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Al Safwa Group Holding Company K.S.C.

(Closed) and its subsidiaries - State of Kuwait

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Our Message

Al Safwa Group Holding Company gives top priority to looking after the shareholders interests through realizing stable benefits, maintaining higher equities on the long run for shareholders. The company is committed to its duties and responsibilities to the society through contributing to the progress of the vehicle of Kuwaiti economy.

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

H.H. Sheikh

Sabah Al-Ahmad Al-Jaber Al-Sabah


The Amir of the State of Kuwait

H.H. Sheikh

H.H. Sheikh

Nasser M. Al-Ahmad Al-Sabah


The Prime Minister of the State of Kuwait

Nawaf Al-Ahmad Al-Jaber Al-Sabah


The Crown Prince of the State of Kuwait

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Contents

Board members Chairmans message The Companys shareaa report Independent auditors report Consolidated balance sheet Consolidated statement of income Consolidated statement of changes in equity Consolidated statement of cash flows Parent balance sheet Parent statement of income Notes to the consolidated financial statements

07 08 10 12 13 14 15 16 18 19 20

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Board Members

Mr. Waleed Abdul Rahim Al-Asfoor Chairman

Mr. Waleed Ahmed Al-Sharhan Vice Chairman

Mr. Adel Yousef Al-Saqabi Managing Director

Mr. Bader Jassem Al-Failakawi Board Member

Mr. Abdul Aziz Mansour Al-Mansour Board Member

Mr. Mohammad Mustafa Karam Board Member

Mr. Khalid Abdul Ghani Al-Abdul Ghani Board Member

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Chairmans Message

Respected shareholders, Gods peace and mercy be upon you,,, On behalf of the board members, Id like to welcome you to the company ordinary and extraordinary general assembly meeting, and to appreciate your presence, attention and trust. Id also like to present to you the annual report on the companys general performance for the fiscal year that elapsed on December 31, 2007. The company made several significant achievements in 2007, which favorably affected its performance and results. For instance, it acquired two companies listed at the Kuwait Stock Exchange (KSE). The first company was Danah Al Safat Foodstuff Company K.S.C. (Danah), formerly United Fisheries of Kuwait (K.S.C.), in March. Composed of several subsidiaries, the company capital was increased by 50 percent in 2007 in line a relevant the ordinary and extraordinary general assembly decision. Danah sold its shares in SDAFCO in Saudi Arabia with a view to restructuring the companys assets, thus earning profits worth KD 10,128,355. The parent company sought to restructure the company into a specialized foodstuff firm working in line with the Islamic Sharia or law. In July 2007, the company also acquired Shuaiba Industrial Company, formerly Shuaiba Paper Products Co. K.S.C., which is a leading producer of cement bags in the Middle East region. Due to world market expansions, the company, at the behest of the parent company, has recently signed contracts for establishing a cement bag plant in a Gulf country with a total production capacity of 60 million bags to cover growing demand. The parent company also sought to restructure the company administratively and financially in a bid to post high profits. The results of this year showed that great efforts were exerted to make up for losses incurred in the previous years. The company

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

activity will also be revised in order to match the Islamic Sharia or law. Furthermore, the company signed a contract with a Saudi company to establish, design and execute an entertainment city on 72,868 square meters at Al-Khubar area. The project is expected to start operation this year. The company also shared 53.85 percent in AlDanah Real Estate Company, which owns lands at a vital distinguished position at Salmiya for a 3,664-sq-meter housing and entertainment project. Implementation of the project will begin this year. It also acquired an influential quota of 62.5 percent of Dar Al-Huda Holding Company, which owns hotels in Mecca. Such hotels have been inaugurated this year. In addition, the company invested in highly rewarding investment funds and sold off some real estate shares, posting estimated profits of KD 2,625,771. Moreover, the company acquired strategic shares in KSE-listed companies; 18.70 percent of Al-Safat Tech Holding Company, 9.50 percent of Al-Safat Investment Company and 9.15 percent of Al-Safat Energy Holding Company. As to the companys record financial results during 2007, shareholders rights hit KD 126,217,355 against KD 112,515,324 in 2006, a growth rate of 12 percent. The book value of a single share amounted to 126 fils in 2007 against 112 fils in 2006, a growth rate of 12.5 percent. The companys net profits totaled KD 20,295,733 in 2007

compared to KD 12,051,311 in 2006, up 68 percent. Share profits surged up to 21.17 fils per share compared to 14.30 percent in 2006, up 48 percent. The companys assets also shot up from KD 114,963419 in 2006 to KD 268,722 in 2007, up 133 percent. In light of the companys 2007 results, wed like to present to the ordinary and extraordinary general assembly a board recommendation to distribute dividends by 5 percent of the nominal value of shares; 5 fils per share, and bonus stocks of 10 percent of the paid-up capital; 10 bonus shares for each 100 stocks, and to raise the companys capital by 20 percent by issuing shares at a value of 100 fils per share and a bonus issue worth 25 fils per share. Thus, the companys capital will go up to KD 130,000,000. Finally, the board of directors would like to voice appreciation and gratitude to His Highness the Amir, HH the Crown Prince, HH the Prime Minister and the good government for their ceaseless support and valuable directives. Wed also like to thank the shareholders for their trust and workers for their efforts to serve the companys interests.

Waleed Abdul Rahim Al-Asfoor Chairman

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

The Companys Shareaa Report


Shareaa Report of Al Safwa Group Holding Co.

In the name of Allah the merciful, We, al Raya Intl consulting & Training, confirm that we have verified all applied principles and relevant contracts pertaining to all transactions carried out by Al Safwa Group Holding Company for the financial year ending in 31/12/2007. We have performed all relevant assessments and given the appropriate guidance to ensure whether or not the companys activities comply with the Sharia principles, and which also eliminate the Company from participating in all Non-Sharia activities and profits. Through our Sharia Management, we have revised the Companys transactions, by reviewing both the contracts and the procedures being implemented. Al Raya Ints Consulting & Training concludes the following: 1. All transactions and business matters executed by the company during the financial year ending in 31/12/2007 have been conducted in accordance with the Sharia principles. 2. Profit distributions and sustained losses in investment accounts adhere to the Sharia Principles. 3. We would like to indicated that the Company does not implement Zakat payments on its shares, the Zakat is to be borne by the shareholders and the owners, Note that Zakat due on 2.816 Fils per share. 4. We seize this opportunity to express our gratitude and appreciation to the Companys Management for its collaboration and compliance with Al Raya Intl Consulting and Training and it Sharia Management, and also, we would like to express our high regards to all the Companys shareholders and clientele. Regards,

Prof. Dr. Abdul Aziz Khalifa Al-Qassar


Chairman of the Sharia Committee

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Dr. Issa Zaki Issa


Shaira Committee Member

Dr. Ali Ibrahim Al Rashed


Shaira Committee Member

Annual Report

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Auditors Report
Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries State of Kuwait

Consolidated Financial Statements and Independent Auditors Report


for the year ended 31 December 2007

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Auditors Report
PUBLIC ACCOUNTANTS

ffb S

INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF AL SAFWA GROUP HOLDING COMPANY K.S.C. (CLOSED) Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Al Safwa Group Holding Company K.S.C. (Closed) (the parent company) and its subsidiaries (together referred to as the group) which comprise the consolidated balance sheet as at 31 December 2007, and the related consolidated statements of income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Managements responsibility for the consolidated financial statements The parent companys management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors 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, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated 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 the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the group as at 31 December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on other legal and regulatory requirements Furthermore, in our opinion proper books of account have been kept by the parent company, the inventory was duly carried out and the consolidated financial statements, together with the information given in the board of directors report agree with the books of account. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements include the information required by the Commercial Companies Law of 1960, as amended, and by the parent companys articles of association. We have not become aware of any contravention, during the year ended 31 December 2007, of the Commercial Companies Law of 1960, as amended, nor of the parent companys articles of association, that would materially affect the groups activities or its financial position.
Kuwait: 9 March 2008

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Qais M. Al Nisf Licence No. 38 A Of Moore Stephens Al Nisf & Partners Member Firm of Moore Stephens International

Barrak Abdul Mohsen Al-Ateeqi Licence No. 69 A Al-Ateeqi Certified Accountants Member firm of B.K.R International

Annual Report

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Consolidated balance sheet


as at 31 December 2007
Notes Assets Non-current assets Property, plant and equipment Property under development Investment properties Investment in associates Investment in unconsolidated subsidiaries Available for sale investments Investments at fair value through statement of income Goodwill Key money Current assets Due from related parties Inventories Accounts receivable Other receivables Wakala receivable Investments at fair value through statement of income Cash and cash equivalents Non-current asset classified as held for sale Total assets Equity and liabilities Equity attributable to owners of the parent Share capital Share premium Statutory reserve Voluntary reserve Treasury shares Treasury shares reserve Revaluation reserve Fair value reserve Foreign currency translation reserve Retained earnings Minority interest Total equity Non-current liabilities Wakala payables Provision for staff indemnity Current liabilities Wakala payables Notes payable Due to banks Due to related parties Accounts payable and other liabilities Total liabilities Total equity and liabilities

2007
KD

2006
KD

4 5 6 7 8 9 10 11

12,855,241 3,278,835 9,615,631 19,768,651 40,568,134 8,800,000 33,627,981 1,311,366 129,825,839 1,709,840 6,662,144 3,786,323 2,480,216 500,000 110,478,757 12,296,830 137,914,110 488,773 138,402,883 268,228,722 100,000,000 9,500,000 3,582,266 3,582,266 (5,201,793) 1,608 345,840 (2,943,647) (96,481) 17,447,296 126,217,355 39,966,156 166,183,511 1,273,198 801,450 2,074,648 84,589,595 293,951 105,173 200,685 14,781,159 99,970,563 102,045,211 268,228,722

811,477 737,142 5,599,049 28,300,788 354,024 35,802,480 985,985 12,462,992 1,627,042 2,000,000 48,405,426 13,679,494 79,160,939 79,160,939 114,963,419 100,000,000 9,500,000 1,441,200 1,441,200 (5,003,960) 345,840 (5,225,554) (11,945) 10,028,543 112,515,324 112,515,324 34,358 34,358 2,413,737 2,413,737 2,448,095 114,963,419

12 13 14 15 10 16 17

18 19 20 21 22

23

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Mr. Waleed Abdul Rahim Al-Asfoor Chairman

Mr. Adel Yousef Al-Saqabi Managing Director

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The accompanying notes form an integral part of these consolidated financial statements.

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Consolidated statement of income


For the year ended 31 December 2007
Notes Revenue Cost of sales Gross profit Unrealized gain on investments at fair value through statement of income Profit on disposal of investments at fair value through statement of income Profit on disposal of investment properties Profit/(loss) on disposal of available for sale investments Profit on disposal of a subsidiary Profit on disposal of an associate Share of results of associates Share of results of unconsolidated subsidiaries Income from islamic deposits Income from wakala Dividend income Profit on disposal of property, plant and equipment Foreign exchange (loss)/gain Impairment loss on non-current asset classified as held for sale Other income General and administrative expenses Selling and marketing expenses Finance cost Depreciation and amortization Profit for the year before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), National Labour Support Tax (NLST), Zakat and Directors remuneration Contribution to KFAS NLST Zakat Directors remuneration Profit for the year Attributable to: Owners of the parent Minority interest Earnings per share attributable to owners of the parent (fils)
28 20,295,733 8,932,939 29,228,672 21.17 12,051,311 90,950 12,142,261 14.30 26 27 17 7 7 8

2007
KD

2006
KD

14,155,422 (10,289,841) 3,865,581 25 25 6 7,412,645 11,893,125 4,143,520 415,295 10,128,355 901,485 37,768 595,969 171,636 2,795,638 6,604 (1,601,080) (30,000) 1,603,342 (3,968,559) (2,325,925) (5,265,310) (436,487)

7,131,299 (5,391,470) 1,739,829 2,494,837 6,375,084 (8,116) 727,489 379,049 1,442,109 813,908 492,378 54,204 8,350 37,821 (970,218) (803,224) (61,306) (127,379)

30,343,602 (267,506) (707,592) (20,832) (119,000) 29,228,672

12,594,815 (112,535) (302,019) (38,000) 12,142,261

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The accompanying notes form an integral part of these consolidated financial statements.

Annual Report

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Share capital KD
(5,805,290) 801,330 (5,003,960) (5,003,960) 901,220 (84,536) 345,840 (5,225,554) (11,945) 10,028,543 345,840 (5,225,554) (11,945) 10,028,543 (330) 801,000 112,515,324 112,515,324 816,684 (5,805,290) (2,500,774) (587,870) 496,920 104,500,000 (5,225,554) (11,945) 12,051,311 6,813,812 90,950 6,904,762 496,920 (587,870) (5,805,290) 801,000 - 112,515,324 - 112,515,324 73,263 889,947 12,051,311 12,051,311 90,950 12,142,261 (5,225,554) (11,945) (5,237,499) (5,237,499) (5,225,554) (11,945) (5,237,499) (5,237,499) 345,840 478,336 6,205,802 6,205,802

Share Statutory Voluntary premium reserve reserve KD KD KD KD KD

Treasury shares

Treasury Revaluation shares reserve reserve Total equity

Fair value reserve

KD

KD

KD

Foreign Equity currency Retained attributable Minority translation earnings to owners of interest reserve the parent KD KD KD KD

5,000,000 190,813 190,813 Balance at 31 December 2005 Net change in fair value Net income/(expenses) recognized directly in equity Profit for the year Total recognized income and expenses for the year 95,000,000 9,500,000 Issue of shares Acquisition of subsidiary Disposal of a subsidiary - 1,250,387 1,250,387 Transfer to reserves Purchase of treasury shares Disposal of treasury shares Balance at 31 December 2006 100,000,000 9,500,000 1,441,200 1,441,200 - 104,500,000

For the year ended 31 December 2007

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Consolidated statement of changes in equity

15
(1,200,215) 1,002,382 (5,201,793) 1,608 1,608 2,281,907 345,840 (2,943,647) 2,281,907 1,380,687 (84,536) (84,536) (96,481) 20,295,733 20,295,733 (8,595,178) (4,282,132) 330 17,447,296 1,380,687 2,197,371 20,295,733 22,493,104 73,263 8,932,939 9,006,202 31,258,368 803,956 - (1,102,370) (8,595,178) (1,200,215) 1,004,320 1,380,687 2,270,634 29,228,672 31,499,306 31,258,368 803,956 (1,102,370) (8,595,178) (1,200,215) 1,004,320 126,217,355 39,966,156 166,183,511

100,000,000 9,500,000 1,441,200 1,441,200 Balance at 31 December 2006 Net change in fair value Transfer to profit & loss on sale of available for sale investments Net income/(expenses) recognized directly in equity Profit for the year Total recognized income and expenses for the year Acquisition of subsidiary Increase in share capital of subsidiary Increase in parent share in subsidiary Dividend paid - 2,141,066 2,141,066 Transfer to reserves Purchase of treasury shares Disposal of treasury shares Balance at 31 December 2007 100,000,000 9,500,000 3,582,266 3,582,266

Annual Report

The accompanying notes form an integral part of these consolidated financial statements.

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Consolidated statement of cash flows


For the year ended 31 December 2007
2007
KD

2006
KD

OPERATING ACTIVITIES Profit for the year attributable to the owners of the parent Adjustments for: Profit on disposal of investment properties Unrealized gain on investment at fair value through statement of income (Profit)/loss on disposal of available for sale investments Profit on disposal of a subsidiary Profit on disposal of an associate Share of results of associates Share of results of unconsolidated subsidiaries Income from islamic deposits Income from wakala Dividend income Profit on disposal of property, plant and equipment Reversal of provision for slow moving goods Provision for staff indemnity Depreciation and amortization Impairment loss on non-current asset classified as held for sale Finance cost Changes in operating assets and liabilities: Decrease in due from related party Decrease in inventories Decrease/(increase) in accounts receivable Increase in other receivables Decrease/(increase) in wakala receivables Increase in accounts payable and other liabilities Decrease in due to related parties Cash generated by/(used in) operations Staff indemnity paid KFAS paid NLST paid Directors remuneration paid Net cash generated from/(used in) operations INVESTING ACTIVITIES Islamic deposits maturing after three months
(550,000) (550,000) 38,992 286,202 14,467,971 (853,174) 1,500,000 5,041,689 (215,018) 20,199,200 (179,990) (189,308) (517,214) (38,000) 19,274,688 437,216 (11,358,852) (1,376,475) (2,000,000) 1,267,110 (7,232,482) (24,669) (3,531) (7,961) (12,000) (7,280,643) (4,143,520) (7,412,645) (415,295) (10,128,355) (901,485) (37,768) (595,969) (171,636) (2,795,638) (6,604) (51,379) 215,260 786,529 30,000 5,265,310 (67,462) (2,494,837) 8,116 (727,489) (379,049) (1,442,109) (813,908) (492,378) (54,204) (89,642) 44,023 127,379 61,306 5,798,519 20,295,733 12,051,311

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Annual Report

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Consolidated statement of cash flows (continued)


For the year ended 31 December 2007
2007
KD

2006
KD

Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Purchase of property under development Purchase of investment properties Proceed from disposal of investment properties Purchase of investment in associates Proceeds from disposal of an associate Proceeds from disposal of a subsidiary Purchase of investment in unconsolidated subsidiaries Net movement in available for sale investments Net movement in investments at fair value through statement of income Acquisition of subsidiaries, net of cash acquired Net movement in key money Income from islamic deposits Income from wakala Dividend income Net cash used in investing activities FINANCING ACTIVITIES Net movement in wakala payables Notes obtained Proceeds from issue of shares Purchase of treasury shares Proceed from sale of treasury shares Dividend paid Finance cost paid Minority Interest Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year (see note 16) Cash and cash equivalents comprise of: Cash in hand and at banks Due to banks Islamic deposit maturing after three months

(1,720,532) 248,610 (3,278,835) (11,105,129) 1,468,043 (496,636) 35,900,000 (6,481,967) (7,188,259) (43,580,881) (49,870,816) (210,251) 595,969 171,636 2,795,638 (83,303,410) 67,149,493 166,156 (1,200,216) 1,004,320 (8,595,178) (5,265,309) 8,731,619 61,990,885 (2,037,837) 13,129,494 11,091,657 12,296,830 (105,173) (1,100,000) 11,091,657

(40,600) 158,050 (737,142) (5,220,000) 2,900,989 (33,265,956) (43,116,146) (2,173,500) 1,442,109 813,908 492,378 (79,295,910) (73,820) 104,500,000 (5,805,290) 801,000 (61,306) 99,360,584 12,784,031 345,463 13,129,494 13,679,494 (550,000) 13,129,494

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Parent balance sheet


as at 31 December 2007
2007
KD

2006
KD

Assets Non-current assets Property, plant and equipment Property under development Investment properties Investment in associates Investment in unconsolidated subsidiaries Available for sale investments Goodwill Investment in consolidated subsidiaries Current assets Due from related parties Accounts receivable Other receivables Wakala receivables Investments at fair value through statement of income Cash and cash equivalents Total assets Equity and liabilities Equity Share capital Share premium Statutory reserve Voluntary reserve Treasury shares Treasury shares reserve Revaluation reserve Fair value reserve Foreign currency translation reserve Retained earnings Non-current liabilities Provision for staff indemnity

651,702 3,278,835 6,266,515 19,690,011 33,037,353 30,312,714 29,306,964 122,544,094 181,625 1,671 90,619 500,000 94,752,257 2,942,750 98,468,922 221,013,016

666,541 737,142 5,599,049 28,300,788 354,024 1,944,225 37,601,769 283,951 12,812,316 167,145 2,000,000 48,405,426 12,872,270 76,541,108 114,142,877

100,000,000 9,500,000 3,582,266 3,582,266 (5,201,793) 1,608 345,840 (2,943,647) (96,481) 17,447,296 126,217,355 14,666 14,666

100,000,000 9,500,000 1,441,200 1,441,200 (5,003,960) 345,840 (5,225,554) (11,945) 10,028,543 112,515,324 7,012 7,012 1,620,541 1,620,541 1,627,553 114,142,877

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Current liabilities Wakala payables Due to related parties Accounts payable and other liabilities Total liabilities Total equity and liabilities

83,630,375 200,684 10,949,936 94,780,995 94,795,661 221,013,016

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

For the year ended 31 December 2007


2007
KD

Parent statement of income

2006
KD

Unrealized gain on investments at fair value through statement of income Profit on investments at fair value through statement of income Loss on disposal of available for sale investments Profit on disposal of a subsidiary Profit on disposal of investment properties Share of results of associates Share of result of consolidated subsidiaries Share of results of unconsolidated subsidiaries Income from islamic deposits Income from wakala Dividend income Foreign exchange (loss)/gain Other income General and administrative expenses Finance costs Depreciation Profit before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), National Labour Support Tax (NLST), Zakat and Directors fees Contribution to KFAS NLST Zakat Directors remuneration Profit for the year Earnings per share (fils)

8,493,678 8,787,070 (385,452) 2,625,771 667,466 6,106,500 10,011 171,636 244,285 2,581,589 (1,568,155) 14,590 (2,021,826) (4,863,699) (30,858) 20,832,606 (132,441) (333,097) (11,335) (60,000) 20,295,733 21.17

2,494,837 6,375,085 (8,116) 727,489 379,049 377,292 1,432,680 813,909 492,378 1,010 17,885 (573,052) (308) (26,273) 12,503,865 (112,535) (302,019) (38,000) 12,051,311 14.30

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
1. INCORPORATION AND ACTIVITIES Al Safwa Group Holding Company K.S.C. (Closed) (the parent company) incorporated on 27 June 1966 in accordance with the Commercial Companies Law in the State of Kuwait. In the extraordinary general assembly meeting held on 29 November 2005, the name of the parent company was changed from Raad Stores Company K.S.C. (Closed) to Al Safwa Group Holding Company K.S.C. (Closed). The parent company is listed on the Kuwait Stock Exchange. The parent company conducts its activities according to Islamic Sharia and its primary purposes are as follows: 1. Owning shares of Kuwaiti or foreign shareholding and limited liabilities companies as well as participating in forming, administering, financing, and providing third party guarantees for these companies. 2. Financing companies owned or guaranteeing them against third parties provided that the percentage of ownership exceeds 20%. 3. Owning industrial rights for patents, trade names, designs and leasing the same to other companies for their use inside or outside Kuwait. 4. Owning movable and real properties that are necessary to practice its activities in accordance to the law. 5. Investing surplus funds in portfolios managed by specialized companies. The consolidated financial statements for the year ended 31st December 2007, comprise the parent company and its subsidiaries (together referred to as the group) (Note 3). The address of the parent companys registered office is Al-Qebla, Osama Ebn, Almonkiz St., Al-Khourafi Tower, Building (7), 8th floor, P.O. Box 26552 Safat, 13126, State of Kuwait. The consolidated financial statements for the year ended 31 December 2007 were authorized for issue in accordance with a resolution of Board of Directors on 9 March 2008. The shareholders of the parent company have the power to amend these consolidated financial statements at the Annual General Assembly.

2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS). The consolidated financial statements are prepared on the historical cost basis except for measurement at fair value of investment securities and investment properties. The consolidated financial statements have been presented in Kuwaiti Dinars (KD) which is the functional currency of the parent company. The group has adopted IFRS 7 Financial Instruments: Disclosures and the amendments to IAS 1 Presentation of Financial Statements effective for year ended 31 December 2007 which has resulted in amended and additional disclosures relating to financial instruments and associated risks, capital and capital management. The group adopted the following new accounting policy during the year: Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.1 Basis of preparation (continued) and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. 2.2 Basis of consolidation Subsidiaries are those enterprises controlled by the parent company. Control exists when the parent company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements on a line by line basis from the date that control effectively commences until the date that control effectively ceases. Intra-group balances and any unrealized gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Consolidated financial statements are prepared using uniform accounting practices for like transactions and events in similar circumstances. Minority interests represent the portion of profit or loss and net assets not held by the group and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet, separately from parent shareholders equity.

2.3 Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognized at their fair values at the acquisition date. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the groups interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately in the consolidated statement of income. The interest of minority shareholders in the acquiree is initially measured at the minoritys proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

2.4 Investments in associates An associate is an entity over which the group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The groups investment in associate is accounted for under the equity method of accounting, i.e. on the balance sheet at cost plus post-acquisition changes in the groups share of the net assets of the associate, less any impairment in value and the consolidated statement of income reflects the groups share of the results of operations of the associate.

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21

Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.4 Investments in associates (continued) Distributions received from the associate reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the groups share in the associate arising from changes in the associates equity. The groups share of those changes is recognized directly in equity. Any excess of the cost of acquisition over the group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in the consolidated statement of income. When the groups share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions with associate are eliminated to the extent of the groups share in the associate. Unrealized losses are also eliminated unless the transactions provide evidence of impairment in the asset transferred. An assessment for impairment of investments in associates is performed when there is an indication that the asset has been impaired, or that impairment losses recognized in prior years no longer exist.

2.5 Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. The group's policy for goodwill arising on the acquisition of an associate is described at 2.4 above.

2.6 Investments The group classifies investments as investments at fair value through statement of income or available for sale investments

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2.6.1 Investments at fair value through statement of income Investments at fair value through statement of income are initially recognized at fair value, excluding transaction costs. These investments are clarified as held for trading investments. Held for trading investments are acquired principally for the purpose of selling or repurchasing it in the near term or are

Annual Report

22

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.6.1 Investments at fair value through statement of income (continued) a part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit taking. After initial recognition, investments at fair value through statement of income are remeasured at fair value. Gain or loss arising either from the sale or changes in fair value of investments at fair value through statement of income are recognized in the consolidated statement of income.

2.6.2 Available for sale investments Available for sale investments are financial assets that are not held as investments at fair value through statement of income and which may be sold in response to need from liquidity or changes in finance cost rate. Available for sale investments are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. After initial recognition, available for sale investments are remeasured at fair value except for investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, which are measured at cost. Unrealized gain or loss on remeasurement of available for sale investments to fair value is recognized directly in equity in fair value reserve account until the investment is derecognized or determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is recognized in the consolidated statement of income.

2.6.3 Fair values For investments traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, a reasonable estimate of fair value is determined by reference to the current market value of another instrument which is substantially the same, or is based on the valuation techniques commonly used by market participants.

2.6.4 Trade and settlement date accounting All regular way purchases and sales of financial assets are recognized on the trade date, i.e. the date that the entity commits to purchase/sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

2.7 Financial instruments Financial assets and liabilities carried on consolidated balances sheet include cash and cash equivalents, accounts receivable, accounts payable, investments at fair value through statement of income, available for sale investments, bank overdraft, and wakala payables. Financial instruments are recognized in the balance sheet when the group becomes a party to the contractual provisions of the instrument.

2.8 Financial liabilities All financial liabilities are initially measured at cost and are subsequently measured at amortized cost using effective yield method.

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.9 Cash and cash equivalents Cash and cash equivalents include cash on hand, current accounts with banks and short-term deposits with an original maturity of three months or less from their inception date.

2.10 Accounts Receivable Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective yield method less provision for impairment losses.

2.11 Inventories Finished goods are stated at the lower of weighted average cost and net realisable value. The cost of finished products includes direct materials, direct labour and fixed and variable manufacturing overhead and other costs incurred in bringing inventories to their present location and condition. Spare parts are not intended for resale and are valued at cost after making allowance for any slow moving items. Cost is determined on a weighted average basis. All other inventory items are valued at the lower of purchased cost or net realisable value using the weighted average method after making provision for any slow moving stocks. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs.

2.12 Finance cost bearing borrowings Finance cost bearing borrowings are recognized initially at fair value less directly attributable transaction costs. Subsequent to initial recognition, finance cost bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the consolidated statement of income over the period of the borrowings on an effective finance cost basis.

2.13 Property under development The group classifies property as property under development if it is acquired with the intention of development.

2.14 Derecognition of financial assets and financial liabilities Financial assets A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized where: the rights to receive cash flows from the asset have expired, or the group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass through arrangement, or the group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the groups continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the

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Annual Report

24

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.14 Derecognition of financial assets and financial liabilities (continued) transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the group could be required to repay.

Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognization of the original liability and the recognition of a new liability.

2.15 Wakala receivable Wakala is an Islamic transaction involving the purchase and immediate sale of 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 bank, the amount due is classified as a Wakala investment. Where the credit risk is attributable to a party other than a bank, the amount due is classified as a wakala receivable. Wakala investment which arise from the groups financing of long-term transactions on an Islamic basis are classified as wakala investment originated by the group and are carried at the principal amount less provision for credit risks to meet any decline in value. Third party expenses such as legal fees, incurred in granting a Wakala are treated as part of the cost of the transaction. All wakala investment are recognized when the legal right to control the use of the underlying asset is transferred to the customer.

2.16 Impairment of financial assets A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset, or a group of similar assets, may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined based on discounted cash flows techniques and any impairment loss is recognized in the consolidated statement of income. In respect of available for sale investments, any increases in fair value subsequent to an impairment loss is recognized directly in equity.

2.17 Investment property Investments in properties are initially recorded at cost. After initial recognition, investment properties are re-measured and carried at fair value on an individual basis based on an annual external valuation by an independent real estate assessor. Any gain or loss arising either from a re-measurement at fair value or sale is included in the consolidated statement of income.

2.18 Provisions A provision is recognized in the balance sheet when the group has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

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25

Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.19 Provision for staff indemnity Provision is made for amounts payable to employees under the Kuwaiti Labour Law and employment contracts. This liability, which is unfunded, represents the amount payable to each employee as a result of involuntary termination on the balance sheet date, and approximates the present value of the final obligation.

2.20 Property, plant and equipment Property, plant and equipment except free hold land are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated based on the estimated useful lives of the applicable assets on a straightline basis commencing when the assets are ready for their intended use. The estimated useful lives, residual values and depreciation methods are reviewed at each year end, with the effect of any changes in estimate accounted for on prospective basis. Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant improvements and replacements of assets are capitalized. The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognized in consolidated statement of income in the period in which they occur.

2.21 Intangible assets Intangible assets are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of the intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and tested for impairment whenever there is an indication that the intangible asset may be impaired. Intangible assets with indefinite useful lives are not amortized but tested for impairment annually and whenever there is an indication that the intangible asset may be impaired. If the carrying value of the intangible asset is more than the recoverable amount, the intangible asset is considered impaired and is written down to its recoverable amount. The excess of carrying value over recoverable amount is recognized in the consolidated statement of income.

2.22 Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the

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Annual Report

26

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.22 Impairment of tangible and intangible assets excluding goodwill (continued) time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of income, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the consolidated statement of income, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

2.23 Foreign currency translation Transactions in foreign currencies are recorded in KD at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are taken to the consolidated statement of income. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Translation differences on non-monetary items such as equity investments which are classified as investments at fair value through statement of income are reported as part of the foreign exchange gain or loss.

2.24 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Revenue from the sale of goods is recognized when all the following conditions are satisfied: 1 - the group has transferred to the buyer the significant risks and rewards of ownership of the goods; 2 - the group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; 3 - the amount of revenue can be measured reliably; 4 - it is probable that the economic benefits associated with the transaction will flow to the entity; and 5 - the costs incurred or to be incurred in respect of the transaction can be measured reliably. Yield income is accrued on a time basis, by reference to the principal outstanding and at the effective yield rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount. Dividend income from investments is recognized when the shareholders right to receive payment has been established. Rental income is recognized on a straight-line basis over the term of the relevant lease.

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27

Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.25 Borrowing costs Borrowing costs are calculated on the accrual basis and is recognized in the consolidated statement of income in the period in which it is incurred.

2.26 Treasury shares Treasury shares consist of the groups own shares that have been issued, subsequently reacquired by the group and not yet reissued, sold or cancelled. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of the treasury shares. Consideration paid or received is directly recognized in equity. When the treasury shares are sold, gains are credited to a separate account in shareholders equity (treasury shares reserve) which is not distributable. Any realized losses are charged to the same account to the extent of the credit balance on that account. Any excess losses are charged to retained earnings and then to reserves. Gains realized subsequently on the sale of treasury shares are first used to offset any previously recorded losses in the order of reserves, retained earnings and treasury shares reserve account. No cash dividends are paid on these shares. The issue of bonus shares increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares.

2.27 Dividends Dividends are recognized as a liability in the groups consolidated financial statements in the period in which the dividends are approved by the shareholders.

2.28 Contingent liabilities and assets Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless there is a possibility of outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements, but disclosed when an inflow of economic benefit is possible. 2.29 Segment reporting A segment is a distinguishable component of the group that is engaged in providing products or services, business segment or providing products or services within a particular economic environment, geographical segment, where it is subject to risks and rewards that are different from other segments.

2.30 Significant accounting judgements and estimation uncertainty Accounting judgements

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In the process of applying the groups accounting policies, management has used judgements and made estimates in determining the amounts recognized in the consolidated financial statements. The most significant use of judgements and estimates are as follows:

Impairment of investments
The group treats available for sale investments as impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires significant judgement. In

Annual Report

28

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.30 Significant accounting judgements and estimation uncertainty (continued) addition, the group also evaluates among other factors, normal volatility in the share price for quoted investments and the future cash flows and the discount factors for unquoted investments.

Classification of investments
Management decides on acquisition of an investment whether it should be classified as held for trading, at fair value through statement of income, or available for sale. The group classifies investments as trading if they are acquired primarily for the purpose of making a short term profit by the dealers. When they are not classified as held for trading but have readily available reliable fair values and the changes in fair values are reported as part of income statement in the management accounts, they are classified as at fair value through statement of income. All other investments are classified as available for sale.

Classification of real estate property


The group decides on acquisition of a real estate property whether it should be classified as trading, property held for development or investment property. The group classifies property as trading property if it is acquired principally for sale in the ordinary course of business. The group classifies property as property under development if it is acquired with the intention of development. The group classifies property as investment property if it is acquired to generate rental income or for capital appreciation, or for undetermined future use.

Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment of goodwill
The group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the asset or the cash-generating unit to which the goodwill is allocated. Estimating a value in use requires the group to make an estimate of the expected future cash-flows from the asset or the cash-generating unit and also choose an appropriate discount rate in order to calculate the present-value of the cash-flows.

Valuation of unquoted equity investments


Valuation of unquoted equity investments is normally based on one of the following recent arms length market transactions; 1. current fair value of another instrument that is substantially the same; 2. the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; or

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29

Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2.30 Significant accounting judgements and estimation uncertainty (continued) 3. other valuation models. The determination of the cash flows and discount factors for unquoted equity investments requires significant estimation.

2.31 Standards issued but not yet effective The following standards have been issued but are not yet effective and applicable to the group. These standards have not been applied in these consolidated financial statements. The group intends to comply with these standards from its effective date. IFRS 8 Operating Segments effective for accounting periods beginning on or after 1 January 2009 replaces IAS 14 Segment Reporting, and would amend the disclosures of the groups operating segments, products, services and geographical areas in which it operates. IAS 1 Presentation of Financial Statements (revised) effective for the annual accounting periods beginning on or after 1 January 2009 would impact the presentation of financial statements to enhance the usefulness of the information presented.

3. SUBSIDIARIES Name of subsidiary Country of Incorporation Portion of ownership interest Principal activity

Direct Holding : Raad Trading and Marketing Co. W.L.L. Danah Al Safat Foodstuff (Formerly, United Fisheries of Kuwait) K.S.C. (Closed) Al Shuaiba Industrial Company K.S.C. (Closed) (Formerly, Al Shuaiba Paper Products K.S.C. Closed) Indirect Holding : Kuwait United Catering and Restaurant Management Co. K.S.C. (Closed). Kuwait

(%)
100

Foodstuff

Kuwait Kuwait

40 43.13

Foodstuff Paper manufacturing

Kuwait Kuwait Kuwait Kuwait

97 100 100 100

Restaurant and catering services Fish products Fresh fish products retail operation Foodstuff

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United Fisheries of Kuwait (Formerly United Ideal Foodstuff ) Co. K.S.C.(Closed) United Danah Fisheries Co. K.S.C. (Closed) Al Safat United Food Company K.S.C. (Closed)

Annual Report

30

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
Furniture and fixtures
KD

4. PROPERTY, PLANT AND EQUIPMENT


Land
KD

Buildings
KD

Vehicles
KD

Machineries and Computers Marine fleet Capital WIP equipment


KD KD KD KD

Total
KD

Cost Balance at 1 January 2006 Additions Disposals Balance at 1 January 2007 As on the date of acquisition of subsidiary Transfer Additions Disposals
582,000 582,000 630,000 590,531 33,656 (73,393) 550,794 2,050,846 505,549 136,826 (199,623) 3,044,392 218,606 2,245 (62,123) 158,728 1,828,057 (505,149) 10,251 (40,933) 1,450,954 443,664 443,664 495,974 52,170 (113,893) 877,915 336,630 1,805 (68,656) 269,779 6,045,813 107,849 (58,007) 6,365,434 125,978 2,894 (23,788) 105,084 484,844 78,155 (4,585) 663,498 4,662,285 4,662,285 1,191,308 (400) 1,335,281 2,297,409 40,600 (227,960) 2,110,049 17,389,127 1,720,532 (417,041)

Balance at 31 December 2007 1,212,000 Accumulated depreciation Balance at 1 January 2006 Charge for the year Relating to disposals during the year Balance at 1 January 2007 As on the date of acquisition of subsidiary Transfer Charge for the year Relating to disposals during the year Balance at 31 December 2007 Carrying amount At 31 December 2007 At 31 December 2006 Annual depreciation rates
1,137,001 582,000 74,999 74,999

2,526,189 20,802,667

418,322 34,349 (18,039) 434,632 470,389 139,826 134,666 (1,822) 1,177,691 1,866,701 116,162 3.33% - 5%

148,966 29,211 (40,940) 137,237 880,064 (164,768) 113,396 (11,517) 954,412 496,542 21,491 14% - 20%

350,111 39,790 (1,345) 388,556 293,145 64,802 (108,383) 638,120 239,795 55,108 20 %

277,091 13,091 (54,299) 235,883 1,801,371 24,942 226,814 (36,390) 2,252,620 4,112,814 33,896 3.33% - 10%

100,817 10,938 (9,491) 102,264 210,467 47,723 (16,923) 343,531 319,967 2,820 33.33%

2,346,635 159,418 2,506,053 2,156,232 5% - 20%

1,295,307 127,379 (124,114) 1,298,572 6,077,070 746,819 (175,035) 7,947,426

2,526,189 12,855,241 811,477

Depreciation for the year includes amount of KD 356,273 charged to cost of sale. One of the subsidiarys property, plant and equipment valued to KD 1,260,000 have been assigned as security for the Wakala payable, (see note 23). 5. PROPERTY UNDER DEVELOPMENT During the year the parent company acquired 49% interest in a jointly controlled property with a third party for the construction of Sea Entertainment City at Saudi Arabia. Construction work started during the year and accordingly this asset is classified as property under development.

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
6. INVESTMENT PROPERTIES

2007
KD

2006
KD

At fair value Balance at beginning of year Additions through subsequent expenditure Acquisitions through business combinations Charge for the year Disposal Balance at end of year

737,142 11,105,129 335,256 (1,127) (12,176,400) -

737,142 737,142

The parent company has sold land at Dajeej to a third party for KD 1,468,043 realizing a profit of KD 625,771. Further, the parent company has sold land at Salmiya to Al-Dana Village Real Estate Company K.S.C.C. for KD 13 million realizing a profit of KD 2 million. Later the parent company acquired 90.90% interest in Al-Dana Village Real Estate Company K.S.C.C. as the consideration of the sale price (see note 8). Furthermore, during the year one of the parent companys subsidiary has sold investment properties to Amaken United Real Estate Company K.S.C. (Closed), a company incorporated in Kuwait for KD 1,851,878 as a consideration of 24.38% interest in Amaken United Real Estate Company K.S.C. (Closed), (see note 7).

7. INVESTMENT IN ASSOCIATES The details of Groups associates are as follows: Country of Effective Effective incorporation Interest Interest Carrying value Carrying value

Name of associate

2007 %
Direct holding : Al Assriya Industries Holding Company K.S.C. (Closed) Al Safat Real Estate Development Company K.S.C. (Closed) Indirect holding : Yanbu Shuaiba Paper Products Company Limited Mondi Shuaiba Holding GMBH *Nishat Shuaiba paper Products Company Limited Amaken United Real Estate Company K.S.C.(Closed) Kuwait Kuwait Saudi Arabia Vienna Pakistan Kuwait
30 25 40 45 30 24.38

2006 %
30 25 -

2007
KD

2006
KD

4,355,459 1,911,056 1,024,977 480,833 1,843,306 9,615,631

3,955,243 1,643,806 5,599,049

The cost of investment in associates includes goodwill of KD 999,112 (31 December 2006: KD 687,786).

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During the year, one of the subsidiaries has sold its share in an associate and realized a profit of KD 10,128,355. Furthermore, during the year one of the parent companys subsidiary acquired 24.38% equity interest in Amaken United Real Estate Company K.S.C. (Closed), a company incorporated in Kuwait for a consideration of KD 1,851,878 which was settled against the sale of investment properties, (see note 6). The goodwill arising on the acquisition has been determined at KD 311,326. The goodwill arising on the acquisition has been determined on a provisional basis. Summarized financial information as at 31 December 2007 in respect of the associates is given below:

Annual Report

32

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
Yanbu Shuaiba Paper Products Company Limited
KD

7. INVESTMENT IN ASSOCIATES (continued) Al Assriya Industries Holding Company K.S.C.C


KD

Al Safat Real Estate Development Company K.S.C.C.


KD

Mondi Shuaiba Holding GMBH


KD

*Nishat Shuaiba paper Products Company Limited


KD

Amaken United Real Estate Company K.S.C.C.


KD

Total

KD

Total assets Total liabilities Net assets The groups share of associates net assets Revenue for year Profit for the period Profit/(loss) from the date of acquisition of associates The groups share of results of associates

14,818,775 2,250,784 12,567,991 3,770,397 1,348,521 1,334,055 400,216

7,241,047 7,722 7,233,325 1,808,332 1,105,229 1,068,998 267,250

4,844,127 2,281,685 2,562,442 1,024,977 519,988 279,285 111,714

1,115,924 47,403 1,068,521 480,833 1,478 (8,729) (3,928)

7,671,294 5,942,050 1,729,244 1,323,149 (72,950) (21,885)

7,715,845 43,407,012 1,432,087 11,961,731 6,283,758 31,445,281 1,531,980 128,850 (35,160) (8,572) 8,616,519 4,427,215 2,403,053 162,446 744,795

The groups share of results of associates, as shown above, does not include profit from SADAFCO S.S.C. in the amount of KD 156,690 which was sold during 2007. *See Note 17 Share of results of associates except Yanbu Shuaiba Paper Products Company Limited was calculated based on the management accounts for the period ended 31 December 2007. The management does not expect any material differences in the figures in case audited financial statements would have been available as at 31 December 2007 in respect of these associates.

8. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES Name of unconsolidated subsidiaries Direct holding : Dar Al-Hoda Holding Company K.S.C.C. (Formerly, Kuwait Enjazzat Holding Company K.S.C.C) Al-Dana Village Real Estate Company K.S.C.C. Indirect holding : Advanced Technologies International Agencies Companies W.L.L.
78,640 19,768,651 Kuwait 100 -

Carrying value
KD

Country of incorporation

Percentage Percentage of holding of holding

2007
62.50 53.85

2006
-

11,990,011 7,700,000

Kuwait Kuwait

The above investments have not been consolidated, as management believes that they are not material to the consolidated financial statements of the group. The cost of investment in unconsolidated subsidiaries includes goodwill of KD 1,290,462 (31 December 2006: KD nil). During the year the parent company has acquired the 62.50% interest in Dar al Hoda Holding Company K.S.C.C. for KD 11,980,000. During the year parent company has acquired 92.30% shares of Al-Dana Village Real Estate Company K.S.C.C of which 90.90% interest was acquired as a consideration for the sale of one of the investment property. Further, the parent company sold 38.45% interest in Al-Dana Village Real Estate Company K.S.C.C at cost to a third party, (see note 6).

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Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
8. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES (continued) Share of results of unconsolidated subsidiaries were calculated based on the management accounts for the period ended 31 December 2007. The management does not expect any material differences in the figures in case audited financial statements would have been available as at 31 December 2007 in respect of these subsidiaries.

9. AVALIABLE FOR SALE INVESTMENTS

2007
KD

2006
KD

Local quoted securities Local unquoted securities Foreign unquoted securities

29,333,432 9,474,487 1,760,215 40,568,134

24,818,210 2,215,278 1,267,300 28,300,788

Available for sale investments are acquired with the intention of capital appreciation over a medium to long-term time frame. The fair value of all quoted securities is based on their current bid prices in an active market. In the case of unquoted securities, the group establishes fair value by using recognized valuation techniques. However, unquoted securities amounting to KD 1,492,726 (2006: nil) are carried at cost since their fair values could not be measured reliably. Local quoted securities amounting to KD 29,063,432 (2006: KD 24,818,210) and the local unquoted securities amounting to KD 4,002,706 (2006: KD 2,005,277) are managed by a shareholder, under portfolio management agreement. The parent company has pledged local quoted securities having a market value of 1,039,220 at 31 December 2007 against the wakala payables (see note 23).

10. INVESTMENT AT FAIR VALUE THROUGH STATEMENT OF INCOME

2007
KD

2006
KD

Current: Local quoted securities Local unquoted securities Foreign unquoted securities Foreign quoted securities Non Current: Foreign unquoted securities

60,298,174 28,159,133 21,919,744 101,706 110,478,757 8,800,000

20,227,028 6,969,668 21,208,730 48,405,426 -

2 0 0 7

Local quoted securities amounting to KD 57,649,994 (31 December 2006: KD 20,227,028) and foreign unquoted securities amounting to KD 7,862,725 (31 December 2006: KD 3,516,208) are managed by a shareholder, under a portfolio management agreement. The fair value of all quoted securities is based on their current bid prices in an active market. In the case of unquoted securities, the group establishes fair value by using recognized valuation techniques. However, unquoted securities amounting to KD 1,993,814 (2006: nil) are carried at cost which equals the fair value as the investments are newly established. The parent company has pledged local quoted securities having a market value of KD 29,280,480 at 31 December 2007 (2006: nil) against the wakala payables (see note 23).

Annual Report

34

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
11. GOODWILL

2007
KD

2006
KD

Carrying amount Balance at beginning of year Additional amounts recognized from business combinations occurred during the year (see notes 11.1, 11.2 and 11.3) Acquisition through business combinations occurred during the year (see note 11.1) Balance at end of year

354,024 30,484,635 2,789,322 33,627,981

354,024 354,024

11.1 On 26 March 2007, the parent company acquired 40% interest in Danah Al Safat Foodstuff Co. K.S.C. (Closed), a company listed on the Kuwait Stock Exchange, for a total purchase consideration of KD 40,080,053. The Board of Directors believes that they exercise control over the financial and operating policies of the subsidiary as they have: acquired power over more than half of the voting rights by virtue of an agreement with other investors; acquired power to govern the financial and operating policies by virtue of an agreement; retain power to appoint or remove majority of the members of the board of directors; and retain power to cast the majority of votes at meeting of board of directors. The net assets acquired and the goodwill are as follows:
KD

Cash and cash equivalents Investment at fair value through statement of income Receivable and other debit balances Due from related parties Inventories Available for sale investments Goodwill Key Money Investment in unconsolidated subsidiary Investment in associates Investment properties Property, plant and equipment Accounts payable and other credit balances Wakala payable Minority interest Net assets value as of 25/03/2007 Purchase consideration Less: fair value of net assets acquired Goodwill on acquisition Add : Cost of business combination Goodwill on acquisition Danahs shares with a market value of KD 30,954,000 are pledged for the wakala payables (see note 23).

2,279,532 18,012,663 3,661,240 26,810 2,792,025 2,153,284 2,789,322 637,729 250,000 25,489,642 335,256 5,943,268 (7,949,472) (16,000,000) (396,066) 40,025,233 40,080,053 (16,010,093) 24,069,960 139,113 24,209,073

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
11. GOODWILL (continued) 11.2 On 25 July 2007, the parent company acquired 43.13% interest in Al Shuaiba Industrial Company K.S.C. (Closed), a company listed on the Kuwait Stock Exchange, for a total purchase consideration of KD 10,924,461. The Board of Directors believes that they exercise control over the financial and operating policies of the subsidiary as they have: acquired power over more than half of the voting rights by virtue of an agreement with other investors; acquired power to govern the financial and operating policies by virtue of an agreement; retain power to appoint or remove majority of the members of the board of directors; and retain power to cast the majority of votes at meeting of board of directors. The net assets acquired and the goodwill are as follows:
KD

Cash and cash equivalents Investments at fair value through statement of income Receivable and other debit balances Due from related parties Inventories Available for sale investments Investment in associates and unconsolidated subsidiary Property, plant and equipment Accounts payable and other credit balance Wakala payable Notes payable Due to bank Net assets value as of 25/07/2007

4,121,071 1,764,228 1,355,050 1,683,773 3,110,433 187,981 1,691,669 5,216,713 (711,032) (2,713,300) (127,795) (3,580,617) 11,998,174

Purchase consideration Less: fair value of net assets acquired

10,924,461 (5,174,844) 5,749,617

2 0 0 7

Goodwill on acquisition

11.3 On 1 October 2007, one of the parent companys subsidiary has acquired 100% interest in Al Safat Food Stuff K.S.C. (Closed), for a total purchase consideration of KD 1,550,000. The net assets acquired and the goodwill are as follows:

Annual Report

36

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
11. GOODWILL (continued)
KD

Cash and cash equivalents Investments at fair value through statement of income Receivable and other debit balances Due from related parties Inventories Investment in associates Property, plant and equipment Key money Accounts payable and other credit balance Due to related parties Net assets value as of 30/09/2007 Purchase consideration Less: fair value of net assets acquired Goodwill on acquisition

2,825 102,914 90,796 38,250 8,524 684,216 152,072 501,731 (141,571) (415,702) 1,024,055 1,550,000 1,024,055 525,945

Further during the year subsidiarys has transferred 100% interest in Al Safat United Food Company K.S.C. (Closed) to Kuwait United Catering and Restaurant Management Co. K.S.C. (Closed). No goodwill arose on this reorganization as this represents a transaction between two entities within the group.

12. RELATED PARTY TRANSACTIONS Related parties represent associated companies, major shareholders, directors and key management personnel of the group, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the groups management. Transactions with related parties are as follows:

Associates
KD

Unconsolidated subsidiaries
KD

Directors and key management


KD

Total 2007
KD

Total 2006
KD

Consolidated balance sheet Due from related party Due to related party Related party transactions Proceed from disposal of Property, plant and equipment Proceed from disposal of investment properties Wakala receivable Trade receivables Payment on behalf of Consolidated statement of income Key management compensation Income from wakala Profit on disposal of investment properties Other income

1,084,314 -

625,526 200,685

1,709,840 200,685

977,503 14,851,878 108,791 3,517,749 124,569

800,000 4,200,685 512,128 49,315 -

467,590 -

977,503 14,851,878 800,000 4,200,685 620,919 467,590 49,315 3,517,749 124,569

101,065 -

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2007
KD

13. INVENTORIES

2006
KD

Finished goods Raw materials Spare parts Goods in transit Provision for slow moving goods

3,513,142 2,266,482 882,084 180,915 6,842,623 (180,479) 6,662,144

962,790 39,704 1,002,494 (16,509) 985,985

14. ACCOUNTS RECEIVABLE

2007
KD

2006
KD

Accounts receivable Allowance for doubtful debts

4,343,710 (557,387) 3,786,323

12,829,024 (366,032) 12,462,992

Movement in the allowance for doubtful debts

2007
KD

2006
KD

Balance at beginning of the year Acquisitions through business combinations occurred during the year Decrease in allowance recognized in statement of income Balance at end of the year

366,032 209,398 (18,043) 557,387

366,032 366,032

Ageing analysis for accounts receivable

2007
KD

2006
KD

2 0 0 7

1-90 Days 90-120 Days 120 - 180 Days 180 - 365 days Above 365 Days

3,509,630 294,219 41,519 27,957 470,385 4,343,710

12,191,847 45,523 21,680 27,097 542,877 12,829,024

Annual Report

38

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2007
KD

15. OTHER RECEIVABLES

2006
KD

Prepaid expenses Advance for investment property Advance to suppliers Accrued income Staff receivables Refundable deposits Other debit balances

253,495 56,362 223,859 122,529 70,992 1,752,979 2,480,216

6,946 1,100,000 163,647 33,825 170,269 152,355 1,627,042

16. CASH AND CASH EQUIVALENTS

2007
KD

2006
KD

Cash in hand Cash at banks Cash with portfolio manager Islamic deposits

115,328 3,257,239 1,375,278 7,548,985 12,296,830

15,270 721,262 92,962 12,850,000 13,679,494

The groups islamic deposits yield income at an average rate of 3.75% to 8.68% per annum (2006: 6% to 6.8% per annum) and mature within three months from the date of deposit except for a deposit of KD 1,100,000.

17. NON-CURRENT ASSET CLASSIFIED AS HELD FOR SALE On 8 October 2007, Board of Directors of Al Shuaiba Industrial Company K.S.C.C. resolved to dispose of its investment in associates (Nishat Shuaiba paper Products Company Limited) for the strategic reasons and expects to dispose of its investment within one year from the date of classification. Accordingly, this investment is classified as non-current asset held for sale and is carried at lower of its carrying amount and fair value less costs to sell, and has initially recognized an impairment loss of KD 30,000.

18. SHARE CAPITAL

2007
KD

2006
KD

Authorized, issued and fully paid : 1,000 million (2006 : 1,000 million) shares of KD 0.100 each
100,000,000 100,000,000

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39

Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
19. SHARE PREMIUM This represents cash received in excess of the par value of the shares issued. The share premium is not available for distribution.

20. STATUTORY RESERVE As required by the Commercial Companies Law and the parent companys Articles of Association, 10% of profit is required to be transferred to statutory reserve. Such transfers may be discontinued when the reserve equals 50% of the capital. This reserve is not available for distribution except in cases stipulated by Law and the parent companys Articles of Association. Distribution of the parent companys 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.

21. VOLUNTARY RESERVE This represents proposed transfer to the voluntary reserve at the rate of 10% of the profit for the year. Such annual transfer to can be discontinued by a resolution of shareholders in the annual general assembly meeting upon recommendation by the board of directors. There is no restriction on distribution of this reserve.

22. TREASURY SHARES

2007
Number of shares Percentage of issued shares (%) Market value (KD) Cost (KD)
42,840,000 4.28 7,111,440 5,201,793

2006
45,180,000 4.52 4,969,800 5,003,960

Reserves of the parent company equivalent to the cost of treasury shares have been earmarked as non-distributable.

23. Wakala payables

2007
KD

2006
KD

2 0 0 7

Current Non-current

84,589,595 1,273,198

During the year, the group has obtained wakalas from local banks for an annual cost of 3.25% to 9.25% and maturing within a year. The wakala payable in the amount of KD 29,000,000 is secured by Danahs shares (see note 11.1). Further, wakala payables in the amount of KD 40,880,375 are secured by local quoted securities (see notes 9 and 10). A wakala payables in the amount of KD 840,000 are secured by property, plant and equipment, (see note 4).

Annual Report

40

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
24. ACCOUNTS PAYABLE AND OTHER LIABILITIES

2007
KD

2006
KD

Accounts payables NLST payable KFAS payable Zakat payable Accrued expenses and provisions Board of directors remuneration Dividend payables Miscellaneous creditors

8,406,247 781,256 273,034 20,832 3,931,210 119,000 379,920 869,660 14,781,159

1,651,987 302,019 112,535 79,173 38,000 230,023 2,413,737

25. INCOME ON INVESTMENTS AT FAIR VALUE THROUGH STATEMENT OF INCOME

2007
Unrealized gain
KD

2006
Realized profit
KD

Unrealized gain
KD

Realized profit
KD

Current Local quoted securities Local unquoted securities Foreign unquoted securities Foreign quoted securities Non current Foreign unquoted securities
(1,986,738) 7,412,645 11,893,125 2,494,837 6,375,084 9,094,699 (178,042) 373,209 109,517 8,504,458 (31,456) 2,622,534 797,589 1,769,923 584,044 140,870 (22,215) 6,397,299 -

26. GENERAL AND ADMINISTRATIVE EXPENSES

2007
KD

2006
KD

Staff costs Rental charges Professional and legal fees Management fees Other expenses

839,699 117,140 76,342 1,529,877 1,405,501 3,968,559

435,685 25,151 29,424 310,685 169,273 970,218

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
27. SELLING AND MARKETING EXPENSES

2007
KD

2006
KD

Staff costs Promotion, advertising and packaging Rental charges Other expenses

812,803 399,164 159,259 954,699 2,325,925

461,435 195,802 78,360 67,627 803,224

28. EARNINGS PER SHARE ATTRIBUTABLE TO THE OWNERS OF THE PARENT Earnings per share is calculated by dividing the profit for the year attributable to the owner of parent by the weighted average number of shares outstanding during the year.

2007
Profit for the year (KD) Weighted average number of shares outstanding for the year (Nos) Weighted average number of treasury shares (Nos) Weighted average number of shares outstanding (Nos) Earnings per share attributable to the owner of parent (fils)
20,295,733 954,820,000 4,112,110 958,932,110 21.17

2006
12,051,311 846,438,356 (3,444,986) 842,993,370 14.30

29. SEGMENT ANALYSIS Primary segment information For management purposes the group is organised into three major business segments; investment management, food

2 0 0 7

stuff and industrial. The principal activities and services under these segments are as follows: Investment management: Consists of securities trading and investment activities. Food stuff: Consists of trading of food stuff, fishing operation and restaurant and catering services. Industrial: Consists of manufacturing and sale of paper products. The following is the detail of the above segments, which constitutes the primary segment information:

Annual Report

42

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
2007
Investment management KD Segment revenue Segment results Segment assets and liabilities Segment assets Segment liabilities Other information Purchase of property, plant and equipment Proceed from disposal of property, plant and equipment Profit on disposal of property, plant and equipment Depreciation and amortization Provision for staff indemnity 21,623,840 14,189,233 191,524,427 94,795,663 Food stuff KD 28,675,255 14,668,759 60,956,894 3,996,968 Industrial KD 2,330,629 370,680 Total KD 52,629,724 29,228,672 Investment management KD 12,714,206 11,674,019 111,914,700 1,627,552

29. SEGMENT ANALYSIS (continued) 2006


Food stuff KD 5,649,364 165,076 3,048,719 820,543 Industrial KD 1,584,842 303,166 Total KD 19,948,412 12,142,261

15,747,401 268,228,722 3,252,580 102,045,211

- 114,963,419 2,448,095

19,082 30,858 14,666

1,493,018 248,610 6,604 398,740 543,591

208,432 6,889 243,193

1,720,532 248,610 6,604 436,487 801,450

1,594 26,273 7,012

39,006 158,050 54,204 81,655 27,346

19,451 -

40,600 158,050 54,204 127,379 34,358

Secondary segment The group operates from one location in Kuwait, however the groups assets relate to different geographical areas of the world. 2007
Kuwait KD Segment revenue Segment results Segment assets and liabilities Segment assets Segment liabilities Other information Purchase of property, plant and equipment Proceed from disposal of property, plant and equipment Profit on disposal of property, plant and equipment Depreciation and amortization Provision for the staff indemnity 36,242,890 14,355,839 235,369,322 100,912,132 GCC KD 14,230,622 13,271,430 28,512,951 697,998 Others KD 2,156,212 1,601,403 Total KD 52,629,724 29,228,672 Kuwait KD 13,629,557 5,823,406 93,266,726 2,448,095 GCC KD 6,318,855 6,318,855 16,174,645 -

2006
Others KD Total KD 19,948,412 12,142,261

4,346,449 268,228,722 435,081 102,045,211

5,522,048 114,963,419 2,448,095

1,720,532 248,610 6,604 436,487 801,450

1,720,532 248,610

40,600 158,050 54,204 127,379 34,358

40,600 158,050

6,604 436,487 801,450

54,204 127,379 34,358

30. FINANCIAL RISK AND CAPITAL MANAGEMENT (a) Capital risk management The groups objectives when managing capital are to safeguard the groups ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
30. FINANCIAL RISK AND CAPITAL MANAGEMENT (continued) The group sets the amount of capital in proportion to risk. The group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

(b) Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The group credit policy and exposure to credit risk are monitored on an ongoing basis. The group seeks to avoid undue concentration of risks with individuals or group of customers in specific locations. It also obtains security when appropriate. The maximum credit risk exposure arising from default of the counter-party is limited to the carrying amount of cash and cash equivalents, receivables, investments at fair value through statement of income and available for sale investments.

(c) Islamic finance rate risk Islamic finance rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market cost rates. Financial instruments, which potentially subject the group to Islamic finance rate risk, consist primarily of Wakala. The following table demonstrates the sensitivity of the consolidated statement of income to reasonably possible changes in Islamic finance rates, with all other variables held constant. The sensitivity of the consolidated statement of income is the effect of the assumed changes in Islamic finance rates on the groups profit before KFAS, NLST, Zakat and Directors fees for one year, based on financial liabilities held at 31 December 2007.

Increase / (decrease) in basis points

Effect on profit for the year KD

2007
KD KD +1 % - 1% 853,627 (853,627)

2006
KD +1% - 1% 20,000 (20,000)

2 0 0 7

KD

(d) Foreign currency risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters.

Annual Report

44

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
30. FINANCIAL RISK AND CAPITAL MANAGEMENT (continued) The group had the following net exposures denominated in foreign currencies.

2007
KD

2006
KD

US Dollars Qatar Riyal Saudi Riyal UAE Dirhams Bahrain Dinar Pakistani Rupees

14,647,022 601,840 6,058,612 5,974,978 1,202,973 488,773 28,974,198

14,986,706 636,298 2,082,600 2,069,516 1,267,300 1,433,608 22,476,028

The tables below analyze the effect of a 5% strengthening in value of the currency rate against the Kuwaiti Dinar from levels applicable at 31 December 2007, with all other variables held constant on the income statement and equity.

2007
Currency Change in currency rate in % Effect on profit for the year
KD

2006
Effect on equity
KD

Effect on profit for the year


KD

Effect on equity
KD

US Dollars Qatar Riyal Saudi Riyal UAE Dirhams Bahrain Dinar Pakistani Rupees

+5 +5 +5 +5 +5 +5

700,521 30,092 302,931 298,407 161 24,439

31,830 342 59,987 -

749,335 31,815 104,130 103,476 71,680

63,365 -

(e) Liquidity risk Liquidity risk is the risk that the group will be unable to meet its liabilities when they fall due. To limit this risk, management has arranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on a daily basis. The table below analyses the groups non-derivative financial liabilities based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

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Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007
30. FINANCIAL RISK AND CAPITAL MANAGEMENT (continued) The liquidity profile of financial liabilities and contingent liabilities and commitments at 31 December was as follows:

2007
Within 3 3 months months to 1 year Liquidity risk Financial liabilities Non-current liabilities Wakala payables Provision for staff indemnity Current liabilities Wakala payables Notes payable Due to banks Accounts payable and other liabilities Due to related parties Contingent liabilities Operating leases Letter of gurantee Letter of credit
KD KD

2006
Total
KD

1-5 years
KD

Within 3 3 months months to 1 year


KD KD

1-5 years
KD

Total
KD

1,273,198 801,450 2,074,648

1,273,198 801,450 2,074,648

280,064 280,064 -

34,358 34,358 -

34,358 34,358 2,413,737 2,413,737 -

29,077,500 55,512,095 293,951 105,173 6,540,971 8,240,188 51,152 149,533 36,068,747 63,901,816 5,000 894,088 2,264

- 84,589,595 293,951 105,173 - 14,781,159 200,685 - 99,970,563 10,000 656,263 15,000 1,550,351 2,264

2,133,673 2,133,673 -

(f) Equity price risk Equity price risk is the risk that the value of financial instruments will fluctuate as a result of changes in equity prices. Financial instruments, which potentially subject the group to equity price risk, consist principally of investments at fair value through statement of income, available for sale investments, investment in associates, investment in unconsolidated subsidiaries. The group manages this risk by diversifying its investments on the basis of the pre-determined asset allocations across various categories, continuous appraisal of market conditions and trends and management estimate of long and short term changes in fair value. The following table demonstrates the sensitivity of the changes in fair value to reasonably possible changes in equity prices, with all other variables held constant. The effect of decreases in equity prices is expected to be equal and opposite to the effect of the increases shown.

2007
Effect on profit before Change in KFAS, NLST, equity price Zakat & Directors fees
KD KD

2006
Effect on equity
KD

2 0 0 7

Effect on Change in profit before equity price KFAS, NLST, & Directors fees
KD KD

Effect on equity
KD

Kuwait Other GCC Other quoted

+5% +5% +5%

5,816,789 1,085,732 555,069

1,940,396 59,987 28,024

+5% +5% +5%

1,639,787 919,625 140,812

1,351,674 63,365 -

Annual Report

46

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Notes to consolidated financial statements


For the year ended 31 December 2007

30. FINANCIAL RISK AND CAPITAL MANAGEMENT (continued) (g) Fair value of financial instruments In the opinion of management, cash and cash equivalents, receivable, accounts payable, investments at fair value through statement of income and available for sale investments are not significantly different from fair values.

31. PROPOSED DIVIDENDS Subject to the requisite consent of the relevant authorities and approval from the general assembly, the board of directors propose to distribute a cash dividend of 5 Fils per share and bonus shares of 10% to the shareholders of record as of the date of the general assembly. The board of directors propose to recommend 20% increase in share capital by issue of shares for nominal value of 100 fils and share premium of 25 fils per share. During 2007, cash dividends of 9% for the year ended 31 December 2006 were approved by the general assembly held on 11 April 2007 and were paid following that approval.

2007
KD

2006
KD

Contingent liabilities Operating leases Letters of guarantee Letters of credit 15,000 1,550,351 2,264 -

33. COMPARATIVE STATEMENTS Certain comparative figures have been re-classified to confirm to current years presentation.

2 0 0 7

47

Annual Report

Al Safwa Group Holding Company K.S.C. (Closed) and its subsidiaries - State of Kuwait

Net profit
2007

20,295,733 K.D

2006

12,051,311 K.D

Total assets
2007

268,228,722 K.D

2006

2 0 0 7

114,963,419 K.D

Annual Report

48