Aljazira Capital Company: Consolidated Financial Statements For The Year Ended 31 December 2016

Transcription

1. ALJAZIRA CAPITAL COMPANY (A Saudi Closed Joint Stock Company) CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 together with the INDEPENDENT AUDITORS’ REPORT
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4. CONSOLIDATED BALANCE SHEET As at 31 December 2016 (Saudi Riyal in thousands) Note 2016 2015 ASSETS Current assets Cash and cash equivalents 4 223,188 38,736 Held for trading investments 5 114,494 228,764 Due from a related party 6 -- 4,402 Murabaha deposits 7 300,000 -- Accrued special commission income 7 8,787 15 Investment in real estate properties 9 28,404 33,626 Prepayments and other current assets 10 30,338 27,974 705,211 333,517 Total current assets Non-current assets Murabaha deposits 7 100,000 400,000 Available for sale investments 8 52,588 58,783 Accrued special commission income 7 2,766 491 Property and equipment, net 11 52,121 48,493 Total non-current assets 207,475 507,767 TOTAL ASSETS 912,686 841,284 LIABILITIES AND EQUITY Current liabilities Due to related parties 6 23,493 833 Accrued expenses and other current liabilities 12 28,037 32,281 Accrued Zakat and income tax 13c 35,506 5,728 Subsidiary’s equity obligations 2e 53,936 35,825 140,972 74,667 Provision for employees’ end of service benefits 41,841 41,223 Total non-current liabilities 41,841 41,223 182,813 115,890 500,000 500,000 85,964 81,571 108,821 102,540 35,088 41,283 Total equity attributable to the Company’s shareholder 729,873 725,394 TOTAL LIABILITIES AND EQUITY 912,686 841,284 Total current liabilities Non-current liabilities TOTAL LIABILITIES Equity attributable to the Company’s shareholder Share capital 14 Statutory reserve Retained earnings Fair value reserve 8 The accompanying notes (1) through (25) form an integral part of these consolidated financial statements. 1 §
5. CONSOLIDATED STATEMENT OF INCOME For the year ended 31 December 2016 (Saudi Riyal in thousands) Note 2016 2015 109,560 168,157 REVENUES Brokerage fees - net Asset management fees 6 23,287 32,679 Margin finance management fees 6 41,347 51,520 Trading income / (loss) – net 16 6,398 (5,072) Gain on disposal of real estate properties 1,246 7,176 Dividend income 3,911 4,237 Investment banking services fees 2,930 8,548 188,679 267,245 90,201 103,483 4,380 9,565 6,19 9,355 9,198 Depreciation 11 7,076 7,194 Other general and administrative expenses 18 42,427 33,873 153,439 163,313 35,240 103,932 Total revenues OPERATING EXPENSES Salaries and employee related expenses Repairs and maintenance Rent and premises related expenses Total operating expenses OPERATING INCOME Special commission income 6 11,809 8,072 Other (expense) / income 17 (64) 1,205 Income attributable to subsidiary’s equity obligations – net (3,060) (4,220) NET INCOME FOR THE YEAR 43,925 108,989 Weighted average number of shares 50,000 50,000 Operating income 0.70 2.08 Net income 0.88 2.18 Earnings per share from: 15 The accompanying notes (1) through (25) form an integral part of these consolidated financial statements. 2
6. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2016 (Saudi Riyal in thousands) Note 2016 2015 43,925 108,989 CASH FLOWS FROM OPERATING ACTIVITIES: Net income for the year Adjustments to reconcile net income for the year to net cash from operating activities: Depreciation 11 7,076 7,194 Unrealized (gain) / loss on investments held for trading 16 (9,225) 7,373 Gain on disposal of property and equipment, net 17 (17) (93) 4,740 6,664 46,499 130,127 123,495 26,371 Due from related parties 4,402 6,834 Investment in real estate properties 5,222 18,043 (11,047) 15,614 Prepayments and other current assets (2,364) (13,898) Due to related parties 21,830 227 Accrued expenses and other current liabilities (4,244) 4,671 183,793 187,989 Employees’ end of service benefits paid (4,122) (767) Zakat and income tax paid (2,643) (3,428) 177,028 183,794 Investment in Murabaha deposits -- (400,000) Murabaha deposits matured -- 400,000 (10,729) (11,473) 42 199 (10,687) (11,274) -- (166,500) Subsidiary equity obligations 18,111 (4,345) Net cash from / (used in) financing activities 18,111 (170,845) 184,452 1,675 38,736 37,061 223,188 38,736 Zakat and income tax charged to shareholder’s equity 33,251 1,354 Net change in fair value of available for sale investments (6,195) (54,967) 100 224 Provision for employees’ end of service benefits Changes in operating assets and liabilities: Held for trading investments Accrued special commission income Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment 11 Proceeds from disposal of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year CASH AND CASH EQUIVALENTS AT END OF THE YEAR 4 Non – cash items Transfer of charity payable to Bank AlJazira 3 The accompanying notes (1) through (25) form an integral part of these consolidated financial statements.
7. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER ’S EQUITY For the year ended 31 December 2016 (Saudi Riyal in thousands) Equity attributable to shareholder Notes Share capital Statutory reserve Retained earnings Fair value reserves 500,000 70,672 166,552 96,250 833,474 Net income for the year -- -- 108,989 -- 108,989 Dividends paid during the year -- -- (166,500) -- (166,500) Transfer to statutory reserve -- 10,899 (10,899) -- -- -- -- 1,354 -- 1,354 Net movement due to change in ownership -- -- 3,044 -- 3,044 Net change in fair value -- -- -- (54,967) (54,967) 500,000 81,571 102,540 41,283 725,394 Net income for the year -- -- 43,925 -- 43,925 Transfer to statutory reserve -- 4,393 (4,393) -- -- -- -- (33,251) -- (33,251) -- -- -- (6,195) (6,195) 500,000 85,964 108,821 35,088 729,873 Balance at 1 January 2015 Zakat and income tax provision 13 Balance at 31 December 2015 Zakat and income tax provision Net change in fair value Balance at 31 December 2016 13 The accompanying notes (1) through (25) form an integral part of these consolidated financial statements. 4 Total
8. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 1. ORGANIZATION AND ACTIVITIES 1.1 AlJazira Capital Company (“the Company”) is a Saudi Closed Joint Stock Company incorporated under Ministerial Resolution No. S/57 dated 20 Safar 1429H (corresponding to 27 February 2008) and was operating under commercial registration number 4030177603 dated 17 Rabi Awal 1429H (corresponding to 25 March 2008). During the year 2011, the commercial registration number of the Company was changed due to the relocation of the Head Office from Jeddah to Riyadh and it is now registered under commercial registration number 1010351313 dated 13 Dhul-Qadah 1433H (corresponding to 29 September 2012) with a Branch in Jeddah. The Company is licensed as a financial services company regulated by the Capital Market Authority (“the CMA”). The Company is engaged in dealing, arranging, managing, advising and custody activities in accordance with the CMA Resolution no. 2-38-2007 dated 8 Rajab 1428H, corresponding to 22 July 2007 and license number 07076-37. The Company commenced operations on 5 April 2008, by taking over the brokerage division of Bank AlJazira (“the Bank”). The registered address of the Company is: AlJazira Capital King Fahad Road P.O. Box 20438 Riyadh 11455 Kingdom of Saudi Arabia The subsidiaries included in these consolidated financial statements are as follows: Name of subsidiary AlJazira Residential Projects Fund AlJazira Global Emerging Markets Fund AlJazira GCC Income Fund AlJazira Diversified Conservative Fund Country of incorporation Kingdom of Saudi Arabia Kingdom of Saudi Arabia Kingdom of Saudi Arabia Kingdom of Saudi Arabia Ownership percentage 2016 43.34% 70.44% 45.51% 78.43% 2015 43.64% 76.21% 67.83% 93.34% Although the Company’s ownership in AlJazira Residential Projects Fund and AlJazira GCC Income Fund is less than 50%, they are considered as subsidiaries since the Company, being the fund manager, has the power to direct the financial and operational policies of these Funds and to obtain benefits from their activities, as included in the Funds’ terms and conditions. 1.2 Closure of AlJazira Residential Projects Fund AlJazira Residential Projects Fund (the “Fund”) had an original closure date of 23 January 2015, which was extendable up to 23 January 2016 by the Fund Manager. The Fund Manager initially exercised such extension option and applied for a further extension of the Fund’s term up to 24 July 2016, which was rejected by the CMA through its letter dated 14 Sha’aban 1437H (corresponding to 21 May 2016). In the rejection letter, the CMA required the Fund Manager 1) to notify the unit holders of the Fund’s situation and the reasons for delay in liquidation and 2) to submit monthly status reports to the concerned department of the CMA. The Fund Manager notified the unit holders through its letter dated 31 May 2016 and explained that the Fund Manager was unable to liquidate its real estate properties due to difficult market conditions and, therefore requires continuation of operations until the sale/disposal of the Fund’s real estate properties. Accordingly, there is a material uncertainty regarding the validity of the going concern assumption of the Fund. Assets of the Fund have been stated at the lower of cost and net realizable values while liabilities are stated at the amounts at which they are expected to be discharged; this accounting treatment does not have a significant impact on these consolidated financial statements. 5
9. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 1. ORGANIZATION AND ACTIVITIES (CONTINUED) 1.2 Closure of AlJazira Residential Projects Fund (Continued) Assets and liabilities of the Fund, based on the Fund’s audited financial statements as of 31 December 2016, included in these consolidated financial statements are summarized below: Investment in real estate properties Total assets Total liabilities Note 2016 2015 9 28,404 33,626 29,384 38,836 9,537 10,512 Income and expenses related to the Fund included in these consolidated financial statements are summarized below: 2016 2015 Gain on disposal of real estate properties Total income Total expenses 1,246 7,176 1,321 7,176 252 577 2. BASIS OF PREPARATION a. Statement of compliance These consolidated financial statements have been prepared in accordance with generally accepted accounting standards in the Kingdom of Saudi Arabia issued by the Saudi Organization for Certified Public Accountants (“SOCPA”). The new Regulation for Companies issued through Royal Decree M/3 on 11 November 2015 (hereinafter referred as “the Law”) came into force on 25/07/1437H (corresponding to 2 May 2016). The Company has amended its By-laws for any changes to align the By-laws to the provisions of the Law. b. Basis of measurement These consolidated financial statements have been prepared on the historical cost basis except for investments held for trading and available for sale investments, which are measured at fair value, using the accrual basis of accounting and the going concern concept. c. Functional and presentation currency The consolidated financial statements are presented in Saudi Arabian Riyals (SR) which is the functional and reporting currency of the Company. d. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries referred to in note 1.1 (together referred as ‘the Group’). The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. A subsidiary is an entity over which the Company has the power to govern the financial and operating policies, so as to obtain benefits from its activities, generally accompanying an ownership interest of more than half of the voting rights. A subsidiary is consolidated from the date on which control is transferred to the Company and ceases to be consolidated from the date on which the control is transferred from the Company. All significant intra group transactions and balances have been eliminated upon consolidation. 6
10. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 2. BASIS OF PREPARATION (CONTINUED) e. Subsidiary equity obligations Subsidiary equity obligations represent the interest of other unit holders in subsidiary funds, and are classified as current liabilities, and recorded at fair value in these consolidated financial statements. f. Use of estimates and judgements The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in future periods affected. Significant areas where management has used estimates, assumptions or exercised judgement are disclosed in note 3 (h) of these consolidated financial statements. 3.SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements. Certain comparative amounts have been reclassified to conform with the current year’s presentation. a. Cash and cash equivalents Cash and cash equivalents comprise of cash at bank, cash in hand and short term highly liquid investments with an original maturity of three months or less, which are available to the Group without any restrictions. b. Investments Investment held for trading An investment is classified as held for trading if it is purchased for the purpose of resale in the short term. Investments held for trading are recognised initially at cost on the trade date, which is the date on which the Company becomes a party to the contractual provisions of the investment. Upon initial recognition, attributable transaction costs are recognised in the consolidated statement of income when incurred. Subsequent to initial recognition, these investments are measured at fair value and changes therein are recognised in the consolidated statement of income. Available for sale investments (AFS) Available-for-sale investments are non-derivative investments that are designated as AFS or not classified as another category of financial assets, and are intended to be held for an unspecified period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. These investments are initially recognized and subsequently re-measured at fair value. Any changes in fair value are recognized in equity as fair value reserve until the investment is disposed. Any significant and prolonged decline in value of the available for sales investments, if any, is charged to the consolidated statement of income. The fair value of these investments is determined by reference to quoted market bid prices at the close of business on the consolidated balance sheet date. Held to maturity investments Investments having fixed or determinable payments and fixed maturity that the management has the positive intention and ability to hold to maturity are classified as held to maturity. Held to maturity investments are initially recognised at fair value including direct and incremental transaction costs and subsequently measured at amortised cost, less provision for impairment in their value. Amortised cost is calculated by taking into account any discount or premium on acquisition using the effective yield method. Any gain or loss on such investments is recognized in the consolidated statement of income when the investment is derecognized or impaired. Investment in real estate properties Investment in real estate properties represents real estate properties held by a subsidiary for development purposes. Investment in real estate properties are stated at the lower of cost and net realizable values. Development expenses, developer fees, and the project consultant engineer fees incurred to date are capitalised and included in the carrying value of the real estate properties. 7
11. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) c. Property and equipment Property and equipment are stated at cost less accumulated depreciation and any impairment in value. Capital work in progress is not depreciated. The cost less estimated residual value of other property and equipment is depreciated on a straight line basis over the estimated useful lives of the assets. Subsequent expenditures that increase the value or materially extend the life of the related assets are capitalized and amortized on a straight-line basis over the shorter of the useful life of the improvement or the remaining term of the lease. Expenditures for repair and maintenance are charged to the consolidated statement of income. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that 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 fair value less costs to sell and their value in use. The estimated useful lives of the assets are as follows: Leasehold improvements Over the lease period or 20 years, whichever is shorter Furniture, fixtures and office equipment 4-10 years Motor vehicles 4 years d. Provisions Provisions are recognised when the Group has an obligation (legal or constructive) arising from a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. e. Financial Liabilities All non-derivative financial liabilities comprising of borrowings, trade and other payables are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these are measured at amortized cost using the effective interest method. f. Employees’ end of service benefits Employees’ end of service benefits, calculated in accordance with Saudi Arabian labour regulations, are accrued and charged to the consolidated statement of income. The liability is calculated at the current value of the vested benefits to which the employee is entitled, should his services be terminated at the balance sheet date. g. Foreign currencies Transactions in foreign currencies are translated into Saudi Riyals at the exchange rates prevailing at transaction dates. Monetary assets and liabilities at year-end, denominated in foreign currencies, are translated into Saudi Riyals at the exchange rates prevailing at the balance sheet date. Foreign exchange gains or losses on translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of income. h. Impairment and un-collectability of financial assets Impairment of available for sale investments The management exercises judgment to calculate the impairment loss of available for sale investments as well as their underlying assets. This includes the assessments of objective evidence which causes an other than temporary decline in the value of investments. Any significant and prolonged decline in the fair value of equity investments below its cost is considered objective evidence of impairment. The determination of what is “significant and prolonged” requires judgment. The management also considers impairment testing to be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. Management considers 20% or more as a reasonable measure for significant decline below its cost. Any such decline is recognized in the consolidated statement of income as impairment charge on investments. A prolonged decline represents a decline below cost that persists for nine months or longer; any such decline is recognized in the consolidated statement of income as impairment charge on investments. Any previously recognized impairment losses in respect of equity investments cannot be reversed through the consolidated statement of income. 8
12. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) h. Impairment and un-collectability of financial assets (Continued) Impairment of held to maturity investments Impairment losses on held to maturity investments are measured as the difference between the carrying cost and the present value of estimated future cash flows. Impairment losses are recognised in the consolidated statement of income as impairment loss on held to maturity investments. If the amount of impairment loss is subsequently decreased and the decrease can be related objectively to an event resulting in recognition of impairment loss, then the previously recognized impairment loss is reversed through consolidated statement of income. Impairment of non-financial assets Other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss, if any, is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. i. Assets held in trust or in a fiduciary capacity Assets held in trust or in a fiduciary capacity by the Group are not treated as assets of the Group and accordingly are treated as off-balance sheet items in these consolidated financial statements. j. Revenue • • • • • • Revenue on transactions is recognized as follows: Brokerage income is recognized when the related transactions are executed and stated net of discounts and rebates. Asset management fees are recognized based on the applicable service contracts. Margin finance management fees are recognized based on customer utilization of the facility from the Bank at the applicable rates. Advisory fee income is recognized based on services rendered under the applicable service contracts. Special commission income on term deposits are recognized on an accrual basis. Dividend income is recognized when the right to receive dividend is established. k. Zakat and income tax Zakat and income tax are provided for in the financial statements in accordance with the regulations of the General Authority for Zakat and Taxation (the “GAZT”) as applicable in the Kingdom of Saudi Arabia. Zakat is charged to retained earnings and is payable to Bank AlJazira (the “Bank”) who settles the zakat liability of the Company as part of its consolidated Zakat and income tax return. The Company’s foreign shareholders are subject to income tax in accordance with GAZT Regulations and is charged to shareholders’ equity. Additional zakat and income tax liabilities, if any, related to prior years’ assessments arising from the GAZT are accounted for in the period in which the assessments are finalized. l. Expenses Expenses are measured and recognized as a period cost at the time when they are incurred. Expenses related to more than one financial period are allocated over such periods proportionately. m.Statutory Reserve The new Saudi Arabian Regulations for Companies that came into effect on 25 Rajab 1437H (corresponding to 2 May 2016) requires companies to set aside 10% of its net income each year as statutory reserve until such reserve reaches 30% of the share capital. Previously the Company, as per its By-laws, set aside 10% of its net income each year as statutory reserve until such reserve equals to 50% of the share capital. The Company has amended its Bylaws as described in note 2a in line with the new regulations during 2016. 9
13. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. o. Offsetting Financial assets and liabilities are offset and reported net in the consolidated balance sheet when there is a legally enforceable right to set off the recognized amounts and when the Group intends to settle on a net basis, or to realize the asset and settle the liability simultaneously. 4. CASH AND CASH EQUIVALENTS Short term Murabaha deposit Note 7 Cash at bank – current account Cash in hand 5. HELD FOR TRADING INVESTMENTS Mutual fund units Quoted Saudi equities 2016 2015 206,000 17,168 20 223,188 25,000 13,716 20 38,736 2016 2015 29,653 84,841 114,494 127,802 100,962 228,764 6.RELATED PARTY TRANSACTIONS AND BALANCES Related parties of the Company comprise of the Board of Directors, mutual funds under management, Bank AlJazira and its subsidiaries and affiliated companies. The transactions are carried out on mutually agreed terms approved by the management of the Company. The significant transactions with related parties during the year were as follows: Name of related parties Bank AlJazira Special commission income (a) Support service charges (b) Rent expense (c) Margin finance management fees (d) Advisory fee (e) Board of Directors Directors remuneration (f ) Note 18 Mutual funds Asset management fees The above transactions resulted in the following balance as at 31 December 2016: Due from related parties Bank AlJazira (the Bank) Mutual funds Due to a related parties Bank AlJazira Al Jazira Takaful Directors remuneration 10 Investments in Mutual funds managed by the Company 12 2016 2015 11,809 3,988 9,355 31,838 1,600 8,072 3,988 9,198 51,520 -- 1,820 1,320 17,403 23,152 -17,728 4,402 14,228 22,896 597 23,493 -833 833 1,844 1,513 23,776 123,663
14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 6.RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED) a. Special commission is earned on Murabaha deposits maintained in the Bank’s Naqa Murabaha Scheme (Note 7). b. Support service charges represent financial, administrative, logistics, legal, IT related and internal audit services as per the service agreement with the Bank (Note 18). c. Rent expenses are paid to the Bank in relation to the offices and investment centres of the Company as disclosed in note 19 of these consolidated financial statements. d. Margin finance management fees represents fees charged to the Bank for services provided by the Company in respect of operating and managing finance facilities extended by the Bank to customers. e. Advisory fee charged by the Company to the Bank for acting as joint lead manager in respect of private placement Sukuk issued by the Bank during the year. f. Board of Directors remunerations amounting to SR 1.8 million (2015: SR 1.3 million) have been calculated and approved in accordance with the Company’s By-Laws. Attendance fees paid to the directors, amounting to SR 0.14 million (2015: SR 0.15 million), are recorded under general and administrative expenses. g. Cash at bank as disclosed in note 4 of these consolidated financial statements includes an amount of SR 14.9 million maintained with Bank AlJazira which acts as the Company’s Bank. 7. MURABAHA DEPOSITS Murabaha deposits represent amounts invested in Bank AlJazira Naqa Murabaha Scheme at fixed rates by the Company. Murabaha deposits amounting to SR 206 million (2015: SR 25 million), classified as cash and cash equivalent, have been invested for a period up to three months. Murabaha deposit amounting to SR 400 million (2015: 400 million) was initially invested for three years. During 2016 the maturity dates of Murabaha deposits amounting to SR 100 million and SR 200 million were amended to 15 January 2017 and 25 January 2017 respectively in order to ensure liquidity for the funding of margin finance assets by the Company in 2017, in compliance with the CMA directive regarding the provision of margin finance facilities by Authorised Persons. Accrued special commission income that will be received at the maturity of these deposits amounted to SR 11.6 million as at 31 December 2016 (31 December 2015: SR 0.5 million). 8. AVAILABLE FOR SALE INVESTMENTS Available for sale investments represent the Company’s 1.75 million share investment (being 5% of invested share capital) with a total cost of SR 17.5 million and a market value of SR 52.6 million as at 31 December 2016 (31 December 2015: SR 58.8 million) in AlJazira Takaful Taawuni Company (the “Investee Company”). As per the prospectus of the Investee Company, the founding shareholders were prohibited to dispose of the acquired shares until 31 December 2016. The net change in fair value of this investment during the year was a reduction of SR 6.2 million (2015: SR 55 million) which is measured based on the quoted market price prevailing at the valuation date and is recorded as a separate component of shareholders’ equity. 9. INVESTMENT IN REAL ESTATE PROPERTIES AlJazira Residential Projects Fund acquired parcels of land located in the Eastern and Central regions of the Kingdom of Saudi Arabia for the purpose of constructing and developing residential projects. The investment in real estate properties is carried at the lower of cost and net realizable value (NRV). The fair value of investments in real estate properties is based on the average of two market values obtained from the independent valuers. Cost including development expenses Project locations North Riyadh North Khobar 11 Fair value including development expenses Lower of cost and net realizable value 2016 2015 2016 2015 2016 2015 6,433 22,104 28,537 11,558 22,068 33,626 6,300 23,700 30,000 12,930 24,150 37,080 6,300 22,104 28,404 11,558 22,068 33,626
15. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 9. INVESTMENT IN REAL ESTATE PROPERTIES (CONTINUED) The title deeds of the real estate properties are registered in the name Aman for Real Estate Development and Investment Company (a subsidiary of Bank AlJazira), which acts as a custodian of the title deeds. Movement in investment in real estate properties during the year : At beginning of the year Development during the year Disposals during the year Write down of investment to NRV At end of the year 2016 2015 33,626 56 (5,145) (133) 28,404 51,669 11,136 (29,179) -33,626 The realised gain on sale of real estate properties amounted to SR 1.2 million (2015: SR 7.2 million). 10.PREPAYMENTS AND OTHER CURRENT ASSETS Asset management fees receivable Prepayments Others 12 Note 2016 2015 6 18,442 11,553 343 30,338 14,702 10,043 3,229 27,974
16. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 11. PROPERTY AND EQUIPMENT, NET 2016 2015 Leasehold improvement Furniture, fixture and office equipment Capital work in progress At beginning of the year 77,504 109,725 25 Additions during the year 2,176 1,017 Transfers during the year -- Disposals during the year Motor Vehicle Total Total 6,113 193,367 183,547 -- 7,536 10,729 11,473 577 -- (577) -- -- -- (887) -- -- (887) (1,653) 79,680 110,432 25 13,072 203,209 193,367 58,855 85,994 25 -- 144,874 139,227 1,391 5,685 -- -- 7,076 7,194 -- (862) -- -- (862) (1,547) 60,246 90,817 25 -- 151,088 144,874 - 31 December 2016 19,434 19,615 -- 13,072 52,121 - 31 December 2015 18,650 23,730 -- 6,113 Cost At end of the year Accumulated depreciation At beginning of the year Charge for the year Disposals during the year At end of the year Net book value at 48,493 12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Note 2016 2015 6 15,471 9,451 1,844 1,271 28,037 19,882 9,913 1,513 973 32,281 Employee related liabilities Accrued expenses Directors’ remuneration Other liabilities 13
17. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 13. ZAKAT AND INCOME TAX The Bank is 94.17% owned by Saudi shareholders and 5.83% owned by foreign shareholders. In accordance with the Regulations of the General Authority for Zakat and Taxation (the “GAZT”) as applicable in the Kingdom of Saudi Arabia , the Company is subject to Zakat attributable to the Saudi shareholders of the Bank and to income taxes attributable to the foreign shareholders of the Bank. In accordance with Ministerial Resolution 1005, consolidated Zakat and tax returns are filed for Bank AlJazira and the Company. The Zakat charge allocated to the Company by Bank AlJazira Group for the year is based on adjusted net income for the year. a. Zakat Adjusted net income for the year Saudi shareholders’ ownership percentage Saudi share of adjusted net income for the year – Zakat base Zakat charge based on Zakatable income for the year 2016 2015 41,124 94.17% 38,726 968 112,263 94.17% 105,718 2,643 During the current year, in addition to the allocated zakat charge of SR 0.9 million determined based on adjusted income, the Company made an additional provision of SR 4.03 million in respect of additional zakat liability that may arise when the zakat assessment is finalized. b. Income tax Adjusted net income for the year Foreign shareholders’ ownership percentage Taxable income attributable to foreign shareholder Income tax charge for the year 2016 2015 41,124 5.833% 2,399 480 112,263 5.833% 6,548 1,310 c. Movement in Zakat and income tax accrual The movement during the year is as follows: 31 December 2016 Zakat Income tax Total At beginning of the year Zakat provided during the year (Note 13a) 2,643 5,001 3,085 -- 5,728 5,001 28,250 -- 28,250 -- 480 480 (2,643) 33,251 (1,310) 2,255 (3,953) 35,506 4,718 2,643 5,792 -- 10,510 2,643 -- 1,310 1,310 -- (3,997) (3,997) (4,718) 2,643 (20) -3,085 (20) (4,718) 5,728 Zakat provided for prior years Income tax liability for the year recoverable from foreign shareholder (Note 13b) Transferred to the Bank At the end of the year 31 December 2015 At beginning of the year Zakat provided during the year (Note 13a) Income tax liability for the year recoverable from foreign shareholder (Note 13b) Income tax liability no longer payable as recovered from foreign shareholder Payment GAZT Transferred to the Bank At the end of the year 14
18. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 13. ZAKAT AND INCOME TAX (CONTINUED) d. Status of assessments Zakat and income tax assessments for the period ended 31 December 2008 and the years ended 31 December 2009, 2010 and 2011, for which the Company filed separate Zakat and income tax returns, have been finalized by the General Authority for Zakat and Taxation (the “GAZT”) with an additional demand of SR 29.9 million. The Company filed an appeal with the Higher Appeal Committee (HAC) against the Preliminary Appeal Committee (PAC) decision, and as required by the GAZT submitted a bank guarantee for the liability under dispute. During the year ended 31 December 2016, a decision was issued by the HAC ruling in GAZT favor. The Company filed an appeal with the Board of Grievances (BOG) against the HAC decision in December 2016 and has made a provision of SR 28.2 million during 2016 to cover this potential liability. With respect to the year 31 December 2012, the GAZT issued an initial Zakat and income tax assessment with an additional demand of SR 11.9 million. Following the Company’s appeal against the GAZT’s initial assessment for 2012, a decision was issued by PAC in January 2016 resulting in a decrease in the initially assessed amount of SR 11.9 million to SR 0.4 million. The Company had filed an appeal with the HAC in respect of some matters not ruled in its favor by the PAC. For the years ended 31 December 2013, 2014 and 2015 in accordance with Ministerial Resolution 1005, consolidated Zakat and tax returns have been filed for Bank AlJazira and the Company. No separate Zakat and tax return is required to be filed by the Company with the GAZT. 14. SHARE CAPITAL The share capital is divided into 50,000,000 shares (2015: 50,000,000 shares) of SR 10 each. 15. EARNINGS PER SHARE Earnings per share on operating income is calculated by dividing income from main operations by the weighted average number of shares in issue during the year. Earnings per share on net income is calculated by dividing net income by the weighted average number of shares in issue during the year. 16. TRADING INCOME / (LOSS), NET Unrealised gain /(loss) on investments held for trading, net Realised (loss) / gain on investments held for trading, net 17. OTHER INCOME Fee income and exchange (loss) / gain - net Gain on disposal of property and equipment, net 2016 2015 9,225 (2,827) 6,398 (7,373) 2,301 (5,072) 2016 2015 (81) 17 (64) 1,112 93 1,205 2016 2015 15,878 5,250 4,347 3,988 1,846 1,090 531 9,497 42,427 9,400 3,360 5,182 3,988 1,147 1,547 563 8,686 33,873 18. OTHER GENERAL AND ADMINISTRATIVE EXPENSES Note Communication Share depository Professional fees Support service charges Utilities Travelling Training and conferences Others 15 6b
19. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 19. OPERATING LEASES The Bank has various operating lease arrangements for Bank AlJazira Group offices including the Head Office and investment centres of the Company. These leases have a term of five to twenty five years. All rental agreements are contracted between the Bank and lessors. Rental expenses are charged to the Company by the Bank based on actual space utilization and, for the year ended 31 December 2016, amounted to SR 9.4 million (2015: SR 9.2 million). 20. LOAN FACILITY During the year ended 31 December 2016, the Company had a revolving Islamic facility from Bank AlJazira, for a total amount of SR 124.4 million (2015: SR 124.4 million). The loan facility carries commission at a rate of 6 month SIBOR plus a market rate margin payable every month. 21. ASSETS HELD UNDER FIDUCIARY CAPACITY Client funds are managed in a fiduciary capacity without risk or recourse to the Company. These assets are considered as off balance sheet items and do not constitute part of the Company’s assets. The following table summarises the fiduciary assets, as at 31 December: 2016 2015 Clients’ funds under management Clients’ fund under administration / brokerage 7.8 billion 4.1 billion 34.7 billion 37.4 billion 22. SEGMENT REPORTING Consistent with the internally approved reporting process, the Company is organised into business units based on services provided as follows: Brokerage Services Brokerage services include acting as principal and agent in local, regional and international equity markets, providing custody and clearing services to clients and extending margin lending facilities. Asset Management Services Asset management services include the management of investment funds in international, GCC and local equity markets and discretionary portfolio management. Investment Banking Services Investment banking provides finance advisory, private placements, public offerings of equity and debt securities, mergers, acquisitions and syndications. Other Corporate Services Other corporate services include income and expenses relating to the proprietary investments of the Company. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on individual segment’s profit or loss. Asset Investment Other Brokerage management Total banking corporate 31 December 2016 Revenue 150,906 23,287 2,930 11,556 188,679 Expenses (121,169) (26,205) (5,382) (683) (153,439) Income / (loss) from operations 29,737 (2,918) (2,452) 10,873 35,240 Total assets 50,118 18,480 21 844,067 912,686 Total liabilities 31,483 6,861 1,767 88,766 128,877 16 31 December 2015 Revenue Expenses Income from operations Total assets Total liabilities 219,677 (131,317) 88,360 43,409 21,865 32,679 (21,905) 10,774 28,272 4,438 8,548 (8,215) 333 129 1,649 6,341 (1,876) 4,465 769,474 52,113 267,245 (163,313) 103,932 841,284 80,065
20. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyal in thousands) 23. REGULATORY REQUIREMENTS FOR CAPITAL AND CAPITAL ADEQUACY The CMA has issued Prudential Rules (the “Rules”) dated 30 December 2012 (corresponding to 17 Safar 1434H). According to the Rules, the CMA has prescribed the framework and guidance regarding the minimum regulatory capital requirement and its calculation methodology as prescribed under these Rules. In accordance with this methodology, the Company has calculated its minimum capital required and capital adequacy ratios as follows: As at 31 December 2016 2015 Capital Base: Tier 1 Capital 694,785 676,738 Tier 2 Capital 35,088 41,283 729,873 718,021 Market Risk 22,383 42,794 Credit Risk 89,038 74,844 Operational Risk 41,421 45,180 152,842 162,818 4.78 4.41 577,031 555,203 Total Capital Base Minimum Capital Requirement: Total Minimum Capital Required Capital Adequacy Ratio: Total Capital Ratio (time) Surplus in Capital a. 17 Capital Base of the Company comprise of: • Tier-1 capital consists of paid-up share capital, retained earnings, reserves excluding revaluation reserves. • Tier-2 capital consists of revaluation reserves. b. The minimum capital requirements for market, credit and operational risk are calculated as per the requirements specified in the Rules. c. The Company’s business objectives when managing capital adequacy is to comply with the capital requirements set forth by the CMA to safeguard the Company’s ability to continue as a going concern, and to maintain a strong capital base.