ANNUAL REPORT 2018 - Arcapita...stakeholders. With a robust pipeline of investment opportunities, we...

ANNUAL REPORT 2018

TABLE OF CONTENTS

OVERVIEW

4 Geographic Presence5 Our Values6 Directors’ Report7 CEO’s Message8 Financial Highlights

OUR BUSINESS

10 Clients10 Investment Focus 11 Investment Process12 Real Estate 14 Private Equity

CORPORATE GOVERNANCE FRAMEWORK

16 Board of Directors 16 Board Committees17 Management Committees18 Code of Business Conduct 18 Compliance 19 Organizational Structure and Business Divisions

ARCAPITA GROUP HOLDINGS LIMITED

22 Shari’ah Supervisory Board’s Report to Shareholders23 Auditors’ Report

ARCAPITA INVESTMENT MANAGEMENT B.S.C.(C)

60 Shari’ah Supervisory Board’s Report to Shareholders62 Auditors’ Report

OUR PEOPLE

78 Board of Directors80 Shari’ah Supervisory Board81 Senior Management84 Management Team

2 ANNUAL REPORT 2018ARCAPITA

Arcapita offers investors and shareholders diversified investment opportunities which adhere to Shari’ah principles. At the center of one of the fastest growing wealth markets in the world, Arcapita’s management team has been serving an exclusive group of investors in the GCC region and Southeast Asia for more than 20 years. With offices in Bahrain, Atlanta, London and Singapore, Arcapita’s senior management team has overseen over 80 transactions with a total transaction value in excess of $30 billion and possesses the footprint to invest on a global scale.

OVERVIEW

3ANNUAL REPORT 2018 ARCAPITA

ARCAPITA OFFICES SELECTED COUNTRIES WHERE MANAGEMENT HAS OVERSEEN INVESTMENTS

ATLANTA LONDON

SINGAPORE

BAHRAIN

Geographic Presence


Our Values

OriginalityArcapita aims to provide innovative and proprietary alternative investment opportunities

IntegrityArcapita aims to attract and retain people with the fortitude to do the right thing at all times

TransparencyArcapita is committed to accurate and timely disclosure of information to its stakeholders

ProfessionalismArcapita is committed to recruiting and retaining the best talent in the field

Prudent Risk ManagementArcapita strives to achieve sustainable growth through maintaining a robust capital base and sound risk management processes

Alignment of InterestsArcapita aims to align its interest with investors and shareholders through retaining a sizeable equity stake in all transactions offered to stakeholders

Ethical Investment PolicyArcapita aims to invest in morally and ethically sound companies and products, and does not invest in non Shari’ah-compliant activities


We are pleased to report that Fiscal Year (“FY”) 2018 was another successful year for Arcapita with revenues of $37.9 million and net income of $12.4 million, marking five years of continued profitability, accelerating investment activity and strong fundraising across the Gulf. Arcapita’s balance sheet remains robust with total assets of $354.1 million, and total equity of $219.7 million, including $33.0 million in reserves.

We have completed four investments worth a total transaction value in excess of $400 million across the US and the GCC. These included the acquisition of a $148 million portfolio of senior living communities in Chicago, US; a $62 million investment in a portfolio of logistics assets in Dubai, UAE; a $143 million investment in the leading provider of signage and lighting solutions in the US; and a $51 million acquisition of a boutique female fitness chain in Saudi Arabia. With the completion of these transactions, Arcapita’s portfolio now comprises eleven investments with an aggregate transaction value of over $1 billion.

Our global presence, lean investment teams, and deep industry relationships position us well to take advantage of the changing global economic landscape, and we are confident in our ability to continue to provide our investors with distinctive investment opportunities.

Arcapita’s management team has over two decades of experience in managing Shari’ah-compliant alternative investments across the globe, and we are excited about accelerating our investment activity in the geographies and sectors we know best.

To support our growth, we expanded our GCC and US investment teams, and added additional depth to our Investors Relationship Management team, which maintains strong relationships with our investor base across the Gulf. We also continued to strengthen other departments in order to ensure that our key functions grow in line with the needs of the overall business.

As always, our goal is to provide innovative alternative investment opportunities for our investors and deliver attractive returns to all stakeholders. With a robust pipeline of investment opportunities, we have set ambitious investment and fundraising targets for FY 2019. On behalf of Arcapita’s Board of Directors, I would like to thank our clients and shareholders for their continued support and look forward to another successful year ahead.

Abdulaziz H. Aljomaih Chairman

Directors’ ReportFiscal year 2018

ABDULAZIZ H. ALJOMAIH

CHAIRMAN


With over 20 years of experience, Arcapita’s management team has built an investment platform with the capability to source proprietary investment opportunities across the globe. We have a diversified business model and a veteran management team that brings decades of deal sourcing, structuring and portfolio management expertise.

Our team is focused on several thematically driven sectors that are poised to experience significant growth over the medium to long term. In the US, a rapidly aging population is sustaining our interest in the senior living sector, where we have a strong and established track record, while growing college enrollment and supportive demographics are increasing our appetite for student housing transactions. In the US and MENA, increased supply chain sophistication and penetration of e-commerce are driving significant demand for industrial and logistics services, a sector where we are exploring several private equity and real estate opportunities.

As a firm, we believe in the importance and value of long-term relationships with our shareholders, investors and investment partners. We utilize these partnerships to bring a range of different dimensions to our services and investments, resulting in access to high-quality transactions and efficient execution.

In FY 2018, Arcapita increased its equity base to over $200 million through a capital raise that received substantial support from our existing shareholder base while simultaneously attracting new investors as Arcapita shareholders. We believe that our expanded balance sheet will allow us to accelerate our investment activity and deliver on our long-term business plan targets.

As we look towards FY 2019 and beyond, we remain confident that we have built the key attributes to support a diversified, flexible, and sustainable business model, which will allow us to deliver consistent results as we grow our franchise in the region.

Atif A. Abdulmalik CEO

CEO’s Message

ATIF A. ABDULMALIK

CEO


Financial Highlights

Figures in US$ million unless otherwise noted

FY2014

FY2015

FY2016

FY2017

FY2018

Total Income 29.3 35.5 36.2 33.5 37.9

Net Income 10.1 11.4 12.2 8.1 12.4

Net Income Margin (%) 35% 32% 34% 24% 33%

Total Equity 50.5 86.1 130.2 132.3 219.7

Dividend as a Percentage of Paid-up Capital (%)

5% 7% 7% 7% 7%

TOTAL INCOME$37.9 million

TOTAL EQUITY$219.7 million

NET INCOME$12.4 million

DIVIDEND (as a percentage of paid-up capital)

7%

0

5

10

15

20

25

30

35

40

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

29.3

35.5 36.233.5

37.9

0

50

100

150

200

250

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

50.5

86.1

130.2 132.3

219.7

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

10.1

11.412.2

8.1

12.4

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

5%

7% 7% 7% 7%

14

12

10

8

6

4

2

0

8%

7%

6%

5%

4%

3%

2%

1%

0%


Arcapita’s core business is offering its clients real estate and private equity transactions on a deal-by-deal basis. After a transaction is completed, Arcapita syndicates a portion of the underwritten equity with its investor base while maintaining a sizable equity position in each transaction, thus aligning its interests with investors.

OUR BUSINESS


CLIENTSArcapita maintains a network of over 1,300 valuable investors from across the GCC and Southeast Asia. Arcapita’s investor base is primarily comprised of investors from the following four categories:

• High Net Worth Individuals (“HNWI”): individuals with investable assets in excess of $1 million;

• Family Offices: professional entities set up to manage the investments, business affairs and philanthropic interests of high net worth families;

• Institutions: large, sophisticated investment groups that include pension funds, university endowments, asset managers and insurance companies; and

• Sovereign Wealth Funds (“SWFs”): state-owned investments funds that invest in real and financial assets on a global scale.

INVESTMENT FOCUS Arcapita’s core business model will continue to revolve around offering its investors real estate and private equity investments across sectors and geographies where its investment team has demonstrated a strong track record. As Arcapita continues to accelerate its deal-by-deal business and introduces new products, the firm’s investments are expected to focus on the following industries.

Industrial and LogisticsGrowth in e-commerce and increased sophistication of supply chains is creating significant demand for more efficient logistics and warehousing services. As a result, companies are increasingly outsourcing complex supply chain activities to specialized operators. Given senior management’s track record in this sector and the positive investor returns generated by investments such as PODS and 3PD, the team will continue to seek opportunities in the freight-forwarding, last-mile delivery and contract logistics subsectors.

Healthcare and WellnessIn addition to the significant growth in the global senior population, the 65 and over age demographic is also increasingly wealthy. In the US, the baby boomer population is estimated to control 70% of the population’s disposable income and by 2022, this demographic is projected to inherit approximately $15 trillion from parents and spouses. Capitalizing on these demographic tailwinds, Arcapita’s core management team has an established track record in the senior living real estate sector with eight transactions completed, worth a total transaction value of approximately $1.8 billion. Senior living remains a key focus area for the firm, and management is continuing to monitor opportunities in the healthcare and consumer services sectors that cater to this age demographic.

Our Business

1 0 ANNUAL REPORT 2018ARCAPITA

In the GCC and other emerging economies, increased internet penetration and health consciousness are creating significant demand for products and services that promote fitness and physical well-being. This trend is expected to continue over the long term and is further supported by government-backed healthcare initiatives such as KSA Vision 2030.

Consumer and Business ServicesFueled by increasing brand awareness and an expanding middle class in emerging markets, Arcapita is focusing its private equity efforts on sectors that are consumer-driven. These include food & beverage, branded retail and technology, as well as sectors that capitalize on the increasing amount of discretionary spending within the global Muslim population.

In addition, a growing trend of outsourcing non-core services by corporates has led to sustained growth in the business services segment. Arcapita is focused on acquiring businesses that provide mission-critical services, outsourced business processes, and technology-enabled services.

INVESTMENT PROCESSArcapita’s investment process comprises three stages: deal sourcing, portfolio management, and exit. When sourcing investments, Arcapita receives numerous investment referrals from its deal sourcing network. These sources include proprietary relationships, direct approach from partners and sellers, referrals from specialist intermediaries, dialogue with investment banks and follow-on transactions within the portfolio.

After the initial screening to determine which opportunities meet the firm’s investment criteria, the investment teams conduct in-depth due diligence on promising opportunities. During the due diligence stage, the investment team conducts research on multiple aspects of the potential investment, including the market opportunity, partner’s background and capabilities, and investment fundamentals. This process draws on expertise from Arcapita’s internal investment teams, senior management and a network of third-party advisors.

In the early stage of the investment process, each new investment proposition is presented to the Market Sounding Group (“MSG”). The MSG takes an active role during the investment sourcing process to facilitate convergence between Arcapita’s investment products and prevailing investor sentiment.

During the MSG review, the relevant investment team discusses the opportunity with Arcapita’s Investors Relationship Management (“IRM”) team, together with members of senior management, thus allowing Arcapita to formulate a preliminary understanding on how a potential investment product would be perceived by Arcapita’s investor base. If the proposed investment gains MSG approval, the investment team continues to pursue the opportunity before presenting it to Arcapita’s Investment Committee (“IC”), Executive Committee (“EC”), and Board of Directors’ Executive Investment Committee (“EIC”) for approval.

INVESTMENT PROCESS FLOW

FINDING, EVALUATING AND CLOSING

• Analyze industry structure, competitive position, and value proposition

• Assess competitive landscape

• Evaluate management team

EARLY OWNERSHIP 100-DAY PLAN

• Define and review initial strategy and action plans

• Conduct workshops to assimilate company into Arcapita and gain consensus around goals and expectations

• Develop and refine business plan and strategy

PRIMARY VALUE CREATION PERIOD

• Review performance against targeted financial and operating metric

• Build capabilities within companies to improve key processes

• Structure management objectives and compensation plans

• Implement best-in-class industry practices

• Optimize earnings and overall financial performance

• Identify exit options and facilitate the exit process

Deal Sourcing

Portfolio Management

Exit

1 1ANNUAL REPORT 2018 ARCAPITA

Once a transaction has been approved and completed, it passes into the portfolio, where its performance is monitored against the investment thesis. The portfolio management team function plays an important role in ensuring that investments achieve their full potential. A cross-functional team of portfolio management and investment professionals works with management of the company to plan business strategy and how to implement it.

During the holding period, the portfolio management function helps the portfolio companies with identifying and enhancing strategic and operational matters such as recruitment of senior management, developing the supply chain and IT infrastructure as well as introducing additional financial and reporting disciplines.

The portfolio management team monitors a range of monthly key performance indicators (“KPIs”) against the deal’s original investment thesis and assesses the management’s performance. The team maintains close contact with company management teams through monthly video conferences, quarterly board meetings and site visits.

The firm aims to exit most investments within three to seven years. However, if an attractive opportunity for exit occurs, Arcapita will support an earlier exit.

REAL ESTATE OverviewArcapita’s real estate team acts as a principal, arranger and manager of real estate investments, operating out of its offices in Atlanta, London, Bahrain and Singapore. The real estate team analyzes opportunities across a broad spectrum of transaction structures, geographies and return profiles to provide a diverse mix of real estate investment opportunities to investors. To date, Arcapita’s senior management has completed real estate investments in the industrial and logistics warehousing, self-storage, residential, senior living, mixed-use, business park and retail sectors.

The team has completed investments across the globe; from North America, to Europe, the Middle East and Asia. In support of Arcapita’s overall business strategy, and to provide more diverse investment opportunities for investors, the real estate team at Arcapita has extended its focus to develop initiatives that include the establishment and management of real estate investment funds. In addition to real estate funds, the team is also focused on providing real estate financial services and solutions by leveraging its experience in specific real estate sectors. To date, Arcapita’s core management has overseen over 40 investments with a total transaction value of approximately $15 billion.

Portfolio ManagementAfter closing the transaction, the asset managers, corporate management teams and joint venture partners are directly responsible for the execution of the business plan. Arcapita works closely with these partners to monitor and evaluate the progress of each real estate investment. Early in the ownership period, the deal team works with its partners to identify the primary operating statistics to be monitored through regular meetings and reports. In this fashion, the deal team seeks to maintain continuous oversight over each investment.

On a monthly basis, the deal team receives an asset performance report which includes a comprehensive set of marketing and financial updates for the investment and, on a quarterly or annual basis, the deal team also receives and reviews audited financial statements for every investment.

The deal team conducts on-site operational reviews on a quarterly basis. At these sessions, the team conducts a deeper assessment of the investment’s performance, working with the operating partner to understand the underlying factors influencing current and future performance.

INTERNAL INVESTMENT SCREENING FRAMEWORK

Investment teams originate investments via:• Investment banks and advisors

• Direct approach to partners and sellers

• Personal relationships

• Public information

• Based on investment criteria

Investment Team

Investments teams study prospective investment:• Analyze and pursue promising

investment opportunities

• Conduct preliminary due diligence

Investment Team

Market Sounding Group:• For investments that match Arcapita’s

strategy, the MSG will provide insight on investor appetite

• If MSG approves, the investment team starts engaging advisors for due diligence

MSG Investor Readiness Test

Due diligence:• Due diligence is conducted in

partnership with:

- Financial advisors- Legal firms- Consultants

• Detailed report produced for management approval

Investment Team Full Due Diligence

Approval process:• IC and EC evaluate the merits and

risks of the investment, as well as the overall fit within Arcapita’s portfolio

• EIC, a subcommittee of the Board of Directors, reviews investments that have been approved by the IC and EC

IC, EC and EIC Investment Decision


Recent Real Estate Transactions*

Company Description Transaction Size Transaction Date

ARC US Senior Living VII

Arcapita acquired a portfolio of two premium continuing care retirement communities in Chicago, United States, with approximately 1,100 units. The communities are located within master-planned commercial areas and enjoy a variety of amenities.

$148 Million 2018

ARC UAE Logistics III

Arcapita invested in a portfolio of high-quality warehousing facilities located primarily in Dubai Investments Park, Dubai, UAE.

$62 Million 2018

ARC UAE Logistics II

Arcapita acquired a portfolio of income-generating logistics assets in Dubai, UAE. The portfolio comprises 11 warehousing facilities occupying a total built-up area in excess of 1.2 million square feet, primarily in Dubai Investments Park.

$150 Million 2017

ARC US Senior Living VI

Arcapita acquired three high quality, recently upgraded and stabilized senior living communities in the suburbs of Atlanta, Georgia, and Washington D.C.

$110 Million 2016

ARC UAE Logistics Park

Arcapita acquired a logistics park in Dubai, UAE. The investment comprises nine freehold plots of land to be developed into ten warehousing facilities that will be under a long-term master lease with a reputable UAE conglomerate.

$100 Million 2016

ARC US Senior Living V

Arcapita acquired a privately-held portfolio of senior living communities in Colorado, United States, in a joint venture with Morningstar Senior Living, an experienced operating partner specializing in this sector.

$87 Million 2016

ARC Saadiyat Beach Apartments

Three premium midrise residential buildings located in Saadiyat Island, Abu Dhabi. The facilities were developed by Abu Dhabi’s Tourism Development & Investment Company (TDIC) in 2013.

$190 Million 2015

Note: Transaction size is based on each deal’s private placement memorandum (PPM).


PRIVATE EQUITYOverviewArcapita acts as a principal and arranger in the acquisition of established middle-market companies, with an emphasis on the United States, Europe, the Middle East and Asia. The firm targets growth-oriented corporate acquisitions with a transaction size between $50 million and $300 million. Arcapita focuses on sectors where its management team has established industry knowledge and a successful track record.

Arcapita aims to acquire companies that excel in a number of key aspects. These companies typically have innovative products or services; growing market positions and strong management teams, in place or identified; be capable of building shareholder value through market strength in product line, technology, distribution, manufacturing or brand; a clear business strategy with multiple avenues for growth and market share gains; and industry growth drivers that are fundamental and compelling.

Once an acquisition is completed, and the target company becomes part of the private equity portfolio, Arcapita’s executives work closely with the

portfolio company management team in establishing a clearly defined business plan to grow the company’s value, while designing a tailored capital structure and management equity incentives to foster growth and profitability. Arcapita aims to nurture and grow the investments through the holding period with strategic and financial support when necessary. To date, Arcapita’s core management has overseen over 30 investments with a total transaction value of approximately $15 billion.

Portfolio ManagementArcapita’s portfolio management approach is designed to ensure the highest possible performance for its portfolio companies through implementing best-in-class practices and strategic growth initiatives. Arcapita’s portfolio management approach will be applied in each of the critical stages of an asset ownership process - including pre-acquisition and due diligence, early ownership, the core ownership period and the process leading to exit. Prior to the acquisition of a company, the firm conducts market and operational due diligence, along with an assessment of the management team.

Recent Private Equity Investments*

Company Description Transaction Size Transaction Date

NuYu NuYu is a leading chain of women-only boutique gyms in Saudi Arabia. NuYu offers internationally certified trainers, state-of the- art equipment, and high-quality fitness classes in a premium environment. The company is at the forefront of a global shift in tastes and preferences within the fitness industry, which is driving heightened interest in boutique concepts, and away from traditional “big box” gyms.

$51 Million 2018

MC Group MC Group is the sole nationwide provider of sign management, lighting, and service solutions in the US. MC Group has a diverse network of over 275 customers comprising nationally recognized blue-chip companies in the retail, banking, hospitality, quick service restaurant and C-store segments. Through its headquarters in Cleveland, Ohio, MC Group processes over 40,000 work orders per year through over 5,000 field service partners.

$143 Million 2017

NAS United Healthcare Services LLC

Arcapita, as part of a consortium, completed the acquisition of NAS United Healthcare Services LLC, a leading third-party medical claims processing company based in Abu Dhabi, UAE.

$66 Million 2017

Note: Transaction size is based on each deal’s private placement memorandum (PPM).

During the early ownership period, Arcapita introduces disciplines in the areas of strategy, operations, and people management. The company works with senior management to identify the key industry and company-specific operating and financial measures that best reflect the true performance levers for a particular business. The firm structures incentive plans to encourage and motivate the target’s management teams to meet agreed-upon metrics.

Arcapita executives serve as members of each company’s Board of Directors, seeking to increase the value of the investment in three primary ways: (i) assisting management in defining and continuously updating the optimal three to five year action-based strategy, (ii) identifying and driving initiatives in the company’s annual operating plans that improve the near-term operating performance of the business and support achievement of financial objectives, and (iii) improving the company’s human resource management and succession planning.


The system of procedures and principles governing Arcapita’s management and operations are fundamental to the firm’s success. Arcapita’s Board of Directors and senior management are committed to an efficient, entrepreneurial decision-making structure that is fair, transparent and accountable while maintaining the agility required to execute transactions effectively.

CORPORATE GOVERNANCE FRAMEWORK


Corporate Governance

BOARD OF DIRECTORS Arcapita has assembled a distinguished Board of Directors comprising eminent business personalities from across the GCC region. Drawing on deep experience in management, industry and investments, the Board of Directors is well positioned to represent the best interests of investors while assisting management with expert advice and counsel.

Arcapita’s Board of Directors takes responsibility for the strategy of Arcapita and for the supervision and oversight of its senior management, who have been entrusted with implementing day-to-day management policies. Arcapita’s Board of Directors consists of eight members, including seven non-executive members and Mr. Atif A. Abdulmalik, the firm’s CEO, representing management. The Board of Directors meet as often as business requires, and a minimum of four times a year. The roles of Chairman and CEO are held by

two different individuals, to ensure an appropriate balance and separation of authority.

Arcapita’s management works closely with the Board of Directors, both directly and through its various committees. Management regularly provides investment and financial updates and strategic forecasts to the Board of Directors, and discusses all investment decisions under consideration, as well as any other major decisions or issues facing Arcapita.

BOARD COMMITTEESArcapita’s Board of Directors is assisted in its monitoring and oversight responsibilities by the Executive Investment Committee (“EIC”), the Executive Administration and Corporate Governance Committee (“EAC”) and the Audit and Risk Committee (“ARC”).

BOARD & MANAGEMENT CORPORATE GOVERNANCE FRAMEWORK

Board of Directors

Market Sounding Group

Investment Committee

Executive Investment Committee

Executive Administrative and Corporate Governance

Committee

Executive Committee

Audit and Risk Committee

Risk Management Committee

Board of Director’s Level

Board Committee’s Level

Management Committee’s Level

Investment Team’s Level


Executive Investment CommitteeThe EIC’s primary duties and responsibilities are to:

• Establish operating guidelines for investment activities

• Approve new investments and exits

• Monitor investment performance

• Approve financing and issuing of securities

Executive Administration and Corporate Governance CommitteeThe EAC’s primary duties and responsibilities are to:

• Approve and recommend corporate and administrative policies and procedures

• Review and recommend approval of the annual budget

• Recommend and revise corporate governance policies and procedures

• Oversee and monitor the governance framework

Audit and Risk CommitteeThe ARC’s primary duties and responsibilities are to:

• Approve and recommend for further approval by the Board of Directors:

- Annual financial statements and budgets

- Auditors and consultants

• Monitor financial reporting, risk, compliance and internal control

• Review and appraise activities of external and internal auditors

MANAGEMENT COMMITTEESArcapita has assembled a management team with extensive experience in building and managing investment platforms globally. Drawing upon management’s collective experience and track record, Arcapita enjoys a seasoned management team that with experience spanning multiple economic cycles.

Executive CommitteeThe Executive Committee oversees the strategic planning for Arcapita and the decision making for all new investments. For example, prior to making a commitment to sign definitive agreements relating to investments (equity and financing), each new investment will need to be reviewed by the Executive Committee. The Executive Committee’s duties and responsibilities include:

• Setting global strategy for Arcapita

• Reviewing and recommending new investments

• Reviewing and approving business plans, budgets and control systems

• Managing human capital, including determining compensation and benefits plans and overseeing human resource development

Risk Management CommitteeThe Risk Management Committee’s duty is to establish and maintain a risk management framework throughout the firm to best manage Arcapita’s shareholder and client interests. Its mandate is to identify, assess and measure risks arising from the firm’s activities, and to define the appropriate course of action to mitigate or manage them. The Risk Committee’s role and responsibilities include:

• Establishing and maintaining a risk management framework throughout the firm by working with the Board Audit and Risk Committee

• Overseeing risk functions

Market Sounding GroupThe Market Sounding Group is intended to evaluate the marketability of investment products identified by the deal teams. The group comprises the Investors Relationship Management team, members of the Financial Management Group and Shari’ah department. The Market Sounding Group is responsible for the initial assessment of investor and market sentiment to potential new transactions.

Investment CommitteeThe Investment Committee oversees the management of the existing investment portfolio, and screens future new deal activity before the Marketing Sounding Group, Executive Committee and other approvals are sought, and provides inputs for Arcapita’s annual business planning. The Investment Committee’s role and responsibilities include:

• Overseeing all deal teams and investment assets

• Vetting all deal team requests that will ultimately require Executive Committee approval

• Serving as first point of contact for individual deal teams

• Providing Board-level engagement with individual deals

• Serving as go-to liaison for new deal activities for specific sectors and geographies

• Managing the firm’s operating rhythm relating to investments (e.g., quarterly reviews, valuation updates, dividend distributions, investor reporting, etc.)

• Providing periodic portfolio summary input for Arcapita’s overall financial reports


CODE OF BUSINESS CONDUCT Code of Conduct PolicyThe Board of Directors has adopted a Code of Conduct policy that outlines principles that the Board of Directors, senior management, and all employees (collectively, the “Arcapita Employees”) shall adhere to. The Code of Conduct was adopted to promote honest and ethical business conduct at Arcapita. Arcapita Employees are required to have full loyalty to Arcapita and its operations and should conduct themselves with integrity, honesty, leadership, and professionalism in fulfilling their fiduciary responsibilities to Arcapita and its stakeholders and to maintain full confidentiality with respect to any Arcapita confidential information. In addition, Arcapita Employees are required to avoid actual or potential conflicts of interest with Arcapita and to properly disclose and be transparent in any transactions involving Arcapita.

Insider Trading PolicyThe Board of Directors has adopted an Insider Trading Policy that applies to all Arcapita Employees and all Arcapita Employees are required to certify in writing that they have read and understand such policy and agree to abide by its terms. The policy provides that, except with the prior written consent of the Chief Executive Officer, no Arcapita Employee who while acting for Arcapita Group, obtains material non-public information which relates to any public company that the Arcapita Group has invested in or is considering investing in (“Public Company”) may buy or sell or otherwise deal in securities of such Public Company or otherwise misuse or disclose such information to any person within or outside Arcapita Group, other than those persons who need to know such information on a case-by-case basis.

Whistleblower PolicyThe Board of Directors has adopted a Whistleblower Policy that applies to all Arcapita Employees to encourage and provide a process for Arcapita Employees to raise any serious concerns regarding any wrongdoing or improper conduct at Arcapita and a reassurance that they will be protected from possible recriminations if they have made a good faith disclosure in connection with such concerns.

Anti-Money Laundering Policy The Board of Directors has adopted a comprehensive Anti-Money Laundering Policy and Procedure to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the financing of terrorist or criminal activities. Arcapita Group will not establish a relationship with, or conduct a transaction for, a customer a) whose funds appear to be the proceeds of or involved with illegal activity b) whose identity or legitimacy cannot be satisfactorily established and c) who fails to provide information which is necessary to comply with the policy.

All Arcapita Employees who handle customer transactions, or who are managerially responsible for such transactions, participate in Anti-Money Laundering training on an annual basis.

COMPLIANCE Arcapita adopts a comprehensive Compliance framework to ensure full compliance with applicable regulations in the jurisdictions where Arcapita conducts its activities. In this regard, the Board of Directors has adopted a Compliance Charter which outlines the fundamental principles, roles, and responsibilities of the Compliance function as well as its relationship with the Board of Directors, Board Committees, senior management, and business and operational functions. The Compliance Charter has been developed to provide an informative written reference for the Compliance function.

The Compliance function is overseen by the head of Compliance who reports to the Audit and Risk Committee.

The responsibilities of the head of Compliance include:

• Overseeing Arcapita’s Compliance activities and monitoring the implementation of the Compliance review plan

• Reporting annually to the Audit and Risk Committee, senior management, and the Board of Directors on Arcapita’s Compliance activities and status

• Coordinating internal Compliance reviews

• Ensuring that the Compliance function is appropriately staffed with competent individuals

• Providing portfolio exit projections and future investment plans as input for Arcapita’s business year plan


ORGANIZATIONAL STRUCTURE AND BUSINESS DIVISIONS

Board of Directors

Chief Executive Officer

Global Head of Financial Management Group

Corporate Finance

Shari’ah

Risk Management

Corporate Communications

Global Head of Financial Control

Reporting & Internal Control

Investment Accounting & Administration

Corporate Accounts, Payables & Imprest

Accounts

Chief Investment Officer

Real Estate

Private Equity

Human Resources

Treasury Operations

Information Technology

Chief Operating Officer

Investors Relationship Management

Legal

Corporate Management


Investors Relationship Management (“IRM”)IRM is responsible for developing and maintaining relationships within Arcapita’s network of investors and potential investors. The team members are the main point of contact for clients, delivering portfolio updates and presenting new investment opportunities. This group is also the first point of contact for investment opportunities which may be sourced from clients or potential clients. Arcapita operates a sophisticated marketing system to plan, execute and monitor investment syndication, providing investors with a personalized and efficient service. Further support is provided through the Investor Services Group within the IRM department, which is responsible for providing the team with the support necessary to respond to investor requests in a timely and efficient manner.

LegalArcapita’s legal department has responsibility for Arcapita’s compliance with all applicable laws and regulations in its business activities and advises with respect to all legal matters. Its activities include advising investment teams on investments and divestments, and advising senior management and the Board of Directors on corporate governance, financing arrangements and strategic planning. Arcapita’s legal department also assists with the administration of Cayman Islands, European, Middle Eastern and Mauritius offshore corporate structures in various investments.

Corporate ManagementCorporate Management provides support to all of Arcapita’s departments across the firm’s office network in Bahrain, Atlanta, London, and Singapore.

Information Technology (“IT”)The Information Technology department is responsible for business process automation, information management, and implementation of business solutions. Arcapita has always acknowledged the vital role of IT, and its ability to enhance the firm’s competitive advantage in the marketplace. Furthermore, IT is responsible for connecting and enhancing communication between all departments, streamlining services, and boosting performance through state-of-the-art technology adaptation.

Treasury OperationsTreasury Operations comprises multiple business units, including: Treasury, which is responsible for banking relationships and implementation of treasury products; Investors Information Management, which is responsible for opening and managing investor accounts; and Operations, which is responsible for fund transfers and receipts, treasury bank office processes, deal funding, and reporting processes.

Human Resources (“HR”)Arcapita’s HR Department is responsible for the administration and management of the firm’s most valued assets – the employees, the administration and management of the global compensation & benefits, and the design and administration of the firm’s long-term incentive programs. The primary goal of our HR Department is to help the organization meet its strategic goals by attracting and maintaining high caliber employees.

Investments: Real Estate and Private EquityArcapita employs investment teams and independent consultants that are active globally, and their activities are coordinated under the Chief Investment Officer. The investment teams originate, negotiate, structure, and manage Arcapita’s investments, and eventually facilitate the investment exit process. Arcapita’s investment teams operate out of Bahrain, Atlanta, and Singapore.

Financial Management Group (“FMG”)FMG comprises multiple business units, including, Corporate Finance, Shari’ah, Risk Management and Corporate Communications. The group is responsible for client reporting, the coordination of information across the firm, corporate level strategic/financial planning, preparation of Board of Directors packages, risk assessment of prospective investments, Shari’ah and corporate communications. Client reporting includes preparing fundraising documentation, preparing quarterly valuations and investment updates.

Financial ControlFinancial Control comprises several business units and is responsible for preparing and maintaining accounting records, including subsidiary accounting, internal and external financial reporting, regulatory reporting of financial figures and the related internal controls of the foregoing, and internal and external reporting of Arcapita’s financial information to the respective stakeholders.


ARCAPITA GROUP HOLDINGS LIMITEDShari’ah Supervisory Board’s Report

Independent Auditors’ Report and Consolidated Financial Statements

For the year ended 30 June 2018



Shari’ah Supervisory Board’s Report to Shareholders

Assalam Alaikum Wa Rahmat Allah Wa Barakatuh,

In compliance with the letter of appointment and article 110 of the Articles of Association of Arcapita Group Holdings Limited, we are required to submit the following report:

We, through and in coordination with the Shari’ah Department, have reviewed the contracts relating to the transactions and applications introduced by Arcapita Group Holdings Limited and its subsidiaries (“the Group”) during the year ended 30 June 2018. We have also conducted our review to form an opinion as to whether the Group has complied with Shari’ah rules and principles and also with the specific fatwas, rulings and guidelines issued by us.

The Group’s management is responsible for ensuring that it conducts its business in accordance with Islamic Shari’ah rules and principles. It is our responsibility to form an independent opinion, based on our review of the operations of the Group and to report to you.

We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give assurance that the Group has not violated the rules and principles of Islamic Shari’ah. The Shari’ah Supervisory Board will conduct site visits and audits to ensure Shari’ah compliance.

In our opinion:a) The contracts entered into by the Group during the year are in compliance with Islamic Shari’ah rules and principles.b) The Group is managing an investment portfolio on behalf of its clients and this investment portfolio was acquired by its clients

prior to establishing the Group and the investment portfolio was structured and approved by the client’s previous Shari’ah board.c) The investments undertaken by the Group during the year have been reviewed by us and are in accordance with Islamic Shari’ah

principles.d) The allocation of profit and charging of losses conform to the basis that had been approved by us in accordance with Islamic

Shari’ah rules and principles.e) All earnings (if any) that may have been realized from sources or by means prohibited by Shari’ah rules and principles have not

been recognized as income but have been set aside to be disposed of to charitable causes.f) The calculation of Zakah is in compliance with Shari’ah rules and principles.

We beg Allah the Almighty to grant us all success and straightforwardness.

Shari’ah Supervisory Board:

Sh. Muhammad Taqi UsmaniChairman

Sheikh Esam Mohamed IshaqMember

Sh. Dr. Yousuf Abdullah Al ShubailyMember

Sheikh Mohammed Isa Al JameaMember

2 August 2018


Independent Auditors’ Report to the Shareholders of Arcapita Group Holdings Limited

Report on the Audit of the Consolidated Financial Statements

OpinionWe have audited the accompanying consolidated financial statements of Arcapita Group Holdings Limited (“the Company”) and its subsidiaries (together “the Group”), which comprise the consolidated statement of financial position as at 30 June 2018, and the consolidated statements of profit or loss, comprehensive income, cash flows and changes in equity for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 30 June 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other informationOther information consists of the Supplementary information, that was obtained at the date of this auditor’s report. The Board of Directors is responsible for the other information. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors for the consolidated financial statementsThe Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial statementsOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.


Report on the audit of the consolidated financial statements (continued)

Auditor’s responsibilities for the audit of the consolidated financial statements (continued) As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

• Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Partner’s Registration No. 12127 September 2018Manama, Kingdom of Bahrain

Independent Auditors’ Report to the Shareholders of Arcapita Group Holdings Limited (continued)


Arcapita Group Holdings Limited

Consolidated Statement of Financial PositionAs at 30 June 2018

Note2018

USD ‘0002017

USD ‘000

ASSETS

Cash and cash equivalents 7 26,429 47,052

Receivables 8 101,005 65,678

Investments 9 211,017 75,712

Other assets 10 1,900 1,464

TOTAL ASSETS 340,351 189,906

EQUITY AND LIABILITIES

LIABILITIES

Payable on acquisition of investments 11 86,656 32,634

Murabaha financing 12 14,076 21,114

Accrued expenses and other liabilities 13 32,771 11,649

TOTAL LIABILITIES 133,503 65,397

EQUITY

Share capital and premium 15 173,867 96,610

Reserves 32,981 27,899

TOTAL EQUITY 206,848 124,509

TOTAL EQUITY AND LIABILITIES 340,351 189,906

Abdulaziz Hamad AljomaihChairman of the Board of Directors

Atif A. AbdulmalikChief Executive Officer and Director

The attached explanatory notes 1 to 26 form part of these consolidated financial statements.



Consolidated Statement of Profit or LossFor the year ended 30 June 2018

Note2018

USD ‘0002017

USD ‘000

OPERATING INCOME

Fee and other income 17 18,721 27,409

Income from investments 18 18,990 6,083

Total operating income 37,711 33,492

OPERATING EXPENSES

Staff compensation and benefits (13,613) (12,707)

General and administration expenses (7,003) (6,489)

Professional and consultancy fees (3,391) (3,907)

Financing cost (1,279) (553)

AEIP expense 19 - (1,361)

Total operating expenses (25,286) (25,017)

Net operating income 12,425 8,475

Foreign exchange loss (3) (397)

NET PROFIT FOR THE YEAR 12,422 8,078






Consolidated Statement of Comprehensive IncomeFor the year ended 30 June 2018

2018USD ‘000

2017USD ‘000

NET PROFIT FOR THE YEAR 12,422 8,078

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

Exchange differences arising from translation of foreign operations 2 (7)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 12,424 8,071



Note2018

USD ‘0002017

USD ‘000

OPERATING ACTIVITIES

Net profit for the year 12,422 8,078

Adjustment for non-cash items:

Arcapita equity incentive plan expense 19 - 1,027

Fair value adjustments (18,990) -

Financing cost 1,279 553

Operating (loss) income before changes in operating assets and liabilities (5,289) 9,658

Changes in operating assets and liabilities:

Investments 11 (116,315) (31,854)

Receivables (35,327) (35,956)

Other assets (436) (315)

Accrued expenses and other liabilities 21,124 (1,806)

Payable on acquisition of investments 11 54,022 32,634

Cash used in operations (82,221) (27,639)

Financing cost paid (1,317) (439)

Net cash flows used in operating activities (83,538) (28,078)

FINANCING ACTIVITIES

Proceeds from Murabaha financing - 21,000

Settlement of Murabaha financing (Note a) (7,000) -

Proceeds from issuance of share capital 15 77,257 -

Dividends paid (7,342) (7,264)

Net cash flows from financing activities 62,915 13,736

NET DECREASE IN CASH AND CASH EQUIVALENTS (20,623) (14,342)

Cash and cash equivalents at the beginning of the year 47,052 61,394

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 7 26,429 47,052

Note a:This represents non-cash settlement by one of the investors of SIF by participating in one of the investment placements by the Group. The investor was issued shares of the Investment Company in lieu of its early settlement under Murabaha financing.



Consolidated Statement of Cash FlowsFor the year ended 30 June 2018



Consolidated Statement of Changes in EquityFor the year ended 30 June 2018

Share capital and premium Reserves

Share Capital

USD ‘000

Share PremiumUSD ‘000

Un-allocated

AEIP Shares

USD ‘000

Total Share

Capital and

PremiumUSD ‘000

Retained EarningsUSD ‘000

Foreign Currency

Translation Reserve

USD ‘000

Total ReservesUSD ‘000

Total Equity

USD ‘000

As at 1 July 2017 10 102,768 (6,168) 96,610 27,950 (51) 27,899 124,509

Net profit for the year - - - - 12,422 - 12,422 12,422

Exchange differences arising from translation of foreign operations - - - - - 2 2 2

Total comprehensive income for the year - - - - 12,422 2 12,424 12,424

Issue of share capital 6 77,251 - 77,257 - - - 77,257

Dividends paid - - - - (7,342) - (7,342) (7,342)

Balance as at 30 June 2018 16 180,019 (6,168) 173,867 33,030 (49) 32,981 206,848

Share capital and premium Reserves

Share Capital

USD ‘000

Share PremiumUSD ‘000

Un- allocated

AEIP Shares

USD ‘000

Total Share

Capital and

PremiumUSD ‘000

Retained EarningsUSD ‘000

Foreign Currency

Translation Reserve

USD ‘000

Total ReservesUSD ‘000

Total Equity

USD ‘000

As at 1 July 2016 10 102,768 (7,195) 95,583 27,136 (44) 27,092 122,675

Net profit for the year - - - - 8,078 - 8,078 8,078

Exchange differences arising from translation of foreign operations - - - - - (7) (7) (7)

Total comprehensive income for the year - - - - 8,078 (7) 8,071 8,071

Shares granted to employees under AEIP - - 1,027 1,027 - - - 1,027

Dividends paid - - - - (7,264) - (7,264) (7,264)

Balance as at 30 June 2017 10 102,768 (6,168) 96,610 27,950 (51) 27,899 124,509




Notes to the Consolidated Financial Statements30 June 2018

1 ORGANISATION AND ACTIVITIES

Arcapita Group Holdings Limited (the “Company”) was incorporated in the Cayman Islands on 30 December 2013 as an exempt limited liability company. The registered office of the Company is at P.O. Box 1111, George Town, Grand Cayman, British West Indies. The Company and its subsidiaries (together the “Group“) provide alternative Islamic financial products.

These consolidated financial statements were approved and authorised for issue by the Board of Directors on 27 September 2018.

2 BASIS OF PREPARATION

The consolidated financial statements have been prepared under the historical cost basis, except for investments that have been measured at fair value. The consolidated financial statements have been presented in US Dollars being the functional currency of the Group and all values are rounded to the nearest USD thousand (USD ‘000), except when otherwise indicated.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS“) as issued by the International Accounting Standards Board (“IASB“).

3 BASIS OF CONSOLIDATION

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 June 2018.

The financial statements of subsidiaries are prepared using consistent accounting policies. The Group has utilised the “investment entity“ exemption for investment in subsidiaries held for sale in the normal course of business. The investments are carried at fair value through profit and loss.

Control is achieved when the Group is exposed, or has rights, to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically the Group controls the investee if, and only if, the Group has:

- Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

- Exposure, or rights, to variable returns from its involvement with the investee; and

- The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

- The contractual arrangement with the other vote holders of the investee;

- Rights arising from other contractual arrangements; and

- The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.


3 BASIS OF CONSOLIDATION (continued)

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to non-controlling interest (NCI), even if this results in NCI having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

- Derecognises the assets (including goodwill) and liabilities of the subsidiary;

- Derecognises the carrying amount of any non-controlling interests;

- Derecognises the cumulative translation differences recorded in equity;

- Recognises the fair value of the consideration received;

- Recognises the fair value of any investment retained;

- Recognises any surplus or deficit in the statement of profit or loss; and

- Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

Subsidiary companies

The following are the principal subsidiaries of the Company and are consolidated in these financial statements.

Subsidiary OwnershipYear of

IncorporationCountry of

Incorporation

AIM Group LimitedThe primary activity of AIM Group Limited is to provide asset management and administrative services.

100% 2013 Cayman Islands

Arcapita Investment LimitedThe primary activity of Arcapita Investment Limited is to hold the investments of the Group.


Arcapita Management LimitedThe primary activity of Arcapita Management Limited is to administer or manage the Group’s investment structure companies.


Arcapita Investment Partners LimitedThe primary activities of Arcapita Investment Partners Limited is to structure Islamically compliant investment products and act as placement agent.


Arcapita Cayman SPE LimitedThe primary activity of Arcapita Cayman SPE Limited is to act as a deposit agent to the investors of the Group.




Notes to the Consolidated Financial Statements (continued)30 June 2018


Subsidiary Companies (continued)

Subsidiary OwnershipYear of

IncorporationCountry of

Incorporation

Arcapita Investment Advisors UK LimitedThe primary activities of Arcapita Investment Advisors UK Limited are to source investment opportunities in Europe and provide investment advisory services.

100% 2013 United Kingdom

Arcapita Investment Management US Inc.The primary activity of Arcapita Investment Management US Inc. is to provide advisory services with respect to investment opportunities in the United States of America.

100% 2013 United States of America

Arcapita Investment Management Singapore Pte LimitedThe primary activity of Arcapita Investment Management Singapore Pte Limited is to source investment opportunities in Asia and to provide financial advisory services to its related companies

100% 2013 Singapore

The Group’s ownership in the aforementioned subsidiaries has not changed from the previous year ended 30 June 2017.

Investment entity

Entities that meet the definition of an investment entity within IFRS 10 “consolidated financial statements“ are required to measure their subsidiaries held for sale under the ordinary course of business at fair value through profit or loss rather than consolidate them. The criteria which define an investment entity are, as follows:

- An entity that obtains funds from one or more investors for the purpose of providing those investors with investment services;

- An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

- An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

The Group raises commitment from a number of investors in order to raise capital to invest in private equity investment or to place its acquired investment to investors.

The Group provides investment management services to investors which include investment in Islamic compliant equities, fixed income securities, private equity and real estate investments for the purpose of returns in the form of capital appreciation and investment income.

The Group reports to management via internal management reports and to its investors via investment reports on a fair value basis as agreed under the private placement memorandum. All such investments are reported at fair value to the extent allowed under IFRS in the Group’s consolidated financial statements. The Group does not intend to hold such investments indefinitely and has an exit strategy for all such investments.



Investment entity (continued)

The Group’s management has concluded that the Group meets the additional characteristics of an investment entity in that it has more than one investor; more than one investment; and the investments are predominantly in the form of equities and similar securities.

The Group concluded that it meets the definition of an investment entity and has therefore recorded its investment in subsidiaries held for sale at fair value through profit or loss. Following is the list of unconsolidated subsidiaries.

Unconsolidated subsidiariesEffective

ownershipCountry of

incorporation

SBA Holdings Limited 100% Cayman Islands

Senior Living Holdings Limited 100% Cayman Islands

UAE Logistics Holdings Limited 100% Cayman Islands

Senior Living VI Holdings Limited 100% Cayman Islands

ARC Logistics Portfolio II Holdings Limited 100% Cayman Islands

HealthServ Holdings Limited 100% Cayman Islands

KSAFitness Holdings Limited 100% Cayman Islands

US Signage Holdings Limited 100% Cayman Islands

Senior Living VII Holdings Limited 100% Cayman Islands

ARC Healthcare I Holdings Limited 100% Cayman Islands

ARC Logistics Portfolio III Holdings Lim 100% Cayman Islands

US Signage Capital II Limited 80% Cayman Islands

US Signage Capital III Limited 80% Cayman Islands

US Signage Capital IV Limited 80% Cayman Islands

KSAFitness Capital Limited 62% Cayman Islands

US Signage Capital V Limited 54% Cayman Islands

HealthServ Capital Limited 51% Cayman Islands

4 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the consolidated financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Significant judgements applied in the preparation of the consolidated financial statements are given below:


4 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Going concern

The Group’s Board of Directors has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the Board of Directors is not aware of any material uncertainties that may cast significant doubt about the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements are prepared on a going concern basis.

Impairment of financial assets

The management of the Group reviews its individually significant financial assets at each statement of financial position date to assess whether an impairment loss should be recorded in the statement of profit or loss. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss.

Assets that have been assessed individually and found not to be impaired and all individually insignificant assets are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether impairment should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident.

Fair value of financial instruments

Fair value is the price that would be received upon the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Group’s entire investment portfolio falls under level 3 of the fair value hierarchy. The Group uses various valuation techniques which are based on unobservable market inputs to determine the fair value of such investments.

The Group engages internal valuation experts to perform the valuation of certain investments. Where the Group does not engage external valuers, the Group determines the valuation of investments internally as of the reporting date. The third party valuers and the internal valuation team use methods such as sales comparison or the capitalisation of future cash streams of the underlying asset by using the prevailing capitalisation rate for similar properties or similar geographies. The Group and valuation experts apply their judgement in determining the appropriate valuation techniques and considerations of unobservable valuation inputs used in valuation models which includes capitalisation rates, discount rates, multiples and comparable assets. The input to these models is derived from observable markets where available, but where this is not feasible, degree of judgment is required in determining assumptions used in these models. Changes in assumptions used in the models could affect the reported fair value of financial assets and liabilities.

5 NEW AND AMENDED STANDARDS AND INTERPRETATIONS

The accounting policies adopted are consistent with those of the previous financial year, except for the following IASB’s new and amended standards and interpretations which are effective as of 1 July 2017. The adoption of these standards and interpretations did not have any effect on the Group’s financial position, financial performance or disclosures.

IAS 7 Disclosure Initiative – Amendments to IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide

disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted.




5 NEW AND AMENDED STANDARDS AND INTERPRETATIONS (continued)

IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses - Amendment to IAS 12 In January 2016, through issuing amendments to IAS 12, the IASB clarified the accounting treatment of deferred tax assets of

debt instruments measured at fair value for accounting, but measured at cost for tax purposes. The amendment is effective from 1 January 2017.

6 SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below:

a) Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

(i) Financial assets

Financial assets comprise of cash and cash equivalents, receivables, investments and other assets.

Initial recognition The Group classifies its financial assets into two categories: at fair value through profit or loss and amortised cost. The

classification depends on the purpose for which the financial assets were acquired or transferred to the Group.

Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to its acquisition or issue except in the case of financial assets recorded at fair value through profit or loss.

Subsequent measurement

Financialassetsatfairvaluethroughprofitorloss Financial assets designated at fair value through profit or loss upon inception are those that are not held for trading but

are managed and their performance evaluated on a fair value basis in accordance with the Group’s objectives. The Group’s objectives require the Board of Directors to evaluate information about these assets on a fair value basis together with other related financial information. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value are recognised in the consolidated statement of profit or loss.

Financial assets at amortised cost These are non-derivative financial assets that are not quoted in an active market and are stated at fair value plus transaction

costs, if any. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment, if any. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability.

An allowance for doubtful receivables is made when collection of the full amount is no longer probable. Receivables are written off when there is no possibility of recovery.


6 SIGNIFICANT ACCOUNTING POLICIES (continued)

a) Financial instruments (continued)

(i) Financial assets (continued)

Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised

when:

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

(ii) the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets The Group assesses, at each reporting date, whether there is any objective evidence that a financial asset or a group of

financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(ii) Financial liabilities

Initial recognition and measurement Financial liabilities are classified, at initial recognition, as loans and borrowings and payables. All financial liabilities are

recognised initially at fair value, net of directly attributable transaction costs.

The Group’s financial liabilities include payable on acquisition of investments, murabaha financing, accrued expenses and other liabilities.

Subsequent measurement After initial recognition, financial liabilities are subsequently measured at amortised cost using the effective interest rate

method. Gains and losses are recognised in the consolidated statement of profit or loss, when the liabilities are derecognised, as well as through the effective interest rate amortisation process.





a) Financial instruments (continued)

(ii) Financial liabilities (continued)

Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated statement of profit or loss.

b) Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if and only if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously.

c) Payables, accruals and provisions

Provisions are made when the Group has a present obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

d) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Fee income The fee income represents management and performance fee the Group earns for investment placement, investment structuring

and arranging, asset management and administrative services rendered in accordance to the contractual terms agreed between the parties. Fees are recognised as the services are preformed.

Placement and arrangement fee The Group earns arrangement and placement fees for rendering services during the acquisition and placement of investments.

These fees are recognised when earned based on the binding signed share purchase agreements between the Group and the investors.

Dividend income Dividends from investments in equity securities are recognised when the right to receive the payment is established.



e) Foreign currencies

Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange prevailing at the date of the transaction.

Monetary assets and liabilities in foreign currencies are translated into USD at exchange rates prevailing at the consolidated statement of financial position date. Any gains or losses are recognised in the consolidated statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial recognition. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Exchange gains and losses on non-monetary items classified as “fair value through profit or loss“ are taken to the consolidated statement of profit or loss and for items classified as “fair value through OCI“ such differences are taken to the consolidated statement of comprehensive income.

f) Share-based payments

Employees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised as employee benefits expense in the consolidated statement of profit or loss, together with a corresponding increase in equity.

g) Operating lease commitments

The Group has entered into property leases which are classified as operating leases. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the property and the present value of the minimum lease payments not amounting to substantially all of the fair value of the property, that it therefore does not retain all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

h) Standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt these standards when they become effective.

IFRS 9 Financial instruments (“IFRS 9“) In July 2014, the IASB issued the final version of IFRS 9 Financial instruments that replaces IAS 39 Financial instruments:

Recognition and measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The Group has carried out a detailed impact assessment with respect to the classification and impairment assessment of its financial instruments and plans to adopt the new standard on the required effective date. As per the assessment, the adoption of this new standard will have no impact on classification of financial instrument and impact on impairment will be immaterial.





h) Standards issued but not yet effective (continued)

IFRS 15 - Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, effective for periods beginning on 1 January

2018 with early adoption permitted. IFRS 15 defines principles for recognising revenue and will be applicable to all contracts with customers. However, interest and fee income integral to financial instruments and leases will continue to fall outside the scope of IFRS 15 and will be regulated by the other applicable standards (e.g., IFRS 9, and IFRS 16 Leases).

Revenue under IFRS 15 will need to be recognised as goods and services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard will also specify a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and corresponding cash flows with customers.

The Group has carried out a detailed impact assessment of adoption of IFRS 15 and is of a view that adoption of IFRS 15 will not have a material impact on Group’s revenue recognition.

IFRS2ClassificationandMeasurementofShare-basedPaymentTransactions—AmendmentstoIFRS2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions

on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. These amendments are not expected to have any impact on the Group.

IFRS 16 – Leases The IASB issued the new standard for accounting for leases - IFRS 16 Leases in January 2016. The new standard does not

significantly change the accounting for leases for lessors. However, it does require lessees to recognise most leases on their balance sheets as lease liabilities, with the corresponding right-of-use assets. Lessees must apply a single model for all recognised leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets. Generally, the profit or loss recognition pattern for recognised leases will be similar to today’s finance lease accounting, with interest and depreciation expense recognised separately in the consolidated statement of profit or loss.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted provided the new revenue standard, IFRS 15, is applied on the same date. Lessees must adopt IFRS 16 using either a full retrospective or a modified retrospective approach.

The Group does not anticipate early adopting IFRS 16 and is currently evaluating its impact.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Management is considering the implications of these standards and amendments, their impact on the Group’s financial position and results and the timing of their adoption by the Group.


7 CASH AND CASH EQUIVALENTS

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000

Murabaha with a financial institution 7.1 21,012 38,016

Cash and balances with banks 5,416 9,035

Cash in hand 1 1

26,429 47,052

7.1 This represents short term murabaha placement with a bank, rated ‘A’ by Standard & Poors. These murabaha carry a profit rate of 2.0% (2017: 1.25% to 1.3%) per annum with maturities of up to 1 month.

8 RECEIVABLES

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000

Deal subscription receivable 8.1 91,000 56,900

Receivable from employee incentive programs 8.2 3,535 2,406

Advances to investment companies 8.3 2,324 2,357

Investment yield / dividend receivable 8.4 2,069 2,804

Fee receivable 1,919 1,030

Other receivables 158 181

101,005 65,678

8.1 Deal subscription receivable represent amounts due from investors for participation in the Group’s investment products. These arise in the normal course of the Group’s placement activities and are recorded along with placement fee when the investor signs a binding agreement confirming their participation in an investment product. These are collected over short term.

8.2 This largely represents amounts advanced to the Arcapita Investment Participation Program on an interest free basis for an allocation in the Group’s investment products. Employees have been provided an opportunity to acquire investment products in cash from this allocation. Unutilized allocations will be returned to the Group and the receivable will be reversed. These are collected over the short term.

8.3 This represents interest free advances to investment structure entities and will be recovered from distributions or exit proceeds.

8.4 This represents dividend income that the Group is entitled to receive from it structured entities. These are expected to be received over short term.




9 INVESTMENTS

30 June 2018

USD ‘000

30 June2017

USD ‘000

Private equity 117,791 2,963

Real estate 93,226 72,749

211,017 75,712

9.1 The investments are classified at fair value through profit and loss. The Group has invested through its structured entities in real estate portfolios and private equity investments in the Middle East and in the United States of America.

10 OTHER ASSETS

30 June 2018

USD ‘000

30 June2017

USD ‘000

Equipments 1,267 794

Prepayments 320 385

Others 313 285

1,900 1,464

11 PAYABLE ON ACQUISITION OF INVESTMENTS

These represent obligations of the Group with respect to three (2017: one) investments acquired during June 2018. These are expected to be settled within six months of the year end.

12 MURABAHA FINANCING

During 2017, the Group entered into a Murabaha Financing Facility (the “Facility“) with Strategic Investors Facility Limited (“SIF”), a Cayman Islands limited liability company owned by a group of shareholders and investors. Under this facility, AGHL can utilise financing of up to USD 75 million. As of 30 June 2018, USD 14 million is outstanding under the Facility. The Facility will mature on 1 March 2022 unless SIF exercises an option at any time prior to 1 December 2019 to require a reduced maturity date of 1 March 2020 for all or a part of the Facility. The Facility is unsecured and Arcapita Investment Limited, a wholly owned subsidiary of the Group, has provided a guarantee with respect to the entire facility amount outstanding.


13 ACCRUED EXPENSES AND OTHER LIABILITIES

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000

Due to investment companies 29,715 8,460

Employee related payables 14.3 1,628 2,099

Payable to an affiliate 731 73

Payable to board members 400 577

Accrued expenses and supplier payables 212 227

Other liabilities 85 213

32,771 11,649

14 RELATED PARTY TRANSACTIONS

Related parties represent associated companies, major shareholders, directors and key management personnel of the Group, the Group’s Shari’ah Supervisory Board and entities controlled, jointly controlled or significantly influenced by such parties. Transactions with related parties arise from the ordinary course of business. Pricing policies and terms of these transactions are approved by the Group’s management.

Income and expenses on transactions with related parties included in the consolidated statement of profit or loss:

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000

Income

Placement income 6,663 11,895

Reversal of placement income (6,439) -

Yield and dividend income from investment companies 4,670 6,083

Management fee from investment companies 3,412 1,602

Arrangement fee from investment companies 1,335 1,000

Expenses

Reimbursement of expenses 14.1 14,382 13,264

Share-based compensation to key management personnel 19 - 1,361

Key management personnel costs 1,734 1,276

Financing cost 1,279 553

Fees to the Board of Directors 400 400




14 RELATED PARTY TRANSACTIONS (continued)

Balances with related parties as of the date of the consolidated statement of financial position are:

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000

Assets

Deal subscription receivable 37,000 32,500

Investment yield / dividend receivable from investment companies 2,069 2,804

Advances to investment companies 2,324 2,357

Management fee receivable from investment companies 965 1,030

Liabilities

Murabaha financing 14.2 14,076 21,114

Payable to investment companies 29,715 8,460

Payable to board members 400 577

Payable to key personnel 193 545

Payable to an affiliate 14.1 731 73

14.1 Reimbursement of expenses

The Group and Arcapita Investment Management B.S.C.(c) (“AIM BSC“) are under the common control of the same shareholders and governed by the same Board of Directors. As a result AIM BSC is a related party to the Group. The Group reimburses the expenditures incurred by AIM BSC in providing services to the Group. In the consolidated statement of profit or loss for the year ended 30 June 2018, the reimbursement is included within general and administration expenses, legal and professional expenses, staff compensation and benefit expenses and AEIP expenses.

14.2 Profit rate

This carries a fixed profit rate of 6.5% per annum up to 1 March 2020 and 7.5% per annum thereafter.

14.3 Accrued expenses and other liabilities

Included in accrued expenses and other liabilities are amounts recovered by the Group from an affiliate, under a fiduciary capacity, on behalf of certain employees and consultants of the Group. The Group collects such amounts on behalf of such employees and consultants as per agreed terms. This amount will not revert to the Group at any point in time.


15 SHARE CAPITAL & PREMIUM

15.1 Share capital

30 June 2018

USD ‘000

30 June2017

USD ‘000

Authorised capital

50,000,000 (2017: 50,000,000) ordinary shares with a par value of USD 0.001 per share 50,000 50,000

Issued and paid up capital

As at 1 July

(2018: 10,277,778 shares, 2017: 10,277,778 shares) 10,278 10,278

Issued during the year

(2018: 6,175,681 shares, 2017: Nil shares) 6,176 -

As at 30 June

(2018: 16,453,459 shares, 2017: 10,277,778 shares) 16,454 10,278

15.2 Share premium

Amounts collected in excess of the par value of the issued share capital during any issue of shares are treated as share premium.

15.3 Unallocated AEIP shares

As detailed in Note 18, the Group has an employee share incentive program by the name of Arcapita Equity Incentive Plan (“AEIP“). Under this program shares have been issued to the plan for allocation to plan participants. Any shares that have not been allocated to plan participants are presented as a deduction from equity.

16 PROPOSED DIVIDENDS

As of 27 September 2018, the Board of Directors of the Group have proposed a cash dividend of USO 0.42 (2017: USO 0.76) per share amounting to USO 6.651 million (2017: USO 7.342 million) and bonus shares of 509,300 for approval by the shareholders at the next annual general meeting. The board has priced the bonus shares at US$13.06 per share and authorized a debit to retained earnings of USO 6.651 million (2018: USO Nil) pending approval by shareholders.




17 FEE AND OTHER INCOME

30 June 2018

USD ‘000

30 June2017

USD ‘000

Placement fees 10,369 20,859

Management and performance fees 6,666 5,347

Arrangement fees 1,335 1,000

Others 351 203

18,721 27,409

18 INCOME FROM INVESTMENTS

30 June 2018

USD ‘000

30 June2017

USD ‘000

Fair value gain on investments at FVTPL 14,320 -

Investment yield / dividend income 4,670 6,083

18,990 6,083

19 ARCAPITA EQUITY INCENTIVE PLAN

Arcapita Equity Incentive Plan (AEIP) is an employee share incentive program through which employees may earn shares in the Company. Investment units comprising of 1,027,778 shares of the Company were allocated to the program upon its inception. Based on the Group’s performance, up to 20 percent of the plan allocation becomes eligible to be granted to employees each year. Shares granted to employees are fully vested on the date of grant and expensed (i.e. AEIP expense) to the consolidated statement of profit or loss.

The fair value of the shares is estimated at the grant date based on the valuation of last capital call and raise.

Movement during the year

2018in ‘000

2017in ‘000

Shares brought forward 616,666 719,444

Shares granted to employees during the year - (102,778)

Number of un-allocated shares outstanding at 30 June 616,666 616,666


20 COMMITMENTS AND CONTINGENCIES

20.1 Operating lease commitments

2018USD ‘000

2017USD ‘000

Operating lease commitments relating to rented premises

within one year 524 429

within two to five years 2,017 1,197

more than five years 143 433

2,684 2,059

20.2 The Group has issued a financial guarantee on behalf of an investment company for an amount of USD 13.25 million. The group does not expects this guarantee to be called.

21 INVESTOR FUNDS

From time to time the Group receives funds from or due to its investors. These funds are placed in a segregated client account with established reputed international bank based in New York and are held pursuant to investment account agreements with investors and portfolio investment companies in which these investors have invested. The agreements restrict the Group’s access to these funds and requires the consent and instructions of the investors or portfolio companies to transact. As a result the Group does not have legal authority to solely control the funds nor an obligation to the investor and as such these funds are not reflected in the Group’s consolidated financial statements. Investor funds as at 30 June 2018 amounted to USD 41.7 million (2017: USD 27.7 million).

22 RISK MANAGEMENT

22.1 Introduction

The Group adopts an enterprise-wide approach to risk management, with proactive identification and mitigation of the risks embedded in the Group’s balance sheet and business activities. One of the primary objectives of risk management is to optimize shareholder and investor returns while maintaining the Group’s risk exposure within self-imposed parameters defined within the Group’s Board approved risk strategy, appetite and policy documents.

The overall responsibility for the implementation of a sound risk management framework lies with the Group’s senior management and the Board of Directors. The Group has established an independent Risk Management Department (RMD) that works in co-ordination with the Risk Management Committee (RMC), which is a management-level committee with the objective of providing a platform for senior management input, review and approval of key aspects relating to risk management. The RMD and RMC work under the supervision of the Audit and Risk Committee (ARC), which is a board level committee delegated with certain responsibilities of risk oversight on behalf of the Board of Directors and supports the Board of Directors in the execution of its responsibilities pertaining to risk management.




22 RISK MANAGEMENT (continued)

22.2 Credit risk

Credit risk is the risk that one party to a financial transaction will fail to discharge an obligation and cause the other party to incur a financial loss.

The Group’s exposure to credit risk is limited due to minimal lending / placement activity and the fact that there are no investments in financial securities. The Group is exposed to credit risk on its bank balances and receivables. This risk is considered minimal as the bank balances are maintained in current accounts with reputable international banks with good credit standings. The receivable balances primarily represents receivable from deal subscriptions, investee companies, staff and prepayments to vendors.

22.3 Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may also arise from an inability to realise a financial asset quickly at an amount close to its fair value.

The Group has established a liquidity risk management framework having defined minimum liquid asset requirements, liquidity monitoring and reporting responsibilities and limits on the extent of leverage and investment underwriting on the Group’s consolidate statement of financial position. The Group’s Asset and Liability Committee (ALCO), supported by the RMD and the Treasury function closely monitor the Group’s actual and forecasted liquidity position and ensures that the RMC is frequently updated on the Group’s exposure to liquidity risk. As part of the Group’s risk appetite framework, the ARC is updated on a regular basis on aspects relating to liquidity risk defined within the risk appetite statement.

The Group’s exposure to funding liquidity risk is low given that the Group maintains minimal balance sheet leverage. The Group has sufficient cash and bank balances available as of 30 June 2018 in order to discharge its financial liabilities when they fall due.



22.3 Liquidity risk (continued)

A maturity profile of assets and liabilities, based on expected maturities, is provided below.

As at 30 June 2018

Up to 3 months

> 3 months up to

1 year

Sub-Total up to

1 year

> 1 year up to

5 yearsNon-cash

items Total

ASSETS

Financial assets

Cash and cash equivalents 26,429 - 26,429 - - 26,429

Receivables 96,761 2,159 98,920 2,085 - 101,005

Investments - 100,536 100,536 110,481 - 211,017

Other assets - - - 313 - 313

Total financial assets 123,190 102,695 225,885 112,879 - 338,764

Non-financial assets

Prepayments - - - - 320 320

Equipments - - - - 1,267 1,267

Total assets 123,190 102,695 225,885 112,879 1,587 340,351

LIABILITIES

Financial liabilities

Payable on acquisition of investments 46,615 40,041 86,656 - - 86,656

Murabaha financing 76 - 76 14,000 - 14,076

Accrued expenses and other liabilities 32,771 - 32,771 - - 32,771

Total financial liabilities 79,462 40,041 119,503 14,000 - 133,503

Net gap 43,728 62,654 106,382 98,879 1,587 206,848





22.3 Liquidity risk (continued)

As at 30 June 2017

Up to 3 months

> 3 months up to

1 year

Sub-Total up to

1 year

> 1 year up to

5 yearsNon-cash

items Total

ASSETS

Financial assets

Cash and cash equivalents 47,052 - 47,052 - - 47,052

Receivables 63,321 2,357 65,678 - - 65,678

Investments - 9,056 9,056 66,656 - 75,712

Other assets - - - 285 - 285

Total financial assets 110,373 11,413 121,786 66,941 - 188,727

Non-financial assets

Prepayments - - - - 385 385

Equipments - - - - 794 794

Total assets 110,373 11,413 121,786 66,941 1,179 189,906

LIABILITIES

Financial liabilities

Payable on acquisition of investment 32,634 - 32,634 - - 32,634

Murabaha financing 114 - 114 21,000 - 21,114

Accrued expenses and other liabilities 11,649 - 11,649 - - 11,649

Total financial liabilities 44,397 - 44,397 21,000 - 65,397

Net gap 65,976 11,413 77,389 45,941 1,179 124,509



22.4 Investment risk

This category relates to risks arising from the Group’s real estate and private equity investment portfolio, and entails market / systematic risks (losses on investments due to changes in market fundamentals) and non-systematic / investment specific risks. The Group’s objective is to manage and control risk exposures within acceptable parameters, while optimizing returns.

RMD monitors the Group’s investment risk exposures in light of the Group’s risk appetite limits and reports to RMC and ARC on a regular basis. Additionally, RMD works closely with the business units to conduct investment risk analysis at the individual deal and portfolio level throughout the investment cycle. The analysis focuses on the risk profile of each individual investment and the overall investment portfolio in light of the Group’s risk strategy, appetite, policies and the risk limits and guidelines defined therein.

At the pre-acquisition stage, RMD works with business units to undertake pre-acquisition risk analysis based on the characteristics of proposed investments. The objective of this analysis is to filter investments at an initial stage and to complement the extensive due diligence undertaken by business units.

Following the acquisition of any investment, business units and RMD periodically perform post-acquisition risk analysis to ascertain how the risks of the portfolio change over time and assess the impact in line with the Group’s risk strategy, appetite, policies and the risk limits and guidelines defined therein. Results of risk analysis are reported to RMC on a regular basis highlighting portfolio level investment risk exposure, economic capital requirements for investment risk, utilization of investment risk limits and any significant issues in light of the Group’s investment risk profile. As part of the Group’s risk appetite framework, ARC is updated regularly on aspects relating to investment risk defined within the risk appetite statement.

At the time of exiting an investment, RMD and business units (in conjunction with any other departments / functions relevant to the exit process) will use appropriate strategies to mitigate risks associated with the exit process and to protect the expected realization proceeds from downside risks (assessed on a case-by-case basis).

22.5 Market Risk

The Group defines market risk as the risk of losses due to adverse movements in market fundamentals such as profit rates, foreign currency exchange rates, equity markets / prices and commodity prices on the Group’s investment securities (other than the real estate and private equity investment portfolio).

The Group does not maintain a significant portfolio of investment securities (such as investment in Sukuk, listed equity investments) other than the real estate and private equity investment portfolio, and maintains a minimal component of liabilities on its balance sheet.

As of 30 June 2018 and 30 June 2017, the Group had no significant foreign currency exposure.

The Group’s exposure, not including the real estate and private equity investment portfolio, to market risk as defined above is therefore not significant.

Systematic and non-systematic risks arising from the real estate and private equity investment portfolio are categorized under “Investment risk“ that is outlined under note “21.4 Investment risk” in these consolidated financial statements.

22.6 Operational risk

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or lead to financial loss. The Group minimizes the operational risk by maintaining a strong internal control environment and continuous oversight by the Board of Directors.




23 CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it in line with the changes in operating conditions and the risk characteristics of its activities.

24 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the price that would be received upon the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

a) In the principal market for the asset or liability, or b) In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or most advantageous market must be accessible by the Group.

The Group’s financial instruments have been classified in accordance with their measurement basis as follows:

30 June 2018

At fair value through

statement of profit or loss

USD ‘000

At cost/ amortised

costUSD ‘000

TotalUSD ‘000

ASSETS

Murabaha with a financial institution - 21,012 21,012

Cash and balances with banks - 5,416 5,416

Investments 211,017 - 211,017

Receivables - 101,005 101,005

Other assets - 313 313

211,017 127,746 338,763

LIABILITIES

Payable on acquisition of investments - 86,656 86,656

Accrued expenses and other liabilities - 32,771 32,771

Murabaha financing - 14,076 14,076

- 133,503 133,503


24 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

30 June 2017

At fair value through

statement of profit or loss

USD ‘000

At cost/ amortised

costUSD ‘000

TotalUSD ‘000

ASSETS

Cash and balances with banks - 9,035 9,035

Murabaha with financial institution - 38,016 38,016

Investments 75,712 - 75,712

Receivables - 65,678 65,678

Other assets - 285 285

75,712 113,014 188,726

LIABILITIES

Payable on acquisition of investment - 32,634 32,634

Accrued expenses and other liabilities - 11,649 11,649

Murabaha financing - 21,114 21,114

- 65,397 65,397

Fair value hierarchy The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to

measure fair value, maximising the use of relevant observable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Determination of fair value and fair value hierarchy

The Group uses the following hierarchy for determining and disclosing fair value of financial assets and liabilities:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

Level 3: Techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data.

The investments carried at ‘fair value through profit or loss’ has been classified as level 3 assets.





Movements in level 3 financial instruments measured at fair value The following table shows a reconciliation of the opening and closing amount of level 3 financial assets which are recorded at fair

value:

30 June2018

USD ‘000

30 June2017

USD ‘000

Opening balance 75,712 43,858

Acquisition of investments 250,243 173,626

Fair value adjustments 14,320 -

Placement of investments (129,258) (141,772)

211,017 75,712

Valuation process of the Group Balances with banks represent cash and cash equivalents and are due on demand. The carrying value of these balances represents

their fair value.

The recoverability of receivables were determined by the management as part of impairment testing. The carrying amounts approximate the fair value of these receivables.

For investments, fair value is determined by reference to valuations by an internal valuation expert. The determination of the fair value of such assets is based on local market conditions.

Other liabilities and payable to a related party are current in nature and the carrying value of these financial instruments represents their fair value.

The effect of unobservable inputs on fair valuation The significant unobservable inputs used in the fair value measurements categorised within Level 3 of the fair value hierarchy,

together with a quantitative sensitivity analysis as at 30 June 2018 are as shown below:

As at 30 June 2018Impact on profit or loss

Unobservable inputs Input ChangeFavorableUSD ‘000

UnfavorableUSD ‘000

EV EBITDA Multiples 9.1x to 10.5x +/- 10% 10,393 (10,393)

Discount rates 7.25% to 8.40% +/- 10% 3,037 (2,977)



The effect of unobservable inputs on fair valuation (continued)As at 30 June 2017

Impact on profit or loss

Unobservable inputs Input ChangeFavorableUSD ‘000

UnfavorableUSD ‘000

Price per square feet USD 490 +/- 10% 7,329 (7,329)

Capitalization rates 6.0% to 8.2% +/- 10% 1,659 (1,357)

25 SEGMENTAL INFORMATION

The sole business of the Group is to provide and manage alternative Islamic investment products and as a result it does not have any other reportable segments for this financial period.

26 EARNINGS PROHIBITED BY SHARI’AH

The Group receives interest from incidental deposits. These earnings are prohibited by Shari’ah, hence set aside as a liability to be used exclusively for charitable purposes and amount to USD 88 thousand (30 June 2017: USD 69 thousand) for the year.




Arcapita Group consists of Arcapita Group Holdings Limited (“AGHL“), AGHL’s direct and indirect subsidiaries and Arcapita Investment Management B.S.C. (c) (“Arcapita Bahrain“).

AGHL and Arcapita Bahrain currently are owned by the same shareholders in the same shareholding ratios. This is as a result of contractual arrangements which requires the shareholders of each entity to be identical. The shareholders have to hold their interests in Arcapita Group in the same ratio of AGHL shares to Arcapita Bahrain shares and to appoint identical members to the Board of Directors in both entities, now and in the future. However, under the requirements of IFRS, in order to consolidate the financial position and results of Arcapita Bahrain with AGHL certain conditions have to be met. These conditions have not been fulfilled at this time and Arcapita Bahrain results cannot be consolidated with AGHL.

Therefore, in order to provide supplementary information to the shareholders we provide below a summarised pro-forma consolidated statement of profit or loss and financial position.

Arcapita Group pro-forma statement of financial position

As at 30 June 2018

AGHLGroup

USD ‘000

Arcapita Bahrain

USD ‘000

Consolidation adjustments

USD’000

ArcapitaGroup

USD ’000

ASSETS

Cash and cash equivalents 26,429 12,418 - 38,847

Receivables 101,005 1,379 (731) 101,653

Investments 211,017 - - 211,017

Other assets 1,900 731 - 2,631

TOTAL ASSETS 340,351 14,528 (731) 354,148

LIABILITIES

Payable on acquisition of investments 86,656 - - 86,656

Murabaha financing 14,076 - - 14,076

Accrued expenses and other liabilities 32,771 1,688 (731) 33,728

TOTAL LIABILITIES 133,503 1,688 (731) 134,460

EQUITY

Share capital and premium 173,867 12,840 - 186,707

Reserves 32,981 - - 32,981

TOTAL EQUITY 206,848 12,840 - 219,688

TOTAL EQUITY AND LIABILITIES 340,351 14,528 (731) 354,148


Supplementary Information


Arcapita Group pro-forma statement of financial position (continued)

As at 30 June 2017

AGHLGroup

USD ‘000

Arcapita Bahrain

USD ‘000


USD’000

ArcapitaGroup

USD ’000

ASSETS

Cash and cash equivalents 47,052 7,848 - 54,900

Receivables 65,678 243 (73) 65,848

Investments 75,712 - - 75,712

Other assets 1,464 776 - 2,240

TOTAL ASSETS 189,906 8,867 (73) 198,700

LIABILITIES

Payable on acquisition of investment 32,634 - - 32,634

Murabaha financing 21,114 - - 21,114

Accrued expenses and other liabilities 11,649 1,034 (73) 12,610

TOTAL LIABILITIES 65,397 1,034 (73) 66,358

EQUITY

Share capital and premium 96,610 7,833 - 104,443

Reserves 27,899 - - 27,899

TOTAL EQUITY 124,509 7,833 - 132,342

TOTAL EQUITY AND LIABILITIES 189,906 8,867 (73) 198,700


Supplementary Information (continued)


Arcapita Group pro-forma statement of profit or loss

Year ended 30 June 2018

AGHLGroup

USD ‘000

Arcapita Bahrain

USD ‘000


USD’000

ArcapitaGroup

USD ’000

INCOME

Fee and other income 18,721 14,575 (14,382) 18,914

Income from investments 18,990 - - 18,990

Total operating income 37,711 14,575 (14,382) 37,904

EXPENSES

Staff compensation and benefits (13,613) (10,050) 10,050 (13,613)

General and administration expenses (7,003) (3,473) 3,336 (7,140)

Professional and consultancy fees (3,391) (996) 996 (3,391)

Financing cost (1,279) - - (1,279)

Arcapita equity incentive plan expenses - - - -

Total operating expenses (25,286) (14,519) 14,382 (25,423)

Foreign exchange (loss) / gain (3) (56) - (59)

NET PROFIT 12,422 - - 12,422


Arcapita Group pro-forma statement of profit or loss (continued)

Year ended 30 June 2017

AGHLGroup

USD ‘000

Arcapita Bahrain

USD ‘000


USD’000

ArcapitaGroup

USD ’000

INCOME

Fee and other income 27,409 13,305 (13,264) 27,450

Income from investments 6,083 6,083

Total operating income 33,492 13,305 (13,264) 33,533

EXPENSES

Staff compensation and benefits (12,707) (9,314) 9,314 (12,707)

General and administration expenses (6,489) (3,131) 2,807 (6,813)

Professional and consultancy fees (3,907) (1,143) 1,143 (3,907)

Financing cost (553) - - (553)

AEIP expense (1,361) - - (1,361)

Total operating expenses (25,017) (13,588) 13,264 (25,341)

Foreign exchange gain / (loss) (397) 283 - (114)

NET PROFIT 8,078 - - 8,078


Supplementary Information (continued)

ARCAPITA INVESTMENT MANAGEMENT B.S.C.(C)Shari’ah Supervisory Board Report,

Report of The Board of Directors,

Independent Auditors’ Report and

Financial Statements

For the year ended 30 June 2018



Shari’ah Supervisory Board’s Report to Shareholders

Assalam Alaikum Wa Rahmat Allah Wa Barakatuh,

In compliance with the letter of appointment and article 54(e) of the Articles of Association of Arcapita Investment Management B.S.C.(c) (“the Company”), we are required to submit the following report:

We have reviewed the contracts relating to the transactions undertaken by the Company during the year ended 30 June 2018. We have also conducted a review of the Operations of the Company to form an opinion as to whether the Company has complied with Shari’ah rules and principles and with the specific fatwas, ruling and guidelines issued by us.

The Company’s management is responsible for ensuring that the Company conducts its business in accordance with Islamic Shari’ah rules and principles. It is our responsibility to form an independent opinion, based on our review of the operations of the Company and to report to you.

We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give assurance that the Company has not violated the rules and principles of Islamic Shari’ah.

In our opinion:The services agreement entered into by the Company with AIM Group Limited, and the transactions and dealings resulting from such agreement and Zakah calculation during the year ended 30 June 2018 are in compliance with the Islamic Shari’ah rules and principles. All earnings (if any) that may have been realized from sources or by means prohibited by Shari’ah rules and principles have not been recognized as income but have been set aside to be disposed of to charitable causes.

We beg Allah the Almighty to grant us all success and straightforwardness.

Shari’ah Supervisory Board:

Sh. Muhammad Taqi UsmaniChairman

Sheikh Esam Mohamed IshaqMember

Sheikh Mohammed Isa Al JameaMember

2 August 2018


Arcapita Investment Management B.S.C. (c)

Report of the Board of Directors

The Directors have pleasure in submitting their report and the audited financial statements of Arcapita Investment Management B.S.C. (c) (the “Company“) for the year ended 30 June 2018.

Principal activities and review of business developmentsThe Company operates under an Investment Firm license - Category I (Islamic Principles) issued by the Central Bank of Bahrain (“CBB“), to operate under Islamic Shari’ah principles, and is supervised and regulated by the CBB. The Company’s principal activities are in dealing in financial instruments as an agent, and arranging, managing, safeguarding and advising on financial instruments.

Financial HighlightsYear ended

30 June 2018USD ‘000

Year ended30 June 2017

USD ‘000

OPERATING INCOME

Fee and other income 14,575 13,305

Foreign exchange (loss) gain (56) 283


OPERATING EXPENSES



Professional and consulting fees (996) (1,143)


AuditorsErnst & Young have expressed their willingness to continue in office and a resolution proposing their appointment as auditors of the Company, for the year ending 30 June 2019, will be submitted at the Annual General Meeting.

Signed on behalf of the Board of Directors


27 September 2018


Independent Auditors’ Report to the Shareholders of Arcapita Investment Management B.S.C.(c)

Report on the financial statements

We have audited the accompanying statement of financial position of Arcapita Investment Management B.S.C. (c) (the “Company”) as of 30 June 2018, and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements and the Company’s undertaking to operate in accordance with Islamic Shari’ah Rules and Principles are the responsibility of the Company’s Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Auditing Standards for Islamic Financial Institutions issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (“AAOIFI“). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 30 June 2018, the results of its operations, its cash flows and changes in equity for the year then ended in accordance with the Financial Accounting Standards issued by AAOIFI.

Report on other regulatory requirements

As required by the Bahrain Commercial Companies Law and the Central Bank of Bahrain (“CBB“) Rule Book (Volume 4), we report that:

a) the Company has maintained proper accounting records and the financial statements are in agreement therewith; and

b) the financial information contained in the Report of the Board of Directors is consistent with the financial statements.

We are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial Institutions Law, the CBB Rule Book (Volume 4 and applicable provisions of Volume 6) and CBB directives, regulation and rules or the terms of the Company’s memorandum and articles of association have occurred during the year ended 30 June 2018 that might have had a material adverse effect on the business of the Company or on its financial position. Satisfactory explanations and information have been provided to us by Board of Directors in response to all our requests. The Company has also complied with the Islamic Shari’ah Rules and Principles as determined by the Shari’ah Supervisory Board of the Company.

Partner’s registration no. 4527 September 2018Manama, Kingdom of Bahrain



Statement of Financial PositionAs at 30 June 2018

Note2018

USD ‘0002017

USD ‘000

ASSETS

Balances with banks and cash 6 12,418 7,848

Receivables and other assets 7 1,379 946

Due from a related party 11 731 73

TOTAL ASSETS 14,528 8,867

LIABILITIES AND EQUITY

LIABILITIES

Accrued expenses and other liabilities 1,688 1,034

TOTAL LIABILITIES 1,688 1,034

EQUITY

Share capital 8 7,833 7,833

Shares pending allotment 9 5,007 -

TOTAL EQUITY 12,840 7,833

TOTAL LIABILITIES AND EQUITY 14,528 8,867



The attached explanatory notes 1 to 16 form part of these financial statements.



Statement of Income and other Comprehensive IncomeFor the year ended 30 June 2018

Note

Year ended2018

USD ‘000

Year ended2017

USD ‘000

OPERATING INCOME

Fee and other income 10 14,575 13,305


OPERATING EXPENSES



Professional and consulting fees (996) (1,143)


Foreign exchange (loss) gain (56) 283

NET INCOME AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR - -






Statement of Cash FlowsFor the year ended 30 June 2018

Note


USD ‘000


USD ‘000

OPERATING ACTIVITIES

Net income for the year - -

Changes in operating assets and liabilities:

Capital raise proceeds held with a deposit agent 6 (5,007) -

Due from a related party (658) 35

Receivables and other assets (433) 30

Accrued expenses and other liabilities 654 52

Net cash (used in) from operating activities (5,444) 117

FINANCING ACTIVITY

Proceeds from issuance of share capital 8 5,007 333

Net cash from financing activity 5,007 333

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (437) 450

Cash and cash equivalents at the beginning of the year 7,848 7,398

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 7,411 7,848

Balances with banks 7,405 7,840

Cash in hand 6 8

Cash and cash equivalents 7,411 7,848

Capital raise proceeds held with deposit agent 5,007 -

Balances with banks and cash 6 12,418 7,848




Statement of Changes in EquityFor the year ended 30 June 2018

Note

Shares capital

USD ‘000

Share pending allotmentUSD ‘000

Retained earningsUSD ‘000

Total equity

USD ‘000

As at 1 July 2017 7,833 - - 7,833

Net income for the year - - - -

Issuance of share capital 9 - 5,007 - 5,007

As at 30 June 2018 7,833 5,007 - 12,840

As at 1 July 2016 7,500 - - 7,500

Net income for the year - - - -

Issuance of share capital 333 - - 333

As at 30 June 2017 7,833 - - 7,833




Notes to the Financial Statements30 June 2018

1 ORGANISATION AND ACTIVITIES

Arcapita Investment Management B.S.C. (c) (“the Company“) is a closed joint stock company registered with the Ministry of Industry, Commerce and Tourism in the Kingdom of Bahrain and operates under the commercial registration number 87184 obtained on 10 October 2013, which is the date the Company commenced its commercial operations. The address of the Company’s registered office is P.O. Box 1357, Arcapita Building, 5th floor, Bahrain Bay, Manama, Kingdom of Bahrain.

The Company operates under an Investment Firm license - Category I (Islamic Principles) issued by the Central Bank of Bahrain (“CBB“), to operate under Islamic Shari’ah principles, and is supervised and regulated by the CBB. The Company’s strategy and principal activities are dealing in financial instruments as an agent, and arranging, managing, safeguarding and advising on financial instruments.

As at 30 June 2018, the Company has nil assets under management (30 June 2017: nil).

These financial statements have been approved and authorised for issue by the Board of Directors on 27 September 2018.

2 BASIS OF PREPARATION

2.1 Statement of compliance

The financial statements are prepared in accordance with the Financial Accounting Standards (“FAS“) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (“AAOIFI“), the Shari’ah Rules and Principles as determined by the Shari’ah Supervisory Board of the Company and in conformity with FAS, the Bahrain Commercial Companies Law, Financial Institutions Law, the CBB Rulebooks, directives, regulations and associated resolutions and the terms of the Company’s memorandum and articles of association. In accordance with the requirements of AAOIFI, for matters for which no AAOIFI standard exists, the Company uses the relevant International Financial Reporting Standard (“IFRS“) issued by International Accounting Standards Board.

2.2 Accounting convention

The financial statements have been prepared under the historical cost basis and presented in the United States Dollar (“USD“) rounded to the nearest USD thousand, unless otherwise indicated, which is the functional currency of the Company.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of these financial statements are:

a. Cash and cash equivalents

Cash and cash equivalents include cash in hand, amounts due from banks on demand or with an original maturity of 90 days or less and balances held with deposit agents, unless restricted for use in operations or for specific purpose.

b. Receivables and other assets

Receivables and other assets are carried at amortised cost. An estimate is made for impaired receivables based on a review of all outstanding amounts at the year end.


3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

c. Financial instruments

Recognition, measurement and de-recognition Financial instruments comprise financial assets and financial liabilities.

All financial assets and financial liabilities are initially recognised at fair value on the trade date, i.e. the date that the Company becomes a party to the contractual provisions of the instrument.

All financial assets and financial liabilities are subsequently measure at amortised cost.

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

- The right to receive cash flows from the asset has expired; or

- The Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

- The Company has transferred its right to receive cash flows from the asset and either: (a) has transferred substantially all the risks and rewards of the assets, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset.

The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

d. Accrued expenses and other liabilities

Accrued expenses and other liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

e. Amortised cost measurement

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as such when the Company has the positive intention and ability to hold them to maturity. After initial measurement, these investments are measured at amortised cost using the effective profit rate (EPR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EPR. The EPR amortisation is included in the statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss under ‘provisions’.

f. Offsetting

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a legally enforceable or religious right to set off the recognised amounts and the Company intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.


Notes to the Financial Statements (continued)30 June 2018



g. Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.

Fee income The fee income represents income the Company earns for asset management and administrative services rendered in

accordance to the contractual terms agreed between the parties.

h. Shari’ah supervisory board

The Company’s business activities are subject to the supervision of a Shari’ah supervisory board consisting of at least three members appointed by the general assembly.

i. Earnings prohibited by Shari’ah

The Company is committed to avoid recognising any income generated from non-Islamic sources. Accordingly all non-Islamic income is credited to a charity account where the Company uses these funds for various social welfare activities.

j. Foreign currencies

Transactions in foreign currencies are initially recorded at the exchange rate prevailing on the date of the transaction.

Monetary assets and liabilities in foreign currencies are translated into United States Dollars at exchange rates prevailing at the statement of financial position date. Any gains or losses are recognised in the statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial recognition. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

k. Employees’ end of service benefits

Bahraini employees are covered by the Social Insurance Organization scheme which comprises a defined contribution scheme to which the Company contributes a monthly sum based on a fixed percentage of the salary. The contribution is recognised as an expense in the statement of income.

The Company provides end of service benefits to its non-Bahraini employees. Entitlement to these benefits is usually based upon the employees’ length of service and the completion of a minimum service period. The expected costs of these benefits which comprise a defined benefit scheme are accrued over the period of employment based on the notional amount payable if all employees had left at the statement of financial position date.



l. Impairment of financial assets

An assessment is made at each financial position date to determine whether there is objective evidence that a specific financial asset or a group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss, based on the assessment by the Company of the estimated cash equivalent value, is recognised in the statement of income. Specific provisions are created to reduce all impaired financial contracts to their realizable cash equivalent value. Financial assets are written off only in circumstances where effectively all possible means of recovery have been exhausted.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment value was recognised, the previously recognised impairment loss is reversed.

m. Events after the statement of financial position date

The financial statements are adjusted to reflect events that occurred between the statement of financial position date and the date the financial statements are authorised for issue, provided they give evidence of conditions that existed as of the statement of financial position date. Events that are indicative of conditions that arose after the statement of financial position date are disclosed, but do not result in an adjustment to the financial statements.

o. Operating lease commitments

The Company has entered into property leases which are classified as operating leases. The Company has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the property and the present value of the minimum lease payments not amounting to substantially all of the fair value of the property, that it therefore does not retain all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

p. Zakah

Individual shareholders are responsible for payment of Zakah.

4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures as well as the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of assets or liabilities affected in future periods.




4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)

Judgements In the process of applying the Company’s accounting policies, management has made the following judgements, which have the

most significant effect on the amounts recognised in the financial statements.

(i) Estimates and assumptions The Company based its assumptions and estimates on parameters available when the financial statements were prepared.

Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

(ii) Going concern The Company’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has

the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements are prepared on the going concern basis.

5 NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

The standard issued but not yet effective, up to the date of issuance of Company’s financial statements is listed below. The Company intends to adopt this standard when it becomes effective.

FAS 30 - Impairment, credit losses and onerous contracts (FAS 30) In November 2017, the AAIOFI issued FAS 30. The standard supersedes the earlier FAS 11 “Provision and reserves“. The new

standard is effective for financial periods beginning on or after 1 January 2020, with early adoption permitted. The Company is in the process of assessing the impact of FAS 30 on its financial statements.

6 BALANCES WITH BANKS AND CASH

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000


Cash in hand 6 8

Cash and cash equivalents 7,411 7,848

Capital raise proceeds held with deposit agent 6.1 5,007 -

12,418 7,848

6.1 Capital raise proceeds held with deposit agent

Proceeds from the capital raise were held with the deposit agent, Arcapita Cayman SPE Limited, through a segregated client account operated by a reputed international bank until allocation and issuance of shares is completed as explained in note 9. These proceeds will be available for utilisation by the Company only after completion of the capital raise legal formalities and allocation of shares.


7 RECEIVABLES AND OTHER ASSETS

30 June 2018

USD ‘000

30 June2017

USD ‘000

Equipments 663 390

Prepayments 303 276

Receivables 303 170

Other assets 110 110

1,379 946

8 SHARE CAPITAL

30 June 2018

USD ‘000

30 June2017

USD ‘000

Authorised capital

26,455,030 ordinary shares with a par value of USD 1 per share 26,455,030 26,455,030

Issued and paid up capital

As at 1 July 2017 / 2016

(2018: 7,833,334 shares, 2017: 7,500,000 shares) 7,833,334 7,500,000

Issued during the year

(2018: Nil Shares, 2017: 333,334 shares) - 333,334

As at 30 June 2018 / 2017

(2018: 7,833,334 shares, 2017:7,833,334 shares) 7,833,334 7,833,334

9 SHARES PENDING ALLOTMENT

As at 30 June 2018 the Company received USD 5,007 thousand from its current and new shareholders as part of a capital raise. This amount is categorised as shares pending allotment as the legal formalities necessary to issue shares have still not been completed. These formalities are in progress and expected to be completed subsequent to year end, once the Extra Ordinary General meeting is held.




10 FEE AND OTHER INCOME

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000

Intercompany fee income 10.1 14,382 13,264

Management Fee 141 -

Other income 52 41

14,575 13,305

10.1 Intercompany fee income

AIM Group Limited (AGL) an affiliate company, and the Company are under the common control of the same shareholders and governed by the same Board of Directors. In accordance with the terms of a ‘Service Agreement’, the Company provides advisory and administrative services to AGL (and its affiliates). AGL reimburses the expenditures incurred by the Company in respect of the services rendered in the form of fee income.

11 RELATED PARTY TRANSACTIONS AND BALANCES

Related parties represent associated companies, major shareholders, directors and key management personnel of the Company, the Company’s Shari’ah Supervisory Board and entities controlled, jointly controlled or significantly influenced by such parties. Transactions with related parties arise from the ordinary course of business. Pricing policies and terms of these transactions are approved by the Company’s management. Outstanding balances at year end if any, are unsecured.

Income and expenses incurred with related parties is as follows:

Note

30 June 2018

USD ‘000

30 June2017

USD ‘000

Income

Fee income 10.1 14,382 13,264

Expenses

Key management personnel costs 4,740 5,456

Shari’ah supervisory board remuneration 69 72

Balances with related parties

Assets

Due from a related party 731 73


12 SEGMENTAL INFORMATION

The Company’s sole business is the provision of advisory and administrative services. Therefore the Company does not have any other reportable segments for the financial year.

13 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the price that would be received upon the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

a) In the principal market for the asset or liability, or

b) In the absence of a principal market, in the most advantageous market for the asset or liability.

The Company’s financial instruments are carried at amortised cost as follows:

30 June2018

At cost/amortised

costUSD ‘000

30 June2017

At cost/amortised

costUSD ‘000

ASSETS


Capital raise proceeds held with deposit agent 5,007 -

Receivables and other assets 413 280

Due from a related party 731 73

13,556 8,193

LIABILITIES

Accrued expenses and other liabilities 1,688 1,034

1,688 1,034

Determination of fair value and fair value hierarchy The Company uses the following hierarchy for determining and disclosing fair value of financial assets and financial liabilities:

- Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

- Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

- Level 3: Techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data.

As at 30 June 2018 and 2017, the fair values of the Company’s financial instruments approximated their carrying values.





Balances with banks represent cash and cash equivalents and are due on demand. The carrying value of these balances represents their fair value.

The recoverability of receivables were determined by management as part of impairment testing by calculating the net present values of the expected cash flows. The carrying amounts therefore approximate the fair value of these receivables.

Other liabilities are current in nature and the carrying value of these financial instruments represents their fair value.

14 CAPITAL MANAGEMENT

The objective of capital management is to ensure the Company’s ability to operate as a going concern by maintaining an appropriate capital base in line with regulatory requirements.

15 RISK MANAGEMENT

15.1 Introduction

The Company adopts an enterprise-wide approach to risk management, with proactive identification and mitigation of the risks embedded in the Company’s balance sheet and business activities. One of the primary objectives of risk management is to optimize shareholder and investor returns while maintaining the Company’s risk exposure within self-imposed parameters defined within the Company’s Board approved risk policy documents.

The overall responsibility for the implementation of a sound risk management framework lies with the Company’s senior management and the Board of Directors. The Company has established an independent Risk Management Department (RMD) that works in co-ordination with the Risk Management Committee (RMC), which is a management level committee with the objective of providing a platform for senior management input, review and approval of key aspects relating to risk management. The RMD and RMC work under the supervision of the Audit and Risk Committee (ARC), which is a board level committee delegated with certain responsibilities of risk oversight on behalf of the Board and supports the Board in the execution of its responsibilities pertaining to risk management.

15.2 Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s exposure to credit risk is limited due to minimal lending / placement activity and the fact that there are no investments in financial securities. The Company is exposed to credit risk on its bank balance and receivables. This risk is considered minimal as the bank balances are maintained in current accounts with a reputable regional bank. The receivable balances primarily represent prepayments to vendors and other receivables.

15.3 Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may also arise from an inability to realize a financial asset quickly at an amount close to its fair value. The Company’s exposure to liquidity risk is low given that the Company does not hold any investments on its balance sheet and maintains minimal balance sheet leverage. The Company has enough cash and bank balances available as of 30 June 2018 in order to discharge its financial liabilities as and when they fall due. All of the assets and liabilities as presented in the statement of financial position of the Company are of current nature with the exception of equipment.



15.4 Market risk

Market risk is the risk of losses due to adverse movements in market fundamentals such as profit rates, foreign currency exchange rates, equity markets / prices and commodity prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the risk adjusted return on capital. The Company’s exposure to market risk is low given that the Company does not hold any investments on its balance sheet, maintains minimal profit rate sensitive assets / liabilities and foreign currency net open positions (of non USD currencies that are not pegged to the USD) are also minimal.

As of 30 June 2018, the Company has no significant foreign currency exposure.

15.5 Operational risk

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or lead to financial loss. The Company minimizes the operational risk by maintaining a strong internal control environment and oversight by the Board of Directors.

16 COMMITMENTS AND CONTINGENCIES

30 June 2018

USD ‘000

30 June2017

USD ‘000

Operating lease commitments relating to rented premises

within one year 302 1,150

more than 1 year and less then five years - 288

302 1,438



OUR PEOPLE

Arcapita is defined by the quality of its people: a veteran management team with extensive experience, and a group of investment professionals with deep expertise in their respective fields.


ABDULAZIZ HAMAD ALJOMAIH Chairman of the Board, Chairman of EIC & Member of EACMr. Aljomaih is the Chairman of the Board of Directors of Arcapita Group Holdings Limited. Mr. Aljomaih has been the Head of International Investments at Aljomaih Holding Co. in Saudi Arabia since 1988. His other key positions include: member of the Board of Directors of Ittihad Etisalat (Mobily), Saudi Arabia; Dana Gas, United Arab Emirates; and Vice Chairman of Pearl Initiative (a UN initiative).

GHAZI FAHAD ALNAFISIBoard Member & Member of EACMr. Alnafisi is a Director of Arcapita Group Holdings Limited. Mr. Alnafisi is Co-Founder and Chairman of Salhia Real Estate Company K.S.C., Kuwait. His other current positions include: Chairman of Kuwait Hotel Owners Association, Kuwait; and Co-Founder and Vice Chairman of Independent Petroleum Group s.a.k., Kuwait.

ABDULRAHMAN ABDULAZIZ AL-MUHANNABoard Member & Chairman of EACMr. Al-Muhanna is a Director of Arcapita Group Holdings Limited. Mr. Al-Muhanna joined the Almarai Company in the Kingdom of Saudi Arabia in 1979 and was appointed Managing Director and a member of the board in 1997. His other board memberships include ARASCO; the publishing company Al Jazirah; and the National Committee for Biodiversity, as well as various commercial establishments in Saudi Arabia.

MAHMOOD HASHIM AL KOOHEJIBoard Member & Member of EICMr. Al Kooheji is a Director of Arcapita Group Holdings Limited. Mr. Al Kooheji is the Chief Executive Officer of Bahrain Mumtalakat Holding Company. Mr. Al Kooheji sits on the board of Gulf Air and is also a board member at McLaren Automotive Limited and McLaren Group Limited. In addition, he sits on the boards of Durrat Khaleej Al Bahrain Company and the Arab Petroleum Investment Corporation (“APICORP”), and serves the role of Governor at the Royal College of Surgeons in Ireland, Bahrain. He holds a bachelor’s degree in Mechanical Engineering from Staffordshire University and a Masters of Business Administration from Henley College of Management, Brunel University, UK.

NOORUR RAHMAN ABIDBoard Member & Chairman of ARCMr. Abid is a Director of Arcapita Group Holdings Limited. Mr. Abid is a Fellow Chartered Accountant from the Institute of Chartered Accountants in England and Wales. He has more than 35 years of experience in the profession across Europe, the Middle East and Africa. Mr. Abid spent over 30 years with Ernest & Young, joining them in 1979 and rising to become an Office Managing Partner, then the Assurance Leader for the MENA region. Mr. Abid previously served as the Chairman of the Auditing Standards Committee, and the Deputy Chairman of the Accounting and Auditing Standards Board of Accounting and Auditing Organization for Islamic Financial Institutions.

Board of Directors


KHALID JASSIM BIN KALBANBoard Member & Member of EICMr. Kalban is a Director of Arcapita Group Holdings Limited and is the Managing Director and Chief Executive Officer of Dubai Investments PJSC. His extensive experience covers the industrial, financial, investment and real estate sectors. He currently holds several prominent positions including a membership of the Board of Directors of National General Insurance PJSC and Chairmanship of Union Properties PJSC. Mr. Kalban has a degree in Business Management from the Metropolitan State College, US.

USAMA MOHAMMED AL BARWANIBoard Member & Member of ARCMr. Al Barwani is a Director of Arcapita Group Holdings Limited. Mr. Al Barwani is an Executive Director of MB Holding, a major Omani family conglomerate, and is responsible for new projects and the investments of the MB Group. He is also Managing Director of United Engineering Services, a major oil and gas, and defense manufacturing business. He is on the Board of Directors of Ahli Bank SAOG, and Chairman of Ubar Hotels and Resorts, both listed on the Muscat Securities Markets, as well as Nautilus Minerals which is listed on the Toronto Stock Exchange. He has obtained a B.Sc. in Petroleum Engineering from Tulsa University, US and an M.Sc. in Energy, Trade and Finance from City University, London.

MUSTAFA FOUAD ALI REDABoard MemberMr. Reda is a Director of Arcapita Group Holdings Limited. Mr. Reda is the General Manager of Reda Investment & Development Group, with extensive experience across various sectors including real estate, financial services, hospitality and tourism. Additionally, Mr. Reda holds a number of prominent positions across leading entities such as Member of the Board of Directors at the Mecca Chamber of Commerce & Industry, Member of the Saudi-Turkish Business Council, and Member of the Board of Directors of the Saudi Al Bilad Establishment.

ATIF AHMED ABDULMALIKChief Executive Officer, Board Member & Chairman of the Executive CommitteeMr. Abdulmalik is the Chief Executive Officer and executive member of the Board of Directors of Arcapita Group Holdings Limited. Previously, Mr. Abdulmalik was at Investcorp where he served in numerous management positions. In 2007, he was awarded The Proficiency Medal First Class by His Majesty King Hamad bin Isa Al Khalifa in acknowledgement of his outstanding contribution to the Kingdom of Bahrain. Mr. Abdulmalik obtained his BBA in Accounting, Finance and Management from Saint Edward’s University, Texas.


Arcapita’s Shari’ah Supervisory Board is fully supported by the internal Shari’ah department and other Arcapita departments. The Shari’ah department is responsible for ensuring that there is an ongoing process of reviewing and auditing of the business of Arcapita generally, including existing and new investments. The Shari’ah Supervisory Board ensures that all investments undertaken by the lines of business are structured in a manner that comply strictly with Shari’ah principles and resolve any Islamic investment issues that may arise. The Shari’ah Supervisory Board also approves the audited financial statements of Arcapita, confirming adherence to Islamic Shari’ah principles.

The Shari’ah Supervisory Board is composed of the following prominent scholars:

SHEIKH MUHAMMED TAQI USMANIChairman of Shari’ah Supervisory BoardVice President, Darul-Uloom University, Karachi, Pakistan; Member of the Islamic Fiqh Academy; Ex-Member of the Shari’ah Appellate Bench of the Supreme Court, Karachi, Pakistan; Member of the Shari’ah Supervisory Boards of a number of Islamic banks and financial institutions.

SHEIKH ESAM MOHAMED ISHAQShari’ah Supervisory Board Member Chairman of the Board, Muslim Educational Society, Bahrain; Director & Shari’ah Advisor, Discover Islam, Bahrain; Member of Board of Trustees, Al Iman Islamic School, Bahrain; Member, Accounting & Auditing Organization for Islamic Financial Institutions, Bahrain; Member of the Shari’ah Supervisory Boards of a number of Islamic banks and financial institutions.

SHEIKH DR. YOUSUF ABDULLAH AL SHUBAILYShari’ah Supervisory Board MemberSheikh Yousuf is a Member of the Shari’ah Board of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and Chairman & member of several Shari’ah Supervisory Boards of Islamic banks and financial institutions. He is a faculty member of the Higher Institute of Justice, a Member of the Saudi Fiqh Society, and he holds a master and Ph.D. in Shari’ah from Imam Mohamed Bin Saud Islamic University in Saudi Arabia.

SHEIKH MOHAMMED ISA AL JAMEAShari’ah Supervisory Board Member Sheikh Mohammed is the Director heading the Shari’ah department of the firm. Previously, he was with the Royal Bahraini Air Force. Sheikh Mohammed has a BS in Islamic Shari’ah Law from Imam Mohamed Bin Saud University, Saudi Arabia (UAE Branch), and several Shari’ah certificates and licenses in Islamic studies from different prominent scholars. He has a BS in Aerospace Engineering from Northrop University in California.

Shari’ah Supervisory Board


Senior Management

ATIF ABDULMALIKChief Executive Officer & Chairman of the Executive CommitteeAtif is a Founding Partner, Chief Executive Officer, Board Member, and Chairman of the Executive Committee for Arcapita Group. Having established Arcapita in 1997, Atif was instrumental in growing the Group’s presence beyond Bahrain to Atlanta, London and Singapore. Prior to founding Arcapita, Atif held a number of senior management positions with Investcorp. In recognition of his outstanding contribution to the Kingdom of Bahrain, in 2007 Atif was awarded The Proficiency Medal First Class by His Majesty King Hamad Bin Isa Al Khalifa. Atif holds a BBA in Accounting, Finance and Management from Saint Edward’s University, Texas.

HISHAM AL RAEEChief Operating Officer, Head of IRM & Member of the Executive CommitteeHisham is a Founding Partner, Chief Operating Officer, and a Member of the Executive Committee, for Arcapita Group, responsible for the day-to-day operations of the firm. He also serves as Head of the Investors Relationship Management team, drawing on extensive industry experience across the region and Asia. Previously, Hisham served as the Senior Director of Business Development with Reuters Middle East in Saudi Arabia for five years. He also previously worked with the Finance Department at Citibank N.A., Bahrain. Hisham received his MBA from the University of Hull, United Kingdom, and a CSD in Business Administration from the University of Bahrain.

MARTIN TANChief Investment Officer & Member of the Executive CommitteeMartin is a Founding Partner, Chief Investment Officer, and a Member of the Executive Committee at Arcapita Group. He is responsible for developing and overseeing the firm’s investment strategy and capabilities. Martin joined Arcapita in 2007, and has played a leading role in developing the firm’s private equity and real estate business. Martin has extensive international experience, having managed listed and private real estate investments across multiple geographies, including Europe, the Middle East, North America and Asia. Prior to joining Arcapita, Martin was Chief Executive Officer of CapitaLand Commercial & Integrated Development where he managed a global portfolio in excess of $7 billion. Martin started his career in the manufacturing and construction industries and obtained his MBA and Bachelor’s degrees from Washington State University.

MOHAMMED CHOWDHURYGlobal Head of Financial Management Group & Member of the Executive CommitteeMohammed is a Founding Partner, Member of the Executive Committee, and Head of Financial Management Group for Arcapita Group. As part of his role, Mohammed is responsible for overseeing the Corporate Finance, Shari’ah, Risk Management and Corporate Communications functions at Arcapita. Prior to joining Arcapita in 1998, Mohammed spent nine years working for Ernst & Young in Bahrain and KPMG in London. Mohammed is a Member of the Institute of Chartered Accountants in England and Wales, completing his training while working for KPMG in London. Mohammed is a graduate of the London School of Economics and has an MBA from the London Business School.


ARTHUR M. ROGERS

Managing Director & General CounselArt is a Managing Director and General Counsel responsible for overseeing all legal and compliance roles within the firm. Art has over 24 years of legal and business experience in private equity, venture capital, real estate, infrastructure, banking, M&A, compliance and Islamic finance. Prior to rejoining Arcapita, Art was General Counsel and Executive Vice President at Gatehouse Bank and Director, Legal at Arcapita Bank in Bahrain for eight years. Prior to that, Art was a corporate attorney at two leading law firms: Gibson, Dunn & Crutcher, and Testa, Hurwitz & Thibeault. Art holds a law degree with distinction from Emory University School of Law and a B.A. in History from Hamilton College, New York. Art is admitted to the bar in Massachusetts and Virginia.

AHMED AL SHIRAWIManaging Director & Deputy Head of Investors Relationship ManagementAhmed is a Managing Director and Deputy Head of the Investors Relationship Management team at Arcapita. He oversees the firm’s strategic investor relations in the GCC region and South East Asia. Previously, Ahmed held various positions at Arcapita including within the Financial Management Group, where he was Head of the Corporate Finance and Investor Reporting teams. Ahmed obtained his B.Sc. degree in Business Management from King’s College, London.

BRIAN HEBBManaging Director & Head of US Real EstateBrian is the Head of US Real Estate. Brian has 20 years of real estate experience, and has held various positions with Goldman Sachs, NYL Investors and Colony NorthStar, where he initiated NorthStar’s entry into the industrial real estate sector. Most recently, he formed Point Grey Partners to invest privately raised capital in industrial real estate transactions. Brian is experienced in all major property sectors, and has deep knowledge in fund management, tax structuring, and real estate development. Brian holds a Bachelor’s degree from the University of Western Ontario and an MBA from Columbia Business School.


NAEL MUSTAFAManaging Director & Head of MENA InvestmentsNael is a Managing Director and Head of MENA Investments responsible for the origination, structuring and management of MENA investments. His role also involves approaching, developing and maintaining investor relationships at institutional and HNWIs level as well as creating and developing strategic partnerships. With over 26 years of investment banking experience, Nael has covered the areas of capital markets, corporate finance as well as Shari’ah-compliant alternative investments. His experience spans wide geographic areas including North America and the Middle East. Previously, Nael was heading the capital markets activity at TAIB Bank as the General Manager of TAIB Securities, prior to that he headed the fixed income desk and derivatives desk. He later headed the Corporate Finance at SICO, leading a number of IPOs and M&A transactions. Nael is a CFA Charter holder and has an MBA from Edinburgh University.

NEIL CARTERManaging Director & Head of US Private EquityNeil is the Head of US Private Equity. Neil has 18 years of private equity experience, including nine years at Fortress Investment Group where he served the role of Senior Vice President in the Credit Funds department. In this role, Neil oversaw origination, underwriting, negotiation, and management of middle market private equity transactions. Previously, Neil gained experience in a number of high caliber firms including Goldman Sachs, Atlantic Pacific Capital, and Stern Steward & Co. Neil earned his MBA and Bachelor’s degree in Commerce from the University of Virginia, Charlottesville, US.


Management Team

CHIEF EXECUTIVE OFFICERAtif AbdulmalikChief Executive Officer Chairman of the Executive Committee

MANAGING DIRECTORSHisham Al RaeeChief Operating Officer & Head of IRM Member of the Executive Committee

Martin TanChief Investment Officer Member of the Executive Committee

Mohammed ChowdhuryHead of Financial Management Group Member of the Executive Committee

Arthur RogersGeneral Counsel

Ahmed Al ShirawiDeputy Head of the Investors Relationship Management

Brian HebbUS Real Estate

Nael MustafaHead of MENA Investments

Neil CarterUS Private Equity

DIRECTORSAnthony NambiarHuman Resources

Gana BalaratnamFinancial Control

Hafedh Al NajemFinancial Control

Len BravoUS Real Estate

Muhannad BuhindiInvestors Relationship Management

Osama Al TamimiFinancial Control

Saeed FadhlInvestors Relationship Management

Tariq HayatCorporate Management

Yousif Al AbdullaMENA Private Equity

PRINCIPALSAbdulla AlyaqoobInvestor Services Group

Adrian PeckMENA Investments

Ahmad RoshanRisk Management

Ahmed SalemInvestors Relationship Management

Amin JawadTreasury Operations

Amy DoshiLegal

Duaij Al KhalifaInvestors Relationship Management

Ebrahim Al ShroogiInvestors Relationship Management

Farooq AqeelFinancial Control

Fawzi Al NasirInvestors Relationship Management

Halah FarajMENA Investments

Hassan ShujaieAdministration

Isa Al KhalifaMENA Real Estate

Joseph MathaiFinancial Control

Mishal Al HellowInformation Technology & Public Relations

Mohamed SharifInvestors Relationship Management

Ryan DunnUS Private Equity

Syed BokhariUS Real Estate


This annual report (the “Annual Report”) contains certain “forward-looking” statements, and such statements are based on the beliefs of Arcapita, as well as on assumptions made by, and information currently available to, Arcapita. When used in this Annual Report, the words “anticipate”, “believe”, “estimate”, “expect”, “plan”, “intend”, and words or phrases of similar import, are intended to identify forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following: Arcapita’s plans, strategy, objectives or goals; Arcapita’s future economic performance or prospects; specific country, region and worldwide business environment; potential effect on future performance of certain contingencies; and assumptions underlying any such statements. These statements are inherently subject to significant business, economic, competitive, regulatory and operational uncertainties, contingencies and risks, both specific and general in nature, many of which are beyond the control of Arcapita. Any forward-looking statements are speculative in nature, and it can be expected that one or more of the assumptions underlying such statements will prove not to be accurate, and unanticipated events and circumstances may occur. Actual results and events will likely vary from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, and such variations may be material. Consequently, this Annual Report should not be regarded as a representation by Arcapita that the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements will be achieved and should not be relied on. Arcapita does not intend to update these forward-looking statements.

Note: throughout the Annual Report, $ refers to United States Dollars, unless otherwise noted.

Arcapita Investment Management B.S.C.(c)P.O. Box 1357 Manama Kingdom of Bahrain

Tel: +973 17 218333

Arcapita Investment Management US Inc.1180 Peachtree Street Atlanta, GA 30309United States of America

Tel: +1 (404) 920 9000

Arcapita Investment Advisors UK LimitedThe Shard32 London Bridge StreetLondon SE1 9SGUnited Kingdom

Tel: +44 (0)20 7824 5600

Arcapita Investment Management Singapore Pte. Ltd.24 Raffles Place#16-03 Clifford CentreSingapore 048621Republic of Singapore

Tel: +65 6513 0395

www.arcapita.com

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