annual report - kic · experience you can trust - since 1961 experience you can trust - since 1961...

1ANNUAL REPORTExperience You Can Trust - Since 1961

Experience You Can Trust - Since 1961ANNUAL REPORT

2 ANNUAL REPORTExperience You Can Trust - Since 1961

ANNUAL REPORTExperience You Can Trust - Since 1961

HIS HIGHNESS

SHEIKH SABAH AL-AHMED AL-JABER AL-SABAHTHE AMIR OF THE STATE OF KUWAIT

HIS HIGHNESS

SHEIKH NAWAF AL-AHMED AL-JABER AL-SABAHTHE CROWN PRINCE OF THE STATE OF KUWAIT

HIS HIGHNESS

SHEIKH NASER AL-MOHAMMED AL-AHMED AL-SABAHTHE PRIME MINISTER OF THE STATE OF KUWAIT


Board of Directors

General Management

Message of the Chairman and CEO

Economic Performance

The Company's Activity

Activities of other Departments

Independent Auditors’ Report

Consolidated Statement of Financial PositionAs at 31 December 2009

Consolidated Statement of IncomeFor the year ended 31 December 2009

Consolidated Statement of Comprehensive IncomeFor the year ended 31 December 2009

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements

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35-70

CONTENTS


Bader Naser AlSubaieeChairman and CEO

Mohammed Abdulrida SaleemDirector

Mishari Zaid Al-KhaledDeputy Chairman

Jamal Abdullah Al-SaleemDirector

Alaa Abdulaziz Al-SarawiDirector

Mohammed Iqab Al-KhatibDirector

Barrak Abdulmohsen Al-SabeehDirector

Barrak Ali Al-SheetanDirector

BOARD OF DIRECTORS


Adel J. Al-MudhafAssistant General Manager,Financial & Administrative Affairs Division

Fahad Bader Al-KuhailanAssistant General Manager,Treasury & Trading Division

Fawaz Sulaiman Al-AhmadGeneral Manager

Naser A. Al-SalemLegal Advisor & Board Secretary

Wagdi Sayed EidFinancial Controller

GENERAL MANAGEMENT


MESSAGE OF THE CHAIRMAN & CEO

On behalf of my colleagues and my brothers; members of the board of directors, we are pleased to present the forty sixth annual report of Kuwait Investment Company for the fiscal year ended in 31 December 2009, which reflects the solid base of the company in addressing the most difficult phases of the global financial crisis.

ECONOMIC SCENE 2009As you are well aware, 2009 was exceptionally a difficult year for the global economy; as the crisis has brought recessionary pressures on major world economies in general, and the GCC and Kuwait economies in particular, despite the actions initiated by governments to mitigate the effects of the financial crisis which was started mid September, 2008.

Kuwait is part of the world economic system, and as the economic downturn hit most countries of the world, the local investment companies had its lion share of the adverse repercussions of the global financial turmoil, as economic growth receded, in quick succession, large financial institutions either crumbled or teetered on the brink of collapse - depending on the institution`s financial position, the markets it deals with, and the focus of its business, investments, and the nature of its assets- to the extent that they were not able to settle their financial obligations and some are in jeopardy of bankruptcy while others are still seeking a suitable exit through debts restructuring or other solutions. This grim scene have negatively and sharply reflected on the performance of the portfolios and funds of most of companies in the sector in the dawn of the sharp decline in investment values and in shares prices in stock markets which consequently led to compelling losses that are difficult to put out in the realm of exceptional economic circumstances currently sweeping the markets.

KUWAIT INVESTMENT COMPANY, EXPERIENCE YOU CAN TRUSTSince the first spark of the crisis was triggered in September 2008, Kuwait Investment Company realized the magnitude of the global financial crisis on the performance of the domestic economy, and in the midst of the turmoil, the company have taken a set of measures, and have formed a special committee comprising of specialized advisors, counselors to deal with the repercussions of the crisis on the investment activities in the company. Thanks to Allah, the achievements of the committee was evident.

As we met the challenges of 2009 head-on, Kuwait Investment Company, investing in the experience and the valuable insights of its decision makers, and its balanced investment strategy, which relies on geographic and sector diversification, the company managed to mitigate the effects of the negative repercussions of the crisis.

Kuwait Investment Company supported up by a long history of team achievements, and established results, was entrusted with the management of the national portfolio which was launched in Kuwait Stock Exchange during 2008. The national portfolio showed a clear impact on the domestic financial market during the period of its operation, as it successfully created a balance in the market through distributions of investment on different sectors, it also contributed in creating a sort of stability in the stock market performance and boosted a dose of confidence in the market. But had there been factors supporting the national portfolio, market performance would have been better by far.

We strongly believe -for growth to be sustainable- we need to consolidate all the efforts and move forward with the execution of the Government projects stimulus package; which is crucial to the country’s economic growth - particularly the investment in infrastructure - to encourage the growth of related industries, in addition to our continuous demands to increase capital investments and buyout of toxic assets.

FINANCIAL PERFORMANCEAs a result of the repercussions of the global financial crisis, still sweeping the financial markets, most of the assets values have decreased in most companies. The total assets of the company as of 31/12/2009 was Kuwaiti Dinar 275 million in comparison with Kuwaiti Dinar 300 million for the same period in 2008.


The total financial liabilities as of 31/12/2009 was Kuwaiti Dinar 161 million compared to Kuwaiti Dinar 169 million for the same period in 2008.

Total equity amounted to Kuwaiti Dinar 114 million which proves the solid financial base of the company.

Total Losses was Kuwaiti Dinar 13 million; a loss of 24.65 Fils per share for 2009, compared to a loss of Kuwaiti Dinar 42 million in 2008, or 76.43 Fils loss per share; where the Board of Directors have opted to take an additional provision of Kuwait Dinar 19 million against securities and 2 million Kuwaiti Dinars for loans to mitigate the effects of the repercussions of the crisis.

A COMPREHENSIVE RESTRUCTURING PLANDespite the challenges and exceptional conditions created by the repercussions of the crisis, the company successfully passed the crisis and continued to meet the challenges with high professionalism all because of the extended experience and guidance of the management and the dedication of employees; who have transformed the challenges to fruitful opportunities that will reinforce growth.

In view with the current events, and in line with the company’s commitment to transform to a more dynamic institution with a wealth of strategic benefits, the company will initiate applying a comprehensive restructuring plan; where a new organizational structure will be created to include the development of company departments and the creation of new specialties in addition to injecting the company with new human resources.

The new strategy we aspire to, will contribute in enhancing the corporate governance in the company and will introduce new services and products with added value to our clients and our shareholders, as well, contribute in decreasing operating costs.

INVESTING IN THE COMPANY’S HUMAN CAPITALDuring the year 2009, the company continued implementing its strategy to develop and nurture its human resources by investing in the development of its human capital, the company is committed to sustain long term achievement and progress. The company increased its training programs for its manpower to enhance their reliability and professionalism and to prepare them for the new phase. New programs included Certified Financial Analyst “CFA” – the internationally acclaimed certificate – and Certified Investment Manager “CIM”, and Fighting Money Laundering and Financing Terrorism program.

In line with company commitment to support national manpower, the company continued to recruit and develop new national candidates as Kuwaitization percentage reached 56%.

TOWARDS NEW OPPORTUNITIES AND NEW MARKETSIn view of the current economic situation, the Company has new strategic expansion plans poised towards new markets and include strategic ventures with new allies. We are also negotiating to buy new shares in financial institutions, in addition to other projects in different sectors in promising regional East Asia markets. We plan to focus on infrastructure sectors and to invest in operating assets with a recurring stream of income that are less subject to market fluctuations.

NOTE OF GRATITUDE AND APPRECIATION On this occasion we are delighted- on behalf of the Board of Directors to extend our deepest appreciation and gratitude to His Royal Highness, The Amir Sheikh Sabah Al Ahmad Al Jaber Al Sabah, and His Highness Crown Prince Sheikh Nawaf Al Ahmad Al Jaber Al Sabah, His Highness Prime Minister Sheikh Nasser Al Mohammad Al Sabah, God save them all. We ask God All Mighty to bestow his blessings on them and guide them to succeed in their endeavor to progress and prosperity of our beloved country Kuwait.

Also, we would also like to thank his Excellency the Minister of Finance, the chairman of Kuwait Investment Public Authority, HE Governor of the Central Bank of Kuwait, and the Managing Director of Kuwait Investment Authority for the constant support that they offer us in carrying out our missions.

We extend our sincere gratitude to all the company’s shareholders and esteemed clients for their unwavering cooperation and for their trust. We pledge our commitment to continue to drive growth, sustain the company’s esteemed position in the market and achieve the best results. Finally we would like to thank all company’s employees for their dedication and endeavor.

Bader Naser AlSubaieeChairman and CEO


ECONOMIC PERFORMANCE

Kuwait Investment company realized the magnitude of global financial crisis repercussions on the performance of domestic economy since its eruption mid September 2008. The company initiated a set of measures and formed a special task team of specialists to address the implications of the financial crisis on company investments.

In line with the defined objectives, the special task team conducted periodic meetings with debtors, to secure the principal debt versus mortgages and assets for debtors. Thankfully the team addressed the challenges of the crisis with clear achievements over the past year; as 28 meetings were conducted and $ 13 million Kuwaiti Dinars were collected from debtors. The task team continues to perform their duties to collect more debts, and to maintain amicable relations with the clients.

As a result of the severe deterioration in the global economic scene, Kuwait economy witnessed a series of events that affected its performance; as credit growth slowed down to reach a level of 6.1% on annual basis compared to a growth level of 17.5% during 2008, which led the central bank to cut its repo rate by 50 basis points from 3 percent to 2.5 percent Points. Cut aimed at enhancing growth in non oil sectors of the national economy and to reinforce liquidity in the banking institutions.

On the other hand the Kuwaiti Dinar rate was moving in a tight range against the US Dollar to keep up with the later movement in the foreign currency markets; where the Kuwaiti Dinar rate registered some fluctuations in the first half of 2009 as a result of the green currency strength in global markets supported by the American government stimulus plans to save the world’s biggest economy and to reduce unemployment rate. The Kuwaiti Dinar exchange rate recorded an increase against the Euro in the last months of 2009, when the US Dollar recovered against the European currency which gave the Kuwaiti Dinar an opportunity to recover some of the losses endured in 2009.

The price of Kuwait crude shrunk during last year as the average price dropped to US$ 60.3 per barrel which is lower by 34.2 percent and 31.3 Dollar per barrel from an average price at 91.6 Dollar in 2008.

The price of Kuwait crude oil hit its highest levels in July 2008 when it scored US$ 130.2 per barrel. The lowest price for Kuwait›s oil after the global financial crisis -which began in 2008- was September’s average, when it scored US$ 37.7 per barrel.

During the first ten months of the current fiscal year 2009-2010 (from April 2009-Jan 2010) Kuwaiti oil average price scored US$ 67.7 per barrel, which is 21.5 percent per barrel lower than the average of the first ten months of the previous fiscal year; when average price scored US$ 86.2 per barrel.

GENERAL BUDGETThe Ministry of Finance submitted its project for the fiscal year 2010/2011 budget where revenues figures were expected at 9719.3 million Kuwaiti Dinars, oil revenues expected at 8616.6 million Kuwaiti Dinars; based on a budgeted Kuwait Export Crude (KEC) price of US$ 43 per barrel, and at a production capacity at the level of 2.2 barrel per day.

The 2010/2011 budget project indicated that oil revenues will continue to account for the largest share of 89 percent of the total revenues; it also indicated that total expenditures are expected at KD16.16 billion, 33.4% of growth over 2009/10 budgeted expenditures.

The increase in total expenditures in the 2010-2011 budget accounts for mega development projects announced within the Kuwait Economic Development Plan 2013/14 which aim to set the base for the High Amiri desire to transform Kuwait to a regional financial and commercial center.

The latest developments show a clear conversion in the views of both authorities regarding the urgency of supporting the whole economy; as the increase in total expenditures is intended to positively reflect on Kuwait economic development and sustainability of growth; to support economic activity and boost confidence in the strength of the domestic economy.


Mil. Shares

DEC-08 FEB-09 MAR-09 APR-09 MAY-09 JUN-09 JUL-09 AUG-09 SEP-09 OCT-09 NOV-09 DEC-09

IndexROR (%)

1,600

1,400

1,200

1,000

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105

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95

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60

Volume Index

Performance of Kuwait Stock Market

Volume vs. Market Index

for the year 2009

KUWAIT STOCK EXCHANGE

Kuwait Stock Exchange (KSE) continued its downward trend as it was clear how deeply it was impacted with the repercussions of the global financial crisis that swept the Middle East and gcc markets like a tsunami. Kuwait Stock Exchange (KSE) price index closed trading for the 2009, scoring a drop at 10 points.

Kuwait Stock Exchange (KSE) reports indicated that price and weighted indexes plummeted and registered losses up to 50.7 percent and 45.4 percent since the crisis erupted in September 2008; by then capital assets of listed companies incurred losses estimated at 28 billion Kuwaiti Dinars (approximately 100 billion US Dollar).

Kuwait Stock Exchange continued to fluctuate amid pressures throughout the previous year, and the grim economic environment inflicted by global financial crisis spread a state of panic among investors in the market amid the announcement of some companies exposure to the incapacitated financial entities.

The economic scene grew grimmer with the emerging of credit crunch and the local and international banks announcing tighter regulations on loans processes topped by negative rumors which reflected on the trading that plummeted sharply in value and volume.

Kuwait Stock Exchange continued its free drop of prices, and went through the severe panic stage amid uncertainties of recovery and doubts of financial companies ability to bypass the crisis.


Kuwait Investment Company, with its strong financial base , conservative policies , balanced investment strategies and conscious dealing with risks , proved its solidity and reinforced its leading status in the world of finance and business locally, regionally and internationally, it even proved that it is capable of passing the financial crisis - which swept the markets- more consistent and strong , rather, it succeeded in transforming the challenges - excreted by the financial crisis- into opportunities in which it invested to reinforce the company’s growth indexes.

During the year 2009, Kuwait Investment Company was keen to continue with its conservative policies, rearrange its priorities, review strategies and set forth plans and programs consistent with the current status in the world, while continuing its pursuit for profitable opportunities that were excreted by the crisis. The company also succeeded in maintaining the trust of its customers relying on its track record and long years of experience chiseled by the years since 1961.

1. Asset Management DivisionDuring the year 2009, Asset Management Division continued executing its set objectives in order to reinforce the role of the company as a major driving force in the local and regional economy; providing finance and investment services and asset management, in addition to financial consultation services, while continuing implementation of the geographic diversifications strategies of the company investments in regional and international markets, and focusing on emerging markets with promising opportunities they represent for growth.

Asset management division also succeeded in preserving the owners of the investment units in the investment funds, and successfully extending strong bridges of communication and transparency by informing them regularly of the latest occurrence in the local, regional and international markets where these funds operate.

Local and Regional Funds and Portfolios DepartmentThe total number of portfolios under the management of Kuwait Investment Company is 128 portfolios with a total value of KD 1,950,500,000 (one billion nine hundred fifty thousand and five hundred Kuwaiti Dinars). Once again, the company proves its experience, the depth of its professionalism and the accuracy of its strategy in managing the local and regional Funds.

The year 2009 was a genuine test for the quality of Kuwait Investment funds, which sustained its performance under the Vicissitudes of the markets. The company’s balanced strategy mitigate risk by diversifying investment tools in addition to geographic distribution.

Important Achievements of the Local and Regional Funds for the year 2009

The management of the local and regional funds liquidated more than 90% of the real estate portfolios of the Kuwait Investment Fund - which includes a distinctive type of local real estate properties- at better prices than the evaluation of the end of year 2008.

The cash liquidity was utilized in contribution in selecting a distinctive type of shares for some of the listed Islamic companies which prices had decreased and represented an investment opportunity for achieving profitable revenues when the market performance improves and picks up.

Most of the available cash from liquidation of the portfolio will be allocated for targeting the market in the forthcoming period when the right opportunity presents itself. Parallel to this, the department continued its pursuit for profitable investment opportunities especially that excreted by the financial crisis in the markets and sectors, but through a selective, preemptive and calculated strategy.

THE COMPANY’S ACTIVITY


Performance of Kuwait Investment Fund Kuwait Investment Fund recorded a rate of (-15.77%) as a result of Kuwait Stock Exchange which was affected with the consecutive changes on the economic and political levels.

Performance of Al-Atheer Fund The performance of Al-Atheer Fund was better than most of the funds in the majority of the markets of the Arabic region, as its performance for the year 2009 reached a rate of 10.83% , knowing that Al-Atheer Fund performance was 83.24%. since inception in 2003

The performance of Al-Atheer Fund is attributed to the superior and balanced geographical distribution strategy.

Performance of Al-Raed Investment Fund Al-Raed Investment Fund performance surpassed the indices and closed on a regression of (-9.77%) compared with the index of Kuwait Investment Company which closed on (-9.25%). AlRaed Investment Fund returns amounts to 226.5%. since inception in 2002.

Performance of Al-Hilal Islamic Fund Al-Hilal Islamic Fund performance decreased by (-54.41%) through 2009. The performance was lower than last year, as result of the financial crisis that affected the companies’ and resulted in their inability to settle the liabilities due to the Fund.

The performance of Al-Hilal Islamic Fund was (-38.05%) since inception in 2003.. During the year, the management of the fund successfully concluded a settlement formula by which the fund will recover some of the amounts due from the customers.

Performance of Kuwait Bonds Fund The performance of Kuwait Bonds Fund was affected by the decrease made by the Central Bank on the interest rates through the year 2009, as it reached a rate of (-29.9%). The performance of Kuwait Bonds Fund reached (-7.22%) since inception in 2003.

2. International Funds and Portfolio Management Department Kuwait Investment Company funds, operating in international markets recorded high performance compared to the indices of the respective stock markets and sustained their outstanding performance during last year compared to other peer funds operating in the market

The company’s achievement is attributed to the efforts of the management and the accuracy of its investment strategy and in applying risks minimization policies through geographical diversification, and in investment tools in which the company invests in, and by focusing on investment in emerging markets such as China and India which were the least affected by the financial crisis. Also, these were the fastest to bounce back and the strongest in ascending after the decline of the severe downturn wave and at the beginning of the gradual recovery.

The department also continues to focus on these markets with promising investment opportunities, which they present, while pursuing other profitable investment opportunities especially those affected by global crisis in many markets and sectors through a selective, cautious and calculation strategy. The coming period will witness more improvement associated with reforming movements; technical and regular.

Performance of the International Funds

The Pacific Equities Fund achieved revenue of 61.32 percent in 2009 compared to 21.15 percent for Morgan Stanley Pacific Index for the same period. The KIC Diversified Fund achieved revenue 27.83 percent compared to 27.32 percent for the Morgan Stanley Developed World Index. The North American Equities Fund achieved 25.32 percent, compared with 25.66 percent for the Standard & Poor’s 500 Index, The European Equities Fund achieved 254.55 percent compared to 23.45 percent for Morgan Stanly Pan Euro Index, and the Global Bond Fund achieved 20.47 percent, compared to 2.55 percent for Salomon Brothers World Government Bond Index (Citigroup).


3. Direct Investment and Corporate Finance Division

The Corporate Finance Department The Corporate Finance Department continued its presence in most of the sectors such as; investment, real estate, services, banks and in the industrial sector primarily, in addition to asserting its presence in the GCC and in most of the promising parts of the world, in line with the company’s strategy which implies diversification of investments and distribution of risk through geographic diversification and by participating with international financial establishments and banks; in conventional and Islamic financial facilities-short and medium term- in local currency, American Dollar and other Gulf or International currencies.

The Corporate Finance Department followed the credit laws and policies of the Central Bank of Kuwait simultaneously with close monitoring of the markets; their indices and the factors affecting them, working cautiously to maintain the performance of the company and its capital base in confronting any negative implications of the crisis.

During the year 2009, The Corporate Finance Department executed, the management plans and strategies which included; reinforcing liquidity and working according to a precise plan and schedule for following up on loans and debts due from clients, and establishing modes of settlement and rescheduling of the debts thereof, by enhancing the collaterals and accepting partial collections until the borrower resolves his liquidity concerns. The Corporate Finance Department conducted its work in cooperation with the financial crisis Management team assigned in the company, in line with the general policies and interests of the company while preserving its rights.

Direct Investment DepartmentThe Direct Investment Department was mostly focused on following up on direct investment portfolios of the company or those managed for third parties, including evaluation of the direct investments in different sectors to determine their fair value, in addition to presenting a host of consultation services. The Department also followed up on the projects in which they participated like AL-Joan International Holding Company, a fully owned subsidiary which is specialized in investing in the health care sector.

The Direct Investment Department also continued its efforts in pursuing promising investment opportunities aimed at expanding the volume of the company’s investments which stems from the company’s core strategy to select investment opportunities with minimum risk, through geographic and sector diversification.

4. The Treasury & Trading Division The year 2009 was considered the year of breathtaking for many of the local and international companies and banks. The banks took refuge in increasing their reserves for confronting any negative effects that may take place in the future, as there were indicators of new hope in some markets , represented in the movement of the international markets in light of positive expectations for improvement of the international economy and its recovery.

For the Treasury Department , the year 2009 was an exceptional and distinctive year , as local and international banks increased the volume of facilities given to the company, and the Treasury Department succeeded in passing through the effects of the Global Financial Crisis on liquidity and finance levels; by adopting conservative, calculated and precise policies in managing their budgets, maintain cash flows, financing the company activities and settling all their accrued financial liabilities for others.

THE COMPANY’S ACTIVITY (CONTINUED)


The Treasury Department achievement is attributed to the company’s conservative policy, balanced investment strategy, conscious dealing with risks, commitment to the highest standards of transparency and organizational governance which earned the company its reputation and the trust of its clients and financers from the local and international companies and banks.

The department achieved good profits on the level of foreign exchange processes against the Kuwaiti Dinar in the local and international markets, while increasing the volume of dealings in the market.

The department also made a comprehensive and integrated review of all its policies and mechanisms of work related to risk management to enhance it in a continuous manner, in addition to and because of the conditions of the volatile financial markets, the Department applied a firm and selective methodology on the level of the current and new and current dealings while strictly applying a conservative approach in line with the prevailing culture of the company and its professional policies that proved its effectiveness and feasibility throughout the last years.

5. Business Development DepartmentDuring 2009, the department, closely monitored its current investments in the local and regional markets while concentrating on creating and structuring the promising investment opportunities and contributing in some of the new companies with high investment feasibility, and asset management. Also the company exited from the project “Beirut Gate” which invests its funds in a multi-use real estate project in Beirut central district “Solidere” by the end of December 2009.

Jan06

Aug06

Mar07

Oct07

Jan08

Mar08

May08

Jun08

Aug08

Sep08

Nov08

Jan09

Feb09

Apr09

May09

Jul09

Aug09

Oct09

Dec09

140

130

120

110

100

90

80

70

GBP JYP EUR

Performance of Kuwaiti Dinar

against GBP, EUR and JPY

2006 - 2009


1. Risk Management OfficeManaging risk is an integral part of every function at KIC. The company has an independent Risk Management Office that has the mandate to identify, assess, measure and mitigate all inherent risks. The company use Enterprise Risk Management (“ERM”) framework for managing risks across the enterprise. ERM provides a uniform approach for KIC to detect, evaluate, control and take the necessary precautionary measurements that reduce risks.

The Risk Management Office tracks key risks on an on-going basis. Risks in new endeavors/projects are reviewed with a view to establish risk management & control process that is independent. Existing exposure are continuously measured, monitored and reported through various Risk Reports which in turn establishes that the risks remain within the boundaries defined.

During 2009 Risk Management Office provided the Chairman and CEO and the Risk Management Committee with periodic risk review and analysis thus facilitating senior management discussions on issues like new risks, increasing/ decreasing trends of key risk, early warning signals etc.

2. Anti-Money Laundering and Combating Financial Terrorism and Compliance Office The company is committed in all its work and investments by applying the entire local and international laws, regulations, systems, instructions, standards and practices that are issued by the legislative authorities. Kuwait Investment Company also applies highly developed systems for corporate governance which have earned the company its local, regional and international distinction, trust and respect.

During the year 2009, the anti Money Laundering Office monitored and followed up the financial transactions that were made inside the company ensuring that they comply with the local and international regulations and laws related to anti money laundering. It also participated in the application of the policies and procedures that were issued including instructions from the Central Bank of Kuwait and the application of certain programs to detect any illicit activities and notify it thereof.

3. Training and Development Office The company management is committed to the training and development of the national human resources with certified programs in the fields of finance and business in line with company strategy to invest in its human capital by enhancing the performance of the employees.

The Training and Development Office in Kuwait Investment Company continued its training activities in the company through 2009 with some internal and external training courses and programs with a number of lectures and seminars that were carefully selected to enhance the efficiency and performance of the employees, such as the program of Certified Investment Management (CIM) , and the program of anti- money laundering and terrorism financing.

ACTIVITIES OF OTHER DEPARTMENTS


4. Sustaining National ManpowerThe company continued in its commitment with its development and social role providing job opportunities to national efficient personnel despite all the pressures borne by the investment sector in Kuwait through the year 2009. In addition to holding a number of summer training courses that applied interactive method among the students of the university and the applied institutes that aim at preparing the youths for career jobs activities and encouraging them to work and improve their productivity.

5. Marketing Office The Marketing Office in the company continued its efforts to strengthen the distinctive status of the company, fostering relationships with the clients including banks , companies and individuals through regular visits, providing reports on the new occurrences of the market , performance of the funds and the projects on a regular basis, in line with the company’s strategy to maintain the highest standards of transparency.

The Marketing Office succeeded in responding to all the customers’ inquiries and in fulfillment of their investment needs with high efficiency and reliability that positively contributed to reassurance of the clients on the performance of their projects and funds. Also, their efforts helped in supporting the bridges of communication and trust.

With regards to the quality of service, which have long reinforced the image of Kuwait Investment Company and its uniqueness, the company throughout the year, maintained its leading status by providing unmatched superior quality services to its clients.

The Marketing Office collected and arranged the data of the clients, by updating and applying the new dynamic program for customer data preservation to guarantee speed of access and reliability of service in total conformity with the highest standards of confidentiality safety and efficiency since its application.

The Marketing Department throughout the year, attended, investment exhibitions and conferences to market company products to expand its client base , and effectively was present in the heart of the finance and investment markets in search for new distinctive investment opportunities in different sectors.

The supporting departments of the company also had their active role through the year 2009; as they continued in exerting their efforts for rooting strong relationships with the company clients. They continued their performance of their duties to fulfill and support company divisions, enhancing the channels of internal communication to enhance work environment with the efficiency and productivity that have always assisted in reinforcing the leading position of Kuwait Investment Company in the world of finance and Investment and proved its uniqueness with competitive qualities since 1961.

KUWAIT INVESTMENT COMPANY S.A.K. AND SUbSIDIArIES

CONSOlIDATED FINANCIAl STATEMENTS AND INDEPENDENT AUDITOrS’ rEPOrT FOr THE

YEAr ENDED 31 DECEMbEr 2009


REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

We have audited the accompanying consolidated financial statements of Kuwait Investment Company S.A.K. (“the Parent Company”) and its subsidiaries (together referred to as “the Group”) which comprise the consolidated statement of financial position as at 31 December 2009, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

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 as adopted in the State of Kuwait. 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 financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 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 2009, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted in the State of Kuwait.

REPORT ON OTHER LEGAL AND REGULATORY REqUIREMENTS

We further report that we have obtained the information and explanations that we required for the purpose of our audit and the consolidated financial statements include the information required by the Kuwait Commercial Companies Law of 1960, as amended, and the Parent Company’s articles and memorandum of association. In our opinion, proper books of account have been kept by the Parent Company, an inventory count was carried out in accordance with recognized procedures and the accounting information given in the board of directors’ report agrees with the books of account.

We have not become aware of any contravention, during the year ended 31 December 2009, of the Kuwait Commercial Companies Law of 1960, as amended, or of the Parent Company’s articles and memorandum of association, or of Law No. 32 of 1968, as amended, concerning currency, the Central Bank of Kuwait and the organization of banking business and its related regulations, that would materially affect the Group’s activities or its financial position.

qais M. Al-Nisf License No. 38-A Moore Stephens Al Nisf & PartnersMember of Moore Stephens International

Safi A. Al MutawaLicense No. 138 “A” of KPMG Safi Al-Mutawa & PartnersMember firm of KPMG International

Kuwait: 9 March 2010

INDEPENDENT AUDITORS’ REPORT

To the shareholders ofKuwait Investment Company (S.A.K.) - Kuwait


2009 2008

Notes KD KD

ASSETS

Cash - current and call accounts 10,767,065 4,187,673

Placements 17,309,324 9,731,621

Loans and advances 5 16,491,852 28,198,276

Available for sale investments 6 215,531,489 243,972,156

Investment in associates 7 3,302,266 3,191,883

Investment property 8 2,407,138 2,312,547

Other assets 9 9,204,362 8,419,995

Total assets 275,013,496 300,014,151

LIABILITIES AND EqUITY

Liabilities

Call and notice accounts 2,479,471 3,317,501

Deposits from banks 74,639,503 55,633,080

Deposits from others 63,540,451 91,828,472

Accrued interest payable 697,618 1,705,364

Dividend payable 529,506 576,316

Accruals and other liabilities 10 19,406,139 15,635,793

Total liabilities 161,292,688 168,696,526

Equity

Share capital 11 55,125,000 55,125,000

Treasury shares 12 (587,845) (587,845)

Statutory reserve 13 24,930,185 24,930,185

General reserve 14 24,930,185 24,930,185

(Accumulated losses) / retained earnings (13,401,619) 137,031

Fair value reserve 16,592,675 21,924,727

Foreign currency translation reserve 37,096 (42,134)

Equity attributable to Owners of the Parent Company 107,625,677 126,417,149Minority interest 6,095,131 4,900,476

Total equity 113,720,808 131,317,625

Total liabilities and equity 275,013,496 300,014,151

Bader Nasser Al-Subaiee Chairman and Managing Director

Meshari Zaid Al Khaled Deputy Chairman

Fawaz Sulaiman Al AhmadGeneral Manager

The notes on pages 35 to 70 form an integral part of these consolidated financial statements.

Consolidated Statement of Financial Position

Kuwait Investment Company S.A.K. and Subsidiaries

As at 31 December 2009


Consolidated Statement of Income


For the year ended 31 December 2009

2009 2008

Notes KD KD

Income / (loss)

Interest income 2,976,477 5,172,723

Dividend and other investment income 6,680,040 12,699,179

Commissions 7,444,537 6,942,339

Income from property rental and exhibitions (net) 15 3,930,145 3,970,730

Realised gain from sale of investments at fair value through statement of income - 2,318,752Unrealised loss from investments at fair value through statement of income - (3,957,829)

Gain on sale of available for sale investments 1,017,765 160,334

Gain on sale of investment property - 615,247

Impairment loss on available for sale investments 6 (19,378,561) (40,406,683)

Foreign exchange gain / (loss) 1,436,915 (467,028)

Allowance charged for credit losses 16 (2,020,221) (13,262,264)

Share of results of unconsolidated subsidiaries and associates 219,229 278,043

Total income / (loss) 2,306,326 (25,936,457)

Expenses and charges

Interest expense (4,135,126) (7,049,109)

General and administrative expenses 17 (10,882,226) (7,499,429)

Depreciation and amortisation (620,941) (1,116,281)

Total expenses and charges (15,638,293) (15,664,819)

Loss from operations (13,331,967) (41,601,276)

Other income 261,869 95,818

Loss for the year before Board of Directors Remuneration (13,070,098) (41,505,458)

Board of Directors Remuneration (8,000) -

Loss for the year (13,078,098) (41,505,458)

Attributable to:

Owners of the Parent Company (13,538,650) (42,089,003)

Minority interest 460,552 583,545

(13,078,098) (41,505,458)

Loss per share (Basic and diluted) (fils) 18 (24.65) (76.43)



Consolidated Statement of Comprehensive Income



2009 2008

Note KD KD

Loss for the year (13,078,098) (41,505,458)

Other comprehensive income / (loss)

Foreign currency translation adjustments relating to subsidiaries 79,230 70,157

Unrealized loss on available for sale investments (24,688,392) (47,440,434)

Impairment loss on available for sale investments 6 19,378,561 40,406,683

Other comprehensive loss (5,230,601) (6,963,594)

Total comprehensive loss for the year (18,308,699) (48,469,052)

Total comprehensive income/(loss) attributable to:Owners of the Parent Company (18,791,472) (48,618,410)

Minority interest 482,773 149,358

(18,308,699) (48,469,052)






2009 2008

KD KD

OPERATING ACTIVITIES

Loss for the year before Board of Directors Remuneration (13,070,098) (41,505,458)

Adjustments for:

Interest expense 4,135,126 7,049,109

Depreciation and amortization 620,941 1,116,281

Allowance charged for credit losses 2,020,221 13,262,264

Realised gain from sale of investments at fair value through statement of income -

(2,318,752)

Unrealised loss on investments at fair value through statement of income - 3,957,829

Gain on sale of available for sale investments (1,017,765) (160,334)

Gain on sale of investment property - (615,247)

Impairment loss on available for sale investments 19,378,561 40,406,683

Share of results from unconsolidated subsidiaries and associates (219,229) (278,043)

Interest income (2,976,477) (5,172,723)

Dividend and other investment income (6,680,040) (12,699,179)

2,191,240 3,042,430

Decrease in placements (10,672,124) (100,000)

Increase in investments at fair value through statement of income - (4,382,252)

Decrease / (increase) in loans and advances 9,686,203 (6,776,150)

(Increase) / decrease in other assets (1,274,128) 7,124,340

Increase / (decrease) in deposits from banks and others 69,586,196 (5,786,356)

Increase / (decrease) in accruals and other liabilities 3,762,346 (11,660,198)

Net cash from / (used in) operating activities 73,279,733 (18,538,186)

INVESTING ACTIVITIES

Proceeds from sale of investment property - 1,183,905

Additions to investment property (439,790) (367,703)

Proceeds from sale of available for sale investments 12,319,162 6,359,999

Purchase of available for sale investments (7,510,917) (24,707,436)

Dividends received 6,725,269 13,203,620

Interest received 3,215,908 5,296,274

Interest paid (5,142,872) (6,431,691)

Net cash from / (used in) investing activities 9,166,760 (5,463,032)

(continued)





2009 2008

Notes KD KD

FINANCING ACTIVITIES

Purchase of treasury shares - (586,170)

Dividends paid (46,810) (18,426,868)

Change in minority interest 711,882 (105,968)

Net cash from / (used in) financing activities 665,072 (19,119,006)

Effect of foreign currency translation adjustments 79,230 70,157

Net increase / (decrease) in cash and cash equivalents 83,190,795 (43,050,067)Cash and cash equivalents at beginning ofthe year (98,418,515) (55,368,448)

Cash and cash equivalents at end of the year 19 (15,227,720) (98,418,515)

NON CASH TRANSACTIONS

INVESTING ACTIVITIES

Acquisition of a subsidiary 21 475,000 -Reclassification of investments at fair value through statement of income to available for sale investments 6

-

(134,420,435)



Sh

are cap

ital

Treasu

ry sh

ares

Statu

tory

reserve

G

eneral

reserve

(A

ccum

ulated

lo

sses) / retain

ed

earnin

gs

Fair valu

e reserve

Foreig

n

curren

cy tran

slation

reserve

Total eq

uity

attribu

table to

O

wn

erso

f the Paren

t C

om

pan

y

M

ino

rity in

terest

To

tal eq

uity

KD

KD

KD

KD

KD

KD

KD

KD

KD

KD

Balan

ce at 31 D

ecemb

er 200752,500,000

(1,675)24,930,185

24,930,18563,225,821

28,524,291(112,291)

193,996,5164,857,086

198,853,602To

tal com

preh

ensive (lo

ss) / in

com

e for th

e year-

--

-(42,089,003)

(6,599,564)70,157

(48,618,410)149,358

(48,469,052)C

ash d

ividen

ds

--

--

(18,374,787)-

-(18,374,787)

-(18,374,787)

Bo

nu

s shares

2,625,000-

--

(2,625,000)-

--

--

Treasury sh

ares-

(586,170)-

--

--

(586,170)-

(586,170)

Ch

ang

e in m

ino

rity in

terest-

--

--

--

-(105,968)

(105,968)B

alance at

31 Decem

ber 2008

55,125,000(587,845)

24,930,18524,930,185

137,03121,924,727

(42,134)126,417,149

4,900,476131,317,625

Total co

mp

rehen

sive (loss)

/ inco

me fo

r the year

--

--

(13,538,650)(5,332,052)

79,230(18,791,472)

482,773(18,308,699)

Ch

ang

e in m

ino

rity in

terest-

--

--

--

-711,882

711,882B

alance at

31 Decem

ber 2009

55,125,000(587,845)

24,930,18524,930,185

(13,401,619)16,592,675

37,096107,625,677

6,095,131113,720,808

Co

nso

lidated

Statemen

t of C

han

ges in

Equ

ity

Ku

wait In

vestmen

t Co

mp

any S.A

.K. an

d Su

bsid

iaries

For th

e year end

ed 31 D

ecemb

er 2009

The n

otes o

n p

ages 35 to

70 form

an in

tegral p

art of th

ese con

solid

ated fi

nan

cial statemen

ts.


1. GENERAL INFORMATIONKuwait Investment Company S.A.K. (“the Parent Company”) is a public shareholding investment company incorporated under the laws of the State of Kuwait by virtue of memorandum of association No.29 on 25 November, 1961 and registered in the commercial registry under No.4340 on 22 May 1962. Its registered office is at Souk Al Manakh, Mubarak Al Kabeer Street, Kuwait and its mailing address is P.O. Box 1005, Safat-13011, State of Kuwait. The Parent Company’s major shareholder is Kuwait Investment Authority.

The Parent Company and its subsidiaries (together referred to as “the Group”) are primarily engaged in the following activities:

Security trading and investment

Real estate investment

Property rental and management

Underwriting bonds and certificate of deposit issues

Time deposit acceptance and placement with financial institutions

Foreign exchange contracts

Holding international, regional and local exhibitions

Portfolio management for clients

Maritime transport

These consolidated financial statements of the Group for the year ended 31 December 2009 were authorized for issue in accordance with a resolution of the Board of Directors on 9 March 2010. The shareholders’ general assembly has the power to amend these consolidated financial statements after issuance.

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

2.1 Standards and Interpretations adopted by the Group

The following new and revised Standards and Interpretations have been adopted by the Group for the annual period beginning 1 January 2009:

IAS 1 (revised) ‘Presentation of Financial Statements’ - effective 1 January 2009. The revised standard has introduced terminology changes (including revised titles for the financial statements) and changes in the format and content of the financial statements. The Group has elected to present the ‘Statement of comprehensive income’ in two statements: the ‘Statement of Income’ and a ‘Statement of comprehensive income’. The revised standard requires changes in equity arising from transactions with owners in their capacity as owners (i.e.owner changes in income) to be presented in the statement of changes in equity. All other changes in equity (i.e. non-owner changes in equity) are required to be presented separately in the statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on the reported results or financial position of the Group.

Notes to the Consolidated Financial StatementsFor the year ended 31 December 2009



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

2.1 Standards and Interpretations adopted by the Group (continued)

IFRS 7 ‘Financial Instruments - Disclosures’ (amendment) – effective 1 January 2009 . The amendment requires enhanced disclosures about fair value measurement and liquidity risk. Measurements related to items at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial instruments. The amended standard also requires disclosing a reconciliation between the beginning and ending balance for level 3 fair value measurements, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments. As the change in accounting policy only results in additional disclosures, there is no impact on the results of the Group.

IFRS 8 ‘Operating Segments’- effective 1 January 2009. The new standard which replaced IAS 14 ‘Segment Reporting’ requires a management approach for segment reporting under which segment information is presented on the same basis as that used for internal reporting purposes. This has not resulted in any change in the Group’s reportable segments and had no impact on the reported results or financial position of the Group.

IAS 40 (revised 2008) ‘Investment Property’- effective 1 January 2009. The revised standard has included within its scope investment property in the course of construction. The revised standard had no impact on the previously or currently reported results of the Group.

IAS 23 ‘Borrowing Costs’ (Revised 2007) – effective 1 January 2009. The revised standard requires the capitalisation of borrowing costs to the extent they are directly attributable to the acquisition, production or construction of qualifying assets that need a substantial period of time to get ready for their intended use or sale. The adoption of the revised standard had no impact on the financial position or the reported results of the Group.





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

2.2 Standards and Interpretations in issue not yet effectiveIAS 27 (revised), ‘Consolidated and Separate Financial Statements’

Effective for annual periods beginning on or after 1 July 2009

IAS 39 (revised), ‘Financial Instruments: Recognition and Measurement’

Effective for annual periods beginning on or after 1 July 2009 and later

IFRS 3 (revised), ‘Business Combinations’ Effective for annual periods beginning on or after 1 July 2009

IFRS 5 (revised), ‘Non-current Assets Held for Sale and Discontinued Operation’


IAS 1 (amendment), Presentation of financial statements


IFRIC 17 ‘Distributions of Non-cash Assets to Owners’


IFRIC 18, ‘Transfers of Assets from Customers’ Effective for annual periods beginning on or after 1 July 2009

IAS 24 (amendment), ‘Related Party Transactions’

Effective for annual periods beginning on or after 1 January 2011

IFRS 9 ‘Financial Instruments’ Effective for annual periods beginning on or after 1 January 2013

Annual improvements 2009 Effective for annual periods beginning on or after 1 July 2009 and later

The directors anticipate that the adoption of these Standards, amendments and interpretations in future periods will have no material financial impact on the consolidated financial statements of the Group in the period of initial application. The Group is considering the timing and implication of adopting IFRS 9 on its financial position.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparationThese consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board (“IASB”), and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB, as modified for use by the Government of Kuwait for financial services institutions regulated by the Central Bank of Kuwait. These regulations require adoption of all IFRSs except for the IAS 39 requirement for collective impairment provision, which has been replaced by the Central Bank of Kuwait requirement for a minimum general provision of 1% for cash facilities and 0.5% for non-cash facilities. These rates are applied effective from 1 January 2007 on the net increase in facilities net of certain restricted categories of collateral, during the reporting period.

These consolidated financial statements are presented in Kuwaiti Dinars (“KD”) and are prepared under the historical cost convention, except for investments at fair value through statement of income and available for sale investments that are stated at fair value.

The consolidated financial statements comprise the Parent Company and its subsidiaries. (refer to note 21).





3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation

Subsidiaries are all entities over which the Parent Company has the power to control the financial and operating policies. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. Equity and net income attributable to minority interests are shown separately in the consolidated statement of financial position, consolidated statement of income and consolidated statement of comprehensive income, respectively. Intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated on consolidation. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. The minority interests are measured by the proportion of the pre-acquisition carrying amounts of the identifiable assets and liabilities of the subsidiaries.

Financial assets

Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through statement of income, which are initially measured at fair value.

Financial assets are classified into the following specified categories: ‘cash and cash equivalents’, ‘investments at fair value through statement of income’, ‘available for sale investments’ and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest rate method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, bank current and call accounts and placements with an original maturity of three months or less net of call and notice accounts and deposits from banks and others maturing within three months or less.

Investments at fair value through statement of income (“FVTSI”)

Investments are classified as at FVTSI where the financial asset is either held for trading or it is designated as at FVTSI.

A financial asset is classified as held for trading if: (i) it has been acquired principally for the purpose of selling in the near future; or (ii) it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or (iii) it is a derivative that is not designated and effective as a hedging instrument.






Financial assets (continued)

Investments at fair value through statement of income (“FVTSI”) (continued)

A financial asset other than a financial asset held for trading may be designated as at FVTSI upon initial recognition if: (i) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or (ii) the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group›s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or (iii) it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTSI.

Financial assets at FVTSI are stated at fair value, with any resultant gain or loss recognised in the consolidated statement of income. The net gain or loss recognised in the consolidated statement of income incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in note 24.

Available for sale investments (AFS)

The Group’s investments in equity securities are classified as available for sale investments and are stated at fair value. Fair value is determined in the manner described in note 24. Gains and losses arising from changes in fair value are recognised in other comprehensive income and reported within fair value reserve in equity with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in the consolidated statement of income. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from the equity reserve to consolidated statement of income and presented as a reclassification adjustment within other comprehensive income.

Placements

Placements are stated at amortized cost less any provision for impairment

Loans and advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than the one classified as ‘held for trading’ or ‘available for sale’. Loans and advances are carried at amortized cost less any provision for impairment. Third party expenses such as legal fees, incurred in granting a loan are treated as part of the cost of the transaction. All loans and advances are recognized when cash is advanced to borrowers.

Loans and advances are written off when there is no realistic prospect of recovery.






Financial assets (continued)

Impairment of financial assets

Financial assets, other than those at FVTSI, are assessed for indicators of impairment at each consolidated statement of financial position date. Financial assets are 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 investment have been impacted.

For unlisted shares classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For receivables and loans and advances, objective evidence of impairment could include: (i) significant financial difficulty of the issuer or counterparty; or (ii) default or delinquency in interest or principal payments; or (iii) it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as loans and advances, trade receivables, assets 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 past the average credit period of 90 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of receivables and loans and advances, where the carrying amount is reduced through the use of an allowance account.

When a loan or receivable is considered uncollectible, 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 the consolidated statement of income.

When an AFS investment is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to consolidated statement of income in the period.

With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the consolidated statement of income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of AFS equity securities, impairment losses previously recognised through the consolidated statement of income are not reversed through the consolidated statement of income. Any increase in fair value subsequent to an impairment loss is recognised directly in other comprehensive income.





3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial assets (Continued)

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities and equity instruments issued by the Group

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Call and notice accounts and customers’ deposits

Call and notice accounts and customers’ deposits are stated at amortized cost.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of income over the period of the borrowings using the effective interest method.

Investment 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 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, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments.





3. SIGNIFICANT ACCOUNTING POLICIES (Continued)Investments in associates (continued)

Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) 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.

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 recognised immediately in the consolidated statement of income.

Where a Group transacts with its associate, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Investment property

Investment property comprises undeveloped land and buildings erected on leased land. Undeveloped land and buildings erected on leased land are initially stated at cost and buildings erected on leased land are depreciated using the straight-line method over the lease period. Undeveloped land is not depreciated. The carrying amounts are reviewed at each consolidated statement of financial position date to assess whether they are stated in excess of their recoverable amounts, and where carrying values exceed their recoverable amount, assets are written down to their recoverable amount.

Impairment of tangible and intangible assets

At each consolidated statement of financial position 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.

The 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.

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.

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.






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 consolidated statement of financial position 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.

Provision for employees’ end of service indemnityProvision is made for amounts payable to employees under the Kuwait Labour Law and employee contracts. This liability, which is unfunded, represents the amount payable to all employees as a result of involuntary termination on the consolidated statement of financial position date, and approximates the present value of the final obligation.

Treasury sharesTreasury shares consist of the Parent Company’s own shares that have been issued, subsequently reacquired by the Parent Company and not yet reissued or cancelled. The treasury shares are accounted for using the cost method. Under the cost method, the weighted average cost of the shares reacquired is charged to a contra equity account. When the treasury shares are reissued, gains are credited to a separate account in equity (gain on sale of treasury shares) 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 then 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 the gain on sale of treasury shares 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.

Revenue recognitionInterest income is recognized on accrual basis by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immediate. Dividends are recognized in the consolidated statement of income when the shareholders’ right to receive payment has been established. Management fees relating to portfolios and fund management are recognized on accrual basis. Revenue from property rental and management services are recognized on accrual basis. Gain on sale of investments is measured by the difference between the sale proceeds and the carrying amount of the investment at the date of disposal, and is recognized at the time of sale.





3. SIGNIFICANT ACCOUNTING POLICIES (Continued)Fiduciary assetsAssets held in trust or in a fiduciary capacity are not treated as assets of the Group and, accordingly, are not included in these consolidated financial statements.

Foreign currencies

The functional currency of the Group is KD. Transactions denominated in foreign currencies are translated into KD at rates of exchange prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are retranslated into KD at rates of exchange prevailing at the consolidated statement of financial position date. The resultant exchange differences are included in the consolidated statement of income.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each consolidated statement of financial position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the consolidated statement of financial position date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at 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 are recognised in the consolidated statement of income in the period in which they arise except for:

exchange differences which relate to assets under construction for future productive use, which are included in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings;

exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in the consolidated statement of income on disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in KD using exchange rates prevailing at the consolidated statement of financial position date, income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period in which case the exchange rates at the dates of the transactions are used.

Exchange differences arising, if any, are charged / credited to other comprehensive income and recognised in the Group’s foreign currency translation reserve in equity. On disposal of a foreign operation the exchange differences recognised in equity are reclassified to consolidated statement of income and recognised as part of the gain or loss on disposal.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated into KD at the closing rate.






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.

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 contributions to KFAS are recognized as an expense in the period during which the Group’s contribution is legally required.

National Labour Support Tex

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

Zakat

Effective 10 December 2007, the Group has provided for Zakat in accordance with the requirements of Law No. 46 of 2006.





4. CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTYIn the application of the Group’s accounting policies, which are described in note 3, 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.

Critical judgements in applying accounting policies

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the consolidated financial statements:

Impairment of investments

The Group treats the 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 judgement. In 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.

Key sources of estimation uncertainty

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

Valuation of unquoted equity investments

Valuation of unquoted equity investments is normally based on one of the following:

recent arm’s length market transactions;

current fair value of another instrument that is substantially the same;

the expected cash flows discounted at current rates applicable for items with similar term

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