Deutsche Gulf Finance (A Saudi Joint Stock …Deutsche Gulf Finance (A Saudi Joint Stock Company) STATEMENT OF FINANCIAL POSITION As at 31 December 2013 The attached notes 1 to 24

Deutsche Gulf Finance(A Saudi Joint Stock Company)FINANCIAL STATEMENTS

31 DECEMBER 2013

Deutsche Gulf Finance(A Saudi Joint Stock Company)STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2013

The attached notes 1 to 24 form part of these financial statements.2

Notes2013SR

2012SR

OPERATING INCOMEIncome from Ijara receivables held at fair value through incomestatement

673,271,796 55,801,853

Financial charges (21,334,000) (13,011,947)─────── ───────51,937,796 42,789,906

Application fee and other income 1,560,860 1,419,529Servicing fees 1,332,595 1,386,488Special commission income on murabaha deposits - 95,035

─────── ───────TOTAL OPERATING INCOME, NET 54,831,251 45,690,958

─────── ───────OPERATING EXPENSESCompensation and employees’ benefits 23,081,158 25,230,965General and administration 7 10,297,278 12,689,105Selling expenses 8 3,646,691 5,748,688Depreciation 12 2,258,539 5,117,119

─────── ───────TOTAL OPERATING EXPENSES 39,283,666 48,785,877

─────── ───────PROFIT (LOSS) BEFORE ZAKAT AND INCOME TAX 15,547,585 (3,094,919)

Zakat and income tax expense 10 (2,860,929) (2,156,011)─────── ───────

TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR 12,686,656 (5,250,930)════════ ════════

EARNINGS (LOSS) PER SHARE: 9

Basic earnings (loss) per share 0.43 (0.18)════════ ════════

Diluted earnings (loss) per share 0.42 (0.18)════════ ════════

Deutsche Gulf Finance(A Saudi Joint Stock Company)STATEMENT OF FINANCIAL POSITIONAs at 31 December 2013


Notes2013SR

2012SR

ASSETS

NON-CURRENT ASSETProperty and equipment 12 1,977,985 3,988,027

───────── ─────────1,977,985 3,988,027

────────── ──────────CURRENT ASSETSIjara receivables 11 963,547,204 750,164,842Prepayments, accrued income and other receivables 13 51,787,611 8,743,703Bank balances 14 79,684,218 33,559,112

────────── ──────────TOTAL CURRENT ASSETS 1,095,019,033 792,467,657

────────── ──────────TOTAL ASSETS 1,096,997,018 796,455,684

══════════ ══════════SHAREHOLDERS’ EQUITY AND LIABILITIES

SHAREHOLDERS’ EQUITYShare capital 15 292,500,000 292,500,000Proposed increase in share capital 15 50,000,000 -Accumulated losses (120,598,874) (133,285,530)

────────── ──────────TOTAL SHAREHOLDERS’ EQUITY 221,901,126 159,214,470

────────── ──────────NON-CURRENT LIABILITIESPayable to a shareholder 16 1,281,299 1,281,299Employees' terminal benefits 1,306,862 893,205

────────── ──────────TOTAL NON-CURRENT LIABILITIES 2,588,161 2,174,504

────────── ──────────CURRENT LIABILITIESAccounts payable and accruals 17 23,454,586 23,803,367Short term loans 18 776,238,424 537,828,399Due to related parties 16 67,857,000 71,318,152Zakat and income tax 10 4,957,721 2,116,792

────────── ──────────TOTAL CURRENT LIABILITIES 872,507,731 635,066,710

────────── ──────────TOTAL LIABILITIES 875,095,892 637,241,214

────────── ──────────TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 1,096,997,018 796,455,684

══════════ ══════════

Deutsche Gulf Finance(A Saudi Joint Stock Company)STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFor the year ended 31 December 2013


CapitalSR

Proposedcapital

increaseAccumulated losses

SRShareholders’ equity

SRSaudi

shareholderNon-Saudishareholder Total

SaudiShareholder

Saudishareholder

Non-Saudishareholder Total

Saudishareholder

Non-Saudishareholder

TotalSR

As at 1 January 2013 175,500,000 117,000,000 292,500,000 - (81,798,214) (51,487,316) (133,285,530) 93,701,786 65,512,684 159,214,470

Total comprehensive incomefor the year - - - - 6,633,993 6,052,663 12,686,656 6,633,993 6,052,663 12,686,656

Proposed increase in capital - - - 50,000,000 - - - 50,000,000 - 50,000,000───────── ───────── ───────── ───────── ──────── ───────── ───────── ───────── ───────── ─────────

Balance at 31 December 2013 175,500,000 117,000,000 292,500,000 50,000,000 (75,164,221) (45,434,653) (120,598,874) 150,335,779 71,565,347 221,901,126═════════ ═════════ ═════════ ════════ ════════ ═════════ ═════════ ═════════ ═════════ ═════════

As at 1 January 2012 175,500,000 117,000,000 292,500,000 - (77,785,252) (50,249,348) (128,034,600) 97,714,748 66,750,652 164,465,400

Total comprehensive loss forthe year - - -

-(4,012,962) (1,237,968) (5,250,930) (4,012,962) (1,237,968) (5,250,930)

───────── ───────── ───────── ───────── ───────── ───────── ───────── ───────── ───────── ─────────Balance at 31 December 2012 175,500,000 117,000,000 292,500,000 - (81,798,214) (51,487,316) (133,285,530) 93,701,786 65,512,684 159,214,470

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

Deutsche Gulf Finance(A Saudi Joint Stock Company)STATEMENT OF CASH FLOWSFor the year ended 31 December 2013


Notes2013SR

2012SR

OPERATING ACTIVITIESProfit (loss) before zakat and income tax 15,547,585 (3,094,919)Adjustments to reconcile profit before zakat and income tax to netcash flows:

Depreciation 12 2,258,539 5,117,119Employees’ terminal benefits, net 413,657 (4,326)Unrealised gain on Ijara receivables 6 (16,339,186) (14,792,264)

───────── ─────────1,880,595 (12,774,390)

Working capital adjustments:Increase in ijara receivables (197,043,176) (307,866,448)Increase in prepayments, accrued income and other receivables (43,043,908) (6,982,805)(Decrease) increase in Accounts payable and accruals (348,781) 4,399,464Decrease in due to related parties (3,461,152) (359,520)

───────── ─────────Cash used in operations (242,016,422) (323,583,699)Zakat paid 10 (20,000) (2,450,447)

───────── ─────────Net cash flows used in operating activities (242,036,422) (326,034,146)

───────── ─────────INVESTING ACTIVITYPurchase of property and equipment 12 (248,497) (958,135)

───────── ─────────Net cash flows used in investing activity (248,497) (958,135)

───────── ─────────FINANCING ACTIVITIESProceeds from short term loans, net 238,410,025 215,894,138Proposed increase in share capital 50,000,000 -

───────── ─────────Net cash flows from financing activities 288,410,025 215,894,138

───────── ─────────NET INCREASE (DECREASE) IN BANK BALANCES 46,125,106 (111,098,143)

Bank balances at 1 January 33,559,112 144,657,255───────── ─────────

BANK BALANCES AT 31 DECEMBER 79,684,218 33,559,112══════════ ══════════

Deutsche Gulf Finance(A Saudi Joint Stock Company)NOTES TO THE FINANCIAL STATEMENTS31 December 2013

6

1 CORPORATE INFORMATION

Deutsche Gulf Finance (the “Company”) is a closed Saudi joint stock company established pursuant to aministerial resolution numbered 3/Q dated 6 Muharram 1431H (corresponding to 23 December 2009) andregistered in the Kingdom of Saudi Arabia under commercial registration number 1010280521 dated 9Safar 1431H (corresponding to 25 January 2010). The Company has a branch in Jeddah registered undercommercial registration numbered 4030245681 dated 19 Jumad Thani 1434H (corresponding to 29 April2013) and a branch in Al Khobar registered under commercial registration numbered 2051052773 dated 19Jumad Thani 1434H (corresponding to 29 April 2013). The registered office of the Company is located atKing Abdullah Road, Riyadh, Kingdom of Saudi Arabia.

The Company is engaged in home financing (in the form of Ijara, Ijara of real estate under construction)and similar financing facilities that includes acquisition, purchase of lands and buildings for the purposesof those facilities (except in Makkah and Madina), Ijara financing services that relates to real estates,movables and financing facilities guaranteed by mortgage in accordance with license number 2030114773dated 2 Dhul- Qadah 1430H (corresponding to 21 October 2009) as obtained from the Saudi ArabianGeneral Investment Authority.

All revenue generating transactions of the Company are approved through its Shariah Board.

During the current year, the Saudi Arabian Monetary Agency (“SAMA”) has issued the ImplementingRegulations of The Law On Supervision Of Finance Companies which was published on 24 February 2013following the Financial Lease Law and Law on Supervision of Finance Companies (the “laws”) publishedon 27 August 2012. These laws have given existing companies a grace period of two years to align theircurrent position with the new law’s requirements. However, the companies still have to register and submittheir alignment plan to SAMA before 31 December 2013. The Company has submitted its plan and theapplication for license before the deadline and is awaiting SAMA approval.

The financial statements of the Company for the year ended 31 December 2013 were approved by theBoard of Directors on 29 April 2014.

2 BASIS OF PREPARTION

These financial statements have been prepared in accordance with International Financial ReportingStandards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The financialstatements are prepared under the historical cost convention, except for financial assets carried at fair valuethrough income statement. The financial statements are presented in Saudi Riyals, which is also thefunctional currency of the Company.

In order to comply with the Saudi Arabian regulatory requirements, the Company prepares a set offinancial statements in accordance with accounting standards generally accepted in the Kingdom of SaudiArabia (“Local GAAP”).

Early adoption of IFRS 9The Company has early adopted IFRS 9 Financial Instruments, issued in November 2009 and revised inOctober 2010 together with related consequential amendments in advance of its effective date. Theeffective date to apply IFRS 9 is for annual periods beginning on or after 1 January 2018 with earlyapplication continuing to be permitted. The date of initial application of IFRS 9 (i.e. the date on which theCompany has assessed its existing financial assets and financial liabilities) is 1 January 2011 in accordancewith the transitional provisions of IFRS 9. All other financial assets are measured at fair value. Thestandard eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans andreceivables. The Company has voluntarily adopted this standard, as this is considered to result in apresentation that better reflects the performance and operations of the Company. IFRS 9 (phase 1) has beenapplied by the Company for the classification and measurement of financial assets and financial liabilities.IAS 39 is still being followed for impairment of financial assets and hedge accounting, as these will becovered through phase 2 and phase 3 of IFRS 9, respectively, which have not yet been completed by theInternational Accounting Standards Board (IASB). As IASB completes these phases, it will delete therelevant portions of IAS 39 and create chapters in IFRS 9 that would replace the requirements in IAS 39.

Deutsche Gulf Finance(A Saudi Joint Stock Company)NOTES TO THE FINANCIAL STATEMENTS (continued)31 December 2013

7

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following are the significant accounting policies adopted in the preparation of these financial statementsare set out below:

Revenue recognitionSpecial commission income on murabaha deposits and Ijara receivables are recognised on an effective yieldbasis. Application fee charged and received from the customer at the time of submission of applicationdocuments is recognised in the statement of comprehensive income upon receipt. Fee income earned onservicing sold Ijara receivable balances on behalf of the buyer are recognised as services are rendered.

Fee income on Ijara receivables are recognised directly in the statement of comprehensive income uponreceipt. Any amounts in excess of carrying value received upon sale of receivables are recognised in thestatement of comprehensive income.

ExpensesSelling and distribution expenses are those that specifically relate to salesmen and marketing expenses. Allother expenses are classified as general and administration expenses.

Foreign currenciesTransactions in foreign currencies are recorded in Saudi Riyals at the rate of exchange ruling at the date ofthe transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rateof exchange ruling at the financial reporting date. All differences are taken to the statement ofcomprehensive income.

Zakat and income taxCurrent zakat and income taxZakat is provided in accordance with the Regulations of the Department of Zakat and Income Tax (the“DZIT”) in the Kingdom of Saudi Arabia and on accrual basis. The income tax as applicable to the foreignshareholders’ share of income in the Company is provided as per the Saudi Arabian Income Tax law. Zakatand Income tax is charged to the statement of comprehensive income.

Deferred income taxDeferred tax is provided using the liability method on temporary differences between the tax bases of assetsand liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

· When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in atransaction that is not a business combination and, at the time of the transaction, affects neither theaccounting profit nor taxable profit or loss

· In respect of taxable temporary differences associated with investments in subsidiaries, associates andinterests in joint ventures, when the timing of the reversal of the temporary differences can be controlledand it is probable that the temporary differences will not reverse in the foreseeable future

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused taxcredits and unused tax losses, to the extent that it is probable that taxable profit will be available against


8

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Zakat and income tax (continued)

which the deductible temporary differences, and the carry forward of unused tax credits and unused taxlosses can be utilised, except:

· When the deferred tax asset relating to the deductible temporary difference arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at the time ofthe transaction, affects neither the accounting profit nor taxable profit or loss

· In respect of deductible temporary differences associated with investments in subsidiaries, associatesand interests in joint ventures, deferred tax assets are recognised only to the extent that it is probablethat the temporary differences will reverse in the foreseeable future and taxable profit will be availableagainst which the temporary differences can be utilised

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that itis no longer probable that sufficient taxable profit will be available to allow all or part of the deferred taxasset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognisedto the extent that it has become probable that future taxable profits will allow the deferred tax asset to berecovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year whenthe asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss isrecognised outside profit or loss. Deferred tax items are recognised in correlation to the underlyingtransaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off currenttax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity andthe same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separaterecognition at that date, are recognised subsequently if new information about facts and circumstanceschange. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) ifit was incurred during the measurement period or recognised in profit or loss.

Property and equipmentProperty and equipment are stated at cost less accumulated depreciation and any impairment in value. Thecost less estimated residual value of property and equipment is depreciated on a straight line basis over theestimated useful lives of the assets.

The carrying values of property and equipment are reviewed for impairment when events or changes incircumstances indicate the carrying value may not be recoverable. If any such indication exists and wherethe carrying values exceed the estimated recoverable amount, the assets are written down to their recoverableamount, being the higher of their fair value less costs to sell and their value in use.

Leasehold improvements are amortised on a straight-line basis over the shorter of the useful life of theimprovement or the term of the lease. Expenditure for repair and maintenance are charged to income.Improvements that increase the value or materially extend the life of the related assets are capitalised.

Financial instruments recognition, measurement and subsequent measurementAll financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Companybecomes a party to the contractual provisions of the instrument. This includes regular way trades: purchasesor sales of financial assets that require delivery of assets within the time frame generally established byregulation or convention in the market place.


9


Financial instruments recognition, measurement and subsequent measurement (continued)

IFRS 9 introduces new classification and measurement requirements for financial assets that are within thescope of IAS 39 Financial Instruments: Recognition and Measurement. Specifically, IFRS 9 requires allfinancial assets to be classified and subsequently measured at either amortised cost or fair value on the basisof the entity’s business model for managing the financial assets and the contractual cash flow characteristicsof the financial asset.

At inception, financial assets are classified at amortised cost or fair value.

The Company is in the business of originating debt instruments, “Ijara receivables” with the intent to sale.Ijara receivables represent non-derivative debt instruments with fixed or determinable payments. These arenotes receivable from customers on finance lease. Ijara receivables are classified as finance lease wheneverthe terms of the lease transfer substantially all of the risks and rewards of ownership of the underlying assetto the lessee.

As per IFRS 9, a debt instrument shall not be measured at amortised cost if both of the following conditionsare not met:

(a) The asset is held within a business model whose objective is to hold assets in order to collectcontractual cash flows.

(b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solelypayments of principal and interest on the principal amount outstanding.

Since the Company’s business model does not meet condition (a) above, Ijara receivables are measured atfair value through income statement at the end of each reporting period, with any gains or losses arising onre-measurement recognised in statement of comprehensive income.

Special commission income on Ijara receivables is included in the statement of comprehensive income.

Impairment of financial assetsThe Company assesses, at each reporting date, whether there is objective evidence that a financial asset or agroup of financial assets is impaired. A financial asset or a group of financial assets is deemed to beimpaired if there is objective evidence of impairment as a result of one or more events that has occurredsince the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on theestimated future cash flows of the financial asset or the group of financial assets that can be reliablyestimated. Evidence of impairment may include indications that the receivables or a group of receivables isexperiencing significant financial difficulty, default or delinquency in interest or principal payments, theprobability that they will enter bankruptcy or other financial reorganisation and observable data indicatingthat there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlate with defaults.

DerecognitionA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financialassets) is derecognised when:

· The rights to receive cash flows from the asset have expired; or· The Company has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewardsof the asset, or (b) the Company has neither transferred nor retained substantially all the risks andrewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership.


10


Financial instruments recognition, measurement and subsequent measurement (continued)

Derecognition (continued

When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nortransferred control of the asset, the asset is recognised to the extent of the Company’s continuinginvolvement in the asset. In that case, the Company also recognises an associated liability. The transferredasset and the associated liability are measured on a basis that reflects the rights and obligations that theCompany has retained. Continuing involvement that takes the form of a guarantee over the transferred assetis measured at the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Company could be required to repay.

Employees' terminal benefitsProvision is made for amounts payable under the Saudi Arabian labour law applicable to employees'accumulated periods of service at the financial reporting date. The liability is calculated as the current valueof the vested benefits to which the employee is entitled, should the employee leave at the financial reportingdate.

Statutory reserveAs required by Saudi Arabian Regulations for Companies, 10% of the income for the year (after zakat andincome tax and after deducting losses brought forward) should be transferred to the statutory reserve. Thecompany may resolve to discontinue such transfers when the reserve totals 50% of the capital. Due toaccumulated losses, no such transfer was made.

Segment reportingA segment is a distinguishable component of the Company that is engaged either in providing products orservices (a geographic segment) or in providing products or services within a particular economicenvironment, which is subject to risks and rewards that are different from those of other segments.

Cash and cash equivalentsFor the purposes of the cash flow statement, cash and cash equivalents consists of bank balances andMurabaha deposits that have an original maturity of three months or less.

Accounts payable and accrualsLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billedby the supplier or not.

ProvisionsProvisions are recognised when the Company has an obligation (legal or constructive) arising from a pastevent, and the costs to settle the obligation are both probable and can be measured reliably.

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

Fair values of financial instrumentsThe Company measures financial instruments, such as, ijara receivables at fair value at each balance sheetdate.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. The fair value measurement is based on thepresumption that the transaction to sell the asset or transfer the liability takes place either:


11


Fair values of financial instruments (continued)

· in the principal market for the asset or liability, or· in the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Company. The fair value of anasset or a liability is measured using the assumptions that market participants would use when pricing theasset 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 generateeconomic benefits by using the asset in its highest and best use or by selling it to another market participantthat would use the asset in its highest and best use.

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

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

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

measurement is directly or indirectly observableLevel 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 on a recurring basis, the Companydetermines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization(based on the lowest level input that is significant to the fair value measurement as a whole) at the end ofeach reporting period.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on thebasis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy asexplained above.

The Company’s management determines the policies and procedures for both recurring fair valuemeasurement, such as unquoted available for sale financial assets, and for non-recurring measurement, suchas assets held for distribution in discontinued operation whenever applicable.

Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the statement of financialposition if there is a currently enforceable legal right to offset the recognised amounts and there isan intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

Critical accounting judgements, estimates and assumptionsThe preparation of financial statements in conformity with IFRS requires the use of certain criticalaccounting judgements, estimates and assumptions that affect the reported amounts of assets and liabilities.It also requires management to exercise its judgment in the process of applying the Company’s accountingpolicies. Such judgements, estimates and assumptions are continually evaluated and are based on historicalexperience and other factors, including obtaining professional advices and expectations of future events thatare believed to be reasonable under the circumstances.


12


Critical accounting judgements, estimates and assumptions ( continued)

i) Business modelIn making an assessment whether a business model’s objective is to hold assets in order to collectcontractual cash flows, the Company considers at which level of its business activities such assessmentshould be made. Generally, a business model is a matter of fact which can be evidenced by the way businessis managed and the information provided to management.

However, in some circumstances it may not be clear whether a particular activity involves one businessmodel with some infrequent asset sales or whether the anticipated sales indicate that there are two differentbusiness models.

In determining whether its business model for managing financial assets is to hold assets in order to collectcontractual cash flows the Company considers:

· management’s stated policies and objectives for the portfolio and the operation of those policies inpractice;

· how management evaluates the performance of the portfolio;· whether management’s strategy focuses on earning contractual special commission income;· the degree of frequency of any expected asset sales;· the reason for any asset sales; and· whether assets that are sold are held for an extended period of time relative to their contractual

maturity or are sold shortly after acquisition or an extended time before maturity.

ii) Contractual cash flows of financial assetsThe Company exercises judgement in determining whether the contractual terms of financial assets itoriginates or acquires give rise on specific dates to cash flows that are solely payments of principal andcommission income on the principal outstanding and so may qualify for amortised cost measurement. Inmaking the assessment the Company considers all contractual terms, including any prepayment terms orprovisions to extend the maturity of the assets, terms that change the amount and timing of cash flows andwhether the contractual terms contain leverage.

iii) Going concernThe Company’s management has made an assessment of the Company’s ability to continue as a goingconcern and is satisfied that the Company has the resources to continue in business for the foreseeablefuture. Furthermore, the management is not aware of any material uncertainties that may cast significantdoubt on the Company’s ability to continue as a going concern. Therefore, the financial statements continueto be prepared on a going concern basis.

iv) Fair value of financial instrumentsWhere the fair value of financial assets and financial liabilities recorded in the statement of financial positioncannot be derived from active markets, they are determined using valuation techniques including thediscounted cash flows model. The inputs to these models are taken from observable markets where possible,but where this is not feasible, a degree of judgment is required in establishing fair values. The judgmentsinclude considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptionsabout these factors could affect the reported fair value of financial instruments.


13

4 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

New and amended standards and interpretationsThe Company applied, for the first time, certain standards and amendments that require restatement of previousfinancial statements. These include IAS 19 Employee Benefits (Revised 2011), IFRS 13 Fair Value Measurement andamendments to IAS 1 Presentation of Financial Statements.

Several other amendments apply for the first time in 2013. However, they do not impact the annual financialstatements of the Company. The nature and the impact of each new standards and amendments with a significantimpact on the Company’s financial statements is described below :

IFRS 13 Fair Value MeasurementIFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not changewhen an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS.IFRS 13 defines fair value as an exit price. As a result of the guidance in IFRS 13, the Company re-assessed itspolicies for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair valuemeasurement of liabilities. IFRS 13 also requires additional disclosures.

Application of IFRS 13 has not materially impacted the fair value measurements of the Company. Additionaldisclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair valueswere determined. Fair value hierarchy is provided in note 21.

IAS 1 Presentation of Items of Other Comprehensive Income – Amendments to IAS 1The amendments to IAS 1 introduce a grouping of items presented in OCI. Items that will be reclassified (‘recycled’)to profit or loss at a future point in time (e.g., net loss or gain on available for sale financial assets) have to bepresented separately from items that will not be reclassified (e.g., revaluation of land and buildings). The amendmentsdoes not have any effect on presentation, financial position or performance.

IAS 1 Clarification of the requirement for comparative information (Amendment)These amendments clarify the difference between voluntary additional comparative information and the minimumrequired comparative information. An entity must include comparative information in the related notes to thefinancial statements when it voluntarily provides comparative information beyond the minimum required comparativeperiod. The amendments clarify that the opening statement of financial position (as at 1 January 2012 in the case ofthe Company), presented as a result of retrospective restatement or reclassification of items in financial statementsdoes not have to be accompanied by comparative information in the related notes. The amendments does not have anyeffect on presentation or on the Company’s financial position or performance.

IFRS 9 Financial InstrumentsOn 19 November 2013, the IASB issued a new version of IFRS 9 Financial Instruments (Hedge Accounting andamendments to IFRS 9, IFRS 7 and IAS 39). IFRS 9 (2013)) which includes the new hedge accounting requirementsand some related amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 FinancialInstruments: Disclosures. IFRS 9 (2013) also replicates the amendments in IAS 39 in respect of novations. Thestandard does not have a mandatory effective date, but it is available for application now. A new mandatory effectivedate will be set when the IASB completes the impairment phase of its project on the accounting for financialstatements. Entities may elect to apply only the accounting for gains and losses from own credit risk without applyingthe other requirements of IFRS 9 at the same time. An accounting policy choice to continue to apply the hedgeaccounting requirements of IAS 39 is available for of their hedging relationships. They may later change that policyand apply the hedge accounting requirements in IFRS 9 before they eventually become mandatory. This choice isintended to be removed when the IASB completes its project on accounting for macro hedging.


14

5 STANDARDS ISSUED BUT NOT YET EFFECTIVE

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’sfinancial statements are disclosed below. The Company intends to adopt these standards, if applicable, when theybecome effective.

IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria fornon-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annualperiods beginning on or after 1 January 2014. These amendments are not expected to be relevant to the company.

IFRIC Interpretation 21 Levies (IFRIC 21)IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identifiedby the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretationclarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 iseffective for annual periods beginning on or after 1 January 2014. The Company does not expect that IFRIC 21 willhave material financial impact in future financial statements.

IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as ahedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after 1January 2014. The Company has not dealt in derivatives during the current period. However, these amendmentswould be considered for future derivative related transactions.

6 INCOME FROM IJARA RECEIVABLES HELD AS FAIR VALUE THROUGH INCOMESTATEMENT

2013SR

2012SR

Special commission income on Ijara receivables 54,675,593 39,339,638Unrealised gain on ijara receivables (note 11) 16,339,186 14,792,264Realised gain on sale of Ijara receivables 2,257,017 1,669,951

──────── ────────73,271,796 55,801,853════════ ════════

7 GENERAL AND ADMINISTRATION EXPENSES

2013SR

2012SR

Professional fees 5,190,511 5,581,962Rent, net 2,905,206 3,737,888Utilities 749,018 416,765Executive board fees (note 16) 318,894 346,222Travel and lodging 238,705 1,070,896Office supplies 194,574 288,973Shariah board fee - 337,500Others 700,370 908,899

──────── ────────10,297,278 12,689,105════════ ════════


15

8 SELLING EXPENSES

2013SR

2012SR

Processing expenses 2,212,062 3,374,219Provision for credit loss 755,111 1,281,393Marketing expenses 332,529 1,055,186Others 346,989 37,890

──────── ────────3,646,691 5,748,688

════════ ════════

9 EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (EPS) is calculated by dividing the net profit for the year by 29,250,000 sharesoutstanding at the end of the year.

Diluted EPS amounts are calculated by dividing the net profit by the weighted average number of shares outstandingduring the year plus the weighted average number of ordinary shares that would be issued once the legal formalitiesfor proposed increased in capital and new shares are issued.

2013SR

2012SR

Total comprehensive income (loss) 12,686,656 (5,250,930)════════ ════════

Weighted average number of ordinary shares for basic EPS 29,250,000 29,250,000Effect of dilution - proposed increased in capital (note 15) 629,526 -

──────── ────────Weighted average number of ordinary shares adjusted for the effect ofdilution 29,879,526 29,250,000

════════ ════════

10 ZAKAT AND INCOME TAX

a) Zakat

Zakat is a levy as defined by the Department of Zakat and Income Tax (“DZIT”) in the Kingdom of Saudi Arabia.Zakat is levied on the total of the Company’s capital resources and income that are not invested in fixed assets. Suchresources include the Company’s capital, net profits, retained earnings (accumulated losses) and reserves not createdfor specific liabilities. Only resources (including income) which have been held for at least 12 months are subject toZakat. The rate is 2.5%.

Charge for the yearThe zakat charge for the year consists of the following:

2013SR

2012SR

Provided for the year 2,426,714 2,116,792Adjustment for prior year 267,844 39,219

──────── ────────At the end of the year 2,694,558

════════2,156,011

════════


16

10 ZAKAT AND INCOME TAX (continued)

Movement in provision

The movement in zakat provision for the year was as follows:

2013SR

2012SR

At beginning of the year 2,116,792 2,411,228Provided for the year 2,694,558 2,156,011Payments during the year (20,000) (2,450,447)

──────── ────────At the end of the year 4,791,350

════════2,116,792

════════

b) Income tax

The movement in tax provision for the year was as follows:

2013SR

2012SR

Provided for the year 166,371 -──────── ────────

At the end of the year 166,371 -════════ ════════

No income tax provision was made on account of adjusted losses during the year ended 31 December 2012.

There is no unrecognised deferred tax asset or liability as at 31 December 2013.

c) Status of assessmentZakat and income tax declaration for all the years up to 2011 have been filed with Department of Zakat and IncomeTax (“DZIT”) and acknowledgement certificates have been obtained.

The DZIT has raised an assessment amounting to SR 18.1 million for the period ended 31 December 2010; out ofwhich SR 12 million relates to additional withholding tax payable on payment to be made to an affiliate, which isreimbursable along with related penalties from the affiliate upon payment. During May 2013, the DZIT issued anamended assessment and reduced the remaining zakat liability from SR 6.1 Million to SR 3.7 Million of which anamount of SR 1.3 million arose principally due to the fact that DZIT has not allowed a deduction from zakat base ofthe Ijarah receivables.

The Company has not considered the disallowances of deduction of net investment in leases in its annual zakatcomputation for the years ended 31 December 2013 and 2012 also.

Subsequent to the year end, the Company has filed an appeal with the Higher Appeal Committee against theadditional withholding tax and zakat liabilities and made payment of SR 3.7 million and SR 12 million againstadditional zakat and withholding tax liability respectively. These payments were required to be made as part of theappeal process with the Higher Appeal Committee. The payment of withholding tax liabilities will be ultimatelyborne by an affiliate (note 16). It is management’s assessment that the additional zakat liability assessment would notbe upheld during the appeal process and has not accordingly provided for the assessment.


17

11 IJARA RECEIVABLES

2013 2012SR SR

Opening balance 750,164,842 427,506,130New Ijara receivables originated during the year 360,408,599 461,551,493Sold during the year (120,364,798) (117,426,705)Principal received during the year (56,090,609) (36,258,340)Un-realised gain on Ijara originated during the year (note 6) 16,339,186 14,792,264Receivables bought back during the year 13,089,984 -

──────── ────────Ijara receivables, net 963,547,204 750,164,842

═════════ ═════════

Ijara receivables have an original term period of between 5 to 30 years.

As at 31 December, the ageing of past due but not impaired installments and the related gross balances of Ijarareceivables are as follows:

< 30 days31 - 60

days 61 - 90 days 91 - 120 days 121 - 150 days151 - 180 days TotalSR SR SR SR SR SR SR

31 December 2013

Gross Ijara receivables 92,596,076 28,143,134 13,260,005 3,220,167 1,254,158 2,386,328 140,859,868════════ ════════ ════════ ════════ ════════ ════════ ════════

Delinquent Installments 1,307,034 577,087 946,314 105,334 58,271 244,822 3,238,862════════ ════════ ════════ ════════ ════════ ════════ ════════

31 December 2012

Gross Ijara receivables 63,611,097 17,059,072 15,973,700 2,788,729 - - 99,432,598════════ ════════ ════════ ════════ ════════ ════════ ════════

Delinquent Installments 804,324 314,081 487,431 98,276 - - 1,704,112════════ ════════ ════════ ════════ ════════ ════════ ════════

During the year, the Company sold Ijara receivable balances amounting to SR 120,364,798 (2012: SR 117,426,705)at fair value. Out of the Ijara receivables sold SR 6,652,879 originated in 2010, SR 25,906,916 in 2011SR 54,438,903 in 2012 and SR 33,366,100 in 2013.

The Company has entered into a service agreement with the purchasing counterparties (the “counterparties”) tocollect Ijara receivable on its behalf. The Company is entitled to a service fee in this respect. At the due dates ofinstalment, the Company in practice settles the instalment due to the counterparties regardless of whether it was ableto collect from the customer. However, if the amounts are not collected within three instalments, then thecounterparties are obliged to sell the underlying Ijara property and settle the outstanding Ijara balance and repay theCompany for uncollected instalments. Consequently, the Company derecognises these receivables off its statement offinancial position.

The title deeds of the properties for which financing have been provided under Ijara receivables are held by anaffiliate company.

The fair values are based on recent sale transactions by the Company, as these are not traded in an active market.


18

12 PROPERTY AND EQUIPMENT

The estimated useful lives of the assets for calculation of depreciation are as follows:

Leasehold improvements Over the shorter of the useful life of the improvement or 5 yearsEquipment and motor vehicles 3 yearsFurniture and fixtures 5 years

Leaseholdimprovements

SR

Equipment andmotor vehicles

SR

Furniture andfixtures

SR

Total2013SR

Total2012SR

Cost:At the beginning of the year 2,025,872 12,811,295 3,345,643 18,182,810 17,224,675Additions during the year - 216,972 31,525 248,497 958,135

──────── ──────── ──────── ──────── ────────At the end of the year 2,025,872 13,028,267 3,377,168 18,431,307 18,182,810

──────── ──────── ──────── ──────── ────────Accumulated depreciation:

At the beginning of the year 1,164,961 11,203,104 1,826,718 14,194,783 9,077,664Charge for the year 457,160 1,126,883 674,496 2,258,539 5,117,119

──────── ──────── ──────── ─────── ───────At the end of the year 1,622,121 12,329,987 2,501,214 16,453,322 14,194,783

──────── ──────── ──────── ─────── ───────Net book amounts:

At 31 December 2013 403,751 698,280 875,954 1,977,985════════ ════════ ════════ ═══════

At 31 December 2012 860,911 1,608,191 1,518,925 3,988,027════════ ════════ ════════ ════════

13 PREPAYMENTS, ACCRUED INCOME AND OTHER RECEIVABLES

2013 2012SR SR

Amounts due on sale of Ijara receivables 48,363,968 5,930,953Prepaid expenses 1,733,442 1,949,633Advance for investment 576,653 -Staff receivables 537,205 515,000Advances to contractors 500,000 -Accrued special commission income 76,343 348,117

──────── ────────51,787,611 8,743,703

══════════ ══════════

14 BANK BALANCES

Bank current accounts are with counterparties who have investment grade credit ratings, as rated by international ratingagencies.


19

15 SHARE CAPITAL

The capital of the Company is divided into authorised, issued and fully paid 29,250,000 ordinary shares of SR 10each.

In the Company’s extra ordinary general meeting held on 7 Muharram 1435H (corresponding to 11 November2013) the shareholders, unanimously passed a resolution to increase the share capital of the Company fromSR 292,500,000 to SR 338,329,510. The contribution was made by conversion of loan amounting to SR 50,000,000.The conversion will include a share premium of SR 4,170,490.

The legal formalities for the increase in capital was in progress as of the balance sheet date.

16 RELATED PARTY TRANSACTIONS AND BALANCES

The following are the details of major related party transactions during the year and its balances at the year end:

Amount of transactions

Relatedparty Nature of transactions

2013SR

2012SR

Balance2013SR

Balance2012SR

Affiliates Business documentation fee payable (*) - - 67,500,000 67,500,000Maintenance expenses - 72,000Security expenses - 89,200

Shareholder Additional cash contribution - 1,281,299 1,281,299Proposed increase in share capital 50,000,000 50,000,000Rent expenses - 3,140,480 357,000 3,818,152Rent income (357,000) -

SeniorManagement Remuneration 2,177,079 1,833,717 - -

Advances paid - 500,000 500,000 500,000

Board ofdirectors Board fees 318,894 346,222 - -

Consultancy fees 2,371,975 -

(*) Subsequent to the year end the Company has made a payment of SR 12 million as withholding tax to DZITin relation to Business documentation fee payable. As per the agreement with the affiliate any such liabilitywill be borne by the affiliate and the balance will be settled net. Accordingly, management has not accruedfor the withholding tax liabilities (note 10).

Amounts due to related parties are shown in the statement of financial position.

Compensation of key management personnel of the Company

2013SR

2012SR

Remuneration 2,177,079 1,833,717Termination benefits 225,508 42,464

───────── ─────────Total compensation paid to key management personnel 2,402,587 1,876,181

═════════ ═════════


20

17 ACCOUNTS PAYABLE AND ACCRUALS

2013SR

2012SR

Accrued expenses 10,431,910 8,946,775Advances from customers 7,329,099 8,462,405Trade accounts payable 1,459,734 3,386,935Instalments payable on Ijara receivables sold 4,211,307 2,385,054Withholding tax payable 18,796 24,081Provision for doubtful commission receivable - 348,117Other payables 3,740 250,000

───────── ─────────23,454,586 23,803,367

═════════ ═════════

18 SHORT TERM LOANS

The short term loans are secured by assignment of proceeds from Ijara receivables, promissory note and simplepledge of title deeds of underlying real estate assets. The short term loans carry borrowing costs at commercial ratesand are repayable at various maturities during the year 2014.

19 OPERATING LEASE COMMITMENTS

Payments under operating leases recognised as an expense during the year amounted to SR 2,905,206 (2012:SR 3,737,888). Operating lease payments represent rentals payable by the Company for office rent, the commitmentof which will expire within two years.

20 RISK MANAGEMENT

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk and specialcommission rate risks), credit risk and liquidity risk. The Company’s overall risk management program focuses onthe unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financialperformance. Risk management is carried out by senior management. The most important risks and theirmanagement is summarised below.

Currency riskCurrency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchangerates. The Company is subject to fluctuations in foreign exchange rates in the normal course of its business. TheCompany did not undertake any transactions in currencies other than Saudi Riyals and US Dollars, during the year.As Saudi Riyals is pegged with US Dollars, no significant currency risk was identified as at the financial reportingdate.

Special commission rate riskSpecial commission rate risk is the risk that the value of financial instruments will fluctuate due to changes inmarket special commission rates. The Company is subject to variations in the fair value of its financial instrumentsand the net special commission income arising from changes to special commission rate risk on its Ijara receivablesand short term loans, which are generally priced on the floating SIBOR rates.

The sensitivity to a +/- 15 basis points change in special commission rates on ijara receivables, with all othervariables constant on the Company’s total comprehensive income for the year is SR +/- 1,445,321 (2012: SR +/-1,125,248).

The sensitivity to a +/- 15 basis points change in special commission rates on short term loans, with all othervariables constant on the Company’s total comprehensive income for the year is SR +/- 1,164,358 (2012: SR +/-806,743).


21

20 RISK MANAGEMENT (Continued)

Credit riskCredit risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur afinancial loss. The Company has established a credit policy for individual borrowers. There is no refinancepermitted under such policy. Furthermore, all the loans are allowed for the maximum term of 360 months. As persuch policy, a Ijara is not granted unless the borrower meets certain basic requirements, which are set out below:

· Age limit at the time of funding and contractual maturity· Income earned· Debt to income ratio

The Company monitors its Ijara receivables on a weekly basis. Furthermore, all Ijara receivables are backed by thelegal titles of those properties beneficially registered in the name of the Company.

In case of Ijara receivables past due for six months, the Company takes legal actions against the borrower andcollects the receivable by selling the property against which the financing is provided.

The table below reflects the maximum exposure to credit risk for the components on the statement of financialposition:

2013SR

2012SR

Bank balances 79,684,218 33,559,112Ijara receivables 963,547,204 750,164,842Accrued income and other receivables 50,054,169 6,794,070

──────── ────────1,093,285,591 790,518,024════════ ════════

Liquidity riskLiquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitmentsassociated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly atan amount close to its fair value. The Company manages its liquidity risk by ensuring that bank facilities areavailable.

The Company’s financial liabilities comprise bank borrowings as of 31 December 2013 of SR 776,238,424 (2012:SR 537,828,399). For amounts due to shareholders, the Company has an implicit understanding with the relatedparties that their respective payable balance would be repaid at the Company’s discretion based on usage andrequirement of funds. The Company has no unutilised bank facilities.

The table below summarises the maturity profile of the Company’s financial liabilities at December 31, based oncontractual undiscounted repayment obligations. The totals in this table do not match with the statement of financialposition as special commission payments with contractual maturities are included in the table on an undiscountedbasis. The contractual maturities of financial liabilities have been determined on the basis of the remaining period atthe reporting date to the contractual maturity date.


22

20 RISK MANAGEMENT (Continued)

Liquidity risk (continued)

2013Amounts in SR On demand

Less than 3months 3-12 months 1-5 Years Over 5 years Total

Employees terminal benefits 1,306,862 - - - - 1,306,862Payable to a shareholder - - - 1,281,299 - 1,281,299Due to related parties - - 357,000 67,500,000 - 67,857,000Accounts payable & accruals - - 23,454,586 - - 23,454,586Zakat & Tax payable - - 4,957,721 - - 4,957,721Short term loans - 777,966,507 - - 777,966,507

──────── ──────── ──────── ──────── ──────── ────────Total 1,306,862 777,966,507 28,769,307 68,781,299 - 876,823,975

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

2012Amounts in SR On demand

Less than 3months 3-12 months 1-5 Years Over 5 years Total

Employees terminal benefits 893,205 - - - - 893,205Payable to a shareholder - - - 1,281,299 - 1,281,299Due to related parties - - 3,818,152 67,500,000 - 71,318,152Accounts payable & accruals - - 23,803,367 - - 23,803,367Zakat payable - 2,116,792 - - - 2,116,792Short term loans - 543,609,657 - - - 543,609,657

──────── ──────── ──────── ──────── ──────── ────────Total 893,205 545,726,449 27,621,519 68,781,299 - 643,022,472

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

21 FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair value of Ijara receivables are based on recent sale transactions by the Company, as these are not traded inan active market.

For other financial instruments, the management assessed that investment in available for sale securities, accountspayables, short term loans, due to related parties and other current liabilities approximate their carrying amountslargely due to the short-term maturities of these instruments.

The Company’s financial instruments are categorised as significant observable inputs (Level 2).

22 SEGMENT INFORMATION

The Company only provides financing for real estate leases in the Kingdom of Saudi Arabia. All assets, liabilitiesand operations as reflected in the statement of financial position and statement of comprehensive income belongs tothe leasing segment.


23

23 IJARA COMMITMENTS

The Company has outstanding Ijara commitment for disbursements to customers amounting to SR 33,504,079(2012: SR 62,940,150) for which agreements have been signed between the Company and the customer.Disbursement is pending transfer of the title deed to the Company.

24 COMPARATIVE FIGURES

Certain of the prior year amounts have been reclassified to conform to the presentation in the current year.

Documents

Deutsche Gulf Finance (A Saudi Joint Stock …Deutsche Gulf Finance (A Saudi Joint Stock Company) STATEMENT OF FINANCIAL POSITION As at 31 December 2013 The attached notes 1 to 24