack of active market. Therefore, SASCO Management sees that the purchase cost is the ideal method to calculate the fair value of these assets, and their value is not depreciating. Capital Risk Management SASCO manages its capital to ensure its durability. It gets the highest revenue from the ideal limit of debt and equity balances. SASCO total strategy of 2016 did not change. The structuring of SASCO capital includes shareholdersâ&#x20AC;&#x2122; equity which consists of capital, reserves, fair value reserve and retained profits as listed in shareholdersâ&#x20AC;&#x2122; equity change statement. Financial Risk Management SASCO business may be substantially affected by financial risks arising out of the following: - Foreign currency risk management SASCO is not subject to significant risks related to foreign currency exchange. Therefore, there is no need to efficiently manage this issue. - Interest rate risk management The financial instruments in the consolidated financial position statement are not subject to interest rates and risks.

166

Annual Report 2017

Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

- Other price risks SASCO is subject to price risks arising out of its equity investments in other companies. It retains investments in title deeds of other companies for strategic but not trading purposes. In addition, it does not actively trade in such investments. - Credit risk management A credit risk exists when one party to a financial instrument contract fails to comply with its contractual obligations. This leads SASCO to incur financial losses. SASCO is subject to credit risks on its bank balances and receivable as follows:

Cash and balances with banks Net receivables

2017 (Saudi Riyal)

2016 (Saudi Riyal)

95,215,346 104,710,438

111,470,755 78,324,696

199,925,784

189,795,451

- Liquidity risk management Liquidity risks are represented in difficulties an establishment faces in providing funds to meet obligations related to financial instruments. Liquidity risks may result from inability to sell certain financial assets rapidly and at an amount equal to their fair value. Liquidity risks are managed by regularly controlling them to ensure the availability of funds necessary for fulfilling the company’s future obligations. 25. Debt Ratio The Board of Directors periodically reviews capital structuring. As part of this review, the Board takes into account the cost of capital and risks related to each category of capital and debt. SASCO capital structure includes debts through borrowing. It hasn’t determined maximum debt ratio and does not expect an increase in debt ratio through issuing new debt releases in 2017. Following is the debt ratio at the end year: 2017 (Saudi Riyal)

2016 (Saudi Riyal)

Loans Cash and balances with banks

555,518,930 (95,215,346)

514,406,225 (111,470,755)

Net debts Shareholders’ equity

460,303,584 783,496,588

402,935,470 782,445,223

58.87%

51.50%

Net debt / shareholders’ equity

26. Earnings per share Earnings per share are calculated from net profits of core operations by dividing net annual profit of core operations on weighted average of existing number of shares as at the end of year, being 54 million shares. Earnings per share are calculated from net annual profits by dividing net annual profit on weighted average of existing number of shares as at the end of year, being 54 million shares.

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Saudi Automotive Services Co. (SASCO) (Saudi joint-stock company)

Notes to the consolidated financial statements For the year ended 31 December 2017 ________________________________________________________________________________________________________________

27. Possible Obligations SASCO and its subsidiaries have capital commitments related to establishing assets and properties as at 31 December 2017 at a total amount of SR 24,9 million (2016: SR 63 million). SASCO and its subsidiaries have possible obligations related to bank guarantees as at 31 December 2017 at an amount of SR 259,2 million (2016: SR 282,6 million). There are some lawsuits filed against SASCO, during the ordinary business session. They are currently before the court and the final award cannot be certainly maintained. The Management does not expect that the results of these lawsuits shall have substantial impact on the consolidated financial statements. 28. Dealings with related parties Related parties are non-executive board members and senior management staff. Senior management staff, including directors, are those practicing authority and responsibility in planning, managing and directly or indirectly controlling SASCO business. Their dealings during the year were as follows:

Non-executive board members Senior management staff

Nature of dealing

2017 (Saudi Riyal)

2016 (Saudi Riyal)

Salaries, allowances and incentives Salaries, allowances and incentives

72,000 5,894,292

165,000 4,144,999

29. General Figures included in the financial statements have been rounded to the closest Saudi Riyal. 30. Comparative Figures Items, elements and notes of comparative consolidated financial statements were amended, reissued, presented and classified in consistency with the accounting policies applied in issuing, presenting, assorting and classifying the items, elements and notes of comparative consolidated financial statements of the present period, which have been developed according to the IFRS approved in Saudi Arabia and other standards issued by Saudi Organization for Certified Public Accountants. For more information, please refer to Note 6 (Application of new and amended International Financial Reporting Standards (IFRS)) of notes attached to consolidated financial statements for the year ending on 31 December 2017. 31. Approval of Consolidated Financial Statements The consolidated financial statements have been approved by the Board of Directors on 8/7/1439 AH (corresponding to 25 March 2018). The Board, convening on 25/6/1439 AH (corresponding to 13 March 2018), recommended the next General Meeting, which date to be subsequently determined, to distribute dividends for the financial year ending on 31 December 2017, with 50 Halalahs per each share, representing 5% of the nominal value of share, with a total amount of SR 27,000,000.

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Tel: +966 (11) 2068855 Fax: +966 (11) 2068833 Email: info@sasco.com.sa Company website: (www.sasco.com.sa) The company file on Tadawul: (www.tadawul.com.sa) code 4050 International company code: (SA0007870070)

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Annual Report 2017