30508 english ar inside - ikarussheikh naser al mohammad al ahmad al sabah the prime minister of the...

H. H. Sheikh Sabah Al Ahmad Al

Jaber Al Sabah

The Amir of the State of Kuwait

H. H.

Sheikh Nawaf Al Ahmad Al Jaber

Al Sabah

The Crown Prince of the State of

Kuwait

H. H.

Sheikh Naser Al Mohammad Al Ahmad

Al Sabah

The Prime Minister of the State of Kuwait

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Members of the Board of Directors

Nader Hammad Sultan

Chairman of the board

Salah Al-TarkAIt

Member

Dr.Adel Al-Sabeeh

Vice Chairman of the

Board

Reyad Salem Al-Idreesi

Member

Dr. Soud Al-Farhan

Member

Dr.Hammad al-Mattar

Member

Suhail Yousef Abograis

Chief Executive Officer

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Ikarus Petroleum Industries Company – SAK (Closed)

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Report of the Board of Directors

For the financial year ending 31/12/2009


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Financial / Economic Conditions:The effects of the global financial crisis continued to dominate the financial and economic landscape in the region, particularly in Kuwait, where asset values remained very volatile throughout 2009. Over the year, total market capitalization of KSE listed stocks fell by around KD 3 billion (10%).Some Gulf markets rebounded better than Kuwait, such as Saudi Arabia, where the index rose 27% in 2009. This increased the value of Ikarus’ foreign assets, which are mostly concentrated in Saudi Arabia, and more than compensated for the decline in the company’s local assets.

2009 Kuwaiti / Saudi stock Market performance

The credit crisis made banks reluctant to grant financing facilities without strict conditions and safeguards, such as higher collateral ratios. This severely reduced the volume of investment activity across the region.The most positive factor during the year was the rise in oil prices

2009 Average price of oil (OPEC basket)

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Petrochemical Sector

In 2009 the petrochemical sector saw a gradual improvement in prices and demand, following the sharp decline that occurred during the second half of 2008/early 2009 in the wake of the global financial crisis. By the end of the year prices for some basic petrochemical products had recovered by 50% to 100% from their lows during the recession. This improvement was mainly due to the recovery in oil prices and the return to positive economic growth in most regions of the world, especially in India and China.However, prices remain below the peak levels achieved in 2007/8, and are expected to remain depressed in 2010 because of the enormous additional capacity due to be commissioned. This supply glut, combined with reduced demand growth, will continue to depress operating rates and profitability. The recovery of oil prices to $70-80/bbl in 2010 will put pressure on petrochemicals producers to increase their prices. Middle East producers should benefit from high oil prices because they enjoy fixed feedstock costs,

2009 Petrochemical Average Price Trend

Ikarus’ strategic investments

National Industrialization Co. “Tasnee”:

Ikarus owns 5.7% of Tasnee. National Industrialization Company “Tasnee” was founded in 1985 as the first joint stock company listed on the Saudi stock exchange, with a capital of SR 4,606 million (KD 340 million). Tasnee’s key activity is the ownership, construction and management

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of industrial and chemical projects. In 2009 Tasnee achieved a net profit of SAR 525.6 million (KD 40 million), compared to 2008, when net profit was SAR 601 million (KD 46 million). The decrease in profit was mainly due to the results of the first quarter of 2009, which saw a decline in selling prices, as well as extended shutdowns for maintenance and the expansion of the Polypropylene operation. This was offset by the start of commercial operation of the Ethylene and Polyethylene plants. In 2009 Tasnee completed the expansion of Polypropylene capacity from 450,000 to 720,000 tonnes/year.

2009 Sipchem/Tasnee/ Saudi Petchem Sector Stock Performance

Saudi International Petrochemical Company “Sipchem”:

Ikarus owns 8.9% of Sipchem. Sipchem was established in 1999, and is a joint stock company listed on the Saudi Stock Exchange with a capital of SAR 3,333 million (KD 245). Sipchem manufactures petrochemicals and intermediates for use in construction and other industrial applications. Through its subsidiary the International Methanol Company (IMC), Sipchem produces one million tonnes/year of Methanol which is both marketed directly and used in-house for the manufacture of Acetic Acid. The International Diol subsidiary produces 75,000 tonnes/year of Butanediol and other products, which are used in a range of specialized applications. In 2009 Sipchem reported a profit of SAR 141 million (KD 11 million), a decline of 74% over the previous year. This was due to lower prices and poor demand following the economic crisis of 2008/9. In 2009 Sipchem commissioned the Acetyls complex, comprising 460,000 tonnes/year Acetic Acid, 330,000 tonnes/year Vinyl Acetate Monomer and 345,000 tonnes/year Carbon Monoxide. Sipchem’s Ethylene derivatives project is scheduled to begin operation in 2013.

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International Acetyls Co.

Ikarus owns 11% of IAC. The 460,000 tonne Acetic Acid plant was commissioned in 2009 at a total cost of SAR 3,343 million (KD 240 million). The plant consumes 25% of IMC’s Methanol production. Over 50% of Acetic Acid production is used in-house for the manufacture of Vinyl Acetate. The rest is exported for use in a wide range of industrial applications.

International Vinyl Acetate Co.

Ikarus owns 11% of IVAC. The 330,000 ton Vinyl Acetate plant was commissioned in 2009 at a total cost of SAR 2,251 million (KD 162 million) and made its first export shipment in January 2010. Vinyl Acetate is used mainly in the manufacture of paints, adhesives, paper, packaging, and processing fabrics.

Ikarus Strategy

The revised company strategy is to take a controlling stake in operating companies with strong cash flows. The focus remains on the MENA energy sector. The move away from green field projects is in response to the global financial crisis, and is designed to maximize cash returns in the short-medium term. Establishing Ikarus as an operating company will diversify the company away from dividends as the principal source of its revenues.

Investment Opportunities

During the course of 2009 Ikarus evaluated more than 20 investment opportunities in the tar-geted sectors in order to implement the revised strategy to own and control operational assets. Of these, 3 fitted the strategic criteria well, and the company conducted a detailed investment analysis. At least 1 of these projects is being actively pursued with the intention to complete the acquisition early in 2010. As Ikarus already has substantial exposure to the Saudi petrochemi-cals sector, the next 1-2 investments are likely to be in other countries and industries in order to diversify the company’s holdings.

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Funding

In 2009 the company succeeded in meeting its obligations to its lenders, including the repayment of US$50 million to settle in full a debt owed to a foreign bank. Ikarus also made significant strides towards renegotiating its US$115 million facility with a local bank. The company is evaluating various alternatives for funding future investments.

Local share portfolio

In 2009 Ikarus liquidated approximately 25% of its local portfolio in order to meet its financial obligations. These divestments netted the company a profit of around KD 2 million.

Financial Results for the FY ended 31/12/2009:

In the financial year ending December 31, 2009 the company reported a loss of KD 994,000, equivalent to -1.33 fils / share. This compares with a loss of KD 49.2 million (-65.6 fils/share) in FY 2008. Gross Revenue was KD 6.5 million, of which KD 4.6 million were cash dividends from investments. The loss was primarily due to a KD 3.17 million impairment in the market value of the local portfolio. This is in line with IAS 39, which stipulates that a decline in the fair value of investments available for sale is recognized in the profit and loss statement. Comprehensive

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Income (change in Shareholder Equity) was KD 50.7 million compared to KD -125.8 million in 2008.

Total Assets were KD 150 million KD (2008: KD 111 million), an increase of 34.6%. This was due to the recovery in the share prices of Sipchem and Tasnee. Liabilities fell to KD 37 million (2008: KD 49 million), an improvement of 24.5% as the company settled debts amounting to KD 14.5 million.Shareholder Equity was KD 113 million (2008: KD 62 million), an increase of 81%. This improvement was due mainly to the accumulated appreciation in the value of available for sale investments. Ikarus book value increased to 151 fils/share (2008: KD 81 fils/share).

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Operating & Finance costs fell by 20% to KD 2.3 million.

The 2009 results illustrate the financial strength of the company and the sound economic feasibility of its strategic investments. The book loss incurred is a consequence of market conditions resulting from the global financial crisis and does not reflect the underlying strength of Ikarus’ assets.

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Total�AssetsCum�Change�in�Fair�Value

Total�Shareholder�

Equity

Total�Liabilities

Book�Value�(Fils/�Share)

2008 112 �14 62 49 83

2009 150 38 113 37 151

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40

60

80

100

120

140

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2010 Objectives

Our objectives for 2010 are:Maintain the company’s strategic investments in the Saudi petrochemical sector.Acquire a controlling share in an operating company with free cash flows. Develop options to finance future investments.Maintain a strong balance sheet and fully meet all of the company’s financial obligations.

Shareholders:The Board of Directors recommends to the General Assembly not to distribute dividends for the year 2009. In conclusion, I and my colleagues on the Board of Directors are pleased to extend our thanks and appreciation to the shareholders for their support and confidence and to the employees of Ikarus for their efforts and their distinctive dedication in the service of the goals of the company.

Chairman of the Board

g p y

Chairman of the Board

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15

Financial statements and independent auditors’ report

Ikarus Petroleum Industries Company – SAK (Closed)Kuwait31 December 2009

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17

Contents PageIndependent auditors’ report 16 - 17

Statement of income 18

Statement of comprehensive income 19

Statement of financial position 20

Statement of changes in equity 21

Statement of cash flows 22

Notes to the financial statements 25 - 44

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INDEPENDENT AUDITORS’ REPORT To the shareholders of Ikarus Petroleum Industries Company – SAK (Closed)Kuwait

Report on the Financial Statements

We have audited the accompanying financial statements of Ikarus Petroleum Industries Company (A Kuwaiti Closed Shareholding Company) (“the company”), which comprise the statement of financial position as at 31 December 2009, and the related statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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OpinionIn our opinion, the financial �material respects, the financial position of Ikarus Petroleum Industries Company as at 31 December 2009, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory Requirements

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 Commercial Companies Law of 1960, and by the company’s articles of association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law, or of the company’s articles of association, as amended, have occurred during the financial year ended 31 December 2009 that might have had a material effect on the business of the company or on its financial position.

Abdullatif M. Al-Aiban (CPA) Abdullatif A.H. Al-Majid(Licence No. 94-A) (Licence No. 70-A)of Grant Thornton – Al-Qatami, Al-Aiban & Partners of Allied Accountants - MAZARS

Abd ll tif A H Al M jid

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STATEMENT OF INCOME

Note

Year ended 31 Dec. 2009


KD KD

Income

Unrealised loss on investments at fair value through profit or loss (624,232) (1�035)

Realised gain/(loss) on sale of investments at fair value through profit or loss 258,473 (1,035)

Gain/(loss) on sale of available for sale investments 2,178,906 (570,000)

Dividend income from available for sale investments 4,602,363 3,341,459

Dividend income from investments at fair value through profit or loss - 1,594,467

Impairment in value of available for sale investments 7d (3,180,727) (48,123,284)

Interest and other income 109,064 264,569

Net loss from interest rate swap 18 (257,811) (417,268)

Foreign exchange loss (2,009,550) (1,573,954)

1,136,486 (46,341,515)

Expenses and other charges

Staff costs 433,161 423,718

Finance costs 5a 1,403,952 1,826,798

Other operating expenses 293,902 618,093

2,321,015 2,868,609

Loss for the year (994,529) (49,210,124)

Basic and diluted loss per share 6 (1.3) Fils (65.6) Fils

The notes set out on pages 25 to 44 form an integral part of these financial statements.

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STATEMENT OF COMPREHENSIVE INCOME Year ended

31 Dec. 2009


KD KD

Loss for the year (9 94,529) (49,210,124)

Other comprehensive income:

Available for sale investments:

- Net change in fair value arising during the year 48,781,889 (124,713,733)

- Transferred to statement of income on impairment 3,180,727 48,123,284

- Transferred to statement of income on sale 9,720 -

Total other comprehensive income for the year 51,972,336 (76,590,449)

Total comprehensive income for the year 50,727,807 (125,800,573)


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STATEMENT OF FINANCIAL POSITION

Note

31 Dec. 2009 31 Dec. 2008

KD KDAssets

Non-current assetsAvailable for sale investments 7 133,726,692 99,007,446

Current assetsAvailable for sale investments 7 8,067,994 -Investments at fair value through profit or loss 8 6,460,380 7,359,024Due from parent company - 61,682Accounts receivable and other assets 123,209 159,612Cash and cash equivalents 9 1,671,190 4,877,081Total current assets 16,322,773 12,457,399Total assets 150,049,465 111,464,845

Equity and liabilities

Equity

Share capital 10 75,000,000 75,000,000Legal reserve 11 3,288,139 3,288,139Voluntary reserve 11 1,177,293 1,177,293Cumulative changes in fair value 11 37,540,176 (14,432,160)Accumulated losses (3,549,206) (2,554,677)Total equity 113,456,402 62,478,595

Liabilities

Current liabilitiesDue to parent company 15 3,018,521 -Short term borrowings 12 32,982,000 48,203,750Other liabilities 13 592,542 782,500Total current liabilities 36,593,063 48,986,250Total equity and liabilities 150,049,465 111,464,845

Nader Hamad Al-Sultan

Chairman

Suhail Yousef Abograis

Director & CEO


Nader Hamammmmmmm d Al-Sultan

Chairman

Suuuuuuuhahhhhhh il Yousef Abogr

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STATEMEN

T OF C

HA

NG

ES IN EQ

UITY

Share capital

Legal reserve

Voluntary reserve

Cumulative

changes in fair value

Retained earnings/

(accumulated

losses)Total

KDKD

KDKD

KDKD

Balance as at 31 Decem

ber 200775,000,000

3,288,1391,177,293

62,158,28946,655,447

188,279,168

Loss for the year-

--

-(49,210,124)

(49,210,124)

Other com

prehensive income for the year

--

-(76,590,449)

-(76,590,449)

Total comprehensive incom

e for the year-

--

(76,590,449)(49,210,124)

(125,800,573)


ber 200875,000,000

3,288,1391,177,293

(14,432,160)(2,554,677)

62,478,595

Loss for the year-

--

-(994,529)

(994,529)

Other com

prehensive income for the year

--

-51,972,336

-51,972,336

Total comprehensive incom

e for the year-

--

51,972,336(994,529)

50,977,807


ber 200975,000,000

3,288,1391,177,293

37,540,176(3,549,206)

113,456,402

The notes set out on pages 25 to 44 form an integral part of these financial statem

ents.

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STATEMENT OF CASH FLOWS

Note



KD KDOPERATING ACTIVITIES

Loss for the year (994,529) (49,210,124)Adjustments:

(Gain)/loss on sale of available for sale investments (2,178,906) 570,000Dividend income from available for sale investments (4,602,363) (3,341,459)Impairment in value of available for sale investments 3,180,727 48,123,284Net loss from interest rate swap 257,811 417,268Interest income (65,588) (254,307)Finance costs 1,403,952 1,826,798Foreign exchange loss on non-operating liabilities 2,171,250 1,665,775

(827,646) (202,765)Changes in operating assets and liabilities:

Investments at fair value through profit or loss 898,644 (201,801)Accounts receivable and other assets 36,403 (101,958)Due from/to parent company 80,204 (16,793,775)Other liabilities (79,757) 7,915

Net cash from/(used in) operations 107,848 (17,292,384)KFAS paid (105,956) -Net cash from/(used in) operating activities 1,892 (17,292,384)

INVESTING ACTIVITIES

Dividend received 4,602,363 3,341,459Proceed from sale of available for sale investments 8,217,505 1,210,000Purchase of available for sale investments (34,200) (28,601,855)Interest received 65,588 240,303Decrease/(increase) in blocked short term deposits 2,754,500 (2,754,500)Net cash from/(used in) investing activities 15,605,756 (26,564,593)

FINANCING ACTIVITIES

Finance cost paid (1,403,952) (1,826,798)Short term advance obtained from the parent company 3,000,000 -Short term loans obtained - 46,537,975Short term loans repaid (17,393,000) -Net payments made in relation to the Interest rate swap (262,087) -Net cash (used in)/from financing activities (16,059,039) 44,711,177Net (decrease)/increase in cash and cash equivalents (451,391) 854,200

Cash and cash equivalents at beginning of the year 2,122,581 1,268,381Cash and cash equivalents at end of the year 9 1,671,190 2,122,581


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NOTES TO THE FINANCIAL STATEMENTS31 December 2009

INCORPORATION AND ACTIVITIES1.

Ikarus Petroleum Industries Company – SAK (Closed), (“the company”) was incorporated on 1 February 1997 and listed on the Kuwait stock exchange on 14 April 2008. The company is a subsidiary of National Industries Group Holding – SAK “parent company”. Its principal objective is to engage in chemical and petrochemical related activities and utilise excess funds in investing in securities portfolios managed by other specialised companies.

The address of the company is Al-Qiblah Area – Part 6, Building 3 – Sheikh Salem Al-Ali Al-Subah Complex – Second Floor, Office No. 18.

The board of directors approved these financial statements for issue on 7 March 2010 The general assembly of the company’s shareholders has the power to amend these financial statements after issuance.

New and revised International Financial Reporting Standards (“IFRS”) 2. and Interpretations (“IFRIC”)

a). Standards and Interpretations affecting amounts reported and/or disclosures made in the current period (and/or prior periods)

The company has adopted the following new standards, revisions and amendments to IFRS issued by International Accounting Standards Board, which are relevant to and effective for the company’s financial statements for the annual period beginning 1 January 2009. Certain other new standards and interpretations have been issued but are not relevant to the company’s operations and therefore not expected to have a material impact on the company’s financial statements.

Amendments to IFRS 7 Financial instruments: Disclosures •IFRS 8 Operating Segments •IAS 1 Presentation of Financial Statements (Revised) •Annual Improvements 2008 •

Significant effects on current, prior or future periods arising from the first-time application of these new requirements in respect of presentation, recognition and measurement are described below.

Amendment to IFRS 7: Financial Instruments: Disclosures •The amendments require additional disclosures for financial instruments that are measured at fair value in the statement of financial position. These fair value measurements are categorised into a three-level fair value hierarchy (see note 16), which reflects the extent to which they are based on observable market data. A separate quantitative maturity analysis (see note 17.4) must be presented for derivative financial liabilities that shows the remaining contractual maturities, where these are essential for an

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2. New and revised International Financial Reporting Standards (“IFRS”) and Interpretations (“IFRIC”) continued

understanding of the timing of cash flows. The company has taken advantage of the transitional provisions in the amendments and has not provided comparative information in respect of the new requirements.

IFRS 8 Operating Segments •The new standard which replaced IAS 14 ‘Segment reporting’ requires a management approach for segment reporting under which segment information is presented on the same basis as that used for internal reporting purposes. However, the application of the revised standard has had no impact on designation of the company’s reporting segments as it has previously been consistent with the internal reporting provided to the chief operating decision maker.

IAS 1 Presentation of Financial Statements (Revised) •The adoption of IAS 1 (Revised 2007) makes certain changes to the format and titles of the primary financial statements and to the presentation of some items within these statements. The revised standard also separates owners and now-owner changes in equity. The statement of changes in equity includes only details of transaction with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. In addition, the standard introduces the statement of comprehensive income: it presents all items of recognised income and expenses, either in one single statement or in two linked statements. The company has elected to present two statements (i.e a statement of income and a statement of comprehensive income).

IAS 1 Presentation of Financial Statements (Revised 2007) requires presentation of a comparative statement of financial position as at the beginning of the first comparative period, in some circumstances. Management considers that this is not necessary this year because the 2007 statement of financial position is the same as that previously published.

Annual Improvements 2008 •The improvements include 35 amendments across 20 different standards that largely clarify the requied accounting treatments where previous practice had varied. The Improvements have led to a number of changes in the detail of the company’s accounting policies – some of which are changes in terminology only, and some of which are substantive but have had no material effect on amounts reported. The majority of these amendments are effective from 1 January 2009.

b). Standards and Interpretations in issue not yet adoptedAt the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been issued but are not yet effective, and have not been adopted.Management anticipates that all of the pronouncements will be adopted in the company’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the company’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not relevant to the company’s operations and therefore not expected to have a material impact on the company’s financial statements.

IFRS 9 Financial Instruments •IFRIC 17 Distribution of Non Cash Assets to Owners •Annual Improvements 2009 •

IFRS 9 Financial Instruments (effective from 1 January 2013) •The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety

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by the end of 2010, with the replacement standard to be effective for annual periods beginning 1 January 2013. IFRS 9 is the first part of Phase 1 of this project. The main phases are:

Phase 1: Classification and Measurement •Phase 2: Impairment methodology •Phase 3: Hedge accounting •

In addition, a separate project is dealing with derecognition.

Although early application of this standard is permitted, the Technical Committee of the Ministry of Commerce and Industry of Kuwait decided during December 2009, to postpone this allowed early application until further notice.

IFRIC 17 Distribution of on-Cash Assets to Owners(effective for annual periods beginning on or after •1 July 2009)

The Interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.Annual Improvements 2009 •

The IASB has issued Improvements for International Financial Reporting Standards 2009 which will lead to a number of changes in the detail of the company’s accounting policies in the future – some of which are changes in terminology only, and some of which are substantive but will have no material effect on amounts reported. Most of these amendments become effective in annual periods beginning on or after 1 July 2009 or 1 January 2010.

Significant accounting policies3.

The accounting policies used in the preparation of the financial statements are consistent with those used in the preparation of the financial statements for the year ended 31 December 2008 except as noted in note 2 above. The significant accounting policies adopted in the preparation of the financial statements are set out below:

Basis of preparationThe financial statements of the company have been prepared in accordance with International Financial Reporting Standards.The financial statements are prepared under the historical cost convention modified to include the measurement at fair value of investments at fair value through profit or loss, available for sale investments and derivative financial instruments.

Income recognitionIncome is recognised to the extent that it is probable that the economic benefits will flow to the company and the income can be reliably measured. The following specific recognition criteria must also be met before income is recognised.Dividend incomeDividend income is recognised when the company’s right to receive payment is established. Interest incomeInterest income is recognised using the effective interest method.

Finance costsFinance costs are calculated and recognised on a time proportionate basis taking into account the principal finance balance outstanding and the cost rate applicable.

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Financial instrumentsClassification The company classifies financial assets upon initial recognition into the following categories:

Investments at fair value through profit or loss i. Loans and receivablesii. Available for sale investmentsiii.

Except for derivatives all other financial liabilities are classified as “non trading financial liabilities”. The company’s non-trading financial liabilities are classified under “due to parent company”, “short term borrowings” and “other liabilities” in the statement of financial position. Investments at fair value through profit or loss are either “held for trading” or “designated” as such on initial recognition.The company classifies investments as trading if they are acquired principally for the purpose of selling or are a part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit taking. This category includes derivative financial instruments entered into by the company that are not designated as hedging instruments in hedge relationships as defined by IAS 39.Investments are classified as designated at fair value through profit or loss at inception if they have readily available reliable fair values and the changes in fair values are reported as part of the statement of income in the management accounts, according to a documented investment strategy.Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The company’s loans and receivables are classified under “due from parent company”, “accounts receivable and other assets” and “cash and cash equivalents” in the statement of financial position. Financial assets which are not classified as above are classified as available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of these financial instruments at initial recognition.

MeasurementInvestments at fair value through profit or lossInvestments at fair value through profit or loss are initially recognised at cost, being the fair value of the consideration given, excluding transaction costs. Subsequent to initial recognition, investments at fair value through profit or loss are re-measured at fair value and changes in fair value are recognised in the statement of income.

Loans and receivables Loans and receivables are stated at amortised cost using the effective interest method.

Available for sale investmentsAvailable for sale investments are initially recognised at cost, being the fair value of the consideration given, plus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, available for sale investments are re-measured at fair value unless fair value cannot be reliably measured, in which case they are measured at cost less impairment, if any.Changes in fair value of available for sale investments are recognised as other comprehensive income in the “cumulative changes in fair value” reserve account until the investment is either derecognised or

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determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the statement of income.

Financial liabilitiesNon-trading financial liabilities are stated at amortised cost using the effective interest method.Fair valuesFor investments traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the reporting date. For investments where there is no quoted market price, a reasonable estimate of fair value is determined by using valuation techniques. The company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm’s length transactions, and other valuation techniques commonly used by market participants.The determination of fair value is done for each investment individually.

Derivative financial instrumentsThe company uses derivative financial instruments, such as interest rate swaps to mitigate its risks associated with interest rate fluctuations. Such derivative financial instruments are initially recognised at cost, being the fair value on the date on which a derivative contract is entered into, and are subsequently re-measured at fair value. The fair value of a derivative is the equivalent of the unrealised gain or loss from marking to market the derivative using valuation quotes provided by financial institutions, based on prevailing market information. Derivatives are carried as trading financial assets under “other assets” when the fair value is positive and as trading financial liabilities under “other liabilities” when the fair value is negative. The company does not adopt hedge accounting, and any realised and unrealised (from changes in fair value) gain or losses are recognised in the statement of income.

Trade and settlement date accountingAll “regular way” purchases and sales of financial assets are recognised on the trade date, i.e. the date that the company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place concerned.

Recognition and derecognition of financial assets and liabilitiesA financial asset or a financial liability is recognised when the company becomes a party to the contractual provisions of the instrument.

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

the rights to receive cash flows from the asset have expired; or -the company has transferred its rights 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.

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

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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.

Impairment of financial assetsAn assessment is made at each reporting date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the statement of income. Impairment is determined as follows:

For financial assets carried at fair value, impairment is the difference between cost and fair value; A. andFor financial assets carried at cost, impairment is the difference between carrying value and the B. present value of future cash flows discounted at the current market rate of return for a similar financial asset.For financial assets carried at amortised cost, impairment is the difference between carrying amount C. and the present value of future cash flows discounted at the original effective interest rate.

Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the financial asset no longer exist or have decreased and the decrease can be related objectively to an event occurring after the impairment was recognised. Except for reversal of impairment losses related to equity instruments classified as available for sale, all other impairment reversals are recognised in the statement of income to the extent the carrying value of the asset does not exceed its amortised cost at the reversal date. Impairment reversals in respect of equity instruments classified as available for sale are recognised in other comprehensive income in the “cumulative changes in fair value” reserve.

ProvisionsProvisions are recognised when the company has a present obligation (legal or constructive) resulting from a past event and the costs to settle the obligation are both probable and reliably measurable.

Provision for end of service indemnityProvision for end of service indemnity is calculated on the employees’ accumulated periods of service at the reporting date in accordance with the Kuwait labour law for the private sector.

Foreign currenciesFunctional and presentation currencyThe financial statements are presented in Kuwaiti Dinars, which is the company’s functional and presentation currency.

Transactions and balancesTransactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to “foreign exchange gain/loss” in the statement of income, if any.

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

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was determined. Translation difference on non-monetary asset classified as, “fair value through profit or loss ” are reported as part of the fair value gain or loss in the statement of income and “available for sale” are reported as part of the “cumulative change in fair value”, in other comprehensive income.

Cash and cash equivalentsCash and cash equivalents consist of bank balances and short term deposits maturing within three months from the date of inception.

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 financial statements, but are disclosed when an inflow of economic benefits is probable.

Critical accounting judgements and key sources of estimation uncertainty4. In the application of the company’s accounting polices which are disclosed in note 3, the management is required to make judgements, estimates and assumption about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

JudgmentsIn the process of applying the company’s accounting polices, management has made the following judgements, which have the most significant effect in the amounts recognised in the financial statements: Classification of investmentsManagement decides on acquisition of an investment whether it should be classified as at fair value through profit or loss, loans and receivables or available for sale. In making that judgement the company considers the primary purpose for which it is acquired and how it intends to manage and report its performance. Such judgement determines whether it is subsequently measured at cost, amortised cost or at fair value and if the changes in fair value of instruments are reported in the statement of income or directly in equity. Impairment of available for sale investmentsThe company treats available for sale equity investments 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 judgement. In addition, the company evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities. During the year ended 31 December 2009 impairment loss of KD3,180,727 (2008: KD48,123,284) was recognised for available for sale investments.

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Net gain or (loss) on financial assets and financial liabilities5. Net gain or (loss) on financial assets and financial liabilities, analysed by category, is as follows:

2009 2008KD KD

Loans and receivables- Cash and cash equivalents (refer 5b) 227,288 346,128Investments at fair value through profit or loss- Investments held for trading - 5,609,181- Investments designated on initial recognition (365,759) (4,872,218)Available for sale investments- Recognised directly in other comprehensive income 51,972,336 (76,590,449)- Recognised directly in statement of income 6,790,990 (2,771,459)- Recycled from other comprehensive income to statement of income

On impairment (3,180,727) (48,123,284)On sale (9,720) -

55,434,408 (126,402,101)Financial liabilities at amortised cost- Short term borrowings (refer 5a) (3,575,202) (3,492,573)Financial liabilities at fair value through profit or loss- Net gain from interest rate swaps (257,811) (417,268)

51,601,395 (130,311,942)

Net loss recognised in the statement of income (370,941) (53,721,493)Net gain/(loss) recognised directly in other comprehensive income 51,972,336 (76,590,449)

51,601,395 (130,311,942)

2009 2008KD KD

5a. Net loss on financial liabilities at amortised cost is arrived at as follows:Finance costs – on short term borrowings� 1,323,226 1,662,158Finance costs – on short term advances from parent company (refer note 15)� 80,726 164,640Foreign exchange loss on retranslation of short term borrowings, � included under “Foreign exchange loss” in the statement of income 2,171,250 1,665,775

3,575,202 3,492,573

5b. Net gain on cash and cash equivalents is arrived at after adjusting for foreign

exchange gains of KD161,700 (2008: KD91,821).

Basic and diluted loss per share6. Loss per share is calculated by dividing the loss for the year by the weighted average number of shares outstanding during the year as follows:

2009 2008

Loss for the year (KD) (994,529) (49,210,124)Weighted average number of shares outstanding during the year 750,000,000 750,000,000Basic and diluted loss per share (1.3) Fils (65.6) Fils

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Available for sale investments7. 2009 2008KD KD

Non-currentQuoted shares- local - 14,400,765- foreign 110,487,024 59,997,461

110,487,024 74,398,226Unquoted shares- local 30,100 30,100- foreign 23,209,568 24,579,120

23,239,668 24,609,220133,726,692 99,007,446

CurrentQuoted shares - local 8,067,994 -Total 141,794,686 99,007,446

The local quoted shares at 31 December 2009 and 31 December 2008 represent the investments a. which were transferred from investments at fair value through statement of income as of 1 July 2008 (refer note 8). These investments are included in current assets where management intends to dispose of such investments within 12 months of the end of the reporting date. The local quoted shares are held through portfolio managers and represent investments in various sectors.

Foreign quoted shares represent investment in quoted Saudi companies operating in the fields of b. chemicals and petrochemicals.

Investments in unquoted shares are stated at cost due to the non availability of quoted market c. prices or other reliable measures of its fair value. Management is not aware of any circumstances that would indicate impairment in the value of these investments. The foreign unquoted shares represent investments in Saudi unlisted companies operating in the field of petrochemical and related products.

During the year , the company recognised an impairment loss of KD3,180,727 (2008: d. KD48,123,284) for certain local and foreign quoted investments, as the market value of these shares declined significantly below their costs.

Certain foreign quoted shares are held in the name of the parent company with letters of assignment e. in the company’s favour.

Investments at fair value through profit or loss 8. 2009 2008KD KD

Designated on initial recognition :Quoted shares – local 1,812,600 -Local funds investing in quoted shares 2,215,230 3,804,375Local money market funds 2,432,550 3,554,649

6,460,380 7,359,024

Effect of reclassification a. During the previous year, as a result of adoption of the amendments to IAS 39 and IFRS 7 with effect from 1 July 2008 the company reclassified certain investments with a fair value of KD30,065,885 as at 1 July 2008 from “fair value through profit or loss” category to “available for sale” category. The fair value of the remaining reclassified investments as of 31 December 2009 amounted to KD8,067,994 (2008: KD14,400,765).

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During October 2008, a local money market funds, in which the company has investments totaling to b. KD2,244,433 as at 31 December 2009 (31 December 2008: KD3,225,305), suspended redemption requests. Management has been informed by the manager of the fund that redemptions will be made depending on availability of liquid funds. The company’s management considers this to be a situation arising from the current crisis in the global financial market and its impact on the local market. The investment has been fair valued based on the unaudited net asset value reported by the fund manager as of 31 December 2009. Therefore the company’s management expects to realise these investments at not less than its carrying value.

Cash and cash equivalents9. Effective yield

rate(per annum)

2009 2008

KD KD

Cash and bank balances - 336,398 542,911Cash balances held with portfolio managers 332,600 -Short term deposits 3% 1,002,192 4,334,170Cash and cash equivalents 1,671,190 4,877,081Less: blocked short term deposits - (2,754,500)Cash and cash equivalents for the purpose statement of cash

flows 1,671,190 2,122,581

Share capital10.

As of 31 December 2009, the authorised, issued and fully paid up share capital of the company comprised 750,000,000 shares of 100 fils each. (2008: 750,000,000 shares of 100 files each).

Reserves 11. 11.1 Statutory and voluntary reserves14As required by the Commercial Companies Law and the company’s articles of association, 10% of the profit

before KFAS, NLST, Zakat and Directors’ remuneration is transferred to the statutory reserve until the balance reaches 50% of the company’s issued and paid-up capital. Any transfer to the statutory reserve thereafter is subject to approval of the general assembly. No transfer is required in a year when losses are made or where cumulative losses exist.

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 distribution of a dividend of that amount.

In accordance with company’s articles of association, a certain percentage of the profit before KFAS, NLST, Zakat and directors’ remuneration, is to be transferred to the voluntary reserve at the discretion of the board of directors which is to be approved at the general assembly. No transfer is required in a year in which the company has incurred a loss or where cumulative losses exist.11.2 Cumulative changes in fair value

2009 2008KD KD

Balance at 1 January (14,432,160) 62,158,289Net change in fair value arising during the year 48,781,889 (124,713,733)Transferred to statement of income on impairment 3,180,727 48,123,284Transferred to statement of income on sale of investments 9,720 -

Balance at 31 December 37,540,176 (14,432,160)

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The reserve represents accumulated gains and losses arising from changes in fair value of available-for-sale financial assets that have been recognised in other comprehensive income, net of amounts reclas-sified to profit or loss when those assets have been disposed of or are determined to be impaired.

Short term borrowings12.

Effective interest rates 2009 2008% KD KD

Local bank – US Dollar 3.3% 32,982,000 34,431,250Foreign bank – US Dollar - - 13,772,500

32,982,000 48,203,750

The loans from the local bank matured in March 2009. The company has principally agreed with the bank to a. restructure the loan for a three year period secured by the company’s investments. At 31 December 2009, the company is working with the local bank to finalize the nature and details of the required security. The loan is presently secured by a corporate guarantee from the parent company.

The loan from the foreign bank has been fully settled during the year.b.

Other liabilities13. 2009 2008KD KD

Fair value of interest rate swap (refer note 18) 412,992 417,268KFAS and Zakat payable 107,171 213,127Accrued expenses 15,662 87,200Others 56,717 64,905

592,542 782,500

Segmental analysis14.

The company has adopted IFRS 8 Operating Segments with effect from 1 January 2009. Under IFRS 8, reported segment profits are based on internal management reporting information that is regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance, and is reconciled to company profit or loss. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical). However, following the adoption of IFRS 8, the identification of the company’s reportable segments has not changed. The measurement policies the company uses for segment reporting under IFRS 8 are the same as those used in its financial statements.

The company activities are concentrated in two main segments: Domestic (Kuwait) and International (Kingdom of Saudi Arabia). The following is the segments information, which conforms with the internal reporting presented to management:

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Domestic International Total

KD KD KD

2009

Segment income (1,384,897) 4,530,933 3,146,036

Segment results (2,111,960) 4,530,933 2,418,973

Less:

Finance costs and foreign exchange loss on loans (3,413,502)

Loss for the year (994,529)

Impairment in value of available for sale investments 3,172,730 7,997 3,180,727

Net change in fair value of available for sale investments recognised directly in comprehensive income 1,233,646 50,738,690 51,972,336

Segment assets 16,322,773 133,726,692 150,049,465

Segment liabilities (179,550) - (179,550)

Segment net assets 16,143,223 133,726,692 149,869,915

Short term borrowings and other unallocated liabilities (36,413,513)

Net assets 113,456,402

2008

Segment income (13,871,379) (30,896,182) (44,767,561)

Segment results (14,913,190) (30,896,182) (45,809,372)

Less:

Finance costs and foreign exchange gains on loans (3,400,752)

Loss for the year (49,210,124)

Impairment in value of available for sale investments 13,885,643 34,237,641 48,123,284

Net change in fair value of available for sale investments recognised directly in equity - (76,590,449) (76,590,449)

Segment assets 26,888,264 84,576,581 111,464,845

Segment liabilities (569,373) - (569,373)

Segment net assets 26,318,891 84,576,581 110,895,472

Short term borrowings and other unallocated liabilities (48,416,877)

Net assets 62,478,595

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Related party transactions15. Related parties represent, the parent company, the company’s directors and key management personnel of the company, and other related parties such as subsidiaries of the parent company (fellow subsidiaries), major shareholders and companies in which directors and key management personnel of the company are principal owners or over which they are able to exercise significant influence or joint control. Pricing policies and terms of these transactions are approved by the company’s management.

Details of significant related party transactions and balances are as follows:2009 2008KD KD

Statement of financial positionDue from parent company - 61,682Due to parent company (*) 3,018,521 -

Statement of incomeFinance cost charged by – parent company (see below) 80,726 164,640

Compensation of key management personnel of the company:Short term employee benefits 93,600 93,600Employee end of service benefits 17,127 15,294

110,727 108,894

* Due to parent company includes a short term advance of KD3,000,000 provided to the company at an interest rate of 5% per annum.

Summary of financial assets and liabilities by category16. 16.1 Categories of financial assets and liabilities

The carrying amounts of the company’s financial assets and liabilities as stated in the statement of financial position may also be categorized as follows:

2009 2008Financial assets: KD KDLoans and receivables:

Cash and cash equivalents• 1,671,190 4,877,081Accounts receivable and other assets • 123,209 159,612Due from parent company• - 61,682

Investments at fair value through profit or loss (refer Note 8) 6,460,380 7,359,024Available for sale investments (refer Note 7) 141,794,686 99,007,446

150,049,465 111,464,845

Financial liabilities: At amortised cost:

Short term borrowings• 32,982,000 48,203,750Due to parent company• 3,018,521 -Other liabilities • 179,550 365,232

At fair value:Fair value of interest rate swap 412,992 417,268

36,593,063 48,986,250

Fair value represents amounts at which an asset could be exchanged or a liability settled on an arm’s length basis. In the opinion of the company’s management, except for certain available for sale investments which are carried at cost for reasons specified in Note 7 to the financial statements, the carrying amounts of financial assets and liabilities as at 31 December 2009 and 2008 approximate their fair values as defined by International Financial Reporting Standards.

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16.2 Fair value hierarchy for financial instruments measured at fair value

The company adopted the amendments to IFRS 7 Improving Disclosures about Financial Instruments effective from 1 January 2009. These amendments require the company to present certain information about financial instruments measured at fair value in the statement of financial position. In the first year of application comparative information need not be presented for the disclosures required by the amendment. Accordingly, the disclosure for the fair value hierarchy is only presented for the 31 December 2009 year end.

The following table presents the financial assets which are measured at fair value in the statement of financial position in accordance with the fair value hierarchy.

This hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

- Level 2: 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); and

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows

Level 1 Level 2 Level 3 Total Note KD KD KD KD

Assets at fair value Available for sale investments

Local quoted shares - a 8,067,994 - - 8,067,994Foreign quoted shares - a 110,487,024 - - 110,487,024

Investments at fair value through profit or loss Local quoted shares - a 1,812,600 - - 1,812,600Local funds investing in quoted -shares b - 2,215,230 - 2,215,230Local money market funds - c - 2,432,550 - 2,432,550

Total assets 120,367,618 4,647,780 - 125,015,398

Liabilities at fair valueInterest rate swap d - 412,992 - 412,992Total Liabilities - 412,992 - 412,992

Measurement at fair valueThe methods and valuation techniques used for the purpose of measuring fair value are as follows:.

a) Local and foreign quoted securitiesAll quoted equity securities are publicly traded in stock exchanges. Fair values have been determined by reference to their quoted bid prices at the reporting date.

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b) Local funds investing in quoted shares The underlying investments of these funds mainly comprise of local quoted shares and the fair value of the investment has been determined based on net asset values reported by the investment manager of the fund as of the reporting date.

c) Local money market fundsThe underlying investments of these funds mainly comprise of local and foreign variable and fixed income monitory instruments including treasury bills, bonds and sukuk. The fair values of these funds have been determined based on net asset values reported by the investment managers as of the reporting date.

d) Interest rate swapsThe interest rate swap has been entered into by the company to mitigate its risks associated with interest rate fluctuations on its USD borrowings. The fair value of the derivative is the equivalent of the unrealised gain or loss from marking to market the derivative using valuation quotes provided by financial institutions, based on prevailing market information.

Risk management objectives and policies17.

The company’s principal financial liabilities comprise short term borrowings, due to parent company and other liabilities. The main purpose of these financial liabilities is to raise finance for the company’s operations. The company has various financial assets such as accounts receivable and other assets, cash and cash equivalents and investment securities which arise directly from operations.

The company’s activities expose it to variety of financial risks: market risk (including foreign currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The company’s management is ultimately responsible for management of risks and implements several measures from time to time to manage the risks discussed below.

The company also enters into derivative transactions, primarily interest rate swaps. The purpose is to manage the interest rate risks arising from the company’s sources of finance. The company’s policy is not to trade in derivative financial instruments.

The financial risks to which the company is exposed to are described below.

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17.1 Market risk

a) Foreign currency riskThe company mainly invests in Kuwait and Saudi Arabia. However the company is exposed to changes in exchange rates mainly on its US Dollar, borrowings and short term deposits. The company’s financial position can be affected by the movement in the US Dollar. To mitigate the company’s exposure to foreign currency risk, non-Kuwaiti Dinar cash flows are monitored.

Foreign currency risk is managed by the company’s management by regular assessment of the company’s open positions.

The company’s net exposure to US Dollar denominated monetary assets less monetary liabilities at the reporting date, translated into Kuwaiti Dinars at the closing rates are as follow:

2009 2008KD KD

US Dollar (33,393,133) (45,351,622)

If the Kuwaiti Dinar had strengthened against the US Dollar by 5%, then this would have the following impact on the loss for the year. There is no impact on the company’s equity.

Loss for the year2009 2008KD KD

US Dollar 1,669,657 2,267,581

If the Kuwaiti Dinar had weakened against the US Dollar by 5%, then there would be an equal and opposite impact on the loss for the year, and the balances shown above would be negative.

Exposures to foreign exchange rates vary during the year depending on the volume and nature of the transactions. Nonetheless, the analysis above is considered to be representative of the company’s exposure to the foreign currency risk.

b) Interest rate riskInterest rate risk arises from the possibility that changes in interest rates will affect future profitability. The company is exposed to interest rate risk on its KD short term deposits (refer note 9) and US dollar short term borrowings (refer note 12), which are primarily at floating interest rates based on either Central Bank of Kuwait discount rate or LIBOR. Positions are monitored on a regular basis by the company’s management.

The following table illustrates the sensitivity of the loss for the year to a reasonably possible change of interest rate of +75 and -25 (2008: +75 and -25) basis points for the year 2009. The calculation is based on the company’s financial instruments held at each reporting date. All other variables are held constant. There is no impact on company’s equity.

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Increase in interest rates Decrease in interest rates

2009 2008 2009 2008KD KD KD KD

Increase/(decrease) in loss for the year 239,849 329,021 (79,950) (109,674)

c) Equity price riskThis is a risk that the value of financial instruments will fluctuate as a result of changes in market prices, whether these changes are caused by factors specific to individual instrument or its issuer or factors affecting all instruments, traded in the market. The company is exposed to equity price risk with respect to its listed equity investments, (including investment in funds where the underlying assets are primarily quoted shares) which are primarily located in Kuwait and the Kingdom of Saudi Arabia. Equity investments are classified either as investments carried at fair value through profit or loss (including trading securities) or available for sale investments.

To manage its price risk arising from investments in equity securities, the company monitors its portfolio and diversifies, where possible.

The equity price risk sensitivity is determined on the exposure to equity price risks at the reporting date. If equity prices had been 10% higher/lower, the effect on the loss for the year and equity for the years ended 31 December would have been as follows:

A positive number below indicates a decrease in loss and the equity where the equity prices increase by 10%. All other variables are held constant.

Loss for the year Equity2009 2008 2009 2008KD KD KD KD

Investments at fair value through profit or loss 402,783 380,437 - -Available for sale investments: - Impaired investments (refer) - 4,049,726 - -- Not impaired investments - - 5,386,126 3,390,097

402,783 4,430,163 5,386,126 3,390,097

Had equity prices been 10% higher, the impairment loss which was recognised in the statement of income would be reduced and consequently the loss for the year 2009 would be reduced.A negative number below indicates an increase in loss and the equity where the equity prices decreased by 10%. All other variables are held constant.

Loss for the year Equity2009 2008 2009 2008KD KD KD KD

Investments at fair value through profit or loss 402,783 (380,437) - -Available for sale investments:- Impaired investments (507,880) (4,049,726) - -- Not impaired investments: - Change in fair value - - (5,386,126) (3,390,097)

- Recycled from equity to statement of income - (17,822,257) - 17,822,257

(105,097) (22,252,420) (5,386,126) 14,432,160

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17.2 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’s credit policy and exposure to credit risk is monitored on an ongoing basis.

The company’s exposure to credit risk is limited to the carrying amounts of financial assets recognised at the reporting date, as summarized below:

2009 2008KD KD

Cash and cash equivalents 1,671,190 4,877,081Due from parent com pany - 61,682Accounts receivable and other assets 123,209 159,612

Investment at fair value through profit or loss (local money market funds) 2,432,550 3,554,649

4,226,949 8,653,024

None of the above financial assets are past due nor impaired. The company monitors defaults of customers and other counter parties, identified either individually or by group, and incorporate this information into its credit risk controls. The company’s policy is to deal only with creditworthy counterparties. The company’s management considers that all the above financial assets that are neither past due nor impaired for each of the reporting dates under review are of good credit quality.

None of the company’s financial assets are secured by collateral or other credit enhancements.

In respect of receivables, the company is not exposed to any significant credit risk exposure to any single counterparty. The credit risk for cash and bank balances and short term deposits is considered negligible, since the counterparties are reputable financial institution with high credit quality. Information on other significant concentrations of credit risk is set out in note 17.3

17.3 Concentration of assetsThe distribution of financial assets by geographic region as at 31 December 2009 and 2008 is as follows:

Kuwait Other Middle East countries Total

KD KD KD At 31 December 2009Available for sale investments 8,098,094 133,696,592 141,794,686Investments at fair value through statement of income 6,460,380 - 6,460,380Accounts receivable and other assets 123,209 - 123,209Cash and cash equivalents 1,671,190 - 1,671,190

16,352,873 133,696,592 150,049,465

At 31 December 2008Available for sale investments 14,430,865 84,576,581 99,007,446Investments at fair value through statement of income 7,359,024 - 7,359,024Due from parent company 61,682 - 61,682Accounts receivable and other assets 159,612 - 159,612Cash and cash equivalents 4,877,081 - 4,877,081

26,888,264 84,576,581 111,464,845

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17.4 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 regular basis.

The table below summarises the contractual maturity of financial liabilities based on undiscounted cash flows:

Up to 1 month

1-3 months

3-12 months

1-5Years Total

KD KD KD KD KD31 December 2009Financial liabilitiesDue to parent companyShort term borrowings - 1,439,000 31,790,365 - 33,229,365Other liabilities (excluding

interest rate swaps) - - 179,550 - 179,550

Interest rate swap (*) - 25,000 100,000 287,992 412,992- 1,464,000 32,069,915 287,992 33,821,907

31 December 2008Financial liabilitiesShort term borrowings - 48,632,419 - - 48,632,419Other liabilities (excluding

interest rate swap) - 61,588 303,644 - 365,232Interest rate swap - - - 417,268 417,268

- 48,694,007 303,644 417,268 49,414,919

(*) The client settles the quarterly payments on the interest rate swap on a net basis.

Derivative financial instrument18. A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements in price in one or more underlying financial instrument, reference rate or index. Derivative financial instrument of the company represents range accrual interest rate swap.

During the previous year the company entered into a 4 year callable range accrual interest rate swap (callable at the option of the bank) with a notional value of USD100,000,000 (equivalent to KD28,720,000 at 31 December 2009 and KD27,545,000 at 31 December 2008) with a local bank. The interest rate swap is based on 3 months LIBOR and accordingly the underlying rates are reset every 3 months and settles on a quarterly basis. The negative fair value of the interest rate swap as at 31 December 2009 amounted to KD412,992 (2008: KD 417,268) and it has been recognised under “other liabilities” (refer note 13). During the year the company made net payments totalling to KD262,087 to the bank to settle the quarterly payments due on the interest rate swap.

The negative fair value of the derivative financial instrument is equivalent to the market value and the notional amount is the amount of a derivative’s underlying asset, and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions and are not indicative of credit risk.

Credit risk in respect to derivative financial instrument arises from the potential for a counterparty to default on its contractual obligations and is limited to the positive fair value of instruments that is favourable to the company.

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Capital management objectives19. The company’s capital management objective is to maximise shareholder value.

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

The capital structure of the company consists of the following:

2009 2008KD KD

Short term borrowings (refer note 12) 32,982,000 48,203,750Due to parent company 3,018,521 -Less: Cash and cash equivalents (refer note 9) (1,671,190) (4,877,081)Net debt 34,329,331 43,326,669Total equity 113,456,402 62,478,595Total capital 147,785,733 105,805,264

Consistent with others in the industry the company monitors capital on the basis of the gearing ratio. The company’s policy is to keep the gearing ratio within 70%.

This ratio is calculated as net debt divided by total capital as follows:

2009 2008KD KD

Net debt 34,329,331 43,326,669Total capital 147,785,733 105,805,264

Net debt to total capital ratio 23.2% 40.9%

Comparative amounts20. Certain comparative amounts have been reclassified to conform to the presentation in the current year. Such reclassification does not affect previously reported net assets, net equity and net results for the year or net increase in cash and cash equivalents.

30508 english ar inside - ikarussheikh naser al mohammad al ahmad al sabah the prime minister of the...

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