annual report 2018 · • uop has participated in another major tender for provi-sion of rock fluid...

ANNUAL REPORT 2018

About UOP

Company's Mission

Board of Directors

Executive Summary

Strategic Investments

Chairman's Statement

CEO & Vice Chairman's Statement

Financial Results

Future Outlook

Executive Management

Financial Statements

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Contents

H.H. Sheikh Sabah Al-Ahmad Al-Jaber Al-SabahAmir of the State of Kuwait

H.H. Sheikh Nawaf Al-Ahmad Al-Jaber Al-SabahCrown Prince of the State of Kuwait

AboutUOP

8 ABOUT UNITED OIL PROJECTS8

As the Industrial landscape evolved, UOP (then known as Kuwait Chemical Mfg Co), quickly responded by boosting the paid up capital from 2.5 Million Kuwaiti Dinars to KD 10 Million Kuwaiti Dinars approximately USD 32.9 million in 2005, equipping itself to take advantage of the growing opportunities.

Going from strength-to-strength, UOP moved into the Oil & Gas sector and initiated direct investments, alliances and joint-ventures with internationally reputed market players. Soon enough, UOP distinguished itself as one of the leading private Kuwaiti companies in its sector, acquiring two major associates in the oilfield services; Al-Khorayef United Holding Company (AKUH) and United Precision Drilling Company (UPDC).

UOP is a subsidiary of Qurain Petrochemical Industries Company (QPIC), the industrial arm of Kuwait Projects Company (KIPCO). QPIC, was established in 2004 with a paid-up capital of 110 Million Kuwaiti Dinars. By 2007, QPIC was already listed on Boursa Kuwait Stock exchange.

As one of the largest private investors in the Kuwait

petrochemicals sector (consolidated assets of around US$2.2 billion as at 31 December 2018), QPIC has a prime focus on investing in the Energy and Industrial sectors. Apart from UOP, QPIC also has significant stakes in Kuwait’s largest petrochemical complexes such as Equate Petrochemicals (Equate), The Kuwait Olefins Company (TKOC) and Kuwait Aromatics Company (KARO).

This is in addition to other significant interest in Saudia Dairy & Foodstuff Company (SADAFCO) and majority stakes in National Petroleum Services Company (NAPESCO) and Inshaa Holding.

Kuwait Projects Company (KIPCO) is one of the biggest & diversified holding companies in the Middle East and North Africa with consolidated assets worth of US$ 33 billion as at 31 December 2018. The Group has significant ownership interests in over 60 companies spanning 24 countries. The group’s primary business sectors are financial services, media, real estate and manufacturing. Through its core companies, subsidiaries and affiliates, KIPCO has interests also in the education and medical sectors.

INTRODUCTION

United Oil Projects Company (UOP) planted the first seedlings of the resin industry in the region by setting up the first ever-manufacturing factory in 1979.

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COMPANY’S MISSION

United Oil Projects Company’s three fold mission represents our long-term business objectives, which are:

• Progressively enhance the value of shareholders’ returns through dynamic and strategic investment in the energy sector.

• Develop a regional network of sources; as well as identify and secure lucrative investment opportunities with industry leaders.

• Consistently uphold our social responsibilities towards our environment and our employees by adopting high quality industry standards and best practices.

Guided by our corporate values of sustainability, excellence, commitment and responsibility:

• We maintain sustainability in our business strategy, investment plans, financial growth and environmental considerations to ensure mutual growth for our investors, employees, the market we operate in and the wider community.

• We are committed to transparency and strong corporate governance and sound business practices.

• We are responsible to conduct every phase of our investment strategies with thoroughness, cost-efficiency and prudent analysis to secure long-term value for our shareholders.

Board ofDirectors

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Mr. Sadoun Abdullah AliChairman

Mr. Fuad Abdul-Raheem AkbarBoard Member

Mr. Muhaiman Ali BehbehaniVice Chairman & CEO

Mr. Fawaz Bader Al-OthmanBoard Member

Mr. Mohammed Bader Al-SayerBoard Member

BOARD OF DIRECTORS

ExecutiveSummary

2018

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BUSINESS HIGHLIGHTS

• UOP has added yet another feather to its cap, through a new Joint Venture with Qmax Solutions Inc for the provision of Mud Products & Mud Engineering Services for Deep & Development Drilling, for a period of 5 years.

• UPDC has successfully renewed its contract with Kuwait Oil Company, for its existing 4 rigs for a period of 5 years.

• Al-Khorayef continues its excellent track record with GC-18 completing 3.5 years of smooth operations. Additionally, AKC was awarded a new contract for installation of new desalter trains at various Gathering Centers, along with a JV partner.

• The Chemical Division successfully launched two new green and profitable projects. Both are now commercially proven.

FINANCIAL HIGHLIGHTS

• UOP reported a Net Profit of KD 1.26 Million compared to KD 2.43 Million in the previous year. The net comprehensive income for the year is KD 2.16 Million compared to KD 4.44 Million of the previous year.

• The net shareholders’ equity has been increased in 2018 due to increase in the market capitalization of the investments and better performance of the Company, the total assets grew by 8.7% and the equity by 8.8%.

2018

25,917

2017

23,823

2016

20,084

SHAREHOLDERS' EQUITY Million KD

2018

12.58

2017

24.28

2016

20.02

EARNINGS PER SHARE Fils

EXECUTIVE SUMMARY 2018

2018

27,163

2017

24,989

2016

21,130

ASSETS Million KD

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2015 2016 2017 2018

Income Statement Highlights (KD '000) Gross Profit 271 273 227 203

Other Income 2,337 2,345 2,774 1,697

Operating Expenses )798( )570( )525( )600(

Net Profit for the year 1,770 2002 2,428 1,258

Dividend 6% 7% 8% 8%

Financial Statement Highlights (KD ‘000) Total Assets 18,861 21,130 24,989 27,163

Investments 13,242 15,304 19,147 21,306

Equity 17,952 20,084 23,823 25,917

ProfitabilityEarnings per Share (fils) 17.70 20.02 24.28 12.58

Return on Average Assets 9% 9% 10% 5%

Return on Average Equity 10% 10% 10% 5%

Profit per Employee (KD ‘000) 32.78 37.77 44.15 22.06

Capital Equity / Total Assets 95% 95% 95% 95%

Debt / Equity 5% 5% 5% 5%

Liquidity & Business Indicators Investments / Total Assets 70% 72% 77% 78%

Liquid Assets / Total Assets 18% 18% 15% 19%

Number of Employees 54 53 55 57

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Joint Venture (JV) with Qmax Solutions IncUOP has made a new investment and thereby owns 51% in the JV with Qmax Solutions Inc, a Canadian company, with expertise in Drilling Fluids & Solids Control

Chemical Division (KCMC) A small seed planted in 1979, the Company’s Chemical Division has today blossomed to a center of innovation for design & production of specialty resins for Coatings and Fiberglass Industries. Global majors in the Coating Indus-try have continually sought out our expertise to support development of tough high performance products. UOP is also certified to ISO 9001:2015 (Quality Management Sys-tem) and ISO 14001:2015 (Environmental Management System) Standards.

UOP’S BUSINESS FOCUS

UOP specializes in projects in the Energy, Oil & Gas and Chemical sectors either through cooperation with the in-ternational market leaders in these sectors or through UOP’s own operations.

Al-Khorayef United Holding Company (AKUH)UOP owns a 25% share in Al-Khorayef Company for Sale, Maintenance & Repair of Oil Production Equipment (AKC), a subsidiary of Saudi based Al-Khorayef Group, operating equipment supply contracts and oil-related facilities.

United Precision Drilling Company (UPDC) UPDC continues to be one of UOP’s significant invest-ments, with an ownership share of 47.5%. A Joint Ven-ture, in partnership with ADES International Holding (AIH), the United Precision Drilling Company (UPDC) currently manages a number of rigs in the State of Kuwait and the neutral zone.

51+49+N 25+24+51+N

47.5+47+5+N UOP

AIH

Investors

AlkhorayefUOP

InvestorsUOP QMAX

Solutions

ISO9001:2015

ISO14001:2015

STRATEGIC INVESTMENTS

JointVenture

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UOP has added yet another feather to its cap, through a new Joint Venture with Qmax Solutions Inc for the provision of Mud Products & Mud Engineering Services for Deep & Development Drilling.

UPDC has successfully renewed its contract with Kuwait Oil Company, for its existing 4 rigs

Al-Khorayef continues its excellent track record with GC-18 completing 3.5 years of smooth operations. Additionally, AKC was awarded a new contract for installation of new desalter trains at various Gathering Centers, along with a JV partner.

UOP has participated in another major tender for the provision of Rock Fluid Properties Analysis, along with its partner Corex (UK) Ltd.; and are currently awaiting the tender results.

The Chemical Division successfully launched two new green and profitable projects. Both are now commercially proven

Adherence of Corporate Social Responsibility practices to the principles of Sustainable Development.Business conducted in a social, economic and environmentally sustainable manner.

Bring solutions to the challenges of the oil and gas industry and the markets we serve.

JointVenture

PORTFOLIO

CHEMICALDIVISION

SUSTAINABILITY& BUSINESS

CONDUCT

WE CONTINUE TO DRIVE INNOVATION

UPDC

ALKHORAYEF

Chairman'sStatement

20 CHAIRMAN'S STATEMENT

DEAR SHAREHOLDERS,

On behalf of my fellow Directors, it’s my privilege to present

the annual report for the financial year ending 31st December

2018, outlining the results and accomplishments.

The United Oil Projects (UOP) Company has enjoyed a rich

record of achievements and successes over the past years,

which has enabled it to overcome the exceptional obstacles

experienced during the year in review and achieve overall

positive performance results.

The company focused during the year on increasing

the efficiency of its operations, enhance its investment

opportunities and exploiting the opportunities within its

flexible strategy to support its future growth and progress.

BUSINESS HIGHLIGHTS OF THE YEAR

• UOP was awarded two major contracts during the year, together valued at more than USD 140 Million by State owned company, Kuwait Oil Company (KOC), for Pro-vision of Mud Products & Mud Engineering Services for Deep & Development Drilling in Joint Venture with our new Canadian partner, Qmax Solutions Inc. for a period of 5 years.

• During the year, United Precision Drilling Company has successfully renewed its contract with KOC, for its exist-ing 4 rigs and over a period of 5 years.

• Al-Khorayef Company for Sale Maintenance & Repair of Oil Production Equipment (AKC): Despite the witnessed challenges that AKC faced during the year owing to tough market conditions, It managed to overcome the situation. It was also supported by being awarded a contract for installation of new desalter trains at various Gathering Centers over a period of 2 years with a projects is value of approx. USD 260 Million.

• UOP has participated in another major tender for provi-sion of Rock Fluid Properties, along with its partner Corex (UK) Ltd.; and are currently awaiting the tender results.

• The Chemical Division successfully launched two new green and profitable projects. The first, is the develop-ment of a range of valuable industrial resins from recycled material. The second is designing a new product pack-aging that rationalized the costs effectively and thereby improved our profitability margins. Both are now commer-cially proven.

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FINANCIAL OUTCOME

From a financial performance perspective, overall, United Oil Projects has posted positive results, despite the ex-ceptional challenges that were faced during the year. This has reflected positively on the financial performance and other key performance indicators in 2018, and we expect the positive growth momentum to improve further in the upcoming years.

As of the year ending 2018, United Oil Projects reported a net profit of KD 1.26 million, as compared to KD 2.43 million in 2017, this is mainly due to exceptional chal-lenges that faced the company during the year in review. Nonetheless, Net shareholders’ equity has maintained its growth for the 10th year in a row reflecting a net increase in of 9% compared to the year before. Total assets also increased by 9% to reach KD 27.16 million as compared to KD 24.99 million in 2017.

In view of the above and in line with UOP’s commitment to maximize its shareholders interests, I am pleased to announce the recommendation of the board, to distribute cash dividends of 8 per cent of the company’s paid-up capital, equivalent to 8 fils per share, subject to the ap-proval of the general assembly and the related authorities.

Concluding, I would like to take this opportunity to express my deepest appreciation to our loyal shareholders and clients for their support. I would also like to extend my thanks and gratitude to our management team, staff, and business associates for their commitment and contribu-tion towards UOP during the past year in achieving those results. Last but not least, I would like to extend my grati-tude to my fellow directors for their guidance in helping to position UOP where it stands today.

We also acknowledge with gratitude, the relentless sup-port provided by all the Government bodies of Kuwait, In particular its petroleum arm, Kuwait Petroleum Corpora-tion (KPC), its subsidiaries and affiliate companies, and the concerned regulatory authorities within the industrial sector.

Sincerely,

Sadoun A. Ali Chairman

CEO & Vice Chairman's

Report

2424 CEO & VICE CHAIRMAN'S REPORT

DEAR SHAREHOLDERS,

Kuwait's market had a robust year, which opened multiple

opportunities across the sectors. The sound strategies

developed under the previous years have reinforced UOP’s

position to respond to market opportunities appropriately.

With a strong determination, UOP has come out with flying

colors in yet another challenging year, 2018. The steps we

took have reinforced our conviction that developing our own

strengths is the best way to explore market opportunities.

Validating this, UOP has been able to come out with several

new projects. By focusing on a fresh approach, new

products have been introduced with positive outcomes.

MACRO-ECONOMIC CHALLENGES 2018• Fluctuation in Oil prices and regional instability ham-pering economic diversification efforts have prompted the Government to cut public spending and increase non-oil revenues.• Disrupted supply-chains coupled with regional mar-ket competition and unstable raw material costs have in-creased the pressure on the Chemical industry

MACRO OPPORTUNITIES• Kuwait plans to increase the Oil production capacity to 4 million bpd medium term and double the current Oil refining capacity by 2035, paving the way for fresh invest-ment opportunities.• Economic reforms to attract more Foreign Direct Invest-ments, a large infrastructure investment push and eco-nomic diversification approach shall tend to increase the demand for new ventures.

SIGNIFICANT HIGHLIGHTS OF THE YEAR• Provision of Drilling Fluid Services: United Oil Pro-jects along with Joint Venture partner M/s Qmax Solutions Inc. has been awarded a contract for the Provision of Mud Engineering Services for Development & Deep Wells Drill-ing for USD 140 Million approximately. This service con-tract is valid for 5 years.

• Al Khorayef continued to remain as a strong player in its core sector of expertise namely Electrical Submersible Pumping Services. Al Khorayef, along with its partner has been awarded a new contract for installation of new de-salter trains at various Gathering Centers. Furthermore, Al Khorayef continues its excellent performance in operation of GC-18, and has currently completed 3.5 years of suc-cessful operation.

• United Precision Drilling Company: To strengthen the strong foothold in onshore activities and to expand the capabilities to offshore sector, ADES International Hold-ing (AIH) has acquired the share of Weatherford Drilling in UPDC. AIH’s regional expertise would accelerate the

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growth of UPDC in the country and also shall open up new opportunities in the offshore sector. In the current year, UPDC successfully renewed 4 contracts for its existing rigs.

• Portfolio: UOP has been frequently increasing its ac-tivities, both in the upstream and in downstream activities, by representing companies in the Energy Sector. UOP has couple of projects in the pipeline, which are in final stages of tender evaluation. These projects hold substantial value for UOP to scale up its activities and also shall enable to reinforce its strong foothold in the upstream sector.

• Chemical Division: It’s usually impossible to simulta-neously boost the margins and go Green, especially in Chemicals. Our Chemical Division has launched not one, but two commercially proven projects that reduce waste, save costs and add to the bottom line. This has greatly improved our local & export potential.


Joint Venture with Qmax Solutions IncUnited Oil Projects along with Joint Venture partner Qmax Solutions Inc. (QSI) has been qualified by Kuwait Oil Com-pany in 2 categories, namely Development and Deep, for providing Mud Engineering Services. Qmax Solutions brings along 20 years of world wide experience in Drilling fluids sector with its strong presence in North America, South America, and Middle East & North Africa region. QSI is also qualified in Soil Remediation and OBM cutting category with Kuwait Oil Company.

In the current year, the Joint Venture was awarded a con-tract for USD 145 Million approx. for Provision of Mud En-gineering Services for Deep and Development Drilling. This service contract is valid for 5 years.

Al-Khorayef Company for Sale Maintenance & Repair of oil production equipment (AKC)Al-Khorayef Company for Sale, Maintenance & Repair of Oil Production Equipment LLC, a leading Oil and Gas company in Kuwait and Middle East, specializes in Electri-cal Submersible Pump Systems (ESP), Progressive Cavi-ty Pumps (PCP), Oil Field & Maintenance services for Oil and gas industry.

While ESP continues to remain as its strong foothold, AKC’s capability expansion into Early Production Facili-ty, Progressive Cavity Pumps & Sucker Rod Pumps has broadened its scope of services in Kuwait.

Currently, Al Khorayef has multiple active contracts with Kuwait Oil Company. Electrical Submersible Pumps re-mains the main core business, and thereby continues its journey as one of the best performers. GC-18 (Early Production Facility) has completed 3.5 yrs of success-ful operation, and is recognized as one of the most suc-cessful BOOT (Build, Own, Operate & Transfer) projects. Large Scale Thermal Pilot Project (LSTP) too was running smoothly, but due to contract expiry, the project is put on hold. Meanwhile, this year Al Khorayef has won a new contract for installation of new desalter trains at various Gathering Centers.

In Summary, Al-Khorayef enjoys a positive future outlook, is well geared for exponential growth and hence is expect-ed to play an increasingly major role in providing addition-al world class services and expertise to K-Companies..

United Precision Drilling Company (UPDC) This year was a very crucial year for UPDC, as it witnessed a major change in its ownership. The Weatherford owner-ship in UPDC was acquired by ADES International Hold-ing (AIH), a listed company on London Stock Exchange. AIH brings forward a very comprehensive expertise both for onshore and offshore.

This opens up a new area of opportunity for UPDC to par-ticipate in upcoming projects related to offshore drilling activities. Currently, UPDC has 8 rigs contracts active with Kuwait Oil Company and look forward to increase its pres-ence through the upcoming opportunities.

United Precision Drilling Co continues to enjoy preferred recognition from K-Companies in relation to other compet-itors in the market.

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Chemical DivisionInspired by the dynamic “New Kuwait 2035” vision and its environmental friendly goals, the Chemical Division has developed advanced resin formulations. These resins convert recycled surplus materials into valuable industrial products.

We have already opened up new local & export markets capitalizing on this strategy. In a second project, by inge-niously designing a new packaging for local consumers, we slashed producing metal waste. As an added bonus, this increased the margins.

Recognizing our excellent R&D capability, two of the top 10 Paint Companies in the world are now working with us to develop resins for advanced industrial applications. In the prestigious Shadadiya University complex in Ku-wait, tough, long lasting building facades are being fabri-cated using our Polyester resins.

We are now supplying Acrylics to all the 5 Paint makers in Kuwait, with full commercial approvals. Sales of popular grades increased both in local & export markets, proving the ‘value-for-money’ offered always by our resins.

Successfully working towards greater efficiency, the pro-duction department has boosted batch-sizes of Acrylics, achieving higher overall outputs.

Drastically cutting raw material transit times for shipments & costs, our Purchase Dept. has sourced a key raw mate-rial from the GCC.

Overall, intense efforts by our Chemical Division have spawned many hi-tech products for tough applications, supported at the same time by Sales of conventional grades.

Agency PortfolioUOP has developed a balanced portfolio of companies, both in Product & Services category. Many of them are al-ready qualified with Kuwait Oil Company while yet others are in the process of qualification.

Some of the promising categories, where UOP has active presence along with its partners are Rock & Fluid Analysis Services, Tubular Inspection Services, Directional Drilling Services and Solar. On the product side, UOP continues its active presence and services the client for Filtration re-quirement related to Gas Turbines.

The above partnerships should aid UOP to venture for-ward and to explore new opportunities.


CORPORATE SOCIAL RESPONSIBILITY & SUSTAIN-ABLE DEVELOPMENTUOP continued to demonstrate its commitment to the local community and the environment through Corporate So-cial Responsibility [CSR] practices. During the conduct of UOP’s business operations, adequate care was also taken to ensure that CSR practices adhered to the principles of Sustainable Development [SD]. This helped UOP to reach out to the community, thereby fulfilling its social responsi-bility and commitment to future generations.

As a result, Corporate Social Responsibility and Sustain-able Development have become UOP’s assurance to its stakeholders that business is conducted in a social, eco-nomic and environmentally sustainable manner that is transparent and ethical.

CRITERIA FOR SOCIAL RESPONSIBILITY AND SUS-TAINABILITY:1. Addressing Risks & Opportunities by engaging Stake-holders2. Core Decisions strengthened by ‘CSR’ & ‘SD’ Aspects3. Standardized Operational Systems & Procedures4. Commitment to our Employees 5. Commitment to the Society

1. ADDRESSING RISKS & OPPORTUNITIES BY EN-GAGING STAKEHOLDERSInformation from stakeholders & interested parties are constantly reviewed to identify risks & opportunities. Imple-menting well planned actions thereby assist in mitigating the perceived risks and to take advantage of new oppor-tunities. Such actions include setting objectives & targets, gap analysis & implementation plan, operational control & emergency preparedness, supplier evaluation, addressing customer requirements and additional business process-es.

2. CORE DECISIONS STRENGTHENED BY ‘CSR’ AND ‘SD’ ASPECTS At UOP, core business decisions are made with a proper review of the requirements against the Company’s estab-lished Mission principles. Adequate care is taken to ensure sustainability in our business strategy, investment plans, financial growth & environmental considerations for the mutual growth of our stakeholders.

3. STANDARDIZED OPERATIONAL SYSTEMS & PRO-CEDURESOperations at UOP are supported with standard systems and procedures. Such standardized systems are devel-oped in compliance with the Legal and Regulatory require-ments and by meeting the requirements of International Standards.

The Company has also implemented additional systems to align its processes to revised versions of the two ISO

International Standards the Company is certified to. In-ternational Certification Body has audited and approved the Company’s Integrated Management System to the revised International Standards ISO 9001:2015 and ISO 14001:2015.

4. COMMITMENT TO OUR EMPLOYEESUOP creates a safe, healthy and supportive work environ-ment filled with opportunities for professional and personal development.

This multi-fold approach to employee care and develop-ment is strengthened with:• Training programs and seminars: Employees are del-

egated to attend seminars and training programs on work systems and government administrative rules & regulations. This helps to keep them up-to-date on latest trends in the industry and associated rules and regulations.

• In house trainings are also held periodically on Industri-al Safety, Health, Quality and Environmental aspects.

• Hypothetical emergency drills conducted occasionally provide confidence to Management on the emergency preparedness of the company to face major risks and emergency conditions associated with company oper-ations. Active participation of company employees is ensured in such mock-drills.

• Evaluation of competency levels and structured train-ings in overcoming gaps: Periodic evaluation of com-petency is a powerful tool practiced by UOP. Using this method, employee performance is monitored and methods to improve their performance and work-time efficiency is practiced.

• Automated HR payroll system to improve operation-al efficiency: The advanced HR system is adequate-ly used by the Management for making decisions on workforce requirements through analysis of employee work hours and for maintaining comprehensive human resource information.

• Succession planning and talent pool management: The Human Resources Department In order to en-courage human development the Human Resources Department is continuing its efforts on the succession plan to train, develop and promote identified employ-ees. Training and employing of freshly graduated Ku-waiti nationals is also being actively promoted by the Company.

• Periodic monitoring of employee health: Health as-pects of our employees are periodically monitored as per health factors determined by the regulatory au-thorities. Such medical checks are conducted through Government approved medical centers.

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5. COMMITMENT TO THE SOCIETYThe Company constantly review its operations with a view of continual improvement.

The main aim behind this is to minimize harm to the envi-ronment while positively benefitting our customers & the society. Systems that add value to our interaction with the society are:

• Optimized operations to reduce environmental im-pacts: Factors contributing to environmental impacts are identified and addressed through aspect impact assessment process. Implementing such systems helps the Company in achieving compliance with ap-plicable regulatory authority [K-EPA] requirements and reduction in production cost.

• Fair and Transparent Operations: The company’s guidelines and principles for business conduct ensure ethical and responsible behavior from our employees and managers. Proper documentation of transactions also ensures transparency in operations. Standard waste management system and regular emission monitoring system, waste disposals through Govern-ment approved agencies and nil industrial waste water discharge to local stream also supports the same.

• Training of Kuwaiti under graduates: Engineering graduates from Kuwait Universities are provided op-portunity for getting trained on Industrial operations at the company facility. In this way the company ensures that Kuwaiti community members are adequately equipped on Industrial operations before they join the mainstream industries.

• Engaging Local Vendors and Businesses: For the mu-tual benefit of the Company and the local business industry, priority is given to local companies in the vendors/suppliers development process. The require-ments on product packaging materials are being met mainly through the local vendors. Raw materials that are manufactured locally and matching the company’s requirements are given preference rather than to im-ported materials.

FinancialResults

32

The Net profit for the year ending December 2018 is KD 1.26 million versus KD 2.43 million of last year same peri-od which represent a decrease of 48%. This is mainly due to expiry of one the Al Khorayef’s contract.

The earning per share for the period stood at 12.58 fils compared to 24.28 fils of the last year. The income from associates and Joint venture is KD 1.07 million representing a decrease of 53% compared to last year and the income from other sources is KD 0.62 million increased by 26% compared to last year. The general and administration expenses increased by 15.6%.

The revenue from sales is KD 2.34 million higher than last year by 8.1% due to higher exports and local sales & the Gross profit is lower than previous year by 10.2% due to higher raw material prices.

Despite the challenging business environment, the total assets of the company have increased by 8.7% compared to last year and the net equity increased by 8.8% even after paying 8% cash dividends. The growth is resulted mainly due to increased market capitalization of the port-folio investments indicating a favorable trend and outlook on Company’s investments by the markets and increased valuation by investors and public at large.

As a mark of increased liquidity, at the end of 2018, the total cash balance of UOP has increased by 77.8%. Also, the value of Portfolio investments has gone up by 28.2%.

The current assets increased by 34.7% compared to last year and it represents 18.9% of total assets. The non-current assets increased by 4.0% compared to last year and it represents 81.1% of total assets. The liabilities increased by 7% compared to last year and it represents 4.6% of total assets.

The Shareholder’s equity is KD 25.92 million (259 fils per share) compared to KD 23.82 million (238 fils per share) increased by 8.8%.

Given the above positive results, the Board of Directors have proposed a cash dividend of 8 fils (8%) per share for 2018 (2017 – 8 fils per share) subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company.

2018 FINANCIAL RESULTS

33FUTURE OUTLOOK 2018

Marching forward with confidenceNot only change is inevitable in the market place, but also the speed of change is accelerating. Fortunately, the 40 long years that the company have journeyed taught us flexibility and resil-ience. Not only are we learning from global mega events like price challenges and shortages, but also from totally unexpect-ed shocks from regional markets.Being nimble and responsive, we have always emerged on the top of the situation. This past experience has equipped us with the confidence that we will once again face any new challenge and tackle it with all our experience and resources.

Building a Platform for GrowthThis is a realistic outcome that gives UOP clarity to plan for the future. To build that future, we will continue to invest in a disciplined way in a portfolio that is well balanced across our upstream and downstream businesses and across resource types. This gives us resilience and flexibility now and in the future.

Creating value for our investors and benefits for the com-munities where we operateWe apply our capabilities of advanced technology, strong rela-tionships and proven expertise across our operations to help us deliver against our strategic priorities in ways that we believe set us apart from our peers. These examples reflect our dis-tinctive ways of working across the business and our positive outlook for the future.

ExecutiveManagement

35

Muhaiman Ali BehbehaniVice Chairman and CEOMr. Muhaiman Ali Behbehani joined United Oil Projects Company in 2006. Within a short span of 4 years, through his business acumen and motivating leadership skills, Mr. Behbehani rose to the position of The Vice Chairman/Acting General Manager. Currently he is the Vice Chairman and CEO. Building up his expertise in the Oil & Gas industry, he worked through several positions in Kuwait National Petroleum Company. In addition, Mr. Behbehani has undertaken several specialized courses in business, oil projects and planning. Mr. Behbehani holds a Bachelor’s Degree in Mechanical Engineering from University of Toledo - Ohio, USA

G. Noor BashaAccounts ManagerMr. Basha joined United Oil Projects Company )UOP(, in 2002. He manages the Accounts Department and has 30 years of working experience as a Chief Accountant in various Industry/Companies. His versatility is into Business Management, Finance, Accounting, Economics, International Trade, Company and Industrial Law, Business Environment and Govt. Policy. Prior to joining UOP Mr. Basha has worked with reputed companies in Kuwait. Mr. Basha holds Master degree of Commerce, from Madras University, India.

Jacob George ParetBusiness Development ManagerMr. Paret joined United Oil Projects Company as Business Development Manager in 2011 and manages the Agency/Investments Portfolio of the company along with assisting the management in the Projects Division activities. Mr. Paret has a wide experience working in Kuwait and India, both in Management Positions and Engineering Positions. Along his career, he has worked with M/s Petrofac International Limited and M/s Hindustan Petroleum Corporation Ltd )Fortune 500 Integrated Oil Company( in India and also worked with reputed companies in Kuwait in the Oil and Gas sector. He has also completed Management Development Program on ‘Fuel Retailing’ at Indian Institute of Management, Ahmadabad. Mr. Paret holds a Master’s Degree in Business Administration and Bachelor’s Degree in Mechanical Engineering from University of Calicut, India.

EXECUTIVE MANAGEMENT

Joji JohnProjects Development ManagerMr. John joined United Oil Projects Company as Projects Development Manager in 2014 and involved in the process of identifying new investment opportunities and partners along with assisting the management in the Projects Division activities. He has 23 years working experience in Kuwait & India with reputed companies across a broad spectrum of industries. Mr. John holds a Master’s Degree in Business Administration from Nagpur University & a Bachelor’s Degree in Commerce, from University of Kerala, India.

FinancialStatements

38

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF UNITED OIL PROJECTS COMPANY K.S.C. (CLOSED)

Report on the Audit of the Financial Statements

OpinionWe have audited the financial statements of the United Oil Projects Company K.S.C. (Closed) (the “Company”), which comprise the statement of financial position as at 31 December 2018, and the statement of income, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2018, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards )IFRSs(.

Basis for OpinionWe 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 Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the State of Kuwait, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial StatementsManagement is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the 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 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 financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the 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 Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

INDEPENDENT AUDITOR'S REPORT

39

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF UNITED OIL PROJECTS COMPANY K.S.C. (CLOSED) (continued)

Report on the Audit of the Financial Statements (continued)

• 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 Company’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 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 Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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. Report on Other Legal and Regulatory RequirementsFurthermore, in our opinion proper books of account have been kept by the Company and the financial statements, together with the contents of the report of the Company’s Board of Directors relating to these financial statements, are in accordance therewith. We further report that, we obtained all the information and explanations that we required for the purpose of our audit and that the financial statements incorporate all information that is required by the Companies Law No.1 of 2016, as amended, and its executive regulations, as amended, and by the Company’s Memorandum of Incorporation and Articles of Association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations

of the Companies Law No.1 of 2016, as amended, and its executive regulations, as amended, nor of the Company’s Memorandum of Incorporation and Articles of Association have occurred during the year ended 31 December 2018 that might have had a material effect on the business of the Company or on its financial position.

WALEED A. AL OSAIMILICENCE NO. 68 AEYAL AIBAN, AL OSAIMI & PARTNERS

11 April 2019Kuwait

INDEPENDENT AUDITOR'S REPORT

40 STATEMENT OF INCOME

For the year ended 31 December 2018

2018 2017Notes KD KD

Sale of goods 2,341,094 2,166,254Cost of goods sold )2,138,107( )1,939,584(GROSS PROFIT 202,987 226,670

Share of results from associates 8 189,714 2,005,100Share of results from a joint venture 9 884,343 274,472Dividend income 437,105 307,847Interest income 102,444 104,820Other income 82,961 81,566General and administrative expenses )535,485( )463,111(Selling and distribution expenses )64,186( )62,259(Foreign exchange gain 4,811 109PROFIT FOR THE YEAR BEFORE CONTRIBUTION TO KUWAIT FOUNDATION FOR ADVANCEMENT OF SCIENCES (“KFAS”), ZAKAT AND DIRECTORS’ REMUNERATION

1,304,694 2,475,214

Contribution to KFAS )7,793( )9,193(Zakat )9,202( )7,567(Directors’ remuneration 14 )30,000( )30,000(PROFIT FOR THE YEAR 6 1,257,699 2,428,454

The attached notes 1 to 20 form part of these financial statements.

41STATEMENT OF COMPREHENSIVE INCOME



Profit for the year 1,257,699 2,428,454Other comprehensive income:

Item that are (or) may be reclassified subsequently to statement of income:Net unrealised gain on financial assets available-for-sale - 2,136,688Foreign currency translation adjustments 8 43,875 )125,413(Item that will not be reclassified subsequently to statement of income:Unrealised gain on financial assets at fair value through other comprehensive income

854,829 -

Other comprehensive income 898,704 2,011,275TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,156,403 4,439,729


42 STATEMENT OF FINANCIAL POSITION

As at 31 December 2018


ASSETSNon-current assetsProperty, plant and equipment 7 725,114 781,640Investment in associates 8 12,018,634 12,336,336Investment in a joint venture 9 2,047,566 1,163,223Financial assets at fair value through other comprehensive income

10 7,238,897 -

Financial assets available-for-sale 10 - 5,647,169Amount due from a related party 17 - 1,250,000

22,030,211 21,178,368Current assetsInventories 11 541,623 632,044Accounts receivable and prepayments 12 509,837 431,734Amount due from a related party 17 - 450,832Cash and cash equivalents 13 4,081,572 2,295,632

5,133,032 3,810,242TOTAL ASSETS 27,163,243 24,988,610

EQUITY AND LIABILITIESEquityShare capital 14 10,000,000 10,000,000Share premium 14 1,885,000 1,885,000Statutory reserve 14 1,350,096 1,219,627Voluntary reserve 14 1,350,096 1,219,627Asset revaluation reserve 125,264 125,264Cumulative change in fair values 5,525,591 3,933,863Foreign currency translation reserve 311,652 267,777Retained earnings 5,369,092 5,172,331Total equity 25,916,791 23,823,489Non-current liabilityEmployees’ end of service benefits 15 372,598 318,335Current liabilitiesAccounts payable and accruals 16 579,752 556,126Amount due to related parties 17 294,102 290,660

873,854 846,786Total liabilities 1,246,452 1,165,121TOTAL EQUITY AND LIABILITIES 27,163,243 24,988,610

Sadoun A. Ali Chairman The attached notes 1 to 20 form part of these financial statements.

43STATEMENT OF CHANGES IN EQUITY


Shar

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are

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ium

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utor

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rve

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ulat

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Fore

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tr

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etai

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KDKD

KDKD

KDKD

KDKD

At 1

Jan

uary

201

810

,000

,000

1,88

5,00

01,

219,

627

1,21

9,62

712

5,26

43,

933,

863

267,

777

5,17

2,33

123

,823

,489

Impa

ct o

n ad

optio

n of

IFR

S 9

at 1

Jan

uary

201

8 )N

ote

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- -

- -

- 73

6,89

9-

- 73

6,89

9

As a

t 1 J

anua

ry 2

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ated

(10

,000

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1,88

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9,62

712

5,26

44,

670,

762

267,

777

5,17

2,33

124

,560

,388

Profi

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the

year

- -

- -

- -

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257,

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1,25

7,69

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898,

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1,65

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25,9

16,7

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At 1

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201

710

,000

,000

1,88

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097

2,10

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2,10

612

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41,

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175

393,

190

3,93

8,91

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2,42

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125,

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44 STATEMENT OF CASH FLOWS



OPERATING ACTIVITIESProfit for the year before contribution to KFAS, Zakat and Directors’ remuneration

1,304,694 2,475,214

Adjustments to reconcile profit to net cash flows: Dividend income )437,105( )307,847( Interest income )102,444( )104,820( Depreciation 7 70,406 71,038 Share of results from associates 8 )189,714( )2,005,100( Share of results from a joint venture 9 )884,343( )274,472( Provision for employees’ end of service benefits 15 57,730 44,529 Write of property, plant and equipment 1,693 -

)179,083( )101,458(Working capital adjustments: Inventories 90,421 )44,623( Net movement in related parties 1,704,274 576 Accounts receivable and prepayments )60,106( 97,764 Accounts payable and accruals )7,288( )39,903(Cash flow from (used in) operating activities 1,548,218 )87,644(Employees’ end of service benefits paid 15 )3,467( )1,380(Net cash flows from (used in) operating activities 1,544,751 )89,024(

INVESTING ACTIVITIESPurchase of property, plant and equipment 7 )15,573( )4,600(Dividends received from others 437,105 307,847Dividend received from associates 8 551,291 447,880Interest received 84,447 29,820Net cash flows from investing activities 1,057,270 780,947

FINANCING ACTIVITYDividends paid )816,081( )631,405(Net cash flows used in financing activity )816,081( )631,405(NET INCREASE IN CASH AND CASH EQUIVALENTS

1,785,940 60,518

Cash and cash equivalents at 1 January 2,295,632 2,235,114CASH AND CASH EQUIVALENTS AT 31 DECEMBER

13 4,081,572 2,295,632


45NOTES TO FINANCIAL STATEMENTS


1 CORPORATE INFORMATION AND ACTIVITIES

The financial statements of United Oil Projects Company K.S.C. (Closed) (the “Company”) for the year ended 31 December 2018 were authorised for issue by the Board of Directors on 11 April 2019. The Shareholders’ General Assembly has the power to amend these financial statements after issuance.

The Company’s registered address is P.O. Box 26011 Safat 13121, State of Kuwait. The Company is a subsidiary of Qurain Petrochemical Industries Company K.S.C.P. (“Parent Company”), which is listed on the Kuwait Stock Exchange.

The Company was established as a Kuwaiti closed shareholding company in August 1979. The main objectives of the Company were to:

• Setting up petrochemical industry projects relying on locally or regionally available produced materials and manufacture and supply chemicals for the fiberglass, paint and petrochemical industries and for general use.

• Setting up of paint and fiberglass manufacturing projects (provided that the approval of the Public Authority for Industry is secured(.

• Import and export of the raw materials required for such projects, in addition to materials complementary to the manufacturing of paints and fiberglass (provided that the approval of the Public Authority for Industry is secured).

• Production of Polyvinyl Acetate Vinyl, Polyvinyl Aster Resin and Polyurethane resin (of all kinds) Acrylic and epoxy resin, in addition to emulsion resin all kind (subject to the Public Authority for Industry approval).

• The Company may set up industrial projects in the field of petrochemicals and natural gas, singly or with the participation of parties and entities that carry on similar business (subject to the Public Authority for Industry approval).

• Invest surplus funds in financial and real estate portfolios locally or abroad managed by specialised firms.• The Company may have an interest in or participate in any manner in entities that carry on business activities similar

to its own or which may assist it in realizing its objects in Kuwait or abroad and it may buy or otherwise acquire such companies and entities. The Company may carry on the aforesaid business in the State of Kuwait and abroad acting as principal or by proxy.

• The Company may participate in industrial projects in the field of petrochemicals, oil and natural gas (subject to the Ministry of Oil approval), singly or with the participation of parties and entities that carry on similar business. The Company may also manufacture all kinds of chemical and petrochemical substances branching off thereof and used in the gas sector and the oil sector (subject to the Public Authority for Industry approval).

• To carry on the business of auxiliary services for the operations of drilling of oil wells and the exploration and repair of wells and preparation thereof for production an all subsequent business relating to the maintenance of oil wells and the representation of the competent foreign companies (subject to the Ministry of Oil approval).

• To carry on maintenance work and different general services for oil sector (subject to the Ministry of Oil approval).• To sell, purchase, supply, distribute, export and store chemical and petrochemical material or any other substitute

material used in the Gas and Oil sector and participate in all related activities, also include establish and lease required services (subject to the Ministry of interior approval).

• To participate in industrial companies, as well as finance, manage and trade in their shares.• To provide technical and economic consultancy services relating to industrial investments.

According to an approval from the Public Authority for Industry, the Company is exempt from customs duty on raw materials for the period from October 2001 to 15 September 2019.

46

2 BASIS OF PREPARATION The financial statements of the Company have been prepared on the historical cost basis, except for financial asset at fair value through other comprehensive income and buildings that have been measured at fair value.

The financial statements are presented in Kuwaiti Dinars (“KD”), which is the functional currency of the Company.

Statement of complianceThe financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition Policy applicable from 1 January 2018

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has concluded that it is the principal in all of its revenue arrangements since it typically controls the goods or services before transferring them to the customer.

The specific recognition criteria described below must also be met before revenue is recognised.

Sale of goodsRevenue from sale of goods is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the goods. The normal credit term is 30 to 90 days upon delivery.

In determining the transaction price for the sale of goods, the Company considers the effects of variable consideration, the existence of significant financing components, noncash consideration and consideration payable to the customer (if any(.

(i) Variable considerationIf the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of goods provide customers with a right of return and volume rebates. The rights of return and volume rebates give rise to variable consideration.

• Rights of returnCertain contracts provide a customer with a right to return the goods within a specified period. The Company uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Company will be entitled. The requirements in IFRS 15 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, the Company recognises a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognised for the right to recover products from a customer.

NOTES TO FINANCIAL STATEMENTS




3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

• Volume rebates The Company provides retrospective volume rebates to certain customers once the quantity of products purchased during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer. To estimate the variable consideration for the expected future rebates, the Company applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract. The Company then applies the requirements on constraining estimates of variable consideration and recognises a refund liability for the expected future rebates.

(ii) Significant financing componentGenerally, the Company receives short-term advances from its customers. Using the practical expedient in IFRS 15, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good to the customer and when the customer pays for that good will be one year or less. The Company does not receive any long-term advances from customer.

Dividend incomeDividend income is recognized when the right to receive payment is established, which is generally when shareholders approve the dividend.

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

Policy applicable before 1 January 2018

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at fair value of the consideration received or receivable. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:

Sale of goodsRevenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably.

Dividend incomeDividend income is recognized when the right to receive payment is established, which is generally when shareholders approve the dividend.

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

48 NOTES TO FINANCIAL STATEMENTS



TaxationKuwait Foundation for the Advancement of Sciences (KFAS)The Company calculates the contribution to KFAS in accordance with the modified calculation based on the Founda-tion’s Board of Directors resolution, which states that income from associates, Directors’ remuneration, accumulated deficit and transfer to statutory reserve should be excluded from profit for the year when determining the contribution.

ZakatContribution to Zakat is calculated at 1% of the profit of the Company in accordance with the Ministry of Finance reso-lution No. 58/2007.

Foreign currenciesThe financial statements are presented in KD, which is the Company’s functional and presentation currency. Transac-tions in foreign currencies are initially recorded in the functional currency at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of ex-change ruling at the financial reporting date. All differences are taken to statement of income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

The initial cost of property, plant and equipment comprises their purchase price and any directly attributable costs of bringing an item of property, plant and equipment to its working condition and location. Expenditure incurred after the property, plant and equipment has been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the statement of income 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 perfor-mance, the expenditure is capitalised as an additional cost of property, plant and equipment.

Buildings are measured at fair value less accumulated depreciation and impairment losses recognised are after the date of the revaluation. Valuations are performed with sufficient frequency to ensure that the carrying amount of a revalued asset does not differ materially from its fair value. Any revaluation surplus is recorded in other comprehensive income and is credited to the asset revaluation reserve under equity section of the statement of financial position, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in statement of income for the period, in which case the increase is recognised as part of statement of income for the period. A revaluation deficit is recognised in statement of income for the period, except to the extent that it offsets an existing surplus on the same asset recognised as other comprehensive income or in the asset revaluation reserve. On disposal, the related asset revaluation reserve is credited directly to retained earnings.




Property, plant and equipment (continued)

Depreciation on property, plant and equipment is calculated on a straight line basis over the estimated useful lives of assets as follows:

• Buildings 30 years• Plant, machinery and equipment 5 to 25 years• Furniture, office equipment and fixtures 5 years• Motor vehicles 5 years

Capital work-in-progress is stated at cost. Such cost includes the cost of replacing part of the property, plant and equip-ment and borrowing costs for long-term construction projects if the recognition criteria are met. Following completion, capital work-in-progress is transferred into the relevant classification of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are ex-pected from its use. Any gain or loss arising on de recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate.

Investments in associates and joint ventureAn associate is an entity over which the Company has significant influence. Significant influence is the power to partici-pate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The Company’s investments in its associates and joint venture are accounted for using the equity method.

Under the equity method, the investment in associates and a joint venture are initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Company’s share of net assets of the associates or joint venture since the acquisition date. Goodwill relating to the associates or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The statement of income reflects the Company’s share of the results of operations of the associates and joint venture. Any change in other comprehensive income of those investees is presented as part of the Company’s other comprehen-sive income. In addition, when there has been a change recognised directly in the equity of the associate, the Company recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and loss-es resulting from transactions between the Company and the associates and joint venture are eliminated to the extent of the interest in the associate.

The aggregate of the Company’s share of profit or loss of an associate or joint venture is shown on the face of the state-ment of income.




Investments in associates and joint venture (continued)The financial statements of the associates and joint venture are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company.

After application of the equity method, the Company determines whether it is necessary to recognise an impairment loss on its investment in its associates or joint venture. At each reporting date, the Company determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as ‘Impairment loss on associates or joint venture’ in the statement of income.

Upon loss of significant influence over the associates and joint control over the joint venture, the Company measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associates and joint venture upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in statement of income.

InventoriesInventories are stated at the lower of cost or net realisable value. Costs are those expenses incurred in bringing each product to its present location and condition, as follows:

• Raw materials, consumables and goods for resale - purchase cost on weighted average basis;• Finished goods - costs of direct materials and labour plus attributable overheads based on a normal level of activity.• Goods in transit - purchase cost incurred upto reporting date;

Net realisable value is based on estimated selling price less any further costs expected to be incurred on completion and disposal.

Impairment of non-financial assetsAt each reporting date, the Company reviews the carrying amounts of its non financial 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 Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining the fair value less costs to sell, an appropriate valuation model is used.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of income.

Where an impairment loss subsequently reverses the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the statement of income.




Financial instruments policy applicable from 1 January 2018

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

(i) Financial assetsInitial recognition and measurementFinancial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under IFRS 15.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place )regular way trades( are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

Subsequent measurementFor purposes of subsequent measurement, financial assets are classified in four categories:• Financial assets at amortised cost )debt instruments(• Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon

derecognition )equity instruments(• Financial assets at fair value through profit or loss

The Company’s financial assets includes accounts receivable, cash and cash equivalent, amounts due from related party and financial assets at fair value through other comprehensive income.

The Company’s has determined the classification and measurement of its financial assets as follow:

Financial assets at amortised cost (debt instruments)The Company’s financial assets at amortised cost includes accounts receivables and cash and cash equivalents.




Financial instruments policy applicable from 1 January 2018 (continued)

(i) Financial assets (continued)Subsequent measurement (continued)

Amortised cost and effective interest methodThe effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

For financial instruments at amortised cost, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

Financial assets at FVOCI- Equity instruments at FVOCIUpon initial recognition, the Company may elect to classify irrevocably some of its equity investments as equity instruments at FVOCI when they meet the definition of Equity under IAS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument-by- instrument basis.

Equity instruments at FVOCI are subsequently measured at fair value. Changes in fair values including foreign exchange gains and losses are recognised in OCI. Dividends are recognised in income statement when the right of the payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment. On derecognition, cumulative gains or losses will be reclassified from fair value reserve to retained earnings in the statement of changes in equity.

As at the reporting date, the Company does not have any financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) and financial assets at fair value through profit or loss.

Derecognition A financial asset (or where applicable a part of a financial asset or a part of a group of similar financial assets) is primarily derecognised when: (i) The rights to receive cash flows from the asset have expired, or(ii) The Company has transferred the right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the assets.





(i) Financial assets (continued)Derecognition (continued)

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Impairment of financial assetsThe Company recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next -12months )a -12month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

Credit-impaired financial assets at amortised costA financial asset is credit-impaired when one or more events, constituting an event of default for internal credit risk management purposes as historical experience indicates, that have a detrimental impact on the estimated future cash flows of that financial asset have occurred that meet below criteria. Evidence that a financial asset is credit-impaired includes observable data about the following events: • Significant financial difficulty of the issuer or the borrower;• A breach of contract, such as a default or past due event;• The lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty,

having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;• It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or• The disappearance of an active market for that financial asset because of financial difficulties.





(i) Financial assets (continued)Impairment of financial assets (continued)

Write-off of financial assets at amortised costThe Company writes off a financial asset at amortised cost when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in statement of comprehensive income. Measurement and recognition of expected credit lossesThe measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date; for loan commitments and financial guarantee contracts, the exposure includes the amount drawn down as at the reporting date.

For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original effective interest rate.

The Company recognises an impairment loss in the statement of income for all financial assets at amortised cost with a corresponding adjustment to their carrying amount through a loss allowance account.

(ii) Financial liabilitiesInitial recognition and measurementFinancial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of payables, net of directly attributable transaction costs.

The Company’s financial liabilities include accounts payable and accruals and amounts due to related parties.

Subsequent measurementThe subsequent measurement of financial liabilities depends on their classification as described below:

Accounts payable and accruals and amounts due to related partiesLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

DerecognitionA financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.





(ii) Financial liabilities (continued)Derecognition (continued)

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of income.

Financial Instruments policies applicable before 1 January 2018

(i) Financial assetsInitial recognition and measurementFinancial assets within scope of IAS 39 are classified as financial assets available-for-sale, amount due from related parties, accounts receivable and cash and cash equivalents. The Company determines the appropriate classification of each instrument at initial recognition.

All financial assets are recognised initially at fair value plus, directly attributable transaction costs.

Purchase or sale of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace )regular way trades( are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

The Company's financial assets include cash and cash equivalents, accounts receivables, amount due from related parties and financial assets available-for-sale.

Subsequent measurementThe subsequent measurement of financial assets depends on their classification as follows:

Cash and cash equivalents Cash and cash equivalents consist of cash in hand, bank balances and short-term deposits with an original maturity of three months or less.

Accounts receivables and amount due from related partiesAccounts receivable and amount due from related parties are stated at original invoice amount less a provision for any uncollectible amounts and are carried at amortised cost. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Doubtful debts are written off when there is no possibility of recovery.

Financial assets available-for-sale Financial assets available-for-sale are those non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables.




Financial Instruments policies applicable before 1 January 2018 (continued)

(i) Financial assets (continued)Subsequent measurement (continued)Financial assets available-for-sale (continued)

After initial recognition, financial assets available-for-sale are subsequently measured at fair value with unrealised gains or losses recognised as cumulative changes in fair values in other comprehensive income until the investment is derecognised or determined to be impaired, at which time the cumulative gain or loss is removed from the cumulative changes in fair values and recognised in the statement of income. Financial assets whose fair value cannot be reliably measured are stated as cost less impairment losses, if any.

For investments traded in organised financial markets, fair value is determined by reference to market bid prices. For investments where there is no quoted market price and are managed by professional portfolio managers, the fair value is based on the valuation provided by the portfolio manager.

Fair value cannot be reliably measured for certain investments. Such investments are carried at cost less any known impairment in value.

DerecognitionA financial asset (or, where applicable a part of financial asset or part of a Company of similar financial assets) is derecognised when:

• The rights to receive the cash flows from the asset have expired;• The Company has transferred its right to receive cash flows from the asset or has assumed an obligation to pay the

received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

(ii) Impairment of financial assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrowers or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.





(i) Financial assets (continued)(ii) Impairment of financial assets (continued)

Financial assets available-for-saleFor financial assets available-for-sale, the Company assess at each reporting date whether there is objective evidence that a financial asset available-for-sale or a group of financial assets available-for-sale is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the equity investment below its cost. ‘Significant’ is evaluated against the original cost of investment and ‘prolonged’ against the period in which fair value has been below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on those financial assets available-for-sale previously recognised in the statement of income is removed from other comprehensive income and recognised in the statement of income.

Impairment losses in equity investments are not reversed through statement of income, subsequent increases in their fair value after impairment are recognized directly in other comprehensive income.

Impairment of receivableAn estimate of the collectible amount of receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.

(iii) Financial liabilities

Initial recognition and measurementFinancial liabilities within the scope of IAS 39 are classified as accounts payable and accruals and amount due to related parties. The Company determines the classification of its financial liabilities at initial recognition.

Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, including directly attributable transaction costs.

The Company’s financial liabilities include accounts payable and accruals and amount due to related parties.

Subsequent measurementThe measurement of financial liabilities depends on their classification as follows:

Accounts payable and accruals and amount due to related partiesLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

DerecognitionA financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of income.





(iv) Offsetting of financial instrumentsFinancial assets and liabilities are offset and net amount is reported in the statement of financial position when the Company has currently legal enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

Fair value measurementThe Company measures financial instruments, such as, financial asset available for sale and non-financial assets, at fair value at each statement of financial position date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction 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.

The principal or the most advantageous market must be accessible to the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level 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 input level that is significant to the fair value measurement is

directly or indirectly observable;• Level 3 — Valuation techniques for which the lowest input level that is significant to the fair value measurement is

unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Employees end of service benefitsThe Company provides end of service benefits to all its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service, subject to the completion of a minimum service period. The expected cost of these benefits is accrued over the period of employment.




Employees end of service benefits (continued)

Further, with respect to its national employees, the Company makes contributions to Public Institution for Social Security calculated as a percentage of the employees’ salaries. The Company’s obligations are limited to these contributions, which are expensed when due.

Current versus non-current classification The Company presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:

• Expected to be realised or intended to be sold or consumed in the normal operating cycle;• Held primarily for the purpose of trading;• Expected to be realised within twelve months after the reporting period; or• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months

after the reporting period.

All other assets are classified as non-current.

A liability is current when:

• It is expected to be settled in the normal operating cycle;• It is held primarily for the purpose of trading;• It is due to be settled within twelve months after the reporting period; or• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting

period.

The Company classifies all other liabilities as non-current.

ContingenciesContingent liabilities are not recognised in the statement of financial position, but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

Contingent assets are not recognised in the statement of financial position, but are disclosed when an inflow of economic benefits is probable.



4.1 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

New and amended standards and interpretationsThe Company applied IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.

Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the financial statements of the Company. The Company has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

4.1.1 IFRS 15 Revenue from Contracts with CustomersIFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires relevant disclosures.

The overall impact assessment in application of IFRS 15 for the Company has been carried out by the management based on comprehensive analysis to evaluate implications on adopting IFRS 15 for the Company.

For contracts with customers in which the sale of goods are generally expected to be the only performance obligation, adoption of IFRS 15 did not have any material impact on the Company’s revenue. Accordingly, no restatements have been made to the financial statements on adoption of the standard on modified retrospective approach.

4.1.2 Adoption of IFRS 9 - Financial instruments (“IFRS 9”)

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting.

The Company adopted IFRS 9 using the modified retrospective method of adoption and as a result the Company has not restated comparative information for 2017. Therefore, the comparative information for 2017 is reported under IAS 39 and is not comparable to the information presented for 2018.

IFRS 9 introduces new requirements for a) the classification and measurement of financial assets, b) impairment for financial assets and c) general hedge accounting. Details of these new requirement as well as their impact on the Company’s financial statements are described below. The Company has not entered into any derivative transactions during the year and not have any outstanding derivative as at date of initial application, hence no related disclosures are included below.




4.1.2 Adoption of IFRS 9 - Financial instruments (“IFRS 9”) (continued)

TransitionThe following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.

• The determination of the business model within which a financial asset is held. • The designation and revocation of previous designations of certain financial assets and financial liabilities as

measured at FVTPL. • The designation of certain investments in equity instruments not held for trading as at FVOCI.• If a debt security had low credit risk at the date of initial application of IFRS 9, then the Company has assumed that

credit risk on the asset had not increased significantly since its initial recognition.

Hedge accountingThe Company did not have any impact resulting from the new guidance relating to hedge accounting included in IFRS 9, as the Company is not dealing in any derivative instruments.

Impact of adopting IFRS 9 on equityThe impact of this change in accounting policy relating to classification and measurement of financial assets as at 1 January 2018 has resulted in an increase of fair value reserve by KD 736,899 as given below:

Fair value reserveKD

Closing balance under IAS 39 )31 December 2017( 3,933,863Impact on reclassification and re-measurements:Fair value gain on remeasurement of unquoted shares at FVOCI 736,899Opening balance under IFRS 9 on date of initial application of 1 January 2018 4,670,762

Classification of financial assets and financial liabilities on the date of initial application of IFRS 9The following table shows reconciliation of original measurement categories and carrying value in accordance with IAS 39 and the new measurement categories under IFRS 9 for the Company’s financial assets as at 1 January 2018.

2018 Original classification under

IAS 39

New classification under IFRS 9

Original carrying amount

under IAS 39

IFRS 9 transition

adjustment

New carrying amount under

IFRS 9Financial assets KD KDAccounts and other receivables Loans and receivables Amortized cost 408,701 - 408,701Amount due from a related party Loans and receivables Amortized cost 1,700,832 - 1,700,832Cash and cash equivalents Loans and receivables Amortized cost 2,295,632 - 2,295,632Equity securities Available for sale FVOCI 5,647,169 736,899 6,384,068Total financial assets 10,052,334 736,899 10,789,233




4.1.2 Adoption of IFRS 9 - Financial instruments (“IFRS 9”) (continued)Transition (continued)Classification of financial assets and financial liabilities on the date of initial application of IFRS 9 (continued)

* Based on facts and circumstances that existed at the date of initial application, management determined that investment in equity instruments were not held for purposes of trading and were held for medium to long term strategic purposes. Accordingly, management have elected to designate these investments in equity instruments as FVOCI as they believe that recognising short term fluctuations in the fair value of investments in profit or loss would not be consistent with the Company’s strategy of holding these investments for medium to long purposes and realising their performance potential in the long run.

Financial assets previously classified as loans and receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. Thus, such instruments continue to be measured at amortised cost under IFRS 9.

Adoption of IFRS 9 did not result in any change in classification or measurement of financial liabilities.

Other amendments to IFRSs which are effective for annual accounting period starting from 1 January 2018 did not have any material impact on the accounting policies, financial position or performance of the Company.

Impairment of financial assetsIFRS 9 replaces the ‘incurred loss’ model of IAS 39 with an ‘expected credit loss’ (‘ECL’) model. The new impairment model outlines a ‘three stage’ model (‘general approach’) for impairment based on the changes in credit quality since the initial recognition. Under the general approach, ECL is recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition (i.e. ‘good’ exposures), an allowance is to be provided for credit losses that result from default events ‘that are possible’ within the next 12 months )a 12 month ECL – Stage 1 of the model).

For those credit exposures for which there has been significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the default (a lifetime ECL – Stage 2 of the model).

Financial assets are assessed as credit impaired )Stage 3 of the model) when one or more events that have a detrimental impact on the estimated future cash flows of those assets have occurred.

An alternative to the ‘general approach’ is the ‘simplified approach’ that can be applied to trade receivables or contract assets that do not contain a significant financing component. The loss allowance should be measured at initial recognition and throughout the life of the receivable at an amount equal to lifetime ECL.

The Company has elected to apply the simplified approach for its trade receivables. Under the simplified approach, the Company shall apply a forward looking provision matrix to calculate the impairment allowance.

For an explanation of how the Company applies the impairment requirements of IFRS 9, refer to the policy under Note 3 Impairment of financial assets under Financial instruments.

No significant changes were noted in financial liabilities as the Company classified all its financial liabilities at amortised under IAS 39 and the same classification has been carried forward under IFRS 9 based on their business model.



4.2 STANDARDS ISSUED BUT NOT YET EFFECTIVE

Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. The Company intends to adopt those standards when they become effective.

IFRS 16 LeasesIFRS 16 was issued in January 2017 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC15- Operating Leases-Incentives and SIC27- Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less(. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The Company is in the process of evaluating the potential effect of IFRS 16 on its financial statements.



5 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the statement of income. The Company has used judgement and estimates principally in, but not limited to, the classification of financial assets, the determination of impairment provisions and valuation of inventories.

Classification of financial assets - policy applicable from 1 January 2018Assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding.

Impairment of investment in associates and joint ventureAfter application of the equity method, the Company determines whether it is necessary to recognise any impairment loss on the Company’s investment in its associated companies and joint venture, at each financial reporting date based on existence of any objective evidence that the investment in the associate and joint venture is impaired. If this is the case the Company calculates the amount of impairment as the difference between the recoverable amount of the associates and joint venture and its carrying value and recognises the amount in the statement of income.

Allowance for expected credit losses of trade receivables (applicable from 1 January 2018)The Company uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance).

The provision matrix is initially based on the Company’s historical observed default rates. The Company will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions )i.e., gross domestic product( are expected to deteriorate over the next year which can lead to an increased number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.

The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Company’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Company’s trade receivables is disclosed in Note 12.

Impairment of accounts receivable (applicable before 1 January 2018)An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.

Impairment of financial assets available-for-sale (applicable before 1 January 2018)The Company treats financial assets available-for-sale as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires considerable judgment.



5 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)

Impairment of inventoriesInventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision is applied according to the inventory type and the degree of ageing or obsolescence, based on anticipated selling prices.

Useful lives of property, plant and equipmentThe Company’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual value and useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ from previous estimates.

Impairment of property, plant and equipment A decline in the value of property, plant and equipment could have a significant effect on the amounts recognised in the financial statements. Management assesses the impairment of property, plant and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors that are considered important which could trigger an impairment review include the following:• significant decline in the market value beyond that which would be expected from the passage of time or normal use;• Significant changes in the technology and regulatory environments; or• Evidence from internal reporting which indicates that the economic performance of the asset is, or will be, worse

than expected.

6 PROFIT FOR THE YEAR

Profit for the year is stated after charging:2018 2017

KD KDStaff costs included in: Cost of sales 177,548 158,633 General and administrative expenses 394,554 353,343 Selling and distribution expenses 53,820 51,813

625,922 563,789Inventories recognised as expenses upon cost of goods sold 1,813,914 1,634,915Rental - operating lease 21,000 15,400



7 PROPERTY, PLANT AND EQUIPMENT

Buildings

Plant, machinery

and equipment

Furniture, office

equipment and fixtures

Motor vehicles Total

KD KD KD KD KDCost: As at 1 January 2018 1,728,905 1,443,833 132,361 99,127 3,404,226 Additions - 11,193 4,380 - 15,573 Write off - )4,538( )12,239( - )16,777( As at 31 December 2018 1,728,905 1,450,488 124,502 99,127 3,403,022

Depreciation: As at 1 January 2018 1,454,907 960,139 121,584 85,956 2,622,586 Charge for the year - 56,684 4,767 8,955 70,406 Related to write off - )2,873( )12,211( - )15,084( As at 31 December 2018 1,454,907 1,013,950 114,140 94,911 2,677,908

Net book value: As at 31 December 2018 273,998 436,538 10,362 4,216 725,114

Buildings are constructed on a land leased from The Public Authority of Industry, Kuwait which will expire on 30 June 2019. Notwithstanding the contractual term of the leases, management considers that, based on market experience, the leases are renewable indefinitely, at similar nominal rates of ground rent, and with no premium payable for renewal of the lease.

Fair value of the buildings was determined using the market comparable method. Valuations were performed by an independent valuer based on active market prices, adjusted for differences in the nature, location or condition of the buildings.

Fair value hierarchyThe fair value measurement of buildings has been categorised as level 3, based on inputs to the valuation technique used.



7 PROPERTY, PLANT AND EQUIPMENT (continued)

Buildings

Plant, machinery

and equipment

Furniture, office

equipment and fixtures

Motor vehicles

Capital work-in-

progress TotalKD KD KD KD KD KD

Cost: As at 1 January 2017 1,728,905 1,426,368 129,461 99,127 15,765 3,399,626 Additions - 1,700 2,900 - - 4,600 Transfers - 15,765 - - )15,765( - As at 31 December 2017 1,728,905 1,443,833 132,361 99,127 - 3,404,226

Depreciation: As at 1 January 2017 1,454,907 903,684 117,175 75,782 - 2,551,548 Charge for the year - 56,455 4,409 10,174 - 71,038 As at 31 December 2017 1,454,907 960,139 121,584 85,956 - 2,622,586

Net book value: As at 31 December 2017 273,998 483,694 10,777 13,171 - 781,640

The depreciation charge has been allocated in the statement of income as follows:

2018 2017KD KD

Cost of goods sold 51,797 51,443General and administrative expenses 18,609 19,595

70,406 71,038

68

8 INVESTMENT IN ASSOCIATES

Name Country of Incorporation

Equity interest % Principal activ-ities Reporting date

2018 2017United Precision Drilling Company W.L.L. (“UPDC”)

Kuwait 47.50% 47.50% Sale of oil equip-ment

31 December 2018

Al-Khorayef United Hold-ing Company K.S.C. (Closed) (“Al-Khorayef”)

Kuwait 25.00% 25.00%

Oil equipment sale, main-

tenance and repairs

31 December 2018

The movement in the carrying amount of investment in associates during the year is as follows:

2018 2017KD KD

As at 1 January 12,336,336 10,904,529Share of results 189,714 2,005,100Foreign currency translation adjustments 43,875 )125,413(Dividends earned )551,291( )447,880(As at 31 December 12,018,634 12,336,336

In accordance with International Accounting Standard 36 “Impairment of assets”, the management has performed a detailed exercise in respect of each of the associates to determine whether there is any objective evidence that its in-vestment in associates is considered impaired. As a result of the exercise, no impairment is considered necessary as at 31 December 2018.

As at 31 December 2018, UPDC has outstanding letter of guarantees amounting to KD 22,639,264 (2017: KD 20,174,921) arising in the ordinary course of business.



69

8 INVESTMENT IN ASSOCIATES (continued)

The following table provides summarised financial information of Company’s investment in associates that are unquoted:

UPDC Al-Khorayef Total

2018 2017 2018 2017 2018 2017KD KD KD KD KD KD

Non-current assets 365,117 253,224 30,486,629 39,867,420 30,851,746 40,120,644Current assets 13,677,864 27,597,760 21,883,228 26,943,262 35,561,092 54,541,022Non-current liabilities )3,324,482( )2,638,171( )2,050,487( )6,921,999( )5,374,969( )9,560,170(Current liabilities )5,520,821( )19,976,651( )19,771,646( )28,143,272( )25,292,467( )48,119,923(Equity 5,197,678 5,236,162 30,547,724 31,745,411 35,745,402 36,981,573

Company’s shareholding 47.50% 47.50% 25% 25%Company’s share in equity 2,468,897 2,487,177 7,636,931 7,936,353 10,105,828 10,423,530Goodwill 308,840 308,840 1,603,966 1,603,966 1,912,806 1,912,806

Carrying value as at 31 December 2,777,737 2,796,017 9,240,897 9,540,319 12,018,634 12,336,336Contingencies and Commitments 22,639,264 20,174,921 25,930,427 31,239,984 48,569,691 51,414,905Revenues 25,170,538 26,082,590 32,465,277 39,122,383 57,635,815 65,204,973Profit (loss) for the year 1,122,126 1,160,610 )1,373,185( 5,815,239 )251,059( 6,975,849Company’s share of profit (loss) for the year 533,010 551,290 )343,296( 1,453,810 189,714 2,005,100Company’s share of other comprehensive income )loss( for the year - - 43,875 )125,413( 43,875 )125,413(Dividend received during the year 551,291 447,880 - - 551,291 447,880



70

9 INVESTMENT IN A JOINT VENTURE

Equity interest %Country of

Incorporation 2018 2017 Principal activities

Project GC16- Joint Venture Kuwait 25% 25%

To build and operate a gathering center in west Kuwait.

During the year ended 31 December 2010, the Company has entered into a joint venture agreement )unincorporated association) to build, operate and maintain an oil facility in Kuwait. The Company has a %25 interest in this unincorporated association.

The Joint Venture had contingent liabilities in respect of bank guarantee against advance payment and performance guarantee to Kuwait Oil Company (KOC) amounting to KD 14,517,717 (2017: KD 16,598,870). Bank guarantee is guaranteed by the Company and the Parent Company.

Joint venture’s revenue and results: 2018 2017

KD KDTotal assets 21,235,157 32,830,484Total liabilities )13,044,895( )28,177,593(Net assets 8,190,262 4,652,891Company's share of net assets 2,047,566 1,163,223

Revenue 19,281,707 17,939,889Profit for the year 3,537,371 1,097,889Company’s share of profit for the year 884,343 274,472

The movement in the carrying amount of investment in a joint venture during the year is as follows:

2018 2017KD KD

As at 1 January 1,163,223 888,751Share of results 884,343 274,472As at 31 December 2,047,566 1,163,223



71

10 INVESTMENT SECURITIES

2018 2017KD KD

Financial assets at fair value through other comprehensive income )IFRS 9(:Quoted securities 6,156,817 - Unquoted securities 1,082,080 - Financial assets available for sale (IAS 39(:Quoted securities - 5,301,790Unquoted securities - 345,379

7,238,897 5,647,169

Quoted securities are carried at fair value by reference to their quoted market bid price at the reporting date.

11 INVENTORIES

2018 2017KD KD

Raw materials 354,029 426,693Finished goods 256,341 251,257Packing materials and spare parts 20,198 22,819

630,568 700,769Provision for slow moving and obsolete items )110,090( )110,090(

520,478 590,679Goods in transit 21,145 41,365

541,623 632,044

12 ACCOUNTS RECEIVABLE AND PREPAYMENTS

2018 2017KD KD

Trade receivables 504,780 441,783Less: Allowance for doubtful debts )63,463( )63,463(

441,317 378,320Other receivables 50,987 30,381Prepaid expenses 17,533 23,033

509,837 431,734

Trade receivables are non-interest bearing and are generally settled within 30 to 90 days terms.

The following table shows lifetime ECL that has been recognised for trade receivables in accordance with the simplified approach set out in IFRS 9.



72

12 ACCOUNTS RECEIVABLE AND PREPAYMENTS (continued)

2018 TotalKD

Expected credit loss rate* 13%Estimated total gross carrying amount 504,780Lifetime ECL )63,463(As at 31 December 441,317* represents average expected credit loss rate.

As at 31 December 2018, trade receivables amounting to KD 63,463 (2017: KD 63,463) were impaired and fully provided. As at 31 December, the ageing analysis of trade receivables that were not impaired is as follows:

TotalNeither past due

nor impaired

Past due but not impaired (<30

days)KD KD KD

2018 441,317 396,950 44,3672017 378,320 362,650 15,670

As at 31 December 2018, trade receivables amounting to KD 184,269 (2017: KD 237,669) were denominated in US Dollars.

13 CASH AND CASH EQUIVALENTS

2018 2017KD KD

Cash in hand 2,614 1,524Cash at banks 277,154 240,300Short term deposits with less than original maturity of three months 3,801,804 2,053,808

4,081,572 2,295,632

Included in cash and cash equivalents are balances denominated in US Dollars amounting to KD 19,468 (2017: KD 58,010) and Euro amounting to KD 464 (2017: KD 6,281).



73

14 SHARE CAPITAL, SHARE PREMIUM AND RESERVES

a) Share capitalThe authorised, issued and paid-up capital consists of 100,000,000 shares of 100 fils per share (2017: 100,000,000 shares of 100 fils per share), which is fully paid up in cash.

The board of directors has recommended cash dividend of 8 fils (2017: 8 fils) per share amounting to KD 800,000 (2017: KD 800,000) for the year ended 31 December 2018 which is subject to approval of the Annual General Meeting of the shareholders. The cash dividend shall be payable to shareholders registered in the Company's records as of the Annual General Meeting date.

b) DividendOn 19 April 2018, Annual General Meeting of the Company’s shareholders was held and approved cash dividends of 8 fils per share amounting to KD 800,000, which was paid following the approval date.

c) Share premiumShare premium represents cash received in excess of the par value of the shares issued. The share premium is not available for distribution.

d) Statutory reserveIn accordance with the Companies’ Law, and the Company’s Memorandum of Incorporation and Articles of Association, a minimum of 10% of the profit for the year (before tax and board of directors’ remuneration) shall be transferred to the statutory reserve (based on the recommendation of the Company’s board of directors). The annual general assembly of the Company may resolve to discontinue such transfer when the reserve exceeds 50% of the issued share capital.

The reserve may only be used to offset losses or enable the payment of a dividend up to 5% of paid-up share capital in years when profit is not sufficient for the payment of such dividend due to absence of distributable reserves. Any amounts deducted from the reserve shall be refunded when the profits in the following years suffice, unless such reserve exceeds 50% of the issued share capital.

e) Voluntary reserveIn accordance with the Companies’ Law, and the Company’s Memorandum of Incorporation and Articles of Association, a maximum of 10% of the profit for the year (before tax and board of directors’ remuneration) is required to be trans-ferred to the voluntary reserve. Such annual transfers may be discontinued by a resolution of the shareholders’ general assembly upon a recommendation by the Board of Directors. There are no restrictions on the distribution of this reserve.

f) Directors' remunerationThe Board of Directors’ have proposed Directors’ remuneration for the year ended 31 December 2018 amounting to KD 30,000 which is subject to approval by Annual General Meeting of shareholders. The proposed Directors' remuneration of KD 30,000 for the year ended 31 December 2017 was approved by the Annual General Meeting of shareholders on 19 April 2018.



74

15 EMPLOYEES’ END OF SERVICE BENEFITS

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

2018 2017KD KD

As at 1 January 318,335 275,186Provided during the year 57,730 44,529Paid during the year )3,467( )1,380(As at 31 December 372,598 318,335

16 ACCOUNTS PAYABLE AND ACCRUALS2018 2017

KD KDTrade payables 182,389 157,461Accrued staff payable 193,541 174,272Dividends payable 116,484 132,565Other payables and accrued expenses 83,390 91,260Advance from customers 3,948 568

579,752 556,126

17 RELATED PARTY DISCLOSURES

Related parties represent Parent Company, associated companies, directors and key management personnel of the Company, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Company’s management. Significant balances and transactions with related parties included in the financial statements are as follows:

Parent Company Associates

Other related parties

Total2018

Total2017

KD KD KD KD KDStatement of income:Dividend income 1,155 - 399,595 400,750 307,846Interest income - 50,000 - 50,000 75,000Other income - 30,000 - 30,000 30,000Statement of comprehensive income:Unrealised gain on financial assets at fair value through other comprehensive income - - 852,470 852,470 - Net unrealised gain on financial assets available-for-sale - - - - 2,128,522Statement of financial position:Financial assets at fair value through other comprehensive income 29,696 - 6,127,121 6,156,817 - Financial assets available-for-sale - - - - 5,301,790Amount due from a related party - - - - 1,700,832Amount due to related parties 294,102 - - 294,102 290,660



75

17 RELATED PARTY DISCLOSURES (continued)

Amount due from a related party (classified under non-current assets) carries interest of 6% per annum. Amount due from a related party (classified under current assets) carries no interest and is receivable on demand.

Amounts due to related parties carries no interest and is repayable on demand.

Compensation of key management personnelThe remuneration of directors and other members of key management during the year was as follows:

2018 2017KD KD

Salaries and short-term benefits 194,465 182,610Employees’ end of service benefits 13,557 12,704

208,022 195,314

18 CONTINGENCIES

As at 31 December 2018, the Company had commitments against irrevocable letter of credits amounting to Nil (2017: KD 3,929).

As at 31 December 2018, the Company had contingent liability in respect of bank guarantees arising in the ordinary course of business from which it is anticipated that no material liabilities will arise, amounting to KD 1,000,000 (2017: Nil)

19 RISK MANAGEMENT

Risk is inherent in the Company’s activities but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Company’s continuing profitability and each individual within the Company is accountable for the risk exposures relating to his or her responsibilities. The Company is mainly exposed to credit risk, liquidity risk and market risk with the latter subdivided into interest rate risk, equity price risk and foreign currency risk. The independent risk control process does not include business risks such as changes in the environment, technology and industry. They are monitored through the Company’s strategic planning process. No changes were made in the risk management objectives and policies during the year ended 31 December 2018 and year ended 31 December 2017.

19.1 Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company manages credit risk by setting limits for individual counter-parties, and for geographical and industry segments. The Company also monitors credit exposures, and continually assesses the creditworthiness of counterparties.

The Company’s five largest customers account for 78% (2017: 65%) of outstanding accounts receivable at the reporting date.



76

19 RISK MANAGEMENT (continued)

19.1 Credit risk (continued)

The Company seeks to limit its credit risk with respect to banks by only dealing with reputable banks. With respect to credit risk arising from the financial assets of the Company (which comprise trade receivable, amount due from related parties and cash and cash equivalents), the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments in the statement of financial position.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The Company applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables.

The expected loss rates are based on the payment profiles of sales over a period of 24 months before the date of assessment i.e. the reporting date or effective date of adoption of IFRS 9 and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

19.2 Liquidity riskLiquidity risk is the risk that the Company will be unable to meet its liabilities when they fall due. To limit this risk, management has arranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on a periodic basis. Amount due to related parties are payable on demand and accounts payables are settled within 3 months from the reporting date.

19.3 Market riskMarket risk is the risk that the value of an asset will fluctuate as a result of changes in market variables such as interest rates, equity prices and foreign exchange rates whether those changes are caused by factors specific to the individual investment or its issuer or factors affecting all investments traded in the market. Market risk is managed on the basis of pre-determined asset allocations across various asset categories, diversification of assets in terms of geographical distribution and industry concentration, a continuous appraisal of market conditions and trends and management’s estimate of long and short term changes in fair value.

19.3.1 Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The Company is not significantly exposed to interest rate risks since it does not have material financial instruments which carry interest at floating rate at the reporting date.

19.3.2 Equity price riskEquity 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 Company's investment in equity securities classified as ‘financial assets at fair value through other comprehensive income’ (2017: financial assets available for sale(.

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, to which the Company has significant exposure at 31 December:



77

19 RISK MANAGEMENT (continued)

19.3 Market risk (continued)19.3.2 Equity price risk (continued)

Effect on statement of comprehensive incomeChange in equity price %

(+/-)2018 2017

KD KDMarket index:Kuwait Stock Exchange 5 113,501 53,941

An increase in the value of the equity price would only impact other comprehensive income, and not have an effect on statement of income.

19.3.3 Foreign currency riskCurrency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

Management believes that there is minimal risk of significant losses due to exchange rate fluctuations and consequently the Company does not hedge foreign currency exposures.

The effect on statement of income (due to change in the fair value of monetary assets and liabilities) as a result of change in currency rate, with all other variables held constant is shown below:

Effect on statement of comprehensive incomeCurrency Change in currency rate

%2018 2017

KD KD

US Dollars 5 10,187 14,783Euro 5 23 314

The effect of increase in currency rate is expected to be equal and opposite to the effect of the decrease shown above. There will be no effect on statement of comprehensive income.

19.4 Capital managementThe primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholders’ value.

The Company manages its capital structure and makes adjustments to it in light of changes in business conditions. No changes were made in the objectives, policies or processes during the years end 31 December 2018 and 31 December 2017. Capital comprises share capital, share premium, statutory reserve, voluntary reserve, cumulative changes in fair values, foreign currency translation reserve, asset revaluation reserve and retained earnings and is measured at KD 25,916,791 as at 31 December 2018 (2017: KD 23,823,489).



78

20 FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments comprise of financial assets and financial liabilities.

Financial assets consist of financial assets at fair value through other comprehensive income, accounts receivable and cash and cash equivalents. Financial liabilities consist of accounts payable and accruals and amount due to related parties.

The fair values of financial instruments are not materially different from their carrying values.

The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities:

Fair value measurement using

31 December 2018

Quoted prices in active markets

(Level 1)

Significant unobservable

inputs (Level 3) TotalAssets measured at fair value: KD KD KD Buildings included in property, plant and equipment )Note 7( - 273,998 273,998Financial assets at fair value through other comprehensive income )Note 10( 6,156,817 1,082,080 7,238,897

6,156,817 1,356,078 7,512,895

Fair value measurement using

31 December 2017

Quoted prices in active markets

(Level 1)


inputs (Level 3) TotalAssets measured at fair value: KD KD KD Buildings included in property, plant and equipment )Note 7( - 273,998 273,998Financial assets available-for-sale (Note 10( 5,301,790 - 5,301,790

5,301,790 273,998 5,575,788The fair value of the above is categorised as per the policy on fair value measurement in Note 3. There were no transfer between the levels during the year.

Due to a change in accounting policy, investment securities measured at cost less impairment )in accordance with IAS 39) amounting to KD 1,082,080 were recognised in Level 3 for the first time.





20 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Description of significant unobservable inputs to valuation of non-financial assets: Fair value of the property, plant and equipment was performed by the independent valuer which is based on active market rents, adjusted for difference in the nature, location or condition of the specific property.

Effect on statement of comprehensive income

Property, plant and equipment


valuation inputRange

Change in Significant

unobservable valuation input

range %(+/-)2018

KD2017

KD

Buildings Price per square meter per year KD 30 5 13,500 13,500

Significant increases (decreases) in estimated price per square metre in isolation would result in a significantly higher (lower) fair value.

80

Shareholders attending our General Assembly meeting will be provided with a draft printed copy of the Financial Statements for their approval.

Shareholders can request a printed copy of the Financial Statements to be sent to them by courier seven days before the advertised date of the General Assembly; please contactMs. Nehaya Al-Qedra, HR and Admin. Manager, Tel.: +965 2326 3297 ext. 111 to arrange this.

Shareholders can request a copy of the Financial Statements to be sent to them by email seven days before the advertised date of the General Assembly; please contact [email protected], to arrange this.

Shareholders can download a PDF copy of the Financial Statements seven days before the advertised date of the General Assembly from our company website - www.uopkt.com

For further information on our 2018 Financial Statements or for extra copies of this Review, please call +965 2326 3297

P.O. Box 26011, Safat 13121, Kuwait, Tel: +965 2326 3297 Fax: +965 2326 0179www.uopkt.com - [email protected]

How to obtain our 2018 Financial Statements:

annual report 2018 · • uop has participated in another major tender for provi-sion of rock fluid...

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