1 | Zamil Industrial Annual Report 2012


Performance Highlights 3

Board of Directors 4

Mission Statement & Core Values 5

Business Profile 7

Chairman’s Letter 10

Chief Executive Officer’s Letter 14

Business Operations Review 18

Market Outlook in 2013 30

Corporate and Shared Services Review 33

Financial Statements 47

Contents


Revenues in 2012 at SAR 5,354 8 million (USD 1,428) registered year-on-year growth of 13 3%, compared to SAR 4,727 7 million (USD 1,260 7 million) recorded in 2011

Gross Profits were SAR 1,165 1 million (USD 310 7 million) for the twelve months, up from SAR 1,051 2 million (USD 280 3 million) in 2011, an increase of 10 8%

Operating Profits rose 41 4% to SAR 365 2 million (USD 97 4 million) in 2012, an increase from SAR 258 3 million (USD 68 9 million) in 2011

Net Profits after Zakat in 2012 amounted to SAR 201 5 million (USD 53 7 million), up from SAR 154 2 million (USD 41 1 million) the year before, an increase of 30 7%

Earnings per share (from net income) were SAR 3 36 (USD 0 90), compared to SAR 2 57 (USD 0 69) in 2011

Stockholders’ Equity rose by 7 9% to SAR 1,708 1 million (USD 455 5 million) in 2012 from SAR 1,582 8 million (USD 422 1 million)

The Steel, HVAC, Concrete and Insulation Materials sectors recorded positive results in 2012, due to revenue enhancement, improved operational efficiency and increased attention to margin enhancement, better performance from overseas operations and improved asset utilization

Zamil Industrial is a truly global company with home markets in South East Asia, the Indian Subcontinent, North Africa and Saudi Arabia and the GCC It is a supplier of comprehensive products and solutions for the construction industry

Performance Highlights


Our Vision To be a Winning Industrial Leader Creating Superior Values for Business and Community

Our MissionTo Win Markets’ and Stakeholders’ Trust Through Industrial Competence and Mutual Prosperity

Our Core Values Honesty and Integrity – We believe that goodwill and a good reputation are integral to our business We uphold honesty, integrity, professionalism and a high level of business ethics We are prudent and fair in dealings with our stakeholders

Customers and Excellence – We are diligent in understanding and fulfilling our customers’ needs We strive to please our customers by ensuring excellence in quality and service We listen to our customers and “go the extra mile” to satisfy them

Innovation and Change – We are passionate about meaningful innovation We are a learning organization We learn from our experiences and global best practices, and we innovate to create leading local solutions leveraging world-class knowledge We embrace positive change arising from innovation and our aspirations to grow our business

Leadership and Prudence – We cultivate talent and leadership to create sound business solutions, to best meet our customer needs, and to develop markets, people and shareholder value We do so by optimizing the use of funds, resources, materials and technologies We build prudence and cost-effectiveness into our leadership culture and pass on the benefits to our customers

Community & Prosperity – We believe in mutual prosperity We aspire to thrive in business while bringing progress and prosperity to our own people and the communities where we operate Our culture, our ideas, our practices, our environmental concern and our teamwork inspire us to create superior values for people and communities around us

Mission Statement & Core Values


Founded in 1998 and headquartered in Dammam, Saudi Arabia, Zamil Industrial Investment Company (Zamil Industrial) is a publicly listed company and a leading manufacturing and fabrication group that provides engineered products, systems and support services for the construction industry

At Zamil Industrial, we recognize that faith, leadership, and integrity are essential to the operation of businesses that consistently deliver value to all stakeholders They also guide our growth as we identify emerging opportunities and convert them into profitable business ventures across the globe

From the beginning, our founders recognized the need for diversification in the Saudi Arabian economy They also knew how to fulfill this need – by achieving growth through joint venture partnerships, and by entering new markets

Today, we serve clients in more than 90 countries worldwide, and operate businesses in four major industrial sectors – Steel, HVAC, Insulation Materials and Concrete We are majority shareholders in joint venture companies and own several subsidiaries Our companies employ more than 10,000 people in 55 countries, and obtain 30% of revenue from countries other than Saudi Arabia

In keeping pace with the industrialization initiative of Saudi Arabia, Zamil Industrial has chosen to concentrate operations in

the building, construction, and industrial structures and equipment industries All operations are ISO 9001 certified, and Zamil Industrial businesses are the regular recipients of prestigious industry rewards in recognition of attention to quality, customer service and leadership in the research and development of new technologies and industrial processes

The Zamil Industrial Product PortfolioManufacturing facilities operated by Zamil Industrial businesses are currently located in Saudi Arabia, United Arab Emirates, Egypt, India, Vietnam and Italy Our companies manufacture and fabricate materials, provide innovative engineering systems and customized solutions and services to clients for use in construction and industrial operations

Products and services include:• Pre-engineered steel buildings and

structural steel products• Air conditioning systems;

maintenance and installation services• Air cooled heat exchangers• District cooling and utility services• Process equipment and fired heaters• Transmission and telecom towers,

Open web joists and steel decks• Precast concrete products• Fiberglass, technical rubber and

Rockwool insulation• Pre-insulated pipes• Passive telecom infrastructure• Building automation systems

At Zamil Industrial, we provide customers with Total Building Solutions Through

Business Profile


our strength and diversity, we’ve built the capacity to operate as a single source provider, capable of meeting complete project needs – from engineering to materials to climate control

A shared vision, mission and values unite our diverse business interestsAlthough the businesses of Zamil Industrial perform diverse functions, they are united by the company’s shared vision, mission and time honored set of core values The company has grown and prospered based upon the founders’ vision of leadership through creation of value Their mission of winning the trust of the markets and stakeholders through solid competence and concern for the beneficiaries of Zamil Industrial companies has proven successful The company has become a global leader in the pursuit of knowledge, innovation, professionalism and excellence in business

Corporate Shared Services: the streamlined approach to successZamil Industrial businesses are proud to offer clients the benefits of our Total Building Solutions philosophy Developed through a process of strategically planned growth and acquisition, the company has reached a point where it can satisfy virtually any need a customer may have for quality building products or services at a consistent level of excellence

To ensure the efficient operation of Total Building Solutions, the company is engaged in the development and support

of group-wide strategic initiatives, including its Corporate Shared Services platform, which consolidates and integrates the functions of Finance, Internal Audit, Business Development, Strategy and Performance Planning, Administration and Human Resources, Information Technology, Corporate Communications and Legal Affairs of all Zamil Industrial companies Major components include:

• A commitment to new product development through the use of advanced technology and the consolidation of IT environments

• Maintenance of the highest quality assurance standards, reflected in a range of international quality accreditations

• The continual expansion and development of international markets, while maintaining leadership in the home market of Saudi Arabia

• Strategic selection of acquisitions to complement the strengths of other sector businesses

• Strategic alliances with selected multi-national companies to increase international presence and market share

• Investment in training and career development for employees

Our administrative functions are centralized to ensure continuity and a streamlined approach in our expanding global market Corporate Shared Services provide a single, convenient contact point for active and potential customers, furnish powerful

Business Profile | continued


technological resources to smaller companies under our umbrella, and provide all employees with assistance and opportunity for career development At Zamil Industrial, we will continue to follow our vision of business and community leadership, mission of success gained through trust and competence, and integration of our core values in pursuit of innovative corporate strategies We will seek out, support and nurture new business and reward our shareholders, employees and communities with the benefits of our success

Share TradingZamil Industrial shares are available for trading for all Saudis, GCC nationals and non-Saudi residents only They are actively traded on the Saudi Stock Exchange (Tadawul) under the name “Zamil Industrial” (Saudi Stock Exchange: 2240, Bloomberg: ZIIC:AB) More information can be found at www tadawul com sa

Zamil Industrial companies are united by a shared vison, mission and a time honored

set of core values


Dear Shareholder,

It gives me immense pleasure to share with you the Annual Report for Zamil Industrial Investment Company (Zamil Industrial) for the financial year ended 31st December 2012

I am pleased to report that all sectors of Zamil Industrial have performed well, registering significant gains in profits, topline growth and profitability

Although emerging economies grew more in the past year than developed ones, economic and market conditions in the regions where we operate were a mixed bag Our Home Market - Saudi Arabia, performed better across our entire portfolio of Products and Services, driven by increased public spending and active private sector participation The markets in India and South Asia were expanding, though there is increased pressure on margins due to competitive forces Despite social unrest, North Africa remained viable and offers potential With Europe and other developed economies continuing to falter, it will be some time before we see a full global economic recovery Key input raw material prices stabilized in 2012, after experiencing volatility for several years

In such mixed economic conditions, it is notable that Zamil Industrial continued to thrive The commitment and dedication of management and employees to be agile and adaptable to evolving conditions positioned our

Chairman’s letter

company better in the market place and delivered good results Net profit after Zakat in 2012 increased by 30 7% to SAR 201 5 million (USD 53 7 million) Sales Revenues grew by 13 3% to SAR 5,354 8 million (USD 1,428 million) and Stockholders’ Equity rose 7 9% to SAR 1,708 1 million (USD 455 5 million)

The Board of Directors is pleased to recommend the distribution of a final cash dividend for the year of SAR 0 75 (USD 0 20) per share This, combined with the interim dividend of SAR 0 75 (USD 0 20) paid on 14 August 2012, makes a total dividend of SAR 1 50 (USD 0 40) per share for the year The total dividend payout of SAR 90 million amounts to 15% of the company’s paid-up capital Shareholders’ approval of the final dividend will be sought at the Annual General Meeting in 2013

During 2012, your Company strengthened its portfolio, positioning itself for continued expansion in terms of adding capability and markets, and integrated the offerings of the business divisions in different sectors In all key markets we are able to offer total solutions to our customers, enhancing our value proposition and developing strategic control over the value chain Regionally and internationally, we are recognized as a leading player in steel buildings, structures, high-end process equipment, tower solutions, air conditioning products and services, and a comprehensive range of Insulation products and Precast concrete buildings

Dr. Abdulrahman Abdullah Al Zamil

Chairman of the Board


Your Company was restructured through the formation of limited liability companies to function as owning organizations for the Steel and HVAC Sector business units This became important due to the size, diversity and geographic spread of much of your Company’s operations and markets We divested of part of our air conditioning interests in Italy and ramped up our presence in Indian air conditioning market The year 2012 also marked the disposal of the Company’s interests in glass processing, a very low profit margin and low volume industry – which did not fit our business model Your Company is continually focused on optimizing its operations for achieving profitable growth

Zamil Industrial is a global organization operating in several parts of the world, namely South East Asia, the Indian Subcontinent, Saudi Arabia and the Gulf, and North Africa, all of which are identified as markets with good growth potential Africa is served partly by our operations in Egypt and we are exploring opportunities in Libyan rebuilding projects Businesses in the Indian Subcontinent are now well established, and your Company further increased its presence there in 2012 South East Asia is served through Vietnam, with branches in Malaysia and Singapore, and is well positioned in this expanding region In our original domestic market in the GCC, where we are strongly represented in Saudi Arabia and with a factory operation in Ras Al Khaimah, economic buoyancy has returned with full vigor

Zamil Industrial’s reputation for good corporate governance has been further strengthened in recent years and we have included in this report sections on this topic as well as our internal auditing performance Your Company resolves to behave ethically at all times, with the highest standards of transparency and disclosure in line with international practice

Your Company is always focused on the needs of its employees and the communities in which we operate and serve Health and safety practices and environmentally friendly programs ensure that all members of staff have good working conditions and arrive home safely when their day is done We support our communities through recruitment and training, and by offering opportunities to students, and through social and charitable work

We have become the preferred single

construction industry source for many

customers


We are proud of the achievements of our employees, and it is with great pleasure that we witnessed the recognition given to our Chief Executive Officer as the Arabian Businessman of the Year in 2012 for “outstanding achievements especially in management philosophy”

As with all other businesses, we have seen experienced challenging times following the financial meltdown In response, we saw the need to increase operating efficiencies and have done so, and will continue to rely on the innovative skills and diligent efforts of those who work for Zamil Industrial I would like to take this opportunity to thank all employees of Zamil Industrial for their contributions in 2012

I would like to thank you, our Shareholders, for your continued support and confidence in Zamil Industrial I would also like to thank all our other Stakeholders, including our customers, partners, suppliers and the communities in which we live and work, for sharing in our vision

Your Company is built on firm foundations, inspired by a spirit of excellence and a determination to succeed and I am optimistic for the long term, sustained and profitable growth of Zamil Industrial

Dr. Abdulrahman Abdullah Al ZamilChairman of the Board

Chairman’s letter | continued


Dear Shareholders and Colleagues,

We achieved all around good performance in 2012 across geographical regions and portfolios, thanks to our focus on business fundamentals, continuous repositioning of our business model in the right profit zones, excellence in execution and the building of a performance based culture The emphasis we have placed on operational efficiency and business remodeling in recent years has led to the improvement in profitability seen in this financial report Our rebound Steel sector performance demonstrates our capability to respond to challenges with speed and agility and that is a key strategic differentiator moving forward in the dynamic business environment

In 2012, the global economy grew less than in 2011 and the developed economies continued to suffer the consequences of the global financial crisis The Eurozone slipped into recession and USA and Japan posted a modest growth, while emerging economies grew at a slower pace than their previous year averages Commodity prices remained more or less stable with minimal swings Looking ahead, 2013 global economic growth is projected to be higher than 2012, and mainly driven by emerging economies

For the Middle East region, 2012 was another strong year, though a few countries suffered due to political uncertainties and social uprising The Saudi economy grew and posted

twin surpluses both in current and fiscal accounts Building on a strong foundation, the domestic economy in Saudi Arabia continued to expand in 2012, with real Gross Domestic Product growth estimated at 6 8% in 2012, and the non-oil sector up by 7 5% Inflation is under control, and government spending, which was the primary driver of private sector activity, reached SAR 853 billion (USD 227 5 billion) in 2012 and focused on strong and sustainable economic expansion, balanced development and the creation of employment

Private sector investments picked up, bank lending was strong and high government spending was and will continue to be the engine of the non-oil economy The Construction sector in Saudi will be the main beneficiary of government spending and will be the fastest growing sector of the economy in 2013 The demand for our products and services in Saudi, Africa, and Asia will be healthy Commodity prices are expected to go sideways or hover around current levels

South East Asia is another important market for the Company In its most recent report on the region, the OECD estimates that overall real GDP growth averaged at around 5 5% in 2012, a level expected to remain steady over the next five years There is a great need for infrastructure projects in the region to fuel growth, and construction as a sector rebounded in 2012 from recent declines to record an overall expansion above 7 0% Though there is fierce competition,

Abdulla Mohammed

Al ZamilChief Executive

Officer

Chief Executive Officer’s letter


We have true home markets now in several

parts of the world

Zamil Industrial is well positioned to participate in this growth, and we are also pleased to note that Zamil Steel Vietnam performed well during the year In India there is vibrant demand for construction services Our multiple investments in India built over the years have fed into the growing infrastructure of the country Elsewhere in the Arab World and Africa, though there has been disruption caused by unrest, the overall outlook remains positive and the Company is bullish in our expectations for the coming year and beyond

Our overall plans and investments are focused on future needs in the construction industry, and we are pleased to be represented in sectors that are forecast for growth in an era when

considerable attention is focused on energy conservation and environmental protection Zamil Industrial is a market leader in the manufacture and supply of insulation materials, in maintenance, and in alternative and renewable energy Changes in oil use are accelerating and Zamil Industrial is focusing on all new developments

In all areas, management is monitoring trends and placing a high priority on anticipating future demand – for example, our work in identifying and applying environmentally friendly materials in air conditioning solutions brought us international recognition in 2012 We will continue to integrate these lessons into the way in which we design, develop, produce and deliver our products and services

Our best investment, though, is in the people who work for us and in those who reside in the communities we serve In accordance with the needs of our domestic market in Saudi Arabia, we created the Zamil Higher Institute for Industrial Training, a significant addition to our portfolio since it draws upon our expertise of many years in developing workforces with technical and engineering skills The award of a contract to train 102 apprentices by Saudi Aramco, the first ever of its kind for an external training agency in the Kingdom, will have implications for years to come


It is our joy to be able to share our experience with students, employees of our partners and customers, and the community as a whole The recruitment of female workers in our air conditioning business in Saudi Arabia should set a precedent for additional similar developments, and the sponsorship of the robotics team drawn from Saudi school pupils and their success on the international stage in 2012 gives us all great hope for mutual prosperity in the years to come

In praising youth we should not forget the experience and wisdom of age, and it is with great pride that we note the appointment of the Chairman of Zamil Industrial to the position of Chairman of the Riyadh Chamber of Commerce for the next four years

My hearty congratulations to our Shareholders and Colleagues on what has been achieved in 2012 We look to the future with confidence

Abdulla Mohammed Al ZamilChief Executive Officer

Chief Executive Officer’s letter | continued


Steel SectorBUSINESS OPERATIONS REVIEW

In accordance with corporate directives, Zamil Industrial’s Steel sector divisions are grouped under the ownership of a limited liability company, Zamil Steel Holding Company Limited Formalities for the registration of this company were completed before the end of 2012 The holding company has two groups: Building Products Group (BPG) and Industrial Steel Product Group (ISPG), and within these are various business units Together, these units of Zamil Steel comprise the most comprehensive offering of products, services and specialist expertise along with a noteworthy track record in MENA, the Indian Subcontinent and South East Asia, currently the most promising markets in the world Zamil Steel combines with other businesses of Zamil Industrial to provide a full range of building solutions With continuous efforts and right sized operations, Zamil Industrial’s steel sector has achieved growth both in revenues and in net profits in 2012

Building Products GroupPre-Engineered Buildings GCC (PEB-GCC), Building Component Solutions (BCOMS), Zamil Steel Egypt, Zamil Steel India and Zamil Steel Vietnam comprise this group Overall revenue of the division grew 3 3% and there was a 208% improvement in profitability as a result of selective positioning for profitable sales and improved operating efficiencies

Zamil Steel Egypt witnessed 16 5% revenue growth, with 20% higher production (49,342 tons in 2012)

Zamil Steel India improved its margins and produced 27,785 tons in 2012, though its sales revenue was lower by 3 7% Zamil Steel Vietnam achieved sales growth of 19% with production of 45,356 tons and a return to profitability PEB-GCC achieved 12% higher profits at with an output of 79,434 tons through focused sales efforts though there was a 3 7% drop in revenues BCOMS achieved 29 1% revenue growth at higher margins

Building Products Group is a well-established global player in the steel business and fulfilled or secured export contracts during 2012 in countries such as Venezuela, Afghanistan, Malaysia, Indonesia, Ethiopia, Nigeria and elsewhere in Africa, as well as


throughout the Middle East, South East Asia and the Indian subcontinent

Zamil Steel Egypt completed fabrication and installation of 1,900 tons of steel for a new complex at Beni-Suef for Samsung Electronics Zamil Steel Vietnam won a contract for a new 7,582 ton factory at Batam, Indonesia, for Caterpillar Zamil Steel India supplied 2,850 tons for a textile factory and commissioned an energy solutions plant of 4,286 tons In Saudi Arabia, Zamil Steel fulfilled contracts for warehouse buildings for the railways, new rubber and petrochemical facilities for Sabic in Jubail, a warehouse for Hadeed and a new bus station for Saudi Aramco A 5,235-ton order was obtained for a power plant building at Ras Az Zawr and a 31-meter dome structure with joists and decking was supplied for the lobby of a new hotel in King Abdullah Financial City in Riyadh

BCOMS acquired a new curving machine for ridge and eave panels Zamil Steel Vietnam purchased new state-of-the-art cutting and bending machinery for pipes and tubing, and folding and drilling machines for its Dong Nai factory Zamil Steel Egypt has improved the hot rolled sections and plate processing areas and reduced the scrap rates to 2 5% The business unit also improved its paint system and introduced measures to upgrade site safety

The business received well-deserved recognition as Zamil Steel Vietnam won the Golden Dragon Award, BCOMS earned Zamil Industrial’s Best Factory

Safety trophy, and Zamil Steel Vietnam in Manila received special awards for completion of work at the Samsung Electronics complex, and was named a ‘Trusted Quality Supplier’ The UAE Ministry of Environment and Water presented a certificate to Zamil Steel’s Ras Al Khaimah factory for its environmental performance The BCOMS factory in Dammam was awarded ISO 9001:2008 and Zamil Steel Vietnam updated its ISO 9001 system The Singapore Structural Steel Society extended its accreditation to Zamil Steel Vietnam as a fabricator

Faced with competitive pressures, PEB-GCC has identified turnkey projects as a way to enhance its offerings to earn higher margins and has formed a dedicated group to handle such projects, called Zamil Steel Construction Company In India, plant expansion is underway with the addition of 4,200 square meters of extra factory space for offline blasting, painting and material storage

Industrial Steel Products GroupThis group is made up of the Structural Steel Division (SSD), Towers and Galvanizing (T&G) Division, the Process Equipment Division (PED) and Zamil Inspection and Maintenance of Industrial Projects Company (ZIMIPCO)

As with the Building Products Group, ISPG recorded overall growth in both revenues (27 5%) and profits (a 11 5% gain) T&G was the only business unit in this group to experience a reduction

Our best investment, though, is in the

people who work for us and those in the

communities in which we serve


in turnover, of 18 2% Faced with declining sales for steel transmission towers in international markets due to competitive pressures, T&G engaged in right-sizing its operations to preserve its profitability and identified a new business opportunity in quick installation telecoms towers, winning its first orders before year-end New opportunities also emerged for hot dip galvanizing of structural steel elements following Saudi Aramco’s certification of T&G’s facilities

The SSD business recorded 20 1% rise in revenue during the past year Major SSD contract wins included a 10,537 ton order for pipe racks and support structures for the Jubail Export Refinery Project, 15,603 tons of structural steel for Algeria and 28,794 tons for the Shah Gas Development project, while 71 surge vessels with a combined tonnage of 7,000 were supplied to the Ras Al Khair desalination project The delivery of eight skid-mounted process units for metering finished oil products, made to the Saudi Aramco Total Refining and Petrochemical Co (SATORP) in Jubail, marked Zamil Industrial’s entry into this market for steel products SSD introduced an improvised manual-straightening machine to speed up the process and reduce handling, and its maintenance team devised an improvement that cuts machine downtime when servicing roller conveyors

Revenues doubled at PED, expanding by 103% The business unit supplied two heavy wall stainless steel columns, each of 509 tons, 62 meters long, 6 5

Steel Sector | continued

BUSINESS OPERATIONS REVIEW


meters in diameter, the first time such heavy columns of stainless steel have been produced This necessitated an expansion at PED’s plant, and was followed by the fabrication and supply of two de-methanizer columns in stainless steel and clad material, a de-ethanizer column and a de-propanizer column, three large coker furnaces and a secondary reformer for a methanol plant in Jubail During the year, HMTS and Zamil Hudson products were integrated within PED to gain business synergies Agreements were reached with Aker Solutions for joint ventures to produce desalter/dehydrator systems and with Callidus Technology for thermal oxidizers and waste heat recovery boilers

Zamil Inspection and Maintenance of Industrial Projects Company (ZIMIPCO) experienced strong growth in its second full year of operations, with revenues up 64% ZIMIPCO won a significant contract for major shutdown maintenance at Ras Tanura refinery, the first time Saudi Aramco has awarded an entire overhauling project to a single supplier The business unit also entered a new area of service by jointly bidding and winning with Thermo Engineering, an Italian firm, a contract for servicing three flare tips, which led to the construction of a new maintenance shop for heat exchangers

ISPG business units have been focused on finding innovative and cost effective solutions to operations T&G identified potential cost savings that could be made during the repair and modification

of Morris and Krao crane bridges and trolley wheels, and began to conduct in-house repair of electrical installations PED introduced plate grinding using carbon fiber discs instead of aluminum oxide grinding wheels, resulting in a 143% improvement in material removal and a 59% cut in grinding time

SSD developed forklift blade attachments using scrap metal to convert forklifts into mini-mobile cranes, suitable for handling unstable loads and reaching greater distances than normally possible Following the beginning of heavyweight column fabrication operations at PED, the business unit’s facility was expanded PED also replaced two rented mobile cranes with an improved lift frame made from scrap metals, which improved safety while cutting barrel lifting and transfer time by 50% The business unit manufactured a mini-furnace to pre-heat vessels, cutting the pre-bending rolling time by 80% and saving equipment from damage

ZIMIPCO won a significant contract for shutdown maintenance at Ras Tanura

refinery, the first time Saudi Aramco has awarded an entire overhauling

project to a single supplier


HVAC SectorBUSINESS OPERATIONS REVIEW

Zamil Industrial is the Middle East’s largest producer of air conditioning systems and serves as a leader in the Heating, Ventilating and Air Conditioning (HVAC) industry The formation of Zamil Air Conditioners Holding Company Limited as a limited liability owner for all group HVAC business units, mirroring the similar structure established for the steel sector, was in progress at year-end In line with planned strategy, Zamil Industrial entered into a binding agreement with joint venture partners to acquire the outstanding 70% share in Advantec Coils Private Limited in India The decision was driven by promising demand in the Indian subcontinent, one of the world’s fastest growing markets, and will position Zamil Industrial as a leading building solutions provider with a combined offering of steel and HVAC products and services

At the same time, the company reduced its share in Geoclima Srl, Italy, from 85% to 45%, selling to the founding partner However, Zamil industrial will continue to own the Geoclima technology for applications in the Middle East and Indian markets The two decisions involving Geoclima and Advantec were taken after extensive studies and will realign these parts of the HVAC sector to increase returns

Consistent performance was recorded from the HVAC business in 2012 Overall revenues reached the highest level ever, registering an 11% increase, and operating efficiencies meant that margins were even better, up 23% over

2011 There was growth in all business units: 10% in the Consumer business unit; 14% in Unitary and Applied (U&A); 38% in Services; 12% in Spares and 2% in Middle East Air Conditioners (MEAC) This continued the consistent pattern of growth and improvement over the previous six years, despite difficult conditions and tough competitive forces It is a reflection of the Company’s attention to business fundamentals and organizational models, coupled with solid operating systems, excellence in execution and success in building a performance-based culture

Zamil Air Conditioners started the year in a strong position by signing an agreement with Mitsubishi Heavy Industries for the supply of large capacity, water-cooled centrifugal compression and chillers, which are designed for the large malls, hospitals, and industrial and commercial buildings of the region Before year-end, a 5,000 ton, two-section centrifugal chiller had been supplied to the Hadeed district cooling plant in Jubail

The Company’s first independent sub-assembly line staffed exclusively by females was opened in February 2012 It is designed to provide electrical sub-assemblies to the RAC and mini-split main lines and it is intended to be the first of other similar developments Zamil HVAC Sector designed and produced the first single deck, counter and parallel flow energy recovery unit for villas, based on the concept of utilizing exhaust air to cool down ambient air


A 5,000 ton two-section centrifugal

chiller was supplied to the Hadeed district cooling plant in Jubail


Major HVAC contracts during 2012 included the supply of chillers and air handling units to the Borouj project in the UAE, packaged units with structural, civil and mechanical and electrical works for a project in Qurayya, and others at the Maaden Rolling Mill, the Shaybah Gas Plant in Jubail, the Wasit Gas Project and Saudi Aircon in Al Khobar Substantial supply contracts were received for hospitals, schools and colleges, King Abdulaziz International Airport, and housing for the Ministry of Interior, Saudi Arabian National Guard, the Royal Commission for Jubail and, Yanbu, and for projects in Riyadh and Dammam This was a reflection of the substantial growth in spending by the Saudi government

Landmark projects completed in 2012 included: a customized chiller unit ordered by the Pakistani government, comprising six chillers each of 215 TR capacity, 41 air handling units for a petrochemical complex in Jeddah, noted as the largest units the company has ever handled in terms of air handling quantity and size Additionally, the coil and coating team at CoolCare supplied and installed the largest ever coil (8 meters)

Certification by the Air Heating and Refrigeration Institute of the USA was awarded to the company’s air-cooled screw chillers, meaning that Zamil HVAC products will appear on AHRI’s directory of approved products, opening a potentially important market in which AHRI certification is mandatory In other

developments, Zamil Air Conditioners’ consumer products were awarded the Emirates Quality Mark, the ‘R’ stamp certification for Hudson was renewed to 2015, and the HVAC sector’s team received appreciation from United Technologies which has appointed the company as its authorized distributor

Geoclima registered an important breakthrough during 2012 Working with others, Geoclima participated in the development of the first chillers to use low-global warming potential refrigerants in a supermarket in the UK The solution, Hydrofluoroolefins (HFOs), was found to dramatically reduce the carbon footprint and lower flammability At the same time, the Company was recognized for its work in phasing out substances that deplete the ozone layer at an UN-sponsored event in Saudi Arabia Such developments demonstrate the Company’s continued search for environmentally friendly solutions in the HVAC market

HVAC Sector | continued

BUSINESS OPERATIONS REVIEW


Glass Sector BUSINESS OPERATIONS REVIEW

Our Glass business had experienced low growth and stagnation over the past few years, yielding insignificant returns Since this did not fit our business model, we took the strategic decision of exiting this business, and were able to successfully dispose of the assets and close the operations by the end of 2012


Insulation SectorBUSINESS OPERATIONS REVIEW

The past year marked the first full twelve months of operation since the merger of Zamil Industrial’s insulation business units within the Gulf Insulation Group (GIG), upon which the Company became managing partner with a 51% stake GIG is based in Riyadh and has established itself as the regional leader in the insulation market, supplying environmentally efficient solutions to construction projects across the region and beyond The sector company is uniquely positioned with four product portfolios: glass wool, rock wool, rubber insulation and pre-insulated pipes, all manufactured in Saudi Arabia with plants in Riyadh, Dammam and Al Kharj, and is the only company equipped to offer such a complete range of options

Consolidated earnings demonstrate that GIG performed well in 2012, with revenues up 4 2%, though there was a marginal decline in profits of 0 9% due to customer project delays and breakdowns in curing ovens, which have been now rebuilt Nevertheless, there was overall growth in all GIG business units: revenues rose 1 5% at Arabian Fiberglass Insulation Company (AFICO); 4 6% at Armacell Zamil Middle East Company (AZMEC), manufacturers of elastomeric nitrile rubber for thermal and acoustic insulation; Saudi Rockwool Factory (SRWF) saw turnover up 9 6%, and Saudi Pre-Insulated Pipes Industries (SPPI) rose 5 8% As a result, GIG is in a strong position in its industry and ambitious plans for production expansion are underway


The quality of our insulation products

was acknowledged by various authorities

The investment in additional capacity is based on fast-growing demand from the domestic market Although overall exports declined in 2012, this was due to a focus on the substantial opportunities in Saudi Arabia Some of the year’s notable contracts came from abroad, including for such projects as the Hoya Glass Disk in Vietnam, the new Doha International Airport, Bab Al Bahar Hotel in Ajman, the Ibis Hotel in Hong Kong, the Four Seasons Hotel in Bahrain and the Habtoor Island Resort in Palm Jumeirah Major contracts fulfilled in Saudi Arabia featured insulation products supplied to the Business Park in Jeddah, Binzagr Factory, the Al Khobar Municipality, King Saud University, King Abdul Aziz Center for Knowledge and Culture, and the new nylon plant in Jubail

The quality of the division’s systems and products was acknowledged by various authorities AFICO won the Emirates Green Building Council certificate in recognition of the environmental importance of fiberglass SRWF products were approved as green building materials by Dubai Municipality, and the business unit obtained a European certificate of conformity AFICO also acquired certification from the Dubai Central Laboratory, and approval for listing on the UL Online Certifications Directory Reflecting the creation of new identification for GIG business units, websites were launched for each, along with a range of product catalogues, leaflets and other sales materials

We will continue to rely on the innovative

skills and hard work of those who work for

Zamil Industrial


Concrete SectorBUSINESS OPERATIONS REVIEW

The Company’s Concrete Sector interests are represented by Ranco Zamil Concrete Industries, which designs, manufactures and erects pre-cast concrete buildings It also produces wall panels, plinth foundations, columns, pre-stressed beams, pre-stressed flat and hollow core slabs, boundary walls and materials for use in road construction

Following investments made in 2011, revenues grew 4 7% in the past year, exactly on target Production rose to 67,000 cubic meters of Precast concrete, up from 62,400 in the year before, and the Company’s pallet circulation factory opened at the beginning of 2012

There were major contract completions for Najran University, for an oil and gas separation plant, for malls on Takasushi

Strip and Al Swalim, and for Qassim University’s Economics Building Two large contracts started during the year will boost production through 2013 These are for the fabrication and erection of Precast elements for a five-storey car park in the central province and a major Saudi Arabian National Guard housing project located east of Riyadh and including high quality Precast villas, shops, schools and mosques The latter project is the largest contract ever won by Ranco Zamil Looking to the future, the Company is exploring a joint venture to handle rapid construction of low cost villas

The Company updated its ISO 9000 certification and gained re-accreditation from the Precast/Prestressed Concrete Institute of the USA (PCI) Ranco Zamil strengthened its capabilities in project management, erection, production, purchasing, technical and sales, and embarked on the continuous improvement 5S program


Other SectorsBUSINESS OPERATIONS REVIEW

Zamil Industrial’s growing position in the alternative and renewable energy facility sector, managed by Zamil Infra Private Limited (ZIPL), the Company’s joint venture, was maintained throughout the year Its performance in 2012 was built on the success of the large solar EPC project executed the year before Formed in 2008, the business supplies passive telecom infrastructures, featuring galvanized towers, shelters with sandwich panels and air conditioning equipment for the quickly expanding telecommunications industry It combines Company strength in India in steel and air conditioning with the resources of the JV partner, New Delhi Tele Towers, and Zamil Industrial’s presence in export markets of considerable potential in Asia, Saudi Arabia and elsewhere

An order was signed with Huawei in the Philippines for 4,000 telecom structures for which the Company achieved the international occupational health and safety management standard, OHSAS 18001 ZIPL works closely with Huawei in Nepal where, by year-end, 57 out of a targeted 79 BTS (base transceiver station) sites had been completed The Company now has a 60% market share in Nepal and maintains 55% of the network of Nepalese corporation NCELL Further contracts in the market are underway and ZIPL has been contracted for 22 turnkey sites in Nepal for smart telecoms, with the prospect of additional sites to be confirmed during 2013 Other completed projects included a 20MW solar project using state-of-the-

art technology, which was carried out in Gujarat, India, in a record 108 days Two 1MW plants have been commissioned in Haryana and Rajasthan Deals for the installation of 26 ZTE sites were signed, and nine of these were completed In Saudi Arabia, 100 installations within Saudi Aramco for Zain telecommunications are underway

For the future, a collaboration agreement was signed with the Spanish company Jeminez Belinchon for the global system for mobiles with reference to the Haramain High Speed Railway project in Saudi Arabia This can be extended to other projects in the region and in Africa ZIPL underwent a capability audit for girders, mats, CCTV poles and light poles in Saudi Arabia and the UAE, which also included Zamil Steel and Zamil Air Conditioners A capability audit on the Company for capsule shell towers and tower tubes, which involved Ranco Zamil and Zamil Steel, led to a global market agreement with Ericsson

The Company has introduced groundbreaking 60-degree angular towers for the telecoms market, in a development in which it partnered with Ozkan of Turkey ZIPL acquired ISO 9001:2008 certification for its corporate office, Nepal business unit and Manesar factory (India) Approvals from Zain for all ZIPL products are underway


Market Outlook in 2013

The past year saw a continuation of the two-speed world economy that has shaken confidence since the financial meltdown of four years ago On the one hand, emerging markets, including Saudi Arabia, are expanding at rates well above inflation, while on the other, the developed countries of North America, Europe and Japan continue to stutter along in dire financial and political circumstances Nevertheless, there was an overall growth in the world economy of 2 3%, which is 10% higher than 2008 when the effect of the financial crisis was yet to become fully apparent Predictions for 2013 see a marginally increased rate of growth to 2 4%

During the last months of 2012 the United States went to the edge of its fiscal cliff before saner counsels prevailed But it left huge partisan differences and though the country finished the year in growth at a little over 2%, stability is still threatened by discord in Congress over the debt ceiling issue Japan bumped along, ending 2012 with an unexpected decline equivalent to a 0 4% annualized fall, while the 17-country Eurozone concluded the year 0 5% down on 2011 What is called a mild recession in Europe of around 0 2% in 2013 will deepen if voters go sour on austerity policies Global economic recovery remains fragile as a result In the middle of 2012, for instance, it was estimated that a fracturing of the Eurozone could mean a fall in the oil price to $50 It is a fear of contagion that hung over the world economy for most of 2012 and will almost certainly continue to cloud prospects in 2013

A collapse in oil prices didn’t happen in 2012, of course, and the average price of oil was $112, says the EIA, up from $109 the year before A softening of around 5% is forecast each year for the next two years Much depends on demand, of course, and that will be partly influenced by the growing amounts of oil extracted from shale in the United States, which is cutting the country’s use of imported oil to 6 million barrels a day, less than half of what it was in 2005 Shale oil production will spread in other countries in coming years Long praised for its moderating influence on the price of oil, Saudi Arabia will face its impact


Elements of Zamil Industrial comprise the most comprehensive offering of products

and services, specialist expertise and track record in MENA, Indian

Subcontinent and South East Asia

and will need to direct investments toward downstream industries

Emerging MarketsZamil Industrial has focused on the development of home markets in South East Asia, the Indian subcontinent, and Saudi Arabia and the Gulf All fared well in 2012 and are strongly placed for renewed expansion in the coming year Projections for growth in the ten-country Association of South East Asian Nations (ASEAN) for the next five years are 5 5% a year, and the region’s combined economy ranks 9th in the world at $2 trillion with a population of 600 million Should moves towards creating an ASEAN common market accelerate, the Zamil Industrial presence in the region – Vietnam, Singapore and Malaysia - will become ever more valuable

The Company’s investments in the Indian subcontinent are also positioned to benefit from an expanding economy Though there was slower growth in 2012 to 5%, it is expected that a faster rate of 6 5% to 7% will prevail in 2013 and beyond India is the 10th largest economy in the world and has vibrant demand for construction services Apart from serving the domestic scene in the Indian subcontinent, the Company’s operations have potential for exporting alternative and renewable energy applications

North Africa has been faced with uncertainty due to political discord in recent years In Egypt there is a level of real concern at falling tourism

revenues, investment and remittances that will continue for some time to come In neighboring Libya, on the other hand, good opportunities exist for the construction industry in infrastructure renewal Libya surprised commentators by returning to full oil production during 2012, and though it is clear there is a long road ahead, the country will be able to capitalize on its natural resources

Saudi ArabiaBuilding on the large increases in government spending of recent years, the Saudi budget for 2013 sets out an 18 1% rise in expenditure – the highest ever figure and twice the level of 2006 As before, the focus is on improvement in education, social services and basic infrastructure, all geared towards sustainable economic development and job creation Revenues have been budgeted at SAR 829 billion – based as usual upon a conservative valuation of oil earnings - and spending at SAR 820 billion Actual spending, as in 2012, will be higher

Construction is again a major beneficiary of the budget with SAR 285 earmarked for investment projects, particularly focused on those in the areas of science and technology The budget allocates funds for the further development of schools with 1,900 projects getting underway, renovation continuing at 2,000 premises and construction beginning on 539 new schools Work on 15 college and university projects is set to begin; SAR 13 4 billion has been allocated to the new electronic


university initiative, and SAR 4 25 billion is to be spent on three new college hospitals Health and social services sector funding accounts for 12 2% of budget spending, with work set to start on 19 new hospitals and health centers, continuation of building work at 102 hospitals and in five medical cities Plans include the construction of 20 new sports centers and 15 social and rehabilitation centers

Other areas slated for increased expenditure are water and agricultural resource management, up 11%, an expansion of 23% in funding for municipalities, and transport and telecommunications, up 16%, including development of 3,700 kilometers of roadways and upgrades at airports, seaports and infrastructure projects in the industrial cities of Jubail, Yanbu and Ras Al Khair

A healthy economy in Saudi Arabia in 2013 will again fuel growth in the construction sector as demand for products and services increases and new jobs are created There should be much encouragement from the Company’s other main geographical locations, though with the caveat that the Eurozone manages to sustain tough policies to resolve its debt burdens Challenges remain, not the least of which are the competitive pressures that exist in all Zamil Industrial market sectors, so there is no cause for complacency But as a result of the introduction of efficiencies in recent years, the diversification of its territories,

products and services, and adjusting its market position as a one-stop shop for construction solutions, the Company is well placed for continued success

Market Outlook in 2013 | continued


Zamil Industrial’s Corporate and Shared Services bring the advantages of size, better utilization of resources and the synergies of the corporate organization to the Company’s business units Corporate and Shared Services uses its vast body of expertise to foster growth and mutual cooperation across the enterprise in line with the Company’s Vision and Mission Statement Several essential achievements were recorded in 2012

Corporate GovernanceZamil Industrial’s Corporate Governance principles and practices are an integral part of the Company’s operations They focus on the enhancement of long term shareholder value without compromising ethical standards and social responsibilities, and are articulated through the Company’s Code of Business Conduct and Ethics, Corporate Governance guidelines, the charters of various sub-committees of the Board and the Company’s Disclosure policies

Sound Corporate Governance is critical to our business integrity and to maintaining investors’ trust, and is central to the continued success of Zamil Industrial

Responsibility for good governance lies with the Board, and Directors place a high priority on ensuring that an effective system is in place throughout the Group Annual reviews are undertaken to assess performance and Directors ensure there is a suitable balance in meetings between discussions of strategy and reviews of financial and operational

Corporate & Shared Services Review

performance on one hand, and oversight of risk management and internal controls, the safeguarding of assets, and keeping Board and executive succession plans refreshed on the other

Internal AuditFocused on the creation of better understanding of internal controls and the application of corporate policies and procedures, the Internal Audit function aids management in the achievement of Zamil Industrial’s financial and operating goals It seeks to identify weaknesses, avoid risk and malpractice, and provide systematic and strategic solutions

During the year, 122 audits were conducted in 22 different parts of the group, and 1,952 recommendations were issued Follow-up audits were conducted where required, and of 372 recommendations studied, 266 were found to have been fully implemented, 63 were in the process of being introduced and 43 were still to be adopted

Specific attention was focused on achieving cost efficiencies by strengthening control over materials, fixed assets and expenditures, and in this regard, great improvements were registered in the management of physical inventories Internal Audit has expanded from its core role by providing other professional services, such as the development of policies and procedures in areas of material management, standard tools and equipment Results were impressive and showed much improvement in 2012


Legal AffairsCritical Legal Affairs activities in 2012 featured the formation of limited liability companies, Zamil Steel Holding Co Ltd and Zamil Air Conditioners Holding Co Ltd, as rightful owners of the Company’s steel and HVAC interests Procedures for the steel business were completed in 2012 and matters for the HVAC business were underway at year-end

The intention to restructure these businesses was originally announced on Tadawul in 2010 and shareholders have been kept apprised of progress by subsequent announcements In the process of the foundation of Zamil Air Conditioners Holding Co Ltd, Company shares in Geoclima were partly divested and 100% of the equity in Advantec Coils Private Limited of India was acquired This was in line with corporate strategy and followed an extensive study produced by an

Corporate & Shared ServicesReview | continued

independent international consultant The effect has been to increase the Company’s positioning in the expanding Indian subcontinent while reducing it in a declining market in Europe

Human ResourcesWith a Company workforce of 10,000 people, we contribute substantially to the economies of the various countries in which we operate This is not just through the payment of salaries and benefits, but in the wider development of skills, knowledge and expertise We have always sought to ensure that our people have the tools they need to carry out their tasks and to develop their careers, and they have responded with loyalty, drive and a willingness to innovate for the good of the group In turn, employees support the wider area of the communities in which they live in a variety of ways

During 2012, the HR department recruited 1,968 new employees into Zamil Industrial business units In accordance with the development needs of our domestic market, 761 new members of staff – or 38 7% of the total recruited – were Saudi nationals This figure exceeds the target for the year of recruiting 500 Saudis to the workforce

In terms of the time taken to fill vacancies, the average for a white-collar appointment was 99 days, beating the target of 105 days, while for blue-collar positions the average was 73 days, against a target of 75 days Nepal emerged as a country from which we


761 new members of staff – or 38.7% of total recruited – were Saudi

nationals

are able to recruit skilled workers, while labor markets in Sri Lanka and Pakistan were used to supplement shortages from other traditional markets

In line with the desire to be the employer of choice for Saudi nationals, the Company took part in three career days at universities The Company also encouraged visits by students to the Zamil Higher Institute for Industrial Training and various factories, in order for them to better understand the workplace and training environments Best practices were shared with other Saudi businesses when the Manager of Zamil Industrial Human Resources participated in a Saudization Conference in Dammam in May, presenting a keynote address on the employment of talented young Saudis and how to build a brand that will interest and attract them He spoke about the creation of successful scouting initiatives, the development of performance management systems, the importance of benchmarking Saudization programs in compliance with regulations, and collaboration with Saudi educational institutions, all procedures utilized by Company HR in its recruitment drives

Of particular note was the employment of 33 women for the female section on the sub assembly line at Zamil Air Conditioners in Dammam This line commenced operations in January 2012, marking a significant milestone for the Company It is hoped that it will lead to similar developments over time Following the start of work on

the sub assembly line, the Company hosted female representatives from the Asharqia Chamber of Commerce, who reviewed the operation

The Company continued to use the Achiever’s Club, its employee recognition program, to acknowledge outstanding performers The annual Zamil Industrial Sports Festival was held in April, with Zamil Steel PEB team winning the basketball trophy for the third time running

TrainingZamil Industrial’s in-house training capabilities have been at the heart of much of the Company’s success for many years The core of this expertise was used to create the Zamil Industrial Training Center for in-house training, and the Zamil Higher Institute for Industrial Training, which is used as a vehicle for extending these capabilities to third party organizations The Higher Institute is housed in specially built and equipped facilities that opened in the first quarter of 2012 at a cost of SAR 50 million, and by year-end had begun to attract significant contract training work

The Institute has a capacity to train 300 people at any one time, or 600 on double morning and evening work periods It has brought Edexcel-approved vocational training to the region by virtue of a cooperative agreement signed with the Grimsby Institute of Further and Higher Education of the UK, a leading provider of vocational air conditioning and refrigeration technology training


Grimsby Institute has also cooperated in the establishment of a Quality Control and Assurance Unit, a vital requirement for Edexcel-UK accreditation

From the in-house perspective, the Industrial Training Center is providing technical training for engineering and technical workers in welding, machine operation and fabrication as well as software training for office operations, English language needs and customized HVAC training It also provides training in supervisory, presentation and sales, first aid, IT, finance for non-finance professionals, and other courses that are useful across the spectrum of Zamil Industrial businesses The Center also trains the staff of sub-contractors, customers and partners The contribution


of this training effort to the improved performance of the Company and career advancement for employees is significant Through the Center, cooperative and summer training programs, involving classroom and on-the-job training, were delivered to 40 college, university and secondary school students in 2012 The trainees came to gain work experience in production, engineering, sales and marketing, information technology and finance functions The training season began in June, with programs ranging in length from two months for the summer training scheme to seven months for those on cooperative placement Between the Training Center and various Zamil Industrial business units, matters were coordinated to arrange appropriate project assignments Each university


student received a SAR 2,000 a month stipend, while college students were paid SAR 1,000 per month

The Center also worked with a national institute to train 40 male and 20 female secondary school students during their summer holidays Their training program consisted of an intensive English-language communications module and an information technology module based on Microsoft Office applications The students were also periodically assessed during the program and received SAR 1,000 in appreciation of their hard work and dedication to the training initiative

In line with the planned extension of the Company’s training capabilities to external customers through the Zamil Higher Institute for Industrial Training, there was a succession of meetings with organizations and institutions during the year This started off with a visit from the Governor of the Technical and Vocational Training Corporation who provided advice on the expansion of the facilities and training systems

Later, accreditation and approval for funding was forthcoming from the Human Resources Development Fund, which also signed a comprehensive support agreement Academics from King Faisal University in Al-Ahsa visited the Higher Institute and discussions were held on various ways in which cooperation might be initiated, such as in the sharing of teaching experience and the development of training laboratories and programs

Several major private and public sector organizations also visited the Higher Institute to investigate ways in which their training needs might be supported This resulted in a major development before the year-end when Saudi Aramco afforded its accreditation, and a two-year full-time course began for 102 of its apprentices in academic and job skills using Aramco’s own curriculum

Information TechnologyInformation Technology oils the wheels of business and Zamil Industrial has demonstrated its comprehensive commitment to excellence in delivering IT capabilities to all business units, positively impacting operations and facilitating growth, especially in the areas of manufacturing, supply chain, finance and HR

The role of IT within Zamil Industrial was transformed during 2012, beginning with an assessment review that led to organizational changes featuring the introduction of two new IT functions – a Java Development Center and a unit for Integrated Cloud and Mobile Applications The second of these represents a new approach to the implementation of Business Cloud Computing, a significant development that allows enterprises to get applications up and running faster, with improved manageability, less maintenance and enhanced flexibility in adjusting resources

The highest priority development was the transfer onto global enterprise resource planning (Global ERP) single

Saudi Aramco afforded its accreditation, and a two-year full-time course began for

102 of its apprentices in academic and job skills using Aramco’s own curriculum


instance, which ensures that consistent processes are used across the Company This enables senior management to monitor the entire organization using one data model Global Human Capital Management was another key development effort

Cyber security remains an important focus for Zamil Industrial New initiatives were rolled out relating to browser control, license compliance, data encryption and cyber security Looking forward, it is important to gain a deeper involvement of IT with the end-to-end business process In terms of numbers, a total of 12,358 incidents were resolved during the year, 82% of them (up from 67% in 2011) on the same business day An internal customer satisfaction survey indicated 94% satisfaction

In November, a meeting was held in Saudi Arabia with the Chief Operating Officer of Microsoft, David Turner, at which discussions revolved around business and technology, and possible future areas of cooperation

Loss Prevention and SafetySimply put, the key purpose of Loss Prevention at Zamil Industrial is to instill the highest level of Safety, Health and Environmental (SHE) awareness in every individual in the workplace, with the aim of minimizing any adverse effects of Company operations on employees and the environment

To achieve this objective, procedural tools such as targeted training programs,

safety observational reporting, regular inspections and audits and the publishing of statistics are utilized The goal of creating a truly safe working environment is of course vital for employees to minimize injury and ensure they return home safely, but it is also critical to the maintenance of manufacturing quality and workplace efficiency SHE data is invariably required by group business units as part of their pre-qualification requirement for tenders and permits to operate, and to meet changing requirements of authorities, customers, partners and agents

Much has been achieved SHE rates improved 29% during 2012 – the minimum targeted was 5% Incident-free days increased by 18%, and the frequency and severity rates improved by 66% and 37% respectively In terms of attendance at training courses, the average per employee in Zamil Industrial factories was 2 7 hours (2 5 hours planned) with 5,516 employees undergoing instruction during the year Emergency training and procedural reviews were carried out in factories in Saudi Arabia and Vietnam

Civil defense permits were obtained or renewed for factories and on-site surveys were carried out at many workplaces Specific action was initiated to improve SHE compliance on a particular customer site in Jubail, with follow up training implemented for employees both of Zamil Industrial and sub-contractors A total of 30,000 Zamil Industrial safety handbooks were produced and



distributed Altogether, there were 9,247 SHE operations, 2,780 fire protection operations and 510 technical studies carried out during 2012 In addition, Building Component Solutions Company (BCOMS) won the internal Best Factory Safety award 2012

Corporate Social ResponsibilityConscious of the importance of serving communities, the Company views its ‘good neighbor’ campaigns as a vital element of policy These campaigns are mounted with local charitable and social groups in fulfillment of Zamil Industrial’s core values to support the communities for the betterment of all The Company encourages volunteerism on the part of employees and is focused on the priority needs of society New ideas are always welcomed

An important addition in recent years is Eta’am, the Saudi Food Bank, on

the board of which the Company is represented Eta’am applies the international concept of food banks to Saudi Arabia, in which excess or unwanted food is redistributed to the needy using the highest quality and safety standards At the same time, Eta’am builds awareness of the importance of avoiding food waste The organization has also done much to provide an outlet for all sorts of charitable giving, supporting volunteer work and helping to create jobs

During 2012, Eta’am contracted to work with 30 hotels and wedding halls and signed an agreement with the Saudi Industrial Property Authority Based in the Eastern Province of Saudi Arabia, it opened a branch in Al Hasa, promoted the spread of its vision throughout the Kingdom and helped in the foundation of similar organizations in Qatar and Lebanon It distributed 200,000 meals

The Company views its ‘good neighbor’

campaigns as a vital element of policy


during the year, of which 40,000 were provided during Ramadan as Iftar meals Eta’am has been recognized by the Campden Awards, which named it one of the three best projects in the Middle East

Zamil Industrial also sponsored the Sanad Children’s Cancer Support Association’s campaign to build awareness and raise funds during Ramadan in Riyadh Shopping Malls This campaign demonstrated the Association’s inspiring work with pediatric patients with cancer Competitions were run, for which the company presented prizes Additionally, the Company organized a Ramadan Suhoor program for residents of the Social Nursery Center in Dammam, involving 70 women and girls who attended Suhoor meals at one of four hotels in Al Khobar

As part of the drive to encourage volunteerism, Company employees staged the annual Blood Donation campaign, run in cooperation with the King Fahd Specialist Hospital and involving factories on the First and Second Industrial Cities in Dammam Separate blood donation campaigns were conducted by employees of Zamil Steel Egypt and Zamil Steel India

In Egypt the Company provided materials to the Faculty of Engineering at Cairo University to enable the completion of experiments with steel structures Assistance was provided to Ain Shams University for research into cold-formed sections, and also to a Government Institute for studying the same subject when used for low-cost housing Similarly, in Saudi Arabia, steel frames were donated to a research facility at King Fahd University studying earthquakes Zamil Steel Egypt helped in the building of two mosques in line with Corporate Social Responsibility objectives

In India, the Company collected toys and winter clothes for distribution via Non-Government Organizations and a campaign was started to purchase items made by disadvantaged children Zamil Steel Vietnam contributed to various charitable activities in Hanoi and to poor children through the Dong Bai Pagoda, and free soup was cooked and delivered to patients at the Vietnam National Institute of Burns The Company also participated in a Labor Day celebration held to mark outstanding achievement by 120 skilled workers from



various organizations in Hanoi Through a number of exercises the new Higher Institute for Industrial Training in Dammam has helped students to better understand the world of industry Likewise, a tour of national factories in the Eastern Province including Zamil Steel PEB was organized with the Department of Civil Engineering at the University of Hail

The appointment of the CEO to the Board of Endeavor Saudi Arabia in 2012 signaled the commencement of the work of that organization’s affiliate in the Kingdom Board members share Endeavor’s vision for identifying and helping young people starting out in business who have the potential to become what is called ‘high-impact’ entrepreneurs

Environmental ProtectionVarious Company initiatives are underway to ensure that operations aid the drive to better environmental conditions Much is focused on the boost to energy conservation brought about by GIG’s work in the Insulation Sector and Zamil Infra Pvt Ltd’s application of solar technology But all parts of Zamil Industrial are involved in environmental protection, whether through major exercises such as Geoclima’s groundbreaking use of low global warming potential refrigerants in chillers, applied in the UK at a supermarket test site, or through the Company commissioned treatment plant for the recycling of waste water and paint booth scrubber to reduce toxic emissions installed in India

At the other end of the scale, a paint thinner used in Dammam was found to be highly volatile, which led to its replacement with a moderate version Zamil Steel introduced an eco-friendly Pantene blowing agent and the HVAC purchasing team launched a recycling initiative with HP toner cartridges As they say, every little bit helps Zamil Steel Structural Steel Division embarked upon a recycling program for plastic spools, used paper, oil and blast dust, paint cans, tires, electrical cables and perishable garbage

The Company took part in the International Ozone Day organized in Saudi Arabia with the UN Environment Program, at which Zamil Air Conditioners was honored for its work in phasing out substances that deplete the ozone layer The UAE Ministry of Environment and Water presented a certificate to Zamil Steel’s Ras Al Khaimah team for its environmental performance Also, the AFICO business unit won the Emirates Green Building Council certificate in recognition of the environmental importance of its fiberglass products

Sponsorship and CultureDhahran Ahliya Schools’ student robotics team carried the flag of Saudi Arabia proudly into the finals of the Lego League World Competition held in St Louis, Missouri in April 2012 The young students produced a tremendous effort, which won them the ‘Best Teamwork’ award A month earlier they came in second at the 5th Open Arab

Zamil Air Conditioners was honored for its work

in phasing out substances that deplete the ozone layer


Robotics Championship held in Byblos, Lebanon, in the designing, building and programming of autonomous robots Zamil Industrial has sponsored the team since 2010

This support for excellence in the educational sphere is central to the Company’s outlook In a further development, Zamil Industrial honored a group of Saudi students in a ceremony held at the Higher Training Institute These were all young men and women who have achieved academic excellence at a national level

Zamil Industrial provided support for events and exhibitions in the Kingdom held with the purpose of stimulating private sector development and business growth The Company was a diamond level sponsor of the Armed Forces Exhibition held in Dhahran, and the Metal and Steel show in Jeddah, the Big 5 Exhibition and other events held in the region

The Company’s Chairman was keynote speaker at the conference accompanying the Armed Forces Exhibition, where he outlined the importance of the private sector to the national economy, while the CEO spoke at MaintCon 2012 in Bahrain and at the Arabian Business Forum in Dubai on the issue of developing alternative and renewable energy sources in the manufacturing industries of the future

RecognitionCompany efforts toward increasing quality in its operations and understanding and compassion towards its communities were recognized on a number of occasions during 2012 Samsung Electronics praised Zamil Steel Egypt for the excellent and timely meeting of contract requirements in the erection of Samsung’s new complex at Beni Suef

Zamil Steel Vietnam won – for the 10th consecutive year – the Golden Dragon Award as Best Product Supplier, co-organized by Vietnam Electronic Times and the Ministry of Planning and Investment The Company was also presented with a Certificate from the Vietnam Enterprise Association as a Trusted Quality Supplier Zamil Steel received the quality certification for steel buildings with sophisticated paint endorsement from the American Institute of Steel Construction



Financial Highlights

(Decrease)

1,200,000

1,400,000

800,000

1,000,000

600,000

400,000

200,000

Saudi Arabia

4,351,11281.3%

Asia677,683 |12.7%

Europe15,099 |0.2%

Africa310,980 |5.8%

Saudi Arabia3,894,999

82.4%

Asia477,530

10.1%

Europe75,142

1.6%

Africa280,024

5.9%

4,50

4,00

3,00

2,00

3,50

2,50

1,50

1,00

0,50

1,112,476

2012

1,178,362

22%

2011

1,373,909

2010

29.1%

27.7%

2011

2010

3.52

2012

27%

8.3%

30.7%2.57

3.36

Analysis of Sales by GeographicalLocation

Saudi Arabia3,147,965

78.3%

Asia495,126

12.3%

Europe70,600

1.8%

Africa304,721

7.6%

2010

2012

2011

Analysis of Sales by Activities

2010

2012

2011

Steel Industry2,209,302

55%

Air ConditionerIndustry

1,636,21840.7%

Glass & Insulation172,892

4.3%

Steel Industry2,416,980

51.1%

Air ConditionerIndustry

1,836,33438.8%

Glass & Insulation324,983

6.9%

Concrete149,398

3.2%

Steel Industry

2,689,36450.2%

Air Conditioner Industry2,184,563 |40.8%

Glass & Insulation322,970 |6%

Concrete156,444 |2.9%

Others1,533 |0.1%

ConsolidatedFinancial Statements and Auditors’ ReportYear Ended December 31, 2012


AUDITORS’ REPORT

To the stockholders Zamil Industrial Investment CompanyDammam, Saudi Arabia

Scope of Audit:We have audited the consolidated balance sheet of Zamil Industrial Investment Company (“the parent company”), a Saudi joint stock company, and its subsidiaries as of December 31, 2012 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended, and notes 1 to 29 which form an integral part of these consolidated financial statements as prepared by the Company in accordance with Article 123 of the Regulations for Companies and presented to us with all the necessary information and explanations. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in the Kingdom of Saudi Arabia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

Unqualified Opinion:In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting standards in the Kingdom of Saudi Arabia appropriate to the nature of the Company and its subsidiaries, and comply with the relevant provisions of the Regulations for Companies and the Articles of the Company as these relate to the preparation and presentation of these consolidated financial statements.


CONSOLIDATED BALANCE SHEETAs of December 31, 2012 2012 2011 Note SR 000 SR 000

ASSETS Current assetsCash and cash equivalents 338,820 285,867Accounts receivable and prepayments 3 2,034,486 1,743,295Advances to an unconsolidated subsidiary 4 338,870 244,328Inventories 5 1,820,265 1,878,550Amounts due from related parties 10 80,376 107,599

Total current assets 4,612,817 4,259,639 Non-current assets Investments 6 260,422 321,004Property, plant and equipment 7 1,592,890 1,444,502Deferred charges 8 16,706 11,777Goodwill 9 169,906 176,251

Total non-current assets 2,039,924 1,953,534 TOTAL ASSETS 6,652,741 6,213,173 LIABILITIES, STOCKHOLDERS’ EQUITY AND

NON-CONTROLLING INTERESTS

Current liabilities Notes and accounts payable, accruals and provisions 11 995,070 850,155Amounts due to related parties 10 78,588 91,881Advances from customers 361,768 272,142Murabaha and tawarruq finances 13 2,591,748 2,386,554Short term loans 14 97,398 72,952Current portion of term loans 15 313,227 287,334

Total current liabilities 4,437,799 3,961,018 Non-current liabilities Term loans 15 218,962 393,914Employees’ terminal benefits 272,063 251,366Long term payables 15,795 24,086

Total non-current liabilities 506,820 669,366

TOTAL LIABILITIES 4,944,619 4,630,384 Stockholders’ equity and non-controlling interests Share capital 16 600,000 600,000Statutory reserve 26 204,600 184,455Retained earnings 623,204 533,695Proposed cash dividends 17 45,000 45,000Unrealised loss on investments (1,916) (1,075)Translation loss on consolidation (21,708) (12,403)

Total stockholders’ equity 1,449,180 1,349,672Non-controlling interests 18 258,942 233,117

Total stockholders’ equity and non-controlling interests 1,708,122 1,582,789 TOTAL LIABILITIES, STOCKHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS 6,652,741 6,213,173

The accompanying notes form an integral part of these consolidated financial statements


CONSOLIDATED STATEMENT OF INCOMEYear Ended December 31, 2012 2012 2011 Note SR 000 SR 000 Net sales 10,23 5,354,874 4,727,695

Cost of sales 10 (4,189,754) (3,676,460)

Gross profit 1,165,120 1,051,235 Expenses Selling and distribution 19 419,792 414,640General and administration 20 377,303 375,414Amortisation of deferred charges 8 2,831 2,866 799,926 792,920

Income from main operations 23 365,194 258,315 Permanent translation loss on consolidation - (13,428)Other income, net 21 12,467 23,221Financial charges 22 (89,413) (61,166)

Income before share in results of associates and non-controlling interests, zakat and taxes 288,248 206,942

Share in results in associates, net 6 (4,081) (4,142) Income before non-controlling interest,

zakat and taxes 284,167 202,800 Non-controlling interests (35,732) (24,757) Income before zakat and taxes 248,435 178,043 Foreign taxes (3,047) (1,535)Zakat 12 (43,934) (22,318)

NET INCOME FOR THE YEAR 201,454 154,190 Earnings per share from net income SR 3.36 SR 2.57

Earnings per share from continuing main operations SR 3.15 SR 2.41 Earnings per share from other operations SR 0.21 SR 0.16

Weighted average number of shares 60,000,000 60,000,000



CONSOLIDATED STATEMENT OF CASH FLOWSYear Ended December 31, 2012 2012 2011 SR 000 SR 000

OPERATING ACTIVITIES Income before zakat and taxes 248,435 178,043Adjustments for:

Depreciation 146,006 138,356Employees’ terminal benefits, net 22,528 22,700(Gain) loss on disposal of property, plant and equipment (1,206) 886Gain on sale of investments (3,197) -Non-controlling interests 35,732 24,757Share in results in associates, net 4,081 4,142Amortisation of deferred charges 3,037 3,188Financial charges 89,413 61,166 544,829 433,238

Changes in operating assets and liabilities:Inventories 66,374 (162,765)Receivables (320,721) (423,494)Payables 173,528 (102,651)

Cash from (used in) operations 464,010 (255,672) Financial charges paid (89,413) (61,166)Zakat and foreign taxes paid (67,701) (20,948)

Net cash from (used in) operating activities 306,896 (337,786) INVESTING ACTIVITIES Purchase of property, plant and equipment (228,800) (240,545)Proceeds from disposal of property, plant and equipment 2,051 2,451Proceed from sale of investments 9,537 -Deferred charges incurred (8,283) (3,137)Investments - (94,190)Acquisition of subsidiary - (150,000)

Net cash used in investing activities (225,495) (485,421) FINANCING ACTIVITIES Dividends paid (90,000) (90,000)Term loans, net (142,849) (92,852)Change in short term loans, murabaha and tawarruq finances 204,912 976,458Non-controlling interests, net (8,771) (7,653) Net cash (used in) from financing activities (36,708) 785,953

Net increase (decrease) in cash and cash equivalents 44,693 (37,254) Cash and cash equivalents at the beginning of the year 285,867 296,171Cash and cash equivalents acquired during the year 10,827 15,993Movement in translation loss, net (2,567) 10,957 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 338,820 285,867



CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITYYear Ended December 31, 2012

Unrealised Translation Proposed gain (losses) Share Statutory Retained cash (losses) gains on capital reserve earnings dividends investment consolidation Total SR 000 SR 000 SR 000 SR 000 SR 000 SR 000 SR 000

January 1, 2011 600,000 169,036 486,924 45,000 1,368 (13,428) 1,288,900

Net income for the year - - 154,190 - - - 154,190 Transfer to statutory reserve - 15,419 (15,419) - - - - Directors’ remuneration (note 10) - - (2,000) - - - (2,000) Dividends paid (note 17) - - (45,000) (45,000) - - (90,000)

Proposed cash dividends (note 17) - - (45,000) 45,000 - - - Movement during the year, net - - - - (2,443) 1,025 (1,418) December 31, 2011 600,000 184,455 533,695 45,000 (1,075) (12,403) 1,349,672 Net income for the year - - 201,454 - - - 201,454 Transfer to statutory reserve - 20,145 (20,145) - - - - Directors’ remuneration (note 10) - - (1,800) - - - (1,800) Dividends paid (note 17) - - (45,000) (45,000) - - (90,000) Proposed cash dividends (note 17) - - (45,000) 45,000 - - - Movement during the year, net - - - - (841) (9,305) (10,146) December 31, 2012 600,000 204,600 623,204 45,000 (1,916) (21,708) 1,449,180



1. ORGANIZATION AND ACTIVITIES

Zamil Industrial Investment Company (“the parent company”) was converted into a closed Saudi Joint Stock Company in accordance with Ministerial Resolution 407 dated 14.3.1419H (corresponding to 8 July 1998). Prior to that, the parent company was operating as a limited liability company under the name of Zamil Steel Buildings Company Limited. On 9 February 2002, the parent company was officially listed on the Saudi Stock Exchange.

The parent company is registered in Saudi Arabia under Commercial Registration number 2050004215.

The consolidated financial statements include the financial statements of the parent company’s head office, its branches and its subsidiaries, collectively referred to as “the group” in these consolidated financial statements, as listed below:

Branches:

- Zamil Air Conditioners, engaged in the manufacture and assembly of room and central airconditioners and other related activities.

- Zamil Glass Industries, engaged in the production of glass.

Subsidiaries: Effective ownership percentage

2012 2011

Universal Building Systems Limited – Jersey 100 100Zamil Steel Holding Company (formerly known Zamil Steel Company) and subsidiaries - Saudi Arabia 100 100Zamil Steel Buildings Company – Egypt 100 100Zamil Steel Buildings (Shanghai) Company Limited – China 100 100Zamil Steel, Polska – Poland 100 100Cooline Europe Holdings GmbH- Austria 100 100Clima Tech Airconditioners GmbH – Austria 100 100Zamil Steel Buildings India Private Limited 100 100Zamil Steel Engineering India Private Limited 100 100Arabian Stonewool Insulation Company- Saudi Arabia 100 100Ikhtebar – Saudi Arabia 100 100Zamil Energy Services Company (ZESCO) – Saudi Arabia 100 100Zamil Industrial Investment Company, Emirates 100 100Zamil Steel Industries Abu Dhabi (LLC) – UAE 100 100Zamil Steel Buildings (Thailand) Co. Ltd. 100 100Al Zamil for Inspection and Maintenance of Industrial Projects Co. Ltd – Saudi Arabia 100 100Al Zamil Steel Construction Company – Saudi Arabia 100 100Zamil Structural Steel Company – Egypt 100 100Zamil Construction India Pvt. Ltd. 100 100Building Components Solutions – Saudi Arabia 100 100Zamil Information Technology Global Private Limited – India 100 100Zamil Higher Institute for Industrial Training Company Limited – Saudi Arabia 100 100Zamil Industrial Investment Company Asia Pte. Ltd. - Singapore 100 100Second Insulation Company Limited – Saudi Arabia 100 100

Notes to the Consolidated Financial Statements Year Ended December 31, 2012


Subsidiaries - (continued)

Effective ownership percentage 2012 2011Advantec Coils Private Limited- India (refer note below) 100 30Canam Asia Limited – Saudi Arabia (refer note below) 100 65Gulf Insulation Company and subsidiaries 51 51Zamil Steel Buildings - Vietnam Company Limited 92.27 92.27Middle East Airconditioners Company Limited – Saudi Arabia 51 51Zamil Hudson Company Limited – Saudi Arabia 50 50Petro-Chem Zamil Company Limited – Saudi Arabia 50 50Rabiah and Nasser and Zamil Concrete Industrial Co. Ltd – Saudi Arabia 50 50Geoclima S.r.l., Italy (refer note below) 40 85 The group exercises control on the above mentioned entities and are therefore considered the subsidiaries of the group.

In 2012, the parent company acquired controlling interest in an existing investee company, Advantec Coils (Pvt) Ltd., India, which has become a wholly owned subsidiary effective January 1, 2012. The operations of Advantec Coils (Pvt) Ltd., and carrying value of net assets amounting to SR 23.2 million as at January 1, 2012 have been consolidated in the consolidated financial statements resulting in an initial goodwill recognition of SR 36.9 million after translation loss effect. Based on additional information obtained and after purchase price allocation to the identifiable assets of the acquiree, the Goodwill has been adjusted down to SR 26.3 million.

Additionally in 2012, the parent company disposed off 45% interest in Geoclima S.r.l., Italy (a subsidiary) and recognized a gain of SR 3.2 million. The investee company has been deconsolidated and recognized as an investment in associates by using equity method.

In 2011, Second Insulation Company, a wholly owned subsidiary of the parent Company, acquired 51% of controlling interest in Gulf Insulation Company, a Saudi closed joint stock company registered in Saudi Arabia. Gulf Insulation Company (GIG) has the following subsidiaries and an associate: Ownership of GIG %

Saudi Preinsulated Pipes Industries Company Limited (SPPI) 100%First Insulation Company Limited ( FIC) 100%Arabian Fiberglass Insulation Company Limited (AFICO) 51%Armacell Zamil Middle East Company Limited 49%

In 2012, the Company acquired the remaining non-controlling interests in Canam Asia to make it as a wholly owned subsidiary without any additional cost to the Company.

Portion of the parent company’s shares in the above subsidiaries, is registered in the names of certain directors or employees as nominee shareholders on behalf of the parent company in order to comply with the regulations in which the above subsidiaries are operating.

The consolidated financial statements have been presented in Saudi Riyals.

Notes to the Consolidated Financial Statements Year Ended December 31, 2012 - (continued)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. The significant accounting policies adopted are as follows:

Basis of consolidationOperating entities controlled by the parent company are classified as subsidiaries and consolidated regardless of the country of their registration. Significant inter-group balances and transactions are eliminated upon consolidation. Entities under formation are accounted for at cost.

Accounting conventionThe consolidated financial statements are prepared under the historical cost convention modified to include the measurement at fair value of available for sale investments.

Accounts receivableAccounts receivable include sales made on trade credit which are outstanding at the balance sheet date, net of provision for amounts estimated to be uncollectible.

InventoriesInventories are stated at the lower of cost and net realisable value. Cost is determined as follows:

Raw materials Purchase cost on weighted average basis.

Work-in-process and finished goods Cost of direct materials and labour plus attributable Overheads based on normal level of activity.

Investments Investments in marketable equity securities are classified according to the group’s intent with respect to those securities. Marketable equity securities held to maturity are stated at amortized cost, adjusted for the related premium or discount. Marketable equity securities held for trading are stated at fair value and unrealized gains and losses thereon are included in the consolidated statement of income. Marketable equity securities available for sale are stated at fair value and unrealized gains and losses thereon are included in consolidated stockholders’ equity. Where the fair value is not readily determinable, such marketable equity securities are stated at cost less allowance for impairment in value.

Income from the investments in marketable equity securities is recognized when dividends are received.

An associate is an enterprise over which the group is in a position to exercise significant influence, through participation in the financial and operating policy decisions of the investee. The results of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognize any impairment in the value of the individual investments.

Subsidiaries and associates which are dormant or under development stage or where the information is not available are stated at cost.

Business combination and goodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquirer’s identifiable net assets. Acquisition costs incurred are expensed.



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

Business combination and goodwill – (continued)When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

Goodwill is initially measured at cost being the excess of the consideration transferred over the group’s net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the consolidated statement of income.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the group are assigned to those units or groups of units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed off, the goodwill associated with the operation disposed off is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed off in this circumstance is measured based on the relative values of the operation disposed off and the portion of the cash-generating unit retained. When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and goodwill is recognised in the consolidated statement of income.

Property, plant and equipment/depreciationProperty, plant and equipment are initially recorded at cost and are stated at cost less accumulated depreciation and any impairment in value. Freehold land and capital work in progress are not depreciated. Depreciation is provided on other property, plant and equipment at rates calculated to write off the cost of each asset over its expected useful life.

The estimated useful lives of the assets for the calculation of depreciation are as follows:

Years

Buildings on leasehold land 20 - 40

Plant, equipment, furniture, fixtures and vehicles 2 - 20 Expenditure for repair and maintenance are charged to income. Improvements that increase the value or materially extend the life of the related assets are capitalised.

Permanent impairment of non-current assetsAt each balance sheet date, the group reviews the carrying values of property, plant and equipment and other non-current assets to determine whether there is any indication that those assets have suffered impairment. If such indicators exist, the recoverable amount of the asset is estimated in order to determine the extent of impairment (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash generating unit to which the asset belongs.

The carrying value of the asset (or cash generating unit) is reduced to the recoverable value when the recoverable value is below the carrying value. Impairment loss is recognized as expense when incurred.



Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit (group of cash-generating units) to which goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

Where an impairment loss subsequently reverses, the carrying value of the asset (or cash generating unit) other than goodwill is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. The reversal of impairment loss other than goodwill is recognized as income once identified.

Deferred chargesExpenses which have a long term future benefit are treated as deferred charges and are amortised over the estimated periods of benefit not exceeding five years.

Loans front-end fees represents the fee relating to the loans from Saudi Industrial Development Fund (“SIDF”). These costs are being amortized over the period of the loans and the amortization is capitalized as part of capital work-in-progress (if applicable) up to the date of commencement of commercial operations and subsequently it is charged to the consolidated statement of income.

WarrantiesAmounts are provided on an estimated basis to meet probable future costs under warranty commitments.

Zakat and income taxZakat is provided for in accordance with Saudi Arabian fiscal regulations. Income tax is provided for in accordance with foreign fiscal authorities in which the group’s foreign subsidiaries operate. The liabilities are charged directly to the consolidated statement of income. The zakat charge and income tax, assessable on the non-controlling stockholders is included in non-controlling interest.

Employees’ terminal benefitsProvision is made for amounts payable under the employment contracts applicable to employees’ accumulated periods of service at the balance sheet date.

Foreign subsidiaries make provision in accordance with the laws of countries in which subsidiaries operate.

Revenue recognitionNet sales represent the invoiced value of goods supplied, services rendered and work executed by the group during the year. For central air conditioning and pressure vessels jobs, revenue and proportionate profit are recognised when the outcome of the contract can be determined with reasonable certainty. If losses are foreseen, they are provided for in full.

Costs in excess of progress billings are disclosed under accounts receivable and prepayments in the consolidated balance sheet. Whereas billings in excess of cost are disclosed under notes and accounts payable, accruals and provisions in the consolidated balance sheet.

ExpensesSelling and distribution expenses are those that specifically relate to salesmen, warehousing, delivery vehicles and warranty cost as well as provision for doubtful debts. All other expenses other than direct cost, amortization of deferred charges and financial charges are classified as general and administration expenses.



Foreign currenciesTransactions in foreign currencies are recorded in Saudi Riyals at the rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income.

Financial statements of foreign operations are translated into Saudi Riyals using the exchange rate at the balance sheet date for assets and liabilities and the average exchange rate for revenues, expenses, gains and losses. Components of equity, other than retained earnings, are held at the historical rates. Translation adjustments are recorded as a separate component of consolidated shareholders’ equity. Translation loss that is considered permanent is charged to the consolidated statement of income.

Earnings per shareEarnings per share are computed by dividing net income for the year by the weighted average number of shares outstanding during the year ended December 31, 2012 of 60 million shares (2011: 60 million shares).

Earnings per share from the continuing main operations are computed by dividing the operating income less Zakat and tax, finance charges, net share of loss from associates and non-controlling interests for the period by the weighted average number of shares outstanding.

Earnings per share from other operations are computed by dividing the other income for the periods by the weighted average number of shares outstanding.

Segmental reportingA segment is a distinguishable component of the group that is engaged either in providing products or services (a business segment) or in providing products or services within a particular economic environment (a geographic segment), which is subject to risks and rewards that are different from those of other segments.

LeasingLeases are classified as capital leases wherever the terms of the lease transfer substantially all the rights and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to consolidated statement of income on a straight line basis over the term of the operating lease.

3. ACCOUNTS RECEIVABLE AND PREPAYMENTS 2012 2011 SR 000 SR 000 Trade accounts and notes receivable 1,559,119 1,388,391Prepaid expenses 38,356 29,529Retentions receivable 47,077 40,003Advances, deposits and other receivables 183,033 173,242Revenue recognised in excess of billings 206,901 112,130 2,034,486 1,743,295



4. ADVANCES TO AN UNCONSOLIDATED SUBSIDIARY

The parent company has given advance to Eastern District Cooling Company Limited, an unconsolidated subsidiary. The subsidiary is in the process of obtaining project financing loan from a commercial bank. Accordingly, the balance is expected to be recovered during 2013.

5. INVENTORIES 2012 2011 SR 000 SR 000

Materials, supplies and stores 1,079,514 1,166,334Work-in-progress 184,403 193,378Finished goods 395,233 386,583Goods-in-transit 161,115 132,255 1,820,265 1,878,550

6. INVESTMENTS 2012 2011 SR 000 SR 000

Investments in listed companies 8,796 8,796Unrealised loss on revaluation (1,916) (1,075)

Available for sale investments 6,880 7,721Investment in associates 134,290 194,031Investment in an unconsolidated subsidiary 72,666 72,666Other investments 46,586 46,586

260,422 321,004

Investment in associates comprise of the following which are equity accounted:

1. 27.5% share in Saudi Aerated Concrete Industries Company (a Saudi limited liability company). The principal activities of the company are the production of aerated concrete blocks and partitions.

2. 25% share in Energy Central Company B.S.C. (Bahrain). The principal activities of the company are to provide metered energy, central refrigeration and other support and environmental services for large-scale infrastructure development in the Gulf region. Energy Central Company owns 49% share in Saudi Central Energy Company.

3. 51% Share in Saudi Central Energy Company (a Saudi limited liability company). The principal activities of the company are to undertake and execute the contracts for the installation and treatment of energy and water plants, electricity generating stations and their operation and maintenance, and laying networks for its transportation and distribution. Saudi Central Energy Company is controlled by Energy Central Company B.S.C. (Bahrain) and is therefore considered as an associate of the group.

4. 49% share of Gulf Insulation Group in Armacell Zamil Middle East Company Limited (also refer note 9). The principal activities of the Company are to manufacture rubber adhesive, foam rubber insulation and related accessories and sundries.



5. 51% share in Zamil Infra Private Limited. The principal activities of the company are supply of telecom towers, accompanying shelters fitted with the appropriate sandwich panels, customized air conditioning equipment and power interface units. It will also supply a range of related support products, along with comprehensive installation and maintenance services.

6. 20.83% share in IIB Paper Company Limited (Limited Liability Company registered in Cayman Islands). The principal activity of the company is the production of tissue paper.

7. During the year, 45% shares in Geoclima S.r.l was disposed off out of 85% share held as at December 31, 2011 and therefore, Geoclima S.r.l. deconsolidated during the year and remaining 40% shares in Geoclima S.r.l. is recognized as an investment in associates as at December 31, 2012.

Combined summarized financial information of the above associated companies as of the consolidated balance sheet date is as follows: 2012 2011 SR 000 SR 000 Working capital 141,897 134,468Other assets - net of liabilities 126,575 129,025 Net assets 268,472 263,493 The group’s equity in net assets 134,290 155,194

Revenue 244,389 533,525 Net (loss) gain (26,446) 10,647

The group’s share of loss (4,081) (4,142)

Investment in an unconsolidated subsidiary comprise of 100% share in Eastern District Cooling Company Limited, a Saudi limited liability company. The principal activity of the company is production of industrial cooling water. The Company has not started its normal operations during the year.

Other investments comprise of 2.11% Share in Kinan International For Real Estate Development Company Limited (a Saudi limited liability company). The principal activities of the company are to invest in real estates like buying, construction and leasing of land and buildings.



7. PROPERTY, PLANT AND EQUIPMENT

Buildings Plant, equipment, Capital Freehold on leasehold furniture, fixtures work-in Total Total land land and vehicles progress 2012 2011 SR 000 SR 000 SR 000 SR 000 SR 000 SR 000Cost:

January 1 77,479 717,802 1,483,948 394,065 2,673,294 2,085,241Additions 5,111 12,926 58,004 152,759 228,800 240,545Purchase price allocations 10,655 13,888 13,879 - 38,422 -Acquisition of subsidiaries 896 8,525 53,130 - 62,551 388,909Disposals - (464) (35,376) (112) (35,952) (27,586)Transfers - 33,365 26,750 (60,115) - -Translation loss (344) (2,441) (6,527) (13) (9,325) (13,815) December 31 93,797 783,601 1,593,808 486,584 2,957,790 2,673,294

Depreciation:

January 1 - 303,116 925,676 - 1,228,792 966,402Charge for the year - 31,103 114,903 - 146,006 138,356Acquisition of subsidiaries - 1,276 18,335 - 19,611 152,176Disposals - (438) (26,046) - (26,484) (24,249)Translation loss - (387) (2,638) - (3,025) (3,893) December 31 - 334,670 1,030,230 - 1,364,900 1,228,792

Net book value

At 31 December 2012 93,797 448,931 563,578 486,584 1,592,890 - At 31 December 2011 77,479 414,686 558,272 394,065 - 1,444,502

Capital work-in-progress represents mainly the cost incurred in respect of new building, expansion, upgrading of production facilities, new production line under construction, plant and equipment acquired for general modernisation for Zamil Steel Holding Company (Saudi Arabia), Zamil Air Conditioners (Saudi Arabia) and for other subsidiaries. Certain property plant and equipment of the branches and consolidated subsidiaries are mortgaged as a security against the loans obtained from the financial institutions (see note 15).

8. DEFERRED CHARGES

2012 2011 SR 000 SR 000 At the beginning of the year 11,777 11,838Incurred during the year 8,283 3,137Transfers, net (317) -Amortised during the year (3,037) (3,188)Translation loss - (10) At the end of the year 16,706 11,777



9. GOODWILL

2012 2011 SR 000 SR 000 Goodwill recognized on acquiring subsidiaries 169,906 176,251

At the December 31, 2011, purchase consideration exceeded net book value of Gulf Insulation Group (“GIG”) by SR 114 million. During the year, the group’s management allocated the consideration paid to the respective assets based on the additional information obtained during the measurement period and the resultant amount was reduced from the goodwill of the Group amounting to SR 27.8 million.

During the year 45% shares in Geoclima S.r.l was disposed off out of 85% share held as at December 31, 2011 and therefore, Geoclima S.r.l. deconsolidated during the year and consequently related goodwill amounted to SR 3.2 million was derecognised. During the year, the Company acquired additional 70% shares in Advantec Colis Private Limited, India, that resulted in an initial recognition of goodwill amounting to SR 36.9 million after translation loss effect. Based on the additional information obtained and after purchase price allocation to the identifiable assets of the acquiree, the Goodwill has been adjusted down to SR 26.3 million.

Pursuant to the board of directors’ meeting of Rabiah and Nassar & Zamil Concrete Industrial Co. Ltd. (“RANCO”), the parent company assumed the control of RANCO effective from January 1, 2011. After acquiring the control of RANCO, the Goodwill originally recorded in the amount of SR 34.5 million was reassessed and adjusted accordingly.

10. RELATED PARTY TRANSACTIONS

Related parties represent associated companies, key personnel of the group, and entities controlled, jointly controlled or significantly influenced by such parties. The following are the details of major related party transactions during the year:

2012 2011 SR 000 SR 000Companies affiliated to Al Zamil Group: Purchase of goods and services 110,085 91,577Sale of goods and services (45,878) (23,374)

The group also paid SR 6 million (2011: SR 6 million) to certain directors as salary and other benefits in their capacity as executives of the group.

Directors’ remuneration amounted to SR 1.8 million (2011: SR 2 million).

Prices and terms of payment for these transactions are approved by the directors.

Amounts due from and due to related parties are shown in the consolidated balance sheet under current assets and current liabilities respectively and consist of amounts due from/to Al Zamil Group of companies.

11. NOTES AND ACCOUNTS PAYABLE, ACCRUALS AND PROVISIONS 2012 2011 SR 000 SR 000

Trade accounts and notes payable 328,326 248,117Accrued contractual costs 103,776 95,955Accrued expenses and provisions 438,474 373,222Zakat provision (note 12) 38,196 58,916Billings in excess of value of work executed 86,298 73,945 995,070 850,155



12. ZAKAT

The zakat charge for the year consists of: 2012 2011 SR 000 SR 000

Current year provision 43,934 22,318

The current year’s provision is based on the following: 2012 2011 SR 000 SR 000

Equity 1,427,604 1,255,960Opening provisions and other adjustments 366,413 328,445Book value of long term assets net of long term liabilities (1,446,424) (1,254,421) 347,593 329,984Zakatable profit for the year 273,961 242,748 Zakat base 621,554 572,732

The differences between the financial and the zakat results are mainly due to elimination of the group’s share of profit in foreign subsidiaries which are consolidated in the financial statements and adjustments for certain costs/claims based on the relevant fiscal regulations.

The group is settling its zakat based on the consolidated financials of its wholly owned subsidiaries.

The movement in the zakat provision was as follows: 2012 2011 SR 000 SR 000 At the beginning of the year 58,916 54,037 Provided during the year 43,934 22,318 Acquired during the year - 1,974Payments during the year (64,654) (19,413) At the end of the year 38,196 58,916 Status of assessmentsZakat assessments have been agreed with the Department of Zakat and Income Tax (the DZIT) up to 2010. The 2011 assessment is under the DZIT’s review.

13. MURABAHA AND TAWARRUQ FINANCES

Murabaha and tawarruq finances were obtained from local commercial banks and are secured by credit agreements and corporate guarantees. The facilities carry financial charges at commercial rates and are repayable within one year from the consolidated balance sheet date.

14. SHORT TERM LOANS

Short term loans were obtained from local and foreign commercial banks. The loans are for duration of less than one year with an option to roll over and they carry commission at commercial rates.



15. TERM LOANS 2012 2011 SR 000 SR 000 Loan No. 1 113,789 77,509 Loan No. 2 - 6,210 Loan No. 3 225,000 450,000 Loan No. 4 66,640 100,000 Loan No. 5 36,471 40,000 Loan No. 6 1,254 7,529 Loan No. 7 53,159 - Loan No. 8 35,876 - 532,189 681,248Less: current portion (313,227) (287,334) 218,962 393,914 Loan No. 1 represents the loans obtained by Zamil Steel Holding Company, Building Component Solutions and Arabian Fiberglass Insulation Company Limited from Saudi Industrial Development Fund (“SIDF”). These loans carry appraisal fees which are being amortised over the terms of the loans and are repayable in semi- annual unequal instalments, the last being payable on 15/10/1439H (corresponding to 29 June 2018). At 31 December 2012, the SIDF loans outstanding were SR 113.8 million (2011: SR 77.5 million) including current portion of SR 23.4 million (2011: SR 18.8 million). The loans are secured by mortgage over the property, plant and equipment of the branches and consolidated subsidiaries. The loans agreements also contain certain covenants in respective of maintenance of financial ratios.

As of December 31, 2011 Loan no.2 represents various medium and long term loans obtained by Geoclima S.r.l. repayable in monthly, quarterly and half yearly unequal instalments. Geoclima S.r.l. was deconsolidated during the year due to sale of controlling interests by the Company.

Loan No. 3 represents loans obtained by the parent Company amounting to SR 1,000 million from local banks to finance its working capital requirements. At 31 December 2012, the loans outstanding were SR 225 million (2011: SR 450 million) including current portion of SR 225 million (2011: SR 225 million). These loans are repayable in half yearly and yearly unequal instalments. The loans carry finance charges at SIBOR plus a margin and these loans are secured by corporate guarantees and order notes. The loan agreements contain certain financial covenants which the parent company is required to comply with.

Loan No. 4 represents a loan obtained by the parent company amounting to SR 100 million from a local bank. At 31 December 2012, the loan outstanding was SR 66.6 million (2011: SR 100 million) including a current portion of SR 33.4 million (2011: SR 33.4 million). The loan is payable in half yearly equal instalments.

Loan No. 5 represents the loan amounting to SR 40 million from a local bank obtained by Arabian Fiberglass Insulation Company Limited, a subsidiary of Gulf Insulation Group. At 31 December 2012, the loan outstanding was SR 36.5 million (2011: SR 40 million) including current portion of SR 14.1 million (2011: SR 2.5 million). The loan is repayable in 34 equal monthly instalments.

Loan No. 6 represents the term loan obtained by Saudi Preinsulated Pipes Industries Company (“SPPI”), a subsidiary of Gulf Insulation Group, amounting to SR 7.5 million from a local bank. At 31 December 2012, the loan outstanding was SR 1.3 million (2011: SR 7.5 million) and the entire loan is classified as a current liability (2011: SR 5 million). This loan is repayable in six quarterly equal instalments.

Loan No. 7 represents short term loan obtained by Gulf Insulation Group which has outstanding balance of SR 53.2 million as at year end. The loan carries finance charges at commercial rate. The management has classified these loans as non-current liabilities in the consolidated financial statement as GIG committed to bridge these loans with SIDF loans.

Loan No. 8 represents various loans obtained by Rabiah-Nassar and Zamil Concrete Industries Company Limited, a subsidiary, from local commercial bank for its working capital and capital expenditure requirements. At 31 December 2012, the loan outstanding was SR 35.9 million (2011: Nil) including a current portion of SR 16.1 million. These loans are repayable in 1 to 3 years.

Loan instalments due in 2013 are shown as current liabilities.



16. SHARE CAPITAL

The share capital of the parent company amounting to SR 600 million (2011: SR 600 million) is divided into 60 million shares of SR 10 each (2011: 60 million share of SR 10 each).

17. PROPOSED CASH DIVIDENDS

In 2012, the parent company paid a cash dividend of SR 0.75 per share totalling SR 45 million for the year 2011 (2011 – SR 0.75 per share totalling SR 45 million for the year 2010).

In 2012, the parent company also paid an interim dividend of SR 0.75 per share totalling SR 45 million for the year 2012 (2011 – Interim dividend of SR 0.75 per share totalling SR 45 million).

The board of directors have proposed a final cash dividend of SR 0.75 per share for the year 2012 totalling SR 45 million being 7.5% of the share capital (2011: SR 0.75 per share totalling SR 45 million being 7.5% of the share capital) for the approval of the stockholders in their annual general assembly.

18. NON-CONTROLLING INTERESTS

Non-controlling interests are as follows: 2012 2011 % %

Zamil Hudson Company Ltd. 50 50Petro-Chem Zamil Company Limited 50 50Rabiah and Nasser & Zamil Concrete Industrial Company Limited 50 50Middle East Airconditioners Company Limited 49 49Gulf Insulation Group 49 49Zamil Steel Buildings - Vietnam Company Limited 7.73 7.73Geoclima S.r.l (refer note 1) - 15Canam Asia Limited (refer note 1) - 35

19. SELLING AND DISTRIBUTION EXPENSES 2012 2011 SR 000 SR 000 Employee costs 220,852 221,511Advertising and sales promotion 45,854 41,285Services 14,806 13,084Rent and utilities 6,219 8,476Transportation, business travel and entertainment 52,174 49,199Warranty 22,476 21,777Depreciation 9,750 9,487Repairs and maintenance 2,134 1,706Provision for doubtful debts 12,854 18,498Others 32,673 29,617

419,792 414,640

20. GENERAL AND ADMINISTRATION EXPENSES 2012 2011 SR 000 SR 000 Employee costs 261,722 248,136 Depreciation 21,067 18,375 Services 68,194 69,097 Supplies 2,556 2,128Others 23,764 37,678

377,303 375,414



21. OTHER INCOME, NET 2012 2011 SR 000 SR 000 Exchange (loss) gains, net (1,446) 7,138 Gains on sale of investments 3,197 - Dividend income 2,076 1,784 Gain (loss) on disposal of property, plant and equipment 1,206 (886)Others 7,434 15,185 12,467 23,221

22. FINANCIAL CHARGES

Financial charges are incurred on notes payable, murabaha and tawaruq finances, short term loans, term loans and amortisation of loans front end fees relating to loans from SIDF.

23. SEGMENTAL ANALYSIS

(a) Analysis of sales, operating income (loss) and net assets by activities:

Operating Sales income (loss) Net assets SR 000 SR 000 SR 000

2012 2011 2012 2011 2012 2011

Air conditioner industry 2,184,563 1,836,334 191,444 160,197 461,717 384,357Steel industry 2,689,364 2,416,980 144,485 89,604 851,451 759,434Glass & insulation 322,970 324,983 40,282 39,355 114,672 100,403Concrete 156,444 149,398 13,695 (11,644) 59,184 49,353Head office and others 1,533 - (24,712) (19,197) (37,844) 56,125 5,354,874 4,727,695 365,194 258,315 1,449,180 1,349,672

(b) Analysis of sales, and operating income by geographical location:

Sales Operating income SR 000 SR 000

2012 2011 2012 2011Saudi Arabia: Local sales 3,512,949 2,923,650 273,163 189,483Export sales 838,163 971,349 54,802 56,613 Total sales of Saudi Arabia 4,351,112 3,894,999 327,965 246,096 Other Asian countries 677,683 477,530 25,389 6,392Africa 310,980 280,024 12,614 3,699Europe 15,099 75,142 (774) 2,128 5,354,874 4,727,695 365,194 258,315



24. CONTINGENT LIABILITIES

The group’s bankers have issued, on behalf of the group, performance bonds in respect of certain contracts amounting to SR 995 million (2011: SR 826 million).

25. CAPITAL COMMITMENTS

The directors have approved future capital expenditure amounting to SR 73.85 million (2011: SR 52 million).

26. STATUTORY RESERVE

In accordance with Regulations for Companies in Saudi Arabia, the Company has established a statutory reserve by the appropriation of 10% of net income until the reserve equals 50% of the share capital. This reserve is not available for dividend distribution.

27. RISK MANAGEMENT

Credit riskCredit risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur a financial loss. The group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and by monitoring outstanding receivables. At the balance sheet date, no significant concentrations of credit risk were identified by management. However, the trade receivables from foreign customers are secured by letters of credit.

Liquidity riskLiquidity risk is the risk that the group will encounter difficulty in raising funds to meet commitments associated with financial instruments. The group limits its liquidity risk by ensuring that bank facilities are available. The group’s terms of sales require amounts to be paid within 90 days of the date of sale. Trade payables are normally settled within 90 days of the date of purchase.

Currency riskCurrency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. As a result of investment in foreign countries, the consolidated balance sheet can be affected by movements in the exchange rate of Saudi Riyals against currencies of these foreign countries.

There are transactional currency exposures also. Such exposures arise mainly from sales or purchases by the foreign subsidiaries in currencies of their respective countries, which are not pegged with the functional currency of the parent company.

28. FAIR VALUES OF FINANCIAL INSTRUMENTS

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. The group’s financial assets consist of bank balances and cash, receivables and amounts due from related parties and affiliates and its financial liabilities consist of murabah, short term loans, term loans, notes and payables and amounts due to related parties and affiliates.

The fair values of financial instruments are not materially different from their carrying values.

29. COMPARATIVE FIGURES

Certain figures for 2011 have been reclassified to conform with the presentation in the current year.


1 | Zamil Industrial Annual Report 2012

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Transcript of 1 | Zamil Industrial Annual Report 2012