salalah port services company saog unaudited consolidated … · the company provides a lot of...

SALALAH PORT SERVICES COMPANY SAOG Unaudited Consolidated financial statements

31 March 2010 Registered office and principal place of business: PO Box 369, Postal Code 211 Salalah Sultanate of Oman C.R No. 2127814

2SALALAH PORT SERVICES COMPANY SAOG Unaudited Consolidated financial statements 31 March 2010 Contents Page Directors Report 3-5 Unaudited Consolidated statement of comprehensive income 6 Unaudited Consolidated statement of financial position 7 Unaudited Consolidated s tatement of changes in equity 8 Unaudited Consolidated statement of c ash flow s 9 Notes 10-36 Schedules to the Unaudited Consolidated financial statements 37-40

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Directors’ Report On behalf of the Board of Directors, I am pleased to present the Unaudited consolidated financial results of Salalah Port Services Co. (SAOG) and its subsidiary for the three months ended 31 March 2010. It is a pleasure to inform you all that Port of Salalah was among Top 30 ports based on volumes handled during 2009, the first time in its history as per a report released by Container International recently. This is a testimony to the fact that Port of Salalah has proven to be a strategic transhipment port within the middle-east region for our customers. Industry news: Containerized volumes on all the major east-west trades experienced double digit declines in 2009, delivery of a large number of new vessels from the world’s shipyards occurred simultaneously providing over capacity and leading to shipping lines having to take measures such as cutting strings, laying up vessels and adoption of slow steaming to reduce fuel consumption. Recovery in container volumes is slow but positive and based on figures for the final quarter of 2009 and first quarter of 2010 experts have upgraded their forecasts for global container traffic growth in 2010 from 3.4% to 5.4 %. We foresee that shipping lines financial problems will cause them to put significant pressure on terminal operators to reduce rates and not pass on inflationary cost increases. Conditions should induce carriers to continue to consolidate strings where feasible in order to deploy their new and existing tonnage in a manner that will not increase overall capacity, thus maintaini ng existing utilization rates, while lowering unit cost levels. Business Review: Container terminal recorded a throughput of K TEUs during the quarter, a growth of 15% over Q1 2009 . The main drivers of the growth in volumes were accommodation of a new customer, CMA CGM during the last quarter of 2009 along with service re-alignments and increase in services by existing customers. Productivity on the container terminal increased to 31.9 GMPH in Q1 2010 from 25.7 GMPH in Q1 2009. The increase was a result of continued improvements in operational efficiencies. During Jan 2010, the company recorded its highest ever monthly productivity of 34.2 GMPH.

In order for Port of Salalah to best capitalize on near term opportunities that could arise from shipping lines deploying new and larger Post-Panamax vessels we will have to exploit our strengths such as location and superior infrastructure and mitigate our weaknesses such as lack of import/export trade and negative effects of Somalia piracy by targeting new shipping lines who are looking to take advantage of their new larger vessels by finding a safe regional hub that offers network advantages, has available capacity, high productivity and tangible cost savings.

General Cargo Terminal recorded a throughput of 1.1 million tonnes during the quarter, a significant growth of 51% as compared to Q1 2009. Increase in dry bulk volumes contributed to the increase. The general cargo terminal would continue to play a dominant role in the economic development of the Dhofar region by providing and facilitating the export of commodities such as limestone, gypsum etc.

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General Cargo Terminal Tonnes

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4 Safety and Environment: The company provides a lot of impetus on making the Port a safe place to work for employees, contractors etc., and with respect to which the company organised various events such as lasher awareness, implementation of unsafe acts reports, safety induction course during the 1s t quarter . Further, the management is extremely concerned with the issue of climate change and are committed to being faithful and responsible stewards of the environment. The company will look for both technical and human improvements to reduce our CO2 emissions. Port of Salalah is committed to playing an important role in the environmental performance improvements that are so urgently needed to ensure the future of our planet and our children and w e look forward to the challenges ahead as an integral part of our Corporate Social Responsibility strategy. Financial highlights: Consolidated Revenues for Q1 2010 were RO 12.87 million as against our Q1 2009 revenue of RO 10.76 million. Container Terminal and the General Cargo Terminal registered a growth of 17.1% and 37.7% respectively over Q1 2009. Direct operating costs remained almost at similar levels of Q1 2009 due to optimization of cost structure. The manpower costs decreased by 3% as compared to the Q1 2009 due to initiatives taken to reduce manpower during 2nd quarter 2009 thereby bringing an optimal manning structure based on volume trends. Operating depreciation in Q1 2010 increased by 23% due to addition of 4 Quay Cranes and other ancillary equipments and reduction of expected useful life of marine equipments. However other components under direct operating costs reduced by 15% due to the cost saving initiatives pioneered by the management starting 2nd quarter 2009. Other operating costs increased by 65% over Q1 2009 due to higher concession costs. Other income includes extraordinary income of USD 2.6 million received from APM terminals towards compensation in lieu of right to purchase the shares in Aqaba container terminal. General and administration costs were lower by 4% as compared to Q1 2009 due to several cost reduction initiatives implemented at the terminal. Financing costs increased by 44% over Q1 2009 due to increased drawdown of term loans to pay capital commitments on procurement of quay cranes, RTGs, tractors and trailers etc. during 2009. No additional draw downs were made during the Q1 2010. Consolidated ne t profit for Q1 2010 was recorded at RO 1.92 million as compared to RO 290 K for Q1 2009. Year 2009 1 January 2010

to 31 March 2010

1 January 2009 to

31 March 2009 Volume’000

3,493 Container Terminal – TEU 906 791 3,722 General Cargo Terminal – Tonnes 1,100 728

47,680 Revenue’000 12,870 10,761

26.6 Gross Productivity - Moves per hour 31.6 25.7

Profitability 5,281 Net Profit before tax (RO’000) 2,199 357 4,535 Net Profit after tax (RO’000) 1,942 300

Ratios 10% Net profit margin 15% 3% 0.025 Earnings per share (RO) 0.011 0.002 0.221 Book value per share (RO) 0.214 0.187

5 Developments and outlook: The recovery in world container trade is expected to further boost volumes and the management expects to handle 4.2 million TEUs during 2010. General cargo terminal business is expected to continue doing well with the developments at the Salalah Free zone. Management’s top priorities for the year will be to take costs out and drive performance to ensure we provide sustainable returns to our shareholders in the long term. ___________________________ Abdul Aziz Ali Shanfari Chairman

6SALALAH PORT SERVICES COMPANY SAOG Unaudited Consolidated statement of comprehensive income for the year ended 31 March 2010

2009 Mar - 10 Mar - 09RO’000 Notes RO’000 RO’000

47,680 Revenue 28 12,870 10,761

(28,572) Direct operating costs 5 (7,237) (7,180)

(5,741) Other operating expenses 6 (2,347) (1,425)

(5,401) Administration and general expenses 7 (1,349) (1,410)

169 Other income 8 1,137 217

8,135 Profit from operations 3,074 963

(2,854) Finance costs 9 (875) (606)

5,281 Profit for the year before tax 2,199 357

(746) Income tax 25 (257) (57)

4,535 Profit for the year 1,942 300

Other comprehensive income - Revaluation of investments 13 - -

1,238 Net movement in cash flow hedges (1,333) (612)

1,238 Other comprehensive income for the year, net of tax

(1,333) (612)

5,773 Total comprehensive income for the year, net of tax

609 (312)

Profit attributable to :4,527 Equity holders of the parent 1,939 292

8 Non-controlling interests 3 8

Total comprehensive income attributable to :5,765 Equity holders of the parent 606 (320)

8 Non-controlling interests 3 8

0.025 Basic earnings per share ( RO ) 19 0.011 0.002

The attached notes 7 to 37 form part of these Unaudited consolidated financial statements. The parent company statement of comprehensive income is presented as a separate schedule to the financial statements.

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SALALAH PORT SERVICES COMPANY SAOG Unaudited Consolidated statement of financial position

as at 31 March 2010 2009 Mar - 10 Mar - 09

RO’000 Notes RO’000 RO’000 ASSETSNon Current Assets

117,728 Property and equipment 11 116,896 107,044 272 Intangible assets 12 269 283 160 Available for sale investments 13 160 160

118,160 117,325 107,487

Current Assets 2,785 Inventories 14 2,771 2,912 8,252 Trade and other receivables 15 8,357 2,617 1,955 Cash and cash equivalents 16 525 5,726 4,000 Term deposits 17 4,000 3,845

16,992 15,653 15,100

135,152 TOTAL ASSETS 132,978 122,587

EQUITY 17,984 Share capital 18 17,984 17,984 2,949 Share premium 18 2,949 2,949 3,564 Legal reserve 18 3,564 3,114 (2,009) Hedging deficit 26 (3,342) (3,859) 60 Revaluation surplus 60 60 17,163 Retained earnings 17,304 13,384

39,711 Equity attributable to equity holders of the parent company

38,519 33,632

40 Non controlling interests 18 43 34

39,751 TOTAL EQUITY 38,562 33,666

LIABILITIESNon Current Liabilities

70,291 Loans and borrowings 22 70,291 64,260 4,404 Deferred tax 25 4,661 3,832 1,076 Employees’ end of service benefits 23 1,076 918 222 Derivative financial instruments 26 1,498 3,304

75,993 77,526 72,314

Current Liabilities 13,183 Trade and other payables 24 10,608 11,903 4,438 Loans and borrowings 22 4,438 4,149 1,787 Derivative financial instruments 26 1,844 555

19,408 16,890 16,607

95,401 TOTAL LIABILITIES 94,416 88,921

135,152 TOTAL EQUITY AND LIABILITIES 132,978 122,587

0.221 Net assets per share (RO ) 21 0.214 0.187

The attached notes 7 to 37 form part of these Unaudited consolidated financial statements. The parent company statement of financial position is presented as a separate schedule to the financial statements. ____________________ ____________________ ____________________ Chairman Chief Executive Officer Chief Financial Officer

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SALALAH PORT SERVICES COMPANY SAOG

Unaudited consolidated statement of changes in equity for the year ended 31 March 2010

Share Share Legal Hedging Revaluation Retained Non -

capital premium reserve surplus / (deficit)

surplus earnings Controlling interests

Total

RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000

1 January 2009 17,984 2,949 3,114 (3,247) 60 13,086 32 33,978 Net profit for the year - - - - - 4,527 8 4,535 Other comprehensive income - - - 1,238 - - - 1,238

Total comprehensive income 17,984 2,949 3,114 (2,009) 60 17,613 40 39,751 Dividend paid - - - - - - - - Transfer - - 450 - - (450) - -

1 January 2010 17,984 2,949 3,564 (2,009) 60 17,163 40 39,751 Net profit for the year - - - - - 1,939 3 1,942 Other comprehensive income - - - (1,333) - - - (1,333)

Total comprehensive income 17,984 2,949 3,564 (3,342) 60 19,102 43 40,360 Dividend paid (1,798)Transfer - - - - - - - -

31 March 2010 17,984 2,949 3,564 (3,342) 60 17,304 43 38,562

Attributable to equity shareholders of the parent

The attached notes 7 to 37 form part of these Unaudited consolidated financial statements. The parent company statement of changes in equity is presented as a separate schedule to the financial statements.

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SALALAH PORT SERVICES COMPANY SAOG Unaudited consolidated statement of cash flows

for the year ended 31 March 2010

2009 Mar - 10 Mar - 09 RO’000 RO’000 RO’000

Operating activities 5,281 Profit for the year before tax 2,199 357

Adjustments for: 8,338 Depreciation and amortisation 2,254 1,808 313 Accrual for employees’ end of service benefits - 92 1,341 Loss/(Gain) on sale of equipment 3 -

(215) Interest income (55) (58) 2,802 Interest expense 869 588

17,860 Operating profit before working capital changes 5,270 2,787 (537) Change in inventories 14 (664) (6,139) Change in receivables (105) (504) 1,317 Change in payables (2,575) 154 (76) Employees’ end of service benefits paid (16) (14)

12,425 Net cash from operating activities 2,588 1,759

Investing activities (29,741) Acquisition of property and equipment (1,418) (9,020) 2,176 Proceeds from sale of property and equipment 12 - - Decrease in bank term deposits - -

(155) Increase in other term deposits - - 215 Interest received 55 58

(27,505) Net cash used in investing activities (1,351) (8,962)

Financing activities 16,909 Proceeds from loans and borrowings - 6,441 (6,455) Repayment of loans and borrowings - (2,307)

- Dividend paid (1,798) - (2,802) Interest paid (869) (588)

7,652 Net cash from financing activities (2,667) 3,546

(7,428) Net (decrease)/increase in cash and cash equivalents (1,430) (3,657) 9,383 Cash and cash equivalents at 1 January 1,955 9,383

1,955 Cash and cash equivalents at end of period (note 16) 525 5,726

The attached notes 7 to 37 form part of these Unaudited consolidated financial statements. The parent company statement of cash flows is presented as a separate schedule to the financial statements.

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SALALAH PORT SERVICES COMPANY SAOG Notes As at 31 March 2010 (forming part of the financial statements)

1 Legal status and principal activities Salalah Port Services Company SAOG (“the Company”) is registered as a joint stock company in the Sultanate of Oman under the Commercial Companies Law of Oman. The unaudited consolidated financial statement of the Company as 31 March 2010 comprises the financial statements of the Company and its subsidiary - Port of Salalah Development Company LLC (“POSDC”) (together referred to as the group) . The Company is primarily engaged in leasing, equipping, operating and managing Container Terminal and General Cargo Terminal facilities in Salalah, Sultanate of Oman. POSDC is engaged in property related activities within the Port of Salalah premises.

2 Basis of Preparation

(a) Statement of compliance These Unaudited consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), the disclosure requirements of the Capital Market Authority and the requirements of the Commercial Companies Law of 1974, as amended.

(b) Basis of measurement and presentation currency These unaudited consolidated financial statements are presented in Rials Omani (“RO”) and United States Dollars (‘‘US$’’) rounded off to the nearest thousands. The consolidated financial statements have been prepared under the historical cost basis modified for derivative financial instruments and available for sale investments, which are stated at fair value. Exchange rate considered for conversion is RO 1 = USD 2.6.

(c) Use of estimates and judgements The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 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 and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial statements are described in note 32.

3 Significant agreements The Company has entered into the following significant agreements:

(i) Concession agreement with the Government of the Sultanate of Oman to lease, equip, operate and manage Salalah Port Container Terminal facilities (“Container Terminal Facilities Agreement and Extension Agreement”) for a period of thirty years commencing from 29 November 1998 (“Concession Period”). In consideration for granting the concessions, the Company pays royalty fee to the Government of Sultanate of Oman and is calculated as follows:

• a fixed royalty fee of USD 255,814 per annum, increasing at the rate of 3% per annum; and • a variable royalty fee calculated in accordance with the terms set out in the Container Terminal Facilities

Agreement; and

11SALALAH PORT SERVICES COMPANY SAOG Notes As at 31 March 2010 (forming part of the financial statements)

3 Significant agreements (continued)

• an additional fixed royalty fee of USD 750,000 per annum is payable for Berth 5 from 2007 onwards and

increasing at the rate of 3% per annum: and

• an additional fixed royalty fee of USD 750,000 per annum is payable for Berth 6 from 2008 onwards and increasing at the rate of 3% per annum.

(ii) Management agreement for Container Terminal with AP Moller Terminals Co. LLC with the responsibility for day -to-day management of the Company and operations of the port on behalf of the company. This agreement is effective for the Concession Period. In consideration of the services provided by the manager the Company pays a fee, which varies dependant on the operating revenue of the Container Terminal.

(iii) Concession agreement with the Government of the Sultanate of Oman to equip, operates, market and manages Salalah Port Conventional Terminal facilities (“General Cargo Terminal Facilities Agreement”). The agreement was executed on 11 September 2000, with retrospective effect from 1 October 1998. The agreement is effective for a period co- terminus with the Container Terminal Facilities Agreement. In consideration for granting the concessions, the company pays royalty fee to the Government of Sultanate of Oman as follows:

• a fixed royalty fee of RO 49,900 per annum, payable from 2005 onwards and increasing at the rate of 3% per annum; and

• a variable royalty fee calculated in accordance with the terms set out in the General Cargo Terminal Facilities Agreement.

(iv) Management agreement for General Cargo Terminal with AP Moller Terminals Co. LLC with the responsibility for day- to-day management of the Company and operations of the port excluding Container Terminal facilities on behalf of the Company . The agreement is effective for the Concession Per iod. In consideration of the services provided by the manager the Company pays a fee, which var ies dependant on the volumes handled by the General Cargo Terminal.

4 Significant accounting policies

The accounting policies set out below have been applied consistently by the Group and are consistent with those used in the previous year , except as follows: The Group has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2009: • IAS 1 Presentation of Financial Statements effec tive 1 January 2009 • IFRS 8 Operating Segments effective 1 January 2009 • IAS 27 Consolidated and Separate Financial Statements (Amended) • IAS 23 , Borrowing Costs (Revised ) effective 1 January 2009 • IFRS 7 Financial Instruments: Disclosures effective 1 January 2009 • Improvements to IFRSs (May 2008) When the adoption of the standard or interpretation is deemed to have an impact on the financial statements or performance of the Company, its impact is described below:

IAS 1 Presentation of Financial Statements The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-ow ner changes in equity presented in reconciliation of each component of equity. In addition, the standard introduces the statement of comprehensive income: it presents all items of recognised income and expense; either in one single statement or in two linked statements. The Group has elected to present one statement.


4 Significant accounting policies (continued)

IFRS 8 Operating Segments IFRS 8 replaced IAS 14 Segment Reporting upon its effective date. The Group concluded that the operating segments determined in accordance with IFRS 8 are the same as the business segments previously identified under IAS 14. IFRS 8 disclosures are shown in Note 28, including the related revised comparative information. IAS 27 Consolidated and Separate Financial Statements (Amended) IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. IFRS 7 Financial Instruments: Disclosures The amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial instruments recognised at fair value. In addition, reconciliation between the beginning and ending balance for level 3 fair value measurements is now required, 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 fair value measurement disclosures are presented in Note 31. The liquidity risk disclosures are not significantly impacted by the amendments and are presented in Note 30. IAS 23 Borrowing cost (Revised) The IAS 23 Borrowing Costs (Revised) eliminates the option of expensing all the borrowing costs and requires the capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. This will have no impact on the company’s financial statements as its existing accounting policy in this regard requires capitalisation of borrowing costs. New standards and interpretations that are not effective The following new standards, amendments to standards and interpretations are not yet effective for the period ended 31 March 2010, and have not been applied in preparing these financial statements: Phase 1 of IFRS 9 On 12 November 2009, the International Accounting Standard Board (IASB) published phase 1 of IFRS 9 Financial Instruments , the accounting standard that will eventually replace IAS 39:Financial Instruments: Recognition and Measurement .While IFRS 9 is not mandatory until 1 January 2013 ,entities may adopt for the reporting periods ending on or after 31 March 2010.The Standard when adopted will have an impact on the group’s financial statements , which is currently being evaluated by the management. IFRIC 17 Distributions of Non-cash Assets to Owners This interpretation is effective for annual periods beginning on or after 1 July 2009 with early application permitted. It provides guidance on how to account for non-cash distributions to owners. The interpretation clarifies when to recognise a liability, how to measure it and the associated assets, and when to derecognise the asset and liability. The Group does not expect IFRIC 17 to have an impact on the consolidated financial statements as the Group has not made non-cash distributions to shareholders in the past.



(a) Basis of consolidation The consolidated financial statements comprise those of Salalah Port Ser vices Company SAOG and its subsidiary as at 31 March each year. The financial statements of the subsidiary are prepared for the same reporting period as the parent company using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist.

Subsidiaries are fully consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the group.

All inter -company balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full.

A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Losses are attributed to the non-controlling interest even if that results in a deficit balance.

If the Group loses control over a subsidiary, it:

• Derecognizes the assets (including goodwill) and liabilities of the subsidiary • Derecognizes the carrying amount of any non-controlling interest • Derecognizes the cumulative translation differences, recorded in equity • Recognizes the fair value of the consideration received • Recognizes the fair value of any investment retained • Recognizes any surplus or deficit in profit or loss • Reclassifies the parent’s share of components previously recognised in other comprehensive income to

profit or loss.

(b) Revenue

Revenue comprises income earned from services rendered in connection with the facilities provided at Container and General Cargo Terminals, and is recognised when earned. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due and associated costs.

(c) Interest income

Interest income is recognised as the interest accrues using the effective interest rate method, under which the rate used exactly discounts, estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

(d) Employee benefits Contributions to defined contribution retirement plan for Omani employees, in accordance with Oman Social Insurance Scheme, are recognised as expense in the statement of comprehensive income as incurred.

Provision for non-Omani employee terminal contributions, which is an unfunded defined benefit retirement plan, is made in accordance with Omani Labour Laws and calculated on the basis of the liability that would arise if the employment of all employees were terminated at the end of the reporting date.

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(e) Foreign currencies Transactions in foreign currencies are translated to Rials Omani at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting date are translated to Rials Omani at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the statement of comprehensive income. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost, are translated to Rials Omani at the foreign exchange rate ruling at the date of the transaction.

(f) Derivative financial instruments and hedging The company enters into derivative instruments mainly interest rate swaps to hedge its risks associated with interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. The fair values of derivative instruments are included in other receivables in case of favourable contracts and other payables in case of unfavourable contracts. The fair value of interest rate swap contracts is calculated based on discounted cash flows using current forward interest rate for items with the same maturity. The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income, while the ineffective portion is recognised immediately in the statement of comprehensive income as finance costs. Amounts taken to other comprehensive income are transferred to the statement of comprehensive income when the hedged transaction affects the statement of comprehensive income, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the statement of comprehensive income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in other comprehensive income remain in other comprehensive income until the forecast transaction or firm commitment occurs.

(g) Intangible asset

Expenditure incurred on initial studies for development of Salalah Port have been capitalised by the Company . Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses [refer accounting policy (m)]. Amortisation of development expenditure is charged to statement of comprehensive income on a straight line basis over the Concession Period. Other intangible assets principally include computer software. Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring into use specific software. These costs are amortised using the straight- line method over their estimated useful lives (three to five years).



(h) Property and equipment (i) Recognition and measurement

Items of property and equipment are stated at historical cost less accumulated depreciation and impairment losses [refer accounting policy (m)]. Borrowing costs that are directly attributable to acquisition, construction or production of an asset are included in the cost of that asset. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property and equipment. All other expenditure are charged to the statement of comprehensive income during the financial period in which they are incurred. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and recognised within ‘other income’ in the statement of comprehensive income. Capital work-in-progress

Capital work- in-progress is measured at cost and not depreciated until such time the assets are ready for intended use and transferred to the respective category under property and equipment. (ii) Depreciation Depreciation is recognized in the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property and equipment as given below: Years Leasehold improvements 3 – 5

Quay gantry cranes 6 – 25

Mobile harbour Cranes 15

Rubber tyre gantry cranes 15

Tractors and trailers 10 – 15 Forklifts and reach stackers 3 – 5

Marine equipment 15 – 30

Motor vehicles 3 – 5

Computer equipment 1 – 5

Furniture, fixtures and equipment 3 – 5 Mooring Systems 7

Dry docking of vessels 3 – 5



Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Expenditure incurred to drydock a vessel is capitalised and is depreciated over its useful life of three to fiv e years. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of property or equipment. All other expenditure is recognised in the statement of comprehensive income as the expense is incurred.

(i) Available for sale investments

The group’s investments in equity securities are classified as available for sale investments . Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses [refer accounting policy (m)] and losses on available for sale monetary assets, are recognised as other comprehensive income. The fair value of investments available for sale is their quoted bid price at the end of the reporting date. Available for sale investments are recognised / de-recognised by the company on the date it commits to purchase/sell the investments. When an investment is derecognised the cumulative gain or loss in other comprehensive income is transferred to the statement of comprehensive income.

(j) Receivables Receivables are stated at their cost less impairment losses [accounting policy (m)].

(k) Inventories Inventories are stated at the lower of cost and net realisable value. The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

(l) Cash and cash equivalents

Cash and cash equivalents comprise cash balances, balances with banks and short-term deposits with an original maturity of three months or less.

(m) Impairment The carrying amounts of the Group’s assets, other than inventories [accounting policy (k)] and deferred tax assets [accounting policy (s)], are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated. An impairment loss is recognised in the statement of comprehensive income whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount of the Group’s receivables is calculated as the present value of expected future cash flows, discounted at the original interest rate inherent in the asset. Receivables with a short duration are not discounted.

(n) Dividends

Dividends are recommended by the Board of Directors and subject to approval by shareholders at the Annual general meeting. Dividends are recognised as a liability in the period in which they are declared.


4 Significant accounting policies (continued) (o) Determination of Directors remuneration

The Board of Directors’ remuneration is accrued within the limits specified by the Capital Market Authority and the requirements of the Commercial Companies Law of the Sultanate of Oman.

(p) Payables and provisions

Payables are stated at cost and provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation that can be measured reliably as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre- tax discount rate that reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(q) Interest bearing borrowings

Interest bearing borrowings are recognised initially at cost, less 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 statement of comprehensive income over the period of borrowings on an effective interest rate basis.

Borrowing costs which are directly attributable to the acquisition, construction or production of qualifying assets is capitalised as part of the costs of that asset. All other borrow ing costs are expensed in the period they occur. Borrowing costs consist of the interest and other costs that the entity incurs in connection with the borrowing of funds.

(r) Operating lease payments

Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease, increasing at the rate of 3% per annum.

(s) Income tax

Income tax on the results for the year comprises deferred tax and current tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date. Deferred tax is calculated using the balance sheet liability method, providing for all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.



(t) Earnings p er share The Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

5 Direct operating costs

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

14,856 Staff costs (note10) 3,726 3,8418,093 Depreciation (note 11) 2,161 1,7552,381 Repair and maintenance 577 7182,556 Power and fuel 618 648

686 Other expenses 155 218

28,572 7,237 7,180

6 Other operating expenses

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

2,185 Ground rent and royalty 1,512 6131,431 Management fees 386 312

159 Depreciation (note 11) 72 321,966 Others 377 468

5,741 2,347 1,425

7 Administration and general expe nses

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

3,675 Staff costs (note10) 937 85972 Depreciation (note 11) 18 17

104 Sales and marketing 3 61345 Systems and communications 68 90244 Legal and professional fees 171 97961 Others 152 286

5,401 1,349 1,410


8 Other income

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

(1,342) Loss on sale property and equipment

(3) -

1,085 Write back of provisions 84 47 - Aqaba Settlement 1,000 -

215 Interest income 55 58 116 Miscellaneous income - 112 95 Sale of scrap 0 0

169 1,137 217

9 Finance costs

2009 Mar - 10 Mar - 09

RO’000 RO’000 RO’000

2,802 Term loan interest 869 588 52 Other finance charges 6 18

2,854 Total finance cost 875 606

10 Staff costs

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

15,532 Wages and salaries 3,781 3,733 2,081 Other benefits 729 512

313 Increase in liability for un-funded defined benefit retirement plan

- 305

605 Contributions to defined contribution retirement plan

153 150

18,531 4,663 4,700


11 Property and equipment

Details of property and equipment are set out in pages 30 and 31.

Buildings are situated on land leased up to the year 2028, from the Ministry of Transport and Communications. Annual lease rental is RO 286,140 and increases based on contractual terms agreed with the Government. The depreciation charge has been allocated in the statement of comprehensive income as follows:

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

8,093 Direct operating costs 2,161 1,755159 Other operating expenses 72 32

72 Administration expenses 18 17

8,324 2,251 1,804

12 Intangible assets

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

425 1 January and 31 December 425 425

Cumulative amortisation(139) 1 January (153) (139)

(14) Additions (3) (3)

(153) End of period (156) (142)

Carrying amount286 1 January 272 286 (14) Amortisation (3) (3)

272 End of period 269 283

13 Available for sale investments The Company has invested RO 100,000 for the purchase of 100,000 shares of Dhofar University SAOG.

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

160 Ordinary Shares - Quoted 160 160

Movements in cumulative changes in fair values arising from available for sale investments are as follows:

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

- Net unrealised loss / gain - -


14 Inventories

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

3,443 Spares and consumables 3,456 3,581

(658)Less: Provision for slow moving inventories

(685) (669)

2,785 2,771 2,912

Movement in the provision for slow moving inventories is as follows:

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

627 1 January 658 627 31 Provided during the year 27 42

658 End of period 685 669

15 Trade and other receivables

2009 Mar - 10 Mar - 09

RO’000 RO’000 RO’000 3,097 Receivables from related parties 4,094 -

4,308 Trade receivables 3,436 1,251 (33) Less : Provision for impairment (33) (24)

4,275 3,403 1,227

- Receivables from the Government of Sultanate of Oman

54 514

518 Advance to Suppliers 101 - 252 Prepaid expenses 537 605 110 Other receivables 168 271

8,252 8,357 2,617

2009 Mar - 10 Mar - 09

For terms and conditions relating to related party receivables, refer to Note 27. Trade receivables are non- interest bearing and are generally on 30-90 day terms. As at 31 March 2010, trade receivables at initial value of RO 32,638 (2008: RO 23,468) were impaired and fully provided for. See below for the movements in the provision for impairment of receivables (see credit risk disclosure Note 30 for further guidance).

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

23 1 January 23 2510 Charge for the year 10 (1)

33 At end of period 33 24

22


16 Cash and cash equivalents

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

276 Cash and bank balances 224 303 1,679 Call deposit accounts 301 5,423

1,955 525 5,726

During the year 2010, the call deposit accounts earned interest at rates ranging between 0.1% to 1.5% per annum (2009: 0.1% to 1.5% per annum).

17 Term deposits

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

4,000 Debt service reserve 4,000 3,845

4,000 4,000 3,845

Under the terms of the debt financing agreement, the Company is required to maintain a debt service reserve equal to its next six months debt repayments for the period until the final instalment of the term loan. The deposits are in RO as on date of statement of financial position with commercial banks in Oman and carry effective annual interest rates of 5.50% .(2009: Deposits were in US Dollars with an effective annual interest rates of 4.25%).

18 Equity (a) Share capital

Authorised Issued and fully paid -------------------------------------------------------------------- -------------------------------------------------------------------- Mar 2010 Mar 2009 Mar 2010 Mar 2009

Shares of RO 0.100 each (RO ‘000) 200,000 200,000 179,837 179,837 ========= ========= ========= ========= Shares of RO 0.100 each (US$ ‘000) 520,000 520,000 467,576 467,576 ========= ========= ========= =========

In the extra ordinary General Meeting held on 25 March 2009, approval was obtained to split the nominal value of the shares in the Parent company from RO 1 to Bzs 100 and then split each share into 10 shares.

(b) Share premium

Share premium of RO 2,948,569 represents premium on shares issued during the year 2000 and transferred to share premium account during the year 2001.

23


18 Equity (continued)

(b) Share premium (continued)

Shareholders of the Company who own 10% or more of the Company’s shares, as of year end whether in their

name, or through a nominee account, and the number of shares they hold are as follows:

Mar 2010 Mar 2009 -------------------------------------------------------------- ----------------------------------------------- No. of shares % No. of shares % A.P. Terminals BV 54,180,000 30 54,180,000 30 Government of the Sultanate of Oman (represented by Ministry of Finance) 36,120,000 20 36,120,000 20 HSBC BK PLC a/c IB Account 25,871,698 14 24,258,030 13 Ministry of Defence – Pension Fund 17,983,740 10 17,983,740 10 - (c) Legal reserve

The Commercial Companies Law of 1974 requires that 10% of a company’s net profit be transferred to a non-

distributable legal reserve until the amount of legal reserve becomes equal to one-third of the Company’s share capital. The reserve is not available for distribution.

(d) Non controlling interest

During 2007 the Company and Public Establishment for Industrial Estates (“PEIE”) together formed a 80:20

venture “Port of Salalah Development Company LLC” to pursue the property related opportunities with a share capital of RO 150,000. Commercial operations of POSDC commenced in 2008.

19 Earnings per share Basic earnings per share is calculated by dividing the net profit for the year attributable to the ordinary

shareholders of the Company by the weighted average number of ordinary shares outstanding during the year as follows:

2009 Mar - 10 Mar - 09

4,535 Net profit for the year(RO ’000) 1,942 300

179,837Weighted average number of ordinary shares outstanding during the year (‘000) 179,837 179,837

0.025 Basic earnings per share ( RO) 0.011 0.002

No figure for diluted earnings per share has been presented as the Company has not issued any instruments which would have an impact on earnings per share when exercised.

20 Dividends

During the year, cash dividends of RO 0.010 per share totalling RO 1,798,374 relating to 2009 were declared. [ 2008 :Nil ]


21 Net assets per share

Net assets per share are calculated by dividing the net assets attributable to the ordinary shareholders of the company at the year end by the weighted average number of ordinary shares outstanding as follows:

Mar - 10 Mar - 10 Mar - 09

39,711 Net assets (RO ‘000) 38,519 33,632

179,837Weighted average number of shares outstanding at end of period (‘000) 179,837 179,837

0.221 Net assets per share (RO) 0.214 0.187

22 Loans and Borrowings During the year 2004, the Company obtained syndicated long-term loan facilit ies, denominated in US Dollars,

from financial institutions in the aggregate amount of approximately RO 42.3 million (USD 110 million). The facilities, comprise two tranches of RO 21.2 million (USD 55 million) each. The Company has already availed tranche I of the loan facility of RO 21.2 million (USD 55 million). During the year 2005, the drawdown was RO 4.6 million (USD 12 million) and in 2006 RO 11.5 million (USD 30 million) from Tranche II of the loan facility. The remaining amount of Tranche II facility was drawn down in March 2009, thus availing Tranche II completely.

During 2008, the company obtained a long-term loan facility, denominated in US dollars, from financial institutions

for a total amount of RO 63.8 Million (USD 165.765 million) . The facility comprises of two tranches (III and IV) of RO 25.3 million (USD 65.765) and RO 38.5 million (USD 100 million). Tranche III was fully availed with a final drawdown of RO 10.2 million during June 2009.Further amount of RO 6.7 million was drawn down out of the Tranche IV facility thus availing a total of RO 29.4 million thus so far. The secured lenders for the Company are Bank Muscat, Gulf International Bank B.S.C and Bank Dhofar. Bank Muscat has been appointed as security agents and trustees for the secured lenders. They are also the facility agent for administration and monitoring of the overall loan facilities.

Tranche I of the term loan was repaid in full as of 31 December 2009. Tranche II of the term loan is repayable in 14 instalments of six-monthly intervals commencing from 30 June 2008. The Company has fixed the rate of interest through an interest rate swap agreement for 75% of its loan facility at a maximum interest rate of 4.7% per annum (refer note 26). Tranche III of the term loan is repayable in 18 instalments of six-monthly intervals commencing from June 2010. The Company has fixed the rate of interest through an interest rate swap agreement for 50% of its loan facility at a maximum interest rate of 4.895% per annum(refer note 26). Tranche IV of the term loan is repayable in 16 instalments of six-monthly intervals commencing from June 2011. The Company has fixed the rate of interest through an interest rate swap agreement for 75% of its loan facility at a maximum interest rate of 3.35% per annum(refer note 26).


22 Loans and Borrowings (continued)

At 31 March 2010, the outstanding balances for the loans and borrowings are as follows:

Total 1 year 1 - 2 years 2 - 5 years more thanor less 5 years

RO '000Tranch 2 20,197 3,944 4,062 12,191 - Tranch 3 25,219 494 641 6,557 17,527 Tranch 4 29,313 - 1,319 7,621 20,373

74,729 4,438 6,022 26,369 37,900

Transaction costs related to term loans are netted off against the value of the loan and are then recognized over the life of the term loans using the effective interest method. Borrowing costs which are directly attributable to the acquisition, construction or production of qualifying assets is capitalised as part of the costs of those assets as per Revised IAS 23 Borrowing Costs. The loan agreement contains certain restrictive covenants, which include, amongst others, restrictions over debt service, net worth limit, debt equity ratios, current ratio and security cover, certain restrictions on the pattern of shareholding, payment of dividends, disposal of property, and equipment and creation of additional security on assets under charge. The term loan facilities bear an effective interest rate of 3.51% (2009: 2.59%) incorporating the effect of hedging instrument. Short term loans were repaid during the year. The facilities are secured by comprehensive first legal and commercial mortgages on all the assets of the Company.

23 Employees end of servi ce benefits

Movements in the liability recognised in the statement of financial position are as follows:

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

839 1 January 1,076 840 313 Accruals during the year - 92 (76 ) End of service benefit paid - (14 )

1,076 End of period 1,076 918


24 Trade and other payables

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

2,305 Trade payables 1,103 1,653 297 Amounts due to Government of

Sulatanate of Oman -

-

3,173 Amounts due to related parties (note 27)

1,726 2,286

7,408 Accrued expenses and other liabilities

7,779 7,964

13,183 10,608 11,903

25 Taxation

The parent company and its subsidiary are assessed separately for taxation. The tax rate applicable is 12% (2009:12%). For the purpose of determining the tax expense for the year, the accounting profit has been adjusted. Adjustments for tax purposes include items relating to both income and expense. After giving effect to these adjustments, the average effective tax rate is estimated. The difference between the applicable tax rates and the effective tax rate arises due to the tax effect of income not considered to be taxable and expenses that are not considered to be deductible. The adjustments are based on the current understanding of the existing tax laws, regulations and practices. Deferred tax has been computed at the tax rate of 12% (2009: 12%). The company’s tax exemption expired on 31 October 2008. Accordingly, the company became taxable from 1 November 2008. The assessments up to tax year 2003 have been finalised by the tax department. The company is contesting certain adjustme nts made by the tax department in the assessment issued for tax years 2001 to 2003 which are at different stages of appellate process. The assessments for tax years 2004 and 2005 are in progress. The assessment for the years from 2004 to 2008 have not been finalised with the Department of Taxation affairs.

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

Income statement 117 Prior year - - 629 Deferred Tax 257 57


Current tax liability 124 Prior year 124 7


Deferred tax liability 3,775 As of 1 January 4,404 3,775 629 Movement for the year 257 57

4,404 4,661 3,832


25 Taxation (continued) Port of Salalah Development Company LLC

None of the subsidiary’s tax assessments have been completed by the tax authorities. 26 Derivative financial instruments and hedging deficit

The term loan facilities of the Company bear interest at USD LIBOR plus applicable margins. In accordance with the term loan agreement, the Company has fixed the rates of interest applicable to the different Tranches through Interest Rate Swap agreements (“IRS”). At 31 March 2010, the USD LIBOR was approximately 0.25% (200 9: 2.77%) per annum, whereas the Company had fixed interest on its long term bor rowings at 4.7% on Tranche 2, 4.9% on Tranche 3 and 3.35% on Tranche 3. Based on the interest rates gap over the life of the respective IRS, the indicative loss as at 31 March 2010 w ere assessed at RO 3,341,334 [ (2009: RO 3,858,801 Loss)] by the counter parties to IRS. In case the Company terminates the IRS at 31 December 2009, it may result in a loss to the extent of at RO 3,341,334 [ (2009: RO 3,858,801 Loss)]. In order to comply with International Accounting Standard 39 “Financial Instruments: Recognition and Measurement” fair value of the hedg e instruments’ indicative loss of RO 3,341,334 [ (2009: RO 3,858,801 Loss)] has been recorded as other comprehensive income and a similar amount is recorded under liability. Interest rate swaps- Notional amounts by term to maturity

Positive Negative Notional Within 1 1 year to Over 5fair value fair value amount year 5 years years

RO’000 RO’000 RO’000 RO’000 RO’000 RO’0002010 - 3,342 3,342 1,844 1,297 201 2009 - 3,859 3,859 555 2,737 567


27 Related party transactions

The Company has entered into transactions with entities over which certain Directors may be able to exercise significant influence. In the normal course of business, the Company provides and avails services from related parties on commercial terms and at arm’s length. The terms of providing and receiving such services are comparable with those that could be obtained from third parties. The volumes of significant related party transactions during the year and with parties with a shareholding of 10% or more in the Company and / or related to Directors, were as follows:

Purchases Sales Others Purchases Sales OthersRO '000 RO '000 RO '000 RO '000 RO '000 RO '000

Other related parties 546 6,134 487 92 5,278 317

546 6,134 487 92 5,278 317

Mar-10 Mar-09

Balances with related parties included in the statement of financial position are as follows:

Trade and other

receivables

Trade and other

payables

Trade and other

receivables

Trade and other

payables

RO '000 RO '000 RO'000 RO'000

Associated companies 4,094 1,726 - 2,286

Mar-10 Mar-09

Amounts due from and due to related parties are disclosed in notes 15 and 24 respectively. Outstanding balances at the year-end arise in the normal course of business. Amounts due from related parties are neither past due nor impaired and are estimated to the collectible based on the past experience.

29SALALAH PORT SERVICES COMPANY SAOG Notes As at 31 March 2010

(forming part of the financial statements

28 Operating Segment information

For management purposes the Company is organised into two major operating divisions – Container Terminal and General Cargo Terminal. The Container Terminal Division is engaged in leasing, equipping, operating and managing a Container Terminal. The General Cargo Terminal Division is engaged in providing stevedoring and other cargo related services to vessel and cargo operators. No operating segments have been aggregated to form the abov e reportable operating segment. Management monitors the operating results of its business units separately for the purpose of making decisions about the resource allocation and the performance assessment. Segment performance is evaluated based on operating profit and loss and is measured consistently with the operating profit and loss in the consolidated financial statements .

Mar - 10 Mar - 09 Mar - 10 Mar - 09 Mar - 10 Mar - 09RO'000 RO'000 RO'000 RO'000 RO'000 RO'000

Revenue 11,078 9,457 1,792 1,304 12,870 10,761

Depreciation and amortisation (2,186) (1,773) (84) (52) (2,270) (1,825)

Segment Profit 1,579 18 363 282 1,942 300

Operating Assets 128,063 118,677 4,915 390 132,978 119,067

Operating Liabilities 128,063 118,677 4,915 3,910 132,978 122,587

Other disclosuresCapital expenditure 1,418 9,012 - 8 1,418 9,020

Container Terminal General Cargo Terminal Total

Inter - segment revenue are eliminated on consolidation. Capital expenditure consists of additions of property, plant and equipment.

30SALALAH PORT SERVICES COMPANY SAOG Notes As at 31 March 2010 (forming part of the financial statements

28 Operating Segment information (continued) Geographic information

2009 Mar - 10 Mar - 09RO'000 RO'000 RO'000

5,782 Oman 1,769 1,255 37,349 Europe 9,870 8,537

4,493 Other asia 1,136 969 56 Africa 95 -

47,680 Revenue as per consolidated income statement 12,870 10,761

29 Commitment and contingencies

2009 Mar - 10 Mar - 09

RO'000 RO’000 RO’000

6,212 Capital expenditure commitments 3,967 23,337

6,212 3,967 23,337

Operating lease commitments The Company entered into a lease agreement with the Government of the Sultanate of Oman in November 1998 for Container Terminal and in September 2000 (with retrospective effect from 1 October 1998) for General cargo terminal, which grants a lease of the land and infrastructure in respective facilities to the Company for a term consistent with its thirty year Concession Period. Future lease payment commitments are as follows:

2009 Mar - 10 Mar - 09RO'000 RO’000 RO’000

396 Not later than one year 398 387 1,707 Between one and five years 1,707 1,669 7,845 After five years 7,744 8,180

9,948 9,849 10,236

30 Financial risk management

The Company‘s activities exposes it to variety of risks from its use of financial instruments: - credit risk - liquidity risk - market risk The Company has established a risk policy whose administration is vested with the Chief Executive Officer. The Chief Financial Officer is nominated as the Risk Champion and a body consisting of departmental Managers constitutes the Risk Management Committee. The working of the Risk management framework as above is coordinated through the Audit Committee. Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers. The carrying amount of financial assets represents the maximum credit exposure.

31


30 Financial risk management (continued) Trade and other receivables: Credit is extended to customers only with an objective of optimizing the Company’s profits and the prime responsibility for providing credit to customers and the timely collection of all debts rests with the functional manager. Credit has a cost to the business and necessary controls and procedures are established to manage the Company ’s credit risk and its working capital. It is therefore Company’s policy to have effective credit control systems in place which are flexible enough to respond to changing market needs yet rigorous enough to ensure that customer credit limits are established and regularly updated on the basis of reliable up- to-date information. This is an aggregate of our transactions with many customers and the risk profiles vary with their composition from time to time. Generally, the Company deals with the customers based on cash or guarantees from reputed banks. In the case of major customers who have been provided credit status, their credit worthiness have been thoroughly evaluated in advance and their credit terms are governed by their respective contracts with the Company. The Company has not witnessed any default from such major customers. The Company has an approved credit policy forming part of its financial policies and procedures. In case of exceptions provisions are created as appropriate.

The ageing of the trade receivables at the reporting date was:

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

2,804 Within credit period 2,578 1,841 1,259 Past due 31-60 days 807 223 (116) Past due 61-90 days (66) (115) 295 Past due 90-180 days 51 (746)

33 More than 180 Days 33 24

4,275 3,403 1,227

The movement in allowance for impairment in respect of trade receivables during the year was as follows:

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

23 1 January 23 2510 Charge for the year 10 (1)


Exposure to c redit risk for trade receivables at the end of the reporting date by geographic region

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

1,223 Oman 596 466 2,635 Europe 2,170 293

417 Other Asia 637 468

4,275 3,403 1,227

32

SALALAH PORT SERVICES COMPANY SAOG Notes As at 31 March 2010 (forming part of the financial statements

30 Financial risk management (continued) Exposure to c redit risk for trade receivables at the end of reporting date by type of customer

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

3,049 Shipping Lines 2,767 455 1,226 Others 636 772

4,275 3,403 1,227

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company ’s reputation. Trade and other payables : The Company prepares periodical forecast cash flows to assess the liquidity requirements from time to time which forms the basis for allocation of available “cash and cash equivalent” resources. Financial obligations: The Company through an agreement with its lendors has an arrangement to place a fixed deposit of an amount equiv alent to the next instalment (which is not less than 6 months at any point of time) which ensures that adequate care is accorded. The table below summarises the maturities of the group’s undiscounted financial liabilities based on contractual payment dates :

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000Trade and Other Payables 4,150 1 1,585 3,146 8,882 3,791 965 1,316 3,539 9,610 Taxation 133 368 321 3,839 4,661 57 - 439 3,336 3,832 Loans and borrowings 2,205 - 2,233 70,291 74,729 2,066 - 2,083 64,260 68,409 Amount due to related Parties 132 445 645 504 1,726 1,044 888 157 197 2,286

6,620 814 4,784 77,780 89,999 6,958 1,853 3,995 71,332 84,138

TotalMar-10 Mar-09

Less than 3 months

3 to 6 months

6 to 12 months

more than 12 months

Total Less than 3 months

3 to 6 months

6 to 12 months

more than 12 months

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company ’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. Currency risk: The Company ’s income is generally based in US dollars to which the local currency viz. Omani Rial is pegged. Therefore, the effect on the comparable financial statements is minimal. However, it affects the alternative currency purchases. This is partly mitigated by opting for purchase of alternate currencies when such requirements can be forecasted well in advance. Depending on emergi ng scenarios the Company may opt for appropriate risk mitigating measures.

33 SALALAH PORT SERVICES COMPANY SAOG Notes As at 31 March 2010 (forming part of the financial statements)

30 Financial risk management (continued)

Interest rate risk: Variance in interest rates affects the financial statements of the Company. With a view to minimizing this effect the Company has adopted policy of hedging outstanding loans at specific interest rates sw aps. At 31 March 2010 approximately 76% of the outstand ing loans are at fixed rate of interest (2009: 63%). The following table summarises the impact of interest rate changes.

2009 Mar - 10 Mar - 09RO’000 RO’000 RO’000

100 Increase in basis points 100 100 (265) Effect on profit before tax 13 (101)

100 Decrease in basis points 100 100 265 Effect on profit before tax (13) 101

Investments: The Company generally does not invest in stock markets. The Company has an investment in 100,000 equity shares of face value RO 1.000 in Dhofar University SAOG. The investment was made primarily with an objective of promoting higher education in the Dhofar region. Capital management : The Company recognizes the importance of maintenance of a strong capital base which would assist in maintenance of investor, creditor and market confidence. With this end in view, the Company has in place adequate mechanisms to monitor return on capital, share holder value creation, etc. The Board of Directors monitors the return on equity, which the Company defines as net profit divided by total shareholders’ equity. The Board of Directors also monitors the level of dividends to ordinary shareholders. There were no changes in the Company ’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

31 Fair values of the financial instruments Financial instruments comprise financial assets, financial liabilities and derivatives. Financial assets consist of cash and bank balances, term deposits , available for sale investments and receivables. Financial liabilities consist of payables, term loans and loans and borrowings. Derivatives consist of interest rate swap arrangements entered by the Company. The fair values of the financial assets, financial liabilities and derivatives at the end of the reporting date are not materially different from their carrying values:

R O ' 0 0 0 R O ' 0 0 0 R O ' 0 0 0 R O ' 0 0 0F i n a n c i a l A s s e t sT r a d e a n d o t h e r R e c e i v a b l e s 4 , 2 6 3 2 , 6 1 7 4 , 2 6 3 2 , 6 1 7 A v a i l a b l e f o r s a l e i n v e s t m e n t s 1 6 0 1 6 0 1 6 0 1 6 0 D u e f r o m r e l a t e d p a r t i e s 4 , 0 9 4 - 4 , 0 9 4 - C a s h a n d b a n k b a l a n c e s 5 2 5 5 , 7 2 6 5 2 5 5 , 7 2 6

T o t a l 9 , 0 4 2 8 , 5 0 3 9 , 0 4 2 8 , 5 0 3

F i n a n c i a l L i a b i l i t i e sT r a d e a n d o t h e r R e c e i v a b l e s 8 , 8 8 2 9 , 6 1 0 8 , 8 8 2 9 , 6 1 0 D u e t o r e l a t e d p a r t i e s 1 , 7 2 6 2 , 2 8 6 1 , 7 2 6 2 , 2 8 6 B a n k b o r r o w i n g s - - - - T a x a t i o n s 4 , 6 6 1 3 , 8 3 2 4 , 6 6 1 3 , 8 3 2 T e r m l o a n 7 4 , 7 2 9 6 8 , 4 0 9 7 4 , 7 2 9 6 8 , 4 0 9

T o t a l 8 9 , 9 9 8 8 4 , 1 3 7 8 9 , 9 9 8 8 4 , 1 3 7

C a r r y i n g A m o u n t s F a i r V a l u eM a r - 1 0 M a r - 0 9 M a r - 1 0 M a r - 0 9

34


31 Fair values of the financial instruments (continued) The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: • Cash and short- term deposits, trade receivables, trade payables, and other current liabilities approximate

their carrying amounts largely due to the short- term maturities of these instruments.

• Long-term fixed-rate and variable-rate receivables / borrowings are evaluated by the group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 31 March 2010, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.

• Fair value of quoted instruments is based on price quotations at the reporting date.

• Fair value of available-for -sale financial assets is derived from quoted market prices in ac tive markets, if

available. • The group enters into derivative financial instruments with various counterparties, principally financial

institutions with investment grade credit ratings. Derivatives valued using a valuation techniques with market observable inputs are mainly, foreign exchange forward contracts and commodity forward contracts. The most frequently applied valuation techniques include forward pricing using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and forward rate curves of the underlying commodity.

• As at 31 March 2010, the marked to market value of derivative asset position is net of a credit valuation

adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognised at fair value. Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.


31 Fair values of the financial instruments (continued) Assets measured at fair value Parent Company 31 Mar 2010 Level1 Level2 Level3

RO ‘000 RO ‘000 RO ‘000 RO ‘000

Available-for-sale investments 160 160 - -

Liabilities measured at fair value Parent Company 31 Mar 2010 Level1 Level2 Level3

RO ‘000 RO ‘000 RO ‘000 RO ‘000

Interest rate swap 3,342 - 3,342 -

During the reporting period ended 31 March 2010, there were no transfers between Level 1and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

32 Key sources of estimation uncertainity

Useful lives of property, plant and equipment The Group's management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset and physical wear and tear. Management reviews the residual value and useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ from previous estimates. Impairment of accounts receiv able An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. At the end of the reporting date, gross trade accounts receivable were RO 3,435,696 ([2009 – RO 1,251,058] and the provision for doubtful debts was RO 32,638. ([(2008 – RO 23,469)]. Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of comprehensive income. Impairment of inventories Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the degree of ageing or obsolescence, based on historical selling prices. At the end of the reporting date, gross inventories were RO 3,456,547((2008 – RO 3,580,426) and provisions for old and obsolete inventories was RO 685,704) [(2009 – RO 668,842]. Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the statement of comprehensive income.


33 Comparative figures Certain comparative figures have been reclassified in order to conform to the presentation of the current year. Such reclassifications do not affect previously reported net profit or shareholders’ equity.

11 Property and Equipment As 31 March 2010

Computer Furniture,Quay Rubber tyre Tractors Forklifts and equipment fixtures Capital

Leasehold gantry gantry and reach Marine Motor and and work inimprovements cranes cranes trailors Stackers equipment vehicles software equipment progress Total

RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000Cost1 January 2010 2,353 67,859 41,225 7,810 1,995 8,032 789 2,371 2,874 16,744 152,052 Additions / Recognition - - - - - - - - - 1,424 1,424 Transfer from CWIP 434 75 - 376 - - - 140 16 (1,041) - Disposal / Derecognition - (16) - - (4) - - - - - (20)

31 March 2010 2,787 67,918 41,225 8,186 1,991 8,032 789 2,511 2,890 17,127 153,456

Accumulated depreciation1 January 2010 (1,414) (12,802) (10,796) (2,810) (921) (888) (544) (1,939) (2,210) - (34,324) Depreciation for the year (112) (734) (688) (172) (85) (272) (35) (72) (80) - (2,250) Disposal - 10 - - 4 - - - - - 14

31 March 2010 (1,526) (13,526) (11,484) (2,982) (1,002) (1,160) (579) (2,011) (2,290) - (36,560)

Carrying amounts31 March 2010 1,261 54,392 29,741 5,204 989 6,872 210 500 600 17,127 116,896

31 March 2009 351 36,262 27,274 4,882 1,333 7,356 322 262 740 28,262 107,044

37

Schedule to the Unaudited consolidated financial statements SALALAH PORT SERVICES COMPANY SAOG (Parent company)

Unaudited s tatement of comprehensive income for 31 March 2010

2009 Mar-10 Mar-09RO’000 RO’000 RO’000

47,669 Revenue 12,870 10,757

(28,610) Direct operating costs (7,253) (7,189)

(5,741) Other operating expenses (2,347) (1,422)

(5,398) Administration and general expenses (1,348) (1,410)

(40) Other income 1,137 217

7,880 Profit from operations 3,059 953

(2,639) Net finance costs (875) (606)

5,241 Profit for the year before tax 2,184 347

(746) Income tax (257) (57)

4,495 Profit for the year 1,927 290

Other comprehensive income - Revaluation of investments - -

1,238 Net movement in cash flow hedges (1,333) (612)

1,238 Other Comprehensive income for the year, net of tax (1,333) (612)

5,733 Total Comprehensive income for the year, net of tax 594 (322)

0.025 Basic earnings per share (US $ / RO ) 0.011 0.002

38 Schedule to the Unaudited consolidated financial statements SALALAH PORT SERVICES COMPANY SAOG (Parent company)

Unaudited s tatement of financial position

as at 31 March 2010

2009 Mar-10 Mar-09RO’000 RO’000 RO’000

ASSETSNon Current Assets

117,518 Property and equipment 116,691 106,826 271 Intangible assets 269 283 280 Available for sale investments 280 280

118,069 117,240 107,389

Current Assets 2,785 Inventories 2,771 2,912 7,809 Trade and other receivables 8,331 2,616 1,865 Cash and cash equivalents 434 5,651 4,000 Term deposits 4,000 3,845

16,459 15,536 15,024

134,528 TOTAL ASSETS 132,776 122,413

EQUITY 17,984 Share capital 17,984 17,984 2,949 Share premium 2,949 2,949 3,114 Legal reserve 3,564 3,114 (2,008) Hedging deficit (3,342) (3,858) 60 Revaluation surplus 60 60 17,578 Retained earnings 17,257 13,373

39,677 TOTAL EQUITY 38,472 33,622

LIABILITIESNon Current Liabilities

70,291 Loans and borrowings 70,291 64,260 4,404 Deferred tax 4,661 3,832 1,076 Employees’ end of service benefits 1,076 918 222 Derivative financial instruments 1,498 3,304

75,993 77,526 72,314

Current Liabilities 12,633 Trade and other payables 10,496 11,773 4,438 Loans and borrowings 4,438 4,149 1,787 Derivative financial instruments 1,844 555

18,858 16,778 16,477

94,851 TOTAL LIABILITIES 94,304 88,791

134,528 TOTAL EQUITY AND LIABILITIES 132,776 122,413

0.221 Net assets per share (US $ / RO ) 0.214 0.187

39

Schedule to the Unaudited consolidated financial statements SALALAH PORT SERVICES COMPANY SAOG (Parent company)

Unaudited s tatement of changes of equity for 31 March 2010

Share Share Legal Hedging Revaluation Retainedcapital premium reserve surplus /

(deficit)surplus earnings Total

RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000

1 January 2009 17,984 2,949 3,114 (3,247) 60 13,083 33,943 Net profit for the year - - - - - 4,495 4,495 Other comprehensive income - - - 1,238 - - 1,238

Total comprehensice income 17,984 2,949 3,114 (2,009) 60 17,578 39,676 Dividend paid - - - - - - - Transfer - - 450 - - (450) -

1 January 2010 17,984 2,949 3,564 (2,009) 60 17,128 39,676 Net profit for the year - - - - - 1,927 1,927 Other comprehensive income - - - (1,333) - - (1,333)

Total comprehensice income 17,984 2,949 3,564 (3,342) 60 19,055 40,270 Dividend paid - - - - - (1,798) (1,798)Transfer - - - - - - -

31 March 2010 17,984 2,949 3,564 (3,342) 60 17,257 38,472

Attributable to equity shareholders of the parent

Schedule to the Unaudited consolidated financial statements SALALAH P ORT SERVICES COMPANY SAOG (Parent company) Unaudited s tatement of cash flows for the 31 March 2010

2009 Mar-10 Mar-09 RO’000 RO’000 RO’000

Operating activities 5,241 Profit for the year before tax 2,184 347

Adjustments for: 8,328 Depreciation and amortisation 2,251 1,805 313 Accrual for employees’ end of service benefits - 92 1,341 Loss/(Gain) on sale of equipment 3 -

(215) Interest income (55) (58) 2,802 Interest expense 869 588

17,810 Operating profit before working capital changes 5,252 2,774 (537) Change in inventories 14 (664) (5,696) Change in receivables (522) (503) 908 Change in payables (2,141) 165

(76) Employees’ end of service benefits paid (16) (14)

12,409 Net cash from operating activities 2,587 1,758

Investing activities (29,741) Acquisition of equipment (1,418) (9,020) 2,176 Proceeds from sale of equipment 12 - - Decrease in bank term deposits - -

(155) Increase in other term deposits - - 215 Interest received 55 58 - Increase in Investments - -

(27,505) Net cash used in investing activities (1,351) (8,962)

Financing activities 16,909 Proceeds from loans and borrowings - 6,441 (6,455) Repayment of loans and borrowings - (2,307)

- Dividend paid (1,798) - (2,802) Interest paid (869) (588)

7,652 Net cash used in financing activities (2,667) 3,546

(7,444) Net (decrease)/increase in cash and cash equivalents (1,431) (3,658) 9,309 Cash and cash equivalents at 1 January 1,865 9,309

1,865 Cash and cash equivalents at end of period 434 5,651

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