Director's Report for 2013 Final English 11 03 2014 Finalgalfar.com/userfiles/financial%20results_2013.pdf · 2014-03-18 · Engineering & Contracting SAOG and to present to you the

Director’s Report Dear Shareholders,

I welcome you all on behalf of the Board of Directors to this Annual General Meeting of Galfar Engineering & Contracting SAOG and to present to you the Annual Report for the Year ended 31st December 2013.

Your Company has received praise for the timely completion of the Barka flyover which is part of the bigger Batinah Expressway Package 1. The Hasik Shouwamiya Road project valued at over RO. 110 million, one of the most difficult mountain roads to construct was inaugurated and opened to traffic. Such Projects show our caliber to execute difficult projects, and Galfar is truly unique in executing such works.

Galfar was placed amongst the top 5 companies in the industrial sector for the year 2013 at the recently held OER Top 20 awards. The awards are a celebration of excellence in Oman’s corporate world.

We also take pride in announcing the incorporation of a new JV company “Galfar Mott Mac Donald LLC”. This newly registered company will deliver EPC projects primarily in the oil and gas sector, which by the turn will boost the “In Country Value”.

Business Environment

The Government is maintaining its focus on development of infrastructure which is reflected by the provision of RO. 1800 million in Oman’s budget for 2014 as development expenditure. This attracts many international contractors to participate in the tenders in the contracting industry in Oman where Galfar maintains its lead position by winning some of the prestigious projects tendered out by the Government.

The Business Environment looks bright with major tenders already floated and expected to be announced for projects in all the sectors of the construction industry. Tenders for major Hospitals are likely to be announced during the year.

Galfar is a multi- disciplined Company capable of executing projects across various sectors, especially:

- The oil and gas clients like BP, Oxy etc. - The buildings related to hospitals, hotels etc., - The power, water, waste water and waste management sector, - The roads and railways sector,

The activities in the Oil and Gas and Roads sectors are at its highest when compared to the recent past.

In certain special tenders/projects we are already supplementing our strengths with additional associations as are required.

It would be appropriate to say that the competition has become fierce and unlike ever before. This will most definitely push the profit margins to lower levels from the present.

Costs towards employee remunerations are rising due to changes in regulations and Omanisation, while the process of receiving money for regular invoices and for variations orders has slowed down in 2013.

The requirement of In Country Value has now been realized by all concerned and concerted efforts are being made by various authorities within the Government to see that small and medium enterprises (SMEs) are encouraged and hand held. Galfar fully supports the national ICV programme and during the year Galfar spent RO.121 Million on materials and about RO.54 Million on sub-contracting of which over 50% goes to vendors, sub-contractors and SMEs.

Subsidiaries

Galfar has a wholly owned subsidiary called Galfar India. During the year they have formed Special Purpose Vehicles for executing two new road projects and the construction activities in these will start shortly. Amongst the construction projects in hand we have achieved considerable progress and expect to complete these in 2014.

Al Khalij Heavy Equipment & Engineering LLC, a subsidiary of the Company, is engaged in transportation and logistics business and has performed well during the year. A major portion of the earnings come from rental of equipment to end users.

Aspire Projects and Services LLC, the wholly owned subsidiary of Galfar, secured projects with various ministries, one such project worth mentioning is the 4D theatre EPC construction for the Ministry of Agriculture and Fisheries. Aspire offers Specialized Engineering Solutions to its clients with their engagement on facilities management through substantially reduced energy costs-

being the most tangible measurement tool in the facilities management industry. This we believe will attract more clientele interested in real time operating cost reduction.

Galfar Aspire Readymix LLC, has been focusing on the sale of RMC to valued customers across the construction industry in the buildings and roads infrastructure sectors in Muscat, Nizwa, Salalah and Sohar. They seek opportunities to expand into associated sectors such as sand and aggregate production, cement replacement products and precast concrete products etc. Galfar Aspire firmly believes that this is an opportune period in the Sultanate to expand production capacity and diversify their activities.

Operations

Galfar maintains its position as the number one contracting company in the Sultanate of Oman.

Details on the operating results of the Company for the year 2013 and outlook for the industry for 2014 are reflected in the ‘Management Discussion & Analysis’ report included in the Annual Report for the year 2013.

The summary of the performance of the Company (including Subsidiaries) is as follows:

In RO Million

Particulars 2013 2012

Gross revenue 412.408 336.504

Profit from Operation

21.036 20.654

Net Profit After Tax 7.584 9.206

Rights Issue

Galfar successfully completed its Rights Share Issue @15% of shares held in September 2013. As a result the Paid-up Capital of the Company has gone up to RO. 37.747 million, and the net worth crossed RO. 100 million mark at the end of the year 2013.

The Company thanks its shareholders for their valuable support.

Omanisation

Galfar is an attractive proposition for Omani nationals seeking long term and gainful employment in the private sector. We can now boast of Omanisation at all levels with technically qualified youth working in Galfar. Galfar currently employs 4431 Omani nationals.

Galfar provides a unique experience of career growth to the nationals who join the company, such that their careers grow through a process of continuous learning, development and skill building. This is achieved through “mentorship” and close interaction by seniors in similar discipline.

The two training centers of Galfar at Sohar and Al Hail have now grown into a separate entity, which trains young Omanis to meet the growing challenges of the construction industry and adds to the In Country Value.

Corporate Governance

Your Company follows high standards of Corporate Governance. A detailed Corporate Governance Report is included in the Annual Report for the year ended 2013.

Legal Cases

As part of the ongoing litigations by the Public Prosecution in Oman in the Oil and Gas sector, legal cases were initiated against three senior members of Galfar’s Management. These legal cases are against the individuals and not the Company.

As already disclosed through MSM and press, Dr. P. Mohammed Ali voluntarily resigned from the Board.

The Directors of the Company are concerned with the recent happenings and has initiated remedial action to ensure that the Company’s operation and business are not affected and have appointed M/S KPMG, an independent consulting firm to review and advice on the adequacy of the internal financial policies, procedures, controls, code of conduct including whistle blowing policy etc.

Health, Safety and Environment

Galfar continues to be in the forefront in Health Safety and Environment Management in the contracting industry in Oman. This is reinforced by the Company being ranked number one for the second consecutive year in 2013 by Oman Society of Contractors for our exemplary HSE initiatives & practices.

Outlook

During 2013 your company bagged Rial Omani 170 million worth of new Projects, apart from the additional jobs awarded in existing service contracts & variations and extensions in existing projects and the order-book backlog at the beginning of this year is at RO. 610 Million. The sustainable levels of turnover are in the range of our current levels and your Company will endeavor to maintain these.

Amongst the many, some of the notable projects are:

1. The Construction of the catering building project at Muscat International Airport (MC13) for a value of over RO.67 Million (Rial Omani Sixty Seven Million)

2. Provision of Safa & Wadi Latham oil field construction services (Service contract for 2 (two) years for a value of RO. 15 Million (Rial Omani Fifteen Million)

3. The Construction of Medical Centre in Ras Al Hamra Development Project for PDO for a value USD 10 Million (US Dollar Ten Million)

4. Refurbishment and New Car Park/ Office Complex Project for the Central Bank of Oman for a value of over RO. 25 Million (Rial Omani Twenty Five Million)

5. Construction of a fishing port at Nabur, Wilayat of Liwa, North al Batinah Governorate for a value of over RO. 9.8 Million (Rial Omani Nine point Eight Million)

There are several projects in the tendering process where we expect positive results in some of them in our favour. We believe that in the infrastructure market we will continue to secure projects regularly.

The construction activity in the Oil and Gas Industry both in the upstream and downstream is very promising. We expect to participate both as a main contractor and as a sub contractor in the Civil, Mechanical, Electrical and Instrumentation areas of construction. The Exploration and Production companies as well as the downstream refinery and petrochemical industry have already begun their expansions.

In the Roads and Railway sectors the Government Tender Board is now preparing for the commercial opening of several tenders. Many road tenders are yet to be floated and securing selected projects out of these will ensure that your Company’s market share is maintained over the next few years. As is common knowledge the Railway EPC tender qualification exercise has begun, we expect the construction on the ground to begin towards the end of this year and more into the coming few years.

The remaining infrastructure industry for power generation, transmission & distribution, water & waste water is growing with the growth in the demand. Galfar is active in this sector and will ensure we maintain our fair share here too.

We are currently engaged in the Ports and Harbours projects with two projects already under execution. We expect a few more tenders in this year which likely would be awarded towards the third or fourth quarter of this year.

On Record

We are grateful to His Majesty Sultan Qaboos Bin Said for his visionary leadership and providing opportunities for the private and public sector in participating in the development of the Oman’s economy.

The Board of Directors would like to thank all Ministries, The Capital Market Authority, Muscat Securities Market, Muscat Clearing and Depository SAOC, Muscat Municipality, Royal Oman Police, Petroleum Development of Oman and other Companies working in the Oil & Gas sector in Oman, Commercial Banks and Financial Institutions in Oman and abroad where we have relationships, Consultants, Sub contractors, Suppliers and all Clients of the Company, for their generous cooperation and continued support.

We would also like to thank all the labour force, the staff and management of the Company for their committed and dedicated efforts extended to improve the company’s performance.

Salim Said Hamad Al Fannah Al Araimi

Chairman

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Corporate Governance Report

Company’s Philosophy Galfar Engineering and Contracting SOAG, is convinced with the importance of the need for good corporate governance and healthy corporate practices for a company to succeed in the long run, fulfilling its plans and realizing its objectives. The concept of governance at Galfar envisages care of the Company to enhance the value of all its stakeholders, that by adhering to proper methods of management, internal controls, accountability, corporate governance rules and high level of transparency to the extent of not affecting the competitive position of the Company. The Company continues applying well-defined Management Systems Procedures (MSPs) in accordance with ISO 9001. The company is fully abiding by the corporate governance code issued by the Capital Market Authority (CMA). The company has taken all necessary steps to fulfill the objective of good corporate governance.

The Board Members have professional and/or practical experiences in their diversified fields of profession as shown in their profiles in the Annual Report booklet. They have given great support to the Board to exercise its widest authorities in managing the Company and supervise the good performance of the Company’s business. The Board is responsible for achieving the company’s objectives. For this purpose, the Board is assisted by various committees and the higher executive management of the company. The Board has formed the executive Committee, the Audit Committee and other ad hoc committees when the need arises. In addition, there is a well structured organization for management executives whose authorities are defined in a revised manual of authority which was proposed and approved by the Board in the Board meeting held on 03rd February 2014.

In general the board exercises its primary functions and duties in line with the powers stipulated in article 35 of the Articles of Association of the company.

Board of Directors

The Board of Directors which was duly elected by the Annual General Meeting of the Shareholders on 30th March, 2011 comprises of nine Directors, which includes eight non-executives and one executive. Four of the non-executive Directors are independent.

The Members of the Board are all having professional and practical experience in their respective corporate fields ensuring proper direction and control of company’s activities. No director is a member of more than 4 joint stock public companies whose shares are listed on the Muscat Securities Market (MSM) and no director is chairman of more than 2 public companies whose principal office is in the Sultanate of Oman. None of the directors is a member of a Board of Directors of a joint stock public or closed company which carries out similar business and whose principal office is in the Sultanate of Oman.

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Sr. No.

Name of Director & Representative Designation Category Directorship in Other Joint Stock

Companies

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi Chairman Non – Executive

Non Independent Bank Sohar S.A.O.G, Oman

Medical College S.A.O.C

2 Dr.P. Mohamed Ali (Till 14.01.2014) Vice Chairman

& Managing Director

Executive Non Independent Oman Medical College S.A.O.C

3 Dr.Adil Abdul Aziz Yahya Al Kindy Director Non - Executive Independent Bank Nizwa SAOG

4 Dr.Hatem Bakheit Saeed Al Shanfari Director Non - Executive

Independent Gulf Investment Services Co. S.A.O.G, Gulf Baader Capital

Markets Co. S.A.O.C

5 Sheikh Salim Abdullah Saeed Badr Al Rawas Director Non – Executive

Non Independent Oman Oil Marketing Company

S.A.O.G

6 Sheikh Yahya Abdullah Al Fannah Al Araimi Director Non - Executive

Independent NIL

7 Engr. Salman Rashid Al Fannah Al Araimi Director Non – Executive

Non Independent NIL

8 Mr. Hamad Mohamed Al Wahaibi Director Non - Executive Independent

Voltamp Energy Co. (SAOG), Al Madina Insurance Co (SAOC), and Shaden Development Co.

(SAOC).

9 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi Director Non – Executive

Non Independent Gulf Plastic Industries Co.

S.A.O.G and Oman Medical College S.A.O.C

3

Board Meetings:

During the year 2013, the Board held 7 meetings. The following table shows details of the same.

Sr. No.

Name of Director & Representative

Meeting 33 Meeting 34 Meeting 35

Meeting 36

Meeting 37

Meeting 38

Meeting 39

13-Feb-13 06-Mar-13 12-May-13

05-Aug-13 30-Oct-13 12-Nov-

13 24-Dec-

13

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi

√ √ √ √ √ √ √

2 Dr.P. Mohamed Ali √ √ √ √ √ √ √

3 Dr.Adil Abdul Aziz Yahya Al Kindy √ √ √ √ √ X X

4 Dr.Hatem Bakheit Saeed Al Shanfari √ √ X √ X √ √

5 Sheikh Salim Abdullah Saeed Badr Al Rawas √ √ √ √ √ √ √

6 Sheikh Yahya Abdullah Al Fannah Al Araimi X √ √ X √ √ X

7 Engr. Salman Rashid Al Fannah Al Araimi √ √ √ √ √ √ √

8 Mr. Hamad Mohamed Al Wahaibi √ √ √ √ √ √ √

9 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi

√ √ √ √ √ √ √

4

Remuneration to the Board of Directors: The total amount proposed to be paid to the Directors for the year 2013 is RO 200,000, which includes their remuneration RO.138,800 and sitting fees 61,200. It will be paid after its approval in AGM dated 26th March, 2014. The total amount paid to the Directors or provided during the year 2013 for the year 2012 is as under:

Sr. No. Name of the Director Sitting Fees Paid

Remuneration Paid Total

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi 2,800

17,411

20,211

2 Dr. P Mohammed Ali

5,900

17,411

23,311

3 Dr. Hamed Hashim Mohamed Al Dhahab Al Ghailani

4,400

13,929

18,329

4 Dr.Adil Abdul Aziz Yahya Al Kindy

5,200

17,411

22,611

5 Dr. Hatem Bakheit Saeed Al Shanfari

5,500

17,411

22,911

6 Sheikh Salim Abdul Saeed Badr Al Rawas

4,800

17,411

22,211

7 Sheikh Yahya Abdullah Salim Al Fannah Al Araimi

2,900

17,411

20,311

8 Eng. Salman Rashid Al Fannah Al Araimi

5,900

17,411

23,311

9 Mr. Hamad Mohamed Al Wahaibi

700

3,482

4,182

10 Ms. Budoor Mohamed Rashid Al Fannah Al Araimi

5,200

17,411

22,611

Total 43,300

156,700

200,000

Board Secretary Mr.Abdelbagi Daffalla, of a legal professional career, is the secretary of the Board. The secretary facilitates the smooth conduct of Board Meetings, records the minutes of the Board meetings as well as the resolutions passed. He handles liaison works between the Board, Board committees and follow-up actions to be taken and informing concerned parties

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Other Committees: Executive Committee: The Board has formed, an Executive Committee which consists of 4 members, to oversee in general, setting of business and strategic plans, policies of the Company, review decisions taken on various matters concerning the operation of the company and any other matters assigned by the Board. The Executive Committee exercises its functions in accordance with the Executive Committee Charter. The committee held seven meetings during the year 2013.

Name of members of the committee Designation

Dr.Adil Abdul Aziz Yahya Al Kindy Chairman

Dr.P. Mohamed Ali Member

Sheikh Salim Abdullah Saeed Badr Al Rawas Member

Engr. Salman Rashid Al Fannah Al Araimi

Member

Excom-Attendance Sheet - 2013

Sr. No.

Name of the members of the committee

1st Meeting

2nd Meeting

3rd Meeting

4th Meeting

5th Meeting

6th Meeting

7th Meeting

02-Jan-13

20-Mar-13

06-May-13

19-Jun-13

21-Jul-13

02-Sep-13

06-Nov-13

1 Dr.Adil Abdul Aziz Yahya Al Kindy √ √ √ √ √ √ X

2 Dr.P. Mohamed Ali √ √ √ √ √ √ √

3 Sheikh Salim Abdullah Saeed Badr Al Rawas √ √ √ √ √ √ √

4 Engr. Salman Rashid Al Fannah Al Araimi √ √ √ √ √ √ √

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Audit Committee The audit committee is appointed by the board of directors to assist the board in discharging its oversight responsibilities. The audit committee will oversee the financial reporting process to ensure the balance, transparency and integrity of published financial information. The audit committee will also review: the effectiveness of the company’s internal financial control and risk management system; the effectiveness of the internal audit function; the independent audit process including recommending the appointment and assessing the performance of the external auditor; the company’s process for monitoring compliance with laws and regulations affecting financial reporting and code of business conduct. In performing its duties, the committee will maintain effective working relationships with the board of directors, management, and the external and internal auditors. To perform its role effectively, each committee member will need to develop and maintain his skills and knowledge, including an understanding of the committee’s responsibilities and of the company’s business, operations and risks. The Committee held eight meetings during the year 2013.

Name of members of the committee Designation

Dr.Hatem Bakheit Saeed Al Shanfari Chairman

Sheikh Yahya Abdullah Al Fannah Al Araimi Member

Mr. Hamad Mohamed Al Wahaibi Member

Ms. Khalood Mohamed Rashid Al Fannah Al Araimi Member

Audit Committee Meetings & Attendance Details - Year 2013

Name of the members of the committee

1st Meeting

2nd Meeting

3rd Meeting

4th Meeting

5th Meeting

6th Meeting

7th Meeting

8th Meeting

09-Jan-13

13-Feb-13

05-Mar-13

09-May-13

04-Aug-13

24-Oct-13

12-Nov-13

03-Dec-13

Dr.Hatem Bakheit Saeed Al Shanfari √ √ √ √ √ √ √ √

Sheikh Yahya Abdullah Al Fannah Al Araimi X X √ X X √ √ √

Mr. Hamad Mohamed Al Wahaibi √ √ √ √ √ √ √ √

Ms. Khalood Mohamed Rashid Al Fannah Al Araimi √ √ √ √ √ √ √ √

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Procedure for Standing as a Candidate for the Board: The right to stand as a candidate for membership of the Board of Directors of the Company is open to shareholders and non shareholders.

In case of a shareholder, whether in personal capacity or representing a juristic person, he must have a minimum equity of not less than 10000 shares.

Key Management Remuneration: Total remuneration during the financial year 2013 to top Management (top 5) was RO 641,051/-.

Compliance with Rules and Regulations:

The Company has been following the applicable rules and regulations issued by MSM, CMA and those stipulated in the Commercial Companies Law 1974 as amended. An Audit Team from Capital Market Authority (CMA) conducted an audit process in the Year 2013, to ensure the company’s compliance to the Corporate Governance Code of SAOG companies and other regulations and laws issued by the CMA. Their audit report contained some preliminary observations and suggestions which have been answered comprehensively and in detail. The Company has also accepted the suggestions made by CMA Audit. Moreover the Company has appointed KPMG, an independent consulting firm to review the Company’s internal regulations and to advise regarding any required improvements in the internal regulations and policies which reinforces the Company’s commitment towards the Code of Corporate Governance and other regulations and laws. Legal Cases: In the light of the court cases against senior members of the management, the Managing Director voluntarily resigned from the membership of the Board of Directors. The Board of Directors accepted the resignation. In this regard the Board has initiated remedial action to ensure that the Company’s operation and business are not affected and have appointed M/S KPMG, an independent consulting firm to review and advice on the adequacy of the internal financial policies, procedures, controls, code of conduct including whistle blowing policy etc. Communication with Shareholders and Investors:

The company maintains good communication relations with the shareholders and Investors and responds as much as possible to their queries and requests in line with the disclosures rules. The company, during the period, conducted several phone interviews with financial analysts and investors. The company publishes its un-audited financial results in the newspapers on a quarterly basis and the audited financial statements annually. Detailed financial statements are sent to shareholders on request. The company publishes its quarterly and annual results in MSM website. Detailed financial statements are sent to shareholders on request. The company posts its quarterly and annual results on MSM website, and also on the Company’s website: www.galfar.com. All the Company’s announcements are posted on MSM’s website.

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The Management discussions and analysis report forms an integral part of the Annual Report.

Statement on Market Price and distribution of Holdings: High / Low price during each month

Market High/Low price during each month of 2013 Sr. No. Month High Low Closing

1 January-13

0.380

0.363

0.369

2 February-13

0.374

0.343

0.356

3 March-13

0.373

0.338

0.342

4 April-13

0.405

0.343

0.367

5 May-13

0.385

0.365

0.383

6 June-13

0.394

0.360

0.362

7 July-13

0.377

0.357

0.368

8 August-13

0.370

0.337

0.342

9 September-13

0.354

0.310

0.329

10 October-13

0.332

0.308

0.310

11 November-13

0.324

0.286

0.290

12 December-13

0.300

0.270

0.277 Distribution of ownership of shares between shareholders (Including Shares having preferential voting rights)

Sr. No. Category No. of Shareholders No. of Shares % of

Shareholding

1 Less than 5% 4,765 128,009,035 33.91

2 5% to 10% 2 46,765,847 12.39

3 Above 10% 4 202,693,879 53.70

Total 4,771 377,468,761 100.00

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There are no Securities / Convertible Financial Instruments as on the Balance Sheet date which will have an impact on the Shareholders’ equity. Profile of the Statutory Auditors PwC is a global network of firms operating in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. PwC also provides corporate training and professional financial qualifications through PwC's Academy. Established in the Middle East for 40 years, PwC has firms in Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and the United Arab Emirates, with around 2,500 people.(www.pwc.com/middle-east). PwC has been established in Oman for over 40 years and the Firm comprises 3 partners, including one Omani national, and over 135 professionals and support staff. Expert assurance, tax and advisory professionals are able to combine internationally acquired specialist consulting and technical skills with relevant local experience".

Audit Fees of Company and Subsidiaries and fees for other services paid to the Auditors

Sr. No. Particulars Amount

(In RO)

1 Statutory Audit Fees (Parent) 22,000

2 Statutory Audit Fees Al Khalij Heavy Equipment & Engineering LLC (Subsidiary) 2,500

3 Statutory Audit Fees Galfar Training Institute LLC (Subsidiary) 1,400

4 Statutory Audit Fees Galfar Engineering & Contracting India Pvt. Ltd. (Subsidiary) 3,125

5 Statutory Audit Fees Aspire Projects & Services LLC (Subsidiary) 1,800

6 Statutory Audit Fees Galfar Aspire Readymix LLC (Subsidiary) 1,750

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The Board of Directors acknowledges as at December 31, 2013:

The Board of Directors acknowledges:

With its liability for the preparation of financial statements in accordance with the applicable standards and rules.

Review of the efficiency and adequacy of internal control systems of the Company and that it complies with internal rules and regulations. In order to enhance and strengthen the efficiency of the internal control systems, the Company has appointed a chief internal auditor and also recruited technical auditors in the Internal Audit Department.

That there is no material matter that affects the continuation of the Company and its ability to continue its production and operations during the next financial year.

Salim Said Hamed Al Fannah Al Araimi Chairman

Management discussion Draft 2

Management Discussion and Analysis Report

Overview

Galfar Engineering and Contracting SAOG is the only construction company in Oman carrying out works in excess of USD 1 Billion consistently over the past several years.

Galfar endeavors to comply with Omanization requirements through planned employment opportunities and development through training of each selected individual. Also we will meet the new challenge of promoting Small and medium enterprises through continuous “handholding” as we have been doing in the past.

Main Objectives and Operational Results

Galfar’s objectives have always been to deliver the projects in time, to the satisfaction of all stake holders and in safe manner while maintaining quality standards required by the Contract.

Galfar’s operational philosophy has always been in tandem with the requirements of the Sultanate and its current policies. There has been a considerable and concerted drive to engage small and medium enterprises (SMEs) to participate effectively in the economic activities of the Sultanate. Galfar has involved SME’s in their supply chain management and sub-contracting activities. The Company is proud of involving the highest number of SMEs in the construction industry in Oman and thus adding to the In Country Value.

Galfar is committed to achieve excellence in Quality, Health, Safety and environmental protection.

The turnover of the Company including subsidiaries was RO 412.408 million in 2013 as compared to RO 336.504million in 2012. The Company recorded a profit after tax of RO 7.584million in 2013 as compared to RO 9.206million in 2012.

Galfar Engineering & Contracting SAOG has five subsidiaries the performance of which is as follows. Al Khalij Heavy Equipment & Engineering LLC which specializes in hiring out of Equipments recorded a turnover of RO1.858 million in 2013, as compared RO 1.741 million in 2012. Galfar Engineering & Contracting India Pvt. Ltd., which is engaged in construction activities in India, recorded a turnover of RO 13.471 million in 2013 as compared to RO 9.872 million in 2012. Galfar Training Institute LLC which specializes in the field of training Omanis in various trades recorded a turnover of RO 0.934 Million during the year 2013 as compared to RO 1.041during the year 2012.


Aspire Projects and Services LLC which is a specialized engineering and services company had a turnover of RO1.576 million during the year 2013 as compared to RO. 1.752 million in 2012. Galfar Aspire Readymix LLC, which produces Readymix concrete, recorded a turnover of RO 3.837 million during the year 2013 as compared to RO 1.273 million in 2012.

Human Resources

A company is what its people make it. Human Resources form the backbone of all our success in the construction business.

Our objective is to foster development of our employees through attractive and cohesive HR policies, and a work environment which attracts and motivates caliber workforce. We aim to be the employer of choice in the industry. Presently, among the private sector Galfar has one of the largest numbers of Omani’s in the Sultanate.

Omanization and Training

For over 40 years Galfar has been an active partner in the progress of the Sultanate of Oman whether in the Oil and Gas, Roads and Bridges or Civil and Marine Infrastructure or Utilities and Services sector of the construction industry. Galfar’s efforts towards Omanization are unmatched. Our Omanization policies ensure that professional youth join the company at all levels and grow within the organization and contribute effectively in the growth of the company.

Galfar Training Institute (GTI) has been actively involved in training more than 636 Omanis under the National Project Training for the last three years along with 3334 Galfar employees in PDO Defensive Driving Course and more than 2000 in HSE, Management and soft skills programs.

Backed by Galfar Engineering and Contracting, GTI is an approved institute with the Ministry of Manpower. It offers vocational training courses in construction and engineering and provides training in health, safety and environment and firefighting courses. GTI’s major focus is to train Omani nationals as Heavy Duty Drivers (HDD) and for technical trades under the national training programme.

It also imparts defensive driving training programs to Galfar (as an in-house training provider) that help employees to identify and effectively deal with real and potential hazards in the oilfields and urban traffic.


Quality, Health, Safety and Environment

Our Quality & HSE Management Systems are periodically reviewed and updated so that they remain relevant and comprehensive to meet business expectations.

Periodic surveillance audits by Det Norske Veritas (DNV) against ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 and ISO 29001:2010 international standards continue to provide assurance to stakeholders on our ability to meet their expectations.

The release of The Engineering Manual mapping our design processes and interfaces was another key milestone achieved in support of Company’s strategy to achieve EPC capability.

During year 2013 we have worked 97 million man hours and have driven 122 million kilometers collectively in our projects throughout the country. Despite exposure to this enormous amount of activities & challenges, our Lost Time Injury Frequency recorded for the year 2013 is 0.30 per million man hours worked, which is lower than the limit set for the year (0.40).

Several achievements were recorded in terms of man hours worked without Lost Time Injury in our projects / units. The significant ones are 11 million man hours in U&S Unit, 10 million man hours in Oil & Gas Unit, 9 million man hours in Plant Unit, 9 million man hours in Airports Unit and 8 million man hours in R&B Unit.

In our pursuit for continual improvement, various initiatives were identified through’ our Corporate Quality and HSE Plans and its implementation were monitored on a periodic basis during the Management Reviews.

Risks

Risks remain an integral part of the construction business in the region. A sudden spurt in the development activities in the country and in other nearby countries affect the resource availability in a big way in the Sultanate be it for material, manpower or equipment. Such activities are now becoming a reality and we need to take adequate precautions and guard ourselves against failures. While a majority of these are manageable some have their own challenges to be dealt with. Project risks are identified at the tender stage itself and discussed with the tender approving authority within the company. The risks and control measures are presented to and discussed with the board in every board meeting.


Operating a company as large as ours, needs risk analysis on a continuous basis. One of our greatest challenges is the low bids presented by first time entrants within Oman and international companies without “on ground” experience. However we have learnt to face these risks throughout our growing period and up until now. We believe we remain steadfast and will maintain our position as the leader in the construction industry. As expected and informed in the management discussion of 2012 our results for 2013 is better than 2012.

Our resource mobilization capabilities continue to be our major strength. The equipment spread available within Galfar remains unparalleled in the local market. Each year the fleet is brought up-to-date for executing the actual workload.

Internal Controls Systems

During the year 2013 certain shortcomings came to light which requires that adequate controls are put in place. To enhance and strengthen the internal control systems the company has appointed KPMG to review and advice on the adequacy of the internal financial policies, procedures, controls, code of conduct including whistle blowing policy etc.

The Manual of authority has been duly revised and approved by the Board and is being implemented now. The Management would like to assure that it is fully aware of its responsibility towards all stakeholders.

Corporate Social initiatives and Campaigns

The company’s regular CSR initiatives include: organizing blood donation camps at various locations of the company, road safety events for the benefit of general public, supporting Oman Water Conservation Society’s effort to save water, providing educational scholarships to deserving children and Galfar training institute activities. (OEPPA Business Development Department)

As part of its Corporate Social Responsibility Galfar has donated a 27 seater bus to Al Massara Hospital in Al Amerat. Galfar is in the process of forming a CSR committee and policy to seek and provide a helping hand to the various segments of the local community


During last year’s Gulf Eco Conference 2013 themed “Harnessing the Potential of Oman’s Renewable Energy”, Galfar’s strategic participation proved to be a milestone achievement. Our participation demonstrated our commitment to environment and green practices. Galfar is always at the heart of organizing environment awareness

Campaigns frequently for their construction workers which reminds them of simple measures to be taken in their day-to-day activities which in turn will have a positive impact on the environment. At the conference, various topics such as challenges on climate change, technological solutions, financial and investment related issues and policies and regulatory issues, were highlighted, all of which are essential to help drive the Sultanate towards a clean energy future.

Yet another achievement of Galfar remains, supporting the campaign against drugs, smoking and alcohol. Galfar presented an edutainment event called ‘Stop SAD’ which was staged across Oman. The programme helped in reaching out to young people and their families facing the risks of addiction. It created maximum awareness and got support from non-profit groups like Al Hayat Association along with Indian Social Club (ISC).

Galfar is always keen to work in partnership with other government agencies and the private sector to ensure healthy living in Oman.

Galfar has throughout remained a partner in progress in Oman and will continue to be an integral part of the society. We will strive to deliver in time, with quality and in a safe manner profitably to all our stakeholders. We will carry the “Brand Oman” as a high value deliverable as we establish ourselves overseas stronger and larger than ever before.

Outlook

The outlook for construction industry in Oman is brighter than ever before. As already stated in the Directors report we have reasons to be enthusiastic about the projects in the immediate future.

The Oil and Gas industry today is poised to surge by leaps and bounds with activities in the upstream both in Oil and in Gas where most of the E&P companies looking towards boosting their production. The Petroleum Development of Oman is expected to proceed with the mega-construction project at Rabab, Harweel, Yibal-Kuff and Budoor called the RHIP project while continuing the usual activities across the rest of Oman. BP Oman has likewise embarked on the development activities at the Khazzan Gas field.


The other companies too are active in their development works. In the downstream the Sohar Refinery has already awarded the contract for the new refinery and enquiries for the related construction activities are being received by us. There are pipeline and tankage, power generation, and other packages where we expect to procure work.

The Roads, Railways, Airports and Ports are all developing at a rapid pace and we expect our related units to be busy over the next few years once we secure the required projects amongst the ones being floated.

The Building is expected to grow phenomenally with Hotels, Hospitals, Convention Centre, and Heritage Centers being built within the next few years. Water and wastewater is another sector where we have expertise over our competitors by having carried out many such treatment and conveyance projects all over Oman.

Galfar has the advantage of being strategically placed at several locations to secure projects of choice. This kind of versatility in operations and the wide logistic base are difficult for others to establish thus making Galfar a trusted one stop solution provider for our esteemed customers.

Galfar credits itself by being the leader in the “In Country Value” initiative. We are proud to say that our ICV material and sub contract procurement has exceeded RO. 100 million during the year 2013, which more than 25% of our turnover. Such figures are incomparable with others both in numbers and percentages. On the Omanization front also we have continued to outnumber our competitors with over 4600 nationals while over 200 are undergoing training before being inducted on to the company roles.

Galfar’s Order Book position is healthy and stands at RO 610 million at the beginning of the year 2014.

Galfar is also a reputed facilities management provider in the Sultanate, commanding an exceptionally high level of client retention and steady growth for the last two decades. We offer a full range of facilities and asset management services with innovative solutions tailored to support clients from different sectors. Galfar provides operation and maintenance services to a majority of sewage treatment and desalination plants in Oman among which the company has constructed many of these plants. Galfar’s expertise in this core area is unmatched by its competitors.

Over the years, Galfar has grown to become one of Oman’s leading facilities management companies. The company’s proactive approach has earned many accolades as well as contracts from local customers. Through one of our subsidiaries


Aspire Projects and Services LLC, we have entered into the specialized Facilities Management segment for establishments. Aspire will focus on energy saving, water cycle management, alternative power and several such green energy initiatives.

The Indian operations of Galfar created significant value and continue to remain a key growth area as the demand for roads and highways is continually growing. The previously awarded two major highway projects are now entering the stage of financial closure and the project activities have begun at site.

We salute His Majesty Sultan Qaboos, who in 43 years of his rule has transformed this country into a powerful modern economy in the region; we endeavor to reach even higher standards of project delivery through continuous introspection of our procedures and systems and will lead by action in Omanization as a true Omani enterprise.

Galfar’s broad image as a premier Omani company with international presence is without comparison, and we can deliver projects in all the sections of engineering and construction industry, with high quality standards in a safe and timely manner to the entire satisfaction of all stake holders.

Hans Erlings

Chief Executive Officer

Galfar Engineering & Contracting SAOG & SubsidiariesConsolidated Statement of Financial Position As at 31st December, 2013 Amount in RO '000s

Notes Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012ASSETSNon-current AssetsProperty, plant and equipment 3 110,404 105,750 120,347 115,010 Intangible assets 4 1,514 1,784 1,533 1,792 Investment in subsidiaries 5 1,940 1,163 - - Investment in associates 6 8,706 8,661 6,444 9,729 Investment available-for-sale 125 125 145 145 Retentions receivables 9 32,246 22,249 32,246 22,249

154,935 139,732 160,715 148,925 Current AssetsInventories 7 35,569 32,593 36,488 32,828 Due from customers on contracts 8 53,582 44,778 54,737 45,313 Contract and trade receivables 9 201,469 189,462 205,328 195,889 Advances, prepayments and other receivables 10 19,848 21,654 18,762 17,451 Deposits with bank 11 11,551 12,631 11,591 12,674 Cash and bank balances 12 4,169 1,736 6,092 3,468

326,188 302,854 332,998 307,623 Total Assets 481,123 442,586 493,713 456,548 EQUITY AND LIABILITIES EquityShare capital 13 37,747 33,000 37,747 33,000 Share premium 14 23,370 16,503 23,370 16,503 Statutory reserve 15 12,582 11,000 12,888 11,106 Foreign currency translation reserve 16 - - (1,788) (1,019) Retained earnings 32,080 30,964 32,978 31,420

105,779 91,467 105,195 91,010 Non controlling interest - - 986 848 Total Equity 105,779 91,467 106,181 91,858 Non-current LiabilitiesTerm loans 18 46,150 27,721 46,714 28,337 Employees' end of service benefits 22 10,919 8,658 11,067 8,788 Contract advances from customers 23 9,450 32,827 9,450 32,827 Deferred tax liability 24 6,899 7,120 7,305 7,302

73,418 76,326 74,536 77,254 Current LiabilitiesTerm loans - current portion 18 30,625 36,401 31,116 36,955 Short term loans 19 35,400 35,650 35,400 35,650 Bank borrowings 20 87,713 58,094 90,248 61,903 Trade payables 21 91,678 87,251 96,171 90,031 Other payables and provisions 23 55,333 55,915 59,319 60,894 Provision for taxation 24 1,177 1,482 742 2,003

301,926 274,793 312,996 287,436 Total Liabilities 375,344 351,119 387,532 364,690 Total Equity and Liabilities 481,123 442,586 493,713 456,548

Net Assets per share (RO) 32 0.280 0.277 0.279 0.276

____________________ ____________________________Chairman

The attached notes 1 to 39 form part of these consolidated financial statements.

DGM - Finance

Consolidated

The consolidated financial statements were approved by board of directors on 6th March, 2014 and were signed on their behalf by:

Parent Company

Galfar Engineering & Contracting SAOG & Subsidiaries

Consolidated Statement of Comprehensive IncomeFor the year ended 31st December, 2013 Amount in RO '000s

Notes Year 2013 Year 2012 Year 2013 Year 2012

Contract income 392,178 320,615 403,723 328,817

Sales and services income 25 2,097 3,560 8,685 7,687

Total revenue 394,275 324,175 412,408 336,504

Other income 26 1,634 2,598 1,844 2,784

Cost and other direct costs 27 (367,517) (298,656) (380,257) (307,634)

Gross Profit 28,392 28,117 33,995 31,654

General and administrative expenses 28 (11,404) (10,034) (12,959) (11,000)

Profit from operations 16,988 18,083 21,036 20,654

Financing costs, (net) 30 (9,078) (7,116) (9,578) (7,829)

Share of loss of associates 6 - - (1,618) (1,436)

Profit before tax 7,910 10,967 9,840 11,389

Income tax expense 24 (1,019) (1,389) (2,256) (2,183)

6,891 9,578 7,584 9,206

Other comprehensive income:

Item that may be subsequently reclassified to profit or loss:

Foreign currency translation difference - - (769) (1,019)

Total comprehensive income for the year 6,891 9,578 6,815 8,187

Profit attributable to:

Equity shareholders of parent company 6,891 9,578 7,533 9,044

Non-controlling interests - - 51 162

6,891 9,578 7,584 9,206Basic and diluted earnings per shareattributable to the equity shareholders of theparent company (RO) 31 0.020 0.029 0.022 0.027


Consolidated

Profit for the year

Parent Company

Galfar Engineering & Contracting SAOG & SubsidiariesConsolidated Statement of Cash FlowsFor the year ended 31st December, 2013 Amount in RO '000s

Year 2013 Year 2012 Year 2013 Year 2012Operating Activities

7,910 10,967 9,840 11,389 Adjustments for: Finance cost 9,078 7,116 9,578 7,829

Depreciation on property, plant and equipment 22,449 22,106 23,881 22,716 Amortisation of intangible assets 405 108 406 108 Employees' end of service benefits 2,619 2,106 2,724 2,167 Share of loss of associates - - 1,618 1,436 Gain on disposal of plant and equipment (437) (1,840) (453) (1,888)

Payment of end of service benefits (358) (902) (445) (938) Working capital changes:

Inventories (2,976) (3,744) (3,660) (3,788) Trade and other receivables (19,005) (28,390) (20,174) (28,575) Trade and other payables 3,846 309 4,565 5,000 Retention receivables (9,997) (5,499) (9,997) (5,499) Advance payables (23,378) 9,577 (23,378) 9,577 Income tax paid (1,545) (1,165) (3,514) (2,292)

Net cash (used in) /generated from operating activities (11,389) 10,749 (9,009) 17,242 Investing Activities

Purchases of property, plant and equipment (28,917) (25,712) (31,369) (30,126) Purchases of intangible assets (135) (1,522) (147) (1,528) Disposal of property, plant and equipment 2,251 7,687 2,604 8,014 Investment in associates and subsidiaries (822) (113) 986 (2,510) Bank deposits 1,080 (11,621) 1,083 (11,624) Interest income 307 68 319 83

Net cash used in investing activities (26,236) (31,213) (26,524) (37,691) Financing Activities

Share capital raised 13,196 - 13,196 - Bank borrowings 29,619 12,171 28,345 14,679 Term loans and finance lease 12,653 9,422 12,538 8,951 Short term loans (250) 9,800 (250) 9,800 Interest expenses (9,385) (7,184) (9,897) (7,912) Dividend paid (5,775) (3,960) (5,775) (3,960)

Net cash generated from financing activities 40,058 20,249 38,157 21,558

Net increase/(decrease) in cash and bank balances 2,433 (215) 2,624 1,109

Cash and bank balances at beginning of the year 1,736 1,951 3,468 2,359 Cash and bank balances at end of the year 4,169 1,736 6,092 3,468


Parent Company Consolidated

Profit before taxation

Operating results before payment of end of service benefits and working capital changes


Statement of Changes in Equity -Parent CompanyFor the year ended 31st December, 2013 Amount in RO '000s

Note Share Capital Share Premium Statutory Reserve

Retained Earnings Total equity

Balance as at 1 January, 2012 33,000 16,503 11,000 25,346 85,849

Comprehensive income:

Profit for the year - - - 9,578 9,578

Transaction with Shareholders

Dividend paid - 2011 17 - - - (3,960) (3,960)

Balance as at 1 January, 2013 33,000 16,503 11,000 30,964 91,467


Profit for the year - - - 6,891 6,891


Share capital raised by way of right issue 13 4,747 8,449 - - 13,196

Transfer to statutory reserve 14,15 - (1,582) 1,582 - -

Dividend paid - 2012 17 - - - (5,775) (5,775)

Transaction with Shareholders 4,747 6,867 1,582 (5,775) 7,421

Balance as at 31 December, 2013 37,747 23,370 12,582 32,080 105,779


Attributable to equity holders of the parent company

Galfar Engineering & Contracting SAOG & SubsidiariesStatement of Changes in Equity -Consolidated For the year ended 31st December, 2013 Amount in RO '000s

Note Share Capital

Share Premium

Statutory Reserve

Foreign Currency Translation

Reserve

Retained Earnings Total Total equity

Balance as at 1 January, 2012 33,000 16,503 11,085 - 26,357 86,945 686 87,631


Profit for the year - - - - 9,044 9,044 162 9,206


Transfer to reserve 15 - - 21 - (21) - - -

Foreign currency translation reserve 16 - - - (1,019) - (1,019) - (1,019)

Dividend paid - 2011 17 - - - - (3,960) (3,960) - (3,960)

Transaction with Shareholders - - 21 (1,019) (3,981) (4,979) - (4,979) Balance as at 1 January, 2013 33,000 16,503 11,106 (1,019) 31,420 91,010 848 91,858

Comprehensive income:Profit for the year - - - - 7,533 7,533 51 7,584 Transaction with Shareholders

Share capital raised by way of right issue 13,14 4,747 8,449 - - - 13,196 - 13,196 Non-controlling interest in new subsidiary - - - - - - 87 87 Transfer to statutory reserve 15 - (1,582) 1,782 - (200) - - - Foreign currency translation reserve 16 - - - (769) - (769) - (769) Dividend paid - 2012 17 - - - - (5,775) (5,775) - (5,775) Transaction with Shareholders 4,747 6,867 1,782 (769) (5,975) 6,652 87 6,739

Balance as at 31 December, 2013 37,747 23,370 12,888 (1,788) 32,978 105,195 986 106,181


Attributable to equity holders of the parent company

Non controlling

interest


Notes to Consolidated Financial StatementsAs at 31st December, 2013

1. Activities

Galfar Engineering and Contracting SAOG (“the parent company”) is an Omani joint stock company registered under the Commercial Companies Law ofthe Sultanate of Oman and listed in Muscat Security Exchange.

The principal activities of Galfar Engineering and Contracting SAOG and its subsidiaries (“the group”) are road, bridge and airport construction, oil and gasincluding EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts.

2. Significant Accounting Policies

Basis of preparationThese consolidated financial statements are prepared on the historical cost basis, as modified by the revaluation of derivative financial instruments at fairvalue through statement of comprehensive income and available-for-sale financial assets that have been measured at fair value and in accordance withInternational Financial Reporting Standards (IFRS), the requirements of the Commercial Companies Law of the Sultanate of Oman, 1974 (as amended)and comply with the disclosure requirements set out in the ‘Rules and Guidelines on Disclosure by issuer of Securities and Insider Trading’ issued by theCapital Market Authority (CMA) of the Sultanate of Oman.

The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect thereported amount of financial assets and liabilities at the date of the financial statements and the resultant provisions and changes in fair value for the year.Such estimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment anduncertainty and actual results may differ from management’s estimates resulting in future changes in estimated assets and liabilities. The assumptionsconcerning the key sources of estimation uncertainty at the reporting date are set out in note 38.

These consolidated financial statements have been presented in Rial Omani which is the functional and reporting currency for these consolidated financialstatements and all values are rounded to nearest thousand (RO '000) except when otherwise indicated.

Change in accounting policy and disclosuresThe accounting policies are consistent with those used in the previous financial year.

Standards and amendments effective in 2013 and relevant for the group’s operations:

For the year ended 31 December 2013, the group has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for periods beginning on 1 January 2013.

The adoption of these standards and interpretations has not resulted in changes to the group’s accounting policies and has not affected the amountsreported for the current year.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the group:

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the group’s accountingperiods beginning on or after 1 January 2014 or later periods, but the group has not early adopted them and the impact of these standards andinterpretations is not reasonably estimable as at 31 December 2013:

IFRS 9, ‘Financial instruments’, (effective on or after 1 January 2015);IAS 36, ‘Impairment of assets’ (effective on or after 1 January 2014); and IAS 32, ‘Financial instruments: Presentation’ (effective on or after 1 January 2014).

Accounting PoliciesThe significant accounting policies adopted by the group are as follows:

Basis of consolidationThe consolidated financial statements comprise those of Galfar Engineering and Contracting SAOG, its subsidiaries and its associates as at closing ofeach period. A subsidiary is a company in which the parent company owns, directly or indirectly more than half of the voting power.



2. Significant Accounting Policies (continued)Basis of consolidation (continued)The subsidiary is consolidated from the date on which control is transferred to the group and ceases to be consolidated from the date on which control istransferred out of the group.

The financial statements of the subsidiary are prepared for the same reporting period as the parent company using consistent accounting policies.Adjustments are made to bring into line any dissimilar accounting policies which may exist.

All intercompany balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated.

A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.

Losses are attributed to the non-controlling interest even if that results in a deficit balance.

If the group loses control over a subsidiary, it:• Derecognises the assets (including goodwill) and liabilities of the subsidiary• Derecognises the carrying amount of any non-controlling interests• Derecognises the cumulative translation differences, recorded in equity• Recognises the fair value of the consideration received• Recognises the fair value of any investment retained• Recognises any surplus or deficit in profit or loss• Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss

In the parent company’s separate financial statements, the investment in the subsidiary is carried at cost less impairment.

Business combinations and goodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the considerationtransferred, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination,the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.Acquisition costs incurred are expensed and included in administrative expenses.

When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordancewith the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embeddedderivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree isremeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair valueof the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as achange to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled withinequity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controllinginterest, over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of thesubsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired ina business combination is, from the acquisition date, allocated to each of the group’s cash-generating units that are expected to benefit from thecombination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

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



2. Significant Accounting Policies (continued)

Business combinations and goodwill (continued)Changes in ownership interests in subsidiaries without change of control:Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with theowners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value ofnet assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Disposal of subsidiaries:Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with theowners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value ofnet assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Investments in associatesThe group’s investments in its associates are accounted for under the equity method of accounting. In the parent company's separate financialstatements, the investment in an associate is carried at cost less impairment. An associate is an entity in which the group has significant influence andwhich is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post- acquisition changes in thegroup’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment. After application of theequity method, the group determines whether it is necessary to recognise any additional impairment loss with respect to the group’s net investment in theassociate. The statement of comprehensive income reflects the share of the results of operations of the associate. Where there has been a changerecognised directly in the equity of the associate, the group recognises its share of any changes and discloses this, when applicable, in the statement ofchanges in equity. Profits and losses resulting from transactions between the group and the associate are eliminated to the extent of the interest in theassociate.

The financial statements of the associates are prepared for the same reporting period as the parent company using consistent accounting policies.Adjustments are made to bring into line any dissimilar accounting policies which may exist.

Property, plant and equipment All items of property, plant and equipment held for the use of group’s activities are recorded at cost less accumulated depreciation and any identifiedimpairment loss. Land is not depreciated. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced atintervals, the group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspectionis performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All otherrepair and maintenance costs are recognised in the statement of comprehensive income as incurred.

Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, on thefollowing bases:

Buildings and camps 4 - 15 yearsPlant and machinery 7 - 10 years Motor vehicles and heavy equipment 7 - 10 yearsFurniture and office equipment 5 - 6 yearsProject equipment and tools 6 - 9 years

Items costing less than RO 100 are expensed out in the year of purchase.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end. Where the carrying value of an asset isgreater than its estimated recoverable amount, it is written down immediately to its recoverable amount.




Property, plant and equipment (continued)An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposalproceeds and the carrying amount of the asset is recognised in the statement of comprehensive income when the asset is derecognised.

Capital work in progress Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less anyrecognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for theirintended use. Intangible assets Computer software costs that are directly associated with identifiable and unique software products and have probable economic benefits exceeding thecosts beyond one year are recognised as an intangible asset. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads. Computer software costs recognised as an asset are amortised using the straight-line method over the estimated useful life of fiveyears.

Available-for-sale investments Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in general, subsequently carried at fairvalue. Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonablyestimating fair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment. Changes in fair value are reportedas other comprehensive income.

An assessment is made at each reporting date to determine whether there is objective evidence that an investment may be impaired. If such evidenceexists, any impairment loss (being the difference between cost and fair value, less any impairment loss previously recognised) is removed from othercomprehensive income and recognised in the income statement.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises purchase price and all direct costs incurred in bringing the inventoriesto their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling priceless all estimated costs to be incurred in marketing, selling and distribution. Provision is made where necessary for obsolete, slow moving and defectiveitems.

Impairment of non-financial assetsAt each reporting date, the group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have sufferedan impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss,if any. For the purpose of assessing the impairment, assets are grouped at the lowest level for which they are largely independent cash flows (cashgenerating units).An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups ofassets.

The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and isrecognised immediately in the statement of comprehensive income.




Impairment of non-financial assets (Continued)An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist ormay have decreased. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of itsrecoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed thecarrying amount that would have been determined, had no impairment loss been recognised earlier.

Financial instruments Financial assets and financial liabilities are recognised on the group’s statement of financial position when the group becomes a party to the contractualprovisions of the instrument.

The principal financial assets are trade and other receivables, term deposits, available for sale investments and cash and bank balances. The principal financial liabilities are trade payables, liabilities against finance leases, term loans, bank borrowings and overdrafts.

Trade and other receivablesTrade receivables are amounts due from customers for billing in the ordinary course of business for construction contracts. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

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

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

Term depositsTerm deposits are carried on the statement of financial position at their principal amount.

Cash and cash equivalentsFor the purpose of the cash flows statement, the group considers cash on hand and bank balances with a maturity of less than three months from the dateof placement as cash and cash equivalents.

Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payableare classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they arepresented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Interest-bearing loans and borrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are classified as current liabilities unless the company has anunconditional right to defer settlement of the liability for at least 12 months after the reporting date.

At the time of assessing the impairment on its investments in associates, the group determines, after application of the equity method, whether it isnecessary to recognise an additional impairment loss of the group’s investment in its associates. The group determines at each reporting date whetherthere is any objective evidence that the investment in associate is impaired. If this is the case the group calculates the amount of impairment as being thedifference between the fair value of the associate and the acquisition cost and recognises the amount in the statement of comprehensive income.




Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to getready for its intended use or sale are capitalised as part of the cost of the respective assets untill such time as the assets are substantially ready for theirintended use. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs inconnection with the borrowing of funds.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfillmentof the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitionalrequirements of IFRIC 4.

Group as a lesseeFinance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at thecommencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments areapportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are recognised in the statement of comprehensive income.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the group will obtain ownership by the endof the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Derecognition of financial assets and liabilitiesA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: - The rights to receive cash flows from the asset have expired; or- The group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full withoutmaterial delay to a third party under a ‘pass-through’ arrangement; and either:- The group has transferred substantially all the risks and rewards of the asset, or - The group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability isreplaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchangeor modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carryingamounts is recognised in the statement of comprehensive income.

Impairment of financial assets

The group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financialasset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is objective evidence of impairment as a result ofone or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimatedfuture cash flows of the financial asset or group of financial assets that can be reliably estimated.

Impairment is determined as follows:(a) For assets carried at fair value, impairment is the difference between cost and fair value;(b) For assets carried at cost, impairment is the difference between cost and the present value of future cash flows discounted at the current market rateof return for a similar financial asset.(c) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted atthe original effective interest rate.




Offsetting

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legallyenforceable right to set off the recognised amounts and the group intends to either settle on a net basis, or to realise the asset and settle the liabilitysimultaneously.

ProvisionsProvisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or constructive obligationas a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operatinglosses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class ofobligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligationsmay be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the risks specific to the obligation.

Provision for employees’ benefits Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.

End of service benefits for non-Omani employees are accrued in accordance with the terms of employment of the company's employees at the reportingdate, having regard to the requirements of the Oman Labour Law 2003, as amended and in accordance with IAS-19 ‘Employee Benefits’. Employeeentitlements to annual leave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability arisingas a result of services rendered by employees up to the reporting date. These accruals are included in current liabilities, while that relating to end ofservice benefits is disclosed as a non-current liability.

Dividend on ordinary sharesDividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the company’s shareholders.

Taxation Current income taxTaxation is provided based on relevant laws of the respective countries in which the group operates. Current income tax assets and liabilities for thecurrent and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred taxationDeferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply tothe period when the asset is realised or the liability is settled, based on laws that have been enacted at the reporting date.

Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused tax losses to theextent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assetsand unused tax losses can be utilised.




Taxation (continued)The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting dateand are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to theunderlying transaction either in other comprehensive income or directly in equity.

Contract revenue and profit recognition

A construction contract is defined by IAS 11 as a contract specifically negotiated for the construction of an asset.

Contract revenue comprises the value of work executed during the period. Where the outcome of a construction contract can be estimated reliably,revenue is recognised by reference to the stage of completion of the construction activity at the reporting date, as measured by surveys of workperformed. In the case of unprofitable contracts provision is made for foreseeable losses in full. Contract revenue corresponds to the initial amount ofrevenue agreed in the contract and any variations in contract work, claims and incentive payments to the extent that it is probable that they will result inrevenue, and they can be reliably measured.

A variation is included in contract revenue when:(a) it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and (b) the amounts of revenue can be reliably measured.

Claims are included in contract revenue only when:(a) negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and (b) the amount that it is probable will be accepted by the customer can be measured reliably.

Incentive payments are included in contract revenue when:(a) the contract is sufficiently advanced that it is probable that the specified performance standards will be met or exceeded; and (b) the amount of the incentive payment can be measured reliably.

Contract work in progressWork in progress on long term contracts is calculated at cost plus attributable profit, to the extent that this is reasonably certain after making provision forcontingencies, less any losses foreseen in bringing contracts to completion and less amounts received and receivable as progress payments. These aredisclosed as 'Due from customers on contracts'. Cost for this purpose includes direct labour, direct expenses and an appropriate allocation of overheads.For any contracts where receipts plus receivables exceed the book value of work done, the excess is included as ' Due to customers on contracts' inaccounts payable and accruals.

Sales and service incomeRevenue from sales of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount ofrevenue can be measured reliably.

Revenue from rendering of services is recognised when the outcome of the transaction can be estimated reliably, by reference to the stage of completionof the transaction at the reporting date.

Contract costsContract costs include costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocated tothe contract. Costs that relate directly to a specific contract comprise: site labour costs (including site supervision); costs of materials used in construction;depreciation of equipment used on the contract; costs of design, and technical assistance that is directly related to the contract.

The Group’s contracts are typically negotiated for the construction of a single asset or a group of assets which are closely interrelated or interdependent interms of their design, technology and function. In certain circumstances, the percentage of completion method is applied to the separately identifiablecomponents of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.

Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.




Interest income

Interest income and expense are accounted for on an accrual basis using the effective interest rate method.

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

Directors’ remuneration The Parent Company follows the Commercial Companies Law 1974 (as amended), and other latest relevant directives issued by CMA, in regard todetermination of the amount to be paid as Directors’ remuneration. Directors’ remuneration is charged to the statement of comprehensive income in thesucceeding year to which they relate after its approval in AGM.

Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, netof tax, from the proceeds.

Where any group company purchases the company’s equity share capital (treasury shares), the consideration paid, including any directly attributableincremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued.Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and therelated income tax effects, is included in equity attributable to the company’s equity holders.

Foreign currency translationEach entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using thatfunctional currency. Items included in the financial statements of the company are measured and presented in Rials Omani being the currency of theprimary economic environment in which the parent company operates.

Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to thestatement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using theexchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.

Segment reporting A segment is a distinguishable component of the group that is engaged in providing products or services (business segment) or in providing products orservices within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of othersegments. The segment information is set out in note 35.


3. Property, plant and equipment - Parent Company Amount in RO '000s

Particulars Land Building & Camps

Plant & Machinery

Motor Vehicles &

Heavy Equipment

Furniture & Office

Equipment

Project Equipment &

Tools

Capital Work-in- Progress Total

CostAt 1 January 2012 1,278 24,415 109,004 71,094 13,166 12,487 2,402 233,846 Additions - 1,022 13,514 5,913 75 1,341 3,847 25,712 Disposals - (74) (8,068) (7,052) (422) (10) - (15,626) Transfers - 233 - - 953 - (1,186) -

At 1 January 2013 1,278 25,596 114,450 69,955 13,772 13,818 5,063 243,932 Additions 849 15,832 7,941 952 1,254 2,089 28,917 Disposals - (193) (2,588) (2,897) (140) (17) - (5,835) Transfers - 7,152 - - - - (7,152) - At 31 December 2013 1,278 33,404 127,694 74,999 14,584 15,055 - 267,014

DepreciationAt 1 January 2012 - 17,185 53,294 36,626 10,219 8,531 - 125,855 Charge for the year - 1,382 10,551 6,865 1,735 1,573 - 22,106 Disposals - (74) (4,812) (4,763) (126) (4) - (9,779)

At 1 January 2013 - 18,493 59,033 38,728 11,828 10,100 - 138,182 Charge for the year - 1,341 11,584 7,256 864 1,404 - 22,449 Disposals - (193) (1,674) (2,133) (4) (17) - (4,021) At 31 December 2013 - 19,641 68,943 43,851 12,688 11,487 - 156,610

Net book value 1,278 13,763 58,751 31,148 1,896 3,568 - 110,404

At 31 December 2012 1,278 7,103 55,417 31,227 1,944 3,718 5,063 105,750


3. Property, plant and equipment - Consolidated Amount in RO '000s

Description Land Building & Camps

Plant & Machinery

Motor Vehicles &

Heavy Equipment

Furniture & Office

Equipment

Project Equipment &

Tools

Capital Work-in- Progress Total

CostAt 1 January 2012 1,278 24,578 116,129 74,927 13,498 12,571 2,402 245,383 Additions - 1,022 16,167 7,118 109 1,371 4,339 30,126 Disposals - (74) (8,483) (7,097) (489) (10) - (16,153) Transfers - 233 - - 953 - (1,186) -

At 1 January 2013 1,278 25,759 123,813 74,948 14,071 13,932 5,555 259,356 Additions - 853 17,614 8,683 1,083 1,298 1,838 31,369 Disposals - (193) (3,164) (2,742) (126) (42) (16) (6,283) Transfers - 7,152 - - - - (7,152) - At 31 December 2013 1,278 33,571 138,263 80,889 15,028 15,188 225 284,442

DepreciationAt 1 January 2012 - 17,202 56,624 38,946 10,350 8,535 - 131,657 Charge for the year - 1,397 11,017 6,991 1,741 1,570 - 22,716 Disposals - (74) (5,008) (4,819) (129) 3 - (10,027)

At 1 January 2013 - 18,525 62,633 41,118 11,962 10,108 - 144,346 Charge for the period - 1,357 12,495 7,715 900 1,414 - 23,881 Disposals - (193) (1,784) (2,132) (3) (20) - (4,132) At 31 December 2013 - 19,689 73,344 46,701 12,859 11,502 - 164,095

Net book value 1,278 13,882 64,919 34,188 2,169 3,686 225 120,347

At 31 December 2012 1,278 7,234 61,180 33,830 2,109 3,824 5,555 115,010


Notes to Consolidated Financial StatementsAs at 31st December, 2013 Amount in RO '000s

Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012

3. Property, plant and equipment (continued)

Depreciation of property, plant and equipment is allocated as follows:Contract costs (note 27) 21,524 21,579 22,916 22,176

General and administrative expenses (note 28) 925 527 965 540

22,449 22,106 23,881 22,716

4. Intangible assetsCostBalance at beginning of the year 2,558 1,036 2,566 1,038Addition for the year 135 1,522 147 1,528Balance at end of the year 2,693 2,558 2,713 2,566

AmortisationBalance at beginning of the year 774 666 774 666Charge for the year (note 27) 405 108 406 108Balance at end of the year 1,179 774 1,180 774

Net book value at end of the year 1,514 1,784 1,533 1,792

5. Investment in subsidiariesAl Khalij Heavy Equipment & Engineering LLC 600 600 - - Galfar Training Institute LLC 149 149 - - Galfar Engineering & Contracting India Pvt. Ltd. 8 8 - - Galfar Wasen Contracting Company (iii) 58 58 - - Aspire Projects & Services LLC 200 200 - - Galfar Aspire Readymix LLC 148 148 - - Kashipur Sitarganj Highways Pvt. Ltd. (i) 307 - - - Salasar Highways Pvt. Ltd. (i) 307 - - - Galfar Mott MacDonald LLC (ii) 163 - - -

1,940 1,163 - -

Information of subsidiary companies is summarised below:

2013 2012Principal activity

Al Khalij Heavy Equipment & Engineering LLC 52.2% 52.2% Hiring Equipment OmanGalfar Training Institute LLC 99.5% 99.5% Training OmanGalfar Engineering & Contracting India Pvt. Ltd. 100% 100% Construction IndiaGalfar Wasen Contracting Company (iii) 65% 65% Construction LibyaAspire Projects & Services LLC 100% 100% Construction OmanGalfar Aspire Readymix LLC 99% 99% Manufacturing OmanKashipur Sitarganj Highways Pvt. Ltd. (i) 100% - Concessionaire IndiaSalasar Highways Pvt. Ltd. (i) 100% - Concessionaire IndiaGalfar Mott MacDonald LLC (ii) 65% - EPC consultancy Oman

Land and buildings with a net book value of RO 12,216 (2012: Nil) thousands have been mortgaged in favour of a commercial Bank, against termloan obtained by the company (note 18).

Shares acquired Country of

incorporation

Consolidated Parent Company



Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012 Consolidated Parent Company

5. Investment in subsidiaries (continued)

6. Investment in associatesGalfar Engineering & Contracting Kuwait KSC (GEC) (i) 5,323 5,323 3,229 4,319 Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 2,255 2,255 (406) 255 Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 739 739 1,608 2,218 Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 344 344 1,983 2,937 International Water Treatment LLC (IWT) (iii) 45 - 30 -

8,706 8,661 6,444 9,729

Information of associate companies is summarised below:

Shares acquired Principal activity Country of incorporation

2013 2012Galfar Engineering & Contracting Kuwait KSC (i) 26% 26% Construction KuwaitMahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 26% 26% Concessionaire IndiaShree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 26% 26% Concessionaire IndiaGhaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 26% 26% Concessionaire IndiaInternational Water Treatment LLC (iii) 30% - Construction Oman

(ii) Galfar Mott MacDonald LLC is incorporated in Oman in partnership with Mott MacDonald & Company LLC to provide engineering, procurement,commissioning and contract management services in oil and gas processing sector. The parent company has invested RO 163 thousands duringthe year.

(i) The parent company holds 26% shareholding in this company (earlier known as 'Shaheen Al Ghanim Contracting Co. KSC'). The company isengaged in construction activities.

(ii) The group holds 26% shareholding in these companies incorporated in India to handle Build,Operate,Transfer basis road projects. The MTPLhas commenced commercial activities in year 2011 while SJEPL and GAEPL projects are still under construction.

(iii) Galfar Wasen Contracting Company incorporated in Libya was erroneouly classified under 'Investment in associates' with 26% shareholding inpreviou year. The parent company is actually holding 65% shares of this company, so correctly classi fied here in this year.

(i) Salasar Highways Pvt. Ltd. and Kashipur Sitarganj Highways Pvt. Ltd., the two companies are incorporated in India as concessionaire to handleDesign, Build, Finance, Operate, Transfer (DBFOT) road projects 'Fatehpur-Salasar highway' and 'Kashipur-Sitarganj highway' with total projectcosts at equivalent RO 37,795 and RO 47,338 thousands respectively. The projects are awarded to the parent company in November, 2012 and tobe executed by the subsidiary company Galfar Engineering and Contracting India Pvt. Ltd. (GECIPL). The investment made during the year by theparent company and GECIPL is RO 307 thousands and RO 6 thousands respectively in each company, which is part of the total investment ofequivalent RO 6,421 and RO 7,026 thousands respectively to be made by the parent company along with its 100% subsidiary company. Theconstruction activity is yet to be commenced.

(iii) The parent company has acquired 30% share of this company during the year. The company is incorporated in partnership with VA TechWahbag Ltd. of India and Cadagua SA of Spain with 32.5% and 37.5% shareholding respectively. This company has been awarded 'Ghubrahwaste water project' with contract value of RO 82,962 thousands, which is being executed by the parent company on sub-contracting basis.




6. Investment in associates (continued)

The following table illustrates summarised information of the group’s investment in its associates:

Summarised financial information for associatesCurrent assets 10,667 5,366 Non-current assets 42,097 35,110 Current liabilities (12,513) (6,519)

Non-current liabilities (33,807) (24,228) Net assets and carrying amount of the investment 6,444 9,729

Share of associate’s statement of income:Revenue 10,708 4,194 Expenses (12,326) (5,630) Loss for the period (1,618) (1,436)

7. InventoriesMaterials and consumables 36,020 32,918 36,965 33,179 Less: allowance for slow moving inventories (451) (325) (477) (351)

35,569 32,593 36,488 32,828

8. Due from / (to) customers on contracts

53,582 44,778 54,737 45,313

3,692 3,044 6,169 6,464

Due from customers on construction contracts:Progress claims received and receivable 1,029,690 483,242 1,040,558 485,976 Less: Costs plus attributable profits (976,108) (438,464) (985,821) (440,663)

53,582 44,778 54,737 45,313

Due to customers on construction contracts: 307,709 568,340 323,319 578,265 Progress claims received and receivable (304,017) (565,296) (317,150) (571,801) Less: Costs plus attributable profits 3,692 3,044 6,169 6,464

9. Contract and trade receivablesContract billed receivables 172,119 157,875 172,871 161,824 Trade receivables 1,089 1,091 3,713 3,246 Retention receivables - current 28,261 30,496 28,783 30,819 Provision for impaired debts - - (39) -

201,469 189,462 205,328 195,889 Retentions receivables

Non-current portion 32,246 22,249 32,246 22,249

Work-in-progress on long term contracts at cost plus attributable profit considered as receivables

Loss for the period comprises of loss from GEC, Kuwait RO 1068 (2012: RO 684) thousands, MTPL, India RO 535 (2012: RO 661) thousands andIWT, Oman RO 15 ( 2012: RO nil) thousands.

To customers under construction contracts recorded as billings in excess of work done (note 23)




10. Advances, prepayment and other receivablesAdvance paid on sub-contracts and supplies 3,947 3,705 4,559 3,951 Advances to employees 1,078 1,230 1,078 1,230 Prepaid expenses 4,411 5,231 4,526 5,340 Due from related parties (note 33) 9,414 9,495 7,827 4,886 Insurance claims receivable 235 1,284 235 1,284 Deposits 496 576 522 606 Other receivables 267 133 289 154 Provision for impaired advances - - (274) -

19,848 21,654 18,762 17,451

11. Deposits with bankShort term deposits 11,551 12,631 11,551 12,631 Margin deposits - - 40 43

11,551 12,631 - 11,591 12,674

12. Cash and bank balancesCash in hand 271 310 300 326 Bank balances with current accounts 3,898 1,426 5,792 3,142

4,169 1,736 6,092 3,468

13. Share capitalAuthorised:

50,000 50,000 50,000 50,000 Issued and fully paid:Balance at beginning of the year 33,000 33,000 33,000 33,000 Proceeds from 47,468,761 shares issued during the year 4,747 - 4,747 -

Balance at end of the period 37,747 33,000 37,747 33,000

The term deposit carry interest rates of 1.0% to 2.0% (2012 - 1% to 2%) per annum and are placed of period three to twelve months from date ofplacement.

500,000,000 (2012: 500,000,000) ordinary shares of parvalue RO 0.100 (2012: RO 0.100) each

At the reporting date, the issued and fully paid share capital comprises of 377,468,761 (2012: 330,000,000) shares having a par value of RO0.100 (2012: RO 0.100) each. Pursuant to the terms of its IPO, as detailed below, the share capital of the Company has been divided into twoclasses comprising of 263,618,761 (2012: 231,000,000) ordinary shares and 113,850,000 (2012: 99,000,000) preferential voting rights shares. Thepreferential voting rights shares are held by the promoting shareholders and carry two votes at all general meetings while otherwise ranking pari-passu with ordinary shares in all rights including the dividend receipt.

In the year 2007 pursuant to the Parent Company’s IPO, the promoting shareholders of the Company offered a portion of their shares to the publicfor subscription and proposed to increase the Company’s share capital through a fresh issue of share capital. As part of the IPO process, the parvalue of the shares was split from RO 1 per share to RO 0.100 per share thereby increasing the number of shares from then existing 21,000,000 to210,000,000. Issues of stock dividend of 20% (50,000,000) in year 2009 and 10% (30,000,000) in year 2010 made the total shares at 330,000,000.During the current year, the Parent Company has offered right shares in the ratio of 15 to 100 shares at RO 0.280 per share. 47,468,761 sharesamounting to RO 4,747 thousands comprising 96% of shares offered were subscribed and issued.




14. Share premium

15. Statutory reserve

16. Foreign currency translation reserve

17. Dividend

18. Term loansTerm loans: - from banks 64,281 55,005 64,281 55,005 - finance companies 12,494 9,117 13,549 10,287

76,775 64,122 77,830 65,292 Current portion - from banks 26,179 32,393 26,179 32,393 - finance companies 4,446 4,008 4,937 4,562

30,625 36,401 31,116 36,955 Non-current portion - from banks 38,102 22,612 38,102 22,612 - finance companies 8,048 5,109 8,612 5,725

46,150 27,721 46,714 28,337

The term loans are repayable as follows:Within one year 30,625 36,401 31,116 36,955 In the second year 18,536 14,975 18,856 15,181 In the third to fifth year inclusive 27,614 12,746 27,858 13,156

76,775 64,122 77,830 65,292

The interest rates on term loans were as follows:

Floating rate loans LIBOR + 2.0% LIBOR + 1.75% to 2.00%Fixed interest rate loans 4.5% to 7.0% 4.99% to 8.25%

The long term loans are stated at the proceeds received net of repayments and amounts repayable within next twelve months have been shown asa current liability. The term loans from banks are secured against the contract assignments, registered mortgage over property located at Ghalaand/or joint registration of vehicle/equipment. The term loans from finance companies are secured against the jointly registered vehicle/equipment.

Year 2013 Year 2012

During the year the company has issued 47,468,761 right shares to shareholders at RO 0.280 with a nominal value of RO 0.100 and a sharepremium of RO 0.180. An amount of RO 13,196 thousands were collected comprising nominal value RO 4,747 million and share premium of RO8,449 thousands. An amount of RO 1,582 thousands during the year were transferred to statutory reserve account from Share premium.

As required by the Commercial Companies Law of Oman, the statutory reserve is to be maintained at at least one third of the issued share capital.During the current year, the share capital is raised by RO 4,747 thousands by way of right issue. Therefore the statutory reserve is increased byRO 1,582 thousands, one third of increased share capital, by transferring it from share premium.

Foreign currency translation reserve represents impact of translation of subsidiaries and associates financial statement figures in foreign currencyto functional currency of the parent company as allowed under IAS 21.

For the previous year 2012, a cash dividend of RO 0.0175 per ordinary shares totaling RO 5,775 thousands proposed by the Board of Directorswas approved at Annual General Meeting of the company held on 30th March, 2013 and subsequently credited to shareholders' account during theyear.

For the year 2013, a cash dividend of RO 0.010 (2012: RO 0.0175) per ordinary shares totaling RO 3,775 (2012: RO 5,775) thousands has beenproposed by the Board of Directors at the meeting held on 6 March 2014, and will be submitted at Annual General Meeting of the parent companyto be held on 26th March, 2014 .




19. Short term loans - from banks 35,400 35,650 35,400 35,650

20. Bank borrowings Bank overdrafts 10,093 12,854 12,628 16,663 Loan against trust receipts 77,620 45,240 77,620 45,240

87,713 58,094 90,248 61,903

21. Trade payablesSundry creditors 58,619 54,774 62,416 56,487 Provision for purchases and sub-contracts 33,059 32,477 33,755 33,544

91,678 87,251 96,171 90,031

22. Employees’ end of service benefitsBalance at beginning of the year 8,658 7,454 8,788 7,559 Charge for the year 2,619 2,106 2,724 2,167 Paid during the year (358) (902) (445) (938) Balance at end of the year 10,919 8,658 11,067 8,788

23. Other payables and provisionsAdvances from customers -current portion 28,453 26,312 28,481 26,911 Accrued expenses 9,564 5,558 9,789 5,780 Provision for employees’ leave pay and passage 6,957 5,064 7,007 5,078 Billings in excess of contract income recognised (note 8) 3,692 3,044 6,169 6,464 Creditors for capital purchases -current portion 1,993 9,996 1,995 9,996 Retention on sub-contracts 1,941 3,135 2,013 3,164 Due to related parties (note 33) 1,830 2,246 2,218 2,654 Other payables 903 560 1,647 847

55,333 55,915 59,319 60,894

Advances from customersNon-current portion 9,450 32,827 9,450 32,827

Bank short term loans are repayable in one year and are secured against the contract assignments and/or joint registration of vehicle/equipment.The interest rates on these loans vary between 4.0% to 4.5% (2012: 4.5% to 6.0%) per annum.

Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary between 4.0% to 7.0% (2012: 5.5% to8.0%) per annum. Bank borrowings are secured against the contract assignments and/or joint registrat ion of vehicle/equipment.

Advances from customers which can be adjusted against the estimated amounts to be billed in next 12 months are considered as currentadvances.




24. Taxation

Income tax expenseTax charge for the current year 1,240 1,613 2,284 2,522 Deferred tax (credit) for the year (221) (224) (28) (339)

1,019 1,389 2,256 2,183

Profit before tax 7,910 10,967 9,840 11,389 Tax charge on accounting profit 946 1,312 2,120 2,320 Tax effect on non admissible expenditure and adjustments 73 77 136 (137)

1,019 1,389 2,256 2,183

Provision for tax

Balance at beginning of the year 1,482 1,034 2,003 1,927 Charge during the year 1,240 1,613 2,253 2,522 Tax paid during the year (1,545) (1,165) (3,514) (2,292) Currency translation impact - - - (154) Balance at end of the year 1,177 1,482 742 2,003

Deferred tax liability

Balance at beginning of the year 7,120 7,344 7,302 7,639 Charge / (credit) during the year (221) (224) 3 (339) Foreign currency translation impact - - - 2 Balance at end of the year 6,899 7,120 7,305 7,302

Deferred tax liabilityProperty, plant and equipment:

Balance at beginning of the year 7,159 7,383 7,296 7,582 Release to income statement (206) (224) 18 (286) Balance at end of the year 6,953 7,159 7,314 7,296

Deffered tax assetTrade receivables and inventories

Balance at beginning of the year (39) (39) 6 57 Release to income statement (15) - (15) (51) Balance at end of the year (54) (39) (9) 6

Net deferred tax liability 6,899 7,120 7,305 7,302

The reconciliation of tax on the accounting profit of the at the applicable rate of 12% (31 December 2012 - 12%) after basic exemption of RO30,000 and the tax charge in the parent company financial statements is as follows:

The parent company income tax assessment up to the year 2007 has been finalized by the taxation department. The income tax assessments ofthe subsidiaries are at various stages of completion. The management believes that any taxation for the unassessed years will not be material tothe financial position of the Group as at the reporting date. The status of tax provision is as follows:

Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rate as per tax lawof the respective country.

The net deferred tax liability and deferred tax charge/(release)in the comprehensive income statement are attributable to following items:

Income tax is provided for parent company and Omani subsidiaries as per the provisions of the 'Law of Income Tax on Companies' in Oman at therate 12% of taxable profit after adjusting non-assessable and disallowable items and statutory exemption of RO 30,000. It is provided for Indiansubsidiary as per 'Income tax Act' in India at rate of 33% of taxable profit after adjusting non-admissible expenses and depreciation difference.




25. Sales and services incomeSales and services 1,407 3,216 5,244 4,562 Hiring services 690 344 2,507 2,085 Training services - - 934 1,040

2,097 3,560 8,685 7,687

26. Other incomeGain on sale of assets 437 1,840 453 1,888 Loss on foreign exchange (162) (43) (174) (18) Miscellaneous income 1,359 801 1,565 914

1,634 2,598 1,844 2,784

27. Contract and other direct costsMaterials 121,814 93,766 122,984 94,849 Manpower costs (note 29) 105,624 85,369 109,233 87,433 Sub-contracting costs 54,196 44,404 55,290 46,413 Depreciation (note 3) 21,524 21,579 22,916 22,176 Plant and equipment repair and maintenance 20,529 19,346 21,911 19,967 Fuel expenses 17,576 14,661 19,456 15,038 General and administrative expenses (note 28) 15,982 14,105 16,580 14,467 Plant and equipment hiring costs 10,272 5,426 11,306 6,232 Duties and taxes 309 816 Training expenses - - 272 243 Finance charges (note 30) - - - -

367,517 298,656 380,257 307,634

28. General and administrative expensesManpower costs (note 29) 5,490 5,031 6,171 5,620 Rent 5,042 5,168 5,266 5,334 Insurance charges 3,660 3,353 3,848 3,459 Electricity and water charges 3,293 2,585 3,440 2,632 Professional and legal charges 2,205 1,450 2,297 1,578 Bank guarantee and other charges 1,973 1,880 1,984 1,882 Depreciation and amortisation (note 3 and 4) 1,330 635 1,371 648 Communication expenses 1,118 1,071 1,178 1,111 Business promotion 846 876 964 910 Repairs and maintenance -others 695 557 743 601 Traveling expenses 611 556 686 615 Printing and stationery 410 369 436 385 Directors expenses 204 152 204 152 Tender fees 165 189 169 191 Doubtful debts provided - - 313 - Miscellaneous expenses 344 267 469 349

27,386 24,139 29,539 25,467 Expenses pertaining to contract and other direct costs (note 27) 15,982 14,105 16,580 14,467

11,404 10,034 12,959 11,000




29. Manpower costsSalary and wages 79,494 65,659 82,696 67,495 Employees service benefits 12,992 10,258 13,368 10,498 Camp and catering expenses 10,921 9,220 11,328 9,493 Staff incentives 2,804 1,267 2,896 1,282 Hired salary and wages 2,435 1,822 2,632 1,970 Other expenses 2,468 2,174 2,484 2,315

111,114 90,400 115,404 93,053 Expenses pertaining to cost of contract and sales (note 27) 105,624 85,369 109,233 87,433

Pertaining to general and administration expenses (note 28) 5,490 5,031 6,171 5,620

30. Financing costs, netInterest expense 9,385 7,184 9,897 7,912 Interest income (307) (68) (319) (83)

9,078 7,116 9,578 7,829

31. Earnings per share

Profit for the year 6,891 9,578 7,533 9,044 Weighted average number of shares in '000 (note 13) 340,404 330,000 340,404 330,000 Basic earnings per share (RO) 0.020 0.029 0.022 0.027

32. Net assets per share

Net assets 105,779 91,467 105,195 91,010

377,470 330,000 377,470 330,000

Net assets per share (RO) 0.280 0.277 0.279 0.276

33. Related party transactions

Contract income 1,124 567 1,124 567 Sales and services 1,975 669 2,474 1,044 Sale of property, plant and equipment 719 3,374 719 3,374 Purchase of property, plant and equipment 312 298 312 298 Purchase of goods and services 18,950 8,492 19,016 8,502 Directors' remuneration 200 150 200 150

The basic earnings per share is calculated by dividing the profit for the period attributable to the shareholders of the parent company by theweighted average number of shares outstanding during the year as follows:

Net assets per share is calculated by dividing the equity attributable to shareholders of the parent company at the reporting date by the number ofshares outstanding as follows:

Number of shares outstanding at the year end in '000 (note 13)

Related parties comprise the directors and business entities in which they have the ability to control or exercise significant influence in financial andoperating decisions.

The following is a summary of significant transactions with related parties which are included in the financial statements:

The diluted earnings per share is identical to the basic earnings per share as there are no potentia l dilutive shares at the reporting date.




33. Related party transactions (continued)

Due from shareholders 150 697 150 697 Due from subsidiary and associate companies 6,890 6,827 5,303 2,218 Due from other related parties 2,374 1,971 2,374 1,971

9,414 9,495 7,827 4,886

Due to shareholders 168 150 168 150 Due to subsidiary and associate companies 195 212 582 616 Due to other related parties 1,467 1,884 1,468 1,888

1,830 2,246 2,218 2,654

The remuneration of the members of key management during the year was as follows:

Short term benefits 613 713 1,036 1,098 Post employment benefits 29 39 29 39

642 752 1,065 1,137

34. Commitments and contingenciesBonds and guarantees 167,927 193,971 171,882 212,767 Letters of credit 37,950 21,760 26,822 21,760 Corporate guarantees 20,383 3,618 69,258 3,618 Capital commitments 1,478 1,005 1,701 1,005 Foreign exchange commitments - 144 - 144

227,738 220,498 269,663 239,294

Legal casesThe parent and its subsidiaries, in common with the significant majority of contractors, is subject to litigation in the normal course of its business.The parent company and its subsidiaries, based on independent legal advice, does not believe that the outcome of these court cases amounting toRO 7,506 thousands will leave a material impact on the group's income or financial condition. PenaltiesPenalties amounting to RO 3,289 (2012: RO 3,380) thousands have been levied on the parent company. The penalties are countered by theextension of time and other claims from the parent company. Accordingly management believes that no liability is expected to ultimately arise andtherefore no provision for any financial effect that may arise has been included in these financial statements.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group,directly or indirectly, including any director (whether executive or otherwise).

Balances of related parties recognised and disclosed in notes 10 and 23 respectively are as follows:

The amounts outstanding are unsecured and will be settled in cash. No expense has been recognized in the period for bad or doubtful debts inrespect of the amounts owed by related parties.

Included in advances to employees RO 526 (2012: RO 672) thousands is due from key management personnel of the parent company.

The parent company has provided corporate guarantees for subsidiaries and associates amounting to RO 1,697 (2012: RO 1,912) thousands andRO 17,044 (2012: RO 1,706) thousands, respectively. The parent company does not anticipate any mater ial liability to arise from these guarantees.


Notes to Consolidated Financial StatementsFor the year ended 31st December, 2013

35. Business segments

The financial results, assets and liabilities of business segments are as follows:Amount in RO '000s

Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012

Segment revenue and expenses

Segment revenue 409,322 335,799 15,474 4,589 1,858 1,741 934 1,041 (15,180) (6,666) 412,408 336,504

Segment expenses 400,313 324,167 2,754 4,365 1,751 1,403 929 1,014 (923) (3,651) 404,824 327,298

Segment results 9,009 11,632 12,720 224 107 338 5 27 (14,257) (3,015) 7,584 9,206

Segment assets and liabilities

Segment assets 495,386 456,852 4,641 1,803 3,122 3,234 178 154 (9,614) (5,495) 493,713 456,548

Segment liabilities 383,035 361,666 3,184 1,429 1,238 1,481 75 57 - 57 387,532 364,690

The Group operates in three geographical segments, Sultanate of Oman, India and Kuwait.

Segmental information is presented in respect of the Group’s business segments. Business segment is based on the Group’s management and internal reporting structure. Segment results, assets and liabilitiesinclude items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The group business is divided in four segments - construction, manufacturing, hiring of equipment and training of personnel. The principal activities of the group are road, bridge and airport construction, oil and gasincluding EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts. The other activities are hiring out of cranes, equipment and other vehicles andtraining of drivers, operators, manufacturing of readymix concrete and others.

Construction Manufacturing Hiring Training Inter segments Consolidated



36. Financial intruments and related risk management

Market risk

Interest rate risk

Foreign currency risk

Commodity price risk

Credit risk

The Group’s principal financial liabilities other than derivatives, comprise loans and borrowings, trade and other payables. The main purposeof these financial liabilities is to raise finances for the Group’s operations. The Group has loan and other receivables, trade and otherreceivables, and cash and short-term deposits that arrive directly from its operations. The Group also holds available-for-sale investments.

The Group’s activities expose it to various financial risks, primarily being, market risk (including currency risk, interest rate risk, and pricerisk), credit risk and liquidity risk. The Group’s risk management is carried out internally in accordance with the policies approved by theBoard of Directors.

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.Market prices comprise three types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity risk.Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments, and derivative financialinstruments

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in marketinterest rates.

The Group is exposed to significant interest rate risk on its interest bearing assets and liabilities (short term bank deposits, bank borrowingsand term loans). The management manages the interest rate risk by constantly monitoring the changes in interest rates and availing lowerinterest bearing facilities.

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreignexchange rates. The Group operates in international markets and is exposed to foreign exchange risk arising from various currencyexposures, primarily with respect to the US dollar, Euros, Pound sterling and all GCC currencies.

The majority of the Group’s financial assets and financial liabilities are either demoninated in local currency (Rials Omani) or currency fixedagainst Rials Omani. Term loan is due in US Dollars. As the Omani Rial is pegged to the US Dollar, balances in US Dollars are notconsidered to represent significant currency risk, hence the management believes that there would not be a material impact on theprofitability if these foreign currencies weaken or strengthen against the Omani Rials with all other variables held constant.

The Group is affected by the volatility of certain commodities. Due to the significantly increased volatility of the price of the underlying, theGroup’s Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation.

Credit risk primarily arises from credit exposures to customers, including outstanding receivables and committed transactions. The Grouphas a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customersrequiring credit over a certain amount. The Group seeks to limit its credit risk with respect to banks by only dealing with reputable banks andwith respect to customers by setting credit limits for individual customers and monitoring outstanding receivables.

As at the reporting date, had the interest rate were to move up or down by 1%, the impact on the parent and consolidated income statementwould have been RO 1,618 thousands (2012 - RO 1,239 thousands) and RO1,677 thousands (2012 -RO 1,364 thousands) respectively.



36. Financial intruments and related risk management (continued)

Capital management

Exposure to credit risk

Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012

Contract and trade receivables 226,790 203,744 231,321 210,383 Retention receivables 60,507 52,745 61,029 53,068 Advances, prepayments and other receivables 19,848 21,654 18,762 17,451 Deposits with banks 11,551 12,631 11,591 12,674 Cash and bank balances 4,169 1,736 6,092 3,468

322,865 292,510 328,795 297,044

Government customers 163,028 149,874 164,168 151,032 Petroleum Development Oman 48,534 46,792 48,534 46,792 Other private cusomers 15,228 7,078 18,619 12,559

226,790 203,744 231,321 210,383

The age of trade receivables at the reporting date was:

Not past due 101,488 97,937 103,695 100,965 Past due 0 - 180 days 57,706 35,062 59,269 37,951 Past due 181 - 365 days 12,731 14,563 13,306 16,066 More than 365 days 54,865 56,182 55,051 55,401

226,790 203,744 231,321 210,383 Impairment - - 39 -

The credit quality of the cash at bank and deposits with bank are as follows:

RatingP - 3 - - 740 1,096 P - 2 1,658 1,059 1,733 1,183 P - 1 5,851 4,388 6,947 4,899 Not rated 7,940 8,610 7,963 8,638

15,449 14,057 17,383 15,816

Management is confident of maintaining the current level of profitability by enhancing top line growth and prudent cost management. TheGroup is not subject to externally imposed capital requirements.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and benefit other stakeholders. The management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustainfuture development of the business.

There has been no change in the group’s objectives, policies or process during the year ended 31 December 2013 and 31 December 2012.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reportingdate was:

Parent Company

The rest of the statement of financial position items ‘deposits with banks’ and ‘cash and cash equivalents’ is cash in hand.

Consolidated

The exposure to credit risk for contract billed reveivables, trade receivables and work in progress at the reporting date by type of customer was:

The group has established credit policies and procedures that are considered appropriate for the parent company and its subsidires. TheCompany’s business is conducted mainly by participating in tenders / bids. On acceptance of a tender / bid it enters into a detailed contractwith the customer. This contract specifies the payment and performance terms as well as the credit terms. Also refer to note 38 keysources of estimation of uncertainty for the impairment of the trade receivables.



36. Financial intruments and related risk management (continued)

Liquidity riskThe following are the financial liabilities including interest payments:

Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012

Term loans 76,775 64,122 77,830 65,292 Bank borrowings 87,713 58,094 90,248 61,903 Short term loans 35,400 35,650 35,400 35,650 Trade and other payables 167,380 184,651 166,557 159,713

367,268 342,517 370,035 322,558

The contractual maturities of above financial liabilities were:Term Loans:Upto 90 days 5,512 7,504 5,676 7,696 91 - 180 days 5,425 7,715 5,571 7,886 181 - 365 days 19,688 21,182 19,869 21,373 More than 365 days 46,150 27,721 46,714 28,337

76,775 64,122 77,830 65,292

Bank Borrowings:Upto 90 days 62,711 46,878 65,246 50,687 91 - 180 days 25,002 11,216 25,002 11,216 181 - 365 days - - - -

87,713 58,094 90,248 61,903

Short term loans:Upto 90 days 22,900 28,900 22,900 28,900 91 - 180 days 12,500 6,750 12,500 6,750 181 - 365 days - - - -

35,400 35,650 35,400 35,650

Trade and other payables:Upto 90 days 115,554 110,455 120,935 115,985 91 - 180 days 21,455 22,012 23,076 23,964 181 - 365 days 19,452 43,526 11,479 10,976 More than 365 days 10,919 8,658 11,067 8,788

167,380 184,651 166,557 159,713

Interest rate risk


The Group’s exposure to interest rate risk relates to its bank deposits, borrowings, and term loans.

Term loans of RO 75,329 (2012: RO 47,985) thousands are recognized at fixed interest rates and expose the Group to the fair value interestrate risk. The remaining term loans of RO 2,502 (2012: RO 7,609) thousands are recognized at floating rates thus exposing the Group tocash flow interest rate risk.

The company’s short term bank deposits carry fixed rates of interest and therefore are not exposed to interest rate risk.



37. Fair values of financial instruments

Fair values

Financial assets

Dec., 2013 Dec., 2012 Dec., 2013 Dec., 2012

Contract and trade receivables 226,790 203,744 231,321 210,383 Due from related parties 9,414 9,495 7,827 4,886 Investment in associates and subsidiaries 10,646 9,824 6,444 9,729 Investment available for sale 125 125 145 145 Cash and bank balances and deposits 15,720 14,367 17,683 16,142

262,695 237,555 263,420 241,285

Financial liabilitiesTrade payables 91,678 87,251 96,171 90,031 Due to related parties 1,830 2,246 2,218 2,654 Bank borrowings 87,713 58,094 90,248 61,903 Term loans 112,175 99,772 113,230 100,942

293,396 247,363 301,867 255,530

38. Key sources of estimation uncertainty

Estimates and assumptions

Revenue Recognition(a) Percentage of completion

(b) Claims

The company uses the survey method when accounting for contract revenue. Use of the survey method requires the company to reliablyestimate the costs by reference to the stage of completion of the construction activity at the reporting date. The accuracy of this estimate hasa material impact on the amount of revenue and related profits recognised. Any revision to profit arising from changes in estimates isaccounted for in the period when the changes become known.

The group has filed certain claims with its Government and Quasi Government customers and made an assessment of recoverable amountsbased on ongoing negotiations at the reporting date. In accordance with the group's accounting policy on revenue recognition, a portion ofsuch claims has been recognised in these consolidated financial statements based on these assessments. Management believes that suchamounts are in the normal course of the business activity.

The claims raised by the company against the customers are mainly in relation to variations from the originally agreed contract scope,changes in costs incurred due to effects of the royal decrees issued after the commencement of contracts, additional costs incurred due toextension of the project completion time etc., which are under various stages of negotiations with customers at the reporting date. Board ofdirectors believe that the full disclosure of the total amount of claims involved can prejudice the position of the group in these claims whichare uncertified by the customers.

Financial instruments comprise financial asset, financial liabilities and derivatives.

Set out below is a comparison by class of the carrying amounts and fair value of the group's financial instruments that are carried out in thefinancial statements.

Financial assets consist of bank balances, receivables and available for sale investments. Financial liabilities consist of term loans andpayables.

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




38. Key sources of estimation uncertainty (continued)

(b) Claims (continued)

(c) Impairment of accounts receivable

(d) Impairment of inventories

(e) Useful lives of property, plant and equipment

(f) Impairment of equity investments

(g) Impairment of investments in associates

Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their netrealisable value through physical verification of inventories carried out annually. As majority of the inventories are at ongoing project sitesthese are considered as usable in nature by management as these are closely monitored by the respective project teams. Dedicated projectteams also monitors surplus inventories on closed/completed jobs for assessing their usability to consider necessary provisions. Amountswhich are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to theinventory type and the degree of ageing or obsolescence. Management believes that provision of RO 451 thousand (2012 : RO 325thousand) is adequate.

The group's management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. Thisestimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual valueand useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ fromprevious estimates.

The group treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in the fair valuebelow its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requiresjudgment, which is critically evaluated by the Group on a case to case basis.

The parent company test annually whether investment in associates have suffered any impairment in accordance with IAS 36, ‘Impairmentof Assets’ which require the use of estimates. The parent company considers impairment of investments in associate companies when therehas been a significant decline in the carrying value below its cost or where other objective evidence of impairment exists. At 31December 2013, management has made a specific assessment with respect to loss making associates (GEC, Kuwait and MTPL, India)based on the future cash flows and profits of these associates and believes that the future profits would be sufficient to recover theaccumulated losses existing at the reporting date. Accordingly no impairment was considered necessary in these financial statements(note 6).

An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. Forindividually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but whichare past due, are assessed collectively and a provision applied according to the length of time past due.

At the reporting date, gross contract receivables including due from customers on contracts were RO 172,871 (2012: RO 161,824)thousands, which are mostly receivable from Government and Quasi Government entities includes RO 117,035 2012 (RO 99,398)thousands, which are under the process of being formally certified by the customers which is in normal course of the business activity in theconstruction industry.In addition to contract receivbles group has trade and other receivables of Ro 3,713 ( 2012: Ro 3,246) thousands andthe provision for doubtful debts was RO 39 (2012: nil) thousands. (refer note 9)

The group has also incurred losses on certain contracts which are still being executed at 31 December 2013. The management has notrecognised future estimated losses on these contracts as there are certain counter claims made against these contracts in excess of theseestimated future losses. These claims are under negotiations with customers which management believes as recoverable based on theirpast experiences on similar claims made by the company.

Other estimates that involve uncertainties and judgments which have significant effect on the financial statements include whether anyliquidated damages will apply when there has been a delay in completion of contracts and it is unsure as to which party is at fault.



38. Key sources of estimation uncertainty (continued)

Taxes

39. Comparative amounts

Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Given the widerange of business relationships and nature of existing contractual agreements, differences arising between the actual results and theassumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense alreadyrecorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessmentsof respective Group companies. The amount of such provisions is based on various factors, such as experience of previous taxassessments and differing interpretations of tax regulations by the taxable entity and the responsib le tax authority.

Certain comparative figures have been reclassified in order to conform to the presentation for the current year. This has no impact on theprofit for the year or total equity. The details are as follows:

Galfar Wasen Contracting Company incorporated in Libya which was classified under 'investment in associates' in the previous year wasreclassified under 'investments in subsidiares' during the current year (note 5).

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Director's Report for 2013 Final English 11 03 2014 Finalgalfar.com/userfiles/financial%20results_2013.pdf · 2014-03-18 · Engineering & Contracting SAOG and to present to you the