C&ST/400/2013July 11, 2014

Through SVP & HOCBG, Dubai

To: Head of CCD, Head Office, and Abu Dhabi From: C&ST, CBD - Dubai

Subject: M/s Mohamed Tayyeb Khoory & Sons (Customer no. 2151121) Clearance of AFS for FYE 31.12.2013

Review of Audited Financial statements 31.12.2013

The Subject has provided audited financial statements for year ended 31.12.2013 audited by Aliott Hadi Shahid who is among Tier III of bank’s approved list of auditors. The financial statements depict combined financial position of Mohammed Tayyeb Khoory & Sons and Aikah Establishment and other Aikah group companies. The auditors have expressed an overall favorable opinion on the company’s financial performance.

Accordingly we give brief analysis of same in comparison to the financial performance for FYE 2012. 9. KEY FINANCIAL INDICATORS (ARE FINANCIALS AUDITED): Yes

Auditor: Alliot Hadi Shahid Auditor in approved list? Yes (Tier III) Last three years actual

Sr. # Whether audited or in-house Audited Audited Audited AuditedYear-end closing as of 31.12.2010 31.12.2011 31.12.2012 31.12.2013

1 Gross Revenue 362,889 370,764 387,474 372,0992 Gross Profit 73,308 82,293 75,520 84,2063 Operating Profit (15,468) (9,106) (23,028) (8,096)4 Profit Before Management fees - - - -5 Net Profit/ Loss (10,261) (4,896) (17,319) (9,352)6 Tangible Net Worth 123,926 117,545 99,995 109,7427 Debt : Equity 1.16 1.45 2.16 1.828 Working Capital 113,667 93,387 79,239 88,1809 Current Ratio 1.85 1.58 1.38 1.47

10 Receivables (days O/s) 87 88 89 10611 Inventory (days O/s) 165 170 188 16812 Trade Payables (days O/s) 23 31 35 3913 Net Cash after Operations 24,354 5,223 (29,908) 20,18214 Financing Surplus 21,466 (22,438) (41,534) 76215 End Cash Balance 10,651 14,812 11,574 3,262

9.1 ANALYSIS ON KEY INDICATORS EMANATED FROM INCOME STATEMENT - SL NO 1 TO 5[Discuss on trends in sales and profitability as indicated in above table. NO NEED TO REPEAT THE FIGURES AS THOSE ARE EVIDENT IN TABLE. STATE THE REASONS FOR CHANGE IN TREND AND ITS IMPACT]

Sales/ProfitabilityThe company’s sales slightly dropped in 2013 The company has recorded a sales figure of AED 387M as against the sales recorded for the previous year of AED 371 M with a growth of 4.5%. The registered revenue is attributed to solid brand names represented by the client in the field of engineering, automobiles and heavy equipment. The subject’s products being competitively priced and they have wide network of branches/workshops across UAE. Break up of sales is as under:

2012 2013Amount % Amount %

Local 354,417 91% 336,324 90%Overseas 33,058 9% 35,774 10%Total 387,475 100% 372,099

During the period under review the company recorded a GP of AED 75.52 M which represents GP margin of 19.49% in comparison to the previous year GP of AED 82.29 M with a GPM of 22.2% as the company’s direct costs increased to AED 311.95 M. The reduction was due to reduction in credit period and percentage of margins to benefit from receiving funds earlier without delay.

The company opened new branches in Kuwait, Bahrain, Oman and Sharjah which resulted in an increase in employees and employee costs. Therefore the operating expense of the company for the period under review stood at AED 98.54M compared to the previous year amount of AED 91.39 M reflecting an increase in absolute terms which is mainly due to the increase in staff cost,

depreciation and other administrative expenses resulting in operating loss of AED 23.02M (PY~ AED 9.10M) posted by the company. Operating expense to sales ratio showed an increase at 25.43% at the previous year’s level of 24.46% in 2011.

The company managed to achieve other income of AED 13.75 M as against AED 9.79 M in the previous year with major contribution from exchange gain of AED 3.5 M. Break up of other income as under:

2012 % 2013 %Profit on disposal of property, plant & equipment 818 6% 548 7%Exchange Gain 3,555 25% 3,283 41%Interest Income 10 1% - -Miscellaneous Income 9,375 68% 4,240 53%Total Income 13,758 100% 8,072 100%

As bank borrowings increased from AED 121.95 M to AED 162.82 M, interest expense of the company increased to AED 8 M as against AED 5.5 M in the previous year.

Consequently due to increased costs the company’s net loss increased to AED 17.31 M as against AED 4.89 M in the previous year. However, the actual loss remained at AED 3.4 M after setting aside partners remuneration of AED 4.6 M, provision for stock/ debtors at AED 3.5 M and depreciation of AED 5.8 M.

9.2 ANALYSIS ON KEY INDICATORS EMANATED FROM BALANCE SHEET - SL NO 6 TO 12(Discuss on retention of profits, leverage, working capital management viz. Trade debtors/creditors/inventory holding & their turnover for the last three years, debtors , inter-affiliate dues & inventory ageing & concentration risk analysis , existence of bad debts & slow moving stock and adequacy on provisions there-against etc LIKE BEFORE NO NEED TO QUOTE FIGURES WHATEVER IS MENTIOED IN THE TABLE).

Balance sheet

Balance sheet footing witnessed an increase from AED 288M in 2011 to AED 316 M in 2012.The increase was mainly reflected under current assets which mainly comprised of account receivables and inventory of AED 108 M and AED 160 M respectively.

On the other hand current liabilities increased from AED 160M during the year 2011 to AED 206M in 2012 mainly due to increase in overdraft (increased from AED 63M to AED 75 M) and short term financing (increased from AED 59M to AED 87 M). Balance sheet possesses satisfactory net worth which finances about 32% of the total assets (PY 41%).

Working Capital & Liquidity

Subject’s working capital has been historically carrying a positive position however over the recent years which appears to have narrowed from AED 93M in 2011 to AED 79 M in 2012 mainly due to increase in bank borrowings to generate higher sales. However present level of working capital is considered to be acceptable.

The liquidity position of the company is at acceptable level as reflected by current and quick ratios at 1.38x and 0.58x against the previous year ratios of 1.58x and 0.71x respectively.

Asset efficiency

Current assets as at 31.12.2012 marginally expanded from AED 254M to AED 285M mainly due to the enhancement in inventory and account receivables. As typical to trading organization, subject’s current assets mainly consist of inventories of AED 160M and trade receivables of AED 108M which signify the liquid nature of the current assets.

It is to be noted that against the trade receivables of AED 108M in the balance sheet, provision of AED 13M has been made for bad and doubtful debts which is considered acceptable in view of the level of outstanding receivables. Client advises that normally they allow credit period of 90-120 days while they accommodate credit period up to 150 days for certain government customers depending upon their previous experience. However receivable days for the period remained stable and stood at 89 days (PY 88 days).

Subject has provided the breakdown of receivables as at 31.12.2013 details of which are as follows:

[AED ‘000]Particular O/s as on

30.12.2012Percentage O/s as on 30.12.2013 Percentage

Less than One month 24,289 22% 32,987 31%Less than Two months 15,174 14% 17,210 16%Less than Three months 19,942 18% 17,148 16%

Four to Six months 10,503 11% 9,952 9%Above 120 days 38,212 35% 36,183 33%Total 108,119 100% 113,482 105%Provision for doubtful debts 13,237 - 5,328 -Total after provisioning 94,882 - 108,154 -

The review of above analysis reflects satisfactory position with same being evenly spread with acceptable concentration in all the areas. As informed by the customer majority of receivables are due from Govt/Semi-Govt departments hence the risk for non-collection of receivables is very minimal however as a prudent measure subject has made provisions against delayed receivables.

The customer generally carries required level inventory to support the sales, as they procure goods on the basis of the written requests received from government departments and from the existing established clients. As of BS date subject carried inventories of AED 160M(PY~ AED 135M) accordingly inventory DOH increased marginally and stood at 188 days against 171 days recorded in the previous year.

Ageing analysis of stocks as on 31.12.2013 is as follows: [AED’ 000]

Particular O/s as on 31.12.2012 Percentage O/s as on

31.12.2013 Percentage

One year/below one year 133,506 77% 105,441 79%More than one year 39,285 23% 28,028 21%Total 172,791 100% 133,470 100%Provision for slow moving goods(more than one year) 12,172 945Total after provisioning 160,619 132,524Work In progress 13 28Goods in transit - -Total Inventory 160,632 132,553

The review of above ageing of inventory reveals satisfactory position with concentration of 23% stretched over one year as of 31.12.2012 against which company had made adequate provisions of around AED 12.1M in 2012.

Short Term Borrowings & Overdraft

As of BS date short term bank borrowings increased from AED 59M 2011 to AED 87M in 2012. This is mainly due to the increase in trust receipt loans (increased from AED 38M to AED 59M), short term loans (increased from AED 7M to AED 14M). As on balance sheet date bank overdraft also increased to AED 75 M as against AED 63M in the previous year. Customer has advised that during 2012 company relied more on external financing to support the working capital needs.

Due from related parties

Balance sheet carries a portfolio of receivables due from related parties amounting to AED 12 M which accounts for the transactions related to the real estate division of the group M/s Mohammed Tayyeb Khoory Real Estate LLC. The transaction has been classified by the auditors as part of their current assets given the short term nature however as a prudent measure, we have classified them as non-current assets.

Leverage & Net worth:

Client’s networth witnessed a contraction compared to the previous year and recorded at AED 99.9M during the year 2012 against AED 117M (2011) due to the loss recorded during the year 2012. However, comfort is drawn from the fact that net worth finances more than 32% of the assets. Meanwhile subject’s debt to equity ratio as of 31.12.2012 stood at 2.16x (PY~1.45x) breaching the leverage covenant of 1.5x mainly due to the increased borrowings as of BS date as explained earlier to fund increased purchases and generate higher sales.

Management is taking steps to curtain losses by increasing sales and reducing overheads to improve earnings. They partners who are also high net worth individuals are also planning to pump in funds, if required so as to strengthen the liquidity of the company.

ConclusionThe overall financial performance of the company as per the audited financial statements for the period 31.12.2012 could be considered acceptable given the strong ownership structure of the company whose promoters are well established UAE businessmen whose combined net worth stands over AED 700 M.

Ahmed Mansour Ola Madkour Jaikishan Chainani Credit Analyst Account Manager AVP & Relationship Manager

COMMENTS / RECOMMENDATIONS OF SVP & HOCBD-DUBAI REGION:

COMMENTS BY THE CORPORATE CREDIT DIVISION [CCD]:

Customer Name: Mohammed Tayyeb Khory & Sons Ref: C&ST/400/2013 July 9, 2014