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Page 1: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent
Page 2: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAHThe Amir of The State of Kuwait

H.H. SHEIKH NAWAF AL-AHMAD AL-JABER AL-SABAHThe Crown Prince

H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAHThe Prime Minister

Page 3: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

�Annual Report �007

TABLE OF CONTENTS Page

Directors’Report 4

IndependentAuditors’Report 12

ConsolidatedStatementofIncome 14

ConsolidatedBalanceSheet 15

ConsolidatedStatementofChangesinEquity 16

ConsolidatedStatementofCashFlows 18

NotestotheConsolidatedFinancialStatements 19

Page 4: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

BOARD OF DIRECTORSDiraarYusufAlghanim Chairman&ManagingDirector

SheikhHumoudSabahAl-Sabah ViceChairman

FaisalAbdulAzizAl-Jallal Director

AymanAbdulatifAlshaya Director

FahadYaqoubAl-Jouan Director

IbrahimMohammedAl-Ghanim Director

AhmadMohammadHasan Director

BOARD STEERING COMMITTEE

DiraarYusufAlghanim Chairman

AymanAbdulatifAl-Shaya Director

FahadYaqoubAl-Jouan Director

ManafAbdulAzizAlhajeri GeneralManager

AUDIT COMMITTEE FahadYaqoubAl-Jouan Chairman

FaisalAbdulAzizAl-Jallal Director

IbrahimMohammedAl-Ghanim Director

ManafAbdulAzizAlhajeri GeneralManager

MANAGEMENT TEAM ManafA.Alhajeri GeneralManager

AliH.Khalil ExecutiveVicePresident

GopalMenon ExecutiveVicePresident–InternationalInvestments

KhaledA.Chowdhury SeniorVicePresident–FinancialManagement

BassamN.Al-Othman SeniorVicePresident–RealEstate(MENA)

M.R.Raghu SeniorVicePresident–Research

RashaA.Al-Hamad SeniorVicePresident–HumanResources&Administration

AmaniAl-Omani SeniorVicePresident–Local&GCCInvestments

MahaA.Imad VicePresident–PrivateEquity&FundAdministration

CaroleSix VicePresident–ClientRelationsandMedia&Communications

LeilaBadine VicePresident–MarkazQatarBranch

NawafH.Marafi VicePresident–Oil&Gas

KrishnaI.Mohan HeadofTreasury-Treasury

PradeepRajagopalan AssistanceVicePresident–RiskManagement&Compliance

Page 5: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

�Annual Report �007

DIRECTORS’ REPORT �007

DearStakeholders,

GCCstockmarketswitnessedasubstantialgrowthin2007,whileitwasafairlyturbulentyearin

internationalmarkets.Acrossallassetclasses,mostofourlocal,GCC,andinternationalproducts

includingrealestateoutperformedtheirrespectivebenchmarks.

MarkazregisteredanetprofitofKD27.03millionor65filspershareduringtheyear2007(13

filsin2006).Feeincomefromassetmanagementandinvestmentbankingactivitiesremained

strong totalling KD 15.70 million (KD 11.41 million in 2006). Unrealized investment profit

totalled KD 4.56 million (unrealised loss of KD 7.64 million in 2006). Markaz assets under

managementtotalledKD1.30billionatendofDecember2007(KD1.18billionin2006).

TheBoardofDirectorshasproposedthedistributionofacashdividendequalto25%ofthepar

valueor25filspershare,andabonussharedistributionof15%forshareholdersregisteredat

thetimeoftheGeneralAssembly.

Major milestones during 2007 include the introduction of highly sophisticated investment

products.TheRealEstateDepartment launchedMarkazRealEstateOpportunityFund,areal

estatedevelopmentfund.TheInternationalInvestmentDepartment launchedtheIPOandPre

IPOInvestmentProgram,inadditiontothelaunchofMarkazUSMultifamilyRealtyInvestment

UnitIVwhichbenefitsfromopportunitiesarisingasaresultofrecedingUSrealestate.Regional

expansionwasalsoamajorfactorfor2007featuredinestablishingcompaniesinKSA,Jordan

andLebanon,wheremoreexpansionsareinthepipeline.

Asweapproachourthirtyfifthanniversary,weaimtomeetthehighestindustrystandardsby

offeringuniqueandprudent investmentsolutions toourclients, concomitantwitharesearch

drivenstrategy thatsustainsourpositionasoneof the leading investment institutions in the

region.

ASSET MANAGEMENT

Local & GCC Investments

The Local and GCC Investment Department’s assets under management increased through

adoptingtactical&strategicinvestmentallocationpolicies,whichtransferredthefocusfromthe

domesticcapitalmarkettoabroaderregionalviewbychannellingassetstotheGCCmarkets.

LocalandGCCMarketswerereinforcedbystrongfundamentalscontributingto itsgrowthin

2007.Highercrudeoilprices,ampleliquidity,governments’expenditureoninfrastructure,IPOs,

mergers&acquisitions,negativetoflatcorrelationwithotherdevelopedandemergingmarkets

aresomepertinentfactors.Moreover,solidcorporateresults,reasonablevaluationsandsteps

takentowardprivatizationandreformshadapositiveimpact.

Thedepartment’snotableperformancein2007isconfirmedbypositivereturnsonallLocaland

GCCproducts,themajorityofwhichoutperformedtheirrespectivebenchmarks.MarkazGulf

Fundposteda48.4%gain,beingourstarperformerandoneofthebestperforminginitsclass

whereitoutperformedtheMSCIGCCIndexwhichposted44.8%.MarkazFundforExcellent

Yields‘Mumtaz’generated44.4%outperformingtheKICIndexby13.9%.TheFundalsowon

twoLipper-ReutersFundawardsforbestperformance:BestEquityFundinKuwait-3yearsand

BestEquityFundinKuwait-5years.

Lookingahead,weexpectthemarketin2008toperformpositivelyandweshallaimtobenefit

fromthistrendalbeitwithprudenceandselectivity.Thisoptimismissupportedbytheprojected

growthintheleadingcompanies’profits,alongwiththepassingoflegislationthataffectsthe

marketspositively.

Positive overall despite the challenges and turbulence

Renewed optimism;Another solid year

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KuwaitFinancialCentre-S.A.K.(Closed)

International Investments/Investment Advisory Services

Despiteafairlyturbulentyearininternationalmarkets,Markazwas,oncemore,abletoachieve

superiorperformancethroughitsdynamicallymanagedassetallocationmethodology.

Thepastyearpresentedmanydifficulties,rangingfromcreditcrunch/subprimeissuestofearsof

aloomingUSrecessionthatrippleditswayacrosstheglobeaffectingmostmajorindices.Markaz

adaptedtothesituationandimplementedtacticalassetallocation,reducingexposuretotheUS,

themarketmostaffectedbythesubprimeissue,aswellasEuropeandJapan.Byfocusingon

thematic investmentsandemergingmarkets; the International Investments teammanaged to

avoidriskiersituationsandhasgeneratedalpha,enablingMarkaztooutperformitsbenchmark

byaclearmarginofmorethan8%.

SinceitsinceptioninMayof2007,Markaz’sIPO/Pre-IPOProgramhasproducedenviableresults.

Within itsfirst sevenmonths, theprogramaccomplished returnsof23%appropriate to the

selectionofprofitableinvestmentopportunitiesacrosstheglobe,mainlyintheUS,GCC/MENA,

andAsia.

Markaz’sflagship international fund,AtlasDiversifiedClass,which invests indiversifiedasset

classesandgeographicallydiversifiedmarkets,producedsuperiorreturnsduetoitsdynamicasset

allocationandemphasisonspecializedinvestmentthemesandemergingmarkets.Atthesame

time,theFundincreaseditsexposuretoKuwaitby10%,tocapitalizeonthelocalstockmarket’s

growth,whichprovedbeneficial.Thefundpostedreturnsof17.90%,significantlysurpassing

MarkazGlobalSecuritiesIndex,itsbenchmarkwhichposted10.67%.

In spiteof anunstablemarket in2007,AtlasFundofHedgeFunds recordedaboveaverage

returnsof7.03%,inlinewithourexpectationsfortheyear.

AtlasETFsProgram,whichinvestsinglobalindicesandsectors,postedremarkablereturns.The

programoutperformedtheMSCIWorldIndex,two-fold,achieving14.18%fortheyear.

For2008,weexpectvolatilitytocontinueinglobalequitymarkets,especiallyinthefirsthalf

oftheyear.However,moremeasurestobetakenbytheUSFedtoreduceratesaggressivelyto

staveoffrecessionarytrendstogetherwithbankssuccessfullycompletingrecapitalizationand

commoditypriceseasing,willcreateanenhancedenvironmentforinvestment.Emergingmarkets

willmost likelyseearise in inflationandaslowerGDPgrowth;however,stockmarketsare

expectedtocontributereasonablygoodreturnsinlowerdoubledigitsduetomultipleexpansions.

Overall,wepredictthattheglobalmarketswillseereturnsinthe8-10%region.

Inlinewithmarketdemand,Markazwillbelaunchingtwoproducts/fundsbasedonThematicand

Islamicinvestmentswheregreatpotentialisseenin2008andbeyond.

Private Equity

Markazinauguratedtheprivateequityprogramin1997andthecompany’sprudentandenduring

strategyhasbeenrewarding.

Despite the credit crunch that emerged in the summer, US private equity funds raised USD

302billion,ofwhich75%wasgearedfor leveragedbuyoutandcorporatefinancefunds.An

increaseinfinancesraisedfordistress-focusedfundswasnoted,whichsawnearlyUSD45billion

committedto22funds.

Markazportfolioofinternationalprivateequityfundinvestmentsrevealedarobustperformance,

generatingatotalreturnof20.58%ontheinvestedcapitalduring2007.Throughouttheyear,

weinvestedintosixfundsencompassingvariousstrategies,distressed-debt,growthcapital,mid-

marketbuyout,andventure.ThecommitmentsspannedtheUS,EuropeandAsia.

In2008,weshallseektocommittofundsthatwouldbenefitfromtheconsequencesofthe

creditcrunchandtheboomrecentlyenjoyedbythebuyoutindustrywhichisnowripewithover-

leveragedcompanies,mainlyintheUSandEurope;inadditiontoexpandingourexposureto

Reaping old rewards and new credit challenge

More dynamic to counter the turbulence

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�Annual Report �007

Private Equity (Cont’d)

emergingmarketssuchastheSouthEastAsianmarkets,EasternEurope,LatinAmericanand

MENA.Weshallbetargetingglobalemergingmarketsfunds,USandEuropeanmezzanineand

distresseddebt/restructuringfunds,andcontinuetosourcegrowthcapitalmid-marketfunds.

Treasury

Duringtheyear,theTreasuryDepartmentestablishednewcorrespondentbankingrelationships

andstrengthenedexistingrelationshipsbyaddingmultiplefacilityagreements.Withthisvigorous

networkoflocalandinternationalbanks,Markazisinapositiontoofferourclientsrightofentry

toallmajormarkets.

Markaz’sKDMoneyMarketFund-Idikharcontinuestobeoneofthebestperformersinthelocal

marketwhereitregularlypaysinvestorsanaveragereturnof6.60%perannum,higherthanthe

3-monthKIBOR(3MonthAverageis4.43%).

Ourmoneymarketfundsaredesignedtofunctionascashmanagementtoolsandatthesame

timetobenefitfromthereturnswithoutlosingtimevalueoftheinvestment.

INVESTMENT BANKING

Corporate Finance

Theregioncontinuestoundergosubstantialchangeinthebusinesslandscape;themostimportant

issuebeingtheneedforcompaniestoincreasetheirfocusontheircorebusinessesandexpand

acrossbordersthroughouttheGCCandtheMENAregions.CorporateFinanceremainsfocused

onprovidingsuchcompanieswithdebtandequityfinancing,whilecounsellingthemoncreative

financialandcorporatestructuresthatbestsuittheirstrategies.

Overtheyear,theDepartmentexecutedseveraladvisorymandatesincludingthelistingofVending

NetworkCompany;therestructuringofAl-WaseetInternational,aleadingmediacompanyinthe

region;advisingmajorcontractingcompaniesontheirfinancialstructure,includingthesale/lease

backofassets;whichfreedupcapitalresourcesnecessaryforthegrowthofsuchcompanies.

MarkazmanagedandunderwrotethecapitalincreaseforKuwaitPrivatizationProjectsHolding

Company(“KPPHC”);whichprovidedthecompanywithoverKD60millioninequityfinancing.

Structured,managed,andunderwroteaUSD50millionsukukissueforKuwaitResortCompany

(“KRC”);whichwasplacedregionally.MarkazwasalsomandatedbyInternationalInvestment

Group(“IIG”)toadviseandactasthesecurityagentfortheUSD200millionconvertiblesukuk.

Lookingforward,weareveryoptimisticthatovertheforeseeablefuture,GCCcompanieswill

haveveryfavorablegrowthprospects.Thefundamentalsintheregionremainextremelyhealthy,

fueledbythestrongdemandfromayoungpopulation,andthelaunchof largeinfrastructure

projects.Tocatertothegrowthindemand,companieswillneedtoimprovetheircapabilities,

growinsize,and improvetheireffectiveness.Weseean increasedneedfornon-conventional

financing; such as mezzanine financing, convertible debt, and other hybrid instruments. We

intendtoexpandourrolefromadvisory,tobecomingprincipleinvestorsfromourproprietary

fundsaswellasfromclients’funds.

Structured Finance

BeingthepioneerofthederivativesmarketinKuwait,Markazunderstandstheimportanceofa

developedderivativesmarketandcontinuesitseffortstoincreasethepresenceofthederivatives

andstructuredproductsintheregion.Markaz’sStructuredFinanceteamcontinuestobetheonly

marketmakerforOptionsattheKuwaitStockExchange,entailingthehighlevelofskills,experience

andresourcesacquiredbyMarkaztoperformsuchoperationswithhighlevelofprofessionalism.

Selective access and execution

Maintaining the innovative momentum

DIRECTORS’ REPORT �007 ASSET MANAGEMENT(Cont’d)

Stability under a challenging monetary climate

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KuwaitFinancialCentre-S.A.K.(Closed)

We have increased the number of stock covered in theOptionsMarket at theKuwait Stock

Exchangefrom40(2006)to55(2007).These55Stocksareamongthemost liquidstocks

listedattheKuwaitStockExchangecoveringeverysectorwithacoupleofNon-KuwaitiGCC

companies.

Whilstwecontinueourdrivetoexpandourderivatives’capabilityregionally,dealingwithlegal

andregulatoryconstraintswillremaintheprimarychallengetoourprogress.

The Structured Finance team continues to provide our clients with innovative need based

structuredsolutionsandfulfilitsresponsibilitiestodevelopthederivativesmarketinKuwait.

Ourtargetfor2008istoexpandourproductsrangetoincludeputoptions,indexoptionsandto

allowinvestorstowriteoptionsthroughthemarketmaker.

MENA Real Estate

Markazrealestateactivitygainedaseriesofachievementsin2007onthelocalandMENAlevels.

These achievements areportrayed in the launchingofnew investmentproducts and regional

expansions.

Realestatecontinuestobeattractiveinmostoftheregionemanatingfromstrongfundamentals

namelyeconomicgrowth,liquidity,demographics,andgovernmentpolicies.Conversely,Public-

PrivatePartnershipforInfrastructureisprovingitselfanattractiveassetclasstoinvestorsasa

sourceofrelativelysafeandstableincomeandattractivetogovernmentsasameansoffinancing

infrastructureprojectsinadditiontoaligninginterestsofbothPrivateandPublicsectors.

In2007,TheRealEstateDepartmentlaunchedMarkazRealEstateOpportunityFund(MREOF)

aclose-endedShari’ahcompliantrealestatedevelopmentfundfocusingontheMENAregion.

MarkazsecuredprojectsforMREOFbeforethelaunchofthefundwhichenabledittocovermost

ofthecapitalduringthefirstclosing.

MREF,MarkazRealEstateFund,anopen-endedShari’ahcompliantfundthatinvestsinincome

generatingpropertieswithinKuwaitandpaysmonthlydividends,yieldeda19.2%returnfor

2007,andanannualCAGRof13.3%.TheFundsecuredthebackingofallitsinvestorstorenew

itstermbyanadditionalfive-yearperiod.Thefundwillusethecashavailabletoacquirenew

properties,generatedfromtheliquidationofpropertiespriortotheextensionofitsterm.

In 2007, we presented our investors with an investment opportunity in Lusail Qatar in

partnershipwithAlRayanBankthroughafunddevelopingtheinfrastructureofLusailwaterfront

area.Inthemeantime,weactivatedtheworkonseveralnewproductsthatwillbeofferedto

investorsduringthefirsthalfof2008.

On the Infrastructure front,we received theMarkazBoardapproval topursue suchprojects

mainlyinthepower,waterandtransportationsectors.Forthatpurpose,wesignedseveralMOUs

withpartnersanddeveloperstobidonprojectsbeingofferedthroughouttheregion.

For2008,webelievetheRealEstatesectorwillcontinuetogrowandperformrobustlyonthe

backofprevailingstrongfundamentals.Asfor Infrastructure,webelievethissectorwillgain

momentumattractingmoreattentionandinvestmentsintheyearstocome.

International Real Estate

ThefundamentalsfortheUSCommercialRealEstateMarketstillremainstrongdespitethesub-

primemortgagecrisiswitnessedintheresidentialmarket.Healthycorporateprofits,resilient

consumerexpenditures,flexibleemploymentgrowth,favourabledemographicsandstronginflux

ofimmigrants,leadingtogrowthinrents.Thisoutlookhastranslatedintofurtherincreasein

valuationsofpropertiesin2007.

Inordertobenefitfromtheincreaseinvaluations,inJune2007wesoldtheMarkazBBKRetail

RealtyInvestmentUnitII,afundcomprisingaportfolioofsevenretailcentresacrosstheUS,to

New market dynamics

Timing the cycle

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�Annual Report �007

International Real Estate (Cont’d)

acommingledfund.ThesaledeliveredagrossIRRof27%,anetIRRofapproximately20%to

investorsandasubstantialincentivefeetoMarkaz.

TwootherfundsmanagedbyMarkaz–theMarkazUSIndustrialRealtyInvestmentUnitIandthe

MarkazBBKUSRetailRealtyInvestmentUnitIII–continuetooperateaccordingtoprojections,

deliveringcash-on-cashyieldssinceinceptionofapproximately9.5%and7.5%,respectively.

Withregardtothefuture,weareactivelypursuingtheapartmentsectorintheUSaswebelieveit

willbeamajorbeneficiaryofthesubprimecrisisandtheabovementionedfundamentals.Tomeet

thisobjective,wehaveseedfinancedthreeapartmentdevelopmentprojectswhereitisanticipated

thattheseprojectswillberolledoverintoanewfundin2008.Aspartofourexpansionstrategy,

wearealsoseekingtoenternewmarketsinEuropeandAsiawhereweintendtopartnerwith

experiencedlocalrealestatecompaniesinordertodeliverinnovativeproductstoourinvestors.

Oil & Gas

TheDepartmentmanagesMarkazEnergyFund(MEF),anopenendedfundestablishedin2006

withavariablecapitalofupto50millionKD.TheflagshipproductoftheOilandGasdepartment

seekstoachieveoutstandingreturnsbyselectivelyinvestingacrosstheexploration&production,

midstream,downstream,andpetrochemicalssegmentsoftheGulfRegion’senergyvaluechain.

Sinceinception,MEFhasachieved8%return.Itisimportanttomentionthattheunlistedfund

holdingsarevaluedatcostasper itsArticlesofAssociationandthusmaynotreflectthefair

marketvalue.

During2007,thefundinvestedinKuwaitFirstTransportCompanyK.S.C.C.(KFTC),through

participation in its capital increasealongsideother institutional investors. KFTChasengaged

in financing of heavy equipment, leasing activities primarily for equipment in Oil and Gas

constructionprojects,andhasenteredintoitsfirstequipmentleasingtransactionworthUSD97

million with the Consolidated Contractors International Company (CCC) through its Bahraini

subsidiary,MaleqLeasingCompanyB.S.C.

MEFhascapitalizedontheencouragingmarketconditionsfeaturedinattractivevaluationsof

energystocksby investing insuch listedenergystocks intheGCCand internationalmarkets.

These investments were weighted towards the drilling and petrochemical segments amongst

others.TheFundhastakenastrategicstakeinIndependentPetroleumGroupS.A.K.(IPG).MEF

alsoparticipated in the IPOofGalfarEngineering&ContractingCompany inOman,wherea

significantportionofitsbusinessisrelatedtotheOilandGassector.

In 2007, an agreement was formulated between MEF and the National Offset Company to

establishamechanismthatwillhelpforeignfirmsfulfiltheiroffsetobligationsthroughtheFund.

MARKAZ REGIONAL EXPANSION

Emanating from its belief in the importance of actual and permanent presence in targeted

markets, Markaz has established Markaz Real Estate Investment Company, a fully owned

subsidiaryofMarkazbased inRiyadh.Thecompanyheralded itsactivitiesbyannouncing the

constructionofahotelintheSaudicapitaljointlywithlocalpartners.

MarkazhasalsoestablishedMarkazRealEstateDevelopmentCompany,afullyownedsubsidiary

ofMarkazbasedinAmman,toproceedinexecutingseveralrealestateprojectsinJordan.

Furthermore,2007sawtheestablishmentofanumberofrealestatejointventuresinLebanon

togetherwiththeestablishmentoftheofficeinBeirut.Also,establishmentofanofficeinthe

Algeriancapitalwasinitsfinalstagesatthecloseoftheyear.

Tip of the iceberg

New footprints

DIRECTORS’ REPORT �007 INVESTMENT BANKING(Cont’d)

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KuwaitFinancialCentre-S.A.K.(Closed)

Building the business Markaz Branch in the State of Qatar

While there is growing competition in the financial services arena from local, regional and

international firms, particularly under theQatar Financial Centre jurisdiction, our objective is

toenhanceQatarihighnetworthinvestors’perceptionofMarkazinQatarinordertosecure

investmentbankingandinvestmentadvisorycontracts.

MarkazwasdesignatedasCo-LeadManagerintheprivateplacementof20millionsharesofLusail

WaterfrontInvestmentCompany.Thecompanyisavehicleestablishedtoassistindevelopingthe

WaterfrontDistrictintheLusailProjectinDoha,Qatar.Thesizeoftheplotisapproximately3.6

millionsquarefeet;theinfrastructureofthelandwillbedevelopedbyQatariDiarRealEstate

InvestmentCompanyforaperiodofthreeyears.Theprojectwillhaveanexpectedreturninthe

regionof79%oninvestment.

In 2007, and with perseverance and patience, we built long term relationships with both

institutionalandhighnetworthindividuals.

Weintendtodevelopandexpandourbusinessin2008andtobuildon2007experiences.

SUPPORT DEPARTMENTS

Research

Markaz strategic research ispositioned toprovideprudent investmentopinions to its clients.

Itaimstobethematicinselectingresearchideaswithaclearfocusoninvestmentactionsand

merits.Beingaregionallyfocusedcompany,Markazresearch isalsobiasedtowardsGCCand

MENAand issuesconfrontingtheregion.However,theaimistocontinuouslybenchmarkthe

region with other developed and emerging market peers in order to obtain the requisite

positioning. Markaz research team uses highly specialized databases, both outsourced and

developed in-house, inordertobestatisticallyendowed in itspresentationsandanalysis.The

professional teamalsotreasurestheusageofadvancedquantitativefinancetechniquestothe

extenttheycanbesuccessfullyadaptedtotheregion.

During2007,Markazstrengtheneditsactivityinpublishingresearchesandanalysiswiththemes

thatarerelevanttoMarkazbusiness.Thisprovidestheinvestmentdecision-makingprocesswith

astrongbase,andaclearvision.Researchpublicationsspannedtopicscoveringassetallocation,

volatility,derivatives,assetmanagement,regulatoryissuesandemergingmarkets.Theresearch

divisionalsomadeprogress in termsof adoptingmodeling techniques in the sphereof asset

allocation.

Markazlaunchednewresearchconcepts,suchas“MVX”,anewinnovativeindextomeasurestock

marketvolatilityintheemergingmarketsandGCCregion,andMarkazGCCAssetAllocation,a

monthlyresearchthatrecommendsassetallocationonalltheGCCstockmarketsbasedonanin-

housedevelopedmodel.

Client Relations

2007hasbeenayearofdiversificationfortheClientServicesDepartmentsincewewereable

tobroadenourclientbaseintheGCCandEuropeandtoofferamorediversifiedrangeofasset

classes(IPOs,RealEstatedeals,GCCportfolios).

Clientrelationsarealwaysforemostonouragenda;duetothepreeminenceofthemajorityof

ourclients(institutionsandHighNetWorthIndividuals),weareextremelyvigilantinrecruiting

qualifiedRelationshipManagersandinprovidingthemwiththerighttraining.Weareproudto

announcethatallourAccountManagershavebeencertifiedas‘CharteredWealthManagers’by

theinternationallyrenownedAAFMandarewellequippedtofacetheupcomingchallengesof

2008,beitvolatilemarketconditions,increasedcompetition,orprogressivelymoresophisticated

clients.

Bringing the important issues to the front

Refining service culture

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10Annual Report �007

Media & Communications

2007hasbeenayearofachievementsforMedia&Communications.Initiativesundertakenby

thedepartment includenewprojectsdeemedessential forMarkazmarketingstrategy.Media

coveragewas increased throughMarkazfirst corporate campaign, enhanced exposure in the

press and outdoor placards, coupledwithmore intensive public relations activities. Changing

mediatrendstocompetewithcurrentdemandscreatedacompellingcaseforhavingastronger

TVpresenceandhighlightedtheimportanceofelectronicmedia.Adigitalerahasbegunwhere

theelectronicmediaisprovingtobeindispensable.Consequently,abrandnewstate-of-the-art

websitewas launchedwhich provides clients and visitorswith updatednews, researches and

productperformanceupdatesandintroducedafirstfortheregion,podcasting.Thesearemajor

milestones forMarkaz in termsof communications andwill enable us to increase our brand

awarenessinthewholeregion.

Markaz roundtable, thefirst of its kind,was organized inDecember2007; this closed-door

panelontheroleofinstitutionalinvestorsandthefutureofglobalgrowthandthechallenges

facedbyGCCcountriesbrought the topechelonof intelligence in the investmentscene from

around the globe: Credit Agricole Asset Management, OPEC, Mckinsey, Standard Chartered

Bank, Investec, Qatar Financial Centre Regulatory Authority, Beltone Financial, MIBC, & Ask

InvestmentManagers.TheeventwasmoderatedbyMr.RichardBanks,EuromoneyConferences.

Additionally, the Media & Communications team endorsed the management’s expertise by

arrangingspeakingopportunitiesandsponsorshipsathighlevelconferences.

Finallyandveryimportantly,throughouttheyear,Markazwasinvolvedinmanycorporatesocial

responsibility campaigns. These causes spanned the social, sports and educational sectors in

KuwaitandelsewherewhichareinlinewithMarkazmissionofgivingbacktosociety.

Corporate Governance and Risk Management

Markaz’ risk management and internal controls framework enables us to manage all major

aspectsofourbusinessthroughanintegratedplanningandreviewprocessthatincludesstrategic,

financial, and risk planning. The systems are designed to manage risks to achieve Markaz’

businessobjectives.Markaz’riskmanagementstrategiesaregearedspecificallyfortheunique

risksandopportunitiespresentedinthehighgrowthsectorsinGCCandrestoftheworld.

The operational preparation of the Qatar branch was further reinforced by the issuing of a

certificateofoperationbytheregulators.Duringtheyear,Markaz’sriskmanagementcapabilities

wereenhancedbystrengtheningthesystemsandprocessestopreventmoneylaunderinginline

withantimoneylaunderingandterroristfinancingregulations.

IT Department

As Markaz expands to new regions around the world, the IT Department successfully lays

the foundation for a seamless and unified network mesh that transcends physical barriers,

providingasecuresystemofcommunicationforwhatismostvaluabletoMarkaz:Information,

CommunicationandCollaboration.

Financial Management Department

TheFinancialManagementDepartmentensuresoptimumcontroloverallfinancialdealings.The

department’smainobjectiveistopresentanaccuratefinancialpositiontotheManagement,Board

ofDirectors,Shareholders,Creditorsandotherpotentialuserstoevaluatetheprecisefinancial

proficiencyofthecompanyandthatofitssubsidiariesandbranches.

Reaching out

Bonding with the world and managing the growth

The backbone

Adopting the standards

DIRECTORS’ REPORT �007 SUPPORT DEPARTMENTS(Cont’d)

Page 12: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

Thedepartmentcontinuestoensurecompliancewiththeregulatoryauthoritiesandplaysavital

roleinthegrowthandsuccessofMarkazbyprovidingrelevantfinancialinformation.

Human Resources

TheHumanresourcedepartmenthasundertakenanumberofinitiativesduring2007including

thecompletionof thefirstphaseofamajorcompensationandrewardsproject.Thisscheme

helped to categorize new job descriptions for all Markaz staff, evaluating existing Markaz

positions through theMarkaz JobEvaluation committee consisting ofHRD and allHeads of

DepartmentsplustheconsultingteamanddevelopedanewframeworkfortheMarkazposition

matrixbasedontheJEratingsandfinallydevisedanewcompensationstructurebasedonA

MarketCompensationReport.

The department continues to supervise staff career development, accessing world class

professionaltrainingprogramsandconductinginternaltrainingseminars.

MARKAZ’S STRATEGIC OUTLOOK FOR �00�

AssetmanagementindustryinKuwaitandselectivepartsoftheGCCregionisevolvingintoa

morediverseroleenablingittoservetheinstitutionsenjoyinghugesavingsthroughanefficient

redeploymentofcapitaltowardslucrativeopportunities.Theregionisexperiencingaformidable

changeintermsofsocial,demographic,regulatoryandeconomicissues.Itisbecomingmoreand

moreglobalizedasboththeregionalandglobalinvestorsaggressivelymovecapitalindifferent

directions.Thestatusquooftheregionhastransformedfrombeingamereexporterofcapitalto

thatofbothrecipientandexporterofcapital.Withintheevolvingdynamics,ourstrategicoutlook

for2008canbedescribedasfollows:

Focusedapproach inour sourcingofopportunitiesacrosspublicmarkets,privateequity, real

estateand infrastructure;Expandingourreach in theMENAregion (withemphasisonNorth

Africa)andemergingmarkets;Lastbutnotleast,maintainingourleadershipintermsnotonly

ofsizeandperformancebutalsocredibility,innovationwhilebridgingtheindustrystandardgap

withbestpractices.

WewouldliketotakethisopportunitytothankourShareholdersandClientsalikefortheirhighly

appreciated support and toour staff for theirdedication and relentless effort to achieve the

Company’sambitions.Wealsoextendourthankstotheregulatoryauthoritiesfortheircontinued

supportandguidance.

TheBoardofDirectors

27Feb2008

The real capital

Page 13: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

1�Annual Report �007

TheShareholders

KuwaitFinancialCentreS.A.K(Closed)

Kuwait

Report On The Consolidated Financial Statements

WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofKuwaitFinancialCentre

S.A.K(Closed)(“theParentCompany”)andsubsidiaries(togetherreferredtoas“theGroup”),

which comprise the consolidated balance sheet as at 31December2007, and the related

consolidatedstatementsofincome,changesinequityandcashflowsfortheyearthenended,and

asummaryofsignificantaccountingpoliciesandotherexplanatorynotes.

Directors’ Responsibility For The Consolidated Financial Statements.

TheParentCompany’sdirectorsareresponsibleforthepreparationandfairpresentationofthese

consolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandards

as adopted in the State of Kuwait. This responsibility includes: designing, implementing and

maintaining internal control relevant to thepreparation and fairpresentationof consolidated

financialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror:

selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatare

reasonableinthecircumstances.

Auditors’ Responsibility

Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedon

ouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditing.Those

standardsrequirethatwecomplywithethicalrequirementsandplanandperformtheauditto

obtainreasonableassurancewhethertheconsolidatedfinancialstatementsarefreefrommaterial

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,theauditorconsidersinternalcontrolrelevanttotheGroup’spreparationandfair

presentationoftheconsolidatedfinancialstatements inordertodesignauditproceduresthat

areappropriateinthecircumstances,butnotforthepurposeofexpressinganopiniononthe

effectivenessoftheGroup’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriateness

ofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,

aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovidea

basisforourauditopinion.

Opinion

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

the financial position of the Group as of 31December2007, and the results of its financial

performanceanditscashflowsfortheyearthenendedinaccordancewithInternationalFinancial

ReportingStandardsasadoptedintheStateofKuwait.

INDEPENDENTAUDITORS’ REPORT

Page 14: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

Report On Other Legal And Regulatory Requirements

We further report thatwehaveobtained the information and explanations thatwe required

forthepurposeofourauditandtheconsolidatedfinancialstatementsincludetheinformation

required by the Kuwait Commercial Companies Law of 1960, as amended, and the Parent

Company’sarticlesandmemorandumofassociation. Inouropinion,properbooksofaccount

havebeenkeptbytheParentCompany,andtheaccountinginformationgivenintheboardof

directors’reportagreeswiththebooksofaccount.

Wehavenotbecomeawareofanycontravention,duringtheyearended31December2007,

oftheKuwaitCommercialCompaniesLawof1960,asamended,oroftheParentCompany’s

articlesandmemorandumofassociation,orofLawNo.32of1968,asamended,concerning

currency,theCentralBankofKuwaitandtheorganisationofbankingbusinessanditsrelated

regulations,thatwouldmateriallyaffecttheGroup’sactivitiesoritsfinancialposition.

Jassim Ahmad Al-Fahad

License No. 53-A

Al-Fahad & Co. Deloitte & Touche

Anwar Y. Al-Qatami, F.C.C.A.

License No 50-A

Grant Thornton - Anwar Al-Qatami & Co.

Kuwait

12February2008

Page 15: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

1�Annual Report �007

CONSOLIDATED STATEMENT

OF INCOME

31 DECEMBER �007Notes �007 �00�

KD 000’s KD 000’s

Income

Interestincome 6 2,104 2,234

Dividendincome 7 304 624

Managementfeesandcommission 8 15,700 11,412

Profit/(loss)onsaleofinvestmentsatfairvaluethroughstatementofincome

7,607 (1,291)

Unrealisedgain/(loss)oninvestmentsatfairvaluethroughstatementofincome

9

4,561

(7,640)

Profitonsaleofavailableforsaleinvestments

7,904 7,243

Impairmentinvalueofavailableforsaleinvestments

(195) (137)

Foreignexchange(loss)/gain (824) 159

(Provision)/reversalofprovisionforcreditlosses

(145) 113

Otherincome - 28

37,016 12,745

Expenses and other charges

Generalandadministrativeexpenses

10 6,567 5,233

Financecosts 11 2,310 1,867

8,877 7,100

Profit before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), Directors’ remuneration, National Labour Support Tax (NLST) and Zakat

28,139 5,645

ContributiontoKFAS (253) (53)

Directors’remuneration (140) (105)

NationalLabourSupportTax (699) (137)

ProvisionforZakat (18) -

Profit for the year 27,029 5,350

Attributable to:

EquityholdersoftheParentCompany

27,017 5,346

Minorityinterest 12 4

27,029 5,350

Earnings per share attributable to equity holders of the Parent Company (Fils)

13 65 13

Theaccompanyingnotessetoutonpages19to42formanintegralpartoftheseconsolidatedfinancialstatements.

Page 16: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

CONSOLIDATE BALANCE

SHEET

�007 �00�

Notes KD 000’s KD 000’sAssets

Bankbalancesandcash 14 1,474 1,891

Timedeposits 14 956 1,115

Investmentsatfairvaluethroughstatementofincome

15 66,97851,842

Accountsreceivableandotherassets

16 12,2114,064

Murabahareceivables 17 - 123

Shorttermfinancing 18 5,207 -

Loanstocustomers 19 20,388 16,439

Availableforsaleinvestments 20 76,829 66,704

Investmentproperties 21 36 36

Propertyunderdevelopment 22 3,065 -

Propertyandequipment 574 269

Total assets 187,718 142,483

Liabilities and equity

Liabilities

Duetobanksandotherfinancialinstitutions

14 43212

Accountspayableandotherliabilities

5,3363,345

Dividendspayable 424 562

Short-termborrowings 23 22,990 32,894

Bonds 24 27,300 -

Total liabilities 56,482 36,813

Capital and reserves

Sharecapital 25 44,000 44,000

Sharepremium 26 7,902 7,902

Legalreserve 27 11,870 9,056

Voluntaryreserve 28 11,647 8,833

Treasuryshares 29 (11,479) (9,067)

Treasurysharesreserve 7,973 7,973

Fairvaluereserve 30 22,657 17,534

Retainedearnings 36,600 19,385

EquityattributabletoequityholdersoftheParentCompany

131,170105,616

Minorityinterest 66 54

Total equity 131,236 105,670

Total liabilities and equity 187,718 142,483

Diraar Yusuf Alghanim Chairman & Managing Director

Manaf Abdul Aziz Al-Hajri General Manager

Theaccompanyingnotessetoutonpages19to42formanintegralpartoftheseconsolidatedfinancialstatements.

Page 17: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

1�Annual Report �007

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Page 18: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

CON

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Page 19: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

1�Annual Report �007

CONSOLIDATED STATEMENT

OF CASH FLOWS�007 �00�

Note KD 000’s KD 000’s

OPERATING ACTIVITIES

Profitfortheyear 27,029 5,350

Adjustmentsfor:

Depreciation 153 116

Financecosts 2,310 1,867

Profitonsaleofavailableforsaleinvestments (7,904) (7,243)

Impairmentinvalueofavailableforsaleinvestments

195 137

Reversalofprovision/(provision)forcreditlosses

145 (113)

Dividendincome (304) (624)

Interestincome (2,104) (2,234)

19,520 (2,744)Changes in operating assets and liabilities:

Investmentsatfairvaluethroughstatementofincome

(15,136) 7,953

Accountsreceivableandotherassets (7,772) 1,627

Loanstocustomers (4,094) 5,453

IncreaseinShorttermfinancing (5,207) -

Accountspayableandotherliabilities 1,991 (1,451)

Net cash from operating activities (10,698) 10,838

INVESTING ACTIVITIES

Acquisitionofsubsidiary,netofcash - 50

Purchaseofpropertyandequipment (458) (113)

Purchaseofpropertyunderdevelopment (3,065) -

Purchaseofavailableforsaleinvestments (17,196) (13,751)

Proceedsfromsaleofavailableforsaleinvestments

19,903 12,317

Murabahafinancing 123 163

Purchaseofinvestmentproperties - (3,904)

Proceedsfromdisposalofinvestmentproperties

- 3,904

Dividendreceived 304 624

Interestreceived 1,729 2,234

Net cash from investing activities 1,340 1,524

FINANCING ACTIVITIES

Purchaseoftreasuryshares (2,412) (6,820)

Dividendspaid (4,312) (19,520)

Increaseinshort-termborrowings (9,904) 15,255

Proceedfromissueofbonds 27,300 -

Financecostspaid (2,310) (1,867)

Net cash from financing activities 8,362 (12,952)

Netdecreaseincashandcashequivalents (996) (590)

Cashandcashequivalentsatbeginningoftheyear

2,994 3,584

Cash and cash equivalents at end of the year

14 1,998 2,994

Theaccompanyingnotessetonpages19to42formanintegralpartoftheseconsolidatedfinancialstatements.

Page 20: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 1. Incorporation and activities

KuwaitFinancialCentre–S.A.K.(Closed),theParentCompany,isaclosedshareholdingcompany

incorporatedin1974inaccordancewiththeCommercialCompaniesLawintheStateofKuwait.

TheParentCompanywaslistedontheKuwaitStockExchangeon7April1997andisgoverned

underthedirectivesoftheCentralBankofKuwait.

TheGroupcomprisestheParentCompanyanditssubsidiaries.Detailsofthesubsidiariesareset

outinNote5.

The principal activities of the Group are investment management, corporate financing,

investmentandfinancialadvisoryservices,privateequity funds,mutual fundsandrealestate

fundsmanagement,moneymarketandforeignexchange.

TheaddressoftheParentCompany’sregisteredofficeisP.O.Box23444,Safat13095,Stateof

Kuwait.

TheconsolidatedfinancialstatementsoftheGroupfortheyearended31December2007were

authorisedforissuebytheParentCompany’sboardofdirectorson12February2008andare

subjecttotheapprovalofthegeneralassemblyoftheshareholders.

�. Adoption of new and revised Standards

Inthecurrentyear,theGrouphasadoptedIFRS7“Financial Instruments:Disclosures”which

is effective for annual reporting periods beginning on or after 1 January 2007, and the

consequentialamendmentstoIAS1“PresentationofFinancialStatements”.

TheimpactoftheadoptionofIFRS7andthechangestoIAS1hasbeentoexpandthedisclosures

providedintheseconsolidatedfinancialstatementsregardingtheGroup’sfinancialinstruments

andmanagementofcapital(seenote37).

FourInterpretationsissuedbytheInternationalFinancialReportingInterpretationsCommittee

areeffective for thecurrentperiod.Theseare: IFRIC7“Applying theRestatementApproach

underIAS29,FinancialReportinginHyperinflationaryEconomies”;IFRIC8“ScopeofIFRS2”;

IFRIC9“ReassessmentofEmbeddedDerivatives”;andIFRIC10“InterimFinancialReporting

andImpairment”.TheadoptionoftheseInterpretationshasnotledtoanychangesintheGroup’s

accountingpolicies.

StandardsandInterpretationsinissuenotyetadopted

Atthedateofauthorisationoftheseconsolidatedfinancialstatements,thefollowingStandards

andInterpretationswereinissuebutnotyeteffective:

•IAS23(Revised)BorrowingCostsEffectiveforannualperiodsbeginningonorafter1January2009

•IFRS8OperatingSegmentsEffectiveforannualperiodsbeginningonorafter1January2009

•IFRIC11IFRS2:GroupandTreasuryShareTransactions

Effectiveforannualperiodsbeginningonorafter1March2007

•IFRIC12ServiceConcessionArrangementsEffectiveforannualperiodsbeginningonorafter1January2008

•IFRIC13CustomerLoyaltyProgrammesEffectiveforannualperiodsbeginningonorafter1July2008

•IFRIC14IAS19–TheLimitonaDefinedBenefitAsset,MinimumFundingRequirementsandtheirInteraction

Effectiveforannualperiodsbeginningonorafter1January2008

ThedirectorsanticipatethatwhenadoptedtheaboveStandardsandInterpretationswillhaveno

materialfinancialimpactontheconsolidatedfinancialstatementsoftheGroupintheperiodof

initialapplication.

Page 21: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

�0Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 3. Significant accounting policies

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

consistentwiththoseusedinthepreparationoftheconsolidatedfinancialstatementsfortheyear

ended31December2006.

The significant accounting policies adopted in the preparation of the consolidated financial

statementsaresetoutbelow:

Basis of preparation

TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewiththeInternational

Financial Reporting Standards (“IFRS”) promulgated by the International Accounting

StandardsBoard (“IASB”),and Interpretations issuedby the InternationalFinancialReporting

InterpretationsCommitteeoftheIASB,asmodifiedforusebytheGovernmentofKuwaitfor

financialservicesinstitutionsregulatedbytheCentralBankofKuwait.Theseregulationsrequire

adoptionofallIFRSexceptfortheIAS39requirementforcollectiveimpairmentprovision,which

hasbeenreplacedbytheCBKrequirementforaminimumgeneralprovisionasdescribedbelow.

InMarch2007, theCentral Bank ofKuwait issued a circular amending the basis ofmaking

generalprovisionsonfacilitieschangingtheratefrom2%to1%forcashfacilitiesand0.5%

fornoncashfacilities.Therequiredratesweretobeappliedeffectivefrom1January2007on

thenetincreaseinfacilities,netofcertainrestrictedcategoriesofcollateral,duringthereporting

period.Thegeneralprovisioninexcessofthepresent1%forcashfacilitiesand0.5%fornon

cashfacilitieswouldberetainedasageneralprovisionuntilafurtherdirectivefromtheCentral

BankofKuwaitisissued.

The consolidated financial statements are presented in Kuwaiti Dinars (“KD”) which is the

functionalcurrencyoftheParentCompanyandarepreparedunderthehistoricalcostconvention,

exceptforcertaininvestmentsheldatfairvaluethroughstatementofincomeandcertainavailable

forsaleinvestmentsthatarestatedatfairvalue.

Basis of consolidation

TheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheParentCompany

andentitiescontrolledbytheParentCompany(itssubsidiaries).Controlisachievedwherethe

ParentCompanyhasthepowertogovernthefinancialandoperatingpoliciesofanentitysoasto

obtainbenefitsfromitsactivities.

Theresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidated

incomestatementfromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,as

appropriate.

Wherenecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheir

accountingpoliciesintolinewiththoseusedbyothermembersoftheGroup.

Allintra-grouptransactions,balances,incomeandexpensesareeliminatedinfullonconsolidation.

Minorityinterestsinthenetassets(excludinggoodwill)ofconsolidatedsubsidiariesareidentified

separatelyfromtheGroup’sequitytherein.Minority interestsconsistof theamountofthose

interestsatthedateoftheoriginalbusinesscombinationandtheminority’sshareofchanges

inequitysincethedateofthecombination.Lossesapplicabletotheminority inexcessofthe

minority’s interest in the subsidiary’s equity are allocated against the interests of the Group

excepttotheextentthattheminorityhasabindingobligationandisabletomakeanadditional

investmenttocoverthelosses.

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KuwaitFinancialCentre-S.A.K.(Closed)

Revenue recognition

Interest income isaccruedona timebasis,byreference to theprincipaloutstandingand the

effectiveinterestrateapplicable,whichistheratethatexactlydiscountsestimatedfuturecash

receiptsthroughtheexpectedlifeofthefinancialassettothatasset’scarryingamount.Murabaha

incomeisrecognisedonatimeproportionbasissoastoyieldaconstantperiodicrateofreturn

basedonthenetbalanceoutstanding.

Dividendincomeisrecognisedwhentherighttoreceivepaymentisestablished.

Portfoliomanagementfeesandcommissionincomeisrecognisedwhenearned.

Foreign currencies

The individualfinancial statementsofeachGroupentityarepresented in thecurrencyof the

primaryeconomicenvironment inwhich theentityoperates (its functional currency).For the

purposeoftheconsolidatedfinancialstatements,theresultsandfinancialpositionofeachGroup

entityaretranslatedintoKDwhichisthefunctionalcurrencyoftheParentCompanyandthe

presentationcurrencyfortheconsolidatedfinancialstatements.

Inpreparingthefinancialstatementsoftheindividualentities,transactionsincurrenciesother

thantheentity’sfunctionalcurrency(foreigncurrencies)arerecordedattheratesofexchange

prevailing at the dates of the transactions. At each balance sheet date, monetary items

denominatedinforeigncurrenciesareretranslatedattheratesprevailingatthebalancesheet

date.Non-monetaryitemscarriedatfairvaluethataredenominatedinforeigncurrenciesare

retranslatedattheratesprevailingatthedatewhenthefairvaluewasdetermined.Non-monetary

itemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyarenotretranslated.

Forthepurposeofpresentingconsolidatedfinancialstatements,theassetsandliabilitiesofthe

Group’sforeignoperationsaretranslatedintoKDusingexchangeratesprevailingatthebalance

sheetdate.Incomeandexpenseitemsaretranslatedattheaverageexchangeratesfortheperiod,

unless exchange rates fluctuated significantly during that period, inwhich case the exchange

ratesatthedatesofthetransactionsareused.Exchangedifferencesarising,ifany,areclassified

as equity and recognised in the Group’s foreign currency translation reserve. Such exchange

differencesarerecognisedintheconsolidatedstatementof incomeintheperiodinwhichthe

foreignoperationisdisposedof.

Finance costs

Interestonborrowingsiscalculatedontheaccrualbasisandisrecognisedintheconsolidated

statementofincomeintheperiodinwhichitisincurred.

Share based payments

TheGroupprovidescertainemployeeswiththeabilitytopurchasetheParentCompany’sshares

fromitstreasuryshares.Theexercisepriceisbetweenthebookvalueattheendoftheeachyear

andaveragecostoftreasuryshares.Theresultingdifferencebetweentheexercisepriceandthe

marketvalueofthesharesatthatdateistreatedasadiscount.

The fair value determined at the grant date of the share-based payments is expensed on a

straight-linebasis over the vestingperiod, basedon theGroup’s estimateof shares thatwill

eventually vest.At eachbalance sheet date, theGroup revises its estimateof thenumberof

equityinstrumentsexpectedtovest.Theimpactoftherevisionoftheoriginalestimates,ifany,

isrecognisedintheconsolidatedstatementofincomeovertheremainingvestingperiod,witha

correspondingadjustmenttotheaccountspayableandotherliabilities.

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��Annual Report �007

3. Significant accounting policies (Cont’d)

Property, equipment and depreciation

Property and equipment is stated at cost less accumulated depreciation and accumulated

impairmentlosses.

Depreciationischargedsoastowriteoffthecostorvaluationofassets,overtheirestimated

useful lives, using the straight-line method. The estimated useful lives, residual values and

depreciationmethodarereviewedateachyearend,withtheeffectofanychangesinestimate

accountedforonaprospectivebasis.

Thegainorlossarisingonthedisposalorretirementofpropertyandequipmentisdeterminedas

thedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognised

intheconsolidatedstatementofincome.

Investment properties

Investmentproperty,which ispropertyheldtoearnrentalsand/orforcapitalappreciation, is

measured initially at its cost, including transaction costs. Subsequent to initial recognition,

investmentpropertyismeasuredatfairvalue.Gainsandlossesarisingfromchangesinthefair

valueofinvestmentpropertyareincludedintheconsolidatedstatementofincomeintheperiod

inwhichtheyarise.

Financial assets

Investmentsarerecognisedandderecognisedonthetradedatewherethepurchaseorsaleof

an investment isunderacontractwhose termsrequiredeliveryof the investmentwithin the

timeframeestablishedbythemarketconcerned,andareinitiallymeasuredatfairvalue,netof

transactioncosts,exceptforthosefinancialassetsclassifiedasatfairvaluethroughstatementof

income,whichareinitiallymeasuredatfairvalue.

Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassets‘atfairvalue

through statement of income’ (“FVTSI”), ‘held-to-maturity investments’, ‘available-for-sale’

(“AFS”)financialassetsand‘loansandreceivables’.Theclassificationdependsonthenatureand

purposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.

Effective interest method

Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialasset

andofallocatinginterestincomeovertherelevantperiod.Theeffectiveinterestrateistherate

thatexactlydiscountsestimatedfuturecashreceipts(includingallfeesonpointspaidorreceived

thatformanintegralpartoftheeffectiveinterestrate,transactioncostsandotherpremiums

ordiscounts)throughtheexpectedlifeofthefinancialasset,or,whereappropriate,ashorter

period.

Incomeisrecognisedonaneffectiveinterestratebasisfordebtinstrumentsotherthanthose

financialassetsdesignatedasatFVTSI.

Cash and cash equivalents

Cashandcashequivalentsasstatedintheconsolidatedstatementofcashflowscomprisebank

andcashbalances,timedepositslessduetobanksandotherfinancialinstitutions.

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007

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KuwaitFinancialCentre-S.A.K.(Closed)

Financial assets at fair value trough statement of income (“FVTSI”)

FVTSI are initially recognised at fair value excluding transaction costs. Financial assets are

classifiedasatFVTSIwherethefinancialassetiseitherheldfortradingoritisdesignatedasat

FVTSI.

Afinancialassetisclassifiedasheldfortradingif:

-Ithasbeenacquiredprincipallyforthepurposeofsellinginthenearfuture;or

-ItisapartofanidentifiedportfoliooffinancialinstrumentsthattheGroupmanagestogether

andhasarecentactualpatternofshort-termprofit-taking;or

-Itisaderivativethatisnotdesignatedandeffectiveasahedginginstrument.

-AfinancialassetotherthanafinancialassetheldfortradingmaybedesignatedasatFVTSIupon

initialrecognitionif:

-Suchdesignationeliminatesorsignificantlyreducesameasurementorrecognitioninconsistencythat

wouldotherwisearise;or

-ThefinancialassetformspartofaGroupoffinancialassetsorfinancialliabilitiesorboth,whichis

managedanditsperformanceisevaluatedonafairvaluebasis,inaccordancewiththeGroup’s

documentedriskmanagementor investmentstrategy,and informationabout thegrouping is

providedinternallyonthatbasis;or

Itformspartofacontractcontainingoneormoreembeddedderivatives,andIAS39permitsthe

entirecombinedcontract(assetorliability)tobedesignatedasatFVTSI.

After initial recognition, financial assets at FVTSI are remeasured at fair value. Fair value is

determinedinthemannerdescribedinnote37.Gainorlossarisingeitherfromsaleorchangesin

fairvalueonremeasurementisrecognisedintheconsolidatedstatementofincome.

Available for sale financial assets (“AFS”)

AFS investments are initially recorded at fair value plus transaction costs that are directly

attributabletotheacquisition.Afterinitialrecognition,AFSinvestmentsareremeasuredatfair

valueexceptforinvestmentinequitysecuritiesthatdonothaveactivemarketandwhosefair

valuecannotbereliablymeasured,whicharecarriedatcost.

Fair value is determined in the manner described in note 37. Gains and losses arising from

changesinfairvaluearerecogniseddirectlyinequityinthefairvaluereservewiththeexception

of impairment losses, interest calculatedusing theeffective interest ratemethodand foreign

exchangegainsandlossesonmonetaryassets,whicharerecogniseddirectlyintheconsolidated

statement of income.Where the investment is disposed of or is determined to be impaired,

the cumulative gain or loss previously recognised in the fair value reserve is included in the

consolidatedstatementofincomefortheperiod.

ThefairvalueofAFSmonetaryassetsdenominatedinaforeigncurrencyisdeterminedinthat

foreign currency and translated at the spot rate at the consolidated balance sheet date. The

changeinfairvalueattributabletotranslationdifferencesthatresultfromachangeinamortised

costoftheassetisrecognisedintheconsolidatedstatementofincome,andotherchangesare

recognisedinequity.

Loans to customers

LoanstocustomersoriginatedbytheGroupbyprovidingmoneydirectlytotheborrowerand

thathavefixedordeterminablepaymentsthatarenotquotedinanactivemarketareclassifiedas

“loanstocustomers”.Loansaremeasuredatamortisedcostusingtheeffectiveinterestmethod,

lessanyimpairment.Provisionforcreditriskisestablishedtomeetanydeclineinvalue.

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��Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 3. Significant accounting policies (Cont’d)

Derecognition of financial asset

TheGroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfrom

theassetexpire;orittransfersthefinancialassetandsubstantiallyalltherisksandrewardsof

ownershipoftheassettoanotherentity.IftheGroupneithertransfersnorretainssubstantially

alltherisksandrewardsofownershipandcontinuestocontrolthetransferredasset,theGroup

recognisesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhave

topay.IftheGroupretainssubstantiallyalltherisksandrewardsofownershipofatransferred

financial asset, the Group continues to recognise the financial asset and also recognises a

collateralisedborrowingfortheproceedsreceived.

Impairment of financial assets

Financialassets,otherthanthoseatFVTSI,areassessedfor indicatorsof impairmentateach

balance sheetdate. Financial assets are impairedwhere there is objective evidence that, as a

resultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,the

estimatedfuturecashflowsoftheinvestmenthavebeenimpacted.

ForunlistedsharesclassifiedasAFS,asignificantorprolongeddeclineinthefairvalueofthe

securitybelowitscostisconsideredtobeobjectiveevidenceofimpairment.

Forallotherfinancialassets,objectiveevidenceofimpairmentcouldinclude:

·significantfinancialdifficultyoftheissuerorcounterparty;or

·defaultordelinquencyininterestorprincipalpayments;or

·itbecomingprobablethattheborrowerwillenterbankruptcyorfinancialre-organisation.

Forcertaincategoriesoffinancialasset,suchasaccountsreceivables,assetsthatareassessed

nottobeimpairedindividuallyaresubsequentlyassessedforimpairmentonacollectivebasis.

Objectiveevidenceof impairmentforaportfolioofreceivablescould includetheGroup’spast

experienceofcollectingpayments,anincreaseinthenumberofdelayedpaymentsintheportfolio

past the average creditperiodof60days, aswell asobservable changes innationalor local

economicconditionsthatcorrelatewithdefaultonreceivables.

Forfinancialassetscarriedatamortisedcost,theamountoftheimpairmentisthedifference

between the asset’s carrying amount and the present value of estimated future cash flows,

discountedatthefinancialasset’soriginaleffectiveinterestrate.

The carrying amount of thefinancial asset is reduced by the impairment loss directly for all

financialassetswiththeexceptionofaccountsreceivablesand loanstocustomers,wherethe

carrying amount is reduced through the use of an allowance account. When an accounts

receivableorloantocustomerisconsidereduncollectible,itiswrittenoffagainsttheallowance

account. Subsequent recoveries of amounts previously written off are credited against the

allowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognisedin

theconsolidatedstatementofincome.

With theexceptionofAFSequity instruments, if, in a subsequentperiod, theamountof the

impairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringafter

theimpairmentwasrecognised,thepreviouslyrecognisedimpairmentlossisreversedthrough

consolidatedstatementofincometotheextentthatthecarryingamountoftheinvestmentatthe

datetheimpairmentisreverseddoesnotexceedwhattheamortisedcostwouldhavebeenhad

theimpairmentnotbeenrecognised.

InrespectofAFSequitysecurities,impairmentlossespreviouslyrecognisedthroughconsolidated

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KuwaitFinancialCentre-S.A.K.(Closed)

statementofincomearenotreversedthroughconsolidatedstatementofincome.Anyincreasein

fairvaluesubsequenttoanimpairmentlossisrecogniseddirectlyinequity.

Inaddition,inaccordancewithCentralBankofKuwaitinstructions,aminimumgeneralprovision

of1%forthecashfacilitiesand0.5%forthenon-cashfacilitiesnetofcertaincategoriesof

collateral,towhichCBKinstructionsareapplicableandnotsubjecttospecificprovisions,ismade.

Provisions

ProvisionsarerecognisedwhentheGrouphasapresentobligation(legalorconstructive)asa

resultofapastevent,itisprobablethattheGroupwillberequiredtosettletheobligation,anda

reliableestimatecanbemadeoftheamountoftheobligation.

Theamountrecognisedasaprovisionisthebestestimateoftheconsiderationrequiredtosettle

thepresentobligationattheconsolidatedbalancesheetdate,takingintoaccounttherisksand

uncertaintiessurroundingtheobligation.Whereaprovision ismeasuredusingthecashflows

estimatedtosettlethepresentobligation,itscarryingamountisthepresentvalueofthosecash

flows.

When someorall of theeconomicbenefits required to settle aprovisionareexpected tobe

recoveredfromathirdparty,thereceivableisrecognisedasanassetifitisvirtuallycertainthat

reimbursementwillbereceivedandtheamountofthereceivablecanbemeasuredreliably.

Financial liabilities and equity instruments issued by the Group

Classification as debt or equity

Debtandequityinstrumentsareclassifiedaseitherfinancialliabilitiesorasequityinaccordance

withthesubstanceofthecontractualarrangement.

Equity instruments

Anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsofanentity

afterdeductingallofitsliabilities.EquityinstrumentsissuedbytheGrouparerecordedatthe

proceedsreceived,netofdirectissuecosts.

Financial liabilities

Financialliabilitiesareclassifiedas“Bond”and“Shorttermborrowings”

Financialliabilitiesareinitiallymeasuredatfairvalue,netoftransactioncosts.

Otherfinancialliabilitiesaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterest

method,withfinancecostsrecognisedonaneffectiveyieldbasis.

Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialliability

andofallocatingfinancecostsovertherelevantperiod.Theeffective interestrate istherate

thatexactlydiscountsestimatedfuturecashpaymentsthroughtheexpectedlifeofthefinancial

liability,or,whereappropriate,ashorterperiod.

Derecognitionoffinancialliabilities

TheGroup derecognizes financial liabilities when, and only when, theGroup, obligations are

discharges,cancelledortheyexpire.

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��Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 3. Significant accounting policies (Cont’d)

Treasury shares

TreasurysharesconsistoftheParentCompany’sownsharesthathavebeenissued,subsequently

reacquiredbytheParentCompanyandnotyetreissuedorcancelled.Thetreasurysharesare

accountedforusingthecostmethod.Underthecostmethod,theweightedaveragecostofthe

sharesreacquiredischargedtoacontraequityaccount.Whenthetreasurysharesarereissued,

gainsarecreditedtoaseparateaccountinshareholders’equity(gainonsaleoftreasuryshares),

whichisnotdistributable.Anyrealisedlossesarechargedtothesameaccounttotheextentof

thecreditbalanceonthataccount.Anyexcesslossesarechargedtoretainedearningsthento

reserves.Gainsrealisedsubsequentlyonthesaleoftreasurysharesarefirstusedtooffsetany

previouslyrecorded losses intheorderofreserves,retainedearningsandthegainonsaleof

treasurysharesaccount.Nocashdividendsarepaidontheseshares.Theissueofbonusshares

increasesthenumberoftreasurysharesproportionatelyandreducestheaveragecostpershare

withoutaffectingthetotalcostoftreasuryshares.

Related party transactions

Relatedpartiesconsistofdirectors,executiveofficers,theirclosefamilymembersandcompanies

ofwhich they areprincipal owners.All relatedparty transactions are conductedonan arm’s

lengthbasisandareapprovedbymanagement.

Fiduciary assets

AssetsheldintrustorfiduciarycapacityarenottreatedasassetsoftheGroupandaccordingly

theyarenotincludedintheseconsolidatedfinancialstatements.

Zakat

Effective 10 December 2007, the Group has provided for Zakat in accordance with the

requirementsofLawNo.46of2006. TheZakatchargecalculated inaccordancewiththese

requirementsischargedtotheconsolidatedstatementofincome.

�. Critical accounting judgements and key sources of estimation uncertainty

IntheapplicationoftheGroup’saccountingpolices,whicharedescribedinnote3,management

isrequiredtomakejudgements,estimatesandassumptionaboutthecarryingamountsofassets

andliabilitiesthatarenotreadilyapparentfromothersources.Theestimatesandassociated

assumptions are based on historical experience and other factors that are considered to be

relevant.Actualresultsmaydifferfromtheseestimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevision

affectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsiftherevisionaffects

bothcurrentandfutureperiods.

Keysourcesofestimationuncertainty

Thekeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthe

balancesheetdate,thathaveasignificantriskofcausingamaterialadjustmenttothecarrying

amountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow:

Valuationofunquotedequityinvestments

Valuationofunquotedequityinvestmentsisnormallybasedononeofthefollowing:

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KuwaitFinancialCentre-S.A.K.(Closed)

-recentarm’slengthmarkettransactions;

-currentfairvalueofanotherinstrumentthatissubstantiallythesame;

-theexpectedcashflowsdiscountedatcurrentratesapplicableforitemswithsimilartermsand

riskcharacteristics;or

-othervaluationmodels.

The determination of the cash flows and discount factors for unquoted equity investments

requiressignificantestimation.

Criticaljudgementsinapplyingaccountingpolices

The following are the critical judgements, apart from those involving estimations, that the

managementhavemadeintheprocessofapplyingtheGroup’saccountingpoliciesandthathave

themostsignificanteffectontheamountsrecognisedintheconsolidatedfinancialstatements:

Classification of real estate property

Managementdecidesonacquisitionofarealestatepropertywhetheritshouldbeclassifiedas

trading,propertyheldfordevelopmentorinvestmentproperty.

The Group classifies property as trading property if it is acquired principally for sale in the

ordinarycourseofbusiness.

�. Critical accounting judgements and key sources of estimation

TheGroupclassifiespropertyaspropertyunderdevelopmentifitisacquiredwiththeintention

ofdevelopment.

TheGroupclassifiespropertyasinvestmentpropertyifitisacquiredtogeneraterentalincomeor

forcapitalappreciation,orforundeterminedfutureuse.

Classification of investments

Managementdecidesonacquisitionofaninvestmentwhetheritshouldbeclassifiedasheldatfair

valuethroughstatementofincome,heldtomaturityoravailableforsale.

TheGroupclassifies investmentsas trading if theyareacquiredprimarily for thepurposeof

makingashorttermprofitbythedealers.

Classificationofinvestmentsasinvestmentatfairvaluethroughincomestatementdependson

howmanagementmonitortheperformanceoftheseinvestments.Whentheyarenotclassified

asheldfortradingbuthavereadilyavailablereliablefairvaluesandthechangesinfairvaluesare

reportedaspartofincomestatementinthemanagementaccounts,theyareclassifiedasatfair

valuethroughstatementofincome.Allotherinvestmentsareclassifiedasavailableforsale.

Impairment of investments

TheGrouptreatstheinvestmentsasimpairedwhentherehasbeenasignificantorprolonged

declineinthefairvaluebelowitscost.Thedeterminationofwhatis“significant”or“prolonged”

requiresjudgement.Inaddition,theGroupalsoevaluatesamongotherfactors,normalvolatility

inthesharepriceforquotedinvestmentsandthefuturecashflowsandthediscountfactorsfor

unquotedinvestments.

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��Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 5. Subsidiaries

NameofsubsidiaryCountryofincorporation

Proportionofownershipinterest

Proportionofvotingpowerheld

Principalactivity

MargulfManagementInc USA 100% 100% Assetmanagement

KFCLoneStar,Inc USA 100% 100% Assetmanagement

KFCLoneStar1,Inc. USA 100% 100% Assetmanagement

FirstManagementandEconomicConsultancyCompany–K.S.C.(Closed)

Kuwait 100% 100%EconomicConsultancy

MarsoftforComputerProgramming,OperationsandConsultancyServicesCompany–W.L.L.

Kuwait 67% 67%ComputerConsultancy

�. Interest income

2007 2006

KD000’s KD000’s

Timedeposits 236 154

Investmentsatfairvaluethoughstatementofincome 207 131

Shorttermfinancing 138 -

Murabahareceivables 5 12

Loansandadvances 1,518 1,937

2,104 2,234

7. DIVIDEND INCOME

2007 2006

KD000’s KD000’s

Investmentsatfairvaluethroughstatementofincome 236 409

Availableforsaleinvestments 68 215

304 624

�. Management fees and commission

ManagementfeesrelatestoincomearisingfromtheGroup’smanagementofportfolios,funds,

custodyandsimilartrustandfiduciaryactivities.

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KuwaitFinancialCentre-S.A.K.(Closed)

9. Unrealised gain / (loss) on investments at fair value through statement of income

2007 2006

KD000’s KD000’s

Changeinfairvalueoftradingsecurities 361 (1,805)

Changeinfairvalueofinvestmentsdesignatedasinvestmentsatfairvaluethroughstatementofincome

4,200 (5,835)

4,561 (7,640)

10. General and administrative expenses

Generalandadministrationexpensesincludethefollowing:

2007 2006

KD000’s KD000’s

Staffcosts 4,372 3,074

Depreciation 153 116

11. Finance costs

2007 2006

KD000’s KD000’s

Bonds 895 -

Shorttermborrowings 1,406 1,862

Duetobanks 9 5

2,310 1,867

Interestexpenseonfinancialliabilitiesatamortisedcost 2,310 1,867

1�. Net gain or loss on financial assets

2007 2006

KD000’s KD000’s

Timedeposits 236 154

Investmentsatfairvaluethroughstatementofincome 12,611 (8,391)

Availableforsaleinvestments 7,777 7,321

Murabahareceivables 5 12

Loansandadvances 1,373 2,050

Shorttermfinancing 138 -

22,140 1,146

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30Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 13. Earnings per share attributable to equity holders of the parent company

2007 2006

KD000’s KD000’s

EarningspershareattributabletoequityholdersoftheParentCompanyiscalculatedasfollows:

ProfitfortheyearattributabletoequityholdersoftheParentCompany

27,017 5,346

Weightedaveragenumberofsharesoutstandingexcludingtreasuryshares(thousands)

416,691 426,281

Earningspershare(fils) 65 13

1�. Cash and cash equivalents

2007 2006

KD000’s KD000’s

Bankbalancesandcash 1,474 1,891

Timedeposits 956 1,115

Less:Duetobanksandotherfinancialinstitutions (432) (12)

1,998 2,994

TheGroup’stimedepositsyieldinterestatanaveragerateof4.875%perannum(2006:5.000%perannum)andmaturewithinonemonthfromthedateofdeposit.

15. Investments at fair value through statement of income

2007 2006

KD000’s KD000’s

Trading:

Localquotedsecuritiesandmanagedfunds 9,266 6,119

Foreignquotedsecuritiesandmanagedfunds 752 1,312

Designatedoninitialrecognition:

Localquotedsecuritiesandmanagedfunds 48,417 39,160

Foreignquotedsecuritiesandmanagedfunds 2,129 1,339

Fixedincomesecurities 6,414 3,912

66,978 51,842

Theinterestonfixedincomesecuritiesrangefrom6.000%to7.125%perannum(2006:5.000%to7.125%perannum).

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KuwaitFinancialCentre-S.A.K.(Closed)

1�. Accounts receivables and other assets

2007 2006

KD000’s KD000’s

Managementfeesandcommissionreceivable 4,315 2,827

Interestreceivable 736 361

Receivablefromsaleofavailableforsaleinvestments

4,421 -

Prepayments 492 387

Others 2,247 489

12,211 4,064

17. Murabaha receivables

MurabahareceivablesarisefromaMurabahatransactionwiththeprincipalamountandprofit

thereonbeingrecoverableovera5yearperiodfromthedateofthetransactionandataprofit

rateof6.4%perannum.Themurabahareceivablewasfullyreceivedin2007.

1�. Short term financing

Shorttermfinancingrepresentsshorttermadvancesataninterestrateof9%perannum(2006:

nil)(Seenote32).Theadvanceisduewithintwomonthsofthebalancesheetdate.

19. Loans to customers

2007 2006

KD000’s KD000’s

Commercialloans 10,077 6,271

Marginloans 8,268 7,428

Personalloans 3,956 4,618

22,301 18,317

Provisionforcreditlosses (1,913) (1,878)

20,388 16,439

Thematurityprofileofloanstocustomersisasfollows:

Uptoonemonth 410 2,045

Betweenonemonthandsixmonths 2,739 3,621

Betweensixmonthsandoneyear 16,873 11,109

Overoneyear 742 -

Non-performingloans 1,537 1,542

22,301 18,317

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3�Annual Report �007

19. Loans to customers (Cont’d)Provision for credit losses is made in accordance with Central Bank of Kuwait requirementsincludinggeneralprovision(Seenote3)onthebalanceofregularfacilitiesforwhichnospecificprovisionsaremade.

The total non-performing loans onwhich specific provision has beenmade amounted toKD1,537thousand(2006:KD1,542thousand).

Theinterestrateonloanstocustomersrangesfrom7.75%to9.25%perannum(2006:7.75%to9.25%per annum) for commercial loans,7.75% to8.75%per annum (2006:8.25% to9.25%)formarginloansand5.5%to9.25%perannum(2006:5.5%to8.75%perannum)forpersonalloans.

AllloansaredenominatedinKuwaitiDinarsorUSDollars.Commercialloansarefullysecuredbychargesoverpropertyandinvestmentsinthefundsandsecuritiesheldinfiduciaryportfoliosonbehalfoftheborrowers.

�0. Available for sale investments

2007 2006

KD000’s KD000’s

Quotedsecuritiesandmanagedfunds 51,716 43,808

Equityparticipations 25,113 22,896

76,829 66,704

Equityparticipationsareacquiredwiththe intentionofcapitalappreciationoveramediumto

long-termtimeframe.EquityparticipationsamountingtoKD909thousand(2006:KD584

thousand)arecarriedatcostsincetheirfairvaluescouldnotbemeasuredreliably.

EquityparticipationincludeinvestmentsamountingtoKD24,204thousand(2006:KD22,398

thousand)whosefairvaluesaredeterminedusingvaluationtechniquesusedbyfundmanagers

thatarenotbasedonobservablemarketpricesorrates.

�1. Investment properties

2007 2006

KD000’s KD000’s

Carryingvalueat1January 36 36

Additions - 3,904

Disposals - (3,904)

Carryingamountat31December 36 36

InvestmentpropertiesarelocatedoutsideKuwait.

��. Property under development

During 2007, the Group acquired land in Saudi Arabia amounting to KD 3,065 thousand

(2006:nil).TheobjectiveoftheGroupistosellthelandafterfurtherdevelopment.Theland

willbetransferredtoinvestmentpropertyoncompletionofdevelopment.Thecommitmentfor

developmentoflandhasbeendisclosedinnote36totheconsolidatedfinancialstatements.

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007

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KuwaitFinancialCentre-S.A.K.(Closed)

�3. Short term borrowings

Shorttermborrowingsrepresentmoneymarketborrowingsfromlocalandforeignbanks.The

loansaredenominatedinKuwaitDinarandUSDollarandbearanaverageinterestrateranging

from5%to6.5%perannum(2006:4%to8.75%perannum)andareunsecured.

At31December2007,theGrouphadKD33,600thousand(2006:KD12,600thousand)of

undrawncommittedborrowingfacilitiesinrespectofwhichallconditionsprecedenthadbeen

met.

��. Bonds

On5July2007, theParentCompany issuedunsecuredbonds in theprincipalamountofUS

Dollars100,000thousandwithaninterestrateofLIBORplus1.1%payablequarterlyinarrears.

ThebondsarelistedontheDubaiInternationalFinancialExchangeandmatureon5July2012.

�5. Share capital

Theauthorised,issuedandfullypaidupsharecapitalconsistsof44,000thousandsharesof100

filseach(31December2006:44,000thousandsharesof100filseach).

��. SHARE PREMIUM

Sharepremiumisnotavailablefordistribution.

�7. Legal reserve

Asrequiredby theKuwaitCommercialCompaniesLawand theParentCompany’sArticlesof

Association,10%ofprofitfortheyearbeforeKFAS,NLST,Directors’remunerationandZakatis

tobetransferredtothelegalreserveuntilthereservereachesaminimumof50%ofthepaidup

sharecapital.Thisreserveisnotavailablefordistributionexceptforpaymentofadividendof5%

ofpaidupsharecapitalinyearswhenretainedearningsarenotsufficientforthepaymentofsuch

dividends.

��. Voluntary reserve

In accordancewith theParentCompany’sArticlesofAssociation,10%ofprofit for theyear

before KFAS, NLST, Directors’ remuneration and Zakat is required to be transferred to the

voluntaryreserveuntiltheshareholdersdecidetodiscontinuethetransferondistributionsfrom

thevoluntaryreserve.

�9. Treasury shares

2007 2006

Numberofshares(000’s) 29,351 22,621

Percentageofissuedshares 6.67% 5.14%

Marketvalue(KD000’s) 10,566 5,881

ReservesoftheParentCompanyequivalenttothecostoftreasuryshareshavebeenearmarkedasnon-distributable.

Page 35: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

3�Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 30. Fair value reserve

2007 2006

KD000’s KD000’s

Balanceat1January 17,534 19,431

Netunrealisedgainsduringtheyear 12,832 5,209

Impairmentinvaluetransferredtoconsolidatedstatementofincome

195 137

Releasedondisposalofavailableforsaleinvestments (7,904) (7,243)

Balanceat31December 22,657 17,534

31. Proposed dividends

Subject to the requisite consent of the relevant authorities and approval from the general

assembly,theBoardofDirectorsproposetodistributeacashdividendof25filspershareand

bonussharesof15%totheshareholdersofrecordasofthedateofthegeneralassembly.

During2007,cashdividendsof10filspersharefortheyearended31December2006were

approvedbythegeneralassemblyheldon10April2007andwerepaidfollowingthatapproval.

3�. Related party transactions

TransactionsbetweentheParentCompanyanditssubsidiaries,whicharerelatedpartiesofthe

ParentCompanyhavebeeneliminatedonconsolidationandarenotdisclosedinthisnote.Details

oftransactionsbetweentheGroupandotherrelatedpartiesaredisclosedbelow

Trading transactions

Duringtheyear,groupentitiesenteredintothefollowingtradingtransactionswithrelatedparties

thatarenotmembersoftheGroup:2007 2006

KD000’s KD000’s

Transactions included in the consolidated statement of income

a)Interestincome 492 292

b)Managementfeesandcommissions 10,207 8,195

c)Compensationofkeymanagementpersonnel

Salariesandothershorttermbenefits 356 282

Terminalbenefits 59 23

415 305

Balances included in the consolidated balance sheetLoans to related parties

2007 2006KD000’s KD000’s

Shorttermfinancing(Seenote18) 5,207 -Loanstodirectorsandseniormanagement 9,422 4,463

14,629 4,463

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KuwaitFinancialCentre-S.A.K.(Closed)

33. Segmental information

Thegroupprimarily operates inone areaof business activity, investment and accordingly its

primarybasisforsegmentalreportingisbygeographicalsegment.Informationaboutthegroup’s

geographicalsegmentsissummarisedasfollows:

Yearended31December2007 2006

Revenue Profit Revenue ProfitKD000’s KD000’s KD000’s KD000’s

Kuwait 26,640 17,437 8,376 1,678GulfandMiddleEast 2,005 1,682 587 311NorthAmerica 5,987 5,550 2,330 1,990Europe 2,276 2,269 787 757Others 108 91 665 614

37,016 27,029 12,745 5,350

Asat31December2007 2006

Totalassets

Totalliabilities

Netassetsemployed

Totalassets

Totalliabilities

Netassetsemployed

KD000’s KD000’s KD000’s KD000’s KD000’s KD000’sKuwait 109,149 31,429 77,720 91,347 18,736 72,611

GulfandMiddleEast 21,504 24,966 (3,462) 6,890 17,327 (10,437)

NorthAmerica 41,341 78 41,263 34,372 741 33,631

Europe 11,214 4 11,210 7,551 4 7,547

Others 4,510 5 4,505 2,323 5 2,318

187,718 56,482 131,236 142,483 36,813 105,670

3�. Fiduciary assets

TheGroupmanagesportfoliosonbehalfofothers,mutualfunds,andmaintainscashbalances

andsecurities infiduciaryaccounts,whicharenotreflectedintheconsolidatedbalancesheet.

Assetsundermanagementat31December2007amountedtoKD1,240,673thousand(2006:

KD1,182,211thousand).

35. Employee share option plan

In 2005, the Group established an employee share option plan (“ESOP”) to reward the

performanceof itsemployees.Undertheplan,certainemployeesareeligible topurchasethe

ParentCompany’ssharesfromitstreasurysharesandnonewshareswillbeissued.Theexercise

priceisbetweenthebookvalueattheendofeachyearandaveragecostoftreasuryshares.This

planwillbeineffectforanineyearperiodforamaximumof10%ofthepaidupsharecapitalof

theParentCompanyatthedateofinceptionoftheprogram.

Pursuanttotheplan,thedirectorsapprovedtomake1,680thousandsharesavailableforthis

purposefortheyearended31December2005whichwasapprovedbytherelevantregulatory

authoritiesandtheshareholdersgeneralassemblyon2April2006.Thefairvalueoftheshareat

thatdatewas700filsandexercisepricewas500fils.TheGrouprecognisedatotalexpenseand

correspondingliabilityofKD336thousandintheconsolidatedfinancialstatementsfortheyear

ended31December2005.Nosharesweregranted,exercised,expiredorforfeitedunderthe

ESOPduringtheyearended31December2007.

Page 37: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

3�Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 3�. Commitments and contingent liabilities

�007 �00�KD 000’s KD 000’s

Capitalcommitments

Forpurchaseofinvestments 17,724 20,819

Fordevelopmentofland 717 -

18,441 20,819

37. Financial instruments

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria

for recognition, the basis of measurement and the basis on which income and expenses are

recognised,inrespectofeachclassoffinancialassetandfinancialliabilityaredisclosedinnote3

totheconsolidatedfinancialstatements.

Financial risk management objectives

TheGroup’sriskmanagementfunctionprovidesservicestothebusiness,co-ordinatesaccessto

domesticandinternationalfinancialmarkets,monitorsandmanagesthefinancialrisksrelatingto

theoperationsoftheGroupthroughinternalriskreportswhichanalyseexposuresbydegreeand

magnitudeofrisks.Theserisksincludemarketrisk(includingcurrencyriskandfairvalueinterest

raterisk),creditrisk,liquidityriskandcashflowinterestraterisk.

Market risk

Marketriskistheriskthatchangesinmarketprices,suchasforeignexchangerates,interest

ratesandequitypriceswillaffect theGroup’s incomeorthevalueof itsholdingsoffinancial

instruments.Theobjectiveofmarketriskmanagement istomanageandcontrolmarketrisk

exposureswithinacceptableparameters,whileoptimisingthereturn.

TheGroup’sactivitiesexpose itprimarily to thefinancial risksofchanges in foreigncurrency

exchangeratesandinterestrates.

Price risk

TheGroup is exposed to the equity price riskwith respect to its equity investments. Equity

investmentsareclassifiedeitherasinvestmentsatfairvaluethroughstatementofincomeand

availableforsaleinvestments.

Tomanageitspriceriskarisingfrominvestmentsinequitysecurities,theGroupdiversifiesits

portfolioinaccordancewiththelimitssetbytheGroup.

Thesensitivityanalysisbelowhasbeendeterminedbasedontheexposuretoequitypricerisksat

thereportingdate.

Ifequitypricehadbeen10%higher/lower,theeffectontheprofitfortheyearandequityfor

theyearended31Decemberwouldhavebeenasfollows.

Page 38: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

37.Financialinstruments(continued)

Apositivenumberbelowindicatesanincreaseinprofitandotherequitywheretheequityprice

increasesby10%.Foran10%decreaseintheequitypricetherewouldbeanequalandopposite

impactintheprofitandotherequityandthebalancesbelowwouldbenegative.

Profitfortheyear Equity

2007 2006 2007 2006

KD000’s KD000’s KD000’s KD000’s

Investmentsatfairvaluethroughstatementofincome

1,168 852 - -

Availableforsaleinvestments 474 404 770 290

Foreign currency risk management

TheGroupundertakescertaintransactionsdenominatedinforeigncurrencies.Hence,exposures

toexchangeratefluctuationsarise.Exchangerateexposuresaremanagedwithinapprovedpolicy

parametersutilisingforwardforeignexchangecontracts.

ThecarryingamountsoftheGroup’ssignificantforeigncurrencydenominatedmonetaryassets

andmonetaryliabilitiesatthereportingdateareasfollows:

Liabilities Assets

2007 2006 2007 2006

KD000’s KD000’s KD000’s KD000’s

USDollars 28,960 7,038 66,472 41,576

Euro 3 16 6,637 4,997

SterlingPounds 2 2 817 2,582

BahrainiDinars - - 156 725

UAEDirhams - - 651 682

Other 397 6 448 655

Foreign currency sensitivity analysis

TheGroupismaintainingexposuremainlytotheUSDollars.

The following table details the Group’s sensitivity to a 10% increase and decrease in the

KD against US Dollars. The sensitivity analysis includes only outstanding foreign currency

denominatedmonetaryitemsandadjuststheirtranslationattheperiodendfora10%changein

foreigncurrencyrates.Thesensitivityanalysisincludesexternalloansaswellasloanstoforeign

operationswithin theGroupwhere thedenominationof the loan is ina currencyother than

thecurrencyofthe lenderortheborrower.Apositivenumberbelowindicatesan increase in

profitandotherequitywheretheKDweakens10%againsttherelevantcurrency.Fora10%

strengtheningoftheKDagainsttheUSDollar,therewouldbeanequalandoppositeimpacton

theprofitandotherequity,andthebalancesbelowwouldbenegative.

+10%Impact -10%Impact

2007 2006 2007 2006

KD000’s KD000’s KD000’s KD000’s

Consolidatedstatementofincome (980) (1,061) 980 1,061

Equity (2,772) (i) (2,392) (i) 2,772 (i) 2,392 (i)

(i)Thisisasaresultofthechangesinfairvalueofavailableforsaleinvestments.

Page 39: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

3�Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007

37. Financial instruments (Cont’d)

Interest rate risk management

TheGroupisexposedtointerestrateriskasitborrowsfundsatbothfixedandfloatinginterest

rates.TheriskismanagedbytheGroupbymaintaininganappropriatemixbetweenfixedand

floatingrateborrowings.

Interest rate sensitivity analysis

TheGroup’sexposurestointerestratesonassetsandliabilitiesaredetailedintheliquidityrisk

managementsectionofthisnote.

Thefollowingtableillustratesthesensitivityoftheprofitfortheyearandequitytoareasonably

possiblechangeininterestratesof+1%and-1%(2006:+1%and-1%)witheffectfrom

the beginning of the year. These changes are considered to be reasonably possible based on

observationof currentmarket conditions.Thecalculationsarebasedon theGroup’sfinancial

instrumentsheldateachbalancesheetdate.Allothervariablesareheldconstant.

Apositivenumberbelowindicatesanincreaseinprofitandnegativenumberindicatesdecreasein

profit.

2007 2006+1% -1% +1% -1%KD000’s KD000’s KD000’s KD000’s

Profitfortheyear (119) 119 (7) 7

Credit risk management

Credit risk refers to the risk that the counterpartywill default on its contractual obligations

resulting infinancial loss to theGroup.TheGrouphasadoptedapolicyofonlydealingwith

creditworthycounterpartiesandobtainingsufficientcollateral,whereappropriate,asameans

of mitigating the risk of financial loss from defaults. The Group only transacts with entities

thatarerated theequivalentof investmentgradeandabove.This information is suppliedby

independentratingagencieswhereavailableand,ifnotavailable,theGroupusesotherpublicly

available financial information and its own trading records to rate its major customers. The

Group’sexposureandthecreditratingsofitscounterpartiesarecontinuouslymonitoredandthe

aggregatevalueof transactions concluded is spreadamongst approved counterparties.Credit

exposureiscontrolledbycounterpartylimitsthatarereviewedandapprovedbythemanagement

annually.

Accountsreceivablesconsistofalargenumberofcustomers,spreadacrossdiverseindustriesand

geographicalareas.Ongoingcreditevaluationisperformedonthefinancialconditionofaccounts

receivable.

TheGroupdoesnothaveanysignificantcreditriskexposuretoanysinglecounterpartyorany

group of counterparties having similar characteristics. The Group defines counterparties as

having similar characteristics if they are related entities. Concentration of credit risk did not

exceed5%ofgrossmonetaryassetsatanytimeduringtheyear.Thecreditriskonliquidfunds

islimitedbecausethecounterpartiesarebankswithhighcredit-ratingsassignedbyinternational

credit-ratingagencies.

Page 40: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

KuwaitFinancialCentre-S.A.K.(Closed)

Exposure to credit risk

The carrying amount of financial assets which is net of impairment losses, recorded in the

consolidated balance sheet represents the Group’s maximum credit exposure without taking

accountof the valueof any collateral obtained.Themaximumexposure to credit risk at the

reportingdatewas:

Carryingamount

2007 2006

KD000’s KD000’s

Bankbalancesandcash 1,474 1,891

Timedeposits 956 1,115

Accountsreceivableandotherassets 12,211 4,064

Murabahareceivables - 123

Shorttermfinancing 5,207 -

Loanstocustomers 20,388 16,439

40,236 23,632

Themaximumexposuretocreditriskatthereportingdatebygeographicregionwas:

Carryingamount

2007 2006

KD000’s KD000’s

Kuwait 24,395 22,128

GulfandMiddleEast 9,548 136

NorthAmerica 6,102 1,284

Europe 158 40

Others 33 44

40,236 23,632

Credit quality of financial assets

Thecreditqualityoffinancialassetsthatareneitherpastduenorimpairedcanbeassessedby

referencetohistoricalinformationaboutcounterpartydefaultrates.Noneofthefinancialassets

oftheGrouphavebeenratedbyexternalcreditratingagencies.TheGroupassessesthecredit

qualityoffinancialassetsusinginternalratings.

Liquidity risk management

LiquidityriskistheriskthattheGroupwillnotbeabletomeetitsfinancialobligationsasthey

falldue.TheGroup’sapproachtomanagingliquidityistoensure,asfaraspossible,thatitwill

alwayshavesufficientliquiditytomeetitsliabilitieswhendue,underbothnormalandstressed

conditions,withoutincurringunacceptablelossesorriskingdamagetotheGroup’sreputation.

Ultimateresponsibilityforliquidityriskmanagementrestswiththeboardofdirectors,whichhas

builtanappropriateliquidityriskmanagementframeworkforthemanagementoftheGroup’s

short, medium and long-term funding and liquidity management requirements. The Group

managesliquidityriskbymaintainingadequatereserves,bankingfacilitiesandreserveborrowing

facilities,bycontinuouslymonitoringforecastandactualcashflowsandmatchingthematurity

profilesoffinancialassetsandliabilities.Includedinnote23isalistingofadditionalundrawn

facilitiesthattheGrouphasatitsdisposaltofurtherreduceliquidityrisk.

Page 41: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

�0Annual Report �007

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007 37. Financial instruments (Cont’d)

Liquidity and interest risk tables

ThetablebelowanalysestheGroup’snon-derivativefinancialassetsandliabilitiesbasedonthe

remainingperiodatthebalancesheettothecontractualmaturitydate.Theamountsdisclosedin

thetablearethecontractualundiscountedcashflows.Balancesduewithin12monthsequaltheir

carryingbalancesastheimpactofdiscountingisnotsignificant.

At31December2007Upto1Month

1-3Months

3-12Months

Over1year

TotalWeightedaverageeffectiveinterest

rate

KD000’s KD000’s KD000’s KD000’s KD000’s %

Assets

Bankbalancesandcash 1,474 - - - 1,474 -

Timedeposits 956 - - - 956 4.875

Investmentsatfairvaluethroughstatementofincome

- - 63,517 3,461 66,978 6.56

Accountsreceivableandotherassets

3,789 6,420 1,761 241 12,211 -

Shorttermfinancing - 5,207 - - 5,207 9

Loanstocustomers 406 1,494 17,754 734 20,388 8.4

Availableforsaleinvestments - - - 76,829 76,829 -

Investmentproperties - - - 36 36 -

Propertyunderdevelopment - - - 3,065 3,065 -

Propertyandequipment - - - 574 574 -

6,625 13,121 83,032 84,940 187,718

At31December2007

Upto1Month

1-3Months

3-12Months

Over1Year

Total

Weightedaverage

effectiveinterestrate

KD000’s KD000’s KD000’s KD000’s KD000’s %

Liabilities

Duetobanksandotherfinancialinstitutions

432 - - - 432 7.5

Accountspayableandotherliabilities

- 5,336 - - 5,336 -

Dividendspayable - 424 - - 424 -

Short-termborrowings 18,190 - 4,800 - 22,990 5.75

Bonds - - - 27,300 27,300 6

18,622 5,760 4,800 27,300 56,482

Totalinterestratesensitivitygap

(11,997) 7,361 78,232 57,640 131,236

Cumulativeinterestratesensitivitygap

(11,997) (4,636) 73,596 131,236 -

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KuwaitFinancialCentre-S.A.K.(Closed)

At31December2006Upto1Month

1-3Months

3-12Months

Over1Year

Total

Weightedaverageeffective

interestrate

KD000’s KD000’s KD000’s KD000’s KD000’s %

Assets

Bankbalancesandcash 1,891 - - - 1,891 -

Timedeposits 1,115 - - - 1,115 5

Investmentsatfairvaluethroughstatementofincome

- - 47,930 3,912 51,842 6

Accountsreceivableandotherassets

- 4,064 - - 4,064 -

Murabahareceivables - 41 82 - 123 6.4

Loanstocustomers 2,004 1,739 12,684 12 16,439 8.43

Availableforsaleinvestments

- - - 66,704 66,704 -

Investmentproperties - - - 36 36 -

Propertyandequipment - - - 269 269 -

5,010 5,844 60,696 70,933 142,483

At31December2006Upto1Month

1-3Months

3-12Months

Over1Year

Total

Weightedaverageeffective

interestrate

KD000’s KD000’s KD000’s KD000’s KD000’s %

Liabilities

Duetobanksandotherfinancialinstitutions

12 - - - 12 7.5

Accountspayableandotherliabilities

3,345 - - 3,345 -

Dividendspayable - 562 - - 562 -

Short-termborrowings 27,144 - 5,750 - 32,894 6.38

27,156 3,907 5,750 - 36,813

Totalinterestratesensitivitygap

(22,146) 1,937 54,946 70,933 105,670

Cumulativeinterestratesensitivitygap

(22,146) (20,209) 34,737 105,670 -

Fair value of financial instruments

Thefairvalueoffinancialassetsandfinancialliabilitieswithstandardtermsandconditionsand

tradedontheactiveliquidmarketsisdeterminedwithreferencetoactivemarketprices.

Thefairvalueoffinancialassetsandfinancialliabilities(excludingderivativeinstruments)isdetermined

inaccordancewithgenerallyacceptedpricingmodelsbasedondiscountedcashflowanalysisusing

pricesfromobservablecurrentmarkettransactionsanddealerquotesforsimilarinstruments.

Asattheconsolidatedbalancesheetdate,thefairvalueofalloftheGroup’sfinancialassetsand

financialliabilitiesapproximatetheircarryingvalueintheconsolidatedbalancesheet.

Page 43: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent

��Annual Report �007

37. Financial instruments (Cont’d)

Financial assets

2007 2007 2006 2006

KD000’s KD000’s KD000’s KD000’sFairvalue

Atamortisedcost

Fairvalue

Atamortisedcost

Bankbalancesandcash 1,474 - 1,891 -

Timedeposits 956 - 1,115 -Investmentsatfairvaluethroughstatementofincome

66,978 - 51,842-

Accountsreceivableandotherassets

-12,211 - 4,064

Murabahareceivables - - - 123

Shorttermfinancing - 5,207 - -

Loanstocustomers - 20,388 - 16,439

Availableforsaleinvestments 76,829 - 66,704 -

146,237 37,806 121,552 20,626

FinancialliabilitiesDuetobanksandotherfinancialinstitutions

- 432 - 12

Accountspayableandotherliabilities - 5,336 - 3,345

Short-termborrowings - 22,990 - 32,894

Bonds - 27,300 - -

- 56,058 - 36,251

3�. Capital risk management

TheGroupmanagesitscapitaltoensurethatitwillbeabletocontinueasagoingconcernwhile

maximisingthereturntoshareholdersthroughtheoptimisationofthedebtandequitybalance.

TheGroup’soverallstrategyremainsunchangedfrom2006.

ThecapitalstructureoftheGroupconsistsofequityattributabletoequityholdersoftheParent

Company,comprisingissuedcapital,sharepremium,reservesandretainedearningsasdisclosed

innotes25,26,27,28,29and30respectively.Debtconsistsoftheduetobanksandother

financialinstitutionsdisclosedinNote14,shorttermborrowingsdisclosedinnote23andbonds

disclosedinnote24.

Gearingratio

Thegearingratioatyearendwasasfollows:

2007 2006

KD000’s KD000’s

Debt 50,722 32,906

Less:Cashandcashequivalents 1,998 2,994

Netdebt 48,724 29,912

Equity 131,170 105,616

Netdebttoequityratio 37.15% 28.32%

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

31 DECEMBER �007

Page 44: H.H. SHEIKH SABAH AL-AHMAD AL-JABER AL-SABAH...H.H. SHEIKH NASSER AL-MOHAMMED AL-AHMAD AL-SABAH The Prime Minister Annual Report 007 TABLE OF CONTENTS Page Directors’ Report 4 Independent