2007 ANNUAL REPORT 2007
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A N N U A L R E P O R T
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A N N U A L R E P O R T
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In the Name of Allah, The Most Gracious, The Most Merciful
"And Say, Work and God and His Messenger and Believers will see your work."The Holy Qu'ran, Altawba (105)
His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah
Amir of the State of Kuwait
His Highness Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah
Crown Prince of the State of Kuwait
His Highness Sheikh Nasser Al-Mohammad Al-Ahmad Al-Sabah
Prime Minister of the State of Kuwait
Board of Directors
Chairman’s Statement
Shari’ah Supervisory Board
Shari’ah Supervisory Board Report
Financial Statements
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
B O A R D O F D I R E C T O R S
Mustafa E. Al-SalehChairman & Managing Director
Abdullah Yousef Al-SeifVice Chairman
Amr Abou El-SeoudBoard Member
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
C H A I R M A N ’ S S T A T E M E N T
Dear Shareholders,
The Board of Directors is pleased to present you with the Annual Report of Credit
Rating & Collection Company, for the year ended 31st December 2007.
To begin with, the process of the capital increase of the Company, from KWD.
15,000,000/- to KWD. 16,500,000/-, was successfully completed during the
first quarter of the year 2007 by issuing 10% bonus shares amounting to KWD.
1,500,000/-.
During 2007, with regard to the operational and non-operational revenues, the
Board of Directors continued to reactivate the Company’s objectives, in addition,
to the introduction of new sources of revenue generation either through revenues
related to debts collected from third parties or debts purchased or investments so
as to increase the total revenues of the company and realize an increased level of
profitability in line with the Islamic Shari’ah principles.
Consequently, we observed that the Company’s total assets grew to KWD.
25,175,555/- in 2007 compared to KWD. 23,909,000/- in 2006. The net equity
position rose to KWD. 24,767,654/- in 2007 compared to KWD. 23,580,000/- in
2006, thereby, representing an increase of KWD. 1,187,654/-.
As for the operational revenues, we noted an increase in collections related to third
parties, in particular, amounting to KWD. 955,749/-.
We can also observe an increase in revenues from investment profits relating to
Murabaha and Wakala activities carried out by the company, amounting to KWD.
1,270,583/- in 2007 compared to KWD. 593,443/- in 2006. In addition, it has been
noticed that the Company experienced a reduction in the total revenues amounting to
KWD. 2,393,680/- in 2007 as compared to KWD. 2,440,243 in 2006.
In terms of operational expenditure, we observe a continuation of the reduction
strategy that aims to reduce expenses in most of the major items, though the
financial statements of the years 2006 & 2007 show a normal increase in the total
expenditure, particularly in wages, salaries and other administrative expenses by
nearly 10%. In 2006, these expenses amounted to KWD. 856,352/- compared to
KWD. 969,979/- in 2007. This is attributed to many factors including the increase
in the total personnel from 56 in 2006 to 62 in 2007, representing an increase in
the senior and administrative level jobs where salaries are relatively high in order
to match the increased volume of business and upgrade the performance levels in
quality and quantity, not to mention additional operational expenditure related to the
first phase of establishment expenditure of the Company CRCQ in UAE and borne by
crc Kuwait. CRCQ started its activities by the end of the first quarter 2007.
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
It can also be observed that there were no investment provisions for the purchase of debts in 2007
as compared to KWD. 9,986/- in 2006. In addition, there was a decrease in the depreciation and
amortization expenses in 2007 by more than 50%, amounting to KWD. 17,403/- compared to KWD.
30,733/- in 2006. Furthermore, the contribution to Kuwait Foundation for the Advancement of Sciences
reduced from KWD. 13,888/- in 2006 to KWD. 12,657/- in 2007. Similarly, the National Labor Support Tax
also reduced to KWD. 29,719/- in 2007 from KWD. 32,250/- in 2006.
Consequently, we observed that total expenditure increase estimated at 10% is considered normal and
an achievement despite the company’s expansion, increase in manpower and establishment expenses of
CRCQ, UAE. This reflects the Board’s commitment to shareholders to minimize the company’s operational
and non operational expenses.
The foregoing detailed explanation outlines the reasons which contributed to the company’s net profits
in 2007 amounting to KWD. 1,333,196/- compared to KWD. 1,476,034 in 2006. Accordingly, this result
was reflected in the Earnings Per Share ratio which was 9.73 fils in 2006 compared to 8.08 fils in 2007.
This shall not be considered either as an indication of the company’s poor performance nor the low
levels of productivity of its personnel. It rather reflects an analysis of the changes that took place within
the company and a rise in the performance and productivity levels in 2007. As evidence, reference can
be made to the above mentioned details in general, and to the total revenues and expenditure levels
in particular.
Regarding the domestic achievements of the company, four new major collection contracts involving
leading diversified companies were concluded in 2007 with the results to be witnessed in 2008. On the
regional level, crc in co-operation with Al-Qudra Credit Rating & Collection Company, contributed actively
to the business commencement and actual operations of CRCQ in UAE. In addition, the Company has also
initiated consultations with several parties to establish similar companies in Qatar, Bahrain, Egypt and
Saudi Arabia, in line with the implementation of the Board of Directors commitment to this effect.
On this occasion, the Board of Directors would like to emphasize that Credit Rating & Collection Company
was established in Kuwait as a financial services provider to various sectors of the local economy.
Diversification and maintaining a balance among the various revenue generating divisions of the company
shall be the basis for the company’s success in the long term in pursuit of the Company’s commitment
to move forward towards the next stage of profit generation and profit growth. Eventually, the Board
Of Directors would like to extend their sincere gratitude and appreciation to all shareholders for their
continued support and assistance, to all staff members for their relentless efforts exerted towards the
interests of the company in order to push forward the march towards progress.
Wishing everyone success and prosperity in all endeavours.
Mustafa E. Al-SalehChairman & Managing Director
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
S H A R I ’ A H S U P E R V I S O R Y B O A R D
Sheikh Yousef Hassan Al-SharrahChairman
Sheikh Esam Khalaf Al-AnziBoard Member
Sheikh Ali Ibrahim Al-RashedBoard Member
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
S H A R I ’ A H S U P E R V I S O R Y B O A R D R E P O R T
In the Name of Allah, the Most Gracious, the Most Merciful
We have reviewed the activities of Credit Rating & Collection Company as well as its contracts and investment transactions and studied the Company’s commitment to the Islamic Shari’ah principles and provisions, as well as our Fatwas, directions and decisions during the year ended 31st December 2007.
Since crc’s assured conformity to the Islamic Shari’ah principles and provisions is an obligation of its executive management, hence, our responsibility is restricted to issue an independent judgement based on our study of crc’s activities and this report preparation.
Furthermore, our continuous review included the examination of crc’s documents and application of procedures and policies, and the study of each and every transaction at a specific time.
Similarly, our review was planned and executed, bearing in mind, the collection of relevant information and opinions deemed necessary to provide ample evidence and reasonable assurance that no violation has occurred to the principles and provisions of the Islamic Shari’ah.
We, hereby, believe that:
1. The contracts, investment transactions and activities conducted and concluded during the year ended 31st December 2007 by crc, were practiced in compliance with the guidelines of the Islamic Shari’ah.
2. Zakat calculation was ruled in compliance with the guidelines of the Islamic Shari’ah as well.
This is to the best of our knowledge.
Sheikh Yousef Hassan Al-SharrahChairman
Sheikh Esam Khalaf Al-AnziBoard Member
Sheikh Ali Ibrahim Al-RashedBoard Member
Auditors' Report to the Shareholders
Balance Sheet
Statement of Income
Statement of Cash Flows
Statement of Changes in Shareholders' Equity
Notes to the Financial Statements
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AUDITOR’S REPORT TO THE SHAREHOLDERS
Report on the Financial StatementsWe have audited the accompanying financial statements of Credit Rating and Collection Company K.S.C. (Closed) which comprise the balance sheet as at December 31, 2007, and the related statements of income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted in the State of Kuwait. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.
Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in 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 financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Credit Rating and Collection Company K.S.C. (Closed) - as at December 31, 2007 and the results of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Other legal and regulatory requirements Furthermore, in our opinion proper books of account have been kept by the company and the financial statements together with the contents of the report of the board of directors relating to these financial statements, are in accordance therewith. We further report that we obtained all the information and explanation that we required for the purpose of our audit and that the financial statements incorporate all information that is required by the Commercial Companies Law as amended, and by the company’s articles of association , that an inventory was duly carried out and that, to the best of our knowledge and belief , no violations of the Commercial Companies Law nor of the company’s articles of association have occurred during the year that might have had a material effect on the business of the company or on its financial position.
Al - Waha Auditing OfficeAli Owaid RukheyeesMember of the International Group of Accounting FirmsP. O.. Box 27387 Safat, 13134 State of KuwaitTel: (965) 2423415 / 7, 2424919Fax: (965) 2422026
BDO Burgan - International AccountantsAli Al Hassawi & Co. - Member of BDO InternationalP. O.. Box 22351 Safat 13084 KuwaitSharq - Dasman Complex - Block 2 - 9 FloorTel: 2464574 - 6 / 2426862 - 3 Fax: (965) 2414956Email: [email protected]
Ali A. Al Hasawi Ali Awaid RukhaeyesLicence No. 30 (A)BDO Burgan - International Accountants February 11, 2008State of Kuwait
Ali Awaid RukhaeyesLicence No. 73 (A)Member of Certified Public Accountants Society of (Montana)Member of The International Group of Accounting Firms (igaf)
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
B A L A N C E S H E E T As of December 31, 2007(All amounts are in Kuwaiti Dinars)
Note 2007 2006
Assets
Current assets
Cash and cash equivalent 4 911,576 679,067
Investments at fair value - income statement 5 17,662,410 18,846,132
Murbaha and Wakala investments 6 3,393,490 3,418,978
Accounts receivable and other debit balances 7 562,320 449,235
22,529,796 23,393,412
Non-current assets
Investments available for sale 8 272,450 288,590
Investment in purchased debts 193,504 167,697
Investment in associate 9 2,131,650 -
Property and equipment 10 42,193 49,503
Intangible assets 11 5,962 9,982
2,645,759 515,772
Total Assets 25,175,555 23,909,184
Liabilities and equity
Current liabilities
Due to banks - 16,928
Accounts payable and other credit balances 12 299,799 242,680
299,799 259,608
Non-current liabilities
End of service indemnity 108,102 69,891
Equity
Share capital 13 16,500,000 15,000,000
Share premium 5,400,000 5,400,000
Statutory reserve 14 612,477 471,847
Voluntary reserve 15 312,150 316,747
Retained earnings 1,943,027 2,391,091
24,767,654 23,579,685
Total liabilities and equity 25,175,555 23,909,184
Mustafa E. Al-SalehChairman & Managing Director
Abdullah Yousef Al-SeifVice Chairman
Exhibit - A
The accompanying notes form an integral part of these financial statements.
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
STATEMENT OF INCOME
Note 2007 2006Revenues
Collection commission 955,749 1,587,604
Income from purchased debts collected 71,990 53,506
Gain/(loss) from investment 16 1,103,134 (42,477)
Murbahat and Wakala income 167,449 635,920
Provision no longer required 95,743 175,000
Other (losses)/revenue (385) 30,690
Total revenues 2,393,680 2,440,243
Expenses and other charges
General and administrative expenses 17 969,979 856,352
Provision for investment in purchased debts - 9,986
Depreciation and amortization 18 17,403 30,733
Contribution to Kuwait Foundation for the
advancement of Sciences 12,657 13,888
National Labor Support Tax 29,719 32,250
Zakat 191/ 726 -
Board of directors remuneration 30,000 21,000
Total expenses and other charges 1,060,484 964,209
Net profit for the year 1,333,196 1,476,034
Earnings per share/(fils) 20 8.08 9.73
For the year ended December 31, 2007(All amounts are in Kuwaiti Dinars)
Exhibit - B
The accompanying notes form an integral part of these financial statements.
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
S T A T E M E N T O F C A S H F L O W SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars)
Note 2007 2006
Cash flows from operating activities
Net profit for the year 1,333,196 1,476,034
Adjustments
Depreciation and amortization 17,403 30,733
Change in fair value of investments at fair value -
income statement (735,869) 180,859
Gain on sale of investments at fair value -
income statement (193,907) (6,586)
Provision for investment in purchased debts - 9,986
profit from purchased debts collected (71,990) (53,506)
Provision no longer required (95,743) (175,000)
Cash dividend (243,955) (90,862)
Murbaha and Wakala income (167,449) (635,920)
Provision for end of service indemnity 38,211 29,921
Operating (loss)/profit before changes in working capital
assets and liabilities (120,103) 765,659
Accounts receivable and other debit balances (17,342) (405,706)
Accounts payable and other credit balances (88,108) (484,153)
Net cash used in operating activities (225,553) (124,200)
Cash flows from investing activities
Investments at fair value – income statement (6,775,037) (15,171,747)
Proceeds from sale of investments at fair value –
income statement 8,888,535 1,556,217
Property and equipment (6,073) (17,767)
Investment in associate (2,131,650) -
Murbaha and Wakala investment 25,488 (3,418,978)
Investment in purchased debts (80,704) -
Proceeds from investment in purchased debts 126,887 258,328
Cash dividend received 243,955 90,862
Murbaha and Wakala income received 167,449 635,920
Net cash generated from/(used in) investing activities 458,850 (16,067,165)
Cash flows from financing activities
Due to banks (16,928) 16,928
Share capital - 10,800,000
Share premium - 5,400,000
Net cash (used in)/generated from financing activities (16,928) 16,216,928
Foreign currencies translation adjustment 16,140 2,860
Net increase in cash and cash equivalent 232,509 28,423
Cash and cash equivalent at beginning of the year 679,067 650,644
Cash and cash equivalent at end of the year 4 911,576 679,067
Exhibit - C
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
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Exhibit - D
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars unless stated otherwise)
1 Formation and activities The Credit Rating and Collection Company - K.S.C. (Closed) was incorporated on December 5, 1998 and is listed in the Kuwait Stock.
The principle activities of the company are as follows:
- Collecting and purchasing of trade debts on behalf of its clients and for their account.
- Developing, utilizing and providing collection and debt purchase methods for its customers and others.
- Gathering, providing, and updating the financial information and credit rating for others.
- Utilizing the monetary surplus of the company by investing it in portfolios managed by specialized parties.
- Applying the authorized international standards in assessing and rating all securities, shares, bonds and other instruments of debt and investment companies, financially independent entities which are dealing with the financial market and its instruments.
- Providing independent professional opinions about competence of the institutions and abilities to fulfill their financial obligations and follow up the rules of transparency an increase the declaration of the procedures and instructions which organize the administration, accountancy, auditing affairs applied with the market and its management.
- Providing economic specialized professional information necessary for knowing the performance of markets and institiusions it deals with and sustaining to promote the financial market in Kuwait and others, for facilitating the utility of capital materials therein.
- Developing, utilizing and providing evaluation’ methods, securitization and recovery of client assets and others.
- The Company’s activities are conducted according to Islamic Shari’ah.
The company has the right to participate and subscribe in any way, in other firms or institutions which operate in the same field or those which would assist in achieving its objectives in Kuwait or abroad and to purchase these firms, institutions or participate in their equity.
The Company’s registered address is P.O. Box 1432 –Safat 13115 Kuwait.
The Board of Directors approved these financial statements for the year ended December 31, 2007 for issue on February 11, 2008. The shareholders have the authority to amend these financial statements in the General Assembly meeting of shareholders.
2 Adoption of new and revised standards Standards and Interpretations adopted during the year:In the current year the company has adopted IFRS 7: Financial instruments “Disclosure” and subsequent amendments to IAS 1 Financial Statements Presentation which are effective for annual reporting periods beginning on or after January 1, 2007 the adoption of these standards and amendments resulted in additional disclosures in the financial statements regarding to the financial instruments and managing capital as follows:
• IFRS (7), Financial Instruments: “Disclosures” to evaluate the significance of the company’s financial instruments for the company’s financial position and performance and to disclose the nature and extent of risks resulted from financial instruments during the year and at the financial statements date, and also how the company is managing these risks.
• The adjustments related to IAS (1), “Capital Disclosures” to disclose the company’s objectives and policies to manage capital.
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
2 Adoption of new and revised standards (Continued)
Standards and Interpretation issued but not yet adopted:Up to the date of issue of these financial statements, the following new standards have been issued but are not yet effective:
• IAS 23 “Revised”: Borrowing Cost.
• IAS 1 “Revised”: Financial statements presentation.
• IFRS 8 “Operating Segments”
These standards will be adopted for the annual reporting periods beginning on or after January 1, 2009. The management anticipates that the adoption of these standards will have no material impact for the periods commencing on or after January 2009.
3 Significant accounting policiesThe principals accounting policies applied in the preparation of these financial statements are set out below:
3 /1 Basis of preparationThese financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and Interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and state of Kuwait Commercial Companies’ law requirements.- The accounting policies have been consistently applied during the year, as a similar base for the
policies applied in the previous year, except for the adoption of (Note 2).
3 /2 Accounting convention - These financial statements are prepared under the historical cost convention, adjusted through
the revaluation of some assets according to fair value as explained in detail in the accompanying policies and disclosures.
- The financial statements are presented in Kuwaiti Dinar.
3 /3 Critical accounting estimates and judgments The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Although these estimates are based on management best knowledge, the actual results may differ fromthose estimates.
3 /4 Recognition and de-recognition of financial assets and liabilities A financial assets or a financial liability is recognized when the Company become a party to the contractual provisions of the instrument. A financial asset is de-recognized either when the contractual rights to cash flows from the financial asset expire, the Company has transferred substantially all the risks and rewards of ownership or when it has neither transferred no retained substantially all the risks and rewards, but no longer has control over the asset or a proportion of the asset. A financial liability is de-recognized when the obligation specific in the contract is discharged, cancelled or expired.
3 /5 Cash and cash equivalentsCash and cash equivalents for the purpose of preparing the statement of cash flows comprise cash on hand and at banks and short term bank deposits with a maturity date not exceeding three months from the date of deposit.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007
(All amounts are in Kuwaiti Dinars unless stated otherwise)
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Credit Rating and Collection Company K.S.C. (Closed) Kuwait
3 /6 Financial instruments Classification The company is identified the suitable classification for the investments at the purchase date according to the purpose from acquired these investments. It was classified as receivables and available for sale investments.
Receivables There are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the company provides goods and services directly to a debtor with no intention of trading the receivables.
Available for sale assetsThese are non-derivative financial assets that are either designated in this category or not included in any of the above categories and are principally, those acquired to be held, for an indefinite period of time which could be sold when liquidity is needed or upon changes in rates of profit.
Recognition and de-recognition Regular purchase and sales of financial assets are recognized on trade date – the date on which the Company is committed with sale or purchase process. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership.
Measurement Financial assets are initially recognized at fair value plus transaction cost for all assets not carried at fair value through profit or loss.
Subsequently, available for sale assets and financial assets at fair value. Receivable are carried at amortized cost using the effective yield method.
Changes in the fair value of available for sale investments are recognized directly in equity. When available for sale investments sold or impaired, the accumulated changes in fair value recognized in equity are included in the statement of income.
Fair valueThe fair value of financial instruments in regular financial market are based on last bid prices.For the unquoted investments, the company establish fair value by reference to other instruments that are substantially the same, or by using the expected discounted cash flows after adjustment to reflect the same circumstances of the company. Available for sale investments, which its fair value have not been determined, are carried at cost less impairment losses.
Impairment in valueThe Company assesses at each balance sheet date whether there is an objective evidence that a financial asset or a similar of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the investments below its cost is considered as an indicator that the values are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the statement of income. Impairment losses recognized in the statement of income on equity instruments are not reversed through the statement of income.
A specific provision for impairment of receivables is established when there is objective evidence that the company will not be able to collect all amounts due to the original terms of receivables. The amount of the specific provision is the difference between the book value and the recoverable value which is the present value of estimated future cash flows, discounted at the effective rate or return. The generated loss from impairment value is recognized in the income statement.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars unless stated otherwise)
16
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
3 /7 Investment in purchased debts These investments are recorded in the amounts paid in purchased debts from customers according to contractual provisions, and the difference between the amount paid to/and collected from customers are recognized directly in the income statement as collection commissions.
3 /8 Property & equipmentProperty & equipment are stated at cost less accumulated depreciation. The recoverable value of property and equipment are reviewed at the balance sheet date. If the recoverable value for property and equipment decreased from the book value in which case the book value is written down to the recoverable value. If the useful lives are different from its estimated lives then the useful lives are adjusted from the beginning of the year in which the change occurred in without going intoretroactive periods.
Property & equipment are depreciated on straight line basis over their estimated useful livesas follows:
Machinery and equipment 5 years Computers 5 years Furniture & fixtures 5 yearsVehicles 5 years
3 /9 Impairment of non-financial assetsAt each balance sheet date, the company reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any), and an allowance is recognized in the statement of income. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses, recognized for the asset no longer exist or has decreased. The reversal is recorded in income.
3 /10 Intangible assetsIntangible assets are carried at cost less accumulated amortization and any accumulated impairment losses.
Intangible assets are amortized on a straight - line basis over their estimated useful life.
3 /11 Accounts payableAccounts payable are stated at their nominal value
3 /12 Staff indemnityProvision for staff end of service indemnity is computed as per the Labour Law in the private sector and on the assumption of ending the services of all staff at the balance sheet date. This obligation is not funded. The management expects that based on this method of calculation a reasonable estimate is made of the obligation of the company towards employees indemnity for past andcurrent periods.
3 /13 Revenue recognition- Collection commission is recognized based on actual collections from the debts of customers
according to contractual provisions, also collection commission of debts purchased from the other is recognized by the difference between amounts collected and amounts paid to purchase these debts.
- Income from Murabaha and Mudaraba is recognized as it is earned, on a time apportionment basis.
- Dividend income from shares is recognized when the right to receive payment is established.
- Gain on sale of investments in securities is measured by the difference between the sale proceeds and the net book value of the investment sold.
- Other categories of income are recognized when earned, at the time the related services are rendered and/or on the basis of the terms of the contractual agreement of each activity.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007
(All amounts are in Kuwaiti Dinars unless stated otherwise)
17
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
3 /14 Zakat Zakat is calculated at 2.577% on the reserves at the end of the year before transfers to reserves for the year, and calculated under the direction of the company’s Fatwa and Sharia Supervisory Board. Zakat is charged to voluntary reserve.
In addition, effective form December 10, 2007, the company has also provided in accordance with these requirements is charges requirements of Law No. 46 of 2006. The Zakat charge calculated in accordance with these requirements is charged to the income statement.
3 /15 Foreign currenciesThe functional currency of the Company is the Kuwaiti Dinar (“KD”) and accordingly, the financial statements are presented in KD. Transactions denominated in foreign currencies are translated into KD at the average rates of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into KD at rates of exchange prevailing at the balance sheet date. The resultant exchange differences are taken to the statement of income.
3 /16 ContingenciesContingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefitsis probable.
4 Cash and cash equivalents
2007 2006
Current accounts at banks 623,926 477,322
Cash in investment portfolios 287,250 201,745
Cash on hand 400 -
911,576 679,067
5 Investments at fair value – income statement
2007 2006
Portfolios held for trading (quoted) 5,501,993 6,693,538
Investment in Local fund (unquoted) 12,160,417 12,152,594
17,662,410 18,846,132
6 Murbaha and Wakala investments The balance represents the amounts deposited in local financial institutions in accordance with Murabaha agreements. The average effective rate on this balance as of December 31, 2007 is 7.06%.
7 Accounts receivables and other debit balances
2007 2006
Trade receivables 32,686 135,815
Provision for doubtful debts - (95,743)
32,686 40,072
Due from related parties 333,432 290,760
Staff receivables 57,587 30,387
Refundable deposits 1,219 1,219
Prepayments 37,416 17,676
Others 99,980 69,121
562,320 449,235
The carrying value of trade and other receivables approximates its fair value.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars unless stated otherwise)
18
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007
(All amounts are in Kuwaiti Dinars unless stated otherwise)
7 Accounts receivables and other debit balances (Continued)
As of 31 December 2007, trade receivables were not impaired and not provided for (2006: KD 95,743) the amount of the provision was (Nil) as of 31 December 2007 (2006: KD 95,743). It was assessed that a portion of the receivables is expected to be recovered.
Movement of provision for impairment of trade and other receivables:
2007 2006
Opening balance - 1 January 95,743 270,743
Recoveries/Write back of provisions (95,743) (175,000)
Charge for the year - -
Closing balance – 31 December - 95,743
The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Company does not hold any collateral as security.
8 Investments available for sale The investments available for sale are investments in portfolio at US Dollar. The book value of portfolio amounted to KD 272,450 (US$ 1,000,000), (2006: KD 288,590 US $ 1,000,000)
The fair value of the investment at available for sale, has not been determined since these investments do not have a quoted market price on active market, and could not be measured reliably by any other means.
9 Investment in associate This item represents the company share in Q for Credit Rating and Collection (CRCQ) W.L.L Company (United Arab Emirates – Abu Dhabi) equal to 45 % from its capital.
The investment in associate is recorded at cost which represents the company’s share in the capital of associate since it is incorporated during the year and financial statements have been issued until the date of preparing these financial statements
19
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
STA
TEM
ENT
OF
CH
AN
GES
IN S
HA
REH
OLD
ERS
’ EQ
UIT
YFo
r th
e ye
ar e
nded
Dec
embe
r 3
1, 2
00
7(A
ll am
ount
s ar
e in
Kuw
aiti
Din
ars)
10
P
rope
rty
and
equi
pmen
t
Mac
hine
ry
Fu
rnit
ure
an
d eq
uipm
ent
Com
pute
rs
and
fixtu
res
Veh
icle
s To
tal
Cos
t
Bal
ance
at
Janu
ary
1, 2
00
7
18
,65
2
53
,27
4
81
,02
9
6,3
99
1
59
,35
4
Add
ition
s 2
,76
8
3,1
08
1
97
-
6,0
73
Dis
posa
ls
(2,0
00
) -
- -
(2,0
00
)
Bal
ance
at
Dec
embe
r 3
1, 2
00
7
19
,42
0
56
,38
2
81
,22
6
6,3
99
1
63
,42
7
Dep
reci
atio
n
Bal
ance
at
Janu
ary
1, 2
00
7
8,6
23
4
0,3
65
5
6,3
84
4
,47
9
10
9,8
51
Cha
rges
for
the
yea
r 2
,44
1
4,0
17
5
,64
5
1,2
80
1
3,3
83
Dis
posa
ls
(2,0
00
) -
- -
(2,0
00
)
Bal
ance
at
Dec
embe
r 3
1, 2
00
7
9,0
64
4
4,3
82
6
2,0
29
5
,75
9
12
1,2
34
Net
Boo
k V
alue
Bal
ance
at
Dec
embe
r 3
1, 2
00
7
10
,35
6
12
,00
0
19
,19
7
64
0
42
,19
3
Bal
ance
at
Dec
embe
r 3
1, 2
00
6
10
,02
9
12
,90
9
24
,64
5
1,9
20
4
9,5
03
20
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
11 Intangible assets Computers Key Software money Total
Cost
Balance at January 1, 2007 229,212 7,500 236,712
Balance at December 31, 2007 229,212 7,500 236,712
Accumulated amortization
Balance at January 1, 2007 224,730 2,000 226,730
Charges for the year 2,520 1,500 4,020
Balance at December 31, 2007 227,250 3,500 230,750
Net Book Value
Balance at December 31, 2007 1,962 4,000 5,962
Balance at December 31, 2006 4,482 5,500 9,982
12 Accounts payables and other credit balance
2007 2006
Trade payables 33,518 33,783
Due to related parties 31,977 -
Provision for staff leave 45,444 30,560
Contribution to KFAS 12,657 13,888
National Labour support tax 29,719 32,250
Zakat 726 -
Staff payable 6,188 3,785
Board of Directors Remuneration 30,000 21,000
Others 109,570 107,414
299,799 242,680
13 Share capital The Extraordinary General Assembly of shareholders held on March 27, 2007 has approved an increase in the authorized and issued capital from KD 15,000,000 to KD 16,500,000 by issue10 % of bonus shares from capital equal to KD 1,500,000.
14 Statutory reserve As required by the Commercial Companies’ Law and the Company’s Articles of Association 10% (ten percent) of the net profit for the year is transferred to statutory reserve. The company may resolve to discontinue such annual transfer when the reserve equals 50 % of paid up share capital. Distribution of the reserve subject only in cases stated in Commercial Companies’ Law the Company’s Articles of Association.
15 Voluntary reserve As required by the Company’s Articles of association, 10 % of the year net profit is transferred to voluntary reserve. Such annual transfer may discontinue by a resolution of the General Assembly based on a recommendation from the Company’s Board of Directors.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007
(All amounts are in Kuwaiti Dinars unless stated otherwise)
21
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
16 Gain/ (loss) from investment
2007 2006
Cash and non cash dividends 217,553 166,231
Change in fair value of investment at
fair value - income statement – portfolio
held for trading (quoted) (70,774) (272,799)
Change in fair value of investment at
fair value - income statement–
in local fund (unquoted) 806,643 91,940
Gain from sale investments at
fair value – income statement 193,907 6,586
Cash dividend for investment available for sale 26,402 26,887
Portfolios expenses (70,597) (61,322)
1,103,134 (42,477)
17 General and administrative expenses
2007 2006
Staff cost 534,513 558,331
Others 435,466 298,021
969,979 856,352
18 Deprecation and amortization
2007 2006
Property and equipment 13,383 29,233
Intangible assets 4,020 1,500
17,403 30,733
19 Zakat
This item represents: 19 /1 Zakat computed in accordance with law No 46 issued on November 27, 2007 related to Zakat
imposed on the general and closed shareholding companies, this Zakat is calculated for the period from December 10, 2007 (the date of issuing the Ministerial Decree No 58 of year 2007 with this regard in Kuwaiti Gazette) to December 31, 2007 as 1 % from net profit before deducting the company’s provisions and reserves.
19 /2 Zakat computed in accordance with the resolution of the Ordinary General Assembly of shareholders
held on March 27, 2007. Zakat for the year ended December 31, 2006 has been calculated on behalf of the shareholders at KD 145,227. This amount has been deducted from the balance of voluntary reserve in conformity with the policy of the Company.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars unless stated otherwise)
22
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
20 Earnings per share/(fils)Earnings per share calculation based on the weighted average number of shares outstanding during the year (restated by the effect of right issue for shareholders during the last year) is as follow:
2007 2006 (Adjusted)Net profit for the year 1,333,196 1,476,034Weighted average numbers of outstanding shares during the year 165,000,000 130,151,236Effect of right issue on weighted average of outstanding share - 21,444,657Weighted average numbers of outstanding shares during the year (restated by right issue) 165,000,000 151,595,893Earnings per share (restated by right issue)/fils 8.08 9.73
The weighted average number of shares outstanding during the year December 31, 2006 has been adjusted to reflect the issue of bonus shares of 15,000,000 approved by the Shareholders’ General Assembly held on March 27, 2007.
21 Related parties transactions These represent transactions with certain parties (Associates Companies, shareholders, Board of Directors Members, company’s senior Management Employees, their Relatives and Companies having significant share and executive officers). Transactions of the company with related parties are within the normal course of business entered on normal commercial terms and with Management approval.
All related parties transactions are subject to the approved of the Ordinary General Assembly of shareholders.
Transaction balances with related parties included in the balance sheet are as follows:
Balance sheet 2007 2006Investments at fair value - income statement 14,557,497 16,329,338Murbaha and Wakala investments - 3,418,978Accounts receivable 333,432 290,760Accounts payable 31,977 -
Transactions with related parties included in the income statement are as follow:
Income statement 2007 2006Changes in fair value of investments at fair value - income statement (453,410) (51,946)Cash Dividend 116,200 161,106Collection commission 910,949 1,491,377Murbaha and wakala income 113,534 635,920
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007
(All amounts are in Kuwaiti Dinars unless stated otherwise)
23
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
STA
TEM
ENT
OF
CH
AN
GES
IN S
HA
REH
OLD
ERS
’ EQ
UIT
YFo
r th
e ye
ar e
nded
Dec
embe
r 3
1, 2
00
7(A
ll am
ount
s ar
e in
Kuw
aiti
Din
ars)
22
Fi
nanc
ial i
nfor
mat
ions
by
Seg
men
ts
Seg
men
t re
port
ing
- ope
rati
ng s
egm
ents
The
com
pany
is d
ivid
ed in
to b
usin
ess
divi
sion
s to
man
age
its v
ario
us a
ctiv
ities
. Fo
r th
e pu
rpos
es o
f pri
mar
y se
gmen
t re
port
ing,
the
com
pany
’s m
anag
emen
t ha
s cl
assi
fied
the
com
pany
’s a
ctiv
ities
into
the
follo
win
g bu
sine
ss s
egm
ents
:-
Cre
dit
ratin
g an
d co
llect
ion
- In
vest
men
ts
2
00
7
20
06
Cre
dit
rati
ng a
nd c
olle
ctio
n In
vest
men
ts
Tota
l C
redi
t ra
ting
and
colle
ctio
n In
vest
men
ts
Tota
l
Seg
men
t op
erat
ing
reve
nue
1
,12
3,4
82
1
,27
0,5
83
2
,39
4,0
65
1
,81
6,1
10
5
93
,44
3
2,4
09
,55
3
Oth
er e
xpen
ses
-
- -
(9,9
86
) -
(9,9
86
)
Pro
fit fo
r th
e ye
ar b
efor
e ot
her
inco
me
and
una
lloca
ted
expe
nses
1
,12
3,4
82
1
,27
0,5
83
2
,39
4,0
65
1
,80
6,1
24
5
93
,44
3
2,3
99
,56
7
Oth
er (l
osse
s)/
inco
mes
(3
85
)
3
0,6
90
Una
lloca
ted
expe
nses
(9
87
,38
2)
(88
7,0
85
)P
rofit
for
the
year
bef
ore
Boa
rd o
f Dir
ecto
rs
Rem
uner
atio
n, d
istr
ibut
ion
to K
uwai
t F
ound
atio
n fo
r th
e A
dvan
cem
ent
of S
cien
ces,
Nat
iona
l Lab
or S
uppo
rt T
ax a
nd Z
akat
1
,40
6,2
98
1
,54
3,1
72
Th
ere
is n
o re
cipr
ocal
tra
nsac
tions
bet
wee
n th
e ab
ove
segm
ents
.
The
seco
ndar
y in
form
atio
n –
geo
grap
hica
l sec
tors
The
com
pany
ope
rate
s m
ainl
y in
the
sta
te o
f Kuw
ait
and
henc
e do
esn’
t ha
ve s
econ
dary
seg
men
ts.
24
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
23 Proposed dividends and Board of Directors Remuneration On February 11, 2008, the Board of Directors have not proposed any dividends for shareholders for the year ended December 31, 2007 (2006: 10 shares for each 100 shares), and also Directors’ remuneration has been proposed with amounts of KD 30,000 (2006: KD 21,000).
These proposals are subject to the approval of the Ordinary General Assembly of the shareholders.
24 Provision for investment in purchased debtsThe provisions was calculated after the approval of the Fatwa and Shari’ah and in accordance with Noble Islamic Shari’ah.
25 Off balance sheet items The company collects commercial debts on behalf of the clients, these debts do not appear in the company balances sheet which amounted to KD 156,285,653 as of December 31, 2007 (2006: KD 147,548,898).
26 Financial instruments
Categories of financial instrumentsThe financial instruments represent financial assets & liabilities. Financial assets include cash and cash equivalents, investments at fair value through income statement, Murabaha and Wakala investments, accounts receivable and other debts balances, investments available for sale and investment in purchase debts. The financial liabilities include due to banks and accounts payable other credit balances.
Fair value of financial instruments Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than in force or liquidation sale. The company used recognized assumptions and methods to estimate the fair value of the financial instruments. The fair value of financial assets and financial liabilities are determined as follows:
• The fair value of other financial assets and financial liabilities with standard terms and conditions and trade on active liquid markets is determined with reference to quoted market prices.
• The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar financial instruments.
• The fair values of financial instruments carried at amortized cost are not significantly different from their carrying values.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007
(All amounts are in Kuwaiti Dinars unless stated otherwise)
25
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
26 Financial instruments (Continued)
Financial risks management
The Company’s use of financial instruments exposes it to financial risks such as credit risk, market
risk, liquidity risk.
The Company continuously reviews its risk exposures and takes the necessary procedures to limit
these risks at acceptable levels.
The Board of Directors provides written principles for overall risk management, as well as written
policies covering specific areas, such as foreign exchange risk, interest rate risks, credit risk and
investment of excess liquidity.
The significant risks that the Company is exposed to are as follows:
• Credit risk
Credit risk is the risk that one party to a financial instrument will fail to pay an obligation causing
the other party to incur a financial loss. Financial assets, which potentially subject the Company
to credit risk, consist principally of accounts receivables. Credit risk with respect to receivables is
limited due to dealing with large number of customers. For more details see note (7).
The Company considers its maximum exposure to credit risk to be as follows:
2007 2006
Current and call accounts at banks 623,926 477,322
Trade receivables 32,686 135,815
Investments in purchased debts 193,504 167,697
850,116 780,834
The majority of the company’s trade receivables is due for maturity within 90 days and most big
portion of this debts represent debts individuals and company’s.
The credit risk of trade receivables is limited due to large customers’ size of company and no
existence of relation between them.
Therefore the management believes there is no future credit risk provision required in excess of the
normal provision for impairment of trade receivables.
• Liquidity risks
Liquidity risks is the risk that the Company will be unable to meet its cash obligations. The
management of liquidity risks consist of keeping sufficient cash, and arranging financing sources
through enough facilities , managing highly liquid assets, and monitoring liquidity on a periodically
basis by method of future cash flow.
The maturity of liabilities stated below based on the period from the balance sheet date to the
contractual maturity date. In the case of financial instruments that do not have a contractual
maturity date, the maturity is based on management’s estimate of time period in which the asset
will be collected or disposed and the liability settled.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars unless stated otherwise)
26
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
The
follo
win
g is
mat
urity
tab
le fo
r th
e fin
anci
al a
sset
s an
d lia
bilit
ies
as o
f Dec
embe
r 3
1, 2
00
7:
From
3 m
onth
s to
Wit
hin
3 m
onth
s 1
yea
r Fr
om 1
to
5 y
ears
M
ore
than
5 y
ears
To
tal
Ass
ets
Cas
h an
d ca
sh e
quiv
alen
ts
91
1,5
76
-
- -
91
1,5
76
Inve
stm
ents
at
fair
val
ue –
inco
me
stat
emen
ts
17
,66
2,4
10
-
- -
17
,66
2,4
10
Mur
abah
a an
d W
akal
a in
vest
men
ts
- 3
,39
3,4
90
-
- 3
,39
3,4
90
Acc
ount
rec
eiva
bles
and
oth
er d
ebit
bala
nces
4
04
,51
6
98
,99
9
58
,80
5
- 5
62
,32
0
Ava
ilabl
e fo
r sa
le in
vest
men
ts
- 2
72
,45
0
- -
27
2,4
50
Inve
stm
ent
in p
urch
ased
deb
ts
- -
19
3,5
04
-
19
3,5
04
Inve
stm
ents
in a
ssoc
iate
s
- -
2,1
31
,65
0
- 2
,13
1,6
50
Pro
pert
y an
d eq
uipm
ent
-
- 4
2,1
93
-
42
,19
3
Inta
ngib
le a
sset
s
- -
- 5
,96
2
5,9
62
Tota
l ass
ets
1
8,9
78
,50
2
3,7
64
,93
9
2,4
26
,15
2
5,9
62
2
5,1
75
,55
5
Liab
iliti
es
Acc
ount
s pa
yabl
es a
nd o
ther
cre
dit
bala
nces
1
82
,44
0
42
,38
5
74
,97
4
- 2
99
,79
9
Empl
oyee
s’ e
nd o
f ser
vice
inde
mni
ty
- -
10
8,1
02
-
10
8,1
02
Tota
l lia
bilit
ies
1
82
,44
0
42
,38
5
18
3,0
76
-
40
7,9
01
STA
TEM
ENT
OF
CH
AN
GES
IN S
HA
REH
OLD
ERS
’ EQ
UIT
YFo
r th
e ye
ar e
nded
Dec
embe
r 3
1, 2
00
7(A
ll am
ount
s ar
e in
Kuw
aiti
Din
ars)
27
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
The
follo
win
g is
mat
urity
tab
le fo
r th
e fin
anci
al a
sset
s an
d lia
bilit
ies
as o
f Dec
embe
r 3
1, 2
00
6:
From
3 m
onth
s to
With
in 3
mon
ths
1 y
ear
From
1 t
o 5
yea
rs
Mor
e th
an 5
yea
rs
Tota
l
Ass
ets
Cas
h an
d ca
sh e
quiv
alen
ts
67
9,0
67
-
- -
67
9,0
67
Inve
stm
ents
at
fair
val
ue –
inco
me
stat
emen
ts
18
,84
6,1
32
-
- -
18
,84
6,1
32
Mur
abah
a an
d W
akal
a in
vest
men
ts
- 3
,41
8,9
78
-
- 3
,41
8,9
78
Acc
ount
rec
eiva
bles
and
oth
er d
ebit
bala
nces
3
04
,85
8
11
2,7
71
3
1,6
06
-
44
9,2
35
Ava
ilabl
e fo
r sa
le in
vest
men
ts
- 2
88
,59
0
- -
28
8,5
90
Inve
stm
ent
in p
urch
ased
deb
ts
- -
16
7,6
97
-
16
7,6
97
Pro
pert
y an
d eq
uipm
ent
-
- 4
9,5
03
-
49
,50
3
Inta
ngib
le a
sset
s
- -
- 9
,98
2
9,9
82
Tota
l ass
ets
1
9,8
30
,05
7
3,8
20
,33
9
24
8,8
06
9
,98
2
23
,90
9,1
84
Liab
iliti
es
Due
to
bank
s
16
,92
8
- -
- 1
6,9
28
Acc
ount
s pa
yabl
es a
nd o
ther
cre
dit
bala
nces
1
72
,32
3
16
,03
5
54
,32
2
- 2
42
,68
0
Empl
oyee
s’ e
nd o
f ser
vice
inde
mni
ty
- -
69
,89
1
- 6
9,8
91
Tota
l lia
bilit
ies
1
89
,25
1
16
,03
5
12
4,2
13
-
32
9,4
99
STA
TEM
ENT
OF
CH
AN
GES
IN S
HA
REH
OLD
ERS
’ EQ
UIT
YFo
r th
e ye
ar e
nded
Dec
embe
r 3
1, 2
00
7(A
ll am
ount
s ar
e in
Kuw
aiti
Din
ars)
28
Credit Rating and Collection Company K.S.C. (Closed) Kuwait
26 Financial instruments (Continued)
• Market risks Market risk, comprise of price risk, interest rate risk and currency risk. These risks arise due to
change in market prices, interest rates and foreign currency rates.
Foreign currencies risks Foreign currencies risks arise from transactions with foreign currencies. The Company manages these risks by setting limits on transaction with other foreign currencies and counterparty and limiting its transaction business in major currencies with reputable counterparties.
Cash flow and fair value interest rate risks As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially not affected by the changes in market interest rates.
The Company is not exposed to interest risk since it has no loans or any other facilities.
Equity price risksTo manage its equity price risks arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limitations set by the Company.
During the year the Company held investments and classified on the balance sheet as investments at fair value through income statement and available for sale investments.
27 Capital risk management The Company’s objectives when managing capital are:
• To safeguard the company’s ability to continue as a going concern to be able to provide returns for shareholders and benefits for other beneficiaries, and,
• To maintain an optimal returns to shareholders by pricing its products and services commensurately with risk level.
Consistently with others in the industry, the company determines share capital that is adequate for risks and manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders or sell assets to reduce debt.
The company monitors capital on the basis of debt – to – adjusted capital ratio. This ratio is calculated as net debts divided by total adjusted capital. Net debts calculated as total debts including borrowings, trade and other payables, as shown in the balance sheet less cash and cash equivalent. Total adjusted capital comprise of all components of equity (share capital reserves and retained earning).
Gearing ratio of debts to equity as follows:
2007 2006Debts - 16,928Less: Cash and cash equivalent (911,576) (679,067)Net debts (911,576) (662,139)Total equity 24,767,654 23,579,618Gearing ratio (3.7 %) (2.8%)
The decrease in gearing ratio during 2007 was not material and resulted from decrease in due to banks.
28 Comparative figuresCertain comparative figures were reclassified to conform with the current year presentation.
N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007
(All amounts are in Kuwaiti Dinars unless stated otherwise)