al kout industrial projects company k.s.c. and its subsidiaries … · 2012. 12. 31. · al kout...

Al Kout Industrial Projects Company K.S.C. and its subsidiaries Kuwait Consolidated financial statements and independent auditors’ report For the year ended 31 December 2012

Al Kout Industrial Projects Company K.S.C. and its subsidiaries Kuwait Consolidated financial statements and independent auditors’ report For the year ended 31 December 2012

Contents Page Independent auditors’ report 1-2 Consolidated statement of financial position 3 Consolidated statement of income 4

Consolidated statement of comprehensive income 5

Consolidated statement of changes in equity 6

Consolidated statement of cash flows 7 Notes to the consolidated financial statements 8-34

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INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF AL KOUT INDUSTRIAL PROJECTS COMPANY K.S.C.

Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Al Kout Industrial Projects Company K.S.C. (“the Parent Company”) and its subsidiaries (together referred to as “the Group”), which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements The Parent Company’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ 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 auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by 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 2012, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Al Johara Tower, 6th Floor Khaled Ben Al Waleed Street, Sharq P.O. Box 25578, Safat 13116 Kuwait Tel: +965 2242 6999 Fax: +965 2240 1666 www.bdo.com.kw

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Report on Other Legal and Regulatory Requirements In our opinion, proper books of account have been kept by the Parent Company and the consolidated financial statements, together with the contents of the report of the Parent Company’s board of directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Companies Law No. 25 of 2012 and by the Parent Company’s Articles of Association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law No. 25 of 2012 nor of the Parent Company’s Articles of Association, have occurred during the year that might have had a material effect on the business of the Group or on its consolidated financial position.

Qais M. Al-Nisf License No. 38-A BDO Al Nisf & Partners

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

Kuwait: 6 March 2013

Al Kout Industrial Projects Company K.S.C. and its subsidiaries Kuwait

Consolidated statement of financial position

As at 31 December 2012

3

2012 2011

Notes KD KD ASSETS Non-current assets Property, plant and equipment 5 13,354,694 12,992,477 Investment in associate 6 10,580,497 7,506,230 Goodwill 7 - 833,350 23,935,191 21,332,057 CURRENT ASSETS Inventories 8 1,657,201 2,040,655 Trade receivables 9 2,961,789 3,078,473 Other receivables 10 1,516,069 694,873 Investments at fair value through statement of income 11 260,158 260,158 Cash and cash equivalents 12 3,832,314 4,427,777 10,227,531 10,501,936 Total assets 34,162,722 31,833,993 Equity and liabilities Equity Share capital 13 8,820,000 8,820,000 Statutory reserve 14 3,543,900 3,069,946 Voluntary reserve 15 3,505,893 3,031,939 Group’s share of associate’s reserves (10,984) (10,984) Foreign currency translation reserve 87,622 43,351 Retained earnings 8,043,527 7,692,464 Total equity 23,989,958 22,646,716

NNON-CURRENT LIABILITIES Non-current portion of term loans 16 4,540,329 5,546,225 Provision for staff indemnity 1,071,137 768,926 5,611,466 6,315,151 Current liabilities Trade and other payables 17 2,284,098 2,122,126 Current portion of term loans 16 2,277,200 750,000 4,561,298 2,872,126 Total liabilities 10,172,764 9,187,277 Total equity and liabilities 34,162,722 31,833,993

______________________________ Fahad Y. Al-Jouaan Chairman

The notes on pages 8 to 34 form an integral part of these consolidated financial statements.


Consolidated statement of income

For the year ended 31 December 2012

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2012 2011 Notes KD KD Revenue 15,341,825 12,860,308 Cost of sales (7,936,316) (6,105,891) Gross profit 7,405,509 6,754,417 Unrealised loss on investments at fair value through statement of income

-

(100,000)

Share of results of associate 6 71,251 (1,277,329) Dividend income 13,171 22,305 Other income 312,146 209,873 Impairment of goodwill 7 (833,350) - General and administrative expenses 18 (1,390,407) (1,083,990) Selling and distribution expenses (599,243) (377,455) Finance costs (239,537) (249,056) Profit before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), National Labour Support Tax (NLST), Zakat and Board of Directors’ remuneration 4,739,540 3,898,765 Contribution to KFAS (42,656) (35,089) NLST (140,754) (100,235) Zakat (54,159) (40,094) Board of Directors’ remuneration (116,000) (56,000) Profit for the year 4,385,971 3,667,347 Basic and diluted earning per share (fils) 20 49.73 41.58



Consolidated statement of comprehensive income


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2012 2011 KD KD

Profit for the year 4,385,971 3,667,347 Other comprehensive income: Foreign currency difference on translation of foreign operations 44,271 43,351 Changes in associate’s reserves - (16,441) Other comprehensive income for the year 44,271 26,910 Total comprehensive income for the year 4,430,242 3,694,257



Consolidated statement of changes in equity


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Share capital

Statutory reserve

Voluntary reserve

Group’s share of

associates reserves

Foreign currency

translation reserve

Retained earnings

Total equity

KD KD KD KD KD KD KD

Balance at 1 January 2011 8,820,000 2,680,069 2,642,062 5,457 - 6,568,871 20,716,459 Profit for the year - - - - - 3,667,347 3,667,347 Other comprehensive (loss) / income for the year - - - (16,441)

43,351 - 26,910

Total comprehensive (loss) / income for the year - - - (16,441)

43,351 3,667,347 3,694,257

Transfer to reserves - 389,877 389,877 - - (779,754) - Dividends paid - - - - - (1,764,000) (1,764,000) Balance at 31 December 2011 8,820,000 3,069,946 3,031,939 (10,984) 43,351 7,692,464 22,646,716 Profit for the year - - - - - 4,385,971 4,385,971 Other comprehensive income for the year - - - - 44,271 - 44,271 Total comprehensive income for the year - - - - 44,271 4,385,971 4,430,242 Transfer to reserves - 473,954 473,954 - - (947,908) - Dividends paid (Note 22) - - - - - (3,087,000) (3,087,000) Balance at 31 December 2012 8,820,000 3,543,900 3,505,893 (10,984) 87,622 8,043,527 23,989,958



Consolidated statement of cash flows


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2012 2011 Note KD KD OPERATING ACTIVITIES Profit before taxes and Board of Directors’ remuneration 4,739,540 3,898,765 Adjustments for: Depreciation 1,954,035 1,682,561 Provision for staff indemnity 455,892 151,225 Finance costs 239,537 249,056 Loss / (gain) on sale of property, plant and equipment 7,347 (18,162) Unrealized loss on investments at fair value through statement of income

- 100,000

Share of results of associate (71,251) 1,277,329 Impairment of goodwill 833,350 - Provision for slow moving inventories 588,486 100,000 Provision for doubtful debts 73,215 - Reversal of provision for doubtful debts (96,654) (40,614) Dividend income (13,171) (22,305) 8,710,326 7,377,855 Movements in working capital: Increase in inventories (205,032) (169,725) Decrease / (increase) in trade receivables 140,123 (236,502) Increase in other receivables (821,197) (329,077) (Decrease) / increase in trade and other payables (27,250) 525,867 Cash generated from operations 7,796,970 7,168,418 KFAS paid (61,368) (58,497) NLST paid (138,174) (106,836) Zakat paid - (8,610) Staff indemnity paid (153,682) (39,887) Net cash from operating activities 7,443,746 6,954,588

INVESTING ACTIVITIES Acquisition of subsidiary - (4,220,200) Purchase of property, plant and equipment (2,332,699) (1,686,039) Proceeds on disposal of property, plant and equipment 9,100 18,162 Investment in an associate (3,003,016) - Dividend received 13,171 22,305 Net cash used in investing activities (5,313,444) (5,865,772)

FINANCING ACTIVITIES Dividends paid (3,087,000) (1,764,000) Net movement in term loans 521,304 2,996,225 Finance costs paid (204,340) (261,999) Net cash (used in) / from financing activities (2,770,036) 970,226 Effect of foreign currency translation reserve 44,271 - Net (decrease) / increase in cash and cash equivalents (595,463) 2,059,042 Cash and cash equivalents at beginning of the year 4,427,777 2,368,735 Cash and cash equivalents at end of the year 12 3,832,314 4,427,777



Notes to the consolidated financial statements


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1. GENERAL INFORMATION

Al Kout Industrial Projects Company K.S.C. (formerly known as Al-Ahlia Industrial Projects Company K.S.C. (Closed), (“the Parent Company”), is a Closed Shareholding Company incorporated on 28 December 1993 in accordance with the Commercial Companies Law in the State of Kuwait, and is listed on the Kuwait Stock Exchange. The Group comprises of the Parent Company and its subsidiaries (see note 3.3). The Parent Company is primarily engaged in the manufacture and sale of Chlor Alkali products. The address of the Parent Company’s registered office is P.O. Box, 10277, Shuaiba 65453, State of Kuwait. These consolidated financial statements of the Group for the year ended 31 December 2012 were authorized for issue in accordance with a resolution of the Parent Company’s Board of Directors on 6 March 2013, and are subject to the approval of the Annual General Assembly of the Parent Company’s shareholders. The Annual General Assembly of the Parent Company’s shareholders has the power to amend these consolidated financial statements after issuance.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING

STANDARDS (IFRSs) 2.1 New and revised IFRSs adopted by the Group

There Group has adopted the following amended IFRS during the year. Amendments to IFRS 7, ‘Financial instruments: Disclosures’, on transfer of financial assets (Effective for annual periods beginning on or after 1 July 2011) The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Group’s consolidated financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity’s continuing involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July 2011. The adoption of the amendment did not have any impact on the consolidated financial position or performance of the Group.

2.2 New standards, interpretations and amendments not yet effective and not early adopted

The Group has not applied the following new and revised IFRSs that have been issued and are not yet effective for annual periods beginning on or after 1 January 2012: Amendments to IAS 1 Presentation of Items of Other Comprehensive Income (Effective for annual periods beginning on or after 1 July 2012) The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that will be reclassified subsequently to profit




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2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)


(continued) Amendments to IAS 1 Presentation of Items of Other Comprehensive Income (Effective for annual periods beginning on or after 1 July 2012) (continued) or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis. The amendments to IAS 1 are effective for annual periods beginning on or after 1 July 2012. The presentation of items of other comprehensive income will be modified accordingly when the amendments are applied in the future accounting periods. Amendments to IAS 19 Employee benefits (as revised in 2011) (Effective for annual periods beginning on or after 1 January 2013) The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in define benefit obligations and plan assets. The amendments require recognition of changes in defined benefit obligations and fair value changes of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. The amendments to IAS 19 are effective for annual periods beginning on or after 1 January 2013 and require retrospective application with certain exceptions. IAS 27 Separate Financial Statements (as revised in 2011) (Effective for annual periods beginning on or after 1 January 2013) The amended version of IAS 27 now only deals with the requirements for separate financial statements, which have been carried over largely unchanged from IAS 27 Consolidated and Separate Financial Statements. The standard outlines the accounting and disclosure requirements for 'separate financial statements', which are financial statements prepared by a Parent, or an investor in a joint venture or associate, where those investments are accounted for either at cost or in accordance with IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments. The standard also outlines the accounting requirements for dividends and contains numerous disclosure requirements.

IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) (Effective for annual periods beginning on or after 1 January 2013) As a consequence of the new IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates, has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The revised standard becomes effective for annual periods beginning on or after 1 January 2013.




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2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (continued)


(continued) Amendments to IAS 32 ‘Financial instruments: Presentation’, on asset and liability offsetting (Effective for annual periods beginning on or after 1 January 2014) These amendments are to the application guidance in IAS 32, ‘Financial instruments: Presentation’, and clarify some of the requirements for offsetting financial assets and financial liabilities on the statement of financial position. The amendments to IAS 32 are effective for annual periods beginning on or after 1 January 2014 and require retrospective application Amendments to IFRS 7 Disclosures — Offsetting Financial Assets and Financial Liabilities (Effective for annual periods beginning on or after 1 January 2013) These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s consolidated financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments will not impact the Group’s consolidated financial position or performance and becomes effective for annual periods beginning on or after 1 January 2013. IFRS 9 ‘Financial instruments’ (Effective for annual periods beginning on or after 1 January 2015) The standard addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. The Group is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 no earlier than the accounting period beginning on or after 1 January 2015. IFRS 10 ‘Consolidated financial statements’ (Effective for annual periods beginning on or after 1 January 2013) The standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the Parent Company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Group is yet to assess IFRS 10’s full impact and become effective for annual periods beginning on or after 1 January 2013.




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(continued)

IFRS 11 'Joint Arrangements’ (Effective for annual periods beginning on or after 1 January 2013) The standard replaces IAS 31 Interests in Joint Ventures. IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. SIC-13 Jointly Controlled Entities Non-monetary Contributions by Venturers has been withdrawn upon the issuance of IFRS 11. Under IFRS 11, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In contrast, under IAS 31, there are three types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations. In addition, joint ventures under IFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under IAS 31 can be accounted for using the equity method of accounting or proportionate accounting. The Group is yet to assess IFRS 11’s full impact and becomes effective for annual periods beginning on or after 1 January 2013. IFRS 12 ‘Disclosures of interests in other entities’ (Effective for annual periods beginning on or after 1 January 2013) The standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The Group is yet to assess IFRS 12’s full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January 2013. IFRS 13 ‘Fair value measurement’ (Effective for annual periods beginning on or after 1 January 2013) The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Group is yet to assess IFRS 13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2013. Annual Improvements to IFRSs 2009-2011 Cycle (Effective for annual periods beginning on or after 1 January 2013): IFRS 1 First-time Adoption of International Financial Reporting Standards This improvement clarifies that an entity that stopped applying IFRS in the past and chooses, or is required, to apply IFRS, has the option to re-apply IFRS 1. If IFRS 1 is not re-applied, an entity must retrospectively restate its financial statements as if it had never stopped applying IFRS. IAS 1 Presentation of Financial Statements This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period.




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(continued) IAS 16 Property Plant and Equipment This improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. IAS 32 Financial Instruments, Presentation This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. IAS 34 Interim Financial Reporting The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures.

3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with the IFRSs as issued by the International Accounting Standards Board (IASB), IFRIC interpretations as issued by the International Financial Reporting Interpretations Committee (IFRIC) and applicable requirements of Ministerial Order No. 18 of 1990. On 29 November 2012, Companies Law No. 25 of 2012 was issued, and in accordance with Article No.2 of the new law, the Company is allowed to adopt the provisions of the law within a period of six months from its effective date.

3.2 Basis of preparation

These consolidated financial statements have been prepared under the historical cost convention, except for the measurement at fair value of financial assets at fair value through statement of income. These consolidated financial statements are presented in Kuwaiti Dinars (“KD”), which is the Parent Company’s functional and presentation currency. The accounting policies used in the preparation of the consolidated financial statements are consistent with those used in the previous year, except for changes resulting from amendments to IFRS as mentioned in note 2.

3.3 Basis of consolidation

Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances based on latest audited financial statements of subsidiaries. Intra-group balances and transactions, including unrealised profits and losses arising from intra-group transactions are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued)

3.3 Basis of consolidation (continued)

Non-controlling interests represents the equity in the subsidiaries not attributable directly or indirectly to the equity holders of the Parent Company. Equity and net income attributable to non-controlling interests are shown separately in the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income and consolidated statement of changes in equity. Losses within a subsidiary are attributed to the non-controlling interests even if that results in a deficit balance. Changes in the Group’s ownership interest in a subsidiary that do not result in loss of control are accounted for as equity transactions. If a Parent loses control of a subsidiary, it derecognizes the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost as well as related non-controlling interests. Any investment retained is recognized at fair value at the date when control is lost. Any resulting difference along with amounts previously directly recognized in equity is transferred to the consolidated statement of income.

Details of subsidiaries are as follows:

Name of subsidiary

Ownership %

Country of incorporation

Principal activities

2012 2011 Al Kout Logistics and Transport Company W.L.L.,

99.5

99.5

Kuwait

Transportation services

Al Kout Petrochemical Products Company W.L.L.,

80

80

Kuwait

Blending of chemical products

Al Kout Industrial Projects Holding Company L.L.C.,

100

100

Bahrain

Investment activities

Safewater Chemicals L.L.C.

99

99

United Arab Emirates

Manufacture of Chlor Alkali products

3.4 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 recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs) expected to benefit from the synergies of the combination. CGUs 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 CGU 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 recognised 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.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.5 Investment in associates

Associates are those entities over which the Group is able to exert significant influence but which are neither subsidiaries nor interests 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 results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income attributable to equity holders of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate, the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. 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 recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the 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 recognised immediately in the consolidated statement of income. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. When a Group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group. The associate’s financial statements are prepared either to the Parent Company’s reporting date or to a date not earlier than three months of the Parent Company’s reporting date. Amounts reported in the consolidated financial statements of associates have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Where practicable, adjustments are made for the effect of significant transactions or other events that occurred between the reporting date of the associates and the Parent Company’s reporting date.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.6 Property, plant and equipment

Property, plant and equipment except leasehold land are stated at cost less accumulated depreciation and any accumulated impairment losses. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy (see borrowing costs policy). Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight-line 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 capitalised. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in consolidated statement of income in the period in which they occur.

3.7 Inventories

Work in progress and 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 obsolete or 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 and obsolete stocks. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs.

3.8 Financial assets

Classification, initial recognition and measurement Financial assets within the scope of IAS 39 are classified as “loans and receivables'' and "investments at fair value through statement of income”. The classification depends on the purpose for which financial assets were acquired and it is determined at initial recognition. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments at fair value through statement of income are initially recognised at fair value, and transaction costs are expensed in the consolidated statement of income. A “regular way” purchase of financial assets is recognised using the trade date accounting. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulations or conventions in the market place. The Group has not classified any of its financial assets as held to maturity.




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3.8 Financial assets (continued) Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Investments at fair value through statement of income Investments at fair value through statement of income includes financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Financial assets designated upon initial recognition at fair value through profit and loss are designated at their initial recognition date and only if the criteria under IAS 39 are satisfied. Investments at fair value through statement of income are carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of income. Loans and receivables These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are re-measured and carried at amortised cost using the effective interest rate method, less impairment. Loans and receivables include Cash and bank balances and Trade receivables. Amortised cost Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate method. The effective interest rate method amortisation and the losses arising from impairment are recognised in the consolidated statement of income. Derecognition of financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: • The rights to receive cash flows from the asset have expired; or • The Group has transferred substantially all the risks and rewards of ownership. Impairment of financial assets Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been impacted. The objective evidence of impairment could include: • significant financial difficulty of the issuer or counterparty; or • default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial re-organisation. Financial assets such as trade receivables, that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national or local economic conditions that correlate with default on receivables.




17


3.8 Financial assets (continued) Impairment of financial assets (continued) The carrying amount of trade receivables, is reduced through the use of an allowance account for impairment. When a trade receivable is considered uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

3.9 Financial liabilities Classification and subsequent measurement of financial liabilities Financial liabilities are classified as “other than at fair value through statement of income”. These are subsequently remeasured at amortised cost. Financial liabilities include Term loans and Trade and other payables. Interest bearing borrowings Interest bearing borrowings are recognised initially at fair value less directly attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated statement of income over the period of the borrowings on an effective interest basis. Trade and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised.

3.10 Cash and cash equivalents Cash on hand, current and call account balances with banks and short term deposits with banks are classified as cash and cash equivalents.

3.11 Equity, reserves and dividend payments Share capital represents the nominal value of shares that have been issued. Statutory and voluntary reserves represents amounts transferred from profits in accordance with Companies Law and the Parent Company’s Articles of Association (Note 14 and 15). Retained earnings include all current and prior period retained profits. Dividends are recognised as a liability in the Group’s consolidated financial statements in the period in which the dividends are approved by the shareholders.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.12 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 financial position date, and approximates the present value of the final obligation.

3.13 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The expense relating to any provision is presented in the consolidated statement of income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

3.14 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 recognised when all the following conditions are satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Group retains neither continuing managerial involvement to the degree usually associated with

ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the entity; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Dividend income is recognised when the right to receive payment is established.

Interest income is recognised on an accrual basis using the effective interest method.

3.15 Borrowing costs

Borrowing costs primarily comprise interest on the Group’s borrowings. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised during the period of time that is necessary to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and are recognised in the consolidated statement of income in the period in which they are incurred.




19

3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.16 Foreign currency translation

The consolidated financial statements are presented in currency (KD), which is also the functional currency of the Parent Company. Transactions and balances Transactions in currencies other than the Group’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of transactions. At each statement of financial position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated 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. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the consolidated statement of income for the year. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the consolidated statement of income for the year except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in other comprehensive income. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in other comprehensive income. Group companies The assets and liabilities of the Group’s foreign operations are expressed in KD using exchange rates prevailing at the statement of financial position date. Income and expense items are translated into the Group’s presentation currency at the average rate over the reporting period. Exchange differences are charged / credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into KD at the closing rate.

3.17 Contribution to Kuwait Foundation for the Advancement of Sciences

The Group is legally required to contribute to the Kuwait Foundation for the Advancement of Sciences ("KFAS"). The Group's contribution to KFAS is recognised as an expense in the period during which the Group's contribution is legally required.

3.18 National Labour Support tax

The Group calculates national Labour Support Tax (“NLST”) in accordance with the ministry of finance resolution No.19 of 2000.

3.19 Zakat

The Group is legally required to contribute to the Zakat. The Group's contribution to Zakat is recognised as an expense in the period during which the Group's contribution is legally required.




20

3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.20 Impairment of tangible assets

At each reporting date, the Group reviews the carrying amounts of its tangible 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. 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 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 recognised 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 recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised 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.

3.21 Contingent liabilities and assets

Contingent liabilities are not recognised 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 recognised in the consolidated financial statements, but disclosed when an inflow of economic benefit is possible.

4. SIGNIFICANT ACCOUNTING JUDGEMENTS In the application of the Group’s accounting policies, which are described in note 3, the Group’s management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.




21

4. SIGNIFICANT ACCOUNTING JUDGEMENTS (continued) The following are the critical judgements, apart from those involving estimations (see below), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in consolidated financial statements. Classification of investments The classification of investments depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The Group classifies all its investments at fair value through statement of income. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the consolidated financial position 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 financial assets The Group’s management reviews periodically items classified as receivables to assess whether a provision for impairment should be recorded in the consolidated statement of income. Management estimates the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgement and uncertainty. Impairment of tangible assets and useful lives The Group’s management tests annually whether tangible assets have suffered impairment in accordance with accounting policies stated in Note 3. The recoverable amount of an asset is determined based on value-in-use method. This method uses estimated cash flow projections over the estimated useful life of the asset discounted using market rates. The Group’s management determines the useful lives of tangible assets and the related depreciation charges. The depreciation charges for the year will change significantly if actual life is different from the estimated useful life of the asset. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.




22

5. PROPERTY, PLANT AND EQUIPMENT

Buildings Plant and machinery

Electrolyser and ED

membrane

Office furniture and

equipment Motor

vehicles

Capital work in progress Total

KD KD KD KD KD KD KD Cost At 1 January 2011 5,622,597 14,127,162 5,110,645 587,544 1,811,611 28,652 27,288,211 Acquired through business combination

1,606,554

1,808,858

-

1,899

12,913

-

3,430,224

Additions 13,149 170,768 - 19,754 548,669 933,699 1,686,039 Disposals - - - - (86,645) - (86,645) At 31December 2011 7,242,300 16,106,788 5,110,645 609,197 2,286,548 962,351 32,317,829 Additions 31,950 404,263 - 30,120 528,959 1,337,407 2,332,699 Disposal - - - - (28,764) - (28,764) Transfers 381,769 863,077 387,173 - - (1,632,019) - At 31 December 2012 7,656,019 17,374,128 5,497,818 639,317 2,786,743 667,739 34,621,764 Accumulated depreciation At 1 January 2011 3,966,749 9,164,616 3,199,039 508,421 890,611 - 17,729,436 Charge for the year 225,095 764,187 463,247 45,213 184,819 - 1,682,561 Relating to disposals - - - - (86,645) - (86,645) At 31 December 2011 4,191,844 9,928,803 3,662,286 553,634 988,785 - 19,325,352 Charge for the year 357,154 1,009,604 323,435 40,971 222,871 - 1,954,035 Relating to disposals - - - - (12,317) - (12,317) At 31 December 2012 4,548,998 10,938,407 3,985,721 594,605 1,199,339 - 21,267,070 Carrying amount At 31 December 2012 3,107,021 6,435,721 1,512,097 44,712 1,587,404 667,739 13,354,694 At 31 December 2011 3,050,456 6,177,985 1,448,359 55,563 1,297,763 962,351 12,992,477 Annual depreciation rates 10% 6.66% to 20% 10% to 25% 33.33% 10% to 33.33% -

Buildings are constructed on leasehold land. The Parent Company’s buildings, plant and machinery and electrolysers have been assigned as security for the term loans (see note 16).




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6. INVESTMENT IN AN ASSOCIATE

Name of associate

Country of incorporation

Ownership interest Carrying amount 2012 2011 2012 2011

% % KD KD

Al Dorra Petroleum Services Company K.S.C. (Closed) (Al Dorra)

Kuwait

34.38

22.92

10,580,497

7,506,230

On 19 September 2012, the Group acquired an additional equity interest of 11.46% in Al Dorra increasing its ownership to 34.38% for a consideration of KD 3,003,016.

Summarised financial information in respect of the Group’s investment in its associate is set out

below: 2012 2011 KD KD Share of associate’s consolidated statement of financial position:

Current assets 8,111,409 4,718,345 Non-current assets 5,354,843 4,060,522 Current liabilities (2,584,705) (1,105,974) Non-current liabilities (301,050) (166,663) Carrying amount of the investment in an associate 10,580,497 7,506,230

2012 2011

KD KD Share of associate’s consolidated revenue and results: Revenue 9,640,760 4,547,635 Results 71,251 (1,277,329) The share of results of associate includes an impairment loss on investment in associate amounting to KD 143,003 (2011: KD 719,446).

7. GOODWILL

At 31 December 2012, the Group assessed the recoverable amount of goodwill and determined that goodwill associated with certain cash generating unit was impaired by KD 833,350 (2011: KD Nil). The recoverable amount was assessed by reference to the cash-generating unit’s value in use.




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8. INVENTORIES 2012 2011 KD KD Finished goods 282,716 216,344 Raw materials 152,940 57,828 Spare parts 2,108,494 2,022,372 Imported salt 33,670 119,278 Packing materials 114,044 71,010 2,691,864 2,486,832 Allowance for slow moving inventories (1,034,663) (446,177) 1,657,201 2,040,655 9. TRADE RECEIVABLES 2012 2011 KD KD Trade receivables 3,078,774 3,218,895 Allowance for doubtful debts (116,985) (140,422) 2,961,789 3,078,473

Movement in the allowance for doubtful debts 2012 2011 KD KD Balance at beginning of the year 140,422 133,693 Charge for the year 73,215 - Amount reversed during the year (96,652) (40,614) Relating to business acquisition - 47,343 Balance at end of the year 116,985 140,422

At the reporting date, 81% of the net trade receivables are due from 11 customers (2011 - 66% from 23 customers). At the reporting date, net trade receivables amounting to KD 716,453 (2011: KD 835,983) were past due but not considered to be impaired. The ageing analysis of these receivables is as follows:

2012 2011 KD KD

90 – 180 days 297,885 334,091 180 - 360 days 360,476 396,844 Over 360 days 58,092 105,048

716,453 835,983

Amounts receivable that are not past due are considered collectible based on historic experience.




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10. OTHER RECEIVABLES

2012 2011 KD KD

Prepayments 168,735 104,175 Advance to suppliers 715,422 329,164 Other advances 285,000 - Employee receivables 14,733 15,439 Accrued income 6,475 14,271 Others 325,704 231,824

1,516,069 694,873

11. INVESTMENTS AT FAIR VALUE THROUGH STATEMENT OF INCOME 2012 2011 KD KD Trading: Foreign unquoted securities 260,158 260,158

The Group’s investments are managed by a professional portfolio manager, under portfolio management agreement.

12. CASH AND CASH EQUIVALENTS

2012 2011 KD KD Cash in hand 7,722 15,361 Cash at banks 3,810,932 2,911,582 Short term deposits - 1,500,000 Cash in portfolio 13,660 834

3,832,314 4,427,777

The Group’s short term deposits yield an average interest rate of nil% (2011: 2%) per annum and mature within three months from the date of deposit.

13. SHARE CAPITAL

2012 2011 KD KD

Authorised, issued and fully paid: 88,200,000 shares of nominal value of 100 fils each paid in cash 8,820,000 8,820,000




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14. STATUTORY RESERVE

In accordance with the Companies Law and the Parent Company’s articles of association, as amended, 10% of the profit for the year is required to be transferred to the statutory reserve until the reserve totals 50% of the paid up share capital. Distribution of the statutory reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when retained earnings are not sufficient for the payment of a dividend of that amount.

15. VOLUNTARY RESERVE

In accordance with the Parent Company’s articles of association, 10% of the profit for the year has been transferred to the voluntary reserve. Such annual transfers can be discontinued by a resolution of shareholders in the Annual General Assembly meeting upon recommendation by the Board of Directors’. There are no restrictions on the distribution of the voluntary reserve.

16. TERM LOANS

2012 2011 KD KD Current portion 2,277,200 750,000 Non-current portion 4,540,329 5,546,225

The above represents term loans obtained from local banks and bear an average interest rate ranging from 2.8% to 3.5% (2011: 2.5% to 3.5%) per annum.

2012 2011 KD KD

Payable in 1 year or less 2,277,200 750,000 Payable in 1-2 years 2,277,200 1,587,150 Payable in 2-5 years 2,263,129 3,959,075

6,817,529 6,296,225

The carrying amounts of the Group’s term loans are denominated in the following currencies:

2012 2011 KD KD

KD 2,731,429 2,250,000 United States Dollars (“USD”) 4,086,100 4,046,225

6,817,529 6,296,225

The Parent Company’s buildings, plant, machinery and electrolyzers are pledged as collateral against the term loans (Note 5).




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17. TRADE AND OTHER PAYABLES

2012 2011 KD KD

Trade payables 363,357 231,685 Freight payable 7,900 17,980 Advance from customers 132,032 219,886 Retention payable 68,977 94,674 Accrued contractors expenses 22,258 24,151 Accrued utility charges 532,576 366,752 Employees’ accrued leave pay 115,452 91,206 KFAS payable 42,657 61,369 NLST payable 171,266 168,686 Zakat payable 114,297 60,138 Accrued interest 41,360 43,139 Directors remuneration payable 56,000 56,000 Staff bonus 437,965 375,427 Others 178,001 311,033

2,284,098 2,122,126 18. GENERAL AND ADMINISTRATIVE EXPENSES 2012 2011 KD KD

Staff costs 1,063,068 690,269 Depreciation 63,909 70,121 Others 263,430 323,600 1,390,407 1,083,990 19. STAFF COSTS AND DEPRECIATION Staff costs and depreciation charges are included in the consolidated statement of income under the

following categories: 2012 2011 KD KD Staff costs: Cost of sales 1,760,680 1,538,880 General and administrative expenses 1,063,068 690,269 Selling and distribution expenses 207,031 122,665 3,030,779 2,351,814 2012 2011 KD KD Depreciation: Cost of sales 1,890,126 1,612,440 General and administrative expenses 63,909 70,121 1,954,035 1,682,561




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20. BASIC AND DILUTED EARNINGS PER SHARE 2012 2011 Basic and diluted earnings per share is calculated as follows: Profit for the year (KD) 4,385,971 3,667,347 Weighted average number of outstanding shares 88,200,000 88,200,000 Basic and diluted earnings per share (fils) 49.73 41.58 21. RELATED PARTY TRANSACTIONS

Related parties consists of shareholders, directors, key management personnel and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Group’s management. Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:

2012 2011 KD KD Key management compensation Salaries and other short-term benefits 304,435 352,080 Termination benefits 40,131 26,196 344,566 378,276

22. ANNUAL GENERAL ASSEMBLY MEETING

The Annual General Assembly meeting of shareholders held on 21 March 2012, approved the annual audited consolidated financial statements of the Group for the year ended 31 December 2011 and approved a cash dividend equivalent to 35% of the paid up share capital. At the meeting held on 6 March 2013, the Board of Directors have proposed a cash dividend of 40% of the share capital for the year ended 31 December 2012. This proposal is subject to the approval of the Shareholders’ General Assembly.

23. SEGMENT INFORMATION

The Group identifies its operating segments on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to assess its performance. The management has grouped the Group’s products and services into the following operating segments: • Chlor Alkali • Petrochemical products • Logistics and Transport




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23. SEGMENT INFORMATION (continued)

Segment revenues and results

The following is an analysis of the Group’s revenue and results by reportable segments:

2012 2011 2012 2011 KD KD KD KD Revenue Segment result Chlor Alkali 14,554,452 12,332,833 7,323,921 6,682,562 Petrochemical products 602,365 340,542 47,361 37,273 Logistics and transport 185,008 186,933 34,227 34,582 15,341,825 12,860,308 7,405,509 6,754,417 Investment income (net) 13,171 (77,695) Share of results of associate 71,251 (1,277,329) Impairment of goodwill (833,350) - Other income 312,146 209,873 Finance costs (239,537) (249,056) Unallocated expenses (2,343,219) (1,692,863) Profit for the year 4,385,971 3,667,347

Segment assets and liabilities

For the purposes of monitoring segment performance and allocating resources between segments: 2012 2011 KD KD

Segment assets Chlor Alkali 21,698,680 22,271,721 Petrochemical products 100,000 100,000 Logistics & Transport 1,515,990 1,505,561 Investments 10,848,052 7,956,711 Total consolidated segment assets 34,162,722 31,833,993

Segment liabilities Chlor Alkali 9,932,581 8,943,427 Logistics & Transport 240,183 243,850 Total consolidated segment liabilities 10,172,764 9,187,277

Geographical segments

Revenue 2012 2011 KD KD

Kuwait and Middle East 14,097,563 11,846,435 Europe 1,244,262 998,445 Asia - 15,428 Total consolidated segment revenue 15,341,825 12,860,308




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24. FINANCIAL INSTRUMENTS

The Group in the normal course of business uses various types of financial instruments. Information on financial risks and fair value of these financial instruments is set out below: Capital risk management

The Parent Company’s objectives when managing capital are to safeguard the Parent Company’s ability to continue as a going concern, through the optimisation of the debt and equity balance 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. The Parent Company sets the amount of capital in proportion to risk. The Parent Company 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 parent company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or debt and or sell assets to reduce debt. The capital structure of the Group consists of term loans, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings. Gearing ratio

The gearing ratio at year end was as follows:

2012 2011 KD KD

Term loans 6,817,529 6,296,225 Less: cash and cash equivalents (3,832,314) (4,427,777) Net debt 2,985,215 1,868,448 Total equity 23,989,958 22,646,716 Total capital resources 26,975,173 24,515,164 Gearing ratio 11.1% 7.6%

Categories of financial instruments

2012 2011 KD KD Financial assets Trade receivables 2,961,789 3,078,473 Other receivables 1,347,334 590,698 Investments at fair value through statement of income 160,158 260,158 Cash and cash equivalents 3,832,314 4,427,777 Financial liabilities Term loans 6,817,529 6,296,225 Trade and other payables 2,284,098 2,122,126




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24. FINANCIAL INSTRUMENTS (continued)

Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group uses its own trading records to rate its major customers. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management annually. Trade receivables consist of a large number of customers, spread across diverse industries. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Group does not have any significant credit risk exposure to any single counterparty or any Group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk did not exceed 30% of gross monetary assets at any time during the year. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies, Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

2012 2011 KD KD

Bank balances 3,810,932 4,411,582 Trade and other receivables 4,309,123 3,669,171 8,120,055 8,080,753

2012 2011 KD KD

Kuwaiti Dinars 4,427,719 4,781,505 US Dollars 1,729,546 2,678,717 Qatari Riyal 28,083 29,686 Saudi Riyal - 26,063 UAE Dirhams 881,862 498,770 British Pounds 494,088 32 Euro 491,593 - Others 67,164 65,980

8,120,055 8,080,753




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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. 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.

Change in equity price

Effect on profit before KFAS, NLST,

Zakat & Board of Directors’

remuneration

Change in equity

price

Effect on profit before KFAS,

NLST, Zakat & Board of Directors’

remuneration 2012 2012 2011 2011 KD KD

Kuwait +5% 13,008 +5% 13,008

Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Financial instruments which potentially subject the Group to interest rate risk consist primarily of term loans in USD at floating rates of interest. At 31 December 2012, if interest rates on USD denominated term loans had been 1% higher / lower with all variables constant, profit for the year would have been KD 40,861 lower / higher, mainly as a result of higher / lower interest expense on borrowings. Foreign exchange risk

Foreign exchange risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group incurs foreign currency risk on transactions denominated in a currency other than the Kuwaiti Dinar. The management monitors the positions on a daily basis to ensure positions are maintained within established limits. The effect on profit (due to change in the fair value of monetary assets and liabilities), as a result of change in currency rate, with all other variables held constant is shown below:




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Foreign exchange risk (continued) Assets Liabilities Increase in currency rate by 5 % Increase in currency rate by 5 % Effect on profit before KFAS,

NLST, Zakat & Board of Directors' remuneration

Effect on profit before KFAS, NLST, Zakat & Board

of Directors' remuneration 2012 2011 2012 2011 KD KD KD KD

United States Dollar 50,887 95,366 (204,305) (202,311) Sterling Pound 24,704 - - - Euro 24,580 - - - UAE Dirhams 20,187 2,559 - -

The effect of decrease in currency rate is expected to be equal and opposite to the effect of the increases shown above.

Liquidity risk 31 December 2012 Within 1 to 3 to 12 1to 5 1 month 3 months Months years Total KD KD KD KD KD Term loans 375,000 200,000 1,702,200 4,540,329 6,817,529 Trade and other payables 226,341 1,813,866 243,891 - 2,284,098 TOTAL LIABILITIES 601,341 2,013,866 1,946,091 4,540,329 9,101,627 31 December 2011 Within 1 to 3 to 12 1to 5 1 month 3 months Months years Total KD KD KD KD KD Term loans 375,000 - 375,000 5,546,225 6,296,225 Trade and other payables 171,347 1,489,354 461,425 - 2,122,126 TOTAL LIABILITIES 546,347 1,489,354 836,425 5,546,225 8,418,351

Fair value of financial instruments

The fair value of financial instruments are not materially different from their respective carrying amounts at the consolidated financial position date.

25. COMMITMENTS AND CONTINGENT LIABILITIES 2012 2011 KD KD

Capital commitments For the acquisition of property, plant and equipment 1,183,772 636,258

Contingent liabilities Letters of guarantee 3,910,433 2,365,971




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25. COMMITMENTS AND CONTINGENT LIABILITIES (continued) Operating lease commitments The minimum operating lease commitments under non-cancellable operating leases are as follows: 2012 2011 KD KD Not later than one year 22,425 19,363 Later than one year but not later than five years 38,350 53,644

al kout industrial projects company k.s.c. and its subsidiaries … · 2012. 12. 31. · al kout...

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