ANNUAL REVIEW 2016-2017 - qpic-kw.comqpic-kw.com/download/annual/48/QPIC_V1.6_-_English-email.pdfQurain Petrochemical Industries ... QPIC is one of the biggest private investors in

ANNUAL REVIEW 2016-2017

Dar Al-Athar Al-Islamiyyah, one of Kuwait’s leading cultural organizations, was created to manage activities related to The Al-Sabah Collection. The collection includes one of the world’s finest assemblages of arts from the Islamic world. The collection consists of over 30,000 priceless objects, including manuscripts, scientific instruments, carpets, fabrics, jewelry, ceramics, ivory, metalwork and glass from countries such as Spain, India, China and Iran.

This year, the annual reports of KIPCO Group companies each feature a different piece of woven textile from The Al-Sabah Collection. The images used within the reports reflect KIPCO’s commitment to protecting and promoting Kuwait’s heritage, while helping to build the nation’s future.

The item pictured here (LNS 1 T) is a woolen fragment woven with a band of quadrupeds, bordered by a repetition in Kufic script of the word “sufficiency” (Al-kafa) or “sovereignty” (Al-mulk). The item was made in Egypt during the 10th century CE. The image is reproduced with the kind permission of The Al-Sabah Collection, Dar Al-Athar Al-Islamiyyah.

H.H. Sheikh SabahAl-Ahmad Al-Jaber Al-Sabah

Amir of the State of Kuwait

H.H. Sheikh NawafAl-Ahmad Al-Jaber Al-Sabah

Crown Prince of the State of Kuwait

This year, the annual reports of KIPCO Group companies each feature a key woven textile from Dar Al-Athar Al-Islamiyyah - one of the world’s finest collections of Islamic art. These images are reproduced with the kind permission of The Al-Sabah Collection, Dar Al-Athar Al-Islamiyyah.

ContentsIntroduction

QPIC Timeline

Business Highlights of The Year

Board Of Directors

Chairman’s Statement

Vice Chairman & CEO Statement

Investment Portfolio

Corporate Governance

Internal Audit Report

Executive Management

Financial Statements

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INTRODUCTION

Qurain Petrochemical Industries Company (QPIC) was established in 2004 with a total capital of one hundred and ten million Kuwaiti Dinars distributed over a billion and one hundred million shares. The company was founded with a clear direction from the government of Kuwait represented by the Petrochemical Industries Company (PIC) in order to engage the private sector to participate within the Oil and Gas sectors and create local industries that add value to our national economy and it was listed in Boursa Kuwait in 2007.

QPIC is one of the biggest private investors in the petrochemicals sector in Kuwait with total assets of around US2$ billion with a prime focus on the Energy and Industrial sectors, which we aspire to further grow.

Our Investment portfolio combines stakes of Kuwait’s largest petrochemical projects such as Equate Petrochemicals (Equate), The Kuwait Olefins Company (TKOC) and Kuwait Aromatics Company (KARO). In addition to our significant stakes being a majority shareholder in Saudia Dairy & Foodstuff Company (SADAFCO), United Oil Projects Company (UOP), as well as National Petroleum Services Company (Napesco) and Inshaa Holding.

QPIC is part of Kuwait Investment Projects Company (KIPCO) group of companies. KIPCO Group is one of the biggest holding companies in the Middle East and North Africa, with consolidated assets of US$ 32.7 billion as at 31 December 2016. The Group has significant ownership interests in over 60 companies operating across 24 countries. The group’s main business sectors are financial services, media, real estate and manufacturing. Through its core companies, subsidiaries and affiliates, KIPCO also has interests in the education and medical sectors.

Our Vision

To become a leading private holding company in the Energy, Petrochemical and Industrial sectors in Kuwait, and a key player in the GCC and selected countries, consistently achieving shareholders expectations.

Our Mission

We will achieve our vision through direct and indirect investments in new ventures and established companies, leveraging our market/industry knowledge and innovative investment approaches to create a diversified and balanced risk–return portfolio.

QPIC TIMELINE

2009

2004 2005 2006 2007

• Incorporated by the Government of Kuwait through its Petrochemical arm - Petrochemical Industries Company - to engage private sector in the local petrochemicals industry sector.

• Acquired a stake in Equate Petrochemicals Company.

• Invested in the new project The Kuwait Olefins Company (TKOC).

• Invested in the Ku-wait Aromatics Co. (KARO) the equity holder of two new projects:

• Kuwait Paraxy-lene Production Co. (KPPC).

• The Kuwait Styrene Co. (TKSC).

• Listed on the Kuwait Stock Exchange (Boursa Kuwait) under the name “ALQURAIN”.

• TKOC and TKSC commenced commercial production.

• Acquisition of a significant stake in United Oil Projects (UOP).

2010

• KPPC commenced commercial production.

• Increase stake in UOP; making it an associate.

2012

• Acquisition of a significant stake in National Petroleum Services Co. (NAPESCO).

2013

• Acquisition of a significant stake in Saudia Dairy & Foodstuff Co. (SADAFCO); making it an associate.

• Reclassification of UOP from an associate to subsidiary.

2014

• Acquisition of a significant stake in NAPESCO making it an associate.

• Further acquisition in SADAFCO; transforming it into a subsidiary.

2011

• Acquisition of a further stake in UOP.

2016

2017

• Acquisition of an additional stake in NAPESCO through a Mandatory Tender Offer (MTO) to increase group ownership from 29.99% to 38.67%.

• Increased ownership in UOP to 51.5%.• Succeeded to reclassify NAPESCO

as a subsidiary further to the increase in group ownership to reach 50.53% through a Public Auction & Second Mandatory Tender Offer (MTO).

• Acquisition of a majority stake (59%) in Insha’a Holding.

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*Net Profit 2014-15: Extraordinary unrealized gains from reclassification of SADAFCO from associate investment to a subsidiary amounting to KD 12.9 Million.


Investment in AssociatesKD Million

2016-172014-15 2015-162012-13 2013-14

85.8271.71 81.6149.32 132.78

Shareholders’ EquityKD Million

2016-172014-15 2015-162012-13 2013-14

354.86325.40 314.20283.66 301.96

Total AssetsKD Million

2016-172014-15 2015-162012-13 2013-14

608.77527.97 521.47299.02 364.26

Book ValueFils

2016-172014-15 2015-162012-13 2013-14

341310 302258 287

Net ProfitKD Million

Earning Per ShareFils

2016-172014-15 2015-162012-13 2013-14

33.5829.80 23.6320.34 25.94

2016-172014-15 2015-162012-13 2013-14

34.9431.35* 24.7122.16 27.46

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2012-13 2013-14 2014-15 2015-16 2016-17

Income Statement Highlights (KD Million)

Net profit 22.16 27.46 31.35 24.71 34.94

Dividend Per share (in fils) 10 10 10 10 11

Financial Statement Highlights (KD Million)

Capital 110 109.92 109.92 109.92 109.92

Shareholders’ Equity 283.66 301.96 325.40 314.20 354.86

Liquid Funds 45.75 23.475 43.372 51.354 96.18

Available for sale 201.74 205.38 204.83 180.39 198.82

Investment in associates 49.32 132.78 71.71 81.61 85.82

Goodwill & intangible assets - - 108.11 106.85 117.75

Property, Plant & Equipments - - 69.89 68.88 79.54

Total Assets 299.02 364.26 527.97 521.47 608.77

Book Value (in fils) 258 287 310 302 341

Profitability

Earning per share (in fils) 20.34 25.94 29.8 23.63 33.58

Return on Average Assets 7.98% 8.28% 7.03% 4.71% 6.18%

Return on Average Equity 8.26% 9.38% 9.99% 7.73% 10.44%

Capital

Equity/Total Assets 94.86% 82.90% 61.63% 60.25% 58.29%

Debt/Equity 0.00% 13.24% 21.84% 20.92% 21.59%

Liquidity & Business Indicators

Investments/Total assets 83.96% 92.83% 72.85% 70.73% 66.10%

Liquid assets/Total assets 15.30% 6.44% 8.21% 9.85% 15.80%

Loan - 39.98 71.08 65.72 76.6

Main Business Highlights:1 1 Income from associates increased by 51 per cent due to better performance from Kuwait Aromatics Company

(KARO) and National Petroleum Services Company (NAPESCO).1 2 Further Acquisition of significant stake in NAPESCO’s paid up capital to reach an accumulative holding of 50.53 per cent.1 3 Diversification into a new sector through the 59 per cent acquisition of Inshaa Holding Company during March 2017.1 4 Net profits at KD 34.94 million witnessed a 42 per cent growth versus last year’s KD 24.71 million.1 5 Total Assets increased by 17 per cent Year-On-Year to reach KD 608.77 million.

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Board of Directors

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Sheikh Mubarak Abdullah Al-Mubarak Al-SabahChairman

Sadoun A1 AliVice Chairman & CEO

Tariq M. Abdul SalamBoard Member

Atallah R. Al-MutairiBoard Member

Abdullah S. Al-Meslim Al-OtaibiBoard Member

Board of Directors

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Dear shareholders,

I am pleased on behalf of the board of Qurain Petrochemical Industries Company (QPIC) to congratulate you on outstanding results of your company for this year and to present to you herewith the eleventh annual report to review and go through this year’s achievements.

QPIC was able to withstand and cope with the oil sector price instabilities through its strategically balanced investments

model which offered the company a financial buffer zone to face the repercussions of the continuing decline in oil prices.

The current fiscal year was marked by the achievement of positive results from all of our subsidiaries and associate

companies, including the new investments the company has made during the year, which enabled QPIC yearend results

to reach KD 34.94 million versus KD 24.71 million during the same period last year, representing an increase of 42 per cent

and an EPS of 33.58 fils versus 23.63 fils for last year.

In view of the above, I am pleased to announce that QPIC’s Board recommends distributing cash dividends of 11 per cent

of the company’s paid-up capital, equivalent to 11 fils per share, subject to the approval of the General Assembly and

relevant authorities.

Finally, I can only offer you my sincere gratitude and appreciation for your continuous support, and we call upon Allah

Almighty to secure Kuwait, government and people under the leadership of our Amir, may Allah care and protect him. We

also pray for success to be our ally in all our efforts to preserve and maximize your rights during the coming period with

the help of Allah Almighty.

With my best wishes,

Sheikh Mubarak Abdullah Al-Mubarak Al-Sabah

Chairman


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Dear shareholders,All of QPIC investments managed to achieve positive, solid and stable results during the financial year in review, which only affirms the ability of QPIC’s business model to withstand market volatilities, especially with the oil markets.

Qurain Petrochemical Industries Company (QPIC) management during the year has reviewed and assessed the best available investment opportunities in line with the company’s long-term Strategy, taking into account the importance of diversifying investments to boost returns in the petrochemical sectors, as well as to diversify geographically.

In order to implement this strategy, QPIC pursued the opportunity to increase its ownership stake in National Petroleum Services Company (NAPESCO) by 29.99 per cent to reach a total group holding of 50.53 per cent of NAPESCO’s paid up capital, which occurred over multiple stages during our second and third quarter of the year. Furthermore, QPIC also acquired 59 per cent of Insha’a Holding Company (INSHAA) paid up capital during the month of March 2017. INSHAA is a Kuwaiti Industrial Holding company that was established in 2005 and it operates in the basic and building materials sector.

Our financial year-end results

The year-end results were in line with our expectations and long-term outlook that initially led us to start diversifying our investments. Despite the deteriorating performance of the oil and gas sector, and the lower dividends received from Equate & TKOC over the past few years, QPIC has maintained and further enhanced its profitability levels through the excellent performance of its subsidiaries and associates, especially Kuwait Aromatics (KARO)

Share of investments in associates has increased by 5 per cent to reach KD 85.82 million due to improved performance from associate companies. Total assets reached KD 608.77 million as of 31 March 2017 compared with KD 521.47 million last year, an increase of 17 per cent year-on-year further to booking Equate Petrochemicals (EQUATE) & The Kuwait Olefins Company (TKOC) revaluation gains, as well as the new acquisitions in National Petroleum Services Company (NAPESCO) and Insha’a Holding (INSHAA).

Gross profits increased by 8 per cent year-on-year to reach KD 61.89 million as a result of the lower production and sales cost in QPIC subsidiaries.

QPIC managed to achieve net profits of KD 34.94 million during the financial year ended 31 March 2017, recording a year-on-year increase of 42 per cent, versus the reported 24.71 million during the same period last year. Earnings per share for the same period amounted to 33.58 Fils compared to 23.63 Fils during last year.


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INVE

STM

ENTS

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QPIC Investment Portfolio

EQUATE Petrochemicals Company (EQUATE)

EQUATE was established in 1995 as a global producer of petrochemicals which partici-pates in the creation of a better world by providing reliable services and solutions, enabling global customers and stakeholders to grow and attain the success they seek.

EQUATE commenced production in 1997 and is currently the owner and single-operator of several fully integrated world-class petrochemical complexes in Kuwait, North America and Europe that annually produce over 6 million tons of the highest quality grades of Eth-ylene, Ethylene Glycol (EG), Polyethylene (PE), Polyethylene Terephthalate (PET), Polypro-pylene (PP), Styrene Monomer (SM), Paraxylene (PX), Heavy Aromatics (HA) and Benzene (BZ).

The Kuwait Olefins Company (TKOC)

TKOC was formed in 2004 as the second olefins cracker after EQUATE Petrochemicals, with the exact same shareholders of EQUATE. TKOC was built as an extension to EQUATE operations to enable it to reach its maximum production capacity.

TKOC is currently managed and operated under the umbrella of EQUATE and commenced production in December 2008.

Main Business Highlights:

. 1 The impact of acquisition over MEGlobal has enabled EQUATE to become the world’s second largest Ethylene Glycol producer.

. 2 EQUATE was able to hold its competitive advantage over the markets which it operates in while maintaining its sales volumes, despite the challenges the sector is recently facing.

. 3 EQUATE & TKOC was able to achieve net profits of US$ 679 million in 2016, of which QPIC’s share of dividends during the financial year amounted to KD 12.4 million.

Main Products:

PolyethyleneA Petrochemical substance used to manufacture packag-ing materials, bags, containers, cabinets, pipes and chil-dren toys. EQUATE’s PE product portfolio includes LLDPE C4 Film, LLDPE C6, HDPE film, and HDPE blow molding grades.

Ethylene GlycolA petrochemical substance used to manufacture polyester fiber for fabrics, water-based adhesive material, shoe pol-ish, printer ink, as well as automotive anti-freeze and cool-ant. EQUATE manufactures premium quality Monoethylene Glycol (MEG) and Diethylene Glycol (DEG).

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Ethylene Polyethylene Ethylene Glycol

EQUATE Production Capacity

SHAREHOLDERS

PETROCHEMICAL INDUSTRIESCOMPANY

4215%

DOW CHEMICAL

4215%

BOUBYAN PETROCHEMICALCOMPANY9%

QURAIN PETROCHEMICAL INDUSTRIES COMPANY

6%

EQUATEOWNERSHIP STRUCTURE

SHAREHOLDERS

PETROCHEMICAL INDUSTRIESCOMPANY

4215%

DOW CHEMICAL

4215%

BOUBYAN PETROCHEMICALCOMPANY9%


6%

TKOCOWNERSHIP STRUCTURE

vEthylene Ethylene Glycol

TKOC Production Capacity

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Kuwait Aromatics Company (KARO)

KARO was established in 2004 as a Kuwaiti Shareholding Company with a paid-up capital of KD 250 million, as a joint venture between Petrochemical Industries Company (PIC) 40%, Kuwait National Petroleum Company (KNPC) 40%, each owning an equal stake amount to 40% of the company, while Qurain Petrochemical Industries Company (QPIC) owns the remaining 20%.

KARO is considered the only national company in Kuwait’s Petrochemical sector that does not have any foreign ownership.


Kuwait Paraxylene Production Company (KPPC)

KPPC was established in 2006 as a shareholding com-pany with an authorized capital of KD 250 million. The company commenced its commercial production in 2010, buys its feedstock (Naphtha) from KNPC, and produces Paraxylene, Benzene, and Heavy Aromatics to be ex-ported to selected international markets.

KPPC provides The Kuwait Styrene Company (TKSC) with Benzene, the main feedstock to manufacture Sty-rene Monomer, while other production derivatives are redirected back to KNPC.

The Kuwait Styrene Company (TKSC)

TKSC is the first of its kind and is the sole manufacturer of “Styrene Monomer” in the State of Kuwait. TKSC was founded in 2004 with a capital of US$140 million. TKSC started its commercial production in 2009.

TKSC is supported by its geographical diversification and exposure along various countries in the Middle East, Af-rica, Asia and Europe despite of its young age, enabled by its competitive advantage, being in the GCC region, in terms of operating costs, shipping and the use of ad-vanced industrial technology.

KARO has two main investments

KPPC & TKSC Main Products:

BenzeneA Petrochemical substance that is involved in manufacturing of products such as detergents, plastic and rubber. It is also one of the main raw materials for creating Styrene Monomer.

ParaxyleneA Petrochemical Substance that represents the basic material used to manufacture fiber, film, Polyester fabrics and polyethylene terephthalate (PET) bottle resins.

Styrene MonomerA Petrochemical Substance that is used in manufacturing a variety of plastics such as electrical and electronic appli-ances, packaging material, insulation, automotive parts and much more.

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. 1 KARO and its subsidiaries maintained high performance throughout the year, especially in KPPC.

. 2 KARO was one of the main contributors in achieving a healthy increase in share of income from associates.


SHAREHOLDERS


20%

KUWAIT NATIONAL PETROLEUM COMPANY

40%

PETROCHEMICALS INDUSTRIESCOMPANY

40%

KAROOWNERSHIP STRUCTURE

KPPCOWNERSHIP STRUCTURE

TKSCOWNERSHIP STRUCTURE

100% KARO SHAREHOLDERSKARO5715%

DOW CHEMICAL 4215%

Styrene MonomerBenzeneParaxylene

KPPC Production Capacity TKSC Production Capacity

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UOP was incorporated in the early eighties under the name of Kuwait Chemical Manufacturing Company (KCMC), interpreting the pioneer vision of its founders to meet both local and interna-tional market requirements for specialized chemicals.

United Oil Projects (UOP)

In 2005, the company’s management adopted a reformed strategy for the development of its activities to meet and ac-commodate the frequent regional economic transformations and developments, as well as to foster its returns through seizing available investment opportunities in the energy sector, which has witnessed a profound growth during the years. As a result the Company was subsequently re-named as United Oil Projects and the authorized and paid up capital was increased to 10 Million Kuwaiti Dinars.

UOP focuses on specialized projects in the Energy, Oil & Gas and Petrochemical sectors through its direct investment in United Precision Drilling Company (UPDC) - a joint venture in partnership with Weatherford International Company. The Company also owns a significant share in Al-Khorayef Company for sale, maintenance & repair of oil production equip-ment L.L.C (AKC), a subsidiary of Saudi based Al-Khorayef Group. This is in addition to other strategic companies which are international market majors in these sectors.

The Company’s Chemical Division is a key producer of polymers, which are used in the manufacture of coatings and glass reinforced products, establishing a local and international presence under the brand name KCMC and becoming the largest resins supplier in Kuwait. UOP is certified to ISO9001:2008 (Quality Management System) and ISO14001:2004 (Environmental Management System) Standards.

QPIC increased its ownership in the UOP throughout the year, to reach 51.5%.


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UOPOWNERSHIP STRUCTURE

Associate Companies

United Precision Drilling Company (UPDC)UPDC is a joint venture that was made with Weatherford International and is owned 47.5% by UOP. It currently manages a number of rigs across the state of Kuwait and the neutral zone.

Al-Khorayef United Holding Company (AKUH)UOP’s 25% stake in AKUH enables it to, through Al-Khorayef for sale maintenance & repair of oil production equipment to operate equipment supply contracts and oil-related facilities.


1. AKUH’s excellent track record and consistent performance has positioned itself as a prospective player for the up-coming opportunities locally & regionally.

2. UPDC has successfully managed to reinforce its strong position with Kuwait Oil Company (KOC) through its up-stream sector.

3. UOP managed to increase its sale revenues by 12% in 2016, reaching by that KD 2.7 million versus KD 2.4 million made in 2015.

4. Net profits for 2016 increased to KD 2.0 million compared to KD 1.8 million the last year, representing a 13% year-on-year increase.


SHAREHOLDERSOTHERS 4215% 5115%QURAIN PETROCHEMICAL INDUSTRIES COMPANY

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NAPESCO provides its broad range of services to leading corporations in the oil sector such as Kuwait Oil Company, Kuwait National Petroleum Company, Environment Public Authority EPA, Joint Operations, Khafji and Wafra Kuwait and Chevron - Saudi.

Throughout the year, QPIC has succeeded to increase its group ownership in NAPESCO’s paid-up capital from 29.99% to 50.53%, through two Mandatory Tender Offers (MTO) and a public auction, that happened during the period from August 2016 to March 2017.

Upstream Oilfield Services:• Oil Well Cementing• Oil Well Testing• Stimulation Services

Downstream & Energy:• Industrial Products and Services• HSE Services• Fire Systems Services


1. Total Sale revenues for 2016 amounted to KD 27.01 million versus KD 19.61 million made during the previous year, representing a 38% year-on-year increase.

2. The Achieved net profits for 2016 at KD 7.71 million were 36% higher year-on-year than KD 5.68 million that was made in 2015.

NAPESCOOWNERSHIP STRUCTURE


NAPESCO was Established in 1993 with a paid-up capital of KD 5,760,951 million. The com-pany is primarly engaged in carrying out support services for oil-well digging and maintenance, as well as restorations operations.

National Petroleum Services Company (NAPESCO)

SHAREHOLDERSOTHERS 4915%5015%


Services provided are dividend into the following divisions:

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The company operates three International Standards Orga-nization (ISO) 22000:2005 accredited factories in Jeddah and Dammam that produce the bulk of SADAFCO’s prod-uct portfolio.

Production includes Long Life Milk (Plain and Flavoured), Laban, Tomato Paste, Snacks, Ice Cream, White Cheese (Feta), Arabic Coffee, Thick Cream, Still and Sparkling Fruit Drinks and Soy Drink while Ketchup, Cheese Triangles, In-stant Milk Powder, Butter and French Fries are produced by third-party manufacturers.

Following the company’s formative years as a joint venture, SADAFCO emerged when three Saudi dairy companies joined forces and ownership was transferred to Saudi and

GCC interests. In 2005, SADAFCO became a publicly-listed company on the Saudi Arabian stock exchange, Tadawul.

Products produced and imported by SADAFCO are trans-ported to the company’s 24 depots by its own fleet of long-haul trailers. Through nearly 500 sales routes operating out of 20 depots in Saudi Arabia and one depot each in Qatar, Bahrain, Kuwait and Jordan, the company reaches an esti-mated 35,000 customers, providing wide sales penetration for the product range.

In addition to the direct sales reach, the company accesses several export markets through external distributors and agents. The company markets its products under the brand names of Saudia, Crispy, Majestique and Baboo.


1. SADAFCO managed to increase its market share against other brands despite economical challenges facing the region.

2. Despite global economic slowdown, SADAFCO managed to maintain record profit margins during the past two years, supported by lower production and transportation cost.

3. Net profits for the year at SAR 301 million were 15% Higher than the previous year (SAR 260 million).


SADAFCOOWNERSHIP STRUCTURE SHAREHOLDERS

OTHERS 4811%

4011%QURAIN PETROCHEMICAL INDUSTRIES COMPANY

1117% AL-SAMEH TRADING CO. LTD.

Saudi Dairy & Foodstuff Company (SADAFCO)

SADAFCO was established in 1976 with an aim to become a leading, world-class food manufacturer, importer, distributor and marketer in the Middle East. Based in Saudi Arabia and with operations across the Middle East, the company is a market leader in Saudi Arabia in Tomato Paste and Ice Cream and a strong No. 2 in Total Drinking Milk, marketing its core products under the flagship Saudia brand.

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Insha’a Holding company aims to be a pioneer through the creative management, using technology, advanced methods and committing to provide products with high quality.

The company also seeks to exploit the promising investment opportunities in the sector of manufacturing and trading construction materials in the local market, the Middle East and International markets as well as establishing new facto-ries or acquiring influential shares in building and construction materials companies.

Insha’a Subsidiaries

1. Bubiyan Ready-Mix Company2. SANDCO for General Trade and Contracting Company3. Bayan Establishment for General Trading and Contracting Company4. EPO Gulf Specialties Company5. Tashyeed Combined Company

INSHAAOWNERSHIP STRUCTURE

INSHAA was established in October 2005 to meet the increasing demand of building and construction materials. The company invests resources of its subsidiaries efficiently in order to achieve all its commitments and support them to be a pioneer in their field of business. QPIC acquired an 59% stake in Insha’a holding in March 2017.

Insha’a Holding Company (INSHAA)

SHAREHOLDERSOTHERS 4114% 5816%QURAIN PETROCHEMICAL INDUSTRIES COMPANY

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Qurain Petrochemical Industries Company is committed to applying the best practices in the field of corporate gover-nance based on the belief that the principles of sound management and institution efficiency depend on the continued application of these standards.

In order to achieve this, Qurain is committed to implementing the applicable principles of governance issued by the Capital Markets Authority for companies listed on Boursa Kuwait. This implementation is guaranteed to consolidate and develop the governance culture throughout the company and among its employees to achieve the best protection and balance between the interests of the company management and its shareholders and other related stakeholders.

The company’s Board of Directors and Executive Management established the governance structure through the poli-cies, rules and regulations that govern the company’s business, and define the responsibilities, tasks and duties of each member of its management, committees and employees. This system is developed and modified whenever necessary to ensure the achievement of its objective.

During the fiscal year, the company has committed itself to implementing all standards of governance in accordance with best practices and to completing the requirements of the Capital Markets Authority regarding the rules of governance on the specified date, thus placing the company among the first ten listed companies in the State of Kuwait to meet report-ing requirements for the standards. The Board of Directors and its committees, through periodic reports, supervised the application process and no cases of non-compliance with the approved rules were reported during the fiscal year.

This report aims at providing a brief overview of the implementation of corporate governance requirements and proce-dures in the company to the shareholders:


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Name Position Membership Academic qualifications & experienceDate of election / appointment of the Secretary


Chairman of the Board of Directors

Non-Executive Sheikh Mubarak Abdullah Al-Mubarak Al-Sabah currently holds several positions in local and regional companies, including:

• Vice Chairman of Action Group Holdings Company

• Founder and Chairman of Action Real Estate Company

• Founder and Chairman of Action Hotels Company

• Member of the Board of Directors of the Egyptian-Kuwaiti Holding Company

• Member of the Board of Directors of Equate Petrochemical Company.

He has previously served in the Kuwaiti National Guard and received the rank of a Captain. He is also a member of several international institutions and organizations specialized in international relations, defense studies, economic affairs and strategic affairs.

He received a Master of Philosophy in International Relations from Cambridge University in the United Kingdom.

28/06/2015

Sadoun A1 Ali Vice Chairman and Chief Executive Officer

Executive Mr. Sadoun Ali currently holds several positions in local and regional companies, including:

• Member of the Board of Directors at Burgan Bank, Chairman of the Risk Committee and member of the Audit Committee

• Member of the Board of Directors at Bank of Baghdad, Member of the Compensation and Remuneration Committee, Audit Committee and Financial Accounting

• Member of the Board of Directors of the United Industries Company

• Member of the Board of Directors of the Advanced Technology Company and Chairman of the Audit Committee

• Chairman of the Board of Directors of the United Oil Projects

• Member of the Board of Directors of Royal Capital Company in Abu Dhabi

• Chairman of the Board of Directors of Insha'a Holding Company

• Member of the Board and member of the Audit Committee of the Chairman's Club

He also occupied several administrative, accounting and executive offices in companies working in investment, banking and industrial sectors. He worked for ten years in the financial management of the National Petroleum Company.

He holds a Bachelor of Science in Financial Services Management from the University of Ashland, USA.

28/06/2015

The First Rule: Board of Directors Composition at Qurain Petrochemical Industries Company (Public K.S.C)

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Attallah R1 Al Mutairi Member of the Board of Directors

Independent Mr. Attallah Al Mutairi holds several positions in local and international companies, including:

• Member of the Board of Directors of BIG Investment Group and Chairman of the Investment Committee.

• Chairman of Triple E. Holding Company

He also held several administrative and engineering positions since 1974 in companies and institutions working in the fields of energy, electricity, petrochemicals and petroleum.

He holds a Bachelor›s Degree in Electrical Engineering

28/06/2015

Tariq M. Abdul Salam Member of the Board of Directors

Non-Executive Mr. Tariq Abdul Salam holds several positions in local and international companies including:

• Chief Executive Officer of KIPCO. • Chairman of United Real Estate Company.• Deputy Chairman of Kuwait Clearing

Company. • Board Member of Jordan Kuwait Bank. • Deputy Chairman of the Board of Directors

of North Africa Holding Company.• Member of the Board of Directors of Saudi

Dairy and Food Company (SADAFCO)• Member of the Board of Directors of

KAMCO Investment Company.

He has held various leadership positions since 1997 in institutions working in the field of banking, investment and insurance.

He holds a Bachelor›s Degree in Accounting from the Faculty of Commerce, Economics and Political Science at Kuwait University.

28/06/2015

Abdullah S. Al Muslim Al Otaibi

Member of the Board of Directors

Non-Executive Mr. Abdullah Al Otaibi currently holds several positions in various companies including:

• Deputy General Manager of Qarwa Project Management Company.

• Chief Executive Officer of National Consumer Holding Company.

• Member of Board of Directors of Oman International Company for Urban Development and Investment.

• General Manager of National Paper Products Company.

He also held several administrative and executive positions in several institutions working in various fields, including consulting and real estate.

28/06/2015

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Fuad A. Akbar Secretary Secretary Mr. Fuad Akbar currently holds several positions in various companies including:

• Chairman of North Africa Holding Company.• Member of the Board of Directors of United

Petrochemical Company.• Member of the Board of Directors of United

Oil Projects Company. • Member of the Board of Directors of Kuwait

Paraxylene Production Company (KPPC). • Member of the Board of Directors of the

Kuwait Styrene Company K.S.C.

He also held several positions and membership of boards of directors and subcommittees in local and regional companies working in various fields including petrochemicals, oil and investments.

He graduated from the University of Miami, USA, with a Bachelor›s Degree in Industrial Engineering.

28/06/2015

Meetings of the Board of Directors during the Fiscal Year

Meeting No1 1 2 3 4 5 6 7 8 9 10

Meeting date

10/05/2016

12/05/2016

01/06/2016

04/07/2016

25/07/2016

27/10/2017

27/11/2017

26/12/2016

05/01/2017

22/01/2017

Name of the Member Position Attendance


Chairman of the Board of Directors √ √ √ √ √ √ √ √ √ √

Sadoun A1 AliVice Chairman and Chief Executive Officer

√ √ √ √ √ √ √ √ √ √

Attallah R1 Al Mutairi Member of the Board of Directors √ √ √ √ √ √ √ √ √ √

Tariq M. Abdul Salam Member of the Board of Directors √ √ √ √ √ √ √ √ √ √

Abdullah S. Al Muslim Al Otaibi Member of the Board of Directors √ √ √ √ √ √ √ √ √ √

Fuad A. Akbar Secretary √ √ √ √ √ √ √ √ √ √


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The Second Rule: Responsibilities of the Board of Directors

1. Approve the main objectives, strategies, plans and policies of the company. This includes, as a minimum, the following:

• The comprehensive strategy of the company and the main business plans.• The appropriate capital structure of the company and its financial objectives.• A clear policy for distributing profits (cash/non-cash).• Key performance objectives, supervising the implementation process, and company’s overall performance.• The company›s organizational and functional structures and reviewing them on a periodic basis.

2. Approve the annual budgets, and approve the interim and annual financial statements.

3. Supervise the company’s main capital expenses, and acquisitions/disposal of assets.

4. Approve financing up to 50% of the capital and recommend amendments to the authorized capital.

5. Approve and follow up developments on financial restructuring, including mergers and acquisitions, liquidation and acquisitions, annual budgets, profits and other operations affecting the Company’s budget.

6. Approve entry into or withdrawal from any of the transactions and business.

7. Ensure company compliance with the policies and procedures that guarantee company’s compliance with the internal systems and regulations set forth.

8. Ensure accuracy and integrity of data and information to be disclosed.

9. Periodical disclosure and publications of the company’s activities, and any effective developments of its operations.

10. Establish effective communication channels that allow the company shareholders to continuously and periodically assess company’s different activities and major developments.

11. Establish a companywide corporate governance code, and supervise the effectiveness of the code.

12. Set up specialized committees formed out of the Board, where such formation should be according to a charter that specifies the term of the committee, its authorities and responsibilities, and follow up their activities on a periodic basis.

13. Ensure that the company’s organization structure is characterized with transparency and clarity, in order to allow the decision making process, and realize sound governance principles, segregate powers and authorities of both the Board of Directors and the executive management through the following:

• Approve and enhance the internal procedures and systems related to the company’s operations and develop-ment, in addition to specifying tasks, competences, duties and responsibilities for different organization levels.


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• Approve the delegation of authority of the executive management.

14. Determine the authorities delegated to the executive management, along with the procedures for taking decisions and the validity of such delegation. The Board of Directors also specify matters reserved for decisions by the Board.

15. Supervise and monitor the performance of members the executive management and ensure that they perform the tasks assigned to them. The Board of Directors should conduct the following:

• Ensure that the executive management performs their tasks in accordance with the approved policies and procedures set forth by the Board of Directors.

• Convene routine meetings with the executive management to discuss the business course, obstacles and problems encountered, in addition to presenting and discussing material information relevant to company’s activities.

• Set performance indicators for evaluating the executive management, where such indicators should be in line with the company›s objectives and strategy.

• Specify employees remuneration tranches, such as fixed remunerations, performance based remunerations, and remuneration in the form of bonus shares.

16. The appointment or termination of any of the executive management members, including the chief executive officer or an equivalent position.

17. Ensure the establishment of succession programs and plans in the company.

18. Establish a stakeholder policy that respect and protect their rights.

19. Establish a related party policy, to limit conflict of interest situations.

20. Continuously ensure the effectiveness and adequacy of the internal controls applied in the company and its affiliates.

21. Ensure the soundness of the financial and accounting systems, including financial reporting systems.

22. Ensure the implementation of adequate control systems set for measuring and managing risks, through identifying the risks surrounding the company, and establishing an environment that advocates a company wide risks mitigation culture, and transparently disclosing such risks with stakeholders and the company’s related parties. 23. Approve risks criteria and company susceptibility.

24. Recommend the appointment of independent auditors to the company’s general assembly.

25. Appoint Secretary of the Board of Directors from among its members, executive management members or from abroad. The Board shall determine his duties in line with the level of assigned responsibility of the role. The appointment or dismissal of the Board of Director›s Secretary shall not be enforced unless with a resolution from the Board.


36

26. Appoint the Head of Internal Audit and determine the responsibilities of the Internal Audit Department.

27. Call to convene the general assembly of the company when necessary, at the request of shareholders who hold at least 10% of the capital of the company or at the request of the external auditor of the company within 15 days from the date of the request.

28. Report on the Company›s financial position and the results of its work to the General Assembly.

29. Maintain the confidentiality of all confidential data, information and projects in the Company and its activities, obtained in the course of performing Board duties.

Committees of the Board of Directors

The Board of Directors forms specialized committees and sets a charter clarifying its powers and responsibilities in order to assist the Board in the fulfilling its responsibilities. A sufficient number of non-executive board members are appointed in these committees as well as independent members who possess the necessary qualifications for membership. These committees are responsible for their functions before the Board of Directors, but this does not relieve the Board of Direc-tors of their responsibility of the duties assigned to these committees.

The following is an overview of the independent specialized committees established by the Board of Directors:

11 Audit and Risk Management Committee

Date of formation and duration: The committee was formed on 28/06/2015 for a validity period of three years.

Objective:

To assist the Board of Directors in implementing its responsibilities effectively with regard to reviewing financial reports, internal controls, and internal and external auditing. The Committee is also responsible for assisting the Board of Direc-tors in fulfilling its supervisory responsibilities regarding risk management and compliance by reviewing the risks that the company may face and making the necessary related recommendations to the Board of Directors.

Committee members and meetings during the fiscal year:

Meetings of the Committee

Members of the Com-mittee Position Membership

10/05/2016

25/07/2016

27/10/2016

26/12/2016

22/1/2016

Tariq M. Abdul Salam Committee Chairman Non-Executive √ √ √ √ √

Attallah R1 Al Mutairi Member Dependent √ √ √ √ √

Abdullah S. Al Otaibi Member Non-Executive √ √ √ √ √


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Duties and Accomplishments of the Committee:

1. Review the interim and annual financial statements and report of the external auditor, and determine any significant impacts on the financial position of the company and approve them preliminarily before submission to the Board of Directors for final approval.

2. Analyze the observations of external auditors on the financial statements of the company and follow up on action that has to be taken in their regard.

3. Analyze the accounting principles and policies of the company and examine any changes that may affect the financial position of the company and identify the reasons for these changes.

4. Ensure the company’s compliance with applicable accounting laws and regulations.

5. Hold periodic meetings independently with the external auditor and at least four times with the internal auditor and whenever needed, at the request of the committee.

6. Recommend the appointment of the Director of the Internal Audit Department.

7. Review the results of the internal report and ensure that corrective actions have been taken regarding the observations in the reports.

8. Review the charter, work plan and internal audit needs.

9. Oversee the work of the internal audit department in the company in order to verify its effectiveness in carrying out its duties and tasks.

10. Appoint an independent auditor to prepare a report reviewing the internal control systems to be submitted to the Committee and submit this report the Board on an annual basis.

11. Review and initially approve manuals of the policy and procedures of the internal audit department.

12. Recommend to the Board of Directors the appointment or reappointment of the external auditors or their replacement and determine their fees.

13. Prepare and review risk management strategies and policies prior to Board’s approval and ensure that they are consistent with the size and activities of the company.

14. Review the periodic reports submitted by the Risk Management Department for the purpose of monitoring the risks and reviewing the efficiency and effectiveness of the systems and procedures of monitoring and measuring risks in the company.

15. Ensure the availability of adequate resources and systems to manage and ensure the independence of risk personnel from the operational activities of the Company.


38

16. Assist the Board of Directors in identifying and evaluating acceptable risk limits in the Company and ensuring that the Company does not exceed the approved risk limits.

17. Review the deals and transactions proposed to be conducted by the company with related parties, and make appropriate recommendations thereon to the Board of Directors.

21 Nominations and Remunerations Committee

Objective:

The objective of the committee is to assist the Board of Directors in complying with corporate governance principle in respect to nominations and remunerations for members of the Board of Directors and Executive Management. It recom-mends the nomination and re-nomination of directors and executive management members; establishes remunerations policies, as well as reviewing the needs and skills required for membership of the Board of Directors and determining the different categories of remunerations.

Date of formation and duration of the committee: The committee was formed on 29/06/2015 for a validity period of three years.

Committee members and meetings during the fiscal year:

Members of the committee Position Membership Meetings of the Committee

Date: 29/06/2016

Tariq M. Abdul Salam Committee Chairman Non-Executive √

Attallah R1 Al Mutairi Member Independent √

Sadoun A1 Ali Member Executive √ Duties and Accomplishments of the Committee

1. Recommend the nomination, appointment, reappointment and removal of members of the Board of Directors, members of the Committee and members of the Executive Management and make recommendations regarding the above to the Board.

2. Ensure that the remuneration of directors and executive management members are consistent with the long-term interests of shareholders within the appropriate control framework.

3. Create a clear relationship between the executive management performance and rewards remunerations.

4. Review the executive management’s remunerations and make recommendations regarding them.

5. Ensure the continued applicability of independency of the independent board member.

6. Develop job descriptions for executive members, non-executive members and independent members of the company.


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The Third Rule: Recruiting Highly Qualified Candidates for the Board of Directors and Executive Management

About the Nominations and Remunerations Committee

The Board of Directors has formed a Nominations and Remunerations Committee consisting of three members, including an independent member, to assist in the nomination and selection of members of the Board of Directors, members of the Board›s Committees and members of the Executive Management. The committee selects candidates according to the company›s needs and the required skills to manage its business. The committee duties include the establishment of stan-dards of remunerations of the Board of Directors and Executive Management. The Committee submits its remuneration recommendation for initial approval by the Board of Directors and final approval by the General Assembly of the Company.

Remuneration and incentive system for Board of Directors and Executive Management

The Company follows the remuneration and incentives standards for the Board Members, in line with the requirements of the applicable laws of the State of Kuwait and the rules of governance. The total remuneration shall not exceed 10% of the net profits of the Company (after deduction of depreciation, reserves and shareholders› dividends of not less than 5% of the company›s capital or any higher percentage, as provided for in the Company›s Articles of Association). The remu-neration of the members of the Board of Directors is approved by the General Assembly in its annual meeting, upon the recommendation of the Nominations and Remunerations Committee. The independent Board member may be exempted from the maximum remuneration, subject to the approval of the Company›s Ordinary General Assembly.

As for the executive management remuneration, it is determined based on the set KPIs linked to the management objec-tives for each functional level and performance results achieved by the company, including:

Fixed Remuneration:

These remunerations are determined by the level of responsibilities assigned, the levels of expertise and competencies of each employee and the career path of the job. This type is determined including the allowances and benefits according to the employment functional level and the approved employee salary scheme.

Performance-linked Remunerations: This portion of remunerations is allocated based on the individual performance of executive management members and the overall performance of the company. The annual remunerations proposal is prepared by the Human Resources De-partment and it is calculated based on the specific allotments and performance evaluations of each employees. The remuneration is calculated according to a fixed criterion for the calculation of remunerations either (as a fixed amount for each functional level or a percentage of the salary or salary multiplier). The remunerations amount is determined based on the employee›s performance evaluation rate. Weak or acceptable performance evaluation results is not entitled a performance-linked remuneration for that year.


40

The report of remunerations, benefits and incentives granted to the members of the Board of Directors and Ex-ecutive Management for the year 2016 / 2017

1 Board of Directors (K.D/Year)

Members of the Board of Directors

Remuneration of the Board of Directors

Remuneration for the Membership of the Committee

Total Remunerations

150,000 - 150,000

2 Executive Management (K.D/Year)

Executive Management Fixed Remunerations Performance Linked Remunerations Shares

493,251 186,489 364,304

Stock-option remunerations are paid in accordance with the Employee Stock Option plan, 30% of the options owner-ship rights are earned in the first year after granting, 30% for the second year and 40% for the third and final year.

The Fourth Rule: Safeguard Integrity in Financial Reporting

Commitments of the Board of Directors and Executive Management to the soundness and integrity of financial reports

The Executive Management has made a written statement to the Board of Directors certifying that the financial reports of the Company are presented soundly and fairly, and state all the financial aspects of the Company including operational data and results. They further certify that the financial data are prepared according to the international accounting stan-dards approved by the Capital Market Authority and that the Executive Management is responsible for the validity and accuracy of these data.

In turn, the Board of Directors of Qurain Petrochemical Industries Company undertakes to its shareholders to present its financial statements in a sound, fair and accurate manner.

About the application of the requirements of the Audit Committee formation

The Company formed an Audit Committee in line with the nature of the company’s activities in. The Audit Committee is fully independent, and consists of three members, including an independent member. Members of the committee enjoy scientific qualifications and professional experience in the accounting and financial fields. There was no contradiction between the recommendations of the Audit Committee and the decisions of the Board of Directors.

Independence and impartiality of the external auditor

The External Auditor is appointed upon the approval of the General Assembly based on the recommendation of the Board of Directors. The External Auditor of the company is fully independent from the Company and its Board of Directors and shall not carry out any additional assignments for the Company related to audit and auditing activities, which may affect neutrality or independence of the External Audit. The Audit Committee also verifies the independence of the external auditor, and reviews and discusses the issued annual financial reports by the external auditor before submitting them to the Board for decision.


41

The Fifth Rule: Sound Systems of Risk Management and Internal Controls

The approved organizational structure of the Company includes an independent department risk management and compliance department. This Department is responsible for measuring and following up various types of risks that may face the company and report on these risks. This Department is fully independent and reports directly to the Board Audit & Risk Committee and the Board. It possesses the authorities necessary for performing its tasks to the fullest and does not have any financial authori-ties or powers. The Department recruits the qualified human resources that has the necessary professional qualifications.

The company›s approved organizational structure also has an independent internal audit department with complete techni-cal independence stemming from the Audit and Risk Committee and the Board of Directors. This department effectively analyzes the company›s internal control environment.

The company relies on internal control and monitoring systems in all its activities by observing the principles of internal con-trol of the dual control process, namely the proper identification of authorities and responsibilities, complete separation of duties and non-conflict of interest, dual examination and control, and dual signature. This is achieved through a clear delega-tion of authorities’ structure for financial and administrative duties.

The Sixth Rule: Promote Ethical Standards and Responsible Conduct

The Board has adopted a Code of Conduct for the Company, which includes standards and policies that consolidate the culture of professional conduct and ethical values of the company and the basic principles of professional ethics within the framework of its corporate governance. The promotion of these standards within the company enhances investor confidence in the com-pany’s integrity and soundness of its financials.

The Code of Conduct is based on the principle of compliance of each member of the board of directors and executive man-agement with all laws, regulations and professional standards to achieve the interests of the company, its shareholders and other stakeholders. The charter also includes the obligation of each member not to exploit the powers and authorities of their positions, and the assets and resources of the company in order to achieve a personal interest for themselves or for others. The code also includes the mechanisms that prevent members of the board of Directors and staff from the exploitation of insider information that came into their possession by virtue of their positions within the company or assist others to achieve a personal interest and to act justly and fairly with all parties in the company.

The company has developed an internal reporting system to facilitate reporting by employees regarding their doubts about improper practices or suspicions about financial reporting, internal or other control systems. The reporter is granted the con-fidentiality and protection from any retaliation or punishment for reporting these doubts. The company’s rules also includes maintaining the confidentiality of the internal information of the company and sets the procedures and disciplinary conse-quences for violations to the code set for professional conduct.

The Board of Directors has developed a conflict of interest policy aimed at reducing conflicts of interest that may arise from the company›s business process. This policy includes clear examples of interest conflict situations and ways to address them. A conflict of interest policy states that any member of the Board shall notify the Board of Directors of any personal interests that the Board member may have in the business and contracts related to the company›s business. Such notification is recorded in the minutes of Board meetings and the member that has an interest in a certain business is not allowed to vote on a Board resolution on that subject. The Chairman of the Board shall also notify the General Assembly upon meeting regarding the businesses and contracts for which a member of the Board of Directors has a personal interest along with a special report from the Auditor on the subject.


42

The Seventh Rule: Ensure Timely and High Quality Disclosure and Transparency

The company follows a policy based on disclosure and transparency aimed to enable shareholders, investors and the public to follow up the company›s activities, evaluate its performance and ethical standards in the best manner. Accurate disclosure in a timely manner creates an environment of trust and confidence among investors and other stakeholders regarding the financial position of the Company and all aspects related to its activities, financial statements and projects. Therefore, the Company has developed the mechanisms of clear and transparent presentation and disclosure of the material information and all matters relating to the Company, including the statement of financial position, performance, ownership and any practices relating to the control of the Company or its decisions. The Company, in all its policies and procedures, abide by rules of the laws, regulations and instructions related to disclosure at the appropriate time issued by the various regulatory and supervisory authorities.

The Company has established a special register that contains the disclosures of members of the Board of Directors and the Executive Management. It includes the data relating to their transactions according to the insider trading disclosure rules for companies listed on Boursa Kuwait. The data of the Register is updated periodically and contains information related to remunerations, salaries, incentives and other financial advantages that are included in the annual report pre-sented to the General Assembly. The register is made available to any company shareholders upon request free of charge.

The organizational structure approved by the Board of Directors includes an investor affairs unit. This unit provides the necessary data, information and reports to current and prospective investors and answers their queries regarding the company. This unit is independent enough to provide accurate data, information and reports on a timely manner through various appropriate means.

The company relies, in its disclosures and communications with shareholders, investors and stakeholders, on various means, including information technology. The company›s website contains comprehensive information on its investments, financial reports and essential information. The company has established a dedicated section on its website for corporate governance and another section for investor affairs through which the recent data are published to assist current and prospective shareholders and investors in obtaining the necessary information about the company and assess its perfor-mance.

The Eighth Rule: Respect the Rights of Shareholders

The company›s governance aims at achieving balance between the objectives of the company and objective of its share-holders›, protecting their rights, and achieving fair dealing and equality among all shareholders, so that no shareholders would receive any special treatment, regardless of their position. The company does not at anytime deny any shareholder an information or a granted right.

The Company›s Articles of Association, regulations and internal policies also provide for the procedures that guarantee the achievement of this objective, including the general shareholders› rights guaranteed by the Company such as:

1. Register the value of the shareholding in the Company›s records.

2. Dispose shares from the registration of ownership and transfer and / or convert them.

3. Obtain the approved share of dividends.


43

4. Acquire the share of the company›s assets in case of liquidation.

5. Obtain the data and information about the company›s activity and its operational and investment strategy in a regular and easy manner.

6. Review the shareholders register.

7. Participate in the meetings of the shareholders General Assembly and vote on its decisions.

8. Elect members of the Board of Directors.

9. Monitor the company›s performance in general, and board of directors performance in particular.

10. Hold accountable the company›s Board of Directors or Executive Management and file the claim of responsibility in the event of failure to perform the tasks entrusted to them.

The Company has established a special register with Kuwait Clearing Company, that includes the names, nationalities and domiciles of shareholders, and the number of shares owned by each of them. The information contained in this Reg-ister is treated with maximum protection and confidentiality.

This register is updated with any change to the data recorded in it, and the company›s shareholders may request to view the register in accordance with the procedures of Kuwait Clearing Company. Updated records of the company›s share-holders are also kept at the Investor Affairs Unit in the company.

The company is keen to encourage shareholders to participate and vote in the meetings of the company›s assemblies through the mechanisms established to participate in the meetings of the shareholders› general assembly and voting mechanisms. The company complies with the following when arranging for shareholder›s general assembly meetings:

• Send an invitation by the Board of Directors to the shareholders to the hold their meetings including the agenda, time and venue of the meeting by advertising in accordance with the mechanism specified in the Companies Law.

• Allow all shareholders to exercise the right to vote in person or by proxy without any obstacles that lead to the prohibi-tion of voting.

• Provide shareholders with an opportunity to participate effectively in meetings of the General Assembly, discuss the agenda items, and direct questions in their regard to the members of the Board of Directors and External Auditor.

• No fees are imposed on any category of shareholders for attending of the General Assembly meetings, and there is no preferential advantage for any category against other categories of shareholders.

The Ninth Rule: Recognize the Legitimate Interests of Stakeholders

Within the framework of its corporate governance policies, the Company has developed policies on the rules of procedures for dealing with stakeholders in recognition and protection of their rights. These policies include the need to deal with stake-holders on the same terms applied by the company in dealing with members of the board of directors without any discrimi-nation or preference. They also include the mechanisms to deal with stakeholders and meet their requirements appropriately while maintaining a good relationship, respect the rights of shareholders and maintain their confidentiality of information.Qurain seeks to encourage stakeholders to participate in the follow-up of the company›s various activities by providing


44

the information and data related to its activities in a timely and transparent manner. This is achieved through adopting a policy in which stakeholders can report inappropriate practices of the company and provide appropriate protection in its policy for the reporting parties.

The Tenth Rule: Encourage and Enhance Performance

The company ensures to train and develop managers and human resources of the company to achieve better perfor-mance and governance. Training and development efforts contributes to enhancing the performance of the company in general, and expands its business. It has a positive effect on the performance of the Board of Directors and Executive Management and enables them to exercise the tasks and responsibilities assigned to them in a better manner. Therefore, the company has approved a special policy to continuously train the members of the Board of Directors and the Executive Management, and encourage participation in seminars and conferences related to the company›s business with the aim to identify the latest developments and keep abreast of changes in the company›s business sectors.

The training programs, workshops and global conferences in which the members participated include:

1. Corporate Governance Training2. Strategy & Strategic Planning Training3. IFRS 9 Financial Instrument Course4. UK’s Largest Internal Audit Conference5. Talent Management & Succession Planning workshop6. 11th Annual Gulf Petrochemicals and Chemicals Association (GPCA) Forum 7. IHS Chemical 32nd Annual World Petrochemical Conference

The Board of Directors performance and performance of Executive Management are evaluated periodically through the Company›s approved evaluation systems and mechanisms and KPIs related to achievement of Company and departmental strategic objectives.

The company relies on the self-evaluation system to assess the annually performance of the members and committees of the Board of Directors. This system determines which aspects or requirements require attention or development. As for executive management and employees, they are evaluated periodically according to specific performance indicators linked to their objectives, accordingly the requirements for development and training are determined according to evalu-ation results.

The Board of Directors continuously emphasizes the importance of creating organizational values for employees within the company by developing mechanisms and procedures that work to achieve the strategic objectives and improve the performance rates in the company. These mechanisms and procedures also enhance the culture of compliance with regu-latory laws and regulations that create a disciplined work environment in compliance with the prevailing rules. Additionally, they raise the spirit of responsibility and professional ethics, achieve better quality in the performance of the employee and achieve the objectives of the company.


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The Eleventh Rule: Importance of Social Responsibility

Qurain Petrochemical Industries Company has approved its policy for Corporate Social Responsibility that commits to ethical behavior and contribution to the sustainable development of society in general, and in the following areas in par-ticular:

1. Community: through ongoing investments in means for youth empowerment and development.2. Employees: through investing in developing our employees’ skillset and providing a healthy work environment.3. Environment: through our roles and responsibilities of representation on the board of our operational companies.4. Local Economy and Industry: through our continuous support and participation in forums that focus on developing the local economic and industrial matters.

Qurain participations during the fiscal year:

11 The Protégés

QPIC, along with the Kuwait Projects Company (KIPCO) group has been always keen on supporting young kuwaiti youth in means that contributes to developing their life and leadership skills eventually leading to community success.

Protégés is an innovative interactive program led by a group of mentors and on innovative training methods. The KIPCO group, the strategic partner of the program and the main sponsor, launched the program. The program encourages young people to discover their passion and provide them with tools to help them fight the realm of life and the challenges of work and encourage them to become active members of society.

The program is designed to promote social and life skills and the development of self-awareness as well as to focus on improving critical thinking and creativity. This is achieved through workshops, projects, debates and speakers from guests and traveling to a prestigious university. The Youth are mentored through a team of sponsors from public personas with sound accomplishment, who provide their Protégés with advice and practical experiences that qualify them to go to work and experience life.


46

2. Employee of The Year

In line with the group’s commitment in implementing the Cor-porate Social Responsibility (CSR) standards on the com-pany’s business, its activities and particularly, all relevant stakeholders. By doing so, QPIC is keen to attract the best human resources and to retain them by providing a healthy work environment and a culture that promotes work efficiency and job satisfaction. The Employee of the year award is one of the programs that the group is keen to implement in order to reward the employees on their efforts and motivate success.

The Employee of the Year award went to Mr. Abdul-Hameed Malhas – Investment and Corporate Communications & Rela-tions Manager at Qurain Petrochemical Industries Company.

41 KIPCO Tmkeen Award

QPIC, Along with KIPCO and its companies, partnered with the Youth Empowerment Organization (Tmkeen) to launch the second KIPCO Tmkeen Award for Young Entrepreneurs aged 18-33 with existing retail & services businesses estab-lished no longer than five years ago and licensed in Kuwait. The winning business concept received a grand prize valued at US$ 100,000 comprised of a bundle of services provided by KIPCO Group companies, including financial, strategic and operational consultation sessions, market studies, insurance coverage and advertising services.


3. INJAZ-Kuwait

INJAZ-Kuwait is a non-profit organization that was established in Kuwait in 2005 with an aim to develop and prepare youth to succeed in global economy. Qualified volunteers from the Private & Public Sectors volunteers to teach school students on specific topics related to work readiness and business. The company and its employees has volunteered and partici-pating 3 training courses during the financial year 2016/2017.

5. Kuwait Industries Exhibition EXPO 2016

QPIC participated during the year in Kuwait Industries Exhibition EXPO 2016, which was organized by Kuwait Industries Union (KIU) under the auspices of H.H Sheikh Sabah Al-Ahmad - The Amir of Kuwait - with the participation of 150 local factories and other Gulf corporations. Qurain sponsorship and participation in the exhibition highlights the company’s vital role in the sector; being one of the largest private sector investors in the field of Energy sector in Kuwait.

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Audit & Risk Committee

Overview:The Board has formed the Audit Committee during 2006 to delegate its responsibilities, authorities and duties with regards to ensuring the soundness and integrity of financial statements, internal control systems, as well as monitoring the internal audit activities. In order to comply with Corporate Governance requirements issued by the Capital Market Authority, the Committee has been restructured in 2015 to become Audit and Risk Committee.

Composition:The Committee consists of three non-executive directors including one independent. The members are financially acumen and experienced.

Roles and Responsibilities:The Board has approved the revised Committee Charter in November 2014 to comply with regulatory changes and re-quirements, mainly covering:

• Review the financial statements prior to the Board approval.• Assess the Company’s internal controls on a periodic basis.• Review and monitor the internal audit activities on a continuous basis.• Define the scope of the external auditor, monitor the performance and conduct periodic meetings with the auditors.• Review and monitor the risk management and compliance activities.

Meetings and Achievements:The Audit and Risk Committee conducted five meetings during the year ended March 31, 2017 as illustrated below:

Name Title

Meeting Dates

22/01/2017 26/12/2016 27/10/2016 25/07/2016 10/05/2016

Attendance

Tarek M. AbdulsalamCommittee Chairman

√ √ √ √ √

Abdullah S. Al Otaibi Member √ √ √ √ √

Ata’allah R1 Al MutairiIndependentMember

√ √ √ √√

(Conference Call)

During the Committee’s meetings, the Internal Audit department prepared concise presentations highlighting reviews outcomes and statistical information on the status of audit findings and its implementations.Throughout the year, the Committee approved:

• The new Risk Assessment & Audit Plan• Internal Audit Charter & Internal Audit Strategy• COSO Internal Control Review• Internal Audit Ambition Model

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Additionally, the Committee’s Chairman presented to the Board a brief overview on the Committee’s roles and assured the lack of any material breach of controls during the current fiscal year. Furthermore; the external auditors did not raise any concerns on the effectiveness of internal control systems and issued an unqualified report.

Department overview and Reporting linesThe primary objectives of the department are to:

• Provide an independent assessment on the effectiveness and efficiency of the internal control systems.• Sustain the group corporate governance culture and evaluate the effectiveness of risk management.• Provide value added support to the management team and to the subsidiaries’ internal audit functions, in order to

achieve the corporate objectives and provide support.• Provide consultancy services to the Company.

The Internal Audit department has completed an earlier plan to phase out outsourced and co-sourced audit at QPIC and related subsidiaries, by Feb 2017 all audit activities became dependent on in-house resources except for special assign-ments and areas requiring special expertise like IT governance and security controls.

To ensure independence, the Head of Internal Audit reports functionally to the Chairman of the Audit & Risk Committee and administratively to the Chief Executive Officer. The Head has non restricted access to the Chairman of the board and directors.

Risk Assessment & Risk-Based Internal Audit PlanThe risk assessment exercise is being revised annually and a standard risk assessment methodology has been used across the industrial group, pre-defined objectives were set and measurable criteria’s and standard risk rating system has been applied.

The annual audit plan has been standardized as well for QPIC and its subsidiaries and have been uploaded electronically in order to monitor progress and red flag delays if any.

Internal Quality AssuranceIn order to enhance and improve the quality of internal audit services, during the fiscal year ending March 2017 the depart-ment conducted:

• A self-assessment exercise using the Internal Audit Ambition Model developed by The Institute of Internal Auditors the Netherlands (IIA).

• An Internal Control Review using the COSO Framework.

Internal Control SystemsThe Board always strives to ensure efficiency and effectiveness of the internal controls and provide a reasonable assur-ance regarding preservation of the company’s assets and operations from the various risks that may affect the company internally and externally.

50

Therefore, the company is the in the process of appointing an independent audit firm to conduct an Internal Control Re-view as mandated by the Capital Market Authority (CMA) corporate governance regulations.

Internal Audit System

The department uses an Internal Audit Knowledge Management System to benefit from automating the Internal Audit function. The system allows to monitor the progress of audit plans, auto remind auditors and auditees and is a depository of relevant data’s pertaining to corporate governance, compliance and risks. The automation of the Internal Audit im-proved the implementation pace of open issues and provided valuable statistics. The below chart illustrates the statistical summary of QPIC Group Internal Audit Observations highlighted during the year ended 31 March 2017:

The department is committed to the standardization of the Internal Audit work at QPIC and its subsidiaries without jeop-ardizing the uniqueness and independence of each entity. The risk assessment, the audit plan and audit reports have all become consistent. The standardization improves credibility, accuracy and saved time.


Implemented Observations Not Yet Due Observations Past Due Observations Partially Implemented Observations

QPIC GroupInternal AuditObservations

6%

2%

38%54%

51


52

Mr. Akbar joined QPIC in 2008. He man-ages the development of new projects, companies’ infrastructure, acquisitions, and strategies through his strength in team building, leadership, business development and communication. He holds a Bachelor of Science degree in Industrial Engineering from University of Miami, Florida, USA.

He has previously worked for Indepen-dent Petroleum Group, Gulf Investment Corporation, and the Public Authority for Assessment of Compensations (PAAC).

He is a member of many Executive, Auditing and Business Development Board Committees in the GCC and the Middle East region.

Fuad A. AkbarChief Projects Officer

Mr. Ali Joined Qurain Petrochemical In-dustries Company (QPIC) in June 2012 as Vice Chairman & Chief Executive Officer. He has over 20 years of expe-rience in Finance & Investments and was previously employed by KIPCO As-set Management Co. in January 2006 till June 2012 as Managing Director & Chief Executive Officer. In Addition to that, Mr. Ali was previously employed by Kuwait Projects Company (Holding) as part of the Executive Management- Head of Accounting & Financial Group, and Chief of Budget (Mina Abdullah Re-finery) in Kuwait National Petroleum Co. in the period from 1989-1997.

At the moment, he is the Chairman of United Oil Projects Co. (UOP), Inshaa Holding Company and sits on the board of several local & regional banks & in-vestments companies such as Bank of Baghdad, United Industries Co., Ad-vanced Technology Co. as well as head of auditing in Burgan Bank of Kuwait & Royal Capital in addition to being on their board. Mr. Ali holds a BSc. in Management of Financial & Account-ing Services from Ashland University, in addition to his Diploma in Commercial Banks from The Public Authority for Ap-plied Education & Training.

Sadoun A1 AliVice Chairman and CEO

Mr. Khalfay joined QPIC in September 2005. He has more than thirty years’ experience in the field of which 26 years has been in the Oil & Gas in-dustry. He heads the Finance function in QPIC covering Strategy, Business Planning, Accounting, Costing, Budget-ing, Tax and Treasury functions. Prior to joining QPIC, he worked for Kuwait Foreign Petroleum Exploration Com-pany (KUFPEC) for fifteen years where he headed various aspects of Finance.

He was with Ernst & Young, Kuwait, Ku-wait International Investment Company, Kuwait, Ernst & Young – Mumbai in various positions.

He holds a Degree in Commerce and Law from University of Bombay, India and is a Chartered Accountant and an associate member of the Institute of Chartered Accountants of India.

Tanweer A. KhalfayChief Financial Officer


53

Mr. Al Masqati joined QPIC in June 2012 transferring from United Industries Company. He manages the company’s HR & Admin. Department, as well as assists in evaluation of new projects / investments as a Senior Investment Manager. Prior to Joining QPIC, Mr. Al Masqati held the position of a Senior In-vestment Manager in United Industries Company since 2006.

He was also an Investment Manager in the Projects Department at Gulf Invest-ment Company, Senior Engineer- Proj-ects Evaluation at The Public Authority of Industry, General Manager at Middle East Communications, and Production Manager at Carpets Industries.

Mr. Al Masqati holds BSc in Industrial Engineering from Oklahoma University – USA in 1987.

Ahmad A. Al-MasqatiHead of HR & Administration

Mr. Zacharia joined QPIC in Septem-ber 2012 and is responsible for man-aging and monitoring the company’s Investments. He has over 20 years of experience in the field of Finance & In-vestments and was previously Head of Business Development at United Indus-tries Co. Prior to that he has held posi-tions with Alghanim Industries, Kuwait and ICI India Ltd.

He holds a Bachelor’s degree in Com-merce from Calcutta University, is an Associate member of the Institute of Chartered Accountants of India and a Certified Management Accountant, USA.

Mickey ZachariaChief Investment Officer

Mr. Omeiri joined QPIC in 2015 as Head of Internal Audit. He has 30 years of ex-perience including 13 years within the KIPCO group. He has extensive expe-rience in the field of internal auditing, risk management and corporate gov-ernance in addition to other managerial roles.

He is responsible for handling the au-dit activities pertaining to the industrial sector within the Group.

Mr. Omeiri has represented the Group in several boards, and he is currently the Vice Chairman of Amaken United Real Estate Company.

Mr. Omeiri also worked with several lo-cal and international companies. He holds a Bachelor degree in Business Management & Economy from Ameri-can International University – Major in Financial Management & Accounting - London 1986.

Ammar G. OmeiriHead of Internal Audit


54

55

Independent Auditors’ Report

Consolidated Statement of Financial Position

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

56

61

62

63

64

65

66

QURAIN PETROCHEMICAL INDUSTRIES COMPANY K.S.C.P.AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED

31 MARCH 2017

56

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OFQURAIN PETROCHEMICAL INDUSTRIES COMPANY K.S.C.P.

Report on the Audit of Consolidated Financial Statements

OpinionWe have audited the consolidated financial statements of Qurain Petrochemical Industries Company K.S.C.P. (the “Parent Company”) and its subsidiaries (collectively the “Group”), which comprise the consolidated statement of financial position as at 31 March 2017, and the consolidated statement of income, consolidated statement of comprehensive income, consoli-dated statement of changes in equity and consolidated statement of cash flow for the year then ended, and notes to the consolidated financial statements, including a summary significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 March 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for OpinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for our opinion. Key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

Valuation and impairment of financial assets available for saleFinancial assets available for sale comprise of quoted and unquoted equity investments. Financial assets available for sale that do not have a quoted price in an active market and whose fair values cannot be reliably measured, are measured at their cost less impairment.

The valuation of financial assets available for sale is inherently subjective, most predominantly for the instruments classified under level 3 since these are valued using inputs other than the observable market data, as disclosed in the accounting policies section of the notes to the consolidated financial statements.

Unquoted equity investments classified under level 3 are valued using discounted cashflow method. The valuation requires management to make certain assumptions about the models’ inputs, including forecast cash flows, weighted average cost of capital, terminal growth rate and the discount rate. The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments.

The Group determines whether impairment for individual financial assets is required when the decline in the value is significant or prolonged. Indications of impairment may include evidence that an investee company is experiencing significant financial diffi-culties, deteriorating cash flows and adverse changes to the business and the surrounding economic factors. Given the inherent subjectivity in the valuation of the instruments classified under level 3 and the judgement involved in assessing the significant or prolonged decline, we determined this to be a key audit matter.


57

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OFQURAIN PETROCHEMICAL INDUSTRIES COMPANY K.S.C.P. (continued)

Report on the Audit of Consolidated Financial Statements (continued)Key Audit Matters (continued)Valuation and impairment of financial assets available for sale (continued)

Our audit procedures comprised, amongst others, involving our internal valuation specialists to assist us in assessment of the Group’s methodology and the appropriateness of the valuation models and inputs used to value the financial assets available for sale, including comparing valuation models used with that used in the prior years.

We also assessed the accuracy of key inputs used in the valuation such as the cash flow projections and considered the appropriateness of key inputs such as long-term growth rates used to extrapolate these cash flows and the discount rate and compared these to available external data.

Furthermore, we evaluated the Group’s assessment about whether objective evidence of impairment exists for individual financial assets by challenging the judgments used by the management and whether the value of any investment declined significantly or for a prolonged period.

Additionally, we assessed the adequacy of the fair value disclosures in Note 24 to the consolidated financial statements.

Impairment of inventories The Group has inventories and related provision for slow moving and obsolete inventories which are significant to the Group’s consolidated financial statements. These inventories comprise raw and packing materials, finished goods, spare parts and goods-in-transit which are subject to the risk of impairment due to either perishable nature or/and current ad-verse market situation.

For perishable raw material and finished goods, the Group adopted a policy of providing for inventory when it reaches a certain age, and also for any inventory where there are specific quality concerns. For spares, including supplies and other items, management considers them to be impaired when there is evidence of a deterioration in the physical condition and/or no movements in the specific period.

Establishing a provision for slow-moving, obsolete and damaged inventory involves estimation and judgment, and the gross inventories and related provision are material to the consolidated financial statements, hence we considered this as a key audit matter. Refer to Note 3 to the consolidated financial statements for the accounting policy relating to the impairment of inventories, Note 4 for the critical accounting estimates and judgements and Note 7 for the disclosures of movement in provision for slow moving and obsolete inventories.

Among other audit procedures, we tested the inventory provision calculations against the Group’s policy for aged, ob-solete and slow-moving inventories. We attended stock counts close to the year-end to challenge and understand the Group’s procedures for identifying obsolete inventory. We evaluated the analysis of assumptions used by management including but not limited to total shelf life and remaining shelf life of perishable inventory and ageing based provision for spares.

For perishable inventories, on a sample basis, we:

• Tested inventory to sales subsequent to the year end to verify if there were items sold at the price below its net book value;

• Evaluated the sales returns subsequent to the year end to ensure the adequacy of the provision recorded at the year-end;

• Evaluated the remaining shelf life / expiry reports and turnover ratios product wise.


58


Report on the Audit of Consolidated Financial Statements (continued)Key Audit Matters (continued)Impairment of inventories (continued)

For spares, including supplies and other items, which are assessed for impairment as per policy, on a sample basis, we performed the following procedures: • Tested accuracy of the ageing reports;• Tested the accuracy of the provision calculated based on the ageing of spares;

For impairment regarding physical damage and wear & tear of spares, we assessed the appropriateness of the qualitative and quantitative assumptions used.

Other information included in the Group’s 2017 Annual ReportManagement is responsible for the other information. Other information consists of the information included in the Group’s 2017 Annual Report, other than the consolidated financial statements and our auditors’ report thereon. We obtained the report of the Parent Company’s Board of Directors prior to the date of our auditor’s report, and we expect to obtain the remaining sections of the Group’s 2017 Annual Report after the date of our auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we con-clude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of the consolidated financial statements in accor-dance with IFRSs, 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.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to con-tinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial StatementsOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of us-ers taken on the basis of these consolidated financial statements.


59


Report on the Audit of Consolidated Financial Statements (continued)Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (continued)

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suf-ficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropri-ate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and re-lated disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the dis-closures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical require-ments regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most sig-nificance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.


60


Report on Other Legal and Regulatory RequirementsFurthermore, in our opinion proper books of account have been kept by the Parent Company and the consolidated fi-nancial 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. 1 of 2016, and its executive regulations, and by the Parent Com-pany’s Memorandum of Incorporation and Articles of Association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law No. 1 of 2016 and its executive regulations, or of the Parent Company’s Memorandum of Incorporation and Articles of Association, as amended, have occurred during the year ended 31 March 2017, that might have had a material effect on the business of the Company or on its financial position.

WALEED A1 AL OSAIMILICENCE NO1 68 AEY (AL AIBAN, AL OSAIMI & PARTNERS)

3 May 2017Kuwait


61

2017 2016

Notes KD KD

ASSETS

Current assets

Bank balances and cash 5 61,790,106 35,460,196

Trade and other receivables 6 31,997,465 15,893,749

Inventories 7 29,411,889 31,134,988

Financial assets at fair value through profit or loss 2,396,954 -

125,596,414 82,488,933

Non-current assets

Due from a related party 19 1,250,000 1,250,000

Financial assets available for sale 8 198,817,002 180,388,934

Investment in associates and joint venture 9 85,819,737 81,609,476

Intangible assets 10 117,750,004 106,850,012

Property, plant and equipment 11 79,538,111 68,879,163

483,174,854 438,977,585

TOTAL ASSETS 608,771,268 521,466,518

LIABILITIES AND EQUITY

LIABILITIES

Current liabilities

Trade and other payables 12 39,413,418 26,591,586

Term loans 13 22,820,500 -

62,233,918 26,591,586

Non-current liabilities

Employees’ end of service benefits 11,659,748 8,923,873

Term loans 13 53,779,603 65,715,352

65,439,351 74,639,225

TOTAL LIABILITIES 127,673,269 101,230,811

EQUITY

Share capital 14 109,919,258 109,919,258

Statutory reserve 14 22,604,499 18,983,391

Voluntary reserve 14 22,482,797 18,861,689

Treasury shares 14 (11,496,800) (11,825,036)

Share based payment reserve 86,813 -

Other reserves 283,822 124,329

Cumulative changes in fair values 105,948,839 91,388,257

Foreign currency translation reserve 9,820,822 8,833,758

Retained earnings 95,210,844 77,915,147

Equity attributable to shareholders of the Parent Company 354,860,894 314,200,793

Non-controlling interests 15 126,237,105 106,034,914

TOTAL EQUITY 481,097,999 420,235,707

TOTAL LIABILITIES AND EQUITY 608,771,268 521,466,518

Sheikh Mubarak Abdullah Al-Mubarak AlSabah Sadoun Abdullah Ali Tanweer Khalfay Chairman Vice Chairman & CEO CFO

Consolidated Statement of Financial PositionAs at 31 March 2017

The

atta

ched

not

es 1

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7 fo

rm p

art o

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se c

onso

lidat

ed fi

nanc

ial s

tate

men

ts.

62

2017 2016

Notes KD KD

Sales 152,486,895 162,124,251

Cost of sales (90,594,803) (104,779,834)

GROSS PROFIT 61,892,092 57,344,417

Realised gain on sale of financial assets available for sale 251,936 54,590

Dividend income 8 12,799,559 13,660,501

Interest and other income 1,848,648 697,749

Gain on fair valuation of previously held equity interest in acquiree 9 4,375,088 -

General and administrative expenses (14,505,443) (14,108,960)

Selling and distribution expenses (29,241,388) (27,223,572)

Impairment loss on financial assets available for sale 8 (564,746) (1,317,573)

Finance costs (1,960,293) (1,537,511)

Share of results of associates and joint venture 9 16,097,796 10,688,563

Foreign exchange loss (2,144) (116,979)

Profit before taxation and Board of Directors’ remuneration 50,991,105 38,141,225

Taxation 16 (1,121,373) (844,779)

Board of Directors’ remuneration 14 (150,000) (150,000)

Profit for the year 17 49,719,732 37,146,446

Attributable to:

Shareholders of the Parent Company 34,939,705 24,714,826

Non-controlling interest 14,780,027 12,431,620

49,719,732 37,146,446

Earnings per share:

Basic - attributable to shareholders of the Parent Company 18 33.58 fils 23.63 fils

Diluted - attributable to shareholders of the Parent Company 18 33.53 fils 23.63 fils

Consolidated Statement of IncomeFor the year ended 31 March 2017

The attached notes 1 to 27 form part of these consolidated financial statements.

63

2017 2016

Notes KD KD

Profit for the year 49,719,732 37,146,446

Other comprehensive income (loss) for the year:

Other comprehensive income (loss) to be reclassified to consolidated statement of income in subsequent periods:

- Financial assets available for sale:

- Net changes in fair value of financial assets available for sale 15,817,781 (26,237,995)

- Net gain on sale of financial assets available for sale transferred to consolidated statement of income

(251,936) (54,590)

- Impairment of financial assets available for sale transferred to consolidated statement of income

8 564,746 1,317,573

- Share in other comprehensive income of associates 9 1,561,486 541,931

- Exchange differences arising on translation of foreign operations (294,518) 1,212,772

Net (loss) gain on hedge of a net investment in foreign operation 20 (890,576) 93,958

Net other comprehensive income (loss) to be reclassified to statement of income in subsequent periods

16,506,983 (23,126,351)

Other comprehensive loss not to be reclassified to consolidated statement of income in subsequent periods:

Asset revaluation reserve - (125,267)

Net other comprehensive loss not to be reclassified to consolidated statement of income in subsequent periods

- (125,267)

Other comprehensive income (loss) for the year 16,506,983 (23,251,618)

Total comprehensive income for the year 66,226,715 13,894,828

Attributable to:

Shareholders of the Parent Company 50,487,351 903,805

Non-controlling interest 15,739,364 12,991,023

66,226,715 13,894,828

Consolidated Statement of Comprehensive IncomeFor the year ended 31 March 2017

The attached notes 1 to 27 form part of these consolidated financial statements.

64

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3,99

1

Profi

t for

the

year

- -

- -

- -

- -

24,7

14,8

2624

,714

,826

12,4

31,6

2037

,146

,446

Oth

er c

ompr

ehen

sive

(los

s) in

com

e fo

r the

yea

r-

- -

- -

(56,

958)

(24,

856,

822)

1,10

2,75

9-

(23,

811,

021)

559,

403

(23,

251,

618)

Tota

l com

preh

ensi

ve (l

oss)

inco

me

for t

he y

ear

- -

- -

- (5

6,95

8)(2

4,85

6,82

2)1,

102,

759

24,7

14,8

2690

3,80

512

,991

,023

13,8

94,8

28

Tran

sfer

to re

serv

es-

2,57

0,96

12,

570,

961

- -

- -

- (5

,141

,922

)-

- -

Purc

hase

of t

reas

ury

shar

es-

- -

(1,7

30,1

28)

- -

- -

- (1

,730

,128

)-

(1,7

30,1

28)

Divi

dend

pai

d to

non

-con

trollin

g in

tere

sts

- -

- -

- -

- -

- -

(5,5

71,3

65)

(5,5

71,3

65)

Divi

dend

s (N

ote

14)

- -

- -

- -

- -

(10,

485,

654)

(10,

485,

654)

- (1

0,48

5,65

4)

Ow

ners

hip

chan

ges

in s

ubsi

diar

ies

- -

- -

- 11

0,30

0-

- -

110,

300

(346

,265

)(2

35,9

65)

As a

t 31

Mar

ch 2

016

109,

919,

258

18,9

83,3

9118

,861

,689

(11,

825,

036)

- 12

4,32

991

,388

,257

8,83

3,75

877

,915

,147

314,

200,

793

106,

034,

914

420,

235,

707

Consolidated Statement of Changes in EquityFor the year ended 31 March 2017

The

atta

ched

not

es 1

to 2

7 fo

rm p

art o

f the

se c

onso

lidat

ed fi

nanc

ial s

tate

men

ts.

65

The

atta

ched

not

es 1

to 2

7 fo

rm p

art o

f the

se c

onso

lidat

ed fi

nanc

ial s

tate

men

ts.

Notes2017

KD2016

KD

OPERATING ACTIVITIES

Profit before taxation and Board of Directors’ remuneration 50,991,105 38,141,225

Adjustments to reconcile profit before taxation and Board of Directors’ remuneration to net cash flows:

Realised gain on sale of financial assets available for sale (251,936) (54,590)

Share of results of associates and joint venture 9 (16,097,796) (10,688,563)

Gain on sale of property, plant and equipment (74,069) (5,186)

Gain on fair valuation of previously held interest in the acquiree 25 (4,375,088) -

Provision for doubtful debts 6 265,139 510,297

Impairment loss on financial assets available for sale 8 564,746 1,317,573

Depreciation 11 6,280,342 6,752,273

Amortisation 10 1,884,492 1,884,492

Finance costs 1,960,293 1,537,511

Share based payment reserve 32,374 -

Provision for employees’ end of service benefits 1,628,326 1,750,538

42,807,928 41,145,570

Working capital adjustments:

Trade and other receivables (7,306,821) 910,595

Inventories 4,742,079 (2,161,528)

Related party balances 90,186 240,523

Trade and other payables 5,542,187 423,741

Cash from operations 45,875,559 40,558,901

Taxation paid (825,137) (1,203,294)

Board of Directors’ remuneration paid (150,000) (150,000)

Employees’ end of service benefits paid (575,124) (211,721)

Dividends received from associates 9 1,623,519 1,353,935

Net cash flows from operating activities 45,948,817 40,347,821

INVESTING ACTIVITIES

Purchase of financial assets available for sale (12,403,503) (2,281,207)

Proceeds from sale of financial assets available for sale 8,190,032 804,620

Purchase of additional interest of investment in associates 9 (3,651,148) (23,371)

Acquisition of subsidiary, net of cash acquired 25 421,521 -

Purchase of property, plant and equipment 11 (7,924,852) (5,515,099)

Acquisition of non-controlling interests (648,378) (259,130)

Proceeds from sale of property, plant and equipment 114,604 37,702

Net cash flows used in investing activities (15,901,724) (7,236,485)

FINANCING ACTIVITIES

Net movement in term loans 9,994,175 (5,274,199)

Dividends paid (9,752,851) (9,818,685)

Purchase of treasury shares - (1,730,128)

Proceeds from sale of treasury shares 295,860 -

Payment of finance costs (1,960,293) (1,201,880)

Dividend to non-controlling interest of a subsidiary (6,687,668) (5,571,365)

Movement in non-controlling interest of a subsidiary 48,582 (346,265)

Net cash flows used in financing activities (8,062,195) (23,942,522)

Effect of foreign currency translation 345,012 85,745

Net increase in bank balances and cash 22,329,910 9,254,559

Bank balances and cash at 1 April 35,460,196 26,205,637

Bank balances and cash at 31 March 5 57,790,106 35,460,196

Consolidated Statement of Cash FlowsFor the year ended 31 March 2017

66

1 CORPORATE INFORMATION The consolidated financial statements of the Qurain Petrochemical Industries Company K.S.C.P. (the “Parent Company”) and its subsidiaries (collectively, the “Group”) for the year ended 31 March 2017 were authorised for issue by the Board of Directors on 3 May 2017. The shareholders of the Parent Company have the power to amend these consolidated financial statements at the Annual General Assembly after issuance.

The Parent Company is a Public shareholding company, established by Amiri Decree No 432/2004 on 10 November 2004. The Parent Company’s shares were issued for public subscription by the Ministerial Decree No. 34/2004 on 28 November 2004. The Parent Company’s shares are listed on the Kuwait Stock Exchange.

The Parent Company’s registered address is at 26th floor, KIPCO Tower, Khalid Bin Al Waleed Street, Sharq, P.O. Box No 29299, Safat 13153, Kuwait.

The activities of the Parent Company are carried out in accordance with the Article of Association. The principal activities of the Parent Company are:

• To manufacture all types of chemical and petrochemical materials and any other derivatives.• To sell, purchase, supply, distribute, export and store these materials and participate in all the activities relating to the same including the establishment and lease of the necessary services.• To participate in Equate Petrochemical Company K.S.C. (Closed), Kuwait Aromatics Company K.S.C. (Closed), Kuwait Styrene Company K.S.C. (Closed) and Kuwait Olefins Company K.S.C. (Closed).• Contribute in industrial companies as well as finance, manage and trade in its shares.• Develop industrial and craft zones and projects launched by the State or private sector.• Establishment of industrial projects or contribute therein after obtaining the necessary approvals from the Public Authority for Industry and the concerned authorities.

The Parent Company may pursue the above-mentioned activities in the State of Kuwait and abroad, originally or by proxy. It may have an interest in or participate in any manner with entities that carry on business activities similar to its own or which may assist the Parent Company in realising its objects in Kuwait or abroad, and it may buy or otherwise acquire such companies.

The new Companies Law No. 1 of 2016 was issued on 24 January 2016 and was published in the Official Gazette on 1 February 2016 cancelled the Companies Law No 25 of 2012, and its amendments. According to article No. 5, the new Law will be effective retrospectively from 26 of November 2012. The new Executive Regulations of Law No. 1 of 2016 was issued on 12 July 2016 and was published in the Official Gazette on 17 July 2016 which cancelled the Executive Regula-tions of Law No. 25 of 2012.

Notes To The Consolidated Financial StatementsAs at 31 March 2017

67

2.1 BASIS OF PREPARATION

Statement of complianceThe consolidated financial statements of the Group have been prepared in accordance with the International Financial Re-porting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”).

Basis of measurementThe consolidated financial statements of the Group are prepared under the historical cost convention as modified for the revaluation at fair value of financial assets available for sale and financial assets a fair value through profit and loss.

Functional and presentation currencyThe consolidated financial statements of the Group are presented in Kuwaiti Dinars (“KD”), which is the functional and pre-sentational currency of the Parent Company.

2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES

The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in the previous year, except for the adoption of accounting policy on financial assets at fair value through profit or loss and the amendments to IFRSs relevant to the Group. The adoption of these amendments has no significant impact on the consolidated financial statements of the Group.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation ExceptionThe amendments address issues that have arisen in applying the investment entities exception under IFRS 10 consoli-dated financial statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.

Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an invest-ment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These amendments are applied retrospectively and do not have any impact on the Group as the Group does not apply the consolidation exception.


68

2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE

IFRS 9 Financial InstrumentsIn July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the ac-counting for financial instruments project: 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. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group is currently assessing the impact of IFRS 9 and plans to adopt the new standard on the required effective date.

IFRS 15 Revenue from Contracts with CustomersIFRS 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 ex-pects 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 un-der IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 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.

IFRS 16 Leases The IASB issued the new standard for accounting for leases - IFRS 16 Leases in January 2016. The new standard does not significantly change the accounting for leases for lessors. However, it does require lessees to recognise most leases on their statement of financial position as lease liabilities, with the corresponding right- of-use assets. Lessees must apply a single model for all recognised leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets. Generally, the profit or loss recognition pattern for recognised leases will be similar to today’s finance lease accounting, with interest and depreciation expense recognised separately in the statement of income.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted provided the new revenue standard, IFRS 15, is applied on the same date. Lessees must adopt IFRS 16 using either a full retrospective or a modified retrospective approach. The Group does not anticipate early adopting IFRS 16 and is currently evaluating its impact.


69

3 SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidationThe consolidated financial statements comprise the financial statements of the Group and its subsidiaries (investees which are controlled by the Parent Company) including special purpose entities. 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

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• The Group’s voting rights and potential voting rights

The Group re-assesses 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.

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 or disposed of 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.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Parent Com-pany and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. 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-control-ling interest and other component of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.


70

3 SIGNIFICANT ACCOUNTING POLICIES (continued)

The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries as at 31 March 2017. The subsidiaries of the Group are:

Legal ownership %

Company name 2017 2016 Country of incorporation Principal activities

United Petrochemical Industries Company K.S.C. (Closed) 96.00 96.00 Kuwait Manufacturing of plastic

materials

Qurain for Plastic Industries Company K.S.C. (Closed) 94.00 94.00 Kuwait Manufacturing of plastic

materials

Qurain for Basic Material Industries Company K.S.C. (Closed) 94.00 94.00 Kuwait Manufacturing of

chemicals

United Oil Projects Company K.S.C. (Closed) 51.56 47.50 Kuwait Trading of chemical

products

Saudi Dairy and Food Stuff Company S.S.C. (“SADAFCO”) 40.11 40.11 Kingdom of

Saudi ArabiaManufacturing of dairy & food stuff

National Petroleum Services Company K.S.C.P. (“NAPESCO”)(Note 9 and Note 25)

52.05 - Kuwait Support services for drilling and repairing

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 interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in 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 acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the consolidated statement of income.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contin-gent consideration is classified as equity, it should not be remeasured until it is finally settled 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 interest over the net identifiable assets acquired and liabilities assumed. If this consider-ation is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the consoli-dated statement of income.


71


Business combinations and goodwill (continued)After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impair-ment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Financial instrumentsFinancial assets

Initial recognition and measurementFinancial assets within the scope of IAS 39 are classified as “financial assets at fair value through profit or loss”, “financial assets available for sale”, “loans and receivables”, or as “derivatives designated as hedging instruments” in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. The Group has not classified any of its financial assets as held to maturity.

All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets re-corded at fair value through income statement.

A “regular way” purchase of financial assets is recognised using the trade date accounting. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulations or conventions in the market place.

The Group’s financial assets include cash and short term deposits, trade receivables and other receivables, due from a related party and financial assets available for sale.

The Group has not classified any financial asset as “derivatives designated as hedging instruments” at inception upon initial recognition.

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

Financial assets at fair value through profit or lossThe category of financial assets at fair value through profit or loss is sub divided into:


72


Financial assets (continued)Subsequent measurement (continued)

(a) Financial assets held for tradingFinancial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Financial assets at fair value through profit or loss are carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of income.

(b) Financial assets designated at fair value through profit or loss upon initial recognition:Financial assets are designated at fair value through profit or loss if they are managed, and their performance is evaluated on reliable fair value basis in accordance with a documented investment strategy. After initial recognition financial assets at fair value through profit or loss are remeasured at fair value with all changes in fair value recognised in the consolidated statement of income.

Financial assets available for saleFinancial assets available for sale include equity and debt securities. Equity investments classified as available for sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss.

Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

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

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, 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 interest rate method. The interest rate method amortisation is included in the consolidated statement of income. The losses arising from impairment are recognised in the consolidated statement of income.

The Group classifies cash and short term deposits, time deposits with banks and accrued income and other receivables and due from a related party as “loans and receivables”.

Bank balances and cashFor the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of, cash in hand, bank balances, short-term deposits with an original maturity of three months or less.


73


Trade and other receivablesTrade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment losses.

Amortised costAmortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate (EIR) method. The effective interest rate method (“EIR”) amortisation and the losses arising from impairment are recognised in the consolidated statement of income.

Derecognition of financial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecog-nised when:

• The rights to receive cash flows from the asset 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 the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrange-ment, and has neither transferred nor retained substantially all of 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 guar-antee 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.

Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a 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 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 borrowers 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 arrears or economic conditions that correlate with defaults.

Financial assets available for saleFor financial assets available for sale, the Group assesses at each reporting date whether there is objective evidence that a finan-cial asset available for sale or a group of financial assets available for sale is impaired.


74


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. Where there is evidence of impairment, the cu-mulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on those financial assets available for sale previously recognised in the consolidated 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 the consolidated statement of income; increases in their fair value after impairment are recognised directly in other comprehensive income.

In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the consolidated statement of income.

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”, “loans and borrowings”, or as “derivatives” designated as hedging instruments in an effective hedge, 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 loans and borrowings, plus directly attributable trans-action costs.

The Group classifies its financial liabilities other than at fair value through profit or loss as accounts and other payables, term loans and bank overdraft.

The Group has not classified any financial liability at “fair value through profit or loss” or “derivatives” at inception upon initial recognition.

Subsequent measurementThe subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities other than at fair value through profit or lossAfter initial recognition, financial liabilities other than at fair value through profit or loss are subsequently measured at am-ortised 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 interest rate method amortisation process.

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


75


Accounts and other payablesLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the sup-plier or not. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Term loansAfter initial recognition, interest bearing loans are subsequently measured at amortised cost using the EIR method, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of income over the period of the borrowings.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is prob-able that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

Derecognition of financial liabilitiesA 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.

OffsettingFinancial 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. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.

Fair valueThe Group measures financial instruments, such as, financial assets available for sale, at fair value at each reporting 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 transac-tion to sell the asset or transfer the liability takes place either:

• 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 by the Group.


76


Fair value (continued)

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. A fair value measurement of a non-financial asset takes into account a market participant›s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are catego-rized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observable• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement

is unobservable.

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group de-termines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

InventoriesInventories are stated at the lower of cost or net realisable value. Costs are those expenses incurred in bringing each product to its present location and condition and excludes borrowing costs. Cost is determined using the weighted aver-age cost basis method.

Raw materials, consumables and goods for resale purchase cost on weighted average basis

Finished goods costs of direct materials and labour plus attributable overheads based on a normal level of activity.

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


77


Investment in associates and joint ventureAn 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.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The Group’s investments in its associates and joint venture are accounted for using the equity method.

Under the equity method, the investment in associates and a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associates or joint venture since the acquisition date. Goodwill relating to the associates or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The consolidated statement of income reflects the Group’s share of the results of operations of the associates and joint venture. Any change in other comprehensive income of those investees is presented as part of the Group’s other compre-hensive income. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associates and joint venture are eliminated to the extent of the interest in the associate.

The aggregate of the Group’s share of profit or loss of an associate or joint venture is shown on the face of the consoli-dated statement of income.

The financial statements of the associates and joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associates or joint venture. 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, then recognises the loss as ‘Impairment loss on associates or joint venture’ in the consolidated statement of income.

Upon loss of significant influence over the associates and joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associates and joint venture upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in consolidated statement of income.


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Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Capital work-in-progress is carried at cost and is not depreciated.

Depreciation is calculated on a straight line basis over the estimated useful lives of assets as follows:

Building 10 to 50 years

Plant, machinery and equipment 3 to 25 years

Furniture, office equipment and fixtures 3 to 10 years

Computers 3 to 5 years

Motor vehicles 3 to 20 years

The initial cost of property, plant and equipment comprises their purchase price and any directly attributable costs of bringing an item of property, plant and equipment to its working condition and location. Expenditure incurred after the property, plant and equipment has been put into operation, such as repairs and maintenance and overhaul costs, is nor-mally charged to the consolidated statement of income in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of per-formance, the expenditure is capitalised as an additional cost of property, plant and equipment.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circum-stances 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 value less costs to sell and their value in use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are ex-pected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed at each fi-nancial year end, and adjusted prospectively if appropriate.


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Intangible assetsIntangible assets are measured on initial recognition at cost. The cost of intangible assets acquired in a business combi-nation is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and are expensed as incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. The estimated useful lives of intangible assets are as follows:

Brand Indefinite life

Leasehold rights 1-15 years

Customer relationship 15 years

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at 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 are treated as changes in accounting estimates. The amortisa-tion expense on intangible assets with finite lives is recognised in the consolidated statement of income in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generat-ing unit level. Such intangibles are not amortised. 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.


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Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s 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 and then its recoverable amount is assessed as part of the cash-generating unit to which it belongs. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is written down to its re-coverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash-generating unit). In determining fair value less costs to sell an appropriate valuation model is used. These calcula-tions are corroborated by available fair value indicators.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot 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. After such a reversal, the depreciation charge is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

ProvisionsProvisions are legal claims and are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

End of service indemnityProvision is made for amounts payable to employees under the Kuwaiti Labour Law and employee contracts. This liability, which is unfunded, represents the amount payable to each employee as a result of involuntary termination on the report-ing date.

With respect to its national employees, the Group makes contributions to government scheme calculated as a percent-age of the employees’ salaries. The Group’s obligations are limited to these contributions, which are expensed when due.


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Share based compensationThe Parent Company operates an equity settled share based compensation plan. The fair value of the employee services received in exchange for the grant of options or shares is recognised as an expense, together with a corresponding in-crease in equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options or shares on the date of grant using the Black Scholes model. At each reporting date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the consolidated statement of income, with a corresponding adjustment to equity.

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, “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 and then to the statutory and voluntary reserves. Gains realised subsequently on the sale of treasury shares are first used to offset any previously recorded losses in the order of reserves, retained earnings and the treasury shares reserve account. No cash dividends are paid on these shares. The issue of stock dividend increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares.

Foreign currency translationThe consolidated financial statements are presented in KD which is the Group’s presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transac-tion. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at reporting date. All exchange 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 exchange rates as at the date 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 was determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate

As at the reporting date, the assets and liabilities of the foreign subsidiaries are translated into the presentation currency of the Group at the rate of exchange ruling at the reporting date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to the consoli-dated statement of comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the consolidated statement of income.


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Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurementThe Group uses derivative financial instruments, such as forward currency contracts, to hedge its foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is en-tered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to consolidated statement of income, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later reclassified to consolidated statement of income when the hedge item affects profit or loss.

For the purpose of hedge accounting, hedges are classified as:

• Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment• Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment• Hedges of a net investment in a foreign operation

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offset-ting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges of a net investment in foreign operations Hedges of net investments in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised as other comprehensive income, while any gains or losses relating to the ineffective portion are recognised in the consolidated statement of income as other operating expenses. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the consolidated income statement.

The Group uses a loan as a hedge of its exposure to foreign exchange risk on its investments in foreign subsidiary. Refer to Note 20 for more details.


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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 the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements.

The following specific recognition criteria must also be met before revenue is recognised:

Sale of goodsRevenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably.

Service incomeService income is recognized when the service is rendered.

Dividend incomeDividend income is recognised when the right to receive payment is established.

Interest incomeInterest income is recognised on an accrual basis using effective interest rate method.

Borrowing costsGeneral and specific borrowing costs directly attributable to the acquisition of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the bor-rowing costs eligible for capitalisation. All other borrowing costs are recognised in consolidated statement of income in the period in which they are incurred.

LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases where the lessor retains substantially all the risks and ben-efits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the consolidated statement of income on a straight-line basis over the lease term.

Contribution to KFASThe Parent Company calculates the contribution to KFAS at 1% in accordance with the modified calculation based on the Foundation’s Board of Directors resolution, which states that the income from associates and subsidiaries and transfer to statutory reserve should be excluded from profit for the year when determining the contribution.


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

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

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

Segment informationA segment is a distinguishable component of the Group that engages in business activities from which it earns revenues and incurs costs. The operating segments are used by the management of the Group to allocate resources and assess performance is consistent with the internal reports provided to the chief operation decision maker. Operating segments exhibiting similar economic characteristics, product and services, class of customers where appropriate are aggregated and reported as reportable segments.

4 SIGNIFICANT 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 amounts of revenues, expenses, assets and liabilities at the reporting date. However, uncertainty about the assumptions and estimates could result in outcomes that require a material adjustment to the amount of the asset or liability reported in future periods.

JudgmentsIn the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognised in the consolidated finan-cial statements:

De-facto control Management considers that the group has de facto control over SADAFCO even though it has less than 50% of the vot-ing right. The factors considered by the Group included the voting shares, the relative size and dispersion of holdings by other equity holders, attendance and voting patterns at previous equity holders’ meetings. There is no history of other shareholders forming a group to exercise their votes collectively. This requires significant judgement and continuous as-sessment.


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4 SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)

Classification of financial instrumentsJudgments are made in the classification of financial instruments based on the management’s intention at acquisition. The Group follows the guidance on IAS 39 on classifying investments.

Impairment of financial assets available for saleThe Group treats equity financial assets available for sale 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.

Estimation uncertainty and assumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment losses on loans and advancesThe Group reviews its loans and advances on a quarterly basis to assess whether a provision for impairment should be recorded in the consolidated statement of income. In particular, considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such esti-mates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such provisions.

Provision for slow moving inventory itemsThe Group makes a provision for slow moving inventory items. Estimates of net realisable value of inventories are based on the most reliable evidence at the time the estimates are made. These estimates take into consideration fluctuations of price or cost directly related to events occurring subsequent to the balance sheet date to the extent that such events confirm conditions existing at the end of year.

Valuation of unquoted financial assetsValuation of unquoted equity investments is normally based on one of the following:• recent arm’s length market transactions;• current fair value of another instrument that is substantially the same; • an earnings multiple or industry specific earnings multiple;• the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; or• other valuation models.


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4 SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)

Estimation uncertainty and assumptions (continued)

Impairment of non-financial assetsAn asset is impaired if its carrying amount exceeds its estimated recoverable amount. The recoverable amount of an asset is the higher of an asset’s net selling price and value in use. Net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. An assessment is made at each statement of financial position date to determine whether there is objective evidence that an asset may be impaired. If such evidence exists, any impairment loss is recognised in the consolidated statement of income.

The determination of the cash flows and discount factors for non-financial assets requires significant estimation.

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

Impairment of property, plant and equipmentA decline in the value of property, plant and equipment could have a significant effect on the amounts recognised in the consolidated financial statements. Management assesses the impairment of property, plant and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors that are considered important which could trigger an impairment review include the following:• significant changes in the technology and regulatory environments.• evidence from internal reporting which indicates that the economic performance of the asset is, or will be, worse than expected.

Impairment of trade receivables An estimate of the collectible amount of trade receivables 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 individu-ally significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due.


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5 BANK BALANCES AND CASH

2017 2016

KD KD

Cash in hand 779,676 729,047

Cash at banks 12,871,468 22,364,466

Cash in portfolios 167,046 177,850

Short term deposits 47,971,916 12,188,833

61,790,106 35,460,196

Less: Short term deposits with original maturities of more than three months 4,000,000 -

Bank balances and cash for the purpose of consolidated statement of cash flows

57,790,106 35,460,196

Short term deposits of various currencies carries an effective interest rate in the range of 0.5% to 3.75% (2016:0.52%) per annum.

6 TRADE AND OTHER RECEIVABLES

2017 2016

KD KD

Trade receivables 22,379,947 15,303,777

Less: Provision for doubtful accounts (see below) (1,410,901) (1,163,995)

20,969,046 14,139,782

Accrued income 127,210 61,136

Prepayments 1,409,808 1,216,309

Other receivables* 9,491,401 476,522

31,997,465 15,893,749

* Other receivables include an amount of KD 7,279,865 that represents approximately 90% of the purchase consideration paid to acquire Insha’a Holding Company K.S.C. (Closed). The preparation of completion accounts as per the share purchase agreement is under process as at the date of approval of the consolidated financial statements of the Parent Company. Therefore, in the absence of available reliable provisional fair values of identifiable assets and liabilities as at the acquisition date, the management has considered the partial purchase consideration paid as an advance towards acquisition.

As at 31 March 2017, trade receivables at nominal value of KD 1,410,901 (2016:1,163,995) were fully impaired.


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6 TRADE AND OTHER RECEIVABLES (continued)

Movements in the provision for doubtful accounts were as follows:

2017 2016

KD KD

At the beginning of the year 1,163,995 1,451,905

Charge for the year 265,139 510,297

Written-off during the year (18,233) (798,207)

At the end of the year 1,410,901 1,163,995

At 31 March, the ageing of unimpaired trade receivables is as follows:

Past due but not impaired

Neither past due nor impaired

KD< 30 days

KD30 to 90 days

KD> 90 days

KDTotalKD

2017 18,706,924 443,766 1,226,189 592,167 20,969,046

2016 13,512,510 530,751 96,521 - 14,139,782

Unimpaired receivables are expected on the basis of past experiences, to be fully recoverable. It is not the practice of the Group to obtain collateral over trade receivables.

7 INVENTORIES

As at 31 March, inventories comprise the following:

2017 2016

KD KD

Raw and packing materials 20,035,339 18,493,798

Finished goods 5,538,734 5,070,380

Spare parts, supplies and other items 2,711,842 2,202,864

Goods-in-transit 2,764,174 6,559,929

Less: provision for slow moving and obsolete inventories (1,638,200) (1,191,983)

29,411,889 31,134,988


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7 INVENTORIES (continued)

Movement in the provision for slow moving and obsolete inventories is as follows:

2017 KD

2016KD

At the beginning of the year 1,191,983 921,999

Charge for the year 451,426 339,033

Write-off (5,209) (69,049)

At the end of the year 1,638,200 1,191,983

8 FINANCIAL ASSETS AVAILABLE FOR SALE

2017 2016

KD KD

Quoted equity securities 12,322,289 5,647,973

Debt instruments 5,074,493 7,742,123

Unquoted equity securities 181,420,220 166,998,838

198,817,002 180,388,934

The fair value of investment in unquoted equity securities amounting to KD 181,420,220 (2016: KD 166,998,838) was deter-mined by management using appropriate valuation methods based on the latest available information of the results and fu-ture projections, for which an unrealized gain of KD 14,421,382 (2016: unrealized loss of KD 25,356,781) has been recognised in consolidated statement of comprehensive income. As at the reporting date, the cumulative unrealised gain recognised in cumulative changes in fair value on those unquoted equity securities amounted to KD 105,264,789 (2016: KD 90,843,407).

The debt instruments amounting to KD 5,074,493 (2016: 7,742,123) are carried at cost, less impairment, since there are no active markets for these financial assets and the Group believes that the carrying amount approximates the fair value.

Management has performed a review of the financial assets to assess whether impairment has occurred in the value of these financial assets. Based on the assessment, management has recorded an impairment loss of KD 564,746 (2016: KD 1,317,573) in the consolidated statement of income for the year in respect of financial assets available for sale. Based on the latest avail-able financial information, management is of the view that no further impairment is required as at 31 March 2017 in respect of financial assets available for sale.

During the year, the Group earned dividend income of KD 12,799,559 (2016: KD 13,660,501) on its financial assets avail-able for sale.

Fair value hierarchy for determining and disclosing the fair values of financial instruments by valuation techniques is pre-sented in Note 24.


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8 FINANCIAL ASSETS AVAILABLE FOR SALE (continued)

Financial assets available for sale are denominated in the following currencies:

2017 2016

KD KD

Kuwaiti Dinar 12,851,105 6,425,463

US Dollar 183,974,935 172,631,114

Saudi Riyal 1,990,962 1,332,357

198,817,002 180,388,934

9 INVESTMENT IN ASSOCIATES AND JOINT VENTURE

The Group has the following investments in associates:

Name of associatesCountry of

incorporationLegal ownership (%)

Listed: 2017 2016

National Petroleum Services Company K.S.C.P. (“NAPESCO”)* Kuwait - 27.15%

Unlisted:

Kuwait Aromatics Company K.S.C. (Closed) (“KARO”) Kuwait 20.00% 20.00%

Algerian Methanol S.P.A. (“Almet”) Algeria 42.50% 42.50%

United Precision Drilling Company W.L.L. (“UPDC”) Kuwait 47.50% 47.50%

Al-Khorayef United Holding Company K.S.C. (Closed) (“Al-Khorayef”)

Kuwait 25.00% 25.00%

*The Group obtained control over NAPESCO during the year (Note 25) and accordingly has consolidated NAPESCO from the date of obtaining control. The investment in associate has been reclassified to investment in subsidiary as a result of the acquisition. The movement in the carrying value of associates is as follows:

2017 2016

KD KD

As at 1 April 81,609,476 71,709,546

Additions 3,651,148 23,371

Transfers (15,476,650) -

Share of results 16,097,796 10,688,563

Share of other comprehensive income 1,561,486 541,931

Dividends received (1,623,519) (1,353,935)

As at 31 March 85,819,737 81,609,476


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9 INVESTMENT IN ASSOCIATES AND JOINT VENTURE (continued)

The carrying amount of the investment in associate includes goodwill of KD 1,912,806 (2016: KD 5,010,662) at31 March 2017.

Investment in associates as at 31 March 2016 included quoted associate with a carrying value KD 9,411,771 that had a market value of KD 12,613,990.

The associates have contingent liabilities or capital commitments as at 31 March 2017 of KD 18,610,578 (2016: KD 26,747,498).

The following table illustrates summarised financial information of the Group’s investment in the associates:

2017 KAROKD

Other immaterial associates

KDTotalKD

Associates’ statement of financial position:

Current assets 482,083,988 76,724,529 558,808,517

Non-current assets 502,464,394 53,181,708 555,646,102

Current liabilities (171,638,717) (59,236,242) (230,874,959)

Non-current liabilities (444,301,754) (14,426,161) (458,727,915)

Net assets 368,607,911 56,243,834 424,851,745

Profit for the year 57,218,310 12,803,080 70,021,390

Other comprehensive income 3,424,121 302,682 3,726,803

Revenue 383,317,993 75,350,134 458,668,127

2016 KAROKD


KDTotalKD

Associates’ statement of financial position:

Current assets 514,881,729 79,908,537 594,790,266

Non-current assets 578,356,192 44,350,018 622,706,210

Current liabilities (234,819,498) (46,661,104) (281,480,602)

Non-current liabilities (550,452,943) (30,603,229) (582,182,357)

Net assets 307,965,480 46,994,222 353,833,517


Other comprehensive income 34,168,935 2,812,264 36,981,199

Revenue 482,185,171 76,143,657 558,328,828


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9 INVESTMENT IN ASSOCIATES AND JOINT VENTURE (continued)

Reconciliation of the summarised financial information presented to the carrying amount of its interest in associates is as follows:

2017 KAROKD


KDTotalKD

Net assets as at 1 April 2016 307,965,480 46,994,222 354,959,702


Dividends - (4,609,915) (4,609,915)

Other comprehensive income - 868,646 868,646

Foreign currency translation adjustment 3,424,121 - 3,424,121

Net assets as at 31 March 2017 368,607,911 56,243,834 424,851,745

Interest in associate 20% Ranges from 25% to 47.50%

Share of net assets 73,721,582 10,185,349 83,906,931

Goodwill - 1,912,806 1,912,806

Carrying amounts 73,721,582 12,098,155 85,819,737

2016 KAROKD


KDTotalKD

Net assets as at 1 April 2015 269,331,270 39,829,750 309,161,020


Dividends - (5,169,996) (5,169,996)

Other comprehensive Income - 1,266,766 1,266,766

Foreign currency translation adjustment 1,126,185 - 1,126,185

Net assets as at 31 March 2016 307,965,480 46,994,222 354,959,702

Interest in associate 20% Ranges from 25% to 47.50%

Share of net assets 61,593,096 15,005,718 76,598,814

Goodwill - 5,010,662 5,010,662

Carrying amounts 61,593,096 20,016,380 81,609,476


93

10 INTANGIBLE ASSETS

2017 GoodwillOther

intangibles Total

KD KD KD

Gross carrying amount:

As at 1 April 2016 53,080,276 57,068,875 110,149,151

Acquisition of a subsidiary (Note 25) 11,640,080 16,524 11,656,604

Foreign currency translation adjustments 543,518 584,362 1,127,880

As at 31 March 2017 65,263,874 57,669,761 122,933,635

Accumulated amortisation:

As at 1 April 2016 - 3,299,139 3,299,139

Charge for the year (Note 17) - 1,884,492 1,884,492

As at 31 March 2017 - 5,183,631 5,183,631

Net carrying amount:

As at 31 March 2017 65,263,874 52,486,130 117,750,004

2016 GoodwillOther

intangibles Total

KD KD KD

Gross carrying amount:

As at 1 April 2015 52,776,895 56,742,694 109,519,589

Foreign currency translation adjustments 303,381 326,181 629,562

As at 31 March 2016 53,080,276 57,068,875 110,149,151

Accumulated amortization:

As at 1 April 2015 - 1,414,647 1,414,647

Charge for the year (Note 17) - 1,884,492 1,884,492

As at 31 March 2016 - 3,299,139 3,299,139

Net carrying amount:

As at 31 March 2016 53,080,276 53,769,736 106,850,012

GoodwillThe carrying value of goodwill and other intangibles is tested for impairment on an annual basis (or more frequently if evidence exists that goodwill and other intangibles might be impaired) by estimating the recoverable amount of the cash-generating unit (“CGU”) i.e. SADAFCO, using value-in-use calculations unless fair value based on active market price is higher than the car-rying value of the CGU. The recoverable amount of SADAFCO has been determined using fair value based on active market price at 31 March 2017. As a result of this exercise, management has concluded that there were no indicators of impairment as at 31 March 2017 (2016: Nil). The goodwill of KD 53,623,794 (2016: KD 53,080,276) and KD 11,640,080 (2016: KD nil) has been allocated to foodstuff and service segments respectively. Other intangibles are allocated to foodstuff segment (Note 22).


94


11

PRO

PERT

Y, P

LAN

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IPM

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2017

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Plan

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wor

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KD

KD

KD

KD

KD

KD

Cos

t:

As a

t 1 A

pril

2016

39,4

99,9

1630

,959

,994

8,48

8,88

91,

791,

258

1,58

9,05

182

,329

,108

Addi

tions

10,3

6220

8,68

656

,746

28,3

547,

620,

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7,92

4,85

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)1,

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6,90

2,77

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6,13

416

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- 8,

367,

545

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(1,8

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(1,3

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(35,

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3,77

2,97

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5,87

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7,31

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trans

latio

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just

men

t49

7,53

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1,09

817

3,23

463

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53,5

821,

479,

313

As a

t 31

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ch 2

017

41,6

48,5

6040

,664

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7,90

2,79

42,

222,

114

4,24

3,01

196

,680

,782

Dep

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n:

As a

t 1 A

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2016

3,55

5,44

85,

873,

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3,14

2,25

087

8,71

3-

13,4

49,9

45

Cha

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for t

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ear (

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315

3,36

0,51

61,

618,

683

211,

828

- 6,

280,

342

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(1,8

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(1,3

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6,76

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2,06

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8,50

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- 79

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4,69

2,57

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831,

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4,71

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- 17

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t 31

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017

36,9

55,9

9032

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4,39

8,07

71,

108,

457

4,24

3,01

179

,538

,111

95


11

PRO

PERT

Y, P

LAN

T AN

D E

QU

IPM

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(con

tinue

d)

2016

Build

ing

Plan

t, m

achi

nery

an

d eq

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iture

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d fix

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wor

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KD

KD

KD

KD

KD

KD

Cos

t:

As a

t 1 A

pril

2015

38,5

45,0

3726

,359

,944

7,24

0,89

31,

428,

537

3,17

2,44

076

,746

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171,

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81,0

6840

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606

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4,69

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835

5,15

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32,6

3730

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784,

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39,4

99,9

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8,48

8,88

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791,

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1,58

9,05

182

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1,60

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6,85

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6,63

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589,

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68,8

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63

96

12 TRADE AND OTHER PAYABLES

2017 2016

KD KD

Trade payables 9,609,512 6,255,308

Dividend payable 8,412,166 7,688,293

Taxation payable 1,139,814 844,779

Board of Directors’ remuneration payable (Note 19) 150,000 150,000

Staff payables 5,406,599 3,159,891

Other payables 14,695,327 8,493,315

39,413,418 26,591,586

The entire trade payables are short term in nature. The carrying amount of the liabilities largely correspond to the fair values.

13 TERM LOANS

Term loans represent loans obtained from local financial institutions denominated in Kuwaiti Dinars and US Dollars which carry interest at commercial rates. The term loans are due within 1 to 2 years from the reporting date. There are no col-laterals or covenants as at the reporting date.

14 SHARE CAPITAL AND RESERVES

a) Share capitalThe authorised, issued and paid up share capital of the Parent Company comprises 1,099 million shares (2016: 1,099 mil-lion shares) of 100 fils (2016:100 fils) each, which is fully paid in cash.

b) Statutory reserveIn accordance with the Company Law No 1 of 2016 and the Parent Company’s Articles of Association, 10% of the profit for the year attributable to shareholders of the Parent Company before KFAS, NLST, Zakat and Board of Directors’ remu-neration is required to be transferred to statutory reserve. Such annual transfers may be discontinued by a resolution of the Parent Company’s annual general meeting upon a recommendation by the Board of Directors.

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

c) Voluntary reserveIn accordance with the Parent Company’s Articles of Association, 10% of the profit for the year attributable to sharehold-ers of the Parent Company before KFAS, NLST, Zakat and Board of Directors’ remuneration is required to be transferred to voluntary reserve. Such annual transfers may be discontinued by a resolution of the Parent Company’s annual general meeting upon a recommendation by the Board of Directors.


97

14 SHARE CAPITAL AND RESERVES (continued)

Voluntary reserve (continued)

Voluntary reserve is available to be distributed to shareholders at the discretion of the general assembly in ways that may be deemed beneficial to the Parent Company, except for the amount equivalent to the cost of purchase of the treasury shares.

d) Treasury shares

2017 2016

KD KD

Number of treasury shares 57,454,736 59,095,913

Percentage of issued shares 5.23% 5.38%

Cost 11,496,800 11,825,036

Market value (KD) 19,534,610 11,346,415

An amount equivalent to the cost of purchase of the treasury share have been ear marked as non-distributable from vol-untary reserve throughout the holding period of treasury shares.

e) Proposed dividends and Board of Directors remunerationOn 3 May 2017, the Board of Directors of the Parent Company proposed a cash dividend of 11% of the paid up share capital (2016:10%) and Board of Directors remuneration of KD 150,000 (2016: KD 150,000) for the year ended 31 March 2017, which is subject to approval by the shareholders at the Annual General Assembly of the Parent Company.

Annual General Assembly of the shareholders held on 21 June 2016 approved the consolidated financial statements, divi-dends of KD 10,401,792 and Board of Directors’ remuneration of KD 150,000 for the year ended 31 March 2016.


98

15 MATERIAL PARTLY-OWNED SUBSIDIARIES

Total non-controlling interest for year ended 31 March 2017 is KD 126,237,105 (2016: KD 106,034,914). Financial informa-tion of a subsidiary having material non-controlling interests is provided below.

Proportion of equity interest held by non-controlling interests:

Non-controlling interests

Subsidiary Country of Incorporation Equity interest held Accumulated balance Profit allocated

SADAFCO Kingdom of Saudi Arabia 59.89% 104,902,775 14,654,894

Summarised statement of income:

2017 2016

KD KD

Sales 150,383,038 159,729,174

Cost of sales (88,768,328) (102,642,197)

Gross Profit 61,614,710 57,086,977

Interest and other income 944,195 40,521

General and administrative expenses (38,130,532) (36,228,278)

Profit for the year 24,428,373 20,899,220

Attributable to non-controlling interests 14,654,894 12,536,415

Attributable to equity holders of the Parent Company 9,773,479 8,362,805

Summarised statement of financial position:

2017 2016

KD KD

Non-current assets 120,900,786 119,957,790

Current assets 84,958,554 65,508,083

Non-current liabilities (9,040,705) (8,091,001)

Current liabilities (21,872,790) (15,831,844)

Total equity 174,945,845 161,543,028

Equity attributable to equity holders of the non-controlling interests 104,902,775 96,792,240

Equity attributable to equity holders of the Parent Company 70,043,070 64,750,788


99

15 MATERIAL PARTLY-OWNED SUBSIDIARIES (continued)

Summarised cash flow information:

2017 2016

KD KD

Cash from (used in):

- Operating 42,446,240 29,192,905

- Investing (7,792,188) (5,440,236)

- Financing (10,626,768) (9,012,933)

16 TAXATION

2017 2016

KD KD

Contribution to KFAS 174,452 137,224

NLST 846,527 653,731

Zakat 100,394 53,824

1,121,373 844,779

17 PROFIT FOR THE YEAR

The profit for the year is stated after charging:

2017 2016

KD KD

Staff costs 18,551,188 18,688,595

Depreciation (Note 11)* 6,280,342 6,752,273

Amortisation (Note 10) 1,884,492 1,884,492

Rent - operating leases** 377,013 32,932

Inventories recognised as expenses 1,531,320 2,484,192

*The depreciation charged has been allocated in the consolidated statement of income as follows:

2017 2016

KD KD

Cost of sales 4,015,296 4,196,174

Selling and distribution expenses 2,044,784 2,292,060

General and administrative expenses 220,262 264,039

6,280,342 6,752,273** All the operating leases will be maturing within 1 year from the reporting date.


100

18 EARNINGS PER SHARE

Basic earnings per share is computed by dividing the profit for the year attributable to the shareholders of the Parent Company by the weighted average number of shares outstanding (net of treasury shares) for the year as follows:

Diluted earnings per share is calculated by dividing the profit for the year attributable to the shareholders of the Parent Com-pany by the weighted average number of shares outstanding during the year plus the weighted average number of shares that would be issued on the conversion of all the dilutive potential shares into shares. The diluted earnings per share arising from the issuance of employee share options does not result in any change from the reported basic earnings per share.

2017 2016

KD KD

Profit for the year attributable to the shareholders of the Parent Company 34,939,705 24,714,826

Shares Shares

Weighted average number of shares outstanding 1,099,192,576 1,099,192,576

Weighted average number of treasury shares (58,838,916) (53,418,574)

Weighted average number of outstanding shares 1,040,353,660 1,045,774,002

Basic earnings per share attributable to the shareholders of the Parent Company 33.58 fils 23.63 fils

Diluted:Diluted earnings per share is calculated by dividing the profit for the year attributable to the equity holders of the Parent Company adjusted for the effect of dilutive instruments in profit due to exercise of potential ordinary shares of parent com-pany by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all employee stock options. The Parent Company has out-standing share options, issued under the Employee Stock Options Plan (ESOP), which have a dilutive effect on earnings.

2017 2016

Diluted earnings: KD KD

Profit for the year attributable to equity holders of the Parent Company 34,939,705 24,714,826

Shares Shares

Number of shares outstanding:

Weighted average number of outstanding shares 1,040,353,660 1,045,774,002

Effect of share options on issue 1,549,059 -

1,041,902,719 1,045,774,002

Diluted earnings per share attributable to the shareholders of the Parent Company 33.53 fils 23.63 fils


101

19 RELATED PARTY BALANCES AND TRANSACTIONS

Related parties primarily comprise major shareholders, associates, directors, key management personnel and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Group’s management. Transactions between the Group entities have been eliminated on consolidation and are not disclosed in this note.

Transactions with related parties included in the consolidated financial statements are as follows:

Associates Others 2017 2016

KD KD KD KD

Consolidated statement of financialposition:

Trade and other receivables - 140,000 140,000 51,572

Due from a related party 1,250,000 - 1,250,000 1,250,000

Associates Others 2017 2016

KD KD KD KD

Consolidated statement of income:

Interest and other income - 81,990 81,990 134,880

The amount due from a related party is interest free and receivable on demand.

Compensation of key management personnelThe Board of Directors’ remuneration in their capacity of executives and other members of key management during the year were as follows:

2017 2016

KD KD

Salaries and short-term benefits 1,533,899 1,640,036

Employees’ end of service benefits 175,190 133,922

1,709,089 1,773,958

20 HEDGE OF NET INVESTMENT IN FOREIGN OPERATION

Term loans as at 31 March 2017 represents borrowing of US Dollar 208,354,147 (2016: 218,354,146) which has been designated as a hedge of the net investment in the subsidiary in Saudi Arabia, SADAFCO. This borrowing is being used to hedge the Group’s exposure to the US Dollar foreign exchange risk on this investment. Gains or losses on the retransla-tion of this borrowing are transferred to consolidated statement of comprehensive income to offset any gains or losses on translation of the net investments in the subsidiary. There is no ineffectiveness for the year ended 31 March 2017 and 31 March 2016.


102

21 CONTINGENT LIABILITIES AND COMMITMENT

As at the reporting date, the Group had contingent liabilities amounting to KD 7,462,708 (2016: KD 12,719,852) in respect of bank guarantees to a local bank in connection with certain credit facilities availed by a related party.

In addition, the Group has outstanding commitments for future capital expenditures amounting to KD 8,112,885 (2016: KD 5,744,140).

22 SEGMENT REPORTING

For management reporting purposes, the Group is organised into three major operating segments based on internal re-porting provided to the chief operating decision maker. The chief operating decision maker, who is the person responsible for allocating resources to and assessing the performance of the operating segments has been identified as the parent company’s board of directors. The Group does not have material inter-segment transactions. The principal activities and services under these segments are as follows:

Investments Investments are mainly for the long term and are in the Petrochemical sector.

ManufacturingMainly manufacture and supply chemicals for fiberglass, paint and petrochemical industries and general use, dairy and foodstuff.

Foodstuffs Production and supply of dairy products & food stuff.

Services Mainly oil field services that comprise of cementing and stimulation formulations for different applications and operating environments for Oil Rigs; and non-oil field services comprising of health, safety, environmental, engineering and consultancy services.

Management monitors operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on segmental return on investments.


103

22 SEGMENT REPORTING (continued)

The following table presents information regarding the Group’s operating segments.

31 March 2017Investments Manufacturing Foodstuff Services Total

KD KD KD KD KD

Revenue 13,051,495 2,103,857 150,383,038 - 165,538,390

Result 9,381,651 (210,906) 29,623,954 - 38,794,699

Interest and other income 708,847 195,606 944,195 - 1,848,648Share of result from associates and joint ven-

ture 16,097,796 - 16,097,796Gain on fair valuation of

previously held equity interest in acquiree 4,375,088 - 4,375,088

Depreciation (68,099) (72,465) (6,139,777) - (6,280,341)

Finance costs (1,960,293) - - - (1,960,293)

Amortisation (1,884,492) - - - (1,884,492)Profit before taxation and Board of Directors’

remuneration 26,650,498 (87,765) 24,428,372 - 50,991,105Board of Directors’

remuneration - - - - (150,000)

Taxation - - - - (1,121,373)

Profit (loss) for the year 26,650,498 (87,765) 24,428,372 - 49,719,732

Total assets 414,352,895 10,904,384 153,517,441 29,996,548 608,771,268

Total liabilities 88,145,045 1,014,783 30,913,495 7,599,946 127,673,269

31 March 2016Investments Manufacturing Foodstuff Total

KD KD KD KDRevenue 13,715,091 2,395,077 159,729,174 175,839,342Result 10,003,329 (559,045) 27,484,905 36,929,189Interest and other income 567,533 96,139 34,077 697,749Share of result from associates 10,688,563 - - 10,688,563Depreciation (59,310) (73,201) (6,619,762) (6,752,273)Finance costs (1,537,511) - - (1,537,511)Amortisation (1,884,492) - - (1,884,492)Profit before taxation and Board of

Directors’remuneration

17,778,112 (536,107) 20,899,220 38,141,225

Board of directors’ remuneration - - - (150,000)Taxation - - - (844,779)Profit (loss) for the year 17,778,112 (536,107) 20,899,220 37,146,446Total assets 381,496,778 8,273,603 131,696,137 521,466,518Total liabilities 76,403,705 904,262 23,922,844 101,230,811


104

23 SHARE BASED PAYMENT

The Parent Company operates an equity settled share based compensation plan and, granted share options to its senior executives. These options are time based options and will vest over a period of 12 – 39 months from the grant date during which time the employees can exercise the options. If the exercise price is not paid within 39 months from the grant date, the options vested will lapse. The weighted average exercise price of the granted options is 177 fils per share.

The weighted average fair value of options granted during the year as determined using the Black-Scholes valuation model was KD 119,188. The significant inputs into the model were a weighted average share price of 205 fils at the grant date, a weighted average exercise price of 177 fils, a standard deviation of expected share price returns of 9.01%, op-tion life disclosed above and annual risk free interest rate of 2.25%. The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three years.

As at reporting date the share options granted were 6,983,120 of which 1,641,178 share options were exercised during the year ended 31 March 2017.

24 FAIR VALUE MEASUREMENT

The following table provides the fair value measurement of Group’s financial assets.

Fair value measurement using

31 March 2017Quoted prices inactive markets

(Level 1)KD

Significantunobservable

inputs(Level 3)

KDTotalKD

Assets measured at fair value

Financial assets available for sale

Quoted equity securities 12,322,289 - 12,322,289

Unquoted equity securities - 181,420,220 181,420,220

12,322,289 181,420,220 193,742,509

Financial assets at fair value through profit or loss

Quoted equity securities 30,360 - 30,360

Fund and managed portfolios - 2,366,594 2,366,594

30,360 2,366,594 2,396,954


105

24 FAIR VALUE MEASUREMENT (continued)

Fair value measurement using

31 March 2016Quoted prices inactive markets

(Level 1)KD

Significantunobservable

inputs(Level 3)

KDTotalKD

Assets measured at fair value


Quoted equity securities 5,647,973 - 5,647,973

Unquoted equity securities - 166,998,838 166,998,838

5,647,973 166,998,838 172,646,811 The following table shows a reconciliation of the opening and closing amount of level 3 financial assets available for sale which are recorded at fair value.

As at 1 April

Net purchases, sales, transfers and settlements

Recognised gain/(loss) in

other compre-hensive income As at 31 March

KD KD KD KD

2017


Unquoted equities securities 166,998,838 - 14,421,382 181,420,220

2016


Unquoted equities securities 192,355,619 - (25,356,781) 166,998,838


106

24 FAIR VALUE MEASUREMENT (continued)

Description of significant unobservable inputs to valuation of financial assets:Unquoted equity securities represent unlisted securities. Unquoted equity securities are valued based on discounted cash flow (“DCF”) model based on discounting of free cash flows of the company i.e. the cash flow accruing to the company from operational activities after covering capital expenditure and working capital requirements.

The Group is confident of realising the remaining amount and believes it to be reasonable estimates of fair value.

The table below illustrates the effect on other comprehensive income due to a reasonable change of each significant input, separately, with all other variables held constant.

Increase of 50 basis pointsEffect on other comprehensive income

2017 2016

KD KD

Weighted average cost of capital (907,002) (834,896)

Terminal growth rate 1,678,136 1,215,917

25 BUSINESS COMBINATION

During the year the Group acquired an additional equity interest of 21.15% in NAPESCO (previously classified as ‘invest-ment in associate’) increasing the equity interest to 52.05%. The Group having obtained control, reclassified the invest-ment in NAPESCO from associate to subsidiary and consolidated the financial statements of NAPESCO from 4 January 2017 (acquisition date). NAPESCO is incorporated in the State of Kuwait and is engaged in providing drilling and repairing services to Petrochemical and Oil Companies. NAPESCO was incorporated on 18 October 2003 and is listed on the Ku-wait Stock Exchange (KSE).

As the business combination was achieved in stages, in accordance with IFRS 3: Business Combinations, the Group re-measured its previously held equity interest in NAPESCO at the acquisition date fair value based on market value of NAPESCO shares from KSE and recognised the resulting gain in the consolidated statement of income. The acquisition date fair value amounted to KD 18,196,421 and the gain on remeasurement amounted to KD 4,375,088 which is included under ‘Gain on fair valuation of previously held equity interest in acquiree’ in the consolidated statement of income (Note 9).

The acquisition of NAPESCO has been accounted based on provisional fair values of identifiable assets and liabilities on the acquisition date and the management is in the process of determining the fair values of assets and liabilities acquired. The consideration paid, the provisional fair values of the assets and liabilities recognised at the date of acquisition and the non-controlling interest’s proportionate share in the recognised amounts of the acquiree’s identifiable net assets are summarised as follows:


107

25 BUSINESS COMBINATION (continued)

Assets KD

Cash and short term funds 5,891,933

Deposits with banks 4,000,000

Financial sssets at fair value through profit or loss 2,396,954

Inventories 2,706,938

Trade and other receivables 8,963,842

Intangible assets 16,524

Property, plant and equipment 8,367,545

Financial assets available for sale 49,766

32,393,502

Liabilities

Trade and other payables 6,007,974

Employees’ end of service benefits 1,591,972

7,599,946

Net assets 24,793,556

Non-controlling interests (39,162)

Provisional fair value of net assets acquired by the Group 24,754,394

Consideration paid 5,470,412

Non-controlling interest in the acquiree 12,727,641

Fair value of acquirer’s previously held equity interest 18,196,421

36,394,474

Less: net assets acquired by the Group 24,754,394

Provisional goodwill 11,640,080

Cash and cash equivalents in subsidiary acquired 5,891,933

Consideration settled in cash (5,470,412)

Cash inflow on acquisition 421,521

The consolidated statement of income of the Group for the year includes profit attributable to the equity holders of the Parent Company amounting to Nil of NAPESCO.

Had the acquisition of NAPESCO taken place at the beginning of the year, the revenue of the Group for the year would have been higher by KD 22,097,028 amounting to a total of KD 174,583,923 and the profit attributable to the equity hold-ers of the Parent Company would have been higher by KD 6,286,287 amounting to a total of KD 41,225,992.


108

26 RISK MANAGEMENT

Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Group’s continuing profitability and each individual within the Group is accountable for the risk exposures relating to his or her responsibili-ties. The Group is exposed to credit risk, liquidity risk and market risk, the latter being subdivided into interest rate risk, currency risk and equity price risk. The independent risk control process does not include business risks such as changes in the environment, technology and industry. They are monitored through the Group’s strategic planning process.

2611 CREDIT RISK

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation as it falls due and cause the other party to incur a financial loss. The Group is exposed to credit risk from its operating activities including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

The Group has policies and procedures in place to limit the amount of credit exposure to any one counter party. These procedures include the non-concentration of credit risk.

With respect to credit risk arising from the other financial assets of the Group, which comprise bank balances, debt securi-ties included under financial assets available for sale and accrued income and other receivables, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instru-ments. Where financial instruments are recorded at fair value, it represents the current maximum credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values.

The table below shows the gross maximum exposure to credit risk across financial assets before taking into consideration the effect of credit risk mitigation.

2017KD

2016KD

Bank balances and cash 61,010,430 34,731,149

Financial assets available for sale – Debt instruments (Note 7) 5,074,493 7,742,123

Trade and other receivables 30,587,657 14,677,440

Due from a related party 1,250,000 1,250,000

Gross maximum credit risk exposure before consideration of credit risk mitigation 97,922,580 58,400,712

The Group’s 5 largest customers account for 46% (2016:43%) of outstanding trade receivables at 31 March 2017.

The Group seeks to limit its credit risk with respect to its bank balances by only dealing with reputed banks. The Group manages credit risk by setting limits for individual counter-parties, and groups of counter-parties and for geographical and industry segments.

The Group also monitors credit exposures, and continually assesses the creditworthiness of counterparties.


109

26 RISK MANAGEMENT (continued)

2611 CREDIT RISK (continued)

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

The Group’s gross maximum exposure to credit risk, before taking into account any collateral held or credit enhancements, can be analysed by the geographical regions as follows:

31 March 2017Kuwait

KD

GCC and the rest of the

Middle EastKD

TotalKD

Bank balances and short term deposits 17,493,733 43,516,697 61,010,430

Financial assets available for sale – debt instruments (Note 8) 5,074,493 - 5,074,493

Trade and other receivables 17,418,109 13,169,548 30,587,657

Due from a related party 1,250,000 - 1,250,000

Maximum exposure to credit risk assets 41,236,335 56,686,245 97,922,580

31 March 2016Kuwait

KD

GCC and the rest of the

Middle EastKD

TotalKD

Bank balances and short term deposits 15,615,594 19,115,555 34,731,149

Financial assets available for sale – debt instruments (Note 8) 7,742,123 - 7,742,123

Trade and other receivables 884,501 13,792,939 14,677,440

Due from a related party 1,250,000 - 1,250,000

Maximum exposure to credit risk assets 25,492,218 32,908,494 58,400,712


110


2611 CREDIT RISK (continued)

Risk concentration of maximum exposure to credit risk (continued)

The Group’s gross maximum exposure to credit risk, before taking into account any collateral held or credit enhancements, can be analysed by the following industry sectors as:

2017 2016

KD KD

Banks and financial institutions 61,010,430 34,731,149

Others 36,912,150 23,669,563

97,922,580 58,400,712

26.2 LIQUIDITY RISK

Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with fi-nancial instruments. Liquidity risk is managed by the treasury department of the Parent Company. To manage this risk, the Group periodically assesses the financial viability of customers and invests in bank deposits or other investments that are readily realisable. The maturity profile is monitored by management to ensure adequate liquidity is maintained.

As at 31 March 2017, none of the Group’s debt will mature in less than one year (2015: Nil) based on the carrying value of borrowings reflected in the consolidated statement of financial position. The management of the Parent Company have reached an understanding with the lender to renew the credit facility on maturity for another year.

The table below summarises the maturity profile of the Group’s liabilities based on contractual undiscounted repayment obligations.

The liquidity profile of financial liabilities reflects the projected cash flows which includes future interest payments over the life of these financial liabilities. The liquidity profile of financial liabilities is as follows:

20172 to 3

monthsKD

3 to 12months

KD

1 to 5Years

KDTotalKD

Term loans - 22,820,500 53,779,603 76,600,103

Accounts and other payables 7,882,684 31,530,734 - 39,413,418

7,882,684 54,351,234 53,779,603 116,013,521

COMMITMENT AND CONTINGENCIES - - 15,575,594 15,575,594


111


26.2 LIQUIDITY RISK

2016 2 to 3months

KD

3 to 12months

KD

1 to 5Years

KDTotalKD

Term loans - - 67,715,352 67,715,352

Accounts and other payables 5,318,316 21,273,270 - 26,591,586

5,318,316 21,273,270 67,715,352 94,306,938

COMMITMENT AND CONTINGENCIES - - 18,463,992 18,463,992

2613 MARKET RISK

Market risk is the risk that the value of an asset will fluctuate as a result of changes in market variables such as interest rates, currency rates and equity prices, whether those changes are caused by factors specific to the individual investment or its issuer or factors affecting all investments traded in the market.

Market risk is managed on the basis of pre-determined asset allocations across various asset categories, diversification of assets in terms of geographical distribution and industry concentration, a continuous appraisal of market conditions and trends and management’s estimate of long and short term changes in fair value.

261311 Interest rate riskInterest rate risk is the risk that the fair value of all future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is managed by the treasury department of the Parent Company. The Group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities. It is the Group’s policy to manage its interest cost using a mix of fixed and variable rate debts. The Group aims to keep a certain portion of its borrowings at variable rates of interest.

The Group is exposed to interest rate risk on its variable interest bearing assets and liabilities (time deposits with bank and term loans).

The sensitivity of the consolidated statement of income is the effect of the assumed changes in interest rates on the Group’s profit based on floating rate financial assets and financial liabilities held at 31 March 2017 and 2016.

The following table demonstrates the sensitivity of the consolidated statement of income to reasonably possible changes in interest rates, with all other variables held constant.

Increase of 50 basis points Effect on consolidated statement of income

2017 2016

KD KD

KD (65,000) -

US Dollar (318,001) (7,853)


112


2613 MARKET RISK (continued)

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

Foreign currency risk is managed by the treasury department of the Parent Company on the basis of limits determined by the Parent Company’s Board of Directors and a continuous assessment of the Group’s open positions and current and expected exchange rate movements.

The effect on consolidated statement of income due to change in the fair value of monetary assets and liabilities, as a result of change in currency rate by ±5%, with all other variables held constant is shown below:

Effect on consolidated statement of income

2017KD

2016KD

US Dollar 358,556 37,079

Euro 26,550 2,959

GCC and the rest of Middle East currencies 3,752,184 1,010,580

Effect on other comprehensive income

2017KD

2016KD

US Dollar 9,715,328 8,621,043

GCC and the rest of Middle East currencies 6,222,371 5,383,166


113


2613 MARKET RISK (continued)

26.3.3 Equity price riskEquity price risk arises from changes in the fair values of equity investments. Equity price risk is managed by the invest-ment department of the Parent Company mainly through diversification of investments in terms of geographical distribu-tion and industry concentration. The Group’s quoted investments are listed on the Kuwait Stock Exchange and Saudi Stock Exchange. The effect on other comprehensive income (as a result of a change in the fair value of financial assets available for sale) due to a reasonably possible change (of ±5%) in market indices, with all other variables held constant is as follows:

Effect on other comprehensive income

2017KD

2016KD

Kuwait stock exchange 389,104 164,229

Saudi stock exchange 117,486 85,928

27 CAPITAL MANAGEMENT

The primary objective of the Group’s capital management policies is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholders’ value. The Group manages its capital structure and makes ad-justments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust dividend payout to shareholders, return capital to shareholders or issue new shares.

No changes were made in the objectives, policies or processes during the years ended 31 March 2017 and 31 March 2016.

The Group monitors capital using a leverage ratio, which is net debt divided by total capital of the Parent Company. The Group aims to limit its leverage ratio to a maximum of 50%. The Group includes within net debt, term loans and accounts and other payables, less bank balances and cash. Total capital represents total equity of the Company.

2017 2016

KD KD

Accounts and other payables 39,413,418 26,591,586

Term loans 76,600,103 65,715,352

Less: Bank balances and cash (61,790,106) (35,460,196)

Net debt 54,223,415 56,846,742

Total equity 481,097,999 420,235,707

Leverage ratio (%) 11.27% 13.53%


LNS 1 T, Copyright ©, The al-Sabah Collection, Dar al-Athar al-Islamiyyah, Kuwait

Shareholders attending our General Assembly meeting will be provided with a printed copy of the Financial Statements for their approval.

Shareholders can download a PDF copy of the Financial Statements from our company website, or request a printed copy of the Financial Statements to be sent to them seven days before the advertised date of the General Assembly.

In order for that to be arranged, kindly contact:

Mr. Abdulhameed MalhasInvestment and Corporate Communications & Relations ManagerEmail: [email protected]

Mr. Nabil F. Fayed Administrative Affairs ManagerEmail: [email protected]

How to obtain our 2016-2017 Financial Statements:

For further information on our 2016-2017 Financial Statements or for extra copies of this review, please call +965 2294 3232P.O. Box 29299, Safat 13153, Kuwait, Tel: +965 2294 3232, Fax: +965 2294 3234www.qpic-kw.com

ANNUAL REVIEW 2016-2017 - qpic-kw.comqpic-kw.com/download/annual/48/QPIC_V1.6_-_English-email.pdfQurain Petrochemical Industries ... QPIC is one of the biggest private investors in

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