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Annual Report
H.H. Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Amir of the State of Kuwait
H.H. Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah Crown Prince of the State of Kuwait
2007
2008
2009
2010
2011
13.07 3.15 (8.06)
3.98 0.08 (8.21)
1.19 (2.59) (6.20)
6.52 0.76 2.42 (5.62)
8.15 0.02 (6.83)
19.37
(11.68)
(0.60)
-
-
27.53 (0.40)
(15.83) (4.60)
(8.21) (0.85)
4.07 0.03
1.34 0.13
27.94
(11.23)
(7.36)
4.05
1.21
187 173 74 103
198 189 108 80
130 95 55 71
178 173 70 103
178 174 70 103
Profitability Earnings per share (fils)-Restated Return on average assets Return on average equity
115 17.0% 27.9%
(46) -8.2% -17.3%
(30) -5.0% -10.9%
11 2.6% 4.7%
2 0.8% 1.3%
Capital Group equity / Total assets Debt / Group equity
54.8% 72.0%
40.4% 134.6%
54.3% 78.0%
57.7% 68.1%
57.7% 68.2%
Liquidity & Bussiness Indicators Investments / Total assets Liquid assets / Total assets
92.4% 13.5%
95.3% 4.4%
73.0% 4.5%
96.9% 3.2%
97.6% 1.8%
Income Statement Highlights (KD Million) Operating Income Income from divestment of long term investments Gain arising on an associate becoming a subsidiary Operating expenses Relating to discontinued operations (net of related expense) Net profit (loss) for the year Minority Interest Net profit (loss) attributable to equity holders of parent company Financial Statement Highlights (KD Million) Total assets Investments Term loans Group equity
09
11
09
11
114.91
2.46
10.89
1,210,449
4,045,494 08
09
(45.73)
(29.99)
(7,359,727)
(11,230,180) 07
08
Shareholders’ Equity (2007 – 2011) Kuwaiti Dinar
27,936,836
Assets (2007 – 2011) Kuwaiti Dinar
10
68,349,610
71,592,368 07
97,076,065
08
97,298,634
177,746,240
07
89,656,048
178,106,543 10
129,649,900
197,926,946
187,202,371
Financial Highlights
10
Net Profit (2007 – 2011) Kuwaiti Dinar
11
07
08
09
10
11
Earnings Per Share (2007 – 2011) Fils
Annual Report
Introduction
United Industries Company is a member of the KIPCO Group - one of the largest diversified holding companies in the Middle East and North Africa. KIPCO has significant ownership interests in a portfolio of over 60 companies operating across 26 countries. The company’s main business sectors are financial services and media. Through the subsidiaries and affiliates of its core companies, KIPCO also has interests in the industrial, real estate, education and the management & advisory sectors. KIPCO’s financial services interests include holdings in commercial and investment banking, asset management and insurance companies. The Group’s core operating companies in this sector include Burgan Bank, United Gulf Bank and Gulf Insurance Company. In the media sector, the Group has a presence through the Orbit Showtime Network, the leading pay-TV operator in the region.
Contents Mission & Vission of Company About UIC Board of Directors Executive Management Chairman’s Statement Management Report Consolidated Financial Statements
02 03 04 06 08 11 19
“SAFEGUARD in facing difficult challenges by improving operating investments�
Mission & Vision statement The Company has identified key objectives to be attained over the coming five years, focusing on the value proposition for shareholders and strategic partners. UIC mission is to manage and operate a diversified portfolio of investments in the energy, food and basic industries sectors; to become a top player in these sectors through selective acquisitions, joint ventures and investments in Greenfield projects and as a result achieve consistent growth and returns. UIC seeks to be a leading regional investment house with specialized activities in the Industrial sector, focused on maximizing returns and increasing shareholder value.
2
Annual Report
About United Industries Company United Industries Company (UIC) Established in 1979 is a closed shareholding company based in the State of Kuwait. It was listed on Kuwait Stock Exchange (KSE) in 1997. UIC invests in the downstream industries sector in Kuwait and the GCC states. The Company’s authorized and paid up capital is KD 49,546,875 (USD 177,587,400). UIC’s Major Investments include:
• •
Saudia Dairy and Foodstuff Company (SADAFCO) Al Qurain Petrochemical Industries Company
3
Board of Directors Mr. Essa Khalid Al Essa Board Chairman and CEO Sheikh Khalifa Al Abdulla Al-Jaber Al-Sabah Vice Chairman Mr. Shahab Waheed Abdul Waheed Board Member Mr. Khaled Sulaiman Al Sanae Board Member
4
Annual Report
“FOCUS to mitigate damages, manage risks professionally and efficiently�
5
Executive Management
Essa Khalid Al-Essa Chairman & CEO
Mr. Essa Khaled Al-Essa received his new post as Chairman of the Board of United Industries Company following his election by the Board of Directors in May 2010. Mr. AlEssa joined UIC 2002 as Managing Director & CEO, and on 2007 he became Vice Chairman and CEO for the company. Mr. Al-Essa is also Vice Chairman of Al-Qurain Petrochemical Industries Co. since 2005, Board Member of Saudia Dairy and Foodstuff Company, (SADAFCO) since 2003. Prior to joining UIC, he was General Manager at Al-Ahlia Investment Co. from 1993 till 2002, and Chairman & Managing Director at Shuaiba Paper Products Co. from 1996 till 2002.
6
Mr. Al-Essa was Director – Board of Trustees at the Center of Excellence, Kuwait University from 2000 till 2008. He became Board Chairman at Kuwait Industrial Union in 1999 till 2001. Mr. Al Essa graduated from University of Portland, Oregon - USA - holding a Bachelor’s Degree in Industrial Engineering/Marketing.
Annual Report
Ahmad Al-Mastaqi Senior Investment Manager-Group HR & Administration Manager
Mickey Zacharia Head of Business Development
Mathew Thomas Senior Executive Manager – Finance & Accounts
Ammar Ghassan Al-Omeiri Group Internal Audit Manager
Mr. Ahmad AlMasqati joined United Industries Company as Senior Investment Manager 2006. His responsibilities include projects evaluation, feasibility studies and accounting for different projects in Business Development Department. Mr. Masqati combined expertise is attributed to his years of experience in the domain. Prior to joining UIC; Mr. Masqati was Investment Manager -Industrial Sector at Gulf Investment, Industries ManagerProjects Evaluation at The Public Authority of Industry, General Manager at Middle East Communications, and Production Manager at Carpets Industries. Mr. Masqati holds Bachelor of Industrial Engineering degree from Oklahoma University - USA. Currently he is assigned with acting HR & Administration responsibilities for the Group in addition to his work as Senior Investment Manager.
Mr. Zacharia joined UIC in 2005. He is responsible for managing Direct Investments. He was previously the Head of Finance at United Fisheries of Kuwait and has held positions with Alghanim Industries and ICI India. He is a graduate of Calcutta University, an Associate member of the Institute of Chartered Accountants of India and is a Certified Management Accountant.
Mr. Mathew joined United Industries Company in 2003. He manages the finance and accounting functions of UIC and its subsidiaries. He has more than 25 years experience in Financial Management and Reporting. He previously worked for AlKout Industrial Projects Co., Ahlia Chemical Company in Kuwait and The Rubber Board in India. He is a Fellow Member of Institute of Chartered Accountants of India. He holds a Bachelor’s Degree in Science from Kerala University, India.
Mr. Omeiri joined United Industries Company 2004. He has a wealth of experience in financial and accounting management, auditing and sales strategies, management and corporate governance. Mr. Omeiri is the Vice Chairman of Amaken United Real Estate Company, Board Member of United Petrochemical Company. Prior to joining UIC, Mr. Omeiri worked in several local and international companies. Mr. Omeiri holds Bachelor degree in Business Management & Economy from American International University – Major in Financial Management & Accounting- London 1986.
7
Chairman & CEO’s Statement The year 2011 has proven the success of our adopted vision and strategy of balancing work with conservatism, upon which we base our comprehensive vision and from which we evaluate the circumstances in order to tackle the existing challenges with high professionalism and efficiency. This has gained us the trust of our partners in all sectors in which we operate, and has subsequently consolidated the status of the company and its competitiveness. This was reflected on the positive results of the company, considered distinct, given the general circumstances of the markets and the investment nature of our projects.
Dear Shareholders, It is a pleasure for me to present to you the 33rdAnnual Report of the UIC for the financial year ended December 31, 2011, and to review the important developments and events that the company witnessed during the year, as well as its financial results and statements.
The winds of change that blew across the region delivered a hard blow to most business sectors, which generated great pressure and the formation of a tense and instable investment environment. All of this created challenges that prevented the achievements of the results we aspired for. However, we continue to work towards greater achievements in the next few years, relying on the excellent capabilities available to UIC and its Group companies. Amidst these critical and difficult economic conditions, the UIC Management has closely followed and evaluated the circumstances and continued to implement the action plan that was adopted a year ago. The aim of this action plan is to contain and limit damages as much as possible, while pushing forth the company’s operational contributions so as to improve results and generate positive and acceptable returns. During 2011, the Management continued its efforts to consolidate the company’s cash flow and to reduce burdens, while developing future activities and fulfilling financial commitments. The Management also continued to work on enhancing the company’s operational contributions and to achieve greater revenue and improve its market value. These efforts throughout the year resulted in rescheduling bank loans worth KD 52.5 million from being short-term to long-term loans over a period of five years ending December 2016. UIC made net profit of KD 1.21 million in 2011 compared to KD 4.045 million the year before. However, the numbers reflect an actual increase of 161% (KD 3.21 million) compared to the results of 2010 (a loss of KD 2 million) after deducting realized profits resulting from sale of investments. Share earnings for 2011 came to 2.45 fils per share compared to 10.89 fils per share the year before. UIC’s share of profit from associate companies increased 49% to reach KD 7.45 million in 2011, compared to KD 5 million the previous year. This is attributed to the greatly improved financial performance of Saudia Dairy and Foodstuff Company (SADAFCO), which saw a noticeable growth in revenues coupled with a positive increase in realized profits. This growth in the financial performance of SADAFCO reflected positively on UIC’s share of the profits, where net sales in 2011 increase 21% to SAR 1.32 billion compared to SAR 1.09 billion the previous year. Al Qurain Petrochemical Industrial Company (QPIC) also recorded excellent results in 2011, making KD 18.1 million compared to a loss of KD 1.9 million the previous year, realizing a profit of 1050%. This increase is attributed to the increase in cash dividends received from EQUATE Petrochemical Company, as well as the considerable improvement in the operational results of QPIC’s associate, Kuwait Aromatics Company. Finally, UIC’s overall assets in 2011 came to KD 178 million, which is the same as the volume of assets on December 31, 2010.
8
Annual Report
A word of thanks and appreciation I would like to conclude by expressing my sincere gratitude to all of the Members of the Board for lending me their trust and constant support. We pray to God for success in our future endeavors, and that our efforts are well rewarded.
Essa Khaled Al-Essa Chairman and CEO
9
“OPTIMISM in our future expectations supported by balanced strategic vision”
10
Annual Report
Management Report Given the political and economic circumstances that the region is going through, alongside the rest of the world, since the beginning of the year have posed difficult challenges that stood in the way of implementing many promising economic projects. The continuation of the global economic crisis since 2008 and its direct and negative impact on the regional economies has, no doubt, created an unprecedentedly harsh investment environment that is greatly challenging. As such, the UIC Management was keen on maintaining the stability of the performance results of its investment projects, by focusing on reducing damages and greater risk management, employing the greatest efficiency and pro-activeness. This focus was reflected on the positive, though humble, results that were made. Although the results are not in line with our ambitions, we believe that given the aforementioned circumstances and the nature of our investment projects, this can be viewed as an achievement. The UIC Management continued during 2011 to implement its strategies through an action plan that was endorsed and supported by our parent company, Kuwait Projects Company (Holding). This plan included honoring financial commitments, professionally improving performance results, grabbing feasible opportunities, along with other objectives.
• Developing and enhancing the operational performance contribution to the maximum in order to shed the impact of the financial crisis and to gradually return to making acceptable profit.
During 2011, UIC continued to implement the strategic steps it had placed and to work on several main aspects:
During 2011, UIC continued its efforts to implement its ambitious plan for consolidating the company’s financial status and to provide the necessary liquidity to allow for engagement in investment opportunities of good economic feasibility and in line with the company’s strategy. It also worked on honoring its financial commitments and reducing its debts.
• Providing the necessary liquidity to finance new investment opportunities and to fulfill the company’s financial commitments and working for its interests. • More effective utilization and development of available investment opportunities of economic feasibility, and expanding as much as possible geographically, as well as forging alliances with international parties to consolidate confidence in the company’s status and its competitiveness.
Providing liquidity and rescheduling financial commitments
On rescheduling of debts, the UIC management successfully negotiated and completed the rescheduling of a bank loan worth KD 52.5 million, shifting it from a short-term loan to a mediumterm loan of five years, ending in 11
Management Report - Continued December 2016. This significantly reduced the financial burdens of the company. Furthermore, UIC successfully signed an agreement with an alliance of five Kuwaiti banks that will offer joint financing of KD 48 million to one of UIC’s affiliates - Al Khorayef Company for Sale, Maintenance & Repair of Oil Production Equipment, an indirect holding of Al Qurain Petrochemical Industries through its 41.46% stake in United Oil Projects Company. United Oil Projects holds 25% of Al Khorayef’s shares. The agreement is to finance the first phase of the Collection Center 16 project in western Kuwait for Kuwait Oil Company. The finance agreement is for seven year, split into conventional and Islamic. Al Khorayef in Saudi Arabia will be executing the project through its company in Kuwait, with the aim of increasing Kuwait’s production of crude oil, as part of the strategy placed by Kuwait Oil Company.
12
UIC is also continuing the implementation of its plan for expansion in the petrochemical sector through the development of its purified terephthalic acid (PTA) and polyethylene terephthalate (PET) project, which will be executed through UIC’s affiliate, Al Qurain Petrochemical Company. The project includes the establishment of a manufacturing complex for pure PTA and PET in Jubail, Saudi Arabia, with a capacity of 1,000,000 tons of PTA and 800,000 tons of PET per year. The total amount invested in the project is US$ one billion, or approximately KD 280 million. The project will rely on the supply of fodder from Jubail Industrial City, and part of the produced material will also be used as fodder for other industries and as the main constituent for the production of plastic water bottles and transparent, light plastic food containers, while part of the production will be exported to different countries of the world.
Utilizing and developing economic feasibility
Enhancing operational performance contribution
UIC, in its search for projects of economic feasibility in alliance with international parties and based on its strategy for diversifying its investments, especially in the energy sector, gave initial consent to an idea for executing a joint project with an international solar energy company based in the USA. Negotiations are currently taking place with government authorities relevant to the oil sector in Kuwait to determine their future requirements of this kind of developed technology, which is already being used in many of the large industrial countries.
During 2011, UIC focused on following up and monitoring the contribution of operational performance, both in Kuwait and abroad, with the aim of boosting this contribution, as well as facing the challenges that stand in the way of the enhancement of some. The ultimate goal is to increase operational profit, which in turn would reflect on the company’s financial results. These efforts resulted in a noticeable improvement in some of these contributions, where operational capacity increased and positive
results were made. This reflected on the financial statements of the company, as seen in the performance of the UIC Group. The best possible solutions are being sought out in some cases to reinstate matters to their normal track.
Financial performance •
Statement of consolidated Income
UIC made a net profit of KD 1.21 million or 2.46 fils per share, compared to profits of KD 4.045 million or 10.89 fils per share in 2011. However, these numbers actually represent an increase of 161% (KD 3.21 million) compared to last year’s numbers (loss of KD 2 million) after excluding profits made from the sale of investments. UIC’s share in profits from associate companies increased 49% (KD 2.45 million) to KD 7.45 million), compared to KD 5 million the previous year. This is attributed to the increase in profits of Al Qurain Petrochemical Company during 2011 because of the improvement of cash dividend received from EQUATE, as well as the increase in the average performance of UIC affiliates. SADAFCO also saw an improvement in results due to the rise in sales. Although UIC’s share of profit from associate companies increased, the total income during 2011 decreased 16% (KD 1.5 million) to KD 8.17 million, compared to KD 9.7 million the previous year due to the following: During the year, gain on sale of associates and onetime income gain on associate become subsidiary are nil compared to last year income of KD 3m.
Annual Report
“POSITIVE RESULTS in line with the nature of our investments”
13
Management Report - Continued Revenue from investments and gain from real estate fair valuation dropped to KD 0.09 million, compared to KD 0.55 million the previous year. Revenue from interest also dropped to KD 0.065 million compared to KD 0.53 million the previous year, due to the drop in available liquidity. Total spending increased 25% (KD 1.3 million) to KD 6.7 million, compared to KD 5.4 million in 2010. This is mainly due to the decrease in value of some investments, as well as the increase in financial costs. •
Consolidated Balance Sheet
The overall assets at the end of the year came to KD 177.7 million maintaining same level of assets, compared to 2010 amounted to KD 178.1 million. Currentassets dropped 32% (KD 1.8 million) to reach KD 3.9 million compared to its value of KD 5.7 million the previous year. This is attributed to the drop in available funds in banks and short-term deposits due to the honoring of the company’s financial commitments. Assets available for sale increased110% (KD 9.9 million) to KD 18.9million compared to KD 9 million the previous year, due to reclassification, especially of Al Atoun Steel Industries Company where investments valued at KD 12.4 million went from an associate company to investmentsavailable for sale. This is besides the drop in the value of some financial assets. Investments in associate companies decreased6% (KD 8.7 million) to KD 144.9 million, compared to KD 153.6 million the previous year. This is due to reclassification of Al Atoun Steel Industries Company (KD 12.4 million) which was partially offset by an increase in the UIC’s share in profit from associates. 14
UIC Group rescheduled 75% (KD 52.5 million) of its loans to medium-term loans that will be repaid between 2012 and 2016.
Saudia Dairy and Foodstuff Company (SADAFCO) The financial results of the Saudia Dairy and Foodstuff Company (SADAFCO) improved both in sales and net profit in 12 months ended December 31, 2011. Net profit increased 21% to reach SR 1.32 billion, compared to SR 1.09 billion for the same period in 2010. Operational profit also increased 8% to SR 145.4 million compared to SR 134 million for the same period in 2010.
Al Qurain Petrochemical Industries Company Al Qurain’s results for the year saw profit of KD 18.1 million compared to a loss of KD 1.9 million the previous year. As such, realized profit increase 1050% compared to the year before due to the increase in the value of cash dividends received from EQUATE, as well as the improvement in operational results of its associate, The Kuwait Aromatics Company. Cash dividends received from EQUATE and The Kuwait Olefin Company increased to KD 14.2 million, a rise of 91% (KD 6.79 million). This is due to the improvement in the results of both companies. The results of The Kuwait Aromatics Company also reflected a profit of KD 2.3 million compared to start-up operational losses of KD 9 million the previous year.
Annual Report
Management Report - Continued Foodstuff
Performance of Group companies Saudia Dairy and Foodstuff Company (SADAFCO) The Saudia Dairy and Foodstuff Company (SADAFCO) – an associate of UIC with 40.13% – is one of the most important companies in UIC’s investment portfolio. SADAFCO was established in 1976 and began production in 1977 in Jeddah, Saudi Arabia. Since 2009, SADAFCO’s financial performance has been seeing an improvement, where it recorded a noticeable growth in revenue alongside a positive increase in marginal profits. SADAFCO is perhaps one of the few companies that has benefitted from the global financial crisis that struck in the final quarter of 2008, which brought a sharp drop in basic material while product prices remained at their high levels which came with the high inflation since 2008.
its products to include other dairy products and light food, including cheese, tomato paste, ice cream and juice. Sales of long-life milk form more than 60% of the company’s overall shares, with basic material imported from international markets. As such, fluctuating prices have reflected positively on the company’s performance. As part of SADAFCO’s efforts to increase capacity to satisfy consumer demand and as an alternative to the UORP, the Management has decided to re-open its factory in Damam. Approval was also given, to allocate SAR 22.5 million from operational cash flow to this project. SADAFCO had announced in 2006, that it was halting operations at the said factory and moving them to the Jeddah factory. The Damam factory is expected to be operational in 2012.
SADAFCO produces long-life milk (Saudia), and this has been its main product since establishments. The company expanded the range of
15
Management Report - Continued Oil & Gas
Al Qurain Petrochemical Industries Company Al Qurain Petrochemical Industries Company is a pioneer in the petrochemical industry, and is one of UIC’s most important investments. Al Qurain also enjoys liquidity and a solid solvency base, as well as other competitive factors that allow it to take up future opportunities in this sector. Al Qurain invests its capital in four leading petrochemical projects: EQUATE Petrochemical Company, the Olefins II Project which includes an ethane cracker unit, a glycol ethylene production unit, as well as the expansion of an existing EQUATE unit for the production of polyethylene; The Kuwait Aromatics Company, which consists of main production units of benzene and paraxylene; The Kuwait Olefins Company, which is one of the largest petrochemical projects in the history of Kuwait. Thanks to these investments, Al Qurain was 16
able to boost its position and to forge alliances with international partners that are pioneers in this sector. The company is adopting a cautious policy to counter the possibility of an increase in construction costs, as is the case with any new project until a client base is formed in the international markets. Now that commercial operations are in place in all of the company’s plants, the situation is more stable and the company will begin adding new investments to expand the regional investor base, with the aim of increasing revenue from investments, as well as benefitting from the annual revenue from EQUATE. The PTA/PET project in Kuwait is a part of Al Qurain’s longterm strategy which focuses on developing petrochemical products
in the member states of the Gulf Cooperation Council and the MENA region, as well as using the company’s assets to boost shareholder revenue. Al Qurain, besides its investments in EQUATE and other related companies, is keen on transforming the petrochemical industry in Kuwait to an international industry. Al Qurain holds a 6% stake in EQUATE Petrochemical Company, which is a one of the leading companies in the Middle East. EQUATE commenced commercial production in 1997 and has made astounding results year after year. Al Qurain also holds a 6% percent stake in The Kuwait Olefins Company, which is another promising company in the petrochemical sector that commenced commercial production in 2009 and has made noteworthy profit. Furthermore, Al Qurain holds a 20% stake in The
Annual Report
Management Report - Continued Industry
Kuwait Aromatics Company, which in turn holds 57.5% of The Kuwait Styrene Company and 100% of The Kuwait Paraxylene Production Company. Throughout the year, efforts of Project Management were focused on following existing company investments, but the political and economic circumstances that the region has been witnessing since the beginning of the year posed a great challenge in implementing many projects. They also reflected negatively on any available opportunities or negotiations that were taking place with external partners. As for China and East Asia, where demand on petrochemical products is growing, the Management continued to follow and evaluate available investment opportunities in line with the company’s long-term strategic plan. This is while taking
into account the importance of distributing investments across several petrochemical sectors, thereby covering a wider area and benefitting from geographic expansion.
The PTA/PET Complex Project Al Qurain turned to Jubail, Saudi Arabia, where the Royal Commission for Jubail and Yanbu welcomed the company’s project for constructing a PTA/PET Complex. Al Qurain is currently working to complete the required Authority procedures, and has appointed IHS Consultancy Group – one of the largest international consultancy houses specialized in providing technical advice on energy and petrochemical projects. Work is underway to prepare a detailed feasibility study and selecting a
technical partner to guarantee the project’s requirements. The cost of the project is estimated at US$ one billion. Taking the execution of this project to Saudi Arabia was due to the inability to secure a suitable land plot for the complex, measuring 13,000 sq.m. The project would have been feasible for Kuwait because of the jobs that would be created and the use of preliminary material from The Kuwait Aromatics Company.
Paraxylene Project The paraxylene project is still suffering from the performance results of 2011, which led to a decrease in profit. The project is facing difficulty in continuing, and a team has been tasked with preparing a study on the situation of the project. The study issued recommendations that were 17
Management Report - Continued referred to other related parties to take necessary measures to correct contracts. The main reason for the situation of the paraxylene project in general is the insufficient support for the project when compared to similar projects, as well as the high construction costs compared to similar projects worldwide. This is besides the high operational costs when compared to similar operations around the world.
Changing Al Qurain’s Financial Year
18
Future Outlook UIC’s strategy for 2012 aims to invest the company’s financial resources in the recycling industry in member states of the Gulf Cooperation Council, such that the company will become a regional investment house specialized in industrial activities. This is alongside managing and developing a diverse investment portfolio in the fields of energy, food and basic industries, and becoming a number one player in these sectors through selective acquisitions and joint ventures.
The Extraordinary General Assembly of Al Qurain agreed to change the company’s financial year to begin on April 1 and end on March 31 of every year, instead of beginning on January 1 and ending on December 31. This is with the exception of the current year, which began on January 1, 2011 and will end on March 31, 2012. As such, Article 45 of the company’s bylaws was amended. The change in financial year came to mirror the main income resources of the company, with the aim of reflecting its true performance, while avoiding the fall of annual auditing activities of Al Qurain’s subsidiaries and associates at the same time as their parent company, Al Qurain.
UIC’s investment portfolio is diverse in terms of investment sectors, with the energy sector accounting for 47% of the portfolio. The growth rate of the investment portfolio is expected to increase in 2012 to 50% for the energy sector.
As such, Al Qurain will record excellent results because it will reap the investment profits twice, as it will receive cash dividends from EQUATE for 2011 during the fifth quarter of the financial year ending March 31, 2012, making Al Qurain’s results unprecedented. This will in turn reflect on the results of UIC.
In the coming few years, the Management will continue to implement its medium-term strategy in implementing an ambitious action plan in order to keep up with reality, as a result of which UIC has begun to achieve some positive results, as well continuing to exert all efforts to bring UIC to the highest level possible.
The Management is still aspiring for greater opportunities, contracts and new alliances in order to make more achievements in the coming few years, stemming from the tremendous human resource capabilities available to UIC and its Group. The Management will seek to find the optimum solutions and alternatives in order to increase operational contributions with the aim of boosting the company’s position, improve its results and achieve positive returns.
Annual Report
United Industries Company K.S.C (closed) and Subsidiaries
Consolidated Financial Statements 31 December 2011
Contents Independent Auditors’ Report
20
Consolidated Income Statement
21
Consolidated Statement of Comprehensive Income
22
Consolidated Statement of Financial Position
23
Consolidated Cash Flow Statement
24
Consolidated Statement of Changes in Equity
26
Notes to the Consolidated Fiancial Statements
28-60 19
Independent Auditors’ Report To the Shareholders of United Industries Company K.S.C. (Closed) Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of United Industries Company K.S.C. (Closed) (the “parent company”) and its subsidiaries (together the “group”), which comprise the consolidated statement of financial position as at 31 December 2011, the consolidated income statement and the consolidated statements of comprehensive income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the group’s management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the group as of 31 December 2011, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of matter Without qualifying our opinion, we draw attention to note 9 to the consolidated financial statements, which describes the uncertainty relating to the outcome of the ongoing litigation between the parent company and Al Atoun Steel Industries S.S.C. (Closed) (and the sponsors of Al Atoun Steel Industries S.S.C.). Report on Other Legal and Regulatory Requirements Furthermore, in our opinion proper books of account have been kept by the parent company and the consolidated financial statements, together with the contents of the report of the parent company’s board of directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Commercial Companies Law of 1960, as amended, and by the parent company’s articles of association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law of 1960, as amended, nor of the articles of association have occurred during the year ended 31 December 2011 that might have had a material effect on the business of the parent company or on its financial position. WALEED A. AL OSAIMI LICENCE NO. 68 A OF ERNST & YOUNG 12 February 2011 Kuwait 20
DR. SHUAIB A. SHUAIB LICENCE NO. 33 A Albazie & Co. Member of RSM International
Annual Report
Consolidated Income Statement For the year ended 31 December 2011
Notes Income: Share of results from associates Gain on partial sale of investment in an associate Realised (loss) gain on sale of financial assets at fair value through profit or loss Unrealised (loss) gain on financial assets at fair value through profit or loss Realised gain on sale of financial assets available for sale Gain arising as a result of an associate becoming a subsidiary Change in fair value of investment properties Gain on sale of investment properties Dividend income Interest income Other income Income Expenses: General and administrative expenses Impairment of financial assets available for sale Finance cost Expenses Profit for the year before taxation and Directors’ fees Taxation Directors’ fees PROFIT FOR THE YEAR
9
10
8
3
4
Attributable to: Equity holders of the parent company Non-controlling interests Basic and diluted earnings per share attributable to equity holders of the parent company
5
2011 KD
2010 KD
7,445,034 -
4,997,014 591,530
(17,976)
52,159
(1,126) 20,151 - 3,708 - 82,492 64,705 576,651
54,725 134,835 2,415,718 210,000 31,737 69,100 530,442 608,307
8,173,639
9,695,567
1,473,315 878,585 4,404,474
1,350,662 - 4,081,837
6,756,374 1,417,265 (52,600) (25,000)
5,432,499 4,263,068 (177,070) (15,000)
1,339,665
4,070,998
1,210,449 129,216
4,045,494 25,504
1,339,665
4,070,998
2.46 fils
10.89 fils
The attached notes 1 to 20 form part of these consolidated financial statements. 21
Consolidated Statement of Comprehensive Income For the year ended 31 December 2011 Notes Profit for the year Other comprehensive (loss) income: Financial assets available for sale: –– Net fair value (loss) gain –– Net transfer to consolidated income statement –– Share of other comprehensive (loss) income relating to financial assets of associates Foreign currency translation reserve arising on investment in associates Effect of an associate becoming a subsidiary Effect of an associate becoming a financial asset available for sale Other comprehensive (loss) income Total comprehensive income for the year Attributable to: Equity holders of the parent company Non-controlling interests
9
2
2011 KD
2010 KD
1,339,665
4,070,998
(753,343) 858,434
1,030,655 (134,835)
(425,236) (578,589) - -
2,119,953 (116,137) (2,415,718) 192,142
(898,734) 440,931
676,060 4,747,058
334,281 106,650 440,931
3,034,064 1,712,994 4,747,058
The attached notes 1 to 20 form part of these consolidated financial statements. 22
Annual Report
Consolidated Statement of Financial Position As at 31 December 2011 2011 KD
2010 KD
6 7
3,340,497 552,713 23,625 3,916,835
5,294,700 128,465 328,351 5,751,516
8 9 10
18,968,033 144,957,252 9,600,000 304,120 173,829,405 177,746,240
9,050,619 153,626,188 9,593,027 85,193 172,355,027 178,106,543
6 11 12 13
147,251 915,154 19,450,000 3,209,869 23,722,274
- 322,989 44,950,000 4,317,253 49,590,242
12
50,500,000 940,810 51,440,810 75,163,084
25,000,000 817,226 25,817,226 75,407,468
14 14 14 14 14 14 15
49,546,875 7,591,193 (1,196,646) 10,188,440 10,188,440 1,929,152 144,484 1,287,098 158,857 1,141,523 16,096,649 97,076,065 5,507,091 102,583,156 177,746,240
49,546,875 7,591,193 (639,796) 10,059,635 10,059,635 1,929,152 144,484 1,584,677 737,446 1,141,523 15,143,810 97,298,634 5,400,441 102,699,075 178,106,543
Notes ASSETS Current assets Bank balances and short term deposits Other receivables and prepayments Financial assets at fair value through profit or loss Total current assets Non-current assets Financial assets available for sale Investment in associates Investment properties Other assets Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Current liabilities Bank overdraft Due to related parties Interest bearing loans Accounts payable and accruals Total current liabilities Non-current liabilities Interest bearing loans Employees’ end of service benefits Total non-current liabilities Total liabilities EQUITY Share capital Share premium Treasury shares Statutory reserve Voluntary reserve Treasury shares reserve Employees’ share options reserve Cumulative changes in fair values Foreign currency translation reserve Other reserve Retained earnings Equity attributable to the equity holders of the parent company Non-controlling interests Total equity Total LIABILITIES AND EQUITY Essa Khalid Al-Essa Chairman and CEO
The attached notes 1 to 20 form part of these consolidated financial statements. 23
Consolidated Statement of Cash Flows For the year ended 31 December 2011 Notes OPERATING ACTIVITIES Profit for the year before taxation and Directors’ fees Adjustments to reconcile profit before taxation to net cash flows: Share of results from associates Gain on partial sale of investment in associates Realised loss (gain) on sale of financial assets at fair value through profit or loss Unrealised loss (gain) on financial assets at fair value through profit or loss Realised gain on sale of financial assets available for sale Gain arising as a result of an associate becoming a subsidiary Change in fair value of investment properties Gain on sale of investment properties Dividend income Interest income Impairment of financial assets available for sale Provision for employees’ end of service benefits Depreciation Finance cost
2010 KD
1,417,265
4,263,068
(7,445,034) -
(4,997,014) (591,530)
17,976
(52,159)
1,126 (20,151) - (3,708) - (82,492) (64,705) 878,585 133,779 28,442 4,404,474
(54,725) (134,835) (2,415,718) (210,000) (31,737) (69,100) (530,442) (53,944) 35,870 4,081,837
(734,443)
(760,429)
(663,592) 593,661 285,627 1,711,977 2,727,413 - (840,121)
10,962,552 2,600,755 327,159 881,963 2,878,447 1,911,640 (3,816,369)
Cash from operations Employees’ end of service benefits paid Taxation paid Directors’ fee paid
3,080,522 (10,195) (164,097) (15,000)
14,985,718 (43,383) - -
Net cash from operating activities
2,891,230
14,942,335
Change in operating assets and liabilities: Other receivables and prepayments Due from / to related parties Financial assets at fair value through profit or loss Financial assets available for sale Dividends received from associates Investment in associates Accounts payable and accruals
24
9
2011 KD
10
8 4
9
Annual Report
Consolidated Statement of Cash Flows - (Continued) For the year ended 31 December 2011 Notes INVESTING ACTIVITIES Purchase of property and equipment Additions to investment properties Addition of a subsidiary, net of cash acquired Proceeds from sale of investment properties Dividends received Interest received
10 2
2011 KD
2010 KD
(4,769) (3,265) - - 82,492 59,954
(1,648) (63,138) (8,220,212) 350,000 69,100 70,420
134,412
Net cash from (used in) investing activities
(7,795,478)
FINANCING ACTIVITIES Issue of share capital Repayment of interest bearing loans Repayment of bonds Purchase of treasury shares Dividends paid Finance cost paid Net movement in restricted bank accounts
- 24,773,437 - (12,500,000) - (15,000,000) (556,850) - (8,002) (16,623) (4,562,244) (4,358,295) 9,367 27,115
Net cash used in financing activities
(5,117,729)
(7,074,366)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January CASH AND CASH EQUIVALENTS AT 31 DECEMBER
(2,092,087) 5,039,578 2,947,491
72,491 4,967,087 5,039,578
6
The attached notes 1 to 20 form part of these consolidated financial statements. 25
Consolidated Statement of Changes in Equity For the year ended 31 December 2011
Share capital KD
Share premium KD
Treasury shares KD
Statutory reserve KD
Voluntary reserve KD
KD
KD
KD
Foreign Treasury Employees’ currency shares share Cumulative translareserve options changes in tion reserve fair values reserve
Attributable to equity holders of the parent company
KD
-
-
-
-
-
-
-
-
-
-
-
(297,579) (578,589)
Other reserve
KD
-
-
Retained earnings
KD
Total
KD
KD
Noncontrolling interests
KD
Total equity
1,210,449 1,210,449 129,216
(898,734)
1,339,665
-
-
(556,850)
(876,168) (22,566)
-
-
-
440,931
1,210,449
-
(257,610)
(556,850)
334,281 106,650
144,484 1,584,677 737,446 1,141,523 15,143,810 97,298,634 5,400,441 102,699,075
-
(639,796) 10,059,635 10,059,635 1,929,152
-
As at 1 January 2011 49,546,875 7,591,193 Profit for the year Other comprehensive loss
-
-
-
-
-
-
-
-
(297,579) (578,589) -
-
-
-
-
-
-
-
144,484 1,287,098 158,857 1,141,523 16,096,649 97,076,065 5,507,091 102,583,156
-
-
(556,850)
128,805
-
-
-
128,805
-
-
-
Total comprehensive (loss) income for the year Purchase of treasury shares -
49,546,875 7,591,193 (1,196,646) 10,188,440 10,188,440 1,929,152
Transfer to reserves As at 31 December 2011
The attached notes 1 to 20 form part of these consolidated financial statements.
26
Annual Report
Consolidated Statement of Changes in Equity - (Continued) For the year ended 31 December 2011
Share capital KD
KD
Share Treasury premium shares KD
Voluntary reserve KD
KD
KD
KD
KD
Foreign CumuTreasury Employcurrency lative shares ees’ share translachanges in reserve options tion fair values reserve reserve
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
KD
Other reserve
Attributable to equity holders of the parent company
Statutory reserve KD
-
-
-
-
-
-
-
-
-
-
-
-
-
144,484 2,479,970 853,583
-
-
-
423,756
-
-
-
1,141,523
-
Retained earnings
KD
Total
KD
Non controlling interests
KD
Total equity
70,539,125
KD
11,945,828 68,349,610 2,189,515
4,070,998
676,060
1,497,932
1,141,523
-
24,773,437
(1,011,430) 1,687,490
1,497,932
-
-
-
4,747,058
-
1,141,523
-
24,773,437
3,034,064 1,712,994
4,045,494
25,504
4,045,494
-
4,045,494
-
(847,512)
-
-
144,484 1,584,677 737,446 1,141,52315,143,810 97,298,634 5,400,441 102,699,075
(895,293) (116,137)
-
-
-
-
423,756
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(895,293) (116,137)
-
-
49,546,8757,591,193 (639,796)10,059,63510,059,635 1,929,152
24,773,437
-
As at 1 January 2010 24,773,438 7,591,193 (639,796) 9,635,879 9,635,879 1,929,152 Profit for the year Other comprehensive loss Total comprehensive (loss) income for the year Issue of share capital Transfer to reserves Effect of dilution of shares in a subsidiary Acquisition of a subsidiary
As at 31 December 2010
The attached notes 1 to 20 form part of these consolidated financial statements.
27
Notes to the Consolidated Fiancial Statements As at 31 December 2011
1.
CORPORATE INFORMATION The consolidated financial statements of United Industries Company K.S.C. (Closed) (“UIC” or the “parent company”) and its subsidiaries (together the “group”) were authorised for issue by the Board of Directors on 12 February 2012. The Shareholders’ General Assembly has the power to amend these consolidated financial statements after issuance. The parent company is listed on the Kuwait Stock Exchange and was incorporated on 28 March 1979 with the following activities: • To participate and subscribe in industrial companies and other companies with activities that are supplementary or related to the parent company’s activities, to finance and manage such companies and trade in their shares. • Manufacturing and trading in carpets, furniture, paints and other supplementary industries. • Investing surplus funds in portfolios and funds managed by specialised firms. • Providing technical and economical consultancy services relating to industrial investments. • Incorporation, marketing and management of investment funds specialised in industrial sector and service sector supporting the industrial sector in the State of Kuwait and abroad. • Development of industrial projects and areas. • Establishment of or participation in industrial projects. The parent company is located in Sharq, Al-Shaheed Tower, Khalid Bin Al-Waleed Street, State of Kuwait and its registered address is at P.O. Box 25821, Safat 13119, State of Kuwait. The ultimate parent company is Kuwait Projects Company Holding K.S.C. (Closed) (the “ultimate parent company”) which is listed on the Kuwait Stock Exchange. The other major equity holder of the parent company is KIPCO Asset Management Company K.S.C. (Closed) (“major shareholder”).
2.
SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The consolidated financial statements have been prepared under the historical cost convention modified to include the measurement at fair value of financial assets at fair value through profit or loss, certain financial assets available for sale and investment properties. The consolidated financial statements are presented in Kuwaiti Dinars, which is also the functional currency of the parent company. Statement of compliance The consolidated financial statements of the group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and applicable requirements of Ministerial Order No. 18 of 1990. Change in accounting policies and disclosures The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in previous year, except for the adoption of the following amended IASB Standards and new International Financial Reporting Interpretations Committee (“IFRIC”) Interpretations relevant to the group:
28
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Change in accounting policies and disclosures (continued) IAS 1: Presentation of Financial Statements (Amendment) (effective 1 January 2011) The amendment clarifies that an option to present an analysis of each component of other comprehensive income may be included either in the statement of changes in equity or in the notes to the financial statements. The group provides this analysis in the statement of changes in equity. IAS 24: Related party (Amendment) (effective 1 January 2011) The amendment clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships as well as clarifying in which circumstances persons and key management personnel affect related party relationships of an entity. Secondly, the amendment introduces an exemption from the general related party disclosure requirements for transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. IAS 32: Financial Instruments: Presentation (Amendment) (effective 1 February 2010) The amendment alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro- rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. IFRIC Interpretation 19: Extinguishing financial liabilities with equity instrument (effective 1 July 2010) The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in consolidated income statement. The adoption of the above mentioned amendments did not have any impact on the financial position or performance of the group. Standards issued but not yet effective The following new and amended IASB Standards have been issued but not yet mandatory, and have not been adopted by the group: IAS 1: Financial Statement Presentation – Presentation of Items of Other Comprehensive Income (Amendment) (effective 1 July 2012) The amendments to IAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or ‘recycled’) to consolidated income statement at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has there no impact on the group’s financial position or performance. IAS 27: Separate Financial Statements (Amendment) (effective 1 January 2013) As a consequence of the new IFRS 10: Consolidated Financial Statements and IFRS 12: Disclosure of Involvement with Other Entities, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The group does not present separate financial statements. 29
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Standards issued but not yet effective (continued) IAS 28: Investments in Associates and Joint Ventures (Amendment) (effective 1 January 2013) As a consequence of the new IFRS 11: Joint Arrangements and IFRS 12: Disclosure of Involvement with Other Entities, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. IFRS 3: Business Combinations (Amendment) (effective 1 July 2011) The measurement options available for non-controlling interests have been amended. Only components of non-controlling interests that constitute a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation shall be measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are to be measured at their acquisition date fair value. IFRS 7: Financial Instruments: Disclosures — Enhanced Derecognition Disclosure Requirements (Amendment) (effective 1 July 2011) The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognised assets. The amendment becomes effective for annual periods beginning on or after 1 July 2011. The amendment affects disclosure only and has no impact on the group’s financial position or performance. IFRS 9: Financial Instruments: Classification and Measurement (effective 1 January 2015) IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39: Financial Instruments: Recognition and Measurement and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The completion of this project is expected by the first half of 2012. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IFRS 10: Consolidated Financial Statements (effective 1 January 2013) IFRS 10 replaces the portion of IAS 27 that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. IFRS 12: Disclosure of Involvement with Other Entities (effective 1 January 2013) IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.
30
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Standards issued but not yet effective (continued) IFRS 13: Fair Value Measurement (effective 1 January 2013) IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The group is currently assessing the impact that this standard will have on the financial position and performance. Additional disclosures will be made in the consolidated financial statements when these Standards become effective. Basis of consolidation The consolidated financial statements includes the accounts of the parent company and its subsidiaries as at 31 December 2011. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies as followed by the parent company. All inter-group balances and transactions, including inter-group profits and unrealised profits and losses are eliminated on consolidation. Subsidiaries are fully consolidated from the date on which control is transferred to the group. Control is achieved where the parent company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of the subsidiaries acquired or disposed off during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal, as appropriate. Non-controlling interests represent the portion of profit and loss and net assets not held by the group and is presented separately in the consolidated income statement and within equity in the consolidated statement of financial position separately from equity attributable to the equity holders of the parent company. Losses are attributed to the non-controlling interests even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. If the group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary; • Derecognises the carrying amount of any non-controlling interests; • Derecognises the cumulative foreign currency translation differences, recorded in equity; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained; • Recognises any surplus or deficit in consolidated income statement; and • Reclassifies the parent company’s share of components previously recognised in other comprehensive income to consolidated income statement.
31
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation (continued) The subsidiaries of the group are as follows:
Name of subsidiary
Country of incorporation
Effective interest as at 31 December 2011 2010
Kuwait National Industrial Projects Company K.S.C. (Closed) (KNIP)
Kuwait
92.58%
92.58%
Amaken United Real Estate Company K.S.C. (Closed (Amaken)
Kuwait
75.62%
75.62%
Kuwait Kuwait Kuwait Kuwait Kuwait Saudi Arabia
100% 100% 100% 100% 100% 100%
100% 100% 100% 100% 100% 100%
United Cement Company K.S.C. (Closed) United Industrial Gas Company K.S.C. (Closed) North Gulf Cement & Building Materials K.S.C (Closed) Badael Energy Company K.S.C. (Closed) Western Projects General Trading Company W.L.L. United Gulf Industries Company W.L.L
Certain shares in Amaken are pledged as security in favour of a local bank against certain interest bearing loans. During the year ended 31 December 2010, the Group acquired additional equity interest of 50.07% in Kuwait National Industrial Projects Company K.S.C (Closed) (KNIP) (previously classified as “investment in associate” with equity interest of 49.92%). As a result, the parent company’s equity interest in KNIP increased to 100%. As a result, KNIP became a subsidiary of the parent company and was consolidated from the date of exercise of control. This acquisition was accounted for in accordance with IFRS 3R. As the business combination was achieved in stages, the Group re-measured its previously held equity interest in KNIP at the acquisition-date fair value. Furthermore, in accordance with IFRS 3R, other comprehensive income of KD 2,415,718 relating to KNIP was recycled to the consolidated income statement during the year ended 31 December 2010. Cash outflow on this acquisition amounted to KD 8,220,212. Following KNIP becoming a subsidiary, KNIP issued right shares amounting to KD 26,000,000 during 2010. The parent company did not subscribe to all the right shares allocated to them. As a result, the parent company’s holding in KNIP decreased from 100% to 92.58% as at 31 December 2010. In accordance with IAS 27R, Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control were accounted for as equity transactions. As a result of change in ownership, an amount of KD 1,141,523 was recognised directly in equity. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed. 32
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Business combinations and goodwill (continued) When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date and the resulting gain / loss is included in the consolidated income statement. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 - Financial Instruments: Recognition and Measurement either in consolidated income statement or as change to other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured until it is finally settled within equity. In instances where the contingent consideration does not fall within the scope of IAS 39, it is remeasured in accordance with the appropriate IFRS. Goodwill is initially measured at cost being the excess of the consideration transferred over the group’s share of the fair value of the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in consolidated income statement. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received. The following specific recognition criteria must also be met before revenue is recognised: Interest and rental income Interest income is recorded using the effective interest rate, and rental income is recognised when earned, on a time apportionment basis. Dividend income Dividend income is recognised when the right to receive the dividend is established. Gain on sale of financial assets Gain on sale of financial assets is measured by the difference between the sale proceeds and the carrying amount of the investment at the date of disposal, and is recognised at the time of the sale.
33
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Taxation Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS) The parent company calculates the contribution to KFAS at 1% in accordance with the modified calculation based on the Foundation’s Board of Directors resolution, which states that income from associates and subsidiaries, Board of Directors’ remuneration and transfer to statutory reserve should be excluded from profit for the year when determining the contribution. National Labour Support Tax (NLST) The parent company calculates the NLST in accordance with Law No. 19 of 2000 and the Minister of Finance Resolutions No. 24 of 2006 at 2.5% of taxable profit for the year. As per the Law, income from associates and subsidiaries, cash dividends from listed companies which are subjected to NLST is deducted from the profit for the year. Zakat Contribution to Zakat is calculated at 1% of the profit of the Parent Company in accordance with the Ministry of Finance resolution No. 58/2007. Financial assets and liabilities Financial assets Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, or financial assets available for sale as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The group classifies its financial assets as bank balances and short term deposits, other receivables, due from related parties, financial assets at fair value through profit or loss, financial assets available for sale, and certain other assets. The group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each reporting date. All regular way purchases and sales of financial assets are recognised on the trade date, which is the date that the group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place. Bank balances and short term deposits For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash in hand, bank balances, bank overdrafts and short-term deposits maturing within three months. Other receivables Other receivables are stated at original invoice amount less a provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Doubtful debts are written off when there is no possibility of recovery.
34
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets and liabilities (continued) Financial assets (continued) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition as fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on financial assets held for trading are recognised in the consolidated income statement. Financial assets are designated at fair value through profit or loss if they are managed and their performance is evaluated on reliable fair value basis in accordance with documented investment strategy. Derivative instruments are categorised as held for trading unless they are designated as hedging instruments. After initial recognition financial assets at fair value through profit or loss are remeasured at fair value with all changes in fair value recognised in the consolidated income statement. Financial assets available for sale Financial assets available for sale are those non-derivative financial assets that are designated as available for sale, or are not classified as financial assets at fair value through profit or loss, financial assets held to maturity or loans and receivables. After initial recognition, financial assets available for sale are measured at fair value with gains and losses being recognised in other comprehensive income until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in other comprehensive income is recognised in the consolidated income statement. Financial assets whose fair value cannot be reliably measured are carried at cost, less impairment losses, if any. Impairment and uncollectibility of financial assets An assessment is made at each reporting date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the consolidated income statement. Impairment is determined as follows: a. For assets carried at fair value, impairment is the difference between cost and fair value less any impairment loss previously recognised in the consolidated income statement; b. For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; c. For assets carried at amortised cost, impairment is based on estimated cash flows discounted at the original effective interest rate. In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the consolidated income statement) is removed from other comprehensive income and recognised in the consolidated income statement. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in their fair value after impairment are recognised directly in other comprehensive income.
35
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets and liabilities (continued) Financial liabilities The group classifies its financial liabilities as due to related parties, interest bearing loans and accounts payables and accruals. Interest bearing loans Interest bearing loans are carried on the consolidated statement of financial position at their principal amounts. Instalments due within one year are shown as current liabilities. Interest is charged as an expense as it accrues, with unpaid amounts included in ‘accounts payable and accruals’. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: • the rights to receive cash flows from the asset have expired; • the group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass through’ arrangement; or • the group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the group could be required to repay. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. Offsetting Financial assets and financial liabilities are offset if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
36
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets and liabilities (continued) Fair value The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 18. Investment in associates The group’s investment in its associates is accounted for using the equity method. An associate is an entity over which the group has significant influence. Under the equity method, the investment in the associates is carried in the consolidated statement of financial position at cost plus post acquisition changes in the group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The consolidated income statement reflects the share of the results of operations of the associate. Where there has been a change recognised in other comprehensive income of the associate, the group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of other comprehensive income. Unrealised gains and losses resulting from transactions between the group and the associate are eliminated to the extent of the interest in the associate. The share of profit of an associate is shown on the face of the consolidated income statement. This is the profit attributable to equity holders of the associate and therefore is profit after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the group. Where necessary, adjustments are made to bring the accounting policies in line with those of the group. After application of the equity method, the group determines whether it is necessary to recognise an additional impairment loss on the group’s investment in its associate. The group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the consolidated income statement. Upon loss of significant influence over the associate, the group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in consolidated income statement.
37
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Investment properties Investment properties are initially recorded at cost being the fair value of the consideration given and including acquisition charges associated with the investment property. After initial recognition, the properties are re-measured to fair value on an individual basis with any gain or loss arising from a change in fair value being included in the consolidated income statement in the period in which it arises. Investment properties are derecognised when either they have been disposed off or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the consolidated income statement in the year of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to subsequent lease. For a transfer from investment property to owner-occupied property, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the group as an owner-occupied property becomes an investment property, the group accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. When the group completes the construction or development of a self constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the consolidated income statement. Property and equipment Property and equipment are stated at cost less accumulated depreciation and impairment losses. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is recognised in the consolidated income statement. Depreciation is computed on a straight-line basis over the estimated useful lives of other property and equipment as follows: Computer and office equipment
3 to 5 years
Furniture and fixtures
5 years
Motor vehicles
3 to 5 years
The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits arising from items of property and equipment. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.
38
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of non-financial assets An asset is impaired if its carrying amount exceeds its estimated recoverable amount. The recoverable amount of an asset is the higher of an asset’s fair value less cost to sell and value in use. Fair value less cost to sell is the amount obtainable from the sale of an asset in an arm’s length transaction. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. An assessment is made at each reporting date to determine whether there is objective evidence that an asset may be impaired. If such evidence exists, an impairment loss is recognised in the consolidated income statement. Reversal of impairment losses is recognised in the consolidated income statement. Employees’ end of service benefits Provision is made for amounts payable to employees under the Kuwaiti Labour Law and employee contracts and applicable law in the countries where the subsidiaries operate. This liability, which is unfunded, represents the amount payable to each employee as a result of involuntary termination on the reporting date, and approximates the present value of the final obligation. Treasury shares Treasury shares consist of the parent company’s own shares that have been issued, subsequently reacquired by the parent company and not yet reissued or cancelled. The treasury shares are accounted for using the cost method. Under the cost method, the weighted average cost of the shares reacquired is charged to a contra equity account. When the treasury shares are reissued, gains are credited to a separate account in shareholders’ equity, (the “treasury shares reserve”), which is not distributable. Any realised losses are charged to the same account to the extent of the credit balance on that account. Any excess losses are charged to retained earnings then to the voluntary reserve and statutory reserve. Gains realised subsequently on the sale of treasury shares are first used to offset any previously recorded losses in the order of reserves, retained earnings and the treasury shares reserve account. No cash dividends are paid on these shares. The issue of bonus shares increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares. Share based payment transactions The group operates an equity-settled, share-based Employee Stock Option Plan (ESOP). Under the terms of the plan, share options are granted to eligible employees. The options are exercisable in future. The fair value of the options at the date on which they are granted is recognised as an expense over the vesting period with corresponding effect to equity. The fair value of the options is determined using Black-Scholes option pricing model. The proceeds received and amount transferred from employees’ share option reserve are credited to share capital (nominal value) and share premium when the options are exercised.
39
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currencies translation The financial statements are presented in Kuwaiti Dinars, which is also the functional currency of the group. Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Kuwait Dinars at rates of exchange prevailing on that date. Any resultant gains or losses are recognised in the consolidated income statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value and translated to Kuwaiti Dinars at the foreign exchange rates prevailing at the dates that the values were determined. In case of non-monetary assets whose change in fair values are recognised directly in other comprehensive income, foreign exchange differences are recognised directly in other comprehensive income and for non-monetary assets whose change in fair value are recognised in the consolidated income statement, all differences are recognised in the consolidated income statement. The group’s investment in foreign associates is translated into Kuwaiti Dinars at the year end rates of exchange and the results of the associates are translated into Kuwaiti Dinars at the average rates of exchange for the year. All foreign exchange translation adjustments are taken to the other comprehensive income until disposal, at which time they are recognised in the consolidated income statement. Other reserve Other reserve is used to record the effect of changes in ownership interest in subsidiaries, without loss of control. Segment information A segment is a distinguishable component of the group that engages in business activities from which it earns revenue and incurs costs. The operating segments are used by the management of the group to allocate resources and assess performance. Operating segments exhibiting similar economic characteristics, product and services, class of customers where appropriate are aggregated and reported as reportable segments. Contingencies Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. Significant accounting judgments and estimates The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The group has used judgement and estimates principally in, but not limited to, the classification of financial assets, the determination of impairment provisions and valuation of unquoted equity investments and investment properties.
40
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Judgments Classification of financial assets Management decides on acquisition of financial assets whether it should be classified as financial assets at fair value through profit or loss or financial assets available for sale. The group classifies financial assets at fair value through profit or loss if they are acquired primarily for the purpose of short term profit making. Classification of financial assets as fair value through profit or loss depends on how management monitors the performance of these financial assets. When they are not classified as held for trading but have readily available fair values and the changes in fair values are reported as part of consolidated income statement in the management accounts, they are classified as fair value through profit or loss. All other financial assets are classified as available for sale. Estimates Revaluation of Investment properties The group carries its investment properties at fair value, with changes in fair value being recognised in consolidated income statement. The group engaged independent valuation specialists to determine fair value as at 31 December 2011.The valuation performed by the independent valuation specialists requires judgment. Impairment of investment in associates After application of the equity method, the group determines whether it is necessary to recognise any impairment loss on the group’s investment in its associated companies, at each reporting date based on existence of any objective evidence that the investment in the associate is impaired. If this is the case the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the consolidated income statement. With respect to Saudia Dairy and Foodstuff Company S.S.C., the group prepared cash flow forecasts derived from the most recent financial budgets approved by management for the next five years. The rate used to discount the forecast cash flows is 8.7% (2010: 8.8%). With respect to Qurain Petrochemical Industries Company K.S.C., the group prepared cash flow forecasts derived from the most recent financial budgets approved by the management for the next five years. The rate used to discount the forecast cash flows is 7.4% (2010: 7.7%). The recoverable amount calculated based on the above assumptions did not result in any impairment of associates (2010: Nil). Impairment of financial assets The group treats financial assets available for sale as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires considerable judgment. Impairment of other receivables An estimate of the collectible amount of other receivables is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. 41
Notes to the Consolidated Fiancial Statements As at 31 December 2011
2.
SIGNIFICANT ACCOUNTING POLICIES (continued) Significant accounting judgments and estimates (continued) Estimates (continues) Valuation of unquoted equity investments Valuation of unquoted equity investments is normally based on one of the following: • Recent arm’s length market transactions; • Current fair value of another instrument that is substantially the same; • Earnings multiple; • The expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; • Underlying net asset base of the investment; or • Other valuation models The determination of the cash flows and discount factors for unquoted equity investments requires significant estimation.
3.
TAXATION
Contribution to KFAS NLST Zakat
4.
2011 KD
2010 KD
9,027 33,195 10,378
35,008 104,308 37,754
52,600
177,070
2011 KD
2010 KD
811,404 59,437 870,841 28,442
646,317 92,486 738,803 35,870
PROFIT FOR THE YEAR The profit for the year is stated after charging:
Staff cost: Salaries (including bonus) Other benefits Depreciation 42
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
5.
EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit for the year attributable to equity holders of the parent company by the weighted average number of shares outstanding, less treasury shares, during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to equity holders of the parent company by the weighted average number of ordinary shares outstanding, less treasury shares during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all outstanding share options into ordinary shares. Profit for the year attributable to equity holders of the parent company
Weighted average number of shares outstanding Weighted average number of treasury shares Weighted average number of shares Basic and diluted earnings per share
2011 KD 1,210,449
2010 KD 4,045,494
Shares Shares 495,468,750 373,977,098 (3,280,428) (2,324,428) 492,188,322 371,652,670 2.46 fils 10.89 fils
The effect of outstanding share options have not been considered in the computation of diluted earnings per share as the result is anti-dilutive.
6.
cash and cash equivalents 2011 KD
2010 KD
Cash in hand and at banks Cash in portfolios with local financial institutions Deposits with original maturities up to three months
461,725 15,388 2,863,384
1,795,655 36,883 3,462,162
Bank balances and short term deposits Less: bank overdraft Less: balances in restricted bank accounts Cash and cash equivalents in the consolidated statement of cash flows
3,340,497 (147,251) (245,755) 2,947,491
5,294,700 - (255,122) 5,039,578
Bank deposits are placed with local banks and are denominated in Kuwaiti Dinars, having an average interest rate of 1.63% (2010: 1.75%) per annum. Bank deposits are placed for periods ranging between one and three months, depending on the liquidity management of the group.
43
Notes to the Consolidated Fiancial Statements As at 31 December 2011
7.
OTHER receivables and PREPAYMENTS
Other receivables Advances Prepayments Due from related parties (Note 11)
8.
2011 KD
2010 KD
359,338 185,122 1,010 7,243 552,713
35,500 57,381 26,846 8,738 128,465
2011 KD
2010 KD
1,690,398 17,162,507 115,128 18,968,033
1,963,180 6,968,087 119,352 9,050,619
FINANCIAL ASSETS AVAILABLE FOR SALE
Quoted equity securities Unquoted equity securities Money market funds
During the year, investment in an associate amounting to KD 12,382,732 was reclassified to financial assets available for sale following the loss of significant influence (Note 9). Management has performed a review of its financial assets available for sale to assess whether impairment has occurred in the value of these investments. Based on specific information, management recorded an impairment loss of KD 878,585 in the consolidated income statement for the year ended 31 December 2011 (2010: Nil). Unquoted equity securities are carried at cost due to the non-availability of quoted market prices or other reliable measures of fair value. Management is not aware of any circumstances that would indicate impairment in the value of these investments as at the reporting date. Financial assets amounting to KD 16,157,245 (2010: KD 3,931,000) are pledged against loans from local banks (Note 12).
44
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
9.
Investment in associateS Name of associate
Percentage of ownership 2011 2010
Country of incorporation
Saudia Dairy and Foodstuff Company S.S.C. (“Sadafco”)
Kingdom of Saudi Arabia
Al Atoun Steel Industries S.S.C. (Closed) (“Al Atoun Steel”)
Kingdom of Saudi Arabia
Qurain Petrochemical Industries Company K.S.C. (“Qurain”)*
Kuwait
United Petrochemical Industries Company K.S.C. (Closed) (“UPI”)
Kuwait
40.13%
Principal activities
40.13%
Production of foodstuffs and dairy products.
24.05%
Business activities relating to steel industry.
18.53%
Business activities relating to 18.46% chemical, petrochemical and other derivative materials.
49.00%
49.00%
Company has not yet started its commercial operations.
* The group exercises significant influence through board representation. The movement in the carrying amount of investment in associates during the year is as follows: 2011 KD As at 1 January Additions Disposals Share of results Share of other comprehensive (loss) income Dividends received Transfer to financial assets available for sale (Note 8) Reclassification from an associate to a subsidiary Foreign currency translation reserve As at 31 December
2010 KD
153,626,188 76,476,624 - 84,974,041 - (1,516,210) 7,445,034 4,997,014 (425,236) 2,119,953 (2,727,413) (2,878,447) (12,382,732) (1,981,821) - (8,448,829) (578,589) (116,137) 144,957,252 153,626,188
45
Notes to the Consolidated Fiancial Statements As at 31 December 2011
9.
Investment in associateS (continued) The carrying value of individual associates is as follows: Sadafco Al Atoun Steel Qurain UPI
2011 KD
2010 KD
55,959,599 - 88,801,653 196,000 144,957,252
55,208,685 12,482,732 85,738,771 196,000 153,626,188
The following table illustrates summarised financial information of the group’s investments in associates:
Share of the associates’ statement of financial position: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of the associates’ revenue and results: Revenue Profit for the year Market value of quoted associates: Sadafco Qurain
2011 KD
2010 KD
26,588,799 42,812,536 (5,894,346) (2,209,216) 61,297,773
37,967,893 44,960,188 (8,430,893) (2,157,254) 72,339,934
42,957,559 7,445,034
56,090,975 4,997,014
44,424,456 42,632,387
40,637,192 38,166,137
During the year, the parent company filed two legal cases in the Kingdom of Saudi Arabia against Al Atoun Steel (and the sponsors of Al Atoun Steel). In the first case, pleading liquidation of Al Atoun Steel and recovery of the amount invested in equity of Al Atoun Steel, the Court in the Kingdom of Saudi Arabia ruled against the parent company, and ordered the case to be dismissed. The detailed ruling by the Court in expected to be issued in due course. The management of the parent company, based on independent legal advice, will appeal against the ruling. The management is confident that the investment in Al Atoun Steel will be recovered in full, since the parent company is entitled to this amount under the ‘Shareholder Rights Agreement’, which grants them the right to recover the funds if certain conditions are not met. The second case relates to claim for damages against Al Atoun Steel for breach of Shareholder Rights Agreement. The Court has not yet given its ruling on this case.
46
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
9.
Investment in associateS (continued) As the parent company is unable to exercise significant influence to participate in the financial and operating policy decisions of Al Atoun Steel, and the management of the parent company has decided to recover the funds invested in Al Atoun Steel, the investment in Al Atoun Steel has been reclassified from “Investment in associates” to “financial assets available for sale” (Note 8). Certain shares in Sadafco and Qurain are pledged against interest bearing loans from local banks (Note 12). In accordance with International Accounting Standard 36 “Impairment of assets”, the management has performed a detailed impairment exercise in respect of each of the associates to determine whether there is any objective evidence that its investment in associates is considered impaired. The management compared the recoverable amount (being the higher of value in use and fair value less cost to sell) of each of the associates with the carrying amounts. In determining the value in use, the management estimated the present value of the estimated future cash flows expected to arise from dividends to be received from each of the associates and from their ultimate disposal. As a result of the exercise, the management has concluded that no impairment provision is considered necessary in the consolidated income statement.
10. INVESTMENT PROPERTIES 2011 KD
2010 KD
As at 1 January Additions Change in fair value Disposal As at 31 December
9,593,027 3,265 3,708 - 9,600,000
9,638,152 63,138 210,000 (318,263) 9,593,027
Developed properties Land under development As at 31 December
9,600,000 - 9,600,000
6,560,000 3,033,027 9,593,027
Included in investment properties is a property with a carrying value of KD 4,250,000 (2010: KD 4,250,000). The property is subject to an ongoing litigation filed by the parent company for evacuation of property and settlement of outstanding rent by an entity that was previously an associate of the group. The management is confident that the verdict shall be issued in favor of the parent company.
47
Notes to the Consolidated Fiancial Statements As at 31 December 2011
11. Related PARTY TRANSACTIONS
KD
KD
Ultimate parent Major company shareholder Associates KD
KD
Other related parties
KD
Total 2011
KD
Total 2010
-
- - - 2,415,718 - 63,535 63,535 496,173 - 3,169,645 3,169,645 2,799,639 54,000 - 54,000 187,233
591,530
-
- - - -
- 3,133,488 3,142,959 4,863,613 7,243 - 7,243 8,738 - 296,667 915,154 322,989 - 52,500,000 52,500,000 52,500,000
- - - -
9,471 - 15,987 -
-
- - 602,500 -
-
These represent transactions with related parties, i.e. the ultimate parent company, major shareholders, associates, directors and key management personnel of the group, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the group’s management. Related party transactions and balances consist of the following:
Consolidated income statement: Gain on partial sale of investment in associates Gain arising as a result of an associate becoming a subsidiary Interest income Finance cost Management fee (included in other income) Consolidated statement of financial position: Bank balances and short term deposits Due from related parties (Note 7) Due to related parties Interest bearing loans (Note 12)
Other than due to the ultimate parent company and interest bearing loans, outstanding balances as at the reporting date are unsecured, interest free and repayable on demand. Due to the ultimate parent company carries an interest of 2.5% over the Central Bank of Kuwait discount rate.
48
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
11. Related PARTY TRANSACTIONS (CONTINUED) Key management compensation: Remuneration paid or accrued in relation to key management personnel was as follows:
Salaries and other short-term benefits Employees end of service indemnity
2011 KD
2010 KD
365,597 72,652 438,249
341,533 (81,101) 260,432
Directors’ fees of KD 25,000 (2010: KD 15,000) exceeds the amount permissible under local regulations and is subject to approval of the Shareholders’ General Assembly.
12. INTEREST BEARING LOANS 2011 KD
2010 KD
-
30,000,000
Medium term loan borrowed from a local related party bank carried an interest rate of 3.5% over the Central Bank of Kuwait discount rate. This loan was converted into a long term loan on 12 June 2011. Medium term loan borrowed from a local related party bank carried an interest rate of 3.5% over the Central Bank of Kuwait discount rate. This loan was converted into a long term loan on 12 June 2011. Medium term loan borrowed by the group from a local related party bank were converted into a long term loan, which will be repaid in annual installments starting from 15 December 2012. The long term loan from a local related party bank carries interest of 3.5% over the Central Bank of Kuwait discount rate. It is secured by certain ‘financial assets available for sale’ (Note 8) and a portion of shares in an associate (Note 9). Short-term loan carries a profit rate of 6.75% per annum. This loan is due within one year from the date of disbursement and is secured by a pledge on the shares of an associate.
- 22,500,000
52,500,000
-
17,450,000 69,950,000
17,450,000 69,950,000
Certain shares of a subsidiary are pledged against loans from a local related party bank.
49
Notes to the Consolidated Fiancial Statements As at 31 December 2011
12. INTEREST BEARING LOANS (CONTINUED) The following table shows the current and non-current portions of the group’s loan obligations:
Current portion Non-current portion
2011 KD
2010 KD
19,450,000 50,500,000 69,950,000
44,950,000 25,000,000 69,950,000
2011 KD
2010 KD
1,040,261 229,292 619,403 1,200,000 120,913 3,209,869
1,422,388 243,390 554,001 1,200,000 897,474 4,317,253
13. Accounts payable and ACCRUALS
Accrued interest Dividends payable Accrued expenses Amount payable to a former associate of the group Other payables
14. SHARE CAPITAL, SHARE PREMIUM, RESERVES AND APPROPRIATIONS a.
Share capital Authorised, issued and paid-up capital consists of 495,468,750 shares (2010: 495,468,750 shares) of 100 fils per share (2010: 100 fils per share).
b.
Share premium Share premium represents cash received in excess of the par value of the shares issued. The share premium is not available for distribution.
c.
Treasury shares
Number of shares Percentage of issued shares Market value (KD) Treasury shares reserve is not available for distribution. 50
2011
2010
7,744,428 1.56% 758,954
2,324,428 0.47% 274,283
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
14. SHARE CAPITAL, SHARE PREMIUM, RESERVES AND APPROPRIATIONS (continued) d.
Statutory reserve As required by the Law of Commercial Companies and the parent company’s articles of association, 10% of the profit for the year attributable to equity holders of the parent company before contribution to KFAS, NLST, Zakat and directors’ fees has been transferred to statutory reserve. The parent company may resolve to discontinue such annual transfers when the reserve totals 50% of paid up share capital. Distribution of the reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when accumulated profits are not sufficient for the payment of a dividend of that amount.
e.
e) Voluntary reserve As required by the parent company’s articles of association, 10% of the profit for the year attributable to equity holders of the parent company before contribution to KFAS, NLST, Zakat and directors’ fees has been transferred to voluntary reserve. Such annual transfers may be discontinued by a resolution of the parent company’s shareholders’ general assembly upon a recommendation by the board of directors.
15. SHARE BASED PAYMENTS The parent company has a stock option plan for certain employees. Share options (the “options”) are exercisable at a price approved by Board of Directors at the date of grant. The weighted average vesting period is one to three years. The options expire if they are not exercised within the period specified in the grant. If an employee leaves the group before the options vest, the share options are forfeited. No share options were granted during 2011 (2010: Nil). The following table illustrates the number and weighted average exercise price of, and movement in, share options during the year:
2011 No. of share options
Outstanding at 1 January Forfeited Outstanding at 31 December Exercisable at 31 December
2,552,652 - 2,552,652 2,552,652
2010
Weighted average exercise price Fils 250 - 250 250
No. of share options
2,857,115 (304,463) 2,552,652 2,247,495
Weighted average exercise price Fils 250 250 250 250
The fair values of the share options were calculated using the Black-Scholes option pricing model. The group did not recognise any expense relating to equity-settled share-based payment transactions during the year as the shares vested on 2010 (2010: Nil). The weighted average share price during the year of exercise of share options was 113 fils (2010: 114 fils). The exercise price of these share options are higher than the market price of shares as at 31 December 2011. 51
Notes to the Consolidated Fiancial Statements As at 31 December 2011
16. MATURITY ANALYSIS OF ASSETS AND LIABILITIES The table below summarises the maturity profile of the group’s assets and liabilities. The maturities of assets and liabilities have been determined according to when they are expected to be recovered or settled. The maturity profile for financial assets at fair value through profit or loss, financial assets available for sale and investment in associates is based on management’s estimate of liquidation of those assets. The maturity profile of assets and liabilities is as follows: 2011
Assets Bank balances and short term deposits Other receivable and prepayments Financial assets at fair value through profit or loss Financial assets available for sale Investment in associates Investment properties Other assets Total assets Liabilities Bank overdraft Due to related parties Interest bearing loans Accounts payable and accruals Employees’ end of service benefits TOTAL Liabilities Net liquidity gap
Within 3 months KD
3 to 12 months KD
1 to 5 years KD
-
Over 5 years KD
Total KD
3,340,497 -
552,713
-
3,340,497 552,713
3,340,497
23,625 23,625 - 18,968,033 - 18,968,033 - 144,957,252 144,957,252 9,600,000 9,600,000 304,120 304,120 576,338 28,872,153 144,957,252 177,746,240
147,251 - 147,251 915,154 915,154 - 19,450,000 50,500,000 - 69,950,000 3,209,869 3,209,869 - 940,810 940,810 147,251 23,575,023 50,500,000 940,810 75,163,084 3,193,246 (22,998,685) (21,627,847) 144,016,442 102,583,156
On 12 June 2011, the management of the parent company entered into an agreement with a related party bank and re-negotiated the settlement terms of some of its medium term interest bearing loans amounting to KD 52,500,000 (Note 12). Furthermore, as at the reporting date, the management is in the process of re-negotiating the settlement of some of the other interest bearing loans amounting to KD 17,450,000 (Note 12) with a local bank. The management is confident that they will be able to re-negotiate the terms of these other interest bearing loans.
52
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
16. MATURITY ANALYSIS OF ASSETS AND LIABILITIES (continued) 2010
Assets Bank balances and short term deposits Other receivable and prepayments Financial assets at fair value through profit or loss Financial assets available for sale Investment in associates Investment properties Other assets Total assets Liabilities Due to related parties Interest bearing loans Accounts payable and accruals Employees’ end of service benefits TOTAL Liabilities Net liquidity gap
Within 3 months KD
3 to 12 months KD
1 to 5 years KD
Over 5 years KD
Total KD
5,294,700 -
128,465
-
-
5,294,700 128,465
5,294,700
328,351 328,351 9,050,619 9,050,619 - 153,626,188 153,626,188 9,593,027 9,593,027 41,236 43,957 85,193 456,816 18,684,882 153,670,145 178,106,543
322,989 322,989 2,500,000 42,450,000 25,000,000 - 69,950,000 4,317,253 4,317,253 817,226 817,226 2,500,000 47,090,242 25,000,000 817,226 75,407,468 2,794,700 (46,633,426) (6,315,118) 152,852,919 102,699,075
17. RISK MANAGEMENT Risk is inherent in the group’s activities and is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the group’s continuing profitability and each individual within the group is accountable for the risk exposures relating to his or her responsibilities. The group’s principal financial liabilities comprise interest bearing loans, accounts payable and accruals, due to related parties and employees’ end of service benefits. The main purpose of these financial liabilities is to raise finance for the group’s operations. The group has other receivables and bank balances and short-term deposits that arrive directly from its operations. The group also holds financial assets available for sale and financial assets at fair value through profit or loss. The main risks arising from the group’s financial instruments are credit risk, liquidity risk and market risk, with the latter subdivided into interest rate risk, equity price risk and foreign currency risk. It is also subject to operating risks. The independent risk control process does not include business risks such as changes in the environment technology and industry. They are monitored through the group’s strategic planning process.
53
Notes to the Consolidated Fiancial Statements As at 31 December 2011
17. RISK MANAGEMENT (continued) Risk management structure The Board of Directors of the group is ultimately responsible for the overall risk management approach and for approving the risk strategies and principles. Risk mitigation As part of its overall risk management, the group uses or may choose to use derivatives and other instruments to manage exposures resulting from changes in interest rates, foreign currencies, equity risks, credit risks, and exposures arising from forecast transactions. The major risks to which the group is exposed in conducting its business and operations, and the means and organisational structure it employs in seeking to manage them strategically in building shareholder value are outlined below. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The group is exposed to credit risk on bank balances and short term deposits, other receivables and due from related parties. The group is exposed to credit risk arising from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The group has policies and procedures in place to limit the amount of credit exposure to any counter party. The group attempts to control credit risk by monitoring credit exposures, limiting transactions with individual counterparties, and continually assessing the creditworthiness of counterparties. Excessive risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the group’s performance to developments affecting a particular industry or geographical location. Liquidity risk Liquidity risk is the risk that the group will be unable to meet its liabilities when they fall due. To limit this risk, management has arranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on a periodic basis. The table below summarises the maturity profile of the group’s financial liabilities based on contractual undiscounted repayment obligations.
54
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
17. RISK MANAGEMENT (continued) Financial liabilities Within 3 months KD 2011 Bank overdraft Due to related parties Interest bearing loans Accounts payable and accruals Total financial liabilities Financial liabilities 2010 Due to related parties Interest bearing loans Accounts payables and accruals Total financial liabilities
3 to 12 months KD
1 to 5 years KD
147,251 937,748 787,500 22,859,500 60,280,000 - 3,209,869 934,751 27,007,117 60,280,000 Within 3 months KD
3 to 12 months KD
1 to 5 years KD
322,989 2,512,500 46,046,500 25,875,000 - 4,317,253 2,512,500 50,686,742 25,875,000
Over 5 years KD
Total KD 147,251 937,748 - 83,927,000 - 3,209,869 - 88,221,868
Over 5 years KD
Total KD
322,989 - 74,434,000 - 4,317,253 - 79,074,242
Market risk Market risk is the risk that the value of an asset will fluctuate as a result of changes in market variables such as interest rates, equity prices and foreign exchange rates, , whether those changes are caused by factors specific to the individual investment or its issuer or factors affecting all investments traded in the market. Market risk is managed on the basis of pre-determined asset allocations across various asset categories, a continuous appraisal of market conditions and trends and management’s estimate of long and short term changes in fair value. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities. It is the group’s policy to manage its interest cost using a mix of fixed and variable rate debts. The group is exposed to interest rate risk on its interest bearing assets and liabilities (bank deposits and loans).
55
Notes to the Consolidated Fiancial Statements As at 31 December 2011
17. RISK MANAGEMENT (continued) Market risk (continued) The following table demonstrates the sensitivity of the consolidated income statement to reasonably possible changes in interest rates, with all other variables held constant. The sensitivity of the consolidated income statement is the effect of the assumed changes in interest rates on the group’s profit for the year, based on the floating rate financial assets and financial liabilities held at 31 December 2011. There is no impact on other comprehensive income. 50 basis points increase Effect on consolidated income statement
Liabilities bearing interest at floating rates
2011 KD
2010 KD
262,500
262,500
The effect of decrease in interest rates are expected to be equal and opposite to the effect of the increases shown above. Equity price risk Equity price risk arises from changes in the fair values of equity investments. Equity price risk is managed by the direct investment department of the parent company. The unquoted equity price risk exposure arises from the group’s investment portfolio. The group manages this through diversification of investments in terms of geographical distribution and industry concentration. The majority of the group’s quoted investments are listed on the Kuwait Stock Exchange. The group is not exposed to significant equity price risk as investment in quoted securities is not significant and unquoted equity securities are carried at cost as explained in Note 8.
56
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
17. RISK MANAGEMENT (continued) Market risk (continued) Foreign currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The group is exposed to foreign currency risk on transactions denominated in a currency other than KD. Management believes that there is minimal risk of significant losses due to exchange rate fluctuations and consequently the group does not hedge foreign currency exposures. The effect on profit for the year and on other comprehensive income, as a result of change in currency rates, with all other variables held constant is shown below: Effect on other comprehensive Increase against Effect on profit income KD KD KD 2011 US Dollars Saudi Riyal
+5% +5%
Increase against KD 2010 US Dollars Saudi Riyal
-
Effect on profit KD
+5% +5%
(48,676) -
5,756 1,107,923 Effect on other comprehensive income KD - 1,070,378
The effect of decrease in exchange rates against KD are expected to be equal and opposite to the effect of the increases shown above.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Underlying the definition of fair value is the presumption that the group is a going concern without any intention or need to liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms. As at the reporting date, the fair value of the group’s financial assets (except for certain financial assets available for sale carried at cost (Note 8) and financial liabilities) were not materially different from their carrying values.
57
Notes to the Consolidated Fiancial Statements As at 31 December 2011
18. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) Fair value hierarchy The group uses the following hierarchy for determining and disclosing the fair values of financial instruments: Level 1:
Quoted prices in active market for the same instrument.
Level 2:
Quoted prices in active market for similar instruments or other valuation techniques for which all significant inputs are based on observable market data; and
Level 3:
Valuation techniques for which any significant input is not based on observable market data.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
2011 Financial assets at fair value through profit or loss: Quoted equity securities Financial assets available for sale: Quoted equity securities Money market funds
Level: 1
Level: 2
KD
KD
23,625
-
23,625
1,690,398 - 1,690,398
- 115,128 115,128
1,690,398 115,128 1,805,526
Level: 1 KD 2010 Financial assets at fair value through profit or loss: Quoted equity securities Financial assets available for sale: Quoted equity securities Money market funds
Total fair value KD
Level: 2 KD
Total fair value KD
328,351
-
328,351
1,963,180 1,963,180
119,352 119,352
1,963,180 119,352 2,082,532
There were no transfers between level 1 and level 2 fair value hierarchy during 2011 and 2010. There were no financial instruments classified as level 3 (2010: Nil).
58
Annual Report
Notes to the Consolidated Fiancial Statements As at 31 December 2011
19. SEGMENT INFORMATION
The group is organised into segments that engage in business activities which earns revenue and incurs expenses. These segments are regularly reviewed by the chief operating decision maker for resource allocation and performance assessment.
2011 Total
2010
Total
KD
Basic and food Industries
KD
Energy sector
KD
8,556,818 3,124,319 1,138,749 (192,070) 4,070,998
KD
6,903,588 3,326,594 -
Basic and food industries KD
1,653,230 (202,275) -
4,184,261 93,428 -
7,532,284 775,910 641,355 (77,600) 1,339,665
3,348,023 682,482 -
86,263,122 41,250,296 85,934,771
91,843,421 178,106,543 34,157,172 75,407,468 67,691,417 153,626,188
72,164,936 105,581,304 177,746,240 18,967,341 56,195,743 75,163,084 88,997,653 55,959,599 144,957,252
KD
Energy sector
For management purposes, the group is organised in two operating segments based on business units as follows: • Energy sector represents group’s investments in oil and energy sector • Basic and food industries represents group’s investment in industrial, real estate, food, utilities, services and other related sectors.
Segment revenues Segment results Unallocated revenue Taxation and Directors’ fees Profit for the year Operating assets Operating liabilities Investment in associates
The basic and food industries segment includes segment revenue of KD 4,077,909 (2010: KD 6,457,916) and non-current assets of KD 59,900,727 (2010: KD 64,021,546) relating to overseas operations. Non-current assets exclude financial instruments.
59
Notes to the Consolidated Fiancial Statements As at 31 December 2011
20. CAPITAL MANAGEMENT The primary objective of the group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholders value. The group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 December 2011 and 31 December 2010. The group monitors capital using a gearing ratio, which is net debt divided by total capital. The group includes within net debt, interest bearing loans, accounts payable and accruals and employees’ end of service benefits less bank balances and short term deposits. Total capital includes equity attributable to the equity holders of the parent company and non-controlling interests.
Interest bearing loans Other liabilities Less: bank balances and short term deposits (net of bank overdraft) Net debt Total capital Gearing (debt to equity) ratio
60
2011 KD
2010 KD
69,950,000 5,065,834 (3,193,246) 71,822,588 102,583,156 70%
69,950,000 5,457,468 (5,294,700) 70,112,768 102,699,075 68%
How to get a copy of our 2011 financial statements: • A hard copy of the financial statements will be handed over to the shareholders who attend the General Meeting for their approval. • Shareholders may request a soft copy to be sent to them by e-mail. To have this arranged, please request the same by e-mail addressing to nabil@uickw.com. • Shareholders who wish to have a hard copy of the financial statements may contact Mr. Nabil Fahmi Fayed, Administrative Affairs Manager, Tel. no 22953000 ext. 113 for such arrangements.
P.O. Box. 25821 Safat 13119 Kuwait Tel. +965 22953000 - Fax. +965 23613752 info@uickw.com - www.uickw.com