CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint ... of Saudi Arabia. The Company operates under...

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company) ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 together with the INDEPENDENT AUDITOR’S REPORT

Transcript of CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint ... of Saudi Arabia. The Company operates under...

   

 

CREDIT SUISSE SAUDI ARABIA

(A Saudi Closed Joint Stock Company)

ANNUAL FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2016

together with the INDEPENDENT AUDITOR’S REPORT

  

 

  

CREDIT SUISSE SAUDI ARABIA

(A Saudi Closed Joint Stock Company) Index

For the year ended 31 December 2016

INDEX PAGE Independent auditors’ report 1-2 Balance sheet 3 Statement of income 4 Statement of cash flows 5 Statement of changes in shareholders’ equity 6 Notes to the financial statements 7 – 20

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

BALANCE SHEET As at 31 December 2016

Expressed in Saudi Arabian Riyals

Note 2016 2015ASSETS Current assets Cash and cash equivalents 4 79,781,623 96,026,326Due from related parties 6b 269,268 2,843,646Prepayments and current assets 5 1,035,603 1,030,033Total current assets 81,086,494 99,900,005 Non-current assets Property and equipment, net 7 1,327,351 144,816Total non-current assets 1,327,351 144,816 Total assets 82,413,845 100,044,821 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accrued expenses and other liabilities 8 1,131,550 1,408,948Total current liabilities 1,131,550 1,408,948 Non-current liabilities Group employee share plan 18 44,935 135,319Employees’ end of service benefit 19 3,976,001 3,294,458Total non-current liabilities 4,020,936 3,429,777 Total liabilities 5,152,486 4,838,725 SHAREHOLDERS’ EQUITY

Share capital 9 300,000,000 300,000,000Accumulated losses (222,738,641) (204,793,904)Total shareholders’ equity 77,261,359 95,206,096Total liabilities and shareholders’ equity 82,413,845 100,044,821

The accompanying notes 1 through 26 form an integral part of these financial statements. These financial statements as shown on pages 1 to 20 were authorized for issue by the Board of Directors on 13 Jumada I 1438H (corresponding to 27 March 2017).

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

STATEMENT OF INCOME For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

Note 2016 2015Revenues Brokerage services, net 11 4,207,966 9,374,644Arranging and advisory services, net 6a 670,702 3,626,249Trading loss, net 12 (234,640) (1,952)Total revenues 4,644,028 12,998,941 Operating expenses Salaries and employees related expenses 13 13,099,211 13,832,450Rent and premises related expenses 2,512,697 2,514,789Telecommunication and data service charges 15 2,449,008 2,597,968Consultancy and legal charges 1,267,160 1,021,043Expenses paid by principal shareholder 6a 871,936 912,247Depreciation 7 154,019 190,369Marketing expenses 27,172 19,080Other general and administrative expenses 14 2,234,411 2,143,696Total operating expenses 22,615,614 23,231,642 Operating loss for the year (17,971,586) (10,232,701)Other income 16 26,849 48,020 Net loss for the year (17,944,737) (10,184,681) Operating and net loss per share Operating loss per share 23 (0.60) (0.34)Net loss per share 23 (0.60) (0.34)

The accompanying notes 1 through 26 form an integral part of these financial statements.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

STATEMENT OF CASH FLOWS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

Note 2016 2015Cash flow from operating activities: Net loss for the year (17,944,737) (10,184,681) Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation 7 154,019 190,369 Group employee share plan (90,384) (358,868)Changes in operating assets and liabilities: (17,881,102) (10,353,180) Prepayments and other current assets (5,570) (19,466)Accrued expenses and other current liabilities (277,398) (213,598)Due from / to related parties 2,574,378 (749,333)Employees’ end of service benefits, net 681,543 919,457 Net cash used in operating activities (14,908,149) (10,416,120) Investing activities: Purchase of property and equipment 7 (1,336,554) (37,681)Net cash used in investing activities (1,336,554) (37,681) Net decrease in cash and cash equivalents (16,244,703) (10,453,801)Cash and cash equivalents at beginning of the year 96,026,326 106,480,127 Cash and cash equivalents at end of the year 4 79,781,623 96,026,326

The accompanying notes 1 through 26 form an integral part of these financial statements.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

Note Share capital Accumulated losses Total

As at 1 January 2016 300,000,000 (204,793,904) 95,206,096Net loss for the year (17,944,737) (17,944,737)Provision for zakat and income tax 17 -- -- --As at 31 December 2016 300,000,000 (222,738,641) 77,261,359

As at 1 January 2015 300,000,000 (194,609,223) 105,390,777Net loss for the year -- (10,184,681) (10,184,681)Provision for zakat and income tax 17 -- -- --As at 31 December 2015 300,000,000 (204,793,904) 95,206,096

The accompanying notes 1 through 26 form an integral part of these financial statements

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

1. ORGANIZATION AND ACTIVITIES

Credit Suisse Saudi Arabia (the “Company”) is a Closed Joint Stock Company registered in the Kingdom of Saudi Arabia. The Company operates under commercial registration number 1010228645 dated 1 Safar 1428H (corresponding to 19 February 2007).

The Company’s registered office is located at:

Al Jumaiah Center, 2nd Floor King Fahad Road – Hay El Mhamadiyah P.O. Box 5000 Riyadh 12361-6858 Kingdom of Saudi Arabia

At 31 December 2016, the share capital of the Company was held by the following shareholders:   Percentage No. of shares

Credit Suisse AG  100% 30,000,000 At 31 December 2015, the share capital of the Company was held by the following shareholders:   Percentage No. of shares

Credit Suisse AG  70.51% 21,152,400Others  29.49% 8,847,600 100% 30,000,000

The principal business activities of the Company are to provide brokerage, arranging, dealing and advisory services.

On 26 October 2016, Credit Suisse AG executed a buyout of all minority shareholders. Credit Suisse acquired 8,847,600 shares (29.49% of total share capital as at 31 December 2015) from six minority shareholders and received all regulatory approvals. As a result, Credit Suisse AG owned 100% of the Company’s share capital as at 31 December 2016.

2. BASIS OF PREPARATION 2.1 Statement of Compliance

The accompanying financial statements have been prepared in accordance with the generally accepted accounting standards in 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 to amend its by-laws for any changes to align the by-laws to the provisions of The Law. Consequently, the Company shall present the amended by-laws to the shareholders in their Extraordinary General Assembly meeting for their ratification. The full compliance with The Law is expected no later than 24/07/1438H (corresponding to 21 April 2017).

2.2 Basis of Measurement These financial statements have been prepared under the historical cost basis except for

investments in trading securities and cash settled share based payment liabilities which are stated at their fair values.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals 2. BASIS OF PREPARATION (Continued) 2.3 Functional and presentation currency These financial statements are presented in Saudi Arabian Riyal (SAR) which is the functional and

presentation currency of the company. 2.4 Use of estimates and judgments In the ordinary course of business, the preparation of financial statements requires the use of certain

critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Such estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including obtaining professional advices and expectations of future events that are believed to be reasonable under the circumstances. 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. 2.5 Going concern As at 31 December 2016, the accumulated losses of the company amounts to SR 222,738,641 (31

December 2015: SAR 204,793,904) which represent 74% (2015: 69%) of the company’s share capital. While approving these financial statements, the board of directors has considered the financial position and future profitability of the company and it believes that the going concern basis used for the preparation of the financial statement is appropriate.

During the year, the company resolved to increase its share capital by SR 200,000,000 which was

approved by the board of directors on 8 December 2016. Subsequent to the year-end, the company has received in an escrow account SR 200,000,000 in lieu of increase in share capital from its shareholders. The Company held an extraordinary general meeting on 12 March 2017 and approved the increase in the share capital. On 27 March 2017, the Company received the CMA approval for the increase in share capital. The additional share capital will bring the accumulated losses below 50% threshold as a percentage of issued capital.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in the financial statements.

The significant accounting policies are as follows:

a) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and cash with banks which are available to the company without any restrictions.

b) Property and equipment

Property and equipment are stated at cost and presented net of accumulated depreciation and amortization. Cost includes expenditure that is directly attributable to the acquisition of the assets.

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property and equipment. All other expenditure is recognized in the income statement when incurred.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

The cost less estimated residual value is depreciated on straight-line basis over the following estimated useful lives of the assets:

Leasehold improvements  Shorter of the lease terms or 5 yearsFurniture and fixture 5 yearsComputer software and hardware   3-5 yearsMotor vehicle   4 years

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Statement of Income.

The assets’ residual values and useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

c) Work in progress

Work in progress includes assets under construction for which it is probable that future economic benefits will flow to the Company and the cost can be measured reliably. Typically these are items that have not yet been brought to the location and/or condition necessary for it to be capable of operating in the manner intended by management. In the event of partially completed construction work that has necessitated advance or progress payments, or work-in-progress, depreciation will only commence when the work is complete (i.e. the asset is in the location and condition necessary for its intended use).

d) Impairment of finacial assets

Financial assets, property and equipment and 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.

e) Employees’ end of service benefits

Employees’ end of service benefits, calculated in accordance with Saudi Arabian labour regulations, are accrued and charged to the Statement of Income. The liability is calculated at the current value of the vested benefits to which the employee is entitled, should his services are terminated at the balance sheet date.

f) Share based incentive plans

The share based arrangements between the employees of the Company and its parent company (Credit Suisse AG) are classified as cash settled share based transactions.

The fair value of the amounts payable to employees in respect of the shares granted is recognized

as an expense with a corresponding increase in liability over the period that the employees unconditionally become entitled to receiving the shares. The liability is re-measured at each

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

reporting date and at settlement date. Any change in the fair value of liability is recognized in the Statement of Income. Share awards and share unit awards that contain market conditions are marked-to-market based on the latest share price information reflecting the terms of the award.

Share unit awards that contain earnings performance conditions are marked-to-market based on

the parent company's actual earnings performance to date and the parent company's internal earnings projections over the remaining vesting period of the award. In determining the final liability, the parent company also estimates the number of forfeitures over the life of the plan based on management’s expectations for future periods, which also considers past experience.

g) Assets held in trust or in a fiduciary capacity

Assets held in trust or in a fiduciary capacity by the Company are not treated as assets of the Company and accordingly are not included in the financial statements; these are treated as off-balance sheet items.

h) Revenue recognition

• Income from brokerage services is recognized on an accrual basis; • Income from arranging and advisory services is recognized when the services are rendered; • Income from trading activities is recognized on accrual basis. • Dividend income is recognized when the right to receive payment is established.

i) Payable and accruals Liabilities are recognized for amounts to be paid in the future for goods or services received,

whether billed by the supplier or not. j) Provisions Provisions are recognized when the Company has an obligation (legal or constructive) arising

from a past event, and the costs to settle the obligation are both probable and can be measured reliably. Provisions are not recognized for future operating losses.

k) Expenses

Expenses are measured and recognized as a period cost at the time when they are incurred. Expenses related to more than one financial periods are allocated over such periods proportionately.

l) Offsetting Financial assets and liabilities are offset and reported net in the balance sheet when there is a

legally enforceable right to set off the recognised amounts and when the Company intends to settle on a net basis, or to realise the asset and settle the liability simultaneously.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals 3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

m) Zakat and income tax The Company is subject to Zakat and income tax in accordance with the regulations of General

Authority of Zakat and Tax (“GAZT”). Zakat and income tax provision for the period is deducted from retained earnings and any differences between the provision and the final assessment are recorded in the period during which the GAZT has issued the final assessment.

n) Foreign currencies

Transactions in foreign currencies are translated into Saudi Arabian 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.

4. CASH AND CASH EQUIVALENTS

2016 2015

Cash in hand 5,000 2,717Cash at bank - current account 79,776,623 96,023,609 79,781,623 96,026,326

Cash at bank is placed with counterparties who have investment grade credit ratings.

5. PREPAYMENTS AND OTHER ASSETS

2016 2015

Prepaid rent 342,340 342,607 Prepaid Professional Indemnity 226,271 238,181 Security deposit against rental property 147,014 147,014 Medical Insurance 110,514 100,726 Regulatory fee 100,000 100,001Others 109,464 101,504 1,035,603 1,030,033

6. RELATED PARTY TRANSACTIONS AND BALANCES

The Company’s shareholders and all their affiliate and subsidiary companies are considered as related parties of the Company. Credit Suisse AG is the ultimate parent company incorporated in Switzerland. In the ordinary course of business, the Company enters into transactions with related parties, which are based on prices and contract terms approved by the Company’s management.

The Company entered into a Service Level Agreement (SLA) with Credit Suisse AG (“principal shareholder”), which provides the basis for sharing revenues on jointly executed projects and allocation of common expenses incurred by or on behalf of the principal shareholder. For 2016, allocation of common expenses between Credit Suisse Saudi Arabia and Credit Suisse AG (principle shareholder) was approved by Credit Suisse Saudi Arabia board on 16 May 2016.

Further the principal shareholder also provides administrative and infrastructural support to the Company as and when required.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

6. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

(a) The significant transactions during the year were as follows:

Nature of transactions 2016 2015Expenses reimbursable from principal shareholder (543,750) (506,250)Expenses of the Company incurred by principal shareholder 1,415,686 1,418,497 871,936 912,247

Revenue from jointly executed projects agreed share of the Company as per SLA:

• Brokerage from swap arrangements (Note 11) 3,398,719 7,327,480• Arranging and advisory services 670,702 3,626,249

(b) Following balances pertain to related parties in the Balance Sheet:

2016 2015 Due from related parties Credit Suisse and its subsidiaries & affiliates 269,268 2,843,646 Due to related parties Credit Suisse and its subsidiaries & affiliates -- --

In addition to above, the principal shareholder has offered share based incentive plans to certain employees of the Company (see note 18).

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals 7. PROPERTY AND EQUIPMENT, NET

2016 2015

Leasehold

improvements

Furniture & fixture and

office equipment

Computer software and

hardwareMotor

vehicles Work in

progress* Total

Total Cost: Balance at 1 January 12,424,486 2,937,862 3,559,933 290,050 -- 19,212,331 19,174,650

Additions during the year

--18,934 166,284 -- 1,151,336

1,336,554 37,681

Balance at 31 December 12,424,486 2,956,796 3,726,217 290,050 1,151,336 20,548,885 19,212,331 Accumulated depreciation Balance at 1 January 12,424,486 2,834,523 3,518,456 290,050 -- 19,067,515 18,877,146 Depreciation during the year

71,732 82,287 -- 154,019 190,369 Balance at 31 December 12,424,486 2,906,255 3,600,743 290,050 -- 19,221,534 19,067,515 Net book value at 31 December 2016 -- 50,541 125,474 -- 1,151,336 1,327,351 Net book value at 31 December 2015 -- 103,339 41,477 -- -- -- 144,816

* Work in progress includes installation of an IT server which is still in progress at the balance sheet date. It is expected to be completed during 2017.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

8. ACCRUED EXPENSES AND OTHER LIABILITIES

2016 2015Accrual for performance bonus 392,007 441,239Due to vendors 390,283 653,665Professional fee 330,250 292,244Withholding tax payable 19,010 21,800 1,131,550 1,408,948

9. SHARE CAPITAL The Company’s issued and fully paid share capital is SAR 300,000,000 comprising 30,000,000 shares of SAR 10 each (31 December 2015: SAR 300,000,000).

10. STATUTORY RESERVE The Company’s Articles of Association and the Regulations for Companies in the Kingdom of Saudi Arabia require the Company to allocate 10% of its net income to form a statutory reserve until such reserve equals one-half of its share capital. The Company has not transferred any amount for the current year as statutory reserve on account of losses incurred. The statutory reserve is not available for distribution.

11. BROKERAGE SERVICES, NET

Note 2016 2015

Income from brokerage services for dealing in    

• Shares and custodian fee 809,247   2,047,164• Equity swap arrangements 11.1 3,398,719   7,327,480

  4,207,966   9,374,644

11.1 This includes an amount of SAR 1,512,799 (2015: SAR 3,607,474) representing commission charged to Credit Suisse Securities (Europe) Limited (a related party) for providing market information and other services relating to the execution of Swap transactions.

12. TRADING LOSS, NET

  2016 2015Realized loss on the investments held for trading (234,640) (1,952)  (234,640) (1,952)

The trading income relates to the proprietary trading done by the Company during the year.

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

13. SALARIES AND EMPLOYEE RELATED EXPENSES

2016 2015

Basic salaries 7,040,892 7,386,427

Allowances and other benefits 5,662,789 5,902,039

Incentive based performance bonus 392,036 441,361

Deferred compensation expense 3,494 102,623

13,099,211 13,832,450

14. OTHER GENERAL AND ADMINISTRATIVE EXPENSES

2016 2015

Insurance 613,897 627,580

Repair and maintenance 537,618 670,122

Business travel 338,211 226,034

Office supplies 129,132 107,299

Others 615,553 512,661

2,234,411 2,143,696

15. TELECOMMUNICATION AND DATA SERVICE CHARGES

2016 2015

Data service charges 427,383 440,283

Telecommunication charges 2,021,625 2,157,685

2,449,008 2,597,968

16. OTHER INCOME

Other income represents commission income earned on bank deposits and placements from a commercial bank during the year.

17. ZAKAT AND INCOME TAX

a) Zakat and income tax

Charge for the year Zakat charge for the year is Nil (2015: NIL) as the zakat base is negative. The details are as follows:

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

17. ZAKAT AND INCOME TAX (Continued) The movement in accrued zakat during the year ended 31 December 2016 is as follows:   2016    2015Balance at 1 January  --    --Add: Charge for the year  --    --Less: Payments during the year --    --Balance at 31 December   --    --      The provision for zakat charge relating to Saudi shareholders is based on the following:   2016    2015     

Equity  65,460,000   65,476,000Opening allowances and other adjustments (79,831,433)    (75,501,855)Adjusted loss for the year  (3,219,543)    (2,393,196)Zakat base  (17,590,976)    (12,419,051)Saudi Shareholders’ zakat base ‐‐    --

The Company has become 100% foreign-owned entity starting from 1 November 2016. Although the Company no longer has Saudi shareholders as of 31 December 2016, the Company has still calculated zakat on the above items as per the current practice of General Authority of Zakat and Tax (GAZT).

b) Income tax

No provision for income tax has been made in these financial statements as the Company has incurred a loss in the current year.

c) Status of assessments

Zakat and income tax declarations have been submitted with the General Authority of Zakat and Tax (GAZT) for the years up to 31 December 2015, however no assessment has been finalized.

18. GROUP EMPLOYEE SHARE PLAN

2016 2015 Share based incentive plans - cash awards 44,935  135,319 44,935  135,319 The total stock award liability recorded as at 31 December 2016 was nil (2015: SAR nil). The fair value used to calculate the stock award liability was the closing Credit Suisse Group share price as at 31 December 2016 SAR 54.50 (2015: SAR 83.02). The average weighted fair value of awards granted in 2016 was nil (2015: nil). The intrinsic value of vested share based awards outstanding as at year end was nil (2015: SAR nil).

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

18. GROUP EMPLOYEE SHARE PLAN (Continued)

A brief description of the Credit Suisse Group employee share award is summarized as follows:

Phantom Share Awards  

 

Phantom Share awards were granted to certain employees as part of their variable compensation. These share awards replace other plans introduced in prior years, including SISUs, ISUs and PIP in an effort to make the design of the company’s compensation instruments simpler, more transparent and less leveraged and to better align the interests of the employees with those of the shareholders. Each share award granted entitles the holder of the award to receive one CSG share. Phantom share awards vest equally over a period ranging from 3 years to 4 years. The value that is delivered is equal to the CSG share price at the time of delivery, as the share awards do not contain any leverage component or multiplier effect as contained in earlier awards. The share awards also include other awards such as special awards, which may be granted to new employees.

19. EMPLOYEES’ END OF SERVICE BENEFITS

2016 2015

Balance at beginning of the year 3,294,458 2,375,001

Additions 681,543 919,457

Balance at end of the year 3,976,001 3,294,458

20. OPERATING LEASE COMMITMENTS

The Company is renting its office premises through operating lease contract. The lease duration was initially for five years; the lease contract was subsequently extended for three years up to end of February 2020. The future minimum lease payments under the operating lease is as follows: 2016 2015

Less than one year 1,938,000  2,120,000Between one and five years 5,814,000  6,360,000 7,752,000  8,480,000

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals

21. CAPITAL COMMITMENTS

As at 31 December 2016 and 31 December 2015 the Company had no capital commitments.

22. ASSETS HELD IN FIDUCIARY CAPACITY

22.1 As at 31 December 2016 assets held under fiduciary capacity amounted to SAR 58.6 million (2015: SAR 39.9 million). These are kept with a local commercial bank. These amounts were kept in custody by the Company for its customers for the purpose of investment in the local equity market.

22.2 As at 31 December 2016, the Company held equity securities with a market value of SAR 1,291

million (2015: SAR 1,593 million) in its name under a Swap Agreement with Credit Suisse Securities (Europe) Limited (a related party). These securities were held pursuant to Capital Market Authority (CMA) circular dated 21 August 2009. Through this circular, CMA allowed the Authorized Persons (AP) to enter into Swap Agreements with non-resident foreign investors to transfer the economic benefits of the listed securities on Tadawul while the Company retains the legal ownership of shares.

23. OPERATING AND NET LOSS PER SHARE

Operating and net loss per share for the year ended 31 December 2016 have been calculated by dividing the operating and net loss for the year by weighted average number of shares outstanding during the year.

24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instruments carried on the balance sheet include cash and cash equivalents, due to/ from related parties, investments and other liabilities. Fair value and cash flow interest rate risks are the exposures to various risks associated with the effect of fluctuations in the prevailing interest rates on the Company's financial position and cash flows. Management monitors the changes in interest rates and believes that the fair value and cash flow interest rate risks to the Company are not significant. Liquidity risk is the risk that an enterprise may encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from the inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds are available to meet the Company's future commitments.

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

Management believes that there is minimal risk of significant losses due to exchange rate fluctuation as the majority of monetary assets and liabilities are in currencies linked to the Saudi Riyal. In addition, as the Company’s foreign currency transactions are primarily in US dollars which is pegged with the Saudi Riyal, foreign exchange gains and losses are not significant and have not been disclosed separately.

 

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CREDIT SUISSE SAUDI ARABIA

(Closed Joint Stock Company) NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2016 Expressed in Saudi Arabian Riyals

24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued) 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 in the principal, or in absence, the most advantageous market to which the Company has access at that date. As the accompanying financial statements are prepared under the historical cost method, except for investments in trading securities and cash settled share based payment liability which are stated at their fair values, differences may arise between the book values and the fair value estimates. Management believes that the fair values of the Company's financial assets and liabilities are not materially different from their carrying values.

25. CAPITAL MANAGEMENT

The Capital Market Authority (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:

 

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CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016

Expressed in Saudi Arabian Riyals 25. CAPITAL MANAGEMENT (Continued)

2016 2015

SAR 000’

Capital Base

Tier I Capital 77,261 95,206

Tier II Capital -- --

Total Capital Base 77,261 95,206

Minimum capital requirement Market risk 4 68

Credit risk 3,234 3,262

Operational risk 5,654 6,393

Total Minimum Capital Required 8,892 9,722

Surplus in Capital 68,369 85,484

Total capital ratio 8.69 9.79 The capital that the Company are required to hold is determined by on - balance sheet, off - balance sheet, counterparty and other risk exposures. Suitable processes and controls are in place to monitor and manage capital adequacy and ensure compliance with local regulatory ratios. These processes are designed to ensure that the company have sufficient capital available to meet local regulatory capital requirements at all times. a) Capital Base of the Company comprise of:

- Tier-1 capital: consists of paid-up share capital and retained earnings. - Tier-2 capital: consists of subordinated loans with certain restrictions. The Company does

not have any subordinated loans as a result the company does not have tier-2 capital. 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.

26. SUBSEQUENT EVENTS

On 31 January 2017, the company has received SR 200,000,000 from its shareholders relating to the increase in share capital in an escrow account. The Company held an extra ordinary general meeting on 12 March 2017 and approved the application to be submitted to CMA for their final approval. On 27 March 2017, the Company received the CMA approval for the increase in share capital. As at the date of approval of these financial statements, the company is awaiting final approval from Ministry of Commerce and Industry “MOCI” to provide the final confirmation based on which the amount will be transferred from escrow to the Company’s capital account hence; the financial impact of increase in share capital has not been incorporated in these financial statements.