H. H.

Sheikh Sabah Al Ahmad Al Jaber Al Sabah The Amir of the State of Kuwait

H. H. Sheikh Nawaf Al Ahmad Al Jaber Al Sabah The Crown Prince of the State of Kuwait

TABLE OF CONTENT
Company Overview Board of Directors and Executive Management Report of the Board of Directors Shariaa Advisory Committee Report Independent Auditors Report Income Statement Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements 10 11 12 17 18 20 21 22 23 24 25

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Company Name Date of Establishment Address

Company Overview

: Manafae Investment Co. (K.S.C.) closed : October 5, 2005 : Sharq, Kuwait, Khalid Bin Al-Waleed Street, Shaheed Tower, Floor 11

P. O. Box Telephone Fax E-mail Website Issued & Paid Capital

: P.O. Box 3132 Safat, 13032 Kuwait : (965) 22925888 : (965) 22475704 / 22495954 : info@manafae.com : www.manafae.com : KWD 20,088,143

Main Activities

: Investing in all economic sectors, asset management, establish & manage investment funds.

Shariaa Advisory Committee : Al Mashora and Al Rayah for Islamic Financial Consulting

Independent External Auditors : Ernst & Young Al Aiban, Al Osaimi & Partners Al Waha Auditing Office

Major Share Holders

: KIPCO Asset Management Company Al-Imtiaz Investment Company Public Institution for Social Security The Securities House Company Secretariat General of Al-Awkaf Bait Al Zakat Public Authority for Minors

Our Message

: We are committed to innovate, develop and provide investment products and consultancy services that are compliant with Islamic Shariaa standards that will achieve superior returns and added values to all of our shareholders and clients.

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Board of Directors and Executive Management

Mr. Talal Mohammad Al-Mutawa Vice Chairman & CEO

Mr. Eid Hathal Al-Nesafi Chairman

Sheikh Ali Mohammad Al-Sabah Board Member

Mr. Ahmad Saad Al-Hashan Board Member

Mr. Ayman Mohammad Al-Mutair Board Member

Mr. Khaled Abdullah Al-Saeed Board Member

Mr. Aref Ahmed Qamber Board Secretary

Mr. Mohammed A. Al Hubail Board Member

Executive Management
Talal Mohammad Al-Mutawa Vice Chairman & CEO Aref Ahmed Qamber Deputy CEO - Support Services & Board Secretary Abdulaziz Mutlaq Al-Osaimi Assistant CEO - Local & Gulf Trading Mohammed Helmy Shakweer Senior Manager - Operations Khaled Mohammed Abu Gharara Manager - Head of Internal Audit Dept.

Marwan Jasim Al-Musallam Manager - Direct Investment

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Report of the Board of Directors

In the Name of Allah the Most Graceful the Most Merciful Praise to Almighty God and Peace and Prayer Be Upon His Final Messenger, his pure family, his noble companions and Followers to the Day of Judgment, Honorable Shareholders,
May peace and Allahs mercy and blessings be upon you, On behalf of myself and the Members of the Board of Directors of Manafae Investment Company, I would

like to welcome you to your Seventh General Assembly Meeting for the financial year ended 31 December

2012. I have the pleasure to present to you the Annual Report for the financial year ended 31 December 2012, including the report of the Fatwa & Sharia Supervisory Board, a review of the main business developments that took place during the fiscal year ended 31 December 2012, a presentation of the Companys financial regional and global levels. statements, the external auditors report and an outline of the major economic developments at the local, The year 2012 was a continuation of the political and economical changes in the region and the world that resulted from the financial crisis having a clear impact on regional and world economies which were pushed wild fluctuations in economic activities and in particular the investment and real estate sectors. The business back to square one particularly the advanced economies performance. The year 2012 continued to witness sectors of different economies are still facing more difficulties and challenges resulting from tight credit and the difficulty of obtaining the required funding for projects along with the abstention of the financial and financial crisis and its serious consequences. banking institutions around the world and in the region from granting the said facilities due to the global The geopolitical developments witnessed in our region and the rest of the world, the instability of the political and economical situation and the incapability to predict the development of the situation contributed to the weakness of the economic activities in all sectors particularly in the investment and asset under management. investment and employ their money in a short term liquid financial instruments and more conservative

The overall trend for investors both individual and corporate was to abstain from long term financial investment opportunities. At the same time, it was becoming increasingly difficult to liquidate existing investments in order to honor the obligations which became even more burdensome as the global financial crisis dragged on. Honorable Shareholders,

The year 2012 witnessed many political and economic events that deeply impacted the performance of the investment companies sector. On the local level, although the local economy continued to grow but its impact on the businesses sector was relatively limited. The government continued to execute the development plan projects that had been approved in 2011 in the value of KD 35 billion related to the construction and development of roads, water, electricity and different services networks. However, the internal political
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unrest and repetitive changes of the government slowed down the progress of the development plan in accordance with its time schedule. The Gross Domestic Product witnessed an increase of 5.7% compared to 4.4% increase last year due to with an increase varying between 12% and 47% compared to the previous year. The government budget witnessed a surplus that may reach KD 13.6 billion due to increase aforementioned and decrease in the

higher oil prices and production. The average price ranged between USD 92 and USD 121 accompanied

governmental expenditure particularly the investment projects. The government, on the other hand, is not sparing the effort to activate the monetary policy tools by maintaining the discount rate at low levels in order to provide liquidity, encourage the borrowing, get the wheels of the economic machine turning and promotes the national economy. However, these policies did not realize any positive results until the moment because are still abstaining from granting the necessary funds to the institutions and companies of the private sector in order to accelerate the growth in the country.

they are still negatively influenced by the general surrounding environment and as a result thereof the banks

At the regional level, the Gulf Cooperation Council Countries continued to achieve positive growth levels

supported by the global increase of oil prices compared to the levels achieved in 2011. This increase was reflected positively in higher oil revenues and large budget surpluses despite the higher public expenditure of all GCC member countries although different growth rates were achieved individually. It is expected that economic sectors and activities in the Kingdom whose government announced a series of huge structural

the Saudi economy will achieve an exceptional growth in 2013 which will be reflected positively on all projects. This announcement was also made by the economies of the UAE, Qatar and Kuwait. Growth is global oil markets.

expected to continue during the coming years, though at varying rates, depending on developments in the At the global level, the economy witnessed a series of crises and changes that weighed heavily on the global growth rates. In Europe, the sovereign debt crisis that hit a number of countries clearly influenced the Euro zone countries where the Euro lost considerable ground against the worlds other major currencies. Europe was not alone in this crisis, the American economy also impacted due to the debt ceiling, liquidity availability,

unemployment rates increase, commodities and raw materials prices and fluctuations of the American dollar

exchange rate in the global currencies market. In accordance with the latest economic reports, the American economy showed a negative growth during the fourth quarter of 2012 against all expectations and despite the improvement of the American local expenditure indices and the increase of the American share market that witnessed a remarkable activity in 2012. Honorable Shareholders,

Under the rapid changes of the local, regional and world economies, your company continued to manage its investment risks following the same conservative investment policy which it had adopted since incorporation relations with its business partners in various fields with a view to strengthen its presence in the local and in order to safeguard the shareholders rights. The company worked harder and harder to strengthen the

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Report of the Board of Directors (Continued)

regional markets while managing the risks and offering more comprehensive and specialized products to its in the future with Allahs grace.

customers and establishing and building business base so that the company will reap the fruits of these efforts In the field of investment, the company continued to follow a prudent approach in participating in investment

opportunities due to the persistence of the financial crisis and instability of the financial markets. Accordingly we participated in only a small number of short-term investments that are highly liquid while continuing to follow up and administer existing investments. Meanwhile, we continued to re-organize and re-structure our investment portfolio with a view to safeguard the shareholders equity and strengthen the companys assets so that it will always be prepared to face potential risks. Internally, the company continued to develop its business processes and systems to keep them conformant

to the requirements of local and regional supervisory authorities. To this end, the company carefully studied the requirements of the Capital Markets Authority as contained in the CMA law, and continue to fulfill those our internal control system and risk management processes. requirements in order to obtain a license for the company from the Authority. We also continue to strengthen Internally, the company continued to develop its business processes and systems in accordance with the

requirements of local and regional supervisory authorities. To this end, the management of the company

worked to fulfill the requirements of the Capital Markets Authority as per the CMA law especially in terms of the policies and procedures related to the assets management, direct investment and operations. We have also continued strengthening our comprehensive corporate governance systems and prudent management, risk management, internal control processes and anti-money laundering. Honorable Shareholders,

Against these economic and political circumstances and changes, the company recorded a net loss of KD 2.794 million during 2012. This loss resulted mainly from taking specific and precautionary provisions also attributed to the decline of the volume of our main business activities namely asset management on totaling KD 2.5 million to against the decline in the value of the companys investments. This result is behalf of third parties and not participating in new investments in order to avoid potential risks. This led to a to restructure our internal operations, reduce our operational costs and achieve the best use of the available resources. The total assets amount was KD 18.30 million in 2012 (KD 21.70 million in 2011) which included 40.4%

negative effect on the total operational revenues of the company during 2012. We have continuously sought

liquid assets. The total shareholders equity declined to KD 17.6 million against KD 21.1 million in 2011 resulted from business operations for 2012.

representing a reduction of 16.9% resulting from the decline in the value of investments and the loss that

The company currently seeks to set a business strategy aiming at strengthening its financial position, diversifying its income sources and seizing suitable investment opportunities available under the present circumstances by tapping the rich experience our work team, cooperating with business partners and members
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of our board of directors to benefit from our good reputation, implementing well-studied precautionary and results.

hedging policies designed to minimize risks for the shareholders and clients with a view to realize the desired Accordingly, the Board of Directors recommends your honorable assembly not to distribute any dividends in respect of our business results for the financial year ending on 31 December 2012. Honorable Shareholders,

In conclusion, I pray to Almighty God to enable us to overcome this crisis and its implications. We continue

to urge those who are in charge of the country s economic affairs in both the legislative and the executive that stand in the way of its development and activity, activate the private sector and involve it in development a sustainable development that will benefit all individuals, companies and institutions.

branches to take the measures as may be necessary to reactivate our local economy, address the difficulties operations and projects, implement the five-year development plan of the State as a first step toward achieving We pray to Almighty God to protect our country, to guide us to what is good in his divine wisdom, to give lasting security and assurance to our beloved country under the auspicious leadership of H.H. Amir of Kuwait Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah and H.H. the Crown Prince Sheikh Nawwaf Al-Ahmed

Al-Jaber Al-Sabah, may Allah protect them and strengthen our wise government in performing the role

expected of it in reactivating our national economy and serve and maintain the dignity of the Kuwaiti people. We would also like to extend our profound appreciation to the role performed by the Sharia Supervisory Board along with the management and employees of the company for all their efforts made in last year. Thank you for your presence and kind attention. May God safeguard you, and peace be upon you. Chairman of the Board

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Shariaa Advisory Committee Report

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Independent Auditors Report

ffb S IdG MS 13001 IdG jdG IdG 74 bQ jH hU HG MC QT 18-21 HdG H H 22456419 :ca - 22955000 / 22452880 : Jg
Report on the Financial Statements

Sd dhdG YG Y `jdG `dhO - 13134 IdG 27387 :jH hU (965) 22423415 :`J (965) 22423417 :ca

kuwait@kw.ey.com - www.ey.com/me

We have audited the accompanying financial statements of Manafae Investment Company K.S.C. (Closed) (the Company), which comprise the statement of financial position as at 31 December 2012, and the income statement, statement of comprehensive income, statement of changes in equity and other explanatory information.

statement of cash flow for the year then ended, and a summary of significant accounting policies and

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the State of Kuwait and for such internal control as management determines is necessary to enable the preparation of 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 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 financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or

error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by the Companys management, as well as evaluating the overall presentation of the financial statements.
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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2012, and its financial performance and cash flows for the year then of Kuwait. ended in accordance with International Financial Reporting Standards as adopted for use by the State

Report on Other Legal and Regulatory Matters

Furthermore, in our opinion proper books of account have been kept by the Company and the financial statements, together with the contents of the report of the Companys board of directors relating to these financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the financial statements incorporate all information that is required by the Companies Law No. 25 of 2012, and by the Companys Articles of Association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law No. 25 of 2012, nor of the Articles of Association, as on the business of the Company or on its financial position.

amended, have occurred during the year ended 31December 2012 that might have had a material effect

We further report that, during the course of our examination, we have not become aware of any material

violations of the provisions of Law No. 32 of 1968, as amended, concerning currency, the Central Bank of Kuwait and the organisation of banking business, and its related regulations during the year ended 31 December 2012.

WALEED A. AL OSAIMI LICENCE NO. 68A OF ERNST & YOUNG AL AIBAN, AL OSAIMI & PARTNERS

ALI OWAID RUKHEYES LICENCE NO. 72-A MEMBER OF THE INTERNATIONAL ACCOUNTING GROUP

Kuwait 2012

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REVENUE

Income Statement For The Year Ended 31 December 2012

Notes

2012 KD

2011 KD

Fees and commission income

Murabaha and finance income Realised loss on financial assets at fair value through income statement

133,380 88,016 (7,440)

228,713 67,839 (185,135) (794,939)

Unrealised loss on financial assets at fair value through income statement Income from financing of future trades

(1,457,093)

343

27,675

Realised gain on sale of financial assets available for sale Gain on sale of investment property Foreign exchange gain (loss) Dividend income Other income

303,588 6,931 64,335 14,193 (853,747)

191,641 100,833 (1,650) 80,446

(284,577)

EXPENSES

1,021,435 3,244 (144,255) (409) 16,559

933,299 (3,581) -

Administrative expenses Finance costs Reversal of provision no longer required Reversal of credit losses Depreciation

32,914 1,330,411 144,255 4,764 2,442,062

Impairment of financial assets available for sale Provision on receivables Write off of property and equipment

790,791 252,869 1,940,234

LOSS FOR THE YEAR BASIC AND DILUTED LOSS PER SHARE
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4 5

(2,793,981) (14.88) fils

(2,726,639) (14.17) fils

The attached notes from 1 to 19 form an integral part of these financial statements.

Statement Of Comprehensive Income For The Year Ended 31 December 2012

2012 KD 2011 KD

Loss for the year Other comprehensive loss

(2,793,981) (1,226,495)

(2,726,639) (1,924,818) (191,641) (786,048) (3,512,687) 1,330,411

Change in fair value of financial assets available for sale Impairment loss on financial assets available for sale Realised gain on sale of financial assets available for sale Other comprehensive loss for the year Total comprehensive loss for the year

(303,588) (739,292)

790,791

(3,533,273)

The attached notes from 1 to 19 form an integral part of these financial statements.

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Statement Of Financial Position As At 31 December 2012

2012

2011 KD

Notes ASSETS

KD

Cash and balances with banks Financial assets at fair value through income statement Receivables from financing of future trades Other assets Financial assets available for sale Property and equipment TOTAL ASSETS

6 7

7,404,094 3,769,315 6,156,598

6,528,100 5,463,128 40,498 8,939,133

967,751

700,582

23,525 18,321,283

18,231 21,689,672

LIABILITIES

Other liabilities

745,259

540,401

EQUITY

Share capital Share premium Treasury shares Statutory reserve General reserve Cumulative changes in fair values Employees stock option reserve Accumulated loss Total equity TOTAL LIABILITIES AND EQUITY

9 10 12 11 9

20,088,143 (902,928) 737,689

22,917

20,088,143 (862,954) 737,689 766,953 11,459

22,917

766,953 11,459

671,683

1,410,975 (1,025,911)

(3,819,892)

17,576,024 18,321,283

21,149,271 21,689,672

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Eid Hathal Al-Nasafey Chairman

Talal Mohammed Al Mutawa Vice Chairman and Chief Executive Officer

The attached notes from 1 to 19 form an integral part of these financial statements.

Share premium KD (1,025,911) (2,793,981) 21,149,271 (2,793,981) (739,292) (3,533,273) shares KD reserve KD reserve KD Total KD

Share

Treasury

Statutory

General

capital KD

Cumulative changes in fair values KD

Employees stock option reserve KD

(Accumulated loss) / retained earnings KD

-
(2,793,981)

Balance as at 1 January 2012 20,088,143 22,917 (862,954) 737,689 766,953 1,410,975 11,459 - Loss for the year - - - - - - Other comprehensive loss for the - - - - - (739,292) - year Total comprehensive loss for the - - - - - (739,292) - year - Purchase of treasury shares (39,974) - - - - -

-
(3,819,892)

Statement Of Changes In Equity For The Year Ended 31 December 2012

At 31 December 2012

20,088,143

22,917

(902,928)

737,689

766,953

671,683

11,459

(39,974)

17,576,024

20,088,143 22,917 (497,079) 737,689 766,953 2,197,023 11,459 1,700,728 25,027,833 Balance as at 1 January 2011 - Loss for the year (2,726,639) - - - - - - (2,726,639) Other comprehensive loss for the - - - - - (786,048) - - (786,048) year
- -

-
(365,875)

- -

(786,048)

- (2,726,639) -

(3,512,687)

Total comprehensive loss for the year Purchase of treasury shares (862,954)

At 31 December 2011

20,088,143 22,917

-
737,689 766,953 1,410,975

11,459

(1,025,911)

21,149,271

(365,875)

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The attached notes from 1 to 19 form an integral part of these financial statements.

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Cash Flow Statement For The Year Ended 31 December 2012

Notes
2012 KD (2,793,981) 2011 KD (2,726,639)

OPERATING ACTIVITIES

Loss for the year Non-cash adjustments to reconcile loss for the year to net cash flows: Unrealised loss on financial assets at fair value through income Statement Realised gain on sale of financial assets available for sale Gain on sale of investment property Dividend income Other income Finance costs Reversal of provision no longer required Reversal of credit losses Depreciation Impairment of financial assets available for sale Provision on receivables Write-off of property and equipment Provision for employees end of service benefits Working capital adjustments: Financial assets at fair value through income statement Receivables from financing of future trades Other assets Other liabilities Cash flows (used in) from operations Employees end of service benefits paid Net cash flows (used in) from operating activities Purchase of financial assets available for sale Proceeds from sale of financial assets available for sale Proceeds from sale of investment property Purchase of property and equipment Proceeds from sale of property and equipment Dividends received Net cash flows from investing activities

1,457,093 794,939 (303,588) (191,641) (100,833) (64,335) (80,446) (14,193) 3,244 (144,255) (409) (3,581) 16,559 32,914 790,791 1,330,411 252,869 144,255 4,764 223,304 77,790 (576,901) (718,067) 236,720 2,275,172 40,498 358,063 (375,374) 951,585 (7,225) (136) (682,282) 2,866,617 (19,608) (39,280) 2,827,337 (701,890) (488,017) (207,155) 2,052,444 305,358 937,500 (25,982) (2,422) 18,322 64,335 80,446 1,621,102 1,113,727 (39,974) (3,244) (43,218) 875,994 (365,875) (365,875) 3,575,189 2,952,911 6,528,100

INVESTING ACTIVITIES

FINANCING ACTIVITIES
Purchase of treasury shares Finance cost paid Net cash flows used in financing activities Cash and balances with bank at 1 January

NET INCREASE IN CASH AND BALANCES WITH BANK CASH AND BALANCES WITH BANK AT 31 DECEMBER 6

6,528,100 7,404,094

The attached notes from 1 to 19 form an integral part of these financial statements.

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Notes To The Financial Statements At 31 December 2012

1 CORPORATE INFORMATION

The financial statements of Manafae Investment Company K.S.C (Closed) (the Company) for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the Board of Directors on 22 January 2013. The shareholders of the Company have the power to amend these financial statements at the ordinary general assembly. The Annual General Assembly of the shareholders of the Company approved the financial statements of for distribution.

the Company for the year ended 31 December 2011 on 14 May 2012 and no dividends were recommended The Company is a Kuwaiti closed shareholding company registered and incorporated in Kuwait on 5

October 2005 under the Commercial Companies Law No 25 of 2012 and is listed on the Kuwait Stock Exchange. The Company is registered with the Central Bank of Kuwait (CBK) as an investment company and is subject to the supervision of Capital Markets Authority (CMA).

The Companys shares are listed on the Kuwait Stock Exchange. The Companys registered head office Kuwait.

is at Al Sharq, Khaled Bin, Al-Waleed Street,, Al-Shaheed Tower, 11 Floor, P.O. Box 3132, Safat,, The Companys main activities are to invest in all sectors, manage third parties funds and portfolios,

to act as investment trustees, to perform economical and fiscal activities as per Shareea law, to act as an intermediary to provide loans, consumer finance, consultancy and undertake technical and economic feasibility studies.

2.1 BASIS OF PRESENTATION

Basis of preparation The financial statements are prepared on a historical cost basis, except for the revaluation of financial assets at fair value through income statement, financial assets available for sale and investment properties that have been measured at fair value. The financial statements are presented in Kuwaiti Dinars, which is also the functional currency of the Company. Statement of compliance

The financial statements have been prepared in accordance with the regulations of the State of Kuwait

for financial services institutions regulated by the Central Bank of Kuwait. These regulations require Accounting Standard (IAS) 39 requirement for a collective provision, which has been replaced by accounting policy for impairment of assets.

adoption of all International Financial Reporting Standards (IFRS) except for the International the Central Bank of Kuwaits requirement for a minimum general provision as described under the The accounting policies are consistent with those used in the previous year except for the following: IFRS 7 Financial Instruments: Disclosures Enhanced Derecognition Disclosure Requirements  (effective 1 July 2011)
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Notes To The Financial Statements (continued) At 31 December 2012

2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
The amendment requires additional disclosure about financial assets that have been transferred but not

derecognised to enable the user of the Companys financial statements to understand the relationship with requires disclosures about the entitys continuing involvement in derecognised assets to enable the users assets with these characteristics so there has been no effect on the presentation of its financial statements. Standards issued but not yet effective by the Company: The following IASB Standards have been issued but are not yet effective and have not been early adopted

those assets that have not been derecognised and their associated liabilities. In addition, the amendment to evaluate the nature of, and risks associated with, such involvement. The Company does not have any

Standards issued but not yet effective (Amendment) (effective 1 July 2012)

IAS 1: Financial Statement Presentation Presentation of Items of Other Comprehensive Income The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, actuarial gains and losses on defined benefit plans and revaluation of land and buildings) would net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets). IAS 32: Offsetting Financial Assets and Financial Liabilities (Amendment) (effective 1 January 2014)

be presented separately from items that will never be reclassified (for example, net gain on hedge of

These amendments clarify the meaning of currently has a legally enforceable right to set-off. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. IFRS 7: Disclosures Offsetting Financial Assets and Financial Liabilities (Amendment) (effective 1 January 2013)

These amendments require an entity to disclose information about rights to set-off and related arrangements evaluating the effect of netting arrangements on an entitys financial position. The new disclosures are

(e.g., collateral agreements). The disclosures would provide users with information that is useful in required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject off in accordance with IAS 32. to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set 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. The standard was initially effective for annual periods and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January
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beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets.

2.2

IFRS 10: Consolidated Financial Statements (effective 1 January 2013)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses Consolidation Special Purpose Entities.

the accounting for consolidated financial statements. It also addresses the issues raised in SIC-12 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 entitys interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.

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 measure fair value under IFRS when fair value is required or permitted.

does not change when an entity is required to use fair value, but rather provides guidance on how to

The application of the above standards is not expected to have a material impact on the financial position

or performance of the Company except for IFRS 9 and IFRS 13. The management is in the process of of the Company.

determining the impact of IFRS 9 and IFRS 13 on the financial position, performance and disclosures

2.3

A summary of the significant accounting policies used in preparation and presentation of the financial statements are set out below: Revenue recognition

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company received.

and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration The following specific recognition criteria are also followed before revenue is recognised:

Fees earned for the provision of services over a year, are accrued over that year. These fees include services are rendered.

management fees, incentive fees and commission income. Fee income is recognised when specific

Dividend income is recognised when the right to receive payment is established.

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2.3

Notes To The Financial Statements (continued) At 31 December 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Murabaha income is recognised on a time proportion basis so as to yield a constant periodic rate of return based on the net balance outstanding.

Finance costs on loans are expensed using the effective yield method. Cash and balances with banks

For the purpose of the statement of cash flow, cash and balances with banks consist of bank balances and murabaha investments with original maturity of three months. Financial assets and liabilities

The Company classifies its financial assets and liabilities as financial assets at fair value through income

statement, loans and receivables, financial assets available for sale or financial liabilities other than at fair value through income statement. The Company determines the classification of financial assets and liabilities at initial recognition.

A regular way purchase of financial assets is recognised using the trade date accounting. Financial liabilities other than at fair value through income statement are not recognised unless one of the parties has performed or the contract is a derivative contract. Financial assets and liabilities are measured initially at fair value (transaction price) plus, in case of a financial Transaction costs on financial assets at fair value through income statement are expensed immediately, while on other debt instruments they are amortised. Financial assets at fair value through income statement

asset or financial liability not at fair value through income statement, directly attributable transaction costs.

A financial asset at fair value through income statement includes financial assets held for trading and financial

assets designated upon initial recognition at fair value through income statement. 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 income statement. Financial assets are designated at fair basis in accordance with documented investment strategy.

value through income statement if they are managed and their performance is evaluated on reliable fair value After initial recognition, financial assets at fair value through income statement are remeasured at fair value with all changes in fair value recognised in the income statement. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition loans and receivables are carried at amortised cost using the effective profit rate acquisition and includes transaction costs and fees that are an integral part of the effective profit rate.
28

method, less impairment losses, if any. The calculation takes into account any premium or discount on

2.3

Loans and receivables (continued) loans and receivables.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Bank balances, murabaha investments, receivables from future trades and other assets are classified as Murabaha is an Islamic transaction involving the Companys purchase and immediate sale of an asset

at cost plus an agreed profit. The amount due is settled on a deferred payment basis. Where the credit risk of the transaction is attributable to a financial institution, the amount due is classified as a murabaha is classified as a murabaha receivable. Financial assets available for sale investment. Where the credit risk is attributable to a party other than a financial institution, the amount due

Financial assets available for sale are those non-derivative financial assets that are designated as and receivables.

available for sale or are not classified as financial assets at fair value through income statement or loans After initial recognition, financial assets available for sale are measured at fair value with gains and losses being recognised as a separate component of other comprehensive income until the financial assets are gain and loss previously reported in other comprehensive income is recognised in the income statement. Financial assets whose fair value cannot be reliably measured are carried at cost. Financial liabilities other than at fair value through income statement derecognised or until the financial assets are determined to be impaired at which time the cumulative

Financial liabilities are stated using effective cost rate method. Loans and other liabilities are classified as financial liabilities other than at fair value through income statement. Fair value

The fair value of financial assets and liabilities traded in recognised financial markets is determined by

reference to their quoted market bid price at the close of business on the reporting date. For all other

financial assets or liabilities where there is no quoted market price, a reasonable estimate of fair value is determined by reference to the current fair value of another instrument that is substantially the same, recent arms length market transactions or discounted cash flow analysis or other valuation models. Derecognition 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 or

the Company has transferred its rights to receive cash flows from the asset or has assumed an pass-through arrangement or

obligation to pay the received cash flows in full without material delay to a third party under a

the Company has transferred substantially all the risks and rewards of the asset, or asset, but has transferred control of the asset.

the Company has neither transferred nor retained substantially all the risks and rewards of the
29

12
2.3

Notes To The Financial Statements (continued) At 31 December 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets and liabilities (continued)

When the Company has transferred its rights to receive cash flows from an asset or has entered into a 

pass- through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognised to the extent of the Companys continuing involvement in the asset. Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. 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 difference in the respective carrying amounts is recognised in the income statement. Offsetting

modification is treated as a derecognition of the original liability and the recognition of a new liability, the

Financial assets and liabilities are offset when the Company has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. Investment properties

Investment properties are initially measured at cost, including transaction cost. Subsequently, all investment the end of each year using valuation methods consistent with the nature and usage of the investment properties. Gains or losses from change in the fair value are recognised in the income statement.

properties are carried at fair value determined based on valuation performed by independent valuers at

Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. statement in the year of derecognition. Property and equipment The difference between the net disposal and the carrying amount of the asset is recognised in the income

Property and equipment is stated at cost less accumulated depreciation and/or accumulated impairment losses, if any. Depreciation is calculated on a straight line basis over the estimated useful lives assets as follows:

Leasehold improvements

Office equipment, computer hardware and software

3 years 3 years

Furniture 5 years Motor vehicles 4 years

30

2.3

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets and liabilities (continued)

An item of property and equipment is derecognised upon disposal or when no future economic benefits

are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised.

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. Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of

property and equipment. All other expenditure is recognised in the income statement as the expense is incurred. The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate. Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured. Employees end of service benefits

The Company provides end of service benefits to its employees. The entitlement to these benefits is based year. The expected costs of these benefits are accrued over the period of employment.

upon the employees final salary and length of service, subject to the completion of a minimum service With respect to its national employees, the Company makes contributions to social security scheme calculated as a percentage of the employees salaries. The Companys obligations are limited to these contributions, which are expensed when due. Treasury shares

Treasury shares consist of the Companys own issued shares that have been reacquired by the Company

and not yet reissued or cancelled. The treasury shares are accounted for using the cost method. Under this

method, the weighted average cost of the shares reacquired is charged to a contra account in the equity. When the treasury shares are reissued, gains are credited to a separate account in equity, treasury shares reserve, which is not distributable. Any realised losses are charged to the same account to the extent of the credit statutory reserve.

balance on that account. Any excess losses are charged to retained earnings then to the general reserve and 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 proportionately and reduces the average cost per share without affecting the total cost of treasury shares. dividends are paid on these shares. The issue of stock dividend increases the number of treasury shares
31

12
2.3

Notes To The Financial Statements (continued) At 31 December 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial assets and liabilities (continued)
Foreign currency translation Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Kuwaiti Dinars at rates of exchange prevailing on that date. Any resultant gains or losses are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency liabilities denominated in foreign currencies that are stated at fair value are translated to Kuwaiti

are translated using the exchange rates as at the date of the initial transactions. Non-monetary assets and Dinars at the foreign exchange rates prevailing at the dates that the values were determined. In case of nonexchange differences are recognised directly in other comprehensive income and for non-monetary assets whose change in fair value are recognised in the income statement are recognised in the income statement. Impairment of financial assets

monetary assets whose change in fair values are recognised directly in other comprehensive income, foreign

An assessment is made at each reporting date to determine whether there is objective evidence that a

specific financial asset may be impaired. A financial asset or a group of financial assets is deemed to be has occurred after the initial recognition of the asset (an incurred loss event) and that loss event (or

impaired if, and only if, there is objective evidence of impairment as a result of one or more events that events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest

or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in economic conditions that correlate with defaults. If such evidence exists, an impairment loss, is recognised in the income statement. Impairment is determined as follows:

for assets carried at amortised cost, impairment is based on estimated cash flows discounted at for assets carried at fair value, impairment is the difference between cost and fair value the original effective interest rate

for assets carried at cost, impairment is the difference between actual cost and the present financial asset

value of estimated future cash flows discounted at the current market rate of return for a similar

For non equity financial assets the carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because

of an event occurring after the impairment was recognised, the previously recognised impairment impairment for specific groups of assets where there is a measurable decrease in estimated future cash flows.

loss is increased or reduced by adjusting the allowance account. In addition, a provision is made to cover
32

2.3

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of financial assets (continued)

In addition, in accordance with Central Bank of Kuwait instructions, a minimum general provision is made Financial assets available for sale

on all applicable credit facilities (net of certain categories of collateral) that are not provided for specifically. For financial assets available for sale, the Company assesses at each reporting date whether there is

objective evidence that a financial assets available for sale or a group of financial assets available for sale is impaired. In the case of equity investments classified as financial assets available for sale, objective evidence would include a significant or prolonged decline in the fair value of the equity investment below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference available for sale previously recognised in the income statement - is removed from other comprehensive income and recognised in the income statement. Reversal of impairment losses is recorded when there is an indication that the impairment losses

between the acquisition cost and the current fair value, less any impairment loss on those financial assets

recognised for the asset no longer exist or have decreased. The reversal of impairment losses are which are recognised in the cumulative changes in fair values. Share basedpaymenttransactions

recognised in the income statement except for financial assets available for sale equity investments

The cost of share based payment transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value of the employee stock options is determined using the Black-Scholes option pricing model. Measurement inputs include share price on measurement date, options is recognised as an expense over the vesting period with corresponding effect to equity. Contingencies

exercise price, volatility, risk free interest rate and expected dividend yield. The fair value of these

Contingent liabilities are not recognised in the statement of financial position, but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. inflow of economic benefits is probable. Fiduciary assets Contingent assets are not recognised in the statement of financial position, but are disclosed when an

Assets held in trust or fiduciary capacity are not treated as assets or liabilities of the Company and accordingly are not included in the financial statements. Taxation Kuwait Foundation for the Advancement of Sciences (KFAS) The Company calculates the contribution to KFAS at 1% in accordance with the modified calculation and subsidiaries, board of directors remuneration, transfer to statutory reserve should be excluded from profit for the year when determining the contribution.

based on the Foundations Board of Directors resolution, which states that the income from associates

33

12
2.3
Zakat

Notes To The Financial Statements (continued) At 31 December 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Contribution to Zakat is calculated at 1% of the profit of the Company in accordance with the Ministry of Finance resolution No. 58/2007. Significant accounting judgments, estimates and assumptions

The preparation of the financial statements requires management to make judgments, estimates and

assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. Classification of financial instruments acquisition. The most significant use of judgements and estimates are as follows: Judgements are made in the classification of financial instruments based on managements intention at Impairment of financial assets available for sale

The Company treats financial assets available for sale as impaired when there has been a significant or The determination of what is significant or prolonged requires considerable judgement. Valuation of unquoted equity investments

prolonged decline in the fair value below its cost or where other objective evidence of impairment exists.

Valuation of unquoted equity investments is normally based on one of the following: recent arms length market transactions; current fair value of another instrument that is substantially the same; or

the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; The determination of the cash flows and discount factors for unquoted equity investments requires significant estimation.

3. FEES AND COMMISSION INCOME Management fees from fiduciary activities

2012 KD 122,378 4,564 6,438 133,380

2011 KD 187,679 37,045 3,989 228,713

Commission income from fiduciary activities

Incentive and custody fees from fiduciary activities

34

4. LOSS FOR THE YEAR

The loss for the year is stated after charging:

2012 KD 853,774 46,253

2011 KD 774,393 55,853

Staff costs Rent operating leases 5. BASIC AND DILUTED LOSS PER SHARE

Basic and diluted loss per share is calculated by dividing the loss for the year by the weighted average number of ordinary shares less treasury shares, outstanding during the year. 2012 2011 KD (2,726,639) Shares KD (2,793,981) Shares

Loss for the year

Weighted average number of issued and paid-up shares, less treasury shares outstanding during the year

187,808,060 (14.88) fils

192,416,827 (14.17) fils

Basic and diluted loss per share

The effect of outstanding stock options have not been considered in the computation of diluted loss per share as the result is anti-dilutive.

6. CASH AND BALANCES WITH BANKS

Cash and balances with banks included in the statement of cash flows include the following amounts: 2012 KD 2011 KD 1,528,100 5,000,000 6,528,100

Cash at banks and on hand Murabaha investments

2,393,319 5,010,775 7,404,094

Cash and balances with banks

Murabaha investments represent murabaha deposits with local financial institutions maturing within three months from the original date.
35

12

Notes To The Financial Statements (continued) At 31 December 2012

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH INCOME STATEMENT
2012 KD 2011 KD 236,720

Held for trading

Quoted equity securities Designated

Unquoted equity securities

3,769,315

3,769,315

5,226,408 5,463,128

The Company has recognised unrealised loss of KD 1,457,093 (31 December 2011: KD 790,161) on the

unquoted equity securities. Unquoted equity securities represents investment in a company in the Kingdom of Bahrain that deals in the development of properties whose fair value has been determined based on an acceptable method of valuation, which includes independent valuation of the underlying assets. Unrealised gain (loss) is analysed as follows: 2012 KD -

Held for trading

2011 KD (4,778)

Quoted equity securities Designated

Unquoted equity securities

(1,457,093) (1,457,093)

(790,161) (794,939)

8. FINANCIAL ASSETS AVAILABLE FOR SALE

2012 KD 3,764,819 1,094,829 1,296,950 6,156,598

2011 KD 5,817,285 1,088,653 2,033,195 8,939,133

Unquoted equity securities Managed portfolios Investment in equity funds

36

8. FINANCIAL ASSETS AVAILABLE FOR SALE (CONTINUED)

At 31 December 2012, certain financial assets available for sale amounting to KD 1,161,333 (31

December 2011: KD2,325,101) were carried at cost less, impairment due to the non availability of reliable measures of their fair values. The management has performed a review of financial assets recorded an impairment loss of KD 790,791 (2011: KD 1,330,411) in the income statement. Based provision is required as at 31 December 2012 in respect of these investments. available for sale to assess whether impairment has occurred in the value of these investments and on the latest available financial information, management is of the view that no further impairment

9. SHARE CAPITAL AND SHARE PREMIUM

Authorised, issued and fully paid-up capital consists of 200,881,430 shares (2011: 200,881,430 shares) of 100 fils per share (2011: 100 fils per share) which are fully paid in cash. The share premium is not available for distribution.

10. TREASURY SHARES

2012 13,220,000 6.58% 740,320

2011 12,500,000 6.22% 700,000

Number of shares

Percentage of issued shares Market value (KD)

11. STATUTORY RESERVE

In accordance with the Commercial Companies Law and the Companys articles of association, no transfer has been made to the statutory reserve, since losses have been incurred during the year. Distribution of the statutory 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.

12. GENERAL RESERVE

In accordance with the Companys articles of association 10% of the profit for the year before contribution to KFAS, Zakat and directors remuneration is to be transferred annually to the voluntary reserve. There since losses have been incurred during the year. are no restrictions on distributions from general reserve. No transfer has been made to the statutory reserve,

13. CONTINGENT LIABILITES AND COMMITMENTS

As at 31 December 2012, the Company had contingent liabilities in respect of bank guarantees arising in to KD 105,000 (31 December 2011: KD105,000).

the ordinary case of business from which it is anticipated that no material liabilities will arise, amounting As at 31 December 2012, the Company had capital commitments to invest in Etqaan Shariah fund and securities amounting to KD 878,724 (31 December 2011: KD 878,724).
37

12

Notes To The Financial Statements (continued) At 31 December 2012

14. RELATED PARTY TRANSACTIONS

Related parties represent major shareholders, directors and key management personnel of the Company, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Companys management. Balances and transactions with related parties are as follows: Major Other related shareholders parties

2012 KD 1,345,707

2011 KD 1,854,597

Statement of financial position: Financial assets available for sale

KD

KD

1,125,347 Major shareholders

220,360 Other related parties KD

2012 KD 10,553 107,520

2011 KD 18,086 239,329

Income statement:

KD

Fees and commission income Impairment on financial assets available for sale

8,643

1,910 107,520

Compensation of key management personnel:

The remuneration of directors and other members of key management during the year are as follows: 2012 KD 2011 KD 58,909 536,857

Salaries and short-term benefits Employees end of service benefits

78,176

499,277

577,453

595,766

15. SEGMENTAL INFORMATION

For management purposes, the Company is organised into two major business segments. The principal activities and services under these segments are as follows: Proprietary investment management : Investing of Companys funds in unquoted securities, lending to corporate and individual customers and managing the Companys liquidity requirements.

Investment management and advisory Discretionary and non-discretionary investment portfolio services : management, managing of local and international investment funds and providing advisory and structured finance services and other related financial services. Trading : Investing of funds in quoted securities.
38

15. SEGMENTAL INFORMATION (continued)

Management monitors operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on segmental return on investments. Property and equipment (including depreciation) and taxation are managed on a group basis and are not allocated to individual operating segments. The following table presents information regarding the Companys operating segments. Proprietary investment management KD Total (loss) revenue Total expenses (Loss) profit for the year Total assets Total liabilities (1,113,013) 992,057

Investment management and advisory services KD

2012 Trading KD 36,382 659,451

Unallocated KD 102,208 174,103

Total KD (853,747) 1,940,234

120,676 114,623

(2,105,070)

6,053 -

(623,069) -

(71,895)

(2,793,981)

9,925,913 1,905

2011

8,395,370 743,354

18,321,283 745,259

Proprietary investment management KD Total (loss) revenue Total expense (Loss) profit for the year Total assets Total liabilities (491,036) 1,627,311

Investment management and advisory services KD

Trading KD (111,117) 566,655

Unallocated KD 67,839 149,602

Total KD (284,577) 2,442,062

249,737 98,494

(2,118,347)

151,243

(677,772) 236,720

(81,763)

(2,726,639)

1,905 14,206,038

- - -

538,496 7,246,914

540,401 21,689,672

39

12

Notes To The Financial Statements (continued) At 31 December 2012

15. SEGMENTAL INFORMATION (continued)
Geographical information

As at 31 December 2012

Total income KD

Non-current assets KD

Kuwait International

(1,104,231)

250,484

3,787,141

2,392,982

(853,747)

6,180,123

As at 31 December 2011

Total income KD

Non-current assets KD

Kuwait International

(696,580)

412,003

6,431,290

2,526,074

(284,577)

8,957,364

Non-current assets for this purpose consist of financial assets available for saleand property and equipment.

16. 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 arms length transaction. Underlying the definition of fair value is the presumption that the Company 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. The estimated fair values of financial assets, except for certain unquoted equity instruments classified as investments available for sale (Note 8), approximated their respective net book values at the reporting date. Fair value hierarchy The Company uses the following hierarchy for determining and disclosing the fair values of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in an active market for identical assets and liabilities; are observable, either directly or indirectly; and based on observable market data.
40

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value Level 3: techniques which use inputs that have a significant effect on the recorded fair value are not

16. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

31 December 2012 Financial assets at fair value through income statement: Unquoted equity securities Financial assets available for sale: Unquoted equity securities and managed portfolios Investment in equity funds

As at 31 December 2012, the Company held the following financial instruments measured at fair value. Level : 1 KD Level : 2 KD Level : 3 KD Total KD

3,769,315

3,769,315

1,105,038

3,890,227

3,890,227 1,105,038

1,105,038

7,659,542

8,764,580 Total KD

31 December 2011 Financial assets at fair value through income statement: Unquoted equity securities Financial assets available for sale:

Level : 1 KD

Level : 2 KD

Level : 3 KD

236,720

1,649,370

5,226,408 2,639,561

5,463,128 2,639,561 1,649,370

Unquoted equity securities and managed portfolios Investment in equity funds

236,720

1,649,370

7,865,969

9,752,059

During the year, there have been no movement in Level 3 and no transfers between hierarchies.

41

12

Notes To The Financial Statements (continued) At 31 December 2012

17. MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The table below summarises the maturity profile of the Companys 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 income statement, financial assets available for sale and investment properties is determined based on managements estimate of liquidation of those assets. 31 December 2012 The maturity profile of assets and liabilities is as follows: 1 month KD Within months KD 2 to 3 months 3 to 6 months 6 to 12 1 to 5 years KD Total

KD

KD

KD

Assets

Financial assets available for sale Property and equipment Total assets

Other assets

Bank balances and cash Financial assets at fair value through income statement Financing of future trades

7,404,094

- 3,769,315

- -

7,404,094 3,769,315 - 967,751 6,156,598 23,525 18,321,283

39,992

794,937

13,612

119,210

-
- 6,156,598 23,525

3,888,525

7,444,086

794,937

13,612

6,180,123

TOTAL Liabilities

1,993

23,899

5,980

127,053

586,334

745,259

31 December 2011

1 month KD

Within

months KD

2 to 3

months

3 to 6

Assets

KD -

months

6 to 12

1 to 5 Years KD

KD -

Total

KD

Bank balances and cash Financial assets at fair value through income statement
42

2,528,100

4,000,000

6,528,100

236,720

5,226,408

5,463,128

17. MATURITY ANALYSIS OF ASSETS AND LIABILITIES (continued)

Financing of future trades Other assets Financial assets available for sale Property and equipment Total assets 345,998

40,498 33,849

53,591

267,144

- - 8,939,133 18,231

40,498 700,582 8,939,133 18,231

3,110,818

4,074,347

53,591

5,493,552

8,957,364

21,689,672

TOTAL Liabilities

12,346

14,417

23,156

78,825

411,657

540,401

18. RISK MANAGEMENT

Risk is inherent in the Companys activities but it 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 Companys continuing profitability and each individual within the Company is accountable for the risk exposures relating to his or her responsibilities. The Company is exposed to liquidity risk and market risk, the latter being subdivided into profit rate risk, currency risk, equity price risk and prepayment 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 Companys strategic planning process.

18.1 CREDIT RISK

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company has policies and procedures in place to limit the amount of credit exposure to any counter party. These procedures include the non-concentration of credit risk. Maximum exposure to credit risk The Companys policy is to grant murabahas only to portfolio clients against collateral of their funds and securities managed by the Company. In addition, receivable balances are monitored on an ongoing basis with the result that the Companys exposure to bad debts is not significant. With respect to credit risk arising from the other financial assets of the Company, which comprise bank balances and other assets, the Companys exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments as disclosed in the statement of financial position. Where financial instruments are recorded at fair value, it represents the current maximum credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values.

43

12

Notes To The Financial Statements (continued) At 31 December 2012

18. RISK MANAGEMENT (conitnued) 18.1 CREDIT RISK (continued)

Risk concentration of the maximum exposure to credit risk Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Companys performance to developments affecting a particular industry or geographic location. The Companys financial assets subject to credit risk, before taking into account any collateral held or credit enhancements are substantially located in Kuwait. The Companys assets subject to credit risk, before taking into account any collateral held or credit enhancements can be analysed by the following industry sector as: 2012 KD 2011 KD 6,528,100

Banks and financial institutions Others

967,751 8,371,845

7,404,094

700,582 7,228,682

18.2

Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk is managed by the treasury department of the Company. To manage this risk, the Company periodically assesses the financial viability of customers and invests in bank deposits or other investments that are readily realisable. The maturity profile is monitored by management to ensure adequate liquidity is maintained. The liquidity profile of financial liabilities reflects the projected cash flows which includes future profit payments over the life of these financial liabilities.

LIQUIDITY RISK

The liquidity profile of financial liabilities is as follows: 31 December 2012 Within 1 month KD TOTAL Liabilities 1,993

2 to 3 months KD 23,899

3 to 6 months KD 5,980

6 to 12 months KD 127,053

1 to 5 years KD 586,334

Total KD 745,259

44

18. RISK MANAGEMENT (CONTINUED) 18.2 LIQUIDITY RISK (continued)

31 December 2011 Within KD TOTAL Liabilities 12,346

2 to 3

3 to 6 months KD 23,156

6 to 12 months KD 78,825

1 to 5 years KD 411,657

1 month

months KD 14,417

Total KD 540,401

18.3

Market risk is the risk that the value of an asset will fluctuate as a result of changes in market variables

MARKET Risk

such as profit rates, foreign exchange rates, equity prices and prepayment risk 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, diversification of assets in terms of geographical distribution and industry concentration, a continuous appraisal of market conditions and trends and managements estimate of long and short term changes in fair value.

18.3.1 Profit rate risk

Profit rate risk arises from the possibility that changes in profit rates will affect future cash flows or the fair values of financial instruments. The Company is not exposed to material profit rate risk as all Islamic financial instruments are at fixed profit rates.

18.3.2 Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk is managed by the operations department of the Company on the basis of limits determined by the Companys board of directors and a continuous assessment of the Companys open positions and current and expected exchange rate movements. Management believes that there is minimal risk of significant losses due to exchange rate fluctuations and consequently the Company does not hedge foreign currency exposures.

The effect on loss before taxation (due to change in the fair value of monetary assets and liabilities), as a result of change in currency rate, with all other variables held constant is shown below: Increase in currency rate by 5 % Effect on loss 2012 2011 KD KD USD SAR 29,380 173 1,602

The decrease in foreign currency rate percentage will have the opposite effect on the loss of the company.
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Notes To The Financial Statements (continued) At 31 December 2012

18.3.3 Equity price risk Equity price risk arises from changes in the fair values of equity investments. The equity price risk exposure arises from the Companys investment portfolio. The Company manages this through diversification of investments in terms of geographical distribution and industry concentration.
Changes in equity price by 10 % 2012 KD Effect on equity 2011 KD 2012 KD Effect on loss 2011 KD

Market indices Kuwait

Bahrain Others

194,594 -

279,540 3,966

108,865 -

Saudi Arabia

413,729 -

376,931 -

522,641 46,406 -

110,130

18.3.4 Prepayment risk

Prepayment risk is the risk that the Company will incur a financial loss because its customers and exposed to prepayment risk.

counterparties repay or request repayment earlier or later than expected. The Company is not significantly

19. CAPITAL MANAGEMENT

The primary objective of the Companys capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value. The Company manages its capital structure and makes adjustments to it in light of changes in business conditions. No changes were made in the objectives, policies or processes during the year ended 31 December 2012 and 2011. Capital comprises share capital, share premium, treasury shares, statutory reserve, general reserve, cumulative changes in fair values, employees stock option reserve and

accumulated deficit, and is measured at KD17,576,024 as at 31 December 2012 (2011: KD 21,149,271).

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