kuwait food company (americana) sak
Transcription
kuwait food company (americana) sak
KUWAIT FOOD COMPANY (AMERICANA) S.A.K. Established by Amiri Decree Dated 29th December 1963 Authorized Capital Kuwaiti Dinars 14,341,212 Paid up Capital Kuwaiti Dinars 14,341,212 Commercial Registration No. 4369 Head Office: Shuwaikh, 3rd Industrial Area – Plot 198 A, P.O. Box: 5087, Safat 13051, Kuwait Fax: 4846925, 4815914 Cable: Nutrition Tel: 4815900 – 8 Lines www.americana–group.com e-mail: headoffice@americanaf.com Auditors: Mr. Jassim Ahmad Al-Fahad Al Fahad & Co. Deloitte & Touche Mr. Abdul Latif Hoshan Al-Majid Allied Accountants AMIR OF THE STATE OF KUWAIT HH SHEIKH JABER AL-AHMAD AL-JABER AL-SABAH CROWN PRINCE THE PRIME MINISTER HH SHEIKH SAAD AL-ABDULLAH AL-SALEM AL-SABAH HH SHEIKH SABAH AL AHMED AL JABER AL SABAH BOARD OF DIRECTORS CHAIRMAN & MANAGING DIRECTOR: Mr. Marzouk Nasser Al-Kharafi VICE CHAIRMAN: Mr. Bader Mohamed Abdul Wahab Al-Jouan MEMBERS: Mr. Nasser Mohamed Abdulmohsin Al-Kharafi Mr. Abdulla Mohamed Al-Saad Mr. Mohanad Mohamed Abdulmohsin Al-Kharafi Mr. Loay Jassim Al-Kharafi Sheikh, Abdulla Salem Sabah Al-Sabah Board of Directors’ Report for the year 2004 Dear Honorable Shareholders, By the end of the year 2004, Kuwait Food Company (Americana) has completed 40 years since its incorporation in 1963. The Company's development, growth and accomplishment have continued over these years achieving more stability and expansion as the first food joint stock Company in the State of Kuwait as well as in the Arab Gulf Region. Throughout the past 35 years, our Company was under the chairmanship and leadership of Mr. Nasser Mohamed Abdulmohsin Al-Kharafi. He has devoted his time and effort, gave his long-term strategic and wise vision and directions, passionate support to the Company during its hard times as well as his motivation to the Company's staff. This has resulted in the establishment of this sublime business edifice which has become the largest food stuff Company in all the Arab Countries according to the "Middle East" magazine's issue no. 350 dated November 2004. It has also become one of the largest 100 Arab companies including banks and investment, communication, contracting and real estate companies. The following table shows the splendid growth of the Company's Sales and Profits as well as the multiples of such Sales and Profits every 10 years over the past thirty years. Description Sales Net Profit Annual Report 2 0 0 4 1974 (Thousa nd K.D ) 1984 (Thousand K.D ) Multiple (times) 1994 (Thousand K.D ) Multiple (times) 2004 (Thous and K.D ) Multiple (times) 1,038 24,579 23.7 90,333 3.7 201,415 2.2 55 1,674 30.4 6,399 3.8 23,5466 3.7 The Company shall continue its stride of development, growth and achievement of contemplated prosperity at the same rates in the future, God willing. Challenges & Achieveements of the year 2004 The year 2004 was rife with challenges in all the markets. However, the Company has managed to realize new record Sales and Profits. Total Sales amounted to K.D 201.4 Million, at 18% growth rate of the Company's existing business in addition to another 9% growth rate resulting from its acquisition of two new businesses (Green Land Dairy Company of Egypt as well as Pizza Hut Restaurants in Bahrain). The Company has also realized a net profit of K.D 23.5 Million, at 12% growth rate over last year after the evaluation of the financial portfolio. Des cription 1984 1989 1994 1999 2004 Sales (KD Million ) 24.6 46.8 90.3 138.9 201.4 18% 19% 11% 9% 2.9 6.4 9.3 23.5 15% 24% 9% 30% 170 282 463 669 7 8 9 12 16 2 6 10 12 14 Average Ann ual Growth of the peri od's Sales Net Profit (KD Million) 1.7 Average Ann ual Growth of the peri od's Profits Number of Re staurants 125 Number of Ch ains Number of Co mmercial and Industrial Subsidiaries a nd Sectors The following graphs indicate the development of the Company's Sales and Profits during the period 1984 until 2004 Profits 1984 – 2004 (Figures in KD million) Annual Report 2 0 0 4 Sales 1984 – 2004 (Figures in KD million) The above table and diagram indicate that the Company has achieved net sales of K.D 201.4 Million. This is the largest Sales turnover ever realized by the Company. Besides, the Profits achieved in 2004 amounted to K.D 23.5 Million which represent the highest profits ever realized by the Company since its incorporation, at an average annual growth rate of 30% over the last five years. This is due to the long term strategy adopted by the Company for developing and diversifying its business in terms of its activities and geographic coverage. Following is the presentation of the • Reaffirming the Company’s capability to cater for the desires and expectations of its most outstanding achievements of restaurants' customers, the number of sold the Company's busimeals in the year 2004 was 70 Million, at an ness in the year 2004: In the year 2004, the Company continued its mission of pioneering, universality, diversity, development, community service and efficiency, making use of the support of its Shareholders and the trust of its customers in all the respective countries in which it has its business operations. Restaurants business's outstanding achievements in the year 2004: Annual Report 2 0 0 4 • In the era of globalization now prevailing all over the world, Americana has been always the forerunner thanks to its astute openness to the developed world. Americana is considered the largest Arab Company having such great number of international franchises since its introduction of Wimpy restaurants into the region in 1970 as well as the inauguration of the first Kentucky Fried Chicken Restaurant in 1973. Then, openings have followed successively until the Company's chains reached 16 by the end of 2004 in the field of fast food or casual dining. These distinguished chains are KFC, Pizza Hut, Hardee's, Baskin Robbins, TGI Friday's, Saint Cinnamon, Costa Coffee … etc. The year 2004 witnessed opening of 63 restaurants at the rate of one new outlet every 6 days. increase of 20% over last year. This wouldn’t have happened but for the Company’s determination on emphasizing quality in its entire range of products offered to its customers, thus satisfying their desires and exceeding their expectations. • In addition to the opening of new outlets, the Company's restaurant business has introduced two new chains representing significant addition to the portfolio of services rendered by Americana to its customers. The new chains are Saint Cinnamon (in Egypt and U.A.E.) serving cinnamon flavored bakeries and light meals in an atmosphere of luxury and comfort. It has also introduced Costa Coffee chain (in Egypt and Lebanon) with its distinguished flavored coffee and light and assorted meals. These new chains reflect the strategy adopted by the Company for consolidating its competitiveness through planned penetration and fulfillment of the desires of its customers in all markets. • The Company further pays special attention to the satisfaction of its customers and their convenience by satisfying their various tastes through ongoing innovation. Twelve new products were introduced in the different chains which were warmly received by the customers, such as Chicken Fillet and Rice with two distinguished flavors and new Toasted Twister and Zinger sandwiches at KFC chain while Hardee's has introduced the Big Chicken Caesar and the Famous Star sandwiches. For new product development purpose, the Company applies the state-of-art techniques in the field. • During the year 2004, the Company acquired Pizza Hut Bahrain Chain including 10 restaurants. As usual, the Company had immediately developed and renovated four restaurants during the period from September until the end of 2004. The other restaurants are under development and renovation. The acquisition of Pizza Hut business integrates the restaurants business in the State of Bahrain where the Company is operating KFC and Hardee's Chains. • Americana has emphasized the elements of superiority of its restaurants performance as follows: Annual Report 2 0 0 4 - Quality in its overall concept has always been associated with the name of Americana being the Company's logo for more than 30 years. The quality of foods served by Americana restaurants has remained one of the major attractions for its customers. Quality is related not only to the products offered by the restaurants but also to the quality of customer service. The Company has introduced in co-ordination with a major Franchisor, a special award for its restaurants' staff for this purpose under the name of "Customer Mania". Quality is the Company's permanent commitment to its valuable customers. - The Company has been interested in the convenience of its restaurants' services and has been keen to render more distinguished services to its customers through the development of home delivery service and introduction of call centers which are the latest innovation in the world. It has also been keen to serve various meals such as family, teenager and kids meals for satisfying the various tastes and desires of its customers. - The human resources and training are considered as one of the most significant elements to which the Company pays special attention, being one of the outstanding factors of developing products and services and caring for customers. Therefore, the Company's policy is not limited to the selection of the best human resources for employment but rather extends to include a set of continuous development and training programs. That is to achieve the highest quality of rendered services aiming at the complete satisfaction of our customers and achieving optimum operational efficiency. - In 2004, your Company ascertained its efficient presence in restaurants marketing and promotion using different mass media activities and channels. This has resulted in the consolidation of bonds and relations between the Company and its customers, positively reflected on Sales increase despite the fierce competition. The Company takes pride in being the pioneer in the region in the domain of application of efficient marketing programs in its restaurants activities. This has resulted in the popularity of the Company’s brands and the expansion of its clientele base. Annual Report 2 0 0 4 - The Company shall continue to pay its attention to information systems and technological development in its restaurants, maintaining its pioneering role in terms of cost and quality control. - Kuwait Food Company is totally keen to achieve more geographic penetration serving its customers wherever they are, to deliver their orders fast and fresh and to provide pleasant and attractive dining environment inside its restaurants while their kids enjoy amusing and safe play areas. It continues to serve meals at appropriate prices affordable for different classes of customers giving “value for money”. - Kuwait Food Company (Americana) applies a consistent policy of providing premium quality products at reasonable price throughout the years and across the Arab countries such that its customers became accustomed to. • The Company's restaurants received a number of awards from its franchisors in recognition of its commitment to Excellence. Some of them are; the Franchisee of the Year in 2004 from TGI Fridays Chain, Customer Mania Award and Reward and Recognition Award from Yum Brands, Operational Superiority Award from Hardee's, the Hazard Analysis and Critical Control Point (HACCP) Award for Commissary. • Kuwait Food Company (Americana) has managed in the past to set an example of superiority and accomplishment. In the present, to occupy a pioneering and leading role based on the trust of its valuable customers. The Company has always been considering its entry into new markets and opening new chains and restaurants in the existing countries of its business. This would provide the Company with more diversity and presence in the existing markets or the new potential markets, giving further balance and momentum for greater growth of its revenues and profits, God willing. The following diagram shows the increase of the Company's restaurants during the period from 1984 until 2004. Number of res taurants and stor es 1984 – 2004 The diagram indicates that the number of restaurants has now become five times the number 20 years ago. The number of restaurants increased at 44% over the last five years. Furthermore, the number of meals served by such restaurants was more than 70 million meals in 2004. for different olive products. In Kuwait, the Company has its meat factory for processed meat and chicken products as well as the cake and pastry division. Besides, there are number of affiliated industrial companies that are not consolidated in the Company's financial statements. The Company is now expanding its business in the field of agriculture for supply of crops used for production at its factories (such as potatoes, tomatoes, vegetables …etc.,) as well as production of other agricultural crops in Egypt for exporting purposes such as strawberry …etc., The outstanding achievements of • The Company offers its customers a diverse Industrial and Trade Agencies portfolio of about 1200 food products by activities in 2004: way of indigenous production in its plants Annual Report 2 0 0 4 • The Company has been the pioneer and forerunner in the field of Food Processing Industries in the Arab countries. It opened the first meat and hamburger plant in the region, in Kuwait in 1973. Now, the Company has 10 food processing plants in four major regional markets (Kuwait, Saudi Arabia, U.A.E. and Egypt). Gulf Food Industries (California Garden) producing canned food, Cairo Food Industries (Heinz) producing Ketchup, tomato paste, mayonnaise, etc., International Agricultural Development Co. (Farm Frites) specialized in frozen potato and vegetables, Green Land Food Industries for Dairy products, Al Ahlia Food Industries (meat & cake divisions), Al Mohandes National Company for processed canned meat and the Egyptian Canning Company and by its trade agencies activities. The Company's products are available in more than 30 Arab and foreign countries such as USA, Canada, Australia, Spain, Belgium, Netherlands, France, Italy, U.K., Germany, Sweden, Hong Kong and Singapore. The following diagram shows the growth in the number of Industrial and Commercial activities during the period 1984 to 2004. • The Trade Agencies activity has introduced more than 10 new brands into the market, reflecting the Company's consistent interest in fulfillNumber of Industr ial and Commercial Sector s 1984 – 2004 ing the needs of its customers. The Trade Agencies Sector has introduced many products of famous international agencies such as Cadbury Chocolates, California Garden Canned Foods, Heinz Ketchup, Nordex Cheese, Farley's Baby Food. …etc., so that Americana would continue to be known as “the Food Basket” in the Arab world. confirming the fulfillment of quality standards. The Company is the first to receive various ISO certificates in this field. - Human resources and training: The Company is keen in its Industrial and Trading activities to recruit the best human resources and to expose them to the latest training programs. The Company is determined that its staff should acquire excellent skills in the latest developments in different business activities in terms of production, marketing and finance. It is also interested in providing appropriate working environment to ensure efficient operation reflecting on excellence of products and services. - Marketing: The Company is proud of being the pioneer in the region in terms of introducing efficient marketing programs for the products of its Industrial and Commercial activities and following the state-of-art Manufacturing and Packaging techniques. This has led to the popularity of its products, positively reflected on the increase of its sales turn over despite fierce competition. - Management Information Systems (MIS): The Company has long history in the field of • The Company acquired Green Land Dairy Company in Egypt, which manufactures various types of dairy products and juices for both local and export markets. This acquisition is strongly hoped to have a significant effect on the future results. • The Company has continued giving all attention to each and every element of its superiority in the field of Industrial and Trading activities as follows: Annual Report 2 0 0 4 - Quality: Since its onset, the Company’s products are synonymous with Quality. Moreover, competitiveness makes higher quality a necessity. The companies operating in this field have been granted International awards developing the information systems applied in its business. All the Company's plants located in the region apply Oracle technology. At this context, we cannot miss to refer to the superb role played by California Garden in internally upgrading the information system applied and receiving a recognition award from Oracle Corporation. - Geographical spread: Kuwait Food Company (Americana) is always keen to carry on its geographical spread strategy in addition to the diversification of its industrial products to ensure an easy, speedy supply to consumers at affordable cost. - Consistency : The Company retains its products differentiation by continuously developing its industrial products specifications, bringing them up to the level of the prime international brands. That is what our customers are accustomed to and expecting besides the excellent value of such products. • Americana is holding 23 international certificates of distinction in the industrial and trade activities. Some of the most recent are: Annual Report 2 0 0 4 - Farm Frites obtained ISO 9001 and Euro GAP certificates. - Al Ahlia Food Industries Company in Saudi Arabia obtained ISO 9001, ISO 9002 and ISO 14001 certificates. - Egyptian Canning Company obtained ISO 9001 and for production risks safety, the Hazard Analysis and Critical Control Point (HACCP) certificate. - California Garden Company obtained ISO 9001 , ISO 14001 and (OHSAS 18001) certificates. • Kuwait Food Company is in the process of adding new activities, lines of production and products to be launched soon in the markets thus satisfying its consumers worldwide. Other good news for Americana Shareholders in 2005 is that in the wake of the new free trade agreements among Arab states and with other countries, export business will notably be enhanced. Americana in the Community Service • The Company enjoys a leading and historical role in providing its products and services of international quality standards, and at local prices suitable for local consumers. That expands the consumer base and even adds new consumers becoming Company’s loyal customers. • The Company is playing a vital role in supporting the economic prosperity in the countries where it operates by encouraging local industries. Its contribution as principal sponsor of campaigns conducted for the purpose of supporting local product is noticeable. Americana also contributes in providing much needed foreign currency in the countries where it operates through promoting exports and reducing imports. Annual Report 2 0 0 4 • Americana plays a distinctive social role by the provision of employment opportunities to the manpower in the different countries it operates. The Company prides itself that most of its workforce is of Arab Nationalities reducing unemployment in these countries and activating economy. The Company employs more than 18 thousand of direct manpower. However, the total manpower including the affiliated companies, which are not consolidated in Americana’s balance sheet, shall reach to more than 25 thousand. The Company is considering human resources as the pivotal element to realize its objectives. Hence it has solid plans and long term strategies to guarantee its edge in that field. • The Company also participates in many fields of social activities that serves its commitments to the society. Examples of such contributions are: - Contributions to preserve the environment, environment awareness and cleaning campaigns. - Social contributions in providing scholarships, supporting talents, social guidance societies and alumni groups, traffic awareness campaigns and charity activities of all types. • The Company has also made many contributions in the field of health care such as contributing to the International Child Day, Children Cancer Centers, Disabled Childhood Affairs Care. It also contributes in the sports field such as honoring retiring players, participating in setting up car rallies and supporting schools sports days. • The Company shall remain reaffirming its attention to the elements of innovative development and information technology as well as the importance of modern manufacturing technology and techniques. Updating of such secures the Company's precedent development and more distinguishing and guarantees the transfers of international modern technology to the production units of the Company making it available in the Arab countries where it operates. • The Company reiterates its deep interest in modernizing all its methods and especially in Management Information Systems as well as other technological fields. Its primary goal is to provide the most suitable modern technologies to its production and front line units in the different markets it operates. Shareholders Equity and the Proposed Dividends The Company's Management is always keen to support its Shareholders' Equity and strengthen the Company's financial position as mentioned below: • It is evident by examining the Company's Balance Sheets during the previous years, the considerable development occurred in the Shareholders Equity during the past 20 years. In 2004, Net Shareholders Equity reached 120 million Kuwaiti Dinars which represents 6 times the Shareholders Net Equity during 1984 with an average annual growth of about 26%. • The total assets of the Company increased from 167 Million Kuwaiti Dinars last year to 230 Million Kuwaiti Dinars in 2004, an increase of 38% over the previous year, as a result of the expansions carried out by the Company through acquiring new business activities such as Green Land in Egypt, Pizza Hut in Bahrain and also increasing the Company's investments in the financial portfolios by accurate and diligent selection. Annual Report 2 0 0 4 • The Company is keen to improve and strengthen its financial position through good selection of its finance resources suitable for its assets which is reflected by realizing the maximum possible benefits for its Shareholders. Hence, we can see that the percentage of financing the assets by Shareholders equity has increased from 34% in 1994 to 52% in 2004 which indicates the extent of care for developing the equity of our esteemed Shareholders. • The Company's Management is careful as has always been in the past to support the finance structure of the Company through its proper management of cash, investments, making the necessary comprehensive feasibility studies, adopting time-tested riskfree policy based on safe investment, diversification of income resources, adding new streams of profits ensuring financial security and stability. Investment in financial portfolios represents an important channel among the streams of realizing more profits specially those portfolios which include carefully selected shares of blue-chip Companies listed in the Kuwait Stock Exchange. • The Company achieved a huge rise in the Book Value per Share and its Earnings per share during the last twenty years. The Book Value per Share at the end of 2004 after the proposed dividends, has reached 861 Fils per share which is 5 times the value in 1984. Also the Earnings per share (on the basis of the number of shares at the end of the year) reached 169 Fils per share at the end of 2004 which is 11 times that of 1984.The following graph shows the development of the Company share dividend performance and the book value per share during the period from 1984 until 2004. Description 1984 1989 1994 1999 2004 Shareholders Equity after dividends 19.4 21.8 29.8 49.2 119.9 (KD Million ) Retained Earnings (KD Million ) 1.2 2.0 7.4 23.1 73.6 Retained Earnings per Share (Fils ) 11 18 66 192 529 Rate of Return on the average 8.7% 13.7% 23.2% 19.6% 22.5% Shareholders Equity Book Value per Share* ( Fils) 172 193 264 409 861 Earnings per Share* (Fils) 15 26 57 78 169 * Earnings per Share, Book Value per Share and Retained Earnings per Share are calculated on the basis of number of shares existing at the end of each year. The Retained Earnings also amounted to approximately 74 million Kuwaiti Dinars, which is a remarkable achievement reflecting the Company's strong financial position and the extent of trust it provides to its esteemed Shareholders. The following graph shows the growth of Earnings per Share and the Book Value per Share during the period from 1984 – 2004. It is evident from the previous tables & graphs the massive growth in the Earnings per Share and the Book Value per Share during the last twenty years. The rate of return on average Shareholders equity has increased from 8.7% in 1984 to 22.5% in 2004. Book Value Per share 1984 – 2004 (Fils) Annual Report 2 0 0 4 EPS 1984 – 2004 (Fils) Dear Shareholders, The Board of Directors would like to extend the most sublime thanks and appreciation to all Arab Countries where the Company has its business through its branches, subsidiaries or affiliated companies, in particular to all Officials and Government Authorities as well as banking and financial institutions for their continuous support and continued confidence in our Company. Dear Esteemed Shareholders, The Board of Directors would like to recommend to the General Assembly to distribute cash dividends at 70% of the capital (i.e., at 70 Fils per share) and bonus shares at 5% of the capital (i.e., five shares per each one hundred shares). In addition, to increase the Company's capital at 10% at a par value of 100 Fils per share in addition to a share premium amounting to 800 Fils per share to the Shareholders registered in the Company's records at the date of the General Assembly meeting. Annual Report 2 0 0 4 Finally, the Board of Directors would like to convey its sincere thanks, gratitude and appreciation to all the Company's Shareholders and esteemed customers for their sustained continuous trust in the Company and their complete support over the past forty years. We renew our undertaking to them that their confidence in the Company shall remain in place and to continue in this uninterrupted journey of growth and development. We also extend our thanks to the Company's management and staff for their great efforts rendering for the purpose of realizing such distinguished results in a family and teamwork atmosphere. Lastly, the Board of Directors of your Company conveys sincere thanks and humble gratitude to His Highness the Amir Sheikh Jaber Al Ahmad Al Jaber Al Sabah, praying to His Almighty God to keep him in the best of health to continue the development and progress procession of the country which he started since several years and to His Faithful Crown Prince Sheikh Saad Al Abdullah Al Salem Al Sabah and to His Highness the Prime Minister Sheikh Sabah Al Ahmad Al Jaber Al Sabah. Thanks must also be extended to all honorable Ministers for the service they are rendering to the country, looking after its affairs and leading its economy for the country's welfare. The Board of Directors also extends its thanks to M/s. Kuwait Stock Exchange, Ministry of Commerce & Industry and all the state authorities and institutions for their regular and continuing cooperation with the Company during 40 years of its age. God bless us all Board of Directors A n n u a l R e p o r t 2 0 0 4 CONSOLIDATED FINANCIAL STATEMENTS AND AUDITORS’ REPORT FOR THE YEAR ENDED DECEMBER 31, 2004 A n n u a l R e p o r t 2 0 0 4 AUDITORS’ REPORT The Shareholders Kuwait Food Company (Americana) S.A.K. Kuwait We have audited the accompanying consolidated balance sheet of Kuwait Food Company (Americana) SAK (the Company) and its subsidiaries (the Group) as at 31 December 2004 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of certain consolidated branches and subsidiaries operating outside the State of Kuwait. The assets and profits of the entities audited by other auditors represent 48 % and 66 % of the total consolidated assets and profits of the Group respectively before deducting head office expenses and revenues. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for these consolidated branches and subsidiaries, is based solely on the reports of other auditors. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the reports of other auditors, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2004, the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. We are also of the opinion that these financial statements give all the information required by the Commercial Companies Law and the Company’s Articles of Association, proper books of account were kept by the Company, the stocktaking was carried out in accordance with recognised principles, and the financial information contained in the Board of Directors report, insofar as it relates to the accounts, is in agreement with the books. We have obtained all the information we considered necessary for the satisfactory performance of A n n u a l R e p o r t 2 0 0 4 our audit. We further believe, according to the information given to us, that no violations of the Commercial Companies Law or the Company’s Articles of Association occurred during the year ended 31 December 2004, which might materially affect the Group’s activities or its financial position. Jassim Ahmad Al-Fahad (Licence No. 53-A) Al-Fahad & Co. Deloitte & Touche Kuwait 29 March 2005 Abdul Latif Abdullah Hoshan Al-Majid (Licence No. 70-A) Allied Accountants A n n u a l R e p o r t 2 0 0 4 KUWAIT FOOD COMPANY (AMERICANA) AND ITS SUBSIDIARIES (S.A.K.) KUWAIT CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2004 A SS ETS Note CURRENT ASSETS Cash and bank balances Accounts receivable Inventories Spare parts Other assets Held for trading investments Total Current Assets Non-Current Assets Investments in associated companies Available for sale investments Property, plant and equipment Intangible assets Total non-Current Assets TOTAL ASSETS Marzouk Nasser Al-Kharafi Chairman of the Board of Directors and Managing Director 3 4 5 6 7 8 9 10 11 2004 KD 2003 KD 30,894,702 17,647,980 24,997,300 1,791,761 9,560,805 53,409,812 138,302,360 28,340,368 13,048,543 18,143,531 1,389,436 8,108,944 25,768,671 94,799,493 1,588,189 34,772,689 51,202,856 3,789,595 91,353,329 1,531,508 27,720,829 40,567,617 1,991,329 71,811,283 229,655,689 166,610,776 Bader Mohamed Abdul Wahab Al-Jouan Vice Chairman of the Board of Directors A n n u a l R e p o r t 2 0 0 4 LIABILITIES, MINORIT Y INTEREST AND SHAREHOLDERS’ EQUIT Y CURRENT LIABILITIES Due to banks Short-term loans Current portion of long-term loans Accounts payable Accruals and other liabilities Total Current Liabilities Non-current liabilities Long-term loans Provision for end of service indemnity Note 2004 KD 2003 KD 14,453,697 1,947,837 2,897,305 30,429,952 27,284,609 77,013,400 7,274,763 673,380 1,823,382 22,646,752 21,557,545 53,975,822 14 10,050,024 8,460,421 95,523,845 4,512,565 4,668,994 7,481,894 66,126,710 2,818,175 15 14,341,212 717,061 7,170,606 3,010,341 9,749,694 (7,367,405) 15,120,031 (978,803) 14,214,426 73,642,116 129,619,279 13,037,465 6,518,733 3,010,341 8,206,156 (7,572,292) 9,137,942 (975,069) 5,088,200 61,214,415 97,665,891 229,655,689 166,610,776 14 12 13 Minority interest SHAREHOLDERS’ EQUIT Y Authorised, issued and paid-up capital – 143,412,115 shares (2003: 130,374,650 shares) of 100 fils each Proposed bonus shares dividends Statutory reserve Voluntary reserve Proposed cash dividends Currency translation reserve Fair value reserve Treasury shares Share premium Retained earnings Total Shareholders’ Equity TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY 16 17 18 19 20 Al-Moataz Adel Al-Alfi General Manager The accompanying notes se t out on page s 41 to 59 form an integral part of thes e cons olidated financial statements. A n n u a l R e p o r t 2 0 0 4 CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 2004 KD 2003 KD 201,415,383 (162,890,648) 38,524,735 158,609,411 (130,882,063) 27,727,348 (527,950) (18,744,815) (2,192,360) (21,465,125) (423,982) (15,315,307) (2,083,463) (17,822,752) Profit from operations Finance costs Dividend income Miscellaneous income Income from investments in associated companies Increase in fair value of held for trading investments Net profit before contribution to Kuwait Foundation for the Advancement of Sciences (KFAS), National Labour Support Tax, Directors’ remuneration and minority interest Contribution to KFAS National Labour Support Tax Directors’ remuneration 24 Minority interest Net profit for the year 21 17,059,610 (2,168,400) 2,979,418 235,096 259,495 6,816,669 9,904,596 (1,367,833) 2,164,604 199,020 234,498 11,208,319 25,181,888 (225,849) (354,134) (55,000) (1,000,576) 23,546,329 22,343,204 (213,069) (438,057) (55,000) (565,921) 21,071,157 Earnings per share 185.93 Fils 166.90 Fils Note Sales Cost of sales Gross profit 22& 23 Amortisation Selling and marketing expenses General and administrative expenses 25 The accompanying notes set out on pages 41 to 59 form an integral part of these consolidated financial statemen ts. A n n u a l R e p o r t 2 0 0 4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLERS’ EQUIT Y FOR THE YEAR ENDED DECEMBER 31, 2004 PROPOSED BONUS SHARES DIVIDENDS KD STATUTORY RESERVE KD VOLUNTARY RESERVE KD PROPOSED ACCUMULATED CASH CURRENCY DIVIDENDS TRANSLATION KD KD 12,416,633 620,832 6,208,317 3,010,341 7,214,203 (6,384,778) (3,174,573) (975,069) 5,088,200 48,659,830 72,683,936 Foreign curren cy translation - - - - - (1,187,514) - - - - (1,187,514) Cash divid end s - - - - (7,214,203) - - - - - (7,214,203) 620,832 (620,832) - - - - - - - - - Proposed ca sh dividen ds - - - - 8,206,156 - - - - (8,206,156) - Changes in fair v alue of investmen ts - - - - - - 12,312,515 - - - 12,312,515 Net in come for the year - - - - - - - - - 21,071,157 21,071,157 Transfer to sta tutory reserve - - 310,416 - - - - - - (310,416) - 13,037,465 - 6,518,733 3,010,341 8,206,156 (7,572,292) 5,088,200 61,214,415 97,665,891 Foreign curren cy translation - - - - - 204,887 - - - - 204,887 Cash divid end s - - - - (8,206,156) - - - - - (8,206,156) 1,303,747 - - - - - - - - - 1,303,747 Share premium - - - - - - - - 9,126,226 - 9,126,226 Proposed ca sh dividen ds - - - - 9,749,694 - - - - (9,749,694) - Proposed bo nus s hares dividen ds - 717,061 - - - - - - - (717,061) - Changes in fair v alue of investmen ts - - - - - - 5,982,089 - - - 5,982,089 Net in come for the year - - - - - - - - - 23,546,329 23,546,329 Transfer to sta tutory reserve - - 651,873 - - - - - - (651,873) - Purchase of treasur y shares - - - - - - - (3,734) - - (3,734) 14,341,212 717,061 7,170,606 3,010,341 9,749,694 (7,367,405) SHARE CAPITAL KD Balance at 31 Decembe r 2002 Issue of bo nus s hares Balance at 31 Decembe r 2003 Issue of share c apital Balance at 31 Decembe r 2004 FAIR VALUE RESERVE KD TREASURY SHARES KD 9,137,942 (975,069) 15,120,031 (978,803) SHARE PREMIUM KD RETAINED EARNINGS KD TOTAL KD 14,214,426 73,642,116 129,619,279 The accompanying notes set out on pages 41 to 59 form an integ ral part of the se consolidated financial statements. A n n u a l R e p o r t 2 0 0 4 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2004 2004 KD 2003 KD CASH FLOWS FROM OPERATING ACTIVITIES Net profit before for KFAS, National Labour Support Tax, Directors’ remuneration and minority interest Adjustments for: Depreciation Amortisation of intangible assets Provision for end of service indemnity Allowance for doubtful receivables Allowance for slow moving inventories Loss on disposal of property, plant and equipment Loss on disposal of intangible assets Income from investments in associated companies Increase in fair value of held for trading investments 25,181,888 22,343,204 9,714,526 527,950 1,694,425 388,834 291,480 104,547 56,082 (259,495) (6,816,669) 8,818,133 423,982 1,291,256 41,794 3,574,449 170,544 (234,498) (11,208,319) Operating profit before working capital changes Accounts receivable Inventories Spare parts Other assets Accounts payable Accruals and other liabilities Payment of directors’ remuneration Payment of KFAS contribution Payment of NLST Payment of end of service indemnity Net cash from operating activities 30,883,568 (4,988,271) (7,145,249) (402,325) (1,855,347) 7,783,200 6,377,922 (55,000) (655,434) (657,609) (715,898) 28,569,557 25,220,545 (1,145,886) (1,318,899) 19,667 (42,515) 4,772,308 4,977,731 (55,000) (508,496) 31,919,455 (Cont’d) A n n u a l R e p o r t 2 0 0 4 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2004 2004 KD CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Acquisition of intangible assets Purchase of held for trading investments Proceeds from sale of property, plant and equipment Available for sale investments Investments in associated companies Minority interest Net cash used in investing activities (21,498,411) (1,628,188) (20,824,472) 289,989 (572,285) 108,814 693,814 (43,430,739) 2003 KD (9,026,212) (994,184) (1,752,112) 984,467 601,205 (671,201) (10,858,037) (Cont’d) A n n u a l R e p o r t 2 0 0 4 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2004 Note 2004 KD 2003 KD CASH FLOWS FROM FINANCING ACTIVITIES Issue of share capital Share premium Purchase of treasury shares Due to banks Short-term loans Current portion of long-term loans Long-term loans Dividends paid to shareholders Unrealised differences from currency translation on consolidation 1,303,747 9,126,226 (3,734) 7,178,934 1,274,457 1,073,923 5,381,030 (8,123,954) 204,887 148,070 (565,482) (254,674) (301,125) (7,214,203) (1,187,514) Net cash from / (used in) financing activities 17,415,516 (9,374,928) Net increase in cash and bank balances Cash and bank balances at beginning of the year 2,554,334 28,340,368 11,686,490 16,653,878 30,894,702 28,340,368 Cash and bank balances at end of the year 3 The accompanying notes set out on pag es 41 to 59 form an integral part of thes e cons olidated financ ial statements. A n n u a l R e p o r t 2 0 0 4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 1. INCORPORATION AND PRINCIPAL ACTIVITIES Kuwait Food Company (Americana), is a Kuwaiti Shareholding Company (the Company), incorporated in the State of Kuwait on 29 December 1963. The main activities of the Company and its subsidiaries (the Group) are the import and manufacture of food stuff and beverages; the sale of such items on both retail and wholesale basis in the State of Kuwait, and other Arab countries; and investing its excess funds in investment portfolios managed by professional investment managers. Its registered head office is in the State of Kuwait, P. O. Box 5087 Safat 13051 Kuwait. Number of employees of the Group as of 31 December 2004 was 18,010 (31 December 2003: 15,796). These consolidated financial statements were approved by the Board of Directors and authorised for issue on 29 March 2005. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. These consolidated financial statements have been prepared under the historical cost convention, except for the measurement at fair value of held for trading investments and available for sale investments. The accounting policies adopted by the Company are the same as the policies used by the subsidiary companies. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. Intercompany balances and transactions, including intercompany profits and unrealised profits and losses are eliminated on consolidation. A n n u a l R e p o r t 2 0 0 4 The consolidated subsidiaries are: Company’s Name Americana International Company (Safeway) Arab Gulf Company for Food and Supermarkets Al Ahlia Restaurants Company National Food Industries Company International Fashion Company Bahrain and Kuwait Restaurants Company International Cosmetics Company United Food Company Kuwait Food Company Kuwait Food Company Americana International Company (Fashionway) Gulf Food Industries Company - (California Garden) Qatar Food Company Touristic Projects and International Restaurants Company Limited International Tourism Restaurants Company International Touristic Projects Lebanese Company Basis of consolidation (continued) Gulf and Arab World Restaurants Co. Americana Group for Food and Touristic Projects (Egypt) and its subsidiaries Egyptian Co. for International Touristic Projects The International Co. for Agricultural Development Al-Mohandas National Company for Meat Processing Egyptian Canning Co. - Americana Americana Egypt for Cold Storage Americana Marketing and Distributing Co. Greenland Group for Food Industries Ownership % 89.55 99.25 99.96 99.96 100 40 100 98 100 100 97.4 100 100 62.3 99 98 85 99.81 90.35 58.19 94.08 99.53 51 94.2 75 Country of Incorporation Kuwait Kuwait Saudi Arabia Saudi Arabia Saudi Arabia Bahrain Saudi Arabia Saudi Arabia Egypt United Arab Emirates United Arab Emirates United Arab Emirates Qatar Jordan Oman Lebanon Bahrain Egypt Egypt Egypt Egypt Egypt Egypt Egypt Egypt Cash and bank balances Cash and bank balances comprise cash on hand, bank balances and fixed deposits with an original maturity of three months or less. A n n u a l R e p o r t 2 0 0 4 Accounts receivable Accounts receivables are stated at invoice value, less allowance for any doubtful accounts. Management determines the adequacy of the allowance based upon reviews of individual customers, current economic conditions, past experience and other pertinent factors. Inventories Inventories are valued at the lower of cost or net realisable value. Raw materials cost is determined on a weighted average basis. The cost of finished goods and goods in process, includes direct materials, direct labour and fixed and variable manufacturing overhead, and other costs incurred in bringing inventories to their present location and condition. An allowance is made when needed, for slow moving items and is charged to the consolidated statement of income. Spare parts Spare parts are carried at cost. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs. Investments The Group maintains two separate investment portfolios; held for trading investments and available for sale investments. All investments are initially recognised at cost, being the fair value of the consideration given including acquisition costs associated with the investment. After initial recognition, investments are remeasured at fair value. For investments traded in organised financial markets, fair value is determined by reference to quoted bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, a reasonable estimate of fair value is determined by reference to the current market value of another instrument which is substantially the same or is based on the expected cash flows or the underlying net asset base of the investment. Investments whose fair value cannot be reliably measured are carried at cost. Gains or losses arising from changes in the fair value of held for trading investments are included in the consolidated statement of income in the period in which they arise. Investments Gains or losses arising from changes in fair value of available for sale investments are recognised directly in equity in the fair value reserve until the investment is sold, collected, or otherwise disposed of, or until the investment is determined to be impaired at which time the cumulative gain or loss previously recognised in the “fair value reserve” is included in the consolidated statement of income for the year. A n n u a l R e p o r t 2 0 0 4 Trade date and settlement date accounting All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date the Group commits to purchase or sell the assets. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within a time frame generally established by regulation or convention in the market place concerned. Investments in associated companies Associated companies are those in which the Group has a long-term investment and over which it exerts significant influence, but not overall control, including participation in operating and financial policy decisions of the investee. Investments in associated companies are accounted for using the equity method of accounting based on latest financial statements. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes the purchase price and directly associated costs of bringing the asset to a working condition for its intended use. Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight line basis. Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant improvements and replacements of assets are capitalised. Gains and losses on retirement or disposal of assets are included in the consolidated statement of income. Land is stated at cost. The Group’s policy is to hold land not for resale but to develop it and use it in projects to generate operating income. Intangible assets Intangible assets consist of franchise and agency rights and leasehold rights. Intangibles are carried at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised using the straight-line method over five years in Kuwait and outside Kuwait over the lesser of twenty years or life of the agency or leasehold rights. Projects in progress These projects are stated at cost, when completed and put into use, they are transferred to property, plant and equipment. Provision for end of service indemnity Provision for end of service indemnity is calculated in accordance with the labour laws of the countries where the Company’s branches and subsidiaries are located. A n n u a l R e p o r t 2 0 0 4 Treasury shares Treasury shares consist of the Company’s own shares that have been issued, subsequently reacquired by the Company and not yet reissued or cancelled. The treasury shares are accounted for using the cost method. Under the cost method, the weighted average cost of the shares reacquired is charged to a contra equity account. When the treasury shares are reissued, gains are credited to a separate account in shareholders’ equity (gain on sale of treasury shares) which is not distributable. Any realized losses are charged to the same account to the extent of the credit balance on that account. Any excess losses are charged to retained earnings then to reserves. Gains realized subsequently on the sale of treasury shares are first used to offset any previously recorded losses in the order of reserves, retained earnings and the gain on sale of treasury shares account. No cash dividends are paid on these shares. The issue of bonus shares increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares. Revenue recognition Sales are recognised on delivery and are reported net of applicable discounts and taxes. Interest income is recognised on the accrual basis, and dividend income is recognised when the right to receive payment is established. Foreign currency translation Foreign currency transactions are recorded in Kuwaiti Dinars at the approximate rates of exchange prevailing at the date of the transactions. Transactions between the head office, branches and the subsidiaries are recorded at annually agreed fixed rates of exchange. Assets and liabilities denominated in foreign currencies are translated into Kuwaiti Dinars at the balance sheet date. Translation gains or losses are recorded in the consolidated statement of income. Currency investments in the capital and reserves of its branches and subsidiaries are included in the caption “Currency Translation Reserve” and shown as a component of shareholders’ equity in the consolidated balance sheet. Borrowing costs Interest on borrowings is calculated on accrual basis and is recognised in the consolidated statement of income in the period in which it is incurred. Impairment At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indications exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any) and this loss is recognised in the consolidated statement of income. A n n u a l R e p o r t 2 0 0 4 3. CASH AND BANK BALANCES December 31, 2004 KD Cash on hand and bank current accounts Time deposits and bank call accounts 7,118,320 23,776,382 30,894,702 2003 KD 4,831,660 23,508,708 28,340,368 Average interest yield on short-term deposits is available in Note 29. 4. ACCOUNTS RECEIVABLE Trade receivables Other receivables Current accounts with associated companies Allowance for doubtful receivables 5. INVENTORIES December 31, 2004 KD 13,077,585 5,347,750 693,366 2003 KD 9,929,931 3,736,822 463,677 19,118,701 14,130,430 (1,470,721) 17,647,980 (1,081,887) 13,048,543 December 31, 2004 KD Raw materials Finished products Filling and packing materials Other materials Goods in transit Allowance for slow-moving items 2003 KD 12,784,427 5,405,540 3,161,900 4,297,960 942,751 9,018,675 4,078,857 1,633,973 3,625,204 1,090,620 26,592,578 19,447,329 (1,595,278) 24,997,300 (1,303,798) 18,143,531 A n n u a l R e p o r t 2 0 0 4 6. OTHER ASSETS December 31, Prepaid expenses Refundable deposits Accrued income Other assets 2004 KD 2003 KD 7,525,641 815,651 8,256 1,211,257 6,403,406 644,554 129,648 931,336 9,560,805 8,108,944 7. HELD FOR TRADING INVESTMENTS Held for trading investments comprise of quoted shares traded in the local market. 8. INVESTMENTS IN ASSOCIATED COMPANIES December 31, 2004 KD Heinz - Egypt Company Gulfa Mineral Water Company Americana for Agriculture Development Co. 1,267,082 321,107 1,588,189 9. AVAILABLE FOR SALE INVESTMENTS 2003 KD Country of Incorporation 1,100,907 343,476 Egypt United Arab Emirates 87,125 1,531,508 Egypt 48.99% 32.98% 17% December 31, 2004 KD Investments in quoted local shares Investments in quoted foreign shares % ownership 22,931,250 11,841,439 34,772,689 2003 KD 18,653,473 9,067,356 27,720,829 A n n u a l R e p o r t 2 0 0 4 10. PROPERT Y, PLANT AND EQUIPMENT OPERATING, REFRIGERATING BUILDINGS AND AIR- FURNITURE AND COLD CONDITIONING OTHER AND OFFICE FIXED ASSETS LAND DECORATION STORAGE EQUIPMENT VEHICLES EQUIPMENT KD KD KD KD KD KD WORK IN STORAGE IN PROGRESS KD KD TOTAL KD Cost At 1 January 2004 6,360,757 23,186,323 23,889,117 35,295,816 6,367,455 10,450,363 3,359,479 2,231,173 111,140,483 Additions 261,069 2,145,599 2,028,893 5,454,111 1,036,367 1,630,571 3,219,340 5,722,461 21,498,411 Dispos als and transfer s 125,172 258,055 1,086,210 2,137,551 (91,192) (690,530) (2,397,510) (4,371,867) (3,944,111) 6,746,998 25,589,977 27,004,220 42,887 ,478 7,312,630 11,390,404 4,181,309 3,581,767 128,694,783 At 1 January 2004 - 17,394,191 14,625,245 24,930,894 5,022,011 7,066,158 1,534,367 - 70,572,866 Charge for the ye ar - 2,535,108 1,449,036 3,456,830 764,369 1,378,679 130,504 - 9,714,526 Dispos als and transfer s - (1,360,557) 85,846 (593,619) (383,315) (827,159) 283,339 - (2,795,465) At 31 December 2004 - 18,568,742 16,160,127 27,794 ,105 5,403,065 7,617,678 1,948,210 - 77,491,927 At 31 December 2004 6,746,998 7,021,235 10,844,093 15,093 ,373 1,909,565 3,772,726 2,233,099 3,581,767 51,202,856 At 31 December 2003 6,360,757 5,792,132 9,263,872 10,364 ,922 1,345,444 3,384,205 1,825,112 2,231,173 40,567,617 At 31 December 2004 Accumulated depreciation Net book value The estimated useful lives for the purpose of calculating depreciation are as follows: Years Decoration 5 Buildings on leased land (duration of lease) or useful life 10-17 Buildings and structures on free hold land 20-25 Cold rooms 5-13 Operating and refrigerating equipment 4-7 Air-conditioning equipment 4 -10 Vehicles 4 Furniture 5-7 Calculators and cash registers 5-7 Other used fixed assets in storage 5 The current period depreciation includes an amount of KD 8,514,224 (31 December 2003 – KD 7,755,968) which represents the depreciation of the direct production assets and equipment and is charged to the production cost. The remaining amount of KD 1,181,532 (31 December 2003-KD 1,040,988) relates to marketing and selling assets and is charged to selling and marketing expenses and an amount of KD 18,770 which is charged to general and administrative expenses (31 December 2003: KD 21,177). A n n u a l R e p o r t 2 0 0 4 10. PROPERT Y, PLANT AND EQUIPMENT (Continued) Land as at 31 December consisted of the following: 2004 KD Land in Kuwait Land outside Kuwait 3,131,807 3,615,191 6,746,998 2003 KD 3,131,807 3,228,950 6,360,757 Buildings valued at KD 9,745,479 are constructed on leased land (lease periods range from 10 to 17 years). 11. INTANGIBLE ASSETS FRANCHISES AND AGENCIES KD KEY MONEY KD Cost At 1 January 2004 Additions Disposals / transfers At 31 December 2004 5,494,668 472,299 (610,040) 5,356,927 3,365,955 1,155,889 624,834 5,146,678 8,860,623 1,628,188 14,794 10,503,605 Accumulated amortisation At 1 January 2004 Amortisation Disposals / transfers At 31 December 2004 4,701,208 232,234 (627,652) 4,305,790 2,168,086 295,716 (55,582) 2,408,220 6,869,294 527,950 (683,234) 6,714,010 Net book value At 31 December 2004 At 31 December 2003 1,051,137 793,460 2,738,458 1,197,869 3,789,595 1,991,329 TOTAL KD A n n u a l R e p o r t 2 0 0 4 12. ACCOUNTS PAYABLE December 31, 2004 KD Trade payables Other payables 13. ACCRUALS AND OTHER LIABILITIES 13,998,211 16,431,741 30,429,952 12,874,643 9,772,109 22,646,752 December 31, 2004 KD Accrued expenses and salaries Provisions and other liabilities Other credit balances Kuwait Foundation for the Advancement of Sciences Deposits payable Staff penalties fund Undistributed dividends Payable to terminated employees Directors’ remuneration National Labour Support Tax 2003 KD 7,617,984 9,944,565 8,154,152 238,091 231,835 103,990 211,307 373,551 55,000 354,134 27,284,609 The calculation of KFAS excludes the income of two subsidiaries, which pay KFAS separately. 2003 KD 6,136,849 6,847,994 6,502,476 655,434 194,175 47,241 129,105 331,662 55,000 657,609 21,557,545 A n n u a l R e p o r t 2 0 0 4 14. LONG-TERM LOANS LOAN ORIGINAL AMOUNT AND BALANCE BALANCE KD CURRENT PORTION KD NON-CURRENT PORTION KD 367,500 183,750 183,750 An amount of US$ 4,000,000 wa s withdrawn fr om the loan va lue and an amount of US$ 1,500,000 was sett led in 2002 and the balanc e is pay able in semi-annual instalments starting f rom 30 June 2003 to 31 December 2006. This loan was granted against a bank lett er of guarantee. The annual interes t rate is (LIBOR + 1%). 2. US $ 5,000,000 (Balance US$ 2,480,000) 729,120 - 729,120 Payab le in 10 semi-annual instalments fr om 30 September 2006 to 31 Mar ch 2011. The loan is granted aga inst a bank lett er of guarantee and the interest is subsidized by the Cental Bank of Lebanon. 3. BD 1,000,000 (Balance BD 1,000,000) 778,800 97,350 681,450 Pay able in 8 semi-annual instalments fr om 10 Oc tober 2005 t o 10 Apri l 2009. This loan was granted aga inst the guarantee of the Company. The annual interest rate is (BIBOR + 0.75%). 4. LE 10,000,000 (Balance LE 6,000,000) 282,000 94,000 188,000 Payab le in 10 semi-annual equal instalments fr om 31 May 2003 to 30 November 2007. This loan wa s granted aga inst a bank lett er of guarantee with annual interes t rate of (Central Bank of Egypt discount rate +1.25%). 5. LE 5,000,000 (Balance LE 625,000) 30,222 30,222 - Payab le in 8 semi-annual instalments f rom 31 December 2001 to 30 June 2005. This loan wa s granted aga inst a mortgage on a subsidiary ’s assets wit h annual interest rat e of 8.5% + 1.8% commission. 6. LE 5,000,000 (Balance LE 3,750,000) 181,332 60,444 120,888 Payab le in 8 semi-annual instalments f rom 30 June 2004 to 31 Dece mber 2007. This loan wa s granted aga inst a mortgage on a subsidiary ’s assets wit h annual interest rat e of 8.5% + 1.8% commission. 7. LE 4,000,000 193,421 48,355 145,066 Payab le in 8 semi-annual instalments f rom 30 June 2005 to 31 Dece mber 2008. This loan is granted against a mortgage on a subsidiary ’s building wit h annual interest rate of 8.5% + 1.8% commission. 2,562,395 514,121 2,048,274 1. US $ 5,000,000 (Balance US$ 1,250,000) (Balance LE 4,000,000) C/F TERMS OF REPAYMENT A n n u a l R e p o r t 2 0 0 4 14. LONG-TERM LOANS (CONTINUED) LOAN ORIGINAL AMOUNT AND BALANCE BALANCE CURRENT PORTION NON-CURRENT PORTION TERMS OF REPAYMENT KD KD KD 440,673 440,673 - Pay able in 10 semi-annual instalments fr om 30 June 2001 to 30 Dece mber 2005. This loan was granted against a bank let ter of guarantee, wit h annual interes t rat e of (Centr al Bank of Egypt discount rate + 0.9659%). 1,175,000 470,000 705,000 Pay able in 10 semi-annual instalments starting from 25 December 2002 to 25 June 2007. This loan was granted against a bank letter of guarantee with annual interest rate of (Central Bank of Egypt discount ra te + 1.25%). 411,250 164,500 246,750 Pay able i n 8 semi-annual instalments f rom 25 December 2003 to 25 June 2007. This loan was granted against a bank let ter of guarantee, wit h annual interes t rat e of (Centr al Bank of Egypt discount rate + 1.25%). 11. LE 100,000,000 (Balance LE 100,000,000) 4,700,000 470,000 4,230,000 Pay able i n 10 semi-annual instalments fr om 1 February 2005 to 1 August 2009. This loan is granted aga inst a bank letter of guarantee, wit h annual inter est rate of (Central Ba nk of Egypt discount rate + 1.25%). 12. LE 50,000,000 2,115,000 470,000 1,645,000 Paya ble in 10 semi-annual instalments fr om 26 Oc tober 2004 to 26 April 2009. This loan was granted against the guarantee of the Company, with annual intere st rate of (Central Bank of Egypt discount ra te + 1.5%). 1,424,284 296,284 1,128,000 Pay able i n 10 semi-annual instalments fr om 1 Februar y 2005 to 1 August 2009. This loan wa s granted against the guara ntee of the Company, with annual intere st rate of (Central Bank of Egypt discount ra te + 1.5%). 118,727 71,727 47,000 Pay able i n 6 semi-annual instalments f rom 30 June 2004 to 31 Dece mber 2006. This loan was granted against a mortgage on subsidiary ’s building with annual interes t rate of 8.5% + 1.8% commission. Balance as at 31 Decem ber 2004 12,947,329 2,897,305 10,050,024 Balance as at 31 Decem ber 2003 6,492,376 1,823,382 4,668,994 8. LE 50,000,000 (Balance LE 9,376,000) 9. LE 50,000,000 (Balance LE 25,000,000) 10. LE 14,000,000 (Balance LE 8,750,000) (Balance LE 45,000,000) 13. LE 30,000,000 (Balance LE 30,000,000) 14. LE 3,000,000 (Balance LE 2,500,000) A n n u a l R e p o r t 2 0 0 4 15. SHARE CAPITAL The Extraordinary General Assembly of the shareholders of the Company held on 10 April 2004, approved an increase in share capital by the issuance of 13,037,465 shares with nominal value of 100 fils each and a premium of 700 fils. The Ministry of Commerce & Industry approved this increase on 6 November 2004. Accordingly, the authorised, issued and fully paid-up share capital at 31 December 2004 comprises of 143,412,115 shares of 100 fils each. The Articles of Association of the Company were amended to reflect the increase in share capital. 16. STATUTORY RESERVE In accordance with the Commercial Companies’ Law and the Company’s Articles of Association, 10% of net income is to be transferred to statutory reserve until this reserve reaches a minimum of 50% of share capital. Distribution of this reserve is limited to the amount required to enable the payment of a dividend of 5% of the share capital in years when retained earnings are not sufficient for the payment of such dividend. 17. VOLUNTARY RESERVE In accordance with the Company’s Articles of Association, 10% of net income for the year is to be transferred to the voluntary reserve. This transfer may be stopped by a resolution adopted by the ordinary assembly as recommended by the Board of Directors. There are no restrictions on distributions from the voluntary reserve. The transfer was discontinued in accordance with the ordinary General Assembly decision on 12 April 1999. 18. PROPOSED DIVIDENDS The Board of Directors proposed a cash dividend of KD 9,749,694 - 70 fils per share for the year ended 31 December 2004 (KD 8,206,156 - 65 fils per share as of 31 December 2003) and an issue of bonus share of 5% of paid in share capital. This proposal is subject to the approval of the shareholders’ Annual General Assembly. 19. TREASURY SHARES Number of shares Percentage of issued shares Market value 2004 KD 4,130,768 2.88% 6,774,460 2003 KD 4,126,100 3.165% 8,664,810 20. RETAINED EARNINGS Retained earnings as of 31 December 2004 include an amount of KD 7,970,755 which relates to restatement in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”. A n n u a l R e p o r t 2 0 0 4 21.STAFF COST Net income for the year is stated after charging staff and related cost of KD 24,465,167 (31 December 2003: KD 22,072,277). 22. SALES BY BUSINESS SEGMENT Sales - 31 December 2004 Sales - 31 December 2003 Sales - 31 December 2004 Sales - 31 December 2003 RETAIL RESTAURANTS AND STORES KD 131,187,395 109,309,068 WHOLESALE TRADE AND FACTORIES KD 70,227,988 49,300,343 TOTAL KD 201,415,383 158,609,411 WHOLE SALE TRADE KD 9,419,971 10,511,502 FACTORIES KD 60,808,017 38,788,841 TOTAL KD 70,227,988 49,300,343 23. GEOGRAPHICAL CONCENTRATION OF SALES AND NET INCOME OUTSIDE KUWAIT KD 31 December 2004 Sales INSIDE KUWAIT KD TOTAL KD 152,714,622 48,700,761 201,415,383 Net profit for the year 31 December 2003 Sales 15,608,033 7,938,296 23,546,329 112,263,952 46,345,459 158,609,411 Net profit for the year 12,490,557 8,580,600 21,071,157 A n n u a l R e p o r t 2 0 0 4 24. DIRECTORS’ REMUNERATION The Directors’ remuneration is subject to the approval of the shareholders at the General Assembly meeting. 25. EARNINGS PER SHARE Earnings per share are computed by dividing net profit attributable to the shareholders by the weighted average number of shares outstanding during the year. The weighted average number of shares outstanding during the year is calculated as follows: Weighted average number of the Company’s issued and paid-up shares Weighted average number of the Company’s treasury shares Weighted average number of the Company’s outstanding shares Earnings per share 2004 Shares 30,766,486 (4,126,240) 126,640,246 185.93 Fils 2003 Shares 130,374,650 (4,126,100) 126,248,550 166.90 Fils 26. FAIR VALUE Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Underlying the definition of fair value is the presumption that the Company is a going concern without any intention or need to liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms. In the opinion of management the estimated fair value of financial assets and financial liabilities as at 31 December 2004 approximated their respective net book values due to their short-term nature. Fair value is estimated by management using the latest financial information available and quoted market prices where available. 27. COMMITMENTS AND CONTINGENT LIABILITIES Letters of credit Letters of guarantee Capital commitments 2004 KD 2,687,868 13,568,667 619,050 16,875,585 2003 KD 1,049,989 9,331,755 377,352 10,759,096 A n n u a l R e p o r t 2 0 0 4 28. A) GEOGRAPHICAL CONCENTRATION OF ASSETS AND LIABILITIES AND SHAREHOLDERS’ EQUIT Y At 31 December 2004 SAUDI SOUTH KUWAIT ARABIA GULF KD KD KD EGYPT LEBANON AND AFRICA AND OTHERS EFF ECTIVE TOTAL KD KD KD INTEREST RATE ASSETS Cash and bank balanc es 13,494,726 4,778,296 3,043,338 8,686,716 891,626 30,894,702 Acco unt s rec eivable 5,636,292 2,864,654 3,621,756 5,239,395 285,883 17,647,980 Inventor ies and spa re parts 6,081,273 6,813,615 5,443,892 7,864,333 585,948 26,789,061 976,067 1,807,595 3,407,865 2,902,178 467,100 9,560,805 53,409,812 - - - - 53,409,812 321,107 - - 1,267,082 - 1,588,189 28,350,105 - - 6,422,584 - 34,772,689 11,687,960 10,615,468 10,293,901 16,775,496 5,619,626 54,992,451 119,957,342 26,879 ,628 25,810 ,752 49,157,784 Other ass et s Held for trading investments 0.125% - 10.25% Inves tments in associated companies Available for sale investments Prope rty, plant and equipment and intangible ass et s TOTAL ASSETS 7,850,183 229,655 ,689 LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY Due to banks Loans Acco unt s payable 1,042,084 233,546 2,786,117 10,193,877 198,073 14,453,697 3.00% - 12.5% 500,000 642,060 1,584,577 11,071,909 1,096,620 14,895,166 2.961% - 12% 13,361,193 4,466,525 4,977,723 6,717,786 906,725 30,429,952 Accruals and other liabilities and provision for end of service indemnity 17,800,612 6,597,370 6,638,499 4,288,317 420,232 35,745,030 276,592 - 629,450 3,117,355 489,168 4,512,565 129,619,279 - - - - 129,619,279 162,599,760 11,939 ,501 16,616 ,366 35,389,244 Minority inter est Shareholders’ equit y TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY 3,110,818 229,655 ,689 A n n u a l R e p o r t 2 0 0 4 28.B) GEOGRAPHICAL CONCENTRATION OF ASSETS AND LIABILITIES AND SHAREHOLDERS’ EQUIT Y At 31 December 2003 SAUDI SOUTH EGYPT LEBANON KUWAIT ARABIA GULF KD KD KD KD KD AND AFRICA AND OTHERS EFFECTIVE TOTAL INTEREST RATE KD ASSETS Cash and bank balanc es 17,138,914 5,099,309 1,590,225 3,778,109 733,811 28,340,368 0.0625% - 10.25% Acco unt s rec eivable 6,420,029 2,539,447 2,378,950 1,608,268 101,849 13,048,543 Inventor ies and spa re parts 5,877,281 5,018,858 4,048,930 4,113,974 473,924 19,532,967 Other ass et s 1,038,456 1,820,459 2,022,404 2,881,697 345,928 8,108,944 25,768,671 - - - - 25,768,671 343,476 - - 1,188,032 - 1,531,508 25,610,947 - - 2,109,882 - 27,720,829 10,505,166 8,829,796 8,385,514 9,986,285 4,852,185 42,558,946 92,702,940 23,307 ,869 18,426 ,023 25,666,247 Held for trading investments Investments in asso ciated companies Available for sale investments Prope rty, plant and equipment and intangible ass et s TOTAL ASSETS 6,507,697 166,610 ,776 LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY Due to banks Loans Acco unt s payable 148,681 267,792 1,750,136 4,505,307 602,847 7,274,763 2.08%-14.30% - 673,380 38,225 5,904,776 549,375 7,165,756 2.00%-13.57% 10,134,080 3,030,344 3,463,605 5,486,982 531,741 22,646,752 Accruals and other liabilities and provision for end of service indemnity 15,586,228 5,976,412 4,410,245 2,632,851 433,703 29,039,439 275,267 - 541,122 1,595,552 406,234 2,818,175 97,665,891 - - - - 97,665,891 123,810,147 9,947,928 10,203 ,333 20,125,468 Minority inter est Shareholders’ equit y TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY 2,523,900 166,610 ,776 29. FINANCIAL INSTRUMENTS – FAIR VALUE AND RISK MANAGEMENT Financial instruments consist of contractual claims on financial assets. Financial instruments include both primary instruments, such as trade accounts receivable and payable, investments, and financial commitments and derivative financial instruments, which are used to hedge risks arising from changes in foreign exchange rates and interest rates. Information on fair value and risk management of these financial instruments is set out below: A n n u a l R e p o r t 2 0 0 4 The Group has only primary financial instruments which are reflected in the consolidated balance sheet. Those on the asset side are recognised at nominal value less any provisions for impairment, financial instruments constituting liabilities are carried at nominal or redemption value, whichever is higher. Fair values of the financial assets and liabilities are determined using generally accepted methods. Because no quoted market prices are available for a significant part of the Group’s financial assets and liabilities, the fair values of such items have been derived based on management’s assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Management believes that the fair value of all assets and liabilities on the balance sheet is not materially different from their carrying value. a) Interest rate risk Interest rate risk – the possibility that the value of a financial instrument will change due to movements in market rates of interest – applies mainly to receivables and payables with maturities of over one year. The Group continuously monitors interest rates to mitigate this risk. b) Credit risk The Group is exposed to credit risk if counterparties fail to perform as contracted. The Group’s credit risk is considered to be low as it does not have significant exposure to any individual customer or counterparty. Cash is placed with banks with high credit ratings. Policies and procedures are in place to perform ongoing credit evaluations of the financial condition of counterparties and customers. c) Market risk Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices. The Group manages this risk by investing surplus funds with professional portfolio managers and by diversifying its investments. d) Foreign exchange risk The Group is exposed to the following foreign exchange risks: i. Transaction risk - the risk of the Group’s commercial cash flows being adversely affected by a change in exchange rates for foreign currencies against KD; and ii. Balance sheet risk - the risk of net monetary assets in foreign currencies acquiring a lower value when translated into KD as a result of currency movements. The Group’s exposure to balance sheet risk is principally its investment in associated companies and joint ventures in GCC countries and the Arab world, the Group continuously monitors exchange rate fluctuation to mitigate this risk. A n n u a l R e p o r t 2 0 0 4 30. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current year’s presentation. 31. SUSBSEQUENT EVENTS On 29 March 2005, the Board of Directors proposed a 10% increase to share capital of 100 fils per share and a share premium of 800 fils per share. This increase is subject to the approval of the Extra-ordinary General Assembly and proper authorities.