Al Kout Industrial Projects Company K.S.C. (Closed) and ... · PDF fileFax: +965 2240 1666. ... Fahad Y. Al-Jouaan Chairman ... Al Kout Industrial Projects Company K.S.C. (Closed)

Al Kout Industrial Projects Company K.S.C. (Closed) and its subsidiaries Kuwait Consolidated financial statements and independent auditors’ report For the year ended 31 December 2011

Al Kout Industrial Projects Company K.S.C. (Closed) and its subsidiaries Kuwait Consolidated financial statements and independent auditors’ report For the year ended 31 December 2011

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

Consolidated statement of comprehensive income 5

Consolidated statement of changes in equity 6

Consolidated statement of cash flows 7

Notes to the consolidated financial statements 8-35

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

Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Al Kout Industrial Projects Company K.S.C. (Closed) (“the parent company”) and its subsidiaries (together referred to as “the group”), which comprise the consolidated statement of financial position as at 31 December 2011, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statements The parent company’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the group as at 31 December 2011, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

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

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Report on Other Legal and Regulatory Requirements We further report that we have obtained the information and explanations that we required for the purpose of our audit and the consolidated financial statements include the information required by the Kuwait Commercial Companies Law of 1960, and the parent company’s articles and memorandum of association, as amended. In our opinion, proper books of account have been kept by the parent company, an inventory count was carried out in accordance with recognized procedures and the accounting information given in the board of directors’ report agrees with the books of account. We have not become aware of any contravention, during the year ended 31 December 2011, of the Kuwait Commercial Companies Law of 1960, or of the parent company’s articles and memorandum of association, as amended that would materially affect the group’s activities or its financial position.

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

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

Kuwait: 1 February 2012

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

Consolidated statement of financial position

As at 31 December 2011

3

2011 2010

Notes KD KD Assets Non-current assets Property, plant and equipment 5 12,992,477 9,558,775 Investment in an associate 6 7,506,230 8,800,000 Goodwill 7 833,350 - 21,332,057 18,358,775 Current assets Inventories 8 2,040,655 1,970,930 Trade receivables 9 3,078,473 2,801,357 Other receivables 10 694,873 365,796 Investments at fair value through statement of income 11 260,158 360,158 Cash and cash equivalents 12 4,427,777 2,368,735 10,501,936 7,866,976 Total assets 31,833,993 26,225,751 Equity and liabilities Equity Share capital 13 8,820,000 8,820,000 Statutory reserve 14 3,069,946 2,680,069 Voluntary reserve 15 3,031,939 2,642,062 Group’s share of associate’s reserves (10,984) 5,457 Foreign currency translation reserve 43,351 - Retained earnings 7,692,464 6,568,871 Total equity 22,646,716 20,716,459 Non-current liabilities Non-current portion of term loans 16 5,546,225 2,250,000 Provision for staff indemnity 768,926 657,588 6,315,151 2,907,588 Current liabilities Trade and other payables 17 2,122,126 1,551,704 Current portion of term loans 16 750,000 1,050,000 2,872,126 2,601,704 Total liabilities 9,187,277 5,509,292 Total equity and liabilities 31,833,993 26,225,751

______________________________ Fahad Y. Al-Jouaan Chairman

The notes on pages 8 to 35 form an integral part of these consolidated financial statements.


Consolidated statement of income

For the year ended 31 December 2011

4

2011 2010 Notes KD KD Revenue 12,860,308 11,038,126 Cost of sales (6,105,891) (5,755,278) Gross profit 6,754,417 5,282,848 Unrealised loss on investments at fair value through statement of income

(100,000)

(100,000)

Share of results of an associate 6 (1,277,329) (1,090,928) Dividend income 22,305 21,705 Other income 209,873 371,110 General and administrative expenses 18 (1,083,990) (944,093) Selling and distribution expenses (377,455) (391,000) Finance costs (249,056) (229,750) Profit before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), National Labour Support Tax (NLST), Zakat and Board of Directors’ remuneration 3,898,765 2,919,892 Contribution to KFAS (35,089) (26,279) NLST (100,235) (75,452) Zakat (40,094) (30,077) Board of Directors’ remuneration (56,000) (42,000) Profit for the year 19 3,667,347 2,746,084 Basic and diluted earning per share (fils) 20 41.58 31.13



Consolidated statement of comprehensive income


5

2011 2010 KD KD

Profit for the year 3,667,347 2,746,084 Other comprehensive income: Foreign currency translation adjustment relating to a foreign subsidiary

43,351 -

Changes in associate’s reserves (16,441) (109,072) Other comprehensive income / (loss) for the year 26,910 (109,072) Total comprehensive income for the year 3,694,257 2,637,012



Consolidated statement of changes in equity


6

Share capital

Statutory reserve

Voluntary reserve

Group’s share of

associates reserves

Foreign currency

translation reserve

Retained earnings

Total equity

KD KD KD KD KD KD KD

Balance as at 1 January 2010 8,820,000 2,388,080 2,350,073 114,529 - 5,729,765 19,402,447 Profit for the year - - - - - 2,746,084 2,746,084 Other comprehensive loss for the year - - - (109,072) - - (109,072) Total comprehensive (loss) / income for the year - - - (109,072)

- 2,746,084 2,637,012

Transfer to reserves - 291,989 291,989 - - (583,978) - Dividends paid (Note 22) - - - - - (1,323,000) (1,323,000) Balance as at 31 December 2010 8,820,000 2,680,069 2,642,062 5,457 - 6,568,871 20,716,459 Profit for the year - - - - - 3,667,347 3,667,347 Other comprehensive (loss) / income for the year - - - (16,441)

43,351 - 26,910

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

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

Transfer to reserves - 389,877 389,877 - - (779,754) - Dividends paid (Note 22) - - - - - (1,764,000) (1,764,000) Balance as at 31 December 2011 8,820,000 3,069,946 3,031,939 (10,984) 43,351 7,692,464 22,646,716



Consolidated statement of cash flows


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2011 2010 Notes KD KD OPERATING ACTIVITIES Profit for the year 3,667,347 2,746,084 Adjustments for: Depreciation 1,682,561 2,029,327 Provision for staff indemnity 151,225 154,805 Finance costs 138,514 191,160 Gain on sale of property, plant and equipment (18,162) - Unrealized loss on investments at fair value through statement of income

100,000 100,000

Share of results of an associate 1,277,329 1,090,928 Provision for slow moving inventories 100,000 - Dividend income (22,305) (21,705) 7,076,509 6,290,599 Movements in working capital: Inventories (169,725) 339,355 Trade receivables (277,116) 91,780 Other receivables (329,077) (95,615) Trade and other payables 757,285 (362,911) Cash generated from operations 7,057,876 6,263,208 Payment to KFAS (58,497) - NLST paid (106,836) (168,647) Zakat paid (8,610) (42,736) Staff indemnity paid (39,887) (66,824) Net cash from operating activities 6,844,046 5,985,001

INVESTING ACTIVITIES Net movement in investments at fair value through statement of income

- (1,072)

Acquisition of subsidiary 7 (4,220,200) - Purchase of property, plant and equipment (1,686,039) (1,914,316) Proceeds on disposal of property, plant and equipment 18,162 - Dividend received 22,305 21,705 Net cash used in investing activities (5,865,772) (1,893,683)

FINANCING ACTIVITIES Dividends paid (1,764,000) (1,323,000) Net movement in term loans 2,996,225 (4,484,559) Net movement in short-term borrowings - (1,468,000) Finance costs paid (151,457) (221,413) Net cash from / (used in) financing activities 1,080,768 (7,496,972) Net increase / (decrease) in cash and cash equivalents 2,059,042 (3,405,654) Cash and cash equivalents at beginning of the year 2,368,735 5,774,389 Cash and cash equivalents at end of the year 12 4,427,777 2,368,735



Notes to the consolidated financial statements


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1. GENERAL INFORMATION

Al Kout Industrial Projects Company K.S.C. (Closed) (formerly known as Al-Ahlia Industrial Projects Company K.S.C. (Closed), (“the parent company”), is a closed shareholding company incorporated on 28 December 1993 in accordance with the Commercial Companies Law in the State of Kuwait, and is listed on the Kuwait Stock Exchange. The group comprises of the parent company and its subsidiaries (see note 3.3). The parent company is primarily engaged in the manufacture and sale of Chlor Alkali products. The address of the parent company’s registered office is P.O. Box, 10277, Shuaiba 65453, State of Kuwait. The consolidated financial statements of the group for the year ended 31 December 2011 were approved and authorized for issue by the parent company’s Board of Directors’ on 1 February 2012 and are subject to the approval of the Annual General Assembly of the shareholders. The shareholders of the parent company have the power to amend these consolidated financial statements at the Annual General Assembly.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING

STANDARDS (IFRS’s) 2.1 New and revised IFRSs adopted by the group

The following new and revised IFRSs have been adopted by the group for the annual period beginning 1 January 2011:

• IAS 1 (Amendment) Presentation of Financial Statements

The amendment clarifies that an entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the consolidated financial statements. The adoption of the amendment did not have any impact on the consolidated financial position or performance of the Group.

• IAS 24 (Revised 2009) Related Party Disclosures The amendment clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The adoption of the amendment did not have any impact on the consolidated financial position or performance of the Group.




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

2.2 New and revised IFRSs in issue but not yet effective and not early adopted by the group

• Amendments to IFRS 7,Disclosures Transfers of Financial Assets

Effective for annual periods beginning on or after 1 July 2011

• IFRS 9 Financial Instruments Effective for annual periods beginning on or after 1 January 2015

• IFRS 10 Consolidated Financial Statements Effective for annual periods beginning on or after 1 January 2013

• IFRS 12 Disclosure of Interests in Other Entities

Effective for annual periods beginning on or after 1 January 2013

• IFRS 13 Fair Value Measurement Effective for annual periods beginning on or after 1 January 2013

• Amendments to IAS 1, Presentation of Items of Other Comprehensive Income

Effective for annual periods beginning on or after 1 July 2012

• IAS 19 (as revised in 2011) Employee Benefits


• IAS 27 (as revised in 2011) Separate Financial Statements


• IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures


IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and amended in October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2015.

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. The standard does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is yet to assess IFRS 13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2013. Management anticipates that the adoption of these new and revised Standards once they become effective in future periods will not have a material financial impact on these consolidated financial statements of the Group in the period of initial application.




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3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Statement of compliance

The consolidated financial statements of the group have been prepared in accordance with the International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB), IFRIC interpretations as issued by the International Financial Reporting Interpretations Committee (IFRIC) and Commercial Companies Law of 1960, as amended.

3.2 Basis of preparation

These consolidated financial statements are presented in Kuwaiti Dinars (“KD”) and have been prepared under the historical cost convention, except for investments at fair value through statement of income that are stated at fair value. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

3.3 Basis of consolidation

The consolidated financial statements comprise the parent company and its subsidiaries drawn up to 31 December 2011. All subsidiaries have a reporting date of 31 December. Subsidiaries are all entities over which the parent company has the power to control the financial and operating policies. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. The financial statements of the subsidiaries are consolidated on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. Intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated in full on consolidation. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the group’s equity therein. Non-controlling interests consist of amount of those interests at the date of original business combination and the non-controlling entity’s share of changes in equity since the date of the combination. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. Changes in the group’s ownership interests in subsidiaries that do not result in the group losing control over the subsidiaries are accounted for as equity transactions. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.3 Basis of consolidation (continued)

When the group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in consolidated statement of income. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in the consolidated statement of other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities (i.e. reclassified to the consolidated statement of income or transferred directly to retained earnings as specified by applicable IFRSs). Details of subsidiaries are as follows: Name of subsidiary

Country of incorporation

Groups’ ownership interest

Principal activity

(%) 2011 2010 Al Kout Logistics and Transport Company W.L.L.,

Kuwait 99.5 99.5 Transportation services

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

Kuwait 100 100 Blending of chemical products

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

Bahrain 100 100 Investment activities

Safewater Chemicals L.L.C. (Note 7)

United Arab Emirates

99 - Manufacture of Chlor Alkali products

3.4 Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred by the group, liabilities incurred or assumed by the group to the former owners of the acquiree and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Acquisition-related costs are generally recognised in the consolidated statement of income as incurred. At the acquisition date, the identifiable assets acquired and liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.4 Business combinations (continued)

When the consideration transferred by the group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in the consolidated statement of income. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair vale of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in the consolidated statement of income as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognize amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. If the initial accounting for business combination is incomplete by the end of the reporting period in which the combination occurs, the group reports provisional amounts for items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date. When a business combination is achieved in stages, the group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the group obtains control) and the resulting gain or loss, if any, is recognised in the consolidated statement of income. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in the consolidated statement of other comprehensive income are reclassified to the consolidated statement of income where such treatment would be appropriate if that interest were disposed of.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.4 Business combinations (continued)

Business combinations that took place prior to 1 January 2010 were accounted for in accordance with the previous version of IFRS 3.

3.5 Goodwill

Goodwill represents the excess of the cost of acquisition over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognised at the date of acquisition (see 3.4 above). Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated statement of income. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The group's policy for goodwill arising on the acquisition of an associate is described at 3.6 below.

3.6 Investment in associates

Associates are those entities over which the group is able to exert significant influence but which are neither subsidiaries nor interests in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the group’s share of the profit or loss and other comprehensive income of the associate. When the group’s share of losses of an associate exceeds the group’s interest in that associate, the group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.6 Investment in associates (continued)

Any excess of the cost of acquisition over the group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in the consolidated statement of income. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the group’s consolidated financial statements only to the extent of interests in the associate that are not related to the group. The associate’s financial statements are prepared either to the parent company’s reporting date or to a date not earlier than three months of the parent company’s reporting date. Amounts reported in the consolidated financial statements of associates have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. Where practicable, adjustments are made for the effect of significant transactions or other events that occurred between the reporting date of the associates and the parent company’s reporting date.

3.7 Property, plant and equipment

Property, plant and equipment except leasehold land are stated at cost less accumulated depreciation and any accumulated impairment losses. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the group’s accounting policy (see borrowing costs policy). Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight-line basis commencing when the assets are ready for their intended use. The estimated useful lives, residual values and depreciation methods are reviewed at each year end, with the effect of any changes in estimate accounted for on prospective basis. Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant improvements and replacements of assets are capitalised. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in consolidated statement of income in the period in which they occur.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.8 Inventories

Work in progress and finished goods are stated at the lower of weighted average cost and net realisable value. The cost of finished products includes direct materials, direct labour and fixed and variable manufacturing overhead and other costs incurred in bringing inventories to their present location and condition. Spare parts are not intended for resale and are valued at cost after making allowance for any obsolete or slow moving items. Cost is determined on a weighted average basis. All other inventory items are valued at the lower of purchased cost or net realisable value using the weighted average method after making provision for any slow moving and obsolete stocks. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs.

3.9 Financial assets

Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through statement of income, which are initially measured at fair value. Financial assets are classified into the following specified categories: ‘trade receivables’, ‘investments at fair value through statement of income’, and ‘cash and cash equivalents’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

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

Trade receivables Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method less provision for impairment losses.

Investments at fair value through statement of income (“FVTSI”) Investments are classified as at FVTSI where the financial asset is either held for trading or it is designated as at FVTSI. A financial asset is classified as held for trading if: (i) it has been acquired principally for the purpose of selling in the near future; or (ii) it is a part of an identified portfolio of financial instruments that the group manages together and has a recent actual pattern of short-term profit-taking; or (iii) it is a derivative that is not designated and effective as a hedging instrument.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued)

3.9 Financial assets (continued) Investments at fair value through statement of income (“FVTSI”) (continued) A financial asset other than a financial asset held for trading may be designated as at FVTSI upon initial recognition if: (i) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or (ii) the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or (iii) it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTSI. Financial assets at FVTSI are stated at fair value, with any resultant gain or loss recognised in the consolidated statement of income. Fair value is determined in the manner described in note 24. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, bank balances and short-term deposits with an original maturity of three months or less. Impairment of financial assets Trade receivables A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivables are impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. Derecognition of financial assets The group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the group retains substantially all the risks and rewards of ownership of a transferred financial asset, the group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.




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3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.10 Financial liabilities

The group’s financial liabilities include term loans, borrowings and trade payables. Financial liabilities are measured subsequently at amortised cost using the effective interest method. Interest bearing borrowings Interest bearing borrowings are recognised initially at fair value less directly attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated statement of income over the period of the borrowings on an effective interest basis. Trade and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

Derecognition of financial liabilities A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired.

3.11 Equity, reserves and dividend payments

Share capital represents the nominal value of shares that have been issued. Statutory and voluntary reserves represents amounts transferred from profits in accordance with Commercial Companies Law of 1960, as amended and the parent company’s articles of association (Note 14 and 15). Retained earnings include all current and prior period retained profits. Dividends are recognised as a liability in the group’s consolidated financial statements in the period in which the dividends are approved by the shareholders.

3.12 Provision for staff indemnity

Provision is made for amounts payable to employees under the Kuwaiti Labour Law and employment contracts. This liability, which is unfunded, represents the amount payable to each employee as a result of involuntary termination on the financial position date, and approximates the present value of the final obligation.




18

3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.13 Provisions

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

3.14 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Revenue from the sale of goods is recognised when all the following conditions are satisfied: • the group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the group retains neither continuing managerial involvement to the degree usually associated with

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

Dividend income is recognised when the right to receive payment is established.

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

3.15 Borrowing costs

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




19

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

The functional currency of the group is KD. Transactions denominated in foreign currencies are translated into KD at rates of exchange prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are retranslated into KD at rates of exchange prevailing at the consolidated statement of financial position date. The resultant exchange differences are included in the consolidated statement of income. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each consolidated statement of financial position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the consolidated statement of financial position date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in the consolidated statement of income in the period in which they arise except for: • exchange differences which relate to assets under construction for future productive use, which are

included in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings;

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

For the purpose of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operations are expressed in KD using exchange rates prevailing at the reporting date, income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are charged / credited to other comprehensive income and recognised in the Group’s foreign currency translation reserve in equity. On disposal of a foreign operation the exchange differences recognised in equity are reclassified to consolidated statement of income and recognised as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated into KD at the closing rate.

3.17 Contribution to Kuwait Foundation for the Advancement of Sciences

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




20

3. SIGNIFICANT ACCOUNTING POLICIES (continued) 3.18 National Labour Support tax

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

3.19 Zakat

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

3.20 Impairment of tangible assets

At each financial position date, the group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated statement of income, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the consolidated statement of income, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

3.21 Contingent liabilities and assets

Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless there is a possibility of outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements, but disclosed when an inflow of economic benefit is possible.




21

4. SIGNIFICANT ACCOUNTING JUDGEMENTS

Accounting judgements

In the process of applying the group’s accounting policies, management has used judgements and made estimates in determining the amounts recognised in the consolidated financial statements. The most significant use of judgements and estimates are as follows: Impairment of trade receivables

An estimate of the collectible amount of trade receivables is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. At the reporting date, gross trade receivables were KD 3,218,895 (2010: KD 2,935,050), and the provision for doubtful debts was KD 140,422 (2010: KD 133,693). Any difference between the amounts actually collected in future periods and the amounts expected to be collected will be recognized in the consolidated statement of income. Useful lives of tangible assets As described in note 3.7, the group reviews the estimated useful lives over which its tangible assets are depreciated. The group’s management is satisfied that the estimates of useful lives are appropriate.




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5. PROPERTY, PLANT AND EQUIPMENT

Buildings Plant and machinery

Electrolyser and ED

membrane

Office furniture and

equipment Motor

vehicles

Capital work in progress Total

KD KD KD KD KD KD KD Cost Balance at 1 January 2010 5,078,426 12,538,107 3,802,931 520,324 1,646,684 1,787,423 25,373,895 Additions - 329,568 - 67,220 164,927 1,352,601 1,914,316 Transfers 544,171 1,259,487 1,307,714 - - (3,111,372) - Balance at 1 January 2011 5,622,597 14,127,162 5,110,645 587,544 1,811,611 28,652 27,288,211 Acquired through business combination

1,606,554

1,808,858

-

1,899

12,913

-

3,430,224

Additions 13,149 170,768 - 19,754 548,669 933,699 1,686,039 Disposal - - - - (86,645) - (86,645) Balance at 31 December 2011 7,242,300 16,106,788 5,110,645 609,197 2,286,548 962,351 32,317,829 Accumulated depreciation Balance at 1 January 2010 3,603,941 8,174,025 2,726,135 466,860 729,148 - 15,700,109 Charge for the year 362,808 990,591 472,904 41,561 161,463 - 2,029,327 Balance at 1 January 2011 3,966,749 9,164,616 3,199,039 508,421 890,611 - 17,729,436 Charge for the year 225,095 764,187 463,247 45,213 184,819 - 1,682,561 Relating to disposals - - - - (86,645) - (86,645) Balance at 31 December 2011 4,191,844 9,928,803 3,662,286 553,634 988,785 - 19,325,352 Carrying amount As at 31 December 2011 3,050,456 6,177,985 1,448,359 55,563 1,297,763 962,351 12,992,477 As at 31 December 2010 1,655,848 4,962,546 1,911,606 79,123 921,000 28,652 9,558,775 Annual depreciation rates 10% 6.66% to 20% 20% to 62% 33.33% 10% to 33.33% -

Buildings are constructed on leasehold land. The group’s property, plant and equipment have been assigned as security for the term loans (see note 16).




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6. INVESTMENT IN AN ASSOCIATE

Name of associate

Country of incorporation

Ownership interest Carrying amount 2011 2010 2011 2010

% % KD KD Al Dorra Petroleum

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

Kuwait

23

23

7,506,230

8,800,000

Summarised financial information in respect of the group’s investment in its associate is set out below: 2011 2010 KD KD Share of associate’s statement of financial position: Current assets 4,718,345 4,802,157 Non-current assets 4,060,522 4,722,997 Current liabilities (1,105,974) (1,302,786) Non-current liabilities (166,663) (141,815) Net assets 7,506,230 8,080,553 Goodwill included in the carrying value of the associate - 719,447 Carrying amount of the investment in an associate 7,506,230 8,800,000

2011 2010

KD KD Share of associate’s revenue and results: Revenue 4,547,635 8,766,439 Results (557,883) (119,761) The share of results of an associate include an impairment loss of KD 719,447 (2010: KD 971,167) in the consolidated statement of income for the year based on estimate of recoverable value.

7. GOODWILL

On 1 November 2011, the parent company acquired 99% of equity interest in Safewater Chemicals L.L.C., a company incorporated in Abu Dhabi. The company is engaged in the manufacture of Chlor Alkali products. The fair value of assets acquired and liabilities recognised at the date of acquisition were:

2011 KD Assets Property, plant and equipment 3,386,850 Trade receivables 279,751

Other receivables 222,012 Inventories 32,692 3,921,305




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7. GOODWILL (continued)

2011 KD Liabilities Trade and other payables (534,455) Total identifiable net assets at fair value on acquisition 3,386,850 Total purchase consideration paid in cash 4,220,200 Goodwill on acquisition 833,350 8. INVENTORIES 2011 2010 KD KD Finished goods 216,344 118,319 Raw materials 57,828 52,761 Spare parts 2,022,372 1,987,752 Imported salt 119,278 100,531 Packing materials 71,010 57,744 2,486,832 2,317,107 Allowance for slow moving inventories (446,177) (346,177) 2,040,655 1,970,930 9. TRADE RECEIVABLES 2011 2010 KD KD Trade receivables 3,218,895 2,935,050 Allowance for doubtful debts (140,422) (133,693) 3,078,473 2,801,357

Movement in the allowance for doubtful debts 2011 2010 KD KD Balance at beginning of the year 133,693 237,431 Amount written off during the year (355) - Amount reversed during the year (40,614) (103,738) Relating to business acquisition 47,698 - Balance at end of the year 140,422 133,693

At the financial position date, 66% of the net trade receivables are due from 23 customers (2010 - 78% from 11 customers). At the financial position date, net trade receivables amounting to KD 835,983 (2010: KD 692,655) were past due but not considered to be impaired. The ageing analysis of these receivables is as follows:




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9. TRADE RECEIVABLES (continued)

2011 2010 KD KD

90 – 180 days 334,091 607,407 180 - 360 days 396,844 31,273 Over 360 days 105,048 53,975

835,983 692,655

Amounts receivable that are not past due are considered collectible based on historic experience. 10. OTHER RECEIVABLES

2011 2010

KD KD

Prepayments 104,175 71,757 Advances 329,164 244,500 Employee receivables 15,439 15,930 Accrued income 14,271 12,887 Others 231,824 20,722

694,873 365,796

11. INVESTMENTS AT FAIR VALUE THROUGH STATEMENT OF INCOME 2011 2010 KD KD Trading: Foreign unquoted securities 260,158 360,158

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

12. CASH AND CASH EQUIVALENTS

2011 2010 KD KD Cash in hand 15,361 7,784 Cash at banks 2,911,582 608,653 Short term deposits 1,500,000 1,750,000 Cash in portfolio 834 2,298

4,427,777 2,368,735

The group’s short term deposits yield an average interest rate of 2% (2010: 2%) per annum and mature within three months from the date of deposit.




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13. SHARE CAPITAL

2011 2010 KD KD

Authorised: 88,200,000 shares (2010: 240,000,000 shares) of nominal value of 100 fils each 8,820,000 24,000,000 Issued and fully paid: 88,200,000 shares of nominal value of 100 fils each paid in cash 8,820,000 8,820,000

14. STATUTORY RESERVE

In accordance with the Commercial Companies Law of 1960 and the parent company’s articles of association, as amended, 10% of the profit for the year is required to be transferred to the statutory reserve until the reserve totals 50% of the paid up share capital. Distribution of the statutory reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when retained earnings are not sufficient for the payment of a dividend of that amount.

15. VOLUNTARY RESERVE

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

16. TERM LOANS

2011 2010 KD KD Current portion 750,000 1,050,000 Non-current portion 5,546,225 2,250,000

The above represents term loans obtained from local banks and bear an average interest rate ranging from 2.5% to 3.5% (2010: 3.5% to 6.5%) per annum.

2011 2010 KD KD

Payable in 1 year or less 750,000 1,050,000 Payable in 1-2 years 1,587,150 750,000 Payable in 2-5 years 3,959,075 1,500,000

6,296,225 3,300,000




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16. TERM LOANS (continued)

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

2011 2010 KD KD

KD 2,250,000 3,300,000 United States Dollars (“USD”) 4,046,225 -

6,296,225 3,300,000

The group’s buildings, plant, machinery and electrolyzers are pledged as collateral against the term loans (Note 7).

17. TRADE AND OTHER PAYABLES

2011 2010

KD KD

Trade payables 231,685 126,881 Freight payable 17,980 11,541 Advance from customers 219,886 20,027 Retention payable 94,674 120,540 Accrued contractors expenses 24,151 34,599 Accrued utility charges 366,752 268,541 Employees’ accrued leave pay 91,206 64,878 KFAS payable 61,369 84,777 NLST payable 168,686 175,287 Zakat payable 60,138 28,654 Accrued interest 43,139 56,831 Directors remuneration payable 56,000 42,000 Staff bonus 375,427 354,242 Others 311,033 162,906

2,122,126 1,551,704 18. GENERAL AND ADMINISTRATIVE EXPENSES 2011 2010 KD KD

Staff costs 690,269 643,451 Depreciation 70,121 100,607 Others 323,600 200,035 1,083,990 944,093




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19. STAFF COSTS AND DEPRECIATION Staff costs and depreciation charges are included in the consolidated statement of income under the

following categories: 2011 2010 KD KD Staff costs: Cost of sales 1,538,880 1,550,022 General and administrative expenses 690,269 643,451 Selling and distribution expenses 122,665 122,006 2,351,814 2,315,479 2011 2010 KD KD Depreciation: Cost of sales 1,612,440 1,920,956 General and administrative expenses 70,121 100,607 Selling and distribution expenses - 7,764 1,682,561 2,029,327 20. BASIC AND DILUTED EARNINGS PER SHARE 2011 2010 Basic and diluted earnings per share is calculated as follows: Profit for the year (KD) 3,667,347 2,746,084 Weighted average number of outstanding shares 88,200,000 88,200,000 Basic and diluted earnings per share (fils) 41.58 31.13 21. RELATED PARTY TRANSACTIONS

Related parties primarily comprise associates, significant shareholders, directors, key management personnel and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the company’s management. Transactions with related parties included in the consolidated statement of income is as follows:

2011 2010 KD KD

Share of results of an associate (1,277,329) (1,090,928) Balances with related parties included in the consolidated statement of financial position is as follows:

2011 2010 KD KD

Investment in an associate 7,506,230 8,800,000




29

21. RELATED PARTY TRANSACTIONS (continued)

2011 2010 KD KD Compensation of key management personnel Salaries and other short-term benefits 302,080 329,556 Employees’ end of service benefits 26,196 25,323 Board of directors' remuneration 56,000 42,000 384,276 396,879

22. DIVIDENDS

The Annual General Assembly Meeting held on 21 March 2011 approved the annual consolidated financial statements for the year ended 31 December 2010 and distribution of a cash dividend of 20% of the share capital (2009: 15%). At the meeting held on 1 February 2012, the Board of Directors have proposed a cash dividend of 35% of the share capital for the year ended 31 December 2011. This proposal is subject to the approval of the Shareholders’ General Assembly.

23. SEGMENT REPORTING

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

a) Segment revenues and results

The following is an analysis of the group’s revenue and results by reportable segment:

2011 2010 2011 2010 KD KD KD KD Revenue Segment result Chlor Alkali 12,332,833 10,854,560 6,682,562 5,248,888 Petrochemical products 340,542 - 37,273 - Logistics and transport 186,933 183,566 34,582 33,960 12,860,308 11,038,126 6,754,417 5,282,848 Investment income (net) (77,695) (78,295) Share of results of associate (1,277,329) (1,090,928) Other income 209,873 371,110 Finance costs (249,056) (229,750) Unallocated expenses (1,692,863) (1,508,901) Profit for the year 3,667,347 2,746,084




30

23. SEGMENT REPORTING (continued) b) Segment assets and liabilities

For the purposes of monitoring segment performance and allocating resources between segments: 2011 2010 KD KD

Segment assets Chlor Alkali 22,271,721 16,024,910 Petrochemical products 100,000 - Logistics & Transport 1,505,561 1,040,683 Investments 7,956,711 9,160,158 Total consolidated segment assets 31,833,993 26,225,751

Segment liabilities Chlor Alkali 8,943,427 5,311,810 Logistics & Transport 243,850 197,482 Total consolidated segment liabilities 9,187,277 5,509,292

c) Geographical segments Revenue 2011 2010 KD KD

Kuwait and Middle East 11,846,435 10,713,189 Europe 998,445 257,738 Asia 15,428 67,199 Total consolidated segment revenue 12,860,308 11,038,126

24. FINANCIAL INSTRUMENTS

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

a) Capital risk management

The parent company’s objectives when managing capital are to safeguard the parent company’s ability to continue as a going concern, through the optimisation of the debt and equity balance so that it can continue to provide returns for shareholders and benefits for other stakeholders and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The parent company sets the amount of capital in proportion to risk. The parent company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the parent company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or debt and or sell assets to reduce debt.

The capital structure of the group consists of term loans, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings.




31

24. FINANCIAL INSTRUMENTS (continued) a) Capital risk management (continued)

Gearing ratio

The gearing ratio at year end was as follows:

2011 2010 KD KD

Term loans 6,296,225 3,300,000 Less: cash and cash equivalents (4,427,777) (2,368,735) Net debt 1,868,448 931,265 Total equity 22,646,716 20,716,459 Total capital resources 24,515,164 21,647,724 Gearing ratio 7.6% 4.3%

b) Categories of financial instruments 2011 2010 KD KD Financial assets Cash and cash equivalents 4,427,777 2,368,735 Trade and other receivables 3,773,346 3,167,153 Investments at fair value through statement of income 260,158 360,158 Financial liabilities Term loans 6,296,225 3,300,000 Trade and other payables 2,122,126 1,551,704

c) Credit risk

The group is exposed to credit risk in respect of losses that would have to be recognised if counterparties fail to perform as contracted. The group’s exposure to credit risk is primarily in respect of bank balances and trade receivables. As at the consolidated statement of financial position date, the group’s maximum exposure to credit risk is equal to the carrying amount of the assets disclosed in the consolidated statement of financial position.

d) Equity price risk

Equity price risk is the risk that the value of financial instruments will fluctuate as a result of changes in equity prices. Financial instruments, which potentially subject the group to equity price risk, consists principally of investments at fair value through statement of income. The group manages this risk by diversifying its investments on the basis of the pre- determined asset allocations across various categories, continuous appraisal of market conditions and trends and management estimate of long and short term changes in fair value. The following table demonstrates the sensitivity of the changes in fair value to reasonably possible changes in equity prices, with all other variables held constant. The effect of decreases in equity prices is expected to be equal and opposite to the effect of the increases shown.




32

24. FINANCIAL INSTRUMENTS (continued) d) Equity price risk (continued)

Change in equity price

Effect on profit before KFAS, NLST,

Zakat & Board of Directors’

remuneration

Change in equity

price

Effect on profit before KFAS,

NLST, Zakat & Board of Directors’

remuneration 2011 2011 2010 2010 KD KD

Kuwait +5% 13,008 +5% 18,008 e) Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Financial instruments which potentially subject the group to interest rate risk consist primarily of term loans.

The following table demonstrates the sensitivity of the consolidated statement of income to reasonably possible changes in interest rates, with all other variables held constant. The sensitivity of the consolidated statement of income is the effect of the assumed changes in interest rates on the group’s profit / (loss) before KFAS, NLST, Zakat and Board of Directors' remuneration for one year, based on the floating rate financial liabilities held at 31 December 2010.

50 basis points movement Effect on consolidated statement

of income 2011 2010 KD KD Term loans 20,231 -

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

f) Foreign exchange risk

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




33

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

NLST, Zakat & Board of Directors' remuneration

Effect on profit before KFAS, NLST, Zakat & Board

of Directors' remuneration 2011 2010 2011 2010 KD KD KD KD

United States Dollar 95,366 11,103 (202,311) - UAE Dirhams 2,559 - - -

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

g) Liquidity risk

31 December 2011 Within 1 to 3 to 12 1to 5 1 month 3 months Months years Total KD KD KD KD KD Term loans 375,000 - 375,000 5,546,225 6,296,225 Trade and other payables 171,347 1,489,354 461,425 - 2,122,126 TOTAL LIABILITIES 546,347 1,489,354 836,425 5,546,225 8,418,351 31 December 2010 Within 1 to 3 to 12 1to 5 1 month 3 months Months years Total KD KD KD KD KD Term loans 375,000 - 675,000 2,250,000 3,300,000 Trade and other payables 349,255 680,674 521,775 - 1,551,704 TOTAL LIABILITIES 724,255 680,674 1,196,775 2,250,000 4,851,704

h) Fair value of financial instruments

i) Fair value of financial instruments carried at amortised cost In the opinion of management, carrying amounts of the financial instruments carried at amortised cost are not materially different from their respective fair values as at the financial position date.

ii) Fair value measurements recognised in the consolidated statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.




34

24. FINANCIAL INSTRUMENTS (continued)

h) Fair value of financial instruments (continued)

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices included

within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for

the asset or liability that are not based on observable market data (unobservable inputs).

31 December 2011 Level 3 KD

Investments at fair value through statement of income Foreign unquoted equities 260,158

31 December 2010

Investments at fair value through statement of income Foreign unquoted equities 360,158

Reconciliation of Level 3 fair value measurements of financial assets

31 December 2011

Investments at fair value through statement of

income KD

As at 1 January 2011 360,158 Total losses in the consolidated statement of income (100,000) As at 31 December 2011 260,158

Total unrealized losses for the year included in the consolidated statement of income for assets held at the end of the reporting period (100,000)

31 December 2010

As at 1 January 2010 459,086 Total losses in the consolidated statement of income (100,000) Additions 1,072 As at 31 December 2010 360,158 Total unrealized losses for the year included in the consolidated statement of income for assets held at the end of the reporting period (100,000)




35

25. COMMITMENTS AND CONTINGENT LIABILITIES 2011 2010 KD KD

Capital commitments For the acquisition of property, plant and equipment 636,258 195,178

Contingent liabilities Letters of guarantee 2,365,971 1,807,226 Operating lease commitments The minimum operating lease commitments under non-cancellable operating leases are as follows: 2011 2010 KD KD Not later than one year 19,363 39,542 Later than one year but not later than five years 53,644 4,425

Documents

Al Kout Industrial Projects Company K.S.C. (Closed) and ... · PDF fileFax: +965 2240 1666. ... Fahad Y. Al-Jouaan Chairman ... Al Kout Industrial Projects Company K.S.C. (Closed)