Qurain Petrochemical Industries Company K.S.C.P. and ... · PDF fileThe attached notes 1 to 25 form part of these consolidated financial statements. 4 Qurain Petrochemical Industries

Qurain Petrochemical Industries Company

K.S.C.P. and Subsidiaries

CONSOLIDATED FINANCIAL STATEMENTS

AND INDEPENDENT AUDITORS’ REPORT TO

THE SHAREHOLDERS

31 MARCH 2016

Ernst & Young

Al Aiban, Al Osaimi & Partners

P.O. Box 74

18–21st Floor, Baitak Tower

Ahmed Al Jaber Street

Safat Square 13001, Kuwait

Tel: +965 2295 5000

Fax: +965 2245 6419

[email protected]

ey.com/mena

Al-Shatti & Co. Arraya Tower II, 23-24th floor, Sharq P.O. Box 1753 Safat 13018 Kuwait Telephone: +965 22275777 Fax: +965 22275888

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF QURAIN

PETROCHEMICAL INDUSTRIES COMPANY K.S.C.P.

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Qurain Petrochemical

Industries Company K.S.C.P. (the “Parent Company”) and its subsidiaries (collectively, the

“Group”), which comprise the consolidated statement of financial position as at 31 March 2016, and

the consolidated statement of income, consolidated statement of comprehensive income,

consolidated statement of changes in equity and consolidated statement of cash flows for the year

then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management of the Parent Company is responsible for the preparation and fair presentation of these

consolidated financial statements in accordance with International Financial Reporting Standards,

and for such internal control as management determines is necessary to enable the preparation of

consolidated financial statements that are free from material misstatement, whether due to fraud or

error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our

audit. We conducted our audit in accordance with International Standards on Auditing. Those

standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the consolidated financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the consolidated financial statements. The procedures selected depend on the auditors’ judgment,

including the assessment of the risks of material misstatement of the consolidated financial

statements, whether due to fraud or error. In making those risk assessments, the auditor considers

internal controls relevant to the entity’s preparation and fair presentation of the consolidated

financial statements in order to design audit procedures that are appropriate in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An

audit also includes evaluating the appropriateness of accounting policies used and the reasonableness

of accounting estimates made by entity’s management, as well as evaluating the overall presentation

of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our audit opinion.

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The attached notes 1 to 25 form part of these consolidated financial statements.

4

Qurain Petrochemical Industries Company K.S.C.P. and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME For the year ended 31 March 2016

2016 2015

Notes KD KD

Sales 162,124,251 109,217,885

Cost of sales (104,779,834) (76,160,181)

──────── ──────── GROSS PROFIT 57,344,417 33,057,704

Realised gain on sale of financial assets available for sale 54,590 649,657

Dividend income 7 13,660,501 18,282,003

Interest and other income 697,749 641,832

Gain on fair valuation of previously held equity interest in

acquiree

-

12,914,823

General and administrative expenses (41,332,532) (28,620, 854)

Impairment loss on financial assets available for sale 7 (1,317,573) (179,191)

Finance costs (1,537,511) (1,402,729)

Share of results of associates 8 10,688,563 2,696,212

Foreign exchange loss (116,979) (353,209)

──────── ────────

Profit before taxation and Board of Directors’

remuneration

38,141,225

37,686,248

Taxation 16 (844,779) (1,203,294)

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

──────── ────────

Profit for the year 17 37,146,446 36,332,954

════════ ════════

Attributable to:

Shareholders of the Parent Company 24,714,826 31,348,603

Non-controlling interest 12,431,620 4,984,351

──────── ────────

37,146,446 36,332,954

════════ ════════

Basic and diluted earnings per share attributable

to shareholders of the Parent Company

18

23.63 fils

29.80 fils

════════ ════════


5


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2016

2016 2015

Notes KD KD

Profit for the year 37,146,446 36,332,954

──────── ────────

Other comprehensive (loss)/income:

Other comprehensive (loss)/income to be reclassified to

consolidated statement of income in subsequent periods:

Financial assets available for sale:

Net changes in fair value of financial assets available for sale (26,237,995) (2,755,167)

Net gain on sale of financial assets available for sale

transferred to consolidated statement of income

(54,590)

(649,657)

Impairment of financial assets available for sale transferred to

consolidated statement of income

7

1,317,573

179,191

Share in other comprehensive income of associates 8 541,931 3,229,143

Exchange differences arising on translation of foreign

operations

1,212,772

12,336,334

Transfer to the consolidated statement of income upon

business combination

-

134,292

Net gain (loss) on hedge of a net investment in foreign operation 20 93,958 (3,829,280)

──────── ────────

Net other comprehensive (loss)/income to be reclassified to

statement of income in subsequent periods

(23,126,351)

8,644,856

Other comprehensive (loss)/income not to be reclassified to

consolidated statement of income in subsequent periods:

Asset revaluation reserve (125,267) 56,958

──────── ────────

Net other comprehensive (loss)/income not to be reclassified

to consolidated statement of income in subsequent periods

(125,267)

56,958

──────── ────────

Other comprehensive (loss)/income for the year (23,251,618) 8,701,814

──────── ────────

Total comprehensive income for the year 13,894,828 45,034,768

════════ ════════

Attributable to:

Shareholders of the Parent Company 903,805 34,628,074

Non-controlling interest 12,991,023 10,406,694

──────── ────────

13,894,828 45,034,768

════════ ════════


6

Qurain Petrochemical Industries Company K.S.C.P. and subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2016

Equity attributable to shareholders of the Parent Company

Non-

controlling interests

Total equity

Share

capital

Statutory

reserve

Voluntary

reserve

Treasury

shares

Other

reserve

Cumulative

changes in

fair values

Foreign currency

translation

reserve

Retained

earnings Sub-total

KD KD KD KD KD KD KD KD KD KD KD

As at 1 April 2015 109,919,258 16,412,430 16,290,728 (10,094,908) 70,987 116,245,079 7,730,999 68,827,897 325,402,470 98,961,521 424,363,991

Profit for the year - - - - - - - 24,714,826 24,714,826 12,431,620 37,146,446

Other comprehensive (loss)/income - - - - (56,958) (24,856,822) 1,102,759 - (23,811,021) 559,403 (23,251,618) ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ────────

Total comprehensive income for the year - - - - (56,958) (24,856,822) 1,102,759 24,714,826 903,805 12,991,023 13,894,828

Transfer to reserves - 2,570,961 2,570,961 - - - - (5,141,922) - - - Purchase of treasury shares - - - (1,730,128) - - - - (1,730,128) - (1,730,128)

Dividend paid to NCI - - - - - - - - - (5,571,365) (5,571,365)

Dividends (Note 14) - - - - - - - (10,485,654) (10,485,654) - (10,485,654) Ownership changes in subsidiaries - - - - 110,300 - - - 110,300 (346,265) (235,965)

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

As at 31 March 2016 109,919,258 18,983,391 18,861,689 (11,825,036) 124,329 91,388,257 8,833,758 77,915,147 314,200,793 106,034,914 420,235,707

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

As at 1 April 2014 109,919,258 13,142,240 13,020,538 (9,429,389) - 119,448,250 1,305,315 54,549,663 301,955,875 8,145,269 310,101,144

Profit for the year - - - - - - 31,348,603 31,348,603 4,984,351 36,332,954

Other comprehensive income (loss) - - - - 56,958 (3,203,171) 6,425,684 - 3,279,471 5,422,343 8,701,814 ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ────────

Total comprehensive income (loss) for the year - - - - 56,958 (3,203,171) 6,425,684 31,348,603 34,628,074 10,406,694 45,034,768

Transfer to reserves - 3,270,190 3,270,190 - - - - (6,540,380) - - - Purchase of treasury shares - - - (665,519) - - - - (665,519) - (665,519)

Dividends (Note 14) - - - - - - - (10,529,989) (10,529,989) - (10,529,989)

Non-controlling interests arising on business combination

-

-

-

-

-

-

-

-

-

80,920,982

80,920,982

Ownership changes in subsidiaries - - - - 14,029 - - - 14,029 (511,424) (497,395)

──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── As at 31 March 2015 109,919,258 16,412,430 16,290,728 (10,094,908) 70,987 116,245,079 7,730,999 68,827,897 325,402,470 98,961,521 424,363,991

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

7


CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 March 2016

2016 2015

Notes KD KD

OPERATING ACTIVITIES

Profit before taxation and Board of Directors’ remuneration 38,141,225 37,686,248

Adjustments to reconcile profit before taxation and Board of

Directors’ remuneration to net cash flows:

Realised gain on sale of financial assets available for sale (54,590) (649,657)

Share of results of associates 8 (10,688,563) (2,696,212)

Gain/loss on sale of property, plant and equipment (5,186) -

Gain on fair valuation of previously held interest in the acquiree - (12,914,823)

Provision for doubtful debts 6 (510,297) (1,451,905)

Impairment loss on financial assets available for sale 7 1,317,573 179,191

Depreciation 17 6,752,273 4,364,524

Amortisation 17 1,884,492 1,414,647

Finance costs 1,537,511 1,402,729

Provision for employees’ end of service benefits 1,750,538 689,346

──────── ──────── 40,124,976 28,024,088

Working capital adjustments:

Trade and other receivables 1,931,189 5,844,084

Inventories (2,161,528) (3,962,357)

Related party balances 240,523 -

Trade and other payables 423,741 4,659,728

──────── ──────── Cash from operations 40,558,901 34,565,543

Taxation paid (1,203,294) (874,049)

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

Employees’ end of service benefits paid (211,721) (391,734)

──────── ──────── Net cash flows from operating activities 38,993,886 33,149,760

──────── ──────── INVESTING ACTIVITIES

Purchase of financial assets available for sale (2,281,207) (4,407,913)

Proceeds from sale of financial assets available for sale 804,620 2,217,644

Acquisition of investment in associates 8 (23,371) (8,684)

Acquisition of subsidiary, net of cash acquired (259,130) (21,056,145)

Purchase of property, plant and equipment (5,515,099) (12,204,597)

Proceeds from sale of property, plant and equipment 37,702 360,672

Dividend received from associates 1,353,935 1,101,858

──────── ──────── Net cash flows used in investing activities (5,882,550) (33,997,165)

──────── ──────── FINANCING ACTIVITIES

Net movement in term loans (5,274,199) 27,271,234

Dividends paid (9,818,685) (9,708,090)

Purchase of treasury shares (1,730,128) (665,519)

Payment of finance costs (1,201,880) (1,388,268)

Dividend to non-controlling interest of a subsidiary (5,571,365) (5,312,523)

Movement in non-controlling interests (346,265) -

──────── ──────── Net cash flows (used in) from financing activities (23,942,522) 10,196,834

──────── ──────── Effect of foreign currency translation 85,745 (646,276)

Net increase in cash and cash equivalents 9,254,559 8,703,153

Cash and cash equivalents at beginning of the year 26,205,637 17,502,484

──────── ──────── Cash and cash equivalents at end of the year 5 35,460,196 26,205,637

══════ ══════


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at 31 March 2016

8

1 CORPORATE INFORMATION

The consolidated financial statements of the Qurain Petrochemical Industries Company K.S.C.P. (the “Parent

Company”) and its subsidiaries (collectively, the “Group”) for the year ended 31 March 2016 were authorised for issue

by the Board of Directors on 10 May 2016. The shareholders’ of the Parent Company have the power to amend these

consolidated financial statements at the Annual General Assembly after issuance.

The Parent Company is a Public shareholding company, established by Amiri Decree No 432/2004 on 10 November

2004. The Parent Company’s shares were issued for public subscription by the Ministerial Decree No. 34/2004 on 28

November 2004. The Parent Company’s shares are listed on the Kuwait Stock Exchange.

The Parent Company’s registered address is at 26th floor, KIPCO Tower, Khalid Bin Al Waleed Street, Sharq, P.O.

Box No 29299, Safat 13153, Kuwait.

The new Companies Law No. 1 of 2016 was issued on 24 January 2016 and was published in the Official Gazette on 1

February 2016 cancelled the Companies Law No 25 of 2012, and its amendments. According to article No. 5, the new

Law will be effective retrospectively from 26 of November 2012, the executive regulations of Law No. 25 of 2012

will continue until a new set of executive regulations is issued.

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

activities of the Parent Company are:

To manufacture all types of chemical and petrochemical materials and any other derivatives.

To sell, purchase, supply, distribute, export and store these materials and participate in all the activities relating

to the same including the establishment and lease of the necessary services.

To participate in Equate Petrochemical Company K.S.C. (Closed), Kuwait Aromatics Company K.S.C. (Closed),

Kuwait Styrene Company K.S.C. (Closed) and Kuwait Olefins Company K.S.C. (Closed).

Contribute in industrial companies as well as finance, manage and trade in its shares

Develop industrial and craft zones and projects launched by the State or private sector.

Establishment of industrial projects or contribute therein after obtaining the necessary approvals from the Public

Authority for Industry and the concerned authorities.

The Parent Company may pursue the above mentioned activities in the State of Kuwait and abroad, originally or by

proxy. It may have an interest in or participate in any manner with entities that carry on business activities similar to

its own or which may assist the Parent Company in realising its objects in Kuwait or abroad, and it may buy or

otherwise acquire such companies.

2.1 BASIS OF PREPARATION

Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with the International Financial

Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”).

Basis of measurement

The consolidated financial statements of the Group are prepared under the historical cost convention as modified for

the revaluation at fair value of financial assets available for sale.

Functional and presentation currency

The consolidated financial statements of the Group are presented in Kuwaiti Dinars (“KD”), which is the functional

and presentational currency of the Parent Company.

2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES

The accounting policies used in the preparation of the financial statements are consistent with those used in previous

year, except for the adoption of the following amendments to IFRS during the year:

Annual Improvements 2010-2012 Cycle

With the exception of the improvement relating to IFRS 2 Share-based Payment applied to share-based payment

transactions with a grant date on or after 1 July 2014, all other improvements are effective for accounting periods

beginning on or after 1 July 2014. The Group has applied these improvements for the first time in these consolidated

financial statements. They include:



9

2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued)

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as

liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit

or loss whether or not they fall within the scope of IAS 39. This is consistent with the Group’s current accounting

policy and, thus, this amendment did not impact the Group’s accounting policy.

IFRS 8 Operating Segments

The amendments are applied retrospectively and clarify that:

An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of

IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics

(e.g., sales and gross margins) used to assess whether the segments are ‘similar’

The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to

the chief operating decision maker, similar to the required disclosure for segment liabilities. This amendment did not

have any impact to the consolidated financial statement during the current period.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by

reference to observable data by either adjusting the gross carrying amount of the asset to market value or by

determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the

resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortisation is the

difference between the gross and carrying amounts of the asset. This amendment did not have any impact to the

revaluation adjustments recorded by the Group during the current period.

IAS 24 Related Party Disclosures

The amendment is applied retrospectively for annual periods beginning on or after 1 July 2014 and clarifies that a

management entity (an entity that provides key management personnel services) is a related party subject to the related

party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for

management services. This amendment is not relevant for the Group as it does not receive any management services

from other entities.

Annual Improvements 2011-2013 Cycle

These improvements are effective from 1 July 2014 and the Group has applied these amendments for the first time in

these consolidated financial statements. They include:

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:

• Joint arrangements, not just joint ventures, are outside the scope of IFRS 3

• This scope exception applies only to the accounting in the financial statements of the joint arrangement itself

Qurain Petrochemical Industries Company K.S.C.P. and its subsidiaries is not a joint arrangement, and thus this

amendment is not relevant for the Group and its subsidiaries.

IFRS 13 Fair Value Measurement

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to

financial assets and financial liabilities, but also to other contracts within the scope of IAS 39. The Group does not

apply the portfolio exception in IFRS 13.

The adoption of the above mentioned amendments did not have any impact on the financial position or performance of

the Group.

2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing of standards issued is those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date.



10

2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group plans to adopt the new standard on the required effective date. IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date. Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets. Amendments to IAS 27: Equity Method in Separate Financial Statements The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of IFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments will not have any impact on the Group’s consolidated financial statements. IFRS 7 Financial Instruments: Disclosures The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments. IFRS 16 Leases IFRS 16 is effective for annual reporting periods beginning on or after1 January 2019. Earlier application is permitted, but only in conjunction with IFRS 15, ‘Revenue from Contracts with Customers’. Amendments to IAS 1 Disclosure Initiative The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify: • The materiality requirements in IAS 1 • That specific line items in the statement of comprehensive income and the statement of financial position may be disaggregated • That entities have flexibility as to the order in which they present the notes to financial statements.



11

2.3 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of comprehensive income. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Group. The Group intends to adopt these standards and amendments when they become effective. However, the Group expects no material impact from the adoption of the amendments on its financial position or performance. 3 SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries (investees

which are controlled by the Parent Company) including special purpose entities. Control is achieved when the Group

is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those

returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the

investee)

Exposure, or rights, to variable returns from its involvement with the investee, and

The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant

facts and circumstances in assessing whether it has power over an investee, including:

The contractual arrangement with the other vote holders of the investee

Rights arising from other contractual arrangements

The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes

to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control

over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses

of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the

date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Parent

Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit

balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting

policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses

and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A

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

If the Group loses control over a subsidiary, it derecognises, the related assets (including goodwill), liabilities, non-

controlling interest and other component of equity while any resultant gain or loss is recognised in profit or loss. Any

investment retained is recognised at fair value. The consolidated financial statements comprise the financial statements

of the Parent Company and its subsidiaries as at 31 March 2016. The subsidiaries of the Group are:

Legal ownership %

Company name

2016

2015 Country of

incorporation

Principal activities

United Petrochemical Industries

Company K.S.C. (Closed)

96.00%

96.00%

Kuwait

Investment activities

Qurain for Plastic Industries


94.00%

94.00%

Kuwait

Manufacturing of

plastic materials

Qurain for Basic Material Industries


94.00%

94.00%

Kuwait

Manufacturing of

chemicals

United Oil Projects Company K.S.C.

(Closed) 47.50%

45.47%

Kuwait

Trading of chemical

products

Saudi Dairy and Food Stuff

Company S.S.C. (“SADAFCO”) 40.11%

40.11%

Kingdom of

Saudi Arabia

Manufacturing of

dairy & food stuff



12

3 SIGNIFICANT ACCOUNTING POLICIES (continued)

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the

aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-

controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest

in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition

costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate

classification and designation in accordance with the contractual terms, economic circumstances and pertinent

conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the

acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held

equity interest in the acquiree is remeasured to fair value at the acquisition date through the consolidated statement of

income.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.

Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be

recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the

contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount

recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this

consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the

consolidated statement of income.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of

impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the

Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets

or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the

goodwill associated with the operation disposed of is included in the carrying amount of the operation when

determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based

on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Financial instruments

Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as “financial assets at fair value through profit or loss”,

“financial assets available for sale”, “loans and receivables”, or as “derivatives designated as hedging instruments” in

an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

The Group has not classified any of its financial assets as held to maturity.

All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets

recorded at fair value through income statement.

A “regular way” purchase of financial assets is recognised using the trade date accounting. Regular way purchases or

sales are purchases or sales of financial assets that require delivery of assets within the time frame generally

established by regulations or conventions in the market place.

The Group’s financial assets include cash and short term deposits, trade receivables and other receivables, due from a

related party and financial assets available for sale.

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

initial recognition.



13


Financial instruments (continued)

Financial assets (continued)

Subsequent measurement

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

Financial assets available for sale

Financial assets available for sale include equity and debt securities. Equity investments classified as available for sale

are those, which are neither classified as held for trading nor designated at fair value through profit or loss.

Debt securities in this category are those which are intended to be held for an indefinite period of time and which may

be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial recognition, financial assets available for sale are subsequently measured at fair value with unrealised

gains or losses recognised in other comprehensive income until the investment is derecognised, at which time the

cumulative gain or loss is recognised in the consolidated statement of income, or determined to be impaired, at which

time the cumulative loss is reclassified to the consolidated statement of income.

Financial assets available for sale whose fair value cannot be reliably measured are carried at cost less impairment

losses, if any.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in

an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using

the effective interest rate method, less impairment. Amortised cost is calculated by taking into account any discount or

premium on acquisition and fees or costs that are an integral part of the interest rate method. The interest rate method

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

the consolidated statement of income.

The Group classifies cash and short term deposits, time deposits with banks and accrued income and other receivables

and due from a related party as “loans and receivables”.

Cash and cash equivalents

Cash and short term deposits in the consolidated statement of financial position comprise cash at banks and on hand

and short-term deposits with an original maturity of three months or less, less bank overdraft.

Trade and other receivables

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 losses.

Amortised cost

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are

an integral part of the effective interest rate (EIR) method. The effective interest rate method (“EIR”) amortisation and

the losses arising from impairment are recognised in the consolidated statement of income.

Derecognition of financial assets

A 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 without material delay to a third party under a ‘pass-through’ arrangement; and either

(a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither

transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.



14


Financial instruments (continued)

Financial assets (continued)

Derecognition of financial assets (continued)

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through

arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor

transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset.

In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are

measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that

takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the

asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of

financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if,

there is objective evidence of impairment as a result of one or more events that has occurred after the initial

recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows

of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may

include indications that the borrowers or a group of borrowers is experiencing significant financial difficulty, default

or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial

reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash

flows, such as changes in arrears or economic conditions that correlate with defaults.


For financial assets available for sale, the Group assesses at each reporting date whether there is objective evidence

that a financial asset available for sale or a group of financial assets available for sale is impaired.

In the case of equity investments classified as financial assets available for sale, objective evidence would include a

significant or prolonged decline in the fair value of the equity investment below its cost. Where there is evidence of

impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less

any impairment loss on those financial assets available for sale previously recognised in the consolidated statement of

income, is removed from other comprehensive income and recognised in the consolidated statement of income.

Impairment losses on equity investments are not reversed through the consolidated statement of income; increases in

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

Financial liabilities Initial recognition and measurement Financial liabilities within the scope of IAS 39 are classified as financial liabilities at “fair value through profit or loss”, “loans and borrowings”, or as “derivatives” designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group classifies its financial liabilities other than at fair value through profit or loss as accounts and other payables, term loans and bank overdraft. The Group has not classified any financial liability at “fair value through profit or loss” or “derivatives” at inception upon initial recognition. Subsequent measurement The subsequent measurement of financial liabilities depends on their classification as follows:



15

3 SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial liabilities (continued) Financial liabilities other than at fair value through profit or loss After initial recognition, financial liabilities other than at fair value through profit or loss are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the consolidated statement of income when the liabilities are derecognised as well as through the EIR interest rate method amortisation process. Amortised cost Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The EIR amortisation is included in finance cost in the consolidated statement of income.

Accounts and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Term loans After initial recognition, interest bearing loans are subsequently measured at amortised cost using the EIR method, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of income over the period of the borrowings. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated statement of income.

Offsetting

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of

financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there

is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. The legally

enforceable right must not be contingent on future events and must be enforceable in the normal course of business

and in the event of default, insolvency or bankruptcy of the Group or the counterparty.

Fair value

The Group measures financial instruments, such as, financial assets available for sale, at fair value at each reporting

date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date. The fair value measurement is based on the presumption that the

transaction to sell the asset or transfer the liability takes place either:

In the principal market for the asset or liability, or

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

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when

pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value

measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by

using the asset in its highest and best use or by selling it to another market participant that would use the asset in its

highest and best use.



16

3 SIGNIFICANT ACCOUNTING POLICIES (continued) Fair value (continued) The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are

available to measure fair value, maximising the use of relevant observable inputs and minimising the use of

unobservable inputs.

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

Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities

Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Inventories Inventories are stated at the lower of cost or net realisable value. Costs are those expenses incurred in bringing each product to its present location and condition and excludes borrowing costs. Cost is determined using the weighted average cost basis method. Raw materials, consumables and goods for resale - purchase cost on weighted average basis Finished goods - costs of direct materials and labour plus attributable

overheads based on a normal level of activity. Net realisable value is based on estimated selling price less any further costs expected to be incurred on completion and disposal. Investment in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

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

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

The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the consolidated statement of income and is disclosed under ‘Share of results of associates’. The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as ‘Impairment loss on associates’ in the consolidated statement of income. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in consolidated statement of income.



17


Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if

any. Capital work-in-progress is carried at cost and is not depreciated.

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

Building 50 years

Plant, machinery and equipment 3 to 25 years

Furniture, office equipment and fixtures 4 to 10 years

Computers 3 years

Motor vehicles 4 to 6 years

The initial cost of property, plant and equipment comprises their purchase price and any directly attributable costs of

bringing an item of property, plant and equipment to its working condition and location. Expenditure incurred after the

property, plant and equipment has been put into operation, such as repairs and maintenance and overhaul costs, is

normally charged to the consolidated statement of income in the period in which the costs are incurred. In situations

where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits

expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed

standard of performance, the expenditure is capitalised as an additional cost of property, plant and equipment.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in

circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying

values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the

higher of their value less costs to sell and their value in use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are

expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the

net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the

year the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed at

each financial year end, and adjusted prospectively if appropriate.

Intangible assets

Intangible assets are measured on initial recognition at cost. The cost of intangible assets acquired in a business

combination is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at

cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets,

excluding capitalised development costs, are not capitalised and are expensed as incurred.

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

intangible assets are as follows:

Brand Indefinite life

Leasehold rights 3-15 years

Customer relationship 15 years

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever

there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method

for an intangible asset with a finite useful life is reviewed at least at each financial year end. Changes in the expected

useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for

by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The

amortisation expense on intangible assets with finite lives is recognised in the consolidated statement of income in the

expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash

generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is

reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in

the useful life assessment from indefinite to finite is made on a prospective basis.



18


Intangible assets (continued) Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net

disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of income

when the asset is derecognised.

Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such

indication exists, or when annual impairment testing for an asset is required, the group makes an estimate of the asset’s

recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less

costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash

inflows that are largely independent of those from other assets or groups of assets and then its recoverable amount is

assessed as part of the cash-generating unit to which it belongs. Where the carrying amount of an asset (or cash-

generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is

written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to

their present value using a discount rate that reflects current market assessments of the time value of money and the

risks specific to the asset (or cash-generating unit). In determining fair value less costs to sell an appropriate valuation

model is used. These calculations are corroborated by available fair value indicators.

An assessment is made at each reporting date as to whether there is any indication that previously recognised

impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is

asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of

the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would

have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such

reversal is recognised in the consolidated statement of income. After such a reversal, the depreciation charge is

adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis

over its remaining useful life.

Provisions

Provisions are legal claims and are recognised when the Group has a present legal or constructive obligation as a result

of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has

been reliably estimated.

Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the

likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a

whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same

class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a

pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

End of service indemnity Provision is made for amounts payable to employees under the Kuwaiti Labour Law and employee contracts. This

liability, which is unfunded, represents the amount payable to each employee as a result of involuntary termination on

the reporting date.

Treasury shares

Treasury shares consist of the Parent Company’s own issued shares that have been reacquired by the Group and not

yet reissued or cancelled. The treasury shares are accounted for using the cost method. Under this method, the

weighted average cost of the shares reacquired is charged to a contra account in equity. When the treasury shares are

reissued, gains are credited to a separate account in equity, “treasury shares reserve”, which is not distributable. Any

realised losses are charged to the same account to the extent of the credit balance on that account. Any excess losses

are charged to retained earnings and then to the statutory and voluntary reserves. Gains realised subsequently on the

sale of treasury shares are first used to offset any previously recorded losses in the order of reserves, retained earnings

and the treasury shares reserve account. No cash dividends are paid on these shares. The issue of stock dividend

increases the number of treasury shares proportionately and reduces the average cost per share without affecting the

total cost of treasury shares.



19

3 SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currency translation Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to KD at rates of exchange prevailing on that date. Any resultant gains or losses are recognised in the consolidated statement of income. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to KD at the foreign exchange rates prevailing at the dates that the values were determined. In case of non-monetary assets whose change in fair values are recognised directly through other comprehensive income, foreign exchange differences are recognised directly in other comprehensive income and for non-monetary assets whose change in fair value are recognised in the consolidated statement of income. Assets (including goodwill) and liabilities, both monetary and non-monetary, of foreign operations are translated at the exchange rates prevailing at the reporting date. Operating results of such operations are translated at average exchange rates for the year. The resulting exchange differences are accumulated in other comprehensive income (foreign currency translation reserve) until the disposal of the foreign operation. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the consolidated statement of income. Derivative financial instruments and hedge accounting Initial recognition and subsequent measurement The Group uses derivative financial instruments, such as forward currency contracts, to hedge its foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to consolidated statement of income, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later reclassified to consolidated statement of income when the hedge item affects profit or loss. For the purpose of hedge accounting, hedges are classified as:

Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment

Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment

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

Hedges of net investments in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised as other comprehensive income, while any gains or losses relating to the ineffective portion are recognised in the consolidated statement of income as other operating expenses. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the consolidated income statement. The Group uses a loan as a hedge of its exposure to foreign exchange risk on its investments in foreign subsidiary. Refer to Note 20 for more details.



20


Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the

revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair

value of the consideration received or receivable, taking into account contractually defined terms of payment and

excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria to determine if it is

acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements.

The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. Dividend income Dividend income is recognised when the right to receive payment is established. Interest income Interest income is recognised on an accrual basis using effective interest rate method. Borrowing costs General and specific borrowing costs directly attributable to the acquisition of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in consolidated statement of income in the period in which they are incurred. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the consolidated statement of income on a straight-line basis over the lease term. Contribution to Kuwait Foundation for the Advancement of Sciences (KFAS) and taxation Contribution to KFAS The Parent Company calculates the contribution to KFAS at 1% in accordance with the modified calculation based on the Foundation’s Board of Directors resolution, which states that the income from associates and subsidiaries, Board of Directors’ remuneration, transfer to statutory reserve should be excluded from profit for the year when determining the contribution. Taxation a. Zakat Contribution to Zakat is calculated at 1% of the profit of the Group in accordance with the Ministry of Finance resolution No. 58/2007. b. National Labour Support Tax (NLST) The Group calculates the NLST in accordance with Law No. 19 of 2000 and the Minister of Finance Resolutions No. 24 of 2006 at 2.5% of taxable profit for the period. As per law, income from associates and subsidiaries, cash dividends from listed companies which are subjected to NLST are deducted from the profit for the year when determining taxable profit. Contingencies Contingent liabilities are not recognised in the consolidated statement of financial position, but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognised in the consolidated statement of financial position, but are disclosed when an inflow of economic benefits is probable.



21

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

4 SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates

and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities at the reporting date.

However, uncertainty about the assumptions and estimates could result in outcomes that require a material adjustment

to the amount of the asset or liability reported in future periods.

Judgments

In the process of applying the Group’s accounting policies, management has made the following judgments, apart

from those involving estimations, which have the most significant effect on the amounts recognised in the

consolidated financial statements:

De-facto control

Management considers that the group has de facto control over SADAFCO even though it has less than 50% of the

voting right. The factors considered by the group included the voting shares, the relative size and dispersion of

holdings by other equity holders, attendance and voting patterns at previous equity holders’ meetings. There is no

history of other shareholders forming a group to exercise their votes collectively.

Classification of financial instruments

Judgments are made in the classification of financial instruments based on the management’s intention at acquisition.

The Group follows the guidance on IAS 39 on classifying investments.

Impairment of financial assets available for sale

The Group treats equity financial assets available for sale as impaired when there has been a significant or prolonged

decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of

what is “significant” or “prolonged” requires considerable judgment.

Estimation uncertainty and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that

have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next

financial year are discussed below:

Impairment losses on loans and advances

The Group reviews its loans and advances on a quarterly basis to assess whether a provision for impairment should be

recorded in the consolidated statement of income. In particular, considerable judgment by management is required in

the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such

estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and

uncertainty, and actual results may differ resulting in future changes to such provisions.

Provision for slow moving inventory items

The Group makes a provision for slow moving inventory items. Estimates of net realisable value of inventories are

based on the most reliable evidence at the time the estimates are made. These estimates take into consideration

fluctuations of price or cost directly related to events occurring subsequent to the balance sheet date to the extent that

such events confirm conditions existing at the end of year.



22

4 SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)

Valuation of unquoted financial assets

Valuation of unquoted equity investments is normally based on one of the following:

recent arm’s length market transactions;

current fair value of another instrument that is substantially the same;

an earnings multiple or industry specific earnings multiple;

the expected cash flows discounted at current rates applicable for items with similar terms and risk

characteristics; or

other valuation models.

Impairment of non-financial assets

An asset is impaired if its carrying amount exceeds its estimated recoverable amount. The recoverable amount of an

asset is the higher of an asset’s net selling price and value in use. Net selling price is the amount obtainable from the

sale of an asset in an arm’s length transaction. Value in use is the present value of estimated future cash flows

expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. An assessment is

made at each statement of financial position date to determine whether there is objective evidence that an asset may be

impaired. If such evidence exists, any impairment loss is recognised in the consolidated statement of income.

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

Useful lives of property, plant and equipment

The Group determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This

estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews

the residual value and useful lives annually and future depreciation charge would be adjusted where the management

believes the useful lives differ from previous estimates.

Impairment of property, plant and equipment

A decline in the value of property, plant and equipment could have a significant effect on the amounts recognised in the

consolidated financial statements. Management assesses the impairment of property, plant and equipment whenever

events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors that are considered important which could trigger an impairment review include the following:

significant changes in the technology and regulatory environments.

evidence from internal reporting which indicates that the economic performance of the asset is, or will be, worse than

expected.

5 CASH AND CASH EQUIVALENTS

2016 2015

KD KD

Cash in hand 729,047 700,535

Cash at banks 22,364,466 23,963,763

Cash in portfolios 177,850 218,248

Short term deposits with original maturities within three months 12,188,833 1,586,822

──────── ────────

35,460,196 26,469,368

Less: bank overdraft - (263,731)

──────── ────────

Cash and cash equivalents for the purpose of consolidated statement of

cash flows

35,460,196

26,205,637

════════ ════════

Short term deposits carries an effective interest rate of 0.52% (2015: 0.8%) per annum.



23

6 TRADE AND OTHER RECEIVABLES 2016 2015 KD KD Trade receivables 15,303,777 15,813,959 Less: Provision for doubtful accounts (see below) (1,163,995) (1,451,905) ──────── ────────

14,139,782 14,362,054 Accrued income 61,136 55,477 Prepayments 1,216,309 2,091,606 Other receivables 476,522 394,316 ──────── ────────

15,893,749 16,903,453 ════════ ════════

As at 31 March 2016, trade receivables at nominal value of KD 1,163,995 (2015: 1,451,905) were impaired.

Movements in the provision for doubtful accounts were as follows:

2016 2015

KD KD

At the beginning of the year 1,451,905 - Provision for doubtful debts resulted from acquisition of subsidiary - 1,307,761

Charge for the year 510,297 144,144

Written off during the year (798,207) -

───────── ─────────

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

═════════ ═════════

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

Past due but not impaired

Neither past due

nor impaired 30 days 30 to 90 days 90 days

Total

KD '000 KD '000 KD '000 KD '000 KD 000's

2016 13,512,510 530,751 96,521 - 14,139,782 2015 13,406,534 836,701 118,819 - 14,362,054

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

the Group to obtain collateral over trade receivables.



24

7 FINANCIAL ASSETS AVAILABLE FOR SALE

2016 2015

KD KD

Quoted equity securities 5,647,973 5,223,975

Debt instruments 7,742,123 7,253,750

Unquoted equity securities 166,998,838 192,355,619

───────── ─────────

180,388,934 204,833,344

═════════ ═════════

The fair value of investment in unquoted equity securities amounting to KD 166,998,838 (2015: KD 192,355,619)

was determined by management using appropriate valuation methods based on the latest available information of

the results and future projections, for which an unrealized loss of KD 25,356,781 (2015: unrealized loss of KD

2,044,844) has been recognised in consolidated statement of comprehensive income. As at the reporting date, the

cumulative unrealised gain recognised in cumulative changes in fair value on unquoted equity securities amounted

to KD 90,843,407 (2015: KD 116,200,188).

The debt instruments amounting to KD 7,742,123 (2015: 7,253,750) are carried at cost, less impairment, since there

are no active markets for these financial assets and the Group believes that the carrying amount approximates the

fair value.

Management has performed a review of the financial assets to assess whether impairment has occurred in the value

of these financial assets. Based on specific information, management has recorded an impairment loss of

KD 1,317,573 (2015: KD 179,191) in the consolidated statement of income for the year in respect of financial

assets available for sale. Based on the latest available financial information, management is of the view that no

further impairment is required as at 31 March 2016 in respect of financial assets available for sale.

During the year, the Group earned dividend income of KD 13,660,501 (2015: KD 18,282,003) on its financial

assets available for sale.

Fair value hierarchy for determining and disclosing the fair values of financial instruments by valuation techniques

as presented in Note 23.

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

2016 2015

KD KD

Kuwaiti Dinar 6,425,463 9,930,376

US Dollar 172,631,114 193,789,902

Saudi Riyals 1,332,357 1,113,066

───────── ─────────

180,388,934 204,833,344

═════════ ═════════



25

8 INVESTMENT IN ASSOCIATES The Group has the following investments in associates: Name of associates

Country of incorporation

Legal ownership (%)

2016 2015

Listed: National Petroleum Services Company K.S.C.P. (“NAPESCO”)

Kuwait

27.15%

26.91%

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

Algerian Methanol S.P.A. (“Almet”) Algeria 42.50% 42.50% United Precision Drilling Company W.L.L. (“UPDC”) Kuwait 47.50% 47.50% Al-Khorayef United Holding Company K.S.C. (Closed) (“Al-Khorayef”)

Kuwait 25.00% 25.00%

The movement in the carrying value of associates is as follows:

2016 2015 KD KD

As at 1 April 71,709,546 132,778,435 Acquisitions 23,371 8,684 Transfer to subsidiary - (63,418,632) Share of results 10,688,563 2,696,212 Share of other comprehensive income 541,931 3,229,143 Dividends received (1,353,935) (3,584,296)

───────── ─────────

As at 31 March 81,609,476 71,709,546

═══════════ ═══════════

The carrying amount of the investment in associate includes goodwill of KD 5,010,662 (2015: KD 5,010,662).

Investment in associates include quoted associate with carrying value of KD 9,411,771 (2015: KD 9,066,879), having

a market value of KD 12,613,990 (2015: KD 10,344,125).

As at the reporting date, the Group performed an impairment test on its investment in associates and believes that

there is no objective evidence or circumstances that indicate any impairment in the value of its investment in

associates.

The associates have contingent liabilities or capital commitments as at 31 March 2016 of KD 26,747,498 (2015: KD

21,055,039).



26

8 INVESTMENT IN ASSOCIATES (continued) The following table illustrates summarised financial information of the Group’s investments in the associates: 2016

KARO

Other immaterial associates

Total KD KD KD

Associates’ statement of financial position:

Current assets 514,881,729 79,908,537 594,790,266 Non-current assets 578,356,192 44,350,018 622,706,210 Current liabilities (234,819,498) (46,661,104) (281,480,602) Non-current liabilities (551,579,128) (30,603,229) (582,182,357) ──────── ──────── ────────

Net assets 306,839,295 46,994,222 353,833,517 ════════ ════════ ════════

Profit for the year 37,508,025 11,067,702 48,575,727 ════════ ════════ ════════

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

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

Commitment 2,101,453 185,415 2,286,868 ════════ ════════ ════════

2015

KARO

Other immaterial associates

Total KD KD KD

Associates’ statement of financial position:

Current assets 436,977,419 71,769,688 508,747,107 Non-current assets 698,744,520 27,823,686 726,568,206 Current liabilities (191,217,452) (21,889,107) (213,106,559) Non-current liabilities (692,072,952) (37,874,517) (729,947,469) ──────── ──────── ────────

Net assets 252,431,535 39,829,750 292,261,285 ════════ ════════ ════════

(Loss) profit for the year (2,717,370) 8,867,479 6,150,109 ════════ ════════ ════════

Other comprehensive income (loss) 16,899,735 (19,463) 16,880,272 ════════ ════════ ════════

Revenue 682,678 59,741,522 60,424,200 ════════ ════════ ════════

Commitment 89,323 48,790,381 48,879,704 ════════ ════════ ════════



27

8 INVESTMENT IN ASSOCIATES (continued)

Reconciliation of the summarised financial information presented to the carrying amount of its interest in associates

is as follows:

2016

KARO

Other

immaterial

associates

Total

KD KD KD

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

Profit for the year 37,508,025 11,067,702 48,575,727

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

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

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

──────── ──────── ────────

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

════════ ════════ ════════

Interest in associate

20%

Ranges from

25% to 47.50%

════════ ════════

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

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

──────── ──────── ────────

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

════════ ════════ ════════

2015

KARO

Other

immaterial

associates

Total

KD KD KD

Net assets as at 1 April 2014 255,148,905 36,315,281 291,464,186

(loss)/profit for the year (2,717,370) 8,867,479 6,150,109

Dividends - (5,333,547) (5,333,547)

Other comprehensive loss - (19,463) (19,463)

Foreign currency translation adjustment 16,899,735 - 16,899,735

──────── ──────── ────────

Net assets as at 31 March 2015 269,331,270 39,829,750 309,161,020

════════ ════════ ════════

Interest in associate

20%

Ranges from

25% to 47.50%

════════ ════════

Share of net assets 53,866,254 12,832,630 66,698,884

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

──────── ──────── ────────

Carrying amounts 53,866,254 17,843,292 71,709,546

════════ ════════ ════════



28

9 INVENTORIES

As at 31 March, inventories comprise the following: 2016 2015 KD KD Raw and packing materials 18,493,798 20,356,627 Finished goods 5,070,380 4,499,099 Spare parts, supplies and other items 2,202,864 2,664,603 Goods-in-transit 6,559,929 2,212,704 ──────── ────────

Less: provision for slow moving and obsolete inventories (1,191,983) (921,999) ──────── ────────

31,134,988 28,811,034 ════════ ════════

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

At the beginning of the year 921,999 879,381 Charge for the year 339,033 47,425 Write-off (69,049) (4,807) ──────── ────────

At the end of the year 1,191,983 921,999 ════════ ════════

10 INTANGIBLE ASSETS

2016

Goodwill

KD

Other

intangibles

KD

Total

KD

Gross carrying amount:

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

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

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

Accumulated amortisation:

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

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

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

Net carrying amount:

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

2015

Goodwill

KD

Other

intangibles

KD

Total

KD

Gross carrying amount:

As at 1 April 2014 - - -

Addition during the year 49,577,387 53,302,767 102,880,154

Foreign currency translation adjustments 3,199,508 3,439,927 6,639,435 ───────── ───────── ─────────

As at 31 March 2015 52,776,895 56,742,694 109,519,589 ═════════ ═════════ ═════════

Accumulated amortization:

As at 1 April 2014

Charge for the year (Note 17) - 1,414,647 1,414,647 ───────── ───────── ─────────

As at 31 March 2015 - 1,414,647 1,414,647 ═════════ ═════════ ═════════

Net carrying amount:

As at 31 March 2015 52,776,895 55,328,047 108,104,942 ═════════ ═════════ ═════════



29

10 INTANGIBLE ASSETS (continued)

Goodwill

The carrying value of goodwill is tested for impairment on an annual basis (or more frequently if evidence exists that

goodwill might be impaired) by estimating the recoverable amount of the cash-generating unit ("CGU") i.e.

SADAFCO using value-in-use calculations unless fair value based on active market price is higher than the carrying

value of the CGU. The recoverable amount of SADAFCO has been determined using fair value based on active

market price at 31 March 2016. As a result of this exercise, management has concluded that no impairment is

considered necessary in the consolidated income statement (2015: Nil).



30

11 PROPERTY, PLANT AND EQUIPMENT

Building

Plant,

machinery and

equipment

Motor

vehicles

Furniture,

office

equipment

and fixtures

Capital

work-in-

progress

Total

2016

KD KD KD KD KD KD

Cost:

As at 1 April 2015 38,545,037 26,359,944 7,240,893 1,428,537 3,172,440 76,746,851

Additions 171,510 81,068 40,709 136,606 5,085,206 5,515,099

Disposals - (528,004) (181,831) (7,436) - (717,271)

Transfers (net) 510,501 4,691,828 1,296,272 200,914 (6,699,515) -

Foreign currency translation adjustment 272,868 355,158 92,846 32,637 30,920 784,429 ────────── ────────── ────────── ───────── ────────── ──────────

As at 31 March 2016 39,499,916 30,959,994 8,488,889 1,791,258 1,589,051 82,329,108 ══════════ ══════════ ══════════ ═════════ ══════════ ══════════

Depreciation:

As at 1 April 2015 2,154,490 2,631,682 1,600,275 470,317 - 6,856,764

Charge for the year (Note 17) 1,323,508 3,413,178 1,627,901 387,686 - 6,752,273

Disposals - (402,727) (148,600) (7,424) - (558,751)

Foreign currency translation adjustment 77,450 231,401 62,674 28,134 - 399,659 ───────── ───────── ───────── ──────── ──────── ──────────

As at 31 March 2016 3,555,448 5,873,534 3,142,250 878,713 - 13,449,945 ═════════ ═════════ ═════════ ════════ ════════ ══════════

Net book value

As at 31 March 2016 35,944,468 25,086,460 5,346,639 912,545 1,589,051 68,879,163 ══════════ ══════════ ═════════ ════════ ═════════ ══════════



31

11 PROPERTY, PLANT AND EQUIPMENT (continued)

Building

Plant,

machinery and

equipment

Motor

vehicles

Furniture,

office

equipment

and fixtures

Capital

work-in-

progress

Total

2015

KD KD KD KD KD KD

Cost:

As at 1 April 2014 1,630,641 1,380,102 153,387 219,545 18,610 3,402,285

Additions 3,234,000 99,294 71,829 97,397 8,702,077 12,204,597

Arising on acquisition of subsidiary 26,911,280 19,298,876 5,367,096 967,002 4,888,121 57,432,375

Disposals - (878) (8,995) (6,667) - (16,540)

Transfers (net) 5,033,338 4,337,773 1,311,398 88,889 (10,771,398) -

Foreign currency translation adjustment 1,735,778 1,244,777 346,178 62,371 335,030 3,724,134 ──────── ──────── ──────── ──────── ──────── ────────

As at 31 March 2015 38,545,037 26,359,944 7,240,893 1,428,537 3,172,440 76,746,851 ════════ ════════ ════════ ════════ ════════ ════════

Depreciation:

As at 1 April 2014 1,484,938 745,152 131,814 146,838 - 2,508,742

Charge for the year (Note 17) 669,552 1,887,407 1,477,420 330,145 - 4,364,524

Disposals - (877) (8,959) (6,666) - (16,502) ──────── ──────── ──────── ──────── ──────── ────────

As at 31 March 2015 2,154,490 2,631,682 1,600,275 470,317 - 6,856,764 ════════ ════════ ════════ ════════ ════════ ════════

Net book value

As at 31 March 2015 36,390,547 23,728,262 5,640,618 958,220 3,172,440 69,890,087 ════════ ════════ ════════ ════════ ════════ ════════



32

12 TRADE AND OTHER PAYABLES

2016 2015 KD KD Trade payables 6,255,308 9,109,492 Dividend payable 7,688,293 7,011,094 Taxation payable 844,779 1,203,294 Board of Directors’ remuneration payable 150,000 150,000 Staff payables 3,159,891 541,888 Other payables 8,493,315 6,898,292 ──────── ──────── 26,591,586 24,914,060 ════════ ════════

The entire trade payables are short term in nature. The carrying amount of the liabilities largely correspond to the fair values. 13 TERM LOANS Term loans represent loans obtained from a local financial institution denominated in US Dollar which carry interest at commercial rates. The term loans are due within 1 to 4 years of the reporting date. There are no collaterals or covenants as at the reporting date. 14 SHARE CAPITAL AND RESERVES a) Share capital The authorised, issued and paid up share capital of the Parent Company comprises 1,099 million shares (2015: 1,099 million shares) of 100 fils each, which is fully paid in cash. b) Statutory reserve In accordance with the Company Law No 1 of 2016 and the Parent Company’s Articles of Association, 10% of the profit for the year attributable to shareholders of the Parent Company before KFAS, NLST and Zakat is required to be transferred to statutory reserve. Such annual transfers may be discontinued by a resolution of the Parent Company’s annual general meeting upon a recommendation by the Board of Directors. Distribution of the reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when retained earnings are not sufficient for the payment of a dividend of this amount. c) Voluntary reserve In accordance with the Parent Company’s Articles of Association, 10% of the profit for the year attributable to shareholders of the Parent Company before KFAS, NLST and Zakat is required to be transferred to voluntary reserve. Such annual transfers may be discontinued by a resolution of the Parent Company’s annual general meeting upon a recommendation by the Board of Directors. Voluntary reserve is available to be distributed to shareholders at the discretion of the general assembly in ways that may be deemed beneficial to the Parent Company, except for the amount equivalent to the cost of purchase of the treasury shares. d) Treasury shares

2016 2015 KD KD Number of treasury shares 59,095,913 49,650,651 ════════ ════════ Percentage of issued shares 5.38% 4.52% ════════ ════════ Cost 11,825,036 10,094,908 ════════ ════════ Market value (KD) 11,346,415 9,930,130 ════════ ════════



33

14 SHARE CAPITAL AND RESERVES (continued) d) Treasury shares (continued) An amount equivalent to the cost of purchase of the treasury share have been ear marked as non-distributable from voluntary reserve throughout the holding period of treasury shares. e) Proposed dividends and Board of Directors remuneration On 10 May 2016, the Board of Directors of the Parent Company proposed a cash dividend of 10% of the paid up share capital (2015:10%) and Board of Directors remuneration of KD 150,000 (2015: KD 150,000) for the year ended 31 March 2016, which is subject to approval by the shareholders at the Annual General Assembly of the Parent Company. Annual General Assembly of the shareholders held on 28 June 2015 approved the consolidated financial statements, dividends of KD 10,485,654 and Board of Directors’ remuneration of KD 150,000 for the year ended 31 March 2015. 15 MATERIAL PARTLY-OWNED SUBSIDIARIES Total non-controlling interest for year ended 31 March 2016 is KD 106,034,914 (2015: KD 98,961,521). Financial information of a subsidiary that has material non-controlling interests is provided below. Proportion of equity interest held by non-controlling interests:

Non-controlling interests

Subsidiary Country of Incorporation

Equity interest held

Accumulated balance

Profit allocated

SADAFCO Kingdom of Saudi Arabia 59.89%

96,792,240 12,536,415 Summarised statement of income: 2016 2015 KD KD Sales 159,729,174 105,953,059 Cost of sales (102,642,197) (73,215,958) ──────── ──────── Gross Profit 57,086,977 32,737,101 Interest and other income 34,076 9,623 General and administrative expenses (36,228,278) (24,276,461) Finance income/(costs) 6,445 (112,163) ──────── ────────

Profit for the year 20,899,220 8,358,100 ════════ ════════

Attributable to non-controlling interests 12,536,415 5,018,913 Attributable to equity holders of the Parent Company 8,362,805 3,339,187 Summarised statement of financial position:

KD KD Non-current assets 119,957,790 122,213,350 Current assets 65,508,083 49,425,640

Non-current liabilities (8,091,001) (6,710,613) Current liabilities (15,831,844) (14,105,121)

───────── ─────────

Total equity 161,543,028 150,823,256

═══════════ ═══════════ Equity attributable to equity holders of the non-controlling interests 96,792,240 90,328,048 Equity attributable to equity holders of the Parent Company 64,750,788 60,495,208



34

15 MATERIAL PARTLY-OWNED SUBSIDIARIES (continued) Summarised cash flow information: KD KD Operating 29,192,905 17,047,199 Investing (5,440,236) (9,898,250) Financing (9,012,933) (7,794,961) 16 TAXATION 2016 2015 KD KD Contribution to KFAS 137,224 279,763 NLST 653,731 796,427 Zakat 53,824 127,104 ──────── ────────

844,779 1,203,294 ════════ ════════

17 PROFIT FOR THE YEAR The profit for the year is stated after charging:

2016 2015 KD KD

Staff costs 18,688,595 11,493,108 ══════════ ══════════

Depreciation (Note 11) 6,752,273 4,364,524 ══════════ ══════════

Amortisation (Note 10) 1,884,492 1,414,647 ══════════ ══════════

Rent - operating leases* 32,932 263,751 ══════════ ══════════

Inventories recognised as expenses 2,484,192 2,655,870 ══════════ ══════════

* All the operating leases will be maturing within 1 year from the reporting date. 18 EARNINGS PER SHARE Basic and diluted earnings per share is computed by dividing the profit for the year attributable to the shareholders of the Parent Company by the weighted average number of shares outstanding (net of treasury shares) for the year as follows: 2016 2015 KD KD

Profit for the year attributable to the shareholders of the Parent Company 24,714,826 31,348,603 ════════ ════════ Shares Shares

Weighted average number of shares outstanding 1,099,192,576 1,099,192,576 Weighted average number of treasury shares (53,418,574) (47,180,289) ──────── ──────── Weighted average number of outstanding shares 1,045,774,002 1,052,012,287 ════════ ════════ Basic and diluted earnings per share attributable to the shareholders of the Parent Company 23.63 fils 29.80 fils

════════ ════════

As there are no dilutive instrument outstanding, basic and diluted earnings per share are identical.



35

19 RELATED PARTY BALANCES AND TRANSACTIONS

Related parties primarily comprise major shareholders, associates, directors, key management personnel and entities

controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these

transactions are approved by the Group’s management. Transactions between the Group entities have been eliminated

on consolidation and are not disclosed in this note.

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

Associates Others 2016 2015

KD KD KD KD

Consolidated statement of financial position:

Trade and other receivables - 51,572 51,572 46,050

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

Associates Others 2016 2015

KD KD KD KD

Consolidated statement of income:

Interest and other income 105,000 29,880 134,880 47,960

Transactions:

Acquisition of additional equity interest in

SADAFCO - 27,209,223

Additions to associates - 8,684

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

Compensation of key management personnel

The Board of Directors’ remuneration in their capacity of executives and other members of key management during the

year were as follows:

2016 2015

KD KD

Salaries and short-term benefits 1,640,036 1,583,028

Employees’ end of service benefits 133,922 128,043

──────── ────────

1,773,958 1,711,071

════════ ════════

20 HEDGE OF NET INVESTMENT IN FOREIGN OPERATION

Term loans as at 31 March 2016 represents borrowing of US Dollar 218,354,146 (2015: 210,854,147) which has been

designated as a hedge of the net investments in the subsidiary in Saudi Arabia, SADAFCO. This borrowing is being used

to hedge the Group’s exposure to the US Dollar foreign exchange risk on this investment. Gains or losses on the

retranslation of this borrowing are transferred to consolidated statement of other comprehensive income to offset any

gains or losses on translation of the net investments in the subsidiary on the basis that the SAR is pegged against the US

Dollars. There is no ineffectiveness for the year ended 31 March 2016 and 31 March 2015.

21 CONTINGENT LIABILITIES AND COMMITMENT

As at the reporting date, the Group had contingent liabilities amounting to KD 12,719,852 (2015: KD 12,722,546) in respect of bank guarantees to a local bank in connection with certain credit facilities availed by a related party. In addition, the Group has outstanding commitments for future capital expenditures amounting to KD 5,744,140 (2015: KD 4,650,749).



36

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

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

Foodstuffs : Production and supply of dairy products & food stuff

Manufacturing : Mainly manufacture and supply chemicals for fiberglass, paint and petrochemical industries and general use, dairy and foodstuff.

Management monitors operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on segmental return on investments. The following table presents information regarding the Group’s operating segments. 31 March 2016 Investments Manufacturing Foodstuff Total KD KD KD KD Revenue 13,715,091 2,395,077 159,729,174 175,839,342 ─────── ─────── ─────── ─────── Result 10,003,329 (559,045) 27,484,905 36,929,189 Interest and other income 567,533 96,139 34,077 697,749 Share of result from associates 10,688,563 - - 10,688,563 Depreciation (59,310) (73,201) (6,619,762) (6,752,273) Finance costs (1,537,511) - - (1,537,511) Amortisation (1,884,492) - - (1,884,492) ─────── ─────── ─────── ─────── Profit before taxation and Board of Directors’ remuneration 17,778,112 (536,107) 20,899,220

38,141,225

Board of directors’ remuneration - - - (150,000) Taxation - - - (844,779) ─────── ─────── ─────── ─────── Profit for the year 17,778,112 (536,107) 20,899,220 37,146,446 ═══════ ═══════ ═══════ ═══════ Total assets 381,496,778 8,273,603 131,696,137 521,466,518 ═══════ ═══════ ═══════ ═══════ Total liabilities 76,403,705 904,262 23,922,844 101,230,811 ═══════ ═══════ ═══════ ═══════



37

22 SEGMENT REPORTING (continued) 31 March 2015 Investments Manufacturing Foodstuff Total KD KD KD KD Revenue 18,931,660 3,264,826 105,953,059 128,149,545 ─────── ─────── ─────── ─────── Result 16,162,813 (164,505) 12,616,973 28,615,281 Interest and other income 518,356 123,476 - 641,832 Gain on fair valuation of previously held equity interest in acquiree 12,914,823

-

-

12,914,823

Share of result from associates 1,944,212 - 752,000 2,696,212 Depreciation (33,519) (62,509) (4,268,496) (4,364,524) Finance costs (1,402,729) - - (1,402,729) Amortisation (1,414,647) - - (1,414,647) ─────── ─────── ─────── ─────── Profit before taxation and Board of Directors’ remuneration 28,689,309 (103,538) 9,100,477

37,686,248

Board of directors’ remuneration - - - (150,000) Taxation - - - (1,203,294) ─────── ─────── ─────── ─────── Profit for the year 28,689,309 (103,538) 9,100,477 36,332,954 ═══════ ═══════ ═══════ ═══════ Total assets 394,561,221 17,001,477 116,409,076 527,971,774 ═══════ ═══════ ═══════ ═══════ Total liabilities 82,084,330 707,720 20,815,733 103,607,783 ═══════ ═══════ ═══════ ═══════

23 FAIR VALUE MEASUREMENT

The following table provides the fair value measurement of Group’s financial assets.

Fair value measurement using

31 March 2016

Quoted prices in

active markets

(Level 1)

Significant

unobservable

inputs

(Level 3) Total

KD KD KD

Assets measured at fair value


Quoted equity securities 5,647,973 - 5,647,973

Unquoted equity securities - 166,998,838 166,998,838

─────── ──────── ────────

5,647,973 166,998,838 172,646,811

═══════ ════════ ════════

Fair value measurement using

31 March 2015

Quoted prices in

active markets

(Level 1)

Significant

unobservable

inputs

(Level 3) Total

KD KD KD

Assets measured at fair value


Quoted equity securities 5,223,975 - 5,223,975

Unquoted equity securities - 192,355,619 192,355,619

─────── ──────── ────────

5,223,975 192,355,619 197,579,594

═══════ ════════ ════════



38

23 FAIR VALUE MEASUREMENT (continued)

The following table shows a reconciliation of the opening and closing amount of level 3 financial instruments which

are recorded at fair value.

2016

As at 1 April

Net

purchases,

sales, transfers

and settlements

Recognised loss in

other

comprehensive

income

As at

31 March

KD KD KD KD


Unquoted equities securities 192,355,619 - (25,356,781) 166,998,838

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

2015


Unquoted equities securities 194,380,996 19,467 (2,044,844) 192,355,619

═════════ ════════ ════════ ═════════

Description of significant unobservable inputs to valuation of financial assets:

Unquoted equity securities represent unlisted securities. Unquoted equity securities are valued based on discounted

cash flow (“DCF”) model based on discounting of free cash flows of the company i.e. the cash flow accruing to the

company from operational activities after covering capital expenditure and working capital requirements. The Group is

confident of realising the remaining amount and believes it to be reasonable estimates of fair value.

The table below illustrates the effect on other comprehensive income due to a reasonable change of each significant

input, separately, with all other variables held constant.

Increase of 50 basis points

Effect on other comprehensive income

2016 2015

KD KD

Weighted average cost of capital (834,896) (961,680)

Terminal growth rate 1,215,917 1,202,060

24 RISK MANAGEMENT

Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement

and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Group’s

continuing profitability and each individual within the Group is accountable for the risk exposures relating to his or

her responsibilities. The Group is exposed to credit risk, liquidity risk and market risk, the latter being subdivided into

interest rate risk, currency risk and equity price risk. The independent risk control process does not include business

risks such as changes in the environment, technology and industry. They are monitored through the Group’s strategic

planning process.

24.1 CREDIT RISK

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation as it falls due and

cause the other party to incur a financial loss. The Group is exposed to credit risk from its operating activities

including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

The Group has policies and procedures in place to limit the amount of credit exposure to any one counter party. These

procedures include the non-concentration of credit risk.

With respect to credit risk arising from the other financial assets of the Group, which comprise bank balances, debt

securities included under financial assets available for sale and accrued income and other receivables, the Group’s

exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount

of these instruments. Where financial instruments are recorded at fair value, it represents the current maximum credit

risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values.



39

24 RISK MANAGEMENT (continued)

24.1 CREDIT RISK (continued)

The table below shows the gross maximum exposure to credit risk across financial assets before taking into

consideration the effect of credit risk mitigation.

2016 2015 KD KD

Bank balances and short term deposits 34,731,149 25,768,833

Financial assets available for sale – Debt instruments (Note 7) 7,742,123 7,253,750

Trade and other receivables 14,677,440 14,811,847

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

────────── ──────────

Gross maximum credit risk exposure before consideration of

credit risk mitigation

58,400,712

49,084,430

══════════ ══════════

The maximum credit exposure to any single client or counterparty as of 31 March 2016 is KD 12,490,640 (2015: KD

18,864,294).

The Group seeks to limit its credit risk with respect to its bank balances by only dealing with reputed banks. The

Group manages credit risk by setting limits for individual counter-parties, and groups of counter-parties and for

geographical and industry segments. The Group also monitors credit exposures, and continually assesses the

creditworthiness of counterparties.

Risk concentration of maximum exposure to credit risk

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the

same geographic region, or have similar economic features that would cause their ability to meet contractual

obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the

relative sensitivity of the Group’s performance to developments affecting a particular industry or geographic location.

The Group’s gross maximum exposure to credit risk, before taking into account any collateral held or credit

enhancements, can be analysed by the geographical regions as follows:

Kuwait

GCC and the

rest of the

Middle East

Total

KD KD KD

31 March 2016

Bank balances and short term deposits 15,615,594 19,115,555 34,731,149

Financial assets available for sale – debt instruments (Note 7) 7,742,123 - 7,742,123

Trade and other receivables 884,501 13,792,939 14,677,440

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

────────── ────────── ──────────

Maximum exposure to credit risk assets 25,492,218 32,908,494 58,400,712

══════════ ══════════ ══════════

Kuwait

GCC and the

rest of the

Middle East

Total

KD KD KD

31 March 2015

Bank balances and short term deposits 21,146,595 4,622,238 25,768,833

Financial assets available for sale – debt instruments (Note 7) 7,253,750 - 7,253,750

Trade and other receivables 1,024,361 13,787,486 14,811,847

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

────────── ────────── ──────────

Maximum exposure to credit risk assets 30,674,706 18,409,724 49,084,430

══════════ ══════════ ══════════



40


24.1 CREDIT RISK (continued)

Risk concentration of maximum exposure to credit risk (continued)

The Group’s gross maximum exposure to credit risk, before taking into account any collateral held or credit

enhancements, can be analysed by the following industry sectors as:

2016 2015

KD KD

Banks and financial institutions 34,731,149 25,768,833

Others 23,669,563 23,315,597

────────── ──────────

58,400,712 49,084,430

══════════ ══════════

24.2 LIQUIDITY RISK

Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with

financial instruments. Liquidity risk is managed by the treasury department of the Parent Company. To manage this

risk, the Group periodically assesses the financial viability of customers and invests in bank deposits or other

investments that are readily realisable. The maturity profile is monitored by management to ensure adequate liquidity

is maintained.

As at 31 March 2016, none of the Group’s debt will mature in less than one year (2015: Nil) based on the carrying

value of borrowings reflected in the consolidated statement of financial position. The management of the Parent

Company have reached an understanding with the lender to renew the credit facility on maturity for another year. The table below summarises the maturity profile of the Group’s liabilities based on contractual undiscounted repayment obligations. The liquidity profile of financial liabilities reflects the projected cash flows which includes future interest payments over the life of these financial liabilities. The liquidity profile of financial liabilities is as follows:

Within 2 to 3 3 to 12 1 to 5

1 month months months years Total

KD KD KD KD KD

2016

Term loans* 153,059 306,117 1,377,527 67,854,637 69,691,340

Accounts and other payables - 5,318,316 21,273,270 - 26,591,586

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

153,059 5,624,433 22,650,797 67,854,637 96,282,926 ═════════ ═════════ ═════════ ═════════ ═════════

COMMITMENT AND CONTINGENCIES - - - 18,463,992 18,463,992 ═════════ ═════════ ═════════ ═════════ ═════════

Within 2 to 3 3 to 12 1 to 5

1 month months months years Total

KD KD KD KD KD

2015

Term loans* 123,065 246,129 1,107,582 73,526,128 75,002,904

Accounts and other payables - 4,982,812 19,931,248 - 24,914,060

Bank overdraft - - 263,731 - 263,731

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

123,065 5,228,941 21,302,561 73,526,128 100,180,695 ═════════ ═════════ ═════════ ═════════ ═════════

COMMITMENT AND CONTINGENCIES - - - 17,373,295 17,373,295 ═════════ ═════════ ═════════ ═════════ ═════════

*The current portion of the term loan represents the interest payable.



41


24.3 MARKET RISK

Market risk is the risk that the value of an asset will fluctuate as a result of changes in market variables such as

interest rates, currency rates and equity prices, whether those changes are caused by factors specific to the individual

investment or its issuer or factors affecting all investments traded in the market.

Market risk is managed on the basis of pre-determined asset allocations across various asset categories, diversification

of assets in terms of geographical distribution and industry concentration, a continuous appraisal of market conditions

and trends and management’s estimate of long and short term changes in fair value.

24.3.1 Interest rate risk

Interest rate risk is the risk that the fair value of all future cash flows of a financial instrument will fluctuate because of

changes in market interest rates. Interest rate risk is managed by the treasury department of the Parent Company. The

Group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities. It is

the Group’s policy to manage its interest cost using a mix of fixed and variable rate debts. The Group aims to keep a

certain portion of its borrowings at variable rates of interest.

The Group is exposed to interest rate risk on its variable interest bearing assets and liabilities (time deposits with bank,

bank overdraft and term loans).

The sensitivity of the consolidated statement of income is the effect of the assumed changes in interest rates on the

Group’s profit based on floating rate financial assets and financial liabilities held at 31 March 2016 and 2015.

The following table demonstrates the sensitivity of the consolidated statement of income to reasonably possible

changes in interest rates, with all other variables held constant.

Increase of 50 basis points

Effect on statement of income

2016 2015

KD KD

KD - (46)

US Dollar (7,853) (7,990)

24.3.2 Foreign currency risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign

exchange rates.

Foreign currency risk is managed by the treasury department of the Parent Company on the basis of limits determined

by the Parent Company’s Board of Directors and a continuous assessment of the Group’s open positions and current

and expected exchange rate movements.

The effect on loss due to change in the fair value of monetary assets and liabilities, as a result of change in currency

rate by 5%, with all other variables held constant is shown below:

Effect on statement of income

2016 2015

KD KD

US Dollar (37,079) 965,793

Euro (2,959) 1,750

GCC and the rest of Middle East currencies 1,010,580 185,632



42


24.3 MARKET RISK (continued)


2016 2015

KD KD

US Dollar 14,858,613 15,507,216

GCC and the rest of Middle East currencies 5,383,166 4,774,761

24.3.3 Equity price risk

Equity price risk arises from changes in the fair values of equity investments. Equity price risk is managed by the

investment department of the Parent Company mainly through diversification of investments in terms of geographical

distribution and industry concentration. The Group’s quoted investments are listed on the Kuwait Stock Exchange and

Saudi Stock Exchange.

The effect on other comprehensive income (as a result of a change in the fair value of financial assets available for

sale) due to a reasonably possible change (of 5%) in market indices, with all other variables held constant is as

follows:


2016 2015

KD KD

Kuwait stock exchange 164,229 269,093

Saudi stock exchange 85,928 54,685

25 CAPITAL MANAGEMENT The primary objective of the Group’s capital management policies is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholders’ value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust dividend payout to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 March 2016 and 31 March 2015. The Group monitors capital using a gearing ratio, which is net debt divided by total capital of the Parent Company. The Group aims to limit its leverage ratio to a maximum of 50%. The Group includes within net debt, term loans and accounts and other payables, less cash and cash equivalent. Total capital represents total equity of the Company.

2016 2015 KD KD

Accounts and other payables 26,591,586 24,914,060 Bank overdraft - 263,731 Term loans 65,715,352 71,083,510 Less: cash and short term deposits (35,460,196) (26,469,368) ────────── ──────────

Net debt 56,846,742 69,791,933 ═════════ ═════════

Total equity 420,235,707 424,363,991 ═════════ ═════════

Gearing ratio (%) 13.53% 16.44% ═════════ ═════════

Documents

Qurain Petrochemical Industries Company K.S.C.P. and ... · PDF fileThe attached notes 1 to 25 form part of these consolidated financial statements. 4 Qurain Petrochemical Industries