Sultan Qaboos Bin Said - Interacoman · engr. ahmed Hamed al subhi Chairman Mehdi Mohammed Jawad al...

SultanQaboos Bin Said

His Majesty

ANNUAL REPORT 2014 3

Contents

Mission & Vision 4

Company Information 5

Board of Directors 6

Committees 8

Management 9

Director’s Report 10

Management Report 12

Auditors Report on Corporate Governance 15

Corporate Governance 16

Auditor’s Report 22

Statement of Financial Position 23

Statement of Profit or loss and Comprehensive Income 24

Statement of Changes in Equity 25

Statement of Cash Flow 26

Notes to the Financial Statements 27

ANNUAL REPORT 2014ANNUAL REPORT 2014 54

MIssIon

Invest time, expertise and capital to satisfy the financial needs of

individuals and corporates by providing exceptional services and

optimum financial solutions.

VIsIon

Be a financial partner who thoroughly understands and responds

to the changing needs of the market. Customers satisfaction is

our vision and customers Confidence is our pride.

CoMpany InforMaIon

sCope of aCtIVItIesAuto Finance for passenger cars,

commercial vehicles (prime movers,

trucks, trailers, pickups, etc.) Industrial

equipment and machinery, Home

appliances, furniture, computer and other

electronic items, Heavy equipment, plant

and machinery (dozers, shovels, crushers,

cranes, etc.), Working capital through debt

factoring / bills discounting of receivables

Corporate deposIts“Al Tayeb” structured finance, “Al Hal”

consumer loans, “Al Sahal” insurance

BankersBank Muscat (SAOG)

Bank Dhofar (SAOG)

National Bank of Oman (SAOG)

Oman Arab Bank (SAOC)

Ahli Bank (SAOG)

Bank Sohar (SAOG)

Habib Bank Ltd

reGULatory aUtHorItyCentral Bank of Oman, Capital Market

Authority

statUtory aUdItorsKPMG

InternaL aUdItors (oUt-soUrCed)Moore Stephens

LeGaL adVIsors

Al Busaidy Lawyers & Legal Consultants

reGIstered offICe

P.O. Box 200, MGM, Postal Code 136,

Sultanate of Oman

Head offICe - aL kHUWaIr

Tel : (+968) 24839800, 24839999

Fax : (+968) 24488592

[email protected], www.taageer.com

BranCH offICe :

HATAT COMPLEX :

Tel : (+968) 24564561

Fax : (+968) 24564629

SOHAR BRANCH:

Tel : (+968) 26845595

Fax : (+968) 26845535

BARKA BRANCH:

Tel : (+968) 26883603

Fax : (+968) 26883619

NIZWA BRANCH:

Tel : (+968) 25414420

Fax : (+968) 25414425

SALALAH BRANCH:

Tel : (+968) 23296288

Fax : (+968) 23296955


Board of dIreCtors

engr. ahmed Hamed al subhiChairman

ali ZiraknejadDirector

Brig. saif salim saif al HarthiDirector

Qaboos abdulla Mohamed al khonjiDirector

saleh bin nasser al riyamiDirector

reji JosephDirector

said ahmed safrarDirector

Hussain Mohamed redhaDirector

nameDirector

Mehdi Mohammed Jawad al abduwaniEx-Chairman

engr. fahad al ahmadiVice Chairman

ANNUAL REPORT 2014 9ANNUAL REPORT 20148

aUdIt CoMMItee

ali ZiraknejadChairman

Brig. saif salim saif al HarthiMember

Qaboos abdulla Mohamed al khonjiMember

Hussain Mohamed redhaMember

aUdIt CoMMItee

engr. ahmed Hamed al subhiChairman

Mehdi Mohammed Jawad al abduwaniEx-Chairman

engr. fahad al ahmadiMember & Acting Chairman

saleh bin nasser al riyamiMember

reji JosephMember

ManaGeMent

Mohammed redha bin ahmed al LawatiChief Executive Officer

V.V. suresh kumarGeneral Manager

Marketing & Business Development

r.V. ramanujanFinancial Controller

Mohammed ali Ibrahim al MaimaniAssistant General Manager

Operations and Controls

Mohammed bin Bader al BusaidySenior Manager

HR & Administration


Company’s performance at a glance

Your Company has registered a Profit after Tax of RO 3.883 million in 2014 as against RO 3.924 Million in 2013. Company’s net leasing portfolio has grown by 5.25% from RO 101.958 million at 31st December 2013 to RO 107.306 Million at 31st December, 2014. Your company had grown cautiously and achieved a return on shareholders’ funds of 11.97% for 2014 as against 12.61% in 2013. A detailed review of the operational results of the Company has been covered in the Management Discussion and Analysis Report

During the year 2014 there was a change in major shareholding of your Company due to the sale of the entire shareholding of 33.6% by Al Anwar Holding SAOG and its subsidiary to Oman Investment Fund.

outlook for 2015 and beyond

As you are aware, Oman’s economy is expected to register a growth of over 3.3% during the next two years. The Government has maintained a positive approach and continued its initiatives to sustain infrastructure development and other projects despite the declining oil prices. This coupled with the Government’s impetus to promote the development of Small and Medium Enterprises (SMEs) and encourage the Nation’s younger generation to take-up

self-employment more seriously is expected to facilitate growth of business opportunities. The Government’s Vision to diversify and promote business growth in non-oil sectors is expected to strengthen the Economy.

In view of these firm and positive initiatives coupled with private consumption and investment, the outlook for economy as a whole and for leasing and finance industry appears to be good.

The competition among finance and leasing companies (FLCs), was intense during the year 2014. The same trend is expected to continue during the year 2015 as well. Banks have also ventured aggressively into the Auto Loans and Small business segments. The Government’s initiative to promote Islamic Banking has brought in competition from the newly established Islamic Banks offering exclusive Islamic finance products. The Central Bank of Oman also issued a circular in November-2013 asking all FLCs to discontinue their Non-conventional products with immediate effect. This continues to pose a challenge to the business. However, your Company is confident about enhancing its market presence.

proposed dividend

The directors are pleased to recommend a cash dividend of 10% (RO 2.5359 million) for

approval by the shareholders at the Annual General Meeting to be held on March 19, 2015.

Increase in paid up capital

With a paid up share capital of RO 25.359 million as at 31st December 2014, your Company is well capitalized and in compliance with the guidelines of Central Bank of Oman.

sudan Investment

Your company holds a 5% stake in equity capital of The Arab Leasing Company, Sudan, with a carrying value of RO 582K as at 31st December, 2014.

TALC, Sudan has paid a dividend of RO 24k during the year 2014.

Change in the Composition of the Board

During the year 2014, Mr. Mehdi Al Abduwani, Chairman and Mr. Reji Joseph, Director resigned from the Board of Directors of Taageer Finance Company SAOG due to the sale of entire shareholding by Al Anwar Holding SAOG and its subsidiary. Mr. Qaboos Al Khonji, Director representing Oman Investment and Finance Company (OIFC) had also resigned.

Mr. Hussain Mohamed Redha was elected as Independent Director in the Board at the Ordinary General Meeting held on 21st May 2014. Mr. Ahmed Hamed Al Subhi was nominated to the Board by OIFC as their representative.

The Board of Directors unanimously nominated Mr. Ahmed Hamed Al Subhi, Director representing OIFC as Chairman of the Board at the Board Meeting held on 20th November 2014.

strengthening Human resources

Your company has strengthened the human resource base during the year to improve customer service and enhance transactional support capabilities required to sustain growth in assets.

Your company will continue to impart training and support educational needs of its employees to improve their skill levels.

Corporate Governance

Your company is committed to adhere to highest standards of Compliance and Corporate Governance. A separate report on Corporate Governance is enclosed.

acknowledgement

On behalf of the Board of Directors, I wish to express sincere gratitude to His Majesty Sultan Qaboos bin Said for his vision and wise leadership.

I would also like to take this opportunity to express our sincere appreciation and acknowledgement for the guidance and support from the Central Bank of Oman, Capital Market Authority, Muscat Securities Market. We are also grateful to our shareholders, bankers, dealers and customers for their continued trust, confidence and support.Finally, the Board would like to appreciate and thank the management and the staff for all their good work and efforts.

On Behalf of the Board of Directors

ahmed Hamed al subhi

Chairman

dIreCtors’ report

dear shareholders,

On behalf of the Board of Directors of Taageer Finance Company SAOG, I am pleased to place before you the audited financial statements for the year ended 31st December, 2014.


ManaGeMent report

Management report contains analysis of important factors underlying the performance of the Company.

economic outlook

Despite the recent drop in oil prices, the Government has maintained a positive outlook and has announced a 4.5% increase in government spending for 2015. By this increased spending the Government plans to continue to press forward important infrastructure projects, which includes the prestigious venture of establishing a railway network and expansion of the Muscat and Salalah Airport.

In addition to this the Government also continues its thrust to support the Small & Medium Enterprises (SME) through the Banks and Financial Institutions to equip the younger generation to venture into self-employment which would play a significant role in the growth of the Country.

Oman’s Economic freedom also witnessed a positive shift and moved two places upwards in the Economic freedom, of the Arab World Report 2014 and stood as the 48th freest economy of the world.

2015 outlook

Oman’s GDP is expected to grow at 3.4% in 2015 as per reports of internationally renowned rating agencies and the economic growth is expected to be at 3.3% for 2016. On a positive note, the Sultanate has successfully managed the impact of the global financial crisis which affected most of the developed countries in 2008 and has had its effects over these years.

While infrastructure development has been the utmost priority of the Government, the

Tourism sector has also recorded a favorable growth. There exists excellent potential to tap this sector thereby attracting nationalities from various countries.

potential of financial sector

The Government’s positive initiatives to continue its thrust on infrastructure development and to promote development of SMEs, provides a sustainable growth to the financial sector. Although, the competition amongst the Finance & Leasing Companies (FLCs) was intense during the year 2014 and is expected to continue in the year 2015, the FLCs are ramping up their resources to face challenges.

On the back of positive macros of increased government spending, ample liquidity, new job creations and higher employee wages, financing sector has good potential to positively contribute in Oman’s economic growth.

overall growth of leasing and finance companies

The finance and leasing companies (FLCs), licensed by the Central Bank of Oman, grew by 7% in 2014 in terms of asset size. During this period, the combined profit after tax of this industry grew by 11%.

Taageer registered a cautious growth in assets size of 5%.

return on shareholders’ funds (ronW)

Company has posted a return of 11.97% on shareholders’ funds.

The RONW is the result of the following components:-

Business volumes and asset growth

Business volumes and asset size have grown by 4.17% and 5.25% respectively in 2014.

Cost of funds

Company has managed its borrowing costs which is evident by only a marginal increase in interest costs of RO 2,276 K in 2014 as compared to RO 2,238 K in 2013, notwithstanding the increase in asset size during 2014.

non performing assets

During the course of growth in asset size, it is important to ensure that the ratio of non performing assets in total portfolio of

the Company does not deteriorate. Ratio of NPAs as % of total assets changed from 5.7% at 31-12-2013 to 7.1% at 31-12-2014. Company will introduce various operational improvements in the current year to closely monitor the non performing assets in the portfolio.

operating overheads

Operating overheads constituted 35.44% of total income in 2014 as against 33.08% in 2013.

performance snapshot

Key indicators of Company’s operating performance over last 5 years are as under

RO’ 000

particulars 2010 2011 2012 2013 2014

Share capital 11,325 16,667 21,667 23,700 25,359

Net worth 20,608 27,031 29,386 31,123 32,427

Net investment in lease 77,479 83,660 92,000 101,958 107,306

Total borrowings 51,503 49,782 56,727 67,299 71,556

Gross income 8,945 9,758 10,266 10,445 10,908

Profit after tax 2,465 3,216 3,905 3,924 3,883

Branch network

The Company has always worked towards achieving excellence through customer satisfaction. In order to provide better services to its customers, the Head Office which was located in the heavily congested business district at Ruwi was shifted to a more favourable location to customers at Al Khuwair. The shifting of the premises was seamlessly handled without causing inconvenience to the customers.

The branch which was located in the erstwhile, Head Office premises was shifted

to Hatat Complex to be closer to most of the leading automobile dealers operating in the vicinity and the customers.

A new branch at Barka was successfully opened to cater to the highly potential area keeping in view of the recent business developments in the Batinah region. The branch at Seeb has since been shifted to Al Khuwair to serve the customers approaching the Head Office.

The Company has branches at Al Khuwair, Hatat Complex, Sohar, Nizwa, Barka and Salalah.


risks and concerns

Credit risk

Focus on credit risk is an important part of Risk Management framework as indicated by the Central Bank of Oman. Measures such as Loan Review Mechanism, Sectoral caps on lending, Analysis of non-performing assets, risk scoring models help the management to manage credit risk.

Company has initiated a review of its credit policies and procedures to balance risk appetite with requirements of customers and practices prevailing in the market place.

Interest rate risk

It is not customary to offer benchmark based lending products to retail & SME customers. Company, however, has interest rate re-pricing clause in agreements with corporate customers. Company is also cautious in its pricing approach which factors interest rate volatility.

Liquidity risk

Liquidity risk arises from inability of the Company to pay its liabilities when they fall due.

In lending business, liquidity risk is inherent due to an element of mis-match in cash flow timings of assets and liabilities. This is mitigated by having adequate lines of credit from the lenders over and above its normal business pattern.

other risks

Company has insurance cover over its assets.

It has a continuity of management plan, in the event of a sudden gap in leadership level of management.

Company is continuously reviewing its policies and procedures to identify areas of improvement, standardization and rationalization of its activities.

Business Continuity and disaster recovery

Your Company has put in place a Disaster Recovery and Business Continuity Plan and steps are being initiated to conduct periodic testing to ensure a state of preparedness.

acknowledgement

On behalf of the management, I thank the Chairman, Vice-Chairman of the Board, Chairman of Audit Committee, Chairman of the Executive committee and Board members for their continuous guidance.

We also take this opportunity to thank our shareholders, our employees, bankers and regulatory bodies for their continuous support and guidance.

Mohammed redha a. Jawad

Chief Executive Officer


Corporate GoVernanCe

In accordance with the Capital Market Authority (CMA) guidelines, we are pleased to present the Corporate Governance Report for the year ended 31 December 2014. The Auditors, Ernst & Young, have issued a separate Report on the Corporate Governance.

1. Company’s philosophy

Taageer’s philosophy of corporate governance is aimed at promoting trusteeship, transparency, empowerment, control and ethical corporate citizenship. Taageer is committed to working with its stakeholders to improve the economic development. We strive to achieve this by implementing corporate governance in compliance within guidelines set by the Central Bank of Oman and the Capital Market Authority.

2. the Board of directors

The present Board of Directors were appointed in the Annual General Meeting held on 26 March 2012 for a period of three years. The Board of Directors has formed two Committees namely, The Audit Committee and The Executive Committee. The erstwhile Credit Committee and HR & Compensation Committee were merged with the Executive Committee during the year2012.

Composition of the Board of Directors: (in accordance with Article 1 of Code of Corporate Governance)

name of director / entity represented position

engr. ahmed Hamed al subhi

Oman Investment & Finance Co. SAOG

Non-Independent & Non-Executive

Chairman(nominated w.e.f 20

November 2014)

engr. fahad al ahmadi

The Arab Investment Company (TAIC), Saudi Arabia


Vice Chairman

(acting Chairman from 21 October

2014 to 19 November 2014)

Mr. Mehdi Mohammed Jawad al abduwani,

Al Anwar International Investment LLC, Oman


Ex-Chairman

(resigned on 20 October 2014)

Mr. ali Ziraknejad

Iran Foreign Investment Company, Iran


Director

Mr. saleh bin nasser al riyami

Representing Self

Independent & Non-Executive

Director

Brig. saif salim saif al Harthi

Ministry of Defence, Pension Fund, Oman


Director

Mr. reji Joseph

Representing Al Anwar Holdings SAOG, Oman


Director(resigned on 20 October 2014)

Mr. Qaboos abdulla Mohamed al khonji

Oman Investment & Finance Co. SAOG, Oman


Director(resigned on 25 February 2014)

Mr. said ahmed safrar

Oman Investment & Finance Co. SAOG, Oman


Director

(nominated with effect from 25 February 2014)

(resigned on 10 April 2014)

Mr. Hussain Mohamed redha

Representing Self

Independent & Non-Executive

Director(elected w.e.f 21

May 2014)

Board of Directors held 5 meetings during the year. The details of members’ participation in the meetings along with their Directorships in other companies in Oman are as follows:

name of the director

positionBoard

Meeting attended

Whether attended last aGM

directorships in other Companies

position in other

Company

Mr. Mehdi Mohammed Jawad al abduwani

Chairman

429-01-201423-04-201422-07-201404-09-2014

Yes

Computer Stationery Industry (SAOG)

Al Anwar Holdings (SAOG)

Oman Telecommunications

(SAOG)

Chairman

Director

Director

engr. ahmed Hamed al subhi

Chairman & Director

222-07-201420-11-2014

No

Oman Investment Finance Company

(SAOG)

Voltamp Energy (SAOG)

Chairman

Director


engr. fahad al ahmadi

Vice Chairman

529-01-201423-04-201422-07-201404-09-201420-11-2014

No --- ---

Mr. ali Ziraknejad

Director

529-01-201423-04-201422-07-201404-09-201420-11-2014

Yes --- ---

Mr. saleh bin nasser al riyami

Director

529-01-201423-04-201422-07-201404-09-201420-11-2014

Yes

Oman Ceramic Co. (SAOG)

Al Madina Insurance Co. (SAOC)

Vice-Chairman

Director

Brig. saif salim saif al Harthi

Director

429-01-201423-04-201422-07-201420-11-2014

Yes --- ---

Mr. reji Joseph

Director

429-01-201423-04-201422-07-201404-09-2014

Yes --- ---

Mr. Qaboos abdulla Mohamed al khonji

Director1

29-01-2014Yes

Oman Hotel & Tourism Co. (SAOG)

Al Anwar Holdings (SAOG)

Deputy Chairman

Director

Mr. said ahmed safrar

Director NiL No --- -----

Mr. Hussain Mohamed redha

Director

322-07-201404-09-201420-11-2014

Not applicable

National Life & General Insurance Company (SAOC)

Director

3. aUdIt CoMMIttee

The main role of the Audit Committee is to:

• Assist the Board in assuring the integrity and credibility of the financial reporting process;

• Review the company’s internal financial controls and the company’s internal control and risk management systems;

• Monitor and review the effectiveness of the company’s internal audit function;

• Selecting and evaluating the External Auditors.

During the year 2014, the company appointed Grant Thornton to conduct the Internal Audit of the company along with an in-house Internal Auditor.

The Internal Audit work plan is drawn up in consultation with the Audit Committee. Internal Audit is done on a quarterly basis and a report is submitted to the Audit Committee for their review. The Chairman of the Audit Committee presents to the Board the proceedings of the Audit Committee meeting. The audit covers areas of operations of the company as per the approved internal audit work plan. The Management has responded to the various issues raised by the Internal Auditor and submits a compliance report on the same.

The Audit Committee comprises of three Board members. Audit Committee held fourmeetings during the year. Details of the members and their attendance in the meetings held are as follows:

name of the director positionMeetings attended

date of appointment

Mr. Ali Ziraknejad Chairman 4 29 March 2009

Brig. Saif Salim Saif Al Harthi Member 4 29 March 2009

Mr. Qaboos Abdulla Mohamed Al Khonji

Member 124 January 2012 (resigned on 25 February 2014)

Mr. Hussain Mohamed Redha Member 1 22 July 2014

4. executive Committee

The Executive Committee comprises of four Board members. The main role of the Executive Committee is to;

• Review, recommend and approve / reject credit proposals within specified financial limits;

• Review and recommend the annual budget to the BOD for its approval;


• Review company’s monthly management accounts, its performance vs budget, financial management and operations of the company and recommend to the BOD appropriate action on the issues arising there from;

• Recommend appointment / replacement of senior management of the company (other than CEO, COO and Head of Internal Audit), review compensation related matters recommended by the management and accord approval (within the overall budget sanctioned by the Board).

Executive Committee held three meetings during year. Details of present members and their attendance in the meeting held are as follows:

name of the director positionMeetings attended

date of appointment

Engr. Ahmed Hamed Al Subhi Chairman Nil 22 July 2014

Mr. Mehdi Mohammed Jawad Al Abduwani

Ex-Chairman

221 July 2013

(resigned on 20 October 2014)

Engr. Fahad Al AhmadiMember & Acting

Chairman3 29 March 2009

Mr. Saleh bin Nasser Al Riyami Member 3 29 March 2009

Mr. Reji Joseph Member 224 January 2012 (resigned on 20 October 2014)

5. remuneration Matters

The Board of Directors has recommended Director’s remuneration of RO 39,000 for the year 2014 (2013 – RO 45,500) in line with the provisions of Article 101 of the Commercial Companies Law of 1974, as per the requirements of Capital Market Authority. The Board was paid sitting fees as per details given herein under as approved in the last AGM held on 24 March 2014.

In the case of institutional representatives on the board, payment of sitting fees have been made to the Director or directly to the institution whose nominee is represented on the Board as per the instruction from the Director or decision of the institution.

The Company held 5 Board meetings during 2014, and RO 49,000 (2013 - RO, 53,500) has been paid towards Directors’ sitting fees.

During 2014, 4 Audit Committee meetings were held and RO 10,000 (2013 – RO 11,000) was paid towards Audit Committee sitting fees.

During 2014, 3 Executive Committee meetings were held and RO 10,000 (2013 – RO 7,500) was paid towards Executive Committee sitting fees.

During the year RO 384,728 (2013 – RO 274,453) was paid as salary and related benefits to the five senior most officers of the company. Employment contracts with these officers are in accordance with the labour laws of the Sultanate of Oman.

6. process of nomination of the directors

The company follows the provisions of the Commercial Companies Law and the guidelines from the Central Bank of Oman in respect of nomination of the members of the Board of Directors.

7. Means of Communication with the shareholders

The Company publishes quarterly accounts in two national newspapers and also submits the same to the Muscat Securities Market. Annual report is mailed to all the Shareholders. And other relevant information at its website (www.taageer.com) and Muscat Securities Market (MSM) website (www.msm.gov.om).

8. Market price data

a. High/Low price and index

The shares of the company are listed on the Muscat Securities Market. Details of market price data during 2014 are as follows:

MonthMarket price (ro) Volume

tradedIndex

High Low MsM sectorJan-2014 0.177 0.154 4,849,641 7,094 8,497 Feb-2014 0.178 0.169 4,790,675 7,131 8,483 Mar-2014 0.173 0.142 3,423,043 7,019 8,238 Apr-2014 0.149 0.140 749,600 6,800 8,112 May-2014 0.142 0.126 977,681 6,764 8,032 Jun-2014 0.145 0.139 753,722 6,927 8,369 Jul-2014 0.150 0.143 1,060,854 7,146 8,752 Aug-2014 0.155 0.150 1,886,441 7,329 8,920 Sep-2014 0.153 0.151 672,532 7,479 9,301 Oct-2014 0.153 0.145 85,406,782 7,091 8,597 Nov-2014 0.150 0.148 99,959 6,973 8,382 Dec-2014 0.152 0.135 703,516 6,138 7,430

b. distribution of shares

name of the shareholders (holding more than 5%) percentage (%) no. of shares

Oman Investment Fund 33.63 85,287,298

The Arab Investment Co. SAA 18.79 47,637,994

Iran Foreign Investment Co. 12.49 31,685,320

Oman Investment & Finance Co. SAOG 6.51 16,496,897


9. statutory auditors

EY is the statutory auditors of the Company. EY has been operating in the Sultanate of Oman since 1974 and is the largest professional services firm in the country. EY Oman, forms part of EY’s EMEIA practice, with 4,015 partners and over 90,500 professionals in 462 offices throughout the EMEIA geographical area. Globally, EY operates in more than 150 countries and employs 190,000 professionals.

10. audit fees

During the year 2014, an amount of RO 7,500 has been paid to the statutory auditors or is due to them.

11. non-Compliance

Taageer is not aware of any non-compliance with the law, regulation, or any other requirement of a statutory authority, nor has it been subject to penalty for any breach as on 31December 2014.

12. Corporate social responsibility

Taageer is committed to shoulder its financial responsibility in social sphere. During the financial year 2014, Taageer has contributed sums aggregating to RO 5,474 to associations engaged in promoting welfare of the Disabled, Elderly Friends, Blind, Diabetic and in spreading cancer awareness.

13. acknowledgement

The Board of Directors acknowledges confirmation of:

• Its responsibility for the preparation of the financial statements in accordance with the applicable standards and rules;

• Review of the efficiency and adequacy of internal control systems of the Company and that it complies with internal rules and regulations;

• There are no material matters that affect the continuation of the Company and its ability to continue its operations during the next financial year.

director


stateMent of fInanCIaL posItIon As at 31 December

Notes 2014 2013

assets ro’000 RO’000

Cash and bank balances 4 1,712 1,648

Statutory deposit 5 170 130

Net investment in finance leases and

working capital finance 6 107,306 101,958

Other receivables and prepayments 7 192 208

Deferred tax asset 18 334 374

Investments 8 582 791

Vehicles and equipment 9 385 176

total assets 110,681 105,285

equity and liabilities:equityShare capital 10 25,359 23,700

Legal reserve 10 2,708 2,320

Fair value reserve 63 272

Retained earnings 4,297 4,831

total shareholders’ equity 32,427 31,123

LiabilitiesBank borrowings 11 55,397 53,592

Corporate deposits 12 16,159 13,707

Creditors, accruals and other liabilities 13 5,654 5,839

Income tax payable 18 1,044 1,024

total liabilities 78,254 74,162

total equity and liabilities 110,681 105,285

net assets per share (Baiza) 15 128 131

These financial statements were approved and authorised for issue in accordance with a resolution of the directors on 26th February 2015

________________ ________________

Chairman director

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

stateMent of CoMpreHensIVe InCoMe for the year ended 31 December 2014

Notes 2014 2013

ro’000 RO’000

Installment finance income 9,512 9,338

Interest expense (2,276) (2,238)

net income from financing activities 7,236 7,100

Other income 17 1,396 1,107

General and administrative expenses 16 (3,371) (3,089)

Depreciation 9 (125) (93)

Impairment for finance lease and working capital finance 6 (648) (468)

profit before tax 4,488 4,557

Income tax expense 18 (605) (633)

profit for the year 3,883 3,924

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

Change in fair value of available-for-sale financial assets (209) 155

Total comprehensive income for the year 3,674 4,079

Basic earnings per share (Baizas) 19 15.3 15.4



stateMent of CHanGes In eQUIty for the year ended 31 December 2014

Share Legal Voluntary Fair value Retained

capital Reserve reserve reserve earnings Total

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

1 January 2013 21,667 1,927 2,003 117 3,672 29,386

Profit for the year - - - - 3,924 3,924

Net change in fair value of investment - - - 155 - 155

Total comprehensive income for the year - - - 155 3,924 4,079

Transfer to legal reserve (note 10) - 393 - - (393) -

Issue of bonus shares (note 10) 2,033 - (2,003) -

(30) -

Cash dividends - - - - (2,342) (2,342)

31 December 2013 23,700 2,320 - 272 4,831 31,123

1 January 2014 23,700 2,320 - 272 4,831 31,123

Profit for the year - - - - 3,883 3,883Net change in fair value of investment - - - (209) - (209)Total comprehensive income for the year - - - (209) 3,883 3,674Transfer to legal reserve (note 10) - 388 - - (388) -Issue of bonus shares (note 10) 1,659 - - (1,659) -Cash dividends - - - - (2,370) (2,370)31 december 2014 25,359 2,708 - 63 4,297 32,427


stateMent of CasH fLoWs for the year ended 31 December 2014

2014 2013ro’000 RO’000

operating activitiesProfit before tax 4,488 4,557Adjustments for:Finance charges 2,276 2,238Impairment for lease and working capital finance 648 468Depreciation 125 93Employee terminal benefits 17 20Profit on sale of vehicle and equipment (8) (2)operating cash flows before changes in working capital 7,546 7,374Changes in working capital: Net investment in lease and working capital finance (5,997) (10,426) Other receivables and prepayments 16 (12) Creditors, accruals and other liabilities (189) (1,929)net cash generated from (used in) operations 1,376 (4,993)Income tax paid (545) (625)Employee terminal benefits paid (12) (9)Interest paid (2,276) (2,238)net cash used in operating activities (1,457) (7,865)Investing activities Purchase of vehicles and equipment (334) (150)Sale of vehicles and equipment’s 8 2Statutory deposit (40) (40)net cash used in investing activities (366) (188)financing activitiesNet bank borrowings 1,799 4,963Dividend paid (2,370) (2,342)Net deposits 2,452 5,359Net cash from financing activities 1,881 7,980Net change in cash and cash equivalents 58 (73)Cash and cash equivalents at the beginning of the year (440) (367)Cash and cash equivalents at the end of the year (382) (440)Cash and cash equivalents comprise of:Cash and bank balances 1,712 1,648Bank overdrafts (2,094) (2,088)

(382) (440)


ANNUAL REPORT 2014 29

notes to tHe fInanCIaL stateMents for the year ended 31 December 2014 (continued)

ANNUAL REPORT 201428

notes to tHe fInanCIaL stateMents for the year ended 31 December 2014

1. Legal status and principal activity

Taageer Finance Company SAOG (“the Company”) is an Omani general joint stock company registered with the Ministry of Commerce on 22 October 2005. The Company was originally incorporated as a closed stock Company on 24 December 2000 and was converted as an Omani general joint stock Company on 21 October 2005 by a resolution of the shareholders passed on 27 August 2005. The Company is engaged in the business of providing leasing, debt factoring, bridge loan and construction loans in the Sultanate of Oman. The Company’s shares are listed on Muscat Securities Market.

The registered office of the Company is P.O. Box 200, Ruwi, Postal Code 136, Sultanate of Oman.

The Company operates in the Sultanate of Oman with a network of six branches and employed 146 employees as of 31 December 2014 (31 December 2013: 135).

2. Basis of preparation and summary of significant accounting policies

2.1 Basis of preparation

(a) statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board (IASB), the requirements of the Commercial Companies Law of 1974, as amended and disclosure requirements of the Capital Market Authority of the Sultanate of Oman.

(b) Basis of measurement

The financial statements have been prepared on the historical cost basis except for available –for –sale which are measured at fair value.

(c) functional and presentation currency

Items included in the Company’s financial statements are measured using Rials Omani which is the currency of the primary economic environment in which the Company operates, rounded off to the nearest thousand.

(d) accounting policies

The policies have been consistently applied in dealing with items that are considered material in relation to the Company’s financial statements to all the years presented.

(e) Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements estimates and assumptions that effect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 3.

2.2 Leases and lease income

Assets owned by the Company but subject to finance leases are included in the financial statements as net “investment in finance leases” at an amount equivalent to the net investment in the leases. Initial direct costs incurred in negotiating a lease is charged as an expense as incurred as the impact is not considered to be material to the financial statements.

The Company recognises income on leases under “Internal Rate of Return (IRR) method”. Under this method, lease income is recognised based on a pattern reflecting a constant periodic rate of return on the Company’s net investment in finance lease.

At the commencement of a lease, the total unearned lease income consists of the excess of aggregate lease contract receivables over the cost of the leased assets. The unearned lease income is taken into income over the term of the lease, starting with the month in which the lease is executed, so as to produce a systematic return on the net investment in the lease.

Provision is made in these financial statements for potential impairment of impaired finance contract receivables which are not separately identifiable but which are inherent in any portfolio.

2.3 Impairment of impaired lease contract receivables on portfolio basis

Impairment for impaired lease contract receivables

The Company assesses at each reporting date whether there is objective evidence that a lease receivable or group of lease receivables is impaired. A lease receivable or group of lease receivables is impaired and an impairment loss is recognised if, and only if, there is objective evidence of impairment as a 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 lease receivable or group of lease receivables that can be reliably estimated. Objective evidence that a lease receivable or group of lease receivables is impaired includes observable data that comes to the attention of the Company about the following loss events:

• significant financial difficulty of the obligor;

• a breach of contract, such as a default in rental payment;

• the Company granting to the lessee, for economic or legal reasons relating to the lessee’s financial difficulty, a concession that the lender would not otherwise consider;

• it becoming probable that the lessee will enter bankruptcy or other financial reorganisation;

• observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of lease receivables since the initial recognition of those leases, although the decrease cannot yet be identified with the individual leases in the group, including adverse changes in the payment status of lessees in the Company, or national or local economic conditions that correlate with defaults on the assets in the Company.

2.4 financial instruments

Financial assets and financial liabilities are recognized on the Company’s statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

The principal financial assets are net investment in finance leases and working capital finance, investment available-for-sale, other receivables, cash at bank.

Receivables arising from working capital finance, debt factoring, bridge finance and construction activities and other receivables are stated at cost less impairment losses.

The principal financial liabilities are bank borrowings, deposits and creditors, accruals and other liabilities.

Interest bearing borrowings

Interest-bearing borrowings are recognised initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest method.

Deposits are stated at the net proceeds received less repayments made.

Creditors, accruals and other liabilities are stated at their nominal value.

offsetting of financial assets and financial liabilities

A financial asset and a financial liability is offset and the net amount reported in the statement of financial position, if the Company has the legal enforceable right to set off the transaction and also intends either to settle on a net basis or realise the asset and settle the liability simultaneously.

available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

Available-for-sale financial assets are initially recognised at fair value including transaction costs. Such financial assets are subsequently carried at fair value, unless fair value cannot be reliably determined in which case these financial assets are measured at cost less impairment. Changes in the fair value of available-for-sale financial assets are recognised in equity as “cumulative changes in fair value”.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, and for unlisted securities, the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same and discounted cash flow analysis, making maximum use of market inputs and relying as little as possible on entity-specific inputs. In the absence of these information, the Company uses net asset value of the investee to determine the fair values.

On derecognition or impairment the cumulative gain or loss previously reported as “cumulative changes in fair value” within equity, is included in profit or loss for the period.

trade and settlement date accounting

Purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Company commits to purchase or sell the asset.

derecognition of financial assets

A financial asset (in whole or in part) is derecognised where:

(i) the right to receive cash flows from the asset have expired; or

(ii) the Company has transferred it 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

(iii) either (i) the Company has transferred substantially all the risks and rewards of ownership, or (ii) the Company has neither transferred nor retained substantially all the risks and rewards of the assets but has transferred control over the asset or a proportion of the asset.




2.5 Vehicles and equipment

Vehicles and equipment are stated at cost less accumulated depreciation and impairment losses.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of vehicles and equipment. All other expenditure is recognised in profit or loss as an expense as incurred.

The cost of vehicles and equipment is written off in equal installments over their estimated useful economic lives as follows:

Years

Motor vehicles 3

Office equipment 3 – 4

Furniture and fittings 4

2.6 Impairment

At each reporting date, the Company reviews the carrying amounts of its assets, other than net investment in finance leases [refer policy above] 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).

Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised earlier.

2.7 employee terminal benefits

Contributions to a defined contribution retirement plan, for Omani employees in accordance with the Oman Social Insurance Scheme, are recognised as expense in statement of comprehensive income as incurred.

Provision for non-Omani employee terminal contributions is made in accordance with Omani Labour Laws and is based on the liability that would arise if the employment of all employees were terminated at the statement of financial position date.

2.8 provision

A provision is recognised in the statement of financial position when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

2.9 Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at reporting date, and any adjustment to tax payable in respect of previous years.

2.10 deferred tax

Deferred tax is recognised on 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 substantively 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. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all part of the asset to be recovered.

2.11 Interest income and interest expenses

Interest income and expense are recognised in the statement of comprehensive income using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash receipts and payments through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition of the financial asset or liability and is not revised subsequently.

The difference between the aggregate finance contract receivable and the cost of the financed assets plus initial direct costs is recorded as unearned finance income. Initial direct costs include amounts that are incremental and directly attributable to negotiating and arranging finance. They exclude general overheads such as those incurred by sales and marketing team.




Interest, which is doubtful of recovery, is unrecognised and excluded from income until the relevant loan becomes regular. Penal charges and other fees are recognised when received in cash.

Dividend income is accounted for when the right to receive is established.

2.12 directors’ remuneration

Directors’ remuneration is computed in accordance with the Article 101 of the Commercial Companies Law of 1974, as per the requirements of Capital Market Authority and charged as an expense in profit or loss.

2.13 foreign currency translations

functional and presentation currency

Items included in the Company’s financial statements are measured using Rials Omani which is the currency of the primary economic environment in which the Company operates and the presentation currency for the financial statements, rounded off to the nearest thousand.

transactions and balances

Transactions denominated in foreign currencies are translated to Rials Omani at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Rials Omani at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognized in statement of comprehensive income.

2.14 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and bank deposits with maturity of three months or less from the date of placement. Bank borrowings that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

2.15 segment analysis

The Company is engaged in leasing activities, all of which are carried out in Oman. Although the Company has individual and corporate customers, the entire lease portfolio is managed internally as one business segment. All the Company’s funding and costs are common and are not shared between these two portfolios.

2.16 fair value estimation

For investments traded in an active market, fair value is determined by reference to quoted market bid prices. The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk characteristics. Unquoted equity investments are held at cost.

The fair value of interest rate swaps is arrived at by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.

New standards and interpretations not yet effective

(a) Standards and amendments effective in 2014 and relevant for the Company’s operations:

For the year ended 31 December 2014, the Company has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for periods beginning on 1 January 2014.

The following new standards and amendments became effective as of 1 January 2014:

• Investment Entities – Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements

• Offsetting Financial Assets and Financial Liabilities — Amendments to IAS 32 Financial Instruments: Presentation

• Recoverable Amount Disclosures for Non-Financial Assets — Amendments to IAS 36 Impairment of Assets

• Novation of Derivatives and Continuation of Hedge Accounting — Amendments to IAS 39 Financial Instruments: Recognition and Measurement

• IFRIC 21 Levies

• Improvements to IFRSs – 2010-2012 Cycle: Amendments to IFRS 13 – Short-term receivables and payables’’

• Improvements to IFRSs – 2011-2013 Cycle: Amendments to IFRS 1 – Meaning of ‘effective IFRSs’

The adoption of those standards and interpretations has not resulted in changes to the Company’s accounting policies and has not affected the amounts reported for the current and prior periods.

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

The following new standards and amendments have been issued by the International Accounting Standards Board (IASB) but are not yet mandatory for the year ended 31 December 2014:




• IFRS 15, Revenue from Contracts with Customers: effective for annual periods commencing 1 January 2017;

• IFRS 9, Financial Instruments - Hedge accounting: effective for annual periods commencing 1 January 2015;

• IFRS 14 Regulatory Deferral Accounts

• Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

Ifrs 9 financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February 2015. The adoption of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but no impact on the classification and measurement of the Group’s financial liabilities. The Company is currently assessing the impact of IFRS 9 and plans to adopt the new standard on the required effective date.

Other IASB Standards and Interpretations that have been issued but are not yet mandatory, and have not been early adopted by the company, are not expected to have a material impact on the company’s financial statements.

3. Critical accounting judgments and key sources of estimation of uncertainty

The preparation of financial statements in conformity with IFRS requires the management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future period if the revision affects both current and future periods.

The following are areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements:

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 and loss account, available-for-sale or held to maturity investments.

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 set out below :

(a) fair value estimation

For investments traded in organised financial markets, fair value is determined by reference to quoted market bid prices at the close of business on the statement of financial position date, adjusted for transaction costs necessary to realise the asset.

For unquoted investments a reasonable estimate of the fair value is determined by reference to the market value of a similar investment or is based on the expected discounted cash flows. Fair value cannot be reliably measured for certain unquoted foreign investments. Such investments are measured at cost. The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk characteristics.

(b) Impairment losses on lease receivables

The Company reviews its lease receivable portfolio to assess impairment at least on a quarterly basis. In determining whether an impairment should be recorded in profit or loss, the Company makes judgements 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 lease receivables before the decrease can be identified with an individual portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group 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 its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(c) taxes

Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Given the wide range of business relationships




and nature of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessments of the Company. The amount of such provisions is based on various factors, such as experience of previous tax assessments and differing interpretations of tax regulations by the taxable entity 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 available 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.

4. Cash in hand and at bank

2014 2013ro’000 RO’000

Current accounts 1,691 1,627Cash in hand 21 21

1,712 1,648

5. statutory deposit

The Company is required to maintain a deposit of RO 170,000 with the Central Bank of Oman (the “CBO”) in accordance with the licensing regulations. During the year, the deposit earned interest at the rate of 1.5% per annum (December 2013: 1.5% per annum). In accordance with the circular no. FM 29, issued by Central Bank of Oman on 15 June 2011, the statutory deposit should be increased to RO 250,000 before the end of year 2016.

6. net investment in finance leases and working capital finance

2014 2013ro’000 RO’000

Gross investment in finance lease 124,610 118,702Working capital finance receivables 5,044 3,937Unearned lease income (14,976) (14,035)

114,678 108,604Provision for impairment of lease receivables and working capital finance

(6,741) (6,010)

Unrecognised contractual income (631) (636)107,306 101,958

Unearned lease income

2014 2013

ro’000 RO’000

1 January 14,035 13,160

Addition during the year 10,512 10,011

Recognised during the year (9,571) (9,136)

31 December 14,976 14,035

As required by CBO, the movement in the impairment allowance and reserve interest is analysed below:

(a) Impairment for finance leases and working capital finance

2014 2013

ro’000 RO’000

1 January 6,010 5478

Charge during the year - net 648 468

Transfer from written-off provisions 83 64

31 December 6,741 6,010

b) reserve interest for finance leases and working capital finance

2014 2013

ro’000 RO’000

1 January 636 486

Charge during the year 270 246

Released during the year (275) (96)

31 December 631 636

As a matter of policy, the Company considers waiver / write-off or settlement only in such cases where it is satisfied that the recovery of the full outstanding liabilities from the borrower is not possible in the normal course of business or out of the securities realisation or through enforcement of the guarantee (wherever available) and that legal action will not yield higher recoveries after considering the time and costs involved.




Proposals for waivers / write-off are not formula driven and are decided on case by case basis after weighing all pros and cons. The rationale is invariably documented. In all cases, the Company aims to recover the maximum value through enforcement of collaterals / guarantees of guarantors, etc.

Interest is reserved by the Company against lease contract receivables and working capital receivables which are impaired, to comply with the rules, regulations and guidelines issued by the CBO.

Under the CBO’s guidelines for provision against classified lease contract receivables and working capital receivables, at 31 December2014, out of the collective provisions of RO 6.741 million (31 December 2013: RO 6.010million) provision made on a portfolio basis for similar assets amounts to RO 2.694 million (31 December 2013: RO 3.086 million).

At 31 December 2014, impaired lease contract receivables and working capital receivables on which interest has been reserved or on which interest is not being accrued amount to approximately RO 7.890 million (31 December 2013 - RO 5.950 million).

Investment in lease contract and working capital receivables is summarised as follows:

2014 2013ro’000 RO’000

Neither past due nor impaired 95,885 90,843Past due but not impaired 10,903 11,811Impaired 7,890 5,950Gross investment in finance leases and working capital finance

114,678 108,604

Impairment allowance (6,741) (6,010)Unrecognised contractual income (631) (636)Net investment in finance leases and working capital finance

107,306 101,958

Investment in lease contract and working capital receivables:

past due but not impaired

2014 2013ro’000 RO’000

Past due up to 30 days 5,645 5,730Past due 30 - 60 days 2,846 4,800Past due 60 - 89 days 2,412 1,281

10,903 11,811

Impaired

2014 2013

ro’000 RO’000

Specially mentioned (Past Due 90 – 179 days) 2,485 1,494

Substandard (Past Due 180 – 269 days) 590 944

Doubtful (Past Due 270 – 364 days) 991 443

Loss (More than 364 days) 3,824 3,069

7,890 5,950

Investment in lease contract and working capital receivables rescheduled

Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructured / rescheduled loans amounted to RO 349,455 at 31 December 2014 (2013: RO 72,791). Out of these one contract amounting to RO. 32,663 is classified as Doubtful as on 31December 2014 ( 2013: nil).

7. other receivables and prepayments

2014 2013

ro’000 RO’000

Prepaid expenses 176 193

Others 16 15

192 208

8. Investment

Available-for-sale

2014 2013

ro’000 RO’000

The Arab Leasing Company Ltd. 582 791

These represent unquoted investments classified as available – for – sale.




9. Vehicles and equipment

Motor office furniturevehicles equipment and fittings totalro’000 ro’000 ro’000 ro’000

Cost1 January 2014 85 560 298 943Additions during the year - 167 167 334Disposals during the year (14) - - (14)31 december 2014 71 727 465 1,263depreciation 1 January 2014 64 470 233 767Charge for the year 11 73 41 125Disposals during the year (14) - - (14)31 december 2014 61 543 274 878Net book value31 december 2014 10 184 191 38531 December 2013 21 90 65 176

10. shareholders’equity

(a) share capital

The authorised share capital of the Company comprises 300,000,000 ordinary shares of RO 0.100 each (31 December 2013: 300,000,000 ordinary shares of RO 0.100 each).

The Company’s issued and fully paid-up share capital comprises of 253,590,000 ordinary shares of RO 0.100 each (31 December 2013:237,000,000 ordinary shares of RO 0.100 each). The shareholders in the AGM held on 24 March 2014 approved the issue of stock dividend of 7% for the year ended 2013 on the paid up capital of the Company.

At 31 December, the shareholders who own 10% or more of the Company’s share capital were:

2014 2013share

holding %shares held

Share holding %

Shares held

Al Anwar Holding SAOG - - 29.70 70,387,870Oman Investment Fund 33.63 85,287,298 - -Arab Investment Company S.A.A

18.79 47,637,994 18.79 44,521,490

Iran Foreign Investment Company

12.49 31,685,320 12.49 29,612,449

Significant changes in Shareholding

During the year 2014, Al Anwar Holding SAOG has sold their entire stake of 33.63% in Taageer Finance Company SAOG to Oman Investment Fund.

(b) Legal reserve

In accordance with the Commercial Companies Law of Oman 1974, annual appropriations of 10% of the profit for the year, are made to this legal reserve until the accumulated balance of the reserve is equal to one third of the Company’s share capital. This reserve is not available for distribution.

(c) proposed dividend

Subsequent to the reporting date, the Board of Directors, have proposed a cash dividend of 10% (2013: 10%) amounting to RO 2,535,900 (RO 0.010 per share) [2013: RO 2,370,000 (RO 0.010 per share)] The proposed cash dividend is subject to shareholders’ approval at the Annual General Meeting to be held on 19 March 2015.

11. Bank borrowings

2014 2013

ro’000 RO’000

Bank overdrafts 2,094 2,088

Short-term loans 34,500 36,300

Long-term loans 18,803 15,204

55,397 53,592

The Company has borrowing facilities with local commercial banks in the aggregate amount of approximately RO 100.065 million as on 31 December 2014. (31 December 2013-RO 67.269 million).

During the year, interest was charged on overdrafts at an average rate of 5.50% to 5.75% per annum (31 December 2013 - 7.00% per annum), on short-term loans at an average rate of 2.47% per annum (31 December 2013 – 2.83% per annum) and on long-term loans at an average rate of 3.75% per annum (31 December 2013 – 4.52% per annum).

All borrowings, at the reporting date, are secured by pari-passu charge over the receivables of the Company. There is no default or breach of terms and conditions of the loan agreements during the year ended 31 December 2014.




12. deposits

2014 2013ro’000 RO’000

Corporate deposits 16,027 13,669Security deposits 132 38

16,159 13,707

The average interest rates on corporate and security deposits was 3.15% per annum (31 December 2013: 3.68% per annum).

Security deposits are obtained against the working capital, factoring and lease facilities and include a deposit of RO 2,000 (31December 2013: RO 8,000) which is interest free.

13. Creditors, accruals and other liabilities

2014 2013

ro’000 RO’000

Leased assets payable 4,242 4,919

Accruals for expenses 1,332 845

Employee terminal benefits (Note 14) 80 75

5,654 5,839

14. employee terminal benefits

2014 2013ro’000 RO’000

At 1 January 75 64Charge for the year 17 20Payments during the year (12) (9)At 31 December 80 75

15. net assets per share

Net assets per share is calculated by dividing the net assets at the year end by the number of shares outstanding as follows:

2014 2013

Net assets (RO 000) 32,427 31,123Number of shares outstanding at 31December (000) 253,590 237,000Net asset per share (Baiza) 128 131

16. General and administrative expenses

2014 2013ro’000 RO’000

Personnel costs (refer note below) 2,436 2,123Occupancy costs 254 192Professional fees and subscriptions 154 94Directors’ remuneration and sitting fees 108 118Advertising and sales promotion 86 294Collection and recovery expenses 8 9Communication costs 123 91Printing and stationery expenses 51 28Travelling expenses 61 47IT maintenance and license fees 11 17Insurance 2 4Donations 5 13AGM expenses 22 20Other office expenses 50 39

3,371 3,089

Components of personnel costs

2014 2013ro’000 RO’000

Salaries 1,979 1,698Other benefits 349 341Contributions to defined contributions retirement plan 91 64Liability for employee terminal benefits 17 20

2,436 2,123

17. other income

2014 2013ro’000 RO’000

Services charges 1,190 997Other non operating income 101 -Foreclosure charges 72 93Dividend income 24 14Profit on disposal of vehicles and equipments 8 2Interest on fixed deposits 1 1

1,396 1,107




18. Income tax

Provision for income tax during the year has been made at 12% (2013 - 12%) of taxable income in excess of RO 30,000 in accordance with the Income Tax law of the Sultanate of Oman.

2014 2013ro’000 RO’000

Income statementCurrent tax expenses 565 587Recognition of deferred tax asset 40 46Taxation 605 633

provision for taxationCurrent period 565 587Prior years 479 437

1044 1,024non-current assetDeferred tax 334 374

The following is a reconciliation of income taxes calculated at the applicable tax rate with the income tax expense:

2014 2013

ro’000 RO’000

Profit before income tax 4,488 4,557

Tax @ 12% after deducting RO 30,000 (2013: 12%) 535 546

Adjustment for tax purposes 30 41

Tax effect of deferred tax assets 40 46

Income tax expense 605 633

Deferred tax is provided at 12 % (2013 – 12%) and mainly relates to provision for lease receivable.

status of tax assessment

The Company’s assessment for the tax years 2004 to 2009 have been finalised during the previous year by the tax department.

The Company’s assessments for the tax year 2010 to 2013 have not yet been finalised. The Management believes that additional taxes, if any, in respect of the unassessed tax year would not be material to the Company’s financial position at the reporting date.

19. Basic earnings per share

Basic earnings per share is calculated by dividing the profit for the year by the average number of shares outstanding during the year as follows:

2014 2013

Profit for the year (RO’000) 3,883 3,924

Weighted average number of shares (’000) 253,590 253,590

Basic earnings per share (Baizas) 15.3 15.4

For the purpose of calculation of earnings per share, the Company has restated the previous year weighted average number of shares outstanding to include 7% bonus shares (16,590,000 shares) issued in the first quarter of 2014.

As the bonus issue was without consideration, the number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented.

No figure for diluted earnings per share has been presented because the Company has not issued any instruments which would have an impact on earnings per share when exercised.

20. related party transactions

Related parties comprise the shareholders, directors, key business personnel and business entities in which they have the ability to control or exercise significant influence in financial and operating decisions.

The Company maintains significant balances with these related parties which arise in the normal course of business and are entered into at terms and condition which the management considers to be comparable with those adopted for arm’s length transactions with third parties.

The Company has entered into transactions in the ordinary course of business with its executive officers, Directors and entities in which certain Directors have a significant influence. Interest charged on long-term loans and other transactions are on terms, which the Directors believe correspond to terms of normal arm’s length transactions with third parties.

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




transactions with related parties: 2014 2013ro’000 RO’000

Interest on corporate deposits 282 333Occupancy costs 130 93Lease income 1 6related party balances:Net investment in finance leases 18 61Deposits 6,350 11,480Investments 582 791

21. Compensation of key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any Director (whether executive or otherwise). The remuneration of directors and other members of key management during the year was as follows:

22. Contingent liabilities

The Company has given counter guarantee to a commercial bank to the extent of RO 483,354 (31 December 2013: RO 92,635) in respect of performance bonds, advance payment guarantees, Letter of Credits, etc issued by the banks on behalf of the Company’s customers.

23. fair value information

Based on the valuation methodology outlined below, the fair value of all on and off-statement of financial position financial instruments at 31 December 2014 is considered by the Management not to be materially different to their book values.

estimation of fair values

The following summarizes the major methods and assumptions used in estimating the fair value of assets and liabilities:

Investment in finance leases and working capital finance

Fair value is calculated based on discounted expected future principal and interest cash flows. Repayments are assumed to occur at contractual repayment dates, where applicable. For finances that do not have fixed repayment dates or that are subject to prepayment risk, repayments are estimated based on experience in previous periods when interest rates were at levels similar to current levels, adjusted for any differences in interest rate outlook. Expected future cash flows are estimated considering credit risk and any indication of impairment. Expected future cash flows for homogeneous categories of finances are estimated on a portfolio basis and discounted at current rates offered for similar loans to new borrowers with similar credit profiles. The estimated fair

values of finances reflect changes in credit status since the finances were made and changes in interest rates in the case of fixed rate loans.

deposits

The estimated fair value of fixed-maturity deposits is based on discounted cash flows using rates currently offered for deposits of similar remaining maturities. The value of long-term relationships with depositors is not taken into account in estimating fair values.

off-balance sheet financial instruments

No fair value adjustment is made with respect to credit-related off-balance sheet financial instruments, which include counter guarantees on standby letters of credit and other counter guarantees, as the related future income streams materially reflect contractual fees and commissions actually charged at the reporting date for agreements of similar credit standing and maturity.

fair value versus carrying amounts

The fair value of the financial assets and liabilities approximates their carrying value as stated in the statement of financial position.

fair value measurements recognised in the statement of financial position:

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

2014Level 1 Level 2 Level 3 totalro’000 ro’000 ro’000 ro’000

Available-for-sale financial assets

Un-quoted investment - - 582 582




During the year there were no transfers between any level mentioned above.

2013Level 1 Level 2 Level 3 TotalRO’000 RO’000 RO’000 RO’000

Available-for-sale financial assets

Un-quoted investment - - 791 791

24. risk Management

Risk assessment exercise is conducted to identify all the risks associated with the Company, to rate them for likelihood and impact and to stack the mitigating internal controls against the identified risks.

The Company’s key goals are identified and it works towards its attainment. The Company’s risk management objectives and strategies would ensure that the events which could threaten the achievement of these objectives are:

• Identified as risks;

• Mitigated by appropriated controls; and

• Monitored and reported.

As the risk may change rapidly and often, management reviews the risks at regular intervals. Significant changes in objectives are carried out at the time as well and revaluation of risks. This facilitates prioritising the resources and managing risks more effectively. The review is carried out based on the control of risks.

Lending is strictly in accordance with the CBO’s guidelines. All lending decisions are made after giving due consideration to credit policy requirements.

The Company’s policy is to establish prudent standards, practices in managing credit risk and setting up prudent bench marks and limits for management of credit risks.

Management is responsible for the risk identification and assessment. Management is accountable for the economy, efficiency and effectiveness of risk management, control and governance.

The Board of Directors has the overall authority for approval of strategies and policies which it exercises through its various sub-committees.

Management’s Credit Committee is the decision making body which is empowered to consider all credit related issues upto certain limits.

The Board is the final credit approving authority of the Company which is mainly responsible for approving all credit proposals beyond the authority level of the management.

Past dues and impairment:

Past dues and impaired exposures are defined in accordance with the relevant CBO’s regulations. Specific and collective provisions are computed periodically in accordance with the CBO‘s regulations as well as other applicable accounting standards. In addition to the above, the Company makes a collective provision on the finance leases and working capital finances.

The important types of financial risks to which the Company is exposed are credit risk, liquidity risk and market risk. The Company enters into derivative financial instruments such as forward contracts for risk management purposes. Financial risks are actively managed by management to ensure compliance with the Company’s risk limits. The Company’s risk limits are assessed regularly to ensure their appropriateness given the Company’s objectives, strategies and current market conditions.

a) Credit risk

The most important risk to which the Company is exposed is credit risk. The Company is subject to credit risk through its lending activities and in cases where it acts as an intermediary on behalf of customers or other third parties or issues counter guarantees. The risk that counter-parties to financial instruments might default on their obligations is monitored on an ongoing basis.

The Company’s primary exposure to credit risk arises through its investment in finance leases and working capital finances. The amount of credit exposure in this regard is represented by the carrying amounts of the assets on the statement of financial position.

The risk involved is essentially the same as the credit risk involved in extending finance facilities to customers, therefore these transactions are subjected to the same credit organisation, portfolio maintenance and collateral requirements for customers applying for finances. While there is some credit risk associated with the remainder of commitments, the risk is viewed as modest, since it results from the possibility of unused portions of the facilities being drawn by the customers. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements.

The credit risk of these facilities may be less than the notional amounts, but as it cannot be accurately determined, the credit risk has been taken to be the contract or notional amount.

Concentrations of credit risk (whether on or off statement of financial position) that arise from financial instruments exist for groups of counter-parties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.




The analysis of credit risk is given below :

i) Customer concentration

2014 2013

ro’000 RO’000

Gross investment in Finance Leases

Individual 43,303 40,540

Corporate 81,307 78,162

124,610 118,702

Working capital finance and factoring receivables

Individual - 182

Corporate 5,044 3,755

5,044 3,937

ii) Economic sector concentration of gross investment in finance leases

Gross investment in finance leases: 2014 2013

ro’000 RO’000

Manufacturing 5,815 6,570

Trading and Constructing 11,853 13,108

Services 63,639 58,484

Individual 43,303 40,540

124,610 118,702

Working capital finance: 2014 2013

ro’000 RO’000

Manufacturing 3 168

Trading and Constructing 1,946 1,087

Services 3,095 2,500

Individual - 182

5,044 3,937

b) Liquidity risk

Liquidity risk arises in the general funding of the Company’s activities and in the management of positions. It includes both 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 Company has access to a diverse funding base. Funds are raised using a range of instruments including deposits and bank borrowings. This enhances funding flexibility, limits dependence on any one source of fund and generally lowers the cost of funds. The Company strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. The Company continually assesses liquidity risk by identifying and monitoring changes in funding required to meet business goals and targets set in terms of the overall strategy.

Maturity profile of relevant assets and liabilities

31 december 2014

0 - 30

days

31 - 180 days

181 - 365 days

1 - 3 years

over 3 years total

ro’000 ro’000 ro’000 ro’000 ro’000 ro’000assetCash in hand and at bank 1,712 - - - - 1,712

Statutory deposit - - - - 170 170

Net investment in finance leases and working capital finance

5,119 21,347 20,086 47,598 13,156 107,306

Investment - - - - 582 582total assets 6,831 21,347 20,086 47,598 13,908 109,770Equity and liabilities

Total shareholders’ equity

- - - - 32,427 32,427

Bank borrowings 20,148 22,071 5,003 8,175 - 55,397

Deposits 2,032 4,150 8,400 1,577 - 16,159Creditors, accruals and other liabilities

2,465 3,242 - - 80 5,787

total equity and liabilities 24,645 29,463 13,403 9,752 32,507 109,770

Liquidity gap (17,814) (8,116) 6,683 37,846 (18,599) -Cumulative liquidity gap (17,814) (25,930) (19,247) 18,599 - -




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6- d) Capital risk management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Company’s overall strategy remains unchanged from 2010.

The capital structure of the Company consists of debt, bank balances and cash and equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings as disclosed in notes 10 and 11.

Gearing ratio

The Company’s Board Executive Committee reviews the capital structure on a quarterly basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. The Company has a target gearing ratio of 5 times as stipulated by the Capital Adequacy norms specified by the CBO.

The gearing ratio including proposed cash dividend at the year-end was as follows:

2014 2013ro’000 RO’000

Total liabilities (RO’000) 78,254 74,162Net worth (RO’000) 32,427 31,123Net debt to net worth ratio (No. of times) 2.41 2.38

25. Comparative figures

Certain comparative information has been reclassified to conform to the presentation adopted in these financial statements. The reclassification impact on the reported profit or equity is nil.

Sultan Qaboos Bin Said - Interacoman · engr. ahmed Hamed al subhi Chairman Mehdi Mohammed Jawad al...

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