p.o box 435 safat 13005 kuwait tel : 222 30 600 …...p.o box 435 safat 13005 kuwait tel : 222 30...

P.O Box 435 Safat 13005 KuwaitTel : 222 30 600

Fax : 222 30 595 / 6 / 7email : [email protected] : www.yiacokuwait.com

In The Name Of Allah

H.H. SheikhSabah Al Ahmed Al Sabah

Amir of The State of Kuwait

H. H. SheikhNawaf Al Ahmed Al Sabah

Crown Prince ofThe State of Kuwait

H. H.SheikhJaber Al Mubarak Al Sabah

The Prime MinisterState of Kuwait

4

To serve as Focal Point In healthcare services in the state of Kuwait while being the landmark of all Regional Healthcare business relation.

To be the first choice in our region when it comes to healthcare supplies

• Representing the largest number of world wide recognized multinational pharmaceutical principals.

• Providing the highest quality & latest technology in medical equipments business.

• Being the best healthcare provider in our business entities.

• Excellence We are dedicated for excellence in all our offerings and services.

• Leadership In the market we seek to maintain our leading position and role models.

• Improvement Stand still is unacceptable; we improve whenever it serves our Innovation customers, patients and colleagues.

• Professionalism We believes in efficient processes, in structures, and in systematic analyses when dealing with each other internally, with our market partners, and with our competitors.

• Honesty When dealing with the market, we strive for transparency and open exchange.

• International If necessary, we have no problem in going the “extra mile” or Business even on detour; not only for our principals and patients but also for our colleagues, our subordinates, and our superior.

• Flexibility Whenever there is a better way, we make the effort and try to take it.

• Relationship Trust is the basis of our business; we prefer long term orientation when developing relationship and net works.

• Organization Learning organization as hard as we may try, we know that we can always do even better; progress is improvement which has been achieved.

Our Vision

Our Mission

Our values

6

Yiaco Medical Company (YIACO), Yusuf Ibrahim Alghanim & Co., was incorporated as a Kuwaiti W.L.L. Company in 1969 with a capital of KD 2 Million at an aim to market multinational research based pharmaceutical manufacturers, medical supplies and other health care services in Kuwait.

In 2001, the company was bought by The Securities House and became known as YIACO Medical Company that reflects the abbreviation for the name of Yusuf Ibrahim Alghanim & Company. YIACO was listed on the Kuwait Stock Exchange in November 2007 and currently has a paid- up capital of KD 16.50 Million divided into 165 million shares.

The principal activity of the company is focused on sales, marketing and distribution of health care products that includes pharmaceuticals, skincare, veterinary, Medical and Dental Equipments. In addition to the completion of a modern development in our field and enter the supply of medical services and assistance to government hospitals YIACO, currently represents more than 98 top diversified multinational researched based companies such as Sanofi Aventis, GSK, Schering, Pfizer, Merck, Abott, Bayer, Intervet, Roche, Philips, Johnson & Johnson, Astra Zenica which was acquired recently and many more.

Meanwhile the company owns & provides superior health care services through its largest chain of 30 pharmacies in different areas in Kuwait. The top management has clearly indicated that it is committed to work on the defined future strategy, focus on the core activities.

Further, a move to support its expansion plans, currently the company runs its business in three countries, Egypt, Kuwait and UAE through its subsidiaries where the group has influential interest in equity stake. Also to mark its presence in the Home Care Services, the company acquired 99 % stake in Al Raya Health Care Company W.L.L. during 2007.

After listing on KSE, the management has given utmost attention to improving the operations in order to increase efficiency. This required tremendous and continuous effort on the part of the management during 2009, 2010 and 2011. One of the most important undertakings of the company in 2010 & 2011 is strategy implementation, which includes following through the growth path, improving performance, and focusing on the prospects of increasing profitability. This was achieved with the cooperation of a foreign consultancy company.

Most of the personnel also participated in determining the objectives, growth and directions of the company, It has reviewed its activities and made very important decisions that improved performance and efficiency, The management has undertaken an organizational restructuring and, as a result, hired new employees in accordance with the professional qualifications required by company standards.

This was done to support the continuous growth of its operations and increase its competitiveness in the field of medical services. The work in progress is on the plan to direct the company operations, reevaluate its activities, analyze overhead costs and reduce operating expenses. All these utilized the company’s efforts in 2010 & 2011.

Overview

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Another work in progress is improving the IT infrastructure to address the growing need of the company for a reliable management information system and improving the efficient warehousing and logistics services,The management is working on the preparation and maintenance of written standard policies and operating procedures as well as control and administrative procedure with cooperation of internal auditor, When these have been completed, staff will be trained to extent necessary to understand and apply them, The management is also restructured and reorganized the finance department including documenting accounting policies, procedures and control which is still under process.

The company is also striving to expand its presence in the local market by developing new services through acquiring new international agencies and new technologies according to the need of the Kuwaiti community.

And the company has a positive step by moving its offices to new headquarters in the Salmiya area they wish for change, renewal, and expansion desired by the administration and the different sections.

YIACO Quality Management System – Audit Report Statement

In 2011, YIACO has developed and implemented a full-fledged Quality Management System (QMS) for its strategic business units and central functions in order to ensure compliance with the highest standards of Corporate Governance.

The main objective of the QMS is to satisfy the requirements of regulatory bodies and YIACO’s clients, patients, employees, shareholders and suppliers alike. YIACO QMS consists of comprehensive policies, manuals, guidelines, & forms covering all core, support, and management processes, as well as inter company procedures, except YIACO’s Radiology, Nuclear Medicine and Laboratory Center (RNMLC) Department, which is covered by a separate ISO Certified Quality System.

In line with international standards and IFRS guidelines, YIACO has consistently chosen the following documentation structure consisting of five different elements:

1 - Quality Policy;

2 - QM Manual including basic information on processes and organization.

3 - QT Manual including responsibilities of QT and procedures for maintaining QMS.

4 - Related policies and guidelines

5 - Related forms / formats.

In order to ensure the application and further development of the QMS YIACO has appointed a QMS team, addressed as QT (Quality Team). The QT has a carefully selected structure and guarantees effective and efficient implementation, maintenance, and constant development of the QMS. The QT consists of eight Quality Management Representatives (QMR), each representing one organizational unit. The QT is working under the guidance of a Quality Team Head (QTH) appointed by the Managing Director.

The newly established YIACO QMS is a major advancement towards full transparency and state of the art knowledge management.

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Due to the fact that all processes and all organizational know-how are completely retained in the QMS, this system forms a vital part of YIACO’s risk management. YIACO’s QMS has been developed by senior employees with the help of Germany-based strategy consultants .After successful implementation, it has been reviewed by international tax consultants “Taxon” also from Germany.

The operational significance of YIACO’s QMS has been highlighted by “Taxon” when it said.

The Quality Management System and the Authority matrix of YIACO’s QM Manual represent an excellent basis for the representation of internationally accepted principles of Corporate Governance.”

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Contents

2

Agenda of the Ordinary General Assembly1 • Hearing the Report of the Board of Directors for the Financial Year ended 31st

December 2011, discussing and approving the same.

2 • Hearing and approval of the Independent Auditor’s Report for the Financial Year ended 31st December 2011.

3 • Discussing and approval of the consolidated financial statements of the company for the Financial Year ended 31st December 2011.

4 • Approving on the Board of Directors’ proposal to distribute cash dividend for the Financial Year ended 31st December 2011 at 15% of the nominal value. i.e.( fils 15 per share) to the shareholders registered in the company’s records as on the date of General Assembly meeting after approval of the concerned authorities.

5 • Approving the Company’s dealing with related parties.

6 • Approving of the recommendation of Board of Directors to remunerate the Members of the Board of Directors for the Financial Year ended 31st December 2011.

7 • Release the Members of the Board of Directors from Liabilities related to their legal actions for the Financial Year ended 31st December 2011.

8 • Appoint or re-appoint the Company’s Accounts Auditors for the Financial Year ended 31st December 2012 and authorize the Board of Directors to determine their Fees.

3

Board of Directors

Dr. Hamed Ahmed HamadaChairman and Managing Director

Mr. Mahmoud Khaled Al JassarVice Chairman

Mr. Walid Abdulrehman Al Sumaie Board of Director

Dr. Ameer Habib BehbehaniBoard of Director

Dr. Tareq Fahed AlabduljaderBoard of Director

Dr. Ayman Salem Al-MutawaBoard of Director

Mr. Abdullah Bader AlMukhaizemBoard of Director

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Report of the Board of Directors For the year ended 31 December 2011Dear Esteemed Shareholders,May peace, mercy and blessings of God be upon you,

It gives me great pleasure to welcome and greet you on this occasion and present you YIACO Medical Co.’s Annual Consolidated Financial Statements Report for the year endingDecember 31st, 2011.

It is also a source of pride to announce that 2011 has been both a very special and critical year in furthering the development of Yiaco Business. surpassing the excellent figures of 2010 and elevating itself to new and unprecedented heights in the Medical Sector; which has proven to be a financially stable sector continually showing growth potentials.

As part of our ongoing business methodologies, I would like to assure everyone; that the company will strive to preserve, even surpass the successes of the previous years while staying focused on capitallizing upon those successes for the future to remain the focal point in Kuwait's healthcare industry, God willing.

Below is the chart showing the growth trend in the company’s share value bothin 2010 and 2011.

Strategically, the company will continue to look for investment opportunities that will provide higher returns. YIACO has continued to march in the direction of growth as a matter of corporate mandate. Thus, the company in all its divisions and departments has stayed focused in expanding and developing its operations further and generating more revenues in the process.

In the name of God, Most Gracious, Most Merciful

YIACO Stock Price

Jan

MayMar

Jul

Sep Nov

FebJu

n Apr

Aug Oct

Dec

330

168

345

178

355

200

380

218

520

216

390

238

390

280

385

330

450

234

450

250

465

228

475

212

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YIACO’s pharmaceutical business has maintained its grip on being the market leader, while at the same time, expanding its already massive product portfolio with the addition of new foreign partners or principals. In synchronization, the Medical Supplies division and its units have undergone immense restructuring. The addition of the Centralized Service & Maintenance Section, as a new unit, has been successful in running a more specialized, streamlined and efficient approach to servicing and maintaining equipment supplied to our customers. It has been able to consolidate the manpower capacity of the new unit and optimize its use, thereby improving sales and achieving growth for the company. Furthermore, the company’s Medical Services Division, and in particular YIACO APOLLO Medical Center, has witnessed major renovations within its units in order to better serve its patients with the latest in what the industry has to offer; from state of the art equipment to the most advanced customer care methods. The aim is to keep pace with and develop this industry in the State of Kuwait to international standards by supplying the best medical services to the Government sector and imposing YIACO Medical Co. as a serious competitor in this sector despite its short history in it.

YIACO Medical Co.’s Management would also wish to emphasize the importance of the Accounts Department and its employees for the massive efforts exerted in generating daily financial and progress reports with complete transparency designed to accurately serve the decision makers.

None of the successes I have mentioned before would have been possible without the loyal, competent, well trained and motivated staff. Thanks to the Human Resource Department, the company is setting new standards in providing its employees with the current and effective training programs through the Training & Development Unit. In addition, the company’s well established Logistics Department offers the most advanced solutions to even the most sensitive medical logistics issues.

On the side of information technology, the company has successfully applied the concept of integrated information systems (Enterprise Resource Planning “ERP”). The ERP is currently in use in the different departments and more has been done to apply the same in the other departments so as to ensure data accuracy and integrity. It also aims to raise the level of business process efficiency in order to improve the company’s competitiveness and provide decision-makers with accurate information as they face the challenges in today’s dynamic and continuously evolving business environment.

Consolidated Income Statement for the year ended 31 December 2011:

The company’s growth was reflected for the year ended 31 December 2011, which registered the highest net profit figure. The following table shows the items in the income statement which are of major interest:-

2011 2010 Increase % Increase

Sales 88,526,030 81,990,625 6,535,405 8%

Gross Profit 19,946,305 16,704,517 3,241,788 19%

Operating Profit 5,728,254 5,089,184 639,070 13%

Net Profit 5,033,537 4,497,792 535,745 12%

Earnings per Share 30.50 27.26 3.24 12%

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The revenue and net profit charts below highlight the growth pattern with the relevant analysis figures:-

- YIACO Medical Company increased sales by 8% or KD 6.5 million in 2011 to reflect a gross amount of KD 88.526 million in 2011 against KD 81.991 million in 2010.

- Gross profit increased by 19% or KD 3.2 million in 2011 to reflect KD 19.9 million in 2011against KD 16.7 million in 2010

- Operating profit increased by 13% or KD 639,070 in 2011 to reflect a total of KD 5.728 million in 2011 against KD 5.089 million in 2010

- Net profit jumped by as much as 12% or 535,745 KD in 2011to reflect a total of KD 5.033 million in 2011against KD 4.497 million in 2010

- Earnings per share also increased substantially by 12% or 3.24 fils to reflect 30.50 fills in 2011 against 27.26 fills in 2010

The Asset and Equity charts below highlight the growth pattern with the relevantanalysis figures:-

- Total assets increased by 10% or KD 6.4 million in 2011 to reflect KD 73.576 million in 2011against KD 67.091 million in 2010

- Shareholders’ equity increased by 12% or KD 3.2 million in 2011 to reflect KD 29.691 million in 2011against KD 26.361 million in 2010.

Revenue Growth( Thousand KD )

Profit Growth( Thousand KD )

201188،526 2011

5،0342010

81،99120104،498

Asset Growth( Thousand KD )

Equity Growth( Thousand KD )

201173،576 2011

29،6912010

67،091 201026،361

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Dividend for the year ended 31 December 2011:

The Board of Directors has recommended to the general assembly the declaration and distribution of cash dividend equivalent to 15 fils per share (i.e. 15% of the total outstanding shares at their nominal value), the cash dividend in 2010 was equivalent to 10 fils per share (i.e. 10% of the total outstanding shares at their nominal value).

Company’s prospects for 2012:

The Board of Directors at YIACO Medical Co. commit themselves to pursue the company’s growth target and explore new opportunities and business potentials.

Controlling operating costs will remain part of its agenda in order to follow up on its success in reducing and avoiding certain expenditures, together with the close monitoring of the annual budget’s implementation.

In this regard, the company will stress on further improving its profitability by expanding its product portfolio, making its presence felt in the local market and introducing new services and latest technologies through the foreign agencies in order to respond to, and anticipate the needs of the Kuwait market.

The Board of Directors at YIACO Medical Co. wishes to express it's gratitude to all the affiliates and subsidiaries and to the valued shareholders for extending their sincere support, cooperation and trust to the company and its management, it olso wishes to assure you of the utmost management efforts being exerted to take the company along the path of success according to our Islamic Sharia’a laws and the laws of the State of Kuwait.

I would like to conclude with a tribute to every employee in the company, regardless of job title, for the massive efforts put forward by each of them.

Thank you all.

May peace, mercy and blessings of God be upon you.

Dr. Hamed Ahmed HamadahChairman & Managing Director

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Independent auditors’ report to the shareholders of YIACO Medical Company K.S.C. (Closed)

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of YIACO Medical Company- KSC (Closed) (the “Parent Company”) and its subsidiaries (collectively the “Group”), which comprise the consolidated statement of financial position as at 31 December 2011 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing.

Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.

In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

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Independent auditors’ report to the shareholders of YIACO Medical Company K.S.C. (Closed) (continued)

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2011 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory Requirements

Furthermore, in our opinion proper books of account have been kept by the Parent Company and the consolidated financial statements, together with the contents of the report of the Parent Company’s Board of Directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Commercial Companies Law of 1960, as amended, and by the Parent Company’s Articles of Association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law of 1960, as amended, or of the Parent Company’s Articles of Association have occurred during the year ended 31 December 2011 that might have had a material effect on the business of the Parent Company or on its financial position.

WALEED A. AL OSAIMILICENCE NO. 68-A OF ERNST & YOUNG

Abdullatif M. Al-Aiban (CPA)Licence No. 94-A of Grant Thornton

Al-Qatami, Al-Aiban & Partners

23 February 2012 - Kuwait

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YIACO Medical Company K.S.C. (Closed) and SubsidiariesConsolidated Income StatementFor the year ended 31 December 2011

2011 2010

KD KD

Sales 3 88,526,030 81,990,625

Cost of sales (68,579,725) (65,286,108)

Gross profit 19,946,305 16,704,517

Other operating income 746,485 622,541

Distribution costs (3,834,103) (2,904,634)

Administrative expenses (11,130,433) (9,333,240)

Allowance for bad and doubtful debts 12 (432,925) (176,829)

5,295,329 4,912,355

Dividend income 27,500 15,125

Loss on disposal of property, plant and equipment and intangibles assets (85,872) (191,736)

Share of results of associates 9 802,633 522,393

Net gain on investments carried at fair value through income statement 114,556 264,400

Impairment of financial asset available for sale (39,480) -

Finance costs (766,653) (741,344)

Profit for the year before income tax 5,348,013 4,781,193

Income taxes for overseas subsidiaries (21,344) (30,241)

Profit before directors’ remuneration, contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), National Labour Support Tax (NLST) and Zakat 5,326,669 4,750,952

Directors’ remuneration (21,000) (21,000)

KFAS (39,823) (42,606)

NLST (164,463) (128,257)

Zakat (57,759) (46,079)

Profit for the year 4 5,043,624 4,513,010

Attributable to:

Equity holders of the Parent Company 5,033,537 4,497,792

Non-controlling interests 10,087 15,218

5,043,624 4,513,010

Basic and diluted earnings per share attributable to equity holders of the Parent Company

5 30.50 fils 27.26 fils

Notes

13

YIACO Medical Company K.S.C. (Closed) and SubsidiariesConsolidated statement of comprehensive incomeYear ended 31 December 2011

2011 2010

KD KD

Profit for the year 5,043,624 4,513,010

Other comprehensive income:

Exchange differences arising on translation of foreign operations (85,292) (136,774)

Other comprehensive loss for the year (85,292) (136,774)

Total comprehensive income for the year 4,958,332 4,376,236

Attributable to:

Equity holders of the Parent Company 4,979,556 4,391,850

Non-controlling interests (21,224) (15,614)

4,958,332 4,376,236

14

YIACO Medical Company – K.S.C. (Closed) and Subsidiaries Consolidated statement of financial position At 31 December 2011

Notes 2011 2010

KD KDASSETSNon-current assetsProperty, plant and equipment 6 9,070,827 7,429,411Inventory assigned to customers 7 26,419 119,989Intangible assets 8 1,231,083 1,300,807Investment in associates 9 6,880,769 5,991,647Investments carried at fair value through income statement 10 1,134,100 1,592,000Financial assets available for sale 78,120 117,600

18,421,318 16,551,454

Current assetsInventories 11 24,152,640 19,968,222Accounts receivable and prepayments 12 25,524,536 23,305,476Bank balances and cash 5,477,754 7,265,429

55,154,930 50,539,127

Total assets 73,576,248 67,090,581

EQUITY AND LIABILITIESEquityShare capital 13 16,500,000 16,500,000Statutory reserve 14 3,187,576 2,655,918Voluntary reserve 14 120,622 120,622General reserve 14 637,472 637,472Foreign currency translation reserve 14,572 68,553Retained earnings 9,230,624 6,378,745

Equity attributable to the equity holders of the Parent Company 29,690,866 26,361,310Non-controlling interests 177,053 198,277

Total equity 29,867,919 26,559,587

Non-current liabilities Murabaha payable 15 195,503 273,947Employees’ end of service benefits 16 1,665,345 1,275,246

1,860,848 1,549,193

Current liabilitiesAccounts payable and accruals 17 24,769,038 23,060,045Murabaha payable 15 17,078,443 15,921,756

41,847,481 38,981,801

Total liabilities 43,708,329 40,530,994

Total equity and liabilities 73,576,248 67,090,581

Dr. Hamed A. Hamadah Mr. Walid Abu Zaid Chairman & Managing Director Chief Financial Officer

15

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16

YIACO Medical Company – K.S.C. (Closed) and Subsidiaries Consolidated statement of cash flows At 31 December 2011

Notes 2011 2010

KD KD

OPERATING ACTIVITIES

Profit for the year 5,043,624 4,513,010

Adjustments for :

Depreciation and amortisation 6,8 1,846,901 1,479,621

Provision for employees’ end of service benefits 16 557,302 445,497

Loss on disposal of property, plant and equipment and intangible assets 85,872 191,736

Net gain on investments carried at fair value through income statement (114,556) (264,400)

Impairment on financial asset available for sale 39,480 -

Dividend income (27,500) (15,125)

Finance costs 766,653 741,344

Write-off of inventory assigned to customers 59,302 -

Provision for slow moving and expired items 421,150 263,052

Allowance for bad and doubtful debts 12 432,925 176,829

Share of results of associates 9 (802,633) (522,393)

Other operating income (153,083) -

Income taxes for overseas subsidiaries 21,344 30,241

8,176,781 7,039,412

Working capital changes:

Inventories (4,605,568) (1,880,487)

Accounts receivable and prepayments (2,651,985) (2,111,862)

Accounts payable and accruals 1,568,286 1,689,215

Cash flows from operations 2,487,514 4,736,278

Employees’ end of service benefits paid 16 (167,203) (346,671)

Income taxes for overseas subsidiaries paid (21,344) (30,241)

Net cash flows from operating activities 2,298,967 4,359,366

INVESTING ACTIVITIES

Proceeds from disposal of property, plant and equipment and intan-gible assets

62,439 219,441

Purchase of property, plant and equipment (3,255,821) (472,080)

Purchase of intangible assets - (115,980)

Addition to investment in associates (222,995) -

Proceeds from disposal of investment carried at fair value through income statement

572,456 -

Net movement in inventory assigned to customers 34,268 96,556

Payment for key money (158,000) -

17

Dividend received from associate 9 136,506 130,141

Dividend received 27,500 15,125

Net cash flows used in investing activities (2,803,647) (126,797)

FINANCING ACTIVITIES

Finance costs paid (625,946) (797,176)

Proceeds from murabaha payable 1,078,243 2,336,728

Dividend paid (1,650,000) (825,000)

Net cash flows (used in) from financing activities (1,197,703) 714,552

Net impact of foreign currency translation adjustments (85,292) (136,774)

(DECREASE) INCREASE IN BANK BALANCES AND CASH (1,787,675) 4,810,347

Bank balances and cash at 1 January 7,265,429 2,455,082

BANK BALANCES AND CASH AT 31 DECEMBER 5,477,754 7,265,429

18

1 CORPORATE INFORMATIONThe consolidated financial statements of YIACO Medical Company – KSC (Closed) (“the Parent Company”) and its subsidiaries (Note 2.3) (collectively “the Group”) for the year ended 31 December 2011 were authorized for issue in accordance with a resolution of the Parent Company’s Board of directors on 23February 2012. The general assembly of the shareholders has the power to amend the consolidated financial statements after their issuance. The Parent Company is a Kuwaiti closed shareholding Company and its shares are listed on the Kuwait Stock Exchange.

The Parent Company was incorporated on 15 January 1969 in Kuwait. The Group is engaged in the import and sale of medical, chemical and dental products and equipment, and mainly operate in Kuwait and Egypt. The address of the Parent Company’s registered office is P.O. Box 435, Safat 13005, State of Kuwait.

2.1 BASIS OF PREPARATIONThe consolidated financial statements have been prepared on a historical cost basis except for financial assets at fair value through income statement..

The consolidated financial statements are presented in Kuwaiti Dinars (KD) which is the functional and presentation currency of the Parent Company.

2.2 STATEMENT OF COMPLIANCEThe consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (IASB) and the applicable requirements of Ministerial order No. 18 of 1960.

2.3 Basis of consolidationThe consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries. The financial statements of the subsidiaries are prepared at same reporting date as that of the Parent Company, using consistent accounting policies. All material inter-group balances and transactions, including inter-group profits and unrealised profits and losses are eliminated on consolidation.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Non-controlling interests represents the equity in the subsidiaries not attributable directly, or indirectly, to the equity holders of the Parent Company. Equity and net income attributable to non-controlling interests are shown separately in the consolidated statement of financial position, consolidated income statement, consolidated statement of com-prehensive income and consolidated statement of changes in equity.

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Total comprehensive in-come within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

- Derecognises the assets (including goodwill) and liabilities of the subsidiary.

- Derecognises the carrying amount of any non-controlling interest.

- Derecognises the cumulative translation differences recorded in equity.

- Recognises the fair value of the consideration received.

- Recognises the fair value of any investment retained.

- Recognises any surplus or deficit in consolidated income statement.

- Reclassifies the parent’s share of components previously recognised in other comprehensive income to consolidated income statement or retained earnings, as appropriate.

Notes to the consolidated financial statements At 31 December 2011

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2.3 BASIS OF CONSOLIDATION (continued)The principal subsidiaries of the Group are as follows:

% holding

EntityCountry of

incorporationPrincipal activities 2011 2010

Al Kamal Import and Marketing Company – W.L.L.

Egypt

Engaged in import, marketing and manufacture of medical raw material and medical and chemical equipment.

85.40% 85.40%

Universal Industrial Medical Company- E.S.C.

Egypt

Engaged in the manufacture of laboratory chemicals, medical supplies, pharmaceuticals and children’s food and packing of the company’s products in Egypt.

100% 100%

Al Raya Health Care Company W.L.L.

KuwaitEngaged in providing medi-cal services.

99% 99%

Al Bayt Medical FZCO United Arab

EmiratesEngaged in trading of phar-maceuticals.

100% 100%

The shares are held by nominees who have confirmed in writing that the Parent Company has the beneficial ownership interest in the subsidiary.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business combinations and goodwillA business combination is the bringing together of separate entities or businesses into one reporting entity as a result one entity, the acquirer, obtaining control of one or more other businesses. The acquisition method of accounting is used to account for business combinations. Under this method, the acquirer recognises, separately from goodwill, identifiable assets acquired, liabilities assumed and any non-controlling interests in the acquiree at the acquisition date. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in other expenses.When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through consolidated income statement.Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 either in consolidated income statement or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of IAS 39, it is measured in accordance with the appropriate IFRS.


20

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Business combinations and goodwill (continued)Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in consolidated income statement.After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.Where goodwill forms part of a cash-generating unit (group of cash generating units) and part of the operations within that unit is disposed off, the goodwill associated with the operation disposed off is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Revenue recognitionRevenue is recognised to the extent that future economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as principal in all of its income arrangementThe following specific recognition criteria must also be met before revenue is recognised:

Sale of goodsRevenue from sale of medical supplies is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, normally on delivery to the customer.

Rendering of servicesRevenue from rendering of services, included in sales, is initially deferred and is included in other liabilities and is recognised as revenue in the period when the service is performed.In recognising after-sale service and maintenance revenues, the Group considers the nature of the services and the customer’s use of the related products, based on historical experience.

DividendsDividend income, other than those from investment in associates, is recognised when the Group’s right to receive payment is established.

Operating expensesOperating expenses are recognised in the consolidated income statement upon utilisation of the service or at the date of their origin,

Kuwait Foundation for the Advancement of Sciences (KFAS)The Group calculates the contribution to KFAS at 1% of profit for the year in accordance with the modified calcula-tion based on the Foundation’s Board of Directors resolution, which states transfer to statutory reserves, should be excluded from profit for the year attributable to the shareholders of the Group when determining the contribution.

National Labour Support Tax (NLST)The Group calculates the NLST in accordance with Law No. 19 of 2000 and the Minister of Finance Resolutions No. 24 of 2006 at 2.5% of taxable profit for the year. As per law, income from associates and subsidiaries, cash dividends from listed companies which are subjected to NLST have been deducted from the taxable profit for the year.


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2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)ZakatContribution to Zakat is calculated at 1% of the profit of the Group in accordance with the regulations Ministry of Finance has provided for zakat in accordance with the requirements of Law No. 46 of 2006.

Taxation on overseas subsidiaries Taxation on overseas subsidiaries is calculated on the basis of the tax rates applicable and prescribed according to the prevailing laws, regulations and instructions of the countries where these subsidiaries operate.

Financial instruments - initial recognition and subsequent measurement Financial assets – Initial recognition and measurementFinancial assets within the scope of IAS 39 are classified as financial assets carried at fair value through income statement, loans and receivables, or financial assets available for sale as appropriate. The Group determines the classification of its financial assets at initial recognition.Financial assets are recognised initially at fair value plus, in the case of financial assets not at fair value through income statement, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within the framework established by regulation or convention in the market place (regular way purchases) are recognised on the trade date, i.e., the date that Group commits to purchase or sell the asset. The Group’s financial assets include quoted and unquoted financial instruments, cash and bank balance, and accounts receivable.

Subsequent measurementThe subsequent measurement of financial assets depends on their classification as follows:Financial assets carried at fair value through income statementFinancial assets carried at fair value through income statement include financial assets held for trading and financial assets designated upon initial recognition as at fair value through income statement. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on financial assets held for trading are recognised in the consolidated income statement. Financial assets are designated at fair value through income statement if they are managed, and their performance is evaluated on reliable fair value basis in accordance with a documented investment strategy.After initial recognition financial assets at fair value through income statement are remeasured at fair value with all changes in fair value recognised in the consolidated income statement.The Group evaluates its financial assets at fair value through income statement whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intent to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances.Financial assets available for saleFinancial assets available-for-sale are those non-derivative financial assets that are designated as available for sale or are not classified as investments at fair value through income statement, investments held-to-maturity or loans and receivables.After initial recognition, financial assets available for sale are measured at fair value with unrealised gains and losses being recognised as other comprehensive income in the cumulative changes in fair value reserve until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain and loss previously reported in equity is recognised in the consolidated income statement. Financial assets whose fair value cannot be reliably measured are carried at cost less impairment losses, if any.


22

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Financial instruments - initial recognition and subsequent measurement (continued)Financial assets available for sale (continued)The Group evaluates whether the ability and intention to sell its available for sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly.For a financial asset reclassified from the available for sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to consolidated income statement over the remaining life of the investment using the effective interest rate method (EIR). Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the consolidated income statement.

Accounts receivableAccounts receivable are stated at original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

Bank balances and cashFor the purpose of consolidated cash flow statement, bank balances and cash consist of cash in hand and bank balances.

Derecognition of financial assetsA financial asset (or, where applicable a part of financial asset or part of group of similar financial assets) is derecognised when: • rightstoreceivecashflowsfromtheassetshaveexpired;• theGrouphastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythereceived cash flows in full without material delay to a third party under a ‘pass through’ arrangement and either a) the Group has transferred substantially all the risks and rewards of the asset or b) the Group has neither transferred nor retained substantially all risks and rewards of the asset but hastransferred control of the asset.Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass- through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognised to the extent of the Group’s continuing involvement in the asset.

Financial liabilities - Initial recognition and measurementFinancial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through income statement and loan and borrowings, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, including directly attributable transaction costs.The Group’s financial liabilities include murabaha payable and accounts payable.Subsequent measurementThe measurement of financial liabilities depends on their classification as follows:


23

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Financial instruments - initial recognition and subsequent measurement (continued)Accounts payable and accrualsLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the sup-plier or not.

Murabaha payablesMurabaha payables represent amounts payable on a deferred settlement basis for assets purchased under murabaha arrangements. Murabaha payables are stated at the gross amount of the payable, net of deferred finance cost. Deferred finance cost is expensed on a time apportionment basis taking into account the borrowing rate attributable and the balance outstanding.

ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated income statement

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

Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an inten-tion to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Fair value of financial instrumentsThe fair value of financial instruments that are traded in active markets at each reporting date is determined by refer-ence to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation tech-niques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.Financial instruments with no reliable measures of their fair values and for which no fair value information could be obtained are carried at their initial cost less impairment in value. The fair value of interest bearing financial instruments is estimated based on discounted cash flows using profit rates for items with similar terms and risk characteristics An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 23.

Impairment of financial assetsAn assessment is made at each reporting date to determine whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recogni-tion of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorgani-sation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in economic conditions that correlate with defaults. If such evidence exists, an impairment loss is recognised in the consolidated income statement.


24

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Financial assets carried at amortised costFor financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the consolidated income statement.

Financial assets available for saleFor financial assets available for sale, the Group assesses at each reporting date whether there is objective evidence that a financial asset available for sale or a group of financial assets available for sale is impaired.In the case of equity investments classified as financial assets available for sale, objective evidence would include a significant or prolonged decline in the fair value of the equity investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on those financial assets available for sale previously recognised in the consolidated income statement - is removed from other comprehensive income and recognised in the consolidated income statement. Impairment losses on equity investments are not reversed through consolidated income statement; increases in their fair value after impairment are recognised directly in consolidated statement of comprehensive income.

Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and any impairment in value.Free hold land is not depreciated. Depreciation is calculated on a straight-line basis over the estimated useful lives of all other assets as follows:

Buildings 10 to 50 years

Motor vehicles 3 years

Furniture and office equipment 6 to 10 years

Machinery and equipment 3 to 10 years

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of property, plant and equipment. All other expenditure is recognised in the consolidated income statement as the expense is incurred.


25

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Property, plant and equipment (continued)An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement when the asset is derecognised.

Intangible assets Intangible assets comprise of key money paid in respect of new pharmacy premises is capitalised and is stated at cost less amortisation and impairment, if any. Amortisation is calculated using the straight-line method at rates calculated to write-off the expenditure over the estimated useful lives, ranging between 3 to 10 years. Intangible assets also include costs incurred to acquire licences from international pharmaceutical companies to distribute their products and to act as their principle agent inside Kuwait. They are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, ranging between 3-10 years. Residual values and useful lives are reviewed at each reporting date.Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is reflected in the consolidated income statement in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated income statement in the expense category consistent with the function of the intangible assets.Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised.

Inventory assigned to customersThe cost of certain inventory items assigned for the use of customers, less any recovery, is treated as inventory assigned to customers. The cost of inventory assigned to customers is charged to consolidated income statement over the period of the respective customer agreement.

Investment in associateThe Group’s investment in its associate is accounted for under the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture.Under the equity method, investment in an associate is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.


26

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Investment in associate (continued)The Group recognises in the consolidated income statement its share of the total recognised profit or loss of the

associate from the date that influence or ownership effectively commenced until the date that it effectively ceases.

Distributions received from an associate reduce the carrying amount of the investment. Adjustments to the carrying

amount may also be necessary for changes in the Group’s share in the associate arising from changes in the associate’s

equity that have not been recognised in the associate’s income statement. The Group’s share of those changes is

recognised in consolidated statement of comprehensive income.

An assessment of investment in an associate is performed when there is an indication that the asset has been

impaired, or that impairment losses recognised in prior years no longer exist. Whenever impairment requirements of

IAS 36, indicate that investment in an associate may be impaired, the entire carrying amount of investment is tested

by comparing its recoverable amount with its carrying value.

Unrealised gains on transactions with an associate are eliminated to the extent of the Group’s share in the

associate. Unrealised losses are also eliminated unless the transaction provides evidence of impairment in the asset

transferred.

The difference in reporting dates of the associates and the Group is not more than three months. Adjustments are

made for the effects of significant transactions or events that occur between that date and the date of the Group’s

consolidated financial statements. The associate’s accounting policies conform to those used by the Group for like

transactions and events in similar circumstances.

Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment

at its fair value. Any differences between the carrying amount of the associate upon loss of significant influence and

the fair value of the remaining investment and proceeds from disposal are recognised in the consolidated income

statement.

InventoriesInventories are stated at the lower of cost and net realisable value. Costs are those expenses incurred in bringing each

product to its present location and condition, as follows:

Goods in transit -purchase cost incurred up to the reporting date

Goods for resale -on weighted average basis

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

and disposal.

Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication

exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell

and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that

are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU

exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In

assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that

reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair

value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be

identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted

share prices for publicly traded subsidiaries or other available fair value indicators.

Impairment losses are recognised in the consolidated income statement in expense categories consistent with the

function of the impaired asset.


27

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Impairment of non-financial assets (continued)For assets excluding goodwill, an assessment is made at each reporting date whether there is any indication that

previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the

Group estimates the asset’s or CGUs recoverable amount. A previously recognised impairment loss is reversed only

if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last

impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its

recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no

impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated income

statement unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation

increase.

The following assets have specific characteristics for impairment testing:

GoodwillGoodwill is tested for impairment annually (as at 31 December) and when circumstances indicate that the carrying

value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which

the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is

recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

Intangible assetsIntangible assets with indefinite useful lives are tested for impairment annually as at 31 December either individually

or at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

ContingenciesContingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the

possibility of an outflow of resources embodying economic benefits is remote.

Contingent assets are not recognised in the consolidated financial statements but disclosed when an inflow of

economic benefits is probable.

Employees’ end of service benefitsThe Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the

employees’ final salary and length of service, subject to the completion of a minimum service period in accordance

with relevant labour law and the employees’ contracts. The expected costs of these benefits are accrued over the

period of employment.

With respect to its Kuwaiti national employees, the Group makes contributions to the Public Institution for Social

Security calculated as a percentage of the employees’ salaries. The Group’s obligations are limited to these contributions,

which are expensed when due.

Foreign currenciesThe consolidated financial statements are presented in Kuwaiti Dinars, which is the Parent Company’s functional and

presentation currency. Each entity in the Group determines its own functional currency and items included in the

financial statements of each entity are measured using that functional currency.

Transactions and balancesTransactions in foreign currencies are initially recorded by the Group entities at their respective functional currency

rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are

retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to

the consolidated income statement. Tax charges and credits attributable to exchange differences on those monetary

items are also recorded in consolidated income statement.


28

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Foreign currencies (continued)Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively)

Group companiesAs at the reporting date, the assets and liabilities of foreign subsidiaries, and the carrying amount of foreign associates, are translated into the Parent Company’s presentation currency (the Kuwaiti Dinars) at the rate of exchange ruling at the reporting date, and their income statement are translated at the average exchange rates for the year. Exchange differences arising on translation are recognised in other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognised in consolidated income statement relating to the particular foreign operation is recognised in the consolidated statement of comprehensive income. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate.

Operating segmentAn operating segment is a component of the Group:(a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),(b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and(c) for which discrete financial information is available.

Equity, reserves and dividend paymentsShare capital represents the nominal value of shares that have been issued and paid up.Statutory and voluntary reserves comprise appropriations of current and prior period profits in accordance with the requirements of the commercial companies’ law and the parent company’s articles of association. Other components of equity include the following:foreign currency translation reserve – comprises foreign currency translation differences arising from the translation of financial statements of the group’s foreign entities into Kuwaiti Dinars (KD)Retained earnings includes all current and prior period retained profits. All transactions with owners of the parent are recorded separately within equity. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting.

2.5 SIGNIFICANT ACCOUNTING jUDGMENTS, ESTIMATES AND ASSUMPTION

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. However uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the consolidated income statement.


29

2.5 SIGNIFICANT ACCOUNTING jUDGMENTS, ESTIMATES AND ASSUMPTION (continued)

JudgementsIn the process of applying the Group’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the consolidated financial statements:

Classification of financial instrumentsManagement decides on acquisition of financial assets whether it should be classified as investment carried at fair value through income statement or financial assets available for sale. The Group classifies financial assets as investment carried at fair value through income statement if they are acquired primarily for the purpose of short term profit making.Classification of financial assets as investment carried at fair value through income statement depends on how management monitor the performance of these investments. When investments have readily available fair values and the changes in fair values are reported as part of profit or loss in the management accounts, they are classified as investment carried at fair value through income statement. All other investments are classified as financial assets available for sale.

Fair values of assets and liabilities acquired The determination of the fair value of the assets, liabilities and contingent liabilities as a result of business combination requires significant judgement.

Impairment of available for sale equity investmentsThe Group treats available for sale equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires considerable judgment.

Estimates and assumptions The key assumptions concerning the future and key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amount of the assets and liabilities within the next financial year are discussed below:The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

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

Impairment of intangible assets The Group determines intangible assets are impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.


30

2.5 SIGNIFICANT ACCOUNTING jUDGMENTS, ESTIMATES AND ASSUMPTION (continued)

Estimates and assumptions (continued)Valuation of unquoted investmentsValuation of unquoted equity investments is normally based on one of the following:•recentarm’slengthmarkettransactions;•currentfairvalueofanotherinstrumentthatissubstantiallythesame;•anearningsmultipleorindustryspecificearningsmultiple;•theexpectedcashflowsdiscountedatcurrentratesapplicableforitemswithsimilartermsandriskcharacteristics;or•othervaluationmodels.

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

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

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

Impairment of key moneyAn impairment loss is recognised whenever the carrying amount exceeds its recoverable amount. The recoverable amount is the greater of their fair value less cost to sell and value in use. The impairment losses are recognised in the consolidated income statement.

2.6 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES New and amended standards and interpretations The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2011:IAS 24 Related Party Disclosures (amendment) effective 1 January 2011IAS 32 Financial Instruments: Presentation (amendment) effective 1 February 2010IFRIC 14 Prepayments of a Minimum Funding Requirement (amendment) effective 1 January 2011

The adoption of the standards or interpretations is described below: IAS 24 Related Party Transactions (Amendment)The IASB issued an amendment to IAS 24 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group.


31

2.6 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued)IAS 32 Financial Instruments: Presentation (Amendment)The IASB issued an amendment that alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group because the Group does not have these type of instruments.

IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment)The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The Group is not subject to minimum funding requirements, therefore the amendment of the interpretation has no effect on the financial position nor performance of the Group.

Improvements to IFRSsIn May 2010, the IASB issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies, but no impact on the financial position or performance of the Group. - IFRS 7 Financial Instruments: Disclosures - IAS 1 Presentation of Financial Statements

IFRS 3 Business CombinationsThe amendment to IFRS 3 is effective for annual periods beginning on or after 1 July 2011. The amendment provides guidance on the measurement options available for non-controlling interest (NCI). The components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation should be measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are to be measured at their acquisition date fair value.

IFRS 7 Financial Instruments — DisclosuresThe amendment to standard was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context.

IAS 1 Presentation of Financial StatementsThe amendment to standard clarifies that an entity may present an analysis of each component of other comprehensive income maybe either in the statement of changes in equity or in the notes to the financial statements. The Group provides this analysis in statement of comprehensive income Other amendments resulting from Improvements to IFRSs to the following standards did not have any impacton the accounting policies, financial position or performance of the Group:IFRS 3 Business Combinations (Contingent consideration arising from business combination prior to adoption of IFRS 3 (as revised in 2008))IFRS 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment awards) IAS 27 Consolidated and Separate Financial StatementsIAS 34 Interim Financial StatementsIFRIC 13 Customer Loyalty Programmes (determining the fair value of award credits)IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments


32

2.7 STANDARDS ISSUED BUT NOT YET EFFECTIVEStandards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective.

IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive IncomeThe amendment becomes effective for annual periods beginning on or after 1 July 2012. The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time and would be presented separately from items that will never be reclassified. The amendment affects presentation only and has there no impact on the Group’s financial position or performance.

IAS 27 Separate Financial Statements (as revised in 2011)The amendment becomes effective for annual periods beginning on or after 1 January 2013. As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Group does not present separate financial statements.

IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)The amendment becomes effective for annual periods beginning on or after 1 January 2013. As a consequence of the new IFRS 11 and IFRS 12. IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.

IFRS 7 Financial Instruments: Disclosures — Enhanced Derecognition Disclosure RequirementsThe amendment becomes effective for annual periods beginning on or after 1 July 2011. The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognised assets. The amendment affects disclosure only and has no impact on the Group’s financial position or performance.

IFRS 9 Financial Instruments: Classification and MeasurementThe standard is effective for annual periods beginning on or after 1 January 2015. IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.Although earlier application of this standard is permitted, the Technical Committee of the Ministry of Commerce and Industry of Kuwait decided on 30 December 2009, to postpone this early application till further notice, due to the non-completion of the remaining stages of the standard.

IFRS 10 Consolidated Financial StatementsThis standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation -Special Purpose Entities.It establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27.

IFRS 11 Joint ArrangementsThis standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-monetary Contributions by Ventures.


33

2.7 STANDARDS ISSUED BUT NOT YET EFFECTIVEIFRS 11 Joint Arrangements (continued)IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The amendment is deemed to have no impact on the financial statements of the Group.

IFRS 12 Disclosure of Involvement with Other EntitiesThis standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.

IFRS 13 Fair Value MeasurementThis standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. The standard does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance.

3 SALES2011 2010

KD KD

Pharmaceutical supplies 64,107,071 60,858,254

Medical, scientific and dental services 17,413,860 15,309,155

Medical centers 7,005,099 5,823,216

88,526,030 81,990,625

4 PROFIT FOR THE YEAR The profit for the year is stated after charging:

2011 2010

KD KD

Staff costs 7,588,030 7,204,708

Depreciation and amortisation 1,846,901 1,479,621

Rent 1,323,582 1,016,040

5 BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY

Basic and diluted earnings per share attributable to equity holders of the parent company are calculated by dividing the profit for the year attributable to the shareholders of the Parent Company by the weighted average number of shares outstanding during the year as follows:

2011 2010

Profit for the year attributable to shareholders of the Parent Company (KD) 5,033,537 4,497,792

Weighted average number of shares outstanding during the year 165,000,000 165,000,000

Basic and diluted earnings per share 30.50 fils 27.26 fils

As the parent company has no potential ordinary shares, basic and diluted earnings per share attributable to the eq-uity holders of the Parent Company are identical.


34

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36

7 INVENTORY ASSIGNED TO CUSTOMERS2011 2010

KD KD

At 1 January 119,989 216,545

Utilised during the year (34,268) (96,556)

Write off during the year (59,302) -

At 31 December 26,419 119,989

8 INTANGIBLE ASSETS 2011 2010

KD KD

Cost

At 1 January 1,741,830 380,850

Additions 158,000 1,415,980

Disposal - (55,000)

At 31 December 1,899,830 1,741,830

Amortisation

At 1 January 441,023 236,905

Charge for the year 227,724 209,356

Disposal - (5,238)

At 31 December 668,747 441,023

Net carrying amount

at 31 December 1,231,083 1,300,807

Intangible assets include licence fee for international pharmaceutical company amounting to KD 928,571 (2010: 1,114,286).

9 INVESTMENT IN ASSOCIATES The Group’s associates include the following entities:

NameCountry of

incorporation2011 2010 Activities

Al Salam Hospital Company K.S.C (Closed)

Kuwait 20.86% 19.86%

Trading in medicines and medical equipment and related products and providing inpatient and outpatient medical care services

Al Mazaya Medical Co. – WLL Kuwait 25% 25%Medical equipment and related products

The directors resolved to fully impair investment in Al Mazaya Medical Company W.L.L. in prior year.


37

9 INVESTMENT IN ASSOCIATES (continued)The following table illustrates summarised information of the Group’s investments in associates:

2011 2010

KD KD

Carrying amount of investment in associate:

At 1 January 5,991,647 5,599,395

Addition 222,995 -

Share of results 802,633 522,393

Dividend received (136,506) (130,141)

At 31 December 6,880,769 5,991,647

Aggregate of associates’ statement of financial position:

Current assets 2,325,965 1,585,023

Non-current assets 4,528,025 4,791,756

Current liabilities (1,142,194) (1,628,203)

Non-current liabilities (481,407) (402,969)

5,230,389 4,345,607

Goodwill included in the associate’s carrying value 1,650,380 1,646,040

6,880,769 5,991,647

Aggregate of associates’ revenue and profit:

Revenue 4,060,797 5,146,250

Profit 802,633 522,393

During the group acquired an additional 1% interest in the investee company for a total consideration of KD 222,995, which increased the group’s share in the associates to 20.86%. Based on the the fair value of identifiable assets and liabilities at the date of additional acquisition, goodwill of KD 4,340 has been recognisedThe investment in associate is pledged against the murabaha payable (Note 15).

10 INVESTMENTS CARRIED AT FAIR VALUE THROUGH INCOME STATEMENT

2011 2010

KD KD

Local quoted security – trading - 533,800

Local unquoted fund – designated 1,134,100 1,058,200

1,134,100 1,592,000


38

11 INVENTORIES 2011 2010

KD KD

Medicines 17,920,476 15,698,647

Over the counter products 992,065 1,159,388

Nutrition products 12,691 23,688

Equipment 5,227,408 3,086,499

24,152,640 19,968,222

12 ACCOUNTS RECEIVABLE AND PREPAYMENTS 2011 2010

KD KD

Trade accounts receivable 22,310,664 19,790,447

Amounts due from related parties (Note 19) 108,341 38,618

Other receivables 214,297 985,128

Reimbursable expenses 1,894,811 1,780,657

Advance to supplier 445,630 242,291

Prepaid expenses 517,664 428,452

Staff receivables 33,129 39,883

25,524,536 23,305,476

As at 31 December 2011, trade receivables at nominal value of KD 3,646,339 (2010: KD 4,454,563) were partially impaired.

Movements in the allowance for impairment of trade account receivables were as follows:

2011KD

2010KD

At 1 January 2,046,556 1,942,867

Charge during the year 432,925 176,829

Amounts written off - (73,140)

At 31 December 2,479,481 2,046,556

As at 31 December, the ageing of unimpaired trade accounts receivables is as follows:

Neither past due nor

impairedKD

Past due but not impaired

TotalKD

< 60 daysKD

60 – 90 daysKD

90 – 120 daysKD

>120 daysKD

2011 22,310,664 9,457,246 5,755,852 2,130,410 951,071 4,016,085

2010 19,790,447 5,670,421 7,622,508 1,520,095 742,169 4,235,254Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables.


39

13 SHARE CAPITAL Authorised,

Issued and fully paid

2011 2010

KD KD

Shares of fils 100 each 16,500,000 16,500,000

For the year ended 31 December 2011, the Board of Directors of the Parent Company has proposed to distribute cash dividend of 15% (2010: cash dividend of 10%) of paid up share capital amounting to KD 2,475,000 (2010: KD 1,650,000) which is subject to approval of the shareholders of the Parent Company in the annual general assembly.

The annual general assembly of the shareholders held on 25 April 2011 approved the consolidated financial statements for the year ended 31 December 2010 and cash dividend of 10 fils (31 December 2010: 10 fils) per share amounting to KD 1,650,000 for the year ended 31 December 2010 (31 December 2009: KD 825,000) which was been paid following the approval.

14 RESERVESStatutory reserveIn accordance with the Commercial Companies Law and the Parent Company’s articles of association, 10% of the profit for the year attributable to the shareholders of the Parent Company before Directors’ fee, contribution to KFAS, NLST and Zakat has been transferred to statutory reserve. The shareholders of the Parent Company may resolve to discontinue such annual transfers when the reserve totals 50% of the paid up share capital.

Distribution of the reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when retained earnings are not sufficient for the payment of a dividend of that amount.

Voluntary and general reserveIn accordance with the Parent Company’s articles of association, 10% of the profit for the year attributable to the shareholders of the Parent Company before Directors’ fee, contribution to KFAS, NLST and Zakat should be transferred which the Board of directors of the Parent Company have resolved to discontinue the annual transfer for the year to the voluntary and general reserves. There are no restrictions on distribution of these reserves.

15 MURABAHA PAYABLE This represents the value of commodities purchased on a deferred settlement basis from local Islamic banks which carries effective profit payable rates ranging from 4.5% to 9.5% (2010: 4.5% to 9.5%) per annum. The murabaha is payable on different dates ending 31 May 2015 and are secured over property, plant and equipment with net book value of KD 858,208 (2010: KD 742,470) (Note 6) and against an investment in an associate (Note 9). Amounts payable within the next twelve months are shown as current liabilities.

16 EMPLOYEES’ END OF SERVICE BENEFITS Movement in the provision recognised in the consolidated statement of financial position is as follows:

2011 2010

KD KD

At 1 January 1,275,246 1,176,420

Charge for the year 557,302 445,497

Payments made during the year (167,203) (346,671)

1,665,345 1,275,246


40

17 ACCOUNTS PAYABLE AND ACCRUALS 2011 2010KD KD

Trade accounts payable 18,110,713 17,769,957Amounts due to related parties (Note 19) 6,782 9,000Other payables 2,930,785 1,069,841Accrued expenses 1,724,668 2,104,161Agency liabilities 1,560,470 1,560,472Advances from customers 435,620 546,614

24,769,038 23,060,045

18 CONTINGENT LIABILITIESAt 31 December 2011 the Group had contingent liabilities in respect of outstanding letters of guarantees arising in the ordinary course of business amounting to KD 14,140,025 (2010: KD 11,451,862).

19 RELATED PARTY TRANSACTIONS Related parties represent associates, major shareholders, directors and key management personnel of the Group, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the parent Company’s management.

31 December2011

31 December2010

KD KDIncluded in the consolidated statement of financial position:

Amount due from related parties (included in accounts receivable and prepayments)

108,341 38,618

Amounts due to related parties (included in accounts payables and accruals) 6,782 9,000

The amount due from related parties represents balance from an associate.

Year Ended 31 December

2011


2010KD KD

Included in the consolidated income statement:Write-off of inventory assigned to customers (associate)

59,302 -


2011


2010KD KD

Compensation of key management:Directors fees 21,000 21,000Management fees (*) 434,408 329,218Salaries and short-term benefits 307,798 297,940End of service benefits 22,919 30,607

786,125 678,765

(*) Represents management fees payable to key management personnel based on 7.5% of the profit before directors’ fees, KFAS, NLST and Zakat.


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19 RELATED PARTY TRANSACTIONS (continued)Directors’ fees of KD 21, 000 for the year ended 31 December 2011 is subject to approval by the ordinary General Assembly meeting of the shareholders of the parent company.

Directors’ fees of KD 21,000 for the year ended 31 December 2010 was approved by the ordinary General Assembly meeting held on 25 April 2011.

20 SEGMENTAL INFORMATIONThe Group’s primary basis of segment reporting is by business segments, which consist of medical and related activities and investments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a Group basis and are not allocated to operating segments.

Medical andrelated

activities Investment Total

KD KD KD

At 31 December 2011

Segment revenue 88,526,030 - 88,526,030

Segment results 4,442,804 905,209 5,348,013

Unallocated expenses (304,389)

Profit for the year 5,043,624

Segment assets 65,483,259 8,092,989 73,576,248

Segment liabilities 43,708,329 - 43,708,329

Other disclosures

Share of results of an associate - 802,633 802,633

Depreciation and amortisation 1,846,901 - 1,846,901

Impairment of financial assets available for sale - 39,480 39,480

Finance cost 766,653 - 766,653

Other disclosures

Investment in an associate - 6,880,769 6,880,769

Capital expenditure 3,255,821 - 3,255,821


42

20 SEGMENTAL INFORMATION (continued)Medical and

related activities

Investment Total

KD KD KD

At 31 December 2010

Segment revenue 81,990,625 - 81,990,625

Segment results 3,979,275 801,918 4,781,193

Unallocated expenses (268,183)

Profit for the year 4,513,010

Segment assets 59,389,334 7,701,247 67,090,581

Segment liabilities 40,530,994 - 40,530,994

Other disclosures

Share of results of an associate - 522,393 522,393

Depreciation and amortisation 1,479,621 - 1,479,621

Finance cost 741,344 - 741,344

Other disclosures

Investment in an associate - 5,991,647 5,991,647

Capital expenditure 472,080 - 472,080

Geographic informationThe Group reports its secondary segmental information according to geographical location of its customers and non-current assets, as follows:

Dubai Kuwait Egypt Total

KD KD KD KD

At 31 December 2011

Segment revenue 665,639 83,114,186 4,746,205 88,526,030

Non-current assets 95,848 18,102,729 222,741 18,421,318

At 31 December 2010

Segment revenue 325,971 77,005,433 4,659,221 81,990,625

Non-current assets 112,170 16,161,910 277,374 16,551,454

21 FINANCIAL RISK MANAGEMENT OBjECTIVE AND POLICIESIntroductionRisk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Group’s continuing profitability and each individual within the Group is accountable for the risk exposures relating to his or her responsibilities.

The Group is exposed to market risk, credit risk, and liquidity risk. It is also subject to operating risks. The independent risk control process does not include business risks such as changes in the environment technology and industry. They are monitored through the Group’s strategic planning process.

No significant changes were made in the risk management objectives and policies during the years ended 31 December 2011 and 31 December 2010.


43

21 FINANCIAL RISK MANAGEMENT OBjECTIVE AND POLICIES (continued)21.1 Market riskMarket risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market variables. Market risk comprises three types of risk: foreign currency risk, equity price risk and interest rate risk.

a) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Interest rate sensitivityThe following table illustrates the sensitivity of the profit for the year to a reasonably possible change in interest rates of +/- 100 bps (2010: +/- 100 bps) with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market condition. The calculations are based on the Group’s financial instruments held at each consolidated statement of financial position date. All other variables are held constant. There has been no change during the year in the methods and assumptions used in preparing the below sensitivity analysis

Increase/decreasein basis points

Effect on profit for the year

due to increase in basis points

KD


due to decrease in basis points

KD

2011

KD (+/-) 100 (172,739) 172,739

2010

KD (+/-) 100 (161,957) 161,957

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

The Group is exposed to foreign currency risk on trade payables that are denominated in a currency other than the Kuwaiti Dinar. The Group ensures that the net exposure is kept to an acceptable level, b y dealing in currencies that do not fluctuate significantly against the Kuwaiti Dinar.

Foreign currency sensitivityThe table below indicates the Group’s foreign currency exposure at 31 December, as a result of its monetary assets and liabilities. The analysis calculates the effect of a reasonably possible movement of the KD currency rate against the foreign currencies, with all other variables held constant, on the consolidated income statement (due to the fair value of currency sensitive monetary assets and liabilities).

Change in currency rate


due to increase in currency rate

KD


due to decrease in currency rate

KD

2011

US Dollar (+/-) 5% (455,002) 455,002

Euro (+/-) 5% (174,040) 174,040

Others (+/-) 5% (34,601) 34,601

2010

US Dollar (+/-) 5% (463,303) 463,303

Euro (+/-) 5% (156,629) 156,629

Others (+/-) 5% (41,487) 41,487


44

21 FINANCIAL RISK MANAGEMENT OBjECTIVE AND POLICIES (continued)21.1 Market risk (continued)c) Equity price riskEquity price risk arises from changes in the fair values of equity investments. Equity price risk is managed by the finance department of the Parent Company. The unquoted equity price risk exposure arises from the Group’s investments classified as fair value through income statement or financial assets available for sale.

The effect of change in the fair value of quoted equity instruments at the reporting date due to a reasonable possible change in the equity indices, with all other variables held as constant, is not significant.

21.2 Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on its bank balances, accounts receivables and certain other assets reflected in the consolidated statement of financial position.

The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables. The maximum exposure is the carrying amount as disclosed in Note 12. The Group seeks to limit its credit risk with respect to banks by only dealing with reputable banks.

Maximum risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographic location.

The Group sells its products to a large number of customers 66% of outstanding trade accounts receivable at 31 December 2011 (2010: 59%) are concentrated with Governmental agencies.

With respect to credit risk arising from the other financial assets of the Group, including bank balances, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

21.3 Liquidity riskLiquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments.

The Group limits its liquidity risk by ensuring bank facilities are available. The Group’s terms of sales require amounts to be paid within 45-90 days of the date of sale. Trade accounts payable are normally settled within 60 to 90 days of the date of purchase. The maturity profile is monitored by the Group’s management to ensure adequate liquidity is maintained.

The table below summarises the maturities of the Group’s undiscounted financial liabilities at 31 December 2011 and 31 December 2010, based on contractual payment dates and current market interest rates.

31 December 2011On

demandLess than3 months

3 to 12 months

1 to 5years

Total

KD KD KD KD KD

Murabaha finance payable - 17,104,375 74,934 216,301 17,395,610

Accounts payable and accruals

2,966,341 20,028,794 1,331,498 - 24,326,633

Total 2,966,341 37,133,169 1,406,432 216,301 41,722,243


45

21 FINANCIAL RISK MANAGEMENT OBjECTIVE AND POLICIES (continued)

31 December 2010On

demandLess than3 months

3 to 12 months1 to 5years

Total

KD KD KD KD KD

Murabaha finance payable - 1,218,312 15,019,322 316,213 16,553,847

Accounts payable and accruals

9,000 19,061,892 3,172,992 260,472 22,504,356

Total 9,000 20,280,204 18,192,314 576,685 39,058,203

21.4 Operational riskOperational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Group cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes.

22 CAPITAL RISK MANAGEMENTThe primary objective of the Group’s capital risk management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in light of changes in business conditions. No changes were made in the objectives, policies or processes during the years ended 31 December 2011 and 31 December 2010.

The Group monitors capital using a gearing ratio, which is net debt divided by total equity plus net debt. The Group includes within net debt, murabaha payables and trade and other payables, less bank balances and cash. Equity represents total equity attributable to equity holders.

2011KD

2010KD

Murabaha payables 17,273,946 16,195,703

Trade accounts and other payables 24,769,038 23,060,045

Less: bank balances and cash (5,477,754) (7,265,429)

Net debt 36,565,230 31,990,319

Total equity 29,867,919 26,559,587

Equity and net debt 66,433,149 58,549,906

Gearing ratio 55% 55%

23 FAIR VALUES OF FINANCIAL INSTRUMENTSFinancial instruments comprise of financial assets and financial liabilities.

Financial assets consist of bank balances and cash, receivables, investments carried at fair through income statement and financial asset available for sale. Financial liabilities consist of murabaha payable, accounts payables and accruals.

The fair values of financial instruments are not materially different from their carrying values except for financial asset available for sale.


46

23 FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)The Group uses the following hierarchy for determining and disclosing the fair value of financial assets by valuation technique:

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

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Level 1 Level 2 Level 3 Total

31 December 2011 KD KD KD KD

Investments carried at fair value through income statement

- - 1,134,100 1,134,100

Level 1 Level 2 Level 3 Total

31 December 2010 KD KD KD KD


533,800 - 1,058,200 1,592,000

During the year ending 31 December 2011, there were no transfers between Level 1 and Level 2 fair value measurements.

The following table shows a reconciliation of the opening and closing amount of level 3 financial assets which are recorded at fair value.

At 1 januaryGain recorded in the consolidated

income statementAt 31 December

KD KD KD

31 December 2011


Quoted equity security 1,058,200 75,900 1,134,100

31 December 2010


Quoted equity security 1,045,300 12,900 1,058,200


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