ANNUAL REPORT 2018 - KICDear Kuwait Investment Company shareholders, On behalf of the Board of...

2 0 1 8A N N U A L R E P O R T

IN THE NAME OF GOD, MOST GRACIOUS, MOST MERCIFUL

His Highness Sheikh

Sabah Al Ahmed Al Jaber Al SabahThe Amir of The State of Kuwait

His Highness Sheikh

Nawaf Al Ahmed Al Jaber Al SabahThe Crown Prince

• Board Of Directors 6• Management 7• Board of Director’s report 8 • Executive Management’s Report 12• Consolidated financial statements

and independent auditors’ report for the year ended 31 december 2017 19

• Independent auditor’s report 20• Consolidated statement of financial position 26 • Consolidated statement of profit or loss 27 • Consolidated statement of comprehensive income 28 • Consolidated statement of changes in equity 29 • Consolidated statement of cash flows 31• Notes to the consolidated financial statements 33

BOARD OF DIRECTORS

Dr.Yousof Mohammad Abdullah AlAliChairman

Abdulaziz Fahad Abdulaziz Al HudaibDirector

Jassim Abdullah Jassim Al HajriDirector

Aliah Faisal Awad Al TameemiDirector

Jamal Abdullah Yousef Al-Saleem Director

Mohammad Hamad Helal Al MutairiDirector

Faleh Abdullah Eid Al-RaqabahIndependent Director

Mishari Zaid Hamad Alkhaled Deputy Chairman

Fawaz Sulaiman Al-AhmadGeneral Manager

Faisal Yousef Al-MishariAssistant General Manager

Direct Investment and CorporateFinance Sector

Wael Sami Al-EbrahimAssistant General Manager

Operation Sector

Imad Ahmed TifouniAssistant General ManagerAsset Management Sector

Bader Naser AlSubaieeChief Executive Officer

MANAGEMENT

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Dear Kuwait Investment Company shareholders,

On behalf of the Board of Directors, I am pleased to present the annual report of Kuwait Investment Company (KIC) for the year 2018, giving you an overview of the Company’s achievements during the year and markets’ performance.

Dividend Recommendation

KIC continued to operate in line with its strategy which aims to generate the highest returns to our shareholders following years of fluctuations in our Company’s earnings due to the post-crisis market volatility that has affected every investment component globally.

I am pleased to report today that our strategy has successfully achieved positive results over the past five years.

Covering the year 2014 to 2018, KIC’s strategy enabled us to distribute 37% in cash dividend for the years 2014 to 2017. In 2014 alone, the distribution of cash dividend represented 10%, 7% in 2016 distributed and 20% in 2017.

For the year 2018, the Board of Directors has recommended the distribution of 10% cash dividend. Should shareholders approve the dividend recommendation at the Annual General Meeting (AGM), KIC would have distributed in five years cash dividend amounting to half its capital value.

A New Strategy

The Board of Directors, in partnership with the Executive Management, will develop a new strategy for the Company, taking into account changing dynamics in regional and global markets. The strategy will be executed starting 2019 and extend until 2023. While details of the strategy will be announced to you once finalized by the Company, I can reveal that the strategy will continue to focus on diversifying KIC’s investments geographically. The step has already proven to be a success, generating better returns for the Company in our previous strategy.

KIC will also continue to expand into European markets as we are currently exploring new investment opportunities in the real estate sector. Our expansion will focus mainly on Germany as the country’s fundamentals place it at the center of the European influence following Britain’s exit from the European Union. Last year, we increased our investments in Germany, investing in a real estate portfolio in Frankfurt.

As for Britain, we are cautiously waiting for the economic situation to stabilize following BREXIT. KIC does not have significant exposure to the British market, nor does it have direct or large investments in the market, and will not be affected during the country’s transition phase.

BOARD OF DIRECTOR’S REPORT

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Looking forward, we believe the future of investment is in modern sectors and markets, and our new strategy will focus in that direction. We believe that the best way to diversify our investments is in betting and investing in advanced industries. The most prominent sectors that we will focus on are artificial intelligence and robotics. We have in fact already established an investment portfolio to invest in these sectors, and positive results have started to show.

A Global Fluctuating Economy

KIC is without a doubt taking every economic challenge into account in its upcoming new strategy. Present trade wars as seen between the United States and China have reaffirmed our commitment to our conservative investment policy. A rising interest rate has also placed our Company ahead of a new challenge to understand where markets are heading should the US Federal Reserve continue to raise rates in 2019 and in the coming years.

The US Federal Reserve raised interest rates three times in 2018, the first in March, then again in September, and the last in December. The raise changed trends and movements in global markets, especially in the currency markets in which the index measured by the performance of the dollar against a basket of major currencies increased by 4.4% and recorded its best annualized percentage gain since 2015.

Oil prices have also been uncertain in the new year, and political pressures continued to weight on the Organization of Petroleum Exporting Countries (OPEC) to increase production levels. After optimistic increases in oil prices in the first half of 2018, Brent Crude decreased to US$54 by of year, down 20% after two years of gains.

The impact of the drop in oil prices will add pressure on economies in the region that already have recorded deficits in their budgets. These trends and outlook have made KIC even more cautious when investing in the region and the rest of the world.

A Positive Outlook on Boursa Kuwait

Our outlook on the Kuwaiti economy in general and the Kuwaiti market in particular is more optimistic. In the Kuwaiti market, palpable initiatives have been taken to transform the stock exchange at par with global exchanges. These efforts have resulted in an earned upgrade to the FTSE Russell Emerging Markets Index in 2018, and another is foreseen in the MSCI Emerging Markets Emerging Markets review in June 2019. This will definitely be an opportunity for us at KIC to play a bigger role with foreign investments, and place the Kuwaiti stock exchange on the global map.

Overall, we expect the Kuwaiti stock market to perform better in 2019. The market has already recorded high levels of liquidity since the beginning of the year and we expect better liquidity performance should it be upgraded by MSCI.

We are as well optimistic about the Kuwaiti economy as indicators have shown positive outlooks.

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A recent report issued by the World Bank shows that Kuwait’s real gross domestic product (GDP) will continue to grow in the next two years (2019-2020) to reach 3.5%.

The global rating agency, Fitch, forecasts that the Kuwaiti economy will grow by 3.7% in 2019, while the rate expected for 2018 was 2.4%. Growth will be supported by improved oil production level. BMI on another hand, Fitch’s research arm, expects Kuwait’s GDP to reach KD 38.8 billion (US$ 127.8 billion) last year, and will continue to rise during the coming year to reach KD 40.2 billion (US$ 132.4 billion).

According to the International Monetary Fund, Kuwaiti banks recorded a low level of non-performing loans, amounting to 2.4%, and a high level of provisions to meet loan losses with a coverage of more than 200%.

Another indicator confirming improved performance of the Kuwaiti economy, the unemployment rate in the country fell to 2.2% last year.

All these indicators reaffirm our confidence in the Kuwaiti market in comparison to other markets in the region.

KIC Performance

KIC maintained its credit rating. Moody’s reaffirmed KIC’s rating in November 2018 at Ba2 for the fourth consecutive year, giving it a stable outlook.

The Company’s consolidated revenues reached KD 28.219 million in 2018, all accounting to recurring items. KIC also maintained a healthy rate of income against cost, while the earnings per share stood at 18 fils for the year, an outstanding performance when benchmarked against market conditions.

By end of year, KIC achieved a net profit of KD 10 million, a slight decline from 2017 due to non-recurrent items such as the return of prudential provisions as a result of adjustments in certain debts.

Total assets reached KD 253 million as of December 31, 2018, while total equity reached KD 117 million, equivalent to 212% of the Company’s capital of KD 55.125 million.

Based on these results, the Board of Directors has recommended a 10% cash dividend for the year 2018, at 10 fils per share.

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Gratitude

On behalf of the Board and all of KIC, I extend my sincerest gratitude to His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, His Highness the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah and His Highness the Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah – may God Almighty grant them health and wellness.

I also extend my gratitude to our main shareholder, the Kuwait Investment Authority for their continuous support to the Company and its strategy. I thank all of our shareholders and customers for their continued support and trust in our Company and employees who continue to perform better every year to maintain our Company’s legacy and position in the market.

Dr. Yousef Abdullah AlAliChairman

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Dear Shareholders,

On behalf of the Executive Management of Kuwait Investment Company (KIC), we extend our appreciation to the shareholders and employees of the Company.

Five years ago, KIC started the step to developing a new strategy with the support of an international consultancy firm, Bain & Company, in response to years of challenges in local and international markets. We invested efforts and used our experience to develop a model that adapts to the global changes ten years after the financial crisis.

The development of the strategy was another challenge for us as we needed to restructure our assets and redistribute risks by diversifying our investments geographically in regional and global markets while also investing in quality opportunities in European markets.

And we delivered. KIC achieved many of the objectives it set out in its strategy amidst market conditions. The results of the strategy were clear in our bottom line and cash dividends, successfully bringing back the company on the right track after a significant crisis that has affected most investment companies.

Today, we are reviewing the strategy to hedge against future challenges which are expected to be more significant should they occur in the dawn of artificial intelligence, robotics, electric cars and digital currency markets. Some of these new sectors may be a type of passing bubble while others cannot be ignored as opportunities. We also maintain our direction of investing in sectors such as real estate and equity.

In support to its objectives, KIC ensured it provides training and development to its professionals to keep them up to date with the latest developments and transformations in international markets as we have started to diversify our investment portfolio by investing in artificial intelligence and robotics. A specific portfolio has indeed been developed for these opportunities.

At the end of the day, we are facing a different facet of investments and markets which require much more of us. Liquidity is no longer what distinguishes an investment firm from others, but the ability to understand the opportunities and to know where to invest, when the time is right to enter or exit an investment, and how much risk is required.

Our approach to these changes is carefully studied to minimize and understand risks as per KIC’s policy which enabled our Company to overcome previous global crises such as the crisis of dot-com crisis at the beginning of the new millennium and the financial crisis in 2008. Our rational investment model has helped us overcome previous crises, and is the same model that maintains our performance despite the volatility of markets in the past decade.

EXECUTIVE MANAGEMENT’S REPORT

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As in the previous years, 2018 remained volatile. Oil markets were pressured by political influences on the Organization of Petroleum Exporting Countries (OPEC), while the currency and stock markets have been affected by changing interest rates and trade wars between China and the United States, and principal markets in Europe were impacted by BREXIT.

To mitigate the risks of volatility, KIC restructured its global funds, merging four of its five funds into one, the diversified equity fund.

The following is a summary of the performance of the markets in which the Company invests in, in addition to an overview of the performance of our funds and portfolios compared to the performance of markets, and the achievements of departments during the year.

Performance of Boursa Kuwait

The primary market of Boursa Kuwait saw a positive performance in 2018 as a result of reforms and upgrade of the local stock exchange to an emerging market in the FTSE Russell index. The flow of liquidity from foreign funds and portfolios increased to invest in leading stocks, while companies announced better results in 2017, up 13% to a combined KD 1.89 billion.

The stock market also witnessed an improvement in cash dividends distributed by listed companies for the year 2017, which amounted to a total of KD 1.15 billion up 13% from 2016.

In June 2018, MSCI announced it was monitoring the local stock exchange for a potential upgrade to the Emerging Markets Index in the June 2019 review. The positive financial results of listed companies in the first nine months of 2018, which amounted to a total of KD 1.65 billion, grew by 9% year-on-year, further strengthened the fundamentals of the local market and improved its ratings. Liquidity remained weak however as liquidity in 2018 was below 2017 at a daily rate of KD 17 million compared to KD 23 million in 2017.

Market Indicators

The general market index in 2018 gained 5.34%, driven by the increase in market capitalization of Boursa Kuwait by KD 1.8 billion to KD 28.7 billion at the end of December 2018. The primary market index also gained 9.94% in 2018 as a result of foreign funds and portfolios focused on investing in leading stocks, increasing significantly share prices, especially shares of the banking sector, which rose by 14.5%, driven by a net profit growth of 18.5%.

In contrast to the general index and the primary market index, the main market index lost 1.71% in 2018 due to weak liquidity on its shares.

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Global Market Indicators

2018 was a difficult year for global stock markets. While equities were the main beneficiaries of low interest rates and relaxed monetary policies since the global financial crisis, changes in US interest rates in 2018 drove global stocks to a below benchmark performance.

According to the MSCI World Index as of December 31, gains in global equities made in the first nine months of the year were lost. In the first nine months of the year, global equities rose by 3.8%, but then fell to over -13.7% by year end. In parallel, the KIC Diversified Fund recorded a performance of -10.3%, however managed to outperform the MSCI World Index, which ended in 2018 at -10.4%.

Performance of Local Funds

As for local investment funds, Al-Raed Fund’s performance exceeded Boursa Kuwait’s overall market index, which rose by 5.34% during the year. The Fund achieved a positive performance of 7.49%. Al-Raed Fund also distributed 50 fils per unit during the year, equivalent to 5% of the nominal value of the unit.

The Kuwait Investment Fund achieved a positive performance in 2018 at 7.86%, surpassing the general market index.

The Company’s local portfolios continued to outperform Boursa Kuwait in 2018, achieving a positive return of 12.13%.

Portfolios managed in the GCC also ended the year with a positive performance during 2018. The total value of the portfolios managed by the company amounted to KD 800 million (about US$ 2.6 billion).

Direct Investments

The Direct Investment and Business Development Department has made a strong effort to review and improve the performance of the Company’s investment portfolio by restructuring it in line with the Company’s strategy. KIC exited investments were valued at KD 1.24 million. The Department also acquired an income-generating property in Germany and divested another one in Kuwait. The Company’s real estate portfolio reached KD 11.6 million, which will improve future cash flows. KIC continues to study promising opportunities in the real estate sector as part of its diversification approach.

The e-Trading Department launched the operation of the initial phase of the e-trading platform which now covers the Kuwaiti market. The platform employs advanced tools for trading and will cover a number of regional and international markets in its next phase to enable customers to trade in several markets through a single trading platform.

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Treasury Department

During 2018, the Treasury Department managed and employed the liquidity of the Company to achieve the highest possible returns, as well as continued to manage Islamic transactions such as Murabaha and Tawarruq with Kuwaiti and Gulf institutions and banks.

In the currency markets, foreign currency buying and selling continued against the Kuwaiti dinar and other currencies to meet the needs of the Company and its customers.

The Treasury Department has also focused on strengthening its relations with banks and government and private institutions to attract new funds from the Kuwaiti, Gulf and international markets to start new credit lines for deposits and currencies with them.

Compliance with Regulatory Requirements

KIC reaffirms its commitment and compliance to the requirements of regulatory authorities. The Company believes as part of its governance that compliance to these requirements ultimately benefits investors and shareholders.

In that approach, all requirements mandated by regulatory authorities have been satisfied and approvals and procedures have been completed as per their instructions. We also issued our corporate governance report and delivered it to the regulatory authorities. All financial transactions of the Company were audited and confirmed by an approved auditing consultant.

As for anti-money laundering and combating terrorism financing measures, the annual report on money laundering was issued and reports on the Company’s compliance to the instructions and controls set against money laundering. The report was submitted to the Capital Markets Authority (CMA).

Internal Audit

The Internal Audit Department regularly reviews and continuously monitors the Company’s internal control systems, ensures compliance with Board decisions, company policies and procedures, local laws, directives and guidelines of external auditors, and international accounting and auditing policies and standards.

Training and Development of Our Human Capital

KIC invests in its human capital and has updated its electronic training system for employees during the year. 226 training programs were organized with a total of 111 employees benefiting from internal, external and contracted training programs.

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Two other training programs were conducted for Board members according to the regulations of governance and the requirements of regulatory bodies such as the CMA and the Central Bank of Kuwait. The first program discussed what makes “An effective Board of Directors from the perspective of practical practices and international standards”, while the second focused on anti-money laundering and combating terrorism financing.

Two workshops were held for the executive management, managers and employees to enhance their performance and improve their skills when setting goals, measuring performance indicators and completing annual performance evaluations.

The eLearning project was also improved and provided over 470 programs for managers and employees to enhance capabilities-based training. The project benefited 91 employees who collectively completed 542 programs.

Human Resources Department

KIC supports the national endeavors to develop and support the national manpower. The Company is proud to announced that 47% of its employees are today Kuwaitis, with more than 61% of employees working in technical jobs.

The Company’s Human Resources Department is finalizing and approving the new workforce plan which will restructure the Company’s management structure in line with regulatory directives.

Social Responsibility

KIC as always focused on acting responsibly and engaging with the local community. The Company participated in the Maker Faire Kuwait event, the largest gathering of manufacturers in the world that was established for the first time in the State of Kuwait. The event is held under the patronage of His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber. Through its participation, the Company aims to highlight the role of Kuwaiti and Arab youth in the industrial sector and provide them with a platform to exchange, share and be recognized.

KIC also organized the annul Ramadan Futsal Football Tournament under the patronage of His Excellency the Minister of Finance. The aim of the sports event is to enhance the talents of children under the age of 12 years and inspire a sports-loving generation that will contribute to raising the name of Kuwait in sports in the future.

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In conclusion and on behalf of KIC, I express my deepest appreciation to the Chairman and Board of Directors of KIC for the trust in the Executive Management, their continued support, wise guidance, and valuable advice. And to every employee of KIC, I thank them for their hard work and efforts in the past year. I also reiterate my sincere gratitude to the Company’s shareholders and customers as we renew our commitment to maintaining the Company’s legacy and history.

Bader Naser AlSubaiee

Chief Executive Officer

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TRUSTWORTHYSINCE 1961

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CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT

FOR THE YEAR ENDED 31 DECEMBER 2018

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INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KUWAIT INVESTMENT COMPANY K.S.C.P.

Report on the Audit of Consolidated Financial Statements

OpinionWe have audited the consolidated financial statements of Kuwait Investment 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 December 2018, and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of 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 December 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) , as adopted for use by the State of Kuwait.

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 a basis for our opinion.

Other MatterThe consolidated financial statements of the Group for the year ended 31 December 2017, were audited by another auditors who expressed an unmodified opinion on those statements on 8 February 2018.

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 period. 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.

Ernst & YoungAl Aiban, Al Osaimi & PartnersP.O.Box 7418-20th Floor, Baitak TowerAhmed Al Jaber StreetSafat Square 13001, Kuwait

Tel: +965 2295 5000Fax: +965 2245 [email protected]/mena

A member firm of Ernst & Young Global Limited20

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We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Valuation of investment securitiesThe Group’s investment securities represent 49% of the Group’s total assets, of which KD 121,249,930 are measured at fair value and classified as financial assets at fair value through other comprehensive income (FVOCI) or financial assets at fair value through profit or loss (FVPTL) as disclosed in Note 10 to the consolidated financial statements.

When the fair values of investment securities cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values.

Given the size and complexity of the valuation of investment securities and the importance of the disclosures relating to the assumptions used in the valuation, we addressed this as a key audit matter.

Our audit procedures included, among others, the following:

• We have tested the Level 1 inputs by comparing the fair values applied by the Group to quoted prices in active markets.

• For valuations which used significant unobservable inputs, we have tested the source data used in the valuations, to the extent possible, to independent sources and externally available market data to evaluate the data’s relevance, completeness and accuracy. We have also involved our internal valuation specialists in assessing the valuation methodology used and significant judgments and assumptions applied to the valuation model, including discounts for lack of marketability.

• We assessed the adequacy and the appropriateness of the Group’s disclosures concerning the fair value measurement of investment securities and the sensitivity to changes in unobservable inputs in Notes 10 and 33 to the consolidated financial statements.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KUWAIT INVESTMENT COMPANY K.S.C.P. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key Audit Matters (continued)


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Impairment of investment in associatesThe Group exercises significant influence over certain entities assessed to be associates amounting to KD 15,471,798 as at 31 December 2018, including a listed associate with a carrying value of KD 13,997,889. Investment in associates are accounted for under the equity method of accounting and management determines at the end of each reporting period the existence of any objective evidence through which the Group’s investment in associates may be impaired. If there is an indication that the Group’s interests in an associate might be impaired, the management compares the entire carrying amount of the investment in associate to its recoverable amount.

As at 31 December 2018, management identified an impairment trigger for a certain listed associate where the carrying amount of the investment was higher than its fair value based on prevailing market share price. Management therefore performed an impairment assessment to calculate the value in use, which includes estimated future cash flow projections, terminal value growth rate and discount rate.

The Group engaged an external management expert to assist with the impairment testing. No impairment loss has been recognised for the year ended 31 December 2018.

Given the significant judgments and estimates involved in assessing the recoverable amounts of investment in associates, we have considered this as a key audit matter.


• We evaluated management’s assessment whether objective evidence of impairment exists in relation to the Group’s interest in the associate and the qualitative and quantitative factors used such as the investee’s financial performance including dividends, and market, economic or legal environment in which the associate operates.

• We involved our internal valuation specialists to evaluate the significant assumptions and valuation methods used by the management, and the reasonableness and appropriateness of those assumptions and methods in the circumstances.

• We evaluated whether the external management expert has the necessary competency, capabilities and objectivity for audit purposes.

• We evaluated the adequacy of the Group’s disclosures in Notes 28 to the consolidated financial statements, including disclosures of key assumptions, judgements and sensitivity analysis.

Impairment of intangible assetsThe Group has intangible assets of KD 11,042,602 as at 31 December 2018 (2017: KD 11,042,602) representing a brokerage license for which management assessed as having an indefinite useful life as detailed in Note 12 to the consolidated financial statements. Intangible asset with an indefinite useful life shall be tested for impairment annually by comparing its carrying amount with its recoverable amount, irrespective of whether there is an indication of impairment.



Key Audit Matters (continued)


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The annual impairment testing of intangible assets is considered to be a key audit matter due to the complexity of the accounting requirements and the significant judgment required in determining the assumptions to be used to estimate the recoverable amount. The recoverable amount of the intangible asset, which is based on the higher of the value in use or fair value less cost to sell, has been derived from discounted forecast cash flow models. These models use several key assumptions, including estimates of future trading volumes, revenue growth rates, operating costs, terminal value growth rates and the weighted-average cost of capital (discount rate).

The Group engaged an external management expert to assist with the impairment testing. No impairment loss has been recognised for the year ended 31 December 2018.


• We involved our internal valuation specialists to assist us in challenging the methodology used in the impairment assessment and evaluating the appropriateness of the discount rates applied, which included comparing the weighted-average cost of capital with sector averages for the relevant markets in which the CGUs operate.

• We evaluated whether the external management expert has the necessary competency, capabilities and objectivity for audit purposes.

• We assessed the appropriateness of the assumptions applied to key inputs such as sales volumes and prices, operating costs, inflation and long-term growth rates, which included comparing these inputs with externally derived data as well as our own assessments based on knowledge of the client and the industry.

• We evaluated the adequacy of the Group’s disclosures concerning intangible assets in Note 12 to the consolidated financial statements, including disclosures of key assumptions, judgements and sensitivities.

Other information included in the Group’s 2018 Annual Report Management is responsible for the other information. Other information consists of the information included in Group’s 2018 Annual Report, other than the consolidated financial statements and our auditor’s 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 2018 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 conclude 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.



Impairment of intangible assets (continued)


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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 accordance with IFRSs as adopted for use by the State of Kuwait, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue 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 Statements

Our 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 users taken on the basis of these consolidated financial statements.

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 sufficient 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 appropriate 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 related 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 disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KUWAIT INVESTMENT COMPANY K.S.C.P. (continued)Report on the Audit of the Consolidated Financial Statements (continued)


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• 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 requirements 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 significance in the audit of the consolidated financial statements of the current period 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.

Report on Other Legal and Regulatory Requirements

Furthermore, in our opinion proper books of account have been kept by the Parent Company and the consolidated financial statements, together with the contents of the report of the Parent Company’s Board of Directors relating to these consolidated financial statements, are in accordance therewith. We further report that, we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Companies Law No.1 of 2016, as amended, and its executive regulations, as amended, and by the Parent Company’s Memorandum of Incorporation and Articles of Association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law No.1 of 2016, as amended and its executive regulations, as amended, or of the Parent Company’s Memorandum of Incorporation and Articles of Association have occurred during the year ended 31 December 2018 that might have had a material effect on the business of the Parent Company or on its financial position.

We further report that, during the course of our audit, we have not become aware of any violations of the provisions of Law No 32 of 1968, as amended, concerning currency, the Central Bank of Kuwait and the organisation of banking business, and its related regulations, or of the provisions of Law No 7 of 2010 concerning the Capital Markets Authority and its related regulations during the year ended 31 December 2018 that might have had a material effect on the business of the Parent Company or on its financial position.

BADER A. AL-ABDULJADERLICENCE NO. 207 A EY(AL-AIBAN, AL-OSAIMI & PARTNERS)17 February 2019Kuwait

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KUWAIT INVESTMENT COMPANY K.S.C.P. (continued)Report on the Audit of the Consolidated Financial Statements (continued)Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements (continued)Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (continued)

A member firm of Ernst & Young Global Limited 25

26

2018 2017Notes KD KD

ASSETSCash and cash equivalents 6 13,332,508 18,830,206Term deposits 7 15,028,150 15,351,527Accounts receivable and other assets 8 15,869,232 18,309,765Wakala receivables 2,186,779 1,843,799Loans and advances 9 2,852,537 2,837,957Investment securities 10 124,252,600 129,869,813Investment in associates 28 15,471,798 15,641,470Investment properties 11 24,567,437 20,715,410Intangible assets 12 11,042,602 11,042,602Property and equipment 13 28,508,969 30,367,615TOTAL ASSETS 253,112,612 264,810,164

LIABILITIES AND EQUITYLiabilitiesDeposits from banks and customers 14 73,308,285 72,855,593

Islamic finance payables 15 9,272,828 12,876,783Accounts payable and other liabilities 16 15,884,078 17,949,973Loans and borrowings 3,813,724 - Total liabilities 102,278,915 103,682,349Equity Share capital 17 55,125,000 55,125,000Treasury shares 18 (734,629) (734,629)Statutory reserve 19 29,960,206 28,923,624Voluntary reserve 20 19,994,320 18,957,738Asset revaluation surplus 4,742,731 4,742,731Fair value reserve (6,511,141) 2,268,098Foreign currency translation reserve 1,856,027 2,587,343

Retained earnings 12,275,168 15,351,836

Equity attributable to equity holders of the Parent Com-pany 116,707,682 127,221,741Non-controlling interests 27 34,126,015 33,906,074Total equity 150,833,697 161,127,815TOTAL LIABILITIES AND EQUITY 253,112,612 264,810,164

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2018

Dr. Yousef M. Al Ali

Chairman

Bader N. AlSubaiee Chief Executive Officer

The attached notes 1 to 36 form an integral part of these consolidated financial statements.

KUWAIT INVESTMENT COMPANY K.S.C.P. AND ITS SUBSIDIARIESState of Kuwait

27

2 0 1 8


Net fee and commission income 7,099,894 6,597,460Rental income 21 8,971,767 8,188,574Net investment income on financial assets 22 7,255,886 13,135,956Change in fair value of investment properties 11 (31,805) (170,346)Gain on sale of investment properties 11 720,000 - Gain on liquidation/ sale of subsidiaries and an associate 1.2 554,082 175,178Share of results of associates 28 (39,435) 569,507Net foreign exchange differences 226,700 (198,459)Release of provision for credit loss 23 535,209 4,350,813Other income 24 1,943,398 2,082,469

Net operating income 27,235,696 34,731,152

General and administrative expenses 25 (12,994,827) (13,940,696)

Total operating expenses (12,994,827) (13,940,696)

Operating profit 14,240,869 20,790,456

Finance costs (2,322,979) (1,589,582)Finance income 983,366 1,003,688

Profit before tax and directors’ remuneration 12,901,256 20,204,562Contribution to Kuwait Foundation for Advancement of Sciences (KFAS) (79,623) (143,265)National Labour Support Tax (NLST) (279,179) (447,286)Zakat (57,994) (220,928)Directors’ remuneration 31 (95,000) (95,000)PROFIT FOR THE YEAR 12,389,460 19,298,083Attributable to:Equity holders of the Parent Company 9,854,023 16,443,050Non-controlling interests 27 2,535,437 2,855,033

12,389,460 19,298,083BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY 26 18 fils 30 fils

CONSOLIDATED STATEMENT OF PROFIT OR LOSSFOR THE YEAR ENDED 31 DECEMBER 2018



28

2018 2017KD KD

Profit for the year 12,389,460 19,298,083Other comprehensive lossOther comprehensive (loss) income that may be reclassified to profit or loss in subsequent periods:Available-for-sale financial assets (IAS 39):

- Net change in fair value - (2,725,194)- Loss on redemption / sale of available-for-sale financial

assets-

(8,386,883)- Recycled to profit or loss on impairment losses - 73,975

Net loss on available-for-sale financial assets - (11,038,102)Share of other comprehensive loss of associates (22,431) (30,690)Exchange differences on translation of foreign operations (528,654) 570,389

Net other comprehensive loss that may be reclassified to profit or loss in subsequent periods (551,085) (10,498,403)Other comprehensive loss that will not be reclassified to profit or loss in subsequent periods:Share of other comprehensive loss of associates - (746,100)Net loss on equity instruments designated at fair value through other comprehensive income (7,216,040) -

Net other comprehensive loss that will not be reclassified to profit or loss in subsequent periods (7,216,040) (746,100)

Other comprehensive loss for the year (7,767,125) (11,244,503)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,622,335 8,053,580

Attributable to:Equity of holders of the Parent Company 2,653,088 5,180,431Non-controlling interests 1,969,247 2,873,149

4,622,335 8,053,580

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2018



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2018 2017

Notes KD KD

OPERATING ACTIVITIES

Profit for the year 12,389,460 19,298,083

Adjustments to reconcile profit to net cash flows:Net investment income 22 (7,255,886) (13,135,956)

Finance income (983,366) (1,003,688)Change in fair value of investment properties 11 31,805 170,346Gain on sale of investment properties 11 (720,000) - Gain on liquidation/ sale of subsidiaries and an associate 1.2 (554,082) (175,178)Share of results of investment in associates 28 39,435 (569,507)

Net foreign exchange differences (226,700) 198,459Depreciation 13 5,852,506 5,410,211

Release of provision for credit losses (535,209) (2,255,091)

Finance costs 2,322,979 1,589,582

Gain on sale of property and equipment (449,662) (130,990)Provision on legal claims no longer required 24 - (1,500,000)

9,911,280 7,896,271

Changes in operating assets and liabilities:

Term deposits 323,377 941,349

Financial assets at fair value through profit or loss (7,562,100) (35,859,361)

Financial assets at amortised cost 772,649 -

Accounts receivable and other assets 130,540 (290,814)

Wakala receivables - 500,000

Loans and advances 105,608 313,366

Accounts payable and other liabilities (2,460,537) 5,610,088

Net cash from / (used in) operating activities 1,220,817 (20,889,101)

INVESTING ACTIVITIESAcquisition of a subsidiary, net of cash acquired 5 (2,219,414) - Proceeds from sale of subsidiary 27 8,755,959 1,025,000Purchase of investment properties 11 (400,000) (2,070,098)Proceeds from sale of investment properties 11 3,460,000 - Purchase of property and equipment 13 (7,702,788) (6,799,438)

Proceeds from sale of property and equipment 4,158,590 2,583,453

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2018



32


Purchase of available-for-sale financial assets - (32,823,345)

Proceeds from sale of available-for-sale financial assets - 75,632,470

Purchase of financial assets at FVOCI (633,836) -

Proceeds from sale of financial assets at FVOCI 416,120 -

Dividend income received 3,644,155 2,529,346

Finance income received 925,137 993,327

Net cash flows from investing activities 10,403,923 41,070,715

FINANCING ACTIVITIES

Net movement in banks and customers’ deposits 452,692 (6,085,212)

Net repayment of Islamic finance payables (3,603,955) (987,468)

Net movement in non-controlling interests 296,516 (2,734,831)

Dividends paid to equity holders of the Parent Company (10,814,148) (3,786,525)

Dividends paid to non-controlling interests (1,237,510) (735,000)

Finance costs paid (2,222,593) (1,579,594)

Net cash flows used in financing activities (17,128,998) (15,908,630)

Effect of foreign currency translation adjustments 6,560 248,108

Net (decrease) / increase in cash and cash equivalents (5,497,698) 4,521,092

Cash and cash equivalents at 1 January 18,830,206 14,309,114

CASH AND CASH EQUIVALENTS AT 31 DECEMBER 6 13,332,508 18,830,206


CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)FOR THE YEAR ENDED 31 DECEMBER 2018


33

2 0 1 8

1. CORPORATE AND GROUP INFORMATION

1.1 CORPORATE INFORMATIONThe consolidated financial statements of Kuwait Investment Company K.S.C.P (“the Parent Company”) and its subsidiaries (collectively, the “Group”) for the financial year ended 31 December 2018 were authorised for issue in accordance with a resolution of the board of directors on 17 February 2019, and the shareholders have the power to amend these consolidated financial statements at the annual general assembly meeting (AGM).The Parent Company is a public shareholding company incorporated and domiciled in Kuwait and whose shares are publicly traded on Boursa Kuwait. The registered office is located at Souk Al Manakh 5th floor, Mubarak Al Kabeer Street, Sharq and its registered postal address is P.O. Box 1005 Safat, 13011 – State of Kuwait. The Parent Company’s major shareholder is Kuwait Investment Authority (KIA). The Parent Company is regulated by the Central Bank of Kuwait (“CBK”) and the Capital Markets Authority (“CMA”) as a finance and investment company, respectively.The Parent Company’s primary objectives are as follows: Invest and maximise shareholder and its clients’ value through the deployment of funds in financial

securities, rights, royalties, properties, assets and other movables and immovables of all types at its own discretion.

Participate in the establishment of other companies to realise profit in accordance with the law and assisting in the incorporation of such companies.

Sale of shares and bonds of companies and governmental and semi-governmental institutions.

Conduct research and market surveys related to the deployment of capital and render services related to investment operations and third party employment, including:

Securities broker not registered in the securities exchange

Investment portfolio manager

Collective investment scheme manager

Custodian

Investment controller

Subscription agent

The Parent Company may have an equity interest or in any way be associated with entities engaged in similar activities or other activities which may assist the Group in achieving its primary objectives in Kuwait or abroad. The Parent Company may also establish, participate in, acquire or affiliate itself with such entities.Information on the Group’s structure is provided below. Information on other related party relationships of the Group is provided in Note 31.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018


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1.2 GROUP INFORMATION

a) Subsidiaries The consolidated financial statements of the Group include:

Name Country of

incorporation

% equity interestPrincipal

activities2018 2017

KIC Financial Brokerage K.S.C. (Closed) Kuwait 45.47% 45.47% Brokerage

Kuwait International Fair Company K.S.C. (Closed) Kuwait 51% 51% Exhibition

Kuwait Foreign Investment Company USA 100% 100% Investment

Kuwait Maritime Transportation Company K.S.C. (Closed) Kuwait 76% 76% Maritime services

Arab Financial Services Company K.S.C. (Closed) Kuwait 100% 100% Brokerage

Al Joan International Holding Company K.S.C. (Closed) Kuwait 100% 100% Medical services

Pearl Company for Economic Consultancy CompanyW.L.L.* Kuwait - 100% Investment

Al Masar Leasing and Investment Company K.S.C. (Closed) Kuwait 45.75% 45.75%

Investment & Real estate

Al Awaed Fund Kuwait 99.30% 99.30% Managed fund

KIC Bond Fund (Under Liquidation) Kuwait 100% 100% Managed fund

Al Hilal Islamic Fund Kuwait 68.13% 64.03% Managed fund

KIC Euro Equity Fund * Guernsey - 99.92% Managed fund

KIC Diversified Fund Guernsey 100% 100% Managed fund

KIC Pacific Equity Fund * Guernsey - 96.50% Managed fund

KIC North American Equity Fund* Guernsey - 100% Managed fund

KIC Global Bond Fund * Guernsey - 100% Managed fund

MAJEL S.A.R.L (Note 5) Germany 86.8% - Real estate

* During the year ended 31 December 2018, the Parent Company liquidated the underlying subsidiaries. The resultant gain from these transactions amounted to KD 548,718 which was recorded in profit or loss for the year then ended.

1. CORPORATE AND GROUP INFORMATION (Continued)



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b) Associates

Set out below are the associates of the Group as at 31 December. For more details, refer to Note 28.

Name Country of

incorporation

% equity interestPrincipal activities2018 2017

National Hotels Company B.S.C. Bahrain 20.94% 20.94% Hospitality

Ithraa Capital Company Saudi Arabia 23% 23% Investment

Instrata Capital B.S.C.* Bahrain - 20% Investment

Economic Group for Brokerage E.S.C. Egypt 30% 30% Brokerage

Al Riyada Tower for Real Estate Services K.S.C. (Closed) Kuwait 38.76% 38.76% Shipping

* During the year ended 31 December 2018, the associate was liquidated. The resultant gain from this transaction amounted to KD 5,364 which was recorded in profit or loss for the year then ended.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with the regulations issued by the Central Bank of Kuwait (“CBK”) for financial services institutions in the State of Kuwait. These regulations require the expected credit loss (“ECL”) on credit facilities to be measured at the higher of the amount computed under IFRS 9 in accordance to the CBK guidelines or the provisions as required by CBK instructions; the consequent impact on related disclosures; and the adoption of all other requirements of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (“IASB”) (collectively referred to as IFRS, as adopted for use by the State of Kuwait).The consolidated financial statements have been prepared on a historical cost basis except for investment in equity securities and investment properties which have been measured at fair value.The consolidated financial statements are presented in Kuwaiti Dinars (“KD”), which is also the functional currency of the Parent Company.The Group presents its statement of financial position in order of liquidity. An analysis in respect of recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in Note 32.3.

1. CORPORATE AND GROUP INFORMATION (Continued)1.2 GROUP INFORMATION (Continued)



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2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

New and amended standards and interpretations The Group applied, for the first time, certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2018. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued, but are not yet effective.

IFRS 9 - Financial InstrumentsIFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.The Group applied IFRS 9 prospectively, with an initial application date of 1 January 2018. The Group has not restated the comparative information, which continues to be reported under IAS 39. Differences arising from the adoption of IFRS 9 have been recognised directly in retained earnings and other components of equity.

a) Classification and measurement Under IFRS 9, debt instruments are subsequently measured at fair value through profit or loss, amortised cost, or fair value through OCI. The classification is based on two criteria: the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’).The assessment of the Group’s business model was made as of the date of initial application, 1 January 2018. The assessment of whether contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the assets.The following are the changes in the classification of the Group’s financial assets: Accounts receivable classified as ‘Loans and receivables’ under IAS 39 are held to collect contractual

cash flows and give rise to cash flows representing solely payments of principal and interest. These are classified and measured as ‘Debt instruments at amortised cost’ beginning 1 January 2018.

Equity securities that the Group intends to hold for the long term for strategic purposes have been irrevocably designated at the date of initial application as measured at FVOCI. Unlike IAS 39, the accumulated fair value reserve related to these investments will never be reclassified to profit or loss.

Equity securities that the Group designated as at FVTPL under IAS 39 because they were managed on a fair value basis and their performance was monitored on this basis have been classified as mandatorily measured at FVTPL under IFRS 9 beginning 1 January 2018.

Managed funds classified as Available-for-sale (AFS) financial assets as at 31 December 2017 and fail to meet the SPPI criterion have been classified and measured at FVPTL under IFRS 9

Corporate debt securities that were previously classified as held-to-maturity are now classified at amortised cost. The Group intends to hold the assets to maturity to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding.

The Group has not designated any financial liabilities as at fair value through profit or loss. There are no changes in classification and measurement for the Group’s financial liabilities.The IFRS 9 impact of required or elected reclassifications as at 1 January 2018 is disclosed in Note 4.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)



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b) Impairment of financial assetsIFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘Expected Credit Loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. The Group is required to calculate provision for credit losses on loans and advances in accordance with the instructions issued by the CBK. Impairment of loans and advances shall be recognised at the higher of ECL under IFRS 9 per CBK guidelines, and the provision required by the CBK instructions. IFRS 9 requires the Group to recognise an allowance for ECLs for all other debt instruments not held at fair value through profit or loss and contract assets.The Group’s accounting policies for impairment of financial assets is explained in Note 2.4. The quantitative impact of adoption of IFRS 9 as at 1 January 2018 is disclosed in Note 4.

c) Hedge accountingAt the date of initial application, the Group had no existing hedging relationships and therefore the new general hedge accounting model in IFRS 9 has no impact on the Group.

IFRS 15: Revenue from Contracts with CustomersThe Group adopted IFRS 15 Revenue from Contracts with Customers on its effective date of 1 January 2018. IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. In addition, guidance on interest and dividend income have been moved from IAS 18 to IFRS 9 without significant changes to the requirements. IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires relevant disclosures.IFRS 15 did not have a significant impact on the Group’s accounting policies as revenue streams mainly comprise of rental income, management fees and commission income.

Amendments to IAS 40 - Transfers of Investment Property The amendment is applied prospectively, however, retrospective application in accordance with IAS 8 is permitted if possible without the use of hindsight. The amendment clarifies when an entity should transfer property, including property under construction or development into, or out of, investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. This is effective for accounting periods beginning on or after 1 January 2018. There has been no change in use of any of the Group’s investment property.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Continued)IFRS 9 - Financial Instruments (Continued)



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2.3 STANDARDS ISSUED BUT NOT EFFECTIVEThe standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

IFRS 16: LeasesIFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16, which is effective for annual periods beginning on or after 1 January 2019, requires lessees and lessors to make more extensive disclosures than under IAS 17.The Group is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date.

Amendments to IAS 28: Long-term interests in associates and joint ventures The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in IFRS 9 applies to such long-term interests. The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures. The amendments should be applied retrospectively and are effective from 1 January 2019, with early application permitted. Since the Group does not have such long-term interests in its associate and joint venture, the amendments will not have an impact on its consolidated financial statements.




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2.4 SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below:

Basis of consolidationThe consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting date. 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 The ability to use its power over the investee to affect its returns

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

The contractual arrangement(s) 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 OCI are attributed to the equity holders of the Parent Company 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 in 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-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

Business combinations and acquisition of non-controlling interestsBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.




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Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of the amount that would be recognised in accordance with the requirements for provisions in IAS 37 Provisions, Contingent Liabilities and Contingent Assets or the amount initially recognised less (when appropriate) cumulative amortisation recognised in accordance with the requirements for revenue recognition.

Investment in associatesAn associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The Group’s investment in its associate is accounted for using the equity method. Under the equity method, the investment in an associate 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 associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately. The statement of profit or loss reflects the Group’s share of the results of operations of the associate. Any change in OCI of those investees is presented as part of the Group’s OCI. 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 statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate 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 is shown on the face of the profit or loss and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognises the loss as ‘Share of profit of an associate’ in the profit or loss. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Business combinations and acquisition of non-controlling interests (Continued)



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Cash and cash equivalentsCash and cash equivalents in the statement of financial position comprise cash on hand, non-restricted cash at banks, cash held in investment portfolios and short-term deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, with original maturities of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts (if any) as they are considered an integral part of the Group’s cash management.

Term deposits Term deposits represent deposits with banks due within three months or more from the placement date and earn interest.

Financial instrumentsIn the current period the Group has adopted IFRS 9 Financial Instruments. See Note 4 for an explanation of the impact. Comparative figures for the year ended 31 December 2017 have not been restated. Therefore, financial instruments in the comparative period are still accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

a) Recognition and initial measurementTrade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

b) Classification and subsequent measurementFinancial assets - Policy effective from 1 January 2018 (IFRS 9) On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI – debt investment; FVOCI – equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)



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On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost, at FVOCI as at FVTPL if doing so eliminates, or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets – Business model assessment: Policy applicable from 1 January 2018

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

· the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;

· how the performance of the portfolio is evaluated and reported to the Group’s management;

· the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

· how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

· the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets

Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

Financial assets – Assessment whether contractual cash flows are solely payments of principal and interest: Policy applicable from 1 January 2018

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:· contingent events that would change the amount or timing of cash flows; · terms that may adjust the contractual coupon rate, including variable-rate features;· prepayment and extension features; and· terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Financial instruments (Continued)b) Classification and subsequent measurement (Continued)



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A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

Financial assets – Subsequent measurement and gains and losses: Policy applicable from 1 January 2018

Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are rec-ognised in profit or loss.

Financial assets at amortised cost

These assets are subsequently measured at amortised cost us-ing the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

Debt investments at FVOCI These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are re-classified to profit or loss.

Equity investments at FVOCI These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the invest-ment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.

Financial assets – Policy applicable before 1 January 2018

Financial assets at fair value through profit or loss

Measured at fair value and changes therein, including any interest or dividend income, were recognised in profit or loss.

Held-to-maturity financial assets

Measured at amortised cost using the effective interest method.

Loans and receivables Measured at amortised cost using the effective interest method.

Available-for-sale financial assets (AFS)

Measured at fair value and changes therein, other than impairment losses, interest income and foreign currency differences on debt instruments, were recognised in OCI and accumulated in the fair value reserve. When these assets were derecognised, the gain or loss accumulated in equity was reclassified to profit or loss.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Financial instruments (Continued)Financial assets – Assessment whether contractual cash flows are solely payments of principal and interest: Policy applicable from 1 January 2018 (continued)



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Financial liabilities – Classification, subsequent measurement and gains and lossesFinancial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

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

The Group’s financial liabilities include deposits from banks and customers, loans and borrowings, trade and other payables.

c) Derecognition

Financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

Financial liabilities

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

d) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Impairment of financial assets - Policy applicable from 1 January 2018Financial instruments and contract assetsThe Group recognises an allowance for expected credit losses (ECLs) on: financial assets measured at amortised cost; debt investments measured at FVOCI; and contract assets.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Financial instruments (Continued)



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Equity investments are not subject to ECLs. The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:

- debt securities that are determined to have low credit risk at the reporting date; and

- other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Impairment of credit facilitiesCredit facilities granted by the Group consists of loans and advances. Impairment on credit facilities shall be recognised in the consolidated statement of financial position at an amount equal to the higher of ECL under IFRS 9 according to the CBK guidelines, and the provisions required by the CBK instructions.

Impairment of other financial assets other than credit facilitiesThe Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

The Group applies a three stage approach to measure the expected credit loss as follows:Stage 1: 12 months ECL For exposures where there has not been a significant increase in credit risk since initial recognition, the portion of the lifetime ECL associated with the probability of default events occurring within next 12 months is recognised.Stage 2: Lifetime ECL – not credit impaired For credit exposures where there has been a significant increase in credit risk since initial recognition but that are not credit impaired, a lifetime ECL is recognised.Stage 3: Lifetime ECL – credit impaired Financial assets are assessed as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred. As this uses the same criteria as under IAS 39, the Groups methodology for specific provisions remains largely unchanged.For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.The Group considers a financial asset in default when contractual payments are 30 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Impairment of financial assets - Policy applicable from 1 January 2018 (Continued)



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Impairment of financial assets - Policy applicable before 1 January 2018

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.

Loans and advances

Loans and advances are subject to credit risk provision for loan impairment if there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected future cash flows, including amount recoverable from guarantee and collateral, discounted based on the contractual interest rate. The amount of loss arising from impairment is taken to the consolidated statement of profit or loss.

In addition, in accordance with CBK instructions, a minimum general provision of 1% for cash facilities and 0.5% for non-cash facilities are made on all applicable credit facilities (net of certain categories of collateral), that are not provided for specifically.

Wakala receivables

Wakala is an agreement whereby the Group, under an agency agreement, provides a sum of money to a customer who invests it according to specific conditions in return for a fee. The agent is obliged to return the amount in case of default, negligence or violation of any terms and conditions of the wakala.

Wakala receivables are initially measured at fair value (transaction price). Subsequent to initial recognition, these are measured at amortised cost using the effective interest rate method less impairment losses.

Available-for-sale financial assets

For AFS financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss – is removed from OCI and recognised in the statement of profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognised in OCI.

The determination of what is ‘significant’ or ‘prolonged’ requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.




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Investment propertiesInvestment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the period in which they arise. Fair values are determined based on an annual valuation performed by an accredited external independent valuer applying appropriate valuation modelsInvestment properties are derecognised either when they have been disposed of (i.e., at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit or loss in the period of derecognition. The amount of consideration to be included in the gain or loss arising from the derecognition of investment property is determined in accordance with the requirements for determining the transaction price in IFRS 15. Transfers are made to (or from) investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use.

Intangible assetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired.

The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets.

Property and equipmentCapital work in progress is stated at cost, net of accumulated impairment losses, if any. Except for leasehold land stated at revalued amount, property and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Depreciation is calculated using the straight–line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated.




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The estimated useful lives are, as follows:

Buildings on leasehold land 10 years

Motor vehicles 3 – 4 years

Computer equipment 4 years

Office equipment and machinery 4 years

Furniture and fixtures 4 yearsAn item of property and equipment and any significant part initially recognised is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognised. The residual values, useful lives and methods of depreciation of property and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.Depreciation of these assets commences when the assets are ready for their intended use.

Impairment of non-financials assetsThe Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Property and equipment (Continued)



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Goodwill is tested for impairment annually as at the reporting date and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.Intangible assets with indefinite useful lives are tested for impairment annually as at the reporting date at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

Employees end of service benefitsThe Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service, subject to the completion of a minimum service period in accordance with relevant labour law and the employees’ contracts. The expected costs of these benefits are accrued over the period of employment. This liability, which is unfunded, represents the amount payable to each employee as a result of termination on the reporting dateIn addition, with respect to its Kuwaiti national employees, the Group makes contributions to the Public Institution for Social Security calculated as a percentage of the employees’ salaries. These contributions are expensed when due.

ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Treasury sharesThe Group’s own shares are accounted for as treasury shares and are stated at cost. When the treasury shares are sold, gains are credited to a separate account in equity (treasury shares reserve) which is non-distributable. Any realised losses are charged to the same account to the extent of the credit balance on that account. Any excess losses are charged to retained earnings then 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 distributed on these shares and the voting rights related to these shares are discarded. The issue of bonus shares increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares.

Dividend distributionThe Group recognises a liability to pay a dividend when the distribution is no longer at the discretion of the Group. As per the companies law, a distribution is authorised when it is approved by the Shareholders at the annual general assembly. A corresponding amount is recognised directly in equity. Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date

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

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Impairment of non-financials assets(Continued)



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

National Labour Support TaxNLST is calculated at 2.5% of the profit for the year attributable to the Parent Company in accordance with Law No. 19 of 2000 and the Ministry of Finance resolutions No. 24 of 2006.

Zakat Contribution to Zakat is calculated at 1% of the profit for the year attributable to Parent Company in accordance with the Ministry of Finance resolution No. 58/2007 effective from 10 December 2007.

Revenue recognitionRevenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

Rental income The Group is the lessor in operating leases. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease terms.

Fee and commission incomeFees earned for the provision of services over a period of time are accrued over that period. These fees include commission income, asset management fees, and other management and advisory fees.

Finance incomeFinance income is presented separately from revenue from contracts with customers in the statement of profit or loss and is over recognised at it accrues using the effective interest rate method.

LeasesThe determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset (or assets), even if that asset (or those assets) is not explicitly specified in an arrangement.

Group as a lessee A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of




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interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the profit or loss. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the profit or loss on a straight-line basis over the lease term.

Group as a lessorLeases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

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

Fiduciary assetsThe Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity, unless recognition criteria are met, are not reported in the consolidated financial statements, as they are not assets of the Group.

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 benefit is remote.Contingent asset are not recognised in the consolidated statement of financial position, but are disclosed when an inflow of economic benefits is probable. Segment information A segment is a distinguishable component of the Group that engages in business activities from which it earns revenue and incurs cost. The operating segments used by the management of the Group to allocate resources and assess performance are consistent with the internal report provided to the chief operating decision maker. Operating segment exhibiting similar economic characteristic, product and services, class of customers where appropriate are aggregated and reported as reportable segments.

Foreign currenciesThe Group’s consolidated financial statements are presented in KD, which is also the Parent Company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Leases (Continued)Group as a lessee (Continued)



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Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Group initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of advance consideration.

Group companies On consolidation, the assets and liabilities of foreign operations are translated into Kuwaiti Dinar at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified in profit or loss. 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 spot rate of exchange at the reporting date.

Discontinued operationA discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

represents a separate major line of business or geographical area of operations; is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area

of operations; or is a subsidiary acquired exclusively with a view to resale

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.

Assets held for saleThe Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group), excluding finance costs and income tax expense.




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The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification. Property and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONSThe preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

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

Classification of real estate propertiesDetermining the classification of a property depends on particular circumstances and management’s intentions. Property that is held for resale in the ordinary course of business or that in the process of development for such sale is classified as inventory. Property held to earn rental income or for capital appreciation, or both is classified as investment property. Property held for use in the production or supply of goods and services or for administrative purposes is classified as property and equipment.

Classification of financial assetsEffective from 1 January 2018 (IFRS 9)The Group determines the classification of financial assets based on the assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding.

Effective before 1 January 2018 (IAS 39)Management has to decide on acquisition of financial assets whether it should be classified as available-for-sale, held to maturity, investments at fair value through profit or loss or as loans and receivables. In making the judgment, the Group considers the primary purpose for which it is acquired and how it intends to manage and report performance.

Impairment of available for sale financial assets Effective before 1 January 2018 (IAS 39)The Group treats the available for sale financial assets as impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is “significant” or “prolonged” requires judgment. The Group considered a decline of 30% to be significant and a period of 12 months to be prolonged.



2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 SIGNIFICANT ACCOUNTING POLICIES (Continued)Assets held for sale (Continued)

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Consolidation of entities in which the Group holds less than a majority of voting rights (de facto control) The Group considers that it controls KIC Financial Brokerage K.S.C.C. (“Wasata”) even though it owns less than 50% of the voting rights. This is because the Group is the single largest shareholder of Wasata with a 45.47% equity interest. The remaining other shareholders individually own less than 11.16% of its equity interests, and there is no history of the other shareholders collaborating to exercise their votes collectively or to outvote the Group. The Group assessed that the voting rights in Al Masar Leasing & Investment Company K.S.C.C. (“Al Masar”) are not the dominant factor in deciding who controls the entity. The Group has a majority representation on Al Masar’s board of directors and the Group’s approval is required for all major operational decisions. Accordingly, the Group has considered the power achieved through absolute voting rights is sufficient to give it the practical ability to direct the relevant activities of the investee company, despite the fact they have less than 50% holding.

Lease classification - Group as a lessor The Group has entered into vehicle leasing arrangements with customers. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the vehicles and the present value of the minimum lease payments not amounting to substantially all of the fair value of the vehicles, that it retains all the significant risks and rewards of ownership of these vehicles and accounts for the contracts as operating leases.

3.2 Estimates 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 also described in the individual notes of the related financial statement line items below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Impairment of associatesInvestment in associates are accounted for under the equity method of accounting for associates, whereby these investments are initially stated at cost, and are adjusted thereafter for the post-acquisition change in the Group’s share of the net assets of the associates less any impairment losses. The Group is required to assess, at each reporting date, whether there are indications of impairment. If such indications exist, the management estimates the recoverable amount of the associate in order to determine the extent of the impairment loss (if any). The identification of impairment indicators and determination of the recoverable amounts require management to make significant judgements, estimates and assumptions.

Impairment of intangible assets with indefinite useful livesThe Group tests whether an intangible asset with an indefinite useful live (brokerage licence) has suffered any impairment on an annual basis. For the 2018 and 2017 reporting period, the recoverable amount of the cash generating units (CGUs) was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates (Note 12). These growth rates are consistent with forecasts specific to the industry in which each CGU operates.

3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)3.1 Significant judgments (Continued)



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Impairment of financial assets at amortised cost

Effective before 1 January 2018 (IAS 39)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 individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.

Effective from 1 January 2018 (IFRS 9)The Group assesses on a forward looking basis the expected credit losses (ECL) associated with its debt instruments carried at amortised cost. For trade receivables and contract assets, the Group applies a simplified approach in calculating ECL. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECL at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Actual results may differ from these estimates.

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

Business combinationsManagement uses valuation techniques when determining the fair values of certain assets and liabilities acquired in a business combination. In particular, the fair value of contingent consideration is dependent on the outcome of many variables including the acquirees’ future profitability.

Valuation of investment propertiesThe fair value of investment properties is determined by real estate valuation experts using recognised valuation techniques and the principles of IFRS 13 Fair Value Measurement. Investment properties under construction are measured based on estimates prepared by independent real estate valuation experts, except where such values cannot be reliably determined. The significant methods and assumptions used by valuers in estimating the fair value of investment properties are set out in Note 11.

Fair value measurementManagement uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available). This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible but this is not always available. In that case, management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date



3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)3.2 Estimates and assumptions (Continued)

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4. IFRS 9 – IMPACT OF ADOPTION

Financial assets – 1 January 2018 Notes FVTPLFVOCI (AFS

2017)Held-to-maturity

Amortised cost

Closing balance 31 December 2017 – IAS 39 66,729,581 60,152,907 2,987,325 1,843,799Reclassify investments from AFS to FVTPL (a) 28,847,958 (28,847,958) - - Reclassify debt securities from AFS to amortised cost (b) - (351,886) - 351,886Reclassify equity securities from AFS to FVOCI* (c) - - - - Reclassify debt securities from held-to-maturity to amortised cost (d) - - (2,987,325) 2,987,325Reclassify debt securities from AFS to FVTPL (e) 2,008,965 (2,008,965) - - Opening balance 1 January 2018 – IFRS 9 97,586,504 28,944,098 - 5,183,010

════════ ════════ ════════ ════════* The closing balances as at 31 December 2017 show available-for-sale financial assets under FVOCI. These reclassifications have no impact on the measurement categories. The financial assets at amortised cost are after reclassifications and adjustments arising from the adoption of IFRS 9 and include trade receivables and other financial assets at amortised cost, but exclude cash and cash equivalents and term deposits.

Effect onfair value reserve

Effect on retained earnings

Effect on non- controlling interests

Closing balance 31 December 2017 – IAS 39 2,268,098 15,351,836 33,906,074Impact on reclassification and re-measurements:Reclassify investments from AFS to FVTPL (a) (1,727,011) 1,727,011 (35,494)

Reclassify debt securities from AFS to amortised cost (b) - (763) -

Reclassify debt securities from AFS to FVTPL (e) - (1,153,998) (5,034)

Impact on recognition of ECL on financial as-sets other than loans and advances to custom-ers and financial institutions: - - - Release of allowance for credit losses (f) - 165,780 93,090

Expected credit losses under IFRS 9 for financial assets at amortised cost (f) - (662,168) (860,874)

──────── ──────── ────────Total impact (1,727,011) 75,862 (808,312)

──────── ──────── ────────Opening balance 1 January 2018 – IFRS 9 541,087 15,427,698 33,097,762

════════ ════════ ════════



57

2 0 1 8NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018

a) Reclassification from available-for-sale to FVTPLCertain investments in funds and debt securities were reclassified from available-for-sale to financial assets at FVTPL (KD 28,847,958 as at 1 January 2018). They do not meet the IFRS 9 criteria for classification at amortised, because their cash flows do not represent solely payments of principal and interest. Related fair value gains of KD 1,727,011 were transferred from the fair value reserve to retained earnings on 1 January 2018.

b) Reclassification from available-for-sale to amortised costCertain investments in debt securities (i.e. bonds) were reclassified from available-for-sale to amortised cost (KD 351,886 as at 1 January 2018). At the date of initial application the Group’s business model is hold these investments for collection of contractual cash flows, and the cash flows represent solely payments of principal and interest on the principal amount. The fair value of KD 351,886 as at 1 January 2018 was equivalent to the amortised cost for these assets. There was an impact of KD 763 on retained earnings at 1 January 2018.

c) Reclassification from available-for-sale to FVOCIThe Group elected to present OCI changes in the fair value of certain equity investments previously classified as available-for-sale, because these investments are held as long-term strategic investments that are not expected to be sold in the short medium term. As a result, assets with a fair value of KD 28,944,098 were reclassified from available-for-sale financial assets to financial assets at FVOCI. There was no impact on the amounts recognised in relation to these assets from the adoption of IFRS 9.

d) Reclassification from held to maturity to amortised costBonds that would have previously been classified as held-to-maturity are now classified at amortised cost. The Group intends to hold the assets to maturity to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. There was no difference between the previous carrying amount and the revised carrying amount of the other financial assets at 1 January 2018 to be recognised in opening retained earnings. No provision for impairment of these assets was recognised in opening retained earnings for the period.

e) Reclassify debt securities from AFS to FVTPLCertain investments in debt securities were reclassified from available-for-sale to financial assets at FVTPL (KD 2,008,965 as at 1 January 2018). They do not meet the IFRS 9 criteria for classification at amortised cost, because their cash flows do not represent solely payments of principal and interest. Related fair value loss of KD 1,153,998 was adjusted in the retained earnings on 1 January 2018.

f) Impairment of financial assets at amortised costThe Group’s debt securities at amortised cost include accounts receivable, bonds and wakala receivables. Applying the expected credit risk model resulted in the recognition of a release of allowance of KD 258,870 on 1 January 2018 and a further release in allowance by KD 84,107 during the year ended 31 December 2018 (Note 23).For trade and other receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The loss allowance on trade and other receivables on transition to IFRS 9 as a result of applying the expected credit loss model was KD 1,523,042.

4. IFRS 9 – IMPACT OF ADOPTION (Continued)


58

5. BUSINESS COMBINATIONSOn 28 March 2018, the Parent Company, through a wholly owned special purpose entity, acquired 86.8% equity interest in MAJEL S.A.R.L, a Luxembourg private company holding ownership in a commercial property domiciled in the City of Frankfurt, Federal Republic of Germany. The acquisition has been accounted for using the acquisition method. The Group has elected to measure the non-controlling interests in the acquiree at fair value. Details of the purchase consideration, the net assets acquired and goodwill are as follows:

Fair value recognised on

acquisitionKD

ASSETSCash and cash equivalents 215,702Accounts receivable and other assets 313,026Investment property 6,577,399

───────Total assets 7,106,127

═══════LIABILITIESAccruals payable and other liabilities 236,009Term loans 4,064,685

───────Total liabilities 4,300,694

═══════Equity 2,805,433Less : Non-controlling interests (370,317)

───────Total identifiable net assets at fair value 2,435,116

───────Purchase consideration transferred 2,435,116

───────Goodwill on acquisition -

───────Analysis of cash flows on acquisition:Net cash acquired with the subsidiary (included in cash flows from investing activities) 215,702Cash paid (2,435,116)

───────Net cash flow on acquisition of a subsidiary (2,219,414)

═══════There were no acquisitions during the year ended 31 December 2017.



59

2 0 1 8

6. CASH AND CASH EQUIVALENTS

2018 2017KD KD

Cash at banks, in portfolios and on hand 8,219,299 13,186,935Short-term deposits maturing within three months 5,113,209 5,643,271

───────── ─────────13,332,508 18,830,206

══════════ ══════════Short-term deposits are made for varying periods between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at an average effective interest rate of 2.6% (2017: 1.80 %) per annum.

7. TERM DEPOSITSTerm deposits represent deposit with local banks with original maturities of more than three months from the date of placement, and earn interest at an average effective interest rate of 2.7% (2017: 2.45%) per annum.

8. ACCOUNTS RECEIVABLE AND OTHER ASSETS

2018 2017KD KD

Trade receivables 14,317,851 13,856,052Less: Allowance for expected credit losses (2017: Provision for impairment of trade receivables) (5,409,553) (3,897,011)

────────── ──────────Trade receivables, net 8,908,298 9,959,041Amounts due from brokers 2,728,677 4,708,538Management fees receivable 1,724,386 1,624,608Prepayments and refundable deposits 974,464 885,277Advance payment for purchase of investments in equity securities 653,523 588,124Interest receivables 373,995 315,766Accrued income 292,778 127,084Other receivables 213,111 101,327

────────── ──────────15,869,232 18,309,765

═══════════ ═══════════

The net carrying value of trade receivables is considered a reasonable approximation of fair value.Note 32.2 includes disclosures relating to the credit risk exposures and analysis relating to the allowance for expected credit losses on the Group’s trade receivables. Other classes within accounts receivable do not contain impaired assets.The maximum exposure to credit risk exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above.



60

Movements in the impairment allowance for trade receivables are as follows:

2018 2017KD KD

At 1 January under IAS 39 3,897,011 3,884,209Opening loss allowance as at 1 January 2018 – calculated under IFRS 9 1,523,042 -

───────── ─────────Opening provision for impairment of trade receivables 5,420,053 3,884,209

Allowance recognised in profit or loss during the year - 63,295Foreign exchange differences (10,500) (50,493)

───────── ─────────At 31 December 5,409,553 3,897,011

══════════ ══════════

The above comparative for impairment provisions refers to the IAS 39 measurement basis which applied an incurred loss model, whereas the current year applies IFRS 9 which is an expected loss model.

9. LOANS AND ADVANCESSet out below is the disaggregation of the Group’s loans and advances:

2018 2017KD KD

International 6,185,820 6,165,737Domestic 15,722,202 15,837,665

───────── ─────────21,908,022 22,003,402

Less: Provision for impairment (19,055,485) (19,165,445)───────── ─────────

2,852,537 2,837,957══════════ ══════════

Loans and advances are denominated in the following currencies:

2018 2017KD KD

US Dollar 2,852,537 2,837,957══════════ ══════════

8. ACCOUNTS RECEIVABLE AND OTHER ASSETS (Continued)



61

2 0 1 8

Movement in provision for impairment of loans and advances during the year:

General provision

Specific provision –

post liberation

Specific provision –

pre-invasion TotalKD KD KD KD

As at 1 January 2017 29,120 15,690,730 5,838,114 21,557,964Reversal of provision during the year (Note 23) - (2,303,386) - (2,303,386)Foreign exchange differences (452) (32,424) (56,257) (89,133)

───────── ───────── ───────── ─────────As at 31 December 2017 28,668 13,354,920 5,781,857 19,165,445Reversal of provision during the year (Note 23) - (120,187) - (120,187)Foreign exchange differences 146 (8,028) 18,109 10,227

───────── ───────── ───────── ─────────As at 31 December 2018 28,814 13,226,705 5,799,966 19,055,485

══════════ ══════════ ══════════ ══════════

Loans and advances earn interest at an average effective interest rate of 5.65% (2017: 4.75%) per annum. Finance income includes KD 41,016 (2017: 74,892) earned on impaired loans and advances. The fair value of collateral that the Group holds relating to loans and advances to customers individually determined to be non-performing at 31 December 2018 amounts to KD 1,668,897 (2017: KD 3,580,000). The collateral consists of investment securities.The Expected Credit Losses on loans and advances computed under IFRS 9 in accordance with the CBK guidelines amounted to KD 19,026,671 as at 31 December 2018, which is lower than the provision required by CBK instructions. As a result, no additional provision has been made.

10. INVESTMENT SECURITIES

2018 2017KD KD

New classification under IFRS 9Debts instruments at amortised cost 3,002,670 - Equity instruments at FVOCI 22,995,014 - Financial assets at FVTPL 98,254,916 -

Original classification under IAS 39Available-for-sale (AFS) financial assets - 60,152,907Financial assets at FVTPL - 66,729,581Held-to-maturity investments - 2,987,325

───────── ─────────124,252,600 129,869,813═════════ ═════════



9. LOANS AND ADVANCES (Continued)

62

At 31 December 2017, certain equity instruments amounting to KD 1,728,995 that do not have a quoted price in active market and whose fair value cannot be measured reliably were accounted at cost (in accordance with IAS 39). These instruments have been measured at fair value at the date of initial application of IFRS 9. Any difference between the previous carrying amount and the fair value is recognised in the opening retained earnings or OCI, as appropriate (Note 4).Certain investment securities of a subsidiary with a carrying amount of KD Nil (2017: KD 893,253) are pledged as security for Islamic finance payables.Debt instruments at amortised cost represent unquoted bonds denominated in US Dollars (“USD”), and earn interest at an average effective interest rate of 6% (2017: 6%) per annum.

11. INVESTMENT PROPERTIES

2018 2017KD KD

At 1 January 20,715,410 19,054,290Acquisitions arising from business combinations (Note 5) 6,577,399 - Additions 400,000 2,820,098Disposals 1 (2,740,000) (867,755)Effect of foreign exchange differences (353,567) (120,877)Change in fair value 2 (31,805) (170,346)

───────── ─────────At 31 December 24,567,437 20,715,410

══════════ ══════════ 1 During the year ended 31 December 2018, the Group sold certain investment properties with an aggregate

carrying value of KD 2,740,000 for a total consideration of KD 3,460,000 resulting in a realised gain on disposal of KD 720,000.

2 The fair value of investment properties is determined based on valuations performed by independent and accredited valuers with recognised and relevant professional qualification and with recent experience in locations and categories of investment properties being valued. The valuation models applied are consistent with the principles in IFRS 13 and fair value is determined using a mix of the income capitalisation method and the market comparison approach considering the nature and usage of each property. Fair value using the income capitalisation method is estimated based on the normalised net operating income generated by the property, which is divided by the capitalisation (discount) rate. Under the market comparison approach, fair value is estimated based on comparable transactions. The unit of comparison applied by the Group is the price per square meter (‘sqm’). Based on these valuations, the fair value of investment properties witnessed a decrease of KD 31,805 compared to its carrying values as at 31 December 2018 (2017: KD 170,346).

The Group has pledged investment properties with a carrying amount of KD 850,000 (2017: KD 850,000) in order to fulfil the collateral requirements for certain Islamic finance payables (Note 15).

10. INVESTMENT SECURITIES (Continued)



63

2 0 1 8

12. INTANGIBLE ASSETSIntangible assets mainly represent a brokerage license acquired by a subsidiary, KIC Financial Brokerage K.S.C. (Closed) (“Wasata”). The brokerage license has been renewed and have allowed the Group to determine that the asset has an indefinite useful life.The Group performed its annual impairment test in December 2018 and 2017. The recoverable amount has been determined based on value-in-use calculations using cash flow projections from financial budgets approved by management covering a five-year period based on the historical pattern of trade volumes, revenue growth and market share. The discount rate applied to cash flow projections is 8.5% (2017: 9%) and cash flows beyond the five-year period are extrapolated using a 3% growth rate (2017: 3%), which does not exceed the long term average growth rate of the State of Kuwait.As a result of the analysis, the recoverable amount of the entire CGU based on value in use as at 31 December 2018 was estimated to be KD 11,459,370 (2017: KD 11,894,530), hence exceeding carrying value by KD 416,768 of that date (2017: KD 851,928). Accordingly, management did not identify an impairment loss during the year ended 31 December 2018 (2017: Nil).

Key assumptions used in value in use calculations and sensitivity to changes in assumptions Discount rate Market share during the forecast period Long-term growth rate (terminal value) used to extrapolate cash flows beyond the forecast period

Sensitivity to changes in assumptionsManagement performed a sensitivity analysis to assess the changes to key assumptions that could cause the carrying value of the intangible asset to exceed its recoverable amount. These are summarised below: A rise in the discount rate to 9% (i.e. +0.5%) would result in a decrease in carrying value by KD

592,928. A reduction in the long-term growth rate to 2.5% (i.e. -0.5%) would result in a decrease in carrying

value by KD 408,698. Although management expects the Group’s market share of the trade volumes in Boursa Kuwait to

be stable over the forecast period, a decline in the market share by 2% would result in a decrease in the carrying value by KD 191,260.

The above sensitivity analyses is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.



64

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At 3

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─────────

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69

═════════

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═════════

═════════

═════════

═════════

═════════

═════════

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15

═════════

═════════

═════════

═════════

═════════

═════════

═════════

═════════

64

65

2 0 1 8

Disposals of property and equipmentIn 2018, one of the subsidiaries sold a leasehold land with a total net carrying amount of KD 982,448 for a cash consideration of KD 1,300,000. The net gains on disposals was recognised as part of other operating income in the statement of profit or loss (Note 24).

Assets under constructionDuring the previous years, the Group incurred capital expenditure with the intention of constructing medical facilities and exhibition facilities. The Group has started construction and costs incurred up to 31 December 2018 totalled KD 5,350,671 (2017: KD 4,581,728).

Depreciation of property and equipmentDepreciation included in the consolidated statement of profit or loss is allocated as follows:

2018 2017KD KD

Rental income 4,485,119 4,208,909General and administrative expenses (Note 25) 1,367,387 1,201,302

───────── ─────────5,852,506 5,410,211

═════════ ═════════

14. DEPOSITS FROM BANKS AND CUSTOMERS

2018 2017KD KD

Deposits from banks 31,440,201 30,504,173Deposits from customers 41,868,084 42,351,420

───────── ─────────73,308,285 72,855,593═════════ ═════════

Deposits from bank represents deposits carry an average effective interest rate of 3% (2017: 2%) per annum. Deposits from customers carry an average effective interest rate of 2.7 % (2017: 1.22%) per annum.


13. PROPERTY AND EQUIPMENT (Continued)


66

15. ISLAMIC FINANCE PAYABLES

2018Ijara Murabaha Total 2017

KD KD KD KD

Gross amount 850,000 8,471,285 9,321,285 12,942,253Less: deferred finance costs - (48,457) (48,457) (65,470)

───────── ───────── ───────── ─────────850,000 8,422,828 9,272,828 12,876,783

═════════ ═════════ ═════════ ═════════

Islamic finance payables bear an average finance cost of 5% (2017: 5%) per annum.Islamic finance payables are secured over certain of the Group’s investment properties with a carrying value of KD 850,000 (2017: KD 850,000).

16. ACCOUNTS PAYABLE AND OTHER LIABILITIES

2018 2017KD KD

Sundry creditors and accrued expenses 8,352,172 11,001,224Provision for employees’ end of service benefits 5,722,075 5,412,185Accrued staff leave 654,677 636,946Rentals received in advance 276,383 212,130Directors’ remuneration payable 95,000 95,000Interest payable 267,358 166,972Dividends payable 505,478 413,779Other payables 10,935 11,737

───────── ─────────15,884,078 17,949,973═════════ ═════════

17. SHARE CAPITAL

Number of shares Authorised, issued and fully paid

2018 2017 2018 2017

KD KD

Shares of 100 fils each (paid in cash) 551,250,000 551,250,000 55,125,000 55,125,000

═════════ ═════════ ═════════ ═════════



67

2 0 1 8

18. TREASURY SHARES

2018 2017

Number of shares 3,261,581 3,261,581

Percentage of issued shares 0.5917% 0.5917%

Cost (“KD”) 734,629 734,629

Market value (“KD”) 420,744 368,559

Reserves equivalent to the cost of the treasury shares held are not available for distribution during the holding period of such shares as per CMA guidelines.

19. STATUTORY RESERVEIn accordance with the Companies’ Law, and the Parent Company’s Memorandum of Incorporation and Articles of Association, a minimum of 10% of the profit for the year before tax and directors’ remuneration shall be transferred to the statutory reserve based on the recommendation of the Parent Company’s board of directors. The annual general assembly of the Parent Company may resolve to discontinue such transfer when the reserve exceeds 50% of the issued share capital. The reserve may only be used to offset losses or enable the payment of a dividend up to 5% of paid-up share capital in years when profit is not sufficient for the payment of such dividend due to absence of distributable reserves. Any amounts deducted from the reserve shall be refunded when the profits in the following years suffice, unless such reserve exceeds 50% of the issued share capital.

20. VOLUNTARY RESERVEIn accordance with the Companies’ Law, and the Parent Company’s Memorandum of Incorporation and Articles of Association, a maximum of 10% of the profit for the year before tax and directors’ remuneration is required to be transferred to the voluntary reserve. Such annual transfers may be discontinued by a resolution of the shareholders’ general assembly upon a recommendation by the Board of Directors. There are no restrictions on the distribution of this reserve.



68

21. RENTAL INCOME

2018 2017

KD KD

Rental income derived from investment properties 3,045,391 2,755,915

Rental and other related expenses (1,950,993) (2,024,467)

Vehicle rental income (net) 2,358,928 2,487,590

Exhibition income (net) 5,518,441 4,969,536

───────── ─────────

8,971,767 8,188,574

═════════ ═════════

22. NET INVESTMENT INCOME

2018 2017

KD KD

Dividend income 3,458,204 2,304,999

Impairment losses on available-for-sale financial assets (IAS 39) - (73,975)

Gain on redemption / sale of available-for-sale financial assets (IAS 39) - 8,386,883

Unrealised gain on financial assets at fair value through profit or loss 3,307,007 2,015,065

Gain on sale of financial assets at fair value through profit or loss 491,923 502,984

Loss on redemption of debt instruments at amortised cost (1,248) -

──────── ────────

7,255,886 13,135,956

════════ ════════



69

2 0 1 8

23. RELEASE OF PROVISION FOR CREDIT LOSSES

2018 2017

KD KD

Debt instruments at amortised cost 330,915 -

Accounts receivables and other assets (Note 8) - (63,295)

Wakala receivables 84,107 2,110,722

Loans and advances (Note 9) 120,187 2,303,386

──────── ────────

535,209 4,350,813

════════ ════════

* In 2017, one of the subsidiaries; reached a settlement agreement with a debtor relating to a wakala receivable which was fully provided in previous years. The settlement resulted in a reversal of provision of KD 2,110,722.** In 2017, the Parent Company reached a settlement agreement with a debtor relating to an international loan with an initial carrying value of KD 4,012,633 in lieu for a share in a foreign property. The settlement resulted in reversal of provision of KD 2,005,984.

24. OTHER INCOME Other income for the year includes the following:

Income of KD 1,237,400 representing gain on extinguishment of debt between a subsidiary and a local financial institution.

Income of KD 307,552 representing gain on sale of a leasehold land (Note 13).Other income for the prior year includes an amount of KD 1,500,000 which represents provision on legal claims no longer required relating to a subsidiary. This provision was recorded in 2011 and reversed during the prior year as the final verdict related to the legal claim was in favour of the subsidiary.

25. GENERAL AND ADMINISTRATIVE EXPENSESIncluded in general and administrative expenses:

2018 2017

KD KD

Staff costs 7,207,816 8,052,914

════════ ════════

Depreciation 1,367,387 1,201,302

════════ ════════



70

26. EARNINGS PER SHARE (EPS)Basic EPS amounts are calculated by dividing the profit for the year attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the Parent Company 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 conversion of all the dilutive potential ordinary shares into ordinary shares. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.

2018 2017

Profit for the year attributable to equity holders of the Parent Com-pany (KD) 9,854,023 16,443,050

══════════ ══════════

Weighted average number of shares outstanding (shares) * 547,988,419 547,988,419

══════════ ══════════

Basic and diluted EPS (fils) 18 30

══════════ ══════════

* The weighted average number of shares takes into account the weighted average effect of changes in treasury shares during the year.There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of these consolidated financial statements.

27. MATERIAL PARTLY-OWNED SUBSIDIARIESFinancial information of subsidiaries that have material non-controlling interests is provided below: Proportion of equity interest held by non-controlling interests:

Name

Country of incorporation and operation 2018 2017

Kuwait Int’l Fair Company K.S.C. (Closed) (“KIFCO”) Kuwait 49% 49%

KIC Financial Brokerage K.S.C. (Closed) (“Wasata”) Kuwait 54.53% 54.53%

Al Masar Leasing & Investment Company K.S.C. (Closed (“Al Masar”) Kuwait 54.25% 54.25%



71

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2018 2017

KD KD

Accumulated balances of material non-controlling interest:

KIFCO 13,144,020 13,533,592

Wasata 6,443,681 6,414,959

Al Masar 10,324,850 9,724,986

2018 2017

KD KD

Profit (loss) allocated to material non-controlling interest:

KIFCO 1,235,715 1,162,057

Wasata 41,666 (40,385)

Al Masar 765,716 1,019,563

The summarised financial information of these subsidiaries, based on amounts before inter-company eliminations, is provided below.

Summarised statement of comprehensive income

KIFCO Wasata Al Masar 2018 2017 2018 2017 2018 2017

KD KD KD KD KD KDRevenue 6,052,341 5,444,782 702,583 599,081 4,687,259 4,469,217Expenses (3,530,496) (3,073,287) (631,650) (673,142) (2,884,648) (2,805,062)

──────── ──────── ──────── ──────── ──────── ────────

Profit (loss) for the year 2,521,845 2,371,495 70,933 (74,061) 1,802,611 1,664,155Other comprehen-sive income (45,133) 87,424 (85) (33,725) (7,796) 6,595

──────── ──────── ──────── ──────── ──────── ────────

Total comprehensive income 2,476,712 2,458,919 70,848 (107,786) 1,794,815 1,670,750

════════ ════════ ════════ ════════ ════════ ════════

Attributable to NCI 1,213,589 1,204,514 38,633 58,776 973,687 906,382Dividends paid to NCI 1,029,000 735,000 - - 208,510 -


27. MATERIAL PARTLY-OWNED SUBSIDIARIES (Continued)


72

Summarised statement of financial position


KD KD KD KD KD KD

Current assets 19,152,895 18,761,344 1,805,218 811,523 3,385,774 17,921,304

Non-current assets 11,977,119 12,809,509 11,207,979 11,233,489 23,844,062 11,446,962

──────── ──────── ──────── ──────── ──────── ────────

TOTAL ASSETS 31,130,014 31,570,853 13,013,197 12,045,012 27,229,836 29,368,266

════════ ════════ ════════ ════════ ════════ ════════

Current liabilities 2,166,717 1,984,855 1,089,738 72,444 11,642,718 14,987,070

Non-current liabilities 2,139,774 1,967,410 112,171 208,476 - -

──────── ──────── ──────── ──────── ──────── ────────

TOTAL LIABILITIES 4,306,491 3,952,265 1,201,909 280,920 11,642,718 14,987,070

════════ ════════ ════════ ════════ ════════ ════════

TOTAL EQUITY 26,823,523 27,618,588 11,811,288 11,764,092 15,587,118 14,381,196

════════ ════════ ════════ ════════ ════════ ════════

Attributable to:

Equity holders of the Parent Company 13,679,503 14,084,996 5,370,593 5,349,133 5,262,268 4,656,210

Non-controlling interests 13,144,020 13,533,592 6,440,695 6,414,959 10,324,850 9,724,986




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Summarised statement of cash flows


KD KD KD KD KD KD

Cash flows from operat-ing activities 3,109,374 2,690,219 (172,094) 63,370 6,751,075 5,848,412

Cash flows from invest-ing activities (856,580) (1,028,953) (725,634) 196,743 (1,388,388) (3,825,188)

Cash flows from financ-ing activities (2,100,000) (1,500,000) 985,233 - (4,364,038) (2,551,768)

──────── ──────── ──────── ──────── ──────── ────────

Net increase / (decrease) in cash and cash equivalents 152,794 161,266 87,505 260,113 998,649 (528,544)

════════ ════════ ════════ ════════ ════════ ════════

28. INVESTMENT IN ASSOCIATESThe following table illustrates the summarised financial information of the associates that are material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant associates and not the Group’s share of those amounts.

National Hotels Company B.S.C.

Individually immaterial associates Total

2018 2017 2018 2017 2018 2017

KD KD KD KD KD KD

Total assets 69,560,893 69,826,815 6,320,254 7,106,390 75,881,147 76,933,205

Total liabilities (2,713,285) (3,232,429) (680,642) (624,164) (3,393,927) (3,856,593)

──────── ──────── ──────── ──────── ──────── ────────

Equity 66,847,608 66,594,386 5,639,612 6,482,226 72,487,220 73,076,612

════════ ════════ ════════ ════════ ════════ ════════

Group’s share in equity % 20.94% 20.94%

──────── ──────── ──────── ──────── ──────── ────────

Group’s carrying amount

13,997,889

13,944,864 1,473,909 1,696,606 15,471,798 15,641,470

════════ ════════ ════════ ════════ ════════ ════════




74

A reconciliation of the above summarised financial information to the carrying amount of the associates is set out below:

Reconciliation to carrying amounts 2018 2017

KD KD

At 1 January 15,641,470 16,273,855

Share of (loss) profit for the period (39,435) 569,507

Share of other comprehensive income (22,431) (776,790)

Dividends received (185,951) (224,347)

Foreign currency adjustment 78,145 (200,755)

───────── ─────────

At 31 December 15,471,798 15,641,470

═════════ ═════════

National Hotels Company B.S.C.

Individually immaterial associates Total

2018 2017 2018 2017 2018 2017

KD KD KD KD KD KD

Revenue 4,992,845 6,457,702 210,557 1,628,244 5,203,402 8,085,946

════════ ════════ ════════ ════════ ════════ ════════

Profit (loss) 581,781 2,168,792 (832,756) 405,463 (250,975) 2,574,255

════════ ════════ ════════ ════════ ════════ ════════

Other comprehensive income (loss) 72,509 (3,696,801) (15,237) 5,699 57,272 (3,691,102)

════════ ════════ ════════ ════════ ════════ ════════

Total comprehensive income (loss) 654,290 (1,528,009) (847,993) 411,162 (193,703) (1,116,847)

════════ ════════ ════════ ════════ ════════ ════════

Dividends received from associate 185,951 224,347 - - 185,951 224,347

════════ ════════ ════════ ════════ ════════ ════════

Group’s share of results for the year 182,096 456,634 (221,531) 112,873 (39,435) 569,507

════════ ════════ ════════ ════════ ════════ ════════

28. INVESTMENT IN ASSOCIATES (Continued)



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The Group’s investment in National Hotels Company B.S.C. is equity accounted for using the most recently published information (30 September 2018). Management assessed that no significant events and transactions occurred between that date and the Group’s reporting date requiring adjustments to the carrying amount of the investment.As at 31 December 2018, the fair value of the Group’s investment in National Hotels Company B.S.C. (based on quoted market price in Bahrain Bourse) was KD 5,215,215 (2017: KD 5,818,757) and the carrying amount of the net assets of the entity exceeds its market capitalisation. Accordingly, the Group concluded that the CGU should be tested for impairment.

Impairment assessment of National Hotels Company B.S.C.Management considered the performance outlook and business operations of the CGU to determine whether the carrying amount does not exceed the recoverable amount.The recoverable amount was estimated based on the present value of the future cash flows expected to be derived from the CGU (value in use). The value in use calculation is determined based on reasonable and supportable assumptions concerning projections approved by management (as part of the budget). These cash flows cover a five-year period using an average annual growth rate of 8% over the forecast period based on past performance and management’s expectations of market development. The discount rate applied to cash flow projections is 13% (2017: 11%) and cash flows beyond the five-year budget period are extrapolated using a 3% long-term growth rate (2017: 3%).As a result of the analysis, the recoverable amount of the entire CGU based on value in use as at 31 December 2018 was estimated to be KD 14,400,262 (2017: KD 15,461,639), hence exceeding carrying value by KD 402,373 as of that date (2017: 1,516,775). Accordingly, management did not identify an impairment loss during the year ended 31 December 2018 (2017: Nil).

Key assumptions used in value in use calculations and sensitivity to changes in assumptions Annual revenue growth rate during the forecast period Discount rate Long-term growth rates (terminal value) used to extrapolate cash flows beyond the forecast period

Sensitivity to changes in assumptionsManagement performed a sensitivity analysis to assess the changes to key assumptions that could cause the carrying value of the associate to exceed its recoverable amount. These are summarised below: A decline in the annual revenue growth rate during the forecast period by 10% would result in a

decrease in the carrying value by KD 855,581. A rise in the discount rate to 14% (i.e. +1%) would result in a decrease in the carrying value by

KD 403,206. A reduction in the long-term growth rate to 2% (i.e. -1%) would result in a decrease in the carrying

value by KD 123,631.The above sensitivity analyses is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.

28. INVESTMENT IN ASSOCIATES (Continued)



76

29. DISTRIBUTIONS MADE AND PROPOSED

2018 2017

KD KD

Cash dividends on ordinary shares declared and paid:

Final dividend for 2017: 20 fils per share (2016: 7 fils per share) 10,959,768 3,835,919

═════════ ═════════

Proposed dividends on ordinary shares:

Proposed cash dividend for 2018: 10 fils per share (2017: 20 fils per share) 5,479,884 10,959,768

═════════ ═════════

Proposed dividends on ordinary shares are subject to approval at the annual general assembly meeting and are not recognised as a liability as at 31 December.

30. FIDUCIARY ASSETSThe Group manages investment portfolios on behalf of KIA, government agencies and financial institutions. The total value of these portfolios at 31 December 2018 amounted to KD 1.933 billion (2017: KD 2.128 billion) which are not reflected in the consolidated financial statements. The portfolios have no recourse to the general assets of the Group. The Group makes investment decisions in line with the respective agreements.Income earned from fiduciary assets amounted to KD 6,427,912 for the year ended 31 December 2018 (2017: KD 5,874,541).

31. RELATED PARTY DISCLOSURESThe Group’s related parties include its associates and joint ventures, major shareholders, entities under common control, directors and executive officers of the Group, close members of their families and entities of which they are principal owners or over which they are able to exercise significant influence or joint control. Pricing policies and terms of these transactions are approved by the Group’s management.The following table shows the aggregate value of transactions and outstanding balances with related parties:

2018 2017

KD KD

Consolidated statement of financial position

Accounts payable and other liabilities 193,739 120,797

Deposits from customers 41,868,084 42,351,420

Consolidated statement of profit or loss

Management fees and commission income 3,065,315 2,826,052

Finance cost (830,925) (479,255)



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31. RELATED PARTY DISCLOSURES (Continued)

Transactions with key management personnelKey management personnel comprise of the Board of Directors and key members of management having authority and responsibility for planning, directing and controlling the activities of the Group. The aggregate value of transactions related to key management personnel were as follows.

2018 2017

Compensation of key management personnel of the Group KD KD

Salaries and other short-term benefits 544,467 493,936

Executive committees’ fees 80,000 70,000

Post-employment benefits 82,267 149,590

──────── ────────

706,734 713,526

════════ ════════

The Board of Directors of the Parent Company proposed a directors’ remuneration of KD 95,000 for the year ended 31 December 2018 (2017: KD 95,000). This proposal is subject to the approval of the shareholders at the AGM of the Parent Company.

32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities, comprise loans and borrowings (including Islamic finance payables), deposits from banks and customers, accounts payable and other liabilities. The main purpose of these financial liabilities is to finance the Group’s operations. The Group’s principal financial assets include cash and cash equivalents, term deposits, accounts receivable and other assets, wakala receivables, loans and advances that derive directly from its operations. The Group also holds investments in equity and debt instruments.The Group is exposed to market risk (including foreign currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. The Group’s senior management is supported by a risk committee that advises on financial risks and the appropriate financial risk governance framework for the Group. The risk committee provides assurance to the Group’s senior management that the Group’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.

32.1 Market riskMarket risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, debt and equity investments



78

a) Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s short-term debt obligations with floating interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate financial assets and financial liabilities. Further, the Group’s policy is to manage its interest cost by availing competitive credit facilities from local financial institutions and constantly monitoring interest rate fluctuations.

Exposure to interest rate riskThe interest rate profile of the Group’s interest-bearing financial instruments as reported to the management of the Group is as follows.

2018 2017KD’000 KD’000

Fixed-rate instrumentsFinancial assets 150,528 166,048Financial liabilities 19,698 17,949

──────── ──────── 170,226 183,997

════════ ════════Variable-rate instrumentsFinancial assets 22,994 20,995Financial liabilities 82,581 85,733

──────── ──────── 105,575 106,728

════════ ════════Interest rate sensitivityA reasonably possible change of 50 basis points in interest rates at the reporting date would have resulted in a decrease in profit for the year by KD 298 thousand (2017: KD 324 thousand). This analysis assumes that all other variables, remain constant.

b) Foreign currency riskForeign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group incurs foreign currency risk on transactions denominated in a currency other than the KD. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in a foreign currency) and the Group’s net investments in foreign subsidiaries.The Group currently does not use financial derivatives to manage its exposure to currency risk. The Group manages its foreign currency risk based on the limits determined by management and a continuous assessment of the Group’s open positions, current and expected exchange rate movements. The Group ensures that its net exposure is kept to an acceptable level, by dealing in currencies that do not fluctuate significantly against the KD.The following tables set out the Group’s exposure to foreign currency exchange rates on monetary financial assets and liabilities at the reporting date:

32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.1 Market risk (Continued)



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Liabilities Assets2018 2017 2018 2017

Currency KD’000 KD’000 KD’000 KD’000

US Dollar (USD) 54,123 53,858 47,385 51,548

Bahraini Dinar (BHD) 8,704 7,691 16,444 15,772

Foreign exchange rate sensitivityThe following tables demonstrate the effect of a reasonably possible change in the aforementioned exchange rates, with all other variables held constant. The impact on the Group’s profit due to changes in the fair value of monetary assets and liabilities is as follows:

2018 2017

Change in exchange

rateEffect on

profitEffect on

equityEffect on

profitEffect on

equity

Currency KD’000 KD’000 KD’000 KD’000

USD 0.5% 363 252 217 206

BHD 0.5% 39 87 35 75

There has been no change in the methods and the assumptions used in the preparation of the sensitivity analysis.An equivalent decrease in each of the aforementioned currencies against the KD would have resulted in an equivalent but opposite impact.

c) Equity price riskThe Group’s exposure to equity securities price risk arises from investments held by the Group and classified as at fair value through other comprehensive income (FVOCI) or at fair value through profit or loss (FVTPL) (Note 10). The Group’s listed and non-listed equity investments are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Group’s senior management on a regular basis. The Group’s Senior Management reviews and approves all major equity investment decisions. At the reporting date, the exposure to non-listed equity investments at fair value was KD 106,657. Sensitivity analyses of these investments have been provided in Note 33.The majority of the Group’s listed equity investments are publicly traded and are included either in the Kuwait Stock Exchange (“Boursa Kuwait”) or other GCC markets.

32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.1 Market risk (Continued)b) Foreign currency risk (Continued)



80

The table below summarises the impact of increases/decreases of the respective price indices in the relevant market on the Group’s equity and profit for the period. The analysis is based on the assumption that the equity indexes had increased or decreased by 5% respectively, with all other variables held constant, and that all the Group’s equity instruments moved in line with the indexes.

2018

Market indices% change in equity price

Effect on profit

Effect on equity Total

KD’000 KD’000 KD’000

Boursa Kuwait + 5 + 213 + 57 + 270

GCC markets + 5 + 198 - + 198

Other International markets + 5 + 235 - + 235

2017

Market indices% change in equity price

Effect on profit

Effect on equity Total

KD’000 KD’000 KD’000

Boursa Kuwait + 5 + 80 + 176 + 256

GCC markets + 5 + 315 - + 315

Other International markets + 5 + 223 - + 223

32.2 Credit riskCredit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily loans and advances and trade receivables) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments (including investment in debt securities).

32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.1 Market risk (Continued)c) Equity price risk (Continued)



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The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets as follows:

2018 2017

KD KD

Cash and cash equivalents 13,332,508 18,830,206

Term deposits 15,028,150 15,351,527

Trade receivables 8,908,298 9,959,041

Other receivables 5,332,947 6,877,323

Wakala receivables 2,186,779 1,843,799

Loans and advances 2,852,537 2,837,957

Investment in debt securities (corporate bonds and sukuk) 3,002,670 2,987,325──────── ────────

50,643,889 58,687,178

═════════ ═════════

Cash and cash equivalents and term depositsCredit risk from balances with banks and financial institutions is limited because the counterparties are reputable financial institutions with appropriate credit-ratings assigned by international credit-rating agencies. Further, the principal amounts of deposits in local banks (including saving accounts and current accounts) are guaranteed by the Central Bank of Kuwait in accordance with Law No. 30 of 2008 Concerning Guarantee of Deposits at Local Banks in the State of Kuwait which came into effect on 3 November 2008.Impairment on cash and cash equivalents and term deposits has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties and CBK guarantee of deposits placed with local banks.

Trade receivablesComparative information under IAS 39In the prior year, the impairment of trade receivables was assessed based on the incurred loss model. Individual receivables which were known to be uncollectible were written off by reducing the carrying amount directly. The other receivables were assessed collectively to determine whether there was objective evidence that an impairment had been incurred but not yet been identified. For these receivables the estimated impairment losses were recognised in a separate provision for impairment. The Group considered that there was evidence of impairment if any of the following indicators were present:

significant financial difficulties of the debtor probability that the debtor will enter bankruptcy or financial reorganisation, and default or late payments (more than 365 days overdue).


32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.2 Credit risk (Continued)


82

Receivables for which an impairment provision was recognised were written off against the provision when there was no expectation of recovering additional cash.An analysis of the credit quality of trade receivables that were neither past due nor impaired and the ageing of trade receivables that were past due but not impaired as at 31 December 2017 is as follows.

Past due but not impaired

Total not impaired

trade receivables

Neither past due nor impaired 30 – 60 days 61 – 90 days

91 – 120 days

121 days and more

KD KD KD KD KD KD

2017 9,959,041 7,371,635 508,386 418,343 15,165 1,645,512

═════════ ═════════ ═════════ ═════════ ═════════ ═════════

At 31 December 2017, there was an impairment loss of KD 3,897,011 related to several customers that have indicated that they are not expecting to be able to pay their outstanding balances, mainly due to economic circumstances.Expected credit loss assessment for trade receivables as at 1 January 2018 and 31 December 2018The Group uses a provision matrix based on the Group’s historical observed default rates to measure the ECLs of trade receivables from individual customers, which comprise a very large number of small balances. The Group assumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 90 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise. Generally, trade receivables are written-off if past due for more than one year and are not subject to enforcement activity. The Group does not hold collateral as security.Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix as at 1 January 2018 and 31 December 2018:

Days past due

1 January 2018 (restated) Total < 60 days 60–90 days91– 180

days > 180 days

KD KD KD KD KD

Expected credit loss rate 3.4% 58.9% 75.7% 74.4%

Estimated total gross carry-ing amount at default

13,856,052 6,845,251 385,989 1,885,181 4,739,631

Expected credit loss 5,409,553 229,928 227,432 1,427,102 3,525,091

32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.2 Credit risk (Continued)Trade receivables (Continued)



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Days past due

31 December 2018 Total < 60 days 60–90 days 91– 180 days > 180 days

KD KD KD KD KD

Expected credit loss rate 1.9% 7.6% 3.9% 53.5%

Estimated total gross carrying amount at default 14,317,851 2,929,376 315,939

1,197,430 9,875,106

Expected credit loss 5,409,553 55,556 23,982 46,146 5,283,869

Loans and advances

Definition of defaultThe Goup considers loans and advances to be in default and therefore Stage 3 (credit impaired) for ECL calculations when:· the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the

Group to actions such as realising security (if any is held); · the borrower is past due more than 90 days on any material credit obligation to the Group; or· borrower is considered as credit impaired based on qualitative assessment for internal credit risk

management purposes.Any credit impaired or stressed facility that has been restructured would also be considered as in default. The Group considers a variety of indicators that may indicate unlikeliness to pay as part of a qualitative assessment of whether a customer is in default. Such indicators include:· Significant financial difficulty of the borrower or issuer;· A breach of contract such as default or past due event; or· The lender having granted to the borrower a concession, that the lender would otherwise not

consider, for economic or contractual reasons relating to the borrower’s financial difficulty · Borrower is deceased

The Group considers a financial asset as ‘cured’ (i.e. no longer be in default) and therefore reclassified out of stage 3 when it no longer meets any of the default criteria. In respect of restructured facilities which are classified in stage 3, these would be required to complete the moratorium period (if any) and meet the scheduled payments (all on current basis) for at least 1 year, or as determined by the Group for consideration for classifying the facility in stage 2/stage 1.

Significant increase in credit riskThe Group continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12 months ECL or life time ECL, the Group assess as whether there has been a significant increase in credit risk since initial recognition. The quantitative criteria used to determine a significant increase in credit risk is a series of relative and absolute thresholds. All financial assets that are 30 days past due are deemed to have significant increase in credit risk since initial recognition and migrated to stage 2 even if other criteria do not indicate a significant increase in credit risk. In addition to the above quantitative criteria, the Group applies qualitative criteria for the assessment of significant increase in credit risk based on monitoring of certain early warning signals.


32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.2 Credit risk (Continued)Trade receivables (Continued)


84

Measurement of ECLsECLs are probability-weighted estimates of credit losses and are measured as the present value of all cash shortfalls discounted at the effective interest rate of the financial instrument. Cash shortfall represents the difference between cash flows due to the Group in accordance with the contract and the cash flows that the group expects to receive. The key elements in the measurement of ECL include probability of default (PD), loss given default (LGD) and exposure at default (EAD). The Group estimates these elements using appropriate credit risk assumptions, nature and value of collaterals, forward-looking macro-economic scenarios, etc.The Group calculates ECL on credit facilities classified in stage 3 at 100% of the defaulted exposure net of value of eligible collaterals after applying applicable haircuts.

PD estimation process

The probability of default (PD) is the likelihood that an obligor will default on its obligations in the future. IFRS 9 requires the use of separate PD for a 12-month duration and lifetime duration depending on the stage allocation of the obligor. A PD used for IFRS 9 should reflect the Group’s estimate of the future asset quality. The Group utilises the internal credit standings of its loan customers and other measures and techniques which seek to take account of all aspects of perceived risk in estimating the PD for IFRS 9. Furthermore, the Group also considers CBK’s requirements on flooring of PD for credit facilities.

Exposure at default

Exposure at default (EAD) represents the amount which the obligor will owe to the Group at the time of default. The Group considers EAD based on CBK’s guidelines on credit conversion factors to be applied on utilised portions for cash facilities.

Loss given default

Loss given default (LGD) is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based CBK’s guidelines on eligible collaterals with prescribed haircuts for determining LGD.

32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.2 Credit risk (Continued)Loans and advances (Continued)



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Concentration of financial assetsThe distribution of financial assets by geographic region for 2018 and 2017 is as follows:

GCC Europe America Asia Total

KD’000 KD’000 KD’000 KD’000 KD’000

31 December 2018

Cash and cash equivalents 12,287 282 753 11 13,333

Term deposits 15,028 - - - 15,028

Accounts receivable and other assets 15,090 - 167 612 15,869

Wakala receivables 2,187 - - - 2,187

Loans and advances 2,853 - - - 2,853

Investment securities 3,003 - - - 3,003────── ────── ────── ────── ──────

50,448 282 920 623 52,273

═══════ ═══════ ═══════ ═══════ ═══════

GCC Europe America Asia Total

KD’000 KD’000 KD’000 KD’000 KD’000

31 December 2017

Cash and cash equivalents 11,017 6,678 1,135 - 18,830

Term deposits 15,352 - - - 15,352

Accounts receivable and other assets 18,310 - - - 18,310

Wakala receivables 1,844 - - - 1,844

Loans and advances 2,838 - - - 2,838

Investment securities 5,348 - - - 5,348────── ────── ────── ────── ──────

54,709 6,678 1,135 - 62,522

═══════ ═══════ ═══════ ═══════ ═══════



32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.2 Credit risk (Continued)

86

32. FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)32.3 Liquidity riskLiquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.Liquidity risk arises because of the possibility that the Group might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios could occur when funding needed for illiquid asset positions is not available to the Group on acceptable terms. To limit this risk, management has arranged for diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on an ongoing basis. The Group has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required.The Group maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption in cash flow. The Group also has lines of credit that it can access to meet liquidity needs.



87

2 0 1 8N

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──────

──────

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══════

══════

══════

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══════

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══════

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══════

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══════

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══════

══════

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32. F

INAN

CIAL

INST

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JECT

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32.3

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87

The

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88

33. FAIR VALUE MEASUREMENTFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: 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 by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. 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 financial statements are categorised 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 financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.The Group’s senior management determines the policies and procedures for recurring fair value measurement, such as investment properties and unquoted equity investments. External valuers are involved for valuation of significant assets, such as investment properties and unquoted equity investments. Involvement of external valuers is decided upon annually by the senior management Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The senior management decides, after discussions with the Group’s external valuers, which valuation techniques and inputs to use for each case. The Group measures financial instruments such as investment in equity securities and mutual funds, and non-financial assets such as investment properties, at fair value at each reporting date. Fair-value related disclosures for financial instruments and non-financial assets that are measured at fair value, including the valuation methods, significant estimates and assumptions are disclosed below.



89

2 0 1 8

Set out below that are a summary of financial instruments and non-financial assets measured at fair value on a recurring basis, other than those with carrying amounts that are reasonable approximations of fair values:

2018 2017

Financial instruments KD’000 KD’000

Investment securities (at fair value)

Quoted equity securities 14,593 15,465

Unquoted equity securities 45,363 43,725

Unquoted funds 61,294 65,963─────── ───────

121,250 125,153

════════ ════════

Non-financial assets

Investment properties 24,567 20,715

════════ ════════

Management assessed that the fair value of the following financial assets and liabilities approximate their carrying amounts: Cash and cash equivalents and term deposits Accounts receivables, loans and advances Debt investments and other financial assets at amortised cost Deposits from banks and customers Islamic finance payable Accounts payable and other liabilities Loans and borrowings

Valuation methods and assumptions The following methods and assumptions were used to estimate the fair values:

Listed investment in equity securities Fair values of publicly traded equity securities are based on quoted market prices in an active market for identical assets without any adjustments. The Group classifies the fair value of these investments as Level 1 of the hierarchy.

Unlisted equity investmentsThe Group invests in private equity companies that are not quoted in an active market. Transactions in such investments do not occur on a regular basis. The Group uses a market-based valuation technique for these positions. The Group determines comparable public companies (peers) based on industry, size, leverage and strategy, and calculates an appropriate trading multiple for each comparable company identified. The multiple is calculated by dividing the enterprise value of the comparable company by an

33. FAIR VALUE MEASUREMENTS (Continued)



90

33. FAIR VALUE MEASUREMENTS (Continued)Valuation methods and assumptions (Continued)

earnings measure. The trading multiple is then discounted for considerations such as illiquidity and size differences between the comparable companies based on company-specific facts and circumstances. The discounted multiple is applied to the corresponding earnings measure of the investee company to measure the fair value. The Group classifies the fair value of these investments as Level 3.

Unlisted mutual fundsThe Group invests in managed funds, including private equity funds, which are not quoted in an active market and which may be subject to restrictions on redemptions such as lock up periods. The management considers the valuation techniques and inputs used in valuing these funds as part of its due diligence prior to investing, to ensure they are reasonable and appropriate. Therefore, the NAV of these investee funds may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the funds is adjusted, as necessary, to reflect restrictions on redemptions, future commitments, and other specific factors of the investee fund and fund manager. In measuring fair value, consideration is also paid to any transactions in the shares of the investee fund. Depending on the nature and level of adjustments needed to the NAV and the level of trading in the investee fund, the Group classifies these funds as either Level 2 or Level 3.

Investment properties The fair value of investment properties was assessed by accredited independent real estate experts with recognised and relevant professional qualification and with recent experience in the location and category of the investment properties being valued. The valuation models applied are consistent with the principles in IFRS 13 ‘Fair Value Measurement’ and fair value is determined using a mix of the income capitalisation method and the market comparison approach considering the nature and usage of each property. Fair value using the income capitalisation method is estimated based on the normalised net operating income generated by the property, which is divided by the capitalisation (discount) rate. Under the market comparison approach, fair value is estimated based on comparable transactions. The unit of comparison applied by the Group is the price per square meter (‘sqm’). The fair value of investment property is included within Level 3.



91

2 0 1 8

33.1 Financial instruments

Fair value hierarchyThe following tables provide the fair value measurement hierarchy of the Group’s financial instruments measured at fair value:

Fair value measurement using

Total

Quoted prices in active markets

Significant observable

inputs

Significant unobservable

inputs (Level 1) (Level 2) (Level 3)

31 December 2018 KD ‘000 KD ‘000 KD ‘000 KD ‘000

Financial assets at FVTPL:Quoted equity securities 13,660 13,660 - - Unquoted equity securities 23,161 - - 23,161Unquoted funds 61,294 - 61,294 -

────── ────── ────── ──────98,115 13,660 61,294 23,161

Financial assets at FVOCI ────── ────── ────── ──────Quoted equity securities 933 933 - - Unquoted equity securities 22,202 - - 22,202

────── ────── ────── ──────23,135 933 - 22,202────── ────── ────── ──────

Investment securities (at fair value) 121,250 14,593 61,294 45,363══════ ══════ ══════ ══════

31 December 2017Financial assets at FVTPL:

Quoted equity securities 11,785 11,785 - - Unquoted equity securities 1,265 - - 1,265Unquoted funds 53,679 - 53,679 -

────── ────── ────── ──────

66,729 11,785 53,679 1,265────── ────── ────── ──────

Available-for-sale financial assets:Quoted equity securities 3,680 3,680 - - Unquoted equity securities 42,460 - - 42,460Unquoted funds 12,284 - 12,284 -

────── ────── ────── ──────

58,424 3,680 12,284 42,460────── ────── ────── ──────

Investment securities (at fair value) 125,153 15,465 65,963 43,725 ══════ ══════ ══════ ══════

There were no transfers between any levels of the fair value hierarchy during 2018 or 2017.




92


Reconciliation of Level 3 fair valuesThe following table shows a reconciliation of all movements in the fair value of items categorised within Level 3 between the beginning and the end of the reporting period:

2018

Financial assets at

FVOCI

Financial assets at

FVTPL Total

KD’000 KD’000 KD’000

As at 1 January 2018 42,460 1,265 43,725

IFRS 9 transition adjustment (16,112) 17,238 1,126

Remeasurement recognised in OCI (4,220) - (4,220)

Remeasurement recognised in profit or loss - 4,658 4,658

Purchases / sales (net) 74 - 74

────── ────── ──────

As at 31 December 2018 22,202 23,161 45,363

══════ ══════ ══════

2017

Available for sale financial

assets

Financial assets at fair value throughprofit or loss Total

KD’000 KD’000 KD’000

As at 1 January 2017 51,799 1,544 53,343

Total gains (losses) recognised in profit or loss - (279) (279)

Total gains (losses) recognised in OCI (6,225) - (6,225)

(Purchases / sales (net (3,114) - (3,114)

────── ────── ──────

As at 31 December 2017 42,460 1,265 43,725

══════ ══════ ══════



93

2 0 1 8

Description of significant unobservable inputs to valuation:The significant unobservable inputs used in the fair value measurements categorised within Level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis as at 31 December are as shown below:

Significant unobservable valuationinputs Range Sensitivity of the input to fair value

Discount for lack of marketability((DLOM

65% - 5% (65% - 5% :2017)

increase (decrease) (10% :2017) 10%in the discount would decrease (increase) the fair value by KD 1,132,604((2017: KD 1,365,773

The discount for lack of marketability represents the amounts that the Group has determined that market participants would take into account when pricing the investments.

33.2 Non-financial assetsThe following tables provide the fair value measurement hierarchy of the Group’s non-financial assets:

Fair value measurement using

Total

Quoted prices in active markets

Significant observable

inputs

Significant unobservable

inputs (Level 1) (Level 2) (Level 3)

31 December 2018 KD ‘000 KD ‘000 KD ‘000 KD ‘000Investment properties 24,567 - - 24,567

══════ ══════ ══════ ══════

31 December 2017Investment properties 20,715 - - 20,715

══════ ══════ ══════ ══════

There were no transfers between any levels of the fair value hierarchy during 2018 or 2017.

Reconciliation of Level 3 fair valuesReconciliation for recurring fair value measurement of investment properties categorised within Level 3 of the fair value hierarchy is disclosed in Note 11.

Description of significant unobservable inputs to valuation:The significant unobservable inputs used in the fair value measurements categorised within Level 3 of the fair value hierarchy are the yield rate (income capitalisation approach) and price per sqm (market approach).Sensitivity analysisSignificant increase (decrease) in yield rate and price per sqm in isolation would result in a significantly higher (lower) fair value of the properties.




94

34. CAPITAL MANAGEMENTThe primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value.The Group manages the capital structure and makes adjustments in the light of changes in economic conditions and risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust dividend payment to shareholders, transact with treasury shares, issue new shares, or sell assets to reduce debt. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt interest-bearing loans and borrowings, less cash and bank balances. For the purpose of the Group’s capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the Parent Company.

2018 2017

KD KD

Interest-bearing loans and borrowings 86,394,837 85,732,376

Less: Cash and cash equivalents and Term deposits (28,360,658) (34,181,733)

────────── ──────────

Net debt 58,034,179 51,550,643

────────── ──────────

Equity attributable to shareholders of the Parent Company 116,707,682 127,221,741

────────── ──────────

Net debt to equity ratio 49.726% 40.520%

══════════ ══════════

35. COMMITMENTS

2018 2017

KD KD

Operating lease commitments 10,008,300 11,676,350

───────── ─────────

Investment commitments 74,324 73,944

───────── ─────────

Operating lease commitments – Group as a lessorThe Group has entered into operating leases on its properties

Future minimum rentals payable under non-cancellable operating leases as at 31 December are, as follows:



95

2 0 1 8

2018 2017

KD KD

Within one year 1,668,050 1,668,050

After 1 year, but not more than 5 years 8,340,250 8,340,250

More than 5 years - 1,668,050

───────── ─────────

10,008,300 11,676,350

═════════ ═════════

36. SEGMENT INFORMATIONFor management purposes, the Group is organised into business units based on its products and services and has four reportable segments, as follows:Asset Management: Consists of securities trading and management of funds and portfoliosDirect Investments and Corporate Finance (DICF): Consists of managing subsidiaries,

associates, long term strategic investments , lending , real estate and rental activities Treasury: Consists of foreign exchange contracts and money market activities Other operations: Management and support activities

The Executive Management Committee is the Chief Operating Decision Maker (CODM) and monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements.

The following tables present revenue and profit information for the Group’s operating segments for the year ended 31 December 2018 and 2017, respectively:

31 December 2018 Asset

management DICF Treasury Other

operations Total

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

Segment income 9,238 8,613 3,122 7,246 28,219

Segment expenses (3,437) (5,085) (1,908) (5,400) (15,830)

═══════ ═══════ ═══════ ═══════ ═══════

Segment results 5,801 3,528 1,214 1,846 12,389

═══════ ═══════ ═══════ ═══════ ═══════

35. COMMITMENTS (Continued)



96

36. SEGMENT INFORMATION (Continued)

31 December 2017 Asset

management DICF Treasury Other

operations Total


Segment income 17,740 5,435 2,343 10,217 35,735

Segment expenses (3,430) (2,251) (1,239) (9,517) (16,437)

═══════ ═══════ ═══════ ═══════ ═══════

Segment results 14,310 3,184 1,104 700 19,298

═══════ ═══════ ═══════ ═══════ ═══════

The following table presents assets and liabilities information for the Group’s operating segments as at 31 December 2018 and 31 December 2017, respectively:

Asset management DICF Treasury

Other operations Total


ASSETS

31 December 2018 75,211 118,894 3,025 55,983 253,113

═══════ ═══════ ═══════ ═══════ ═══════

31 December 2017 88,215 113,591 5,972 57,032 264,810

═══════ ═══════ ═══════ ═══════ ═══════

LIABILITIES

31 December 2018 80 1,112 76,056 25,031 102,279

═══════ ═══════ ═══════ ═══════ ═══════

31 December 2017 80 1,315 74,040 28,247 103,682

═══════ ═══════ ═══════ ═══════ ═══════

The geographical analysis of the Group analyses the Group’s income and assets by the Company’s country of domicile and other countries. In presenting the geographical information, segment income has been based on the geographical location from which income is derived and segment assets were based on the geographic location of assets.



97

2 0 1 8

31 December 2018 Revenue Assets

Capital

expenditures

KD 000’s KD 000’s KD 000’s

Kuwait 28,936 156,601 8,103

Other GCC countries (1,172) 62,478 -

Other Middla East and North Africa (MENA) 669 2,385 -

Europe (399) 21,983 -

Americas 153 4,839 -

Asia 32 4,827 - ─────── ─────── ───────

28,219 253,113 8,103═══════ ═══════ ═══════

31 December 2017

KD 000’s KD 000’s KD 000’s

Kuwait 28,363 165,491 8,870

Other GCC countries 261 62,513 -

Other Middle East and North Africa (MENA) 688 1,578 -

Europe 5,105 27,773 -

Americas (32) 3,066 -

Asia 1,350 4,389 - ─────── ─────── ───────

35,735 264,810 8,870═══════ ═══════ ═══════

36. SEGMENT INFORMATION (Continued)



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