MERRILL LYNCH KINGDOM OF SAUDI ARABIA COMPANY ......Merrill Lynch Kingdom of Saudi Arabia Company (A...

MERRILL LYNCH KINGDOM OF SAUDI ARABIA COMPANY

(A Saudi Closed Joint Stock Company)

FINANCIAL STATEMENTS

AND INDEPENDENT AUDITOR’S REPORT

FOR THE YEAR ENDED 31 DECEMBER 2019

MERRILL LYNCH KINGDOM OF SAUDI ARABIA COMPANY


FINANCIAL STATEMENTS

AND INDEPENDENT AUDITOR’S REPORT

FOR THE YEAR ENDED 31 DECEMBER 2019

Index Pages

Independent auditor's report

1 - 2

Statement of income

3

Statement of comprehensive income 4

Statement of financial position

5

Statement of changes in shareholders’ equity

6

Statement of cash flows

7

Notes to the financial statements

8 – 28

PricewaterhouseCoopers, License No. 25,

Kingdom Tower, P.O. Box 8282, Riyadh 11482, Kingdom of Saudi Arabia

T: +966 (11) 211-0400, F: +966 (11) 211-0401, www.pwc.com/middle-east

Independent auditor’s report to the shareholders of Merrill Lynch Kingdom of Saudi Arabia Company (A Saudi Closed Joint Stock Company)

Our opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Merrill Lynch Kingdom of Saudi Arabia Company (the “Company”) as at December 31, 2019, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards, that are endorsed in the Kingdom of Saudi Arabia, and other standards and pronouncements issued by the Saudi Organization for Certified Public Accountants (“SOCPA”). What we have audited The Company’s financial statements comprise:

• the statement of income for the year ended December 31, 2019;

• the statement of comprehensive income for the year then ended;

• the statement of financial position as at that date;

• the statement of changes in shareholders’ equity for the year then ended;

• the statement of cash flows for the year then ended; and

• the notes to the financial statements, which include a summary of significant accounting policies.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing, that are endorsed in the Kingdom of Saudi Arabia. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Company in accordance with the code of professional conduct and ethics, endorsed in the Kingdom of Saudi Arabia, that are relevant to our audit of the financial statements and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Responsibilities of the management and those charged with governance for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by SOCPA, and the applicable requirements of the Regulations for Companies and the Company’s By-Laws, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The board of directors are responsible for overseeing the Company’s financial reporting process.

Merrill Lynch Kingdom of Saudi Arabia Company

(A Saudi Closed Joint Stock Company) Statement of changes in shareholders’ equity (All amounts in Saudi Riyals unless otherwise stated)

6

Share

capital

Statutory

reserve

Retained

earnings

Total

equity

At 1 January 2018 143,000,000 5,046,797 16,445,213 164,492,010

Changes on initial application of IFRS 9 - - (84,947) (84,947)

At 1 January 2018 (restated) 143,000,000 5,046,797 16,360,266 164,407,063

Net income for the year - - 11,820,805 11,820,805

Other comprehensive income - - - -

Total comprehensive income - - 11,820,805 11,820,805

Transfer to statutory reserve - 1,182,081 (1,182,081) -

At 31 December 2018 143,000,000 6,228,878 26,998,990 176,227,868

Net income for the year - - 39,864,868 39,864,868

Other comprehensive income - - (485,524) (485,524)

Total comprehensive income - - 39,379,344 39,379,344

Transfer to statutory reserve - 3,986,487 (3,986,487) -

At 31 December 2019 143,000,000 10,215,365 62,391,847 215,607,212

The notes on pages 8 to 28 form an integral part of these financial statements.



Statement of cash flows

(All amounts in Saudi Riyals unless otherwise stated)

7

Year ended 31 December

Notes 2019 2018 Cash flows from operating activities Profit before taxation 50,695,091 14,897,576 Adjustments for:

Depreciation 8,12 1,886,390 312,962 Provision for employees' end of service benefits 15 647,390 1,034,830 Interest expense 18 6,102,293 58,152 Reversal of allowance for expected credit losses on cash

at banks

(9,985)

(7,635) Loss of disposal of property and equipment 21,174 -

Movements in working capital: Trade and client receivables (323,817) 4,925,267 Due from related parties (3,723,189) 1,104,302 Prepayments and other receivables (1,013,405) (2,174,710)

Trade and client payables 321,493 (4,914,010) Due to related parties 9,346,306 2,553,795 Accrued expenses and other payables 4,185,643 386,834

Income tax paid 13.2 (5,362,610) - Employees' end of service benefits paid 15 (129,435) (59,247)

Net cash generated from operating activities 62,643,338 18,118,116

Cash flows from investing activity Purchase of property and equipment 12 (4,970,155) (347,843)

Net cash outflow from investing activity (4,970,155) (347,843)

Cash flows from financing activities Interest expense

(6,046,340) (58,152)

Principal payments (864,977) -

Net cash outflow from financing activities (6,911,316) (58,152)

Net increase in cash and cash equivalents 50,761,867 17,712,121 Cash and cash equivalents at the beginning of the year 184,082,330 166,370,209

Cash and cash equivalents at end of the year 9 234,844,197 184,082,330

During the year ended 31 December 2019, the principal non-cash transactions relates to the recognition of lease liability

and right-of-use asset amounting to SAR 846,563 and SAR 1,465,425 respectively following the adoption of IFRS 16.

The notes on pages 8 to 28 form an integral part of these financial statements.

Merrill Lynch Kingdom of Saudi Arabia Company (A Saudi Closed Joint Stock Company) Notes to the financial statements for the year ended 31 December 2019 (All amounts in Saudi Riyals unless otherwise stated)

8

1. General information

Merrill Lynch Kingdom of Saudi Arabia Company (the “Company” or “MLKSA”) is a Saudi Closed Joint Stock Company

registered in the Kingdom of Saudi Arabia (“KSA”) under Commercial Registration number 1010245128 issued in Riyadh

on Safar 29, 1429H (corresponding to 7 March 2008). Its immediate holding company is Bank of America Global Holdings

LLC (Parent Company), a company incorporated in the United States of America. The ultimate holding company is Bank

of America Corporation ("BAC"), a company organised and existing under the laws of the State of Delaware in the United

States of America.

The Company is licensed by the Capital Market Authority ("CMA") under license number 07066-37 dated 26 Jumadah Al-

Awwal 1428H (corresponding to 12 June 2007) and is a participant in the Tadawul. The registered office of the Company

is located at Kingdom Tower 22nd floor, P.O. Box 90534, Riyadh 11623, Kingdom of Saudi Arabia.

The principal activities of the Company are to engage in dealing activities in its capacity as an agent and principal and to

undertake underwriting, arranging, advisory and custody services for securities.

2. Basis of preparation

2.1. Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”),

that are endorsed in the Kingdom of Saudi Arabia, and other standards and pronouncements issued by the Saudi

Organization for Certified Public Accountants (“SOCPA”).

2.2. Basis of measurement

The financial statements have been prepared on the historical cost basis using the accrual basis of accounting and the

going concern concept except for the provision for employees' end of service benefits which is carried at present value

computed using actuarial techniques.

2.3. Functional and presentation currency

The financial statements have been presented in Saudi Riyals (“SAR”) as this is the functional and presentational currency

of the Company. Foreign currency transactions are translated into the functional currency using the exchange rates

prevailing at the dates of the transactions. All financial information presented in Saudi Riyals has been rounded to the

nearest Saudi Riyal.

2.4. Critical accounting estimates and judgments

The preparation of financial statements in conformity with IFRS requires the use of certain critical estimates and judgments

that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgment in the

process of applying the Company’s accounting policies. Such estimates and judgments are continually evaluated and are

based on historical experience and other factors, including expectations of future events that are believed to be reasonable

under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting

accounting estimates will, by definition, vary from the related actual results. There are no areas involving a higher degree

of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements.

2.5. Application of new and revised International Financial Reporting Standards (“IFRS”)

2.5.1. New and revised IFRS applied on the financial statements

The following new and revised IFRS, which became effective for annual periods beginning on or after 1 January 2019,

have been adopted in these financial statements. The application of these revised IFRSs, except where stated, have not

had any material impact on the amounts reported for the current and prior years.

IFRS 16 Leases:

The Company has applied IFRS 16 Leases for the first time with a date of initial application of 1 January 2019. IFRS 16

addresses the definition of a lease, and sets out the principles for the recognition, measurement, presentation and

disclosure of leases for both parties to a contract. The standard replaces IAS 17 - Leases, and related interpretations.

IFRS 16 introduces significant changes to the lessee accounting by removing the distinction between operating and

finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement.


(A Saudi Closed Joint Stock Company) Notes to the financial statements for the year ended 31 December 2019 (continued) (All amounts in Saudi Riyals unless otherwise stated)

9

2. Basis of preparation (continued)

2.5 Application of new and revised International Financial Reporting Standards (“IFRS”) (continued)

2.5.1 New and revised IFRS applied on the financial statements (continued)

IFRS 16 Leases (continued):

In accordance with the transition provisions in IFRS 16 the new rules have been adopted using simplified approach without

any impact on retained earnings as at 1 January 2019. Comparatives for the 2018 financial year have not been restated.

The impact of adoption of the leasing standard and the new accounting policies affected by this new standard is disclosed

in Note 2.6.

Amendments to IAS 19, ‘Employee benefits’ on plan amendment, curtailment or settlement: These amendments require an entity to:

• use updated assumptions to determine current service cost and net interest for the reminder of the period after a plan amendment, curtailment or settlement; and

• recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling.

There is no material impact on the financial statements of the Company from the adoption of this new standard on 1

January 2019.

Amendments to IFRS 9, ‘Financial instrument’: This amendment confirmed two points:

• reasonable compensation for prepayments can be both negative or positive cash flows when considering whether a financial asset solely has cash flows that are principal and interest

• when a financial liability measured at amortised cost is modified without resulting in de-recognition, a gain or loss should be recognised immediately in profit or loss. The gain or loss is calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. This means that the difference cannot be spread over the remaining life of the instrument which may be a change in practice from IAS 39.

There is no material impact on the financial statements of the Company from the adoption of above amendment on 1 January 2019. IFRIC 23, ‘Uncertainty over Income Tax Treatments’: The interpretation address the determination of taxable profit (tax loss) tax bases, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers:

• Whether tax treatments should be considered collectively or separately;

• Assumptions for taxation authorities;

• The determination of taxable profit (tax loss), tax bases, unused tax losses, and tax rates; and

• The effect of changes in facts and circumstances. There is no material impact on the financial statements of the Company from the adoption of above interpretation on 1 January 2019. 2.5.2. New and revised IFRS issued but not yet effective and not early adopted

The Company has not yet applied the following new standards, amendments and interpretations that have been issued

but are not yet effective:

Amendments to IAS 1 and IAS 8 on the definition of material (Effective for annual periods beginning on or after

1 January 2020):

These amendments to IAS 1, ‘Presentation of financial statements’, and IAS 8, ‘Accounting policies, changes in accounting estimates and errors’, and consequential amendments to other IFRSs:

• use a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting;

• clarify the explanation of the definition of material; and

• incorporate some of the guidance in IAS 1 about immaterial information.

Management does not anticipate that the adoption of the above amendments on 1 January 2020 will have a material

impact on the Company’s financial statements.



10


2.6. Changes in accounting policies

As indicated in Note 2.5.1 above, the Company has adopted IFRS 16 Leases from 1 January 2019 and has not restated

comparatives for 2018 reporting period, as permitted under the specific transition provisions in the standard. The

reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance

sheet on 1 January 2019. The Company’s lease exposure relate to premises building.

From 1 January 2019, leases are recognised as a right-of-use asset and corresponding liability at the date of which the

leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost.

The finance cost is charged to statement of income over the lease period so as to produce a constant periodic rate of

interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of

the asset's useful life or the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net

present value of the following lease payments:

(i) fixed payments (including in-substance fixed payments), less any lease incentives receivable

(ii) amounts expected to be payable by the lessee under residual value guarantees

(iii) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted based on the incremental borrowing rate determined by the Company, being the rate

that the lessee would have to borrow the funds necessary to obtain an asset of similar value in a similar economic

environment with similar terms and conditions.

Right-of-use assets are measured at cost comprising the following:

(i) the amount of the initial measurement of lease liability;

(ii) lease payments made at or before the commencement date less any lease incentives received;

(iii) initial direct costs.

On adoption of IFRS 16, the Company recognised lease liability within “Accrued expense and other payables” in relation

to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. This liability

was measured at the present value of the remaining lease payments, discounted using the Company’s incremental

borrowing rate as of 1 January 2019. The weighted average lessee’s incremental borrowing rate applied to the lease

liability on 1 January was 3.87%.

Adjustments recognised on adoption of IFRS 16 1 January 2019

Operating lease commitments disclosed as at 31 December 2018 3,329,650

(Less): short-term leases recognised on a straight-line basis as expense (1,593,883)

Long-term operating lease commitments 1,735,767

Discounted using the Company’s incremental borrowing rate of 3.87% (80,180)

Lease liability recognised as at 1 January 2019 1,655,587

The associated right-of-use asset was recognised within “Property and equipment, net” and measured at the amount

equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease

recognised in the balance sheet as at 31 December 2018.The prepayments were reduced by SAR 647,224. There is no

impact on retained earnings on 1 January 2019 as a result of the IFRS 16 adoption.

Practical expedients applied

In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard;

(i) the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

(ii) the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as

short-term leases;

(iii) the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;

(iv) the use of hindsight in determining the lease term where the contract contains options to extend or terminate the

lease; and

(v) reliance on previous assessment on whether these are onerous.



11


2.6 Changes in accounting policies (continued)

The change in accounting policy affected the following items in the balance sheet on 1 January 2019

Increase / (Decrease)

Property and equipment, net 2,302,811

Prepayments, deposit and other receivables (647,224)

Accruals, provisions and other payables 1,655,587

2.7. Summary of significant accounting policies

The significant accounting policies adopted in the preparation of these financial statements are set out below. Where

policies are applicable only after or before 1 January 2019, those policies have been particularly specified.

2.7.1. Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment, if any. Historical

cost includes expenditure that are directly attributable to the acquisition of assets. Depreciation is provided on a straight

line basis at rates considered appropriate to reduce the cost of the assets to net realisable value over their estimated

economic lives, which are as follows:

Leasehold improvements shorter of assets useful life or lease term of the assets

Furniture and fittings 2 years

Computer equipment 2 years

Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in the

statement of income. Maintenance and normal repairs which do not materially extend the estimated useful life of an asset

are charged to the statement of income as and when incurred. Major renewals and improvements, if any, are capitalised

and the assets so replaced are retired.

Capital work in progress is carried at cost, less any recognised impairment loss. These assets are classified to the

appropriate categories of property and equipment when completed and ready for their intended use. Depreciation of these

assets, on the same basis as other property and equipment, commences when the assets are ready for their intended

use.

With the implementation of IFRS 16, the detailed impact from the adoption of the standard on the financial statements

has been disclosed in Note 2.6.

2.7.2. Trade and client receivables and payables

Trade and client receivables and payables represent amounts owed to or by the Company relating to executed

transactions on behalf of clients over a two day settlement period. The amount represents the value of the executed

transaction and are stated net of commissions.

2.7.3. Accrued expenses and other payables

Liabilities are recognised for amounts to be paid for goods purchased and services received, whether or not billed to the

Company.

2.7.4. Provisions

Provisions are recognised when the Company has a present legal or constructive obligation as a result of a past event; it

is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and the

amount can be reliably estimated.

2.7.5. Financial instruments

(a) Classification

Financial assets of the Company consist of cash and cash equivalents, trade and client receivables, due from related

parties and other receivables. Financial liabilities consist of trade and client payables, due to related parties and accrued

expenses and other payables.



12


2.7. Summary of significant accounting policies (continued)

2.7.5 Financial instruments (continued)

(b) Recognition

All financial assets are recognised and derecognised on trade date when the purchase or sale of a financial asset is under

a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned.

Financial assets are initially measured at fair value net of transaction costs incurred. All recognised financial assets are

subsequently measured in their entirety at amortised cost. Financial liabilities are recognised initially at fair value net of

transaction costs incurred and are subsequently stated at amortised cost, using the effective interest rate method.

(c) Derecognition

The Company derecognises a financial asset when contractual rights to the cash flows from the asset expire, or it transfers

the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks

and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created

or retained by the Company is recognised as a separate asset or liability.

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

(d) Impairment

The Company assesses on a forward-looking basis the expected credit losses (“ECL”) associated with its financial assets

carried at amortised cost. The Company recognises a loss allowance for such losses at each reporting date. The

measurement of ECL reflects:

• An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;

• The time value of resources; and

• Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

The financial assets of the Company that are subjected to ECL review include cash and cash equivalents, due from

related parties and other receivables. ECL on cash and cash equivalents and due from related parties are assessed

based on the above staging criteria.

ECL on cash and cash equivalents is Saudi Riyals 67,327 (2018: Saudi Riyals 77,312). As at December 31, 2019 and

2018, there is no ECL provision required on due from related parties.

For trade and client receivables, the Company applied the simplified approach permitted by IFRS 9, which requires

expected lifetime losses to be recognised from initial recognition of the receivables. Under this approach, the Company

measures the loss allowance for accounts receivable at an amount equal to lifetime ECL. The ECL on accounts receivable

are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s

current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry

in which the debtors operate, and an assessment of both the current as well as the forecast direction of conditions at the

reporting date. As at 31 December 2019 and 2018, there is no ECL provision required on receivable balances.

The Company writes off an account receivable when there is information indicating that the debtor is in severe financial

difficulty and when there is no realistic prospect of recovery.

Expected credit loss (ECL) measurement

Definition of default:

The Company considers a financial asset to be in default when:

• the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realising security (if any is held); or

• past due more than 90 days on any material credit obligation to the Company.

In assessing whether a borrower is in default, the Company considers indicators that are:

• qualitative - e.g. breaches of covenant;

• quantitative - e.g. overdue status and non-payment on another obligation of the same issuer to the Company; and

• based on data developed internally and obtained from external sources.

Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to

reflect changes in circumstances.

The definition of default largely aligns with that applied by the Company for regulatory capital purposes.



13



2.7.5 Financial instruments (continued)

(d) Impairment (continued)

Incorporation of forward looking information

The Company incorporates forward-looking information into both its assessment of whether the credit risk of an instrument

has increased significantly since its initial recognition and its measurement of ECL. Based on advice from the Risk

Committee of Parent Company and economic experts and consideration of a variety of external actual and forecast

information, the Company formulates a ‘base case’ view of the future direction of relevant economic variables as well as

a representative range of other possible forecast scenarios. This process involves developing additional economic

scenarios and considering the relative probabilities of each outcome. External information includes economic data and

forecasts published by governmental bodies, monetary authorities, supranational organisations, and selected private-

sector and academic forecasters.

Measurement of ECL:

The key inputs into the measurement of ECL are the term structure of the following variables:

• probability of default (PD);

• loss given default (LGD);

• exposure at default (EAD). 2.7.6. Offsetting

Financial assets and liabilities are offset and are reported net in the statement of financial position when there is a legally

enforceable right to set off the recognised amounts and when the Company intends to settle on a net basis, or to realise

the asset and settle the liability simultaneously.

2.7.7. Foreign currency translations

(a) Reporting currency

The functional and presentational currency of the Company is Saudi Riyal. The financial statements values are presented

in Saudi Riyals, unless otherwise indicated.

(b) Transactions and balances

Foreign currency transactions are translated into Saudi Riyals using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income.

2.7.8. Impairment of non-current assets Non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s fair value less cost to sell and value in use. Non-current assets, other than goodwill, that suffered impairment are reviewed for possible reversal of impairment at each reporting date. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but the increased carrying amount should not exceed the carrying amount that would have been determined, had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately in the statement of income. Impairment losses recognised on goodwill are not reversible.

2.7.9. Cash and cash equivalents

Cash and cash equivalents comprise demand deposits with banks that are readily convertible into known amounts of

cash; which are subject to an insignificant risk of changes in value and which have a maturity of three months or less at

acquisition, which are available to the Company without any restrictions.

2.7.10. Assets held in a trust or in a fiduciary capacity

Assets held in trust or in a fiduciary capacity are not treated as assets of the Company and are accordingly treated as off-

balance sheet items.



14



2.7.11. Income and deferred tax

In accordance with the regulations of the General Authority of Zakat and Tax ("GAZT"), the Company is subject to income

tax. Income tax expense comprises current and deferred tax which is recognised in the statement of income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively

enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred taxation is recognised in respect of temporary differences between the carrying amounts of assets and liabilities

for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates

that are expected to be applied to temporary differences when they reverse, based on laws that have been enacted or

substantively enacted by the reporting date.

Deferred tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent that it is

probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed

at each reporting date and are reduced to the extent it is no longer probable that the related tax benefit will be utilised.

2.7.12. Withholding tax

The Company withholds taxes on transactions with non-resident parties and on dividends paid to foreign shareholders in

accordance with GAZT regulations.

2.7.13. Employees' end of service benefits

The Company operates an end of service benefit plan as required by KSA Labour Law which, amongst other factors, is

based on most recent salary and allowances, and number of service years. The valuation of the Company’s obligations

under the plan are based on the projected unit credit method. The cost of the employment benefit is recognized

immediately in statement of income. Remeasurement gains and losses arising from experience adjustments and changes

in actuarial assumptions, if any, are recognised in the period in which they occur directly in other comprehensive income.

End of service payments are based on the employees’ final salaries and allowances and their cumulative years of service,

in compliance with KSA Labour law.

2.7.14. Share-based payments

BAC grants equity based payment awards to employees of the Company under various incentive schemes. For most

awards, expense is generally recognised proportionately over the vesting period net of estimated forfeitures, unless the

employee meets certain retirement eligibility criteria. For awards to employees that meet retirement eligibility criteria, BAC

accrues the expense in the year prior to grant. For employees that become retirement eligible during the vesting period,

BAC recognises expense from the grant date to the date on which the employee becomes retirement eligible, net of

estimated forfeitures.

As this is a group share based payment arrangement, all awards are treated by the Company as equity settled share

based payment plans and are measured based on the fair value of those awards at grant date.

The fair value determined at the grant date is expensed over the vesting period, based on the Company’s estimate of the

number of shares that will eventually vest. The Company has entered into a chargeback agreement with BAC under which

it is committed to pay BAC the market value at grant date as well as subsequent movements in fair value of those awards

to BAC at the time of delivery to its employees.



15



2.7.15. Revenues

The Company recognises revenue under IFRS 15 using the following five steps model:

Step 1: Identify the

contract with customer

A contract is defined as an agreement between two or more parties that creates enforceable

rights and obligations and sets out the criteria for every contract that must be met.

Step 2: Identify the

performance obligations

A performance obligation is a promise in a contract with a customer to transfer a good or

service to the customer.

Step 3: Determine the

transaction price

The transaction price is the amount of consideration to which the Company expects to be

entitled in exchange for transferring promised goods or services to a customer, excluding

amounts collected on behalf of third parties.

Step 4: Allocate the

transaction price

For a contract that has more than one performance obligation, the Company allocates the

transaction price to each performance obligation in an amount that depicts the amount of

consideration to which the Company expects to be entitled in exchange for satisfying each

performance obligation.

Step 5: Recognise

revenue

The Company recognises revenue (or as) it satisfies a performance obligation by

transferring a promised good or service to the customer under a contract.

Based on the above five steps the revenue recognition policies for the various revenue stream are as follow:

Fee income

Fee income consists of charges made to remunerate the Company for services provided. Service fee income is

recognised on an accruals basis when the service is provided.

Brokerage income, net

Brokerage income is recognised when the related transactions are executed by the customers at the price agreed in the

contract with the customers, net of discounts and rebates and fees. The performance obligation of the Company is

satisfied when the customer carries out the transaction, which triggers immediate recognition of the revenue, as the

Company will have no further commitments.

Advisory fee income

Advisory fee income includes retainer fees which are recognised on a straight-line basis over the period of the underlying

contractual agreement with the customer and represent a stand-ready obligation to provide unlimited services during the

period of the agreement as and when requested by the client. During the year 2019, the advisory fee income is netted off

with sub-underwriting fee based on the underwriting agreement with Merrill Lynch International. Refer to Note 6.

2.7.16. Lease liability

Accounting policy applied until 31 December 2018

Rental payments under operating leases are charged to the statement of income on a straight line basis over the lease

term.

Accounting policy applied from 1 January 2019

The Company accounting policies are disclosed in Note 2.6.



16



2.7.17. Contingent liabilities

(a) Contingent liabilities

These are possible obligations arising from past events whose existence will be confirmed only on the occurrence or non-

occurrence of one or more uncertain future events not wholly within the control of the Company; or all present obligations

arising from past events but not recognised because: (i) it is not probable that an outflow of resources embodying

economic benefits will be required to settle the obligation, or (ii) the amount of the obligation cannot be measured with

sufficient reliability. These are assessed at each reporting date and disclosed in the Company's financial statements under

contingent liabilities.

(b) Contingent assets

These are possible assets arising from past events and whose existence will be confirmed only by the occurrence or non-

occurrence of one or more uncertain future events not wholly within the control of the Company. These are assessed at

each reporting date and disclosed in the financial statements under contingent assets.

2.7.18 Value added tax

The Company is subject to VAT in accordance with the regulations in the Kingdom of Saudi Arabia. Output VAT related

to revenue is payable to tax authorities on the earlier of (a) collection of receivables from customers or (b) delivery of

services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax

authorities permit the settlement of VAT on a net basis. VAT related to sales/services and purchases is recognised in the

statement of financial position on a gross basis and disclosed separately as an asset and a liability. Where provision has

been made for ECL of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT.

VAT that is not recoverable is charged to the statement of income as expense.

3. Risk management

Legal entity governance

BAC has established a risk governance framework (the “Risk Framework”) which serves as the foundation for consistent

and effective management of risks facing BAC and its subsidiaries (including the Company). The Risk Framework applies

to all the employees. It provides an understanding of the Company’s approach to risk management and each employee’s

responsibilities for managing risk. All employees must take ownership for managing risk well and are accountable for

identifying, escalating and debating risks facing the Company.

The following are the five components of the Company’s risk management approach:

• Culture of Managing Risk Well;

• Risk Appetite and Risk Limits;

• Risk Management Processes;

• Risk Data Management, Aggregation and Reporting; and

• Risk Governance

Focusing on these five components allows effective management of risks across the seven key types of risk faced by

MLKSA, namely market, credit, liquidity, reputational, strategic, compliance and operational risk.

Set out below is a summary of the Company's approach to each of the risk types.

Market risk

Market Risk Definition

Market risk is the risk that changes in market conditions may negatively impact earnings, including adversely impacting

the value of assets or liabilities. MLKSA offers access to Tadawul on a predominantly agency basis to local clients

domiciled within the Gulf Co-operation Council as well as stock execution for Merrill Lynch International and Bank of

America, National Association. MLKSA also provides underwriting on primary issuances executed on the Tadawul

exchange, where any risk will be sub-underwritten by Merrill Lynch International.

Market Risk Management

The Global Markets division of BAC seeks to run its business on a globally consistent basis. This means that the market

risks assumed by Global Markets are identified, measured and controlled on a consistent basis irrespective of the location

in which they are taken and booked. Market Risk Management in MLKSA is a decentralized process with centralized

oversight. To be effective, all personnel involved in risk related activities are an active part of the risk management process

and regular reporting provides transparency across front line units (“FLU”), management and Board.



17

3. Risk management (continued)

Market risk (continued)

Market risk is composed of commission rate risk and currency risk.

Commission rate risk: Commission rate risk is the exposure to various risks associated with the effect of fluctuations in

the prevailing commission rates on the Company's financial position and cash flows. The commission rates are fixed as

per the agreement with the customers and thus the Company does not have any significant commission rate risk.

Currency risk: Currency risk arises from the possibility that fluctuations in foreign exchange rates will affect the value of

financial instruments and cash flows. The Company's foreign currency transactions are primarily denominated in US

Dollars for which the exchange rate is pegged to the Saudi Riyal and exposures in other foreign currencies are not

significant.

Credit risk

Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations.

Credit risk management: The Company manages credit risk to a counterparty based on their risk profile, which includes

assessing repayment sources, underlying collateral (if any), and the expected effects of the current and forward-looking

economic environment on the borrowers or counterparties. Underwriting, credit management and credit risk limits are

proactively reassessed as a counterparty’s risk profile changes.

Credit risk management includes the following processes:

• Credit origination

• Portfolio management

• Loss mitigation activities

These processes create a comprehensive and consolidated view of the Company’s credit risks, thus providing executive

management with the information required to guide or redirect FLU and certain legal entity strategic plans, if necessary.

As BAC’s exclusive broker/dealer in Saudi Arabia, the Company is focused on its securities activities which account for

the majority of its credit exposure.

Securities activities: In the normal course of business, the Company executes and settles various client securities transactions. This activity may expose the Company to counterparty default risk arising from the failure of customers or counterparties to satisfy their obligations giving rise to counterparty credit exposure. As at 31 December 2019 and 2018, cash and cash equivalents, trade and client receivables, due from related parties and other receivables are recoverable in the ordinary course of business. Cash is placed with local and foreign banks with sound credit ratings. The table below shows the maximum exposure to credit risk for the relevant components of the statement of financial position:

Notes 2019 2018

Cash and cash equivalents 9 234,776,870 184,005,018 Trade and client receivables 10 966,685 642,868 Due from related parties 17.1 6,041,062 2,317,873 Other receivables (excluding prepayments) 11 4,047,535 2,414,342 245,832,152 189,380,101

Trade receivables, due from related parties and other receivables were neither past due nor impaired at the statement of financial position date and are monitored by management. At 31 December 2019, Moody’s rating of the Saudi British Bank and Bank of America NA London Branch in which cash at bank is held is P-1 (2018: P-1). Credit quality analysis

The following table sets out the credit analysis for financial assets as at 31 December 2019.

Financial assets Investment

grade

Non-investment rated Unrated Total

Cash and cash equivalents 234,776,870 - - 234,776,870 Trade and client receivables - - 966,685 966,685 Due from related parties 3,968,895 - 2,072,167 6,041,062 Other receivables (excluding prepayments) 3,887,711 - 159,824 4,047,535

242,633,476 - 3,198,676 245,832,152



18

3. Risk management (continued) Credit Risk (continued) The following table sets out the credit analysis for financial assets as at 31 December 2018.

Financial assets Investment

grade

Non-investment rated

Non-investment unrated Total

Cash and cash equivalents 184,005,018

-

-

184,005,018 Trade and client receivables -

-

642,868

642,868

Due from related parties -

-

2,317,873

2,317,873 Other receivables (excluding prepayments) - - 2,414,342 2,414,342

184,005,018

-

5,375,083

189,380,101

Inputs, assumptions and techniques used for estimating impairment

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and expert credit assessment and including forward-looking information. The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by comparing: • the remaining lifetime probability of default (PD) as at the reporting date; • the remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure

(adjusted where relevant for changes in prepayment expectations). Loss allowance

Cash and cash equivalents 31 December 2019

12 month ECL

Life time ECL

not credit

impaired

Lifetime ECL

credit impaired Total

Carrying amount 234,844,197 - - 234,844,197

Expected Credit Loss (67,327) - - (67,327)

234,776,870 - - 234,776,870

Cash and cash equivalents 31 December 2018

12 month ECL

Life time ECL not

credit impaired

Lifetime ECL

credit impaired Total

Carrying amount 184,082,330

-

-

184,082,330

Expected Credit Loss (77,312)

-

-

(77,312)

184,005,018

-

-

184,005,018

Operational risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.

Process risk is the risk that a predetermined process necessary to conduct business does not function properly or leads

to undesired results. People risk is the risk that business objectives will not be met due to human resource deficiencies

(e.g., improper conduct, inadequate staffing). Systems risk is the risk that arises from systems and / or tools that are

deficient, unstable or overly complex for the intended use and are key to conducting BAC’s activities. External events risk

is the risk that arises from factors outside of BAC’s span of control.

Operational risks are associated with the following seven operational loss event categories: internal fraud; external fraud;

employment practices and workplace safety; clients, products and business practices; damage to physical assets;

business disruption and systems failures; and execution, delivery and process management.



19

3. Risk management (continued) Operational Risk (continued)

Operational risk management: Since operational risk is inherent in every activity across the enterprise, BAC relies on

all employees to conduct themselves properly, contribute to an effective internal control environment and manage

operational risk within their roles.

Operational risk must be managed by all employees as part of their day-to-day activities. FLU and Control Functions

("CF") are responsible for monitoring, assessing and testing the effectiveness of controls, while continuing to identify,

escalate, debate and report operational risks. Independent risk management teams actively oversee the FLUs / CFs to

monitor adherence to the program and identify, advise and challenge operational risks. Consistent operational risk

management across all legal entities within BAC globally is supported through the implementation of the Operational Risk

Management - Enterprise policy and the supporting standards, and adherence to the operational risk management

program.

A key element of the program is the Company’s Risk Self-Assessment (“RSA”) which captures the operational exposures

faced by the Company, and entails: ongoing identification, measurement, mitigation, monitoring, reporting and escalation

of applicable current and emerging operational risk and causes. In addition, other operational risk management processes

are in place such as review and reporting of internal and external operational loss data and the execution of scenario

analysis. Scenarios are targeted to identify plausible, low-frequency, high-severity operational loss events. Risk reduction

and mitigation activities are developed and enacted when potential operational risk losses are assessed or control gaps

identified.

Liquidity risk

Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support

the businesses and customers, under a range of economic conditions.

Liquidity risk management: Each of the FLU’s are accountable for managing liquidity risk by establishing appropriate

processes to identify, measure, monitor and control the risks associated with their activities. Global Risk Management

(“GRM”) provides independent oversight and supervision of FLU activities, an independent view of the liquidity risk of FLU

activities and assesses the effectiveness of the MLKSA’s liquidity risk management processes.

The MLKSA Liquidity Risk Policy is owned by the MLKSA Board and establishes the overarching governance, controls

and risk management practices to monitor and manage liquidity risk across MLKSA. In certain jurisdictions, such as Saudi

Arabia, liquidity management responsibilities are undertaken by local finance and management teams, who consult with

Corporate Treasury and GRM. MLKSA has an uncommitted funding line with Merrill Lynch International that it may draw

down on to prevent liquidity risk and a Guarantee Letter from Saudi British Bank to further support MLKSA’s trading

activity. Regular liquidity risk reports are sent to the MLKSA Board and Senior Management.

Notes 2019 2018 Due within 1 year

Trade and client payables 10 960,379 638,886 Due to related parties 17.1 16,330,263 6,983,957 Accrued expenses and other payables 14 8,905,919 3,873,713 Income tax payable 13.2 7,942,968 2,809,581

34,139,529 14,306,137

Reputational risk

Reputational risk is the potential that negative perceptions of BAC’s conduct or business practices will adversely affect its

profitability or operations through an inability to establish new or maintain existing customer / client relationships or

otherwise impact relationships with key stakeholders, such as investors, regulators, employees and the community.

Reputational risk can stem from many of BAC’s activities, including those related to the management of the strategic,

operational or other risks, as well as the overall financial position. As a result, BAC evaluates the potential impact to its

reputation within all risk categories and throughout the risk management process.

BAC manages reputational risk through established policies and controls in the business and risk management processes

to mitigate reputational risks in a timely manner and through proactive monitoring and identification of potential

reputational risk events.

Reputational risk items relating to MLKSA are considered as part of the EU/UK & CEEMEA Reputational Risk Committee,

whose mandate includes consideration of reputational risk issues and provision of guidance and approvals for activities

that represent specific reputational risks which have been referred for discussion by other current control frameworks or

lines of business.



20

3. Risk management (continued)

Reputational risk (continued)

Ultimately, to ensure that reputational risk is mitigated through regular business activity, awareness of Reputational Risk

is integrated into the overall governance process, as well as incorporated into the roles and responsibilities for employees.

Given the nature of Reputational Risk, BAC does not set quantitative limits for the level of acceptable risk. Through

proactive risk management, BAC seeks to minimise both the frequency and impact of reputational events.

Through the EU/UK & CEEMEA Regional Risk Committee and the EU/UK & CEEMEA Reputational Risk Committee,

BAC has an appropriate organisational and governance structure in place to ensure strong oversight at the entity business

level. The EU/UK & CEEMEA Reputational Risk Committee is a sub-committee of both the EU/UK & CEEMEA Regional

Risk Committee and the Global Reputational Risk Committee and is applicable to all key legal operating entities in the

region. Items requiring increased attention may be escalated from the EU/UK & CEEMEA Reputational Risk Committee

to the Global Reputational Risk Committee as appropriate.

Reporting of MLKSA reputational risk issues is captured as part of management routines for the EU/UK & CEEMEA

Reputational Risk Committee. Tracking of items presented to the EU/UK & CEEMEA Reputational Risk Committee is

maintained through reporting which provides detail such as the description of the reputational risk issue, the geographical

jurisdiction of the issues, the reason for escalation and the decision reached by the EU/UK & CEEMEA Reputational Risk

Committee. A summary report of issues discussed at the EU/UK & CEEMEA Reputational Risk Committee is provided to

the EU/UK & CEEMEA Regional Risk Committee.

Strategic risk

Strategic risk is the risk that results from incorrect assumptions about external and/or internal factors, inappropriate

business plans (e.g. too aggressive, wrong focus, ambiguous), ineffective business strategy execution, or failure to

respond in a timely manner to changes in the regulatory, macroeconomic and competitive environments in the geographic

locations in which BAC operates (such as competitor actions, changing customer preferences, product obsolescence,

and technology developments).

Strategic risk is managed through the assessment of effective delivery of strategy and business performance is monitored

by the executive management team to assess strategic risk and find early warning signals so that risks can be proactively

managed. The MLKSA strategic execution and risk management processes are aligned to the overall BAC strategic plans

through a formal planning and approval process and are set within the context of overall risk appetite. The BAC Board is

responsible for overseeing the strategic planning process and management’s implementation of the resulting strategic

plan. BAC’s strategic plan is reviewed and approved annually by the BAC Board. Strategic planning at BAC level is

representative of more detailed planning undertaken at the business unit, regional and MLKSA level. MLKSA’s strategy

is reviewed by MLKSA Board on an annual basis. Strategic decisions relating to MLKSA are presented and discussed at

MLKSA Board. FLUs provide updates to MLKSA Board on their business performance and management of strategic risk.

Updates take into account analyses of performance relative to the strategic plan, financial operating plan, risk appetite

and performance relative to peers.

Compliance risk

Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the

Company arising from the failure of the Company to comply with the requirements of applicable laws, rules, regulations,

and our internal policies and procedures (collectively, "applicable laws, rules and regulations").

Front line units and control functions are, first and foremost, responsible for identifying, managing and escalating

compliance risk related to their activities. Global Compliance and Operational Risk and CFO Compliance and Operational

Risk (hereinafter collectively referred to as GC&OR) independently assesses compliance risk and oversees front line unit

and control function adherence to applicable laws, rules and regulations, including identifying compliance Issues and

Risks, performing Compliance Monitoring, determining and developing tests to be conducted by the Enterprise

Independent Testing unit and reporting on the state of compliance activities across the Company. Additionally, GC&OR

works with front line units and control functions so that day to day activities operate in a compliant manner.

Corporate Audit provides independent assessment and validation through testing of key processes and controls across

the Company. Global Compliance and Operational Risk uses a set of clearly defined management routines, decision

processes and organizational structures (e.g., committees) to provide effective management of the key compliance risks

Global Compliance and Operational Risk also provides transparency to the Board of Directors ("Board") (or appropriate

committee) and senior management into critical compliance issues, as appropriate.

Global Compliance and Operational Risk evaluates and reports on the adequacy and effectiveness of the CRM Program.

Corporate Audit performs an annual CRM Program assessment that includes independent testing to evaluate the

effectiveness of the overall program. The assessment is reported to the Audit Committee of the Board



21

4. Regulatory requirements for capital and capital adequacy

The CMA had issued Prudential Rules (the "Rules") dated 30 December 2012 (corresponding to 17 Safar 1434H).

According to these Rules, the CMA had prescribed the framework and guidance regarding the minimum regulatory capital

requirement and its calculation methodology as prescribed under these Rules. In accordance with this methodology, the

Company had calculated its minimum capital required and capital adequacy ratios as follows:

The composition of the Company’s regulatory capital as at 31 December is as follows:

2019 2018 Capital Base: Tier 1 capital 213,738,960 174,025,391 Tier 2 capital - -

Total Capital Base 213,738,960 174,025,391

Minimum capital requirement: Market risk 2,278,697 1,056,144 Credit risk 14,990,671 8,373,144 Operational risk 10,169,341 7,824,757

Total minimum capital required 27,438,709 17,254,045

Capital adequacy ratio: Total capital ratio (time) 7.79 10.09 Tier 1 capital ratio (time) 7.79 10.09

Surplus in capital 186,300,251 156,771,346

• Tier 1 capital consists of paid-up share capital, accumulated profits, share premium (if any), reserves excluding

revaluation reserves, with certain deductions as per the Rules.

• Tier 2 capital consists of subordinated loans, cumulative preference shares and revaluation reserves, with certain

deductions as per the Rules.

• The minimum capital requirements for market, credit and operational risks are calculated as per the requirements

specified in the Rules

• The Company's business objectives when managing capital adequacy are to comply with the capital requirements

set forth by the CMA to safeguard the Company's ability to continue as a going concern and to maintain a strong

capital base.

5. Brokerage income, net

Income from brokerage is net of brokerage expense paid to Tadawul as below:

Gross

Brokerage expenses Net

2019 Related party (Note 17.2) 98,706,076 (33,271,288) 65,434,788 Other 2,781,542 (1,394,366) 1,387,176

Total 101,487,618 (34,665,654) 66,821,964 2018 Related party (Note 17.2) 37,246,678 (12,886,432) 24,360,246 Other 7,145,526 (2,900,160) 4,245,366

Total 44,392,204 (15,786,592) 28,605,612

6. Advisory fee income, net

2019 2018

Gross advisory fee 16,258,480 1,970,022

Sub-underwriting fee (Note 17.2) (14,403,185) -

1,855,295 1,970,022

7. Salaries and employee related benefits

2019 2018

Wages and salaries 11,532,000 11,052,818

Bonus and other staff costs 6,509,538 6,375,490

Provision of employees’ end of service benefits (Note 15) 647,390 1,034,830

18,688,928 18,463,138



22

8. Other general and administrative expenses

2019 2018

Bank charges 4,050,410 2,405,153 Consultancy, legal and professional fees 2,029,451 2,954,485 Depreciation (Note 12) 1,886,390 312,961 Business continuity site charges 1,379,520 698,055 Communication 1,317,888 1,321,179 Repairs and maintenance 1,174,371 726,209

Shared support services 1,097,233 -

Market data services 960,045 1,021,242

Travel expenses 493,350 644,709

Rental expense 423,624 1,664,825

Other 980,914 931,433

15,793,196 12,680,252

9. Cash and cash equivalents

2019 2018

Cash at bank 234,844,197 184,082,330

Allowance for expected credit losses (67,327) (77,312) 234,776,870 184,005,018

10. Trade and client receivables / payables

As at 31 December 2019, the Company has outstanding payable to Tadawul and corresponding receivable from client

money account amounting to Saudi Riyals 1.0 million (2018: outstanding payable to client money account and

corresponding receivable from Tadawul amounting to Saudi Riyals 0.6 million) as a result of brokerage transactions

executed near the year end. These transactions were settled within two days post year end (Note 19).

11. Prepayments and other receivables

2019 2018

Advisory fee receivable 3,887,711 2,053,939

Prepaid expenses 306,570 1,573,582

Other receivables 159,824 360,403

4,354,105 3,987,924

12. Property and equipment, net

Leasehold improvements

Computer equipment

Fixtures and fittings

Right-of-use asset

Capital work in progress

Total

2019

Cost

At the beginning of the year 11,365,334 6,764,145 881,230 - 347,843 19,358,552

Initial application of IFRS 16 - - - 2,302,811 - 2,302,811

Additions 1,462,119 2,836,357 - - 671,679 4,970,155

Disposals in the year (237,458) - - - - (237,458)

At the end of the year 12,589,995 9,600,502 881,230 2,302,811 1,019,522 26,394,060 Accumulated depreciation At the beginning of the year 10,631,785 6,764,145 881,230 - - 18,277,160

Depreciation charge (Note 8) 648,862 400,142 - 837,386 - 1,886,390

Disposals in the year (216,284) - - - - (216,284)

At the end of the year 11,064,363 7,164,287 881,230 837,386 - 19,947,266 Net book value At 31 December 2019 1,525,632 2,436,215 - 1,465,425 1,019,522 6,446,794

Capital work in progress mainly includes the leasehold improvements and computer equipment.



23

12. Property and equipment, net (continued)

Leasehold improvements

Computer equipment

Fixtures and fittings

Right-of-use of asset

Capital work in progress

Total

2018

Cost

At the beginning of the year 11,365,334 6,764,145 881,230 - - 19,010,709

Additions - - - - 347,843 347,843

At the end of the year 11,365,334 6,764,145 881,230 - 347,843 19,358,552

Accumulated depreciation

At the beginning of the year 10,367,064 6,715,904 881,230 - - 17,964,198

Depreciation charge (Note 8) 264,721 48,241 - - - 312,962

At the end of the year 10,631,785 6,764,145 881,230 - - 18,277,160

Net book value

At 31 December 2018 733,549 - - - 347,843 1,081,392

13. Income tax

13.1. The income tax components are as follows:

2019 2018

Profit before taxation 50,695,091 14,897,576

Adjustments: Depreciation, net 247,094 (1,119,973)

Employees’ end of service benefits 517,955 975,583

Other adjustments 1,019,841 575,219

Taxable income 52,479,981 15,328,405

Income tax at 20% 10,495,997 3,065,681

13.2. Movement in provision for income tax / (Advance income tax payments)

2019 2018

Balance at the beginning of the year 2,809,581 (260,819)

Charge for the year (Note 13.1) 10,495,997 3,065,681

Adjustment relating to prior periods - 4,719 10,495,997 3,070,400

Payments made during the year (5,362,610) -

Balance at the end of the year 7,942,968 2,809,581

13.3 Recognised deferred tax asset

Recognised deferred income tax asset at 31 December relates to the following:

2019 2018

Property and equipment 1,023,950 1,461,767


1,868,250 2,202,476

The movement in deferred income tax asset during the year is as follows: 2019 2018

Balance at beginning of the year 2,202,476 2,208,847

Deferred tax charge for the year (334,226) (6,371)

Balance at end of the year 1,868,250 2,202,476

13.4 Income tax charge and deferred tax charge for the year

2019 2018

Charge for the year (Note 13.2) 10,495,997 3,070,400

Deferred tax charge for the year (Note 13.3) 334,226 6,371

10,830,223 3,076,771



24

13. Income tax (continued)

13.5 Numerical reconciliation of income tax expense to prima facie tax payable 2019 2018

Profit from continuing operations before income tax expense 50,695,091 14,897,576

Income Tax of 20% 10,139,018 2,979,515

Tax effect of amounts which are not deductible (taxable) in calculating taxable income:

Depreciation, net 49,419 (223,995)


Other adjustments 203,969 115,044

10,495,997 3,065,681

13.6 Status of income tax assessments

The Company had filed its tax returns for the years from 2008 to 2018. Tax assessments for the years 2008 to 2012 have

been finalised by the GAZT. No assessments have been raised for the years 2013 to 2017. GAZT also raised corporate

tax and withholding tax assessments for the year 31 December 2018 amounting to SAR 4,455,387 and SAR 99,583,

respectively, the Company has filed an appeal against the above assessment. As at 31 December 2019, management

believes that the finalisation of tax assessments of the mentioned years is not expected to have any material impact on

the financial statements of the Company. Based on the advice of the Company’s tax advisor, the Company is confident

of a favourable outcome and accordingly, no provision has been made in these financial statements. The Company is in

the process of filing tax return for the year ended 31 December 2019 with GAZT.

14. Accrued expenses and other payables

2019 2018

Accrued salaries and employee related benefits 3,310,682 3,215,354

Payable to service providers 1,111,025 348,626

Professional fees 405,250 235,238

Lease liability 846,563 -

Withholding tax payable 2,327,542 -

Other accruals 904,857 74,495

8,905,919 3,873,713

14.1 Lease liability

Maturity analysis of lease liabilities is as follows:

2019 1 January 2019

Current 846,563 809,024

Non-current - 846,563

846,563 1,655,587

15. Provision for employees' end of service benefits 2019 2018

At the beginning of the year 3,703,546 2,727,963

Charge for the year (Note 7) 647,390 1,034,830

Remeasurements of post-employment benefit obligations 485,524 -

Payments made during the year (129,435) (59,247)

At the end of the year 4,707,025 3,703,546

The Company operates a defined benefit plan in line with the Labor Law requirements in the Kingdom of Saudi Arabia.

The end-of-service benefit payments are based on the employees' final salaries and allowances and their cumulative

years of service at the date of their termination of employment, as defined by the conditions stated in the Labor Law of

the Kingdom of Saudi Arabia. Employees’ end-of-service benefit plans are unfunded plans and the benefit payment

obligation are met when they fall due upon termination of employment.



25

15. Provision for employees' end of service benefits (continued)

The amounts recognized in the statement of financial position and movement in the obligation during the year based on

its present value are as follows:

2019 2018

Present value of defined benefit obligation 4,707,025 3,703,546

Movement of defined benefit obligation

2019 2018

Opening balance 3,703,546 2,727,963 Charge to statement of income 647,390 1,034,830 Charge to statement of comprehensive income 485,524 - Payment of benefits during the year (129,435) (59,247)

Closing balance 4,707,025 3,703,546

Reconciliation of present value of defined benefit obligation

2019 2018 Present value of defined benefit obligation as at 1 January 3,703,546 2,727,963 Current service costs 523,831 1,034,830 Interest cost 123,559 - Actuarial loss from experience adjustments 485,524 - Benefits paid during the year (129,435) (59,247)

Present value of defined benefit obligation as at 31 December 4,707,025 3,703,546

Principal actuarial assumptions

The following range of significant actuarial assumptions was used by the Company for the valuation of post-employment

benefit liability:

2019 2018

Valuation discount rate 2.90% 3.45% Expected rate of increase in salary level 4.00% 1.00% Mortality and withdrawal rate 10.00% 10.00%

Sensitivity analysis for actuarial assumptions

Change in assumption

Impact on employee benefit

obligations

Increase in

assumption

Decrease in

assumption

Increase in

assumption

Decrease in

assumption

At 31 December 2019

Discount rate 3.40% 2.40% (161,580) 172,519

Salary growth rate 4.50% 3.50% 169,792 (160,672)

The sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice,

this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of

the defined benefit obligation to significant actuarial assumptions the same method (present value of defined benefit

obligation calculated with projected unit credit method at the end of the reporting period) has been applied when

calculating the employee termination.

16. Share capital

The subscribed and fully paid up share capital of the Company consists of 14.3 million shares of Saudi Riyals 10 each

and held as follows as of 31 December 2019 and 2018:

Shareholder Country of origin Percentage Shareholding

Bank of America Global Holdings L.L.C. USA 96% 137,280,000

Merrill Lynch Group Holdings I L.L.C. USA 1% 1,430,000

Merrill Lynch Group Holdings II L.L.C. USA 1% 1,430,000

Merrill Lynch Group Holdings III L.L.C. USA 1% 1,430,000

Merrill Lynch International L.L.C. USA 1% 1,430,000 100% 143,000,000



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17. Related parties balances and transactions

In the ordinary course of its activities, the Company transacts with various related parties. The Company has entered into

agreements with certain affiliated companies, which provide for an agreed basis for sharing costs (along with a margin)

incurred in respect of certain services provided under the agreements. The affiliate companies also make payments on

behalf of the Company.

17.1. Related parties balances

At 31 December 2019 and 2018, the balances with related parties were as follows:

Notes 2019 2018 Due from related parties

Merrill Lynch International (a) 3,968,895 749,304 Merrill Lynch International, LLC (a) 2,072,167 1,568,569

6,041,062 2,317,873

Due to related parties

Merrill Lynch International (b),(c) 15,859,495 6,728,508 Merrill Lynch International, LLC (d) 422,184 196,905 Bank of America Corporation (Ultimate parent entity) (d) 44,757 52,178 Bank of America Merrill Lynch International, DAC (e) - 6,366 Bank of America NA London Branch (e) 3,827 -

16,330,263 6,983,957

Cash and cash equivalents

Bank of America NA London Branch (f) 124,404,509 46,637,871

Compensation to key management personnel Salaries and short-term benefits payable 595,585 447,286

Provision for employees' end of service benefits 1,390,819 1,136,806

All amounts are unsecured, non-interest bearing and payable on demand, and mainly relate to:

a) Service fee income receivable for the provision of services to other group companies.

b) Funding provided by other group companies.

c) Payable towards advisory fee based on sub-underwriting agreement.

d) The recharge of BAC stock awards to the Company’s employees.

e) Expenses charged by other group companies to the Company.

f) Demand deposits.



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17. Related parties balances and transactions (continued)

17.2. Related parties transactions

The transactions with related parties during the years ended 31 December 2019 and 2018 were as follows:

Notes 2019 2018

Fee income Merrill Lynch International (a) 17,774,244 10,027,560

Merrill Lynch International, LLC (a) 4,910,965 5,585,774

22,685,209 15,613,334

Brokerage income

Merrill Lynch International (Note 5) (b) 98,706,076 37,246,678

Advisory fee income Merrill Lynch International (Note 6) (c) (14,403,185) - Operating expenses Merrill Lynch International (d) 16,553,056 15,189,776

Merrill Lynch International (e) 234,338 234,327

Merrill Lynch International, LLC (f) 876,767 473,294

Merrill Lynch International (g) 5,814 16,038

Merrill Lynch International, LLC (g) 89,154 88,318

Bank of America Corporation (Ultimate parent entity) (g) 609,396 63,110

Bank of America Merrill Lynch International, DAC (g) 29,874 29,191

Bank of America Merrill Lynch International, Ltd (g) - 47,294

Bank of America N.A - London Branch (g) 3,712 -

Merrill Lynch International (h) 1,097,233 -

Interest expense Merrill Lynch International (Note 18) (i) 6,046,340 58,152

Compensation to key management personnel Chairman remuneration and directors' fees 310,584 579,222 Salaries and short-term benefits 2,980,891 2,938,027

a) Service fee income, being income received and receivable from supporting services provided to group companies.

Service fees are calculated in accordance with BAC Global Transfer Pricing Policy and are generally documented in

service level agreements entered into between the Company and other group companies.

b) Gross brokerage income, inclusive of brokerage expense settled by the Company in an agency capacity, in relation

to brokerage services provided.

c) Sub underwriting agreement for advisory fee.

d) The intercompany funding associated to the Company’s monthly payroll cycle.

e) Service fees expenses for intercompany support services provided to the Company.

f) The amount recharged for the Company's participation in employee stock compensation plans.

g) Intercompany expenses incurred on behalf of the Company and then recharged to the Company.

h) Advisory fee related expenses incurred on behalf of the Company.

i) Interest expense on intercompany funding.

18. Interest expense

2019 2018

Finance cost (Note 17.2) 6,046,340 58,152

Finance cost on lease liabilities 55,953 - 6,102,293 58,152

The interest rates ranges from 2.12% to 2.95% (2018: 1.85% to 2.84%) per annum for the funding received during the

year.



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19. Assets held in a fiduciary capacity

In connection with its brokerage business, the Company stands ready to meet the obligations of its clients with respect to

securities transactions. The Company’s obligations in this respect are secured by the assets in the clients’ accounts as

well as by any proceeds received from the transactions cleared and settled by the firm on behalf of clients or their

customers. The Company's maximum potential exposure under these arrangements is difficult to estimate; however, the

potential for the Company to incur material losses pursuant to these arrangements is remote.

As at 31 December 2019, the Company holds no cash in client money (2018: Saudi Riyals 0.03 million). As at 31

December 2019, the Company has outstanding payables to the Tadawul (2018: the Company has outstanding payables

to the client money account to the Tadawul) (Note 10).

20. Statutory reserve

In accordance with Saudi Arabian Regulations for Companies and its By-Laws, the Company is required to transfer 10%

of its net income annually to a statutory reserve until such reserve equals 30% of the paid up capital as a minimum. This

reserve is not available for distribution to the shareholders.

21. Fair value of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date. Underlying the definition of fair value is the presumption that the Company

is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake

a transaction on adverse terms.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from

an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and

regularly occurring market transactions on an arm's length basis.

When measuring the fair value the Company uses market observable data as far as possible. Fair values are categorized

into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

Level 1: quoted prices in active markets for the same instrument (i.e. without modification or repackaging)

Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all

significant inputs are based on observable market data: and

Level 3: valuation techniques for which any significant input is not based on observable market data.

The carrying value of all financial assets and liabilities reflected in the financial statements approximates their fair value.

An active market for these instruments is not available and the Company intends to realize the carrying value of these

financial instruments through settlement with the counter party at the time of their respective maturities and accordingly

these are considered as Level 3 financial assets.

22. Contingent liabilities

At 31 December 2019, the Company had contingent liabilities in respect of bank guarantees in favour of Tadawul arising

in the ordinary course of business amounting to Saudi Riyals 1,000 million (2018: Saudi Riyals 1,000 million).

23. Events after the reporting period

Direct and indirect effects of the coronavirus outbreak are impacting the global economy, markets, and MLKSA’s

counterparties and clients. MLKSA cannot predict the coronavirus’s potential future direct or indirect effects; however,

MLKSA is taking actions to mitigate the impacts on MLKSA. The coronavirus’s effects could have a material impact on

MLKSA’s future results of operations.

24. Approval of financial statements

The financial statements were approved by the Directors of the Company and signed on their behalf on 17 March 2020

(corresponding to 22-Rajab-1441H).

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