annual report 2014 - Global Investment House · Annual Report 2 Global Investment House K.P.S.C. Mr. Saad has a broad-based investment and private equity experience of over 19 years

2014

annual report

Company ProfileGlobal Investment House (Global) was incorporated in 1998 and is regulated by the Capital Markets Authority of Kuwait for Asset Management, Investment Banking, Brokerage and advisory business and the Central Bank of Kuwait for its lending and financing activities. Global shares are listed on the Bahrain Bourse and its shares in the form of Global Depository Receipts (GDR) are listed on London Stock Exchange. Global aims to meet the high expectations of local and international clients, and to enhance the investment service industry in Kuwait and the region. Global plays an important role in promoting investment opportunities in the Arabian Gulf Peninsula to international investors through expert financial engineering. We provide investors with a diverse scope of national and international investment opportunities, and facilitate those investments by providing clients with services that target their individual needs, and exceed their expectations. Global offers a wide spectrum of financial products and services, ranging from investment banking to asset management & brokerage.

ContactsKuwaitP.O.Box 28807 Safat, 13149 KuwaitTel: (965) 22951000, Fax: (965) 22951005

Share Information

Ticker

Stock Exchange (listed on) Trading Reuters Bloomberg

Bahrain Bourse (11 Oct 2004) Global GIHB.BH GLOBAL BI

London Stock Exchange (21 May 2008)* Glob GLOBGq.L GLOB LI* In form of Global Depository Receipts (GDR)

Investor RelationsInvestors seeking more information on Global may:1- Visit our website www.globalinv.net2- Call us on (965) 2295 1615 3- Send an e-mail to [email protected]

Table of Contents 2 I Board of Directors 4 I Board of Directors’ Report 6 I Corporate Governance 30 I Executive Management 32 I Management Discussion and Analysis 36 I Responsibility Statement 37 I Consolidated Financial Statements

29% growth infees & commissions

2014 Financial Highlights

72% growth intotal revenue

66% of the total income is generated by fee-based businesses

5% Cash Dividend

His HighnessSheikh Sabah Al-Ahmad

Al-Jaber Al-SabahAmir of the State of Kuwait

His HighnessSheikh Nawaf Al-Ahmad

Al-Jaber Al-SabahCrown Prince

Annual Report

Global Investment House K.P.S.C.2

Mr. Saad has a broad-based investment and private equity experience of over 19 years (out of a total of 25 years). He served on the board of several companies and advisory boards and held several senior positions at regional and international financial institutions the last was the CEO and Board Director of Paladin Capital (Middle East) Limited, in Dubai, UAE.

Mr. Saad holds an MBA from the MIT Sloan School of Management, with a concentration in Finance and Applied Economics and a Master’s and Bachelor’s degree in Electrical Engineering and Computer Science from MIT.

Mrs. Al-Ghunaim has over 32 years of experience in the financial services sector with primary focus on asset management and investment banking. She served on the board of several regional companies and advisory boards and held several senior positions. She founded Global in 1998 with other distinguished members and has been managing the company since then. Mrs. Al-Ghunaim holds BS in Mathematics from San Francisco State University, California, USA. She received notable regional and international recognitions.

Mr. Burlison has over 17 years of experience in the financial sector with focus on investment banking and advisory. He served on the board of several regional companies and advisory boards and held several senior positions. He is currently the Managing Director at Dhabi Holdings, a private investment with total of USD 3bn portfolio.

Mr. Burlison holds a BS (First Class Honors) in Banking and Finance with a Diploma in Industrial Studies from Loughborough University and a Practicing Certificate from the Institute of Chartered Accountants in England and Wales. He is a member of the Institute of Chartered Accountants in England and Wales.

BOARD OFDIRECTORS

Ibrahim SaadChairman

Maha K. Al-GhunaimVice Chairman & Group Chief Executive Officer

David BurlisonIndependent Director

2014

Global Investment House K.P.S.C. 3

Mr. Alhomaizi has extensive experience in private equity, hedge funds, real estate and startups. He served on the board of several regional companies and has worked in various capacities and founded a number of successful ventures.

Mr. Alhomaizi holds a BS in Computer Science and Business Administration from The George Washington University, USA.

Mr. Al-Shamsi has over 14 years of experience in the financial sector and mainly public and private fund investments and real estate. He served on the board of several regional companies and held several senior positions. Currently he is the Managing Director of Asset Management at Dubai Capital Group.

Mr. Al-Shamsi holds a BSc (Honors) in Accounting and International Business from the University of Louisville, USA, and has attended several management and finance-related courses in Singapore, London and New York.

Mr. Kandasamy has vast experience in investment banking with focus on integrated debt financing, equity and advisory business comprising Real Estate & Asset Finance, Capital Markets & Syndications, Structured & Principal Finance, Advisory and Investment Management. He held several senior positions with regional and international companies.

Mr. Kandasamy holds an LL.B from the London School of Economics, an LL.M from University College London and is a UK qualified Barrister.

Mr. Osmansoy has over 20 years of experience in the fields of private equity, corporate finance and activist investing. He served on the board of several companies and held several senior positions with regional and international companies. Mr. Osmansoy is a graduate of the Wharton School of the University of Pennsylvania (MBA) and the University of Virginia (BS).

Hamad T. AlhomaiziDirector (representing Al-Shaab Holding Company)

Khalid N. Al-ShamsiDirector (representing Dubai Capital Group)

Arul KandasamyDirector (representing NCHVentures S.P.C.)

Orhan OsmansoyDirector (representing NCHVentures S.P.C.)

Annual Report


Dear Shareholders,

On behalf of the Board of Directors of Global, it is a great pleasure to report on your Company’s financial performance and the progress made during 2014.

We are delighted to report that Global achieved a commendable many-fold increase in its net profit and revenues as a result of progress made by all business pillars in implementing their growth- driven, customer-focussed and yet risk-conscious strategies. During 2014 the Company achieved a net profit of KD6.5 million compared to KD1.9 million net profit during 2013. Global’s financial results represent the strongest financial performance since 2009 and reaffirm our belief that the Company is on a path of sustainable profitability. Good operating performance and an excellent capital structure have facilitated the Board’s decision to recommend cash distributions to shareholders for the year 2014.

In 2014 the Company generated KD22.5 million revenues compared to KD13.1 million revenues in 2013. Fee-based businesses (asset management, investment banking and brokerage) contribution to total revenues was KD15.2 million, a 29.8% increase compared to 2013 fee-based businesses revenues.

During 2014, the Asset Management business remained resilient with KD1.2 billion (US$4.1 billion) of assets under management. Several funds managed by Global outperformed their respective indices and peers and received industry accolades. Despite significant adverse equity markets movements in the GCC and MENA region during the last quarter of 2014, some of the Company’s flagship funds crossed the high watermark thresh-holds for incentive fee (carry). On the brokerage front, Global brokerage made focused efforts to grow the institutional brokerage business and consequently the research unit was integrated with the brokerage. These efforts contributed to market share gains particularly in Kuwait market. During 2014, the Company’s Investment Banking team signed several mandates with regional companies to provide them with financial advisory services, successfully concluded a M&A transaction for a Kuwaiti company in the financial sector and advised an industrial company in Kuwait on its KD130 million (US$443.2 million) debt restructuring.

To facilitate the expanded business activities the operating cost base increased by 13.8% to KD14.8 million. The Company succeeded in restricting cost increases to items directly linked to business generation and revenue growth.

The Company has a healthy capital structure with no external debt and a capital base of KD87.3 million. Other liabilities of KD11.0 million mainly reflect trade and staff related payables and are covered over 4 times by cash in hand. The Company’s capital is conservatively deployed primarily in liquid and operating assets. Based on the 2014 financial results and healthy capital structure, the board has proposed a 5% cash dividend (5 Kuwaiti fils per share) for approval by the shareholders’ annual general meeting. Total cash dividend, if approved by the regulators and the annual general meeting of the shareholders, is expected to be KD3.93 million (US$13.4 million). The Board has also proposed a total board of directors’ remuneration of KD126,390/- for the year 2014 for approval by the shareholders. This remuneration will be in addition to KD25,000/- per annum paid to each independent director in accordance

The Board of Directors

of Global Investment

House takes pleasure

in presenting the 16th

Annual report of the

Company together

with the

f inancial statements

for the year ended 31

December 2014.

BOARD OF DIRECTORS’REPORT

2014


with the approval of the shareholders’ general assembly meeting held on 14 September 2014 (total payments during 2014: KD67,223/-); sitting/ attendance fees paid to directors for attending board and board sub-committee meetings and reimbursement of travel and other incidental expenses incurred to attend such meetings (total payments during 2014: KD22,550/- for sitting fees and KD10,913/- for reimbursement of expenses).

We look forward to focusing our efforts on developing the fee-generating lines of our core business, namely the asset management, investment banking and brokerage pillars of the Company, serve our clients even more effectively and offer diversified financial products and solutions that can protect and grow our clients’ wealth even in challenging, uncertain and volatile economic environment.

On the economic front, despite setbacks, an uneven global economic recovery continued in 2014. Accommodative monetary policy, favorable financial conditions and a reduced pace of fiscal consolidation provided a favorable backdrop for stronger growth in the United States of America. However, Eurozone continued to suffer from low growth, weak competitiveness, low inflation and limited political support to reforms. Increased geopolitical tensions linked to Russia-Ukraine situation and continued strife in some countries in the Middle East increased downside risk and took a toll on confidence. A dramatic and steep fall in crude oil prices in second half of 2014, accompanied by growing market consensus that the fall may not be temporary, led to significant decline in GCC markets in the last few months of 2014. However, it is our belief that GCC states will continue with their spending on infrastructure investments and social projects acting as the catalysts for the region’s economic growth and the markets will stabilize and offer attractive investment opportunities to long term and strategic investors.

We would like to express our sincere appreciation and gratitude to His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, His Highness the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, and His Highness the Prime Minister Sheikh Jaber Mubarak Al-Hamad Al-Sabah, in leading the nation towards a better future.

We would like to convey our gratitude to our shareholders, clients and employees for their resolute support and belief in our ability to deliver maximum value. We would also like to extend our sincere thanks and appreciation to the Ministry of Commerce and Industry, Kuwait Stock Exchange, Capital Markets Authority Kuwait, Central Bank of Kuwait and other regulatory authorities in the region.

Board of Directors,

1 April 2015

Annual Report


Corporate Governance encompasses practically every element of an organization, such as management action plans, internal control environment, performance measurement and corporate disclosures. Robust Corporate Governance is based on an entity’s commitment to ethical values, emphasis on internal control and proper business conduct. Corporate Governance is affected through policies, procedures, authority delegation and other mechanisms/frameworks that determine the entity’s interaction with internal and external stakeholders, by institutionalizing organizational control and direction.

Global’s Philosophy on Corporate GovernanceGlobal views the implementation of Corporate Governance practices as integral to its operations. Global is committed to the principles of international best practices of governance and at all times strives to comply with such practices. The Corporate Governance framework at Global is based on an effective Board and the constitution of Board Committees to oversee critical governance areas of the company.

The Board of Directors is committed to the ongoing enhancement of the Corporate Governance Framework of the Company, for the benefit of all stakeholders. All of Global’s operations are subject to an effective governance framework. This provides direction for subsidiaries, which structure their respective governance frameworks according to Group standards.

Furthermore, this framework enables our Directors to balance their responsibility of providing oversight with their role as providers of strategic counsel, thereby achieving a proper balance between conformance and performance. In institutionalizing the governance framework, the Board is committed to applying accepted governance principles in a practical way.

Global’s values form the framework against which we measure behaviour, practices and activities to assess the characteristics of good governance. Global’s values require Directors and employees to conduct themselves with integrity at all times and display moral strength and behaviours that promote trust.

Good Corporate Governance is contained in our values, culture, processes, functions and organisational structure. Our culture is based on a written Code of Ethics, whereas the organisational structure is designed to formalise the oversight of all businesses and processes. We continue to refine these structures on an ongoing basis.

Whistle Blower PolicyThe Whistle Blowing mechanism of Global is enshrined within the Whistle Blowing Policy of the Company. This Policy allows staff and external parties to raise issues, if any, on breach of any law, statute or regulation by the Company, as well as the accounting policies and procedures adopted for any area. The issues raised under this mechanism are reported directly to the Head, Regulatory Compliance. This mechanism has been designed to promote full confidentiality in reporting as well as complete protection from any retaliation or harassment to the reporting parties.

CORPORATEGOVERNANCE

2014


Board of Directors

Board StatementThe Board is of the opinion that Global operated in an environment of good Corporate Governance.

Board’s ResponsibilitiesThe key terms of reference of Board are:set and agree Global’ s objectives, strategies and plans for achieving those objectives;- at least annually review the Corporate Governance process and assess achievement against objectives;- delegate to the Board Committees, the Chairman and Executive Directors or any member of the

Executive Management, any of the powers, authorities and discretions vested in the Directors, including the power of sub-delegation as they consider necessary to enable the day to day management of Global’s business. Also, similarly delegate as appropriate, such powers, authorities and discretions to any subsidiary company’s board as may exist or be created from time to time;

- determine the terms of reference, policies and procedures of all Board Committees, and review their reports and minutes;

- consider and evaluate reports submitted by members of the Board Committees;- ensure that an effective risk management process exists and is maintained throughout the Group;- review and monitor the performance of the Chairman, Group CEO, Executive Directors, Executive

Management and the Committees;- ensure that adequate succession planning exists for the Chairman, Group CEO, Executive Directors

and Executive Management;- establish (or delegate to board committees) and review annually, and approve, changes to Company

policies, upon recommendation from the Board Risk Committee;- approve the remuneration of each Director of the Board, the Group CEO and Executive Management,

based on the recommendations made by the Board Remuneration Committee, and where relevant, recommend the same to the shareholders for approval;

- approve capital funding for Global, and the terms and conditions of rights or other issues and any prospectus in connection therewith;

- ensure an adequate budget and planning process exists, approve annual budgets for the Group and ensure that performance is measured against approved budgets and business plans;

- recommend acquisitions, mergers, takeovers, divestments of operating companies, equity investments and new strategic alliances by the Group to the shareholders for their approval, when and as required by local law;

- receive, consider and approve any recommendations from the Board Audit Committee to amend accounting policy or practice;

- consider and approve the annual financial statements, interim statements, dividend announcements and notices to shareholders, and consider and agree the basis for considering the Group to be a going concern as per the recommendation of the Board Audit Committee;

- assume ultimate responsibility for financial, operational and internal systems of control, and ensure adequate reporting on these by Committees to which they are delegated;

- take ultimate responsibility for regulatory compliance and ensure that reporting to the Board is comprehensive and in line with international best practices;

- ensure a balanced and understandable assessment of the Group’s position in reporting to stakeholders; and

- approve Group borrowing and indebtedness requirements

The Board seeks to exercise leadership, integrity and judgement in pursuit of our strategic goals and objectives to achieve long-term sustainable growth and prosperity.

Board’s Composition As at 31 December 2014, the Board, including the Chairman, comprised six Non-Executive Directors and one Executive Director.

The detailed profiles of the members of the Board of Directors can be found in the Board of Directors section of this annual report.

Annual Report


Role of the ChairmanThe Chairman of the Board ensures the proper functioning of the Board, maintaining open lines of communication among the Board of Directors, fostering an environment of trust and transparency and ensuring that the decision making process of the Board is robust and based on accurate information. The Chairman facilitates the provision of necessary tools, information and guidance to the Executive Management for sound and timely decision making.

IndependenceTwo non-executive Directors are totally independent. The factors the Board has taken into account in determining the independence of Directors are in line with the CMA Decision on Corporate Governance, issued in July 2013.

Skills, knowledge, experience and attributes of DirectorsThe Board considers that the skills, knowledge, experience and characteristics of the Directors are appropriate to their responsibilities and our activities. The Directors bring a range of skills to the Board, including, but not limited to:

- International and regional experience;- Technical expertise of the business, regulatory and economic environment, in which Global operates;

and- Financial sector experience and knowledge

The skills and experience profile of the Board is reviewed regularly to ensure an appropriate and relevant Board composition.

Going forward, the Board Nomination Committee will be responsible for making recommendations to the Board regarding all proposed nominations for the Board of Directors and Board Committees. The Committee will also ensure that these nominations are properly constituted to meet all fiduciary obligations to Shareholders, the Company as well the CMA Integrity and Competency requirements. This process will be undertaken in context of the authorities and responsibilities vested in the Committee by the Ordinary General Assembly of Shareholders.

Board Meetings and AttendanceAll Directors are expected to attend Board meetings and meetings of the Board Committees on which they serve. They are expected to prepare for each meeting in advance and to dedicate sufficient time at each meeting as necessary to properly discharge their responsibilities to the Company and its shareholders. Material useful in preparing for meetings is distributed to the Board in advance of each meeting.

Board meetings are scheduled at the commencement of each calendar year and held at least quarterly. Directors are provided with comprehensive documentation to enable their consideration regarding the issues on which they will be requested to make decisions.

Board documentation typically includes:- Quarterly financial statements;- Quarterly status reports from Group Risk Management, Group Internal Audit and Compliance;- Minutes of the previously held Board Committee meetings;- Aspects/ developments within each of the operating divisions; and- Reports on significant regulatory issues.

Board of Directors Meetings in 2014The Board of Directors of the Company was reorganized during 2014 as two Directors were replaced during the year. However, this did not impact the achievement of the necessary quorum or the frequency of the Board meetings. The Board met 8 times during the year. The details of the Board members attendance at each meeting are given below:

2014


Name of Director20 Jan.

201420 Feb.

201428 Apr.

201417 Jun.

201422 July

201415 Sep.

201427 Oct.

20149 Dec. 2014

Ibrahim Saad √ √ √ √ √ √ √ √

Maha K. Al-Ghunaim √ √ √ √ √ √

Hisham Al Razzuqi √ √ √ √ √

Hamad T. Alhomaizi √ Absent √ √ √ √ √ √

Khalid Al Shamsi √ √ √ √ √ √ √ √

David Burlison √ √ √ √ √ √ √ √

Emad Yousef Al Monayea √ √

Orhan Osmansoy √ √ √ √ √ Absent

Arul K. Kandasamy √

The number of other Membership(s) / Chairmanship(s) of Board / Committees in other companies for each Director, as at 31 December 2014, is as follows:

Name of DirectorNo. of Membership(s) / Chairmanship(s) of

Board / Committees in other companiesIbrahim Saad 1

Maha K. Al-Ghunaim 2

Hamad T. Alhomaizi 5

Khalid Al Shamsi 7

David Burlison 7

Orhan Osmansoy 1

Arul Kandasamy 21

Committees of the Board

Board Audit Committee

PurposeThe Board Audit Committee fulfils the Board’s oversight responsibilities relating to the integrity of Global’ s financial statements, performance of the external auditors, monitoring the performance of the internal audit function, the business practices and ethical standards of the company. Furthermore, the Board Audit Committee is responsible for reviewing the Company’s policies and practices with respect to internal controls.

The responsibilities of the Board Audit Committee can be summarized as follows:i. Financial Statement and Disclosure Mattersa. The Board Audit Committee will review and discuss the following with Management, Internal

Auditors, and External Auditors, as the Committee deems fit:i. The integrity of annual audited financial statements and the Company’s disclosures under

“Management’s Discussion and Analysis of Financial Performance and Results of Operations”;ii. The quarterly financial statements; Any significant financial reporting issues, judgments, and use of estimates made in connection

with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application of accounting principles;

The critical accounting policies and practices of the Company; andiii. Regulatory and accounting initiatives or actions applicable to the Company (including stock

exchange investigations or proceedings).b. The Board Audit Committee shall review in conjunction with the CEO and CFO of the Company,

the Company’s internal and disclosure controls and procedures over financial reporting, including

Annual Report


whether there are deficiencies, material weaknesses, potential fraud opportunities, or any other corrective actions to be taken with regard to controls and procedures.

c. The Board Audit Committee shall have sole authority over the resolution of any disagreements between Executive Management and the Independent Auditor regarding the Company’s financial reporting.

d. The Board Audit Committee shall review and discuss with the Independent Auditors, any significant audit problems or difficulties and management’s response thereto or other resolution thereof.

ii. External Audita. The Board Audit Committee shall make recommendations to the Board regarding the appointment,

re-appointment, or removal of the External Auditors.b. If the External Auditors resign, the Board Audit Committee shall investigate the issues giving rise to

such resignation and consider whether any action is required.c. The Board Audit Committee shall review the scope and staffing of the External Auditors’ annual audit

plan(s).d. The Board Audit Committee shall evaluate the external auditors’ qualifications, performance, and

independence, and shall present its assessment to the full Board on at least an annual basis. e. The Board Audit Committee shall obtain the opinion of management and the Internal Auditors of the

independent auditors’ qualifications, performance and independence.f. The Board Audit Committee shall track the adoption and resolution of key audit findings.g. The Board Audit Committee shall develop a policy for External Audit Partner rotation and a timeframe

for re-tendering the external audit.

iii Internal Audita. At least annually, the Board Audit Committee shall evaluate the performance, responsibilities, annual

audit plan, budget and staffing of the Company’s Internal Audit function.b. The Committee shall review the Internal Audit Reports and ensure that corrective actions have been

taken by the Management against the observations raised.c. The Committee shall review the results of the regulatory bodies’ reports and ensure that the corrective

actions have been taken by the Management against the observations raised.d. Recommend to the Board whenever a new Head of Internal Audit is required, or if a requirement for

the transfer or discharge the Head of Internal Audit arises.d. At least annually, the Board Audit Committee shall evaluate the performance, responsibilities, annual

audit plan and budget of the Company’s Internal Audit function.e. The Board Audit Committee shall review the Company’s policies and practices with respect to internal

controls.f. The Board Audit Committee shall ensure that an independent auditing firm review and evaluate the

performance of the Group Internal Audit once every 3 years. A copy of the report will be provided to the Capital Markets Authority, each of the Board of Directors and the Board Audit Committee.

Other DutiesThe Board Audit Committee shall also:a. Annually review the any conflicts or related party transactions with respect to the Board members

and key employees and their significant business and investment transactions.b. Review disclosures required to be made under the securities laws of insider and affiliated party

transactions.c. Monitor the implementation of procedures for the receipt, retention and treatment of complaints

regarding accounting, internal accounting controls, auditing or other matters, including, mechanisms for anonymous submission of related concerns by Company employees.

d. Review with the Company’s General Counsel, legal matters regarding financial transactions, fraud, or any other issue that could have significant impact on the annual reports.

Composition (As of 31 December 2014)The Board Audit Committee was chaired by Mr. David Burlison, Board Director. The Committee Chairman does not serve for more than 3 years, though he/ she may remain a member of the Board Audit Committee and may serve as the Committee Chairman again in a future term. The other members of the Board Audit Committee are:

2014


- Khalid Al Shamsi, Board Director- Hamad T. Alhomaizi, Board Director- Ismail Odeh, Senior Vice President, Regulatory Compliance (Secretary)The CEO may attend the Committee meetings as a management representative to ensure free and accurate flow of information between the Committee and the management of Global

Committee MeetingsThe Committee membership changed during 2014 on account of changes in the Board composition. The Committee met 5 times during 2014; of which it met four times under the old membership and once under the new membership. Attendance at the Committee meetings was as follows:

Old Membership:

Name of Director 20 February 2014 28 April 2014 22 July 2014 27 October 2014

David Burlison √ √ √ √

Khalid Al Shamsi √ √ √ √

Ibrahim Saad √ √ √ √

Current Membership:

Name of Director 8 December 2014

David Burlison √

Khalid Al Shamsi √

Hamad T. Alhomaizi √

Board Remuneration Committee

PurposeThe Board Remuneration Committee provides recommendations with regard to the remuneration (including monthly salary and other benefits) of the Board of Directors, Group CEO, and CEO and reviews the remuneration (including salaries) of other members of the Executive Management.

Composition (As of 31 December 2014)The Committee membership changed during 2014 on account of changes in the Board composition. The Board Remuneration Committee was chaired by Mr. Arul K. Kandasamy, Board Director. Other members of the Board Remuneration Committee are as follows:- David Burlison, Board Director- Khalid Al-Shamsi, Board Director- Anil Bhasin, Senior Vice President, Human Resources (Secretary)

The Group CEO may attend the Committee meetings as a management representative to ensure free and accurate flow of information between the Committee and the management of Global.

Committee MeetingsThe Board Remuneration Committee met seven times during the year - five times under the old membership and twice under the new membership. Attendance at the Committee meeting is as follows:

Old Membership

Name of Director19 February

201427 April

201427 May

201417 June

201422 July

2014Hisham Al-Razzuqi (Chairman) √ √ √ √ √

David Burlison √ √ √ √ √

Ibrahim Saad √ √ √ √ √

Hamad T. Alhomaizi √ √ √ √ √

Annual Report


New Membership

Name of Director 27 November 2014 8 December 2014

Arul Kandasamy (Chairman) √ √

David Burlison √ √

Khalid Al-Shamsi √ √

Board Risk Committee

PurposeThe purpose of the Board Risk Committee is to advise the Board of Directors on matters of risk management. The Committee is responsible for defining the Company’s risk appetite as well as promoting a risk-based approach to the management and internal controls of the Company, as well as reviewing the Company’s major risk exposures and changes to its risk profile.

Composition (As of 31 December 2014)The Committee membership changed during 2014 on account of changes in the Board composition. The Board Risk Committee was chaired by Mr. Khalid Al Shamsi, Board Director. Other members of the Board Risk Committee are as follows:

- David Burlison, Board Director- Arul K. Kandasamy, Board Director- Ismail Odeh, Senior Vice President, Regulatory Compliance (Secretary)

The CEO may attend the Committee meetings as a management representative to ensure free and accurate flow of information between the Committee and the management of Global.

Committee MeetingsThe Board Risk Committee met thrice during the year - twice under the old membership and once under the new membership. Attendance at the Committee meeting was as follows:

Old Membership

Name of Director 20 February 2014 27 April 2014

Ibrahim Saad √ √

David Burlison √ √

Khalid Al-Shamsi √ √

Hamad T. Alhomaizi Absent √

New Membership

Name of Director 8 December 2014

Khalid Al Shamsi √

David Burlison √

Arul K. Kandasamy √

Management Committees

Credit Committee

Purpose The purpose of the Credit Committee of Global is to assist the Board in discharging its responsibility to exercise due care & diligence, oversee, direct and review the management of credit risk within the loan portfolio of Global.

2014


CompositionThe Credit Committee is chaired by the Vice Chairman & Group CEO of Global. Other members of the Credit Committee are as follows:

- Chief Executive Officer- Chief Financial Officer

HR CommitteeThe purpose of the HR Committee of Global is to assist the Board in discharging its governance of HR practices and programs of Global, for all employees and officers who are not covered by the mandate of the Board Remuneration Committee.

CompositionThe HR Committee is chaired by the Vice Chairman & Group CEO of Global. Other members of the Credit Committee are as follows:

- Chief Executive Officer- Head, HR, Administration & Marketing- Chief Financial Officer- Head, Legal & Compliance

New Products Committee

PurposeThe objective of the New Products Committee is to: a. ensure that feasibility studies for new products are conductedb. review feasibility studies for new products prepared by various business departments; c. decide the priority of new products; d. ensure availability of tangible resources required for new products; e. ensure adherence to regulatory requirements prior to the launching of new products; andf. ensure presence of internal controls in the new product development process prior to the launching

of new products.

CompositionThe New Products Committee is chaired by the Vice Chairman & Group CEO of Global. Other members of the New Products Committee are:

- Chief Executive Officer- Head, Group Regulatory Compliance - Head, Group Risk Management- Head, Marketing and Communication- Head, Operations

Provision Committee

PurposeThe objective of the Provision Committee is to approve provisions on individual loan accounts to reflect the future recoverability; it shall also review and approve provisions on an omnibus basis on the entire loan portfolio.CompositionThe Provision Committee comprises the following members: - Senior Lawyer, Legal Affairs- Head, Group Risk Management - Head, Operations

Annual Report


Loan Write Off Committee

PurposeThe objective of the Loan Write Off Committee is to approve the writing off loans.

CompositionThe Loan Write Off Committee comprises the following members:

- Head, Legal & Compliance- Head, Operations- Assistant Vice President, Investment Banking

Group Risk ManagementThe Board acknowledges its overall responsibility for Global’s system of internal control and for reviewing its effectiveness, whilst the role of Executive Management is to implement Board policies on risk and control.

Executive Management has implemented an internal control system designed to facilitate the effective and efficient operation of Global and its business units and aimed at enabling management to respond appropriately to significant risks to achieving Global’s business objectives. It should be noted that the system is designed to manage, rather than eliminate, the risk of failure to achieve Global’s business objectives, and can only provide reasonable, and not absolute, assurance against material misstatement or loss.

This system of internal control helps to ensure the quality of internal and external reporting, compliance with applicable laws and regulations, and internal policies with respect to the conduct of business.

The Board is of the view that there is a sufficient on-going process for identifying, evaluating, and managing the significant risks faced by Global, and that this process has been in place for the year ended 31 December 2014 and up to the date of approval of this Report.

The Board is responsible for the total process of risk management and the system of internal control. Executive Management is responsible for identifying risks and implementing appropriate mitigation and controls within their businesses. An independent Group Risk Management department, which is directly accountable to the Board Risk Committee and has unrestricted access to the Chairman of the Committee, is responsible for designing and reviewing the process of risk management.

Approach to risk managementGlobal derives its approach to risk management and control from a perspective of enhancing value. As a result, the risk management process takes a holistic approach to managing risks on an enterprise-wide basis. This involves focusing on the identification of the key risks that affect the achievement of Global’s objectives. Such risks are firstly understood on an inherent basis, which involves understanding the main drivers of such risks in the absence of any controls. Thereafter there is an assessment of the residual level of risks, taking into account the controls that are in place to manage such risks. Where the residual level is outside the acceptable limits, further controls and action are defined to bring the risks within the limits. An important aspect of this approach is the recognition that risk management is not limited solely to the downside or risk avoidance, but is about taking risk knowingly.

Risk Methodologies

Risk identificationStrategic objectives reflect Management’s choice as to how Global will seek to create value for its stakeholders. Strategic objectives are translated into business unit objectives. Risks and risk events are then identified that would prevent the achievement of both the strategic and business objectives. For this reason, risk identification is part of the annual business planning process as well as an on-going process. The resultant risks are recorded in a risk register with details of risk owners, existing controls or actions to mitigate the risks and any associated time frame, and a measure of the residual risk.

2014


Risk assessment and measurementVarious means of assessing and measuring enterprise risks and risk events are used throughout Global. These include estimating the financial impact and the likelihood of risk occurrence, trend and high/medium/low assessments. With regard to credit risk and market risk, a mixture of quantitative and qualitative measurement methods is used, commensurate with the complexity of the risk.

Action plansAction plans to implement the risk management strategy in respect of key risks or to remedy a material breakdown in control are recorded on risk and control registers, maintained by each business group.

Monitoring and controlThe Board is frequently updated regarding the risk profile of Global. These updates also cover all material controls, including financial, operational and compliance controls and risk management systems.

Risk monitoring is further undertaken at Group, principal subsidiary and business unit level by management, specialised risk management functions, internal audit and subsidiary Audit Committees.

Group Internal AuditGlobal has a Group wide Internal Audit function that is commensurate with the size, nature and extent of business conducted by the Company. Group Internal Audit reports to the Board Audit Committee and has unrestricted access to the Chairman of the Board Audit Committee. A risk based audit approach is followed and the Board Audit Committee approves annual audit plans.

The scope of work of the Group Internal Audit department is to determine whether Global’ s network of risk management, control and governance processes, as designed and represented by management, is adequate and functioning.

The Group Internal Audit function verifies the adequacy and effectiveness of internal controls from operation, financial and statutory compliance point of view through a blend of process and transactional audits. A summary of significant observations along with any action plan identified by the management is placed quarterly before the Board Audit Committee for review and guidance.

ComplianceGlobal has a well-established compliance function which is based on Basel’s Consultative document titled “The compliance function in banks”. The function is an independent function, accountable to the Board. The function identifies, assesses, and monitors its compliance risk covering regulatory sanctions, financial loss, or reputation loss which may come as a result of failure to comply with all applicable laws, regulations, and codes of conduct and standards of good practice. The compliance function has designed a generic compliance program to provide reasonable assurance that the company is in compliance with applicable laws and regulations issued by the applicable Central Banks, Capital Market Authorities and Stock Exchanges.

The roles and responsibilities of the compliance function include, but are not limited to:

Main functionTo act as the Board’s focal point in fulfilling the Compliance responsibilities and ensuring that Compliance Program exists for each Department / Branch and that it provides reasonable assurance that the businesses comply with local laws and regulations.

Core Position Responsibilities- Keeping the Board informed on an on-going basis of the quality of compliance in the country’s

businesses, compliance deficiencies, and the status of corrective actions;- Coordinating production, documentation and approval of the annual Country Compliance Program

by assisting Departments / Branches to develop business-level compliance plans which include identification of principal compliance risks, objectives and action plans;

- Participate in the Department / Branch Compliance self-assessment process, which involves

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participating in the formal reviews of the results of the self-assessment process, evaluating the Department/Branch ratings; and ensuring the Departments/Branches self-assessment checklists include applicable legal/regulatory/ compliance requirements;

- Assisting the Departments / Branches in developing solutions to potential issues involving compliance and regulatory risk;

- Developing Training Programs and provide compliance training in line with the Departments/Branches assessments of training needs; and

- Ensure that the Anti-Money Laundering monitoring and know-your-customer procedures are performed.

- Liaising with regulators, review and respond to their requests and comments.

AML Monitoring OverviewGlobal has established a Board approved Anti-Money Laundering Policy to ensure compliance with high standards of anti-money laundering and combating terrorism financing practices. The Policy applies equally to Kuwait as well other jurisdictions where Global has presence. The objectives of the Policy include:

- Maintaining appropriate operational controls;- Taking reasonable steps to identify our customers and verify that identification where required; - Taking reasonable steps to detect abnormal transactions;- Maintaining procedures for the reporting of suspicious transactions;- Co-operating with the authorities to the extent permitted by the applicable laws;- Maintaining appropriate records of customer identification and transactions; and - Delivering appropriate training to staff.

Financial ReportingThe Board of Directors is responsible for monitoring and reviewing the reliability of the financial statements, accounting policies and the information contained in the Annual Report. In undertaking this responsibility, the Directors are supported by on-going processes for identifying, evaluating and managing risks we face. The processes are implemented by management and independently monitored for effectiveness by Group Internal Audit, Group Risk Management and other Board Committees.

External AuditOur External Auditors during the year were M/ Al-Aiban, Al-Osaimi and Partners (Ernst & Young & Co) and M/ Al-Qatami, Al-Aiban and Partners (Grant Thornton; only till H1 2014). The independence of the External Auditors is recognised and reviewed with the auditors by the Board Audit Committee on an annual basis.

Non-audit services are dealt with in terms of the following:- Our External Audit firms must have internal standards and processes to monitor and maintain their

independence; and- Safeguards must be in place to ensure that there is no threat to the objectivity and independence in

the conduct of the audit, resulting from the provision of non-audit services by the External Auditors.

Shareholder’s InformationThe First Ordinary General Meeting of the Company was held on 14 September 2014 at the premises of Global, and the agenda included the following:

First Ordinary General Meeting

First Listen to the report of the Board of Directors for the financial year ended 31 December 2013 and ratifying the same.

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Second Reading the monetary and non-monetary penalties imposed by the Central Bank of Kuwait for the financial year ended 31 December 2013.

Third Listen to the report of the Company’s auditors M/ Al-Aiban, Al-Osaimi and Partners (Ernst & Young & Co) and M/ Al-Qatami, Al-Aiban and Partners (Grant Thornton) for the financial year ended 31 December 2013 and ratifying the same.Fourth Ratifying the Balance Sheet and Income Statements for the financial year ended 31 December 2013.

Fifth Approving the deduction of 10% of net profit to be appropriated to the Voluntary Reserve Account, amounting to KD 187,415.

Sixth Approving the Board of Director’s recommendation to pay remuneration of KD 19,000 for non-independent Board members for the financial year ended 31 December 2013 as well as paying Committee’s meeting attendance fees.

Seventh Approving the Board of Director’s recommendation not to pay any profit dividends for the financial year ended 31 December 2013.

Eighth Approving to authorize the Board of Directors to buy or sell the Company’s Treasury shares in accordance with the provision of article 175 of the Law no 25 of 2012 and the applicable CMA’s instructions

Ninth Approving Board of Directors to transact with related parties.

Tenth Approving the rules for selecting the members of Board Nomination Committee and their term in addition to the Committee’s working mechanism.

Eleventh Approving to pay an annual remuneration of KD 25,000 (Twenty Five Thousand Kuwaiti Dinars) to Independent Directors of the Board as well as approving to pay Committee’s meeting attendance fees for the Financial Years ending December 31, 2014 and December 31, 2015.

Twelfth Approving the listing of the Company shares in Kuwait Stock Exchange or any other Stock Exchange and authorizing the Board to take necessary measures in accordance with applicable laws and regulations.

Thirteenth Discharging the members of the Board from any liability pertaining to their legal and financial actions in the Financial Year ended 31 December 2013.

Fourteenth Appointing or reappointing the Company’s Auditors for the financial year ending 31 December 2014 and authorising the Board of Directors to determine the External Auditor’s remuneration for the services performed in the financial year ending 31 December 2014.

Second Ordinary General MeetingThe Second Ordinary General Meeting of the Company was held on 23 November 2014 at the premises of Global, and the agenda included the following:

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FirstAccept resignations of:i. Mr. Ibrahim Saad (Independent Director)ii. Mr. David Burlison (Independent Director)iii. Mr. Khalid Al Shamsi (nominee of Dubai Capital)

SecondElection of two Board Members

Extra Ordinary General MeetingThe Extraordinary General Meeting of the Company’s shareholders was held on 21 October 2014 at the premises of Global and the agenda included the following:

FirstApproving the reduction of the Company’s capital by an amount of [KD 94,696,725.900] represented by [946,967,259] shares against writing off accumulated losses of [KD 94,696,725.900] and the Company’s capital shall following such reduction be [KD 79,923,398] divided into [799,233,980] shares with a nominal value of 100 fils per share and with all shares being in cash denomination. The pro-rata reduction in the Treasury Shares will be reflected in the Treasury Shares Account and Share Premium Account.

SecondResolving to approve the proposed amendments to the Company’s Memorandum of Incorporation (MOI) and Articles of Association (AOA) as follows:

First Item: Amendment of Article 5(3) of MOI & Article 4(3) of the AOA

Current text:Conduct brokerage activities and managing investments on behalf of others.

Suggested text:Conduct brokerage activities, manage investments on behalf of others, establish and manage collective investment schemes.

Second Item: Amendment of Article 6 of MOI & Article 5 of the AOA

Current text:The Company’s capital is specified at KD 174,620,124 divided into 1,746,201,239 shares with a nominal value of 100 fils per share and all shares are of cash denomination.

Suggested text:The Company’s capital shall be specified at KD 79,923,398 divided into 799,233,980 shares with a nominal value of 100 fils per share and all shares are of cash denomination.

Third Item: Amendment of Article 9 of AOA

Current text:The Company may, subject to obtaining the approval of the relevant authorities, purchase a maximum of ten percent (10%) of its shares at market value, provided that such purchase shall not be financed from the Company’s capital and that such shares shall not be included in the Company’s total number of shares in the cases which require/stipulate that the Shareholders shall possess a given percentage of the capital and in any/all cases related to the General Assembly.

Suggested text:The Company may purchase its own shares in accordance with the provisions of law and relevant decisions regulating the same.

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Fourth: Amendment of Article 12 of the AOA

Current text:Every share entitles its holder to a right similar to another shareholder’s share without any differentiation in the ownership of the Company’s assets and in the divided profits as set out below.

Suggested text:Each shareholder in the Company shall enjoy the following rights in particular:i. Receiving the determined percentage of profit distributions and receive any bonus shares determined

to be distributed;ii. Participating in the management of the Company through Board membership, attend General

Meetings and participate in discussions held therein in accordance with provisions of the Companies law and these articles. Any agreement to the contrary shall be deemed to be null and void;

iii. Receiving the Company’s financial information for the accounting period ended and receiving the Board of Directors’ report and the External Auditor’s report at least 7 days prior to the date of the meeting of the general assembly;

ivi. Transacting with respect of held shares including registration and transfers of title and exercise of rights to subscribe into new shares;

v. Receiving a pro-rated percentage of the Company assets at liquidation following satisfaction of all of the Company’s liabilities;

Fifth: Amendment of Article 16 of the AOA

Current text:The Ordinary General Assembly may, based on a recommendation of the Board of Directors, allocate a portion of the profits to issue a number of new shares to be distributed as bonus shares where each shareholder shall be entitled to a pro-rated number of bonus shares and such bonus shares shall constitute an increase in the capital of the Company.

Suggested text:The Extra-ordinary General Assembly may, based on a recommendation of the Board of Directors, allocate a portion of the profits to issue a number of new shares to be distributed as free bonus shares where each shareholder shall be entitled to a pro-rated number of bonus shares and such bonus shares shall constitute an increase in the capital of the Company.

Sixth Item: Amendment of Article 17 of the AOA

Current text:The Company shall be managed by a Board of Directors comprised of (7) seven members elected in the General Assembly by secret ballot.

Suggested text:The Company shall be managed by a Board of Directors comprised of (7) seven members elected in the General Assembly by secret ballot provided that one or more shall be independent members.

Seventh Item: Amendment of Article 19 of the AOA

Current text:A member of the Board of Directors must (either personally or the corporate person whom he represents) own a number of shares of value not less than 7,500 Kuwaiti Dinars or 1% of the Company’s capital (whichever is less) and where a member (either personally or the corporate person whom he represents) does not own the requisite number of shares at the time of such member’s election such member must own the requisite amount of shares within one month from the date of his election otherwise his membership shall become void and corporate persons shall be held liable for the acts of their representatives towards the Company, its creditors and its shareholders.

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Suggested text:Except for independent board members, members of the Board of Directors must own (either personally or the corporate person whom he represents) a number of the Company’s shares. The corporate person shall be liable for the acts of its representatives towards the Company, its creditors and its shareholders.

Eighth Item: Amendment of Article 22 of the AOA

Current text:The Board of Directors shall by secret ballot elect a Chairman and a Vice Chairman for a three year term provided that it not exceed the term of their membership on the Board of Directors and the Chairman shall represent the Company in front of the courts and third parties and shall implement the resolutions/decisions of the Board of Directors. The Vice Chairman shall stand in the place of the Chairman where the Chairman is absent or unable to act due to any reason so arising.Suggested text: The Board of Directors shall by secret ballot elect a Chairman and a Vice Chairman for a three year term provided that it does not exceed the term of their membership on the Board of Directors and the Board of Directors shall also appoint a Board Secretary.

Ninth: Amendment of Article 23 of the AOA

Current text:The Board of Directors may appoint from amongst its members one or more Managing Directors and the Board of Directors shall set such Managing Director’s authority and remuneration and the Board of Directors may appoint a General Manager and shall specify his authority and remuneration.

Suggested text:The Company shall have one or more Chief Executive Officer appointed by the Board of Directors from amongst its members or from others and the Board of Directors shall specify and determine his remuneration and authorities.

Tenth Item: Amendment of Article 24 of the AOA

Current text:The Chairman of the Board or his deputy or the Managing Directors, each according to the powers determined by the Board of Directors or any other member the Board authorizes for this purpose, may sign singly on behalf of the Company.

Suggested text:The Chairman of the Board and/or his Deputy and/or the Chief Executive Officers may each sign singly on behalf of the Company according to the authorities determined by the Board of Directors for each of them or any other member of the Board of Directors authorized by the Board of Directors for this purpose.

Eleventh Item: Amendment of Article 25 of the AOA

Current text:The Board of Directors shall convene at least four times during each fiscal year upon invitation of its Chairman and shall also convene upon the request of at least two of its members and the Board meeting shall be valid if the majority of its members were present. Attendance by proxy shall not be permitted at meetings of the Board of Directors.

Suggested text:A meeting of the Board of Directors shall only be valid if at least half of its members are present. The Board of Directors may conduct its meeting by using modern forms of communication and may resolve by circulation subject to the approval of all members of the Board and the Board of Directors shall convene at least six times during one fiscal year.

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Twelfth Item: Amendment of Article 26 of the AOA

Current text:The decisions of the Board of Directors shall be issued by the majority of the members present in the meeting and in case of equal votes the Chairman shall have a casting vote except with respect to decisions of the Board relating to delisting of the Company from any stock market on which it is listed, sale, suspension, or changing the nature of the Companies following activities (asset management, investment banking, or brokerage) and or recommendation to the General Assembly to reduce or increase the capital of the Company or in respect of a merger, dissolution, or liquidation of the Company, or amendments to any of its articles, which shall be issued with the approval of at least five (5) Directors out of (7) Directors. A special record shall be maintained where the minutes of the Board’s meeting shall be documented and signed by the Chairman and any dissenting Director may request his opinion be recorded in such minutes.

Suggested text:The decisions of the board of Directors shall be issued by the majority of the members present in the meeting and in case of equal votes the Chairman shall have a casting vote except with respect to, decisions of the board relating to delisting of the Company from any stock market on which it is listed, the sale, suspension or changing of the nature of the Company’s following activities (asset management, investment banking, or brokerage) or recommendation to the General Assembly to reduce or increase the capital of the Company or merger, dissolution, or liquidation of the Company or amendments to any of its articles, which shall be issued with the approval of at least 5 Directors out of the 7 Directors. A special record shall be maintained where the minutes of the Board’s meeting shall be documented and signed by the attending members and the Secretary of the Board and any Director dissenting on a decision made by the Board may request his objection be recorded in such minutes.

Thirteenth Item: Amendment of Article 28 of AOA

Current text:Without prejudice to the provisions of the Commercial Companies Law, the Ordinary General Assembly shall determine the remuneration of the members of the Board of Directors and the Board of Directors shall determine the remuneration of the Managing Directors and the salary of the General Manager.

Suggested text:Without prejudice to the provisions of Law No. 25 for the year 2012 promulgating the Companies Law, the Ordinary General Assembly shall determine the remuneration of the members of the Board of Directors.

Fourteenth Item: Amendment of Article 29 of the AOA

Current text:The Board of Directors shall have the widest authority to manage the Company and take all necessary actions required to manage the Company in accordance with the objectives and nothing shall limit such authority unless otherwise required or stated by law, these Articles and the resolutions of the Company’s general assembly. The Board of Directors shall be permitted to sell or mortgage the Company’s real-estate, grant guarantees, enter into loan agreements and or enter into dispute resolution provisions whether by judicial arbitration, conventional arbitration, ad-hoc arbitration and or institutional arbitration having regard to the Company’s interests.

Suggested text:The Board of Directors shall have the widest authority to manage the Company and take all necessary actions required to manage the Company in accordance with the Company’s objectives and nothing shall limit such authority unless otherwise required or stated by law, these Articles and the resolutions of the company’s general assembly. The Board shall be permitted to sell or mortgage the company’s real-estate, grant guarantees, enter into loan agreements, settle and or donate and or enter into dispute resolution provisions whether by judicial arbitration, conventional arbitration, ad-hoc arbitration and or institutional arbitration having regard to the Company’s interests.

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Fifteenth Item: Amendment of Article 32(2) of the AOA

Current TextExcept for the Managing Director, members of the Board of Directors shall not be allowed to participate in the employee share option scheme.

Suggested TextCancel the entire Article.

Sixteenth Item: Amendment of Article 33 of the AOA

Current text:Invitations to shareholders to attend the General Assembly Meetings (convened in whatever capacity) shall be made with registered letters. The invitations shall include the proposed agenda of any such meeting whereas founders shall prepare the agenda of the Constitutional General Assembly and the Board of Directors shall prepare the agenda of the Ordinary and Extraordinary General Assemblies.

Suggested text:Invitations to shareholders to attend the General Assembly Meetings (convened in whatever capacity) shall be made in accordance with the procedures stipulated in the law and any such invitation must include the agenda and the Board of Directors shall prepare the agenda for the Ordinary and Extraordinary General Assembly.

Seventeenth Item: Amendment of Article 38 of the AOA

Current TextVoting in the General Assembly shall be by the method determined by the Chairman of the meeting unless the General Assembly resolves a specific voting method. Voting should be by secret ballot when voting to elect the Board of Directors or the dismissal from membership of the same.

Suggested TextVoting method in the General Assembly shall be determined by the Chairman of the meeting unless the General Assembly resolves a specific voting method. Voting should be by secret ballot when voting to elect the Board of Directors or the dismissal from membership of the same. When voting to elect the Board of Directors every shareholder shall have the ability to vote in a manner equivalent with number of shares held entitling a shareholder to vote his shares in favor of one nominee or to distribute the votes amongst several nominees however without duplicating the votes.

Eighteenth Item: Amendment of Article 40 of the AOA

Current text:The General Assembly shall convene in an ordinary capacity at least one time every year upon invitation of the Board of Directors within 3 months from the end of the Company’s fiscal year and the Board of Directors may invite the General Assembly to convene at any time as required and the Board of Directors must invite for the General Assembly for a meeting anytime if so requested by shareholders holding not less than ten percent of the Company’s capital or if so requested by the Ministry of Commerce and Industry.

Suggested text:The General Assembly shall convene in an ordinary capacity at least one time every year upon invitation of the Board of Directors within 3 months from the end of the Company’s fiscal year and the Board of Directors may invite the General Assembly at any time as required and the Board of Directors must invite for the General Assembly for a meeting within 15 days anytime so requisitioned by a justified request of shareholders holding not less than ten percent of the Company’s capital or if so requested by the Company’s auditors and the agenda shall be prepared by the person(s) requesting the meeting.

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Nineteenth Item: Amendment of Article 44 of the AOA

Current text:The General Assembly held in an extra-ordinary capacity shall convene upon request from the Board of Directors or upon a request from shareholders owning not less than one fourth of the Company’s shares, and in this case the Board of Directors must invite the Extra-ordinary General Assembly within one month from the date of receiving such request.

Suggested text:The General Assembly held in an extraordinary capacity shall convene upon request from the Board of Directors or upon a justified request from shareholders owning not less than fifteen percent (15%) of the Company’s issued shares or at the request of the Ministry of Commerce and Industry and in this case the Board of Directors must invite the Extra-ordinary General Assembly within thirty days (30) from the date of submission of the request.

Twentieth Item: Amendment of Article 45 of the AOA

Current text:The following matters shall not be examined unless by a General Assembly convening in an Extra-ordinary capacity:Amending the Company’s Memorandum of Incorporation or Articles of Association;Selling the entire project for which the Company was established and or disposing of it in any other manner;Dissolving the Company or merging it with another Company or Entity;Decreasing the Company’s capital;Every amendment to the Company’s Articles of Association will not be valid unless approved by the Ministry of Commerce & Industry.

Suggested text:Taking into account the other prerogatives stipulated by law, the Extra-ordinary General Assembly shall have exclusive authority over the following matters:Amending the Company’s Memorandum of Incorporation or Articles of Association;Selling the entire project for which the Company was established and or disposing of it in any other manner; Dissolution, merger, transformation or splitting of the Company;Increasing or decreasing the Company’s capital;Every decision issued by the Extra-ordinary General Assembly will only be valid after publishing the same in the official gazette.

Twenty-first Item: Amendment of Article 51(4) of the AOA

Current text:A portion of the profits shall be deducted upon proposal from the Board of Directors and shall be accordingly approved by the General Assembly to meet the obligations incurred by the Company pursuant to the labour laws and such funds may not be distributed to the shareholders.

Suggested text:A portion of the profits shall be deducted upon proposal from the Board of Directors and shall be accordingly approved by the General Assembly to meet the obligations incurred by the Company pursuant to the labour and social security laws and such funds may not be distributed to the shareholders.

Twenty-second Item: Amendment of Article 55 of the AOA

Current text:The Company shall expire due to one of the reasons provided in the Commercial Companies Law and stipulated in Law No. 32 of 1968 and its amendments thereof regarding monetary rules, the Central Bank

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of Kuwait, the organization of the banking profession and the decrees and regulations implementing such law.

Suggested text:The Company shall expire due to one of the reasons provided for in the Law no 25 for the year 2012 promulgating the issuance of the Companies’ Law.

Resolution of the Extra Ordinary General MeetingAll the agenda items of the Meeting were approved, except the Seventeenth Item: Amendment of Article 38 of the AOA, which was rejected. Additionally, the Tenth Agenda Item was approved after modification to the suggested text. The modified and approved suggested text is as follows: The Chairman of the Board and/or his Deputy may each sign singly on behalf of the Company according to the authorities determined by the Board of Directors for each of them or any other member of the Board of Directors authorized by the Board of Directors for this purpose.

Executive ManagementAs of year ending December 2014, members of the Executive Management comprised the Vice Chairman & Group CEO, the Chief Executive Officer, the Chief Financial Officer, Head of Legal & Compliance and the Head of HR, Marketing & Administration.

The detailed profiles of the members of the Executive Management are under the Executive Management section of this Annual Report.

ListingGlobal Investment House is listed on Bahrain Bourse and its GDR is listed on the London Stock Exchange. The listing information is as follows:

Stock Exchange

Country Type of Security

Stock Exchange

Code

Reuters Code

Bloomberg Code

ListingDate

Registrars/ Custodian

Bahrain Bourse BahrainOrdinary

sharesGLOBAL GIHB.BH GLOBAL BI

11 October 2004

Global Bahrain

London Stock exchange

United Kingdom

Global Depositary

ReceiptsGLOB GLOBGq.l GLOB LI

21 May 2008

HSBC Bank ME

While Global’s shares continue to be listed on the Bahrain Bourse, the trading of Global’s shares has been suspended since November 2011.

Financial CalendarThe Financial year for Global Investment House commences on January 1 and ends on December 31 of each calendar year.

Registrar and Share Transfer AgentKuwait Clearing CompanyP.O. Box 22077Safat [email protected]

Share Transfer SystemThe Company’s shares are transferable through the depository system.

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Shareholding Pattern as on 31 December 2014Shareholders of Global Investment House holding over 5% (as per the Share Registrar):

Names of Shareholders % Shareholding

NCH Ventures SPC 70%

Distribution of Shareholding as on 31 December 2014 (as per the Share Registrar)

No. of shareholders No. Of Shares

Range Number % Number %

1 - 99,999 1,730 92.1 23,018,321 2.8

100,000 - 499,999 103 5.5 22,018,024 2.8

500,000 - 999,999 14 0.8 10,464,694 1.3

1,000,000 - 4,999,999 21 1.1 39,939,690 5.0

5,000,000 - 9,999,999 5 0.3 36,760,846 4.6

10,000,000 - 24,999,999 5 0.3 107,564,439 13.5

25,000,000 - 49,999,999 0 0 0 0

50,000,000 and above 1 ~0.1 559,467,966 70.0

Total 1,879 100.0 799,233,980 100.0

Outstanding GDRDuring 2008, the Parent Company concluded a secondary offering and listing of its ordinary shares in the form of Global Depository Receipts (GDRs) on London Stock Exchange (LSE), with every GDR representing a beneficial interest in five underlying ordinary shares of the Parent Company. The GDRs give the same rights and benefits to the GDR holders as they currently exist for the ordinary shareholders.

Outstanding GDRs as on 31 December 2014 represent 27,337,286 equity shares constituting 3.42% of the Paid up capital of the Company.

Compliance with Corporate Governance Code Global is licensed by the Capital Market Authority (CMA) and certain segments of the Companies business, such as Credit, are regulated by the Central Bank of Kuwait (CBK).

The Company is subject to the Decisions on Corporate Governance, issued by the Capital Markets Authority in June 2013. The Company is transitioning towards full compliance with the CMA Decision on Corporate Governance by the stipulated deadline of 30 June 2016. The complete Decision on Corporate Governance can be found at the following at https://www.cma.gov.kw/templates/English/pdf/decisions/decisions_27_6_2013.pdf

Code of Conduct for Board Members and Executive ManagementGlobal has in place a Code of Conduct policy applicable to the Board of Directors, Executive Management, and all the employees of Global.

Global’s Code of Conduct outlines the following issues:

Compliance with Laws, Rules and RegulationsThe Board of Directors and Executive Management are required under this section to comply with all laws, rules and regulations applicable to the Company’s business and all regions in which it operates.

Conflicts of InterestThis section prohibits events that may result in a conflict of interest. Whenever such a conflict does appear, it should be immediately disclosed to the Group Regulatory Compliance department and recorded in a register.

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Insider TradingThis section prohibits the use of non-public material information or sharing such information to trade shares and make a financial gain.

Corporate OpportunitiesThis section states that all staff, including Executive Management and Directors, may not use corporate property, information, or position for personal gain, and may not compete with the Company directly or indirectly.

Competition and Fair DealingEach Director and member of Executive Management should respect the rights of and deal fairly with the Company’s customers, suppliers, competitors and employees. No Director or member of Executive Management should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other illegal trade practice.

Political ContributionsThe Code of Conduct prohibits any political contribution, directly or indirectly in the countries in which Global operates or is looking to operate. This includes: (a) any contributions of Company funds or other assets for political purposes, (b) encouraging Directors or individual employees to make any such contribution; or (c) reimbursing Directors or employees for any contribution.

Discrimination and HarassmentEach Director and member of Executive Management should be committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment based on race, colour, religion, sex, national origin or any other protected class.

Health and SafetyEach Director and member of Executive Management has responsibility for maintaining a safe and healthy workplace for all employees and officers by following environmental, safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Violence and threatening behaviour are not permitted.

Record Keeping, Financial Controls and DisclosuresAll of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions, must be promptly disclosed in accordance with any applicable laws or regulations and must conform both to applicable legal requirements and to the Company’s system of internal controls.

ConfidentialityDirectors and members of Executive Management must maintain the confidentiality of proprietary information entrusted to them by the Company or its customers or suppliers, except when disclosure is authorized/required by laws or regulations or when a disclosure is made in the ordinary course of business on a need to know basis.

Protection and Proper Use of Company AssetsThe obligation of Directors and members of the Executive Management is to protect the Company’s assets includes the Company’s proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or unauthorized distribution of this information is a violation of Company policy. It could also be illegal and result in civil or criminal penalties.

Waiver of the Code of Business ConductAny waiver of this Code for Executive Management or Directors may be made only by the Board of Directors of Global. It will be promptly disclosed as required by law or regulation.

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Improper Influence on Conduct of AuditorsGlobal prohibits its officers and employees from directly or indirectly taking any action to coerce, manipulate, mislead or fraudulently influence Global’ s Independent Auditors for the purpose of rendering the financial statements of Global, materially misleading. Financial ReportingThe Company expects Directors and senior management to take financial reporting responsibility very seriously and provide prompt and accurate answers to inquiries related to the Company’s public disclosure requirements.

Annual AcknowledgementTo help ensure compliance with this Code of Conduct, the Company requires that all salaried employees and officers review the Code of Business Conduct and acknowledge their understanding and adherence to it, in writing, on an annual basis.

Addresses for Correspondence with the CompanyThe Board recognizes the importance of effective communication and is committed to provide timely and accurate information to primary stakeholders. Our primary stakeholders include employees, shareholders, government, regulatory bodies, clients, suppliers, rating agencies, media, communities and industry investment analysts.

Shareholders, beneficial owners and other parties for any correspondence with the company can communicate, send/deliver the documents/ correspondence to the Company at the following addresses:

Global Investment HouseGlobal Tower Sharq, Shuhada Street P.O.Box: 28807 Safat, 13149 Kuwait. Tel: (965) 2295 1000 Fax: (965) 2295 1005 Global Call Centre: (965) 180 42 42 E-mail: [email protected]

Investor Relations UnitConstitution and purposeThe Investor Relations Unit is constituted as part of the Marketing & Communications Department to enhance communication and transparency with shareholders and look into the redress of shareholders complaints.

Terms of reference- To oversee the performance of the Registrar and Transfer Agent of the Company.- To recommend measures for overall improvement in the quality of services to the investors.- To specifically look into complaints received from the shareholders of the Company.

Disclosures

Disclosures on materially significant related party transactions that may have potential conflict with the interest of the Company During 2014, the Company entered into various related party transactions, details of which can be found under Note 22 – “Related party transactions and balances” of the Consolidated Financial Statements as of 31 December 2014.

Annual Report


Value Creation for Various Stakeholders

ShareholdersRevenues grew by 72% to reach KWD 22.5 million (USD76.7 million). Fees and commission income constituted KWD 14.9 million of the total revenue. Global reported a net profit of KWD 6.5 million (USD 22.2 million), a significant increase over the profit for 2013, which stood at KWD 1.9 million (USD 6.3 million). Despite significant adverse equity markets movements in the GCC and MENA region during the last quarter of 2014, some of the Company’s flagship funds crossed the high watermark thresh-holds for incentive fee.

CustomersThe year 2014 was marked by continued success of Global’s offerings to its clients. Global’s emphasis on value enhancement for clients led to the achievement of some key accolades and laurels in 2014: - Global Al-Maamoun Fund was recognized the “Kuwait Equity Fund of the Year” by MENA Fund

Manager in January 2014- The Global Mayur Fund, Global’s India focused Hedge Fund, was recognized as the “Second Best

Performing Hedge Fund in India” by EurekaHedge in June 2014- Global’s Investment Banking Division was awarded the “Best Managed Advisory Service” by the Banker

Middle East in December 2014

EmployeesGlobal’s business strategy is focused on core fee based business. As a key cornerstone of this strategy, Global focusses extensively on promoting a culture of challenge, dedication and commitment. Our business and people strategy is led by a strong and extensively experienced Executive Management, supported by employees who are continually upskilled and trained in the use of cutting edge industry tools.

CertificateThe Responsibility Statement signed by Mr. Ibrahim Saad, Chairman and Mrs. Maha K. Al-Ghunaim, Vice Chairman & Group CEO of Global on 1 April 2015, certifying that:i the consolidated financial statements, prepared in accordance with International Financial Reporting

Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

ii the management report, or ‘Management Discussion and Analysis of Financial Performance and Results of Operations’, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Geographical Presence

Saudi ArabiaGlobal operates in the Kingdom of Saudi Arabia through Global Investment House (Saudi Arabia), a closed Saudi Joint Stock company (Global Saudi) registered with the Saudi Arabia Capital Market Authority (CMA).

Global Saudi was registered in 2007, and at the end of 2007 it received its commencement notice from the CMA. The entity acts as principal and agent provide underwriting, managing funds and portfolio investments, advisory, arranging and custodial services.

United Arab EmiratesGlobal operates in the UAE through a representative office in Dubai and is registered with the Department of Economic Development of UAE. The office was commissioned in 2005 to identify business opportunities in the local market.

2014


Global also operates in the Dubai International Financial Centre (DIFC) through Global Investment House (DIFC), a Category 4 firm authorized and regulated by the Dubai Financial Services Authority (DFSA). On 18 April 2013 the Company was licensed to undertake services in arranging credit or deals in investments and advising on financial products or credit.

OmanGlobal operates in the Sultanate of Oman through Shurooq Investment Services Holding Co. (SAOG) and its subsidiary Shurooq Securities Co. LLC. Global Kuwait holds 77% of the shares of Shurooq Investment Services Holding Co. Shurooq Investment Services Holding Co (SAOG) was acquired in 2005. Shurooq Investment Services Holding Co. and its subsidiaries are supervised by the Capital Market Authority of the Sultanate of Oman. The entity offers securities brokerage, asset management, and product placement services. The clientele includes pension funds, banks and high net worth individuals. The entity is licensed for securities brokerage, portfolio management, marketing non-Omani securities and investment advice and research.

BahrainGlobal Bahrain started its operations in May 2004. Global operates in Bahrain through Global Investment House BSC(c) (Global Bahrain), a wholly owned subsidiary of Global Investment House, Kuwait. Global Bahrain falls under the supervision of the Central Bank of Bahrain (CBB), the capital market regulator of Bahrain. The entity’s activities are principally to provide brokerage services at the Bahrain Bourse and marketing investment products and services on behalf of the parent company.

JordanGlobal operates in Jordan through Global Investment House JSC (Global Jordan). Global Jordan is a wholly owned subsidiary of Global Investment House, Kuwait. Global Jordan falls under the supervision of the Jordan Securities Commission. Global Jordan started its operations in July 2005. Global Jordan carries out asset management, investment banking services, establishment and management of investment funds, brokerage services and custody.

EgyptGlobal operates in Egypt through Global Investment House Egypt (SAE) (Global Egypt) and Global Investment House Securities (SAE) (Global Securities). Global Investment House owns 93.7% of the shareholding of Global Egypt, whereas Global Egypt owns 84.3% of Global Securities. Both companies are regulated by the Egyptian Financial Supervisory Authority (EFSA), the Egyptian Capital Market Regulator. Global Egypt started its operations in 2008 and holds the license for asset management (funds and portfolios) and advisory services (including underwriting) whereas brokerage services are offered through Global Securities.

TurkeyGlobal operates in Turkey through a representative office, registered with the Ministry of Economy. The office undertakes private equity related activities such as deal origination and investment monitoring.

Annual Report


Mrs. Al-Ghunaim, along with other distinguished members, founded Global in 1998 and has led the institution since then. She received her Bachelor of Science degree in Mathematics from San Francisco State University, California, USA in 1982. She then joined Kuwait Foreign Trading Contracting & Investment Co. (KFTCIC), and in 1997 became the AGM for Asset Management at Kuwait Investment Company. She sits on the Board of numerous companies in the region and has received several awards and recognitions from renowned local, regional and international institutions.

Mr. AL-Sumait is the Chief Executive Officer of Global Investment House since March 2009. He received his Bachelor’s degree from Chapman University in the USA and has over 35 years of experience in asset management, banking and finance, and is a prominent figure in the Kuwaiti capital market. Before co-founding Global in 1998, he was the Managing Director of the Arab Financial Consultants Company. Mr. AL-Sumait is the Chairman and Board Member of several local and regional institutions.

Maha K. Al-GhunaimVice Chairman & Group Chief Executive Officer

Bader A. AL-SumaitChief Executive Officer

EXECUTIVE MANAGEMENT

2014


Mrs. Al Roomi, a co-founder of Global, occupies the position of Executive Vice President – HR, Administration & Marketing. She has 31 years of experience in human resources and personnel administration having held several managerial positions with Kuwait Foreign Trading Contracting & Investment Co (KFTCIC) and Kuwait Investment Co. and besides her current position as Vice Chairman of Arab Leadership Academy. She has a Bachelor’s degree in Commerce – Business Administration concentration from Kuwait University.

Mrs. Mulla-Hussain joined Global in 2004 and occupies the position of Executive Vice President – Legal Affairs & Compliance. A professional with over 27 years of experience, Mrs. Mulla-Hussain held Legal Counsel positions in the Kuwait Investment Authority and the Kuwait National Petroleum Company. She has a Bachelor’s degree in law from Kuwait University.

Mr. Bhatia is a finance professional with over 29 years of experience. He joined Global in 2006 and brought with him a wealth of experience in banking, finance, accounting, auditing, consulting and financial advisory. Prior to joining Global, he was Financial Controller at National Bank of Bahrain. He has also worked with notable multinational firms including KPMG, Siemens and PricewaterhouseCoopers in various capacities. He obtained his Chartered Accountancy and Cost & Management Accountancy qualifications in 1988 and Bachelor of Commerce (with Honors) from Delhi University in 1985.

Khawla B. Al-RoomiExecutive Vice President - HR, Administration & Marketing

Nawal Mulla-HussainExecutive Vice President - Legal Affairs & Compliance

Sunny BhatiaExecutive Vice President - Chief Financial Officer

Annual Report


Overview

Global is a leading Kuwait based investment bank with operations across the GCC and wider MENA region offering a comprehensive range of financial products and services. The Company offers its clients integrated investment solutions in Asset Management, Investment Banking and Brokerage complemented by its renowned research capabilities. The company was founded in 1998 by a team of investment professionals with the aim to become the “preferred investment bank in the Middle East”.

Global is regulated by the Capital Markets Authority of Kuwait and Central Bank of Kuwait. Further its overseas operations (branches/ subsidiaries etc.) are regulated by the respective capital markets’ regulatory authorities.

Financial performance

Global’s 2014 financial results represent the strongest financial performance since 2009 and reflect that the Company is on a path of sustainable profitability. Good operating performance and an excellent capital structure has facilitated the Board’s decision of recommending distribution of 5% cash dividend to the shareholders.

Key financial highlights: - Net profit attributable to equity holders of the parent company: KD6.5 million(2013: KD1.9 million)- Total income (revenues): KD22.5 million (2013: KD13.1 million)- Earnings per share of KD0.008 (2013: KD0.004)- Total assets (balance-sheet footing) of KD100.2 million (2013: KD92.0 million)- Total fiduciary assets under management of KD1,188.2 million (2013: KD1,142.1million)- Net shareholders’ equity: KD87.3 million (2013:KD80.3 million)

Fee-based businesses (asset management, investment banking and brokerage) generated revenues of KD15.2 million, a 29.8% increase compared to 2013 fee-based businesses revenues of KD11.7 million. During the year, the Company generated a KD2.6 million other income. This included a KD1.0 million income on exit of shares received in lieu of a settlement and KD0.7 million gain on settlement of a liability and KD0.4 million of rental and dividend income.

To facilitate the expanded business activities, the operating cost base increased by 13.8% to KD14.8 million. The Company succeeded in restricting cost increases to cost items directly linked to business generation and revenue growth.

The Company has a healthy capital structure with no external debt and a capital base of KD87.3 million. The Company’s capital is conservatively deployed primarily in liquid and operating assets.

MANAGEMENT DISCUSSION AND ANALYIS OF FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS

2014


Strategy, Business Model and Operations

The Company’s strategy focuses on the growth of its three-pillar fee based business, whilst maintaining a conservative capital structure and remaining cost efficient. Global’s core operations are divided into three business segments:- Asset Management- Investment Banking- Brokerage

Asset Management

OverviewGlobal has one of the largest asset management businesses in the region by reference to assets under management. This business pillar is engaged in providing managed funds and portfolio management services on a fiduciary basis. It offers conventional and Islamic investment funds in Kuwait and other GCC and MENA markets, as well as alternative investment products, including private-equity funds, hedge funds and real estate funds with extensive geographic coverage and special situations assets. Our Asset Management team provides portfolio management services both on a discretionary and non-discretionary basis. It has a client base of approximately 3,000 consisting of high net worth individuals, family offices and institutional investors.

The strategy for equity and fixed income asset management is to offer a broad range of actively and passively managed GCC focused funds and attract institutional and other sophisticated investors’ assets for management by offering bespoke and innovative investment solutions through discretionary portfolio management services.

Private equity asset management strategy is focused on value creation and enhancement of existing portfolio investments, identifying suitable investment opportunities for deployment of available investable funds, monetizing portfolio investments ripe for exits and raising new funds for pre-identified investment opportunities. Real estate asset management team is focusing its efforts towards expediting monetizing of the legacy investments and raising new funds for pre-identified income yielding assets or pre-identified property developments. Global also aims to attract mandates for managing pool of distressed or special situation assets.

As at 31 December 2014, the Asset Management team managed 24 funds and clients’ portfolios with an aggregate net asset value of KD1,188.2 million (2013: KD1,142.1million), representing diverse investment themes and strategies.

2014 PerformanceDuring 2014, the Asset Management business remained resilient with KD1,188.2 million (US$4.1 bn) of assets under management. This segment contributed KD12.0 million to revenues (2013: KD9.5 million).

Global funds outperformed their respective indices and peers and received industry accolades. In Kuwaiti Islamic funds category, Al-Durra Islamic Fund was ranked 2nd (in a league table of 9 funds), whereas among the Kuwaiti conventional funds, Global 10 Large Cap Index Fund was ranked 8th in a league table of 14 funds. Mayur Hedge Fund was ranked first in the Emerging Markets - Asia category for May 2014 featured in BarclayHedge’s monthly performance rankings. The fund was ranked second globally among all the India focused hedge funds by Eureka Hedge in June 2014 and was categorized as one of the best performing India Hedge Funds in a Bloomberg article in August 2014. Global Distressed Fund has been consistently ranked among the world’s top ten performing funds within its category. The fund was ranked seventh in the Fund of Funds – Distressed Securities/Event-Driven category for July 2014 featured in BarclayHedge’s monthly performance rankings, and was ranked fourth in May 2014.

Discretionary portfolio management services, particularly in Saudi Arabia, attracted excellent client interest resulting in gross new money raised of US$75 million. The total assets managed by Global Saudia through Global Saudi Equity Fund and Global Saudi Islamic Equity Fund (Al Noor) stood at US$170 million at the end of December 2014 placing Global’s Saudi operations among the most dominant non-bank fund managers in the Kingdom.

Private equity and real estate funds managed by Global distributed US$27.1 million during 2014 from exits and returns generated from the underlying investments. With this, the total amount distributed to investors exceeded US$323.5 million in the past five years.

Annual Report


Investment Banking

OverviewInvestment Banking provides private placements and public offerings of GCC and MENA equity and debt securities, merger and acquisition advice, listings, financial advisory and debt restructuring services. In respect of industry span, our Investment Banking segment has multi-sector capabilities covering financial services, insurance, retail, telecom, healthcare, manufacturing and real estate sectors.

Global’s Investment Banking has helped to develop and maintain a loyal client base, including local and regional financial institutions, pension funds, corporate clients and the high net worth individuals across the GCC and MENA regions.

Future strategy for this business pillar is to focus and grow in Kuwait and Saudi Arabia and offer advisory services focusing on areas such as mergers and acquisitions, corporate advisory and restructuring to reflect current market conditions.

2014 PerformanceDespite a challenging market environment, Investment Banking continued to look for opportunities and pitch for mandates and signed several mandates with regional companies to provide them with financial advisory services. During 2014 the Investment Banking team successfully concluded an M&A transaction for a Kuwaiti company in the financial sector and advised an industrial company in Kuwait on its KD130 million debt restructuring.

During 2014 the Investment Banking revenues increased to KD1.2 million from KD0.4 million in 2013.

Brokerage

OverviewGlobal has brokerage licenses in Kuwait, Bahrain, Jordan, Oman and Egypt through a network of branch offices/subsidiaries and associates. Kuwait brokerage licence was acquired during 2008, through acquisition of First Brokerage, one of the 14 floor brokers in the State of Kuwait.

Our Brokerage provides a range of securities dealing and trading, margin trading and arranging securities custody services. Global Brokerage offers trading of equities, selected fixed income securities and access to Global’s research.

2014 PerformanceGCC equity markets traded volumes experienced a significant decline in 2014 compared to 2013. Global brokerage made focused efforts to grow the institutional brokerage business and consequently the research unit was integrated with the brokerage. These efforts contributed to market share gains particularly in Kuwait market. During 2014 Brokerage revenues increased to KD2.0 million from KD1.8 million in 2013. Growth plans for brokerage aim to capitalize on access to multiple markets and Global’s pool of asset management client base. Global’s market leadership position in research is also expected to assist in establishing brokerage operations. Global Brokerage has been successfully implementing its strategy of attracting institutional clients and institutional trading business.

Regional Presence

For the first five years of our operations, we focused primarily on investment products in Kuwait and offering Kuwaiti, GCC and international products in the Kuwait market. After establishing our position in Kuwait, we commenced a strategy of geographical expansion by establishing branches and subsidiaries in other GCC countries and the broader MENA region. Global currently has a local presence in 6 countries. We have been building our presence in the GCC and MENA with a strategic focus on becoming a key local player in each market. Global aims to increase its asset management and investment banking revenues from its regional operations in Kingdom of Saudi Arabia, aims to increase its brokerage revenues from its operations in Jordan, Egypt and Oman and generate investment banking advisory revenues from its Dubai International Financial Centre (DIFC) operations.

2014


Risk Management

The recognition and management of risk is an essential element of the Group’s risk strategy. The Board, being ultimately responsible for the management of risks associated with the Group’s activities, has established a framework of Board Committees, policies and controls to identify, assess, monitor and manage risk. Risk strategies and policies are approved by the Board. The Head of Group Risk Management reports directly to the Chairman of the Board and has access to the Board of Directors. In the ordinary course of business, the company assumes credit, market, operational and liquidity risk. Note 26 of the Consolidated Financial Statements provide information on the significant financial risks and the Company’s approach to measure, monitor and manage those risks.

The Company’s capital structure and asset allocation is conservative. The Company capital structure consists of shareholders’ equity of KD87.3 million with no debt. Total current liabilities of KD11.0 million mainly consist of trade payables, provisions and staff entitlements related accruals. The Company’s capital is conservatively deployed reflected by the allocation of its KD100.2 million total assets as follows:

Cash and cash equivalents 55%

Co-investments in own funds 10%

Loans to clients 6%

Fixed assets 11%

Residual investments 9%

Trade receivables and others 9%

The Company’s balance sheet is subject to minimal market risk since only 19% of total balance sheet is in form of investments. Consequently 81% of the Company’s balance sheet is not likely to be impacted by short-term market price movements.

The Company’s fee-based business model aims to seek growth by minimal use of balance sheet and leverage.

Research

Global Research maintained its stature as one of the market leaders in the region in terms of fundamental, technical, economic and sector-based research. The segment consists of 3 professionals comprising of MBAs/CFAs/ACCAs with over 30 years of collective work experience; their jobs entailing identification and analysis of potential investments through production of sell-side research and economic/sector notes.

Global Research boasts an extensive coverage across all major sectors including Banking, Telecom, Petrochemical, Logistics, Energy, Investments, Real Estate and Cement and Building Materials companies in the region. It covers over 50 companies that collectively account for around 50% of the market capitalization of regional stock exchanges. Global Research also keeps a vigilant eye over the events affecting the local economies and produces periodic economic updates on all the major countries in the region. Global Research prides itself in maintaining strong relationships with managements of corporate entities and frequently approaches fund managers to pitch new ideas and investment themes. Global Research’s products are utilized as a time-tested and effective tool by the brokerage group in attracting, facilitating and retaining institutional/HNW clients.

Global Research is available on major platforms such as Bloomberg, Thomson Reuters, Zawya, Factset, Capital IQ and the team contributes articles/comments to international magazines and news bureaus including Bloomberg, Reuters, Zawya Dow Jones, MEED and Euromoney Magazine among others. It is also regularly approached by local and international newspapers for comments on financial and economic events. Global Research team members actively participate in many international/regional conferences and the team also acts as a regional think-tank by making relevant thematic/economic reports.

We continue to owe our success to Global employees who have the requisite experience, technical skills, professional qualifications and accreditations and high ethical values. Global leaders focused on sustaining a positive internal atmosphere through employee engagement and internal communication.

Our efforts to improve employee productivity and rationalize our cost base were successful.

Annual Report


GLOBAL INVESTMENT HOUSE K.P.S.C.

Statement of Directors Responsibilities in respect to the Consolidated Financial Statements and Management Discussion and Analysis of Financial Performance

We confirm that to the best of our knowledge:

a) the consolidated financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the undertakings included in the consolidation taken as a whole; and

b) the management report, or ‘Management Discussion and Analysis of Financial Performance & Results of Operations’, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.


Maha Khaled Al-GhunaimVice Chairman & Group CEO

1 April, 2015

RESPONSIBILITY STATEMENT

2014


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Independent Auditors’ Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

Consolidated Statement of Changes In Equity

Notes to the Consolidated Financial Statements

ConsolidatedFinancial

Statements

Annual Report


Ernst & YoungAl Aiban, Al Osaimi & PartnersP.O. Box 7418-21st Floor, Baitak TowerAhmed Al Jaber StreetSafat Square13001, Kuwait

Tel : +965 2 295 5000Fax: +965 2 245 [email protected]/mena

Report on the Consolidated Financial StatementsWe have audited the accompanying consolidated financial statements of Global Investment House K.P.S.C. (the “Parent Company”) and its subsidiaries (together the “Group”), which comprise the consolidated statement of financial position as at 31 December 2014, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial StatementsManagement of the Parent Company is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted for use in the State of Kuwait, 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’ ResponsibilityOur 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’ judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2014, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted for use in the State of Kuwait.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF GLOBAL INVESTMENT HOUSE K.P.S.C.

Global Investment House K.P.S.C. and its Subsidiaries

2014


Report on Other Legal and Regulatory MattersFurthermore, 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 Companies Law No 25 of 2012, as amended and its executive regulation, and by the Parent Company’s Memorandum of Incorporation and Articles of Association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law No 25 of 2012, as amended and its executive regulation, or of the Parent Company’s Memorandum of Incorporation and Articles of Association have occurred during the year ended 31 December 2014 that might have had a material effect on the business of the Parent Company or on its financial position.

We further report that, during the course of our audit, we have not become aware of any violations of the provisions of Law No 32 of 1968, as amended, concerning currency, the Central Bank of Kuwait and the organisation of banking business, and its related regulations, or of the provisions of Law No 7 of 2010, as amended, concerning the Capital Markets Authority and its related regulations during the year ended 31 December 2014 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 AEYAL AIBAN, AL OSAIMI & PARTNERS

1 April 2015Kuwait


Annual Report


2014 2013

Notes KD ‘000 KD ‘000

CONTINUING OPERATIONSINCOMEFees and commission income 3 14,912 11,541

Interest and similar income 4 1,745 1,626

Net gain on financial assets designated at fair value through profit or loss 5 800 134

Net loss on sale of financial assets available for sale (34)Share of results of associates 15 (63) (176)

Gain (loss) on disposal of associates 405 (125)

Net loss on investment properties (12) -

Foreign exchange gain (loss) 6 2,169 (263)

Other operating income 7 2,585 386

22,507 13,123

EXPENSESPersonnel expenses 9,816 8,174

Other operating expenses 3,834 3,236

Depreciation of property and equipment 16 1,111 1,559

Interest and similar expenses - 48

Impairment losses 8 569 13,569

Provision for credit losses 13 490 1,410

15,820 27,996

PROFIT (LOSS) FROM CONTINUING OPERATIONS BEFORE KFAS, ZAKAT AND DIRECTORS’ REMUNERATION 6,687 (14,873)

Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS) (61) -

Zakat (67) (19)

Directors’ remuneration (126) -

PROFIT (LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 6,433 (14,892)

DISCONTINUED OPERATIONSProfit for the year from discontinued operations 21 - 13,590

PROFIT (LOSS) FOR THE YEAR 6,433 (1,302)

Attributable to:Equity holders of the Parent Company 6,499 1,855

Non-controlling interests (66) (3,157)

6,433 (1,302)

BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT COMPANY 9 8 fils 4 fils

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT COMPANY 9 8 fils (27) fils

CONSOLIDATED STATEMENT OF INCOMEfor the year ended 31 December 2014

The attached notes 1 to 28 form part of these consolidated financial statements.


2014



2014 2013

KD ‘000 KD ‘000

Profit (loss) for the year 6,433 (1,302)

Other comprehensive income to be reclassified to the consolidated statementof income in subsequent periods: Net unrealised (loss) gain on financial assets available for sale (17) 17

Exchange differences on translation of foreign operations 566 84Total other comprehensive income to be reclassified to the consolidated statementof income in subsequent periods:

549 101

Transferred to consolidated statements of income on sale of financial assets available for sale 34Other comprehensive income from discontinued operationstransferred to consolidated statement of income

- 4,430

Net other comprehensive income for the year 583 4,531

Total comprehensive income for the year 7,016 3,229

Attributable to:

Equity holders of the Parent Company 7,023 6,562

Non-controlling interests (7) (3,333)

7,016 3,229

Total comprehensive income for the year attributable to equityholders of the Parent Company arises from: Continuing operations 7,023 (12,589)

Discontinued operations - 19,151

7,023 6,562

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2014


Annual Report



2014 2013

Notes KD’000 KD’000

ASSETS

Cash and cash equivalents 10 54,639 44,195

Financial assets designated at fair value through profit or loss 11 16,523 16,212

Murabaha receivables 12 2,770 3,588

Loans and advances 13 2,979 3,644

Financial assets available for sale 14 2,117 1,103

Investment in associates 15 266 558

Investment properties 692 679

Property and equipment 16 10,539 11,418

Intangible assets 278 268

Other assets 17 9,355 10,289

TOTAL ASSETS 100,158 91,954

EQUITY AND LIABILITIES

Equity

Share capital 18 79,923 174,620

Share premium 18 8,796 19,218

Treasury shares 18 (8,796) (19,218)

Statutory reserve 19 862 187

General reserve 19 862 187

Cumulative changes in fair values (45) (56)

Foreign currency translation reserve 551 38

Retained earnings (accumulated losses) 5,150 (94,696)

Equity attributable to the equity holders of the Parent Company 87,303 80,280

Non-controlling interests 1,856 1,906

Total equity 89,159 82,186

Liabilities

Other liabilities 20 10,999 9,768

Total liabilities 10,999 9,768

TOTAL EQUITY AND LIABILITIES 100,158 91,954


Maha Khaled Al-GhunaimVice Chairman & Group CEO

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2014


2014



2014 2013Notes KD ‘000 KD ‘000

OPERATING ACTIVITIESProfit (loss) for the year from continuing operations 6,433 (14,892)Profit for the year from discontinued operations - 13,590Profit (loss) for the year 6,433 (1,302)

Adjustments for:Net gain on implementation of the restructuring plan 21 - (27,448)Depreciation of property and equipment 16 1,111 1,568Provision for credit losses 13 490 1,410Impairment losses 8 569 14,591Interest and similar income (1,745) (1,634)Dividend income (118) (1,552)Interest and similar expenses - 10,121Share of results of associates 63 176(Gain) loss on disposal of associate 15 (405) 125Net loss on investment properties 12 1,134Net loss on disposal of subsidiaries 21 - 5,337

6,410 2,526

Changes in operating assets and liabilities: Financial assets designated at fair value through profit or loss (223) 1,621 Murabaha receivables 1,141 1,883 Loans and advances 517 2,565 Financial assets available for sale (1,037) - Other assets 404 (4,224) Other liabilities 1,123 (857)Cash flows from operations 8,335 3,514Interest and similar income received 1,712 1,767Dividend income received 118 1,552Interest and similar expenses paid - (88)Net cash flows from operating activities 10,165 6,745

INVESTING ACTIVITIESProceeds from capital redemption / disposal of associates 15 596 977Investments in associates 15 (42) - Dividend received from associates - 597Purchase of property and equipment 16 (232) 106Investment in deposits 10 (9,356) - Dividend paid to non-controlling interests (43) - Net cash flows (used in) from investing activities (9,077) 1,680

FINANCING ACTIVITIESRepayment of short term borrowings - (3,381)Repayment of short term borrowings included in disposal Group - (2,281)Cash and cash equivalent of subsidiaries included in disposal Group transferred to lenders - (4,810)Cash and cash equivalent transferred to lenders included in disposal Group held for sale - (10,245)Net cash flows used in financing activities - (20,717)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,088 (12,292)Cash and cash equivalents at 1 January 44,195 56,487CASH AND CASH EQUIVALENTS AT 31 DECEMBER 10 45,283 44,195

CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2014


Annual Report


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’000

KD’0

00KD

’000

KD’0

00KD

’000

KD’0

00KD

’000

As

at 1

Janu

ary

2014

174,

620

19,2

18(1

9,21

8)18

718

7(5

6)38

(94,

696)

80,2

801,

906

82,1

86

Profi

t (lo

ss) f

or th

e ye

ar-

- -

- -

- -

6,49

96,

499

(66)

6,43

3

Oth

er c

ompr

ehen

sive

inco

me

- -

- -

- 11

513

- 52

459

583

Tota

l com

preh

ensiv

e in

com

e fo

r the

yea

r-

- -

- -

1151

36,

499

7,02

3(7

)7,

016

Tran

sfer

to re

serv

es

- -

- 67

567

5-

- (1

,350

)-

- -

Writ

e-off

of a

ccum

ulat

ed lo

sses

aga

inst

shar

e ca

pita

l (N

ote

18)

(94,

697)

- -

- -

- -

94,6

97-

- -

Canc

ella

tion

of tr

easu

ry sh

ares

(Not

e 18

)-

(10,

422)

10,4

22-

- -

- -

- -

-

Div

iden

d pa

id to

non

-con

trol

ling

inte

rest

s-

- -

- -

- -

- -

(43)

(43)

As

at 3

1 D

ecem

ber 2

014

79,9

238,

796

(8,7

96)

862

862

(45)

551

5,15

087

,303

1,85

689

,159

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2014


2014


The

atta

ched

not

es 1

to 2

8 fo

rm p

art o

f the

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ty h

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ium

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utor

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serv

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ener

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Cum

ulat

ive

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ges

in fa

ir va

lues

Fore

ign

curre

ncy

tran

slatio

nre

serv

e

Accu

mul

ated

lo

sses

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rve of

di

spos

algr

oup

held

for

sale

Sub-

tota

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on-

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ng

inte

rest

s

Non

-co

ntro

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sts

rela

ting

to

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oup

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fo

r sal

e

Tota

l

KD’0

00KD

’000

KD’0

00KD

’000

KD

’000

KD’0

00KD

’000

KD’0

00KD

’000

KD’0

00KD

’000

KD’0

00KD

’000

As

at 1

Janu

ary

2013

52,3

8519

,218

(19,

218)

- -

(69)

(38)

(82,

823)

(4,6

18)

(35,

163)

4,10

915

,658

(15,

396)

Profi

t (lo

ss) f

or th

e ye

ar-

- -

- -

- -

1,85

5-

1,85

5(2

,213

)(9

44)

(1,3

02)

Oth

er c

ompr

ehen

sive

inco

me

(loss

)-

- -

- -

1376

- 4,

618

4,70

710

(186

)4,

531

Tota

l com

preh

ensiv

e in

com

e (lo

ss) f

or th

e ye

ar-

- -

- -

1376

1,85

54,

618

6,56

2(2

,203

)(1

,130

)3,

229

Issue

of s

hare

cap

ital

122,

235

- -

- -

- -

(13,

354)

- 10

8,88

1-

- 10

8,88

1

Disp

osal

of s

ubsid

iarie

s -

- -

- -

- -

- -

- -

(805

)(8

05)

Tran

sfer

of d

ispos

al g

roup

hel

d fo

r sal

e -

- -

- -

- -

- -

- -

(13,

723)

(13,

723)

Tran

sfer

to re

serv

es

- -

- 18

718

7-

- (3

74)

- -

- -

-

As

at 3

1 D

ecem

ber 2

013

174,

620

19,2

18(1

9,21

8)18

718

7(5

6)38

(94,

696)

- 80

,280

1,90

6-

82,1

86

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2014


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2014

Annual Report



1 CORPORATE INFORMATION

The consolidated financial statements of Global Investment House K.P.S.C. (the “Parent Company”) and its Subsidiaries (collectively the “Group”) for the year ended 31 December 2014 were authorised for issue in accordance with a resolution of the Board of Directors of the Parent Company on 1 April 2015 and are subject to the approval of the general assembly of shareholders. The annual general meeting of the shareholders of the Parent Company has the power to amend these consolidated financial statements.

The Parent Company is a Kuwaiti public shareholding company incorporated under the laws of the State of Kuwait on 16 June 1998. The Parent Company’s shares are listed on Bahrain Bourse (BSE). However, trading of its shares on BSE remains suspended. Further, the Parent Company’s shares in the form of Global Depositing Receipts (GDRs) are listed on London Stock Exchange (LSE). The Parent Company is regulated by the Capital Markets Authority of Kuwait as an investment company and Central Bank of Kuwait for financing activities.

The Group is principally engaged in provision of asset management, investment banking and brokerage activities. Its registered office is at Global Tower, Sharq, Al Shuhada St, P.O. Box 28807, Safat 13149, Kuwait.

The Group primarily operates in the Gulf Co-operation Council (GCC) and other Middle Eastern and North Africa (MENA) countries. The Ultimate Parent Company of the Group is NCH Ventures S.P.C, an entity established in the Kingdom of Bahrain.

During the year, the extra-ordinary general meeting (EGM) of the shareholders held on 21 October 2014 approved various amendments to the Parent Company’s Articles of Association (“AoA”) to make the Parent Company compliant with the amended law. In accordance with the provisions of Article 273 of the New Companies’ Law, the Parent Company is now considered as a public shareholding company by virtue of the law. Therefore the Parent Company changed the legal status in its name from Kuwaiti Shareholding Company (Closed) to Kuwaiti Public Shareholding Company (K.P.S.C.).

2.1 BASIS OF PREPARATION

The consolidated financial statements are prepared under the historical cost convention except for financial assets designated at fair value through profit or loss, certain financial assets available for sale and investment properties that have been measured at fair value.

The consolidated financial statements are presented in Kuwaiti Dinars (KD) which is the functional currency of the Parent Company, and all amounts are rounded to the nearest KD thousand except when otherwise stated.

The consolidated financial statements of the Group have been prepared in accordance with the regulations of the State of Kuwait for financial services institutions regulated by the Central Bank of Kuwait (CBK). These regulations include a requirement for adoption of all International Financial Reporting Standards (IFRS) except for the IAS 39 requirement for a collective impairment provision, which has been replaced by the CBK’s requirement for a minimum general provision.

2.2 BASIS OF CONSOLIDATION

The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries (investees which are controlled by the Parent Company). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

- Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);- Exposure, or rights, to variable returns from its involvement with the investee; and- The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

- The contractual arrangement with the other vote holders of the investee;- Rights arising from other contractual arrangements; and- The Group’s voting rights and potential voting rights.

The Group re-assesses at each reporting date whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.


2014



Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Non-controlling interests represent 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 statement of income, consolidated statement of comprehensive income and consolidated statement of changes in equity.

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 related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in the consolidated statement of income. Any investment retained is recognised at fair value.

Those subsidiaries that contribute to either of the following as at the reporting date are considered as principal subsidiaries:

a) 5% of total assets of the Groupb) 5% of total liabilities of the Groupc) 5% of the net profit/loss of the Group

Based on the above criteria the principal subsidiaries of the Group are as follows:

Equity interest

Name of subsidiary31 December

2014 31 December 2013Principalactivities

Country of incorporation

First Securities Brokerage Company K.S.C. (Closed) 71.23% 71.23% Brokerage services KuwaitGlobal Investment House Company Limited Liability-Jordan

100% 100% Brokerage Services Jordan

Global Investment House Saudia 99.86% 99.86%Asset management

and advisory services

Saudi Arabia

The financial statements of the subsidiaries are prepared for reporting dates which are typically not more than three months from that of the Parent Company, using consistent accounting policies. Adjustments are made for the effect of any significant transactions or events that occur between that date and the reporting date of the Parent Company’s financial statements. All inter-group balances and transactions, including inter-group profits and unrealised profits and losses and dividends are eliminated on consolidation.

2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Business combinations and goodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative 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 acquirer.

If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in the consolidated statement of income.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in the consolidated statement of income or as a


Annual Report



change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in the consolidated statement of income.

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 has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

b) Cash and cash equivalentsCash and cash equivalents include cash and bank balances, deposits and other short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities up to three months from the date of acquisition and that are subject to an insignificant risk of change in value.

c) Financial instruments i) Financial assets – initial recognition and measurementFinancial assets within the scope of IAS 39 are classified as “financial assets designated at fair value through profit or loss”, “loans and receivables” (“murabaha receivables”, “loans and advances”) and “financial assets available for sale”. The Group determines the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

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

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

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss represent financial assets designated upon initial recognition as at fair value through profit or loss.

Financial assets are designated upon initial recognition at fair value through profit or loss if they are managed and their performance is evaluated on fair value basis in accordance with documented investment strategy.

After initial recognition financial assets at fair value through profit or loss are remeasured at fair value with all changes in fair value recognised in the consolidated statement of income.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.


2014



Loans and receivables comprise the following:

Murabaha receivablesMurabaha is an Islamic transaction involving the purchase and immediate sale of an asset at cost plus an agreed profit. The amount due is settled on a deferred payment basis. When the credit risk of the transaction is attributable to a financial institution, the amount due under Murabaha contracts is classified as a Murabaha investment. Whereas, when the credit risk of the transaction is attributable to counterparties other than financial institutions, the amount due is classified as Murabaha receivable.

Murabaha receivables which arise from the Group’s financing transactions on an Islamic basis are classified as Murabaha receivables by the Group and are carried at the principal amount less repayment, less provision for credit risks to meet any decline in value.

All Murabaha receivables are recognised when the legal right to control the use of the underlying asset is transferred to the customer.

Loans and advancesLoans and advances are financial assets originated by the Group by providing money directly to the borrower that have fixed or determinable payments and are not quoted in an active market. Loans and advances are stated at amortised cost, net of provision for impairment losses.

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 financial assets at fair value through profit or loss, financial assets held to maturity or loans and receivables.

After initial measurement, financial assets available for sale are measured at fair value with unrealised gains and losses being recognised in other comprehensive income under the cumulative changes in fair value reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the consolidated statement of income 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 statement of income. Financial assets whose fair value cannot be reliably measured are carried at cost less impairment losses, if any.

The Group evaluates whether the ability and intention to sell its financial assets available for sale 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 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 the consolidated statement of income over the remaining life of the investment using the 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 statement of income.

iii) 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:

- rights to receive cash flows from the assets have expired; or- the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in

full without material delay to a third party under a ‘pass through’ arrangement; and either a) the 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 has transferred 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, it evaluates if and to what extent it has retained the risks and rewards of ownership when it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

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


Annual Report



iv) Financial liabilities - Initial recognition and measurementFinancial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss and loans and borrowings as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

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

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

Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the consolidated statement of income.

Financial liabilities designated upon initial recognition at fair value through profit or loss at the initial date of recognition, and only if criteria of IAS 39 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss.

Loans and borrowingsAfter initial recognition, loans and borrowings are subsequently measured at amortised cost using the EIR method. “Borrowings” and “Bonds” are classified as loans and borrowings.

Borrowings All borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the consolidated statement of income when the liabilities are derecognised as well as through the EIR amortisation process.

BondsBonds are carried on the consolidated statement of financial position at their principal amount, net of directly related costs of issuing the bonds to the extent that such costs have not been amortised. These costs are amortised through the consolidated statement of income over the life of the bonds using the EIR method.

Interest is charged as an expense as it accrues, with unpaid amounts included in other liabilities.

Amortised cost of financial instrumentsAmortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the consolidated statement of income.

vii) 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 recognised in the consolidated statement of income.

d) 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 intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

e) Fair value measurementThe Group measures financial instruments, such as, financial assets designated at fair value through profit or loss, financial assets available for sale, and non-financial assets such as investment properties, at fair value at each statement of financial position date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:


2014



- In the principal market for the asset or liability, or- In the absence of a principal market, in the most advantageous market for the asset or liability.

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

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

Fair values for financial instruments traded in active markets are based on closing bid prices. For all other financial instruments including financial instruments for which the market has become inactive, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the fair value derived from recent arm’s length transaction, comparison to similar instruments for which market observable prices exist, discounted cash flow method or other relevant valuation techniques commonly used by market participants. For investments in equity instruments, where a reasonable estimate of fair value cannot be determined, the investment is carried at cost, less impairment.

The fair value of financial instruments carried at amortised cost is estimated by discounting the future contractual cash flows at the current market interest rates for similar financial instruments.

f ) Impairment of financial instrumentsAn 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 recognition 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 reorganisation 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 statement of income.

Impairment is determined as follows:- for assets carried at amortised cost, impairment is based on estimated cash flows discounted at the original EIR; and- for assets carried at cost, impairment is the difference between actual cost and the present value of estimated future cash flows

discounted at the current market rate of return for a similar financial asset.

For non-equity financial assets 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 statement of income. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account.

Loans and advancesThe Group assesses whether objective evidence of impairment exists on an individual basis for each individual significant loan and collectively for others. The main criteria that the Group uses to determine that there is objective evidence of an impairment consideration include whether any payment of principal or interest are overdue by more than 90 days or there are any known difficulties in the cash flows including the sustainability of the counterparty’s business plan, credit rating downgrades, breach of original terms of the contract, its ability to improve performance once a financial difficulty has arisen, deterioration in the value of collateral, etc. Impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful assessment. In addition, in accordance with Central Bank of Kuwait instructions, a minimum general provision is made on all applicable credit facilities (net of certain categories of collateral) that are not provided for specifically.

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. When there is evidence of impairment, the cumulative


Annual Report



loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the consolidated statement of income - is removed from other comprehensive income and recognised in the consolidated statement of income. Impairment losses on equity investments are not reversed through consolidated statement of income; increases in their fair value after impairment are recognised directly in consolidated statement of comprehensive income.

g) Investment in associatesAn associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

The Group’s investments in its associates are accounted for under the equity method of accounting.

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.

The Group recognises in the consolidated statement of income 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 statement of income. The Group’s share of those changes is recognised directly in equity. 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.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value.

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 retained 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 retained investment and proceeds from disposal are recognised in the consolidated statement of income.

h) Investment propertiesInvestment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, all investment properties are carried at fair value that is determined based on valuations performed by independent valuers at the end of each year using valuation methods consistent with the market conditions at the reporting date. Gains or losses from change in the fair value are recognised in the consolidated statement of income.

Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the consolidated statement of income in the period of derecognition.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. Transfer from properties under development are made upon completion of the work and the property being ready for the its intended use at carrying value and subsequently fair valued at reporting date.

i) Property and equipmentProperty and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is recognised in the consolidated statement of income.


2014



The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value 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.

Depreciation is provided on all property and equipment, except land and work in progress, at rates calculated to write off the cost of each asset on a straight line basis to their residual values over its expected useful life which is between 3 to 5 years for all property and equipment except for certain building fixtures and fittings which are depreciated over expected useful life of 10 years and building civil structure which is depreciated over its expected useful life of 20 years.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.

j) Intangible assetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the consolidated statement of income in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised to their residual values 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 are reviewed at least at each financial year end. 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 treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated statement of income within other expenses. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually or more frequently if events or change in circumstances indicate the carrying value may be impaired, either individually or at the cash generating unit level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment 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 statement of income when the asset is derecognised.

k) Non-current assets held for sale and discontinued operationsThe Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss from discontinued operations in the consolidated statement of income.

Property and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Equity accounting for investment in associates ceases once classified and included under disposal group held for sale.

l) 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 pre-tax 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


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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.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of seven years. For longer periods, a long-term growth rate is calculated and applied to projected future cash flows after the seventh year.

Impairment losses of continuing operations are recognised in the consolidated statement of income in expense categories consistent with the function of the impaired asset.

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

Goodwill 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.

m) 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.

n) End of service indemnityProvision is made for amounts payable to employees under the Kuwaiti Labour Law, employee contracts and applicable labour laws in the countries where the subsidiaries operate. This liability, which is unfunded, represents the amount payable to each employee as a result of termination on the reporting date.

o) Treasury sharesTreasury shares consist of the Parent Company’s own issued shares that have been reacquired by the Group and not yet reissued or cancelled. The treasury shares are accounted for using the cost method. Under this method, the weighted average cost of the shares reacquired is charged to a contra account in equity. When the treasury shares are reissued, gains are credited to a separate account in equity, (the “treasury shares reserve”), which is not distributable. Any realised losses are charged to the same account to the extent of the credit balance on that account. Any excess losses are charged to retained earnings then to the voluntary reserve and statutory reserve. No cash dividends are paid on these shares. The issue of bonus shares increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares.

p) Foreign currency translationEach 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 balances Transactions 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 statement of income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value 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 consolidated statement of income is also recognised in other comprehensive income or consolidated statement of income, respectively).


2014



Group companies On consolidation, the assets and liabilities of foreign operations are translated into Kuwaiti Dinars at the rate of exchange prevailing at the reporting date and their statements of income are translated at average exchange rates during the period where such averages are reasonable approximation of actual rates. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the consolidated statement of income.

q) Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is made. Revenue is measured at the fair value of the consideration received or receivable. 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 a principal in most of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised:

Fees and commission incomeThe Group earns fees and commission income from diverse range of asset management, investment banking, custody and brokerage services provided to its customers. Fee income can be divided into the following two categories:

• Fee income earned from services that are provided over a certain period of timeFees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management fees.

• Fee income from providing transaction servicesFees arising for rendering specific advisory services, brokerage services, equity and debt placement transactions for a third party or arising from negotiating or participating in the negotiation of a transaction for a third party are recognised on completion of the underlying transaction.

Interest and similar income Interest and similar income are considered as an integral part of the effective yield of a loan and murabaha receivable and is recognised using the effective yield method, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Profit on murabaha receivable is included under interest and similar income in the consolidated statement of income.

DividendsDividend income is recognised when the Group’s right to receive the payment is established.

r) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

s) KFAS, Zakat and taxationKuwait Foundation for the Advancement of Sciences (KFAS)The contribution to KFAS is calculated at 1% of taxable profit of the Group in accordance with the modified calculation based on the Foundation’s Board of Directors’ resolution, which states that income from associates and subsidiaries, Board of Directors’ remuneration, transfer to statutory reserve should be excluded from profit for the year when determining the contribution.

ZakatContribution to Zakat is calculated at 1% of the profit of the Group in accordance with the Ministry of Finance resolution No. 58/2007 effective from 10 December 2007.

Taxation on overseas subsidiariesTaxation 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.

t) Fiduciary assetsAssets and related deposits held in trust or in a fiduciary capacity are not treated as assets or liabilities of the Group and accordingly are not included in the consolidated statement of financial position.


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

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

2.4 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

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 accompanying disclosures 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.

Judgments In 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 instrumentsJudgements are made in the classification of financial instruments based on management’s intention at acquisition.

Classification of financial assets as fair value through profit or loss depends on how management monitors the performance of these financial assets. When they are not classified as held for trading but have readily available fair values and the changes in fair values are reported as part of consolidated statement of income in the management accounts, they are classified as fair value through profit or loss.

Classification of financial assets as loans and receivables depends on the nature of the asset. If the Group is unable to trade these financial assets due to inactive market and the intention is to receive fixed or determinable payments the financial asset is classified as loans and receivables.

All other financial assets are classified as available for sale.

Classification of real estate Management decides on acquisition of a real estate whether it should be classified as property held for development or investment property.

The Group classifies property as investment property if it is acquired to generate rental income or for capital appreciation, or for undetermined future use.

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. In making this judgement, the group evaluates among other factors, historical share price movement, duration and extent to which the fair value of investment is less than cost

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 companies, 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 statement of income.

Control assessmentWhen determining control, management considers whether the Group has the practical ability to direct the relevant activities of an investee on its own to generate returns for itself. The assessment of relevant activities and ability to use its power to affect variable return requires considerable judgment.

Structured entitiesThe Group uses judgment in determining which entities are structured entities. If the voting or similar rights are not the dominant factor


2014



in deciding who controls the entity and such voting rights relate to the administrative tasks only and the relevant activities are directed by means of contractual arrangements, the Group identifies such entities as structured entities. After determining whether an entity is a structured entity, the Parent Company determines whether it needs to consolidate this entity based on the consolidation principles of IFRS 10. The management of the Parent Company has determined that it does not have any such structured entities that requires consolidation.

The management has determined that the Investment Funds managed by the Parent Company on fiduciary basis are not structured entities considering voting and similar right available to the unit holders of the Investment Fund. The Parent Company’s interest in these Investment Funds (if any) is classified as financial assets designated at fair value through profit or loss. The Parent Company is the major shareholder of certain entities either for the Parent Company’s investment banking mandates or for the Parent Company’s assets management activities. The Parent Company has no material direct beneficial interest in these entities and accordingly they are not consolidated into the Group’s consolidated financial statements. Further, the Parent Company has not directly earned any revenue from these entities or transferred any assets to these entities during the year.

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 that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Impairment of goodwill and intangible assets The Group determines whether goodwill and 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.

Valuation of unquoted investmentsValuation of unquoted equity investments is normally based on one of the following:

- Recent arm’s length market transactions;- Price to book value or earnings model;- The expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; or- Other valuation models.

Useful lives of depreciable assetsManagement reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utility of certain software and equipment.

Impairment of loans to customersAn estimate of the collectible amount of loans to customers 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.

2.5 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 amendments to IFRS effective as of 1 January 2014:

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10: Consolidated Financial Statements; and must be applied retrospectively, subject to certain transition relief. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Group, since Parent company is not an investment entity under IFRS 10


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Offsetting Financial assets and Financial liabilities - Amendments to IAS 32These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting and is applied retrospectively. These amendments have no impact on the Group, since none of the entities in the Group has any significant offsetting arrangements.

Other amendments to IFRSs which are effective for annual accounting period from starting from 1 January 2014 did not have any material impact on the accounting policies, financial position or performance of the Group.

Annual improvements 2010-2012 Cycle In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus, for periods beginning at 1 January 2014, and it clarifies in the Basis for Conclusions that short-term receivables and payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is immaterial. This amendment to IFRS 13 has no impact on the Group.

Annual improvements 2011-2013 CycleIn the 2011-2013 annual improvements cycle, the IASB issued four amendments to four standards, which included an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendment to IFRS 1 is effective immediately and, thus, for periods beginning at 1 January 2014, and clarifies in the Basis for Conclusions that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first IFRS financial statements. This amendment to IFRS 1 has no impact on the Group, since the Group is an existing IFRS preparer.

2.6 STANDARDS ISSUED BUT NOT YET EFFECTIVE

The standards and interpretations that are 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.

IFRS 9 Financial Instruments (effective for annual periods on or after 1 January 2018)In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February 2015. The adoption of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but no impact on the classification and measurement of the Group’s financial liabilities.

IFRS 15 Revenue from Contracts with Customers (effective for annual periods on or after 1 January 2017)IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2017 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.

Annual improvements 2010-2012 CycleThese improvements are effective for annual periods beginning on or after 1 July 2014 and are not expected to have a material impact on the Group. The ones relevant to the Group include:

IFRS 3 Business CombinationsThe amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable).

IFRS 8 Operating SegmentsThe amendments are applied retrospectively and clarifies that:- An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including

a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins)


2014



used to assess whether the segments are ‘similar’- The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating

decision maker, similar to the required disclosure for segment liabilities.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible AssetsThe amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or the net carrying amount. In addition, the accumulated depreciation or amortisation is the difference between the gross and carrying amounts of the asset.

IAS 24 Related Party DisclosuresThe amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entitythat uses a management entity is required to disclose the expenses incurred for management services.

Annual improvements 2011-2013 CycleThese improvements are effective for annual periods beginning on or after 1 July 2014 and are not expected to have a material impact on the Group. The ones relevant to the Group include:

IFRS 3 Business CombinationsThe amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:- Joint arrangements, not just joint ventures, are outside the scope of IFRS 3- This scope exception applies only to the accounting in the financial statements of the joint arrangement itself

IFRS 13 Fair Value MeasurementThe amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable).

IAS 40 Investment PropertyThe description of ancillary services in IAS 40 differentiates between investment property and owner-occupiedproperty (i.e., property, plant and equipment). The amendment is applied prospectively and clarifies that IFRS 3, and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase ofan asset or business combination.

3 FEES AND COMMISSION INCOME

2014 2013

KD ‘000 KD ‘000

Management fees on assets under management 11,474 9,756

Incentive fees on assets under management 755 36

Placement fees/redemption fees – managed funds 47 16

Investment banking and advisory fees 1,201 442

Brokerage fees 1,435 1,291

14,912 11,541


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4 INTEREST AND SIMILAR INCOME

2014 2013KD ‘000 KD ‘000

Interest on cash and cash equivalents 369 355Profit on murabaha receivables 179 284Interest income – Margin trading 519 468Interest on loans and advances 678 519

1,745 1,626

5 NET GAIN ON FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

2014 2013KD ‘000 KD ‘000

Net gain (Level 1) 1,048 629Net loss (Level 2 and Level 3) (248) (495)Net realised and unrealised gain recognised in consolidated statement of income 800 134

6 FOREIGN EXCHANGE GAIN (LOSS)

Foreign exchange gain of KD 2,169 thousand for the year (2013: loss of KD 263 thousand) is arising on account of translation gains (2013: translation losses) on net long balances held in US Dollar and in other currencies pegged to US Dollar resulting from 3.8% appreciation (2013: 0.3% appreciation) in US Dollar against Kuwaiti Dinar during the year.

7 OTHER OPERATING INCOME

2014 2013KD ‘000 KD ‘000

Dividend income 118 102Rental income 331 87Other income 2,136 197

2,585 386

Other income includes a gain of KD 1,048 thousand arising on recovery of certain receivables and a gain of KD 702 thousand arising on settlement of a liability.

8 IMPAIRMENT LOSSES

2014 2013 KD ‘000 KD ‘000

Impairment of associates (Note 15) - 2,696Impairment of intangible assets - 7,730Other 569 3,143

569 13,569


2014



9 BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT COMPANY

Basic earnings (loss) per share is computed by dividing the profit (loss) for the year attributable to the equity holders of the Parent Company by the weighted average number of shares outstanding during the year less treasury shares. Diluted earnings (loss) per share is calculated by dividing the profit (loss) for the year attributable to the equity holders of the Parent Company by the weighted average number of shares. The Parent Company had no outstanding dilutive potential shares.

The following reflects the profit (loss) and shares data used in the basic and diluted earnings (loss) per share computations:

2014 2013

Profit (loss) for the year attributable to the equity holders of the Parent Company from continuing operations (KD’000)

6,499 (12,679)

Profit for the year attributable to the equity holders of the Parent Company from discontinued operations (KD’000)

- 14,534

Profit for the year attributable to the equity holders of the Parent Company (KD’000) 6,499 1,855Weighted average number of ordinary shares for basic and diluted loss per share (excluding treasury shares) (in ‘000’)

785,962 476,338

Basic and diluted earnings per share attributable to the equity holders of the Parent Company 8 fils 4 filsBasic and diluted earnings (loss) per share from continuing operations attributable to the equity holders of the Parent Company

8 fils (27) fils

In accordance with International Accounting Standard IAS 33: “Earning per share”, the prior year comparative information has been restated for the effect of reduction of share capital and cancellation of treasury shares (Note 18).

10 CASH AND CASH EQUIVALENTS

2014 2013

KD ‘000 KD ‘000

Bank balances and cash 8,637 9,626

Bank balances and cash arising on consolidation 11,205 13,064

Deposits with banks arising on consolidation 1,500 -

Deposits with banks 33,297 21,505

54,639 44,195

Less: Deposits with banks with maturity of more than three months (9,356) -

Cash and cash equivalents in the consolidated statement of cash flows 45,283 44,195

Bank balances earn interest at floating rates.

11 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

2014 2013

KD ‘000 KD ‘000

Unquoted equity securities 1,534 1,423

Quoted equity securities 4,605 3,756

Managed funds and portfolios 10,384 11,033

16,523 16,212


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12 MURABAHA RECEIVABLES

2014 2013

KD ‘000 KD ‘000

Murabaha receivables 2,893 3,711

Less: provision for credit losses (123) (123)

2,770 3,588

Murabaha receivable arises from murabaha transactions with the principal amount and profit thereon being recoverable over a one year period from the date of the transaction. The average profit rate over the period was 5.2% (2013: 5.3%) per annum.

13 LOANS AND ADVANCES

2014 2013

KD ‘000 KD ‘000

Gross amount 13,169 13,549

Less: Provision for credit losses (10,190) (9,905)

2,979 3,644

Loans are granted to GCC companies and individuals and are secured against investments in the funds and securities held in fiduciary portfolios by the Group on behalf of the borrowers.

The policy of the Group for calculating the provision for credit losses over loans and advances complies in all material respects with the general provision requirements of Central Bank of Kuwait. In this respect the Central Bank of Kuwait requires a general provision of at least 1% on all credit facilities not subject to specific provision. The Group records specific provision in accordance with Central Bank of Kuwait regulations and IFRS.

The movement in the provision for credit losses relating to loans and advances during the year is as follows:

2014 2013

KD ‘000 KD ‘000

At 1 January 9,905 8,707

Write offs (205) -

Reversal of provision to the consolidated statement of income (130) (1,330)

Charge for the year 620 2,528

At 31 December 10,190 9,905

14 FINANCIAL ASSETS AVAILABLE FOR SALE

2014 2013KD ‘000 KD ‘000

Quoted equity securities 287 247Managed funds and portfolios 1,000 - Unquoted equity securities 830 856

2,117 1,103


2014



15 INVESTMENT IN ASSOCIATES

As at 31 December 2014, the aggregate and individual carrying values of investment in associates are not material to the consolidated financial statements of the Group.

The movement in the carrying value of investments in associates is as follows:

2014 2013

KD ‘000 KD ‘000

As at 1 January 558 4,522

Additions 42 -

Disposals (191) (1,102)

Transfers to financial assets designated at fair value through profit or loss - (17)

Share of results (63) (176)

Impairment charge for the year - (2,696)

Foreign currency translation adjustments (80) 27

As at 31 December 266 558

The fair value of investments in associates could not be reliably measured. Management considers that the fair values are unlikely to be materially different from the carrying values.

16 PROPERTY AND EQUIPMENT

Land BuildingFurniture &

fixtures

Office equipment,

computers & vehicles Total

KD’000 KD’000 KD’000 KD’000 KD’000

Cost:

As at 1 January 2014 3,214 14,556 4,574 4,007 26,351

Additions - 105 76 51 232

Disposals - - - (6) (6)

As at 31 December 2014 3,214 14,661 4,650 4,052 26,577

Accumulated depreciation:

As at 1 January 2014 - (6,737) (4,306) (3,890) (14,933)

Depreciation for the year - (835) (148) (128) (1,111)

Disposals - - - 6 6

As at 31 December 2014 - (7,572) (4,454) (4,012) (16,038)

Net book value:

As at 31 December 2014 3,214 7,089 196 40 10,539


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Land Building Furniture & fixtures

Office equipment, computers &

vehicles TotalKD’000 KD’000 KD’000 KD’000 KD’000

Cost:

As at 1 January 2013 3,214 14,556 4,667 4,036 26,473

Additions - - 71 35 106

Disposals - - (164) (64) (228)

As at 31 December 2013 3,214 14,556 4,574 4,007 26,351

Accumulated depreciation:

As at 1 January 2013 - (5,700) (4,348) (3,548) (13,596)

Depreciation for the year - (1,037) (116) (406) (1,559)

Disposals - - 158 64 222

As at 31 December 2013 - (6,737) (4,306) (3,890) (14,933)

Net book value:

As at 31 December 2013 3,214 7,819 268 117 11,418

17 OTHER ASSETS

2014 2013

KD’000 KD’000

Accrued income 3,248 2,957

Prepayments and other receivables 8,932 9,588

12,180 12,545

Less: provision for impairment (2,825) (2,256)

9,355 10,289

Movement in the provision for impairment of other assets was as follows:

2014 2013

KD 000 KD 000

As at 1 January 2,256 1,811

Charge for the year 569 445

As at 31 December 2,825 2,256

18 SHARE CAPITAL, SHARE PREMIUM, TREASURY SHARES, AND ACCUMULATED LOSSES

(i) Share capital

Authorised Issued and fully paid

2014 2013 2014 2013

KD’000 KD’000 KD’000 KD’000

Shares of KD 0.100 each 79,923 174,620 79,923 174,620


2014



The shareholders, in their Annual General Assembly held on 14 September 2014, approved the consolidated financial statement for the year ended 31 December 2013. Shareholders approved not to pay any dividend for the year ended 31 December 2013 (2012:Nil).

The extra-ordinary general meeting (EGM) of the shareholders held on 21 October 2014 approved the write-off of accumulated losses amounting to KD 94,697 thousand against share capital. Pro-rata cancellation of treasury shares amounting to KD 10,422 thousand was made against share premium. The effect of this cancellation was recorded in the Articles of Association of the Parent Company.

The board of directors have proposed a cash dividend of 5 fils per share which is subject to the approval of the shareholders at the annual general meeting (AGM). Total cash dividend, if approved in AGM, is expected to be KD 3,930 thousand.

(ii) Treasury shares

2014 2013

Number of shares (‘000) 13,272 28,998

Percentage holding 1.66% 1.66%

Cost of treasury shares (KD’000) 8,796 19,218

The market value of the treasury shares were not determinable as the Parent Company shares are delisted / suspended from trading (Note 1).

An amount equivalent to the cost of purchase of treasury shares have been earmarked as non-distributable from general reserve, statutory reserve, retained earnings and share premium throughout the holding period of treasury shares.

19 RESERVES

i) Statutory reserveIn accordance with the Companies Law and the Parent Company’s Articles of Association, 10% of the profit for the year attributable to shareholders of the Parent Company (before contributions to KFAS, Directors’ fee and zakat) has been transferred to statutory reserve. 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 accumulated profits are not sufficient for the payment of a dividend of that amount.

ii) 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 contributions to KFAS, Directors’ fee and zakat) has been transferred to general reserve. There are no restrictions on distribution of general reserve.

General reserve is available to be distributed to shareholders at the discretion of the general assembly in ways that may be deemed beneficial, except as disclosed in (Note 18).

20 OTHER LIABILITIES

2014 2013

KD’000 KD’000

Staff related accruals 5,719 4,297

Accounts payables 3,593 3,305

Others 1,687 2,166

10,999 9,768


Annual Report



21 Discontinued Operations

Profit arising from discontinued operation during the year ended 31 December 2013 arose as a result of financial restructuring plan that was agreed by the Parent Company with the lenders on 4 December 2012 and was implemented on 22 July 2013.

This resulted in transfer of assets classified as disposal group held for sale with a net carrying value of KD 360,806 thousand to NAC Ventures S.P.C. (NAC) and issue of 1,222,350,000 new shares by the Parent Company at par value of KD 0.100 per share amounting to KD 122,235 thousand to NCH Ventures S.P.C (NCH) against settlement of Parent Company’s debt (including the interest accrued up to the date of restructuring) amounting to KD 498,453 thousand classified as liabilities directly associated with disposal group held for sale. A net gain on implementation of the restructuring plan amounting to KD 27,448 thousand was recognised in the consolidated statement of income (including loss recycled from other comprehensive income to statement of income upon transfer of assets amounting to KD 1,318 thousand). The net gain includes a gain of KD 13,354 thousand being the difference between fair value of the equity issued amounting to KD 108,881 thousand and carrying value of part of the Parent Company’s debt settled amounting to KD 122,235 thousand. Further, the difference between the par value and the fair value of new equity issued amounting to KD 13,354 thousand has been recorded in accumulated losses in the consolidated statement of changes in equity.

Other assets included in disposal group held for sale majorly represented a deposit of US Dollar 250 million (equivalent to KD 70.4 million) with a bank in United Arab Emirates (‘UAE bank’). The UAE bank refused to release this deposit alleging that it represents an advance for a potential acquisition of a bond convertible into 330 million shares of the UAE bank with a total value of AED 2,359,500,000 equivalent to KD 184.5 million and the transaction should be completed and the Parent Company should compensate it for delays in completing the transaction. The Parent Company had filed a lawsuit against the UAE bank for recovery of the deposit. On 19 July 2010, the Court of First Instance in Dubai, UAE, ruled in favour of the Parent Company and ordered the UAE bank to repay the full amount of US Dollar 250 million with interest at the rate of 9% from 8 February 2009 until the date of payment and expenses. The court judgement also rejected the counter claim filed by the UAE bank against the Parent Company.

The UAE bank and the Parent Company filed appeals against the court of First Instance judgement. On 25 April 2011, the Court of Appeal passed its verdict and ordered the UAE bank to repay the Parent Company US Dollar 250 million deposit with interest, at the rate of 9% per annum with effect from 3 December 2008 until the date of payment plus expenses. The UAE bank appealed against the verdict of the Court of Appeal at the Court of Cassation on 28 June 2011 and the Court of Cassation on 15 November 2011 decided to revert the case back to the Court of Appeal.

On 21 May 2012, the Court of Appeal passed its verdict in the case reverted to it by the Court of Cassation, and ordered the UAE bank to repay to the Parent Company USD 250 million towards the refund of deposit placed by the Parent Company plus interest at the rate of 9% with effect from 3 December 2008 till the date of repayment plus expenses. The UAE bank again appealed against the verdict of the Appeal Court at the Court of Cassation. On 18 September 2012, the Court of Cassation referred the case back to a different panel of the Court of Appeal. On 2 January 2013, the Court of Appeal issued a decision to appoint an Expert to look into the matter. On 4 February 2015 the Court of Appeals directed the Expert to examine the objections, evidence and submissions by both parties on the Expert’s report. The next hearing for the Courts of Appeals is scheduled for 15 March 2015.

The Parent Company and its legal advisors are confident of its strong legal position and are vigorously pursuing this litigation towards its successful conclusion.

For further details and the financial impact of the restructuring plan, refer note 22 of the annual consolidated financial statements of the Group for the year ended 31 December 2013.

22 Related party transactions and balances

In the normal course of business, the Group entered into various transactions with related parties (i.e. associates, shareholders, directors and executive officers of the Parent Company) concerning financing and other related services. Prices and terms of payment are approved by the Group’s management. The terms of these transactions are substantially on the same commercial basis as approved by the Group’s management, including collateral. Significant related party transactions and balances are as follows:


2014



Other related parties

Total2014

Total2013

KD’000 KD’000 KD’000

Consolidated statement of financial position

Loans and advances 100 100 -

Other assets 202 202 158

Other liabilities 929 929 -

Transactions included in consolidated statement of income

Interest and similar income 3 3 -

Fee and commission income 2,192 2,192 849

Other operating expenses - - 34

- Independent directors fee 67 67 26

- Board & board committees sitting fee, travel and other incidental expenses 32 32 -

- Fee payments to directors in accordance with EGM resolution of 21 October 2014 19 19 -

Directors remuneration subject to AGM approval 126 126 -

Key management personnel compensation

Short-term employee benefits 2,038 1,301

Termination benefits 102 83

Other long-term employee benefits 277 317

2,417 1,701

Loans and advances for the year ended 31 December 2014 carried an interest rate of 4.5% (2013:Nil) per annum. Other assets receivable from the related parties do not bear any interest and are repayable on demand.

23 SEGMENTAL INFORMATION

For management purposes the continuing operations of Group is organised into four major business segments:

Continuing operations- Assets Management: Managing of GCC, MENA and international managed funds, discretionary and non-discretionary portfolio

management, custody services and co-investments in the Group’s Asset Management products.- Investment Banking and Advisory: Private placement of equities and debt, advising and managing listings, initial public offerings (IPOs),

arranging conventional and Islamic debt, buy and sell side advisory, advising on strategy, privatisation, mergers and reverse mergers and acquisitions and debt restructuring.

- Brokerage: Quoted and unquoted equity and debt instruments brokerage activities and margin financing.- Group Treasury and Asset based Income: Managing the Parent Company’s liquidity and foreign currency requirements, lending to

corporate and individual customers and extremely limited and selective investing activities.

Discontinued operations- Principal Investment and real estate: Comprises of investing of Parent Company’s funds in private equity and quoted securities, equity

trading in GCC, MENA and other emerging markets and sale and purchase of real estate and property under development.


Annual Report



Continuing operations

AssetManagement

Investment Banking and

AdvisoryBrokerage

Group Treasury and Asset

based income TotalKD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000

2014

Revenue – fee based 12,276 1,201 1,435 - 14,912

Revenue – asset based (233) - 519 7,309 7,595

Total segment revenue 12,043 1,201 1,954 7,309 22,507

Segment result – fee based 1,644 (79) (1,922) - (357)

Segment result – asset based (233) - 519 6,504 6,790

Total segment result 1,411 (79) (1,403) 6,504 6,433

Impairment losses and provision for credit losses 570 - (1) 490 1,059

Continuing operations

AssetManagement


AdvisoryBrokerage

Group Treasury and

Asset based income Sub-total

Discontinued operations

Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000

2013

Revenue – fee based 9,808 442 1,291 - 11,541 - 11,541

Revenue – asset based (304) - 468 1,418 1,582 1,976 3,558

Total segment revenue 9,504 442 1,759 1,418 13,123 1,976 15,099

Segment result - fee based 1,896 (1,052) (10,630) - (9,786) - (9,786)

Segment result - asset based (304) - 468 (5,270) (5,106) 13,590 8,484

Total segment result 1,592 (1,052) (10,162) (5,270) (14,892) 13,590 (1,302)Impairment losses and provision for credit losses

- 7 9,179 5,793 14,979 1,022 16,001

AssetManagement


AdvisoryBrokerage

Group Treasury and

Asset based

income Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000

2014

Total segment assets 18,926 508 18,201 62,523 100,158

Total segment liabilities 1,888 450 1,304 7,357 10,999

Net segment assets 17,038 58 16,897 55,166 89,159


2014



AssetManagement


advisoryBrokerage

Group Treasury and Asset

based income TotalKD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000

2013

Total segment assets 18,288 3,766 15,880 54,020 91,954

Total segment liabilities (373) (3) (1,513) (7,879) (9,768)

Net segment assets 17,915 3,763 14,367 46,141 82,186

Geographical information Revenue (continuing operations)

2014 2013

KD’000 KD’000

Kuwait 8,080 4,752

Others 14,427 8,371

22,507 13,123

The revenue information above is based on the location where the revenue is generated. . Further, the Group does not have any inter-segment transactions.

Information on geographical allocation of assets and liabilities is given in Note 26.3.

24 FIDUCIARY ACCOUNTS

The Group manages portfolios on behalf of others, mutual funds, and maintains cash balances and securities in fiduciary accounts, which are not reflected in the Group’s consolidated statement of financial position.

The aggregate value of assets held in a fiduciary capacity by the Group at 31 December 2014 amounted to KD 1,188 million (2013: KD 1,142 million).

25 CONTINGENT LIABILITIES AND COMMITMENTS

The total outstanding contingent liabilities and commitments are as follows.

2014 2013

KD’000 KD’000

Commitments

Commitments to invest in private equity funds 294 243

Contingent liability

Irrevocable and unconditional bank guarantee 605 645

Commitments to invest in private equity fundsCommitments to invest in private equity funds represent the uncalled capital by the investment managers (general partners) of various private equity funds in which the Group has made investments. The capital can be called at the investment manager’s discretion.


Annual Report



Legal claimsLegal claims are related to claims for compensation by an individual raised in Turkey for a cancelled private equity acquisition transaction. The total claims amounted to KD 1.53 million (2013: KD 1.66 million). On 21 May 2014, the Court of First Instance rejected the claim and ruled in the favour of the Parent Company. However, the claimant has appealed in the Court of Appeal. In a similar case for a claim amounting to KD 0.04 million the Court of Appeal had rejected the claim and ruled in the favour of the Parent Company and the case was finally closed. The Parent Company has been advised by its legal advisors that it is possible, but not probable, that the action will succeed.

The Parent Company had a lawsuit against a bank in UAE and the bank has filed a counterclaim against the Parent Company. For details of this litigation refer note 21.

26 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The recognition and management of risk is an essential element of Group’s risk strategy. The Board, being ultimately responsible for the management of risks associated with Group’s activities, has established a framework of Board Committees, policies and controls to identify, assess, monitor and manage risk.

Risk strategies and policies are approved by the Board. The Head of Risk Management reports directly to the Chairman and has access to the Board of Directors.

Group’s risk policies and processes aim to protect the asset values and income streams such that the interests of shareholders and external fund providers are protected and shareholders’ return is optimised.

Group’s key quantitative risk policies include:• single obligor exposure restricted to specified percentages of shareholders’ equity;• maximum book-size limit for lending products linked to the shareholders’ equity; and• tenor limits for credit products.

The Board is responsible for the overall process and structure of corporate governance. The Board achieves compliance with corporate governance guidelines through its various committees (see further below). Management believes that the Group’s corporate governance culture is in line with other leading international financial services companies.

The Board Committees have specific terms of reference, independent non-executive director membership, Senior Management participation and access to specialist advice when necessary. The Group currently has the following Board Committees:

• Risk Committee: The Board Risk Committee is to advise the Board of Directors on matters of risk management policies and practices. The Committee is

responsible for defining the Parent Company’s risk appetite as well as promoting a risk-based approach to the management and internal controls of the Parent Company.

• Audit Committee: The Board Audit Committee board is responsible for considering the consolidated financial statements for approval by the Board,

overseeing the external and internal audit processes, focusing on compliance with legal requirements, accounting standards and listing requirements and implementing effective systems of internal control. The Board Audit Committee meets at least four times a year.

• Remuneration Committee: The Board Remuneration Committee provides recommendations with regard to the remuneration of the Vice Chairman and Group CEO,

Board Members, CEO and reviews the remuneration of other executive managers.

The most significant financial risks to which the Group is exposed are described below.

26.1 Market riskMarket risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: foreign currency risk, interest rate risk and equity price risk.

a) Foreign currency riskForeign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of change in foreign exchange rates. The Group mainly operates in the GCC and other Middle Eastern and North African countries and is exposed to foreign


2014



currency risk arising from various foreign currency exposures, primarily with respect to US Dollar, Jordanian Dinars, Bahraini Dinars, Qatari Riyals, UAE Dirham, Saudi Riyal and Omani Riyal. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

To mitigate the Group’s exposure to foreign currency risk, non-functional currency cash flows are monitored. Generally, the Group’s risk management procedures distinguish short-term foreign currency cash flows (due within twelve months) from longer-term cash flows. Where the amounts to be paid and received in specific currency are expected to largely offset one another, no further hedging activity is undertaken.

The Group had the following significant exposures denominated in foreign currencies including assets and liabilities, translated into Kuwaiti Dinar at the closing rate:

2014 2013

KD ‘000 KD ‘000

US Dollar 42,515 42,710

Jordanian Dinar 9,487 8,707

Bahraini Dinar 7,132 3,179

Qatari Riyals 7,678 4,714

UAE Dirhams 476 1,211

Saudi Riyal 4,678 4,078

Omani Riyal 2,371 2,417

The foreign currency sensitivity is determined on the following assumptions:

2014 2013

US Dollar 3.8% 0.3%

Jordanian Dinar 3.6% 0.5%

Bahraini Dinar 3.8% 0.3%

Qatari Riyals 3.8% 0.3%

UAE Dirhams 3.8% 0.3%

Saudi Riyal 3.7% 0.3%

Omani Riyal 3.7% 0.3%

The above percentages have been determined based on the average market movement in exchange rates in the previous twelve months.

If the Kuwaiti Dinar had strengthened against the foreign currencies assuming the above sensitivity, then this would have the following impact on the consolidated statement of income and equity:

Effect on results for the year

Other components of equity

2014 2013 2014 2013KD’000 KD’000 KD’000 KD’000

US Dollar (1,620) (130) - - Jordanian Dinar - - (341) (39)Bahraini Dinar (232) (7) (39) (3)Qatari Riyals (291) (13) - (1)UAE Dirhams (18) (4) - - Saudi Riyal (15) - (160) (12)Omani Riyal - - (89) (7)


Annual Report



Sensitivity to currency rate movements will be on a symmetric basis as financial instruments giving rise to non-symmetrical movements are not significant. There has been no change during the year in the methods and assumptions used in preparing the above sensitivity analysis. Exposures to foreign exchange rates vary during the year depending on the volume and nature of the transactions.

b) Interest rate riskInterest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments.

The effective interest rate (effective yield) of a monetary financial instrument is the rate that, when used in a present value calculation, results in the carrying amount of the instrument. The rate is a historical rate for a fixed rate instrument carried at amortised cost and a current rate for a floating rate instrument or an instrument carried at fair value. The Group is exposed to interest rate risk on its cash and cash equivalents, murabaha receivables, loans and advances, and assets and liabilities subject to interest rate risk included in disposal Group held for sale.

The following table illustrates the sensitivity of the profit for the year and equity to a reasonably possible change in interest rates of +100 bps (1%) and –100 bps (1%) (2013: +200 bps (2%) and –200 bps (2%)) 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 reporting 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.

2014 2013Increase/

(decrease) in interest rate


Increase/ (decrease) in interest rate

Effect on resultsfor the year

KD’000 KD’000

KD ± 1% ±85 ± 2% ±73

USD ± 1% ±221 ± 2% ±401

QAR ± 1% ±75 ± 2% ±86

BHD ± 1% ±26 ± 2% ±15

c) Equity price riskThe Group is exposed to equity price risk with respect to its equity investments. Equity investments are classified either as financial assets designated at fair value through profit or loss or financial assets available for sale.

To manage its equity price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.

The equity price risk sensitivity is determined on the following assumptions:

2014 2013

% %

Kuwait market 4% 2%

Rest of GCC market 1% 23%

MENA market 5% 5%

Other international markets 5% 6%

The above percentages have been determined based on the average market movements over the year. The sensitivity analyses below have been determined based on the exposure to equity price risks at the reporting date. The analysis reflects the impact to equity prices in accordance with the above-mentioned equity price risk sensitivity assumptions. There has been no change during the year in the methods and assumptions used in the preparation of the sensitivity analysis.

The effect on consolidated statement of income and equity as a result 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 as follows:


2014




Effect on other comprehensive income for

the year 2014 2013 2014 2013

KD’000 KD’000 KD’000 KD’000

Financial assets designated at fair value through profit or loss ±409 ±1,001 - -

Financial assets available for sale - - ±48 ±6

26.2 Credit risk Credit 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 credit policy and exposure to credit risk is monitored on an ongoing basis. The Group seeks to avoid concentrations of risks with individuals or groups of customers in specific locations or business through diversification of its activities. It also obtains security when appropriate.

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

2014 2013

KD’000 KD’000

Cash and cash equivalents 54,639 44,195

Murabaha receivables 2,770 3,588

Loans and advances 2,979 3,644

Other assets 9,355 10,289

69,743 61,716

The figures above show the maximum exposure to credit risk before the effect of mitigation through the use of master netting and collateral agreements, if any.

Information on other significant concentrations of credit risk is set out in note 26.3.

26.2.1 Credit risk from lending activitiesThe Group selectively provides credit facilities in form of short-term (maturity up to 12 months) loans and advances on a fully collateralized basis to its customers of the asset management and investment banking products. The credit sanction process typically involves customers’ credit appraisal in accordance with the Group’s credit policies.

The Group’s credit risk management associated with the lending activities is governed by the Group’s credit policies. The Group’s credit policies cover the customer eligibility criteria for credit, large exposure and concentration limits, eligible collateral, collateral valuation methodology, minimum collateralisation requirement, credit quality monitoring processes and escalation and foreclosure processes in the event of default.

In accordance with the Group’s credit policies all loans and advances with past due interest or principal obligations are considered as non-performing and are subject to specific provisions for credit losses on basis of amount of impairment determined.

26.2.2 Credit quality per financial asset categoryIn accordance with the Group’s credit risk management policies all performing credits are graded as: high or medium grade. Credit exposures are classified as ‘high grade’ when the ultimate risk of financial loss from the obligor’s failure to discharge its obligation is assessed to be extremely remote to low. Credit exposures are classified as ‘medium grade’ when the ultimate risk of financial loss from the obligor’s failure to discharge its obligation is assessed to be moderate. Whereas, the performing credit exposures when the ultimate risk of financial loss from the obligor’s failure to discharge its obligation is assessed to be high are classified as “low grade”. The group does not have any low grade financial asset at the reporting date. Non-performing credit exposures are graded as past due or impaired.

The table below shows the credit quality of gross maximum exposure before provision for credit losses by class of asset for related consolidated statement of financial position lines, based on the Group’s credit rating system.


Annual Report



Neither past due nor impaired

2014 High grade Medium gradePast due but

not impaired Impaired TotalKD’000 KD’000 KD’000 KD’000 KD’000

Cash and cash equivalents 54,639 - - - 54,639

Murabaha receivables - - 2,770 123 2,893

Loans and advances - 2,713 266 10,190 13,169

Other assets 2,983 6,372 - 2,825 12,180

57,622 9,085 3,036 13,138 82,881

Neither past due nor impaired

2013 High grade Medium grade

Past due butnot impaired Impaired Total

KD’000 KD’000 KD’000 KD’000 KD’000


Murabaha receivables - - 3,588 123 3,711

Loans and advances - 643 3,001 9,905 13,549

Other assets (excluding deferred expenses) 4,235 6,054 - 2,256 12,545

48,430 6,697 6,589 12,284 74,000

As at 31 December, the ageing of neither past due nor impaired and past due but not impaired financial assets was as follows:

Past due but not impairedNeither past

due nor impaired

< 30 days 31 – 60 days

61 – 90 days

91 – 180 days >180 days

KD’000 KD’000 KD’000 KD’000 KD’000 KD’000

2014

Cash and cash equivalents 54,639 - - - - -

Murabaha receivables - 2,770

Loans and advances 2,713 - - - - 266

Other assets 9,355 - - - - -

Past due but not impairedNeither past

due nor impaired

< 30 days31 – 60

days61 – 90

days91 – 180

days>180 days

KD’000 KD’000 KD’000 KD’000 KD’000 KD’000

2013

Cash and cash equivalents 44,195 - - - - -

Murabaha receivables - - - - - 3,588

Loans and advances 643 - - - 13 2988

Other assets 10,289 - - - - -

The fair value of collateral against the loans and advances are amounting to KD 19.6 million (2013: KD 24.1 million). The collateral typically includes listed and unlisted equity securities and units in managed funds.


2014



26.3 Concentration of assetsThe distribution of assets by geographic region and industry sector was as follows:

Kuwait GCC Asia & Africa Europe Americas Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘0002014Geographic region: 47,703 31,969 14,620 561 5,305 100,158Industry sector:Banks and financial institutions 46,245 26,921 6,994 47 4,527 84,734Real estate 256 - 699 - - 955Others 1,203 5,048 6,926 514 778 14,469

47,704 31,969 14,619 561 5,305 100,158

Kuwait GCCAsia & Africa

Europe Americas Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘0002013Geographic region: 44,236 26,423 14,425 787 6,083 91,954Industry sector:Banks and financial institutions 41,020 17,797 5,737 294 6,046 70,894Real estate 203 - 685 - - 888Others 3,013 8,626 8,003 493 37 20,172

44,236 26,423 14,425 787 6,083 91,954

26.4 Liquidity riskLiquidity risk is the risk that the Group will be unable to meet its liabilities when they fall due.

The table below summarises the maturity profile of the Group’s assets and liabilities. Maturity of cash and cash equivalents, murabaha receivables and loans and advances have been determined on the basis of the remaining period from the reporting date to the contractual maturity date. The maturity profile for financial assets designated at fair value through profit or loss, financial assets available for sale, investments in associates, investment properties, property and equipment and intangible assets is determined based on management’s estimate of liquidation of those investments. The actual maturities may differ from the maturities shown below since borrowers may have the right to prepay obligations with or without prepayment penalties.

2014 Up to 1 month

1-3months

3-12months

Over1 year Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000AssetsCash and cash equivalents 44,110 1,173 7,856 1,500 54,639Financial assets designated at fair value through tprofit or loss - - - 16,523 16,523Murabaha receivables - - 2,770 - 2,770Loans and advances 266 262 2,451 - 2,979Financial assets available for sale - - - 2,117 2,117Investments in associates - - - 266 266Investment properties - - - 692 692Property and equipment - - - 10,539 10,539Intangible assets - - - 278 278Other assets - - 9,355 - 9,355

44,376 1,435 22,432 31,915 100,158LiabilitiesOther liabilities - - 8,456 2,543 10,999


Annual Report



2013Up to 1 month

1-3months

3-12months

Over1 year Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000

Assets


Financial assets designated at fair value through profit or loss - - - 16,212 16,212

Murabaha receivables - - 3,588 - 3,588

Loans and advances 3,001 111 532 - 3,644

Financial assets available for sale - - - 1,103 1,103

Investments in associates - - - 558 558

Investment properties - - - 679 679

Property and equipment - - - 11,418 11,418

Intangible assets - - - 268 268

Other assets - - 10,289 - 10,289

47,196 111 14,409 30,238 91,954

Liabilities

Other liabilities - - 7,334 2,434 9,768

As there are no interest bearing liabilities, the Group’s maturity profile of financial liabilities based on contractual undiscounted repayment obligations are same as disclosed in the table.

27 CAPITAL MANAGEMENT

The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern and to provide adequate return to its shareholders through the optimization of the capital structure.

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

Changes were made in objectives, policies or processes for managing capital during the year ended 31 December 2013 as disclosed in notes 19 and 22 of the annual consolidated financial statements for the year ended 31 December 2013. No changes were made in objectives, policies or processes for managing capital during the year ended 31 December 2014.

The capital structure of the Group consists of the following:

2014 2013

KD ‘000 KD ‘000

Total equity 89,159 82,186

The Group monitors capital on the basis of the regulatory requirements of Companies Law No. 25 of 2012 and CMA minimum capital requirements for investment companies.

28 FAIR VALUE MEASUREMENT

Financial instruments comprise of financial assets and financial liabilities.

Financial assets consist of cash and cash equivalents, financial assets designated at fair value through profit or loss, murabaha receivables, loans and advances and other assets. Financial liabilities consist of other liabilities.

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:


2014



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.

2014 Level 1 Level 2 Level 3 Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000

Financial assets designated at fair value through profit or loss :

Unquoted equity securities - - 1,534 1,534

Quoted equity securities 4,605 - - 4,605

Managed funds and portfolios - 8,801 1,583 10,384

Financial assets available for sale :

Unquoted equity securities - - 830 830

Quoted equity securities 287 - - 287

Managed funds and portfolios - 1,000 - 1,000

Investment properties - - 692 692

2013 Level 1 Level 2 Level 3 Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000

Financial assets designated at fair value through profit or loss :

Unquoted equity securities - - 1,423 1,423

Quoted equity securities 3,756 - - 3,756

Managed funds and portfolios - 9,021 2,012 11,033

Financial assets available for sale :

Unquoted equity securities - - 856 856

Quoted equity securities 247 - - 247

Investment properties - - 679 679

During the year ended 31 December 2014, there were no transfers between level 1 and level 2 fair value measurement.

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

As at 1January

2014

Gain (loss) recorded in the

consolidated statement of

income

Net purchases, (sales and

settlements)

Gain recorded in other

comprehensive income

As at 31 December

2014KD 000’s KD 000’s KD 000’s KD 000’s

Financial assets designated at fair value through profit or loss:Unquoted equity securities 1,423 18 93 - 1,534

Managed Funds and portfolio 2,012 8 (437) - 1,583

Financial assets available for sale

Unquoted equity securities 856 - (26) - 830

Investment properties 679 (12) - 25 692


Annual Report



As at 1 January

2013

Lossrecorded in the

consolidated statement of

income

Net purchases, sales and

settlements

Gainrecorded in other

comprehensive income

As at31 December

2013KD 000’s KD 000’s KD 000’s KD 000’s

Financial assets designated at fair value through profit or loss: Unquoted equity securities 1,263 (168) 328 - 1,423

Managed Funds and portfolio 2,053 (555) 514 - 2,012

Financial assets available for sale

Unquoted equity securities 910 - (54) - 856

Investment properties 679 - - - 679

The Group recorded net gain of KD 14 thousand (2013: net loss of KD 723 thousand) in the consolidated statement of income with respect to assets classified under level 3.

Description of significant unobservable inputs to valuation of financial assets:Unquoted equity securities are valued based on book value and price to book multiple method, multiples using latest financial statements available of the investee entities and adjusted for lack of marketability discount in the range of 33% to 50%. The Group has determined that market participants would take into account these discounts when pricing the investments.

Funds and managed portfolio have been valued based on Net Asset Value (NAV) of the fund provided by the custodian of the fund or portfolio and certain managed funds were adjusted for lack of marketability discount by 15% to 20%.

A change in assumptions used for valuing the Level 3 financial instruments, by possible using an alternative ±5% higher or lower liquidity and market discount could have resulted in increase or decrease in the results by KD 156 thousand (2013: KD 172 thousand) and increase or decrease in other comprehensive income by KD 41 thousand (2013: KD 43 thousand).

Description of significant unobservable inputs to valuation of non-financial assets:Investment properties are stated at fair values which have been determined based on valuations performed by accredited independent valuers. Fair value of investment properties were determined using Mark to Market method, conducted by valuators considering transaction prices of the property and similar properties. The significant unobservable valuation input used for the purpose of valuation is the market price per square foot / meter and varies from property to property. A reasonable change in this input would result in an equivalent amount of change in fair value.

Other financial assets and liabilities are carried at amortised cost and the carrying values are not materially different from their fair values as most of these assets and liabilities are of short term maturities or are repriced immediately based on market movement in interest rates. Fair values of remaining financial assets and liabilities carried at amortised cost are estimated using valuation techniques incorporating certain assumptions such as credit spreads that are appropriate in the circumstances.

annual report 2014 - Global Investment House · Annual Report 2 Global Investment House K.P.S.C. Mr. Saad has a broad-based investment and private equity experience of over 19 years

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