Upload
others
View
18
Download
0
Embed Size (px)
Citation preview
H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAHThe Amir of The State of Kuwait
H.H. SHEIKH NAWAF AL-AHMAD AL-JABER AL-SABAHThe Crown Prince
H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAHThe Prime Minister
�Annual Report �007
TABLE OF CONTENTS Page
Directors’Report 4
IndependentAuditors’Report 12
ConsolidatedStatementofIncome 14
ConsolidatedBalanceSheet 15
ConsolidatedStatementofChangesinEquity 16
ConsolidatedStatementofCashFlows 18
NotestotheConsolidatedFinancialStatements 19
KuwaitFinancialCentre-S.A.K.(Closed)
BOARD OF DIRECTORSDiraarYusufAlghanim Chairman&ManagingDirector
SheikhHumoudSabahAl-Sabah ViceChairman
FaisalAbdulAzizAl-Jallal Director
AymanAbdulatifAlshaya Director
FahadYaqoubAl-Jouan Director
IbrahimMohammedAl-Ghanim Director
AhmadMohammadHasan Director
BOARD STEERING COMMITTEE
DiraarYusufAlghanim Chairman
AymanAbdulatifAl-Shaya Director
FahadYaqoubAl-Jouan Director
ManafAbdulAzizAlhajeri GeneralManager
AUDIT COMMITTEE FahadYaqoubAl-Jouan Chairman
FaisalAbdulAzizAl-Jallal Director
IbrahimMohammedAl-Ghanim Director
ManafAbdulAzizAlhajeri GeneralManager
MANAGEMENT TEAM ManafA.Alhajeri GeneralManager
AliH.Khalil ExecutiveVicePresident
GopalMenon ExecutiveVicePresident–InternationalInvestments
KhaledA.Chowdhury SeniorVicePresident–FinancialManagement
BassamN.Al-Othman SeniorVicePresident–RealEstate(MENA)
M.R.Raghu SeniorVicePresident–Research
RashaA.Al-Hamad SeniorVicePresident–HumanResources&Administration
AmaniAl-Omani SeniorVicePresident–Local&GCCInvestments
MahaA.Imad VicePresident–PrivateEquity&FundAdministration
CaroleSix VicePresident–ClientRelationsandMedia&Communications
LeilaBadine VicePresident–MarkazQatarBranch
NawafH.Marafi VicePresident–Oil&Gas
KrishnaI.Mohan HeadofTreasury-Treasury
PradeepRajagopalan AssistanceVicePresident–RiskManagement&Compliance
�Annual Report �007
DIRECTORS’ REPORT �007
DearStakeholders,
GCCstockmarketswitnessedasubstantialgrowthin2007,whileitwasafairlyturbulentyearin
internationalmarkets.Acrossallassetclasses,mostofourlocal,GCC,andinternationalproducts
includingrealestateoutperformedtheirrespectivebenchmarks.
MarkazregisteredanetprofitofKD27.03millionor65filspershareduringtheyear2007(13
filsin2006).Feeincomefromassetmanagementandinvestmentbankingactivitiesremained
strong totalling KD 15.70 million (KD 11.41 million in 2006). Unrealized investment profit
totalled KD 4.56 million (unrealised loss of KD 7.64 million in 2006). Markaz assets under
managementtotalledKD1.30billionatendofDecember2007(KD1.18billionin2006).
TheBoardofDirectorshasproposedthedistributionofacashdividendequalto25%ofthepar
valueor25filspershare,andabonussharedistributionof15%forshareholdersregisteredat
thetimeoftheGeneralAssembly.
Major milestones during 2007 include the introduction of highly sophisticated investment
products.TheRealEstateDepartment launchedMarkazRealEstateOpportunityFund,areal
estatedevelopmentfund.TheInternationalInvestmentDepartment launchedtheIPOandPre
IPOInvestmentProgram,inadditiontothelaunchofMarkazUSMultifamilyRealtyInvestment
UnitIVwhichbenefitsfromopportunitiesarisingasaresultofrecedingUSrealestate.Regional
expansionwasalsoamajorfactorfor2007featuredinestablishingcompaniesinKSA,Jordan
andLebanon,wheremoreexpansionsareinthepipeline.
Asweapproachourthirtyfifthanniversary,weaimtomeetthehighestindustrystandardsby
offeringuniqueandprudent investmentsolutions toourclients, concomitantwitharesearch
drivenstrategy thatsustainsourpositionasoneof the leading investment institutions in the
region.
ASSET MANAGEMENT
Local & GCC Investments
The Local and GCC Investment Department’s assets under management increased through
adoptingtactical&strategicinvestmentallocationpolicies,whichtransferredthefocusfromthe
domesticcapitalmarkettoabroaderregionalviewbychannellingassetstotheGCCmarkets.
LocalandGCCMarketswerereinforcedbystrongfundamentalscontributingto itsgrowthin
2007.Highercrudeoilprices,ampleliquidity,governments’expenditureoninfrastructure,IPOs,
mergers&acquisitions,negativetoflatcorrelationwithotherdevelopedandemergingmarkets
aresomepertinentfactors.Moreover,solidcorporateresults,reasonablevaluationsandsteps
takentowardprivatizationandreformshadapositiveimpact.
Thedepartment’snotableperformancein2007isconfirmedbypositivereturnsonallLocaland
GCCproducts,themajorityofwhichoutperformedtheirrespectivebenchmarks.MarkazGulf
Fundposteda48.4%gain,beingourstarperformerandoneofthebestperforminginitsclass
whereitoutperformedtheMSCIGCCIndexwhichposted44.8%.MarkazFundforExcellent
Yields‘Mumtaz’generated44.4%outperformingtheKICIndexby13.9%.TheFundalsowon
twoLipper-ReutersFundawardsforbestperformance:BestEquityFundinKuwait-3yearsand
BestEquityFundinKuwait-5years.
Lookingahead,weexpectthemarketin2008toperformpositivelyandweshallaimtobenefit
fromthistrendalbeitwithprudenceandselectivity.Thisoptimismissupportedbytheprojected
growthintheleadingcompanies’profits,alongwiththepassingoflegislationthataffectsthe
marketspositively.
Positive overall despite the challenges and turbulence
Renewed optimism;Another solid year
KuwaitFinancialCentre-S.A.K.(Closed)
International Investments/Investment Advisory Services
Despiteafairlyturbulentyearininternationalmarkets,Markazwas,oncemore,abletoachieve
superiorperformancethroughitsdynamicallymanagedassetallocationmethodology.
Thepastyearpresentedmanydifficulties,rangingfromcreditcrunch/subprimeissuestofearsof
aloomingUSrecessionthatrippleditswayacrosstheglobeaffectingmostmajorindices.Markaz
adaptedtothesituationandimplementedtacticalassetallocation,reducingexposuretotheUS,
themarketmostaffectedbythesubprimeissue,aswellasEuropeandJapan.Byfocusingon
thematic investmentsandemergingmarkets; the International Investments teammanaged to
avoidriskiersituationsandhasgeneratedalpha,enablingMarkaztooutperformitsbenchmark
byaclearmarginofmorethan8%.
SinceitsinceptioninMayof2007,Markaz’sIPO/Pre-IPOProgramhasproducedenviableresults.
Within itsfirst sevenmonths, theprogramaccomplished returnsof23%appropriate to the
selectionofprofitableinvestmentopportunitiesacrosstheglobe,mainlyintheUS,GCC/MENA,
andAsia.
Markaz’sflagship international fund,AtlasDiversifiedClass,which invests indiversifiedasset
classesandgeographicallydiversifiedmarkets,producedsuperiorreturnsduetoitsdynamicasset
allocationandemphasisonspecializedinvestmentthemesandemergingmarkets.Atthesame
time,theFundincreaseditsexposuretoKuwaitby10%,tocapitalizeonthelocalstockmarket’s
growth,whichprovedbeneficial.Thefundpostedreturnsof17.90%,significantlysurpassing
MarkazGlobalSecuritiesIndex,itsbenchmarkwhichposted10.67%.
In spiteof anunstablemarket in2007,AtlasFundofHedgeFunds recordedaboveaverage
returnsof7.03%,inlinewithourexpectationsfortheyear.
AtlasETFsProgram,whichinvestsinglobalindicesandsectors,postedremarkablereturns.The
programoutperformedtheMSCIWorldIndex,two-fold,achieving14.18%fortheyear.
For2008,weexpectvolatilitytocontinueinglobalequitymarkets,especiallyinthefirsthalf
oftheyear.However,moremeasurestobetakenbytheUSFedtoreduceratesaggressivelyto
staveoffrecessionarytrendstogetherwithbankssuccessfullycompletingrecapitalizationand
commoditypriceseasing,willcreateanenhancedenvironmentforinvestment.Emergingmarkets
willmost likelyseearise in inflationandaslowerGDPgrowth;however,stockmarketsare
expectedtocontributereasonablygoodreturnsinlowerdoubledigitsduetomultipleexpansions.
Overall,wepredictthattheglobalmarketswillseereturnsinthe8-10%region.
Inlinewithmarketdemand,Markazwillbelaunchingtwoproducts/fundsbasedonThematicand
Islamicinvestmentswheregreatpotentialisseenin2008andbeyond.
Private Equity
Markazinauguratedtheprivateequityprogramin1997andthecompany’sprudentandenduring
strategyhasbeenrewarding.
Despite the credit crunch that emerged in the summer, US private equity funds raised USD
302billion,ofwhich75%wasgearedfor leveragedbuyoutandcorporatefinancefunds.An
increaseinfinancesraisedfordistress-focusedfundswasnoted,whichsawnearlyUSD45billion
committedto22funds.
Markazportfolioofinternationalprivateequityfundinvestmentsrevealedarobustperformance,
generatingatotalreturnof20.58%ontheinvestedcapitalduring2007.Throughouttheyear,
weinvestedintosixfundsencompassingvariousstrategies,distressed-debt,growthcapital,mid-
marketbuyout,andventure.ThecommitmentsspannedtheUS,EuropeandAsia.
In2008,weshallseektocommittofundsthatwouldbenefitfromtheconsequencesofthe
creditcrunchandtheboomrecentlyenjoyedbythebuyoutindustrywhichisnowripewithover-
leveragedcompanies,mainlyintheUSandEurope;inadditiontoexpandingourexposureto
Reaping old rewards and new credit challenge
More dynamic to counter the turbulence
�Annual Report �007
Private Equity (Cont’d)
emergingmarketssuchastheSouthEastAsianmarkets,EasternEurope,LatinAmericanand
MENA.Weshallbetargetingglobalemergingmarketsfunds,USandEuropeanmezzanineand
distresseddebt/restructuringfunds,andcontinuetosourcegrowthcapitalmid-marketfunds.
Treasury
Duringtheyear,theTreasuryDepartmentestablishednewcorrespondentbankingrelationships
andstrengthenedexistingrelationshipsbyaddingmultiplefacilityagreements.Withthisvigorous
networkoflocalandinternationalbanks,Markazisinapositiontoofferourclientsrightofentry
toallmajormarkets.
Markaz’sKDMoneyMarketFund-Idikharcontinuestobeoneofthebestperformersinthelocal
marketwhereitregularlypaysinvestorsanaveragereturnof6.60%perannum,higherthanthe
3-monthKIBOR(3MonthAverageis4.43%).
Ourmoneymarketfundsaredesignedtofunctionascashmanagementtoolsandatthesame
timetobenefitfromthereturnswithoutlosingtimevalueoftheinvestment.
INVESTMENT BANKING
Corporate Finance
Theregioncontinuestoundergosubstantialchangeinthebusinesslandscape;themostimportant
issuebeingtheneedforcompaniestoincreasetheirfocusontheircorebusinessesandexpand
acrossbordersthroughouttheGCCandtheMENAregions.CorporateFinanceremainsfocused
onprovidingsuchcompanieswithdebtandequityfinancing,whilecounsellingthemoncreative
financialandcorporatestructuresthatbestsuittheirstrategies.
Overtheyear,theDepartmentexecutedseveraladvisorymandatesincludingthelistingofVending
NetworkCompany;therestructuringofAl-WaseetInternational,aleadingmediacompanyinthe
region;advisingmajorcontractingcompaniesontheirfinancialstructure,includingthesale/lease
backofassets;whichfreedupcapitalresourcesnecessaryforthegrowthofsuchcompanies.
MarkazmanagedandunderwrotethecapitalincreaseforKuwaitPrivatizationProjectsHolding
Company(“KPPHC”);whichprovidedthecompanywithoverKD60millioninequityfinancing.
Structured,managed,andunderwroteaUSD50millionsukukissueforKuwaitResortCompany
(“KRC”);whichwasplacedregionally.MarkazwasalsomandatedbyInternationalInvestment
Group(“IIG”)toadviseandactasthesecurityagentfortheUSD200millionconvertiblesukuk.
Lookingforward,weareveryoptimisticthatovertheforeseeablefuture,GCCcompanieswill
haveveryfavorablegrowthprospects.Thefundamentalsintheregionremainextremelyhealthy,
fueledbythestrongdemandfromayoungpopulation,andthelaunchof largeinfrastructure
projects.Tocatertothegrowthindemand,companieswillneedtoimprovetheircapabilities,
growinsize,and improvetheireffectiveness.Weseean increasedneedfornon-conventional
financing; such as mezzanine financing, convertible debt, and other hybrid instruments. We
intendtoexpandourrolefromadvisory,tobecomingprincipleinvestorsfromourproprietary
fundsaswellasfromclients’funds.
Structured Finance
BeingthepioneerofthederivativesmarketinKuwait,Markazunderstandstheimportanceofa
developedderivativesmarketandcontinuesitseffortstoincreasethepresenceofthederivatives
andstructuredproductsintheregion.Markaz’sStructuredFinanceteamcontinuestobetheonly
marketmakerforOptionsattheKuwaitStockExchange,entailingthehighlevelofskills,experience
andresourcesacquiredbyMarkaztoperformsuchoperationswithhighlevelofprofessionalism.
Selective access and execution
Maintaining the innovative momentum
DIRECTORS’ REPORT �007 ASSET MANAGEMENT(Cont’d)
Stability under a challenging monetary climate
KuwaitFinancialCentre-S.A.K.(Closed)
We have increased the number of stock covered in theOptionsMarket at theKuwait Stock
Exchangefrom40(2006)to55(2007).These55Stocksareamongthemost liquidstocks
listedattheKuwaitStockExchangecoveringeverysectorwithacoupleofNon-KuwaitiGCC
companies.
Whilstwecontinueourdrivetoexpandourderivatives’capabilityregionally,dealingwithlegal
andregulatoryconstraintswillremaintheprimarychallengetoourprogress.
The Structured Finance team continues to provide our clients with innovative need based
structuredsolutionsandfulfilitsresponsibilitiestodevelopthederivativesmarketinKuwait.
Ourtargetfor2008istoexpandourproductsrangetoincludeputoptions,indexoptionsandto
allowinvestorstowriteoptionsthroughthemarketmaker.
MENA Real Estate
Markazrealestateactivitygainedaseriesofachievementsin2007onthelocalandMENAlevels.
These achievements areportrayed in the launchingofnew investmentproducts and regional
expansions.
Realestatecontinuestobeattractiveinmostoftheregionemanatingfromstrongfundamentals
namelyeconomicgrowth,liquidity,demographics,andgovernmentpolicies.Conversely,Public-
PrivatePartnershipforInfrastructureisprovingitselfanattractiveassetclasstoinvestorsasa
sourceofrelativelysafeandstableincomeandattractivetogovernmentsasameansoffinancing
infrastructureprojectsinadditiontoaligninginterestsofbothPrivateandPublicsectors.
In2007,TheRealEstateDepartmentlaunchedMarkazRealEstateOpportunityFund(MREOF)
aclose-endedShari’ahcompliantrealestatedevelopmentfundfocusingontheMENAregion.
MarkazsecuredprojectsforMREOFbeforethelaunchofthefundwhichenabledittocovermost
ofthecapitalduringthefirstclosing.
MREF,MarkazRealEstateFund,anopen-endedShari’ahcompliantfundthatinvestsinincome
generatingpropertieswithinKuwaitandpaysmonthlydividends,yieldeda19.2%returnfor
2007,andanannualCAGRof13.3%.TheFundsecuredthebackingofallitsinvestorstorenew
itstermbyanadditionalfive-yearperiod.Thefundwillusethecashavailabletoacquirenew
properties,generatedfromtheliquidationofpropertiespriortotheextensionofitsterm.
In 2007, we presented our investors with an investment opportunity in Lusail Qatar in
partnershipwithAlRayanBankthroughafunddevelopingtheinfrastructureofLusailwaterfront
area.Inthemeantime,weactivatedtheworkonseveralnewproductsthatwillbeofferedto
investorsduringthefirsthalfof2008.
On the Infrastructure front,we received theMarkazBoardapproval topursue suchprojects
mainlyinthepower,waterandtransportationsectors.Forthatpurpose,wesignedseveralMOUs
withpartnersanddeveloperstobidonprojectsbeingofferedthroughouttheregion.
For2008,webelievetheRealEstatesectorwillcontinuetogrowandperformrobustlyonthe
backofprevailingstrongfundamentals.Asfor Infrastructure,webelievethissectorwillgain
momentumattractingmoreattentionandinvestmentsintheyearstocome.
International Real Estate
ThefundamentalsfortheUSCommercialRealEstateMarketstillremainstrongdespitethesub-
primemortgagecrisiswitnessedintheresidentialmarket.Healthycorporateprofits,resilient
consumerexpenditures,flexibleemploymentgrowth,favourabledemographicsandstronginflux
ofimmigrants,leadingtogrowthinrents.Thisoutlookhastranslatedintofurtherincreasein
valuationsofpropertiesin2007.
Inordertobenefitfromtheincreaseinvaluations,inJune2007wesoldtheMarkazBBKRetail
RealtyInvestmentUnitII,afundcomprisingaportfolioofsevenretailcentresacrosstheUS,to
New market dynamics
Timing the cycle
�Annual Report �007
International Real Estate (Cont’d)
acommingledfund.ThesaledeliveredagrossIRRof27%,anetIRRofapproximately20%to
investorsandasubstantialincentivefeetoMarkaz.
TwootherfundsmanagedbyMarkaz–theMarkazUSIndustrialRealtyInvestmentUnitIandthe
MarkazBBKUSRetailRealtyInvestmentUnitIII–continuetooperateaccordingtoprojections,
deliveringcash-on-cashyieldssinceinceptionofapproximately9.5%and7.5%,respectively.
Withregardtothefuture,weareactivelypursuingtheapartmentsectorintheUSaswebelieveit
willbeamajorbeneficiaryofthesubprimecrisisandtheabovementionedfundamentals.Tomeet
thisobjective,wehaveseedfinancedthreeapartmentdevelopmentprojectswhereitisanticipated
thattheseprojectswillberolledoverintoanewfundin2008.Aspartofourexpansionstrategy,
wearealsoseekingtoenternewmarketsinEuropeandAsiawhereweintendtopartnerwith
experiencedlocalrealestatecompaniesinordertodeliverinnovativeproductstoourinvestors.
Oil & Gas
TheDepartmentmanagesMarkazEnergyFund(MEF),anopenendedfundestablishedin2006
withavariablecapitalofupto50millionKD.TheflagshipproductoftheOilandGasdepartment
seekstoachieveoutstandingreturnsbyselectivelyinvestingacrosstheexploration&production,
midstream,downstream,andpetrochemicalssegmentsoftheGulfRegion’senergyvaluechain.
Sinceinception,MEFhasachieved8%return.Itisimportanttomentionthattheunlistedfund
holdingsarevaluedatcostasper itsArticlesofAssociationandthusmaynotreflectthefair
marketvalue.
During2007,thefundinvestedinKuwaitFirstTransportCompanyK.S.C.C.(KFTC),through
participation in its capital increasealongsideother institutional investors. KFTChasengaged
in financing of heavy equipment, leasing activities primarily for equipment in Oil and Gas
constructionprojects,andhasenteredintoitsfirstequipmentleasingtransactionworthUSD97
million with the Consolidated Contractors International Company (CCC) through its Bahraini
subsidiary,MaleqLeasingCompanyB.S.C.
MEFhascapitalizedontheencouragingmarketconditionsfeaturedinattractivevaluationsof
energystocksby investing insuch listedenergystocks intheGCCand internationalmarkets.
These investments were weighted towards the drilling and petrochemical segments amongst
others.TheFundhastakenastrategicstakeinIndependentPetroleumGroupS.A.K.(IPG).MEF
alsoparticipated in the IPOofGalfarEngineering&ContractingCompany inOman,wherea
significantportionofitsbusinessisrelatedtotheOilandGassector.
In 2007, an agreement was formulated between MEF and the National Offset Company to
establishamechanismthatwillhelpforeignfirmsfulfiltheiroffsetobligationsthroughtheFund.
MARKAZ REGIONAL EXPANSION
Emanating from its belief in the importance of actual and permanent presence in targeted
markets, Markaz has established Markaz Real Estate Investment Company, a fully owned
subsidiaryofMarkazbased inRiyadh.Thecompanyheralded itsactivitiesbyannouncing the
constructionofahotelintheSaudicapitaljointlywithlocalpartners.
MarkazhasalsoestablishedMarkazRealEstateDevelopmentCompany,afullyownedsubsidiary
ofMarkazbasedinAmman,toproceedinexecutingseveralrealestateprojectsinJordan.
Furthermore,2007sawtheestablishmentofanumberofrealestatejointventuresinLebanon
togetherwiththeestablishmentoftheofficeinBeirut.Also,establishmentofanofficeinthe
Algeriancapitalwasinitsfinalstagesatthecloseoftheyear.
Tip of the iceberg
New footprints
DIRECTORS’ REPORT �007 INVESTMENT BANKING(Cont’d)
KuwaitFinancialCentre-S.A.K.(Closed)
Building the business Markaz Branch in the State of Qatar
While there is growing competition in the financial services arena from local, regional and
international firms, particularly under theQatar Financial Centre jurisdiction, our objective is
toenhanceQatarihighnetworthinvestors’perceptionofMarkazinQatarinordertosecure
investmentbankingandinvestmentadvisorycontracts.
MarkazwasdesignatedasCo-LeadManagerintheprivateplacementof20millionsharesofLusail
WaterfrontInvestmentCompany.Thecompanyisavehicleestablishedtoassistindevelopingthe
WaterfrontDistrictintheLusailProjectinDoha,Qatar.Thesizeoftheplotisapproximately3.6
millionsquarefeet;theinfrastructureofthelandwillbedevelopedbyQatariDiarRealEstate
InvestmentCompanyforaperiodofthreeyears.Theprojectwillhaveanexpectedreturninthe
regionof79%oninvestment.
In 2007, and with perseverance and patience, we built long term relationships with both
institutionalandhighnetworthindividuals.
Weintendtodevelopandexpandourbusinessin2008andtobuildon2007experiences.
SUPPORT DEPARTMENTS
Research
Markaz strategic research ispositioned toprovideprudent investmentopinions to its clients.
Itaimstobethematicinselectingresearchideaswithaclearfocusoninvestmentactionsand
merits.Beingaregionallyfocusedcompany,Markazresearch isalsobiasedtowardsGCCand
MENAand issuesconfrontingtheregion.However,theaimistocontinuouslybenchmarkthe
region with other developed and emerging market peers in order to obtain the requisite
positioning. Markaz research team uses highly specialized databases, both outsourced and
developed in-house, inordertobestatisticallyendowed in itspresentationsandanalysis.The
professional teamalsotreasurestheusageofadvancedquantitativefinancetechniquestothe
extenttheycanbesuccessfullyadaptedtotheregion.
During2007,Markazstrengtheneditsactivityinpublishingresearchesandanalysiswiththemes
thatarerelevanttoMarkazbusiness.Thisprovidestheinvestmentdecision-makingprocesswith
astrongbase,andaclearvision.Researchpublicationsspannedtopicscoveringassetallocation,
volatility,derivatives,assetmanagement,regulatoryissuesandemergingmarkets.Theresearch
divisionalsomadeprogress in termsof adoptingmodeling techniques in the sphereof asset
allocation.
Markazlaunchednewresearchconcepts,suchas“MVX”,anewinnovativeindextomeasurestock
marketvolatilityintheemergingmarketsandGCCregion,andMarkazGCCAssetAllocation,a
monthlyresearchthatrecommendsassetallocationonalltheGCCstockmarketsbasedonanin-
housedevelopedmodel.
Client Relations
2007hasbeenayearofdiversificationfortheClientServicesDepartmentsincewewereable
tobroadenourclientbaseintheGCCandEuropeandtoofferamorediversifiedrangeofasset
classes(IPOs,RealEstatedeals,GCCportfolios).
Clientrelationsarealwaysforemostonouragenda;duetothepreeminenceofthemajorityof
ourclients(institutionsandHighNetWorthIndividuals),weareextremelyvigilantinrecruiting
qualifiedRelationshipManagersandinprovidingthemwiththerighttraining.Weareproudto
announcethatallourAccountManagershavebeencertifiedas‘CharteredWealthManagers’by
theinternationallyrenownedAAFMandarewellequippedtofacetheupcomingchallengesof
2008,beitvolatilemarketconditions,increasedcompetition,orprogressivelymoresophisticated
clients.
Bringing the important issues to the front
Refining service culture
10Annual Report �007
Media & Communications
2007hasbeenayearofachievementsforMedia&Communications.Initiativesundertakenby
thedepartment includenewprojectsdeemedessential forMarkazmarketingstrategy.Media
coveragewas increased throughMarkazfirst corporate campaign, enhanced exposure in the
press and outdoor placards, coupledwithmore intensive public relations activities. Changing
mediatrendstocompetewithcurrentdemandscreatedacompellingcaseforhavingastronger
TVpresenceandhighlightedtheimportanceofelectronicmedia.Adigitalerahasbegunwhere
theelectronicmediaisprovingtobeindispensable.Consequently,abrandnewstate-of-the-art
websitewas launchedwhich provides clients and visitorswith updatednews, researches and
productperformanceupdatesandintroducedafirstfortheregion,podcasting.Thesearemajor
milestones forMarkaz in termsof communications andwill enable us to increase our brand
awarenessinthewholeregion.
Markaz roundtable, thefirst of its kind,was organized inDecember2007; this closed-door
panelontheroleofinstitutionalinvestorsandthefutureofglobalgrowthandthechallenges
facedbyGCCcountriesbrought the topechelonof intelligence in the investmentscene from
around the globe: Credit Agricole Asset Management, OPEC, Mckinsey, Standard Chartered
Bank, Investec, Qatar Financial Centre Regulatory Authority, Beltone Financial, MIBC, & Ask
InvestmentManagers.TheeventwasmoderatedbyMr.RichardBanks,EuromoneyConferences.
Additionally, the Media & Communications team endorsed the management’s expertise by
arrangingspeakingopportunitiesandsponsorshipsathighlevelconferences.
Finallyandveryimportantly,throughouttheyear,Markazwasinvolvedinmanycorporatesocial
responsibility campaigns. These causes spanned the social, sports and educational sectors in
KuwaitandelsewherewhichareinlinewithMarkazmissionofgivingbacktosociety.
Corporate Governance and Risk Management
Markaz’ risk management and internal controls framework enables us to manage all major
aspectsofourbusinessthroughanintegratedplanningandreviewprocessthatincludesstrategic,
financial, and risk planning. The systems are designed to manage risks to achieve Markaz’
businessobjectives.Markaz’riskmanagementstrategiesaregearedspecificallyfortheunique
risksandopportunitiespresentedinthehighgrowthsectorsinGCCandrestoftheworld.
The operational preparation of the Qatar branch was further reinforced by the issuing of a
certificateofoperationbytheregulators.Duringtheyear,Markaz’sriskmanagementcapabilities
wereenhancedbystrengtheningthesystemsandprocessestopreventmoneylaunderinginline
withantimoneylaunderingandterroristfinancingregulations.
IT Department
As Markaz expands to new regions around the world, the IT Department successfully lays
the foundation for a seamless and unified network mesh that transcends physical barriers,
providingasecuresystemofcommunicationforwhatismostvaluabletoMarkaz:Information,
CommunicationandCollaboration.
Financial Management Department
TheFinancialManagementDepartmentensuresoptimumcontroloverallfinancialdealings.The
department’smainobjectiveistopresentanaccuratefinancialpositiontotheManagement,Board
ofDirectors,Shareholders,Creditorsandotherpotentialuserstoevaluatetheprecisefinancial
proficiencyofthecompanyandthatofitssubsidiariesandbranches.
Reaching out
Bonding with the world and managing the growth
The backbone
Adopting the standards
DIRECTORS’ REPORT �007 SUPPORT DEPARTMENTS(Cont’d)
KuwaitFinancialCentre-S.A.K.(Closed)
Thedepartmentcontinuestoensurecompliancewiththeregulatoryauthoritiesandplaysavital
roleinthegrowthandsuccessofMarkazbyprovidingrelevantfinancialinformation.
Human Resources
TheHumanresourcedepartmenthasundertakenanumberofinitiativesduring2007including
thecompletionof thefirstphaseofamajorcompensationandrewardsproject.Thisscheme
helped to categorize new job descriptions for all Markaz staff, evaluating existing Markaz
positions through theMarkaz JobEvaluation committee consisting ofHRD and allHeads of
DepartmentsplustheconsultingteamanddevelopedanewframeworkfortheMarkazposition
matrixbasedontheJEratingsandfinallydevisedanewcompensationstructurebasedonA
MarketCompensationReport.
The department continues to supervise staff career development, accessing world class
professionaltrainingprogramsandconductinginternaltrainingseminars.
MARKAZ’S STRATEGIC OUTLOOK FOR �00�
AssetmanagementindustryinKuwaitandselectivepartsoftheGCCregionisevolvingintoa
morediverseroleenablingittoservetheinstitutionsenjoyinghugesavingsthroughanefficient
redeploymentofcapitaltowardslucrativeopportunities.Theregionisexperiencingaformidable
changeintermsofsocial,demographic,regulatoryandeconomicissues.Itisbecomingmoreand
moreglobalizedasboththeregionalandglobalinvestorsaggressivelymovecapitalindifferent
directions.Thestatusquooftheregionhastransformedfrombeingamereexporterofcapitalto
thatofbothrecipientandexporterofcapital.Withintheevolvingdynamics,ourstrategicoutlook
for2008canbedescribedasfollows:
Focusedapproach inour sourcingofopportunitiesacrosspublicmarkets,privateequity, real
estateand infrastructure;Expandingourreach in theMENAregion (withemphasisonNorth
Africa)andemergingmarkets;Lastbutnotleast,maintainingourleadershipintermsnotonly
ofsizeandperformancebutalsocredibility,innovationwhilebridgingtheindustrystandardgap
withbestpractices.
WewouldliketotakethisopportunitytothankourShareholdersandClientsalikefortheirhighly
appreciated support and toour staff for theirdedication and relentless effort to achieve the
Company’sambitions.Wealsoextendourthankstotheregulatoryauthoritiesfortheircontinued
supportandguidance.
TheBoardofDirectors
27Feb2008
The real capital
1�Annual Report �007
TheShareholders
KuwaitFinancialCentreS.A.K(Closed)
Kuwait
Report On The Consolidated Financial Statements
WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofKuwaitFinancialCentre
S.A.K(Closed)(“theParentCompany”)andsubsidiaries(togetherreferredtoas“theGroup”),
which comprise the consolidated balance sheet as at 31December2007, and the related
consolidatedstatementsofincome,changesinequityandcashflowsfortheyearthenended,and
asummaryofsignificantaccountingpoliciesandotherexplanatorynotes.
Directors’ Responsibility For The Consolidated Financial Statements.
TheParentCompany’sdirectorsareresponsibleforthepreparationandfairpresentationofthese
consolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandards
as adopted in the State of Kuwait. This responsibility includes: designing, implementing and
maintaining internal control relevant to thepreparation and fairpresentationof consolidated
financialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror:
selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatare
reasonableinthecircumstances.
Auditors’ Responsibility
Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedon
ouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditing.Those
standardsrequirethatwecomplywithethicalrequirementsandplanandperformtheauditto
obtainreasonableassurancewhethertheconsolidatedfinancialstatementsarefreefrommaterial
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’ judgment, 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,theauditorconsidersinternalcontrolrelevanttotheGroup’spreparationandfair
presentationoftheconsolidatedfinancialstatements inordertodesignauditproceduresthat
areappropriateinthecircumstances,butnotforthepurposeofexpressinganopiniononthe
effectivenessoftheGroup’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriateness
ofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,
aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovidea
basisforourauditopinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Group as of 31December2007, and the results of its financial
performanceanditscashflowsfortheyearthenendedinaccordancewithInternationalFinancial
ReportingStandardsasadoptedintheStateofKuwait.
INDEPENDENTAUDITORS’ REPORT
KuwaitFinancialCentre-S.A.K.(Closed)
Report On Other Legal And Regulatory Requirements
We further report thatwehaveobtained the information and explanations thatwe required
forthepurposeofourauditandtheconsolidatedfinancialstatementsincludetheinformation
required by the Kuwait Commercial Companies Law of 1960, as amended, and the Parent
Company’sarticlesandmemorandumofassociation. Inouropinion,properbooksofaccount
havebeenkeptbytheParentCompany,andtheaccountinginformationgivenintheboardof
directors’reportagreeswiththebooksofaccount.
Wehavenotbecomeawareofanycontravention,duringtheyearended31December2007,
oftheKuwaitCommercialCompaniesLawof1960,asamended,oroftheParentCompany’s
articlesandmemorandumofassociation,orofLawNo.32of1968,asamended,concerning
currency,theCentralBankofKuwaitandtheorganisationofbankingbusinessanditsrelated
regulations,thatwouldmateriallyaffecttheGroup’sactivitiesoritsfinancialposition.
Jassim Ahmad Al-Fahad
License No. 53-A
Al-Fahad & Co. Deloitte & Touche
Anwar Y. Al-Qatami, F.C.C.A.
License No 50-A
Grant Thornton - Anwar Al-Qatami & Co.
Kuwait
12February2008
1�Annual Report �007
CONSOLIDATED STATEMENT
OF INCOME
31 DECEMBER �007Notes �007 �00�
KD 000’s KD 000’s
Income
Interestincome 6 2,104 2,234
Dividendincome 7 304 624
Managementfeesandcommission 8 15,700 11,412
Profit/(loss)onsaleofinvestmentsatfairvaluethroughstatementofincome
7,607 (1,291)
Unrealisedgain/(loss)oninvestmentsatfairvaluethroughstatementofincome
9
4,561
(7,640)
Profitonsaleofavailableforsaleinvestments
7,904 7,243
Impairmentinvalueofavailableforsaleinvestments
(195) (137)
Foreignexchange(loss)/gain (824) 159
(Provision)/reversalofprovisionforcreditlosses
(145) 113
Otherincome - 28
37,016 12,745
Expenses and other charges
Generalandadministrativeexpenses
10 6,567 5,233
Financecosts 11 2,310 1,867
8,877 7,100
Profit before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), Directors’ remuneration, National Labour Support Tax (NLST) and Zakat
28,139 5,645
ContributiontoKFAS (253) (53)
Directors’remuneration (140) (105)
NationalLabourSupportTax (699) (137)
ProvisionforZakat (18) -
Profit for the year 27,029 5,350
Attributable to:
EquityholdersoftheParentCompany
27,017 5,346
Minorityinterest 12 4
27,029 5,350
Earnings per share attributable to equity holders of the Parent Company (Fils)
13 65 13
Theaccompanyingnotessetoutonpages19to42formanintegralpartoftheseconsolidatedfinancialstatements.
KuwaitFinancialCentre-S.A.K.(Closed)
CONSOLIDATE BALANCE
SHEET
�007 �00�
Notes KD 000’s KD 000’sAssets
Bankbalancesandcash 14 1,474 1,891
Timedeposits 14 956 1,115
Investmentsatfairvaluethroughstatementofincome
15 66,97851,842
Accountsreceivableandotherassets
16 12,2114,064
Murabahareceivables 17 - 123
Shorttermfinancing 18 5,207 -
Loanstocustomers 19 20,388 16,439
Availableforsaleinvestments 20 76,829 66,704
Investmentproperties 21 36 36
Propertyunderdevelopment 22 3,065 -
Propertyandequipment 574 269
Total assets 187,718 142,483
Liabilities and equity
Liabilities
Duetobanksandotherfinancialinstitutions
14 43212
Accountspayableandotherliabilities
5,3363,345
Dividendspayable 424 562
Short-termborrowings 23 22,990 32,894
Bonds 24 27,300 -
Total liabilities 56,482 36,813
Capital and reserves
Sharecapital 25 44,000 44,000
Sharepremium 26 7,902 7,902
Legalreserve 27 11,870 9,056
Voluntaryreserve 28 11,647 8,833
Treasuryshares 29 (11,479) (9,067)
Treasurysharesreserve 7,973 7,973
Fairvaluereserve 30 22,657 17,534
Retainedearnings 36,600 19,385
EquityattributabletoequityholdersoftheParentCompany
131,170105,616
Minorityinterest 66 54
Total equity 131,236 105,670
Total liabilities and equity 187,718 142,483
Diraar Yusuf Alghanim Chairman & Managing Director
Manaf Abdul Aziz Al-Hajri General Manager
Theaccompanyingnotessetoutonpages19to42formanintegralpartoftheseconsolidatedfinancialstatements.
1�Annual Report �007
CON
SOLI
DAT
ED
STA
TEM
EN
T O
F CH
AN
GE
S IN
EQ
UIT
Y A
ttri
buta
ble
to e
quit
y ho
lder
s of
the
Par
ent
Com
pany
Min
orit
y in
tere
st To
tal
Shar
e ca
pita
lSh
are
prem
ium
Lega
l re
serv
eVo
lunt
ary
rese
rve
Trea
sury
sh
ares
Trea
sury
sh
ares
re
serv
e
Fair
va
lue
re
serv
e
Ret
aine
d ea
rnin
gs
Sub
To
tal
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’sB
alan
ce a
t 1
Janu
ary
�00�
40
,000
7,90
28,
492
8,26
9(2
,247
)7,
973
19,4
3138
,934
128,
754
-12
8,75
4
Net
gai
non
ava
ilabl
efo
rsa
lein
vest
men
ts-
--
--
-5,
209
-5,
209
-5,
209
Net
inco
me
reco
gnis
ed
dire
ctly
ine
quity
--
--
--
5,20
9-
5,20
9-
5,20
9
Tran
sfer
to
stat
emen
tof
in
com
eon
sal
eav
aila
ble
for
sale
inve
stm
ents
- -
- -
- -
(7
,243
) -
(7
,243
) -
(7
,243
)
Tran
sfer
to
stat
emen
tof
in
com
eon
impa
irm
ent
ofa
vaila
ble
for
sale
in
vest
men
ts
-
-
-
-
-
-
13
7
-
13
7
-
13
7
Profi
tfo
rth
eye
ar-
--
--
--
5,34
65,
346
45,
350
Tota
lrec
ogni
sed
inco
me
and
expe
nse
for
the
yea
r-
--
--
-(1
,897
)5,
346
3,
449
43,
453
Acqu
isiti
ono
fsu
bsid
iary
--
--
--
--
-50
50
Div
iden
ds
--
--
--
-(1
9,76
7)(1
9,76
7)-
(19,
767)
Issu
eof
bon
uss
hare
s4,
000
--
--
--
(4,0
00)
--
-
Tran
sfer
to
rese
rves
--
564
564
--
-(1
,128
)-
--
Purc
hase
of
trea
sury
sha
res
--
--
(6,8
20)
--
-(6
,820
)-
(6,8
20)
Bal
ance
at
31 D
ecem
ber
�00�
44,0
007,
902
9,05
68,
833
(9,0
67)
7,97
317
,534
19,3
8510
5,61
654
105,
670
KuwaitFinancialCentre-S.A.K.(Closed)
CON
SOLD
ATE
STA
TEM
EN
T O
F CH
AN
GE
S IN
EQ
UIT
Y A
ttri
buta
ble
to e
quit
y ho
lder
s of
the
Par
ent
Com
pany
Min
orit
y in
tere
st To
tal
Shar
e ca
pita
l
Shar
e pr
emiu
m
Lega
l re
serv
e
Volu
ntar
y re
serv
e
Trea
sury
sh
ares
Trea
sury
sh
ares
re
serv
e
Fair
va
lue
re
serv
e
Ret
aine
d ea
rnin
gs
Sub
To
tal
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’sK
D 0
00’s
KD
000
’s
Bal
ance
at
1 Ja
nuar
y �0
0744
,000
7,90
29,
056
8,83
3(9
,067
)7,
973
17,5
3419
,385
105,
616
5410
5,67
0
Net
gai
non
ava
ilabl
efo
rsa
le
inve
stm
ents
--
--
-12
,832
12,8
3212
,832
Net
inco
me
reco
gnis
edd
irec
tlyin
eq
uity
--
--
--
12,8
32-
12,8
3212
,832
Tran
sfer
to
stat
emen
tof
inco
me
ons
ale
ofa
vaila
ble
for
sale
in
vest
men
ts
- -
- -
- -
(7,9
04)
-(7
,904
)-
(7,9
04)
Tran
sfer
to
stat
emen
tof
inco
me
onim
pair
men
tof
ava
ilabl
efo
rsa
lein
vest
men
ts
-
-
-
-
-
-19
5-
195
-19
5
Profi
tfo
rth
eye
ar-
--
--
--
27,0
1727
,017
1227
,029
Tota
lrec
ogni
sed
inco
me
and
expe
nse
for
the
year
5,
123
27,0
17
32,1
4012
32,1
52
Div
iden
ds(
Not
e31
)-
--
--
--
(4,1
74)
(4,1
74)
-(4
,174
)
Tran
sfer
to
rese
rves
--
2,81
42,
814
--
-(5
,628
)-
--
Purc
hase
of
trea
sury
sha
res
--
--
(2,4
12)
--
-(2
,412
)-
(2,4
12)
Bal
ance
at
31 D
ecem
ber
�007
44,0
007,
902
11,8
7011
,647
(11,
479)
7,97
322
,657
36,6
0013
1,17
066
131,
236
The
acco
mpa
nyin
gno
tes
seto
uto
npa
ges
19to
42
form
an
inte
gral
par
toft
hese
con
solid
ated
fina
ncia
lsta
tem
ents
.
1�Annual Report �007
CONSOLIDATED STATEMENT
OF CASH FLOWS�007 �00�
Note KD 000’s KD 000’s
OPERATING ACTIVITIES
Profitfortheyear 27,029 5,350
Adjustmentsfor:
Depreciation 153 116
Financecosts 2,310 1,867
Profitonsaleofavailableforsaleinvestments (7,904) (7,243)
Impairmentinvalueofavailableforsaleinvestments
195 137
Reversalofprovision/(provision)forcreditlosses
145 (113)
Dividendincome (304) (624)
Interestincome (2,104) (2,234)
19,520 (2,744)Changes in operating assets and liabilities:
Investmentsatfairvaluethroughstatementofincome
(15,136) 7,953
Accountsreceivableandotherassets (7,772) 1,627
Loanstocustomers (4,094) 5,453
IncreaseinShorttermfinancing (5,207) -
Accountspayableandotherliabilities 1,991 (1,451)
Net cash from operating activities (10,698) 10,838
INVESTING ACTIVITIES
Acquisitionofsubsidiary,netofcash - 50
Purchaseofpropertyandequipment (458) (113)
Purchaseofpropertyunderdevelopment (3,065) -
Purchaseofavailableforsaleinvestments (17,196) (13,751)
Proceedsfromsaleofavailableforsaleinvestments
19,903 12,317
Murabahafinancing 123 163
Purchaseofinvestmentproperties - (3,904)
Proceedsfromdisposalofinvestmentproperties
- 3,904
Dividendreceived 304 624
Interestreceived 1,729 2,234
Net cash from investing activities 1,340 1,524
FINANCING ACTIVITIES
Purchaseoftreasuryshares (2,412) (6,820)
Dividendspaid (4,312) (19,520)
Increaseinshort-termborrowings (9,904) 15,255
Proceedfromissueofbonds 27,300 -
Financecostspaid (2,310) (1,867)
Net cash from financing activities 8,362 (12,952)
Netdecreaseincashandcashequivalents (996) (590)
Cashandcashequivalentsatbeginningoftheyear
2,994 3,584
Cash and cash equivalents at end of the year
14 1,998 2,994
Theaccompanyingnotessetonpages19to42formanintegralpartoftheseconsolidatedfinancialstatements.
KuwaitFinancialCentre-S.A.K.(Closed)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 1. Incorporation and activities
KuwaitFinancialCentre–S.A.K.(Closed),theParentCompany,isaclosedshareholdingcompany
incorporatedin1974inaccordancewiththeCommercialCompaniesLawintheStateofKuwait.
TheParentCompanywaslistedontheKuwaitStockExchangeon7April1997andisgoverned
underthedirectivesoftheCentralBankofKuwait.
TheGroupcomprisestheParentCompanyanditssubsidiaries.Detailsofthesubsidiariesareset
outinNote5.
The principal activities of the Group are investment management, corporate financing,
investmentandfinancialadvisoryservices,privateequity funds,mutual fundsandrealestate
fundsmanagement,moneymarketandforeignexchange.
TheaddressoftheParentCompany’sregisteredofficeisP.O.Box23444,Safat13095,Stateof
Kuwait.
TheconsolidatedfinancialstatementsoftheGroupfortheyearended31December2007were
authorisedforissuebytheParentCompany’sboardofdirectorson12February2008andare
subjecttotheapprovalofthegeneralassemblyoftheshareholders.
�. Adoption of new and revised Standards
Inthecurrentyear,theGrouphasadoptedIFRS7“Financial Instruments:Disclosures”which
is effective for annual reporting periods beginning on or after 1 January 2007, and the
consequentialamendmentstoIAS1“PresentationofFinancialStatements”.
TheimpactoftheadoptionofIFRS7andthechangestoIAS1hasbeentoexpandthedisclosures
providedintheseconsolidatedfinancialstatementsregardingtheGroup’sfinancialinstruments
andmanagementofcapital(seenote37).
FourInterpretationsissuedbytheInternationalFinancialReportingInterpretationsCommittee
areeffective for thecurrentperiod.Theseare: IFRIC7“Applying theRestatementApproach
underIAS29,FinancialReportinginHyperinflationaryEconomies”;IFRIC8“ScopeofIFRS2”;
IFRIC9“ReassessmentofEmbeddedDerivatives”;andIFRIC10“InterimFinancialReporting
andImpairment”.TheadoptionoftheseInterpretationshasnotledtoanychangesintheGroup’s
accountingpolicies.
StandardsandInterpretationsinissuenotyetadopted
Atthedateofauthorisationoftheseconsolidatedfinancialstatements,thefollowingStandards
andInterpretationswereinissuebutnotyeteffective:
•IAS23(Revised)BorrowingCostsEffectiveforannualperiodsbeginningonorafter1January2009
•IFRS8OperatingSegmentsEffectiveforannualperiodsbeginningonorafter1January2009
•IFRIC11IFRS2:GroupandTreasuryShareTransactions
Effectiveforannualperiodsbeginningonorafter1March2007
•IFRIC12ServiceConcessionArrangementsEffectiveforannualperiodsbeginningonorafter1January2008
•IFRIC13CustomerLoyaltyProgrammesEffectiveforannualperiodsbeginningonorafter1July2008
•IFRIC14IAS19–TheLimitonaDefinedBenefitAsset,MinimumFundingRequirementsandtheirInteraction
Effectiveforannualperiodsbeginningonorafter1January2008
ThedirectorsanticipatethatwhenadoptedtheaboveStandardsandInterpretationswillhaveno
materialfinancialimpactontheconsolidatedfinancialstatementsoftheGroupintheperiodof
initialapplication.
�0Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 3. Significant accounting policies
The accounting policies used in the preparation of the consolidated financial statements are
consistentwiththoseusedinthepreparationoftheconsolidatedfinancialstatementsfortheyear
ended31December2006.
The significant accounting policies adopted in the preparation of the consolidated financial
statementsaresetoutbelow:
Basis of preparation
TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewiththeInternational
Financial Reporting Standards (“IFRS”) promulgated by the International Accounting
StandardsBoard (“IASB”),and Interpretations issuedby the InternationalFinancialReporting
InterpretationsCommitteeoftheIASB,asmodifiedforusebytheGovernmentofKuwaitfor
financialservicesinstitutionsregulatedbytheCentralBankofKuwait.Theseregulationsrequire
adoptionofallIFRSexceptfortheIAS39requirementforcollectiveimpairmentprovision,which
hasbeenreplacedbytheCBKrequirementforaminimumgeneralprovisionasdescribedbelow.
InMarch2007, theCentral Bank ofKuwait issued a circular amending the basis ofmaking
generalprovisionsonfacilitieschangingtheratefrom2%to1%forcashfacilitiesand0.5%
fornoncashfacilities.Therequiredratesweretobeappliedeffectivefrom1January2007on
thenetincreaseinfacilities,netofcertainrestrictedcategoriesofcollateral,duringthereporting
period.Thegeneralprovisioninexcessofthepresent1%forcashfacilitiesand0.5%fornon
cashfacilitieswouldberetainedasageneralprovisionuntilafurtherdirectivefromtheCentral
BankofKuwaitisissued.
The consolidated financial statements are presented in Kuwaiti Dinars (“KD”) which is the
functionalcurrencyoftheParentCompanyandarepreparedunderthehistoricalcostconvention,
exceptforcertaininvestmentsheldatfairvaluethroughstatementofincomeandcertainavailable
forsaleinvestmentsthatarestatedatfairvalue.
Basis of consolidation
TheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheParentCompany
andentitiescontrolledbytheParentCompany(itssubsidiaries).Controlisachievedwherethe
ParentCompanyhasthepowertogovernthefinancialandoperatingpoliciesofanentitysoasto
obtainbenefitsfromitsactivities.
Theresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidated
incomestatementfromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,as
appropriate.
Wherenecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheir
accountingpoliciesintolinewiththoseusedbyothermembersoftheGroup.
Allintra-grouptransactions,balances,incomeandexpensesareeliminatedinfullonconsolidation.
Minorityinterestsinthenetassets(excludinggoodwill)ofconsolidatedsubsidiariesareidentified
separatelyfromtheGroup’sequitytherein.Minority interestsconsistof theamountofthose
interestsatthedateoftheoriginalbusinesscombinationandtheminority’sshareofchanges
inequitysincethedateofthecombination.Lossesapplicabletotheminority inexcessofthe
minority’s interest in the subsidiary’s equity are allocated against the interests of the Group
excepttotheextentthattheminorityhasabindingobligationandisabletomakeanadditional
investmenttocoverthelosses.
KuwaitFinancialCentre-S.A.K.(Closed)
Revenue recognition
Interest income isaccruedona timebasis,byreference to theprincipaloutstandingand the
effectiveinterestrateapplicable,whichistheratethatexactlydiscountsestimatedfuturecash
receiptsthroughtheexpectedlifeofthefinancialassettothatasset’scarryingamount.Murabaha
incomeisrecognisedonatimeproportionbasissoastoyieldaconstantperiodicrateofreturn
basedonthenetbalanceoutstanding.
Dividendincomeisrecognisedwhentherighttoreceivepaymentisestablished.
Portfoliomanagementfeesandcommissionincomeisrecognisedwhenearned.
Foreign currencies
The individualfinancial statementsofeachGroupentityarepresented in thecurrencyof the
primaryeconomicenvironment inwhich theentityoperates (its functional currency).For the
purposeoftheconsolidatedfinancialstatements,theresultsandfinancialpositionofeachGroup
entityaretranslatedintoKDwhichisthefunctionalcurrencyoftheParentCompanyandthe
presentationcurrencyfortheconsolidatedfinancialstatements.
Inpreparingthefinancialstatementsoftheindividualentities,transactionsincurrenciesother
thantheentity’sfunctionalcurrency(foreigncurrencies)arerecordedattheratesofexchange
prevailing at the dates of the transactions. At each balance sheet date, monetary items
denominatedinforeigncurrenciesareretranslatedattheratesprevailingatthebalancesheet
date.Non-monetaryitemscarriedatfairvaluethataredenominatedinforeigncurrenciesare
retranslatedattheratesprevailingatthedatewhenthefairvaluewasdetermined.Non-monetary
itemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyarenotretranslated.
Forthepurposeofpresentingconsolidatedfinancialstatements,theassetsandliabilitiesofthe
Group’sforeignoperationsaretranslatedintoKDusingexchangeratesprevailingatthebalance
sheetdate.Incomeandexpenseitemsaretranslatedattheaverageexchangeratesfortheperiod,
unless exchange rates fluctuated significantly during that period, inwhich case the exchange
ratesatthedatesofthetransactionsareused.Exchangedifferencesarising,ifany,areclassified
as equity and recognised in the Group’s foreign currency translation reserve. Such exchange
differencesarerecognisedintheconsolidatedstatementof incomeintheperiodinwhichthe
foreignoperationisdisposedof.
Finance costs
Interestonborrowingsiscalculatedontheaccrualbasisandisrecognisedintheconsolidated
statementofincomeintheperiodinwhichitisincurred.
Share based payments
TheGroupprovidescertainemployeeswiththeabilitytopurchasetheParentCompany’sshares
fromitstreasuryshares.Theexercisepriceisbetweenthebookvalueattheendoftheeachyear
andaveragecostoftreasuryshares.Theresultingdifferencebetweentheexercisepriceandthe
marketvalueofthesharesatthatdateistreatedasadiscount.
The fair value determined at the grant date of the share-based payments is expensed on a
straight-linebasis over the vestingperiod, basedon theGroup’s estimateof shares thatwill
eventually vest.At eachbalance sheet date, theGroup revises its estimateof thenumberof
equityinstrumentsexpectedtovest.Theimpactoftherevisionoftheoriginalestimates,ifany,
isrecognisedintheconsolidatedstatementofincomeovertheremainingvestingperiod,witha
correspondingadjustmenttotheaccountspayableandotherliabilities.
��Annual Report �007
3. Significant accounting policies (Cont’d)
Property, equipment and depreciation
Property and equipment is stated at cost less accumulated depreciation and accumulated
impairmentlosses.
Depreciationischargedsoastowriteoffthecostorvaluationofassets,overtheirestimated
useful lives, using the straight-line method. The estimated useful lives, residual values and
depreciationmethodarereviewedateachyearend,withtheeffectofanychangesinestimate
accountedforonaprospectivebasis.
Thegainorlossarisingonthedisposalorretirementofpropertyandequipmentisdeterminedas
thedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognised
intheconsolidatedstatementofincome.
Investment properties
Investmentproperty,which ispropertyheldtoearnrentalsand/orforcapitalappreciation, is
measured initially at its cost, including transaction costs. Subsequent to initial recognition,
investmentpropertyismeasuredatfairvalue.Gainsandlossesarisingfromchangesinthefair
valueofinvestmentpropertyareincludedintheconsolidatedstatementofincomeintheperiod
inwhichtheyarise.
Financial assets
Investmentsarerecognisedandderecognisedonthetradedatewherethepurchaseorsaleof
an investment isunderacontractwhose termsrequiredeliveryof the investmentwithin the
timeframeestablishedbythemarketconcerned,andareinitiallymeasuredatfairvalue,netof
transactioncosts,exceptforthosefinancialassetsclassifiedasatfairvaluethroughstatementof
income,whichareinitiallymeasuredatfairvalue.
Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassets‘atfairvalue
through statement of income’ (“FVTSI”), ‘held-to-maturity investments’, ‘available-for-sale’
(“AFS”)financialassetsand‘loansandreceivables’.Theclassificationdependsonthenatureand
purposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.
Effective interest method
Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialasset
andofallocatinginterestincomeovertherelevantperiod.Theeffectiveinterestrateistherate
thatexactlydiscountsestimatedfuturecashreceipts(includingallfeesonpointspaidorreceived
thatformanintegralpartoftheeffectiveinterestrate,transactioncostsandotherpremiums
ordiscounts)throughtheexpectedlifeofthefinancialasset,or,whereappropriate,ashorter
period.
Incomeisrecognisedonaneffectiveinterestratebasisfordebtinstrumentsotherthanthose
financialassetsdesignatedasatFVTSI.
Cash and cash equivalents
Cashandcashequivalentsasstatedintheconsolidatedstatementofcashflowscomprisebank
andcashbalances,timedepositslessduetobanksandotherfinancialinstitutions.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007
KuwaitFinancialCentre-S.A.K.(Closed)
Financial assets at fair value trough statement of income (“FVTSI”)
FVTSI are initially recognised at fair value excluding transaction costs. Financial assets are
classifiedasatFVTSIwherethefinancialassetiseitherheldfortradingoritisdesignatedasat
FVTSI.
Afinancialassetisclassifiedasheldfortradingif:
-Ithasbeenacquiredprincipallyforthepurposeofsellinginthenearfuture;or
-ItisapartofanidentifiedportfoliooffinancialinstrumentsthattheGroupmanagestogether
andhasarecentactualpatternofshort-termprofit-taking;or
-Itisaderivativethatisnotdesignatedandeffectiveasahedginginstrument.
-AfinancialassetotherthanafinancialassetheldfortradingmaybedesignatedasatFVTSIupon
initialrecognitionif:
-Suchdesignationeliminatesorsignificantlyreducesameasurementorrecognitioninconsistencythat
wouldotherwisearise;or
-ThefinancialassetformspartofaGroupoffinancialassetsorfinancialliabilitiesorboth,whichis
managedanditsperformanceisevaluatedonafairvaluebasis,inaccordancewiththeGroup’s
documentedriskmanagementor investmentstrategy,and informationabout thegrouping is
providedinternallyonthatbasis;or
Itformspartofacontractcontainingoneormoreembeddedderivatives,andIAS39permitsthe
entirecombinedcontract(assetorliability)tobedesignatedasatFVTSI.
After initial recognition, financial assets at FVTSI are remeasured at fair value. Fair value is
determinedinthemannerdescribedinnote37.Gainorlossarisingeitherfromsaleorchangesin
fairvalueonremeasurementisrecognisedintheconsolidatedstatementofincome.
Available for sale financial assets (“AFS”)
AFS investments are initially recorded at fair value plus transaction costs that are directly
attributabletotheacquisition.Afterinitialrecognition,AFSinvestmentsareremeasuredatfair
valueexceptforinvestmentinequitysecuritiesthatdonothaveactivemarketandwhosefair
valuecannotbereliablymeasured,whicharecarriedatcost.
Fair value is determined in the manner described in note 37. Gains and losses arising from
changesinfairvaluearerecogniseddirectlyinequityinthefairvaluereservewiththeexception
of impairment losses, interest calculatedusing theeffective interest ratemethodand foreign
exchangegainsandlossesonmonetaryassets,whicharerecogniseddirectlyintheconsolidated
statement of income.Where the investment is disposed of or is determined to be impaired,
the cumulative gain or loss previously recognised in the fair value reserve is included in the
consolidatedstatementofincomefortheperiod.
ThefairvalueofAFSmonetaryassetsdenominatedinaforeigncurrencyisdeterminedinthat
foreign currency and translated at the spot rate at the consolidated balance sheet date. The
changeinfairvalueattributabletotranslationdifferencesthatresultfromachangeinamortised
costoftheassetisrecognisedintheconsolidatedstatementofincome,andotherchangesare
recognisedinequity.
Loans to customers
LoanstocustomersoriginatedbytheGroupbyprovidingmoneydirectlytotheborrowerand
thathavefixedordeterminablepaymentsthatarenotquotedinanactivemarketareclassifiedas
“loanstocustomers”.Loansaremeasuredatamortisedcostusingtheeffectiveinterestmethod,
lessanyimpairment.Provisionforcreditriskisestablishedtomeetanydeclineinvalue.
��Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 3. Significant accounting policies (Cont’d)
Derecognition of financial asset
TheGroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfrom
theassetexpire;orittransfersthefinancialassetandsubstantiallyalltherisksandrewardsof
ownershipoftheassettoanotherentity.IftheGroupneithertransfersnorretainssubstantially
alltherisksandrewardsofownershipandcontinuestocontrolthetransferredasset,theGroup
recognisesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhave
topay.IftheGroupretainssubstantiallyalltherisksandrewardsofownershipofatransferred
financial asset, the Group continues to recognise the financial asset and also recognises a
collateralisedborrowingfortheproceedsreceived.
Impairment of financial assets
Financialassets,otherthanthoseatFVTSI,areassessedfor indicatorsof impairmentateach
balance sheetdate. Financial assets are impairedwhere there is objective evidence that, as a
resultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,the
estimatedfuturecashflowsoftheinvestmenthavebeenimpacted.
ForunlistedsharesclassifiedasAFS,asignificantorprolongeddeclineinthefairvalueofthe
securitybelowitscostisconsideredtobeobjectiveevidenceofimpairment.
Forallotherfinancialassets,objectiveevidenceofimpairmentcouldinclude:
·significantfinancialdifficultyoftheissuerorcounterparty;or
·defaultordelinquencyininterestorprincipalpayments;or
·itbecomingprobablethattheborrowerwillenterbankruptcyorfinancialre-organisation.
Forcertaincategoriesoffinancialasset,suchasaccountsreceivables,assetsthatareassessed
nottobeimpairedindividuallyaresubsequentlyassessedforimpairmentonacollectivebasis.
Objectiveevidenceof impairmentforaportfolioofreceivablescould includetheGroup’spast
experienceofcollectingpayments,anincreaseinthenumberofdelayedpaymentsintheportfolio
past the average creditperiodof60days, aswell asobservable changes innationalor local
economicconditionsthatcorrelatewithdefaultonreceivables.
Forfinancialassetscarriedatamortisedcost,theamountoftheimpairmentisthedifference
between the asset’s carrying amount and the present value of estimated future cash flows,
discountedatthefinancialasset’soriginaleffectiveinterestrate.
The carrying amount of thefinancial asset is reduced by the impairment loss directly for all
financialassetswiththeexceptionofaccountsreceivablesand loanstocustomers,wherethe
carrying amount is reduced through the use of an allowance account. When an accounts
receivableorloantocustomerisconsidereduncollectible,itiswrittenoffagainsttheallowance
account. Subsequent recoveries of amounts previously written off are credited against the
allowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognisedin
theconsolidatedstatementofincome.
With theexceptionofAFSequity instruments, if, in a subsequentperiod, theamountof the
impairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringafter
theimpairmentwasrecognised,thepreviouslyrecognisedimpairmentlossisreversedthrough
consolidatedstatementofincometotheextentthatthecarryingamountoftheinvestmentatthe
datetheimpairmentisreverseddoesnotexceedwhattheamortisedcostwouldhavebeenhad
theimpairmentnotbeenrecognised.
InrespectofAFSequitysecurities,impairmentlossespreviouslyrecognisedthroughconsolidated
KuwaitFinancialCentre-S.A.K.(Closed)
statementofincomearenotreversedthroughconsolidatedstatementofincome.Anyincreasein
fairvaluesubsequenttoanimpairmentlossisrecogniseddirectlyinequity.
Inaddition,inaccordancewithCentralBankofKuwaitinstructions,aminimumgeneralprovision
of1%forthecashfacilitiesand0.5%forthenon-cashfacilitiesnetofcertaincategoriesof
collateral,towhichCBKinstructionsareapplicableandnotsubjecttospecificprovisions,ismade.
Provisions
ProvisionsarerecognisedwhentheGrouphasapresentobligation(legalorconstructive)asa
resultofapastevent,itisprobablethattheGroupwillberequiredtosettletheobligation,anda
reliableestimatecanbemadeoftheamountoftheobligation.
Theamountrecognisedasaprovisionisthebestestimateoftheconsiderationrequiredtosettle
thepresentobligationattheconsolidatedbalancesheetdate,takingintoaccounttherisksand
uncertaintiessurroundingtheobligation.Whereaprovision ismeasuredusingthecashflows
estimatedtosettlethepresentobligation,itscarryingamountisthepresentvalueofthosecash
flows.
When someorall of theeconomicbenefits required to settle aprovisionareexpected tobe
recoveredfromathirdparty,thereceivableisrecognisedasanassetifitisvirtuallycertainthat
reimbursementwillbereceivedandtheamountofthereceivablecanbemeasuredreliably.
Financial liabilities and equity instruments issued by the Group
Classification as debt or equity
Debtandequityinstrumentsareclassifiedaseitherfinancialliabilitiesorasequityinaccordance
withthesubstanceofthecontractualarrangement.
Equity instruments
Anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsofanentity
afterdeductingallofitsliabilities.EquityinstrumentsissuedbytheGrouparerecordedatthe
proceedsreceived,netofdirectissuecosts.
Financial liabilities
Financialliabilitiesareclassifiedas“Bond”and“Shorttermborrowings”
Financialliabilitiesareinitiallymeasuredatfairvalue,netoftransactioncosts.
Otherfinancialliabilitiesaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterest
method,withfinancecostsrecognisedonaneffectiveyieldbasis.
Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialliability
andofallocatingfinancecostsovertherelevantperiod.Theeffective interestrate istherate
thatexactlydiscountsestimatedfuturecashpaymentsthroughtheexpectedlifeofthefinancial
liability,or,whereappropriate,ashorterperiod.
Derecognitionoffinancialliabilities
TheGroup derecognizes financial liabilities when, and only when, theGroup, obligations are
discharges,cancelledortheyexpire.
��Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 3. Significant accounting policies (Cont’d)
Treasury shares
TreasurysharesconsistoftheParentCompany’sownsharesthathavebeenissued,subsequently
reacquiredbytheParentCompanyandnotyetreissuedorcancelled.Thetreasurysharesare
accountedforusingthecostmethod.Underthecostmethod,theweightedaveragecostofthe
sharesreacquiredischargedtoacontraequityaccount.Whenthetreasurysharesarereissued,
gainsarecreditedtoaseparateaccountinshareholders’equity(gainonsaleoftreasuryshares),
whichisnotdistributable.Anyrealisedlossesarechargedtothesameaccounttotheextentof
thecreditbalanceonthataccount.Anyexcesslossesarechargedtoretainedearningsthento
reserves.Gainsrealisedsubsequentlyonthesaleoftreasurysharesarefirstusedtooffsetany
previouslyrecorded losses intheorderofreserves,retainedearningsandthegainonsaleof
treasurysharesaccount.Nocashdividendsarepaidontheseshares.Theissueofbonusshares
increasesthenumberoftreasurysharesproportionatelyandreducestheaveragecostpershare
withoutaffectingthetotalcostoftreasuryshares.
Related party transactions
Relatedpartiesconsistofdirectors,executiveofficers,theirclosefamilymembersandcompanies
ofwhich they areprincipal owners.All relatedparty transactions are conductedonan arm’s
lengthbasisandareapprovedbymanagement.
Fiduciary assets
AssetsheldintrustorfiduciarycapacityarenottreatedasassetsoftheGroupandaccordingly
theyarenotincludedintheseconsolidatedfinancialstatements.
Zakat
Effective 10 December 2007, the Group has provided for Zakat in accordance with the
requirementsofLawNo.46of2006. TheZakatchargecalculated inaccordancewiththese
requirementsischargedtotheconsolidatedstatementofincome.
�. Critical accounting judgements and key sources of estimation uncertainty
IntheapplicationoftheGroup’saccountingpolices,whicharedescribedinnote3,management
isrequiredtomakejudgements,estimatesandassumptionaboutthecarryingamountsofassets
andliabilitiesthatarenotreadilyapparentfromothersources.Theestimatesandassociated
assumptions are based on historical experience and other factors that are considered to be
relevant.Actualresultsmaydifferfromtheseestimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevision
affectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsiftherevisionaffects
bothcurrentandfutureperiods.
Keysourcesofestimationuncertainty
Thekeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthe
balancesheetdate,thathaveasignificantriskofcausingamaterialadjustmenttothecarrying
amountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow:
Valuationofunquotedequityinvestments
Valuationofunquotedequityinvestmentsisnormallybasedononeofthefollowing:
KuwaitFinancialCentre-S.A.K.(Closed)
-recentarm’slengthmarkettransactions;
-currentfairvalueofanotherinstrumentthatissubstantiallythesame;
-theexpectedcashflowsdiscountedatcurrentratesapplicableforitemswithsimilartermsand
riskcharacteristics;or
-othervaluationmodels.
The determination of the cash flows and discount factors for unquoted equity investments
requiressignificantestimation.
Criticaljudgementsinapplyingaccountingpolices
The following are the critical judgements, apart from those involving estimations, that the
managementhavemadeintheprocessofapplyingtheGroup’saccountingpoliciesandthathave
themostsignificanteffectontheamountsrecognisedintheconsolidatedfinancialstatements:
Classification of real estate property
Managementdecidesonacquisitionofarealestatepropertywhetheritshouldbeclassifiedas
trading,propertyheldfordevelopmentorinvestmentproperty.
The Group classifies property as trading property if it is acquired principally for sale in the
ordinarycourseofbusiness.
�. Critical accounting judgements and key sources of estimation
TheGroupclassifiespropertyaspropertyunderdevelopmentifitisacquiredwiththeintention
ofdevelopment.
TheGroupclassifiespropertyasinvestmentpropertyifitisacquiredtogeneraterentalincomeor
forcapitalappreciation,orforundeterminedfutureuse.
Classification of investments
Managementdecidesonacquisitionofaninvestmentwhetheritshouldbeclassifiedasheldatfair
valuethroughstatementofincome,heldtomaturityoravailableforsale.
TheGroupclassifies investmentsas trading if theyareacquiredprimarily for thepurposeof
makingashorttermprofitbythedealers.
Classificationofinvestmentsasinvestmentatfairvaluethroughincomestatementdependson
howmanagementmonitortheperformanceoftheseinvestments.Whentheyarenotclassified
asheldfortradingbuthavereadilyavailablereliablefairvaluesandthechangesinfairvaluesare
reportedaspartofincomestatementinthemanagementaccounts,theyareclassifiedasatfair
valuethroughstatementofincome.Allotherinvestmentsareclassifiedasavailableforsale.
Impairment of investments
TheGrouptreatstheinvestmentsasimpairedwhentherehasbeenasignificantorprolonged
declineinthefairvaluebelowitscost.Thedeterminationofwhatis“significant”or“prolonged”
requiresjudgement.Inaddition,theGroupalsoevaluatesamongotherfactors,normalvolatility
inthesharepriceforquotedinvestmentsandthefuturecashflowsandthediscountfactorsfor
unquotedinvestments.
��Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 5. Subsidiaries
NameofsubsidiaryCountryofincorporation
Proportionofownershipinterest
Proportionofvotingpowerheld
Principalactivity
MargulfManagementInc USA 100% 100% Assetmanagement
KFCLoneStar,Inc USA 100% 100% Assetmanagement
KFCLoneStar1,Inc. USA 100% 100% Assetmanagement
FirstManagementandEconomicConsultancyCompany–K.S.C.(Closed)
Kuwait 100% 100%EconomicConsultancy
MarsoftforComputerProgramming,OperationsandConsultancyServicesCompany–W.L.L.
Kuwait 67% 67%ComputerConsultancy
�. Interest income
2007 2006
KD000’s KD000’s
Timedeposits 236 154
Investmentsatfairvaluethoughstatementofincome 207 131
Shorttermfinancing 138 -
Murabahareceivables 5 12
Loansandadvances 1,518 1,937
2,104 2,234
7. DIVIDEND INCOME
2007 2006
KD000’s KD000’s
Investmentsatfairvaluethroughstatementofincome 236 409
Availableforsaleinvestments 68 215
304 624
�. Management fees and commission
ManagementfeesrelatestoincomearisingfromtheGroup’smanagementofportfolios,funds,
custodyandsimilartrustandfiduciaryactivities.
KuwaitFinancialCentre-S.A.K.(Closed)
9. Unrealised gain / (loss) on investments at fair value through statement of income
2007 2006
KD000’s KD000’s
Changeinfairvalueoftradingsecurities 361 (1,805)
Changeinfairvalueofinvestmentsdesignatedasinvestmentsatfairvaluethroughstatementofincome
4,200 (5,835)
4,561 (7,640)
10. General and administrative expenses
Generalandadministrationexpensesincludethefollowing:
2007 2006
KD000’s KD000’s
Staffcosts 4,372 3,074
Depreciation 153 116
11. Finance costs
2007 2006
KD000’s KD000’s
Bonds 895 -
Shorttermborrowings 1,406 1,862
Duetobanks 9 5
2,310 1,867
Interestexpenseonfinancialliabilitiesatamortisedcost 2,310 1,867
1�. Net gain or loss on financial assets
2007 2006
KD000’s KD000’s
Timedeposits 236 154
Investmentsatfairvaluethroughstatementofincome 12,611 (8,391)
Availableforsaleinvestments 7,777 7,321
Murabahareceivables 5 12
Loansandadvances 1,373 2,050
Shorttermfinancing 138 -
22,140 1,146
30Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 13. Earnings per share attributable to equity holders of the parent company
2007 2006
KD000’s KD000’s
EarningspershareattributabletoequityholdersoftheParentCompanyiscalculatedasfollows:
ProfitfortheyearattributabletoequityholdersoftheParentCompany
27,017 5,346
Weightedaveragenumberofsharesoutstandingexcludingtreasuryshares(thousands)
416,691 426,281
Earningspershare(fils) 65 13
1�. Cash and cash equivalents
2007 2006
KD000’s KD000’s
Bankbalancesandcash 1,474 1,891
Timedeposits 956 1,115
Less:Duetobanksandotherfinancialinstitutions (432) (12)
1,998 2,994
TheGroup’stimedepositsyieldinterestatanaveragerateof4.875%perannum(2006:5.000%perannum)andmaturewithinonemonthfromthedateofdeposit.
15. Investments at fair value through statement of income
2007 2006
KD000’s KD000’s
Trading:
Localquotedsecuritiesandmanagedfunds 9,266 6,119
Foreignquotedsecuritiesandmanagedfunds 752 1,312
Designatedoninitialrecognition:
Localquotedsecuritiesandmanagedfunds 48,417 39,160
Foreignquotedsecuritiesandmanagedfunds 2,129 1,339
Fixedincomesecurities 6,414 3,912
66,978 51,842
Theinterestonfixedincomesecuritiesrangefrom6.000%to7.125%perannum(2006:5.000%to7.125%perannum).
KuwaitFinancialCentre-S.A.K.(Closed)
1�. Accounts receivables and other assets
2007 2006
KD000’s KD000’s
Managementfeesandcommissionreceivable 4,315 2,827
Interestreceivable 736 361
Receivablefromsaleofavailableforsaleinvestments
4,421 -
Prepayments 492 387
Others 2,247 489
12,211 4,064
17. Murabaha receivables
MurabahareceivablesarisefromaMurabahatransactionwiththeprincipalamountandprofit
thereonbeingrecoverableovera5yearperiodfromthedateofthetransactionandataprofit
rateof6.4%perannum.Themurabahareceivablewasfullyreceivedin2007.
1�. Short term financing
Shorttermfinancingrepresentsshorttermadvancesataninterestrateof9%perannum(2006:
nil)(Seenote32).Theadvanceisduewithintwomonthsofthebalancesheetdate.
19. Loans to customers
2007 2006
KD000’s KD000’s
Commercialloans 10,077 6,271
Marginloans 8,268 7,428
Personalloans 3,956 4,618
22,301 18,317
Provisionforcreditlosses (1,913) (1,878)
20,388 16,439
Thematurityprofileofloanstocustomersisasfollows:
Uptoonemonth 410 2,045
Betweenonemonthandsixmonths 2,739 3,621
Betweensixmonthsandoneyear 16,873 11,109
Overoneyear 742 -
Non-performingloans 1,537 1,542
22,301 18,317
3�Annual Report �007
19. Loans to customers (Cont’d)Provision for credit losses is made in accordance with Central Bank of Kuwait requirementsincludinggeneralprovision(Seenote3)onthebalanceofregularfacilitiesforwhichnospecificprovisionsaremade.
The total non-performing loans onwhich specific provision has beenmade amounted toKD1,537thousand(2006:KD1,542thousand).
Theinterestrateonloanstocustomersrangesfrom7.75%to9.25%perannum(2006:7.75%to9.25%per annum) for commercial loans,7.75% to8.75%per annum (2006:8.25% to9.25%)formarginloansand5.5%to9.25%perannum(2006:5.5%to8.75%perannum)forpersonalloans.
AllloansaredenominatedinKuwaitiDinarsorUSDollars.Commercialloansarefullysecuredbychargesoverpropertyandinvestmentsinthefundsandsecuritiesheldinfiduciaryportfoliosonbehalfoftheborrowers.
�0. Available for sale investments
2007 2006
KD000’s KD000’s
Quotedsecuritiesandmanagedfunds 51,716 43,808
Equityparticipations 25,113 22,896
76,829 66,704
Equityparticipationsareacquiredwiththe intentionofcapitalappreciationoveramediumto
long-termtimeframe.EquityparticipationsamountingtoKD909thousand(2006:KD584
thousand)arecarriedatcostsincetheirfairvaluescouldnotbemeasuredreliably.
EquityparticipationincludeinvestmentsamountingtoKD24,204thousand(2006:KD22,398
thousand)whosefairvaluesaredeterminedusingvaluationtechniquesusedbyfundmanagers
thatarenotbasedonobservablemarketpricesorrates.
�1. Investment properties
2007 2006
KD000’s KD000’s
Carryingvalueat1January 36 36
Additions - 3,904
Disposals - (3,904)
Carryingamountat31December 36 36
InvestmentpropertiesarelocatedoutsideKuwait.
��. Property under development
During 2007, the Group acquired land in Saudi Arabia amounting to KD 3,065 thousand
(2006:nil).TheobjectiveoftheGroupistosellthelandafterfurtherdevelopment.Theland
willbetransferredtoinvestmentpropertyoncompletionofdevelopment.Thecommitmentfor
developmentoflandhasbeendisclosedinnote36totheconsolidatedfinancialstatements.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007
KuwaitFinancialCentre-S.A.K.(Closed)
�3. Short term borrowings
Shorttermborrowingsrepresentmoneymarketborrowingsfromlocalandforeignbanks.The
loansaredenominatedinKuwaitDinarandUSDollarandbearanaverageinterestrateranging
from5%to6.5%perannum(2006:4%to8.75%perannum)andareunsecured.
At31December2007,theGrouphadKD33,600thousand(2006:KD12,600thousand)of
undrawncommittedborrowingfacilitiesinrespectofwhichallconditionsprecedenthadbeen
met.
��. Bonds
On5July2007, theParentCompany issuedunsecuredbonds in theprincipalamountofUS
Dollars100,000thousandwithaninterestrateofLIBORplus1.1%payablequarterlyinarrears.
ThebondsarelistedontheDubaiInternationalFinancialExchangeandmatureon5July2012.
�5. Share capital
Theauthorised,issuedandfullypaidupsharecapitalconsistsof44,000thousandsharesof100
filseach(31December2006:44,000thousandsharesof100filseach).
��. SHARE PREMIUM
Sharepremiumisnotavailablefordistribution.
�7. Legal reserve
Asrequiredby theKuwaitCommercialCompaniesLawand theParentCompany’sArticlesof
Association,10%ofprofitfortheyearbeforeKFAS,NLST,Directors’remunerationandZakatis
tobetransferredtothelegalreserveuntilthereservereachesaminimumof50%ofthepaidup
sharecapital.Thisreserveisnotavailablefordistributionexceptforpaymentofadividendof5%
ofpaidupsharecapitalinyearswhenretainedearningsarenotsufficientforthepaymentofsuch
dividends.
��. Voluntary reserve
In accordancewith theParentCompany’sArticlesofAssociation,10%ofprofit for theyear
before KFAS, NLST, Directors’ remuneration and Zakat is required to be transferred to the
voluntaryreserveuntiltheshareholdersdecidetodiscontinuethetransferondistributionsfrom
thevoluntaryreserve.
�9. Treasury shares
2007 2006
Numberofshares(000’s) 29,351 22,621
Percentageofissuedshares 6.67% 5.14%
Marketvalue(KD000’s) 10,566 5,881
ReservesoftheParentCompanyequivalenttothecostoftreasuryshareshavebeenearmarkedasnon-distributable.
3�Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 30. Fair value reserve
2007 2006
KD000’s KD000’s
Balanceat1January 17,534 19,431
Netunrealisedgainsduringtheyear 12,832 5,209
Impairmentinvaluetransferredtoconsolidatedstatementofincome
195 137
Releasedondisposalofavailableforsaleinvestments (7,904) (7,243)
Balanceat31December 22,657 17,534
31. Proposed dividends
Subject to the requisite consent of the relevant authorities and approval from the general
assembly,theBoardofDirectorsproposetodistributeacashdividendof25filspershareand
bonussharesof15%totheshareholdersofrecordasofthedateofthegeneralassembly.
During2007,cashdividendsof10filspersharefortheyearended31December2006were
approvedbythegeneralassemblyheldon10April2007andwerepaidfollowingthatapproval.
3�. Related party transactions
TransactionsbetweentheParentCompanyanditssubsidiaries,whicharerelatedpartiesofthe
ParentCompanyhavebeeneliminatedonconsolidationandarenotdisclosedinthisnote.Details
oftransactionsbetweentheGroupandotherrelatedpartiesaredisclosedbelow
Trading transactions
Duringtheyear,groupentitiesenteredintothefollowingtradingtransactionswithrelatedparties
thatarenotmembersoftheGroup:2007 2006
KD000’s KD000’s
Transactions included in the consolidated statement of income
a)Interestincome 492 292
b)Managementfeesandcommissions 10,207 8,195
c)Compensationofkeymanagementpersonnel
Salariesandothershorttermbenefits 356 282
Terminalbenefits 59 23
415 305
Balances included in the consolidated balance sheetLoans to related parties
2007 2006KD000’s KD000’s
Shorttermfinancing(Seenote18) 5,207 -Loanstodirectorsandseniormanagement 9,422 4,463
14,629 4,463
KuwaitFinancialCentre-S.A.K.(Closed)
33. Segmental information
Thegroupprimarily operates inone areaof business activity, investment and accordingly its
primarybasisforsegmentalreportingisbygeographicalsegment.Informationaboutthegroup’s
geographicalsegmentsissummarisedasfollows:
Yearended31December2007 2006
Revenue Profit Revenue ProfitKD000’s KD000’s KD000’s KD000’s
Kuwait 26,640 17,437 8,376 1,678GulfandMiddleEast 2,005 1,682 587 311NorthAmerica 5,987 5,550 2,330 1,990Europe 2,276 2,269 787 757Others 108 91 665 614
37,016 27,029 12,745 5,350
Asat31December2007 2006
Totalassets
Totalliabilities
Netassetsemployed
Totalassets
Totalliabilities
Netassetsemployed
KD000’s KD000’s KD000’s KD000’s KD000’s KD000’sKuwait 109,149 31,429 77,720 91,347 18,736 72,611
GulfandMiddleEast 21,504 24,966 (3,462) 6,890 17,327 (10,437)
NorthAmerica 41,341 78 41,263 34,372 741 33,631
Europe 11,214 4 11,210 7,551 4 7,547
Others 4,510 5 4,505 2,323 5 2,318
187,718 56,482 131,236 142,483 36,813 105,670
3�. Fiduciary assets
TheGroupmanagesportfoliosonbehalfofothers,mutualfunds,andmaintainscashbalances
andsecurities infiduciaryaccounts,whicharenotreflectedintheconsolidatedbalancesheet.
Assetsundermanagementat31December2007amountedtoKD1,240,673thousand(2006:
KD1,182,211thousand).
35. Employee share option plan
In 2005, the Group established an employee share option plan (“ESOP”) to reward the
performanceof itsemployees.Undertheplan,certainemployeesareeligible topurchasethe
ParentCompany’ssharesfromitstreasurysharesandnonewshareswillbeissued.Theexercise
priceisbetweenthebookvalueattheendofeachyearandaveragecostoftreasuryshares.This
planwillbeineffectforanineyearperiodforamaximumof10%ofthepaidupsharecapitalof
theParentCompanyatthedateofinceptionoftheprogram.
Pursuanttotheplan,thedirectorsapprovedtomake1,680thousandsharesavailableforthis
purposefortheyearended31December2005whichwasapprovedbytherelevantregulatory
authoritiesandtheshareholdersgeneralassemblyon2April2006.Thefairvalueoftheshareat
thatdatewas700filsandexercisepricewas500fils.TheGrouprecognisedatotalexpenseand
correspondingliabilityofKD336thousandintheconsolidatedfinancialstatementsfortheyear
ended31December2005.Nosharesweregranted,exercised,expiredorforfeitedunderthe
ESOPduringtheyearended31December2007.
3�Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 3�. Commitments and contingent liabilities
�007 �00�KD 000’s KD 000’s
Capitalcommitments
Forpurchaseofinvestments 17,724 20,819
Fordevelopmentofland 717 -
18,441 20,819
37. Financial instruments
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria
for recognition, the basis of measurement and the basis on which income and expenses are
recognised,inrespectofeachclassoffinancialassetandfinancialliabilityaredisclosedinnote3
totheconsolidatedfinancialstatements.
Financial risk management objectives
TheGroup’sriskmanagementfunctionprovidesservicestothebusiness,co-ordinatesaccessto
domesticandinternationalfinancialmarkets,monitorsandmanagesthefinancialrisksrelatingto
theoperationsoftheGroupthroughinternalriskreportswhichanalyseexposuresbydegreeand
magnitudeofrisks.Theserisksincludemarketrisk(includingcurrencyriskandfairvalueinterest
raterisk),creditrisk,liquidityriskandcashflowinterestraterisk.
Market risk
Marketriskistheriskthatchangesinmarketprices,suchasforeignexchangerates,interest
ratesandequitypriceswillaffect theGroup’s incomeorthevalueof itsholdingsoffinancial
instruments.Theobjectiveofmarketriskmanagement istomanageandcontrolmarketrisk
exposureswithinacceptableparameters,whileoptimisingthereturn.
TheGroup’sactivitiesexpose itprimarily to thefinancial risksofchanges in foreigncurrency
exchangeratesandinterestrates.
Price risk
TheGroup is exposed to the equity price riskwith respect to its equity investments. Equity
investmentsareclassifiedeitherasinvestmentsatfairvaluethroughstatementofincomeand
availableforsaleinvestments.
Tomanageitspriceriskarisingfrominvestmentsinequitysecurities,theGroupdiversifiesits
portfolioinaccordancewiththelimitssetbytheGroup.
Thesensitivityanalysisbelowhasbeendeterminedbasedontheexposuretoequitypricerisksat
thereportingdate.
Ifequitypricehadbeen10%higher/lower,theeffectontheprofitfortheyearandequityfor
theyearended31Decemberwouldhavebeenasfollows.
KuwaitFinancialCentre-S.A.K.(Closed)
37.Financialinstruments(continued)
Apositivenumberbelowindicatesanincreaseinprofitandotherequitywheretheequityprice
increasesby10%.Foran10%decreaseintheequitypricetherewouldbeanequalandopposite
impactintheprofitandotherequityandthebalancesbelowwouldbenegative.
Profitfortheyear Equity
2007 2006 2007 2006
KD000’s KD000’s KD000’s KD000’s
Investmentsatfairvaluethroughstatementofincome
1,168 852 - -
Availableforsaleinvestments 474 404 770 290
Foreign currency risk management
TheGroupundertakescertaintransactionsdenominatedinforeigncurrencies.Hence,exposures
toexchangeratefluctuationsarise.Exchangerateexposuresaremanagedwithinapprovedpolicy
parametersutilisingforwardforeignexchangecontracts.
ThecarryingamountsoftheGroup’ssignificantforeigncurrencydenominatedmonetaryassets
andmonetaryliabilitiesatthereportingdateareasfollows:
Liabilities Assets
2007 2006 2007 2006
KD000’s KD000’s KD000’s KD000’s
USDollars 28,960 7,038 66,472 41,576
Euro 3 16 6,637 4,997
SterlingPounds 2 2 817 2,582
BahrainiDinars - - 156 725
UAEDirhams - - 651 682
Other 397 6 448 655
Foreign currency sensitivity analysis
TheGroupismaintainingexposuremainlytotheUSDollars.
The following table details the Group’s sensitivity to a 10% increase and decrease in the
KD against US Dollars. The sensitivity analysis includes only outstanding foreign currency
denominatedmonetaryitemsandadjuststheirtranslationattheperiodendfora10%changein
foreigncurrencyrates.Thesensitivityanalysisincludesexternalloansaswellasloanstoforeign
operationswithin theGroupwhere thedenominationof the loan is ina currencyother than
thecurrencyofthe lenderortheborrower.Apositivenumberbelowindicatesan increase in
profitandotherequitywheretheKDweakens10%againsttherelevantcurrency.Fora10%
strengtheningoftheKDagainsttheUSDollar,therewouldbeanequalandoppositeimpacton
theprofitandotherequity,andthebalancesbelowwouldbenegative.
+10%Impact -10%Impact
2007 2006 2007 2006
KD000’s KD000’s KD000’s KD000’s
Consolidatedstatementofincome (980) (1,061) 980 1,061
Equity (2,772) (i) (2,392) (i) 2,772 (i) 2,392 (i)
(i)Thisisasaresultofthechangesinfairvalueofavailableforsaleinvestments.
3�Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007
37. Financial instruments (Cont’d)
Interest rate risk management
TheGroupisexposedtointerestrateriskasitborrowsfundsatbothfixedandfloatinginterest
rates.TheriskismanagedbytheGroupbymaintaininganappropriatemixbetweenfixedand
floatingrateborrowings.
Interest rate sensitivity analysis
TheGroup’sexposurestointerestratesonassetsandliabilitiesaredetailedintheliquidityrisk
managementsectionofthisnote.
Thefollowingtableillustratesthesensitivityoftheprofitfortheyearandequitytoareasonably
possiblechangeininterestratesof+1%and-1%(2006:+1%and-1%)witheffectfrom
the beginning of the year. These changes are considered to be reasonably possible based on
observationof currentmarket conditions.Thecalculationsarebasedon theGroup’sfinancial
instrumentsheldateachbalancesheetdate.Allothervariablesareheldconstant.
Apositivenumberbelowindicatesanincreaseinprofitandnegativenumberindicatesdecreasein
profit.
2007 2006+1% -1% +1% -1%KD000’s KD000’s KD000’s KD000’s
Profitfortheyear (119) 119 (7) 7
Credit risk management
Credit risk refers to the risk that the counterpartywill default on its contractual obligations
resulting infinancial loss to theGroup.TheGrouphasadoptedapolicyofonlydealingwith
creditworthycounterpartiesandobtainingsufficientcollateral,whereappropriate,asameans
of mitigating the risk of financial loss from defaults. The Group only transacts with entities
thatarerated theequivalentof investmentgradeandabove.This information is suppliedby
independentratingagencieswhereavailableand,ifnotavailable,theGroupusesotherpublicly
available financial information and its own trading records to rate its major customers. The
Group’sexposureandthecreditratingsofitscounterpartiesarecontinuouslymonitoredandthe
aggregatevalueof transactions concluded is spreadamongst approved counterparties.Credit
exposureiscontrolledbycounterpartylimitsthatarereviewedandapprovedbythemanagement
annually.
Accountsreceivablesconsistofalargenumberofcustomers,spreadacrossdiverseindustriesand
geographicalareas.Ongoingcreditevaluationisperformedonthefinancialconditionofaccounts
receivable.
TheGroupdoesnothaveanysignificantcreditriskexposuretoanysinglecounterpartyorany
group of counterparties having similar characteristics. The Group defines counterparties as
having similar characteristics if they are related entities. Concentration of credit risk did not
exceed5%ofgrossmonetaryassetsatanytimeduringtheyear.Thecreditriskonliquidfunds
islimitedbecausethecounterpartiesarebankswithhighcredit-ratingsassignedbyinternational
credit-ratingagencies.
KuwaitFinancialCentre-S.A.K.(Closed)
Exposure to credit risk
The carrying amount of financial assets which is net of impairment losses, recorded in the
consolidated balance sheet represents the Group’s maximum credit exposure without taking
accountof the valueof any collateral obtained.Themaximumexposure to credit risk at the
reportingdatewas:
Carryingamount
2007 2006
KD000’s KD000’s
Bankbalancesandcash 1,474 1,891
Timedeposits 956 1,115
Accountsreceivableandotherassets 12,211 4,064
Murabahareceivables - 123
Shorttermfinancing 5,207 -
Loanstocustomers 20,388 16,439
40,236 23,632
Themaximumexposuretocreditriskatthereportingdatebygeographicregionwas:
Carryingamount
2007 2006
KD000’s KD000’s
Kuwait 24,395 22,128
GulfandMiddleEast 9,548 136
NorthAmerica 6,102 1,284
Europe 158 40
Others 33 44
40,236 23,632
Credit quality of financial assets
Thecreditqualityoffinancialassetsthatareneitherpastduenorimpairedcanbeassessedby
referencetohistoricalinformationaboutcounterpartydefaultrates.Noneofthefinancialassets
oftheGrouphavebeenratedbyexternalcreditratingagencies.TheGroupassessesthecredit
qualityoffinancialassetsusinginternalratings.
Liquidity risk management
LiquidityriskistheriskthattheGroupwillnotbeabletomeetitsfinancialobligationsasthey
falldue.TheGroup’sapproachtomanagingliquidityistoensure,asfaraspossible,thatitwill
alwayshavesufficientliquiditytomeetitsliabilitieswhendue,underbothnormalandstressed
conditions,withoutincurringunacceptablelossesorriskingdamagetotheGroup’sreputation.
Ultimateresponsibilityforliquidityriskmanagementrestswiththeboardofdirectors,whichhas
builtanappropriateliquidityriskmanagementframeworkforthemanagementoftheGroup’s
short, medium and long-term funding and liquidity management requirements. The Group
managesliquidityriskbymaintainingadequatereserves,bankingfacilitiesandreserveborrowing
facilities,bycontinuouslymonitoringforecastandactualcashflowsandmatchingthematurity
profilesoffinancialassetsandliabilities.Includedinnote23isalistingofadditionalundrawn
facilitiesthattheGrouphasatitsdisposaltofurtherreduceliquidityrisk.
�0Annual Report �007
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007 37. Financial instruments (Cont’d)
Liquidity and interest risk tables
ThetablebelowanalysestheGroup’snon-derivativefinancialassetsandliabilitiesbasedonthe
remainingperiodatthebalancesheettothecontractualmaturitydate.Theamountsdisclosedin
thetablearethecontractualundiscountedcashflows.Balancesduewithin12monthsequaltheir
carryingbalancesastheimpactofdiscountingisnotsignificant.
At31December2007Upto1Month
1-3Months
3-12Months
Over1year
TotalWeightedaverageeffectiveinterest
rate
KD000’s KD000’s KD000’s KD000’s KD000’s %
Assets
Bankbalancesandcash 1,474 - - - 1,474 -
Timedeposits 956 - - - 956 4.875
Investmentsatfairvaluethroughstatementofincome
- - 63,517 3,461 66,978 6.56
Accountsreceivableandotherassets
3,789 6,420 1,761 241 12,211 -
Shorttermfinancing - 5,207 - - 5,207 9
Loanstocustomers 406 1,494 17,754 734 20,388 8.4
Availableforsaleinvestments - - - 76,829 76,829 -
Investmentproperties - - - 36 36 -
Propertyunderdevelopment - - - 3,065 3,065 -
Propertyandequipment - - - 574 574 -
6,625 13,121 83,032 84,940 187,718
At31December2007
Upto1Month
1-3Months
3-12Months
Over1Year
Total
Weightedaverage
effectiveinterestrate
KD000’s KD000’s KD000’s KD000’s KD000’s %
Liabilities
Duetobanksandotherfinancialinstitutions
432 - - - 432 7.5
Accountspayableandotherliabilities
- 5,336 - - 5,336 -
Dividendspayable - 424 - - 424 -
Short-termborrowings 18,190 - 4,800 - 22,990 5.75
Bonds - - - 27,300 27,300 6
18,622 5,760 4,800 27,300 56,482
Totalinterestratesensitivitygap
(11,997) 7,361 78,232 57,640 131,236
Cumulativeinterestratesensitivitygap
(11,997) (4,636) 73,596 131,236 -
KuwaitFinancialCentre-S.A.K.(Closed)
At31December2006Upto1Month
1-3Months
3-12Months
Over1Year
Total
Weightedaverageeffective
interestrate
KD000’s KD000’s KD000’s KD000’s KD000’s %
Assets
Bankbalancesandcash 1,891 - - - 1,891 -
Timedeposits 1,115 - - - 1,115 5
Investmentsatfairvaluethroughstatementofincome
- - 47,930 3,912 51,842 6
Accountsreceivableandotherassets
- 4,064 - - 4,064 -
Murabahareceivables - 41 82 - 123 6.4
Loanstocustomers 2,004 1,739 12,684 12 16,439 8.43
Availableforsaleinvestments
- - - 66,704 66,704 -
Investmentproperties - - - 36 36 -
Propertyandequipment - - - 269 269 -
5,010 5,844 60,696 70,933 142,483
At31December2006Upto1Month
1-3Months
3-12Months
Over1Year
Total
Weightedaverageeffective
interestrate
KD000’s KD000’s KD000’s KD000’s KD000’s %
Liabilities
Duetobanksandotherfinancialinstitutions
12 - - - 12 7.5
Accountspayableandotherliabilities
3,345 - - 3,345 -
Dividendspayable - 562 - - 562 -
Short-termborrowings 27,144 - 5,750 - 32,894 6.38
27,156 3,907 5,750 - 36,813
Totalinterestratesensitivitygap
(22,146) 1,937 54,946 70,933 105,670
Cumulativeinterestratesensitivitygap
(22,146) (20,209) 34,737 105,670 -
Fair value of financial instruments
Thefairvalueoffinancialassetsandfinancialliabilitieswithstandardtermsandconditionsand
tradedontheactiveliquidmarketsisdeterminedwithreferencetoactivemarketprices.
Thefairvalueoffinancialassetsandfinancialliabilities(excludingderivativeinstruments)isdetermined
inaccordancewithgenerallyacceptedpricingmodelsbasedondiscountedcashflowanalysisusing
pricesfromobservablecurrentmarkettransactionsanddealerquotesforsimilarinstruments.
Asattheconsolidatedbalancesheetdate,thefairvalueofalloftheGroup’sfinancialassetsand
financialliabilitiesapproximatetheircarryingvalueintheconsolidatedbalancesheet.
��Annual Report �007
37. Financial instruments (Cont’d)
Financial assets
2007 2007 2006 2006
KD000’s KD000’s KD000’s KD000’sFairvalue
Atamortisedcost
Fairvalue
Atamortisedcost
Bankbalancesandcash 1,474 - 1,891 -
Timedeposits 956 - 1,115 -Investmentsatfairvaluethroughstatementofincome
66,978 - 51,842-
Accountsreceivableandotherassets
-12,211 - 4,064
Murabahareceivables - - - 123
Shorttermfinancing - 5,207 - -
Loanstocustomers - 20,388 - 16,439
Availableforsaleinvestments 76,829 - 66,704 -
146,237 37,806 121,552 20,626
FinancialliabilitiesDuetobanksandotherfinancialinstitutions
- 432 - 12
Accountspayableandotherliabilities - 5,336 - 3,345
Short-termborrowings - 22,990 - 32,894
Bonds - 27,300 - -
- 56,058 - 36,251
3�. Capital risk management
TheGroupmanagesitscapitaltoensurethatitwillbeabletocontinueasagoingconcernwhile
maximisingthereturntoshareholdersthroughtheoptimisationofthedebtandequitybalance.
TheGroup’soverallstrategyremainsunchangedfrom2006.
ThecapitalstructureoftheGroupconsistsofequityattributabletoequityholdersoftheParent
Company,comprisingissuedcapital,sharepremium,reservesandretainedearningsasdisclosed
innotes25,26,27,28,29and30respectively.Debtconsistsoftheduetobanksandother
financialinstitutionsdisclosedinNote14,shorttermborrowingsdisclosedinnote23andbonds
disclosedinnote24.
Gearingratio
Thegearingratioatyearendwasasfollows:
2007 2006
KD000’s KD000’s
Debt 50,722 32,906
Less:Cashandcashequivalents 1,998 2,994
Netdebt 48,724 29,912
Equity 131,170 105,616
Netdebttoequityratio 37.15% 28.32%
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER �007