Oman International Development and Investment Company SAOG · GROUP CONSOLIDATED PERFORMANCE: At 31...
Transcript of Oman International Development and Investment Company SAOG · GROUP CONSOLIDATED PERFORMANCE: At 31...
Oman International Development and Investment Company SAOG
PO Box 3886, Ruwi, PC 112
Sultanate of Oman
+968 2476 9500
+968 2470 7519
www.ominvest.com
I N V E S T I N G
I N A S H A R E D F U T U R E
3332302928262111
Con
tent
s 1008
Directors’ Report
Auditor’s Report on Corporate Governance
Corporate Governance Report
Auditor’s Report
Statements of Financial Position
Statements of Comprehensive Income
Statements of Changes in Equity
Statements of Cash Flow
Notes to the Group & Parent Company Financial Statement
Management Discussion and Analysis Report
Saif Said Al YazidiDirector (1)
Khalid Muhammad Al ZubairChairman (1)
BOARD OFDIRECTORS
Jamal Shamis Al HootiDirector (2)
Khalid Abdullah Al-KhaliliDirector (2)
Shaheen Mohammed AminDirector (1)
Hassan Ahmed Al NabhaniDeputy Chairman (1)
Anwar Hilal Al JabriDirector (2)
Taya Jandal AliDirector
Qais Mohammed Al YousefDirector (2)
C S BadrinathDirector (1)
1 Member of the Executive Committee2 Member of the Audit Committee
Ominvest Annual Report 201506
Saif Said Al YazidiDirector (1)
Khalid Muhammad Al ZubairChairman (1)
BOARD OFDIRECTORS
Jamal Shamis Al HootiDirector (2)
Khalid Abdullah Al-KhaliliDirector (2)
Shaheen Mohammed AminDirector (1)
Hassan Ahmed Al NabhaniDeputy Chairman (1)
Anwar Hilal Al JabriDirector (2)
Taya Jandal AliDirector
Qais Mohammed Al YousefDirector (2)
C S BadrinathDirector (1)
1 Member of the Executive Committee2 Member of the Audit Committee
Ominvest Annual Report 2015 07
DIRECTORS’REPORT
Dear Shareholders,
On behalf of the Board of Directors, it’s my pleasure to present to you the Group’s audited results for the year ended 31 December 2015. Despite extremely difficult market conditions, OMINVEST delivered healthy performance for the year and also achieved some major milestones to position your company for greater success for the years ahead. Following OMINVEST’s successful merger with ONIC Holding (ONICH) in August 2015, we have seamlessly combined all financial, business and operating activities. Our merger with ONICH has made OMINVEST much stronger, well diversified, and one of the largest investment companies. More importantly, in terms of Key Performance Indicators (including balance sheet strength, profitability growth, ROE, Debt to Equity Ratio and Cost to Income Ratio), OMINVEST stacks-up very well with other leading investment firms in the region. OMINVEST is in compliance with its respective internal regulations and control systems.
In the following sections, we have elaborated on OMINVEST’s financial performance, major business initiatives and its future strategic direction.
GROUP CONSOLIDATED PERFORMANCE:
At 31 December 2015, total Group revenues rose by 60% to RO 142.89m and Group net profit grew by 31% to RO 37.2m, over the corresponding period in 2014. OMINVEST’s share of the Group net profits stood at RO 22.95m, compared to RO 14.51m, a growth of 58% compared to 31 December 2014. The increase in net profits was attributable to the share of profits from our subsidiaries: Oman Arab Bank (OAB) and National Life & General Insurance (NLG) and from our 8 associate companies. In addition, significant investment income, reclassification of certain financial investments and a gain due to the business combination with ONICH contributed to the growth in our profits. As a result, our Earnings per Share at the Group level increased to Baisa 52 from Baisa 39, a growth of 33% over the same period last year. Since OMINVEST issued additional shares to complete our merger with ONICH, our equity base at the Group level increased to RO 219.94m from RO 132.67m at 31 December 2014. Following the merger and as of 31 December 2015, our Book Value per share increased to Baisa 398 from Baisa 394. From a financial reporting and performance evaluation perspective, you would note that OMINVEST’s Group Consolidated Financials will provide you a much better reflection of the company’s overall performance. However, in compliance with the directives of CMA, we will continue to report our performance at the Parent level.
PARENT COMPANY PERFORMANCE:
During 2015, total revenues rose by 18.1% to RO 9.8m and net profit declined by -42.2% to RO 2.9m, over the same period in 2014. The decrease in the Parent-Level net profit was mainly due to the business restructuring that the company made during the year, reclassification of certain financial investments and one-off expenses related to the merger. The Board advocates conservative accounting practices and extra prudence in taking provisions to ensure quality of the balance sheet and keeping cushion against unexpected market shocks. Our total cash dividends from our subsidiaries, associates and financial investments increased to RO 10.01m from RO 7.32m, a growth of 22%. We expect to further enhance and diversify our dividend income. As a result of the merger, total assets of the Parent increased by 125.4% to RO 240.13m compared to RO 106.54m at 31 December 2014. Similarly, shareholders’ equity of the Parent Company rose to RO 135.05m compared to RO 59.91m at 31 December 2014. Book value per share at the Parent level increased to Baisa 244 from Baisa 178, a growth of 37.1%.
OUR SUBSIDIARIES:
Oman Arab Bank (OAB), our banking subsidiary, reported a profit of RO 29.01m for the year ended 31 December 2015 compared to RO 28.40m for the same period in 2014. Profit growth was muted due to higher operating costs, which entailed investing in key people, critical systems and crucial customer service initiatives. In addition, due to difficult market conditions OAB prudently took some extra provisions, which kept a lid on profit margins. We believe that our investing in this business during the down cycle will pay-off significantly as the recovery unfolds. In terms of expanding the business, OAB increased its Loans & Advances by 21% to RO 1.52bn compared to RO 1.26bn at 31 December 2014. Customers’ deposits rose by 9.0% to RO 1.60bn compared to RO 1.47bn at 31 December 2014. The Shareholders’ funds increased by 6% to RO 226.02m compared to RO 212.86m as at 31 December 2014. While the bank’s profit growth has slowed in this challenging environment, we remain confident about its long-term growth prospects. OAB has a strong balance sheet, an established franchise, committed shareholders, well-anchored
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and growing market position. We are optimistic that OAB will continue to deliver robust and steady performance, over the long term.
National Life & General Insurance (NLG), our subsidiary in the insurance sector, reported a net insurance premium of RO 43.18m compared to RO 27.41m, a growth of 58%, signifying the underlying growth in the broader insurance sector and more importantly major gains in NLG’s market share. Net Underwriting results grew by 19% to RO 10.58m from RO 8.91m. Despite higher operating expenses to support growth and lower investment income due to weak capital market conditions – NLG’s net profit rose by 16.58% to RO 4.36m from RO 3.74m. It’s important to highlight here that for the year 2015, OMINVEST consolidated NLG’s results from the effective merger date of 19th August 2015 through 31 December 2015. Now on, we will be consolidating NLG’s results for the entire year. We believe that NLG’s growth prospects are strong and its recurring revenues from insurance business are stable and on a clear growth trajectory. Volatility in NLG’s Net Profit is primarily due to the fluctuations in the investment income, which we expect will smooth-out over time, as we gradually implement OMINVEST’s investment philosophy and strategy to manage NLG’s investments. NLG is already in a leading position in the Omani insurance market and growing fast in the UAE. We expect the growth momentum to accelerate in the years to follow.
Towards the end of 2015, OMINVEST formed a new subsidiary – ONIC, SAOC – as a specialized investment vehicle to manage all Financial Investments of OMINVEST across Private Equity, Public Equities, Fixed Income and other specialized or structured investments. ONIC will have a high-quality and dedicated team to professionally manage all such investments within the investment policy framework already in effect at OMINVEST. We believe that this structure will allow greater focus and efficiency in our investment decision making process and financial reporting. It’s a pleasure to update you that we have already transferred our large and dividend paying Financial Investments to ONIC. As a result, ONIC (as our new subsidiary) will be reporting healthy profits and dividends from its very inception. We will consolidate ONIC results into OMINVEST starting 2016. In addition, OMINVEST has created a new real estate subsidiary – Oman Real Estate Investment Services “ORIS” to carry our all real estate activities including investments, advisory and project management.
OUR ASSOCIATES:
Following our merger with ONICH, our portfolio of Associate companies has expanded considerably. Now, OMINVEST has 11 Associate companies with a combined value of RO 73.98m, up from 3 Associates with a value of RO 6.2m, as of last year. On an annual basis, our associate companies currently produce a total net profit of roughly RO 30.00m and our share in their profits stand around 7.2m. That’s a major source of new and steady income stream for OMINVEST. For the year ended December 2015, our share of profit in the Associate companies rose to RO 3.77m compared to RO 1.69m, a growth of 123.7%. Our 2015 results reflected our share of Associates’ profits from the effective merger date of 19th August 2015 through 31st December 2015. Starting 2016, we will be accounting for our share of Associates’ profits for the entire year. We expect to further broaden our portfolio of Associate companies to enhance and diversify our income sources – ensuring steady profitability over the long term.
MACROECONOMIC ENVIRONMENT & FUTURE OUTLOOK:
Macroeconomic picture in Oman and GCC remains challenging, as oil prices have declined by nearly 70% from $ 115 per barrel in June 2014 to around $33 per barrel in February 2016. We believe that oil at such depressed levels is not sustainable and will inevitably stage a recovery within the next 2 years. While budget deficits are rising and liquidity has become somewhat tighter, the Omani and GCC governments have responded prudently by maintaining their spending plans to avoid material slowdown in economic growth. Until oil prices recover significantly, the business and market conditions will continue to affect performance across a number of sectors. As market conditions deteriorated suddenly and significantly, OMINVEST was prudent and pro-active in managing its financial and business affairs. As a result, your company is well positioned to respond to continued challenges in the market and also seize attractive business and investment opportunities. In view of the above developments, we are confident that a much larger and more efficient OMINVEST will play a key role in Oman’s economic growth, create job opportunities for Omani nationals, help businesses grow and attract FDI in our country.
ACKNOWLEDGEMENTS:
We would like to thank our shareholders and partners for their continued support and trust. We also take this opportunity to sincerely thank the Chairman and the leadership teams at CMA and MSM for facilitating a very conducive environment for businesses in Oman and guiding OMINVEST in its major initiatives.
We are profoundly grateful to His Majesty Sultan Qaboos for his great vision and wise leadership for the steady growth, stability and enduring prosperity of our country.
Khalid Muhammad Al ZubairChairman
Ominvest Annual Report 2015 09
Ominvest Annual Report 201510
TO THE SHAREHOLDERS OFOMAN INTERNATIONAL DEVELOPMENT AND INVESTMENT COMPANY SAOG
We have performed the procedures prescribed in Capital Market Authority (CMA) Circular No. 16/2003 dated 29 December 2003 with
respect to the accompanying corporate governance report of Oman International Development and Investment Company SAOG
and its application of corporate governance practices in accordance with CMA Code of Corporate Governance issued under circular
No. 11/2002 dated 3 June 2002 as supplemented by the Rules and Guidelines on Disclosure by Issuers of Securities and Insider
Trading approved by Administrative Decisions no. 5/2007 dated 27 June 2007 and the Executive Regulation of the Capital Market
Law issued under the Decision No. 1/2009 dated 18 March 2009 (collectively the Code and additional regulations and disclosures).
Our engagement was undertaken in accordance with the International Standards on Related Services applicable to agreed-upon
procedures engagements. The procedures were performed solely to assist you in evaluating the Company’s compliance with the
code as issued by the CMA.
We report our findings as below:
We found that the Company’s corporate governance report fairly reflects the Company’s application of the provisions of the Code and
is free from any material misrepresentation.
Because the above procedures do not constitute either an audit or a review made in accordance with the International Standards on
Auditing or International Standards on Review Engagements, we do not express any assurance on the corporate governance report.
Had we performed additional procedures or had we performed an audit or review of the corporate governance report in accordance
with International Standards on Auditing or International Standards on Review Engagements, other matters might have come to our
attention that would have been reported to you.
Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is not to be used for
any other purpose. This report relates only to the accompanying corporate governance report of Oman International Development
and Investment SAOG to be included in its annual report for the year ended 31 December 2015 and does not extend to any financial
statements of Oman International Development and Investment Company SAOG, taken as a whole.
Deloitte & Touche (M.E.) & Co. LLCMuscat International CentreLocation: MBD AreaP.O. Box 258, RuwiPostal Code 112Sultanate of Oman
Tel: +968 2481 7775Fax: +968 2481 5581www.deloitte.com
Member of Deloitte Touche Tohmatsu Limited
Ominvest Annual Report 2015 11
CORPORATEGOVERNANCEREPORTThe principles of Corporate Governance mainly deals with the way companies are led and managed, the role of the Board of Directors and the framework of internal controls. At Ominvest, the Board supports the highest standards of Corporate Governance. The Board of Directors is responsible for approving and monitoring the Company’s overall strategy and policies, including risk management policies, control systems, business plan and annual budget. The Management is responsible to
provide the Board with appropriate and timely information to monitor and maintain effective control over strategic, financial, operational and compliance issues. The Board confirms that Ominvest applies the principles set out in the Capital Market Authority’s (CMA) Code of Corporate Governance and other relevant amendments to the Code, rules and guidelines issued by the CMA from time to time.
APPOINTMENT OF DIRECTORS
The Articles of Association of the Company provides for ten (10) directors. Each director on the Board is required to own/represent at least two hundred thousand (200,000) shares in the Company as qualification shares. Election to the Board is subject to approval by the regulatory authorities based on nomination form filed by the candidate who meets the
BOARD OF DIRECTORS
minimum qualification requirements as per CMA guidelines. The election for the Board of Directors was held at the Ordinary General Meeting (OGM) on 19 November 2015 for a term of three years and the next election to the Board is due to be held at the AGM in March 2018.
COMPOSITION OF THE BOARD
During the year 2015, the Board consisted of ten directors who have varied backgrounds and experience and who individually and collectively exercise independent and objective judgement. The composition of the Board of Directors is in accordance with Article 3 of the Code and the new definition of independent directors in the Eighth Principle of the new code:
• All Directors, including the Chairman, are non-executive. Four out of the ten Directors are independent, which is in compliance with the existing regulations.
• Seven out of the ten Directors represent institutional shareholders, while three Directors were elected by the shareholders in their individual capacities.
Ominvest Annual Report 201512
NUMBER OF BOARD MEETINGS
Ominvest held seven Board meetings during the year ended 31 December 2015. These were held on 22 February, 19 April, 11 May, 10 August, 05 November, 19 November and 09 December. The Board meeting held on 19 November 2015 immediately following the OGM was held only to appoint
the Chairman and the Deputy Chairman. Therefore, no sitting fee was paid to the directors for attending the meeting. The maximum interval between any two meetings was 91 days. This is in compliance with Article 4 of the Code which requires meetings to be held within a maximum time gap of four months.
Director No. of Boardmeetings attended
Whether attended last AGM
Whether attended last OGM on 19 November 2015
DIRECTORS’ ATTENDANCE RECORD
Khalid Muhammad Al Zubair 5 Yes Yes
Taya Jandal Ali 6 Yes Yes
Abdullah Said Al Balushi (2) 4 Yes Yes
Jamal Shamis Al Hooti 5 Yes Yes
Majid Salim Al Araimi (2) 3 No Yes
Khalil Abdulla Al Khonji (2) 5 No No
Saif Said Al Yazidi 6 Yes Yes
Khalid Abdullah Al Khalili 5 Yes Yes
Majid Sultan Al-Toky (2) 5 Yes Yes
Ceruseri Sreenivas Badrinath 5 Yes Yes
Hassan Ahmed Al Nabhani (1) 1 - Yes
Qais Mohammed Al Yousef (1) 1 - Yes
Anwar Hilal Al Jabri (1) 1 - Yes
Shaheen Mohammed Amin (1) 1 - No
(1) Elected as new Directors from 19 November 2015(2) Directors until 19 November 2015
None of the Directors is a member of the board of more than four public joint stock companies whose principal place of business is in the Sultanate of Oman, or is a chairman of more than two such companies. Particulars of directorships of other joint stock companies and memberships of other Board
Committees is set out in Appendix I of this Report. Furthermore, no director is a member of the board of directors of a joint stock company which practices similar activities to the Company and whose principal place of business is in the Sultanate of Oman.
DIRECTORS WITH MATERIALLY SIGNIFICANT RELATED PARTY TRANSACTIONS, PECUNIARY OR BUSINESS RELATIONSHIP WITH THE COMPANY
All details relating to financial and commercial transactions where directors may have a potential interest are provided to the Board, and the interested directors neither participate in the discussion, nor do they vote on such matters. All such matters are also discussed in detail by the Audit Committee.
The company has its related party policy and all related party transaction reviewed by the Audit Committee and approved by the board collectively. During the year, there were no material related party transactions or pecuniary transactions between the Company and its directors that may have potential conflict with the interests of the Company at large.
At 31 Dec 2015(% Holding)
17.73% 13.79%
Al Hilal Investment Company LLC
Oman Investment Fund
The following shareholders are deemed to be related parties by virtue of their shareholding during the year (10% or more of the voting power) in the Company:
Ominvest Annual Report 2015 13
ATTENDANCE RECORD OF AUDIT COMMITTEE MEMBERS
COMMITTEES OF THE BOARD
AUDIT COMMITTEE
The new Audit Committee consists of four non-executive members, of which two are independent and two non-independent directors. All members of the Committee are familiar with finance, industry, Omani laws and regulations governing SAOG companies.
The Audit Committee met five times during the year on 15 February, 03 May, 03 August, 01 November and 27 December and the attendance record is tabled below.
Name of Committee Member
Meetings attendedduring the yearPosition
Majid Salim Al Araimi(2) Chairman 3
Jamal Shamis Al Hooti Member 5
Khalil Abdulla Al Khonji(2) Member 4
Khalid Abdullah Al Khalili Member 4
Qais Mohammed Al Yousef(1) Chairman 1
Anwar Hilal Al Jabri (1) -Deputy
Chairman
The Committee receives reports on the findings of internal and external audits and on actions taken by the Management in response to these. It meets with the external auditors at least once every year and reviews the scope, findings and cost effectiveness of the Company’s statutory audit and the independence and objectivity of the external auditors. It also
reviews changes to the accounting policies and reviews the audited annual and unaudited quarterly financial statements and recommends for Board approval. In addition, the Committee periodically reviews and reports to the Board on the effectiveness of the Company’s system of internal control and risk management process.
EXECUTIVE COMMITTEE
The Executive Committee is delegated powers and authority to facilitate the smooth running of the operations of the Company and exercise all of the responsibilities of the Board between its meetings within the limits set out in the Delegation of Authority Manual approved by the Board. The exceptions to the delegated powers are:
Approval of the Company’s annual budget and
business plan;
Acquisition and disposal of strategic investments.
Approval of the Group’s and Company’s quarterly unaudited
financial statements and the annual audited financial
statements; and
The new Executive Committee consists of two independent and three non-independent Directors. All members are non-executive Directors.
The Committee met six times during the year on 16 February, 04 May, 02 July, 03 August, 29 September and 05 November and the attendance record of the members is tabled below:
Khalid Muhammad Al Zubair Chairman 4
Taya Jandal Ali(2) Member 6
Saif Said Al Yazidi Member 6
Majid Sultan Al Toky(2) Member 5
Ceruseri Sreenivas Badrinath Member 5
Hassan Ahmed Al Nabhani(1) Deputy Chairman -
Shaheen Mohammed Amin(1) Member -
(1) Elected as new members from 19 November 2015(2) Members until 19 November 2015
Name of Committee Member Meetings attendedduring the yearPosition
(1) Elected as new members from 19 November 2015(2) Members until 19 November 2015
Ominvest Annual Report 201514
REMUNERATION OF DIRECTORS
During the year, following the approval by the shareholders at the AGM held on 30 March 2015, the Directors were paid a remuneration of RO 152,000 for 2014.
Directorship sitting fees of RO 500 was paid to the Directors for each Board/Board Committee meeting attended during the year. Total sitting fees for Board and Board Committee meetings held during 2014 were as shown below in the table:
Board 26,500 OMR
Executive Committee 13,000 OMR
Audit Committee 8,500 OMR
Total 48,000 OMR
There was no other remuneration paid by the Company to any of the Directors.
There were no travel and incidental expenses relating to Group’s business paid by the Parent Company to any Board members during the year.
Remuneration for 2014 paid in 2015 and sitting fees paid for 2015 relating to individual Directors was (in RO):
DirectorBoard Executive
CommitteeAudit
Committee
Remunerationfor 2014 Total
Total
Sitting Fees
Khalid Muhammad Al Zubair
Taya Jandal Ali
Abdullah Said Al Balushi (2)
Jamal Shamis Al Hooti
Majid Salim Al Araimi (2)
Khalil Abdullah Al Khonji (2)
Saif Said Al Yazidi
Khalid Abdullah Al Khalili
Majid Al-Toky (2)
Ceruseri Sreenivas Badrinath
Hassan Ahmed Al Nabhani (1)
Qais Mohammed Al Yousef (1)
Anwar Hilal Al Jabri (1)
Shaheen Mohammed Amin (1)
TOTAL
2,500
3,000
2,000
2,500
1,500
2,500
3,000
2,500
2,500
2,500
500
500
500
500
26,500
2,000
3,000
-
-
-
-
3,000
-
2,500
2,500
-
-
-
-
13,000
-
-
-
2,500
1,500
2,000
-
2,000
-
-
-
500
-
-
8,500
4,500
6,000
2,000
5,000
3,000
4,500
6,000
4,500
5,000
5,000
500
1,000
500
500
48,000
21,500
18,500
14,000
14,000
14,000
14,000
14,000
14,000
14,000
14,000
-
-
-
-
152,000
26,000
24,500
16,000
19,000
17,000
18,500
20,000
18,500
19,000
19,000
500
1,000
500
500
200,000
(1) Elected as new members from 19 November 2015(2) Director until 19 November 2015
Ominvest Annual Report 2015 15
Directors’ Remuneration proposed for 2015 is RO 152,000 and this is subject to shareholders’ approval at the AGM scheduled to be held on Wednesday, 30 March 2016. As per Royal Decree 99/2005 of 5 December 2005, the maximum permissible limit on Board remuneration, including sitting fees is 5% of annual net profit, subject to an overall limit of RO 200,000. Each Director’s sitting fees per annum is limited to RO 10,000 after deduction at a rate not less than 5% of the capital.
INTERNAL CONTROL REVIEW
The Code requires that the directors should, at least annually, review the effectiveness of the Company’s system of internal controls and report to the shareholders that they have done so. The Board attach great importance to maintaining a strong control environment and confirm that its review has covered
the financial statements, all controls, including financial, operational, compliance and risk management. The Board has reviewed the Parent Company’s internal control policies and procedures and is satisfied that appropriate procedures are in place to implement the Code’s requirement.
MANAGEMENT DISCUSSION AND ANALYSIS
A copy of the Management Discussion and Analysis is included in the annual report.
MANAGEMENT REMUNERATION
At 31 December 2015, the Company had forty (40) full-time employees. The expense (salaries and allowances and other statutory payments) incurred for 2015 relating to the (5) full-time executive management team of the Company was RO 1,010,860.
In addition, sitting fees and funds received by the Company from the investee companies was RO 93,225. No travel and incidental expenses for Group’s business incurred by any of the above executives for the year 2015.
All employees are employed on two year renewable employment contracts. Notice period is 3 months for all positions or salary in lieu thereof.
MANAGEMENT
Ominvest Annual Report 201516
PROFILE OF EXECUTIVEMANAGEMENT
ABDULAZIZ AL BALUSHIGroup Chief Executive Officer
AbdulAziz Mohammed Al Balushi, the Group CEO of Oman International Development and Investment Company SAOG (OMINVEST) joined the Company in January 2014.
With experience of more than 30 years, AbdulAziz has extensive in-depth knowledge of global financial services industry. At OMINVEST, AbdulAziz has transformed the Company by implementing the new Vision, formulating a new organizational culture, structure and policies. He has been the key driver behind the merger of Ominvest and
ONIC Holding, which has created the largest publicly listed investment company in Oman.
Before joining OMINVEST, AbdulAziz was the CEO of Ahlibank SAOG from 2007 to 2013 and was primarily responsible in converting a single product mortgage bank into a full-fledged commercial bank. During his tenure, Ahlibank won many prestigious awards including; the best bank of Oman for three consecutive years by OER, the best bank in Oman 2012 by World Finance and the Bankers award 2013. AbdulAziz has held positions of increasing responsibility in all major areas of Banking. Abdulaziz started his career with Oman International Bank and prior to joining Ahlibank, he was Deputy CEO of National Bank of Oman.
AbdulAziz holds Master of Science Degree in Finance from the University of Strathclyde (UK) and a Fellow Chartered Institute of Bankers (UK). He has attended a host of Specialized Executive Management Development Programmes at International Institutes of worldwide repute including, London Business School and INSEAD. In November 2012, he was ranked as the “Second Best CEO in the Arab Banking World” by Forbes Magazine.
AbdulAziz is the Chairman of Board of Directors at Oman Electricity Transmission Company SAOC (a wholly government-owned entity), Oman Real Estate Investment and Services SAOC and Oman National Investment Corporation SAOC. He is also a Board member at Oman Arab Bank SAOC, National Finance Company SAOG and National Life and General Insurance Company SAOC. Additionally, he is a member of Oman American Business Center, an organization formed to foster the development of commercial activity between the United States of America and the Sultanate of Oman.
Ominvest Annual Report 2015 17
SHAHID RASOOLChief Investment Officer
Shahid is the Chief Investment Officer at Ominvest and joined the firm in August 2014. Over the last 20 years, he has held leadership responsibilities at prominent Investment Banks and Investment Firms in the Middle East. Shahid has managed substantially large investment platforms across public equities, private equity, fixed income and alternative investments across regional and international markets. Before joining Ominvest, Shahid was Head of Public Securities at QInvest (Qatar’s largest investment bank) and managed the bank’s proprietary capital and client portfolios focusing on MENA and Global Equities. Earlier, he was Head of Investments Group at First Gulf Bank (FGB) in Abu Dhabi, where he led a large team and managed multi-asset investment portfolios covering MENA and Global markets. Shahid also extensively managed private equity investments at ADIC – an Abu Dhabi based Sovereign Wealth Fund. Previously, he was a Senior Analyst in the Asset Management Division at Riyad Bank and an Equity Analyst with ABN AMRO Hoare Govett. Shahid is a CFA charter holder and received his MBA from The University of Chicago, Booth School of Business, Illinois, USA.
BIKRAM MONGAChief Risk Officer
Bikram is a senior risk management professional with 20 years of international experience in financial services / banking across Commercial & Investment Banking, Brokerage, Advisory and Islamic Banking. His experience includes working with leading institutions across GCC, Western & Eastern Europe and Central Asia, where he has accumulated an extensive understanding of various markets and advised businesses in multicultural environments. Bikram holds a BSc (with honors) in Mechanical Engineering from Moscow and an MBA from University of Alberta, Canada. At Ominvest, Bikram is responsible for the Risk Management, Corporate Governance, Compliance and Legal functions.
NASHAT HELALChief Financial Officer
Nashat is the Chief Financial Officer of Ominvest and Joined the firm in July 2013. He is a member of the Institute of Management accountants and CFA Institute with over than 13 years of professional experience in managing the finance functions, formulating strategic business plans, budgeting and financial planning. Before joining Ominvest, he was the Chief Financial Officer of Oman Sail LLC, where he led the finance and operation teams. Previously, he worked with Ernst & Young in Jordan and Oman where he was the executive manager leading the risk management team and led projects across various industries covering government, utilities, insurance, energy, banking and financial services. He is a CPA & CMA by profession and holds Bachelor degree in Marketing from Yarmouk University in Jordan.
HAMID AL HARTHIHead of Support Services
Hamid joined OMINVEST in 2009 as a Vice President Internal Audit, reporting to Audit Committee. Currently, he is the Head of Support Services at OMINVEST. Hamid is a Certified Internal Auditor (CIA) – from the Institution of Internal Auditors (IIA), United State of America and Certified Internal Quality Auditor (CIQA). He is a Member of Institution of Internal Auditor (IIA), USA. He is also a member of Information Systems Audit and Control Association (ISACA), USA. He has over 12 years of professional experience in internal audit in various institutions in Oman which includes; Oman Development Bank, Gulf Investment Services (GIS) as a Head of Internal Audit & Group Compliance Officer, at Gulf Baadar Capital Markets as Management representative of GIS. Hamid graduated from Sultan Qaboos University with a bachelor degree of Science in Accounting from the College of Commerce and Economics.
MUNEER AL MUGHAIRIChief Internal Auditor
Muneer has over 12 years of experience in Internal Audit. He worked for various reputable companies such as Oman LNG, Takamul Investment Company, Al Maha Petroleum Marketing Company. In his capacity as Internal Audit Manager at Takamul Investment Company, Muneer was responsible to oversee the Internal Audit Department over the parent company and to evaluate the requirement of conducting shareholders audit over around 8 subsidiaries. Muneer is a Certified Internal Auditor, a Certified Fraud Examiner and a Certified Information System Auditor.
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SHAREHOLDERSCOMMUNICATION TO SHAREHOLDERS AND INVESTORS
Information relating to the Company and its quarterly and annual financial statements are posted on the Company’s website - www.ominvest.net. Financial statements, in Arabic and English, are also available at the Company’s offices during the Company’s business hours. The quarterly unaudited and annual audited sections of the financial statements of the Group and Parent Company are published in leading Arabic and English newspapers in the Sultanate of Oman.
Audited financial statements (abridged), in Arabic together with the Notice and Agenda for the AGM are sent by post to all shareholders to their registered addresses provided by the Muscat Clearing and Depository Company SAOC and also disclosed on the MSM website. Extracts from the financial statements are published in an Arabic and English newspaper within five days of filing it through electronic transmission system of MSM.
DISTRIBUTION OF SHAREHOLDING
The shareholding pattern as on 31 December 2015 was:
Number of SharesNumber of
shareholders% of Share
CapitalTotal Shares% Held
55,286,164 and above
17,643,082 to 55,286,164
5,528,616 to 17,643,082
Below 5,528,616
GRAND TOTAL
Above 10%
5% - 10%
1% - 5%
Below 1%
2
2
11
2,175
2,190
174,280,811
100,511,157
124,743,977
153,325,697
552,861,642
31.52%
18.18%
22.56%
27.74%
100.00%
PROFESSIONAL PROFILE OF THE STATUTORY AUDITOR
The shareholders of the Company have appointed M/s Deloitte & Touche as the auditors for the year ended 31 December 2015.
DELOITTE & TOUCHE (M.E.) & CO. LLC - STATUTORY AUDITORS
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence.
Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 85 years. Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with over 2,500 partners, directors and staff.
LEGAL ADVISOR
M/s Al Busaidy, Mansoor Jamal & Co. served the Company until they were replaced with Curtis, Mallet-Prevost, Colt & Mosle LLP in November 2015.
Audit fees for 2015:
Parent Company
24,400
Subsidiaries
45,010
69,410
Remuneration to statutory auditors: (RO)
Ominvest Annual Report 2015 19
MARKET PRICE DATA
The performance of the Company’s share price (total returns) in 2015 versus MSM-30 Index is shown below:
DEC ‘14 JAN ’15 FEB ‘15 MAR ‘15 APR ‘15 MAY ‘15 JUN ‘15 JUL ‘15 AUG ‘15 SEP ‘15 OCT ‘15 NOV ‘15 DEC ‘15
TOTAL RETURN IN 2015-MSM 30 INDEX VS OMINVEST
45%
35%
25%
15%
5%
-5%
-15%
30,000
25,000
20,000
15,000
10,000
5,000
(5,000)
(10,000)
TOTA
L RE
TURN
%
OM
INVE
ST V
OLI
UM
ES IN
’000
s
Source: Bloomberg*Total Returns for Ominvest adjusted for stock dividends and cash dividends OMINVEST Volume MSM30 Index Total Return Ominvest Total Return
10,577
5,675
3% 3% 5%5%
7%
-4%
-5%-3%
-9% -11%
2%
5,778
19,408
25,508
15,023
5,3643,129
1,3821,0281,152 1,1672,503
3%
0%
3%
12%
25% 25%28%
32%33%
30%
37%
39%
21%
22%
Details of Ominvest’s high, low and closing share prices during each month are as follows:
Dec’14 Jan’15 Feb’15 Mar’15 Apr’15 May’15 Jun’15 Jul’15 Aug’15 Sep’15 Oct’15 Nov’15 Dec’15
Source : MSM Monthly Investors’ Guide
High
Low
Close
0.440
0.374
0.416
0.430
0.406
0.430
0.500
0.430
0.464
0.500
0.450
0.456
0.462
0.420
0.456
0.470
0.440
0.466
0.480
0.466
0.480
0.496
0.480
0.484
0.480
0.432
0.472
0.500
0.406
0.500
0.506
0.490
0.506
0.500
0.440
0.440
0.442
0.420
0.442
DETAILS OF NON-COMPLIANCE
There have been no instances of non-compliance on any matter relating to the Commercial Companies Law No. 4/1974, CMA’s Code of Corporate Governance for Public Listed Companies, CMA regulations or the MSM listing agreements.
ACKNOWLEDGEMENT BY THE BOARD
The Board acknowledges its responsibilities and confirm that:
ABC
the audited Group and Parent Company financial statements have been prepared in accordance with the IFRS, the minimum requirements of the Commercial Companies Laws, No. 4/1974 and the disclosure requirements of the Capital Market Authority;
the internal controls and procedures have been reviewed through an established process of regular internal audit, review by the Audit Committee and the final clearance by the Board;
the Parent Company and the Group have a strong financial standing to carry on their successful operations in the foreseeable future.
Ominvest Annual Report 201520
APPENDIX 1PARTICULARS OF DIRECTORSHIPS OF OTHER PUBLIC JOINT STOCK COMPANIES AND MEMBERSHIPS OF THEIR COMMITTEES AS OF 31 DECEMBER 2015
Director Company
Other Directorship
Position Committee Position
Taya Jandal bin Ali
Hassan Ahmed Al Nabhani
Saif Said Al Yazidi
Anwar Hilal Al Jabri
Qais Mohammed Al Yousef
National Finance Co. SAOG
Bank Sohar SAOG
National Bank of Oman SAOGOOREDOO SAOG
Ahli Bank SAOGTaageer Finance SAOG
Al Anwar Holding SAOG Voltamp Energy SAOG Oman Chromite SAOG
Chairman
Deputy Chairman
DirectorDirector
DirectorDirector
Deputy Chairman ChairmanDirector
EC
EC/CAC/HR
CCAC
ERCEC
EC-
EC
Chairman
Member
MemberMember
MemberChairman
Chairman-
Member
EC = Executive CommitteeCC = Credit Committee AC = Audit Committee
ERC = Executive Risk CommitteeCAC = Credit Approval Committee HR = HR & Remuneration Committee
Ominvest Annual Report 2015 21
MANAGEMENTDISCUSSION AND ANALYSIS REPORTOVERVIEW
Ominvest achieved a number of milestones in 2015. In the midst of on-going macroeconomic challenges, we laid the foundation for a stronger, highly diversified and durable institution. As we successfully completed the merger between Oman National Investment Corporation Holding SAOG and Ominvest, we also undertook other large financial investments at attractive
valuations, strengthened our processes and systems, risk management, financial control, internal audit and corporate governance functions. As a result of undertaking the above initiatives, Ominvest is progressing well to achieve the vision and strategic objectives of its Shareholders.
BUSINESS MODEL AND INVESTMENT PHILOSOPHY:
Our business model entails developing a diverse portfolio of Subsidiaries across various sectors, including Banking, Insurance, Real Estate and a dedicated investment platform [Oman National Investment Corporation SAOC our subsidiary(ONIC)] to make all financial investments. Similarly, our current portfolio of 11 associate companies comprises market leaders in leasing, insurance, consumer and industrial sectors. We expect to add more associate companies providing us exposure to sectors including healthcare, food, energy and education. Our financial investments encompass public and private equity investments across other growth sectors. Whether we own a subsidiary or make a value-oriented financial investment, we tend to be a long term investor and look for steady dividends and share of growing profits, as opposed to speculative short term gains linked to swings in the markets. We endeavor to buy quality businesses at attractive valuations and hold them over the long term to share in their growth over time.
REVENUE GROWTH AND DIVERSIFICATION:
As noted in the Directors’ Report that the Company grew its profits and EPS at a healthy rate in 2015, while our current
subsidiaries and associates are growing and will continue to contribute more to our revenues – we are taking new initiatives which will meaningfully reduce our reliance on any particular entity. For instance, in 2015, our two subsidiaries [Oman Arab Bank SAOC (OAB) and National Life and General Insurance Company SAOC (NLG)] and four associates [International General Insurance Holding Limited (IGI), National Finance Company SAOG (NFC), Oman Orix Leasing Company SAOG and Al Ahlia Insurance Company SAOC] generated most of our revenues. Our newly created subsidiary, ONIC will join them and become a major contributor to our income in 2016 and beyond. ONIC will be our growth engine to make new financial investments across public equities, private equity, and fixed income. In addition, we are in the process of setting up business activities to generate steady fee-based income. As our new initiatives materialise, you will observe major diversification in our 2016 revenues and beyond.
INSTITUTION BUILDING:
In addition to achieving the key financial indicators, we took major steps to build a strong and durable institution that Ominvest is emerging to become. Specifically, we achieved the following milestones: (i) strengthened relationships and cooperation with our subsidiaries and associate companies to
Ominvest Annual Report 201522
GROUP AUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Group audited consolidated financial statements include the audited financial statements of the following companies for the financial year ended 31 December 2015:
Company Country StatusStaff *Activity
Oman International Development& Investment Company SAOG
Oman Arab Bank SAOC
National Life & General Insurance Company SAOC
Oman National Investment Corporation SAOC
Oman Investment Services SAOC
Salalah Resorts SAOC
Al Jabal Al Aswad Investment LLC
Budva Beach Properties d.o.o.
Investment
Banking
Insurance
Investment
Investment
Integrated Tourism
Tourism
Tourism
Oman
Oman
Oman
Oman
Oman
Oman
Oman
Montenegro
40
1,306
264
0
3
1
0
1
Parent Company
Subsidiary (51.00%)
Subsidiary (97.93%)
Subsidiary (98.00%)
Subsidiary (99.98%)
Subsidiary (99.98%)
Subsidiary (99.98%)
Subsidiary (100%)
* As at 31 December 2015
further enhance their potential, (ii) made a number of high quality investments during the downturn to secure future profits, (iii) enhanced our finance and risk management functions, (iv) streamlined our policies and procedures, (v) built an efficient organisational structure, and (vi) invested in our people to strengthen our overall capabilities. These initiatives have made Ominvest a robust and highly efficient institution and these attributes are beginning to reflect in our results.
The financial highlights based on the audited financial statements for the financial year ended 31 December 2015 are:
2014RO ‘000
2014RO ‘000
2015RO ‘000
GROUP PARENT COMPANY
2015RO ‘000
Profit for the year attributable to theshareholders of the Parent Company
Share capital
Shareholders’ funds
Proposed cash dividend
Proposed stock dividend
Basic earnings per share (RO)
Net assets per share (RO)
Cash dividend per share (RO)
Stock dividend per share (RO)
22,949
55,286
219,937
5,529
8,293
0.052
0.398
0.010
0.015
14,505
33,674
132,669
6,735
3,367
0.039
0.394
0.020
0.010
2,897
55,286
135,054
5,529
8,293
0.007
0.244
0.010
0.015
5,013
33,674
59,907
6,735
3,367
0.014
0.178
0.020
0.010
Ominvest Annual Report 2015 23
PERFORMANCE FOR THE YEAR
The Group consolidated profit for the year was RO 37.19m (2014: RO 28.42m) and is attributable to:
Shareholders of the Parent Company
22,949
Shareholders of the Parent Company
14,505
Non-Controlling interests
14,244Non-Controlling interests
13,919
37,193 28,424
2015(RO ‘000)
2014 (RO ‘000)
Non-controlling interests represents:
• 49% of Oman Arab Bank’s equity is owned by the minority shareholder, Arab Bank, Jordan. Accordingly, 49% of Oman Arab Bank’s profit for the year is attributable to non-controlling interests.
• 2.07% of National Life & General Insurance Co.’s equity is owned by the minority shareholder, Bank Muscat SAOG, Oman. Accordingly, 2.07% of National Life & General Insurance Co.’s profit for the year is attributable to non-controlling interests.
Earnings per share increased to RO 0.052 (2014: RO 0.039) for the Group and decreased to RO 0.007 (2014: RO 0.014) for the Parent Company. Net Asset Value (NAV) per share increased to RO 0.398 (2014: RO 0.394) for the Group and RO 0.244 (2014: RO 0.178) for the Parent Company.
INVESTMENTS IN SUBSIDIARIES
The Parent Company’s investments in subsidiaries, which are unquoted, are stated “at cost” and comprise the following:
% HELD % HELD(RO’000)
2015 2014
(RO’000)
Oman Arab Bank SAOC
National Life & General Insurance Co. SAOC
Oman National Investment Co. SAOC
Oman Investment Services SAOC
Salalah Resorts SAOC
Al Jabal Al Aswad Investment LLC
Budva Beach Properties
50.99
97.93
98.00
99.98
99.98
100.00
100.00
41,302
38,043
19,600
903
3,000
100
3,867
50.99
-
-
99.98
100.00
100.00
100.00
41,302
-
-
903
3,000
100
5,231
National Life & General Insurance Company SAOC was acquired during the year, pursuant to the merger with Oman National Investment Corporation Holding SAOG.
Oman National Investment Corporation SAOC (ONIC) was established to be the house of our financial investments across private and public equities and fixed income. On 30 December 2015 Ominvest transferred its two largest financial investments to ONIC at a value of RO 53m.
Budva Beach Properties and Salalah Resorts SAOC were established to focus on property development. Salalah Resorts SAOC is an Integrated Tourism Complex project.
INVESTMENTS IN ASSOCIATES
In accordance with International Accounting Standard 28; investment in associates are stated “at cost”. Income from such investments is recognised in the Parent Company’s financial statements when cash dividend is received from these companies.
Investment in the eleven associates comprises five associates listed on the Muscat Securities Market and six unquoted associates. Performance of associates accounted during the year is as follows:
Ominvest Annual Report 2015 25
BANK BORROWING – PARENT COMPANY:
DIVIDENDS AND SHARE CAPITAL
The Parent Company’s objective is to provide its shareholders with a reasonable and consistent annual cash return on their investment in the share capital of the Company.
The Parent Company has a track record of consistently paying dividend since its inception. Cash dividends of RO 75.1m have been declared and distributed to shareholders. In addition, stock dividends totalling RO 25.04m have been distributed since inception.
Paid-up Share Capital amounted to RO 55.3m as of 31 December 2015, of which RO 8m was paid in November 1983 when the Company was incorporated.
The market capitalisation of the Parent Company at end 2015 stood at RO 260m (2014: RO 140m).
INTERNAL CONTROLS
The Board has collective responsibility for the establishment and maintenance of a system of Internal Controls that provides reasonable assurance of effective and efficient operations, internal financial controls and compliance with laws and regulations. However, the Board recognises that any system of internal control can provide only reasonable, and not absolute, assurance against material misstatement or loss.
The system of internal controls is monitored regularly by the Board, its Committees, Management and Internal Audit. The Company’s business is conducted with a regulated control framework, underpinned by policy statements, written procedures and control manuals. The Board has established a management structure which clearly defines roles,
responsibilities and reporting lines. Delegated authorities are documented and communicated. The business performance of the Company is reported regularly to its management and the Board. Performance trends, forecasts as well as actual performance against budgets and prior periods are closely monitored. Financial information is prepared using appropriate accounting policies fully in compliance with the IFRS which are applied consistently. Operational procedures and controls have been established to facilitate complete, accurate and timely processing of transactions and the safeguarding of assets. These controls also include the segregation of duties, the regular reconciliation of accounts and the valuation of assets and positions.
RISK MANAGEMENT FRAMEWORK
OMINVEST follows a robust board approved risk management framework. Through the delegation of authority and various policies; the board sets the guidelines and operating parameters for the management. These policies are reviewed periodically to capture the current operating environment.
Risk Management is core function at OMINVEST that follows a centralised approach with emphasis throughout the Company and its Investments. A proactive risk culture and awareness has been built across the organisation. OMINVEST follows a four
step process in its Risk Management approach; Identification, Analysis, Monitoring & Control and On-going Review.
Risk Management covers all applicable risks and concerns to ensure a robust and thorough coverage across all fields, including, strategy, business, investments, compliance, financial, operational, legal, human resources and other. Risk Management team uses tools like risk registers to capture and monitor risk events (potential and existing) for all our investments.
A very comprehensive compliance mechanism has been put in place to ensure regulatory and internal compliance.
Ominvest Annual Report 201526
Ominvest Annual Report 2015 27
Ominvest Annual Report 201528
GROUP AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2015
193,267
- 116,484 28,386 22,688 192,920 81,275 -
1,504,571 -
44,855 10,311 5,484 29,609
18,998
2,248,848
55,286 69,329 26,682 17,846 293 13,543 20,396
(1,239) 1,748
(9,060) 25,113
219,937
111,706
331,643
97,404 1,593,225 59,614 70,000 92,143
4,819
1,917,205
2,248,848
0.398
115,302200,00096,258
--
113,65713,908
-1,240,336
-43,3502,9808,778
29,669-
1,864,238
33,674-
24,80217,846
-12,06415,297
1,677
6,29221,017
132,669
104,323
236,992
30,3911,465,206
-50,00077,4134,236
1,627,246
1,864,238
0.394
1,112
-- - -
11,091 71,035 107,176
- 39,596 786 9,036
- 294
-
240,126
55,286 69,329 9,362
----
-
(1,619)2,696
135,054
-
135,054
102,500---
2,572-
105,072
240,126
0.244
3,549----
39,7336,249
50,536-
2,776367
2,980-
346-
106,536
33,674-
9,072----
-
6,97010,191
59,907
-
59,907
44,000---
2,629-
46,629
106,536
0.178
Notes 2015
GROUP (RO’000) PARENT COMPANY (RO’000)
2014 2015 2014
AssetsBalances with banks and money at callCertificates of depositDeposits with banksPremium and insurance balance receivableRe-insurance share in insurance fundsInvestment securitiesInvestments in associatesInvestments in subsidiariesLoans and advances to customersDue from subsidiariesOther assetsInvestment propertiesProjects work in progressProperty and equipmentIntangible assets
Total assets
Equity and liabilitiesCapital and reserveShare capitalShare premiumLegal reserveCapital reserveContingency reserveGeneral reserveSubordinated debt reserveForeign currency translation reserveRevaluation reserveCumulative changes in fair value of available-for-sale investmentsRetained earnings
Equity attributable to equity holders of the Parent
Company
Non-controlling interests
Total equity
LiabilitiesDue to banksDeposits from customersInsurance fundsSubordinated debtOther liabilitiesTaxation
Total liabilities
Total equity and liabilities
Net assets per share (Rial Omani)
30678
199
9(d)9(e)10
1112(a)12(b)12(c)
13
1415(a)15(b)15(c)15(d)15(e)15(f)15(g)15(h)
171819202122
45
These consolidated financial statements were approved and authorised for release by the Board of Directors on 29 February 2016 and were signed by:
Ominvest Annual Report 2015 29
GROUP AND PARENT COMPANY STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2015
Notes 2015
GROUP (RO’000) PARENT COMPANY (RO’000)
2014 2015 2014
Gross premium earnedInterest incomeInvestment income - netFee and commission income - netOther operating incomeShare of profit from associates
Total revenues
Premium ceded to re-insurersNet claimsInterest expenseOperating expenseProvision for impairment of work in progressProvision for impairment on a subsidiaryAllowance for loan impairment net of recoveries
Total expenses
Profit before taxIncome tax expense
Profit for the year
Other comprehensive income:Items that may be reclassified subsequently to profit or loss:Foreign currency translation reserveShare of change in revaluation reserve of associates Share of change in fair value reserve of associates Changes in the fair value of available-for-sale investments
Other comprehensive (loss) / income for the year
Total comprehensive income / (loss) for the year
Profit for the year attributable to:Shareholders of the Parent CompanyNon-controlling interests
Total comprehensive income for the year attributable to:Shareholders of the Parent CompanyNon-controlling interests
Basic earnings per share on profit attributable tothe shareholders of the Parent Company (Rial Omani)
2324262728
9(d)
23192529
12(b)9(e)
22
15(g)
44
30,03564,351
8,49722,03314,198
3,774
142,888
(13,461)(13,282)(16,804)(50,472)
(2,200)-
(5,350)
(101,569)
41,319(4,126)
37,193
-
(1,239)71
(393)(15,907)
(17,468)
19,725
22,94914,244
37,193
6,42913,296
19,725
0.052
-57,7674,544
19,4755,7811,687
89,254
--
(14,468)(40,362)
--
(2,014)
(56,844)
32,410(3,986)
28,424
-
--
-(1,740)
(1,740)
26,684
14,50513,919
28,424
14,08512,599
26,684
0.039
--
9,698-
97-
9,795
--
(1,978)(3,898)
-(1,003)
-
(6,879)
2,916(19)
2,897
-
--
-(8,589)
(8,589)
(5,692)
2,897-
2,897
(5,692)-
(5,692)
0.007
--
8,164-
127-
8,291
--
(509)(2,769)
---
(3,278)
5,013-
5,013
-
--
-953
953
5,966
5,013-
5,013
5,966-
5,966
0.014
The accompanying notes form an integral part of these financial statements.
STAT
EMEN
T O
F CH
AN
GES
IN E
QU
ITY
FOR
THE
YEA
R EN
DED
31
DEC
EMB
ER 2
015
Shar
eca
pita
l (R
O’0
00)
Shar
e pr
emiu
m
(RO
’000
)
Lega
lre
serv
e (R
O’0
00)
Capi
tal
rese
rve
(RO
’000
)
Cont
inge
ncy
rese
rve
(RO
’000
)
Gen
eral
re
serv
e (R
O’0
00)
Subo
rdin
ated
de
bt r
eser
ve
(RO
’000
)
Fore
ign
curre
ncy
trans
latio
n Re
serv
e (R
O’00
0)
Reva
luat
ion
rese
rve
(RO
’000
)
Cum
ulat
ive
chan
ges
in
fair
val
ue
(RO
’000
)
Reta
ined
ea
rnin
gs
(RO
’000
)
Att
ribu
tabl
e to
equ
ityho
lder
s ar
ent
Com
pany
(RO
’000
)
Non
- co
ntro
lling
in
tere
sts
(RO
’000
)To
tal
(RO
’000
)
GRO
UP
At
1 Ja
nuar
y 20
14Pr
ofit
for
the
year
Net
cha
nges
in f
air
valu
es
Tota
l com
preh
ensi
ve in
com
e
for
the
year
Tran
sfer
to
lega
l res
erve
(no
te 1
5b)
Tran
sfer
to g
ener
al re
serv
e (n
ote
15e)
Tran
sfer
to
subo
rdin
ated
deb
t re
serv
e (n
ote
15f)
Bonu
s sh
ares
issu
ed d
urin
g th
e ye
ar (
note
14)
Div
iden
d pa
id r
elat
ing
to 2
013
(not
e 16
)
At
31 D
ecem
ber
2014
Profi
t fo
r th
e ye
arN
et c
hang
es in
fai
r va
lues
Tota
l com
preh
ensi
ve in
com
e fo
r th
e ye
ar
Issu
e of
ord
inar
y sh
ares
to
the
exis
ting
shar
ehol
ders
of
ON
ICH
(n
ote
5)A
dditi
onal
non
-con
trol
ling
inte
rest
s ar
isin
g on
the
acq
uisi
tion
of O
NIC
H
(not
e 5)
Tran
sfer
to
lega
l res
erve
(no
te 1
5b)
Tran
sfer
to g
ener
al re
serv
e (n
ote
15e)
Tran
sfer
to
subo
rdin
ated
deb
t re
serv
e (n
ote
15f)
Tran
sfer
to
cont
inge
ncy
rese
rve
(n
ote
15d)
Bonu
s sh
ares
issu
ed d
urin
g th
e ye
ar (
note
14)
Div
iden
d pa
id r
elat
ing
to 2
014
(not
e 16
)
At
31 D
ecem
ber
2015
30,6
13- - - - - -
3,06
1 -
33,6
74
- -
18,2
45
- - - - -
3,36
7 -
55,2
86
- - - - - - - - - - - -
69,3
29
- - - - - - -
69,3
29
22,8
38- - -
1,96
4 - - - -
24,8
02
- - - -
1,88
0 - - - - -
26,6
82
17,8
46- - - - - - - -
17,8
46
- - - - - - - - - -
17,8
46
- - - - - - - - - - - - - - - - -
293 - -
293
10,6
15- - - -
1,44
9 - - -
12,0
64
- - - - -1,
479 - - - -
13,5
43
10,1
98- - - - -
5,09
9 - -
15,2
97
- - - - - -5,
099 - - -
20,3
96
- - - - - - - - - - -(1
,239
)
(1,2
39) - - - - - - - -
(1,2
39)
1,67
7 - - - - - - - -
1,67
7 -71 71
- - - - - - - -
1,74
8
6,71
2 -(4
20)
(420
) - - - - -
6,29
2 -(1
5,35
2)
(15,
352)
- - - - - - - -
(9,0
60)
22,6
7714
,505
-
14,5
05
(1,9
64)
(1,4
49)
(5,0
99)
(3,0
61)
(4,5
92)
21,0
17
22,9
49-
22,9
49
- -
(1,8
80)
(1,4
79)
(5,0
99)
(293
)
(3,3
67)
(6,7
35)
25,1
13
123,
176
14,5
05(4
20)
14,0
85
- - - -
(4,5
92)
132,
669
22,9
49(1
6,52
0)
6,42
9 -
87,5
74
- - - - -
(6,7
35)
219,
937
97,4
1013
,919
(1,3
20)
12,5
99
- - - -
(5,6
86)
104,
323
14,2
44(9
48)
13,2
96
- -
909 - - - -
(6,8
22)
111,
706
220,
586
28,4
24(1
,740
)
26,6
84
- - - -
(10,
278)
236,
992
37,1
93(1
7,46
8)
19,7
25
-
87,5
74 909 - - - -
(13,
557)
331,
643
The
acco
mpa
nyin
g no
tes
form
an
inte
gral
par
t of
the
se fi
nanc
ial s
tate
men
ts.
Ominvest Annual Report 201530
Ominvest Annual Report 2015 31
STAT
EMEN
T O
F CH
AN
GES
IN E
QU
ITY
FOR
THE
YEA
R EN
DED
31
DEC
EMB
ER 2
015
The
acco
mpa
nyin
g no
tes
form
an
inte
gral
par
t of
the
se c
onso
lidat
ed fi
nanc
ial s
tate
men
ts.
Shar
e ca
pita
l(R
O’0
00)
Shar
e Pr
emiu
m(R
O’0
00)
Lega
l res
erve
(RO
’000
)
Cum
ulat
ive
chan
ges
in f
air
valu
e(R
O’0
00)
Reta
ined
Ear
ning
s(R
O’0
00)
Tota
l(R
O’0
00)
PAR
ENT
COM
PAN
Y
At
1 Ja
nuar
y 20
14
Profi
t fo
r th
e ye
ar
Net
cha
nges
in f
air
valu
es
Tota
l com
preh
ensi
ve in
com
e fo
r th
e ye
ar
Tran
sfer
to
lega
l res
erve
(no
te 1
5b)
Bonu
s sh
ares
issu
ed d
urin
g th
e ye
ar (
note
14)
Div
iden
d pa
id r
elat
ing
to 2
013
(not
e 16
)
At
31 D
ecem
ber
2014
Profi
t fo
r th
e ye
ar
Net
cha
nges
in f
air
valu
es
Tota
l com
preh
ensi
ve (
loss
) /
inco
me
for
the
year
Tran
sfer
to
lega
l res
erve
(no
te 1
5b)
Bonu
s sh
ares
issu
ed d
urin
g th
e ye
ar (
note
14)
Div
iden
d pa
id r
elat
ing
to 2
014
(not
e 16
)
Issu
e of
new
sha
res
on a
cqui
sitio
n (n
ote
5)
At
31 D
ecem
ber
2015
30,6
13
- - - -
3,06
1 -
33,6
74
- - - -
3,36
7 -
18,2
45
55,2
86
- - - - - - - - - - - - - -
69,3
29
69,3
29
8,57
1 - - -
501 -
9,07
2 - - -
290 - - -
9,36
2
6,01
7 -
953
953 - -
6,97
0 -
(8,5
89)
(8,5
89) - - - -
(1,6
19)
13,3
32
5,01
3 -
5,01
3
(501
)
(3,0
61)
(4,5
92)
10,1
91
2,89
7 -
2,89
7
(290
)
(3,3
67)
(6,7
35) -
2,69
6
58,5
33
5,01
3
953
5,96
6 - -
(4,5
92)
59,9
07
2,89
7
(8,5
89)
(5,6
92) - -
(6,7
35)
87,5
74
135,
054
Ominvest Annual Report 201532
GROUP AND PARENT COMPANY STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015
Notes 2015
GROUP (RO’000) PARENT COMPANY (RO’000)
2014 2015 2014
12
13
510
12(b)
5
30
Operating activities Profit before tax Adjustments for: Depreciation on property and equipment and investment propertyAmortization of intangible assetsShare of profit from associatesGain on business combinationAllowance for loan impairment net of recoveries Provision for impairment of work in progress Provision for impairment on investments Provision for impairment on a subsidiaryGain on sale of property and equipmentGain on sale of an investment propertyChange in the fair value of financial assets at fair value through profit or loss(Profit) / loss on sale of investmentsIncome from held-to-maturity investments Non-controlling interestsInvestment securitiesLoans and advances to customersDue from subsidiariesOther assetsDeposits from customersPremiums and insurance balances receivables Re-Insurance share in insurance funds Insurance fundsOther liabilitiesCash (used in) / generated from operationsTax paidNet cash (used in) /generated from operating activitiesInvesting activitiesInvestments in subsidiariesPurchase of associates sharesDividend received from associatesNet cash transfer on business combination Capital expenditure on investment propertyProceeds from disposal of an investment propertyProjects work in progressAdditions to property and equipmentProceeds from sale of property and equipmentNet cash generated from / (used in) investing activities
Financing activitiesBank borrowingsProceeds from issue of subordinated bonds Dividends paid
Net cash generated from financing activities
Net change in cash and cash equivalentsCash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of these financial statements.
5,01383
-----
306--
(1,863)1,939
(1,230)--
(24,778)-
1,746(174)
----
867(18,091)
-(18,091)
(2,000)(622)
--
(3,655)8,000
- (369)
-1,354
22,800-
(4,592)
18,208
1,4712,078
3,549
41,3193,763
347(3,774)(4,823)
5,3502,200
715-
(2,440)(652)
354
(2,055)(1,198)(7,770)
(82,694)(269,585)
- 2,634
128,0195,6414,199
(9,349) 1,224
(188,575) (3,760)
(192,335)
--
8728,946
(70)1,100(145)
(2,910) 2,455
10,248
63,50020,000
(6,735)
76,765
(105,322)405,169
299,847
2,916215
-----
3091,003
- (652)(109)
4,632--
16,339-
(36,820)559
----
(899)(12,507)
(19)(12,526)
(19,600)--
(23,022)(70)
1,100-
(84) -
(41,676)
58,500-
(6,735)
51,765
(2,437)3,549
1,112
32,4102,619
- (1,687)
- 2,014
- 306
--
(1,863)1,891
2,693(803)
(7,006)(49,688)
(171,058)-
(10,502)316,702
---
24,733 140,761 (3,443)137,318
- (622)
773-
(3,655)8,000
(61)(5,448)
30(983)
8,300-
(4,592)
3,708
140,043265,126
405,169
Ominvest Annual Report 2015 33
NOTES TO THE GROUP AND PARENT COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
1. GENERAL INFORMATION
Oman International Development and Investment Company SAOG (‘the Company’ or ‘the Parent Company’ or “OMINVEST”) is incorporated in the Sultanate of Oman as a public joint stock company and is principally engaged in investment related activities. The Parent Company is listed on the Muscat Securities Market.
The Parent Company’s principal place of business and registered address is Al Shatti Al Qurum, Way No. 3036, Building No. 2832, Penthouse, P O Box 3886, Ruwi, Postal Code 112, Sultanate of Oman.
These consolidated financial statements for the year ended 31 December 2015 comprise the Parent Company and its subsidiaries (together referred to as the Group) and the Group’s interest in associates. The separate financial statements represent the financial statements of the Parent Company on a stand-alone basis. The consolidated and separate financial statements are collectively referred to as “the financial statements”.
As further explained in note 5, on 19 August 2015, the operations of Oman National Investment Corporation Holding Company SAOG (ONICH) were merged with Ominvest against an issue of 33% shares of the combined entity to the shareholders of ONICH.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as promulgated by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB. The consolidated financial statements comply with the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended and the disclosure requirements issued by the Capital Market Authority.
2.2 Basis of preparation These financial statements are prepared under the historical cost convention, as modified by re-measurement of fair value of financial assets at fair value through profit or loss and available-for-sale financial assets. The basis of consolidation is set out in note 2.4.
The statement of financial position is presented in descending order of liquidity as this presentation is more appropriate to the Group’s operations.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in th process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these financial statements are disclosed in note 3.
2.3 Changes in accounting policies and disclosures
The accounting policies are consistent with those used in the previous financial year except for where the Group has adopted certain new standards of, amendments and interpretations to IFRS.
2.4 Basis of consolidation The consolidated financial statements comprise those of the Parent Company and each of its subsidiaries as at 31 December each year. Subsidiaries are all entities (including special purpose entities) over which the Group exercises control. Control is achieved when the Parent Company:
• has power over the investee;• is exposed, or has rights, to variable returns from its
involvement with the investee; and• has the ability to use its power to affect the investee’s
returns.
The Parent Company reassesses 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 listed above.
When the Parent Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Parent Company considers all relevant facts and circumstances in assessing whether or not the Parent company’s voting rights in an investee are to give it power including:
• the size of the Parent company’s holding of the voting rights relative to the size and dispersion of holdings of the other vote holders;
• potential voting rights held by the Parent Company, or other holders or other parties;
• rights arising from other contractual arrangements;• any facts and circumstances that indicates that the Parent
Company has, or does not have, the current ability to direct the relevant activities at the time the decisions need to be made, including voting patterns at previous shareholders meetings.
Consolidation of a subsidiary begins when the Parent Company obtains control over the subsidiary and ceases when the Parent Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Parent Company gains control until the date when the Parent Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Parent Company and to the non-controlling interests. Total comprehensive income of subsidiary is attributed to the owners of the Parent Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue
Ominvest Annual Report 201534
to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies.
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 intragroup 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. The carrying amounts of the Group’s interest and non-controlling interest are adjusted to reflect the changes in their relative interest in subsidiaries. Any difference between the amount by which the non-controlling interest are adjusted and th fair value of the consideration paid or received directly is equity and attributed to the owners of the Parent Company.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interests of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the fairvalue of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non- controlling interests’ share of subsequent changes in equity and impairment of intangible assets. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
If the Group loses control over a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between:
• the aggregate of the fair value of consideration received and the fair value of any retained interest; and
• the carrying amount of assets (including goodwill), and liabilities of the subsidiary and any non-controlling interest.
All amounts previously recognised in other comprehensive income in relation to subsidiary are accounted for as if the Group has directly disposed of the assets and liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified / permitted by applicable IFRS). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment as associate or joint venture. In the Parent Company’s separate financial statements investments in subsidiaries are stated at cost, less provision for impairment in value of any individual investment. Dividend income is recognised in the profit or loss in the period in which entitlement is established.
2.4.1 Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. In the consolidated financial statements, investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s investments in associates
includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses and movements in reserves are recognised in the profit or loss. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments onbehalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
In the Parent Company’s separate financial statements investments in associates are stated at cost, less provision for impairment in value of any individual investment. Dividend income is recognised in the profit or loss in the period in which entitlement is established. 2.5 Financial assets – Initial recognition and
subsequent measurement The Group classifies its financial assets in the following categories: at fair value through profit or loss, available for sale, loans and advances and held-to-maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
2.5.1 Date of recognition
All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Group becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purch ses or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
2.5.2 Initial measurement of financial instruments
The classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.
2.5.3 Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss comprise financial s curities held-for-trading which are acquired principally for the purpose of selling in the short-term and instruments sodesignated by management upon inception. Financial assets at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the statement of comprehensive income. Unrealised gains or losses arising from changes in fair value are included in the statement of profit or loss and other comprehensive income in the period in which they arise. Derivatives are also categorised as held for trading unless they are designated as hedging instruments.
Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met, and designation is determined on an
Ominvest Annual Report 2015 35
instrument-by- instrument basis:
• The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis.
• The assets and liabilities are part of a group of financial assets, financial liabilities or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.
• The financial instrument contains one or more embedded derivatives, which significantly modify the cash flows that would otherwise be required by the contract.
2.5.4 Available-for-sale investments
Available-for-sale investments 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 intended to be held for an indefinit period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.
The Group has not designated any loans or receivables as available-for-sale. After initial measurement, available-for-sale financial investments are subsequently measured at fair value.
Unrealised gains and losses are recognised directly in other comprehensive income in the cumulative changes in fair value. When the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the statement of profit or loss. Where the Group holds more than one investment in the same security, they are deemed to be disposed of on a first–in first–out basis. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the Effective Interest Rate (EIR). Dividends earned whilst holding available-for-sale financial investments are recognised in the statement of profit or loss and other comprehensive income as investment income when the right of the payment has been established. The losses arising from impairment of such investments are recognised in the statement of profit or loss and removed from the cumulative changes in fair value. 2.5.5 Financial investments held-to-maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. In the case where the Group sells more than an insignificant amount of held to maturity assets, the entire category would be tainted and reclassified as available-for-sale.
Held-to-maturity investments are initially recognised at fair value plus transaction costs. These are subsequently carried at amortised cost using the effective interest method.
2.5.6 Loans and advances to customers and due from banks
Loans and receivables to customers and due from banks are non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market. They arise when the Group provides money directly to a debtor with no intention of trading the receivable. Loans and receivables are recognised when cash is advanced to customers and are carried at amortised cost using the effective interest method.
2.5.7 Fair value measurement principles
Regular purchases and sales of financial assets are recognised on the trade-date basis – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognised at fair value, and transaction costs are expensed in the statementof profit or loss. The fair value of financial instruments is based on their quoted market bid price at the reporting date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated based on discounted cash flow and other valuation techniques. The fair value of derivatives that are not exchange-traded is estimated at the amount that the Group would receive or pay to terminate the contract at the reporting date taking into account current market conditions and the current creditworthiness of the counter-parties.
2.5.8 Derecognition of financial assets and liabilities
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:
• the Group has transferred substantially all the risks and rewards of the asset, or
• the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. Where 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 profit or loss.
2.5.9 Impairment of financial assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is objective evidence of impairment as result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events as well as considering the guidelines issued by the regulators:
• significant financial difficulty of the issuer or obligor;• a breach of contract, such as a default or delinquency in
interest or principal payments;• the Group granting to the borrower, for economic or legal
reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider;
• it becoming probable that the borrower will enter
Ominvest Annual Report 201536
• bankruptcy or other financial reorganisation;• the disappearance of an active market for that financial
asset because of financial difficulties; or• observable data indicating that there is a measurable
decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including adverse changes in the payment status of borrowers in the Group, or national or local economic conditions that correlate with defaults on the assets in the Group.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
(a) Assets carried at amortized cost
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of profit or loss. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
Future cash flows in a group of financial assets that are collectively evaluated for impairment ar estimated on the basis of the contractual cash flows of the assets in the Group and historical loss experience for assets with credit risk characteristics similar to those in the Group. Historical loss experience is adjusted on the basis of current observable data to refle t the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectibl , it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the statement of profit or loss.
(b) Available-for-sale financial investments
For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgement. 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 that investment previously recognised in the statement of profit or loss – is removed from equity and recognised in the statement of profit or loss.
Impairment losses on equity investments are not reversed through the statement of comprehensive 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. Interest continues to be accrued at the original effective interest rate on the reduced carrying amount of the asset and is recorded as part of ‘Interest income’. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit or loss, the impairment loss is reversed through the statement of profit or loss.
(c) Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is considered to be past due and disclosed only if renegotiated.
2.5.10 Islamic banking
Murabaha to the Purchase OrdererMurabaha to the purchase orderer represents the sale of goods at cost plus an agreed profit. Murabaha receivables consist of deferred sales transaction agreements. Promise made in theMurabaha to the purchase orderer is not obligatory upon the customer.
Ijarah Muntahia BittamleekIjarah Muntahia Bittamleek is a lease whereby the legal title of the leased asset passes to the lessee at the end of the Ijarah (lease term), provided that all Ijarah instalments are settled.
MusharakaMusharaka contracts represents a partnership between the Window and a customer whereby each party contributes to the capital in equal or varying proportions to establish a new project or share in an existing one, and whereby each of the parties becomes an owner of the capital on a permanent or declining basis and shall have a share of profits or losses.
Diminishing MusharakaDiminishing Musharaka is a form of partnership where two or more persons jointly own a tangible asset in an agreed proportion and one of the partners undertakes to buy the ownership rights of other partner by way of periodical payments till the title of such tangible assets completely transferred to the purchasing partner.
Ominvest Annual Report 2015 37
MudarabaA contract between two parties, whereby one party provides the funds (Rab Al Mal) and the other party (the Mudarib) invest the funds in an asset, project or particular activity and any generated profits are distributed between the parties according to the profit shares that were pre-agreed upon in the contract. The Mudarib is responsible for losses caused by his misconduct, negligence or violation of the terms and conditions of the Mudarib; otherwise, losses are borne by Rab Al Mal. The Mudaraba capital of Mudaraba is paid to the Mudarib or placed under his disposition.
WakalahA contract between two parties whereby one party (the principal: Muwakkil) appoints the other party (the agent: Wakil) to invest certain funds according to terms and conditions of the Wakalah for a fixed fee in addition to any profit exceeding the expected profits as an incentive for the Wakil for the good performance. Any losses as a result of the misconduct or negligence or violation of the terms and conditions of the Wakalah are borne by the Wakil; otherwise, they are borne by the principal.
Qard HassanA non-profit bearing loan enables the borrower to use the borrowed amounts for a specific period of time, at the end of which the same borrowed amounts would be repaid free of any charges of profits. 2.6 Segment reporting The Group’s segmental reporting is based on the following operating segment:
• Investments• Banking activities• Insurance activities• Real Estate.
The segment information is set out in note 32. 2.7 Foreign currencies 2.7.1 Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using Rial Omani which is the currency of the primary economic environment in which the entity operates (the functional currency). These financial statements are presented in Rial Omani, which is the Group’s functional and presentation currency.
2.7.2 Transactions and balances
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 foreigncurrencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
As at the reporting date, the assets and liabilities of the foreign subsidiary entities are translated into the functional currency of
the consolidated financial statements (the Rial Omani) at the rate of exchange ruling at the reporting date and its profit or loss is translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a foreign currency translation reserve in other comprehensive income. On disposal of foreign operations, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the profit or loss.
2.8 Investment properties
Investment properties comprise land and buildings that is held for long-term rental yields and not occupied by the Group. Investment properties are carried at cost less accumulated depreciation, less impairment, if any. Any required impairment charge is recorded in th statement of profit or loss. Depreciation on the assets except land is calculated using the straight-line basis to allocate their cost over the estimated useful lives, as follows:
Freehold property - 25 years 2.9 Property and equipment Property and equipment are stated at historical cost, less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit or loss during the financial period in which they are incurred. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Freehold building - 25 years Leasehold buildings - lower of 25 years and un expired lease period Furniture, fixtures and equipment - up to 5 yearsMotor vehicles - up to 5 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Freehold land and land with factory buildings are considered as a separate class of assets by the Group’s associate companies. These are revalued on a regular basis.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statements of profit or loss.
Projects work-in-progress
Projects work-in-progress is recognised at cost and not depreciated. The carrying values of projects work-in-progress are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be
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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.
2.10 Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives as follows:
Hospital network - 15 yearsLicense - 6 years The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.
Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangibl and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use ar tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have notbeen adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash- generating unit) is increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of th impairment loss is treated as a revaluation increase.
2.11 Impairment of non-financial assets
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount 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 (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
2.12 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short- term highly liquid investments with original maturities up to three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in the statement of financial position. 2.13 Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised as interest expense in the statements of profit or loss over the period of the borrowings using the effective interest method.
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.
2.14 Other liabilities
Other liabilities are stated at amortised cost using the effective interest method.
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2.15 Taxation
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the profit or loss except to the extent that it relates to items recognised directly to equity, in which case it is recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is calculated using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
2.16 Employees’ end of service benefits
End of service benefits are accrued in accordance with the terms of employment of the Group’s employees at the reporting date, having regard to the requirements of the Oman Labour Law 2003, as amended. Employee entitlements to annual leave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of services rendered by employees up to the reporting date.
Contributions to the Omani GovernmentSocial Security Scheme under Royal Decree No. 72/91 for Omani employees in accordance with the Omani Social Insurance Law 1991 are recognised as an expense in the statements of profit or loss as incurred.
2.17 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
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 to flow with respect to any one item included in the same class of obligations may be small.
2.18 Revenue recognition
• Interest income and expenseInterest income and expense are recognised in the profit or loss for all instruments measured at amortised cost using the effective interest method, unless collectability is in doubt. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and
of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
• Fee and commission incomeFees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group retained no part of the loan package for itself or retained a part at the same effective interest rate for the other participants. Portfolio and other management advisory and service fees are recognised based on th applicable service contracts, usually on a time-apportionment basis. Asset management fees related to investment funds are recognised pro-rata over he period the service is provided. The same revenue recognition criteria are applied for custody services that are continuously provided over an extended period of time.
• Dividend incomeDividend income is recognised when the right to receive payment is established.
• Life businessPremiums are taken into income over the term of the policies to which they relate. Unearned premiums represent the proportion of premiums written relating to periods of insurance subsequent to the reporting date. For short term policies, premiums are pro- rated by reference to the unexpired term of cover. An appropriate actuarial reserve is determined by the appointed independent actuary following their annual investigation of the life fund and is calculated initially on a statutory basis to comply with the reporting requirements under the Insurance Companies Law of 1979.
In addition, provision is made where necessary for any further loss expected to arise on unexpired risks after taking into account future investment income on related insurance funds, to cover anticipated liabilities arising from existing contracts. • General businessPremiums are taken into income over the terms of the policies. Unearned premiums represent the portion of premiums written relating to the unexpired period of coverage.
• Insurance policy feesInsurance and investment contract policyholders are charged for policy administration services, surrenders and other contract fees. These fees are recognised as revenue at the time policies are written or at the time the fees are charged, which is generally at the time when the policies are written.
2.19 Fiduciary assets
Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and accordingly are shown as off-balance sheet items in these financial statements.
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2.20 Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair value adjustments are recorded in the profit or loss. Fair values are obtained from quoted market prices in active markets, including recent market transactions. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
2.21 Trade and settlement date accounting
All regular way purchases and sales of financial assets are recognised on the trade date, i.e., the date that the entity commits to purchase or sell the asset. Regular way purchases orsales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
2.22 Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in th balance sheet when there is a legally enforceable right to set off the recognised amounts and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
2.23 Dividends
Dividend distribution to the Parent company’s shareholders is recognised as a liability in these financial statements in the period in which the dividends are approved by the Parent Company’s shareholders. 2.24 Directors’ remuneration
Directors’ remuneration is calculated based on the Group profit for the year (before Directors’ remuneration), applying the overall limits set out by the current regulations governing the determination of Directors’ remuneration including sitting fees.
2.25 Earnings per share
The Group and the Parent Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group and the Parent Company by the weighted average number of ordinary shares outstanding during the period.
2.26 Insurance contracts
(a) Classification The company issues contracts that transfer insurance risk and classifies contracts as insurance contracts when these transfer significant insurance risk. Such contracts may also transfer financial risk.
The company classifies investment contracts as those contracts that transfer financial risk with no significant insurance risk.
The company issues certain insurance contracts which contain a Discretionary Participation Feature (DPF). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses:
• that are likely to be a significant portion of the total contractual benefits;
• whose amount or timing is contractually at the discretion of the company; and
• that are contractually based on the surplus generated on a specified pool of contracts.
There are no local statutory regulations which set out the bases for the determination of the amounts on which the additional discretionary benefits are based, the amounts payable being determined by the company’s board of directors on an annual basis. (b) Recognition and measurement
Life and medical insurance contracts are classified into five main categories which are described below. In addition, the company writes short term individual medical and personal accident policies. (i) Individual life policies
These consist of the following types of policies: • With profits conventional policies (i.e., policies with a discretionary participation feature) which insure events associated with human life (for example, death or survival) over a long duration. Premiums are recognised as revenue when they are received. Provisional premiums are recognised at year end for premium receivables of policies which have not lapsed. Benefits are recorded as an expense when they are incurred. Each policy has a defined benefit amount payable which is guaranteed. Apart from this reversionary and terminal bonuses are declared by the company from time to time based on the profitability of the individual life portfolio. Reversionary bonuses convert into guaranteed benefits once declared and a certain minimum level of bonus is guaranteed for certain policies.
The liability for such policies is determined on a net premium basis by determining the present value of benefits less the present value of future net premiums, a theoretical net premium being calculated using conservative assumptions for mortality and discounting and an adjustment to recognise acquisition costs. For paid up policies, a provision for expenses required to maintain policies is also made. The company also performs a liability adequacy test to ensure that the reserve set aside is not less than the liability determined as the sum of the expected discounted value of the benefit payments, commissions payable and the future administration expenses that are directly related to the contract, less the expected discounted value of premiums that are receivable (making realistic assumptions as to mortality, persistency and maintenance expenses and using a discount rate inherent in the pricing of fixed income securities held by the Company)
• Term assurance where the benefits are payable only in the event of death of the insured. These include policies where the insured amount is constant throughout the term of the policy and decreasing term assurance policies where the sum assured reduces at a pre- decided rate every year. The premium is paid either over the term of the policy or as a single premium. Premiums are recognised as revenue when they are received.Provisional premiums are recognised at year end for premiums receivables of polices which have not lapsed. These are without profit policies.
For single premium policies the liability is determined as the discounted value of expected future claims as well as expenses which are expected to be incurred in administering the policies. For regular premium policies the liability is determined on a net premium basis along the same lines as conventional with profits policies.
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(ii) Individual credit life policies
These are life insurance contracts underwritten on single premium and on an individual basis and issued to protect financial institution for their outstanding loan from the customer. These contracts protect the financial institutions from the consequences of events (such as death or disability) that would effect on the ability of the customer to repay his outstanding loan. These are without profit policies.
These contracts are issued for the duration of loans with the insurance premium being received as a single premium. Further amounts are received if and when loans are topped up. Similarly refunds are allowed in case of pre-closure or change in terms of the loan.
Single premiums are recognised as revenue when due. An unearned risk premium reserve net of reinsurance has been kept for each contract. The risk premium has been worked out based on gross premium less acquisition costs.
Claims are charged to statement of comprehensive income as incurred, based on the estimated liability for compensation owed to policy holders. Claims reported are recognised at the time of being reported.
(iii) Group life policies
These are short term life insurance contracts underwritten on a group basis, the lives covered usually being employees of a common employer. These contracts protect the company’s customers (the employer) from the consequences of events (such as death or disability) that would effect on the ability of the employee or his/her dependants to maintain their current level of income. Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to the extent of the economic loss suffered by the customer. There are no maturity or surrender benefits.
For all these contracts, premiums are recognised as revenue when the policy or endorsement is issued, but are deemed to be earned proportionally over the period of coverage. The portion of premium written on in-force contracts that relates to unexpired risks at the reporting date is reported as the unearned premium liability. Premiums are disclosed before deduction of commission and excluding taxes levied on premiums.
Claims are charged to statement of comprehensive income as incurred based on the estimated liability for compensation owed to policyholders. Claims reported are recognised at the time of being reported. A separate provision for incurred but not reported claims is made based on the company’s experience relating to claims reporting patterns in the past.
As indicated above an unearned premiums reserve is set up at the valuation date for premiums which are deemed to be earned in future periods. The company also tests whether the liability so set up is adequate to meet expected future claims.
(iv) Group medical policies
These are short term medical insurance contracts underwritten on a group basis, the lives covered usually being employees of a common employer. These contracts protect the company’s customers ( he employer) from losses resulting from medical treatment of employees as a result of ill-health or accident, covering both hospitalisation and out-patient expenses. The bulk of hospital claims are disbursed directly by the company to healthcare providers. There are no maturity or surrender benefits for these polices.
For all these contracts, premiums are recognised as revenue when the policy or endorsement is issued, but are deemed to be earned proportionally over the period of coverage. The portion of premium written on in-force contracts that relates to unexpired risks at the reporting date is reported as the unearned premium liability. Premiums are shown before deduction of commission and excluding taxes levied on premiums.
Claims are charged to statement of comprehensive income as incurred, based on the estimated liability for compensation owed to policy holders. Claims reported are recognised at the time of being reported. A separate provision for incurred but not reported claims is made based on the company’s experience relating to claims reporting patterns in the past.
As indicated above an unearned premiums reserve is set up at the valuation date for premiums which will deem to be earned in fu ure periods. The company also tests whether the liability so set up is adequate to meet expected future claims.
(v) Group credit life policies
These are life insurance contracts underwritten on a group basis and issued to financial institutions to protect their outstanding loan portfolios. These contracts protect the company’s customers (financial institutions) from the consequences of events (such as death or disability) that would effect on the ability of the customer’s borrowers to repay outstanding loans. These are without profit policies.
These contracts are issued on two basis:
• For the duration of loans with the insurance premium being received as a single premium. Further premiums are received if and when loans are topped up.
• Short term contracts covering the risk for a year at a time, with premiums being determined and paid monthly on outstanding balances.
Single premiums are recognised as revenue when due. A liability for unexpired risk is determined as the discounted value of expected future claims as well as expenses which are expected to be incurred in administering the policies. Monthly premiums are recognised upon declaration by financial institutions of the amount payable. As such, premiums are usually recognised once they have been fully earned and no unearned premium reserve is determined to be necessary. The company does, however, at the end of the year, evaluate the profitability of the portfolio to determine if any premium deficiency reserve is required.
Claims are charged to statement of comprehensive income as incurred based on the estimated liability for compensation owed to policy holders. Claims reported are recognised at the time of being reported. A separate provision for incurred but not reported claims is made based on the company’s experience relating to claims reporting patterns in the past.
Liability adequacy test
The company carries out a liability adequacy test to ensure the adequacy of contract liabilities as set out in the financial statements. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. The results of the tests indicate that the liability recognised is adequate.
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General insurance contracts
For general insurance contracts, premiums are taken into income over the terms of the policies. Unearned premiums represent the portion of premiums written relating to the unexpired period of coverage. The change in the provision for unearned premiums is recognised in the statement of comprehensive income in order that revenue is recognised over the period of risk.
Unearned premium is calculated based on higher of 1/24 method or the amount calculated at 45% of the net retained premiums for the year for all classes of business as required by the Insurance Companies Law of Oman. Acquisition costs and reinsurance commissions are recognised as expenses or income over the period of the policy by deferring it using 1/24 method.
Estimates have to be made for both the expected ultimate costs of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not yet reported (IBNR) at th reporting date. Claims consist of amounts payable to contract holders and third parties and related loss adjustment expenses, net of salvage and other recoveries and are charged to statement of comprehensive income as incurred.
Gross outstanding claims comprise the gross estimated cost of claims incurred but not settled at the reporting date, whether reported or not. Provisions for reported claims not paid as at the reporting date are made on the basis of individual case estimates. In addition, a provision based on the company’s prior experience is maintained for the cost of settling claims incurred but not reported at the reporting date. Any difference between the provisions at the reporting date and settlements and provisions in the following year is included in the accounting year in which the change in provision or settlement is made.
Allowances in claims liability
Some insurance contracts permit the company to collect excess, depreciation, or sell a (usually damaged) vehicle or a property required in settling a claim (i.e. salvage). The company may also have the right to pursue third parties for payment of some or all costs (i.e. subrogation).
Estimates of excess, depreciation, salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvaged vehicles or property acquired are recognised in outstanding claims when the liability is accrued. The allowance for salvage is the amount that can reasonably be recovered from the disposal of the vehicle or property.
Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets. The allowance is the assessment of the amount that can reasonably be recovered from the action against the liable third party.
Reinsurance contracts held
In order to protect itself against adverse experience, the company has entered into contracts with reinsurers under which it is compensated for losses on one or more contracts issued by the company. Insurance contracts entered into by the company under which the contract holder is another insurer (inwards reinsurance) are included with insurance contracts.
The benefits to which the company is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short-term balances due
from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily reinsurance premiums payable for reinsurance contracts and are recognised as an expense when due.
The company assesses its reinsurance assets for impairment on an annual basis. 2.27 Premiums and insurance balances receivable
Premiums and insurance balances receivable are initially recognised at fair value and subsequently are stated at amortised cost using the effective interest method less impairment losses. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
2.28 Deferred acquisition costs and commission income
Deferred acquisition costs (DAC)
Direct and indirect costs incurred during the financial period arising from the writing of long term life insurance contracts, are deferred to the extent that these costs are recoverable out of future premiums.
Subsequent to initial recognition, these costs are amortised on a straight line basis based on the term of expected future premiums, currently estimated as four years.
Direct and indirect costs incurred for writing short term life and medical insurance contracts are deferred and this is built into the ‘unexpired risk reserve’ shown in the statement of financial position.
Acquisition costs for writing of general insurance contracts are deferred to the extent that these costs are recoverable out of future premiums. Subsequent to initial recognition, these costs are amortised over the period of the policy (generally one year) using 1/24 method. Amortisation is recorded in the statement of comprehensive income. Changes in the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period and is treated as a change in an accounting estimate.
Deferred reinsurance commission incomes (DCI)
Commission incomes attributable to the unexpired reinsurance ceded premiums for short time life and medical are deferred and it is built into “reinsurers’ share of unexpired risk reserve” in the statement of financial position.
Commission incomes attributable to the unexpired reinsurance ceded premiums for general insurance are deferred to the extent that these are recoverable out of future ceded premiums.
Subsequent to initial recognition, these incomes are amortised over the period of the policy (generally one year) using 1/24 method.
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2.29 Business combination
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:
• deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 respectively;
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 at the acquisition date; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non- current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction- by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘me surement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent
consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.
When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES
The preparation of the consolidated financial statements, as per IFRS, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the reporting date and the resultant provisions and changes in fair value for the year. Such estimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment and uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated assets and liabilities.
3.1 Going concern The Group’s management has made an assessment of the Group’s ability to continue as going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. 3.2 Impairment losses on loans and advances The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the statement of profit or loss, the Group makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling
Ominvest Annual Report 201544
its future cash flows and in line with the Central Bank of Oman guidelines in this respect. The methodology and assumptions used for estimating both th amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
3.3 Held-to-maturity investments The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgment. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – it will be required to reclassify the entire class as available-for- sale. In such situations, the investments would therefore be measured at fair value and not at amortised cost. 3.4 Significant influence over the investee The Group has significant influence over some associates although the Group holds less than 20% of ownership. Where the Parent Company has less than 20% of the voting rights, it assesses whether or not it has significant influence over the investee, to consider it as an associate. The existence of significant influence is usually evidenced in one or more of the following ways:
• representation on the board of directors or equivalent governing body of the investee
• participation in the policy-making process• material transactions between the investor and the investee• interchange of managerial personnel• provision of essential technical information 3.5 Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using certain valuation techniques, derived from observable market data where possible. Where observabl market data are not available, judgment is used to establish fair values.
3.6 Classification of investments
Management decides on acquisition of an investment whether it should be classified as held for trading, carried at fair value through profit or loss, or available-for-sale or held-to-maturity investments.
The Group reviews its debt securities classified as available-for-sale investments at each reporting date to assess whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances.
The Group also records impairment charges on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment.
In making this judgment, the Group and the Parent Company evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.
3.7 Useful lives of property and equipment and investment properties
Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The calculation of useful lives is based on management’s assessment of various factors such as the operating cycles, the maintenance programs, and normal wear and tear using its best estimates.
3.8 Useful lives of intangible assets
Amortization is charged so as to write off the cost of assets over their estimated useful lives. The calculation of useful lives is based on management’s assessment of various factors such as the operating cycles using its best estimates.
3.9 Taxes
The Group and the Parent Company establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessments. The amount of such provisions is based on factors such as experience of previous tax assessments and interpretations of tax regulations by the Group and the responsible tax authority.
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be ava lable against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. 3.10 Impairment of available-for-sale equity investments
The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost or objective evidence of impairment exists. This determination of what is considered to be significant or prolonged requires judgement. In applying judgement, the Group evaluates among other factors, the volatility in share price. Objective evidence of impairment may be due to deterioration in the financial health of the investee, industry and sector performance.
3.11 Impairment loss on investments in subsidiaries and associates
The Group reviews its investments in subsidiaries and associates periodically and evaluates the objective evidence of impairment. Objective evidence includes the performance of the subsidiaries, associate, the future business model, local economic conditions and other relevant factors. Based on the objective evidences, the Group determines the need for impairment loss on investments in subsidiaries and associates.
3.12 Insurance contracts - key sources of estimation uncertainty
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:
The company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually
Ominvest Annual Report 2015 45
evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
(a) The ultimate liability arising from claims made under insurance contracts
The estimation of the ultimate liability arising from claims made under insurance contracts is a key estimate made in measuring liabilities under insurance contracts and especially under group medical, group life and group credit life contracts. There are several sources of uncertainty that need to be considered in the estimate of the liability that the company will ultimately pay for such claims.
For incurred but not reported claims two separate methods are used. For group life and group credit life claims, the chain-ladder method has been used to determine the pattern of reporting claims which has then been slightly modif ed to determine Incurred But Not Reported (IBNR) reserves and the loss ratio estimates are used for the latest accident year. For group medical claims, an estimate of the IBNR is made on the basis of accounting periods for which claims from providers have not been received. A chain ladder method (CLM) has been adopted blended with the projection of ultimate incurred claims in the last three months. The CLM technique involves analysis of historic losses to obtain development factors. Average development factors are arrived at and applied to the paid losses to date for each incurred month to calculate a final estimate of incurred claims. The projection of ultimate incurred claims is used for the most recent months. Trends in per member claim costs by month are analysed from historical data to derive a per member per month (PMPM) claim cost projection for the most recent months. These PMPM claim projections are applied to the number of members to get ultimate claim estimate. The blending of the two methods described above using the credibility factors developed based on the inherent volatility in the data. The methodology implicitly assumes that there h ve been no material changes to the underlying products and no changes in internal administration processes which would cause delays in payment lags or significant changes in the external environment. The impact that any of the above changes may have on the trends in the emerging claims experience is only allowed for to the extent that the impact has already been observed within the data provided.
For general insurance claims, the chain-ladder method has been used to determine the pattern of reporting claims which has then been modified to determine IBNR reserves.
(b) Estimate of future benefit payments and premiums arising from long-term insurance contracts, and related deferred acquisition costs and other intangible assets
The determination of the liabilities under long-term insurance contracts (which basically consist of individual life policies and group credit life policies issued for the whole loan period on a single premium basis) is dependent on a number of estimates made by the company with respect to:
• Mortality and disability• Investment returns (discount rate applied)• Expenses
Mortality and disability
The mortality rates are derived from mortality table Permanent Assurances, combined – AMC00 and AFC00 for males and females respectively. 146% of the AMC00table has been used
as best estimate mortality for the insured population in Oman. This table has two years of selection mortality. The so called Carenz period has been applied in the calculations. All children are assumed to be boys. A margin of prudence of 25% over the best estimate derived has been applied based on a mortality experience study of the portfolio on an amount and lif basis. For long term group and individual credit life contracts reinsurance risk premium rates are used for both mortality and disability.
Were the numbers of deaths in future years to differ by 10% from management’s estimate, the liability would increase by RO 88,747 (0.99%) or decrease by RO 80,058(0.89%).
Investment income / discount rate
Under the net premium valuation method used by the company for valuing most policies in the individual life portfolio, the valuation rate of interest serves as both the estimate of investment income and the discount rate. The valuation interest rate used for conventional guaranteed business should reflect a conservative long-term interest rate. This rate is used to discount the future benefits and future premiums to arrive at the liability figure. A valuation interest rate of 3% per annum was used for the purpose of the valuation of the basic reserves for individual life portfolio. The same valuation discount rate has been used for valuing bonuses as well.
The company’s estimate of return on fixed income securities matching the duration of the company’s liability under such policies is around 4.2% p.a. However, rate of 3% p.a. has been considered suitable allowing for both the credit spread as well as prudence in the valuation basis. An earning in excess of the interest rate are usually a source of surplus for with profits policyholders.
Uncertainty relating to interest rate assumptions lies in the investment of net future cash flows; reinvestment risk of coupon payments received on fixed income contracts; and th uncertainty surrounding both returns from and the value of equity investments.
Were the interest rate assumptions to vary by 50 basis point from management’s estimate, the gross liability would increase by RO 180,938 (2.2%) (2014 - RO 128,997 (1.5%) for a 10% variation) or decrease by RO variation. 146,509 (1.8%) (2014 - RO 120,454 (1.4%) for a 10% Expenses
An implicit assumption relating to expenses is made for the statutory valuation in that there is a margin between the net premiums determined as a part of the net premium valuation and the gross premiums charged by the company. As a part of the process the margin is kept at a minimum of 10% of the gross premium. A separate provision for RO 30 per policy per annum is made for single premium (excluding NBO Housing) and paid up policies for which no future premiums are expected, for NBO Housing portfolio an implicit expense margin of RO 10 is assumed.
For short term life products indirect expenses have been deferred at 4% to 5% of the gross premiums. For group medical product, indirect expenses have been deferred at 6% (for group medical-Oman) and 6.5% (for group medical-UAE) of the gross premiums for costs relating to the unexpired risk period by 2015.The management based on expense analysis done for the year 2015.
Impairment of premiums and insurance balances receivable.
Ominvest Annual Report 201546
An estimate of the collectible amount of premiums and insurance balances receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and an allowance applied according to the length of time past due, based on historical recovery rates.
4. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
4.1 New and revised IFRSs applied with no material effect on the combined financial statements
The following new and revised IFRSs, which became effective for annual periods beginning on or after 1 January 2015, have been adopted in these financial statements. The application of these revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect
New and revised IFRSs Effective for annual periods beginning on or after
IFRS 14 Regulatory Deferral Accounts
Amendments to IAS 1 Presentation of Financial Statements relating to Disclosure initiative
Amendments to IFRS 11 Joint arrangements relating to accounting for accounting for acquisitions of interests in joint operations
Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets relating to clarification of acceptable methods of depreciation and amortisation
Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture relating to bearer plants
Amendments to IAS 27 Separate Financia Statements relating to accounting investments in subsidiaries, joint ventures and associates to be optionally accounted for using the equity method in separate financial statements
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities an IAS 28 Investment in Associates and Joint Ventures relating to a plying the consolidation exception for investment entities
Annual Improvements to IFRSs 2012 - 2014 Cycle covering amendments to IFRS 5, IFRS 7, IAS 19 and IAS 32.
IFRS 9 Financial Instruments (revised versions in 2009, 2010, 2013 and 2014) IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include: A finalised version of IFRS 9 which contains accounting requirements for financial instruments, replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard contains requirements in the following areas:
• Classification and measurement: Financial assets are classified by reference to the business model within which they are held and their contractual cash flow
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2018
the accounting for future transactions or arrangements.
Annual Improvements to IFRSs 2010 - 2012 Cycle that includes amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38.
Annual Improvements to IFRSs 2011 - 2013 Cycle that includes amendments to IFRS 1, IFRS 3, IFRS 13 and IAS 40.
Amendments to IAS 19 Employee Benefits to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.
4.2 New and revised IFRS in issue but not yet effective The Group has not yet applied the following new and revised IFRSs that have been issued but are not yet effective:
Ominvest Annual Report 2015 47
When IF S 9 is first applied
1 January 2019
Effective date deferred indefinitely
characteristics. The 2014 version of IFRS 9 introduces a ‘fair value through other comprehensive income’ category for certain debt instruments. Financial liabilities are classified in a similar manner to under IAS 39, however there are differences in the requirements applying to the measurement of an entity’s own credit risk.
• Impairment: The 2014 version of IFRS 9 introduces an ‘expected credit loss’ model for the measurement of the impairment of financial assets, so it is no longer necessary for a credit event to have occurred before a credit loss is recognised
• Hedge accounting: Introduces a new hedge accounting model that is designed to be more closely aligned with how entities undertake risk management activities when hedging financial and non-financial risk exposures.
• Derecognition: The requirements for the derecognition
of financial assets and liabilities are carried forward from IAS 39.
Amendments to IFRS 7 Financial Instruments: Disclosures relating to disclosures about the initial application of IFRS 9.
IFRS 15 Revenue from Contracts with Customers In May 2014, IFRS 15 was issued which established a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective.
Specifically, the standard introduces a 5-step approach to revenue recognition:
• Step 1: Identify the contract(s) with a customer.• Step 2: Identify the performance obligations in the contract.• Step 3: Determine the transaction price.• Step 4: Allocate the transaction price to the performance
obligations in the contract.• Step 5: Recognise revenue when (or as) the entity satisfies
a performance obligation.
Under IFRS 15, an entity recognises when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.
IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) relating to the treatment of the sale or contribution of assets from and investor to its associate or joint venture.
New and revised IFRSs Effective for annual periods beginning on or after
Ominvest Annual Report 201548
Management anticipates that these new and revised standards, interpretations and amendments will be adopted in the Group’s financial statements for the year beginning 1 January 2016 or as and when they are applicable and adoption of these new standards, interpretations and amendments, except for IFRS 9 and IFRS 15, may have no material impact on the financial statements of the Group in the period of initial application.
Management anticipates that IFRS 15 and IFRS 9 will be adopted in the Group’s financial statements for the annual year beginning 1 January 2018. The application of IFRS 15 and IFRS 9 may have significant impact on amounts reported and disclosures made in the Group’s financial statements in respect of revenue from contracts with customers and the Group’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of effects of the application of these standards until the Group performs a detailed review.
5. BUSINESS COMBINATION
On 19 August 2015, the operations of Oman National Investment Corporation Holding Company SAOG (ONICH) were merged withOminvest SAOG against an issue of 33% shares of the combined entity to the shareholders of ONICH. As a result of the merger, OMINVEST acquired 100% of the ONICH for a total consideration of RO 87,573,284 in the form of issue of new shares. The merger is accounted under IFRS 3 due to OMINVEST acquiring a controlling stake in ONICH through the issue of new shares of OMINVEST. Accordingly, Ominvest is treated as the “accounting acquirer” and ONICH is treated as the “accounting acquiree” for an accounting purposes. The fair value of the shares issued as part of the consideration paid for ONICH was based on the published share price of OMINVEST on 19 August 2015 of RO 0.480 per share.
The fair values of identifiable assets acquired and the liabilities assumed at 19 August 2015 were as follows:
ParticularsFair value recognized
on acquisition RO ‘(000)
Carrying valueimmediately prior to
acquisitionRO ‘(000)
Assets
Cash and bank balances
Bank and other deposits
Premiums and insurance balances receivables *
Reinsurers share of outstanding claims
Reinsurers share of actuarial / mathematical and
unexpired risk reserves
Investments at fair value through profit or loss
Investments at amortized cost
Available for sale in estments
Other receivables and prepayment
Investment in associates
Deferred tax assets
Investment properties
Property and equipment
Goodwill
Trade name
Hospital network
License
Total assets
Gross outstanding claims
Actuarial / mathematical and unexpired risk reserve
Due to reinsurers
Bank term loans
Investment property loan
Other liabilities
Income tax payable
Total liabilities
Fair value of net assets of the acquiree
Non-controlling interest
Total identifiable net assets acquired
Total consideration transferred in the form of issuance
of new shares
Bargain on business combination
1,789
30,795
34,027
10,878
16,009
12,461
648
1,389
4,138
59,615
114
7,800
736
-
9,117
7,597
2,631
199,744
22,714
46,249
4,197
18,192
5,446
9,310
331
106,439
93,305
(909)
92,396
87,573
4,823
1,789
30,795
34,027
10,878
16,009
12,461
648
1,389
4,138
49,672
114
7,800
736
146
-
-
-
170,602
22,714
46,249
4,197
18,192
5,446
9,310
331
106,439
* Premium and insurance balances receivable is after provision of doubtful debts of RO 665,615.
Ominvest Annual Report 2015 49
24,400
58,826
500
24,216
8,542
116,484
116
-
116
(17,692)
(5,446)
(23,138)
(23,022)
1,789
30,795
32,584
(18,192)
(5,446)
(23,638)
8,946
Net cash flows on merger
Group
Subsidiary / Associate
GroupRO’000
2015RO’000
Parent CompanyRO’000
2014RO’000
Share of results RO in million
The Group has recognised a gain of RO 4.8 million on acquisition of ONICH Holding SAOG due to the synergies expected from the combined operations such as:
a) reduction in operating costs;b) shared back office solutions;c) the banking company financing its leasing companies; andd) bancassurance
In the merger, Ominvest has acquired five separate businesses classified as investments in associates across different sectors in which their fair market values are significantly higher than their carrying values.
For the non-controlling interests in National Life and General
Insurance SAOC, the group elected to recognise the non-controlling interests in at its proportionate share of the acquired net identifiable assets.
Transaction costs of RO 0.2 million have be n expensed and are included in operating expenses (note 29).
The acquired business contributed revenues of RO 31 million and net profit of RO 3.66 million to the group for the period from 19 August to 31 December 2015. If the acquisition had occurred on 1 January 2015, consolidated pro-forma revenue and profit for the year ended 31 December 2015 would have been RO 197.4 million and RO 37.659 million respectively. These amounts have been calculated using the subsidiary’s and associate’s results.
National Life and General Insurance Co SAOC
International General Insurance Holding Limited
Oman Orix Leasing Company SAOG
Al Ahlia Insurance Company SAOC
Oman Chlorine SAOG
National Finance House BSC
Total
Cash and bank balances
Bank and other deposits
Cash and bank acquired
Bank term loans
Investment property loan
Borrowing assumed
Money market placements
Current accounts
Capital deposits
Deposits
Subordinated deposits
68,979
26,779
500
-
-
96,258
1.58
1.10
0.70
0.07
0.12
0.09
3.66
There were no acquisitions in the year ended 31 December 2014.
6. CERTIFICATES OF DEPOSIT
Certificates of deposit were issued by the Central Bank of Oman for a period of 28 days carrying interest at rates ranging from 0.012% - 0.13% per annum during 2014 and matured in January 2015. The issue of certificates of deposits has been discontinued since September 2015.
7. DEPOSITS WITH BANKS
Ominvest Annual Report 201550
666
51
(79)
638
25,0643,960
29,024(638)
28,386
-----
24,0173,454
27,471(441)
27,030
At 31 December 2015, 63% of the Group’s Money market placements were with two banks rated between Aa3 to A1 by Moody’s (2014– 76.7% of the Bank’s placements were with eight banks rated Aa3 to Ba3).
Capital deposits represents RO 500,000 (2014 - RO 500,000) being a capital deposit with the Central Bank of Oman in terms of regulations applicable to the banking subsidiary which earn interest at 1% (2014–1.5%) per annum. This deposit cannot be withdrawn without prior approval of the Central Bank of Oman.
Deposits are held with leasing companies and commercial banks in Oman and United Arab Emirates, denominated in Rial Omani of RO 19,817,000 and UAE Dirhams of RO 4,398,928 and carry an effective annual interest rate ranging between 0.71% per annum to 4.10% per annum.
Subordinated deposits are held with commercial banks in Oman and Bahrain, denominated in Rial Omani of RO 6,000,000 and US Dollars of RO 2,542,320 and carry annual interest rates ranging between 4.5% per annum to 7.88% per annum.
8. PREMIUM AND INSURANCE BALANCES RECEIVABLE
9. INVESTMENT SECURITIES
GeneralRO ‘000
2014RO ‘000
Total RO ‘000
2014RO ‘000
Life RO ‘000
2015RO ‘000
2015
Group
Group
2014
Parent Company
Total RO ‘000
2015 RO ‘000
Premiums receivableReinsurance balances receivable
Allowance for doubtful debts
Financial assets at fair value through
profit or loss (Note 9a)
Available-for-sale investments (Note 9b)
Held-to-maturity investments (Note 9c)
8,936
86,483
97,501
192,920
1,264
9,827
-
11,091
7,748
55,507
50,402
113,657
6,619
33,114
-
39,733
1,047506
1,553(197)1,356
-
-
-
-
2015RO’000
2014RO’000
Movement in allowance for doubtful debts:
At acquisition date
Provided during the period
Transfer from provision for other receivables
and prepayments
At 31 December
As at the reporting date, investment securities comprised the following:
Ominvest Annual Report 2015 51
2014RO ‘000
2014RO ‘000
2015RO ‘000
Group Parent Company
2015 RO ‘000
(a) Financial assets at fair value through profit or loss
(i) Financial assets designated at fair value through profit or loss
As at the reporting date, financial assets designated at fair value through profit or loss comprised the following:
Quoted investmentsLocal investments by sector BankingInvestmentServicesIndustrial
Oman Al Arabi Fund
Total local quoted investments
Foreign investments Equity and equity related
Subtotal
Unquoted local investments
Total financial assets designated at fair value through profit or loss
2,2321,0363,1451,6838,096
438
8,534
5
8,539
323
8,862
1,1101,449
276851
3,686
430
4,116
2,985
7,101
317
7,418
1431,036
1565
1,259
-
1,259
5
1,264
-
1,264
1,1101,449
229846
3,634
-
3,634
2,985
6,619
-
6,619
Total financial assets held for trading
Total financial assets designatedat fair value through profit or loss
74
8,936
-
1,264
330
7,748
-
6,619
Unquoted financial assets at fair value through profit or loss include investment in the Financial Settlement Guarantee Fund of RO 203,307 (2014 - RO 196,438) which is not recoverable until the date the Bank ceases its brokerage activities or the fund is liquidated, whichever is earlier.
Ominvest Annual Report 201552
(b) Available-for-sale investments
2014RO ‘000
2014RO ‘000
2014RO ‘000
2014RO ‘000
2015RO ‘000
2015RO ‘000
Group
Group
Parent Company
Parent Company
2015 RO ‘000
2015 RO ‘000
Local investments
Quoted investments (cost)
Fair value reserve
Unquoted investments (cost)
Fair value reserve
Deferred tax liability on fair value reserve
Total local investments
Foreign investments
Quoted investments (cost)
Less: Provision for impairment
Fair value reserve
Unquoted investments (cost)
Less: Provision for impairment
Fair value reserve
Deferred tax liability on fair value reserve
Total foreign investments
Total available-for-sale investments
Oman Government Development Bonds
- held by the banking subsidiary
Banks and Corporate Bonds- held by insurance subsidiary
96,855
646
97,501
-
-
-
-
-
-
50,402
-
50,402
77,505
(6,295)
1,050
(15)
-
72,245
15,184
(715)
(1,876)
3,380
(861)
(776)
(98)
14,238
86,483
40,117
787
889
6,583
(659)
47,717
7,143
-
(457)
2,541
(1,475)
38
-
7,790
55,507
2,512
(150)
861
-
-
3,223
7,664
(309)
(1,410)
1,579
(861)
(59)
-
6,604
9,827
25,090
967
700
6,598
(659)
32,696
-
-
-
1,829
(1,475)
64
-
418
33,114
Fair value reserve changes in available-for-sale investments are recognised in other comprehensive income under “changes in fair value of available-for-sale investments”. Provision for impairment for available-for-sale investments are charged to profit or loss.
(c) Held-to-maturity investments
Included under investments held-to-maturity are bonds issued by the Government of Oman amounting to RO 53,855 thousand (2014: RO 50,402 thousand). The bonds are denominated in Rial Omani and carry interest rates varying between 2.75% to 5.5% (2014 – 2.75% to 5.5%) per annum. Also included in investments held-to-maturity are treasury bills and Sukuk bonds issued by the Government of Oman amounting to RO 43,000 thousand (2014: nil) and RO 636 thousand respectively. The treasury bills are denominated in Rial Omani and carry yield rates ranging between 0.64% to 0.72% (2014: nil). The maturity profiles of the held-to-maturity investments, based on the remaining maturity from the reporting date, are as follows:
Investments worth RO 4.97 million (2014 – RO 4.2 million) are held in the name of associate companies / brokers in trust on behalf of the Group.
Ominvest Annual Report 2015 53
(d) Investments in associates
All the Group’s quoted Associated companies’ shares are listed on the Muscat Securities Market (MSM).The quoted price of investments in associated companies as of the reporting date amounted to RO 29,024,075 ( 2014 - RO 13,555,066).
During the year, the Parent company has gained significant influence in Modern Steel Mills LLC, Shamal Plastic Industries LLC and Gulf Acrylic Industries LLC due to representation on the Board and participation in key policy making decisions in collaboration with other shareholders. Accordingly, these available-for-sale investments were transferred to investments in associates.
Total assets, liabilities and revenues of the Group’s associates, all of which are registered in the Sultanate of Oman, except International General Insurance Holding Limited and National Finance House B.S.C. which are registered in Jordan and Bahrain respectively, are shown below, along with the Group’s share of the results of these associates:
2015RO’000
2014RO’000
Treasury bills
Upto 3 months
Between 3 and 9 months
Government / corporate bonds
1 to 5 years
Above 5 years
Sukuk bonds
1 to 5 years
Total
36,000
7,000
51,065
2,800
636
97,501
-
-
48,402
2,000
-
50,402
As at the reporting date, investments in associates represented holdings in the following companies registered in the Sultanate of Oman:
Holding(%)
Holding(%)
CarryingValue
RO’000
CarryingValue
RO’000
CostRO’000
CostRO’000
Group Parent
2015
Group Parent
2014
Group
Quoted
Oman Orix Leasing Company SAOG
National Finance Company SAOG
Oman Chlorine SAOG
National Detergent Company SAOG
National Biscuit Industries Ltd. SAOG
Unquoted
International General Insurance
Holding Limited
Al Ahlia Insurance Company SAOC
National Finance House BSC
Modern Steel Mill LLC
Shamal Plastic Industries LLC
Gulf Acrylic Industries LLC
Total
35.00%
25.87%
15.11%
29.94%
29.22%
20.00%
20.03%
17.47%
19.49%
15.00%
15.00%
-
25.87%
-
29.94%
29.22%
-
-
-
-
-
-
14,202
11,003
7,121
2,707
1,288
36,321
28,326
8,973
2,685
3,787
690
493
44,954
81,275
13,500
4,804
7,000
713
732
26,749
27,615
8,900
2,600
4,011
668
492
44,286
71,035
-
10,049
-
2,715
1,144
13,908
-
-
-
-
-
-
-
13,908
-
4,804
-
713
732
6,249
-
-
-
-
-
-
-
6,249
Group
Ominvest Annual Report 201554
Name of the associate 2015
Assets(RO’000)
Liabilities(RO’000)
Revenues(RO’000)
Share of profit(RO’000)
National Finance Company SAOG
National Biscuit Industries SAOG
National Detergent Company SAOG
International General Insurance
Holding Limited
Oman Orix Leasing Company SAOG
Al Ahlia Insurance Company SAOC
Oman Chlorine SAOG
National Finance House BSC
Modern Steel Mill LLC
Gulf Acrylic Industries LLC
Shamal Plastic Industries LLC
2014
National Finance Company SAOG
National Biscuit Industries SAOG
National Detergent Company SAOG
189,688
7,101
25,422
292,268
161,721
70,341
26,376
49,227
15,059
1,839
1,875
165,300
6,656
25,651
126,553
2,861
11,805
183,351
126,360
35,647
3,519
35,801
567
816
433
126,553
2,915
12,364
16,782
10,927
22,577
59,813
15,925
27,054
7,595
3,227
11,561
1,961
3,165
15,911
11,353
23,386
1,539
187
134
1,104
701
73
121
86
(224)
12
41
3,774
1,330
185
172
1,687
(e) Investments in subsidiaries
Country of Incorporation
Cost(RO’000)
Cost(RO’000)Holding % Holding %
2015 2014
Oman Arab Bank SAOC
(Principal activity: Banking)
National Life and General Insurance Co SAOC
(Principal activity: Insurance)
Oman National Investment Corporation SAOC
(Principal activity: Investments)
Oman Investment Services SAOC
(Principal activity: Investments)
Salalah Resorts SAOC
(Principal activity: Integrated Tourism Project)
Al Jabal Al Aswad Investment LLC
(Principal activity: Real Estate)
Budva Beach Properties doo
(Principal activity: Tourism project)
Total cost
Less: Provision for impairment on a subsidiary
Net
Oman
Oman
Oman
Oman
Oman
Oman
Montenegro
50.99
97.93
98.00
99.98
100.00
100.00
100.00
41,302
38,043
19,600
903
3,000
100
5,231
108,179
(1,003)
107,176
50.99
-
-
99.98
100.00
100.00
100.00
41,302
-
-
903
3,000
100
5,231
50,536
-
50,536
As at the reporting date, investments held by the Parent Company in subsidiaries are:
Ominvest Annual Report 2015 55
Name of the Subsidiary Assets(RO’000)
Liabilities(RO’000)
Revenues(RO’000)
Share of results(RO’000)
Total assets, liabilities and revenues of the Group’s subsidiaries are shown below, along with the Group’s share of the results:
2015
Oman Arab Bank SAOC
National Life and General Insurance Co SAOC
Oman National Investment Corporation SAOC
Salalah Resorts SAOC
Oman Investment Services SAOC
Budva Beach Properties doo
Al Jabal Al Aswad Investment LLC
2014
Oman Arab Bank SAOG
Salalah Resorts SAOC
Oman Investment Services SAOC
Budva Beach Properties doo
Al Jabal Al Aswad Investment LLC
1,928,699
103,361
56,531
1,949
1,500
3,964
-
1,816,093
2,801
915
6,216
-
1,756,680
77,227
36,957
1,966
771
1,223
-
1,603,232
1,490
57
1,304
-
95,075
31,013
-
-
1
12
-
85,883
-
224
-
-
14,793
1,525
(1)
(1,330)
(76)
(1,031)
(12)
14,481
(60)
144
(73)
(42)
Budva Beach properties doo
The subsidiary is in the process of developing a real estate tourism project in Montenegro. During the year the project land was revalued and the valuation indicated a potential impairment. Management have recorded an impairment loss of RO 1 million against the property. An equal impairment has also been raised against the carrying value of the investment in the Parent company’s financial statements.
Salalah Resorts SAOC
The subsidiary is in the process of developing a real estate tourism project in Salalah. The project is still in an early stage of development with the construction only expected to commence in 2018. A suitable business partner is considered for the joint investment and the Board of Directors are committed to develop the project irrespective of whether they find a joint venture partner. Although the subsidiary is in a net liability position the Board of Directors, based on their business model and projections, are of the opinion that the development is viable and that no impairment is currently required.
Al Ahlia Securities Company SAOC
The consolidated financial statements of the Group do not include the results of Al Ahlia Securities Company SAOC (ASC), a company that is under liquidation and is 99% owned by the Group. In accordance with the terms of the sale and purchase agreement for the sale of the business of ASC in 2001, ASC shareholders approved a plan to liquidate ASC at an extra-ordinary general meeting held on 17 December 2002. A liquidator was appointed on 3 May 2003 and the liquidation process is still in progress. The investment in ASC is fully provided for by the Parent Company.
1,084
9,017
2,265
11,659
4,998
1,711
1,144
10,049
2,715
5,884
20,555
732
4,804
713
5,884
20,555
289,197
67,291,389
3,561,700
84,484,383
9,800,891
17,111,959
292,197
66,440,917
3,561,700
10,110,369
83,898,163
289,197
65,650,136
3,561,700
10,110,369
83,898,163
28.92%
25.56%
20.94%
35.00%
15.11%
17.11%
29.22
25.87
20.94
0.46
6.48
28.92
25.56
20.94
0.46
6.48
Ominvest Annual Report 201556
(f) Details of significant investments
As at reporting date, the Group’s investments for which either, the Group’s holding represents 10% or more of the issuer’s share capital, or, the Group’s holding exceeds 10% of the market value of the Group’s investment portfolio, are detailed as follows:
Quoted securities
As at reporting date, the Parent company’s investments for which either, the Parent company’s holding represents 10% or more of the issuer’s share capital, or, the Parent company’s holding exceeds 10% of the market value of the Parent company’s investment portfolio, are detailed as follows:
Holding %
Holding %
Holding %
Number of shares
Number of shares
Number of shares
Fair value(RO’000)
Fair value(RO’000)
Fair value(RO’000)
Carrying value(RO’000)
Carrying value(RO’000)
Carrying value(RO’000)
National Biscuit Industries Ltd SAOG
National Finance Co SAOG
National Detergent Co. SAOG
Oman Orix Leasing Co. SAOG
Oman Chlorine SAOG
Takaful Oman SAOG
Bank Muscat SAOG
Ahli Bank SAOG
National Biscuit Industries Ltd SAOG
National Finance Co. SAOG
National Detergent Co. SAOG
Oman Orix Leasing Co. SAOG
Oman Chlorine SAOG
Takaful Oman SAOG
2014 Group
National Biscuit Industries Ltd SAOG
National Finance Company SAOG
National Detergent Company SAOG
Bank Muscat SAOG
Ahli Bank SAOG
2014
Parent Company
National Biscuit Industries Ltd SAOG
National Finance Company SAOG
National Detergent Company SAOG
Bank Muscat SAOG
Ahli Bank SAOG
732
4,805
713
14,201
7,121
1,711
1,096
9,966
2,493
5,884
20,555
1,084
9,848
2,493
5,884
20,555
29.22%
25.87%
20.94%
35.00%
16.26%
17.11%
3.05%
8.13%
292,197
68,101,939
3,561,700
84,484,383
10,546,943
17,111,959
69,926,454
115,905,731
1,293
11,074
2,707
14,201
7,502
1,711
33,005
21,718
1,096
9,126
2,265
11,659
5,379
1,711
33,005
21,718
2015 Group
2015 Parent Company
50.99%97.93%98.00%99.98%99.98%
100.00%100.00%
20.00%20.03%17.47%15.00%19.49%15.00%
51.0099.98
100.00100.00100.00
20.0019.4920.00
50.9999.98
100.00100.00100.00
15.0019.4915.00
59,148,40010,282,71519,600,000
2,999,800999,800
-100,000
11,025,5772,003,0911,337,510
150,000136,395
75,000
59,160,000998,800
2,999,800-
100,000
200,000136,395100,000
59,148,400999,800
2,999,800-
100,000
150,000136,39575,000
41,30238,04319,600
3,000903
3,867100
28,3268,9732,685
8764,828
561
108,538858
1,3114,911
-
9134,828
621
41,302903
3,0005,231
100
8764,828
561
Ominvest Annual Report 2015 57
Holding %
Holding %
Holding %
Number of shares
Number of shares
Number of shares
Carrying value(RO’000)
Carrying value(RO’000)
Carrying value(RO’000)
Subsidiaries
Oman Investment Services SAOC
Oman Arab Bank SAOC
National Life & General Insurance Co SAOC
Oman National Investment Corporation SAOC
Salalah Resorts SAOC
Budva Beach Properties doo
Al Jabal Al Aswad investment LLC
Others
International General Ins. Holding
Al Ahlia Insurance Co. SAOC
National Finance House B.S.C
Al Shamal Plastics LLC
Modern Steel Mills LLC
Gulf Acrylic Industries LLC
2015 Parent CompanySubsidiaries Oman Arab Bank SAOC National Life & General Insurance Co. SAOC Oman National Investment Corporation SAOC Salalah Resort SAOC Oman Investment Services SAOC Budva Beach Properties SAOC Al Jabal Al Aswad investment LLCOthers International General Ins. Holding Al Ahlia Insurance Co. SAOC National Finance House B.S.C Al Shamal Plastics LLC Modern Steel Mills LLC Gulf Acrylic Industries LLC
2014 GroupSubsidiariesOman Arab Bank SAOCOman Investment Services SAOCSalalah Resorts SAOCBudva Beach Properties dooAl Jabal Al Aswad investment LLCOthersAl Shamal Plastics LLCModern Steel Mills LLCGulf Acrylic Industries LLC
2014 Parent CompanySubsidiariesOman Arab Bank SAOCOman Investment Services SAOCSalalah Resorts SAOCBudva Beach Properties dooAl Jabal Al Aswad investment LLCOthersAl Shamal Plastics LLCModern Steel Mills LLCGulf Acrylic Industries LLC
99.98%
51.00%
97.93%
98.00%
99.98%
100.00%
100.00%
20.00%
20.03%
17.47%
20.00%
19.49%
20.00%
999,800
59,160,000
10,282,715
19,600,000
2,999,800
-
100,000
11,025,577
2,003,091
1,337,510
200,000
136,395
100,000
729
115,270
44,198
19,183
(17)
4,228
-
28,326
8,973
2,685
762
3,787
541
Unquoted securities
2015 Group
Ominvest Annual Report 201558
10. LOANS AND ADVANCES TO CUSTOMERS
(a) Loans and advances to customers extended by the banking subsidiary were as follows:
2015RO’ 000
2014RO’ 000
577,860141,43922,7936,567
748,659
372,777100,82235,3835,072
14,613
528,667
1,277,326
(36,990)
1,240,336
724,293 137,336
31,842 20,625
914,096
416,716 159,010
24,756 4,716
30,090
635,288
1,549,384
(44,813)
1,504,571
Corporate loansTerm loansOverdraftsBills discountedIslamic finance
Personal loansConsumer loansMortgage loansOverdraftsCredit cardsIslamic finance
Gross loans and advances
Less: allowance for loan impairment and unrecognised contractual interest (note 10(b))
Net loans and advances
At 1 January
Additional provision made
Provided during the year for Islamic financing
Amounts written off
Amounts released/recovered
At 31 December
2014
At 1 January
Additional provision made
Provided during the year for Islamic financing
Amounts written off
Amounts released/recovered
At 31 December
30,651
12,883
444
(93)
(6,453)
37,432
27,318
8,577
308
(855)
(4,697)
30,651
6,997
2,408
-
(892)
(2,174)
6,339
34,315
10,985
308
(1,747)
(6,871)
36,990
6,339
2,575
-
(9)
(1,524)
7,381
36,990
15,458
444
(102)
(7,977)
44,813
(b) Allowance for loan impairment and unrecognised contractual interest
The movement in the allowance for loan impairment and unrecognised contractual interest was as follows:
2015
Allowance for loan
impairment(RO 000)
Unrecognised contractual
interest(RO 000)
Total(RO 000)
Ominvest Annual Report 2015 59
Personal(RO 000)
Gross Investment in leaseRO’ 000
Corporate(RO 000)
Total(RO 000)
Present value of minimum lease payment
RO’ 000
At 31 December 2015, RO 21,051 thousand (2014 - RO 17,419 thousand) out of the total loan impairment provisions has been made on a portfolio basis against the losses incurred but not identified on the performing portion of the loans and advances.
At 31 December 2015, loans and advances on which contractual interest was not recognised or has not been accrued amounted to RO 44,842 thousand (31 December 2014 - RO 38,185 thousand).
(c) Islamic financing
Included in the above loans and advances are the following Islamic financing contracts:
2015MusharakaMurabahaIjarah Muntahia Bittamleek
At 31 December
2014MusharakaMurabahaIjarah Muntahia Bittamleek
At 31 December
Ijarah Muntahia Bittamleek2015
Within one yearTwo to five yearsMore than five years
Deferred profit
Net investment in lease finance
Ijarah Muntahia Bittamleek2014
Within one yearTwo to five yearsMore than five years
Deferred profit
Net investment in lease finance
23,418 2,672 4,000
30,090
11,1761,3172,120
14,613
769 1,953 4,222
6,944 (2,011)
4,933
294978
2,269
3,541(1,105)
2,436
568 1,291 3,074
4,933 -
4,933
181624
1,631
2,436-
2,436
13,427 6,265
933
20,625
5,697554316
6,567
36,845
8,937 4,933
50,715
16,8731,8712,436
21,180
Ominvest Annual Report 201560
(d) All loans and advances were made to customers within the Sultanate of Oman. The concentration of loans and advances by sector is as follows:
2015RO’ 000
2014RO’ 000
Personal loans
Manufacturing
Transportation
Construction
Services
Wholesale and retail trade
Mining and quarrying
Import trade
Financial institutions
Electricity , Water & Gas
Agriculture and allied activities
Government
Others
635,289
111,138
128,063
244,915
67,928
59,196
70,700
58,462
48,326
47,434
7,067
1,958
68,908
1,549,384
528,667
105,518
133,163
191,693
39,783
43,567
19,484
33,353
11,746
65,896
6,383
3,383
94,690
1,277,326
11. OTHER ASSETS
12 (a). INVESTMENT PROPERTIES
2015RO’ 000
Land(RO’000)
2014RO’ 000
Buildings(RO’000)
2014RO’ 000
Total(RO’000)
2015RO’ 000
Capital work-in-progress(RO’000)
Group
Group 2015
Parent Company
Customers’ indebtedness against acceptances
Interest receivable
Prepayments
Receivable from investment customers
Positive fair value of derivatives (Note 37)
Others
21,133
5,743
2,312
2,126
148
13,393
44,855
-
-
153
-
-
633
786
28,559
3,999
1,499
1,788
220
7,285
43,350
-
-
107
-
-
260
367
CostAt 1 January 2015AdditionsDisposal
At 31 December 2015
DepreciationAt 1 January 2015Charge for the yearDisposal
At 31 December 2015
Carrying valueAt 31 December 2015
2,531--
2,531
---
-
2,531
9737,800(973)
7,800
524
90(524)
90
7,710
-70
-
70
---
-
70
3,5047,870(973)
10,401
52490
(524)
90
10,311
Ominvest Annual Report 2015 61
Land(RO’000)
Land(RO’000)
Parent Company 2015
Group & Parent Company 2014
Buildings(RO’000)
Buildings(RO’000)
Total(RO’000)
Total(RO’000)
Capital work-in-progress(RO’000)
Capital work-in-progress(RO’000)
CostAt 1 January 2015AdditionsDisposal
At 31 December 2015
DepreciationAt 1 January 2015Charge for the yearDisposal
At 31 December 2015
Carrying valueAt 31 December 2015
CostAt 1 January 2014Transfers {Note 12(c)} AdditionsDisposal
At 31 December 2014
DepreciationAt 1 January 2014Transfer {Note 12(c)}At 31 December 2014
Carrying valueAt 31 December 2014
2,531--
2,531
---
-
2,531
-2,4272,531
(2,427)
2,531
---
2,531
-973
--
973
-524524
449
-2,5861,124
(3,710)
-
-
-
-
-5,9863,655
(6,137)
3,504
-524524
2,980
9736,500(973)
6,500
52465
(524)
65
6,435
3,5046,570(973)
9,101
52465
(524)
65
9,036
-70
-
70
---
-
70
The Company has moved to a new location during last year resulting in a change in use of its owner occupied building which was reclassified to investment property. The building has been sold during the year 2015.
In 2014, management has changed its intention to use the land and building under construction as an investment property and therefore reclassified the same. The property was disposed-off during the last year.
The Company has also purchased a land during last year for capital appreciation which is recognised as an investment property.
At the reporting date, fair value of the land is RO 3.9 million (2014 - RO 3 million) and buildings is RO 6.6 million (RO 7.9 million for Group). The fair value measurements of the Group’s investment properties as at 31 December 2015 were performed by M/s Brokers International LLC, independent valuers not related to the Group. M/s Brokers International LLC have appropriate qualifications and recent experience in the fair value measurement of properties in the relevant locations. Fair value was determined by the Company using market comparable approach based on recent market prices (level 2 hierarchy). There has been no change to the valuation technique during the year.
Ominvest Annual Report 201562
12(b). PROJECTS WORK IN PROGRESS
At 31 December 2015, projects work in progress includes:
2015RO’ 000
2015RO’ 000
2014RO’ 000
2014RO’ 000
Salalah Resorts SAOCInitial stageConsultancy chargesProvision for impairmentTotal
Budva Beach Properties doo, Montenegro:Cost of landProvision for impairment of landForeign currency translation reserveConsultancy and other costs
At 1 JanuaryCharged during the yearWritten-off during the year
At 31 December
-2,200
-
2,200
1,329-
(1,329)
-
1682,579
(1,197)
1,550
5,231(1,003)(1,239)
9453,934
5,484
1682,433
-
2,601
5,231--
9466,177
8,778
At 31 December 2015, project development costs (net of impairment losses recognized) relating to the Salalah Resorts project amounted to RO 1.5 million (2014: RO 2.6 million). Although there have been certain delays in the execution of the Development Agreement (DA) the negotiations on terms and conditions of the DA are now in an advanced stage with the authorities involved (Ministry of Tourism). Executive Management has also signed a Term Sheet with a potential strategic partner to JV with Ominvest in developing the project. The Board of Directors believes that the DA will be formally executed in due course and the project will generate returns to
the shareholders. Accordingly, the development costs incurred of RO 1.5 million up to 31 December 2015 is expected to be fully realized.
At 31 December 2015, the company has recognised RO 1.239 million of foreign currency translation reserve on Budva Beach Properties doo, Montenegro on translation of their financial statements into Rials Omani.
The movement in provision for impairment of work-in-progress is as follows:
Group
Ominvest Annual Report 2015 63
12(c). PROPERTY AND EQUIPMENT
Land and buildings(RO’000)
Motorvehicles
(RO’000)
Total(RO’000)
Furniture, fixtures and equipment
(RO’000)
Capital work in progress(RO’000)
Cost:At 1 January 2014AdditionsTransfers Transfers{Note 12(a)}Disposals
At 1 January 2015AdditionsTransfers Disposals
At 31 December 2015
Depreciation:At 1 January 2014Charge for the yearTransfers {Note 12(a)}Disposals
At 1 January 2015Charge for the yearTransfers / merger relatedDisposals
At 31 December 2015
Carrying valueAt 31 December 2015
At 31 December 2014
CostAt 1 January 2014AdditionsTransfers{Note 12(a)}
At 1 January 2015AdditionsDisposals
At 31 December 2014
Depreciation:At 1 January 2014Charge for the yearTransfers{Note 12(a)}
At 1 January 2015Charge for the yearDisposals
At 31 December 2015
Carrying valueAt 31 December 2015
At 31 December 2014
24,8182 ,722
-(3,400)
-
24,140 -
- (2,569)
21,571
3,428649
(524)-
3,553590
- (2,569)
1,574
19,997
20,587
23,9781,582
713-
(15)
26,2581,831 3,361 (686)
30,764
16,7201,930
-(13)
18,6372,961 1,052 (687)
21,963
8,801
7,621
574172
--
(137)
609208 231
(145)
903
46340
-(109)
394 122 118
(114)
520
383
215
3,574971
(713)(2,586)
-
1,246875
(1,693)-
428
----
----
-
428
1,246
52,9445,447
-(5,986)
(152)
52,253 2,914 1,899
(3,400)
53,666
20,6112,619(524)(122)
22,5843,673 1,170
(3,370)
24,057
29,609
29,669
Parent Company
Group
3,400-
(3,400)
---
-
48836
(524)
---
-
-
-
475330
-
80580
(24)
861
45135
-
486136(24)
598
263
319
539
-
4435
(39)
40
512
-
1714
(22)
9
31
27
2,586-
(2,586)
---
---
-
-
-
-
6,466369
(5,986)
849115(63)
901
94483
(524)
503150(46)
607
294
346
Ominvest Annual Report 201564
13. INTANGIBLE ASSETS
Intangible assets acquired as a result of business combination (refer note 5):
Trade name(RO’000)
Holding % Holding %
Group
Hospital network(RO’000)
Shares Shares
Total(RO’000)
License(RO’000)
CostAt 1 January 2015Additions
At 31 December 2015
Amortisation:At 1 January 2015Charge for the year
At 31 December 2015
Carrying valueAt 31 December 2015
At 31 December 2014
-9,117
9,117
--
9,117
-
-7,597
7,597
-186
186
7,411
-
-2,631
2,631
-161
161
2,470
-
-19,345
19,345
-347
347
18,998
-
14. SHARE CAPITAL
The Parent company’s authorised share capital is 900,000,000(2014 –500,000,000) shares of 100baisa each (2014– 100 baisa).
At 31 December 2015, 552,861,642(2014 –336,743,000) shares of 100 baisa (2014- 100 baisa) each have been issued and are fully paid.
During the year 33,674,300 (2014: 30,613,000) shares were issued as stock dividend as approved in the Annual General Meeting, held on 31 March 2015.
On 19 August 2015, the Parent company issued 182,444,342 new shares of RO 0.100 each for obtaining control over Oman National Investment Corporation Holding Company SAOG (the acquired entity). The fair value of the consideration paid was determined using OMINVEST’s share price of RO 0.480 as on acquisition date resulting in the share premium of RO 0.380 per share totalling to RO 69,328,850/-.
Shareholders of the Parent Company who own 10% or more of the Parent company’s shares at the reporting date are as follows:
2015 2014
Al Hilal Investment Co. LLCOman Investment FundCivil Service Employees’ Pension Fund
17.7313.7910.11
20.22-
14.26
98,018,25376,262,55855,918,284
68,092,793-
48,031,199
15. RESERVES
(a) Share Premium
On 19 August 2015, the Parent company issued 182,444,342 new shares with a nominal value of RO 0.100 each and share premium of RO 0.380 for obtaining control over Oman National Investment Corporation Holding Company SAOG (the acquired entity). The total share premium as at 31 December 2015 is RO 69,328,850.
This reserve is available for distribution to the shareholders.
(b) Legal reserve
As required by Article 106 of the Commercial Companies Law of Oman, the Parent Company and each of its Omani subsidiaries are required to transfer 10% of their profit for the year to this reserve until such time as the legal reserve amounts to at least one third of the respective company’s paid-up share capital. The reserve is not available for distribution. The balance at the end of the year represents amounts relating to the Parent Company and its share of the legal reserve of its Omani subsidiaries.
Ominvest Annual Report 2015 65
9,36217,320
26,682
9,07215,730
24,802
2015RO’ 000
2014RO’ 000
Parent CompanyShare of subsidiaries’ legal reserve
Group
17,846 17,846
2015RO’ 000
2014RO’ 000
Capital reserve
(c) Capital reserve
Oman Arab Bank SAOC, the banking subsidiary, had increased its paid up share capital through capitalisation of retained profits and issue of rights in previous years. The Parent company’s share of the increased paid up share capital (50.99%) through capitalisation of retained profits was transferred to a non-distributable capital reserve in the Group’s financial statements.
(d) Contingency reserve
National Life and General Insurance Company SAOC, the insurance subsidiary has created this reserve in accordance with Regulations for Implementing Insurance Companies Law (Ministerial Order 5/80), as amended. Regulation requires that 10% of the net outstanding claims in case of the general insurance business and 1% of the life assurance premiums for the period in case of life insurance business at the reporting date is transferred from retained earnings to a contingency reserve. The insurance subsidiary may discontinue this transfer when the reserve equals to the issued share capital. No dividend shall be declared in any year until the deficit in the reserve is covered from the retained profits. The reserves shall not be used except by prior approval of the Capital Market Authority.
(e) General reserve
This discretionary reserve held by the banking subsidiary is available for distribution.
(f) Subordinated debt reserve The subordinated debt reserve has been created by the banking subsidiary by a transfer of 20% of the subordinated bonds each year out of the profit after tax for the year. The Central Bank of Oman requires that a reserve be set aside annually for the subordinated bonds which are due to mature within five years. The reserve is available for transfer back to retained earnings upon maturity of the subordinated bonds.
(g) Foreign currency revaluation reserve As at the reporting date, the assets and liabilities of the foreign subsidiary entities are translated into the functional currency of the Group (the Rial Omani) at the rate of exchange ruling at the reporting date and its profit or loss is translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a foreign currency translation reserve in other comprehensive income.
(h) Revaluation reserve
The revaluation reserve represents the Parent company’s share of the revaluation reserve arising from the revaluation of land in associated companies.
Ominvest Annual Report 201566
16. DIVIDEND PROPOSED AND PAID
Parent Company
Final dividends are not accounted for until they have been approved at the Annual General Meeting. At the forthcoming Annual General Meeting, to be held on 30 March 2016, a cash dividend of RO 0.010 per share (2014 - RO 0.020 per share) amounting to RO 5,528,216 (2014 - RO 6,734,860) and a stock dividend of RO 0.015 per share (2014 – RO 0.010) amounting to RO 8,292,925 (2014 –RO 3,367,430) in respect of year ended 31 December 2015 is to be proposed by the Board of Directors.
The financial statements for the year ended 31 December 2015 do not reflect proposed dividend, which will be accounted for in shareholders’ equity as an appropriation of Share premium / retained profits in the year ending 31 December 2016.
17. DUE TO BANKS
As at the reporting date, due to banks are as follows:
18. DEPOSITS FROM CUSTOMERS
As at the reporting date, due to banks are as follows:
Term loans are unsecured and carry interest ranging from 2% to 3.25% (2014: 2% to 2.9%).
The maturity profile of terms loans is as follows:
9,40488,000
97,404
38,00050,000
88,000
689,265 664,986 238,974
1,593,225
666,490 583,749
214,967
1,465,206
-102,500
102,500
52,50050,000
102,500
-44,000
44,000
15,00029,000
44,000
5,89124,500
30,391
10,50014,000
24,500
2014RO ‘000
2014RO ‘000
2014RO ‘000
2014 RO ‘000
2014 RO ‘000
2015RO ‘000
2015RO ‘000
2015RO ‘000
Group
Group
Group
Parent Company
Parent Company
2015 RO ‘000
2015 RO ‘000
Due to banks – current accountsTerms loans
Due within one yearDue in more than one year
Term depositsDemand and call accountsSaving accounts
Ominvest Annual Report 2015 67
The concentration of customers’ deposits by Private and Government sector is as follows:
Islamic customer’s deposits
Included in the above customers’ deposits are the following Islamic customer deposits:
1,172,522420,703
1,593,225
41,4166,0421,927
49,385
10,407913
1,170
12,490
1,054,510410,696
1,465,206
2014RO ‘000
2014RO ‘000
2015RO ‘000
2015RO ‘000
PrivateGovernment
Wakalah acceptancesCurrent accounts – QardMudarabah accounts
19. INSURANCE FUNDS
Movement during the period/year:
39,005 3,237
17,372
59,614
27,790(2,972)
24,818
2,450184
2,634
--
-
--
-
(14,187)(602)
(7,899)
(22,688)
24,8182,634
9,473
36,925
Gross RO ‘000
Net RO’000
Reinsurers’ shareRO ‘000
Actuarial / mathematical and unexpired risk reserve – life assuranceUnexpired risk reserve – general insurance
Closing claims outstanding (including IBNR)
Actuarial / mathematical and unexpired reserve :At Acquisition dateMovement in the statement of comprehensive income
At 31 December
Unexpired risk reservesAt Acquisition dateMovement in the statement of comprehensive income
At 31 December
31 December 2015
2014RO ‘000
2015RO ‘000
Group
Ominvest Annual Report 201568
The amount in the provision for outstanding claims and the related reinsurers’ share is as follows:
20. SUBORDINATED DEBT In order to enhance the capital adequacy and to meet the funding requirements, the banking subsidiary (Oman Arab Bank) has raised capital in the form of subordinated bonds and loans.
(a) Subordinated bonds
The banking subsidiary has issued non-convertible unsecured subordinated bonds of RO 50 Million (50,000,000 units of RO 1 each) for a tenor of five years and one month in April 2012 through private placement. The bonds are listed in the Muscat Securities Market and are transferable through trading. The bonds carry a fixed coupon rate of 5.5% per annum (2014: 5.5% per annum), payable semi-annually with the principal payable on maturity.
(b) Subordinated loans
The banking subsidiary obtained subordinated loans of RO 20 Million, which comply with Basel III requirements for tier-2 capital, for a tenor of five years and six months in November 2015. The loans carry a fixed rate of 5.5 % per annum, payable semi-annually with the principal payable on maturity.
21. OTHER LIABILITIES
Substantially all of the claims are expected to be paid within twelve months of the reporting date. The amounts due from reinsurers are contractually due within three months from the date of submission of accounts to the reinsurer.
The Group estimates its insurance liabilities and reinsurance assets principally based on previous experience. IBNR estimates for the life business are based on an independent actuary’s report. Claims requiring Court or arbitration decisions are estimated individually.
22,71423,498
(28,840)
17,372
(10,878)(10,216)
13,195
(7,899)
11,836 13,282
(15,645)
9,473
Gross outstanding claims
RO ‘000
Net outstanding claims
RO ‘000
Reinsurers’ share of outstanding claims
RO ‘000
At acquisition date claims outstanding (including IBNR)Claims provided during the periodClaims paid during the period
Closing claims outstanding (including IBNR)
21,13319,40333,429
9,6203,9562,9531,508
141
92,143
--
2,183 53
134202
--
2,572
28,559 23,329 10,150 6,971 4,249 2,610 1,343
202
77,413
--
2,273 75
- 281
--
2,629
2014RO ‘000
2014 RO ‘000
2015RO ‘000
Group Parent Company
2015 RO ‘000
Liabilities against acceptancesPayable to investment customersAccrued expenses and other payablesInterest payableCheques and trade settlement payableStaff terminal benefits (note 31)Interest and commission received in advanceNegative fair value of derivatives (Note 37)
Group
Ominvest Annual Report 2015 69
22. TAXATION
(a) Recognised in the statements of comprehensive income
(b) Reconciliation of income tax expense
The following is a reconciliation of income tax calculated at the applicable tax rate with the income tax expense:
The Parent Company and each of its Omani subsidiaries are subject to income tax at the rate of 12% of taxable income in excess of RO 30,000. There is no concept of Group taxation in Oman.
The Company and its subsidiaries are subject to income tax at the rate of 12% of taxable income in excess of RO 30,000.
4,327(167)
(34)
4,126
4,652167
4,819
319(115)
(37)
167
4,955(1,738)
(546)1,453
89
-
-(53)(41)
7
4,126
504(1,526)
-1,212
(194)
-
-19
4
19
3,878(586)
-764
(163)
-
-76107
3,986
598(920)
-494
(176)
-
---4
-
-19
-
19
--
-
---
-
41,319 4,22832,410 5,013
3,940-
46
3,986
3,917319
4,236
273-
46
319
---
-
--
-
---
-
2014RO ‘000
2014RO ‘000
2014 RO ‘000
2014 RO ‘000
2015RO ‘000
2015RO ‘000
Group
Group
Parent Company
Parent Company
2015 RO ‘000
2015 RO ‘000
Statement of profit or lossCurrent yearPrior yearDeferred tax
Tax expense
Statement of financial positionCurrent yearDeferred tax
Deferred tax liabilityAt 1 JanuaryAcquired through ONICMovement for the year
Income tax at the rates mentioned aboveTax-exempt revenuesBargain gain on acquisitionNon-deductible expensesDeferred tax expense / (income) not recognised during the yearUnrecognised deferred tax on losses utilised during the yearDeferred tax on losses not recognised during the yearCurrent tax-prior yearDeferred tax – prior yearOthers
Income tax expense
Profit before tax
Ominvest Annual Report 201570
(c) Movement
(d) Movement of deferred tax asset / (liability)
4,236332
(115)4,160
(34)(3,760)
4,819
319 - -
- - - -
319
10 17 54
- -
(100)(96)
(115)
- - -
- -
(3)
(3)
(31)-
130
(133)- -
(34)
(3)
(130)133
-
(3)
(130)133
-
-
- -
-
298 17 54
130
(133) (100)
(99)
167
---
19-
(19)
-
------
-
3,692--
3,986-
(3,442)
4,236
2014RO ‘000
2014 RO ‘000
2015RO ‘000
As at 1 January
2015RO ‘000
NLG balance at acquisition
date(RO’000)
Recognised in other
comprehensive income
(RO’000)
As at 1 January 2015
(RO’000)
Recognised in income statement
(RO’000)
Recognised in income statement
(RO’000)
As at 31 December
2015(RO’000)
At 31 December
2015(RO’000)
Group Parent Company
Parent Company
2015 RO ‘000
At 1 JanuaryNLG balance at acquisition date (current)NLG balance at acquisition date (deferred)Charged during the year - currentCharged during the year - deferredPaid in current year
At 31 December
Property, plant and equipmentAmortisation of goodwillRevaluation reserveUnrealised gain on local unquoted investmentsTax lossesProvisions for debtsFair value reserve
Total
Property, plant and equipmentUnrealised gain on local unquoted investmentsTax losses
Total
The Group has tax losses available for carry forward as at 31 December 2015 of approximately RO 4.2 million. The Company has recognized a deferred tax asset on losses of approximately RO 1.1 million. On the balance of tax losses (approximately RO 3.1 million) and on the provision for impairment of investments of RO 861 thousand (2014: RO 1,475 thousand), the Group is not recognizing a deferred tax asset on the basis that
the income of the Group companies is predominantly exempt from income tax and it will not have sufficient future taxable profits against which to utilize the tax losses. Each of the Group companies can only utilize its own tax losses against its own taxable income. The tax losses are subject to expiry under the Oman Income Tax Law and will expire between 2016 to 2019.
Group
Ominvest Annual Report 2015 71
The Parent Co mpany has tax losses available for carry forward as at 31 December 2015 of RO 2,575,098 (2014: RO 2,702,170). It has recognized a deferred tax asset on tax losses of approximately RO 133,000.
On the balance tax losses (approximately RO 1.4 million) and on the provision for impairment of investments of RO 861,000 (2014: RO 1,475,000) , the Company is not recognizing a deferred tax asset on the basis that its income is predominantly exempt from income tax and it will not have sufficient future taxable profits against which to utilize the tax losses. The tax losses are subject to expiry under Oman Tax Law and will expire between 2016 to 2019.
(e) Status of tax assessments
The consolidated tax liability comprises the tax liability of the Parent Company and its subsidiaries Oman Arab Bank SAOC, Oman Investment Services SAOC, Salalah Resorts SAOC, Oman National Investment Corporation SAOC, National Life and General Insurance Company SAOC and Budva Beach Properties.
Oman International Development and Investment Company SAOG (Ominvest)The assessments of the Ominvest have been completed by the Tax Department up to and including the tax year 2009.
The Ominvest has filed an Appeal with the Tax Committee for the year 2008. The Appeal decision is awaited.
The Ominvest has filed an Objection to the HE The Secretary General for Taxation against the assessment completed by the Tax Department for the year 2009. The decision on the Objection is awaited.
An Assessment of the tax returns filed for the years 2010 to 2014 has not yet been finalised by the Secretariat General for Taxation at the Ministry of Finance. The Board of Directors believes that any additional taxes that may arise on completion of the tax assessments for the open tax years will not be significant to the Ominvest’s financial position at 31 December 2015.
23,9434,102
28,045
(11,819)(1,131)
(12,950)
15,095
2,085(95)
1,990
(422)(89)
(511)
1,479
26,0284,007
30,035
(12,241)(1,220)
(13,461)
16,574
LifeRO ‘ 000
GeneralRO ‘ 000
TotalRO ‘ 000
Group 2015
Gross written premiumsMovement in unearned premiums
Gross premium, earned
Reinsurance premiums cededMovement in unearned premiums
Premium ceded to reinsurers
Net insurance premium revenue
Oman Investment Services SAOC (OIS)The tax returns of OIS for the years 2010 to 2014 have not yet been agreed with the Secretariat General for Taxation at the Ministry of Finance. The Board of Directors believe that there should not be any taxes assessed in the absence of income and in view of the tax losses incurred.
Oman Arab Bank SAOC (OAB)The assessments for the years up to and including 2010 are complete. The assessment of the years 2011 to 2014 is not yet completed by the tax authorities. The Board of Directors believe however that no significant further liabilities will be incurred by OAB on completion of the pending tax assessments.
National Life and General Insurance Company SAOC (NLG)The assessments of NLG for the years up to and including 2012 are complete. The assessment of the years 2013 and 2014 is not yet completed by the tax authorities. The Board of Directors believe that no significant further liabilities will be incurred by NLG on completion of the pending tax assessments.
Oman National Investment Company Holding SAOG (“ONICH”)The assessment of ONICH is completed for the years up to and including 2009. The assessment of the years 2010 to 2015 is not yet completed by the tax authorities. The Board of Directors believe that there will be no tax payable for these years on account of the tax losses incurred during these years.
Salalah Resorts SAOCThe tax returns of Salalah Resorts SAOC for the years 2010 to 2014 have not yet been agreed with the Secretariat General for Taxation at the Ministry of Finance. The Board of Directors believe that there should not be any taxes assessed in the absence of income and in view of the tax losses incurred.
Budva Beach PropertiesBudva Beach Properties is an entity that was registered in Montenegro in September 2010. The Company is yet to commence its commercial operations.
23. GROSS PREMIUMS AND PREMIUMS CEDED TO REINSURERS
Ominvest Annual Report 201572
2014RO ‘000
2014 RO ‘000
2015RO ‘000
Group Parent Company
2015 RO ‘000
24. INTEREST INCOME
25. INTEREST EXPENSE
27. FEE AND COMMISSION INCOME – NET
26. INVESTMENT INCOME
62,270 1,198
584246
53
64,351
10,414 2,839
1,001 295
2,255
16,804
27,018(4,985)
22,033
--
-
1,860
1,907 (354)
4,845
169 -
652 154
(21) (715)
8,497
8,918
(4,780) 109
4,845
169 -
652 115
(21)(309)
9,698
1,703
2,431 (840)
-
750 (1,051)
1,863 -
(6) (306)
4,544
7,316
486 (888)
-
750 (1,051)
1,863 -
(6) (306)
8,164
----
1,978
1,978
--
---
-
56,580803
169215
-
57,767
9,4892,758
766422
1,033
14,468
21,629(2,154)
19,475
--
-
----
509
509
--
-
-
-
Loans and advances to customersOman Government Development BondsPlacements with banks and other money market placementsCertificates of depositOther interest income
Time depositsSubordinated bondsCall accountsSavings accountsBank borrowings
Fee and commission incomeFee and commission expense
Dividend from investmentsQuoted local investmentsProfit / (loss) on saleChange in fair valueUnquoted local investmentsGain on transfer to associateQuoted foreign investmentsProfit on saleChange in fair valueInvestment propertiesProfit on sale of an investment propertyRental incomeUnquoted foreign investmentsLoss on saleProvision on investments
Ominvest Annual Report 2015 73
2014RO ‘000
2014 RO ‘000
2015RO ‘000
Group Parent Company
2015 RO ‘000
28. OTHER OPERATING INCOME
29. OPERATING EXPENSES
30. CASH AND CASH EQUIVALENTS
5,239 1,359 4,823
3772,400
14,198
29,766 14,431 1,770 4,111
200194
50,472
193,267116,484
-(9,404)
(500)
299,847
1,112----
1,112
115,30296,258
200,000(5,891)
(500)
405,169
3,549----
3,549
24,230467
1,8703,199
29,766
2,3515571
265
2,742
1,7705647
213
2,086
20,404448
1,3682,610
24,830
2,742 741
- 215
200-
3,898
---
97-
97
4,564869
-348
-
5,781
24,83011,3921,1902,619
200131
40,362
2,086400
-83
200-
2,769
--
127-
127
Foreign exchange (net)Income from Islamic windowBargain gain (note 5)Other incomeGain on disposal of fixed assets
Staff costs (refer below)Other operating expensesOperating expenses of the Islamic windowDepreciation and amortisationDirectors’ sitting fees and remuneration:Parent CompanySubsidiaries and adjustments
Balances with banks and money at callDeposits with banks (note 7)Certificates of deposit (note 6)Due to banks – current accounts (note 17)Capital deposits (note 7)
Cash and cash equivalents included in statements of cash flows comprise the following:
Staff costs:SalariesEnd of service benefitsSocial security costsOther costs
Ominvest Annual Report 201574
2014RO ‘000
2014 RO ‘000
2015RO ‘000
Group Parent Company
2015 RO ‘000
31. END OF SERVICE BENEFITS
32. SEGMENTAL INFORMATION
The Group is organised into four main business segments:
1. Banking Segment – incorporating corporate, retail and treasury and investment banking activities carried out by the Group’s banking subsidiary; and
2. Investment Segment – incorporating investment activities for both short-term and long-term purposes.
2,610468
430(555)
2,953
28154
60(193)
202
2,568448
-(406)
2,610
25156
-(26)
281
At 1 JanuaryCharge for the yearAdditions due to acquisition of ONICH groupPaid during the year
At 31 December
In accordance with the Labour Law of Oman, the Group and Parent Company accrues for employees’ end of service benefits for its non-Omani employees.
Movements in the liability recognised in the financial statements are as follows:
The above balance is recorded under other liabilities in the statement of financial position.
3. Insurance Segment – incorporating insurance related activities for Life and General Insurance.
4. Real Estate Segment – incorporating activities in real estate sector.
Transactions between the business segments are on normal commercial terms and conditions and are entered into between the subsidiaries and the rest of the Group. Such transactions are eliminated on consolidation
22,10317,471
259,564
10,1756,983
107,350
97,47529,011
1,982,699
85,88328,400
1,816,093
31,0131,583
103,361
---
780(3,531)
5,911
-(271)9,017
(8,483)(7,340)
(102,687)
(6,804)(6,688)
(68,222)
142,88837,193
2,248,848
89,25428,424
1,864,238
InvestmentsRO ‘000
BankingRO ‘000
InsuranceRO ‘000
Real EstateRO ‘000
AdjustmentsRO ‘000
TotalRO ‘000
2015
2014
Segment revenuesSegment resultsSegment assets
Segment revenuesSegment resultsSegment assets
33. RELATED PARTY TRANSACTIONS
These represent transactions with related parties defined in International Accounting Standard 24 – Related Party Disclosures. Pricing policies and the terms of the transactions are approved by the Parent Company’s and subsidiaries’ respective Boards of Directors.
Transactions and balances with related parties of the Parent Company or holders of 10% or more of the Parent Company’s shares or their family members, included in the statements of comprehensive income, statement of financial position and off-balance sheet are as follows:
(a) (b)
Ominvest Annual Report 2015 75
851
463
394
461
2,615
183
57
53,387
6,206
68
698
205,675
8
-
-
15
-
-
-
2,000
32
-
6
-
9
-
277
-
-
-
57
290
193
68
12
-
472
-
-
446
-
-
-
29,333
116
-
665
-
-
-
-
-
2,615
183
-
-
-
-
-
-
362
463
117
-
-
-
-
21,764
5,865
-
-
205,675
TotalRO’000
Key management
RO’000
Non-controlling interests
RO’000
Major shareholders
RO’000Directors
RO’000Associates
RO’000
Group - 2015
Statement of comprehensive income
Interest and commission income
Interest expense
Directors’ sitting fees and Remuneration
Premium and claims
Staff costs
Terminal benefits
Operating expenses
Statement of financial position
Loans and advances
Deposits from customers
Property and equipment
Other assets
Off balance sheet
Letters of credit and guarantees
Ominvest Annual Report 201576
-
-
-
-
-
-
750
9
-
-
11
-
258
-
-
62
93
2,740
7
-
144
1
-
-
-
-
5,470
323
-
-
-
-
-
1,953
146
-
-
-
-
-
280
400
38
-
-
-
5,524
1,770
-
158,233
Key management
RO’000
Non-controlling interests
RO’000
Major shareholders
RO’000Directors
RO’000Associates
RO’000
Group - 2014
Statements of comprehensive income
Interest and commission income
Interest expense
Directors’ sitting fees and remuneration
Staff costs
Terminal benefits
Operating expenses
Statements of financial position
Loans and advances
Deposits from customers
Other assets
Off balance sheet
Letters of credit and guarantees
The Banking subsidiary has a management agreement with Arab Bank plc, Jordan, which owns 49% of the Banking subsidiary’s share capital. In accordance with the terms of the management agreement, Arab Bank plc provides banking related technical assistance and other management services, including secondment of managerial staff. The annual management fee is RO 75,000 (2014-RO 75,000).
435
401
296
1,953
146
62
11,837
4,842
7
158,233
TotalRO’000
(c)
Ominvest Annual Report 2015 77
Statement of profit or loss and other comprehensive income
Directors’ sitting fees and remunerationStaff costsTerminal benefitsOperating expensesInterest expensesPremiumsClaims
Statements of financial position
Property and equipmentBank borrowingsBank balancesSale of InvestmentsDue from subsidiariesDue to a subsidiaryPrepayments
Due from subsidiaries in the Parent Company include an amount of RO 1,953,437/- (2014–RO 1,483,993) related to the tourist resort project in Salalah. The Board of Directors believe that the project is financially viable and a specific entity Salalah Resorts SAOC has been set up for this purpose and accordingly the amount is fully recoverable on implementation of the project.
SubsidiariesRO’000
SubsidiariesRO’000
DirectorsRO’000
DirectorsRO’000
Key managementRO’000
Key managementRO’000
2015
Parent
2014
----
4972
13
-15,000
71552,36839,596
100-
200--
57---
68-----
27
-1,011
28----
-------
----
143--
-19,5002,157
-2,776
--
200--
57---
250------
-87841
----
-------
2014RO ‘000
2014 RO ‘000
2015RO ‘000
Group Parent Company
2015 RO ‘000
34. FIDUCIARY ACTIVITIES
926
288,283
289,209
926
-
926
965
402,329
403,294
965
-
965
Investments syndicated by the Group and registered in its name:Parent CompanyFunds under management:Banking subsidiary
As at 31 December 2015, balances stated at cost arising from fiduciary activities are as follows:
These investments are held beneficially for and on behalf of investors and, accordingly, are not treated as assets of the Group and the Parent Company. These are included in the Group’s and Parent company’s financial statements as off balance sheet items. The Banking subsidiary’s fiduciary activities consist of investment management activities conducted as trustee and manager for investment funds and individuals. The aggregate amounts of funds managed are not included in the Group’s statement of financial position.
(d)
Ominvest Annual Report 201578
35. COMMITMENTS
As of the reporting date, the Group and the Parent Company had the following outstanding commitments which are expected to crystallise within one year:
36. CONTINGENT LIABILITIES
The outstanding contract values or the notional amounts of these instruments at 31 December were as follows:
GroupRO ‘000
Parent CompanyRO’ 000
2015ConstructionUndrawn loan commitments
1,200 58,448
837-
2014ConstructionUndrawn loan commitments
672642
--
Up to 1 yearRO’000
1 to 5years
RO’000
Over 5 yearsRO’000
TotalRO’000
2015Capital commitmentsUndrawn loan commitments
1,200 -
-58,448
--
1,20058,448
2014Capital commitmentsUndrawn loan commitments
861-
-642
--
861642
The Group’s commitments set out above are expected to crystallise in the following periods:
233,862
484,750
141,250
859,862
396,531
421,259
97,224
915,014
2014 RO ‘000
2015 RO ‘000
Letters of credit
Guarantees
Financial guarantees
Group
Ominvest Annual Report 2015 79
The concentration of letters of credit, guarantees and financial guarantees by industry sector is as follows:
Letters of credit and guarantees amounting to RO 530 million (2014 - RO 644 million) were counter guaranteed by other banks.
Legal claims
Litigation is a common occurrence in the banking industry due to the nature of the business. The Banking subsidiary has an established protocol for dealing with such legal claims. Once professional advice has been obtained and the amount of damages reasonably estimated, the Banking subsidiary makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year end, the Banking subsidiary had certain unresolved legal claims which are not expected to have any significant implication on the Group financial statements.
183,361 278,561
73,018 20,326 50,100
235,108 3,589
12,8412,958
859,862
331,549270,15274,50020,66064,982
131,83410,7455,1735,419
915,014
---------
-
---------
-
2014RO ‘000
2014 RO ‘000
2015RO ‘000
Group Parent Company
2015 RO ‘000
Export tradeConstructionGovernmentTransportationImport tradeUtilitiesServicesWholesale and retail tradeManufacturing
Letters of credit and guarantees include RO 159 thousand (2014: RO 165 thousand) relating to non-performing loans.
The Insurance subsidiary, consistent with the majority of insurers, is subject to litigation in the normal course of its business. The Insurance subsidiary, based on independent legal advice, does not believe that the outcome of the court cases will have a material impact on its income or financial position.
36. CONTINGENT LIABILITIES
Insurance contingencies
At 31 December 2015 there were contingent liabilities in respect of guarantees issued by commercial banks on behalf of the insurance subsidiary amounting to RO 272,018/- given in the normal course of business from which it is anticipated that no material liabilities will arise.
Capital Market Authority of Oman (CMA) has sent letter for payment of supervision and contingency fees for business
37. DERIVATIVES
A derivative financial instrument is a financial contract between two parties when payments are dependent upon movement in price in one or more underlying financial instrument, reference rate or index.
written in UAE for the years 2014 and 2015. The matter is under discussion stage with CMA and the liability is not confirmed. Liability if materialized could be in the range of RO 247,350 to a maximum liability of RO 453,475.
Ominvest Annual Report 201580
31 December 2015
Positive fair value
RO’000(note 12)
Negative fair value
RO’000(note 16)
Notional amountRO’000
Within 3 months
RO’000
3 - 12monthsRO’000
Purchase contracts 148 - 12,377 8,326 4,051
Sale contracts - (141) (12,370) (8,321) (4,049)
148 (141) 7 5 2
31 December 2014
Purchase contracts 220 - 23,501 19,800 3,701
Sale contracts - (202) (23,483) (19,786) (3,697)
220 (202) 18 14 4
Group
At the reporting date, there were outstanding forward foreign exchange contracts, all maturing within one year, entered into on behalf of customers for the sale and purchase of foreign currencies. These financial instruments have been
recognised at prices in active markets for identical assets or liabilities. These fair values and the notional contracted amounts are summarised below:
193,140
54,754
8,746
682 178,067
50,263 10,311
1,504,571
44,593 1,547 29,609 18,998
2,095,281
88,712 1,593,225
32,396 70,000 83,569
4,819
1,872,721
-
17,291
-
-5,989
---
----
23,280
------
-
38
13,733
306
2,127368
---
173,937
--
20,526
424---
354-
778
89
30,706
19,334
19,879 8,496
31,012--
245---
109,761
8,268 -
27,218-
8,220-
43,706
193,267
116,484
28,386
22,688192,920
81,275 10,311
1,504,571
44,855 5,484
29,609 18,998
2,248,848
97,404 1,593,225 59,614 70,000 92,143 4,819
1,917,205
Sultanate of OmanRO ‘000
North AmericaRO ‘000
UK and EuropeRO ‘000
Other CountriesRO ‘000
TotalRO ‘000
Group - 2015AssetsBalances with banks and money at callDeposits with banks
Premium and insurance balance receivables
Re-insurance share in Insurance FundsInvestment securitiesInvestments in associatesInvestment propertiesLoans and advances to customersOther assetsProjects work in progressProperty and equipmentIntangible assets
Total assets
LiabilitiesDue to banksDeposits from customersInsurance FundsSubordinated DebtsOther liabilitiesTaxation
Total liabilities
38. GEOGRAPHICAL CONCENTRATION OF ASSETS AND LIABILITIES
Ominvest Annual Report 2015 81
995
4,478 40,820
107,176 9,036
786 38,389
294
201,974
102,500 2,572
105,072
- 5,989
--- - --
5,989
- -
-
28 200
- ---
1,207 -
1,435
- - -
Sultanate of OmanRO ‘000
North AmericaRO ‘000
UK and EuropeRO ‘000
Other CountriesRO ‘000
TotalRO ‘000
Parent Company – 2015AssetsBalances with banks and money at callInvestment securitiesInvestments in associatesInvestment in subsidiariesInvestments in propertyOther assetsDue from subsidiariesProperty and equipment
Total assets
LiabilitiesDue to banksOther liabilities
Total liabilities
89 424
30,215-- - --
30,728
--
-
1,112
11,091 71,035
107,176 9,036
786 39,596
294
240,126
102,500 2,572
105,072
113,896
200,00044,086
103,54913,9082,980
1,240,336
43,3372,601
29,669
1,794,362
24,5621,465,206
77,38650,0004,236
1,621,390
115,302
200,00096,258
113,65713,9082,980
1,240,336
43,3508,778
29,669
1,864,238
30,3911,465,206
77,41350,0004,236
1,627,246
36
-8,007
563---
136,177
-
14,796
1,216-
27--
1,243
1,370
-36,1379,408
---
---
46,915
4,351----
4,351
-
-8,028
137---
---
8,165
262----
262
Sultanate of OmanRO ‘000
North AmericaRO ‘000
UK and EuropeRO ‘000
Other CountriesRO ‘000
TotalRO ‘000
Group - 2014
AssetsBalances with banks and money at callCertificates of depositDeposits with banksInvestment securitiesInvestments in associatesInvestment propertiesLoans and advances to customersOther assetsProjects work in progressProperty and equipment
Total assets
LiabilitiesDue to banksDeposits from customersOther liabilitiesSubordinated bondsTaxation
Total liabilities
NIL0.31% - 1%
NIL
NIL
1.31%NILNILNIL
4.63%NILNILNILNIL
Ominvest Annual Report 201582
2,15236,3296,249
45,3052,980
3671,499
346
95,227
44,0002,629
46,629
-
20,400
-
-
36,000 ---
316,619 5,072
---
378,091
- -
-
-
8,510 ---
220,211 ----
228,721
-
500
-
-
52,345 ---
958,926 ----
1,011,771
193,267
95,584 28,386 22,688
-96,065 81,275 10,311
8,815 39,783
5,484 29,609 18,998
630,265
193,267 116,484 28,386 22,688
96,855 96,065 81,275 10,311
1,504,571 44,855
5,484 29,609 18,998
2,248,848
-137
------
137
--
-
26169
-5,231
--
1,277-
6,703
--
-
1,3713,098
------
4,469
--
-
3,54939,7336,249
50,5362,980
3672,776
346
106,536
44,0002,629
46,629
Sultanate of OmanRO ‘000
Average effective interest rate
Not exposed to interest
rate risk
North AmericaRO ‘000
Within 6 months
6 to 12 months
Over 1 year
UK and EuropeRO ‘000
Other CountriesRO ‘000
TotalRO ‘000
Total
RO ‘000% RO ‘000 RO ‘000 RO ‘000 RO ‘000
Parent Company – 2014
Group - 2015
AssetsBalances with banks and money at callInvestment securitiesInvestments in associatesInvestments in subsidiariesInvestments in propertyDue from subsidiariesOther assetsProperty and equipment
Total assets
LiabilitiesDue to banksOther liabilities
Total liabilities
AssetsBalances with banks and money at callDeposits with banksPremium and insurance balance receivablesRe-insurance share in Insurance fundsInvestment securities:- Govt. Development Bonds- InvestmentsInvestments in associatesInvestment propertiesLoans and advances to customersOther assetsProjects work in progressProperty and equipmentIntangible assets
Total assets
39. INTEREST RATE SENSITIVITY ANALYSIS
The Group’s and the Parent company’s interest rate sensitivity position, based on the contractual re-pricing or maturity dates, whichever dates are earlier, are as follows:
Ominvest Annual Report 2015 83
NIL0.13%0.34%
2.54%NILNILNIL
4.68%NILNILNIL
2.5%0.94%
NILNIL
5.50%NIL
2.65%0.79%
NILNIL
5.50%NIL
88,000 393,298
-9,567
- -
490,865
-278,597
----
278,597
-219,082
--
50,000 -
269,082
9,404 702,248
59,614 82,576 20,000
4,819
878,661
97,404 1,593,225
59,614 92,143 70,000
4,819
1,917,205
-200,00066,772
----
247,0583,999
--
517,829
24,500386,33850,164
---
461,002
---
----
246,317---
246,317
-262,889
379---
263,268
--
500
50,402---
739,839---
790,741
-204,257
81-
50,000-
254,338
115,302-
28,986
-63,25513,9082,980
7,12239,3518,778
29,669
309,351
5,891611,72224,1792,610
-4,236
648,638
115,302200,00096,258
50,40263,25513,9082,980
1,240,33643,3508,778
29,669
1,864,238
30,3911,465,206
74,8032,610
50,0004,236
1,627,246
Group - 2014
Group - 2015
Assets
Balances with banks and money at callCertificates of depositDeposits with banksInvestment securities:- Govt. Development Bonds- InvestmentsInvestments in associatesInvestment propertiesLoans and advances to customersOther assetsProjects work in progressProperty and equipment
Total assets
LiabilitiesDue to banksDeposits from customersOther liabilitiesEnd of service benefitsSubordinated bondsTaxation
Total liabilities
LiabilitiesDue to banksDeposits from customersInsurance FundsOther liabilitiesSubordinated bondsTaxation
Total liabilities
Average effective
interest rate
Average effective
interest rate
Not exposed to interest
rate risk
Not exposed to interest
rate risk
Within 6 months
Within 6 months
6 to 12 months
6 to 12 months
Over 1 year
Over 1 year
Total
Total
RO ‘000
RO ‘000
%
%
RO ‘000
RO ‘000
RO ‘000
RO ‘000
RO ‘000
RO ‘000
RO ‘000
RO ‘000
Ominvest Annual Report 201584
NILNILNILNILNILNILNILNIL
2.65%NIL
NIL
NILNILNILNILNILNILNIL
2.50%NIL
- -------
-
52,500 -
52,500
--------
-
15,000-
15,000
- -------
-
--
-
--------
-
--
-
- -------
-
50,000 -
50,000
--------
-
29,000-
29,000
1,112
11,091 71,035
107,176 9,036
39,596 786 294
240,126
- 2,572
2,572
3,54939,7336,249
50,5362,9802,776
367346
106,536
-2,629
2,629
1,112
11,091 71,035
107,177 9,036
39,596 786 294
240,126
102,500 2,572
105,072
3,54939,7336,249
50,5362,9802,776
367346
106,536
44,0002,629
46,629
Parent - 2015
Parent - 2014
Assets
Balances with banks and money at callInvestment securities:Investments in associatesInvestments in subsidiariesInvestment propertiesDue from subsidiariesOther assetsProperty and equipment
Total assets
Liabilities
Bank borrowingsOther liabilities
Total liabilities
Assets
Balances with banks and money at callInvestment securities:Investments in associatesInvestments in subsidiariesInvestment propertiesDue from subsidiariesOther assetsProperty and equipment
Total assetsLiabilities
Bank borrowingsOther liabilities
Total liabilities
Average effective
interest rate
Not exposed to interest
rate riskWithin 6 months
6 to 12 months
Over 1 year Total
RO ‘000% RO ‘000 RO ‘000 RO ‘000 RO ‘000
Ominvest Annual Report 2015 85
138,434
83,226
-
- 66,168
- -
295,654
33,484 - - -
616,966
27,404 445,141
- 60,873
- 4,611
538,029
22,916
4,549
28,386
22,688 8,662
- -
164,139
9,496 - - -
260,836
20,000 483,106
50,610 23,113
- 208
577,037
17,058
27,849
-
- 95,290
- -
402,083
1,365 - - -
543,645
50,000 355,919
- 6,693
50,000 -
462,612
14,859
860
-
- 22,800 81,275 10,311
642,695
510 5,484
29,609 18,998
827,401
- 309,059
9,004 1,464
20,000 -
339,527
193,267
116,484
28,386
22,688 192,920
81,275 10,311
1,504,571
44,855 5,484
29,609 18,998
2,248,848
97,404 1,593,225
59,614 92,143 70,000
4,819
1,917,205
3 to 12 months
Within 3 months
1 to 5 years
Over 5 years Total
RO ‘000RO ‘000 RO ‘000 RO ‘000 RO ‘000
Group - 2015
Assets
Balances with banks and money at callCertificates of depositDeposits with banksPremium and Insurance Balance receivablesRe-insurance share in Insurance fundsInvestment securitiesInvestments in associatesInvestment propertiesLoans and advances to customersOther assetsProjects work in progressProperty and equipmentIntangible assets
Total assets
Liabilities
Due to banksDeposits from customersInsurance fundsOther liabilitiesSubordinated bondsTaxation
Total liabilities
40. ASSETS AND LIABILITIES MATURITY PROFILE
Ominvest Annual Report 201586
75,625200,00096,25829,636
--
234,21237,247
--
672,978
16,391418,64267,007
--
3,917
505,957
16,994-----
148,3695,563
--
170,926
-290,732
2,674--
319
293,725
14,115--
62,021--
318,882533
--
395,551
14,000488,988
5,00350,0002,610
-
560,601
8,568--
22,00013,9082,980
538,8737
8,77829,669
624,783
-266,844
119---
266,963
115,302200,00096,258
113,65713,9082,980
1,240,33643,3508,778
29,669
1,864,238
30,3911,465,206
74,80350,0002,6104,236
1,627,246
3 to 12 months
Within 3 months
1 to 5 years
Over 5 years Total
RO ‘000RO ‘000 RO ‘000 RO ‘000 RO ‘000
Group - 2014Assets
Balances with banks and money at callCertificates of depositDeposits with banksInvestment securitiesInvestments in associatesInvestment propertiesLoans and advances to customersOther assetsProjects work in progressProperty and equipment
Total assets
Liabilities
Due to banksDeposits from customersOther liabilitiesSubordinated bondsEnd of service benefitsTaxation
Total liabilities
Ominvest Annual Report 2015 87
1,112 1,264
-
- -
786 -
3,162
17,500 2,370
19,870
3,5496,619
----
367-
10,535
7,5002,348
9,848
- -
- - - -
-
35,000
-
35,000
-------
-
7,500-
7,500
9,827 -
- 39,596
- -
49,423
50,000 202
50,202
-33,114
---
2,776--
35,890
29,000281
29,281
- 71,035
107,176 9,036
- -
294
187,541
- -
-
--
6,24950,5362,980
--
346
60,111
--
-
1,112 11,091 71,035
107,176 9,036
39,596 786 294
240,126
102,500 2,572
105,072
3,54939,7336,249
50,5362,9802,776
367346
106,536
44,0002,629
46,629
Parent Company - 2015
Assets
Balances with banks and money at callInvestment securitiesInvestments in associatesInvestments in subsidiariesInvestment propertiesDue from subsidiariesOther assetsProperty and equipment
Total assets
Liabilities
Due to banksOther liabilities
Total liabilities
Assets
Balances with banks and money at callInvestment securitiesInvestments in associatesInvestments in subsidiariesInvestment propertiesDue from subsidiariesOther assetsProperty and equipment
Total assets
Liabilities
Due to banksOther liabilities
Total liabilities
Parent Company - 2014
3 to 12 months
Within 3 months
1 to 5 years
Over 5 years Total
RO ‘000RO ‘000 RO ‘000 RO ‘000 RO ‘000
Ominvest Annual Report 201588
41. FINANCIAL RISK MANAGEMENT POLICIES
41.1 Financial risk management The Group’s activities expose it to a variety of financial risks and those activities involve the evaluation, analysis, acceptance and management of risk or combination of risks. As taking risk is core to the financial business and operational risks are an inevitable consequence of any business, the Group’s aim is to achieve an appropriate balance between risk and return while minimising the potential adverse effects on the Group’s financial performance of the respective Group companies.
The Board of Directors defines risk limits and sets suitable policies in this regard for management of credit risk, liquidity risk as well as market risk in both the trading and the banking book of the respective Group Company. Risk Management is carried out by the Risk Management team in accordance with documented policies approved by the Board of Directors of the respective Group Company.
The principal types of risks at the Group and Parent Company are credit risk, liquidity risk, market risk (market price risk, interest rate risk and currency risk) and operational risk.
41.2 Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit exposures arise principally from lending activities at the banking subsidiary and investment activities and other assets in the Group’s asset portfolio. There is also credit risk in off-balance sheet financial instruments, such as loan commitments and financial guarantees given by the banking subsidiary.
41.2.1 Credit risk management
The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of counterparties. Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities, 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 of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographic location. The details of concentrations of credit risk based on counterparties by industry are disclosed in the geographical concentration is disclosed in Note 38.
41.2.2 Risk mitigation policies
The Group manages, limits and controls concentrations of credit risk − in particular, to individual counterparties and Groups, and to industries and countries.
The banking subsidiary structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or Groups of borrowers, and to geographical and industry segments. Such risks are monitored and reviewed periodically by the Management Credit Committee, Audit & Risk Management committee of the Board of Directors and the Executive Committee of the Board of Directors of the banking subsidiary.
The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on and off-balance
sheet exposures. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.
Some other specific control and mitigation measures are outlined below.
(a) Collateral
The banking subsidiary employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:
• charges over business assets such as premises, inventory and accounts receivable
• lien on fixed deposits• cash margins• mortgages over residential and commercial properties• pledge of marketable shares and securities
Longer-term finance and lending to corporate entities are generally secured. The housing loans are secured by mortgage over the residential property. Credit cards and similar revolving credit facilities are unsecured. Additionally, in order to minimise the credit loss the bank seeks additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.
(b) Assessment of the financial capabilities of the borrowers
The borrowers with balances above the limit specified are subject to the review of their audited financial statements. The banking subsidiary assesses the financial performance of the borrowers by reviewing key performance ratios, including solvency and liquidity ratios. The annual reviews are performed by the relationship managers and are also reviewed by the Risk Management team. (c) Credit-related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the banking subsidiary on behalf of a customer authorising a third party to draw drafts on the banking subsidiary up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.
An analysis of the loans and advances, other than government soft loans, for which collaterals or other credit enhancements are held is as follows:
Ominvest Annual Report 2015 89
41.2.3 Impairment and provisioning policy
Impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the reporting date based on objective evidence of impairment. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the banking subsidiary about the loss events set out in Note 2.5.9 as well as considering the guidelines issued by the Central Bank of Oman.
The banking subsidiary’s credit policy requires the review of individual financial assets on a quarterly basis or earlier when individual circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at the reporting date on a case-by-case basis,
377,707
25,287
402,994
278,060
17,516
295,576
24,137
-
24,137
22,432
-
22,432
21,661
8,006
29,667
11,502
8,567
20,069
423,505
33,293
456,798
311,994
26,083
338,077
Performing loans (neither past due nor
impaired) RO’000
Loans past due and not paid RO’000
Non performing loans
RO’000
Gross loans
RO’000
Loans and advances with collateral availableLoans and advances with guarantees available
Balance as at 31 December 2015
Loans and advances with collateral availableLoans and advances with guarantees available
At December 2014
and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account.
Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are individually not significant; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience and experienced judgment.
Neither past due nor impairedSpecial Mention loansPast due but not impairedImpaired
Gross loans and advancesLess: allowance for loan impairmentand contractual interest not recognized
Net loans and advances
Neither past due nor impairedSpecial Mention loansPast due but not impairedImpaired
Gross loans and advancesLess: allowance for loan impairmentand contractual interest not recognized
Net loans and advances
Ominvest Annual Report 201590
The above table represents the worst case scenario of credit risk exposure to the Bank at 31 December 2015 and 31 December 2014 without taking into account the collateral held or other credit enhancements. Management is confident that the Bank has suitable policies to measure and control the credit risk. In addition credit risk is mitigated through collaterals in the form of mortgages and guarantees wherever required.
(a)
- 83,226
929,096 635,288
40,856
53,85543,000
1,785,321
141,250 58,448
199,698
1,356,444 124,012
24,086 44,842
1,549,384
(44,813)
1,504,571
1,122,24894,46122,43238,185
1,277,326
(36,990)
1,240,336
83,226 - - -
83,226
-
83,226
95,758---
95,758
-
95,758
1,439,670124,012 24,086 44,842
1,632,610
(44,813)
1,587,797
1,218,00694,46122,43238,185
1,373,084
(36,990)
1,336,094
200,000 95,758
768,160 528,666 41,887
50,402-
1,684,873
96,862 642
97,504
2015RO’ 000
Loans and advances to customers
RO’ 000Due from banks
RO’ 000Total
RO’ 000
2014RO’ 000
Certificates of depositDue from banks – Money market placementsLoans and advancesCorporate loans Personal loansOther assetsInvestments held to maturityGovernment Development BondsTreasury Bills
Off-Balance sheet items
Financial guaranteesUndrawn loan commitments
Items on the statement of financial position
31 December 2015
41.2.4 Maximum exposure to credit risk before collateral held or other credit enhancements
63% (2014 – 77%) of the inter-bank money market placements are with banks rated investment grade and above based on the ratings assigned by External Credit Rating Agencies.
(b) Loans and advances represent 77% (2014 - 71%) of the total on-balance sheet items. Of the total loans and advances 89 % (2014 - 88%) are neither past due nor impaired.
The impaired loans have decreased from 2.94 % at 31 December 2014 to 2.87% at 31 December 2015. The impaired personal loans constitute 0.6% of the total loans at 31 December 2015 compared to 0.9% at 31 December 2014.
(c)
41.2.5 Loans and advances to customers and due from banks
(a) Loans and advances and due from banks are summarised as follows:
31 December 2014
Ominvest Annual Report 2015 91
41.2.6 Loans and advances renegotiated
These arrangements include extended payment arrangements, deferral of payments and modification of interest rates. Following restructuring, a previously past due loan account is reclassified as a normal loan and managed with other similar loans which are neither past due nor impaired. The restructuring arrangements are based on the criteria and indicators which in the judgement of the management will indicate that the payment will most likely continue.
The total restructured loans at 31 December 2015 amounted to RO 16,586 thousand (2014 - RO 9,167 thousand).
41.2.7 Debt securities
The Bank’s investments in debt securities are mainly in Government Development Bonds or treasury bills denominated
(b) The break-up of the loans and advances to customers in respect of the risk ratings adopted by the Bank are:
624,433 1,430 2,541 2,196 4,688
635,288
508,9798,3324,0261,2566,073
528,666
756,097 122,582
1,117 6,881
27,419
914,096
635,70086,130
5765,423
20,831
748,660
1,380,530124,012
3,658 9,077
32,107
1,549,384
1,144,17994,4624,6026,679
26,904
1,277,326
Retailloans
RO’ 000
Corporateloans
RO’ 000Total
RO’ 000
Standard loansSpecial mention loansSubstandard loans Doubtful loansLoss
Standard loansSpecial mention loansSubstandard loans Doubtful loansLoss
31 December 2015
4,226 14,323
5,537
24,086
105,314
44,842
21,661
38,185
19,326
3,348 9,941 9,143
22,432
27,831
2015RO’ 000
2014RO’ 000
Past due up to 30 daysPast due 30-60 daysPast due 60-90 days
Total
Fair value of collateral
Individually impaired loans
Fair value of collateral
(c) Age analysis of loans and advances past due but not impaired:
(d) Loans and advances individually impaired
in Rial Omani issued by the Government of Oman. The Bank also invests in debt securities issued by other banks based on their individual external credit rating. These investments are made to deploy the surplus liquid funds with maximum return.
41.2.8 Repossessed collateral
Repossessed properties are sold as soon as practicable with the proceeds used to reduce the outstanding balance of the debt. Repossessed assets are classified as other assets in the statement of financial position. The value of assets obtained by the Bank by taking possession held as collateral as security at 31 December 2015 is Nil (2014 - RO 310 thousand).
31 December 2014
Ominvest Annual Report 201592
41.3 Market risk The Group and the Parent Company take on exposures to market risk which is the risk that the fair value or the future cash flows of the financial assets carried at fair value will fluctuate because of changes in market prices. Market risks arise from the open positions in interest rate, currency and equity products, all of which are exposed to changes in interest rates, credit spreads, equity prices and foreign exchange rates for the banking subsidiary.
The market risks on investments listed in the securities markets for the Parent Company are monitored by the Board and Management committees. The Management committee monitor the risks, allocations and returns from local and foreign investments through regular meetings. The Management of the Parent Company has proper risk management policies in place to ensure that interest risk, liquidity risk and foreign exchange risk are mitigated considering the macroeconomic indicators affecting the investment activities.
41.3.1 Market price risk measurement techniques
The Group and Parent Company manages its market risk in the trading book using various techniques such as position limits, stop loss limits and regular monitoring of risk statistical data.
The impact of 10% change in the market price of the quoted equities and funds which are part of the financial assets at fair value through profit or loss at 31 December 2015 is 0.61% of the Group’s total revenues (2014 – 0.83%).
The Parent Company is exposed to equity securities price risk because of investments held and classified as investments at fair value through profit or loss and available for sale financial assets. The Parent Company manages its market risk from its investing activities by diversification based on extensive research on equity or fund positions. Market risks are measured against management targets, past trends in world indices and market specific indices, before taking positions and subsequently monitored regularly.
The impact of 10% change in the market price of the quoted equities which are classified as financial assets at fair value through profit or loss at 31 December 2015 is 1.37% of the Parent company’s total revenues (2014 – 7.98%).
41.3.2 Interest rate risk
Interest rate risk is the risk that the value of a financial instrument carried at fair value will fluctuate due to changes in the market interest rates. The Group is exposed to interest rate risk as a result of mismatches or gaps in the amount of interest based assets and liabilities that mature or re-price in a given period. The Group manages this risk by matching/re-pricing of assets and liabilities. The Group is not excessively exposed to interest rate risk as its assets and liabilities are re-priced frequently. The banking subsidiary’s Assets and Liabilities Committee (ALCO) monitors and manages the interest rate risk with the objective of limiting the potential adverse effects on the banking subsidiary’s profitability. The table in Note 39 summarises the Group’s exposure to the interest rate risks. It includes the Group’s financial instruments at the carrying amount, categorised by the earlier of the contractual re-pricing and maturity dates.
For managing its interest rate risk in the banking book the Bank stipulates limits on open interest rate sensitive gaps for maturities up to 1 year and also periodically calculates Earnings at Risk (EaR) impact on its Net Interest Income (NII) from
100bps change in interest rates on open interest rate gaps for maturities up to 1 year. The EaR limit is stipulated as a certain percentage of the NII of the Bank for the previous year. The EaR at 31 December 2015 is 0.60% (2014 – 2.26%).
The Parent company’s interest rate risk exposure is summarised in a table in Note 39
41.3.3 Currency risk
Currency risk arises where the value of a financial instrument changes due to changes in foreign exchange rates. In order to manage currency risk exposure the Group enters into ready, spot and forward transactions in the inter-bank market as per documented policies approved by the Board of Directors of the respective Group Company.
The Group’s foreign exchange exposure comprises of forward contracts, foreign currencies cash in hand, balances with banks abroad, foreign placements and other assets and liabilities denominated in foreign currency. The individual Group company’s management manages the risk by monitoring net open position in line with limits set by the management and entering into forward contracts based on the underlying commercial transactions with the customers. Additionally, appropriate segregation of duties exist between the front and back office functions while compliance with the net open position is independently monitored on an on going basis by the management and in the case of the banking subsidiary, the Assets and Liabilities Committee (ALCO).
Oman operates with a fixed exchange rate and the Omani Rial is pegged to the US Dollar at US$ 2.6008 per Omani Rial. Accordingly, currency risk arises on assets not denominated in Rial Omani or currencies linked to the US Dollar.
The Parent company’s exposure to assets denominated in foreign currencies (excluding US Dollars which the Rials Omani is pegged to) was 2.36% (2014 - 5.76%) of the total assets at the reporting date. Management regularly monitors the currency risk by reviewing the positions and within the overall context of its investment guidelines.
Ominvest Annual Report 2015 93
41.4 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 may result from an inability to sell a financial asset quickly at close to its fair value. It includes the risk of being unable to fund assets at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame.
The Group’s funding activities are based on a range of instruments including deposits, other liabilities and assigned capital. Consequently, funding flexibility is increased and dependence on any one source of funds is reduced. The Group maintains liquidity by continually assessing, identifying and monitoring changes in funding needs required to meet strategic goals set in terms of the overall strategy. In addition the Group holds certain liquid assets as part of its liquidity risk management strategy.
The Group and the Parent Company hold investment securities listed on the securities markets and other quoted investments. Those investments are liquid in nature and can be sold in response to need for liquidity. As at 31 December 2015, the quoted investments for the Group were 41% of the total investment securities and 86 % for the Parent Company (2014: 48% and 82% respectively).
41.5 Fair value estimation
The estimate of fair values of the financial instruments is based on information available to the individual Group Company’s management at the reporting date. Whilst management has used its best judgment in estimating the fair value of the financial instruments, there are inherent weaknesses in any estimation technique. The estimates involve matters of judgment and cannot be determined with precision. The bases adopted by the Group and Parent Company in deriving the fair values are as follows:
41.5.1 Current account balances due to and from banks
The carrying amount of current account balances due to and from banks was considered to be a reasonable estimate of fair value due to their short-term nature.
41.5.2 Loans and advances
The estimated fair value of loans whose interest rates are materially different from the prevailing market interest rates
The net open position of the Group and Parent Company at the year-end is set out below:
21,2980.95%
5,9470.26%
6,2612.6%
5,6992.36%
9,4860.51%
7,8480.42%
3,8793.64%
6,8856.46%
2014 20142015 2015Foreign currency exposures
Group Parent Company
Assets denominated in US Dollars(included assets denominated in GCC currency pegged with US Dollars)Percentage of total assetsAssets denominated in other foreign currenciesPercentage of total assets
is determined by discounting the contracted cash flows using market interest rates currently charged on similar loans. The fair value of non-performing loans approximates to the book value as adjusted for allowance for loan impairment. For the remainder, the fair value is taken as being equivalent to the carrying amount as the prevailing interest rates offered on similar loans are not materially different from the actual loan rates.
41.5.3 Investments at fair value through profit or loss and available for sale
Quoted market prices, when available, are used as the measure for fair value. However, when the quoted market prices do not exist, fair value presented is estimated using discounted cash flow models or other valuation techniques. The total amount of changes in value estimated using valuation techniques that were recognised in the statement of comprehensive income during the year.
Where quoted market price do not exist and when investments are in closely held entities, the management of the Parent Company presents such investments at cost less impairment losses, by factoring all known elements which could influence the unrealisation for each investment individually. These elements would include both internal and external factors.
41.5.4 Customers’ deposits
The fair value of demand, call, and savings deposits is the amount payable on demand at the reporting date, which is equal to the carrying value of those liabilities. The estimated fair value of fixed rate deposits whose interest rates are materially different from the prevailing market interest rates are determined by discounting the contractual cash flows using the market interest rates currently offered for similar deposits.
Ominvest Annual Report 201594
41.5.5 Derivatives
The banking subsidiary usually enters into short term forward foreign exchange contracts, on behalf of its customers for the sale and purchase of foreign currencies. For forward foreign exchange contracts, it uses a valuation model with readily available market observable inputs. The model incorporates various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.
The related fair value details are set out in note 37.
41.6 Capital management The Group’s objectives of capital management are:
• to comply with the capital requirements set by the regulator for the banking subsidiary i.e. the Central Bank of Oman;
• to safeguard the Group’s ability to continue as a going concern while providing adequate returns to the shareholders; and
213,05250,741
263,793
1,725,0123,613
134,625
1,863,250
14.16%
198,880 37,264
236,144
1,430,766 5,975
122,800
1,559,541
15.14%
2015RO’ 000
2014RO’ 000
Capital
Tier 1Tier 2
Total capital base
Risk weighted assets
Credit riskMarket riskOperational risk
Total risk weighted assets
Capital adequacy ratio %
• to maintain a strong capital base to support the development of its business.
The principal objective of the Central Bank of Oman’s (CBO) capital adequacy requirements is to ensure that an adequate level of capital is maintained to withstand any losses which may result from the risks in a bank’s balance sheet, in particular credit risk. The CBO’s risk-based capital adequacy framework is consistent with the international standards of the Bank for International Settlements (BIS).
The CBO required the banks registered in the Sultanate of Oman to maintain a minimum capital adequacy ratio of 10% based on guidelines of the Basel II Accord from January 2007. The minimum capital adequacy ratio has been increased to 12% from 31 December 2010 onwards.
The ratio for the banking subsidiary calculated in accordance with the CBO and BIS capital adequacy guidelines as per the Basel II Accord is as follows:
Ominvest Annual Report 2015 95
(102,500)1,112
(101,388)(135,054)
(236,442)
42.88%
(44,000)3,549
(40,451)(59,907)
(100,358)
40.31%
2015RO’ 000
2014RO’ 000
Total borrowingsLess: bank balances and cash
Net debtTotal equity
Total capital
Gearing ratio
The Tier 1 capital consists of paid-up capital and reserves. The Tier 2 capital consists of the subordinated bond and collective provisions made for the loan impairment on the performing portion of the loans and advances against the losses incurred but not identified.
The Parent company’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce the cost of capital. During 2015, the Parent company’s strategy, which was unchanged from 2014, was to maintain the gearing ratio at an acceptable level. The gearing ratio at 31 December 2015 and 2014 for the Parent Company was 42.88% and 40.31% respectively.
42. INSURANCE RISK MANAGEMENT POLICIES
Insurance risk
The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.
For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a change in any subset of the portfolio. The Group has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. In addition the Group has entered into reinsurance contracts in order to mitigate the impact that large individual claims may have on its net results.
Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.
Short-duration life insurance contracts
(a) Frequency and severity of claims
These contracts are mainly issued to:
• Employers, providing cover against death, disability or (in the case of group medical policies) health of their employees.
• Financial institutions, providing cover against death of their borrowers.
In the case of group life contracts issued to employers, the risk is affected by the nature of the industry in which the employer operates. The risk of death and disability will vary by industry. Undue concentration of risk by industry will therefore increase the risk of a change in the underlying average mortality or morbidity of employees in a given industry, with significant effects on the overall insurance risk.
For short term group life and group credit life contracts the Group guarantees the premium rate for a period of one year and has a right to change these rates thereafter. In such contracts it therefore minimizes its exposure to mortality risk.
Insurance risk under disability contracts is also dependent on economic conditions in the industry. Historical data indicates that recession and unemployment in an industry will increase the number of claims for disability benefits as well as reducing the rate of recovery from disability.
The Group attempts to manage this risk through its underwriting, claims handling and reinsurance policy.
Ominvest Annual Report 201596
The Group also mitigates the risk by entering into reinsurance contracts under which the Group cedes risks such as death, accidental death benefit and permanent total disability above RO 10,000.
For its group medical business the risk is mitigated by entering into reinsurance contracts under which the Group reinsurers 50% of its medical portfolio on quota share treaty.
(b) Sources of uncertainty in the estimation of future claim payments
Other than for the testing of the adequacy of the liability representing the unexpired risk at the reporting date, there is no need to estimate mortality rates or morbidity rates for future years because these contracts have short duration.
(c) Process used to decide on assumptions
Assumptions are generally reviewed once a year at the time of the actuarial valuation. Estimates of expenses are based on an expense study done for the year 2015.
Claims development
Group maintains strong reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. The uncertainties about the amount and timing of claims payments are normally resolved within one year.
Reinsurance risk
Consistent with other insurance companies, in order to minimize financial exposure arising from large claims, the Group, in the normal course of business, enters into contracts with other parties for reinsurance purposes. Such reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for
43. FAIR VALUE OF FINANCIAL INSTRUMENTS
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. Consequently, differences can arise between carrying values and fair value estimates.
growth. A significant portion of the reinsurance is effected under treaty, facultative and excess-of-loss reinsurance contracts.
To minimize its exposure to significant losses from reinsurer insolvencies, the Group evaluates the financial condition of its reinsurers. The Group only deals with reinsurers as mandated under the board approved Reinsurance Management strategy manual.
The Group places business only with reinsurers having a minimum rating of “BBB” from Standard & Poor’s or “B+” from A. M. Best except regional reinsurers.
Financial risk in insurance subsidiary
The Group is exposed to a range of financial risks through its financial assets, reinsurance assets and insurance liabilities. In particular, the key financial risk is that in the long-term its investment proceeds are not sufficient to fund the obligations arising from its insurance contracts. The most important components of this financial risk are interest rate risk, equity price risk and credit risk. These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risks that the Group faces due to the nature of its investments and liabilities are interest rate risk and equity price risk.
The Group manages these positions within an asset liability management (ALM) framework that has been developed to achieve long-term investment returns in excess of its obligations under insurance contracts. The framework essentially consists of an investment strategy which provides for investment of funds representing a particular category of insurance liabilities in line with the nature of those liabilities.
The Group periodically produces reports showing the extent of compliance with the investment strategy which is reviewed by management and corrective action taken where necessary to rebalance the portfolio.
Group
The fair values of on balance sheet financial instruments, except for the following, are not significantly different from the carrying values included in the Group financial statements. The carrying value and estimated fair value of the following financial instruments are set out below:
The fair value of the investments in associates is based on the closing bid prices on the Muscat Securities Market at the reporting date for listed associates.
81,275
13,908
73,978
13,555
(7,297)
(353)
Carrying value(RO’000)
Fair value(RO’000)
Difference(RO’000)
Investments in associates (note 9(d))
2015
2014
Ominvest Annual Report 2015 97
Parent Company
The fair values of on balance sheet financial instruments, except for investments in subsidiaries and associates, are not significantly different from the carrying values included in the financial statements. The fair value of investments in associates based on the closing bid prices on the Muscat Securities Market at the reporting date is set out below:
The fair value of Parent company’s investments in subsidiaries could vary depending on the valuation technique (IAS 39) that may be applied.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial investments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
71,035
6,249
73,978
13,425
2,943
7,176
Carrying value(RO’000)
Fair value(RO’000)
Difference(RO’000)
Investments in associates (note 9(d))
2015
2014
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Transfers between levels
During the reporting period ended 31 December 2015, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
8,613
83,749
--
1,264
8,307
-
1,896
148(141)
-
1,520
323
838
--
-
-
8,936
86,483
--
1,264
9,827
Level 1(RO’000)
Level 2(RO’000)
Level 3(RO’000)
Total(RO’000)
Group
Financial assets at fair value through profit or loss
Available-for-sale investments
Derivative financial instruments
Purchase contractsSale contracts
Parent Company
Financial assets at fair value through profit or loss
Available-for-sale investments
As at 31 December 2015
Ominvest Annual Report 201598
7,101
330
47,591
--
6,619
26,057
-
-
7,056
220(202)
-
7,057
317
-
860
--
-
-
7,418
330
55,507
220(202)
6,619
33,114
Level 1(RO’000)
Level 2(RO’000)
Level 3(RO’000)
Total(RO’000)
Group
Financial assets at fair value through profit or loss
Financial assets held for trading
Available-for-sale investments
Derivative financial instruments
Purchase contractsSale contracts
Parent Company
Financial assets at fair value through profit or loss
Available-for-sale investments
As at 31 December 2014
44. BASIC EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit for the year by the number of shares outstanding during the year.
During the year, the Parent Company issued stock dividend of shares 33,674,300 (2014 – 30,613,000) without consideration. According to IAS 33 - Earnings per share, the weighted average number of ordinary shares outstanding during the period and for all periods presented shall be adjusted. In the present financial statement, the issue has been treated as if it had occurred at the beginning of 2014 and the basic earnings per share was recalculated accordingly. As there was no dilutive potential shares, the diluted earnings per share is identical to the basic earnings per share.
Level 1 financial instruments above are valued using quoted bid prices in an active market.
Level 2 above includes financial instruments which are valued using discounted cash flows method. Cash flows are discounted at a rate that reflects risk profile of the counter parties.
22,949
437,396,264
0.052
2,897
437,396,264
0.007
5,013
370,417,300
0.014
14,505
370,417,300
0.039
2014(RO’000)
2014(RO’000)
2015(RO’000)
2015(RO’000)
Foreign currency exposures
Group Parent Company
Profit for the year attributableto shareholders of the parent (RO’000)
Weighted average number of shares outstanding during the year
Basic earnings per share (RO)
Level 3 above includes financial instruments carried at cost or breakup values.
Ominvest Annual Report 2015 99
45. NET ASSETS PER SHARE
Basic earnings per share is calculated by dividing the profit for the year by the number of shares outstanding during the year.
219,937
552,861,642
0.398
135,054
552,861,642
0.244
132,669
336,743,000
0.394
59,907
336,743,000
0.178
2014(RO’000)
2014(RO’000)
2015(RO’000)
2015(RO’000)
Foreign currency exposures
Group Parent Company
Equity attributableto shareholders of the parent (RO’000)
Number of shares outstanding at the end of the year
Net assets per share (RO)
Ominvest Annual Report 2015100
• Oman Arab Bank SAOC, Oman• National Life and General Insurance Company SAOC, Oman• Oman National Investment Corporation SAOC, Oman• Oman Real Estate Investment and Services SAOC, Oman• Salalah Resorts SAOC, Oman• Al Jabal Al Aswad Investment LLC, Oman• Budva Beach Properties doo, Montenegro
• National Finance Company SAOG, Oman• Oman Orix Leasing Company SAOG, Oman• Al Ahlia Insurance SAOC, Oman• International General Insurance Holdings Ltd, DIFC, UAE• National Detergent Company SAOG, Oman• National Biscuits Industries Ltd SAOG, Oman• Oman Chlorine SAOG, Oman• National Finance House, Bahrain• Al Shamal Plastics LLC, Oman• Modern Steel Mills LLC, Oman• Gulf Acrylic Industries LLC, Oman
SUBSIDIARIES ASSOCIATES
Al Shamal PlasticsLLC, Oman
Modern Steel MillsLLC, Oman
Gulf Acrylic Industries LLC, Oman
NOTES
NOTES
Oman International Development and Investment Company SAOG
PO Box 3886, Ruwi, PC 112
Sultanate of Oman
+968 2476 9500
+968 2470 7519
www.ominvest.com