Message to shareholders - Safwan

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Message to shareholders

Dear shareholder,

Welcome to our Annual Financial Report of the year 2011.

As a registered, publically traded company, we follow international best practice by making our Financials available to our shareholders in advance of our General Assembly.

This document has been designed to provide you with our financial results in a clear and concise format, providing the highlights of our financial performance for 2011 at a glance, followed by our full financial accounts for the year.

Contents:

How to obtain a copy of our 2011 Financial Statement:• Shareholders attending our General Assembly meeting will be provided with a copy of the Financial Statement for their approval.• Shareholders can request a copy of the Financial Statement to be sent to them by courier. Please call +965 2227 6888 to arrange this.• Shareholders can request a copy of the Financial Statement to be sent to them by email. Please send an email request to [email protected] to arrange this.

For further information on our 2011 Financial statement, please telephone +965 2227 6888.

235668910111213

2011 Board of DirectorsMessage from the ChairmanFinancial highlightsAuditors report to shareholdersIndependent auditors› report Consolidated statement of income Consolidated statement of comprehensiveincomeConsolidated statement of financial positionConsolidated statement of changes in equityConsolidated statement of cash flowsNotes to the consolidated financial statements

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Board of DirectorsSafwan Trading & Cont. Co. (KSCC) Board of Directors:

Mr. Muhammed Hamed Mubarak Al Ali

Mr. Abdulwahab Hisham Al Eissa

Mr. Abdulrahman Faisal Al Yaseen

Mr. Wael Abdulqader Al Abduljader

Mr. Osama Ibrahim Al Saleh

Chairman & Managing Director

Vice Chairman

Board Member

Board Member

Board Member

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Dear Shareholders,

Peace, mercy and blessings of Allah ...

On my behalf and on behalf of my fellow members of the Board of Directors and management of the company, we thank you for your confidence and your continued support of the company and hereby submit the annual report and consolidated financial statements and balance sheet for Safwan Trading & Contracting Co. for the fiscal year ending on 312011/12/Dear shareholders,,,One more year elapsed during which we expanded the company›s management with all insistence to meet the requirements of its strategic objectives. In spite of great challenges and difficulties we have faced since the date of our acquisition of the company and the election of our Board of Directors in the 12010/9/ to the end of the year 2011, we were able to overcome them, enhancing the image and the company›s position as one of the largest medical companies and leading company in the State of Kuwait.Although we are working in a very important and vital field, and in a local market pulled by trends and delicate balances, in addition to factors of the ups and downs of the economy, and stand in its way a series of challenges and difficulties, but our company has been able by the grace of God, and the sincere efforts of its staff and partners from all the international agencies, to meet those challenges consistently and effectively.While Safwan Trading and Contracting is seeking to achieve superior results in terms of its various operations, it is fully aware of the size of the responsibility placed on our shoulders in relation to securing measures and appropriate procedures. Dedication is a key aspect in its culture and policies at the level of all its employees and partner agencies.Because Safwan Trading and Contracting is constantly on an ongoing search for everything that would enhance its image and achieve excellence in the levels of performance, the past financial year witnessed a range of conferences and specialized events inside and outside the country, also contributed actively to a number of awareness campaigns with dimensions of health benefit on the overall individuals and impacting large segments of society.Here are the most important achievements made by the company during the fiscal year 2011: -• Exclusive rights to register and distribute (16) Pharmaceuticals, (15) medical equipment and (2) new cosmetic products and marketing in the local market.• The company continues to hire qualified people to take on responsibilities and workloads and contribute to the process of development, progress and expansion.• The signing of contracts for the supply of drugs valued at 11,139,671 and the contracts for medical equipment valued at 2,114,813 with the Ministry of Health• The signing of supply contracts with a value of 1,850,000 to private hospitals.• Gaining distribution rights to Higher Nature company from the UK (UK)• Gaining distribution rights to Beverly Hills Cosmetic Surgery company of the United States of America (USA)• Carry out the restructuring of departments and divisions to achieve the highest degree of efficiency in the management of the company›s operations.• Use the latest modern technology in the logistics of inventory and orders and invoices to reduce cost and increase effectiveness.• Signing of the contract to build the new company headquarters in the area of Ardiya for the amount of

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1,764,500 comprehensive of contractor and consultant fees for engineering and construction - expected to be completed next year.

Projects to be implemented in the year 2012: -• Create a training center.• A center for direct sales.• Update the website of the company.• Increase the number of vehicles owned by the company and used in transportation and distribution.• Increase the number of employees.• Negotiate with more agencies.

All of the above would not have seen the light without the efforts of our employees and their eagerness. It is their hard works that have had the biggest impact on the company’s continued success and excellence.Our review of the aspects of the achievements of the company during the past year is merely a brief introduction to the outcome of the diligence of this company the prestigious status in the medical field, a process that will not stop, God willing, but will continue at a faster pace, prompted by hopes of bigger targets and achievement of more success and excellence.

We pray to God Almighty to allow all of us to benefit the company and do our part as required to serve our country of Kuwait, this said, we also thank Ali Abdul Wahab & Sons Co. for their continued support of Safwan Trading and Cont. Co. in all fields and all those who contributed to the development of the company›s performance, regardless of location or position.

In conclusion, I thank all the shareholders who put their trust in this company, which we consider to be an incentive for us to work harder to raise the efficiency of performance of the company for the benefit of its shareholders and the general public.

And God the Source of strength,,,

Safwan Trading and Cont. Co. KSCC

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Finanical Highlights

2011 at a glance

The consolidated financial statements and financial status:

• Sales totaled 28,439,298 million Kuwaiti dinars, an increase of 145.469 for the year 2010 and achieved a

net profit of $ 2,059,320, an increase of KD 226,691 for the year 2010 and earnings per share stood at 42.1

fils for the current year compared with 37.1 fils for the past year.

The total public expenditures 3,620,678 million Kuwaiti dinars deficiency of $ 299,780 from last year due to

reduced staff costs, and reduction in the cost of travel, and consultancy fees, as profits Foreign currency

exchange differences, which amounted to 252.505 thousand Kuwaiti Dinars.

As the company›s assets totaled KD 29,214,037 an increase of $ 5,072,895 for the year 2010

Therefore, we are proud of what we have achieved and maintained the status of the company and its

strategic position and to achieve annual growth of its financial position through careful management to

continuous improvement to raise the company›s performance in all areas and diversification of sources,

including positive impact on equity and strong financial position of the company.

Accordingly, based on these results, the Board of Directors decided to recommend the distribution of cash

dividend of 27% of any paid-up capital of 27 fils per share, for all the shares registered on the General

Assembly.

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Independent auditors' report

To the shareholders of Safwan Trading and Contracting Company – KSC (Closed) Kuwait Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Safwan Trading and Contracting Company – (A Kuwaiti Closed Shareholding Company) and its subsidiary which comprise the consolidated statement of financial position as at 31 December 2011, consolidated statement of income, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Safwan Trading and Contracting Company and its subsidiary as at 31 December 2011, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory Matters

In our opinion, proper books of account have been kept by the Company and the consolidated financial statements, together with the contents of the report of the Company’s board of directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Commercial Companies Law of 1960 and by the Company’s articles of association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law nor of the Company’s articles of association, as amended, have occurred during the year that might have had a material effect on the business or financial position of the Company. Abdullatif M. Al-Aiban (CPA) Dr. Shuaib A. Shuaib (Licence No. 94-A) (Licence No. 33-A) of Grant Thornton – Al-Qatami, Al-Aiban & Partners RSM Albazie & Co. Kuwait 8 March 2012

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Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Safwan Trading and Contracting Company and its subsidiary as at 31 December 2011, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory Matters

In our opinion, proper books of account have been kept by the Company and the consolidated financial statements, together with the contents of the report of the Company’s board of directors relating to these consolidated financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by the Commercial Companies Law of 1960 and by the Company’s articles of association, as amended, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law nor of the Company’s articles of association, as amended, have occurred during the year that might have had a material effect on the business or financial position of the Company. Abdullatif M. Al-Aiban (CPA) Dr. Shuaib A. Shuaib (Licence No. 94-A) (Licence No. 33-A) of Grant Thornton – Al-Qatami, Al-Aiban & Partners RSM Albazie & Co. Kuwait 8 March 2012

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Safwan Trading and Contracting Company – KSC (Closed) and Subsidiary Kuwait

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Consolidated statement of income

Note

Year ended 31 Dec.

2011

Year ended 31 Dec.

2010 KD KD

Sales 28,439,298 28,293,829 Cost of goods sold (23,984,076) (24,453,085)

Gross profit 4,455,222 3,840,744 Other operating income 360,033 403,303 Commission earned from overseas suppliers 1,607,366 1,897,481 Selling and distribution expenses (457,953) (253,980) General and administrative expenses and other charges 8 (3,620,678) (3,920,458)

Profit from operations 2,343,990 1,967,090 Finance costs (407,915) (229,027) Provision for doubtful debts (154,673) (25,000) Provision for slow moving and obsolete inventory (202,564) (105,000) Foreign currency exchange gain 252,505 256,077 Other income 9 356,104 66,775

Profit before KFAS, NLST, Zakat and Board of directors’ remuneration

2,187,447 1,930,915

Contribution to the Kuwait Foundation for the Advancement of Sciences

(KFAS)

(19,687) (17,378) Provision for National Labour Support Tax (NLST) (60,314) (49,577) Provision for Zakat (24,126) (19,831) Board of directors’ remuneration (24,000) (11,500)

Profit for the year 2,059,320 1,832,629

Basic & diluted earnings per share 10 42.1 Fils 37.1 Fils

The notes set out on pages 8 to 31 form an integral part of these consolidated financial statements.

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4

Consolidated statement of comprehensive income

Year ended 31 Dec.

2011

Year ended 31 Dec.

2010 KD KD Profit for the year 2,059,320 1,832,629 Other comprehensive income: - Exchange differences arising on translation of foreign operations (73,061) 5,825

Total comprehensive income for the year 1,986,259 1,838,454


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Consolidated statement of financial position

Note

31 Dec. 2011

31 Dec. 2010

KD KD Assets Non-current assets Property and equipment 11 1,411,302 1,111,805 Intangible assets 12 385,658 543,774

1,796,960 1,655,579 Current assets Inventories 13 8,160,631 6,925,642 Accounts receivable and other assets 14 15,845,062 14,671,778 Due from related party 23 537,225 - Cash and cash equivalents 15 2,874,159 888,143

27,417,077 22,485,563

Total assets 29,214,037 24,141,142 Equity and liabilities Equity Share capital 16a 5,000,000 5,000,000 Treasury shares 16b (393,190) (270,490) Statutory reserve 18a 1,255,795 1,037,050 Voluntary reserve 18b 1,255,795 1,037,050 Foreign currency transaction reserve (67,236) 5,825 Retained earnings 3,371,955 2,827,355

Total equity 10,423,119 9,636,790 Non-current liabilities Provision for employees’ end of service indemnity 19 501,923 602,288 Murabaha payables 22 - 183,560 Medium term payables - 87,809

501,923 873,657 Current liabilities Accounts payable and other liabilities 20 9,334,086 10,813,573 Short term borrowings 21 8,771,353 2,419,000 Murabaha payables – current portion 22 183,556 314,664 Due to related parties 23 - 83,458

18,288,995 13,630,695

Total liabilities 18,790,918 14,504,352

Total equity and liabilities 29,214,037 24,141,142

Mohammed Hamed M. Al-Ali Chairman & Managing Director

Abdul Wahab Hisham Hussain Vice Chairman


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12


7

Consolidated statement of cash flows

Note

Year ended 31 Dec.

2011

Year ended 31 Dec.

2010 KD KD

OPERATING ACTIVITIES Profit before KFAS, NLST, Zakat and Board of directors’

remuneration

2,187,447

1,930,915 Adjustments: Depreciation and amortisation 333,531 353,792 Plant and equipment and intangible assets written off 15,829 107,156 Provision for employees’ end of service indemnity 124,647 114,471 Gain on disposal of property and equipment and intangible assets (65,015) (325) Interest income (2,288) (1,494) Finance costs 407,915 229,027

3,002,066 2,733,542 Changes in operating assets and liabilities: Inventories (1,234,989) (1,235,188) Accounts receivable and other assets (1,173,284) (3,317,814) Accounts payable and other liabilities (1,796,216) 881,505 Due from/to related parties (620,683) 63,393

Cash used in operations (1,823,106) (874,562) End of service indemnity paid (225,012) (109,668)

Net cash used in operating activities (2,048,118) (984,230) INVESTING ACTIVITIES Purchase of property and equipment (490,876) (351,522) Proceeds from disposal of property equipment and intangible assets 65,150 700 Interest income received 2,288 1,494

Net cash used in investing activities (423,438) (349,328) FINANCING ACTIVITIES Purchase of treasury shares (122,700) (72,230) Finance costs paid (407,915) (229,027) Dividends paid (1,049,498) (977,900) Net movement in murabaha payable (314,668) (314,665) Net movement on short term borrowings 6,352,353 2,419,000

Net cash from financing activities 4,457,572 825,178

Net increase/(decrease) in cash and cash equivalents 1,986,016 (508,380) Cash and cash equivalents at beginning of the year 888,143 1,396,523

Cash and cash equivalents at end of the year 15 2,874,159 888,143


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8

Notes to the consolidated financial statements 31 December 2011

1 Incorporation and activities Safwan Trading and Contracting Company – KSC (Closed) (“the parent company”) was registered and incorporated in Kuwait on 27 March 2000 and is engaged in the importation and distribution of pharmaceuticals, medical equipment and food stuff. The parent company’s shares are listed on the Kuwait Stock Exchange. The group comprises the parent company and its wholly owned subsidiary (refer note 7). The parent company and its subsidiary are together referred to as “the Group”. The address of the parent company’s registered office is P.O. Box 20704, Safat 13068, Kuwait. The board of directors of the parent company authorised these consolidated financial statements for issue on 8 March 2012. The general assembly of the shareholders of the parent company has the power to amend these consolidated financial statements after issuance. 2 Basis of preparation The consolidated financial statements are prepared under the historical cost convention. The consolidated financial statements are presented in Kuwaiti Dinars (KD). The group has elected to present the “statement of comprehensive income” in two statements: the “statement of income” and a “statement of comprehensive income”. 3 Statement of compliance These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and applicable requirements of Ministerial Order No. 18 of 1990. 4 Changes in accounting policies The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those used in previous year. 4.1 New and amended standards adopted by the group There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2011 that would be expected to have a material impact on the Group. 4.2 IASB Standards issued but not yet effective At the date of authorisation of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Group.

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9

4 Changes in accounting policies (continued) 4.2 IASB Standards issued but not yet effective (continued) Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements.

Standard Effective for annual periods beginning IAS 1 Presentation of Financial Statements – amendment 1 July 2012 IAS 27 Consolidated and Separate Financial Statements - Revised as IAS 27 Separate Financial Statements

1 January 2013

IFRS 7 Financial Instruments: Disclosures – amendment 1 July 2011 IFRS 9 Financial Instruments 1 January 2015 IFRS 10 Consolidated Financial Statements 1 January 2013 IFRS 12 Disclosure of Interests in Other Entities 1 January 2013 IFRS 13 Fair Value Measurement 1 January 2013 4.2.1 IAS 1 Presentation of Financial Statements The amendment to IAS 1 requires entities to group other comprehensive income items presented in the consolidated statement of comprehensive income based on those: a) Potentially reclassifiable to consolidated statement of income in a subsequent period, and b) That will not be reclassified to consolidated statement of income subsequently. The Group will change the current presentation of the consolidated statement of comprehensive income when the amendment becomes effective however, it will not affect the measurement or recognition of such items. 4.2.2 IAS 27 Consolidated and Separate Financial statements – Revised as IAS 27 Separate Financial Statements

As a consequence of the new IFRS 10 and IFRS 12, IAS 27 now deals only with separate financial statements. 4.2.3 IFRS 7 Financial Instruments: Disclosures The amendments to IFRS 7 Financial Instruments: Disclosures resulted as a part of comprehensive review of off financial position activities. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitisations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. The adoption of this amendment is not expected to have any significant impact on the financial position or performance of the Group. 4.2.4 IFRS 9 Financial Instruments The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (IFRS 9) is being issued in phases. To date, the chapters dealing with recognition, classification, measurement and derecognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning 1 January 2015. Further chapters dealing with impairment methodology and hedge accounting are still being developed.

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10

4 Changes in accounting policies (continued) 4.2.4 IFRS 9 Financial Instruments (continued) Although earlier application of this standard is permitted, the Technical Committee of the Ministry of Commerce and Industry of Kuwait decided on 30 December 2009, to postpone this early application till further notice. Management has yet to assess the impact that this amendment is likely to have on the financial statements of the Group. However, they do not expect to implement the amendments until all chapters of IFRS 9 have been published and they can comprehensively assess the impact of all changes. 4.2.5 IFRS 10 Consolidated Financial Statements IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation – Special Purpose Entities. It revised the definition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements and procedures of consolidation and the accounting for any non-controlling interests and changes in control remain the same. The Group’s management have yet to assess the impact of this new standard.

4.2.6 IFRS 12 Disclosure of Interests in Other Entities IFRS 12 integrates and makes consistent the disclosure requirements for various types of investments including subsidiaries, joint arrangements, associates and unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities. The adoption of this standard is not expected to have any significant impact on the financial position or performance of the Group.

4.2.7 IFRS 13 Fair Value Measurement IFRS 13 does not affect which items to be fair valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. The Group’s management have yet to assess the impact of this new standard. 5 Summary of significant accounting policies The significant accounting policies and measurements bases adopted in the preparation of the consolidated financial statements are summarised below: 5.1. Basis of consolidation The Group financial statements consolidate those of the parent company and all of its subsidiaries. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through more than half of the voting rights. All subsidiaries have a reporting date of 31 December. The details of the significant subsidiaries are set out in Note 7 to the consolidated financial statements. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

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5 Summary of significant accounting policies (continued) 5.1. Basis of consolidation (continued) 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:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary

Derecognizes the carrying amount of any non-controlling interests

Derecognizes the cumulative translation differences, recorded in equity

Recognizes the fair value of the consideration received

Recognizes the fair value of any investment retained

Recognizes any surplus or deficit in profit or loss

Reclassifies the parent’s share of components previously recognized in other comprehensive income

to profit or loss or retained earnings, as appropriate. 5.2. Business combinations The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as change to other comprehensives income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within other comprehensive income. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

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5 Summary of significant accounting policies (continued) 5.3. Segment reporting The group’s activities are concentrated in pharmaceuticals and geographically the group’s activities are concentrated in two main segments: Domestic (Kuwait) and International (Iraq). Each of these operating segments is managed separately as each requires different approaches and other resources. All inter-segment transfers are carried out at arm’s length prices. For management purposes, the Group uses the same measurement policies as those used in its financial statements. In addition, assets or liabilities which are not directly attributable to the business activities of any operating segment are not allocated to a segment. 5.4. Revenue Revenue arises from the sale of goods and rendering of services. It is measured by reference to the fair value of consideration received or receivable, excluding sales taxes, rebates, and trade discounts. 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, regardless of when payment is made. The following specific recognition criteria should also be met before revenue is recognised; 5.4.1. Sale of goods Sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership, generally upon delivery of the goods. 5.4.2. Commission from overseas suppliers and rendering of services Commissions from overseas suppliers are recognised when the goods are delivered to customers. Income from rendering services is recognised in the profit or loss when the services have been rendered. 5.4.3. Interest and similar income Interest income and expenses are reported on an accrual basis using the effective interest method. 5.5. Operating expenses Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. 5.6. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is necessary to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and reported in finance costs. 5.7. Property and equipment and depreciation Property and equipment are stated at depreciated cost less impairment in value. Land and capital work in progress are not depreciated. Depreciation is provided on a straight line basis at rates calculated to write-off the cost of each asset over its expected useful life as follows: Leasehold property 5 years Motor vehicles 4 years Furniture, fixtures and office equipment 3 to 5 years The carrying value of property and equipment is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.

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5 Summary of significant accounting policies (continued) 5.7. Property and equipment and depreciation (continued) Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of property and equipment. All other expenditure is recognised in the consolidated statement of income as the expense is incurred. 5.8. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and such expenditure is reflected in profit or loss in the year in which it is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over their useful economic life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated statement of income in the expense category consistent with the function of the intangible asset. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of income when the asset is derecognised. Costs relating to licences and key money are capitalised and amortised on a straight line basis over the following estimated useful lives. Trade licences 20 years Agency licences 5 years Key money 5 years The carrying values of intangibles are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. 5.9. Impairment testing of non financial assets For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements.

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5 Summary of significant accounting policies (continued) 5.9. Impairment testing of non financial assets (continued) Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors. Impairment losses for cash-generating units are charged pro rata to the assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount. 5.10. Financial instruments 5.10.1. Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. A financial asset (or, where applicable a part of financial asset or part of group of similar financial assets) is derecognised when: rights to receive cash flows from the assets have expired; 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 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 the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. 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. 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 consolidated statement of income. 5.10.2. Classification and subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets are classified into loans and receivables. All financial assets are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. The criteria to determine impairment for loans and receivables are described below.

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5 Summary of significant accounting policies (continued) 5.10.2. Classification and subsequent measurement of financial assets (continued) All significant income and expenses relating to financial assets that are recognised in profit or loss are presented separately in the consolidated statement of income. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest rate method, less provision for impairment. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Discounting is omitted where the effect of discounting is immaterial. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group. The Group categorises loans and receivables into following categories: Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Due from related parties and receivables and other financial assets Trade receivables are stated at original invoice amount less allowance for any uncollectible amounts. Amounts due from transactions with related parties and cash advances to related parties are included under due from related parties. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. Loans and receivables which are not categorised under any of the above are classified as “Other receivables/Other financial assets” 5.10.3. Classification and subsequent measurement of financial liabilities The Group’s financial liabilities include murabah payables, short term borrowings due to related parties and trade payables and other liabilities. The subsequent measurement of financial liabilities depends on their classification. The Group classifies all its financial liabilities as “financial liabilities other than at fair value through profit or loss (FVTPL). Financial liabilities other than at fair value through profit or loss(FVTPL) These are stated at amortised cost using effective interest rate method. The Group categorises financial liabilities other than at FVTPL into the following categories: Murabaha payables Murabaha payables represent amounts payable on a deferred settlement basis for assets purchased under murabaha arrangements. Murabaha payables are stated at the contractual amount payable, less deferred profit payable. Profit payable is expensed on a time apportionment basis taking account of the profit rate attributable and the balance outstanding.

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5 Summary of significant accounting policies (continued)

5.10.3 Classification and subsequent measurement of financial liabilities (continued) Tawaroq facilities Tawaroq facilities represent Islamic financing arrangements, whereby the group receives funds for the purpose of financing its operations and are stated at amortised cost. Short term borrowings All borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process. Accounts payables and other financial liabilities Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not, and classified as Trade payables. Financial liabilities other than at FVTPL which are not categorised under any of the above are classified as “Other financial liabilities” All interest-related charges are included within finance costs. 5.10.4. Amortised cost of financial instruments This is computed using the effective interest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. 5.10.5. Trade and settlement date accounting All ‘regular way’ purchases and sales of financial assets are recognised on the trade date i.e. the date that the entity commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. 5.10.6. Offsetting of 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. 5.11. Inventories Inventories are valued at the lower of cost and net realisable value after making due allowance for obsolete or slow moving items. Costs are those expenses incurred in bringing each product to its present location and condition determined on a weighted average basis. Net realisable value is based on estimated selling price less any further costs expected to be incurred on completion and disposal. 5.12. Equity, reserves and dividend payments Share capital represents the nominal value of shares that have been issued and paid up. Statutory and voluntary reserves comprise appropriations of current and prior period profits in accordance with the requirements of the commercial companies’ law and the parent company’s articles of association. Foreign currency translation reserve, comprises foreign currency translation differences arising from the translation of financial statements of the Group’s foreign entities into KD

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5 Summary of significant accounting policies (continued) 5.12. Equity, reserves and dividend payments (continued) Retained earnings includes all current and prior period retained profits. All transactions with owners of the parent are recorded separately within equity. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting. 5.13. Treasury shares Treasury shares consist of the Parent Company’s own issued shares that have been reacquired by the Group and not yet reissued or cancelled. The treasury shares are accounted for using the cost method. Under this method, the weighted average cost of the shares reacquired is charged to a contra account in equity. When the treasury shares are reissued, gains are credited to a separate account in equity, (the “gain on sale of treasury shares reserve”), which is not distributable. Any realised losses are charged to the same account to the extent of the credit balance on that account. Any excess losses are charged to retained earnings then to the voluntary reserve and statutory reserve. No cash dividends are paid on these shares. The issue of stock dividend shares increases the number of treasury shares proportionately and reduces the average cost per share without affecting the total cost of treasury shares. 5.14. Provisions, contingent assets and contingent liabilities Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Contingent assets are not recognised in the consolidated financial statements, but are disclosed when an inflow of economic benefits is probable. Contingent liabilities are not recognised in the consolidated statement of financial position, but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. 5.15. Foreign currency translation 5.15.1. Functional and presentation currency The consolidated financial statements are presented in currency Kuwait Dinar (KD), which is also the functional currency of the parent company. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. 5.15.2. Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

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5 Summary of significant accounting policies (continued) 5.15.3. Foreign operations In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the KD are translated into KD upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period. On consolidation, assets and liabilities have been translated into KD at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into KD at the closing rate. Income and expenses have been translated into KD at the average rate over the reporting period. Exchange differences are charged/credited to other comprehensive income and recognised in the foreign currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences recognised in equity are reclassified to profit or loss and are recognised as part of the gain or loss on disposal. 5.16. End of service indemnity The parent and its local subsidiaries provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service, subject to the completion of a minimum service period in accordance with relevant labour law and the employees’ contracts. The expected costs of these benefits are accrued over the period of employment. This liability, which is unfunded, represents the amount payable to each employee as a result of termination on the reporting date. With respect to its Kuwaiti national employees, the Group makes contributions to the Public Institution for Social Security calculated as a percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are expensed when due. 5.17. Taxation 5.17.1. National Labour Support Tax (NLST) NLST is calculated in accordance with Law No. 19 of 2000 and the Minister of Finance Resolutions No. 24 of 2006 at 2.5% of taxable profit of the Group. As per law, allowable deductions include, share of profits of listed associates and cash dividends from listed companies which are subjected to NLST. 5.17.2. Kuwait Foundation for the Advancement of Sciences (KFAS) The contribution to KFAS is calculated at 1% of taxable profit of the Group in accordance with the modified calculation based on the Foundation’s Board of Directors’ resolution, which states that income from Kuwaiti shareholding associates and subsidiaries, and transfer to statutory reserve should be excluded from profit for the year when determining the contribution. 5.17.3. Zakat Contribution to Zakat is calculated at 1% of the profit of the Group in accordance with the Ministry of Finance resolution No. 58/2007 effective from 10 December 2007. 5.18. Cash and cash equivalents For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalent as presented in the consolidated statement of financial position less due to banks and blocked bank balances.

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6 Significant management judgements and estimation uncertainty The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. 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. 6.1 Significant management judgments and estimation uncertainty In the process of applying the Group’s accounting policies, management has made the following significant judgments and estimations, which have the most significant effect on the amounts recognised in the consolidated financial statements. Actual results may be substantially different. 6.1.1 Impairment of loans and receivables The group’s management reviews periodically items classified as loans and receivables to assess whether a provision for impairment should be recorded in the profit or loss. In particular, considerable judgement by management is required in the estimation of amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgement and uncertainty. In 2011 the Group recognised impairment losses on loan and receivables (see note 14) 6.1.2 Impairment of inventories Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the degree of ageing or obsolescence, based on historical selling prices. Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices. At the financial position date, gross inventories were KD8,500,631 (2010: KD7,063,078), with provision for slow moving and obsolete inventories of KD340,000 (2010: KD137,436). Any difference between the amounts actually realised in future periods and the amount expected will be recognised in the consolidated statement of income. 6.1.3 Impairment of property, plant and equipment and intangible assets The carrying amounts of the group’s assets are reviewed at each financial position date to determine whether there is any indication or objective evidence of impairment or when annual impairment testing for an asset is required. If any such indication or evidence exists, the asset’s recoverable amount is estimated and an impairment loss is recognised in the consolidated statement of income whenever the carrying amount of an asset exceeds its recoverable amount. 6.1.4 Useful lives of property, plant and equipment and intangible assets The group’s management determines the estimated useful lives of its property and equipment and intangible assets for calculating depreciation and amortisation. This estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual value and useful lives annually and future depreciation and amortisation charge would be adjusted where the management believes the useful lives differ from previous estimates.

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7 Subsidiary company and foreign branch The private pharmaceuticals business in Kuwait (i.e. operations of pharmacies in Kuwait) is carried out by the company through a special purpose vehicle (a Kuwaiti Limited Liability Company) (“SPV”), incorporated specially for that purpose. During the year the subsidiaries activities have reduced considerably and consequently the sales of the subsidiary declined to KD959,318 from KD1,602,445 in 2010. The parent company plans to exit from the private pharmaceutical business in future as the management believes the resources could be used in other business opportunities which will increase overall shareholder value.

The details of the consolidated subsidiary company are as follows:

Country of

incorporation Percentage Ownership

Percentage Ownership

2011 2010

Arab Group for pharmaceutical and medical equipment Company-WLL Kuwait 100% 100% The parent company also has a foreign branch which carries out it’s pharmaceutical business in Iraq and it is treated as “foreign operations”. 8 General and administrative expenses and other charges.

2011 2010 KD KD

Staff costs 1,669,397 1,932,619 Depreciation and amortisation 333,531 353,792 Consultancy expenses 103,409 244,427 Travelling expenses 147,282 239,480 Rental – operating leases 462,964 321,741 Expired and damaged goods 196,314 80,563 Plant and equipment and intangible assets written off 15,829 107,156 Other expenses 691,952 640,680

3,620,678 3,920,458

9 Other income

2011 2010 KD KD

Gain on disposal of property, equipment and intangible assets 65,015 325 Income from reversal of old credit balances not claimed for - 10,054 Net commission income earned on services provided to an overseas supplier 83,389 41,891 Consultancy fees - 2,500 Compensation received for loss of agenises and other claims recovered from

agencies

192,717

- Interest income 2,288 1,494 Other miscellaneous income 12,695 10,511

356,104 66,775

10 Basic and diluted earnings per share Basic and diluted earnings per share is calculated by dividing the profit for the year by the weighted average number of shares outstanding during the year as follows: 2011 2010

Profit for the year (KD) 2,059,320 1,832,629

Weighted average number of ordinary shares (excluding treasury shares) 48,967,014 49,390,466

Basic and diluted earnings per share 42.1 Fils 37.1 Fils

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11 Property and equipment

Land (note 28)

Leasehold property

Motor vehicles

Furniture, fixtures and

office equipment

Capital work in

progress

Total 31 December 2011 KD KD KD KD KD KD Cost At 1 January 2011 782,775 12,674 130,737 598,427 1,392 1,526,005 Additions - - 26,610 258,515 205,751 490,876 Disposals - - (29,166) (303) - (29,469) Write-off - - - (60,972) - (60,972)

At 31 December 2011 782,775 12,674 128,181 795,667 207,143 1,926,440 Accumulated depreciation At 1 January 2011 - 12,674 98,063 303,463 - 414,200 Depreciation charge for the year - - 11,181 173,859 - 185,040 Relating to disposals - - (29,166) (168) - (29,334) Related to write-off - - - (54,768) - (54,768)

At 31 December 2011 - 12,674 80,078 422,386 - 515,138 Net book value at 31 December 2011 782,775 - 48,103 373,281 207,143 1,411,302 31 December 2010 Cost At 1 January 2010 782,775 12,674 118,897 527,704 24,500 1,466,550 Additions - - 11,840 338,290 1,392 351,522 Disposals - - - (4,500) - (4,500) Write-off - - - (263,067) (24,500) (287,567)

At 31 December 2010 782,775 12,674 130,737 598,427 1,392 1,526,005 Accumulated depreciation At 1 January 2010 - 12,674 89,402 426,567 - 528,643 Depreciation charge for the year - - 8,661 95,182 - 103,843 Relating to disposals - - - (4,125) - (4,125) Related to write-off - - - (214,161) - (214,161)

At 31 December 2010 - 12,674 98,063 303,463 - 414,200 Net book value at 31 December 2010 782,775 - 32,674 294,964 1,392 1,111,805

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12 Intangible assets

31 December 2011:

Trade licenses

Agency licenses

Key

Money

Total KD KD KD KD Cost At 1 January 485,236 909,110 201,500 1,595,846 Disposal - - (95,000) (95,000) Write-off - - (16,500) (16,500)

At 31 December 485,236 909,110 90,000 1,484,346 Accumulated amortization At 1 January 256,489 650,608 144,975 1,052,072 Charge for the year 23,144 105,447 19,900 148,491 Related to disposal - - (95,000) (95,000) Related to write-off - - (6,875) (6,875)

At 31 December 279,633 756,055 63,000 1,098,688 Net book value At 31 December 205,603 153,055 27,000 385,658

31 December 2010:

Trade

licenses

Agency licenses

Key

Money

Total KD KD KD KD Cost At 1 January 485,236 909,110 271,500 1,665,846 Write-off - - (70,000) (70,000)

At 31 December 485,236 909,110 201,500 1,595,846 Accumulated amortization At 1 January 233,345 468,786 136,242 838,373 Charge for the year 23,144 181,822 44,983 249,949 Related to write-off - - (36,250) (36,250)

At 31 December 256,489 650,608 144,975 1,052,072 Net book value At 31 December 228,747 258,502 56,525 543,774

During the year the group wrote off key money (paid for pharmacy premises) with a net book value of KD9,625 (2010: KD33,750) due to closure of the related pharmacy. 13 Inventories

2011 2010 KD KD

Goods for resale 8,160,631 6,914,354 Goods in transit - 11,288

8,160,631 6,925,642

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14 Accounts receivable and other assets 2011 2010 KD KD

Trade accounts receivable, net 14,148,669 12,470,180 Amounts due from overseas suppliers, net 1,438,589 1,430,689 Other receivables 156,506 590,671 Advances to local suppliers - 50,027 Prepaid expenses 66,628 55,692 Staff receivables 34,670 74,519

15,845,062 14,671,778

The group sells its products to a large number of pharmacies, hospitals, laboratories, private doctors and companies, as well as ministries in Kuwait. Its five largest customers account for 69% of outstanding accounts receivable balance at 31 December 2011 (2010: 76%). The amounts due from overseas suppliers include an amount of KD684,094 (2010: KD392,858) due in foreign currencies, mainly US dollar and Euro. The group’s normal terms of sales require amounts to be paid within 120 days of the date of sale. As accounts receivable are stated net of any required provision and are short term in nature, fair value approximates carrying value. As at 31 December 2011 trade receivables and amounts due from overseas suppliers are stated net of provision for doubtful dues amounting to KD214,284 (2010: KD94,724). During the year, the group has made an additional provision of KD154,673 and wrote off an amount of KD35,113 from the opening provision balance. As at 31 December, the analysis of trade receivables is as follows: 2011 2010 KD KD Neither past due nor impaired 8,097,571 5,726,749 Past due but not impaired - Less than 1 month 989,329 1,378,066 - 1 – 2 months 1,575,129 1,424,004 - 2 – 3 months 855,393 720,077 - 3 – 4 months 976,787 1,391,258 - over 4 months 1,654,460 1,830,026 Total trade receivables 14,148,669 12,470,180 Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the company to obtain collateral over receivables. The maximum credit exposure from a single counterparty amounts to KD9,346,063 (2010: KD8,983,499). 15 Cash and cash equivalents Cash and cash equivalents include the following balances:

2011 2010 KD KD

Bank balances and cash 2,874,159 888,143

Cash and cash equivalents 2,874,159 888,143

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15 Cash and cash equivalents (continued) Cash and bank balances include KD93,108 denominated in foreign currencies (2010: KD68,057). Bank balances are non-interest bearing accounts. 16 Share capital and treasury shares

a) Share capital At 31 December 2011, the parent company’s authorised, issued and paid up capital consisted of 50,000,000 shares of 100 fils each (2010: 50,000,000 shares of 100 fils each) in cash KD50,000 and in kind KD4,950,000. b) Treasury shares At 31 December 2011, the company held 1,115,000 shares (31 December 2010: 860,000 shares and) of its own shares, equivalent to 2.23% of the total issued share capital at that date (31 December 2010: 1.72%). The market value of these shares at the financial position date was KD602,100 (31 December 2010: KD253,700). Reserves of the company equivalent to the cost of the treasury shares are non-distributable.

17 Proposed cash dividend Subject to the requisite consent of the relevant authorities and approval from the general assembly, the parent company’s board of directors proposed a cash dividend of 27%, equivalent to 27 fils per share for the year ended 31 December 2011 (2010: 22 fils per share). The annual general assembly held on 17 April 2011 approved the proposed cash dividend for the year ended 31 December 2010 of 22 fils per share amounting to KD1,077,230 (31 December 2009: 20 fils per share amounting to KD988,400).

18 Reserves

a) Statutory reserve As required by the Commercial Companies Law and the parent company’s articles of association, 10% of the profit for the year before KFAS, NLST, Zakat and Board of directors’ remuneration is to be transferred to statutory reserve. The parent company may resolve to discontinue such annual transfers when the statutory reserve totals 50% of paid up share capital. Distribution of the reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when accumulated profits are not sufficient for the payment of a dividend of that amount. b) Voluntary reserve In accordance with parent company’s articles of association, a certain percentage of the parent company’s profit before KFAS, Zakat, NLST and directors’ remuneration, is to be transferred to the voluntary reserve at the discretion of the board of directors which is to be approved at the general assembly. For the year 2011 the board of directors propose to transfer 10% of the above mentioned profit to the voluntary reserve and this is subject to approval at the general assembly. There are no restrictions on distribution of voluntary reserve. 19 Provision for employees’ end of service indemnity The movement in respect of the employees’ end of service indemnity is as follows:

2011 2010 KD KD

Provision as at 1 January 602,288 597,485 Expense recognised in the consolidated statement of income 124,647 114,471 End of service indemnity paid (225,012) (109,668)

Provision as at 31 December 501,923 602,288

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25

20 Accounts payable and other liabilities 2011 2010 KD KD

Trade accounts payable 8,700,358 9,577,048 Other payables 303,373 823,483 Accrued expenses 302,623 378,580 Dividends payable 27,732 34,462

9,334,086 10,813,573

Trade accounts payable include KD7,463,974 (2010: KD7,254,434) denominated in US Dollars, KD904,712 (2010: KD937,219) in Euros and KD124,473 (2010: KD358,016) in Danish Kroner. 21 Short term borrowings

2011 2010 KD KD

During the year the parent company obtained short term Tawaroq facilities amounting to KD6,700,000 from local Islamic banks. The profit payable ranged from 1.5% to 1.75% (31 December 2010: 1.757% to 2%) per annum above Central Bank of Kuwait Discount rate. 22 Murabaha payables

2011 2010 KD KD

Gross amount 242,900 659,300 Less: deferred finance cost (59,344) (161,076)

183,556 498,224 Less: amount due within one year (183,556) (314,664)

Amount due after one year - 183,560

The fair value of murabaha payables approximates the carrying value. The effective rate of profit payable approximates 10.8% (31 December 2010: 10.8%) per annum.

Short term conventional loan - 419,000 Tawaroq facilities 8,771,353 2,000,000

8,771,353 2,419,000

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26

23 Related party transactions Related parties represent major shareholders, directors and key management personnel of the parent company and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the group’s management. Details of significant related party transactions and balances are as follows:

2011 2010 KD KD

Amount included in the consolidated statement of income Other income 11,300 - Rent expenses 212,183 15,525 Sales 744,823 324,895 Purchases 217,335 237,348 Consultancy expenses 103,409 38,153 Management fees 47,000 21,000 Amounts included in the consolidated statement of financial position Amounts due from related parties 537,225 - Amounts due to related parties - 83,458 Property and equipment purchased 153,275 169,975 Compensation of key management personnel of the group: Short term employee benefits 67,730 109,965 Terminal benefits 1,730 3,461 Board of directors’ remuneration 24,000 11,500 93,460 124,926

During the year the group transferred the management of two of its pharmacies to a related party.

32

Safw

an Trading and C

ontracting Com

pany – KS

C (C

losed) and Subsidiary

Kuw

ait 27

24

Segm

ental information

The group’s activities are concentrated in pharmaceuticals and geographically the G

roup’s activities are concentrated in two m

ain segments: D

omestic (K

uwait) and

International (Iraq). The analysis of segm

ent information is as follow

s:

31 D

ecember 2011

31 D

ecember 2010

D

omestic

International

Total

D

omestic

International

Total

K

D

KD

K

D

KD

KD

KD

Sales

25,164,254 3,275,044

28,439,298

26,546,589 1,747,240

28,293,829 C

ost of sales (21,864,792)

(2,119,284) (23,984,076)

(23,235,507)

(1,217,578) (24,453,085)

Gross profit

3,299,462 1,155,760

4,455,222

3,311,082 529,662

3,840,744 O

ther operating income

360,033 -

360,033

403,303 -

403,303 C

omm

ission earned from overseas suppliers

1,607,366 -

1,607,366

1,897,481 -

1,897,481 O

ther operating expenses (3,513,791)

(564,840) (4,078,631)

(3,723,140)

(451,298) (4,174,438)

Profit from operations

1,753,070 590,920

2,343,990

1,888,726 78,364

1,967,090

Other non operating incom

e

251,372

192,852

Finance costs

(407,915)

(229,027)

Profit before KFAS, NLST , Zakat and board of directors’

remuneration

2,187,447

1,930,915

Total assets 24,552,420

4,661,617 29,214,037

21,493,724

2,647,418 24,141,142

Total liabilities 18,017,106

773,812 18,790,918

13,782,925

721,427 14,504,352

Capital expenditure

449,380 41,496

490,876

319,361 32,161

351,522

Depreciation and am

ortisation 316,315

17,216 333,531

338,488

15,304 353,792

Property and equipment and intangible assets w

ritten off 15,829

- 15,829

107,156

- 107,156

Provision for slow m

oving and obsolete inventory and provision for doubtful debts

348,322 8,915

357,237

130,000 -

130,000

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25 Financial assets and liabilities

The carrying amounts of the group’s financial assets and liabilities as stated in the consolidated statement of financial position may also be categorized as follows:

2011 2010 KD KD Receivables: (at amortised cost)

Accounts receivable and other assets 15,845,062 14,671,778 Due from related party 537,225 - Cash and cash equivalents 2,874,159 888,143

19,256,446 15,559,921

Other financial liabilities: (at amortised cost) Accounts payable and other liabilities 9,334,086 10,813,573 Medium term payables - 87,809 Short term borrowings 8,771,353 2,419,000 Murabaha payables 183,556 498,224 Due to related parties - 83,458

18,288,995 13,902,064

Fair value represents amounts at which an asset could be exchanged or a liability settled on an arm’s length basis. In the opinion of the group’s management, the carrying amounts of financial assets and liabilities as at 31 December 2011 and 2010 approximate their fair values. 26 Risk management objective and policies The group’s principal financial liabilities comprise accounts payable and other liabilities , short term loan, Tawarroq facilities, murabaha payable and due to related parties. The main purpose of these financial liabilities is to raise finance for group’s operations. The group has various financial assets such as accounts receivable, other assets, due from related parties, cash and bank balances, which arise directly from operations.

The group’s activities expose it to variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The parent company’s board of directors sets out policies for reducing the risks discussed below.

The most significant financial risks to which the group is exposed are described below: 26.1 Market risk a) Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The group is mainly exposed to foreign currency risk on its trade payables and accounts receivable. At 31 December 2011: 85.8% (2010: 75.7%) of group’s trade payables were denominated in US Dollars. The group manages its currency risk based on the limits determined by management and a continuous assessment of the group’s open positions, current and expected exchange rate movements. The group’s significant net exposure to foreign currency denominated monetary assets less monetary liabilities at the reporting date, translated into Kuwaiti Dinars at the closing rates are as follows:

2011

Equivalent 2010

Equivalent KD KD

US Dollars (5,168,220) (6,876,436) Euro (756,411) (873,318) Other currencies 386,055 (353,664)

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29

26 Risk management objective and policies (continued) 26.1 Market risk (continued) a) Foreign currency risk (continued) The table below analyses the effect on profit of an assumed 5% strengthening in value of Kuwaiti Dinar against the other foreign currencies, from levels applicable at year end, with all other variables held constant. A negative amount in the table reflects a potential net reduction in profit, whereas a positive amount reflects a net potential increase. There is no direct impact on the group’s equity. Effect on profit before KFAS,

NLST, Zakat and Board of directors remuneration

2011 2010 KD KD

US Dollars 258,411 343,822 Euro 37,821 43,666 Other currencies (19,303) 17,683

Total profit 276,929 405,171 If the Kuwaiti Dinar had weakened against the foreign currencies by 5% (2010: 5%), then there would be an equal and opposite impact on the profit for the year, and the balances shown above would be negative. Exposures to foreign exchange rates vary during the year depending on the volume and nature of the transactions. Nonetheless, the analysis above is considered to be representative of the group’s exposure to the foreign currency risk. b) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is not exposed to any significant interest rate risk as of 31 December 2011, as the Group’s murabaha payables and tawaroq facilities are Islamic debt instruments which accrue profit at fixed rates up to maturity (refer note 21 and 22). c) Price risk Price risk arises from the possibility that changes in market prices will affect future profitability or fair value of financial instruments. The group has no significant financial assets which are exposed to price risk. 26.2 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. Credit risk arises in the group’s normal course of business. The group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring he group credit policy and exposure to credit risk on an ongoing basis. Where possible the group seeks to avoid undue concentrations of risks with individuals or groups of customers in specific locations or business through diversification.

The group’s exposure to credit risk is limited to the carrying amounts of financial assets recognised at the reporting date, as summarized below:

2011 2010 KD KD

Due from related party 537,225 - Accounts receivable and other assets 15,845,062 14,671,778 Cash and cash equivalents 2,874,159 888,143

19,256,446 15,559,921

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30

26 Risk management objective and policies (continued) 26.2 Credit risk (continued) Except for certain trade receivables as stated in note 14, none of the above financial assets are past due or impaired. The group continuously monitors defaults of customers and other counterparties, identified either individually or by company, and incorporates this information into its credit risk controls. The group’s policy is to deal only with creditworthy counterparties. The group’s management considers that all the above financial assets that are neither past due nor impaired for each of the reporting dates under review are of good credit quality.

None of the group's financial assets are secured by collateral or other credit enhancements.

The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable financial institutions with high credit quality. Information on significant concentrations of credit risk is set out in note 14. 26.3 Liquidity risk Liquidity risk is the risk that the group will be unable to meet its liabilities when they fall due. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain sources of funding to dry up immediately. To limit this risk, management has arranged diversified funding sources, manages assets with liquidity in mind and monitors liquidity on a regular basis. The group’s sales require amounts to be paid within 120 days of the date of sale. Trade payables are normally settled within 180 days from the date of purchase.

The table below summarises the contractual maturity of financial liabilities based on undiscounted cash flows:

Less than 3 months

3 to 12 months

1 to 5 years

Total

KD KD KD KD As at 31 December 2011 Murabaha payables - 242,900 - 242,900 Accounts payable and other liabilities 4,250,177 5,083,909 - 9,334,086 Short term borrowings - 8,792,174 - 8,792,174

Total 4,250,177 14,118,983 - 18,369,160

As at 31 December 2010 Medium term payables - 87,809 - 87,809 Murabaha payable 104,100 312,300 242,900 659,300 Accounts payable and other liabilities 5,876,132 4,937,441 - 10,813,573 Short term borrowings 2,275,207 171,250 - 2,446,457 Due to related parties - 83,458 - 83,458

Total 8,255,439 5,592,258 242,900 14,090,597

27 Capital risk management The primary objective of the group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholders’ value. The parent company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the parent company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 December 2011 and 31 December 2010. The group monitors capital using a gearing ratio, which is net debt divided by total equity plus net debt. The group includes within net debt, interest bearing borrowings, medium term payables, accounts payable and other liabilities and due to related parties less cash and cash equivalents; equity includes equity attributable to the shareholders of the group.

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27 Capital risk management (continued)

2011 2010 KD KD

Interest bearing borrowings 8,954,909 2,917,224 Medium term payables - 87,809 Accounts payable and other liabilities 9,334,086 10,813,573 Due to related parties - 83,458 Less: Cash and cash equivalents (2,874,159) (888,143)

Net debt 15,414,836 13,013,921

Equity 10,423,119 9,636,790

Equity and net debt 25,837,955 22,650,711

Gearing ratio 59.66% 57.45%

28 Commitments and contingent liabilities a) On 27 May 2010, the parent company entered into a contract to sell its freehold land with a carrying value

of KD782,775 for a sales consideration of KD775,000 which as per the contract was to be received on 10 October 2010. This sales amount was not received and accordingly negotiations were being made to reconsider that transaction. During October 2011 the parent company has agreed with all parties to terminate the contract by mutual consent.

The parent company has also agreed to pay an amount of KD201,631 for certain reinforcement, design

and architectural work carried out by the other parties on the construction of a building on the above land. Accordingly, this amount was included as part of additions to capital work in progress (note 11).

b) The group has future rental payment commitments which are due as follows:

2011 2010 KD KD

Within one year 189,960 74,520 1-4 years 549,925 282,555

739,885 357,075

c) At 31 December 2011, the group had contingent liabilities in respect of issued bank guarantees

amounting to KD4,745,945 (31 December 2010: KD4,483,526). 29 Comparative amounts Certain comparative amounts have been reclassified to conform to the presentation in the current year. Such reclassification does not affect previously reported net assets, net equity and net results for the year or net increase in cash and cash equivalents.

Message to shareholders - Safwan

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