اهبحت امك ةايحلا - alarganalargan.com/images/reports/financial-report2017.pdf ·...

Annual Report2 0 1 7

الحياة... كما تحبهاLIFE... As You Love It

Annual Report 2017

Contents

Financial Highlights

Executive Management Bios

Corporate Governance Report

Audit Committee Report

Related Parties Transactions Report

Financial Section

ALARGAN International Real Estate Company

2

FinancialHighlights

Annual Report 2017

3

FinancialHighlights


4

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0

- 5,000,000

- 10,000,000

Unrealized gain (loss) from changes in fair value of investment properties

(Loss) profit for the year from discountinued operations

Gain on sale of investment properties

Net investment income

Share of results from associates

Net income from resorts

Net rental income

Net income (loss) from projects

Financial Highlights

Gross profit from operations

2016 20172015

Annual Report 2017

5

Total Assets (KD mn)Operating Profit (KD mn)

180

175

170

165

160

155

150

145

140

1352015 2016 2017

174

150152

Earnings per share (fils) Net Profit (KD mn)

65.3280,0060,5040,0020,00

-2015 2016 2017

7.0920.26

Current Ratio

3.084.00

3.00

2.00

1.002015 2016 2017

1.712.32

Return on Equity (%)

2015 2016 2017

%20,00%10,00

%0,00

%18.87

%2.06 %5.68

%63.13%80,00

%60,50

%40,00

%20,50

%0,002015 2016 2017

%6.83%19.52

%48.02 %46.64%65.32

2015 2016 2017

%100,00

%50,00

%0,00

25201510

5-

2015 2016 2017

19

36

2015 2016 2017

16.7201510

5-

5.2

Return on Assets (%) Return on Capital (%)

Net Debt to Equity Ratio (%)

1.8

%10.99%20,00

%10,00

%0,00%1.21

%2.97

2015 2016 2017


6

EXECUTIVEMANAGEMENTBIOS

Annual Report 2017

7

EXECUTIVEMANAGEMENTBIOS


8

Khaled K. Al-Mashaan

Vice Chairman and CEO

Mr. Khaled Al-Mashaan has over three decades of experience in civil engineering and real estate develop-

ment. He is the founder of ALARGAN and has grown it from a family owned business which was established

in1994 to a publicly listed company on the Kuwait Stock Exchange.

Mr. Al-Mashaan completed his Bachelor’s of Science in Civil Engineering from California State University.

In addition to that, he attained the Financial Management Program and the Advanced Management Devel-

opment Program in Real Estate at Harvard University Graduate School of Design, and is currently an active

member of the Harvard Alumni Association.

Mr. Al-Mashaan is the Chairman of the Kuwait Green Building Council (KGBC) and is a director on the board

of the Kuwait Foundation for the Advancement of Science.

Walid Amin

Chief Financial Officer

Mr. Walid Amin has worked his career up across the real estate, assurance and consultancy services indus-

tries for more than 20 years after the completion of his Bachelors in Commerce from Cairo University. He has

extensive experience in designing the accounting and internal control systems and consulted to a number of

leading companies and global institutions. Mr. Amin’s knowledge and experience also comes from handling

the preparation of claims against the Iraqi invasion of Kuwait and from participating in the listing process of

several companies listed on the Kuwait and Dubai Stock Exchanges.

Mamdouh Noureldin

Senior Vice President, Organizational Controller

Mr. Mamdouh Noureldin’s experience falls under operational excellence and technological innovation, with

13 years of experience in managing transformational projects and enterprise applications. Mr. Noureldin

holds a Master of Business Administration from the University of Bradford in the UK, and has completed a

Bachelor of Science in Computers and Automatic Control Engineering from Assiut University in Egypt.

Meshaan Al-Meshaan

Chief Business Development Officer

Mr. Meshaan Al-Meshaan’s experience lies within the areas of banking and real estate. With over 17 years

of experience, his current role involves identifying and assessing growth opportunities which fit the Compa-

ny’s overall strategy and vision. He is also responsible in overseeing and managing the Company’s current

regional and international investments.

Mr. Al-Meshaan serves on the boards of ALARGAN’s affiliates, as well as NBK Capital and INJAZ Kuwait. He

holds a Bachelor of Science in International Business from the University of Denver, Colorado and has gained

the ACI Dealing Certificate, during his Banking tenor.

EXECUTIVE MANAGEMENT BIOS

Annual Report 2017

9

Hussein Saleh

Head of Legal Affairs

Mr. Hussein Saleh has over 14 years of experience in the corporate legal field. Prior to joining ALARGAN, he

worked for one of the most reputable banks in Egypt, and several other corporations in various fields, such

as litigation, factoring, capital market activities, investment banking and real estate. He is an International

Arbitrator and also holds an LLM degree. Mr. Saleh is currently pursuing his PhD.

Ali Khajah

General Manager, Kuwait Operations

Mr. Ali Khajah has over 14 years of experience in real estate, corporate finance and investment banking. His

career started with ALARGAN in 2008 and since then has been greatly involved in the business development

of the company and mainly focused on the planning and operations. Mr. Khajah holds a Bachelor of Arts

in Finance from the University of Southern Florida and a Project Management Executive Certification from

Cornell University, in addition to completing level II of the CFA program in 2013.

Khaled Al-Ramly

Vice President, Marketing and Communications

Mr. Khaled Al-Ramly has over 12 years of experience in the communications and marketing industries. Be-

ginning with Dar Al Watan, he helped launch and manage magazines and English newspapers, before joining

regional marketing consultants BPG. As Public Relations Director, he consulted FMCG and Real Estate

multinationals, locally launched global dining and fashion brands, and set strategies for automobile, banking,

NGO’s and semi-governmental entities.

Marwan Asa’d

Chief Real Estate Development Officer

Mr. Marwan As’ad has over 30 years of experience in construction, real estate and operations. Prior to join-

ing ALARGAN, he was Executive Vice President of Mazaya Real Estate in Qatar and Kuwait. Mr. As’ad is a

Chartered Professional Engineer accredited by the Institution of Engineers in Australia, and holds a Bachelor

of Science in Civil Engineering from West Virginia University Institute of Technology, USA.


10

CorporateGovernance Report

Annual Report 2017

11

CorporateGovernance Report


12

Corporate Governance Report

Table of Contents

First: Governance Framework

Second: Compliance to Corporate Governance Principles:

Rule One: Structuring a Balanced Board Composition

Rule Two: Establishing Appropriate Roles and Responsibilities

Rule Three: Recruiting Highly Qualified Candidates to the Board of Directors and Executive Management

Rule Four: Ensuring the Integrity of Financial Reporting

Rule Five: Applying Sound Systems of Risk Management and Internal Audit

Rule Six: Promoting Code of Conduct and Ethical Standards

Rule Seven: Ensuring Timely and Detailed Disclosures and Transparency

Rule Eight: Respecting the Rights of Shareholders

Rule Nine: Recognizing the Roles of Stakeholders

Rule Ten: Encouraging and Enhancing Performance

Rule Eleven: Focusing on the Importance of Corporate Social Responsibility

Annual Report 2017

13

First: Governance Framework

Corporate Governance aims to create a business environment fostering responsibility, control systems,

commitment, transparency and clarity, both in defining the Company’s objectives and strategic plans, and in

the statement of rights and obligations of each of its entities, which together work to reassure and enhance

trust in dealing with the Company, and achieve its objectives effectively and with integrity.

In 2017, the Board of Directors of ALARGAN International Real Estate Company committed to adopting

the fundamentals of sound management and adhering to the principles of good governance, following the

best practices and embodying the principles within the framework of the Company’s business operations.

The standards of corporate governance were therefore implemented within the Company’s standards in

management and control, while developing them in accordance to the Company’s strategy. The most

important of these applications is the protection of shareholders and stakeholders’ rights, and the separation

of authorities between the Executive Management which manages operations on one hand, and the Board

of Directors which lays out and supervises strategies and policies in the Company.

Board of Directors

Secretary of the Board

Audit Committee

Internal Audit

Nomination and Remuneration

Committee

Chief Executive Officer

Risk Committee

Compliance

RiskManagement

Function


14

Second: Compliance to Corporate Governance Principles

Rule One: Structuring a Balanced Board Composition

The Board of Directors of ALARGAN has invested its expertise to enhance the Company’s performance to

meet the expectations of shareholders and stakeholders. The structure of the Board is proportional to the

size and nature of the Company’s activities, as well as to the roles and responsibilities of its members. Elected

during the Ordinary General Assembly held on May 29, 2017, the Board took into account the diversification

of professional and technical experiences of its members, in addition to holding a strong track record from

their membership in the board of other companies and having the necessary skills to fill in the position.

Director Capacity

Haitham S. Al-Khaled Chairman – Non-executive, representing himself

Khaled K. Al-Mashaan Vice Chairman – Executive, representing himself

Mohammed F. Al-Othman Director – Non-executive, representing Gulf Life Insurance Company – K.S.C.

Hamad A. Al-Mudhaf Director – Non-executive, representing himself

Tareq B. Al-Mutawa Independent Director – Non-executive, independent

Haitham S. Al-Khaled – Chairman of the Board

(Elected Member)

Mr. Haitham Al-Khaled brings 30 years’ experience in strategic business development and corporate

governance. He began his career with the Mobile Telecommunications Company (Zain) as a Communications

Engineer and progressed to become the company’s Chief Executive Officer for the Middle East, and completing

his tenure as Chief Strategy and Business Development Officer, through which he was instrumental in Zain’s

regional and international expansion which resulted in impressive returns to shareholders. Today, Mr. Al-

Khaled also serves as a member of the boards of several Kuwaiti companies including the National Bank of

Kuwait and Al-Shall Consulting & Investment Company. Mr. Al-Khaled holds a Bachelor’s degree in Electrical

Engineering from Kuwait University in addition to several Executive Certificates from the London Business

School.

Khaled K. Al-Mashaan – Vice Chairman of the Board and CEO

(Elected Member)

Mr. Khaled Al-Mashaan has over three decades of experience in civil engineering and real estate develop-

ment. He is the founder of ALARGAN and has grown it from a family owned business which was established

in1994 to a publicly listed company on the Kuwait Stock Exchange.

Mr. Al-Mashaan completed his Bachelor’s of Science in Civil Engineering from California State University.

In addition to that, he attained the Financial Management Program and the Advanced Management Devel-

opment Program in Real Estate at Harvard University Graduate School of Design, and is currently an active

member of the Harvard Alumni Association.

Annual Report 2017

15

Mr. Al-Mashaan is the Chairman of the Kuwait Green Building Council (KGBC) and is a director on the board

of the Kuwait Foundation for the Advancement of Science.

Mohammed F. Al-Othman – Director

(Representative of Gulf Life Insurance Company – K.S.C.)

A Board member of ALARGAN International Real Estate Company since May 2014, Mr. Al-Othman is

Vice President of the Investment Banking Department at KIPCO Asset Management Company (KAMCO).

He has over 11 years’ experience in investment banking, asset management, due diligence and financial

services, having previously worked at Ernst & Young, Kuwait, on restructurings, mergers and acquisitions,

and valuations, as well as at Kuwait Finance House where he was responsible for its real estate arm in

Saudi Arabia and worked on the capital restructuring of the Group’s subsidiaries. Mr. Al-Othman holds a

BA in Accounting and Management from the University of Leeds, UK, and completed the executive training

program at Harvard University, USA. He also a board member in several leading companies.

Hamad A. Al-Mudhaf – Director

(Elected Member)

Mr. Al-Mudhaf is the Chairman and Managing Director of ALARGAN Gulf Real Estate Services Company

and has been a Board member of ALARGAN International Real Estate Company since May 2014. In his 20

years’ experience in managing leading multinational real estate companies in Kuwait, Mr. Al-Mudhaf has

managed the development of commercial, residential, and industrial properties, adopting unique real estate

approaches and partnering with industry leaders to deliver innovative and successful projects in the GCC. Mr.

Al-Mudhaf holds a Bachelor’s degree in Accounting from the Faculty of Commerce, Economic and Political

Science, in addition to having obtained multiple certificates in the fields of business and management.

Tareq B. Al-Mutawa – Independent Director

(Elected Member)

Mr. Tareq B. Al-Mutawa is an independent Board member of ALARGAN International Real Estate Company.

He is Chairman of Sadeer Trading & Contracting Company in Kuwait and Lebanon, and Chairman of Tarek

Badr Al-Salem General Trading & Contracting. Al-Mutawa is a board member of the Kuwait Chamber of

Commerce and Industry, and represents it on the board of Public Authority for Industry. Previously President

of the Council of Directors of Al-Ahlia Investment Company and Al Shuaiba Paper Industries, he sat on the

board of leading institutions such as Burgan Bank, Kuwait National Cinema Company, Eva Bank - Paris,

Bayan Investment Group and Al-Ahlia Construction Group. Mr. Al-Mutawa brings over 40 years’ experience

in business management and holds a Bachelor’s degree in Business Administration from Central University.


16

Number of Board Meetings held in 2017

The Board of Directors of ALARGAN International Real Estate Company held 16 meetings during 2017

(Seven meeting were held by circulation and approval of every member of the Board). The below table details

these meetings and the number of meetings attended by each member:

DirectorBoard Meetings

16 meetings were held in 2017

Haitham S. Al-Khaled (16)

Khaled K. Al-Mashaan (16)

Mohammed F. Al-Othman (12)

Hamad A. Al-Mudhaf (13)

Tareq B. Al-Mutawa (16)

Recording, Coordinating and Saving Minutes of the Meetings

The Secretary of the Board has been appointed based on the university qualifications and experience held,

and is responsible for preparing the agenda for the meetings, drafting the minutes of meetings, following up

on the resolutions of the Board and circulating them to stakeholders, in addition to organizing and archiving

the minutes, documents and reports related to the work of the Board. The Secretary is also responsible for

archiving and organizing the minutes of meetings, as well as reports and documents related to the Board.

Under the supervision of the Chairman, the Secretary ensures compliance with the procedures endorsed by

the Board with regard to the circulation of information among Board members, its committees and Executive

Management, in addition to communication in order to ensure the proper delivery and distribution of infor-

mation and coordination between Board members and other stakeholders in the Company, including the

shareholders, various departments and employees of the Company.

Obtaining Accurate and Timely Information and Data

ALARGAN has setup mechanisms and tools enabling the Board of Directors to obtain the required informa-

tion and data in a timely manner by developing the information technology environment within the Company,

creating channels of direct communication between the Board Secretariat and Board members, providing

reports and meeting topics well in advance for their discussion and making decisions in their regard.

Rule Two: Establishing Appropriate Functions and Responsibilities

The Board of Directors of ALARGAN International Real Estate Company ensured the implementation of the

Company’s strategic plans and objectives, as well as maintained direct communication with the Executive

Management in order to achieve these strategies. The Board has prioritized corporate governance standards

to fulfill the mandated requirements as well as to make these standards a work method and strategy to follow

within the Company.

Annual Report 2017

17

Milestones Achieved by the Board of Directors in 2017:

The Board of Directors has achieved a series on milestones in 2017, listed as follows:

1. Formation of the Board of Directors and restructuring the committees for the three years from 2017 to

2019, specifying the charter of work for each committee, its roles and authorities, period of work and ways to

monitor their efficiency according to the requirements of the Capital Markets Authority (CMA) for Corporate

Governance

2. Monitoring the performance of the Company and the developments of current and future projects through

regular meetings held with the Executive Management and periodic reporting

3. Discussing the Company’s business plan for the next five years

4. Approving the remuneration and bonuses distributed to employees

5. Approving of interim and annual financial statements

6. Following up on the development of the estimated budget for the next five years

7. Following up on the compatibility of the Company’s current projects with the Company’s main objectives

and strategy

8. Adopting the policy of Profit Sharing Scheme

9. Reviewing periodic reports issued by the Board committees and discussing findings

10. Periodically ensuring the efficiency of internal control systems implemented in the Company and its

subsidiaries

Functions and Responsibilities of the Executive Management of ALARGAN International Real Estate

Company

The activities of the Company are carried out by the Executive Management under the supervision and guid-

ance of the Executive Officers, with the aim of achieving balance in the relations between the Company and

its employees, investors and clients, ensuring that the work is within Company objectives and devoting its

resources appropriately in order to achieve its objectives in line with Company policy and strategy. The Ex-

ecutive Officers and Executive Management are deemed accountable to the Board for Company practices,

activities and business, including the management’s overall responsibilities and duties in general, achieve-

ment of objectives, monitoring of day-to-day operations, participation in strategic planning, as well as the

preparation of budgets, financial and other reports.

General Framework for Assessing the Performance of the Board of Directors

The Nomination and Remuneration Committee, under the supervision of the Board of Directors, has evaluat-

ed the performance of the Board and its committees as well as their contribution in achieving the Company’s

objectives using a mechanism of self-assessment designed to effectively evaluate the performance of each

member and identify the needs for development and training.

Listed below are the measures used in the self-assessment mechanism:

- Structure of the Board and its committees

- Qualifications of members, attendance, participation, adequacy and effectiveness of meetings

- Awareness of the Company’s objectives, responsibilities of the Board and its committees, as well as the

mandates set by regulatory bodies


18

- Relation of the Board with the Executive Management, means of communication and reporting

- Training and development initiatives

Based on the results of the evaluation, the development and training program for the Board of Directors and

its members was prepared during the year 2017 to cover the needs of each member while ensuring they are

aligned with the experience and qualifications of each member. The Company will ensure that the training

program covers specialized aspects of governance, risk and regulatory instructions.

Rule Three: Recruiting Highly Qualified Candidates to the Board of Directors and Executive Management

Committees formed from the Board of Directors

Following its formation end of May 2017, the Board elected the members of each committee and established

the roles and responsibilities to enable the Board from effectively performing its role. This was done by

reviewing the recommendations submitted by the Executive Management. Each committee has been

established within the framework of corporate governance principles and requirements of regulatory bodies.

The main roles of the committees, their roles and responsibilities have been defined in a specific charter of

work for each committee.

The following table shows the committees emanating from the Board and the number of times every

committee has met during 2017:

Director

Nomination and RemunerationCommittee

Audit Committee Risk Committee

1 meeting was held 9 meetings were held 4 meetings were held

Haitham S. Al-Khaled (1)

Khaled K. Al-Mashaan (1) (4)Mohammed F. Al-Othman (9)

Hamad A. Al-Mudhaf (9) (3)

Tareq B. Al-Mutawa (1) (7) (4)

Audit Committee

In 2017, the Audit Committee reviewed and monitored the financial performance of the Company and

external audit reports on periodic financial disclosures and internal auditor’s reports. It examined the integrity

of internal controls and the adequacy of control systems, evaluated the performance of the Internal Audit

Director and determined his remuneration. The Committee consists of the following members:

Mohamed F. Al-Othman (Chairman of the Committee)

Tareq B. Al-Mutawa (Director)

Hamad A. Al-Mudhaf (Director)

Annual Report 2017

19

Risk Committee

The Risk Committee assisted the Board in 2017 in evaluating the risks and challenges facing the Compa-

ny’s activities, as well as identifying and developing the Company’s risk strategy and vulnerability to risks,

reviewing the Company’s risk management, risk and control policies and recommending their adoption by

the Board. The Committee consists of the following members:

Tareq B. Al-Mutawa (Chairman of the Committee)

Khaled K. Al-Mashaan (Director)

Hamad A. Al-Mudhaf (Director)

Nomination and Remuneration Committee

The Nomination and Remuneration Committee assisted the Board in fulfilling its supervisory responsibilities

in relation to the efficiency and integrity of Company policies and procedures for Company nominations and

remunerations, reviewing and approving the selection criteria and appointment procedures for the Board

and Executive Management, while ensuring that the policy and the methodology of nominations and remu-

nerations, in their entirety, are in line with the Company’s strategic objectives. The Committee consists of

the following:

Haitham S. Al-Khaled (Chairman of the Committee)

Khaled K. Al-Mashaan (Director)

Tareq B. Al-Mutawa (Director)

Rule Four: Ensuring the Integrity of Financial Reports

The Executive Management submits to the Board of Directors a written acknowledgment of the soundness

and integrity of the Company’s financial reports, that they cover all the financial aspects of operating data and

results and that they are prepared in accordance with International Financial Reporting Standards. The Board

also acknowledges to the Company’s Shareholders the soundness and integrity of financial statements

and reports pertinent to Company activities. Based on the authorities granted to it by the Board, the Audit

Committee has the right to peruse and to review all information, data, reports, records and studies related to

the Company’s activities or risk management and other matters deemed necessary by the Committee. The

Board warrants total independence to the Committee and its members.

Rule Five: Applying Sound Systems of Risk Management and Internal Audit

The Risk Committee provides adequate resources and appropriate systems to the Risk Management De-

partment. It assesses the systems for identifying and controlling the various risks that the Company may face

in order to identify weaknesses in this regard, reviews the organizational structure of the Risk Management

Department and submits its recommendations thereon prior to their endorsement by the Board. Since June

2016, the Company has commissioned a specialized consultant to carry out all risk management functions.


20

Risk Management Systems

• The Committee reviews and submits its recommendations to the Board on the overall capacity to take risks,

risk tolerance and overall risk framework, and it receives reports from the Company’s Management regarding

Company policies and procedures pertinent to the Company’s compliance with risk limits and risk tolerance.

• The Committee oversees the strategies, policies, procedures and systems developed by the Executive

Management to identify, evaluate, measure and manage the main risks facing the Company, including

strategic business risks, operational risks, regulatory compliance risks, interest rate risks, liquidity risks,

investment risks, financing risks, market risks, reputation risks and other risks, as well as the management,

planning and evaluation of capital by the Executive Management.

• It conducts an annual assessment of the governance framework, risk and control framework to arrive

at a conviction with respect to the design and completion of the framework for Group activities and risk

characteristics.

• It monitors risks on a regular basis compared to the overall risk tolerance framework.

• It ensures that all staff of the Risk Management Department are independent from activities that lead to

risk exposure.

• It ensures that risk management employees spread risk awareness among Company employees.

• It reviews proposed transactions with relevant parties and submits appropriate recommendations to the

Board in this regard.

• It reviews issues raised by the Audit Committee that may affect the Company’s risk management.

• It prepares periodic reports on the nature of the risks to which the Company may be exposed and it

submits them to the Board.

Review of Internal Monitoring Systems by an Independent External Authority

The internal audit systems are reviewed annually by an independent audit company in accordance with

the requirements of the Capital Market Authority. The review includes auditing the accounting and relevant

records, as well as evaluating the Group’s internal control systems, in respect of, but not limited to, gov-

ernance, financial control, information technology, risk management, human resources and administration,

internal audit, money laundering and terrorism financing combatting operations, legal affairs and Company

activities as a whole. Furthermore, an independent audit office was commissioned with reviewing and as-

sessing the performance of the internal audit review and auditing, and preparing an Internal Audit Report

(ICR) to be submitted to the Authority at the end of the first quarter of 2018. Another audit office is also

appointed to periodically review and evaluate the performance of the Internal Audit Department every three

years in order to comply with regulatory requirements.

Rule Six: Promoting Code of Conduct and Ethical Standards

The Board has established guidelines for sound management, ethical conduct and protection of the interest

of stakeholders. The most significant standards within the guidelines includes:

Integrity is the first priority of with the Company’s values and acts as an objective that guides employees

in fulfilling their duties. Therefore, the focus on integrity reinforces the modus operandi of ethics and moral

decision-making in the Company.

Annual Report 2017

21

Ethical conduct and behavior supports the decisions made based on the Company’s values when providing

services to clients and doing business.

To support these guidelines, the Code of Professional and Ethical Conduct has been developed with the

objective to guide the Board of Directors and Executive Management in performing their roles and responsi-

bilities through a system based on ethical values. The principles and values in these guidelines are an integral

part of the Company’s commitment to maintaining its reputation and shareholder confidence.

Rule Seven: Ensuring Timely and Detailed Disclosures and Transparency

Accurate disclosure and transparency are among the key pillars of corporate governance that allow

shareholders to exercise their rights to the fullest, and are an effective tool for influencing corporate behavior

and protecting investors. Therefore, in order to strengthen the mechanism for timely and accurate disclosure

of all important information related to the Company, ALARGAN has developed systems and policies for

disclosures aimed at achieving fairness and transparency, preventing conflicts of interest and using internal

information. The policy is also intended to regulate Company disclosure procedures for material information

and to provide an advertisement mechanism in accordance with corporate governance guidelines.

Investor Relations Department

The Company provides shareholders and investors with accurate, comprehensive and timely information

through the Compliance and Commitment Department, which is responsible for disclosing the Company’s

crucial information to Kuwait Stock Exchange and the Capital Market Authority. The Company’s website

constitutes a part of the disclosure mechanism along with annual reports, financial statements and press re-

leases, which are periodically published through the media. In addition, the presence of an Investor Relations

Unit also plays a major role in providing the necessary data, information and reports to investors through

customary disclosure methods. The Board of Directors is fully responsible for verifying the veracity, accuracy

and integrity of the information disclosed and ensuring the compliance with the Company’s approved policy

in this regard.

Rule Eight: Respecting the Rights of Shareholders

In accordance with the Corporate Governance Guidelines issued by the Capital Markets Authority, in addi-

tion to the Company’s Articles of Association, Articles of Incorporation and internal policies, the regulatory

controls and rules for protecting the rights of interested parties include the stakeholders, in particular the

shareholders. This aims to protect the financial position of companies and enables them to carry out their

role in the economic development and social, welfare. The ultimate success of ALARGAN is the result of the

joint efforts of many parties, including employees, investors and other parties who deal with the Company.

Ownership records

A special record in the Company is kept at the Kuwait Clearing Company stating the names of sharehold-

ers, nationalities, domicile and the number of shares owned by them. Any changes in the registered data is

noted in this register according to what the Company or the Kuwaiti Clearing Company. Clearing receive.

Concerned parties can request a copy of the register from the Company or the Kuwaiti Clearing Company.


22

Policies to Protect Stakeholders and Shareholders

According to the Company’s policy for the protection of the rights of stakeholders and shareholders, all

shareholders have defined rights which include recording the value of shares held in the books of account,

recording, moving and transferring of ownership, receiving dividends, receiving part of the Company’s assets

in case of liquidation, receiving information about operations and investment strategies in a timely manner,

participating in the shareholders’ Annual General Meeting (AGM), voting on its resolutions, electing the Board

of Directors, monitoring the performance of the Company in general and that of the Board of Directors and

Executive Management in particular, as well as filling for accountability cases in the event of failure to perform

the tasks assigned to them.

In order to ensure the protection of shareholders’ rights, ALARGAN holds its AGM in accordance to the

Companies Law, the Corporate Governance Rules and the applicable laws and regulations. The agenda of

the AGM is announced in the official newspapers as well as special invitations are sent to shareholders by

email and through the Kuwait Clearing Company to allow shareholders to attend and exercise their right to

vote and discuss resolutions. Items of the agenda are provided to shareholders well in advance of the AGM

date. Shareholders can discuss the topics listed in the agenda and ask questions, while the Company en-

sures shareholders perform their right to vote without any obstacles.

Rule Nine: Recognizing the Roles of Stakeholders

The protection of the rights of stakeholders represents one of the most important responsibilities of the Board

of Directors and Executive Management, in addition to ensuring that changes in the laws and regulations

issued by the supervisory bodies have been reflected in the Company’s internal policies and culture. The

supervisory role and effective supervision of the Board constitute the backbone of the framework of good

governance. ALARGAN has developed a policy and mechanism to regulate the relationship with stakehold-

ers and related parties in order to preserve their rights and reduce possible conflicts of interest, as well as the

contracts concluded between the parties and any additional undertakings made by the Company towards

stakeholders, noting that the protection of the rights of stakeholders, by virtue of the laws, provides them

with the opportunity to receive effective compensation in case of violation of any of their rights. ALARGAN

has developed a mechanism to facilitate access by stakeholders to report any improper practices to which

they may be exposed.

Rule Ten: Encouraging and Enhancing Performance

As previously stated, ALARGAN has developed a mechanism that provides training programs for each

member of the Board and the Executive Management. These programs include training courses and

conferences that help each member in fulfilling their role and responsibility.

Value Creation

The Board of Directors has developed mechanisms and procedures to consolidate its corporate values and

the culture of compliance with laws and regulations. The Company has placed strategic objectives it aims

to achieve through continued communication with employees, using modern means of communication and

holding periodic meetings. The objective is to place the pillars to the strategy between employees of the

Annual Report 2017

23

Company and encourage team work. ALARGAN aims to invest its efforts in achieving the common objec-

tives, as well as encouraging self-auditing, acting more responsibly and raising the level of professionalism

in performance. The Company also presents information about its projects, financial statements and other

information in all transparency through disclosures to the regulatory authorities. It provides a record of all

disclosures and information on its website, periodically and immediately. In addition to preparing periodic re-

ports with the latest information and updates, whether these reports are aimed for external use by sharehold-

ers or investors, or internal use (from the departments to the Executive Management, including to the Board

of Directors through a special portal names ALARGAN Gateway), these reports are prepared according to

time frames that serve all parties and their aspirations in the short, medium and long-term.

Rule Eleven: Focusing on the Importance of Corporate Social Responsibility

The Company’s commitment to responsibility is key to its success. We aim to operate under a sustainable

business model that generates value by building deep, extensive and long-term relationships with our clients

and other members of the community in which we operate. In the Company’s view, social responsibility is no

longer a matter of volunteering to help society alone, but it is rather a cornerstone of helping to build society. The

Company’s social responsibility is reflected in its participation in raising the standards of community awareness

about environmental sustainability through its actual implementation and projects. ALARGAN has effectively

participated in the community through its activities in promoting sustainable development, environmental pro-

tection and social empowerment. We present here some of ALARGAN activities in terms of social responsibility:

Kuwait Green Building Council (Kuwait GBC):

ALARGAN aims to contribute in the establishment of values for sustainable development, raising awareness

and encouraging the adoption of green building practices in Kuwait. Kuwait GBC was therefore established

as national and non-profit organization for the development of a sustainable property sector in Kuwait,

making ALARGAN a founder and active member of the organization which to develop the green building

practices in the country and allow for more efficient utilization of resources while building energy-efficient

homes and buildings.

Educational Empowerment:

ALARGAN organizes a series of innovative educational initiatives hosted at its headquarters and through

which it aims to strengthen its partnerships with Kuwait University, private universities and other Kuwaiti insti-

tutions in the public and private sectors. The Company’s aims to provide a large segment of the population,

specifically the youth, with valuable practical experience in sustainable development and green buildings

within a distinct institutional environment. In its annual educational lecture, the Company introduces students

to sustainability standards at its new headquarters, ARGAN Business Park, which is awarded the Plati-

num-ranking for Leadership in Energy and Environmental Design (LEED), making it the first green building

in Kuwait to receive such a recognition from the U.S. Green Building Council (USGBC). The lectures also

include field tours by students to the Company’s headquarters to showcase the sustainability standards

applied by ALARGAN at its new headquarters.


24

Recycling Program

ALARGAN has developed a comprehensive program to raise awareness about the concept of recycling and

to help reduce waste in Kuwait. Since 2015, ALARGAN has been providing recycling containers at its offices

at its headquarters to ensure that all waste is disposed of properly.

Bayt Abdullah Children’s Hospice (BACCH)

Since 2012, ALARGAN has provided financial and moral support to Bayt Abdullah Children’s Hospice, an

institution that provides care and assistance to children with life-threatening illnesses. ALARGAN has em-

braced the responsibility for creating a healthy and clean environment for children. Since then, the Company

has taken upon itself the responsibility of cultivating the surrounding area of the hospice and completing all

its maintenance by periodically inspecting the irrigation system, planting seasonal flowers and performing

routine maintenance in the hospice

Long-Term Partnership between ALARGAN and INJAZ

As part of its efforts to empower the Kuwaiti youth and arm them with the skills to build a sustainable career,

ALARGAN has renewed its commitment to support “INJAZ – Kuwait”. INJAZ is a Kuwaiti non-profit organi-

zation that develops educational programs, aiming to cultivate pioneering and leadership skills, inspire and

educate future generations. The ongoing support extended to the organization is fulfilled by encouraging em-

ployees to volunteer in INJAZ’s educational activities, which comprised hands-on workshops on professional

business management, entrepreneurship, human resources and business development projects.

2017 Remuneration Report

Summary of the Company’s Compensation Policy (Remuneration and Bonuses)

ALARGAN International’s compensation policy (remuneration and bonuses) was developed in line with the

Group’s main objectives of motivating and retaining highly-qualified professionals who hold the skills, knowl-

edge and experience, enhancing the performance of departments and profitability and offering attractive

benefits to employ competent professionals, which in turn helps the Company achieve optimal results its the

objectives and strategies.

The Board has therefore linked the financial remunerations to the Company’s short and long-term perfor-

mance objectives. The strategy has been converted into Key Performance Indicators (KPIs) required to be

achieved in line with the remunerations scheme. All the components of financial remunerations granted were

considered as follows:

• Fixed remunerations (such as salaries, benefits, etc.)

• Variable remunerations (such as performance-based bonuses) that include cash rewards and equity shares.

The Nomination and Remuneration Committee works within the framework of this policy, recommending

the remuneration granted to the Board of Directors and Executive Management based on the procedures

set out in the compensation policy. The Board is fully responsible for making the final decisions regarding

the approval of all incentives, compensations and bonuses. The Nomination and Remuneration Committee

also conducts a periodic review of this policy and monitors its effectiveness or the need for any amendment.

Annual Report 2017

25

Details of Remunerations and Benefits Granted to the Board of Directors and Executive Management:

Remunerations of the Board of Directors

In 2017, the Ordinary AGM held on May 29, 2017 approved the Board of Directors’ recommendation to

distribute a remuneration to the Board of Directors for the financial year ended December 31, 2016 for a total

amount of KD45,000. In addition, a fixed remuneration for the attendance of the committees was awarded

for a total of KD15,000 for the year 2017.

On March 27, 2018, the Board of Directors recommended a bonus of KD35,000 for the financial year ended

December 31, 2017. The recommendation is subject to the approval of the Ordinary AGM.

Benefits to the Executive Management

Total benefits granted to the Executive Management, including the Chief Executive Officer, Chief Financial

Officer, executive managers and other managers, for the year ended December 31, 2017 amounted to

KD1,425,040.


26

AuditCommittee Report

Annual Report 2017

27

AuditCommittee Report


28

Audit Committee Report

On an annual basis, the Audit Committee evaluates and reports on the sufficiency of ALARGAN’s internal

audit systems; specifically, it evaluates the following areas:

• The efficiency and effectiveness of the audit procedures that were applied to protect ALARGAN’s assets

• To evaluate the soundness of its financial statements and to evaluate the efficiency of its operations.

• The development of risk factors, including unforeseen market changes, affecting ALARGAN and its ability

to mitigate such risk factors through its daily business operations.

• To evaluate the performance of the executive management in applying internal audit systems.

• Any weakness or failures in the application of ALARGAN’s internal audit systems; including the procedures

taken to remedy any identified application weaknesses or failures.

ALARGAN’s enhanced in-house internal audit systems were introduced on the 1st of February, 2017,

when the Audit Committee approved the Internal Audit Department’s (“IAD”) policies and procedures.

These procedures have enabled the Audit Committee to periodically implement, manage and monitor the

application of ALARGAN’s internal audits systems.

The initial implementation of ALARGAN’s enhanced internal audit systems was through the development of

a 3-year rolling internal audit plan,approved by the Audit Committee on the 11th of May, 2017. This plan has

prioritized and scheduled the internal audits for all of ALARGAN’s departments; it is also periodically reviewed

to account for any organizational structure changes, new business activities and/or other new developments.

As of date,several departments within ALARGAN have been audited and the internal audit plan is progressing

as scheduled. Each internal audit reviews a Department’s activities, risks and established controls. Upon the

completion of each internal audit, an internal audit report is produced that provides an opinion on the level

of assurance, in terms of how well the audited Department is mitigating its respective risks and notes any

observations that require corrective action plans to be implemented by the relevant executive management.

Annual Report 2017

29

The Audit Committee assesses the state of ALARGAN’s internal audit systems on an ongoing basis to ensure

it is in line with the regulatory requirements and best market practices. This assessment is conducted by

reviewing the status of ALARGAN’s internal audit plan, the status of departmental corrective actions plans,

and the defined key performance indicators set for the IAD. Moreover, on an annual basis, and in accordance

with the Capital Market Authority’s regulations, ALARGAN appoints an independent audit company to

conduct an Internal Control Report (ICR). This report expresses an opinion on the adequacy of ALARGAN’s

internal control systems, which also includes corporate governance, financial control, information technology,

risk management, compliance and internal audit systems.

In conclusion, based on the status of ALARGAN’s internal audit plan, the internal audit reports produced

till date, and the results of the ICR from Baker Tilly (the appointed independent audit firm),it is the Audit

Committee’s opinion that ALARGAN’s internal audit systems and internal control systems are satisfactory.

The Audit Committee also recommends that the executive management at ALARGAN continue to support

and cooperate with the IAD in implementing the enhanced internal audit systems.

Committee Signatures

Mr. Hamad A. AI-Mudhaf

Member

Mr. Tareq B. AI-Mutawa

Member

Mr. Mohammed F. Al-Othman

Chairperson


30

RelatedParties Transactions

Annual Report 2017

31

Key man-

agement

personnel

Other

related

parties

Total

Associates 2017

Projects revenue 3,650 - - 3,650

Rental revenue - 91,506 - 91,506

Resort revenue - 94,434 - 94,434

Total revenue 3,650 185,940 - 189,590

Project cost (3,650) - - (3,650)

Resort cost - (31,626) - (31,626)

General and administrative expenses - - (36,795) (36,795)

Total cost (3,650) (31,626) (36,795) (72,071)

Finally, regarding the transactions the company will complete for the financial year ending 31 December

2018, we will present them to the shareholders of the company upon completion, if any, during the final year

ended 31 December 2018.

Related Parties Transactions Report

Dear Shareholders,

As for transactions with related parties during the financial year ended December 31, 2017, ALARGAN completed

several financial transactions with related parties as part of the course of its business. These transactions have

been approved by the Board of Directors and are represented as follows:

Haitham S. Al-Khaled

Chairman

Annual Report 2017

31


32

ConsolidatedFinancialStatements

Annual Report 2017

33

التقرير المالي

ConsolidatedFinancialStatements

Table of ContentsPage

Board members undertaking 34

Independent auditor’s report 35-39

Consolidated statement of financial position 40-41

Consolidated statement of profit or loss 42-43

Consolidated statement of profit or loss and other comprehensive income 44

Consolidated statement of changes in equity 45

Consolidated statement of cash flows 46-47

Notes to consolidated financial statements 48-102


34

Dear Shareholders,

As per the Capital Markets Authority regulations, stated in chapter Five of Module Fifteen (Corporate

Governance), rule no. (4), related to ensuring the integrity of the financial reports, we hereby acknowledge that

the financial statements of the company for the year ended December 31, 2017 presented fairly and include

all the financial aspects of the company, also it have been prepared in accordance with International Financial

Reporting Standards.

Best regards,

Mr. Haitham S. Al-Khaled Chairman

Mr. Khaled K. Al-Mashaan Vice Chairman & CEO

Mr. Mohammed F. Al-OthmanMember

Mr. Hamad A. AI-MudhafMember

Mr. Tareq B. AI-MutawaIndependent Member

Board Members Undertaking Regarding the Annual Consolidated Financial Statements of ALARGAN International Real Estate Company – K.S.C (Public) for the year ended December 31st, 2017

Annual Report 2017

35

Annual Report 2017

To the Shareholders of

ALARGAN International Real Estate Company - K.S.C.P.

State of Kuwait

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of ALARGAN International Real Estate Company -

K.S.C.P. “the Parent Company” and its subsidiaries “the Group”, which comprise the consolidated statement of

financial position as at December 31, 2017 and the consolidated statements of profit or loss, profit or loss and

other comprehensive income, changes in equity and cash flows for the financial year then ended, and notes to

the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the

Group’s consolidated financial position as at December 31, 2017, and its consolidated financial performance

and cash flows for the financial year then ended in accordance with International Financial Reporting

Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities

under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated

Financial Statements section of our report. We are independent of the Group in accordance with the

International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA

Code) together with ethical requirements that are relevant to our audit of the consolidated financial statements

in the State of Kuwait, and we have fulfilled our other ethical responsibilities in accordance with the (IESBA

Code). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit

of the consolidated financial statements of the current year. These matters were addressed in the context of

our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do

not provide a separate opinion on these matters. We identified the following key audit matters:

Independent Auditor’s Report


36

Investment Properties valuation

The valuation of the investment property is important to our audit as it represents a significant judgment area

and a significant part of the Group’s total assets, which is highly dependent on estimates. Therefore, we

identified the valuation of investment properties as a key audit matter. The Group policy is that investment

properties are evaluated by licensed appraisers at least once a year. These valuations among others are

based on assumptions, such as estimated rental revenues, discount rates, occupancy rates, market

knowledge, developers risk and historical transactions.

In estimating the fair value of the investment properties, appraisers used the valuation techniques i.e.

discounted cash flow and sales comparison methods, taking into consideration the nature and usage of the

investment properties. We reviewed the valuation reports from the licensed appraisers. We further focused

on the adequacy of the disclosures regarding the valuation of investment properties. Disclosures of this item

are included in Note 10 to the consolidated financial statements.

Net profit from construction

The engineering and construction segment nature is complex regarding the financial reporting and especially

in determining the revenue from projects under construction, revenue arising from construction segment

represents 12.75% of the Group’s total revenue. Complexity is represented in determining the percentage of

completion, the estimated cost to complete the project and whether there will be future cost that will exceed

the revenue in which provisions must be provided for.

Our auditing procedures included an evaluation of the significant judgements made by the Group’s

management, whereby we reviewed the projects documentation and discussed the status of projects under

construction with the finance, management and technical staff of the Group. We have checked the controls

designed by the Group and its implementation over the process to record contract cost and contract

revenues and the calculation of the percentage of completion. We also checked sample of the invoices and

other supporting documents for these projects. In addition, we discussed the status of legal proceedings

in respect of construction contracts and the completion time frame and compared the percentage of

completion with the prior years and checked the estimated costs in relation to nature, volume of work and

contracts. The policies and judgements related to revenue from contracts used by the Group’s management

is disclosed in Note (2 s, 2 AB).

Annual Report 2017

37

Other Information included in the Group’s 2017 Annual Report

Management is responsible for the other information. Other information consists of the information included

in the Group’s 2017 Annual Report, other than the consolidated financial statements and our auditor’s

report thereon. We obtained the report of the Parent Company’s Board of Directors, prior to the date of our

auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of our

auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information attached to it, and

we do not and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other

information and, in doing so, consider whether the other information is materially inconsistent with the

financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other

information; we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated

Financial Statements

Management of the Parent Company is responsible for the preparation and fair presentation of the

consolidated financial statements in accordance with IFRSs, and for such internal control as management

determines is necessary to enable the preparation of consolidated financial statements that are free from

material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s

ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using

the going concern basis of accounting unless management either intends to liquidate the Group or to cease

operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Parent Company’s financial reporting

process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements

as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s

report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee


38

that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,

they could reasonably be expected to influence the economic decisions of users taken on the basis of these

consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional

skepticism throughout the audit. We also do the following:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due

to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence

that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,

forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates

and related disclosures made by management of the Group.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based

on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that

may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a

material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures

in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our

conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future

events or conditions may cause the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements, including

the disclosures, and whether the consolidated financial statements represent the underlying transactions

and events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business

activities within the Group to express an opinion on the consolidated financial statements. We are

responsible for the direction, supervision and performance of the group audit. We remain solely responsible

for our audit opinion.

Annual Report 2017

39

We communicate with those charged with governance regarding, among other matters, the planned scope

and timing of the audit and significant audit findings, including any significant deficiencies in internal control

that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other matters that

may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that

were of most significance in the audit of the consolidated financial statements of the current year and are

therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation

precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that

a matter should not be communicated in our report because the adverse consequences of doing so would

reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

In our opinion, the consolidated financial statements incorporate all information that is required by the

Companies Law No. 1 of 2016, as amended, its Executive Regulations, as amended, and the Parent

Company’s Memorandum of Incorporation and Articles of Association and we have obtained all the

information that we required to perform our audit. In addition proper books of account have been kept by the

Parent Company, that an inventory was duly carried out, and the consolidated financial statements, together

with the contents of the report of the Parent Company’s board of directors relating to these consolidated

financial statements, are in accordance therewith, and to the best of our knowledge and belief, no violations

of the Companies Law No. 1 of 2016, as amended, and its Executive Regulations, as amended, nor of the

Parent Company’s Memorandum of Incorporation and Articles of association, have occurred during the year

ended December 31, 2017 that might have had a material effect on the business of the Parent Company or

its financial position.

State of Kuwait

March 27, 2018

Nayef M. Al Bazie

License No. 91-A

RSM Albazie & Co.

ALARGAN International Real Estate Company - K.S.C.P and its Subsidiaries

40

Notes 2017 2016

Current assets:

Cash and cash equivalents 5,536,487 6,701,796

Murabaha investments - 355,867

Gross amount due from customers for contract works 3 689,305 1,434,532

Accounts receivable and other debit balances 4 10,054,264 11,442,493

Due from related parties 5 22,958,419 20,642,853

Properties held for trading 6 15,776,650 19,436,682

Inventory 271,923 305,655

55,287,048 60,319,878

Assets classified as held for sale 7 8,117,708 -

Total current assets 63,404,756 60,319,878

Non-current assets:

Accounts receivable and other debit balances 4 9,500,000 250,000

Financial assets available for sale 8 7,248,079 7,016,745

Investment in associates 9 18,927,582 18,457,022

Investment properties 10 73,291,679 61,373,141

Right of utilization of land for development 60,114 72,995

Property, plant and equipment 11 1,697,873 2,190,592

Total non-current assets 110,725,327 89,360,495

Total assets 174,130,083 149,680,373

LIABILITIES AND EQUITY

Current liabilities:

Due to banks 12 1,825,851 560,176

Term loans 13 4,800,576 460,000

Murabaha contracts installments 14 463,472 409,021

Bonds 15 - 17,343,180

Gross amount due to customers for contract works 3 278,016 341,759

Accounts payable and other credit balances 16 18,246,686 15,930,749

Due to related parties 5 310,945 270,001

25,925,546 35,314,886

Liabilities classified as held for sale 7 1,414,613 -

Total current liabilities 27,340,159 35,314,886

Non-current liabilities:

Term loans 13 51,149,772 22,250,000

Provision for end of service indemnity 17 2,402,873 1,909,311

Total non-current liabilities 53,552,645 24,159,311

Total liabilities 80,892,804 59,474,197

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Cont.)

AS AT DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)

ASSETS

Annual Report 2017

41

Notes 2017 2016

Equity:

Share capital 18 26,500,000 26,500,000

Share premium 15,811,095 15,811,095

Statutory reserve 19 8,381,339 7,844,089

Voluntary reserve 20 5,162,322 5,162,322

Treasury shares 21 (3,567,554) (3,567,554)

Cumulative changes in fair value 302,058 65,820

Foreign currency translation reserve 2,504,023 2,746,548

Effect of changes in other comprehensive income of

associates 11,765 13,348

Retained earnings 35,454,813 33,372,082

Foreign currency translation reserve related to assets

classified as held for sale 439,661 -

Equity attributable to shareholders of the Parent Company 90,999,522 87,947,750

Non-controlling interests 2,237,757 2,258,426

Total equity 93,237,279 90,206,176

Total liabilities and equity 174,130,083 149,680,373

The accompanying notes from (1) to (38) form an integral part of the consolidated financial statements.

Haitham Suliman Hamood Al-Khaled Khaled Khudair Mashaan Khudair Al-Mashaan

Chairman Vice Chairman & CEO

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Cont.)

AS AT DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)


42

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)

Notes 2017 2016

Continuing operations:

Net income (loss) from projects 22 401,153 (51,423)

Net rental income 23 2,027,225 2,758,594

Net income from resorts 24 558,391 2,844,789

Net investment income 25 321,757 218,317

Share of results from associates 9 95,750 170,101

Gain on sale of investment properties 5,764 52,858

Unrealized gain from changes in fair value of investment

properties 10 9,489,644 998,482

Gross profit from operations 12,899,684 6,991,718

General and administrative expenses 26 (3,984,245) (3,887,202)

Depreciation and amortization (235,562) (249,915)

Provision for doubtful debts and slow moving inventory (193,663) (34,749)

Profit from operations 8,486,214 2,819,852

Loss on disposal of associate - (58,577)

Interest income 8,397 56,361

Finance charges (1,076,962) (1,330,319)

Foreign currencies exchange loss (40,935) (54,428)

Other income 9,646 3,995

Profit for the year from continuing operations 7,386,360 1,436,884

Discontinued operations:

(Loss) profit for the year from discontinued operations 7 (2,000,945) 345,595

Profit for the year before contribution to Kuwait Foun-

dation for the Advancement of Sciences (KFAS), Nation-

al Labor Support Tax (NLST), Zakat and Board of Direc-

tors’ remuneration 5,385,415 1,782,479

Contribution to KFAS - (10,002)

National Labor Support Tax (164,743) (54,214)

Contribution to Zakat - (12,325)

Board of Directors’ remuneration 27 (35,000) (45,000)

Profit for the year 5,185,672 1,660,938

Annual Report 2017

43

Notes 2017 2016

Attributable to:

Shareholders of the Parent Company 5,172,752 1,810,664

Non-controlling interests 12,920 (149,726)


Earnings per share attributable to Parent Company’s

shareholders (fils) 28 20.26 7.09


CONSOLIDATED STATEMENT OF PROFIT OR LOSS (Cont.)

FOR THE YEAR ENDED DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)


44

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)

Notes 2017 2016


Other comprehensive income:

Items that may be reclassified subsequently to consolidated

statement of profit or loss:

Changes in fair value of financial assets available for sale 8 237,220 (368,980)

Transfer from cumulative changes in fair value to consolidat-

ed statement of profit or loss upon sale of financial assets

available for sale - (17,282)

Exchange difference on translating foreign operations 316,449 365,754

Changes in foreign currency translation for assets classified

as held for sale (119,313) -

Transferred to consolidated statement of profit or loss from

foreign currency translation reserve upon disposal of asso-

ciate - 58,577

Group’s share of other comprehensive income from asso-

ciates 9 (1,583) (534)

Other comprehensive income for the year 432,773 37,535

Total comprehensive income for the year 5,618,445 1,698,473

Attributable to:

Shareholders of the Parent Company 5,604,543 1,846,057

Non-controlling interests 13,902 (147,584)

Total comprehensive income for the year 5,618,445 1,698,473


CO

NS

OLID

AT

ED

ST

AT

EM

EN

T O

F C

HA

NG

ES

IN E

QU

ITY

FOR

THE

YE

AR

EN

DE

D D

EC

EM

BE

R 31, 2017 (A

ll amounts are in K

uwaiti D

inars)

Equity attributable to shareholders of the P

arent Com

pany

To

tal equity

Non-controlling

interestsS

ubto

tal

Foreign currency

translation reserve of

assets classified as held

for sale

Retained

earnings

Effect of

changes in other

comprehensive

income of

associates

Fo

reign currency

translation

reserve

Cum

ulative

changes in fair

valueT

reasury shares

Vo

luntary

reserve

Statuto

ry

reserveS

hare prem

iumS

hare capital

90,165,8601,508,773

88,657,087-

34,307,53813,882

2,322,217454,224

(3,565,059)5,162,322

7,650,86815,811,095

26,500,000B

alance at Decem

ber 31 , 2015

1,660,938(149,726)

1,810,664-

1,810,664-

--

--

--

-P

rofit for the year

37,5352,142

35,393-

-(534)

424,331(388,404)

--

--

-O

ther comprehensive (loss)

income for the year

1,698,473(147,584)

1,846,057-

1,810,664(534)

424,331(388,404)

--

--

-Total com

prehensive (loss) incom

e for the year

(2,495)-

(2,495)-

--

--

(2,495)-

--

-P

urchase of treasury shares

--

--

(193,221)-

--

--

193,221-

-Transfer to reserves

948,694948,694

--

--

--

--

--

-E

ffect of consolidating subsidiaries

(51,457)(51,457)

--

--

--

--

--

-C

ash dividends for non-controlling interest

(2,552,899)-

(2,552,899)-

(2,552,899)-

--

--

--

-C

ash dividends 10% - (N

ote 29)

90,206,1762,258,426

87,947,750-

33,372,08213,348

2,746,54865,820

(3,567,554)5,162,322

7,844,08915,811,095

26,500,000B

alance as at Decem

ber 31, 2016

5,185,67212,920

5,172,752-

5,172,752-

--

--

--

-P

rofit for the year

432,773982

431,791(119,313)

-(1,583)

316,449236,238

--

--

-O

ther comprehensive incom

e (loss) for the year

5,618,44513,902

5,604,543(119,313)

5,172,752(1,583)

316,449236,238

--

--

-Total com

prehensive income

(loss) for the year

--

-558,974

--

(558,974)-

--

--

-R

elated to assets classified as held for sale

--

--

(537,250)-

--

--

537,250-


(34,571)(34,571)

--

--

--

--

--

-C

ash dividends for non- controlling interest

(2,552,771)-

(2,552,771)-

(2,552,771)-

--

--

--

-C


ote 29)

93,237,2792,237,757

90,999,522439,661

35,454,81311,765

2,504,023302,058

(3,567,554)5,162,322

8,381,33915,811,095

26,500,000B

alance as at Decem

ber

31, 2017

The accompanying notes from

(1) to (38) form an integral part of the consolidated financial statem

ents.

Annual Report 2017

45

CO

NS

OLID

AT

ED

ST

AT

EM

EN

T O

F C

HA

NG

ES

IN E

QU

ITY

FOR

THE

YE

AR

EN

DE

D D

EC

EM

BE

R 31, 2017 (A

ll amounts are in K

uwaiti D

inars)

Equity attributable to shareholders of the P

arent Com

pany

To

tal equity

Non-controlling

interestsS

ubto

tal

Foreign currency

translation reserve of

assets classified as held

for sale

Retained

earnings

Effect of

changes in other

comprehensive

income of

associates

Fo

reign currency

translation

reserve

Cum

ulative

changes in fair

valueT

reasury shares

Vo

luntary

reserve

Statuto

ry

reserveS

hare prem

iumS

hare capital

90,165,8601,508,773

88,657,087-

34,307,53813,882

2,322,217454,224

(3,565,059)5,162,322

7,650,86815,811,095

26,500,000B

alance at Decem

ber 31 , 2015

1,660,938(149,726)

1,810,664-

1,810,664-

--

--

--

-P

rofit for the year

37,5352,142

35,393-

-(534)

424,331(388,404)

--

--

-O

ther comprehensive (loss)

income for the year

1,698,473(147,584)

1,846,057-

1,810,664(534)

424,331(388,404)

--

--

-Total com

prehensive (loss) incom

e for the year

(2,495)-

(2,495)-

--

--

(2,495)-

--

-P

urchase of treasury shares

--

--

(193,221)-

--

--

193,221-


948,694948,694

--

--

--

--

--

-E

ffect of consolidating subsidiaries

(51,457)(51,457)

--

--

--

--

--

-C

ash dividends for non-controlling interest

(2,552,899)-

(2,552,899)-

(2,552,899)-

--

--

--

-C


ote 29)

90,206,1762,258,426

87,947,750-

33,372,08213,348

2,746,54865,820

(3,567,554)5,162,322

7,844,08915,811,095

26,500,000B

alance as at Decem

ber 31, 2016

5,185,67212,920

5,172,752-

5,172,752-

--

--

--

-P

rofit for the year

432,773982

431,791(119,313)

-(1,583)

316,449236,238

--

--

-O

ther comprehensive incom

e (loss) for the year

5,618,44513,902

5,604,543(119,313)

5,172,752(1,583)

316,449236,238

--

--

-Total com

prehensive income

(loss) for the year

--

-558,974

--

(558,974)-

--

--

-R

elated to assets classified as held for sale

--

--

(537,250)-

--

--

537,250-


(34,571)(34,571)

--

--

--

--

--

-C

ash dividends for non- controlling interest

(2,552,771)-

(2,552,771)-

(2,552,771)-

--

--

--

-C


ote 29)

93,237,2792,237,757

90,999,522439,661

35,454,81311,765

2,504,023302,058

(3,567,554)5,162,322

8,381,33915,811,095

26,500,000B

alance as at Decem

ber

31, 2017

The accompanying notes from

(1) to (38) form an integral part of the consolidated financial statem

ents.


46

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)

Notes 2017 2016

Cash flows from operating activities:

Profit for the year from continuing operations 7,386,360 1,436,884

(Loss) profit for the year from discontinued operations 7 (2,000,945) 345,595

Adjustments:

Share of results from associates 9 (95,750) (170,101)

Gain on sale of investment properties (5,764) (52,858)

Depreciation and amortization 764,190 763,076

Provision for doubtful debts and slow moving inventory 193,663 34,749

Net investment income 25 (321,757) (218,317)

Loss on disposal of investment in an associate - 58,577

Interest income (8,397) (56,361)

Finance charges 1,076,962 1,330,319

Write down of lands held for trading to net realisable value

related to discontinued operations 7 2,051,463 -

Gain on sale of property, plant and equipment (9,513) (3,177)

Unrealized gain from changes in fair value of investment

properties 10 (9,489,644) (998,482)

Bonds issuance cost amortization 16,820 61,559

Provision for end of service indemnity 17 613,414 424,108

171,102 2,955,571

Changes in operating assets and liabilities:

Gross amount from (to) customers for contract works 681,484 337,336

Accounts receivable and other debit balances (9,564,018) (1,582,780)

Due from related parties (2,512,314) (914,415)

Properties held for trading (3,559,164) (332,090)

Inventories 27,482 (29,258)

Accounts payable and other credit balances 3,200,047 (116,311)

Changes related to discontinued operations (309,450) -

Net cash (used in) generated from operations (11,864,831) 318,053

Payment for end of service indemnity 17 (108,272) (289,297)

Payment to Kuwait Foundation for the Advancement of

Science - (12,656)

Payment of National Labor Support Tax (482,662) (168,122)

Payment of Board of Directors’ remuneration (45,000) (25,000)

Net cash used in operating activities (12,500,765) (177,022)

Annual Report 2017

47

Notes 2017 2016

Cash flows from investing activities:

Proceeds from Murabaha investments 355,867 366,000

Paid for purchase of financial assets available for sale 8 - (1,210,517)

Proceeds from sale of financial assets available for sale - 1,014,807

Paid for investment in an associate 9 (87,500) -

Paid for additions to investment properties (2,706,268) (3,782,849)

Proceeds from sale of investment properties 647,155 131,041

Paid for purchase of property, plant and equipment 11 (259,115) (595,636)

Proceeds from sale of property, plant and equipment 10,038 12,675

Dividend income received from financial assets available for

sale 327,643 236,873

Interest income received 8,397 56,361

Net cash used in investing activities (1,703,783) (3,771,245)

Cash flows from financing activities:

Proceeds from due to banks 1,265,675 560,176

Proceeds from term loans 33,240,348 1,559,195

Proceeds from Murabaha contracts installments 54,451 122,602

Paid to bonds (17,360,000) (3,850,000)

Dividends paid to shareholders of the Parent Company (2,526,463) (2,620,436)

Paid for purchase of treasury shares - (2,495)

Net movement in due to related parties 29,364 (28,572)

Dividends paid to non-controlling interest (34,571) (51,457)

Finance charges paid (2,748,681) (2,545,974)

Changes related to discontinued operations 1,202,685 -

Net cash generated from (used in) financing activities 13,122,808 (6,856,961)

Net decrease in cash and cash equivalents (1,081,740) (10,805,228)

Change in cash and cash equivalents related to discontinued

operations 7 (83,569) -

Cash and cash equivalents at beginning of the year 6,701,796 17,507,024

Cash and cash equivalents at end of the year 5,536,487 6,701,796


CONSOLIDATED STATEMENT OF CASH FLOWS (Cont.)FOR THE YEAR ENDED DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)


48

1. Incorporation and activities of the parent company

Al Argan International Real Estate Co. - K.S.C.P. “The Parent Company”, was incorporated as per Articles

of Association of a Kuwaiti Shareholding Company (Closed), authenticated at the Ministry of Justice – Real

Estate Registration and Authentication Department under Ref. No. 819/Volume 1 on March 5, 2002. The

Incorporation General Assembly for the Parent Company was held on April 8, 2002 and declared the final

incorporation of the Parent Company.

The Parent Company is listed in the Kuwait Stock Exchange, the main activities of the Parent Company are as follows:

1. Owning, buying and selling real estates and lands and developing them in favour of the parent company

inside and outside state of Kuwait, also managing properties for others without violating the articles stip-

ulated in the existing laws that prohibit the trading in private residential plots as stipulated in those laws.

2. Owing, buying and selling real estate companies’ shares only for the benefit of the parent company

inside and outside Kuwait.

3. Conducting all kinds of real estate studies and consulting in accordance with the terms required to

perform such services.

4. Performing maintenance work related to buildings and real estates owned by the parent company which

includes maintenance work, execution of civil, mechanical, electrical, elevators work, and air condition-

ing which ensure the safety of the buildings.

5. Organizing real estate exhibitions related to the Company’s real estate projects according to Ministry’s

rules.

6. Establishing the real estate auctions in accordance with the Ministry’s rules.

7. Owning and managing commercial shops and housing complexes.

8. Trading in construction materials and equipment.

9. Performing real estate construction which includes civil, mechanical, electrical, sanitary, elevators, air

conditioning, aluminum and carpentry contracting work for real estates owned by the parent company

and by others.

10. Importing all construction equipment related to the parent company’s works.

11. Owning, managing, renting and leasing hotels, health clubs and touristic resorts.

12. Managing, operating, investing, renting and leasing hotels, clubs, motels, hospitality houses, rest hous-

es, parks, gardens, exhibitions, restaurants, cafeterias, housing complexes, touristic and health resorts,

entertainment and sports projects and shops at all levels and grades including all main and auxiliary

services and any other related services.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)

Annual Report 2017

49

13. Establishing and managing investment funds (subject to the Central Bank of Kuwait approval).

14. Direct contribution in infrastructure projects for areas, housing, commercial and industrial projects under

BOT system (Build, Operate, Transfer) and managing real estate facilities under BOT system.

15. Using the available financial surplus of the company by investing them in portfolios managed by spe-

cialized companies and entities.

The Parent Company is allowed to conduct the above-mentioned activities inside or outside State of Kuwait

on its own or as an agent for other parties. The Company may have an interest or in any way associate itself

with other institutions practicing activities similar to its activities or which may assist the Company in achiev-

ing its objective in Kuwait and abroad, and may establish, participate in or acquire these institutions or have

them affiliated to it.

The Parent Company was registered in the commercial register under Ref. No. 88093 dated March 13, 2002.

The address of the Parent Company is P.O. Box 8904, Al-Salmiya 22060, State of Kuwait.

The consolidated financial statements were authorized for issue by the Parent Company’s Board of Directors

on March 27, 2018. The accompanying consolidated financial statements are subject to approval from the

Parent Company’s shareholders General Assembly meeting. The shareholders’ Annual General Assembly

has the power to amend these consolidated financial statements after issuance.

2. Significant accounting policies

The accompanying consolidated financial statements of the Group have been prepared in accordance with

the International Financial Reporting Standards (“IFRS”) as issued by the international accounting standards

board (IASB). Significant accounting policies are summarized as follows:

a) Basis of preparation

The consolidated financial statements are presented in Kuwaiti Dinars which is the functional currency of the

Parent Company and are prepared under the historical cost convention except for financial assets available

for sale and investment properties that are stated at their fair value.

Standards and Interpretations issued and effective

The accounting policies used in the preparation of these consolidated financial statements are consistent

with those used in the previous year except for the changes due to implementation of the following new and

amended International Financial Reporting Standards as of January 1, 2017:

Amendment to IAS 7 – Disclosure InitiativeThe amendment to this standard which is effective prospectively for annual periods beginning on or after

January 1, 2017 require an entity to provide disclosures that enable users of financial statements to evaluate

changes in liabilities arising from financing activities, including both cash and non-cash changes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)DECEMBER 31, 2017 (All amounts are in Kuwaiti Dinars)


50

Amendments to IFRS 12 - Disclosure of Interests in Other EntitiesIFRS 12 states that an entity need not provide summarized financial information for interests in subsidiaries,

associates or joint ventures that are classified (or included in a disposal group that is classified) as held for

sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12

for such interests. The amendments are effective from January 1, 2017 and must be applied retrospectively.

The amendments do not have any material impact on the consolidated financial statements.

Standards and Interpretations issued but not effective

The following new and amended IASB Standards have been issued but are not yet effective, and have not

been adopted by the Group:

IFRS 9 - Financial Instruments

The standard, effective for annual periods beginning on or after January 1, 2018, replaces the existing guid-

ance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 specifies how an entity should

classify and measure its financial instruments and includes a new expected credit loss model for calculating

impairment of financial assets and the new general hedge accounting requirements. It also carries forward

the guidance on recognition and derecognition of financial instruments from IAS 39.

- IFRS 9 requires all recognised financial assets to be subsequently measured at amortised cost or fair

value (through profit or loss or through other comprehensive income), depending on their classification by

reference to the business model within which they are held and their contractual cash flow characteristics.

- For financial liabilities, the most significant effect of IFRS 9 relates to cases where the fair value option is

taken: the amount of change in fair value of a financial liability designated as at fair value through profit or

loss that is attributable to changes in the credit risk of that liability is recognised in other comprehensive

income (rather than in profit or loss), unless this creates an accounting mismatch.

- For the impairment of financial assets, IFRS 9 introduces an “expected credit loss (ECL)” model based on

the concept of providing for expected losses at inception of a contract; recognition of a credit loss should

no longer wait for there to be objective evidence of impairment.

- For hedge accounting, IFRS 9 introduces a substantial overhaul allowing financial statements to better

reflect how risk management activities are undertaken when hedging financial and non-financial risk expo-

sures.

- The recognition and derecognition of provisions are carried over almost unchanged from IAS 39.

The management anticipate that IFRS 9 will be adopted in the Group’s consolidated financial statements

when it becomes mandatory and will not restate comparative information. Management is in the process of

assessing the full impact of IFRS 9 on the Group’s consolidated financial statements based on an analysis of

the Group’s financial assets and financial liabilities as at December 31, 2017 on the basis of the facts and cir-

cumstances that exist at that date. Overall, the Group expects no significant impact on its consolidated state-

ment of financial position and equity except for the effect of applying the impairment requirements of IFRS 9.

Apart from equity investments classified currently as available-for-sale and measured at fair value through

other comprehensive income that should be measured at fair value through profit or loss under IFRS 9, all


Annual Report 2017

51

the other Group’s financial assets and financial liabilities should continue to be measured on the same basis

as currently under IAS 39.

Concerning impairment, the management expect to apply the simplified approach to recognise lifetime ECL

for the Group’s financial assets carried at amortized cost. Although the management are currently assessing

the extent of this impact, they anticipate that the application of the ECL model of IFRS 9 will result in earlier

recognition of credit losses. However, it is not practicable to provide a reasonable estimate of that effect until

the detailed review that is in progress has been completed

IFRS 15 - Revenue from contracts with customers

The standard, effective for annual periods beginning on or after January 1, 2018, establishes a comprehen-

sive framework for determining whether, how much and when revenue is recognized. It replaces the following

existing standards and interpretations upon its effective date:

• IAS 18 – Revenue,

• IAS 11 – Construction Contracts,

• IFRIC 13 – Customer Loyalty Programs,

• IFRIC 15 – Agreements for the Construction of Real Estate,

• IFRIC 18 – Transfers of Assets from Customers, and,

• SIC 31 – Revenue-Barter Transactions Involving Advertising Services

This standard applies to all revenue arising from contracts with customers (with a core principle based on a

five-step model), unless the contracts are in the scope of other standards. Its requirements also provide a

model for the recognition and measurement of gains and losses on disposal of certain non-financial assets,

including property, plant and equipment and intangible assets. The standard will also specify a compre-

hensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of

revenue and corresponding cash flows with customers.

Management of the Group anticipate that IFRS 15 will be adopted in the Group’s consolidated financial state-

ments when it becomes mandatory, and they intend to use the retrospective method of transition wherein the

Group will recognize the cumulative effect of initially applying this standard as an adjustment to the opening

balance of the retained earnings and will not restate comparative information.

However, as the management are still in the process of assessing the full impact of the application of IFRS

15 on the Group consolidated financial statements, it is not practicable to provide a reasonable financial

estimate of the effect until the management complete the detailed review.

IFRS 16 - Leases

This standard will be effective for annual periods beginning on or after January 1, 2019 and will be replacing



52

IAS 17 “Leases”. The new standard does not significantly change the accounting for leases for lessors and

requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance

leases under IAS 17 with limited exceptions for low-value assets and short term leases. At the commence-

ment date of a lease, a lessee will recognize a liability to make lease payments and an asset representing

the right to use the underlying asset during the lease term. Early application is permitted provided the new

revenue standard, IFRS 15, is applied on the same date. Lessees must adopt IFRS 16 using either a full

retrospective or a modified retrospective approach.

The Group is in the process of assessing the potential impact resulting from the application of the standard.

Amendments to IAS 28 – Investment in Associates and Joint Ventures

The amendments clarify that:

a) An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition

on an investment-by-investment basis, to measure its investments in associates and joint ventures at

fair value through profit or loss.

b) If an entity that is not itself an investment entity has an interest in an associate or joint venture that is an

investment entity, the entity may, when applying the equity method, elect to retain the fair value mea-

surement applied by that investment entity associate or joint venture to the investment entity associate’s

or joint venture’s interests in subsidiaries. This election is made separately for each investment entity

associate or joint venture, at the later of the date on which (i) the investment entity associate or joint

venture is initially recognised; (ii) the associate or joint venture becomes an investment entity; and (iii) the

investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively and are effective from January 1, 2018, with earlier

application permitted.

Amendments to IAS 40 – Transfers of Investment Property

The amendment will be effective for annual periods beginning on or after January 1, 2018 and clarify when

an entity should transfer property, including property under construction or development, into or out of in-

vestment property. The amendments state that a change in use occurs when the property meets, or ceases

to meet, the definition of investment property and there is evidence of the change in use. A mere change in

management’s intentions for the use of a property does not provide evidence of a change in use.

The Group is in the process of assessing the potential impact on its consolidated financial statements result-

ing from the application of the standard.

b) Principles of consolidation

The consolidated financial statements incorporate the financial statements of Al Argan International Real Estate Co. - K.S.C.P. (Parent Company) and the following subsidiaries (collectively the “Group”):


Annual Report 2017

53

Percentage of holding %

Name of Subsidiaries

Country of

incorporation 2017 2016

1. Al Argan National General Trading and Contracting

Co.- W.L.L. and its following subsidiaries: Kuwait 99% 99%

1.A. Al Argan National Contracting Co. – O.P.C. Bahrain 100% 100%

1.B. Al Argan for Swimming Pools Co. – W.L.L. Kuwait 99.80% 99.80%

1.C. Al Argan for Heavy Equipment Co. – W.L.L. Kuwait 99.80% 99.80%

1.D. Al Argan National Trading and Contracting Co. – W.L.L. Qatar 99.99% 99.99%

1.E. Health Plus Trading Co. – W.L.L. Kuwait 60% 60%

2. Argana for Resorts and Hotels Co. - K.S.C.(Closed)

and its following subsidiary: Kuwait 99.95% 99.95%

2.A. Coast Hotel Co. – W.L.L. Kuwait 99.99% 99.99%

3. Al Jood Holding Co. – B.S.C. Bahrain 99% 99%

4. Al Argan Investment Real Estate Co. – E.S.C Egypt 98% 98%

5. Al Argan Holding Co.- K.S.C.(Holding) Kuwait 99% 99%

6. Al Argan International Real Estate Limited Co. United Kingdom 100% 100%

7. Al Argan Landscaping Co. – W.L.L. Kuwait 99.67% 99.67%

8. Al Argan Gulf Real Estate Services Co. – K.S.C.

(Closed) Kuwait 50% 50%

9. Al Argan Real Estate Project Management Co. –

K.S.C. (Closed) Kuwait 50% 50%

10. Shams Al Fouz Real Estate Co. – W.L.L. Bahrain 99% 99%

11. Zelal Alqurom Real Estate Co. – W.L.L. and its

following subsidiaries: Oman 99.50% 99.50%

11.A. Telal Alqurom Real Estate Co. – W.L.L. Oman 99.50% 99.50%

11.B. Bustan Villas Co. – W.L.L. Oman 67% 67%

12. Support Real Estate Co. – W.L.L. and its following

subsidiaries: Kuwait 99.99% 99.99%

12.A. Shams Al-Hayat Restaurants Management Co.-

Sole proprietorship Kuwait 100% 100%

12.B. Sawa United Restaurants Management Co.-

Sole proprietorship Kuwait 100% 100%

12.C. Mehewer Al Kuwait real estate Co. - Sole propri-

etorship Kuwait 100% 100%



54

Percentage of holding %

Name of Subsidiaries

Country of

incorporation 2017 2016

12.D. Smart Digital Network Company for design

and preparation of electronic and computer

centers. - Sole proprietorship Kuwait 100% 100%

12.E. National company for construction works - W.L.L Oman 99.99% 99.99%

13. Jenan United Real Estate Co. – W.L.L. Kuwait 99.99% 99.99%

14. Masaken National Co. – W.L.L Saudi Arabia 99.95% 99.95%

15. Naseem Salalah Residency Project Co. – W.L.L. Oman 99.50% 99.50%

16. Shoaa Al Haya Property management Co. – W.L.L. Kuwait 85% 85%

Subsidiaries are those enterprises controlled by the Parent Company. Control is achieved when the Parent

Company:

• has power over the investee;

• is exposed, or has rights to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Parent Company reassess whether or not it controls an investee if facts and circumstances indicate that

there are changes to one or more of the three elements of control listed above.

When the Group has less than a majority of voting rights of an investee, it has power over the investee when

the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee uni-

laterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group’s

voting rights in an investee are sufficient to give it power, including:

• the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other

vote holders;

• potential voting rights held by the company, other vote holders or other parties;

• rights arising from other contractual arrangements; and

• any additional facts and circumstances that indicate that the Group has, or does not have, the current

ability to direct the relevant activities at the time that decisions need to be made, including voting pat-

terns at previous shareholders’ meetings.

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. Specifically, income and

expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement

of profit or loss and other comprehensive income from the date the Parent Company gains control until the


Annual Report 2017

55

date when the Parent Company ceases to control the subsidiary. All inter-company balances and transac-

tions, including inter-company profits and unrealized profits and losses are eliminated in full on consolidation.

Consolidated financial statements are prepared using uniform accounting policies for like transactions and

other events in similar circumstances.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the

Group’s equity therein. Profit or loss and each component of other comprehensive income are attributed to

the owners of the Parent Company and to the non-controlling interests, even if this results in the non-con-

trolling interests having a deficit balance.

A change in the ownership interest of a subsidiary without a change of control is accounted for as an equity

transaction. The carrying amounts of the group’s ownership interests and non-controlling interests are ad-

justed to reflect changes in their relative interests in the subsidiaries. Any difference between the amount by

which non-controlling interests are adjusted and fair value of the consideration paid or received is recognized

directly in equity and attributable to owners of the Parent Company. Losses are attributed to the non-con-

trolling 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; and

• Reclassifies the Parent Company’s share of components previously recognized in other comprehensive

income to profit or loss or retained earnings as appropriate.

c) Financial Instruments

The Group classifies its financial instruments as “financial assets” and “financial liabilities. Financial assets

and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the

instruments.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual

arrangement. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability

are reported as expense or income. Distributions to holders of financial instruments classified as equity are

charged directly to equity. Financial instruments are offset when the Group has a legally enforceable right to

offset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously.

Financial assets and financial liabilities carried on the consolidated statement of financial position include

cash and cash equivalents, Murabha investment, receivables, due from / to related parties, financial assets



56

available for sale, short and long term loans installments, short term Murabha contracts installments, bonds

and payables.

Financial assets:

1) Cash and cash equivalents

Cash and cash equivalents includes cash in hand and at banks, deposits held at call with banks and other

short-term highly liquid investments with original maturities of three months or less that are readily convertible

to a known amount of cash and are subject to an insignificant risk of changes in value.

2) Murabaha investment

Murabaha represents the amounts due to receive for purchased financed assets for others on deferred basis

as per Murabaha facility agreements. Murabaha balances are reported with full debit balances after deduct-

ing finance income amounts pertaining to future periods. Those finance income balances are amortized on a

time apportionment basis using effective interest method.

3) Accounts receivable

Receivables are amounts due from customers for merchandise sold or services performed in the ordinary

course of business and is recognized initially at fair value and subsequently measured at amortized cost using

the effective interest method, less provision for impairment. A provision for impairment of trade receivables

is established when there is objective evidence that the Group will not be able to collect all amounts due

according to the original terms of the receivables. Significant financial difficulties of the debtor, probability

that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are

considered indicators that the trade receivable is impaired. The amount of the provision is the difference

between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the

original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance

account, and the amount of the loss is recognized in the consolidated statement of profit or loss. When a

trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subse-

quent recoveries of amounts previously written off are credited in the consolidated statement of profit or loss.

4) Financial investments

Initial recognition and measurement

The Group classifies financial investments that fall within the scope of IAS 39 in financial assets available for

sale. The classification depends on the purpose for which those assets were acquired and is determined at

initial recognition by the management.


Annual Report 2017

57

Financial assets available for sale

Financial assets available for sale are non-derivative financial assets that are either designated in this category

or not classified in any of the other categories.

Purchases and sales of those financial assets are recognized on trade-date – the date on which the Group

commits to purchase or sell the asset / settlement date – the date on which an asset is delivered to or by the

Group. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not

carried at fair value through consolidated profit or loss.

Subsequent measurement

After initial recognition, financial assets available for sale are subsequently carried at fair value. The fair values

of quoted financial assets are based on current bid prices. If the market for a financial asset is not active

(and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the

use of recent arm’s length transactions, reference to other instruments that are substantially the same, dis-

counted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

Realized gains and losses from financial assets available for sale are included in the consolidated statement

of profit or loss. Unrealized gains and losses arising from changes in the fair value of financial assets available

for sale are recognized in cumulative changes in fair value in the consolidated statement of other compre-

hensive income.

Where financial assets available for sale could not be measured reliably, these are stated at cost less impair-

ment losses, if any.

When a financial asset available for sale is disposed off or impaired, any prior fair value earlier reported in

other comprehensive income is transferred to the consolidated statement of profit or loss.

Derecognition

A financial asset (in whole or in part) is derecognized either when:

a) the contractual rights to receive the cash flows from the financial asset have expired; or

b) the Group has transferred its rights to receive cash flows from the financial asset and either:

(a) has transferred substantially all the risks and rewards of ownership of the financial asset, or

(b) has neither transferred nor retained substantially all the risks and rewards of the financial asset, but

has transferred control of the financial asset. Where the Group has retained control, it shall continue

to recognize the financial asset to the extent of its continuing involvement in the financial asset.



58

Impairment

The Group assesses at the end of each reporting period whether there is objective evidence that a financial

asset or a group of financial assets is impaired. In the case of equity securities classified as available for

sale, a significant or prolonged decline in the fair value of the security below its cost is considered in deter-

mining whe.ther the securities are impaired. Significant decline is evaluated against the original cost of the

investment and prolonged against the period in which fair value has been below its original cost. If any such

evidence exists for investments available for sale, the cumulative loss – measured as the difference between

the acquisition cost and the current fair value, less any impairment loss on that investment previously rec-

ognized in profit or loss – is removed from the consolidated other comprehensive income and recognized in

the consolidated statement of profit or loss. Impairment losses recognized in the consolidated statement of

profit or loss on available for sale equity instruments are not reversed through the consolidated statement of

profit or loss.

Financial liabilities:

1) Accounts payable

Accounts payable include trade and other payables. Trade payables are obligations to pay for goods or ser-

vices that have been acquired in the ordinary course of business from suppliers. Trade payables are recog-

nized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal

operating cycle of the business if longer). If not, they are presented as non - current liabilities.

2) Borrowings

Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequent-

ly stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemp-

tion value is recognized in the consolidated statement of profit or loss over the period of the borrowings using

the effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent

that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the

draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be

drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of

the facility to which it relates.

3) Murabaha contracts

Murabaha represents the amounts due to pay for purchased assets for others on deferred basis as per Mu-

rabaha facility agreements. Murabaha balances are reported with full credit balances after deducting finance


Annual Report 2017

59

charges amounts pertaining to future periods. Those finance charges balances are amortized on a time

apportionment basis using effective interest method.

d) Gross amount due from (to) customers for contract work

Gross amount due from (to) customers for contract work represents the net amount of costs incurred plus

recognized profits, less the sum of recognized losses and progress billings for all contracts in progress. Cost

comprises direct materials, direct labor and an appropriate allocation of overheads. For contracts where

progress billings exceed costs incurred plus recognized profit (less recognized losses), the excess is includ-

ed under liabilities. Amounts received before the related work is performed are included in the consolidated

statement of financial position, as a liability, as advances received. Amounts billed for work performed but

not yet paid by the customer are included in the consolidated statement of financial position under trade

receivables.

E) Inventory

1) Materials in stores:Inventories are valued at the lower of weighted average cost or net realizable value after providing allowances

for any obsolete or slow-moving items. Costs comprise direct materials and, where applicable, direct labor

costs and those overheads that have been incurred in bringing the inventories to their present location and

condition. Cost is determined on a weighted average basis.

Net realizable value is the estimated selling price in the ordinary course of business less the costs of comple-

tion and selling expenses. Write-down is made for obsolete and slow-moving items based on their expected

future use and net realizable value.

The cost of biological produce transferred from biological assets is its fair value less costs to sell at the date

of harvest.

2) Plants inventory:Net realizable value of plants inventory is the estimated selling price in the ordinary course of business less

the costs of completion and selling expenses, if any.

f) Properties held for trading

Properties acquired or being constructed for sale in the ordinary course of business, rather than to be held to

generate rental income or for capital appreciation, are classified as properties held for trading. Properties held

for trading are recorded on initial recognition at cost and are subsequently measured at the lower of cost or

net realisable value. Cost includes freehold or leasehold rights for land, borrowing costs, planning and design

costs, costs of site preparation, professional fees for legal services, property transfer taxes, construction

overheads and other related costs.



60

Net realisable value is the estimated selling price in the ordinary course of business, based on market prices

at the reporting date, less costs to complete and the estimated costs to sell. Net realisable value is deter-

mined based on valuation performed annually by independent professional real estate valuation experts who

have the required qualifications and experience in valuing such types of properties using recognised valuation

techniques.

At each reporting date, if the cost of the property exceeds its net realisable value, the property is written down

to its net realisable value and the difference is recognised to the consolidated statement of profit or loss. If

previously recognised loss is subsequently recovered, the property is increased to its net realisable value to

the extent of its original cost and the amount of increase is recognised in the consolidated statement of profit

or loss to the extent of the previously recognised loss.

g) Investment properties

Investment properties comprise completed property, property under construction or re-development held to

earn rentals or for capital appreciation or both. Investment properties are initially measured at cost including

purchase price and transactions cost subsequent to initial recognition, investment properties are stated at

the fair value at the end of the reporting period. Gains or losses arising from changes in fair value of invest-

ment properties are included in the consolidated statement of profit or loss for the period in which they arise.

Property interest that is held under an operating lease is classified and accounted for as investment property

when the property would otherwise meet the definition of an investment property and the lessee uses the

fair value model.

Investment property under construction is measured at fair value if the fair value is considered to be reliably

determinable. Investment properties under construction for which the fair value cannot be determined reli-

ably, but for which the company expects that the fair value of the property will be reliably determinable when

construction is completed, are measured at cost less impairment until the fair value becomes reliably deter-

minable or construction is completed - whichever is earlier.

Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future

economic benefits associated with the expenditure will flow to the Group / Company and the cost of the item

can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part

of an investment property is replaced, the carrying amount of the replaced part is derecognised.

Investment properties are derecognized when either they have been disposed of or when the investment

property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

Gains or losses arising on the retirement or disposal of an investment property are recognized in the consol-

idated statement of profit or loss.

Transfers are made to investment property when, and only when, there is a change in use, evidenced by the


Annual Report 2017

61

end of owner occupation or commencement of an operating lease to another party. Transfers are made from

investment property when, and only when, there is a change in use, evidenced by commencement of owner

occupation or commencement of development with a view to sale. If owner-occupied property becomes

an investment property, the Group accounts for such property in accordance with the policy stated under

property, plant and equipment up to the date of change in use.

h) Investment in associates

Associates are those entities in which the Group have significant influence which is the power to participate

in the financial and operating policy decisions of the associate. Under the equity method, investment in as-

sociates are carried in the consolidated statement of financial position at cost as adjusted for changes in the

Group share of the net assets of the associate from the date that significant influence effectively commences

until the date that significant influence effectively ceases, except when the investment is classified as held

for sale, in which case it is accounted as per IFRS 5 “Non-current Assets Held for Sale and Discontinued

Operations”.

The Group recognizes in its consolidated statement of profit or loss for its share of results of operations of

the associate and in its other comprehensive income for its share of changes in other comprehensive income

of associate.

Losses of an associate in excess of the Group interest in that associate (which includes any long-term inter-

ests that, in substance, form part of the Group net investment in the associate) are not recognized except to

the extent that the Group has an obligation or has made payments on behalf of the associate.

Gains or losses arising from transactions with associates are eliminated against the investment in the asso-

ciate to the extent of the Group interest in the associate.

Any excess of the cost of acquisition over the Group share of the net fair value of the identifiable assets,

liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as

goodwill. The goodwill is included within the carrying amount of the investment in associates and is assessed

for impairment as part of the investment. If the cost of acquisition is lower than the Group’s share of the net

fair value of the identifiable assets, liabilities and contingent liabilities, the difference is recognized immediately

in the consolidated statement of profit or loss.

The Group determines at each reporting date whether there is any objective evidence that the investment in

associate is impaired by applying the requirements of IAS 39 and determine if necessary, to recognize any

impairment loss with respect to the investment. If this is the case, the entire carrying amount of the invest-

ment (including goodwill) is tested for impairment and the Group calculates the amount of impairment as

the difference between the recoverable amount of the associate and its carrying value and recognizes the

amount in the consolidated statement of profit or loss. Any reversal of that impairment loss is recognized to

the extent that the recoverable amount of the investment subsequently increases.



62

Upon loss of significant influence over the associate, the Group measures and recognizes any retaining

investment at its fair value. Any difference between the carrying amount of the associate upon loss of signif-

icant influence and the fair value of the retaining investment and proceeds from disposal is recognized in the

consolidated statement of profit or loss.

i ) Property, plant and equipment

The initial cost of property, plant and equipment comprises its purchase price and any directly attributable

costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred

after the property, plant and equipment have been put into operation, such as repairs and maintenance and

overhaul costs, are normally charged to the consolidated statement of profit or loss in the period in which

the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted

in an increase in the future economic benefits expected to be obtained from the use of an item of property,

plant and equipment beyond its originally assessed standard of performance, the expenditures are capital-

ized as an additional cost of property, plant and equipment.

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts

and any gain or loss resulting from their disposal is included in consolidated statement of profit or loss for

the period. The carrying values of property, plant and equipment are reviewed for impairment when events

or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists

and where the carrying values exceed the estimated recoverable amount, the assets are written down to their

recoverable amount, being the higher of their fair value less costs to sell and their value in use.

Depreciation is computed on straight line basis over the estimated useful lives of property, plant and

equipment as follows:

Years

Al-Abdali Farm buildings 4

Building related to the Group 4

Hotel’s furniture and fixture 10

Computer software 3

Decorations 4 - 5

Tools and equipment 4 - 10

Vehicles and equipment 4 - 10

Furniture and fixture 4

The cost of building constructed on lands leased from others is depreciated using a straight line basis over

the life of the rent contract of leased land for 20 years.

The useful life and depreciation method are reviewed periodically to ensure that the method and period of


Annual Report 2017

63

depreciation are consistent with the expected pattern of economic benefits from items of property, plant and

equipment.

An item of property, plant and equipment is derecognized upon disposal or when no future economic bene-

fits are expected to arise from the continued use of the asset.

j) Right of utilization of land for development

The Group recognizes an intangible asset arising from a service concession arrangement when it has a

right to charge for usage of the concession infrastructure. An intangible asset received as consideration for

providing construction or upgrade services in a service concession arrangement is measured at fair value

upon initial recognition.

Subsequent to initial recognition the intangible asset is measured at cost, which includes capitalized borrow-

ing costs, less accumulated amortization and accumulated impairment losses. The estimated useful life of

an intangible asset in a service concession arrangement is the period from when the Group is able to charge

the public for the use of the infrastructure to the end of the concession period in which the right of utilization

period ending on December 31, 2022.

Amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted

if appropriate.

k) Impairment of assets

At the end of each reporting period, the Group reviews the carrying amounts of its 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.

Recoverable amount is the higher of the 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 recognized immediately in the consolidated statement of profit or loss, unless the relevant

asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is

increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does

not exceed the carrying amount that would have been determined had no impairment loss been recognized

for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately



64

in the consolidated statement of profit or loss, unless the relevant asset is carried at a revalued amount, in

which case the reversal of the impairment loss is treated as a revaluation increase.

l) Non-current assets held for sale

Non-current assets (and disposal groups) are classified as held for sale if their carrying amount will be

recovered through a sale transaction rather than through continuing use. This condition is regarded as met

only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its

present condition. Management must be committed to the sale, which should be expected to qualify for

recognition as a completed sale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’

previous carrying amount and fair value less costs to sell. Non-current assets once classified as held for sale

are not depreciated or amortized.

Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and

liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax

assets, employee benefit assets, investment property and biological assets, which continue to be measured

in accordance with the Group’s accounting policies.

Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement

are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.

Non-current assets that cease to be classified as held for sale (or cease to be included in a disposal group

classified as held for sale) are measured at the lower of:

a) Its carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any

depreciation, amortization or revaluations that would have been recognized had the asset (or disposal

group) not been classified as held for sale, and

b) Its recoverable amount at the date of the subsequent decision not to sell.

m) Discontinued operations

A discontinued operation is a component of the Group’s business, the operational results and cash flows of

which can be clearly distinguished from the rest of the Group and which:

• represents a separate major line of business or geographic area of operations;

• is part of a single coordinated plan to dispose of a separate major line of business or geographic area

of operations; or

• is a subsidiary acquired exclusively with a view to re-sale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the


Annual Report 2017

65

criteria to be classified as discontinued operations.

In the consolidated statement of profit or loss of the reporting period, and of the comparable period of the

previous year, income and expenses from discontinued operations are reported separate from income and

expenses from continuing activities, down to the level of profit, even when the Group retains a non-controlling

interest in the subsidiary after the sale. The resulting profit or loss is reported separately in the consolidated

statement of profit or loss.

n) Provision for end of service indemnity

Provision is made for amounts payable to employees under the Kuwaiti Labor Law in the private sector,

employee contracts and the applicable labor laws in the countries where the subsidiaries operate. This

liability, which is unfunded, represents the amount payable to each employee as a result of involuntary

termination at the end of the reporting period, and approximates the present value of the final obligation.

o) Dividend distribution to the parent Company shareholders

The Group recognizes a liability to make cash and non-cash distributions to shareholders of the Parent

Company when the distribution is authorized and the distribution is no longer at the discretion of the Group.

A distribution is authorized when it is approved by the shareholders of the Parent company at the Annual

General Meeting. A corresponding amount is recognized directly in equity.

Non-cash distributions are measured at the fair value of the assets to be distributed with fair value re-

measurement recognized directly in equity. Upon distribution of non-cash assets, any difference between

the carrying amount of the liability and the carrying amount of the assets distributed is recognized in the

consolidated statement of profit or loss.

Distributions for the year that are approved after the reporting date are disclosed as an event after the date

of consolidated statement of financial position.

p) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are

shown in equity as a deduction from the proceeds.

q) Share premium

This represents cash received in excess of the par value of the shares issued. The share premium is not

available for distribution except in cases stipulated by law.



66

r) Treasury shares

Treasury shares consist of the Parent Company’s own shares that have been issued, subsequently reac-

quired by the Group and not yet reissued or canceled. 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 share-

holders’ equity (treasury shares reserve) which is not distributable. Any realized losses are charged to the

same account to the extent of the credit balance on that account. Any excess losses are charged to retained

earnings, reserves, and then share premium respectively.

Gains realized subsequently on the sale of treasury shares are first used to offset any recorded losses in the or-

der of share premium, reserves, retained earnings and the treasury shares reserve account. No cash dividends

are paid on these shares. The issue of bonus shares increases the number of treasury shares proportionately

and reduces the average cost per share without affecting the total cost of treasury shares.

Where any Group’s company purchases the Parent Company’s equity share capital (treasury shares), the

consideration paid, including any directly attributable incremental costs is deducted from equity attributable

to the Parent Company’s equity holders until the shares are cancelled or reissued. Where such shares are

subsequently reissued, any consideration received, net of any directly attributable incremental transaction

costs is included in equity attributable to the Parent Company’s shareholders.

s) Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and ser-

vices in the ordinary course of the Group’s activities. Revenue is shown net of returns, rebates and discounts

and after eliminating sales within the Group.

The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that

future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s

activities as described below. The amount of revenue is not considered to be reliably measurable until all

contingencies relating to the sale have been resolved. The Group bases its estimates on historical results,

taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Sale of goods

Sales represent the total invoiced value of goods sold during the year. Revenue from sale of goods is rec-

ognized when significant risks and rewards of ownership of goods are transferred to the buyer. The Group

does not operate any loyalty programs.

Rendering of services

Revenue from maintenance contracts is recognized when the service is rendered.


Annual Report 2017

67

Construction contracts

Revenue from construction contracts is recognized in accordance with the percentage of completion meth-

od of accounting measured by reference to the percentage that actual costs incurred to date bear to total

estimated costs for each contract. Profit is only recognized when the contract reaches a point where the

ultimate profit can be estimated with reasonable certainty. Claims, variation orders and incentive payments

are included in the determination of contract profit when approved by contract owners. Anticipated losses

on contracts are recognized in full as soon as they become apparent. Where the outcome of a construction

contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred

that it is probable will be recoverable. Contract costs are recognized as expenses in the period in which they

are incurred.

Revenue from projects shared with others

Revenue from projects shared with others is recognized after completing the projects and selling housing

units based on the percentage of the Company’s share in these projects which represents the cost of con-

struction, finishing and preparing the housing units for sale to the total projects cost.

Interest income and expense

Interest income and expense are recognized using the effective interest method. When a receivable is im-

paired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash

flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as

interest income. Interest income on impaired receivables is recognized either as cash is collected or on a

cost–recovery basis as conditions warrant.

Dividend income

Dividend income is recognized when the right to receive payment is established.

Rent

Rental income is recognized, when earned, on a time apportionment basis.

Gain on sale of investments

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 the sale date.



68

Sale of properties under development

When the agreement is within the scope of IAS 11 – construction contracts and its outcome can be estimat-

ed reliably, the Group recognizes the revenue by reference to the stage of completion of the contract activity

in accordance with IAS 11 – construction contracts.

When the agreement is within the scope of IAS 18 – Revenue, Group recognizes revenue at time of com-

pletion, when the significant risks and rewards of ownership of real estate are being transferred from Group

at a single time.

If the significant risks and rewards of ownership are transferred as when construction progresses, the Group

recognize revenue by reference to the percentage of completion method.

If there is a doubt about the future economic benefits flowing to the Group, the Group recognizes revenue

based on the installment percentage.

Other income

Other income is recognized on accrual basis.

t) Provisions

A provision is recognized when the Group has a present legal or constructive obligation as a result of a past

event and it is probable that an outflow of resources embodying economic benefits will be required to settle

the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed

at the end of each reporting period and adjusted to reflect the current best estimate. Where the effect of the

time value of money is material, the amount of a provision is the present value of the expenditures expected

to be required to settle the obligation. Provisions are not recognized for future operating losses.

u) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which

are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are

added to the cost of those assets, until such time as the assets are substantially ready for their intended

use or sale. Investment income earned on the temporary investment of specific borrowings pending their

expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other

borrowing costs are expensed in the consolidated statement of profit or loss in the period in which they are

incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the

borrowing of funds.

v) Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS)

Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS) is calculated at 1% of the con-


Annual Report 2017

69

solidated profit of the Parent Company before contribution to KFAS, National Labor Support Tax, Zakat,

and Board of Directors’ remuneration, and after deducting the Company’s share of income from Kuwaiti

shareholding subsidiaries and associates and transfer to statutory reserve.

w) National Labor Support Tax (NLST)

National Labor Support Tax (NLST) is calculated at 2.5% on the consolidated profit of the Parent Company

before contribution to Kuwait Foundation for the Advancement of Sciences, NLST, Zakat, and Board of Di-

rectors’ remuneration, and after deducting the Company’s share of profit from associates & un-consolidated

subsidiaries listed in Kuwait Stock Exchange, its share of NLST paid by subsidiaries listed in Kuwait Stock

Exchange, and cash dividends received from companies listed in Kuwait Stock Exchange in accordance

with law No. 19 for year 2000 and Ministerial resolution No. 24 for year 2006 and their executive regulations.

x) Contribution to Zakat

Contribution to Zakat is calculated at 1% on the consolidated profit of the Parent Company before contribu-

tion to Kuwait Foundation for the Advancement of Sciences, National Labor Support Tax, Zakat, and Board

of Directors’ remuneration, and after deducting the Company’s share of profit from Kuwaiti shareholding

associates & un-consolidated subsidiaries, its share of Zakat paid by Kuwaiti shareholding subsidiaries and

cash dividends received from Kuwaiti shareholding companies in accordance with law No. 46 for year 2006

and Ministerial resolution No. 58 for year 2007 and their executive regulations.

y) Foreign currencies

Foreign currency transactions are translated into Kuwaiti Dinars at rates of exchange prevailing on the date

of the transactions. Monetary assets and liabilities denominated in foreign currency as at the end of reporting

period are retranslated into Kuwaiti Dinars at rates of exchange prevailing on that date. Non-monetary items

carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the

date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in

a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items,

are included in consolidated statement of profit or loss for the period. Translation differences on non-monetary

items such as equity instruments classified as financial assets available for sale are included in “cumulative

changes in fair value” in other comprehensive income. Translation differences on monetary items such as debt

instruments classified as financial assets available for sale are included in consolidated statement of profit or loss.

The assets and liabilities of the foreign subsidiary are translated into Kuwaiti Dinars at rates of exchange pre-

vailing at the end of reporting period. The results of the subsidiary are translated into Kuwaiti Dinars at rates

approximating the exchange rates prevailing at the dates of the transactions. Foreign exchange differences

arising on translation are recognized directly in other comprehensive income. Such translation differences are

recognized in consolidated statement of profit or loss in the period in which the foreign operation is disposed off.



70

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and

liabilities of the foreign entity and translated at the closing rate.

z) Contingencies

Contingent liabilities are not recognized in the financial statements unless it is probable as a result of past

events that an outflow of economic resources will be required to settle a present, legal or constructive

obligation; and the amount can be reliably estimated. Else, they are disclosed unless the possibility of an

outflow of resources embodying economic losses is remote.

Contingent assets are not recognized in the consolidated financial statements but disclosed when an inflow

of economic benefits as a result of past events is probable.

AA) Segment reporting

A segment is a distinguishable component of the Group that engages in business activities from which it

earns revenue and incurs costs. Operating segments are reported in a manner consistent with the internal

reporting provided to the chief operating decision-maker. The chief operating decision-maker is identified

as the person being responsible for allocating resources, assessing performance and making strategic

decisions regarding the operating segments.

AB) Critical accounting judgments, estimates and judgments

The Group makes judgments, estimates and assumptions concerning the future. The preparation of

consolidated financial statements in conformity with International Financial Reporting Standards requires

management to make judgments, estimates and assumptions that affect the reported amounts of assets

and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial

statements and the reported amounts of revenue and expenses during the year. Actual results could differ

from the estimates.

a) Judgments

In the process of applying the Group’s accounting policies which are described in note 2, management has

made the following judgments that have the most significant effect on the amounts recognized in the con-

solidated financial statements.

1) Revenue Recognition

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Group and the

revenue can be reliably measured. The determination of whether the revenue recognition criteria as specified

under IAS 18 are met requires significant judgment.


Annual Report 2017

71

2) Determination of contract cost:

Determination of costs which are directly related to the specific contract or attributable to the contract activity

in general requires significant judgment. The determination of contract cost has a significant impact upon rev-

enue recognition in respect of long term contracts. The Group follows guidance of IAS 11 for determination

of contract cost and revenue recognition.

3) Classification of Land

Upon acquisition of land, the Group classifies the land into one of the following categories, based on the

intention of the management for the use of the land:

a) Properties under development:

When the intention of the Group is to develop land in order to sell it in the future, both the land and the

construction costs are classified as properties under development.

b) Properties held for trading:

When the intention of the Group is to sell land in the ordinary course of business, the land are classified

as properties held for trading.

c) Investment properties:

When the intention of the Group is to earn rentals from land or hold land for capital appreciation or if the

intention is not determined for land, the land is classified as investment property.

4) Provision for doubtful debts and inventories

The determination of the recoverability of the amount due from customers and the marketability of the inven-

tory and the factors determining the impairment of the receivable and inventories involve significant judgment.

5) Classification of financial assets

On acquisition of a financial asset, the Group decides whether it should be classified as “at fair value through

profit or loss”, “available for sale” or “held to maturity”. The Group follows the guidance of IAS 39 on classi-

fying its financial assets.

The Group classifies financial assets as “at fair value through profit or loss” if they are acquired primarily

for the purpose of short term profit making or if they are designated at fair value through profit or loss at

inception, provided their fair values can be reliably estimated. The Group classifies financial assets as “held

to maturity” if the Group has the positive intention and ability to hold to maturity. All other financial assets are

classified as “available for sale”.



72

6) Impairment of investments

The Group follows the guidance of IAS 39 to determine when an available-for-sale equity investment is

impaired. This determination requires significant judgment. In making this judgment, the group evaluates,

among other factors, a significant or prolonged decline in the fair value below its cost; and the financial

health of and short term business outlook for the investee, including factors such as industry and sector

performance, changes in technology and operational and financing cash flow. The determination of what is

“significant” or “prolonged” requires significant judgment.

7) Application of IFRIC 15 – Agreements for the construction of real estate

The determination whether the agreements within the scope of IAS 11 – Construction Contracts or IAS 18 –

Revenue require significant judgment.

b) Estimates and assumptions

The key assumptions concerning the future and other key sources of estimating uncertainty at the end of

the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of

assets and liabilities within the next financial year are discussed below:

1) Fair value of unquoted financial assets

If the market for a financial asset is not active or not available, the Group establishes fair value by using val-

uation techniques which include the use of recent arm’s length transactions, reference to other instruments

that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the

issuer’s specific circumstances. This valuation requires the Group to make estimates about expected future

cash flows and discount rates that are subject to uncertainty.

2) Long term contracts

Revenue from long term contracts is recognized in accordance with the percentage of completion method

of accounting measured by reference to the percentage that actual costs incurred to date bear to total

estimated costs for each contract. The revenue recognition as per the above criteria should correspond to

the actual work completed. The determination of estimated costs and the application of percentage of com-

pletion method involve estimation. Further, the budgeted cost and revenue should consider the claims and

variations pertaining to the contract.

3) Provision for doubtful debts and inventories

The extent of provision for doubtful debts and inventories involves estimation process. Provision for doubtful

debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts

are written off when identified. The carrying cost of inventories is written down to their net realizable value


Annual Report 2017

73

when the inventories are damaged or become wholly or partly obsolete or their selling prices have declined.

The benchmarks for determining the amount of provision or write-down include ageing analysis, technical

assessment and subsequent events. The provisions and write-down of accounts receivable and inventories

are subject to management approval.

4) Valuation of properties held for trading

Properties held for trading is stated at the lower of cost and net realizable value (NRV). NRV for completed

land held for trading is assessed by reference to market conditions and prices existing at the reporting date

and is determined by the Group, based on comparable transactions identified by the Group for properties

in the same geographical market serving the same real estate segment. NRV in respect of property under

construction is assessed with reference to market prices at the reporting date for similar completed property,

less estimated costs to complete construction, estimated costs to sell the property, and an estimate of the

time value of money to the date of completion.

5) Valuation of investment properties

The Group carries its investment properties at fair value, with changes in fair value being recognized in the

consolidated statement of profit or loss. Three main methods were used to determine the fair value of invest-

ment properties:

a) Formula based discounted cash flow is based on a series of projected free cash flows supported by

the terms of any existing lease and other contracts and discounted at a rate that reflects the risk of the

asset.

b) Income approach, where the property’s value is estimated based on the its income produced, and is

computed by dividing the property’s net operating income by the expected rate of return on the property

in the market, known as ‘Capitalization Rate’.

c) Comparative analysis is based on the assessment made by an independent real estate appraiser using

values of actual deals transacted recently by other parties for properties in a similar location and condi-

tion, and based on the knowledge and experience of the real estate appraiser.

6) Impairment of non-financial assets

Impairment exists when the carrying value of an asset (or cash generating unit) exceeds its recoverable

amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to

sell calculation is based on available data from binding sales transactions in an arm’s length transaction of

similar assets or observable market prices less incremental costs for disposing of the asset. The value in use

calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the

next five years and do not include restructuring activities that the Group is not yet committed to or significant



74

future investments that will enhance the asset’s performance of the cash generating unit being tested. The

recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as

the expected future cash inflows and the growth rate used for extrapolation purposes.

3. Gross amount due from (to) customers for contract works

2017 2016

Contract costs incurred to date plus recognized profits 12,603,854 13,678,905

Progress billings (12,192,565) (12,586,132)

411,289 1,092,773

Represented by

2017 2016

Gross amount due from customers for contract work 689,305 1,434,532

Gross amount due to customers for contract work (278,016) (341,759)

411,289 1,092,773

4. Accounts receivable and other debit balances

2017 2016

Trade receivables (a) 5,774,115 6,998,518

Less: Provision for doubtful debts (b) (685,053) (497,640)

Net trade receivables 5,089,062 6,500,878

Accrued income 222,905 1,064,074

Advance payments 1,525,518 1,158,530

Prepaid expenses (c) 11,390,891 1,138,939

Retention receivable 661,003 425,038

Refundable deposits 348,485 342,095

Staff receivables 278,399 1,024,718

Petty cash imprest 38,001 38,221

19,554,264 11,692,493

Analysed as:

2017 2016

Current portion 10,054,264 11,442,493

Non-current portion 9,500,000 250,000

19,554,264 11,692,493


Annual Report 2017

75

a) Trade receivables:

Trade receivables are non-interest bearing and are generally due within a year. The aging analysis of these

trade receivables was as follows:

Neither past due

nor impaired

Past due but not

impaired

Past due and

impaired

1-12 months More than a year More than a year Total

2017 3,814,480 1,274,582 685,053 5,774,115

2016 2,529,998 3,970,880 497,640 6,998,518

As at December 31, 2017, trade receivables amounting to KD 1,274,582 (2016 - KD 3,970,880) were past

due but not impaired. These balances relate to a number of independent customers for whom there is no

recent history of default.

b) Provision for doubtful debts:

The movement on the provision for doubtful debts is as follows:

2017 2016

Balance at the beginning of the year 497,640 470,903

Charged during the year 187,413 28,499

Utilized during the year - (1,762)

Balance at the end of the year 685,053 497,640

c) Prepaid expenses include an amount of KD 10,500,000 represented by prepaid rent.

d) The other classes within accounts receivable and other debit balances do not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable

mentioned above. Further, the Group doesn’t hold any collateral as security for accounts receivable and

other debit balances.

5. Related party disclosures

The Group has entered into various transactions with related parties i.e. associates, key management per-

sonnel and other related parties in the normal course of its business. Prices and terms of payment are

approved by the Group’s management. Significant related party transactions and balances are as follows:



76

Balances in the consolidated statement of financial position

Associates

Key man-

agement

personnel

Other relat-

ed parties

Total

2017 2016

Due from related parties 22,699,965 25,700 232,754 22,958,419 20,642,853

Properties held for

t rad ing 1,274,077 - - 1,274,077 -

Due to related parties (124,989) (17,563) (168,393) (310,945) (270,001)


Annual Report 2017

77

Transactions in the consolidated statement of profit or loss

Key

management

personnel

Other

related

parties

Total

Associates 2017 2016

Projects revenue 3,650 - - 3,650 114,523

Rental revenue - 91,506 - 91,506 91,506

Resort revenue - 94,434 - 94,434 89,713

Total revenue 3,650 185,940 - 189,590 295,742

Project cost (3,650) - - (3,650) (255,719)

Resort cost - (31,626) - (31,626) (31,868)

General and adminis-

trative expenses - - (36,795) (36,795) (36,795)

Total cost (3,650) (31,626) (36,795) (72,071) (324,382)

Compensation to key management personnel 2017 2016

Salaries and other benefits 1,034,071 1,484,144

Leave 86,983 113,227

End of service indemnity 303,986 84,599

1,425,040 1,681,970

6. Properties held for trading

2017 2016

Balance at the beginning of the year 19,436,682 17,699,723

Additions 6,112,975 4,024,143

Capitalized borrowing costs 278,083 318,431

Disposals (1,279,734) (2,746,359)

Write down of lands held for trading to net realisable value (Note 7) (2,051,463) -

Foreign currency translation adjustments (259,057) 140,744

Transfer to assets classified as held for sale - (Note 7) (6,460,836) -

Balance at end of the year 15,776,650 19,436,682



78

Properties held for trading consist of the following:

2017 2016

Land - 6,787,492

Properties under development 11,415,401 11,827,148

Developed properties 4,361,249 822,042

15,776,650 19,436,682

According to the valuations from independent valuers, the fair value of the properties held for trading amount-

ed to KD 16,030,626 as at December 31, 2017 (2016 – KD 19,599,800).

Properties held for trading amounting to KD 15,776,650 as at December 31, 2017 (2016 – KD 12,649,190)

are registered under the name of related parties, and there are letters of assignment in favor of the Group

regarding the ownership of these lands.

Certain properties held for trading amounting to KD 14,253,036 as at December 31, 2017 (2016 – KD Nil)

are pledged for foreign banks against bank facilities (Note 13 – c).

7. Assets and liabilities classified as held for sale

The Board of Directors of the Parent Company decided in the meeting held on December 21, 2017 to pro-

ceed with the disposal of two projects owned by a subsidiary which is wholly owned by the Parent Company

in Kingdom of Bahrain. The two projects consist of lands and properties held for trading. As a result, the

subsidiary assets and liabilities were classified as an assets and liabilities held for sale. The carrying value of

the subsidiary as at December 31, 2017 is as follows:

2017 2016

Assets classified as held for sale:

Cash at banks 83,569 -

Accounts receivable and other debit balances 1,573,303 -

Properties held for trading (Note 6) 6,460,836 -

Total assets classified as held for sale 8,117,708 -

Liabilities classified as held for sale:

Loan installments 1,202,685 -

Accounts payable and other credit balances 211,928 -

Total liabilities classified as held for sale 1,414,613 -


Annual Report 2017

79

The subsidiary is granted a loan amounting to BHD 1,500,000 (equivalent to KD 1,202,685) to finance the

properties held for trading related to the subsidiary, against pledging a project amounting to KD 1,768,693

as at December 31, 2017, and the assignment of the project’s revenue.

(Loss) profit for the year from discontinued operations are analysed as follows:

2017 2016

Net income from properties held for trading 57,216 355,542

Write down of lands held for trading to net realisable value - (Note 6) (2,051,463) -

General and administrative expenses (6,698) (9,947)

(Loss) profit for the year from discontinued operations (2,000,945) 345,595

(Loss) earnings per share from discontinued operations attributable to Shareholders of the Parent Company

is calculated as follows:

2017 2016

(Loss) profit for the year from discontinued operations (2,000,945) 345,595

Discontinued operations share of contribution to Kuwait

Foundation for the Advancement of Sciences (KFAS),

National Labor Support Tax (NLST) and Zakat - (18,291)

(2,000,945) 327,304

Shares Shares

Number of outstanding shares:

Weighted average number of issued shares 265,000,000 265,000,000

Less: Weighted average number of treasury shares (9,722,950) (9,714,341)

Weighted average number of outstanding shares 255,277,050 255,285,659

Fils Fils

(Loss) earnings per share from discontinued operations

attributable to Shareholders of the Parent Company (7.84) 1.28

Earnings per share from continuing operations attributable to

Shareholders of the Parent Company 28.10 5.81

Earnings per share attributable to Shareholders of the Parent

Company (Note 28) 20.26 7.09



80

8. Financial assets available for sale

2017 2016

Investment in real estate and financial portfolios 25,877 31,763

Investment in real estate and investment funds 3,992,627 3,757,862

Equity securities at fair value 3,181,575 3,179,120

Unquoted equity securities 48,000 48,000

7,248,079 7,016,745

The movement during the year is as follows:

2017 2016


Additions - 1,210,517

Disposals - (1,027,750)

Change in fair value 237,220 (368,980)

Impairment loss (Note 25) (5,886) (22,895)

Balance at the end of the year 7,248,079 7,016,745

The impairment losses for financial assets available for sale is calculated according to the basis set out in

Note (2).

Financial assets available for sale are denominated in the following currencies:

Currency 2017 2016

Kuwaiti Dinar 3,229,575 3,227,120

US Dollar 1,887,791 1,865,217

Pound Sterling 853,293 789,600

Euro 1,277,420 1,134,808

7,248,079 7,016,745


Annual Report 2017

81

9. Investment in associates

Investment in associates consists of the following:

Percentage of ownership (%) Amount

Name of the associatesCountry of

incorporation 2017 2016 2017 2016

Al Argan Towell Investment Co. – W.L.L. Oman 50 50 13,570,643 13,232,780

Barka City Real Estate Co. – W.L.L. Oman 25 25 488,685 434,990

Saji Real Estate Co. – K.S.C.C. - (i) Kuwait 10 10 128,176 128,176

Aqar Alkhalijya for trading and con-

tracting Co. W.L.L. Kuwait 35 - 81,857 -

Delmon Residence Co. – W.L.L. - (ii) Bahrain 10 10 110,442 107,210

Al Argan Bahrain – W.L.L. - (iii) Bahrain 50 50 - -

Al Argan Towell National Trading

and Contracting Co. – W.L.L. Oman 25 25 25,226 25,610

Sorouh AlQurom Bahrain Co. – W.L.L. Bahrain 28.48 28.48 4,522,553 4,528,256

18,927,582 18,457,022

(i) The Parent company accounted for its investment in Saji Real Estate Co. – K.S.C. (Closed), in

which the Group owns 10% of its capital as investment in associate, as there is a member out of

five members representing the Parent Company in the Board of Directors. In addition, the Parent

Company is the real estate developer of the main project of the associate, indicating that the Parent

Company has a significant influence over the financial and operating policies of the associate. As per

the associate Shareholders’ Extra Ordinary General Assembly meeting held on August 13, 2015, it

was approved to liquidate the associate and the same was notarized in the commercial registry on

August 31, 2015.

(ii) The Parent Company accounted for its investment in Delmon Residence Company- W.L.L. – King-

dom of Bahrain, in which the Group owns 10% of its capital as Investment in associate, as the Parent

Company is the real estate developer of the main project of the associate, indicating that the Parent

Company has a significant influence over the financial and operating policies of the associate.

(iii) The Parent Company’s share of loss from Al Argan Bahrain W.L.L. exceeded its investment amount

by KD 68,904. Hence, the Parent Company reduced its investment to Nil. The Parent Company did

not book any provision for additional losses, as there are no legal liability on the Parent Company to

settle any losses on behalf of the associate.



82

The movement during the year was as follows:

2017 2016


Additions 87,500 -

Group’s share of results from associates 95,750 170,101

Disposals - (1,094,535)

Exchange difference on translating foreign currencies 288,893 66,153

Group’s share from changes in other comprehensive income of

associates

(1,583) (534)

Balance at the end of the year 18,927,582 18,457,022

A - Summarized financial information for material associates of the Group are as follows:

Summarized consolidated statement of financial position:

Sorouh Al Qurom Bahrain

Co. – W.L.L.

Al Argan Towell Investment

Co. - W.L.L.

Barka City Real Estate

Co. - W.L.L.

2017 2016 2017 2016 2017 2016

Assets:

Current assets 26,945,147 28,031,322 3,754,809 4,234,529 1,777,723 416,431

Non-current assets - - 53,583,640 54,248,453 7,812,521 9,741,494

Total assets 26,945,147 28,031,322 57,338,449 58,482,982 9,590,244 10,157,925

Liabilities:

Current liabilities 11,065,397 12,131,547 1,327,570 1,239,754 772,208 1,634,002

Non-current liabilities - - 28,869,593 30,777,668 6,863,296 6,783,963

Total liabilities 11,065,397 12,131,547 30,197,163 32,017,422 7,635,504 8,417,965

Net assets 15,879,750 15,899,775 27,141,286 26,465,560 1,954,740 1,739,960

Percentage of ownership

of the Group 28.48% 28.48% 50% 50% 25% 25%

Carrying value of the

Group’s interest in the

investment 4,522,553 4,528,256 13,570,643 13,232,780 488,685 434,990


Annual Report 2017

83

Summarized Consolidated Statements of profit or loss and consolidated other comprehen-sive income:

Sorouh AlQurom Bahrain

Co. – W.L.L.

Al Argan Towell Investment

Co. – W.L.L.

Barka City Real Estate Co.

– W.L.L.

2017 2016 2017 2016 2017 2016

Revenues 1,586,279 - 792,873 1,435,925 1,681,178 1,789,093

Net (loss) profit for the

year attributable to

partners of the associate

company (5,843) (8,013) 56,814 256,426 243,363 100,280

Net loss for the year

attributable to non-con-

trolling interest - - (34) (7,037) - -

Share of results from

associates (1,664) (2,282) 28,407 128,212 60,841 25,070

Other comprehensive

(loss) income for the year (1,064) 14 (17,287) 1,290 - -

Total comprehensive

(loss) income for the year

attributable to partners of

associate company (6,907) (7,999) 39,527 257,716 243,363 100,280

B - Aggregate information of immaterial associates to the Group:

2017 2016

Carrying value of the Group’s investment in associates 345,701 260,996

Share of results from associates 8,166 19,101

Share of change in other comprehensive income (loss) of associates 7,364 (1,183)

Total comprehensive income of associates 15,530 17,918

10. Investment properties

Investment properties are represented in:

2017 2016

Investment properties stated at fair value (A) 68,016,650 55,438,663

Investment properties under construction stated at cost (B) 5,275,029 5,934,478

73,291,679 61,373,141



84

A. Investment properties stated at fair value

The movement during the year for investment properties stated at fair value is as follows:

Buildings constructed on leasehold

lands

Buildings constructed on owned

landsFreehold

lands Total

Balance as at December 31, 2015 50,750,000 967,174 601,889 52,319,063

Additions 211,027 - 9,879 220,906

Transferred from investment properties under construction stated at cost (B) 1,978,395 - - 1,978,395

Disposals - - (78,183) (78,183)

Change in fair value 912,578 (20,537) 106,441 998,482


Additions 1,033,112 6,048 - 1,039,160

Transferred from investment properties under construction stated at cost (B) 2,690,574 - - 2,690,574

Disposal - (520,371) (121,020) (641,391)

Change in fair value 9,760,314 (135,607) (135,063) 9,489,644


During the year ended December 31, 2017, the Group signed a new investment contract for an investment

property constructed on a leased land, through amending the rental mount and extending the leasing period

for additional 25 years.

Management of the Group has complied with the Executive Regulations of Capital Markets Authority with

respect to guidelines for valuation of investment properties.

The fair value of investment properties is based on valuations performed by accredited independent valuation

experts using recognized valuation techniques and principles.

In estimating the fair value of investment properties, the Group used discounted cash flows method and mar-

ket sales comparison method, considering the nature and usage of the investment properties. The Following

is the description of valuation techniques and key inputs to valuations:


Annual Report 2017

85

Class of investment propertyValuation technique

Fair value level 2017 2016

Building constructed on leasehold

landsDiscounted cash flow Three 67,336,000 53,852,000

Building constructed on freehold

landsMarket sales comparison Two 296,707 946,637

Freehold landsMarket sales comparison Two 383,943 640,026

68,016,650 55,438,663

B. Investment properties under construction stated at cost

There were no reliable measurements of fair value of Investment properties under construction since they

are currently under construction and accordingly they were stated at cost. The movement of the investment

properties under construction stated at cost during the year are as follows:

Buildings constructed on leasehold lands

Balance as at December 31, 2015 4,014,792

Additions 3,561,943

Capitalized borrowing costs 336,138

Transferred to investment properties stated at fair value (A) (1,978,395)


Additions 1,667,108

Capitalized borrowing costs 364,017

Transferred to investment properties stated at fair value (A) (2,690,574)


The freehold lands are registered in the name of a related party, and there are letters of assignment in favor

of the Group regarding the ownership of these lands.

Investment properties includes buildings constructed on leasehold lands for an amount of KD 51,985,044

as at December 31, 2017 negatively pledged against loans granted by local banks (Note 13 - A). Also, it

includes buildings constructed on leasehold lands for an amount of KD 9,725,985 pledged for local banks

against bank loans (Note 13 - A).



86

NO

TE

S T

O C

ON

SO

LIDA

TE

D F

INA

NC

IAL S

TA

TE

ME

NT

S (C

ont.)

DE

CE

MB

ER

31, 2017 (All am

ounts are in Kuw

aiti Dinars)

11. Property, plant and equipm

ent

Building

constructed

on right of

utilization

Al-Abdaly

farm building

constructed on

leasehold land from

Governm

ent

Building

related to the

Group

Hotel’s

furniture and

fixture

Com

puter

software

Decorations

Tools and

equipment

Vehicles and

equipment

Furniture and

fixtureTotal

Co

st:

At January 1, 2016

518,918107,709

133,3044,735,773

305,534574,286

1,607,092515,583

461,8118,960,010

Additions

--

4,920285,485

1,28744,921

6,587210,011

42,425595,636

Disposals

--

-(45,740)

--

-(15,010)

(3,309)(64,059)

As at D

ecember 31, 2016

518,918107,709

138,2244,975,518

306,821619,207

1,613,679710,584

500,9279,491,587

Additions

--

11,907103,071

50012,713

55,93431,781

43,209259,115

Disposals

--

--

--

-(23,533)

(852)(24,385)

As at D

ecemb

er 31, 2017518,918

107,709150,131

5,078,589307,321

631,9201,669,613

718,832543,284

9,726,317

Accum

ulated depreciation:

At January 1, 2016

310,854107,708

116,2123,325,175

277,264238,982

1,431,865439,465

357,8366,605,361

Charged during the year

31,172-

5,806395,588

15,631101,195

83,42869,322

48,053750,195

Relating to disposal

--

-(38,876)

--

-(14,487)

(1,198)(54,561)

As of D

ecember 31, 2016

342,026107,708

122,0183,681,887

292,895340,177

1,515,293494,300

404,6917,300,995

Charged during the year

31,172-

6,792411,818

3,156112,278

46,73790,868

48,488751,309

Relating to disposal

--

--

--

-(23,532)

(328)(23,860)

As at D

ecemb

er 31, 2017373,198

107,708128,810

4,093,705296,051

452,4551,562,030

561,636452,851

8,028,444

Net b

oo

k value:

As at D

ecemb

er 31, 2017145,720

121,321

984,88411,270

179,465107,583

157,19690,433

1,697,873

As at D

ecember 31, 2016

176,8921

16,2061,293,631

13,926279,030

98,386216,284

96,2362,190,592

Annual Report 2017

87

Deprecation charge has been allocated as follows:

2017 2016

Projects costs 106,375 107,862

Rental costs 6,793 5,806

Resorts costs 415,460 399,493

Others 222,681 237,034

751,309 750,195

12. Due to banksThis item represents bank facilities granted from local banks as at December 31, 2017, carrying annual

interest rate ranging from 2.25% to 2.5% (2016 – 2.5%) over the Central Bank of Kuwait discount rate, and

payable on demand.

13. Term loans

2017 2016

Current portion:

A- Secured loans from local banks, carrying an interest rate ranging from 2.25% to 3.5% per annum over the Central bank of Kuwait discount rate. 3,090,000 -

B- Unsecured revolving loan from a local bank, carrying an inter-est rate of 2.5% per annum over the Central bank of Kuwait discount rate. 1,000,000 -

C - Secured loan from a foreign bank, carrying an interest rate of 6.25% per annum. 628,344 -

D - Secured loans from local banks, carrying an interest rate ranging from 2.5% to 3.5% per annum over the Central Bank of Kuwait discount rate. 82,232 460,000

4,800,576 460,000

Non-current portion:

A - Secured loans from local banks, carrying an interest rate ranging from 2.25% to 3.5% per annum over the Central bank of Kuwait discount rate. 47,912,255 1,250,000

C - Secured loan from a foreign bank, carrying an interest rate of 6.25% per annum. 3,237,517 -

E- Secured loan from local bank, carrying an interest rate of 3% per annum over the Central Bank of Kuwait discount rate. - 21,000,000

51,149,772 22,250,000

55,950,348 22,710,000



88

The above mentioned term loans represents the following:

a. Secured loans granted to the Group with a total amount of KD 51,002,255. The loans are repayable on

installments, starting from January 2018 until January 2027.

These loans are secured by the following:

- Pledging the entire shares of the wholly owned Subsidiary “Argana for Resorts and Hotels Co - K.S.C.(-

Closed)”.

- Negative pledge on buildings constructed on leasehold lands amounting to KD 51,985,044 as at De-

cember 31, 2017 (Note 10).

- Pledging buildings constructed on leasehold lands amounting to KD 9,725,985 as at December 31,

2017 (Note 10).

- Assignment letter of certain projects revenues.

b. Unsecured revolving loan granted to the Parent Company from a local bank due on September 30, 2018.

c. A secured loan granted to a subsidiary company in Sultanate of Oman from a foreign bank with maximum

limit of OR 5,600,000 (approximately equivalent to KD 4,398,408) for the purpose of financing the devel-

opment of certain projects owned by the subsidiary Company, secured by pledging the land and buildings

constructed thereon amounting to KD 14,253,036 as at December 31, 2017 (Note 6). In addition to as-

signment letters on the project revenues. The loan is repayable on 7 quarterly installments, starting from

October 31, 2018.

d. Loans granted to a subsidiary company from a local bank and secured by the corporate guarantee of the

Parent Company. In addition to assignment letters on certain project revenues. The loan is repayable on

installments.

e. A secured loan granted to the Parent Company from a local bank for an amount of KD 21,000,000, and

during the year ended December 31, 2017 the Parent Company settled the full amount of the loan.

Certain loans granted to associates are secured by the corporate guarantee of the Parent Company.

14. Murabaha contracts installments

2017 2016

Murabaha contracts installments 472,518 416,038

Less: Deferred finance cost (9,046) (7,017)

Net Murabaha contracts installments 463,472 409,021

Murabaha contracts are related to one of the subsidiary companies, and is payable on installments and the

last installment is due on August 21, 2018.


Annual Report 2017

89

15. Bonds

2017 2016

Bonds issued at a fixed rate - 14,060,000

Bonds issued at a floating rate - 3,300,000

- 17,360,000

(Less) unamortized issuance cost - (16,820)

- 17,343,180

The Parent Company settled the full amount of the bonds due amounting to KD 17,360,000, in addition to

the accrued related interest on April 11, 2017.

16. Accounts payable and other credit balances

2017 2016

Trade payables (a) 2,120,754 2,427,712

Unearned revenue 7,767,641 6,545,580

Revenues and payments received in advance 2,026,479 1,213,216

Accrued expenses 1,008,110 993,907

Subcontractors retention 786,631 819,192

Rent deposits 691,137 329,114

Provision for finished projects maintenance 559,983 119,391

Provision for taxes 1,695,244 1,617,431

Zakat payable 217,441 217,441

KFAS payable 165,747 165,747

NLST payable 232,743 544,347

Accrued staff leave 777,329 751,961

Staff payables 8,219 12,790

Dividends payable 154,228 127,920

Board of Directors’ remuneration payable 35,000 45,000

18,246,686 15,930,749

a) Trade payables are non-interest bearing and are normally settled within 3 months.



90

17. Provision for end of service indemnity

2017 2016

Balance at begenning of the year 1,909,311 1,774,500

Charged during the year 613,414 424,108

Paid during the year (108,272) (289,297)

Transferred to a related party (11,580) -

Balance at end of the year 2,402,873 1,909,311

18. Share capital

The Parent Company’s authorized, issued and paid up capital is KD 26,500,000 distributed over 265,000,000

shares of 100 fils each (2016 – KD 26,500,000 distributed over 265,000,000 shares of 100 fils each) and all

shares are in cash and in kind (cash amounted to KD 22,400,000 and in kind amounted to KD 4,100,000).

19. Statutory reserve

As required by the Companies Law and the parent Company’s Articles of Association, 10% of profit for

the year attributable to Parent Company’s shareholders before contribution to Kuwait Foundation for the

Advancement of Sciences, National Labor Support Tax, Zakat and Board of Directors’ remuneration is trans-

ferred to statutory reserve. The Parent Company may resolve to discontinue such annual transfers when the

reserve equals 50% of the capital. This reserve is not available for distribution except in cases stipulated by

Law and the Parent Company’s Articles of Association.

It is not allowed to distribute statutory reserve to shareholders, it is only allowed to use it to distribute profits

to shareholder’s amount up to 5% (five percent) in the years where the Parent Company’s profits do not allow

such percentage. If the statutory reserve exceeded half of the Parent Company’s share capital, the Share-

holders’ General Assembly of the Parent Company may resolve to use such excess in way that is suitable for

the Parent Company and the shareholders best interest.

20. Voluntary reserve

As required by the Parent Company’s Article of Association, a percentage is transferred to the voluntary re-

serve, suggested by the Board of Directors and approved by the General Assembly of the Parent Company’s

shareholders. Such transfer may be discontinued by a resolution of the Ordinary General Assembly based on

the Board of Directors’ recommendation.

As per the decision of the Board of Directors of the Parent Company Meeting held on March 27, 2018, the

Board approved not to transfer to voluntary reserve. This decision is subject to the approval of the Sharehold-

ers’ Annual General Assembly of the Parent Company.


Annual Report 2017

91

21. Treasury shares

2017 2016

Number of shares 9,722,950 9,722,950

Percentage to paid up shares 3.6690% 3.6690%

Market value (KD) 1,458,443 1,614,010

Cost (KD) 3,567,554 3,567,554

The Parent Company’s management has allotted an amount equal to treasury shares balance from the

available retained earnings as of the consolidated financial reporting date, such amount will not be available

for distribution during the treasury shares holding period.

22. Net income (loss) from projects

2017 2016

Projects revenues 4,643,315 8,140,681

Projects costs (4,242,162) (8,192,104)

401,153 (51,423)

23. Net rental income

2017 2016

Rental revenues 2,907,425 3,187,285

Rental costs (880,200) (428,691)

2,027,225 2,758,594

24. Net income from resorts

2017 2016

Resorts revenues 7,850,916 8,652,237

Resorts costs (7,292,525) (5,807,448)

558,391 2,844,789

25. Net investment income

2017 2016

Gain from sale of financial assets available for sale - 4,339

Cash dividend 327,643 236,873

Impairment loss of financial assets available for sale (Note 8) (5,886) (22,895)

321,757 218,317



92

26. General and administrative expenses

2017 2016

Salaries, wages and other benefits 1,829,770 2,096,593

Other expenses 2,154,475 1,790,609

3,984,245 3,887,202

27. Board of Directors’ remuneration

The Board of Directors’ meeting held on March 27, 2018 recommended a remuneration of KD 35,000 to the

Board of Directors for the year ended December 31, 2017. This recommendation is subject to the approval

of the Parent Company’s Shareholders Ordinary General Assembly.

The Parent Company’s General Assembly meeting held on May 29, 2017 approved the recommendation

of the Board of Directors for distributing KD 45,000 as a remuneration to the Board of Directors for the year

ended December 31, 2016.

28. Earnings per share attributable to Parent Company’s shareholders (Fils)

Basic earnings per share is calculated by dividing the profit for the year attributable to shareholders of the

Parent Company on the weighted average number of ordinary shares outstanding during the year (excluding

treasury shares). There is no diluted shares. The information necessary to calculate the basic earnings per

share based on the weighted average number of outstanding shares during the year is as follows:

2017 2016

Profit for the year attributable to the parent company’s shareholders 5,172,752 1,810,664

Number of outstanding shares:

Weighted average number of issued shares 265,000,000 265,000,000

Less: Weighted average number of treasury shares (9,722,950) (9,714,341)

Weighted average number of outstanding shares 255,277,050 255,285,659

Earnings per share attributable to the parent company’s share-

holders (Fils) – (Note 7) 20.26 7.09


Annual Report 2017

93

29. Dividends distribution

The Parent Company’s General Assembly meeting held on May 29, 2017 approved, the consolidated finan-

cial statement of the Group for the year ended December 31, 2016, and the recommendation of the Board

of Directors for distributing cash dividends 10% from the shares’ par value (10 Fils per share), amounted to

KD 2,552,771 for the year ended December 31, 2016.

The Parent Company’s General Assembly meeting held on May 23, 2016, approved the consolidated finan-

cial statement of the Group for the year ended December 31, 2015 and the recommendation of the Board of

Directors for distributing cash dividends 10% from the shares’ par value (10 Fils per share), amounted to KD

2,552,899 for the year ended December 31, 2015.

30. Proposed cash dividends

The Board of Directors’ meeting held on March 27, 2018 recommended not to distribute cash dividends for

the year ended December 31, 2017. This recommendation is subject to the approval of the Parent Compa-

ny’s Shareholders Ordinary General Assembly.

31. Employees’ cost

Employees’ salaries and other benefits amounted to KD 6,534,777 for the year ended December 31, 2017

(2016 – KD 7,279,000).



94

32. Segm

ent analysis

A. S

egment analysis b

y activities:

The Group’s activities are represented prim

arily in real estate investment activity, contracting activities and H

otels and resorts activities as follows:

Real estate investm

entC

ontractingH

otels and resorts

Real estate investm

ent

discontinued operations Total

20172016

20172016

20172016

20172016

20172016

Revenues

1,689,1798,836,202

3,563,6435,111,160

22,024,81311,737,553

664,8891,077,512

27,942,52426,762,427

Expenses

(7,604,849)(8,528,510)

(3,468,268)(4,940,657)

(9,017,901)(10,900,405)

(2,665,834)(731,917)

(22,756,852)(25,101,489)

(loss) profit for the year(5,915,670)

307,69295,375

170,50313,006,912

837,148(2,000,945)

345,5955,185,672

1,660,938

Total assets96,059,773

102,598,8796,485,987

5,242,10563,466,615

41,839,3898,117,708

-174,130,083

149,680,373

Total liabilities(72,279,250)

(53,010,982)(4,379,807)

(4,506,245)(2,819,134)

(1,956,970)(1,414,613)

-(80,892,804)

(59,474,197)

Net assets

23,780,52349,587,897

2,106,180735,860

60,647,48139,882,419

6,703,095-

93,237,27990,206,176

B. G

eographical segm

ents:The C

ompany prim

arily operates inside and outside Kuw

ait (Kingdom

of Saudi A

rabia – Kingdom

of Bahrain, A

rab Republic of E

gypt, Sultanate of O

man and

Republic of Lebanon) as follow

s:

Inside Kuw

aitO

utside Kuw

ait

Outside K

uwait

discontinued operations Total

20172016

20172016

20172016

20172016

Revenues

26,174,55622,665,925

1,103,0793,018,990

664,8891,077,512

27,942,52426,762,427

Expenses

(19,089,089)(22,020,114)

(1,001,929)(2,349,458)

(2,665,834)(731,917)

(22,756,852)(25,101,489)

Profit (loss) for the year

7,085,467645,811

101,150669,532

(2,000,945)345,595

5,185,6721,660,938

Total assets101,872,778

77,704,39464,139,597

71,975,9798,117,708

-174,130,083

149,680,373

Total liabilities(67,289,268)

(52,083,986)(12,188,923)

(7,390,211)(1,414,613)

-(80,892,804)

(59,474,197)

Net assets

34,583,51025,620,408

51,950,67464,585,768

6,703,095-

93,237,27990,206,176

NO

TE

S T

O C

ON

SO

LIDA

TE

D F

INA

NC

IAL S

TA

TE

ME

NT

S (C

ont.)

DE

CE

MB

ER

31, 2017 (All am

ounts are in Kuw

aiti Dinars)

Annual Report 2017

95

Revenues / gains and expenses / losses analysis are as follow

s:

20172016

Revenues /

gains

Exp

enses / lo

ssesN

et pro

fit (lo

ss) R

evenues / gains

Expenses / losses

Net profit (loss)

Net incom

e (loss) from projects

4,643,315(4,242,162)

401,1538,140,681

(8,192,104)(51,423)

Net rental incom

e2,907,425

(880,200)2,027,225

3,187,285(428,691)

2,758,594

Net incom

e from resorts

7,850,916(7,292,525)

558,3918,652,237

(5,807,448)2,844,789

Net investm

ent income

327,643(5,886)

321,757241,212

(22,895)218,317

Share of results from

associates97,449

(1,699)95,750

175,765(5,664)

170,101

Gain on sale of investm

ent properties5,764

-5,764

52,858-

52,858

Unrealized gain from

changes in fair value of in-

vestment properties

11,427,080(1,937,436)

9,489,6445,084,843

(4,086,361)998,482

General and adm

inistrative expenses-

(3,984,245)(3,984,245)

-(3,887,202)

(3,887,202)

Depreciation and am

ortization-

(235,562)(235,562)

-(249,915)

(249,915)

Provision for doubtful debts and slow

moving

inventory-

(193,663)(193,663)

76,227(110,976)

(34,749)

Loss on disposal of associate-

--

-(58,577)

(58,577)

Interest income

8,397-

8,39756,361

-56,361

Finance charges-

(1,076,962)(1,076,962)

-(1,330,319)

(1,330,319)

Foreign currencies exchange loss-

(40,935)(40,935)

13,451(67,879)

(54,428)

Other incom

e9,646

-9,646

3,995-

3,995

(Loss) profit for the year from discontinued op-

erations664,889

(2,665,834)(2,000,945)

1,077,512(731,917)

345,595

KFA

S, N

ational Labor Support Tax, Zakat and

Board of D

irectors’ remunerations

-(199,743)

(199,743)-

(121,541)(121,541)

Profit for the year

27,942,524(22,756,852)

5,185,67226,762,427

(25,101,489)1,660,938

NO

TE

S T

O C

ON

SO

LIDA

TE

D F

INA

NC

IAL S

TA

TE

ME

NT

S (C

ont.)

DE

CE

MB

ER

31, 2017 (All am

ounts are in Kuw

aiti Dinars)


96

33. Financial Risk Management

In the normal course of business, the group uses primary financial instruments such as cash and cash equiv-

alents, accounts receivable, due from (to) related parties, financial assets available for sale, due to banks,

short and long term loans installments, short and long term Murabaha contracts installments, and accounts

payable and as a result, is exposed to the risks indicated below.

a) Interest rate risk:

Financial instruments are subject to the risk of changes in value due to changes in the level of interest. The

effective interest rates and the periods in which interest bearing financial assets and liabilities are repriced or

mature are indicated in the respective notes.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all

other variables held constant of the Group’s profit through the impact on floating rate borrowings. There is no

impact on the Parent Company’s equity.

Description

Increase / (Decrease) in interest rate 2017

Effect on consolidated statement of profit or loss

Total short term liabilities to financial institutions ± 50 basis points 6,626,427 ± 33,132

Total long term liabilities to financial institutions ± 50 basis points 51,149,772 ± 255,749

Liabilities related to discontinued operations ± 50 basis points 1,202,685 ± 6,013

Description

Increase / (Decrease) in interest rate 2016


Total short term liabilities to financial institutions ± 50 basis points 1,020,176 ± 5,101

Total long term liabilities to financial institutions ± 50 basis points 22,250,000 ± 111,250

Bonds ± 50 basis points 3,300,000 ± 16,500

The above table is based on the assumptions relating to the outstanding bank overdraft, loans and bond

balances on December 31, 2017 and December 31, 2016 and the sensitivity of change in interest rates.

b) Credit risk:

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation causing the

other party to incur a financial loss. Financial assets which potentially subject the Group to credit risk consist

principally of cash and cash equivalents, Murabaha investments and accounts receivable. The Group’s cash


Annual Report 2017

97

and cash equivalents and Murabaha investments are placed with high credit rating financial institutions. In

addition, the related parties’ receivables are of strong creditworthiness. The bank accounts of the Group are

distributed among different banks without concentrations on a single bank. Accounts receivable are present-

ed net of allowance for doubtful debts. Credit risk with respect to accounts receivable is limited due to the

large number of customers and their dispersion across different industries.

The Group’s maximum exposure arising from default of the counter-party is limited to the carrying amount of

cash and cash equivalents, Murabaha investments, receivables and due from related parties.

c) Foreign currency risk:

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in foreign currency exchange rates. The Group incurs foreign currency risk on transac-

tions that are denominated in a currency other than the Kuwaiti Dinar. The Group may reduce its exposure to

fluctuations in foreign exchange rates through the use of derivative financial instruments. The Group ensures

that the net exposure is kept to an acceptable level, by dealing in currencies that do not fluctuate significantly

against the Kuwaiti Dinar.

The following table demonstrates the sensitivity to a reasonably possible change in the foreign exchange

between foreign currencies and Kuwaiti Dinar.

2017

Description

Increase / (Decrease) against KD



and other comprehen-sive income

Bahraini Dinar ± 5% - ± 1,227,502

Omani Riyal ± 5% ± 23,124 ± 1,525,593

Saudi Riyal ± 5% ± 168 ± 506

US Dollar ± 5% ± 13,944 ± 223,468

Egyptian Pounds ± 5% - ± 354

Sterling Pound ± 5% ± 29 ± 42,665

UAE Dirham ± 5% ± 23 -

Euro ± 5% ± 21 ± 63,871



98

2016

Description

Increase / (Decrease) against KD




Bahraini Dinar ± 5% ± 26,019 ± 1,374,453

Omani Riyal ± 5% ± 51,964 ± 1,421,093

Saudi Riyal ± 5% ± 173 ± 468

US Dollar ± 5% ± 215,323 ± 93,261

Egyptian Pounds ± 5% - ± 339

Sterling Pound ± 5% ± 232 ± 39,480

UAE Dirham ± 5% ± 32 -

Euro ± 5% ± 220 ± 56,740

d) Liquidity risk:

Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments

associated with financial instruments. To manage this risk, the Group periodically assesses the financial

viability of customers and invests in Murabaha investments and other investments that are readily realizable,

along with planning and managing the Group’s forecasted cash flows by maintaining adequate cash reserves,

maintaining valid and available credit lines with banks, and matching the maturity profiles of financial assets

and liabilities.

Maturity Table for financial liabilities

2017

Description 3-12 months1-3

years Total

Accounts payable and other credit balances 18,246,686 - 18,246,686

Liabilities to financial institutions 7,089,899 51,149,772 58,239,671

Due to related parties 310,945 - 310,945

Liabilities classified as held for sale 1,414,613 - 1,414,613

Total 27,062,143 51,149,772 78,211,915


Annual Report 2017

99

2016

Description 3-12 months1-3

years Total

Accounts payable and other credit balances 15,930,749 - 15,930,749

Liabilities to financial institutions 1,429,197 22,250,000 23,679,197

Bonds 17,343,180 - 17,343,180

Due to related parties 270,001 - 270,001

Total 34,973,127 22,250,000 57,223,127

e) Equity price risk:

Equity price risk is the risk that fair values of equities decrease as the result of changes in level of equity

indices and the value of individual stocks. The equity price risk exposure arises from the Group’s investment

in equity securities classified as ‘financial assets available for sale’ result from investment in investment port-

folios and funds.

The following table demonstrates the sensitivity to a reasonably possible change in equity indices as a result

of change in the fair value of these investments as of the financial statements date, to which the Group had

significant exposure at the date of the reporting period:

2017 2016

Description

Change in equityprice


Effect on consol-idated statement

of profit or loss and other comprehensive

income

Change in equityprice




Investment in finan-

cial and real estate

portfolios ± 5% ± 1,294 ± 1,294 ± 5% ± 1,588 + 1,588

Investment in real

estate and invest-

ment funds ± 5% - ± 199,631 ± 5% - ± 187,893

Investment in equity

securities at fair

value ± 5% - ± 159,079 ± 5% - ± 158,956



100

34. Fair value measurement

The Group measures financial assets such as financial assets available for sale and non–financial assets such

as investment properties, at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly trans-

action between market participants at the measurement date. The fair value measurement is based on the

presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability, or.

• In the absence of a principal market, in the most advantageous market for the asset or liability.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements

are categorised within the fair value hierarchy, described as follows, based on the lowest level of input that is

significant to the fair value measurement as a whole:

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2: Valuation techniques for which the lowest level of input that is significant to the fair value measure-

ment is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level of input that is significant to the fair value measure-

ment is unavailable.

The following table shows an analysis of financial instruments recorded at fair value by level of the fair value

hierarchy:

2017

Description Level 2 Level 3 Total

Financial assets available for sale 4,018,504 3,181,575 7,200,079

2016

Description Level 2 Level 3 Total

Financial assets available for sale 3,789,625 3,179,120 6,968,745

At December 31, the fair values of financial instruments approximate their carrying amounts.The manage-

ment of the Group has assessed that fair value of cash and cash equivalents, accounts receivable, due from

(to) related parties, financial assets avialable for sale, due to banks, short term Murabaha contracts install-

ments, short and long term loans installments, and accounts payable approximate their carrying amounts

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


Annual Report 2017

101

During the year there were no transfers between Level 1, Level 2 and Level 3.

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the

Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing cate-

gorisation (based on the lowest level of input that is significant to the fair value measurement as a whole) at

the end of each reporting period. The fair value details of investment properties are mentioned in Note (10).

35. Capital Risk Management

The Group’s objectives when managing capital resources are to safeguard the Group’s ability to continue as

a going concern in order to provide returns for shareholders and benefits for other shareholders and to main-

tain an optimal capital resources structure to reduce the cost of capital. In order to maintain or adjust the cap-

ital resources structure, the Group may adjust the amount of dividends paid to shareholders, return paid up

capital to shareholders, issue new shares, sell assets to reduce debt, repay loans or obtain additional loans.

Consistent with others in the industry, the Group monitors capital resources on the basis of the gearing ratio.

This ratio is calculated as net debt divided by total capital resources. Net debt is calculated as total bor-

rowings (including current and non-current borrowings’ as shown in the consolidated statement of financial

position) less cash and cash equivalents. Total capital resources is calculated as ‘equity’ as shown in the

consolidated statement of financial position plus net debt.

For the purpose of managing the capital risk, the total capital resources consist of the following components:

2017 2016

Total short term liabilities to financial institutions 7,089,899 1,429,197

Short term bonds - 17,343,180

Liabilities to financial institutions related to discontinued operations 1,202,685 -

Total long term liabilities to financial institutions 51,149,772 22,250,000

Less: cash and cash equivalents (5,536,487) (6,701,796)

Net debt 53,905,869 34,320,581

Total equity 93,237,279 90,206,176

Total capital resources 147,143,148 124,526,757

Gearing ratio 37% 28%



102

36. Contingent liabilities and capital commitments

A. The Group is contingently liable in respect of the following:

2017 2016

Letters of credit 587,742 150,000

Letters of guarantees 6,936,626 5,972,267

7,524,368 6,122,267

B. Capital commitments contracted for at the consolidated statement of financial position date but not yet

incurred is as follows:

2017 2016

Properties held for trading 1,880,927 1,906,934

37. Legal claims

There are contingent liabilities and commitments as a result of legal cases raised from the Group against

others and from others against the Group in the normal course of its business, which are still pending in the

Court as of the date of consolidated financial statements, and based on the available information those legal

claims are considered immaterial and will not impact the consolidated financial position of the Group.

38. Comparative figures

Certain of the prior year amounts have been reclassified to conform to the amounts of current year presenta-

tion. The reclassification had no effect on the Group’s profit or consolidated equity for the prior year.



104

Annual Report 2017

105

T: + 965 2226 3222 | F: + 965 2226 3232 | P.O.Box: 8904 Salmiyah, 22060 Kuwait.ARGAN Business Park, Free Trade Zone, Shuwaikh (Block F98) Kuwait - [email protected]

الحياة... كما تحبهاLIFE... As You Love It

اهبحت امك ةايحلا - alarganalargan.com/images/reports/financial-report2017.pdf ·...

Documents