Consolidated Financial Statements & Auditor's Report AWS
Annual Report 2006
Consolidated Financial Statements & Auditor's Report Year Ended December 31, 2006
13
14
Annual Report 2006
Annual Report 2006
15
16
Annual Report 2006
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2006 Note
2006 SR
2005 SR
178,561,251
117,273,184
294,625,996
275,479,180
ASSETS Current assets Cash and cash equivalents
3
Trade receivable Prepaid expenses and other receivables
4
76,645,704
57,611,860
Inventories
5
132,291,886
119,183,514
682,124,837
569,547,738
83,156,077
-
Total current assets Non-current assets Equity investments
6
Investments in available for sale securities
7
-
4,104,570
Property, plant and equipment
8
654,915,189
466,773,239
Intangible assets
9
364,978,790
357,142,858
Total non-current assets
1,103,050,056
828,020,667
TOTAL ASSETS
1,785,174,893
1,397,568,405
LIABILITIES AND EQUITY Current liabilities Murabaha and short term borrowings
10
10,000,000
51,560,351
Current portions of Murabaha and term loans
11
13,333,332
11,757,912
Deferred revenue
13
14,364,926
13,402,839
Obligations under capital lease ‑ current portion
14
46,800,000
18,800,000
Deferred gains on a sale and leaseback transactions ‑ current portion
14
60,578,375
22,090,651
Trade payables and other credit balances
12
202,553,910
183,609,211
Zakat and income tax
15
14,118,036
14,199,949
361,748,579
315,420,913
Total current liabilities Non-current liabilities Murabaha and term loans
11
20,000,001
-
Customers’ deposits
16
26,088,921
25,167,208
Trade payables
17
12,961,073
3,958,841
Obligations under capital lease ‑ non current portion
14
44,374,092
28,200,000
Deferred gains on a sale and leaseback transactions ‑ non current portion
14
51,256,145
31,651,390
End-of-service indemnities
18
73,854,523
63,804,185
Total non-current liabilities
228,534,755
152,781,624
TOTAL LIABILITIES
590,283,334
468,202,537
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
Annual Report 2006
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2006 Note
2006 SR
2005 SR
SHAREHOLDERS’ EQUITY Share capital
1
800,000,000
800,000,000
Statutory reserve
21
112,985,072
86,826,712
Contractual reserve
21
22,150,911
9,071,731
-
2,448,052
8,283,032
(1,891,386)
251,419,503
29,073,438
1,194,838,518
925,528,547
53,041
3,837,321
1,785,174,893
1,397,568,405
Unrealized gains on revaluation of investments in available for sale securities Foreign currency translation adjustments on investments in overseas subsidiaries
22
Retained earnings Total shareholders’ equity Minority interest TOTAL LIABILITIES AND EQUITY
20
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
17
18
Annual Report 2006
CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2006 2006 SR
2005 SR
Revenues
1,161,074,760
1,062,968,710
Costs of revenues
(685,420,116)
(663,909,601)
475,654,644
399,059,109
2,793,834
(678,806)
Note
GROSS PROFIT Income (losses) from equity investments Selling and marketing expenses
23
(34,713,633)
(20,826,255)
General and administration expenses
24
(148,598,373)
(132,407,282)
Professional and consulting fees
(17,793,533)
(14,916,034)
Amortization of intangible assets
(2,380,952)
(2,380,952)
Depreciation
(20,599,087)
(20,685,102)
INCOME FROM MAIN OPERATIONS
254,362,900
207,164,678
Financial charges
(13,294,022)
(11,587,085)
49,551,718
7,639,440
INCOME FROM CONTINUING OPERATIONS
290,620,596
203,217,033
Non recurring expenses
(15,857,040)
(3,793,499)
-
(6,707,756)
274,763,556
192,715,778
169,037
(633,684)
274,932,593
192,082,094
(13,348,988)
(10,647,467)
261,583,605
181,434,627
3.27
2.27
Other income, net
25
Loss from discontinued operations, net INCOME BEFORE MINORITY INTEREST AND ZAKAT AND INCOME TAX Minority interest
20
INCOME BEFORE ZAKAT AND INCOME TAX Zakat and income tax
15
NET INCOME Earnings per share
28
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
Annual Report 2006
19
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY YEAR ENDED DECEMBER 31, 2006 Foreign currency translation adjustments on investments in overseas subsidiaries SR
Retained earnings SR
Total SR
5,266,173
6,854,005
791,997,967
Share capital SR
Statutory reserve SR
General reserve SR
Contractual reserve SR
Unrealized gains on revaluation of investments in available for sale securities SR
January 1, 2005
600,000,000
80,777,002
90,780,000
7,126,247
1,194,540
Transfer to share capital
200,000,000
(12,093,753)
(90,780,000)
(7,126,247)
-
- (90,000,000)
-
Net income for 2005
-
-
-
-
-
- 181,434,627
181,434,627
Transfer to statutory reserve
-
18,143,463
-
-
-
- (18,143,463)
-
Transfer to contractual reserve
-
-
-
9,071,731
-
-
(9,071,731)
-
Unrealized gains on revaluation of investments in available for sale securities
-
-
-
-
1,253,512
-
-
1,253,512
Foreign currency translation adjustments, net
-
-
-
-
-
(7,157,559)
-
(7,157,559)
Dividends
-
-
-
-
-
- (42,000,000)
(42,000,000)
800,000,000
86,826,712
-
9,071,731
2,448,052
-
-
-
-
Note
December 31, 2005
1
Net income for 2006
(1,891,386)
29,073,438
925,528,547
-
- 261,583,605
261,583,605
Transfer to statutory reserve
21
-
26,158,360
-
-
-
- (26,158,360)
-
Transfer to contractual reserve
21
-
-
-
13,079,180
-
- (13,079,180)
-
-
-
-
-
(2,448,052)
-
-
(2,448,052)
-
-
-
-
-
10,174,418
-
10,174,418
800,000,000
112,985,072
-
22,150,911
-
Unrealized losses on revaluation of investments in available for sale securities, net Foreign currency translation adjustments, net
December 31, 2006
22
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
8,283,032 251,419,503 1,194,838,518
20
Annual Report 2006
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2006 2006 SR
2005 SR
274,932,593
192,082,094
Depreciation, amortization and impairment losses
45,227,189
38,827,073
Employees’ end-of-service indemnities
14,951,258
12,789,381
Income (loss) from equity investments
(2,793,834)
678,806
Gain from investments in available for sale securities
(2,443,529)
(466,658)
Receivables, prepayments and other receivables
(38,180,660)
(40,089,468)
Inventories
(13,108,372)
(65,343,870)
27,946,931
769,220
Deferred revenue
962,087
1,569,478
Customers’ deposits
921,713
1,117,533
308,415,376
141,933,589
(4,900,920)
(26,831,727)
Zakat and income tax paid
(13,430,901)
(6,650,197)
Net cash from operating activities
290,083,555
108,451,665
(93,275,517)
(20,090,483)
(130,000,000)
(55,226,628)
(7,712,670)
5,291,022
-
2,039,194
Equity investments
(80,362,243)
1,034,062
Goodwill
(10,216,884)
-
4,100,047
877,747
-
75,938
(317,467,267)
(65,999,148)
OPERATING ACTIVITIES Income before zakat and income tax Adjustments for:
Changes in operating assets and liabilities:
Trade payables and other credit balances
Cash from operations End-of-service indemnities paid
INVESTING ACTIVITIES Purchase of property, plant and equipment, net Leased assets Foreign currency adjustment on property, plant and equipment, net Exclusion of subsidiaries’ property, plant and equipment, net
Proceeds from sale of investments in available for sale securities Dividends received from investments in available for sale securities Net cash used in investing activities
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
Annual Report 2006
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2006 2006 SR
2005 SR
(19,984,930)
(141,142,260)
Minority interests
(3,784,280)
9,070,523
Foreign currency translation adjustments on investments in overseas subsidiaries
10,174,418
(7,157,559)
Deferred gains on sale and lease back transactions
58,092,479
53,742,041
Obligation under capital lease
44,174,092
47,000,000
-
(42,000,000)
Net cash from (used in) financing activities
88,671,779
(80,487,255)
NET CHANGE IN CASH AND CASH EQUIVALENTS
61,288,067
(38,034,738)
Cash and cash equivalents at the beginning of the year
117,273,184
155,307,922
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
178,561,251
117,273,184
FINANCING ACTIVITIES Murabaha, short term borrowing and term loans
Dividends paid
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2006 1. ORGANIZATION AND ACTIVITIES Saudi Research and Marketing Group (the Company) is a Saudi Joint Stock Company registered in Riyadh, Kingdom of Saudi Arabia under Commercial Registration number 1010087772 dated Rabi Al Awal 29, 1421 H (corresponding to July 1, 2000) with a branch in Jeddah with sub commercial registration number 1010087772/001 dated Dhul Quada 12, 1408 H (corresponding to June 27, 1988) and its registered head office is at P.O. Box 53108, Riyadh 11583. The Saudi Research and Marketing Group was converted from a limited liability company to a Joint Stock Company with subscription that is limited to its partners, as per the Ministry of Commerce and Industry’s Resolution No. 92 dated Muharram 27, 1421 H (corresponding to May 1, 2000) and under the commercial registration mentioned above. 30% of the
21
22
Annual Report 2006
Company’s share capital had been offered to the public on April 8, 2006. The share capital of the Company amounting to SR 800 million is divided into 80 million shares of SR 10 each as of December 31, 2006. (SR 800 million is divided into 80 million shares of SR 10 each as of December 31, 2005 after share split) (Note 28). The Company is engaged in trading, marketing, advertising, distribution, printing and publishing. The Company operates mainly in the Middle East, Europe and North Africa.
2. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in accordance with the Standard of General Presentation and Disclosure issued by the Ministry of Commerce and in compliance with the Accounting Standards issued by the Saudi Organization for Certified Public Accountants. The following is a summary of significant accounting policies applied by the Company: Accounting convention The consolidated financial statements are prepared under the historical cost convention except for investments in available for sale securities which are measured at fair value and investments in associates are accounted using the equity method. Use of estimates The preparation of consolidated financial statements by management requires the use of estimates and assumptions that affect the financial position and the results of operations and actual results ultimately may differ from those estimates.
Annual Report 2006
Basis of consolidation These consolidated financial statements include assets, liabilities and the results of the operations of Saudi Research and Marketing Group and its subsidiaries after eliminating all inter-company balances and transactions for the purpose of consolidation. Investment in investee company is classified as “a subsidiary” based on the level of control exercised by the Company compared to other owners from the actual date of exercising control. Following are the details of consolidated subsidiaries: The company effectively owns the following subsidiaries which are engaged in the same activities. Commercial Registration number
Country of incorporation
Direct and indirect shareholding
Intellectual Holding Company for Advertisement and Publicity – L.L.C.
1010119045
Saudi Arabia
100%
Scientific Works Holding Company – L.L.C.
1010119043
Saudi Arabia
100%
Saudi Printing and Packaging Company (formerly known as Al Madina Printing and Publication Company) L.L.C.
1010219709
Saudi Arabia
100%
Subsidiary companies
23
24
Annual Report 2006
The following subsidiaries are jointly owned by Intellectual Holding Company for Advertisement and Publicity and by Scientific Works Holding Company: Principal field of activities
Country of incorporation
Publishing
Saudi Arabia
Distribution
Saudi Arabia
Arab Media Company Limited and its subsidiaries (iii)
Media and papers advertising and promotional services
Saudi Arabia
Al Khaleejiah Advertising and Public Relations Company
Media and papers advertising and promotional services
Saudi Arabia
Trading in cosmetics, household instruments and printing supplies
Saudi Arabia
Trading in communication equipment and developing of software
Saudi Arabia
Specialized Publishing
Saudi Arabia
Subsidiary companies Saudi Research and Publishing Company and its subsidiaries (i) Saudi Distribution Company and its subsidiaries (ii)
Saudi Commercial Company Limited Ofoq Information Systems and Communication Company (in liquidation) Saudi Specialized Publishing Company
(i) This company owns 100% of subsidiaries registered outside the Kingdom of Saudi Arabia. (ii) This company owns subsidiaries registered in Kuwait and United Arab Emirates at 100% and 90% respectively. (iii) This company owns subsidiaries registered in Lebanon and Egypt at 100%. In addition, the Saudi Printing and Packaging Company owns 95% of Hala Printing Company (established in 2006) and 50% of Teabah Printing and Publishing Company (established in 2006); the remaining shares are owned by Saudi Research and Publishing Company. On Zul Qa’dah 27, 1427 H (corresponding to December 18, 2006) the partners of the Company resolved to proceed with the plan of offering 30% of the company’s shares to the public and resolved to change the name of the company from Al Madina Printing and Publication
Annual Report 2006
Company to “Saudi Printing and Packaging Company”. The legal formalities for changing the Company’s name have been completed subsequent to the balance sheet date.
Revenue Revenue is recognized upon delivery of goods to customers and is stated net of trade or quantity discounts, while subscription revenues are recognized over the period of subscriptions.
Expenses Selling and marketing expenses principally comprise of costs incurred to sell and market the Company’s products. All other expenses are classified as general and administration expenses. General and administration expenses include direct and indirect costs not specifically part of production costs as required under generally accepted accounting principles. Allocations between general and administrative expenses and cost of revenue, when required, are made on a consistent basis.
Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined, for work in progress, on a weighted average cost basis and includes cost of materials, labor and an appropriate proportion of direct overheads. Paper, printing materials, spare parts and other inventories are valued on a weighted average cost basis.
Property and equipment Property and equipment are stated at cost less accumulated depreciation. Expenditure on maintenance and repairs is expensed, while expenditure for betterment is capitalized. Depreciation is provided over the estimated useful lives of the applicable assets using the straight line method. The estimated depreciation rates of the principal classes of assets are as follows: % Buildings
2–3
Leasehold improvements
10 – 25
Computer and communication equipments
10 – 25
Printing machinery and equipments
5 – 10
Furniture and fixtures
7.5 – 25
Vehicles
15 – 25
25
26
Annual Report 2006
Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining term of the lease.
Intangible assets Mastheads: Mastheads represent the recorded value of the mastheads of the newspapers and magazines published by the Group. The Group, at each balance sheet date, tests the mastheads for impairment using fair value method. If any such indication exists, the recoverable amount of the asset is estimated in order to determine that the book value of masthead is recoverable. Impairment losses of mastheads are recognized as an expense in the consolidated statement of income once its book value exceeds its recoverable amount. Impairment loss shall not be subsequently reversed, unless such loss originally occurred as a result of special external events of an exceptional nature that not expected to be repelled, and the recoverable amount clearly related to such events. Goodwill: The goodwill represents the excess of the investment cost over the Company’s share in the fair value of the net assets of the subsidiary at the date of acquisition. The carrying amount of the goodwill is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the goodwill is reduced to the estimated recoverable amount and an impairment loss is recognized in the consolidated statement of income. Distribution and advertising rights: Capitalized distribution and advertising rights, being treated as intangible assets, are amortized over the estimated period of benefit, which is five years.
Impairment of non‑financial assets At each balance sheet date, the carrying amounts of tangible and intangible assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. If the recoverable amount of an assets or cashgenerating unit is estimated to be less than its carrying amount, the carrying amount of the assets or cash-generating unit is reduced to its recoverable
Annual Report 2006
amount. Impairment loss is recognized as an expense in the consolidated statement of income immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the assets or cashgenerating unit in prior years. A reversal of an impairment loss is recognized as income immediately in the consolidated statement of income.
Investment in associated companies Investments in companies which are at least 20% owned and in which the Company exercises significant influence are accounted for using the equity method of accounting. The Company’s share in the associated companies’ net income/losses for the year is included in the consolidated statement of income. Equity method of accounting is stopped if the investment balance for the investee company becomes nil due to continuing losses of such companies (unless the Group has guaranteed the obligations of such a company or is obliged to provide additional financial support).
Investments in available for sale securities Investments, that are bought neither with the intention of being held to maturity nor for trading purposes, are stated at fair value and are included under current assets unless they will not be sold in the next fiscal year. Changes in fair value are credited or charged to the consolidated statement of changes in shareholders’ equity. Any decline in value considered to be other than temporary is charged to the consolidated statement of income. Fair value is determined by reference to the market value if an open market exists. Otherwise, cost is considered to be the fair value. Where partial holdings are sold, these are accounted for on a weighted average basis.
Derivative financial instruments and hedging The Group uses derivative financial instruments such as currency options to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognized at cost on the date on which a derivative contract is entered into and are subsequently re‑measured at fair value. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the consolidated statement of income. The fair value of currency options is calculated by reference to quoted market prices. If market prices are not readily available, fair value determined by using other estimated basis, as appropriate.
27
28
Annual Report 2006
In relation to cash flow hedges which meet the criteria for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized initially under shareholders’ equity and the ineffective portion, if any, is recognized in the statement of income. Hedges of a net investment in foreign operations resulting in translation adjustment from translating obligations to Saudi Riyals are recognized directly in equity. Hedge accounting is discontinued when the hedging instrument is expired or sold. At that point of time, any cumulative gain or loss on the cash flow hedging instrument that was recognized is retained in shareholders’ equity until the forecasted transaction occurs.Where the hedged forecasted transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the consolidated statement of income.
Operating leases Leases are classified as a capital lease when the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Any excess of the selling price over the carrying amount is deferred and amortized on a straight line basis over the lease term. The sale and leaseback transaction is capitalized at the present value of the minimum lease payments at the inception of the lease term. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Operating lease payments are recognized as an expense in the consolidated statement of income on a straight line basis over the lease term.
Zakat and income tax The Company and its subsidiaries are subject to the Regulations of the Directorate of Zakat and Income Tax (“DZIT”) in the Kingdom of Saudi Arabia. The zakat charge is computed on the zakat base. Any difference in the estimate is recorded when the final assessment is approved, at which time the provision is cleared. Overseas subsidiaries, provide for income tax liabilities, if any, in accordance with the regulations of the countries in which they operate. Zakat and income tax provision is charged to the consolidated statement of income.
Foreign currency transactions Transactions in foreign currencies are recorded in Saudi Riyals at the rate ruling at the date of the
Annual Report 2006
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income. For consolidation purposes, the financial statements of overseas subsidiaries’ operations are translated into Saudi Riyals using the exchange rate at the balance sheet date, for assets and liabilities, and the average exchange rate for each period for revenues, expenses, gains and losses. Components of equity, other than retained earnings, are translated at the rate ruling at the date of occurrence of each component. Translation adjustments are recorded as a separate component of shareholders’ equity, if significant.
End-of-service indemnities End-of-service indemnities are provided in the financial statements based on the Company’s internal policy and Saudi Arabia labor law and applicable laws for employees working with subsidiaries outside Saudi Arabia.
Cash and cash equivalents Cash and cash equivalents consist of bank balances, cash on hand and time deposits with original maturities of three months or less.
Dividends Profit distributions are recorded in the year in which the General Assembly approves such distributions.
3. CASH AND CASH EQUIVALENTS 2006 SR
2005 SR
Bank balances and cash
84,277,414
65,007,075
Time deposits
94,283,837
52,266,109
178,561,251
117,273,184
4. PREPAID EXPENSES AND OTHER RECEIVABLES 2006 SR
2005 SR
Prepaid expenses
46,195,898
25,044,649
Accrued income
6,266,257
4,916,328
Other receivables
24,183,549
27,650,883
76,645,704
57,611,860
29
30
Annual Report 2006
5. INVENTORIES 2006 SR
2005 SR
105,812,831
72,475,740
Goods in transit
2,668,844
20,921,453
Work in progress
5,919,015
12,934,973
Spare parts
6,934,253
6,797,580
10,430,541
5,646,156
526,402
407,612
132,291,886
119,183,514
Printing papers
Printing materials Others
The spare parts inventory primarily relates to plant and machineries, accordingly this inventory is expected to be utilized over a period exceeding one year.
6. EQUITY INVESTMENTS Equity investments comprise of the following:
United Printing & Publishing Company (a) Moutamarat Company (b)
2006 SR
2005 SR
83,156,077
-
-
-
83,156,077
-
(a) During the year 2006, the Company acquired 40% of the share capital of United Printing & Publishing Company (UPP), registered in Abu Dhabi, with a capital amounting to AED 20 million divided into 20,000 shares. On May 15, 2006, the shareholders of UPP resolved to increase the company’s capital to AED 192,625,226. The Company has paid in full its share in the company’s capital amounting to AED 77,050,090. The legal formalities relating to the capital increase was in process as of the balance sheet date. (b) During the year 2006, the Company acquired 49% of the share capital of Moutamarat Company (limited liability company), registered in Dubai. The capital of Moutamarat Company is AED 1.5 million divided into 1,500 shares each AED 1,000. As of December 31, 2006, the Company has provided in full against the investment.
Annual Report 2006
7. INVESTMENTS IN AVAILABLE FOR SALE SECURITIES This represents investments in quoted securities. 2006 SR
2005 SR
January 1
1,656,518
2,143,545
Disposals
(1,656,518)
(487,027)
-
1,656,518
2,448,052
1,194,539
(4,523)
1,644,233
(2,443,529)
(390,720)
December 31
-
2,448,052
Book value
-
4,104,570
Cost
December 31 Valuation adjustment January 1 Unrealized (loss)/gains during the year Transfer to the statement of income
31
32
Annual Report 2006
8. PROPERTY, PLANT AND EQUIPMENT
Land SR
Leasehold Buildings improvements SR SR
Printing Computers and machinery communication and equipment equipments SR SR
Furniture and fixtures SR
Motor vehicles SR
Capital projects SR
Total SR
Cost January 1, 2006
82,898,153
378,941,874
23,857,404
341,135,811
171,751,508
74,412,925
46,760,930
835,690 1,120,594,295
Foreign currency adjustment, net
-
4,592,796
1,046,679
4,630,140
6,444,103
6,222
75,726
-
16,795,666
Additions
-
5,230,880
13,642,802
83,303,907
4,555,796
6,319,066
10,680,962
4,720,643
128,454,056
Disposals
(12,656,250)
(22,297,274)
-
(13,612,331)
(3,969,987)
(900,605)
(6,811,679)
(687,401)
(60,935,527)
Transfers
-
-
245,351
-
-
-
-
(53,924)
191,427
Leased assets
108,875,560
21,124,440
-
-
-
-
-
-
130,000,000
December 31, 2006
179,117,463
387,592,716
38,792,236
415,457,527
178,781,420
79,837,608
50,705,939
23,797,100
175,077,186
17,524,511
192,067,267
150,842,334
66,757,822
27,754,836
-
653,821,056
Foreign currency adjustment, net
-
960,409
497,841
1,570,394
5,994,241
16,454
43,657
-
9,082,996
Additions
-
5,410,758
968,968
12,585,994
7,266,146
3,401,411
6,949,901
-
36,583,178
Disposals
-
(1,173,286)
-
(13,612,323)
(3,774,149)
(792,108)
(6,213,695)
-
(25,565,561)
Impairment losses
-
-
-
6,263,059
-
-
-
-
6,263,059
23,797,100
180,275,067
18,991,320
198,874,391
160,328,572
69,383,579
28,534,699
-
680,184,728
December 31, 2006
155,320,363
207,317,649
19,800,916
216,583,136
18,452,848
10,454,029
22,171,240
4,815,008
654,915,189
December 31, 2005
59,101,053
203,864,688
6,332,893
149,068,544
20,909,174
7,655,103
19,006,094
835,690
466,773,239
4,815,008 1,335,099,917
Depreciation and impairment losses January 1, 2006
December 31, 2006 Net book value
Property, plant and equipments includes assets sold and leased back, which has cost and net book value amounting to SR 185 million and SR 183 million respectively (Note 14) as of December 31, 2006.
Annual Report 2006
9. INTANGIBLE ASSETS 2006 SR
2005 SR
Mastheads
350,000,000
350,000,000
Goodwill
10,216,884
-
4,761,906
7,142,858
364,978,790
357,142,858
Distribution rights
10. MURABAHA AND SHORT TERM BORROWINGS Saudi Research and Marketing Group (the Company) has a Group Treasury Department to which most of the subsidiaries remit their receipts as and when necessary.The Group Treasury Department obtains credit facilities on behalf of these subsidiaries under a master bank facility with local banks. The Murabaha and short term loans balance represents credit facilities outstanding and used by the Group companies.
11. MURABAHA AND TERM LOANS
Murabaha/term loans Less: Current portion from Murabaha/term loans
2006 SR
2005 SR
33,333,333
11,757,912
(13,333,332)
(11,757,912)
20,000,001
-
Following is a repayment schedule of the Murabaha installments: Year
SR
2007
13,333,332
2008
13,333,332
2009
6,666,669 33,333,333
The Murabaha is repayable in 5 equal semi annual installments of SR 6,666,667 each commencing March 27, 2007 with the last installment maturing on September 27, 2009. Installments due within one year from the balance sheet date are shown under current liabilities.
33
34
Annual Report 2006
12.TRADE PAYABLE AND OTHER CREDIT BALANCES
Trade and notes payable Accrued expenses Other payables
2006 SR
2005 SR
46,608,306
68,967,870
122,309,862
93,959,839
33,635,742
20,412,807
-
268,695
202,553,910
183,609,211
Amounts due to related parties
13. DEFERRED REVENUE Deferred revenue represents subscriptions received in advance. This amount will be recognized as revenue in the subsequent period over the period of subscriptions.
14. OBLIGATIONS UNDER CAPITAL LEASE During the year ended December 31, 2005, the Group has sold and leased back the shares of Media Investment Limited (a leased subsidiary company) for an amount of SR 66,000,000, which has resulted in a deferred gain of SR 55,226,628.The excess of the present value of the minimum lease payments over the carrying amount of the leased subsidiary company’s net assets (asset adjustments) amounting to SR 55,226,628 was allocated to the leased subsidiary’s building and depreciated over 40 years. The asset adjustments depreciation for the year ended December 31, 2006 was amounted to SR 1,385,089 (2005: SR 115,424). During 2006, one of the Group’s subsidiaries sold its land and building to a local bank for SR 130 million through sale-leaseback agreement with the option-to-buy at the end of the lease period, which resulted in a deferred gain of SR 96,219,760. Minimum lease payments under capital leases are as follows: 2006 SR
2005 SR
2007
57,192,446
21,561,096
2008
39,360,143
20,261,128
2009
7,120,575
9,646,638
Net minimum lease payments under capital lease
103,673,164
51,468,862
Less: Financial charges
(12,499,072)
(4,468,862)
91,174,092
47,000,000
(46,800,000)
(18,800,000)
44,374,092
28,200,000
Present value of net minimum lease payments Less: Current portion
Annual Report 2006
The unrecognized gains on the sale and leaseback transactions represent deferred gains for the shares of Media Investment Limited and for land and building for one of the Group’s subsidiaries, which is recognized on a straight line basis. 2006 SR
2005 SR
Total deferred gains on the sale and leaseback transactions
149,961,801
55,226,628
Gains recognized during the year
(38,127,281)
(1,484,587)
111,834,520
53,742,041
(60,578,375)
(22,090,651)
51,256,145
31,651,390
2006 SR
2005 SR
12,597,029
11,981,915
1,521,007
2,218,034
14,118,036
14,199,949
Less: Current portion
15. ZAKAT AND INCOME TAX
Zakat Income tax
The consolidated zakat liability of the Group for the year represents the zakat on Saudi Research and Marketing Group, in addition to the Group’s share in the zakat liabilities of its subsidiaries. The movement in the zakat provision during the year is as follows: 2006 SR
2005 SR
January 1
11,981,915
7,252,130
Provision for the year
14,114,917
10,370,474
(13,499,803)
(5,640,689)
12,597,029
11,981,915
Payments during the year December 31
The Company and its subsidiaries has filed the zakat returns up to year 2005. Management believes that adequate provision has been made for any liability to the Department of Zakat and Income Tax (DZIT) that may arise upon the settlement of any amounts due, based on the final zakat assessments.
35
36
Annual Report 2006
16. CUSTOMERS’ DEPOSITS These represent amounts received from the distribution outlets for selling newspapers and other publications.
17. LONG TERM PAYABLES These represent amounts relating to equipments and vehicles purchased on installment basis. No commission is charged on these amounts. The balance is payable in variable monthly installments.The installments due in 2007 are included as part of trade payables and other credit balances.
18. END-OF-SERVICE INDEMNITIES The movement in the provision during the year is as follows: 2006 SR
2005 SR
January 1
63,804,185
77,846,531
Provision for the year
14,951,258
12,789,381
Payments during the year
(4,900,920)
(26,831,727)
December 31
73,854,523
63,804,185
19. RELATED PARTY TRANSACTIONS No major transactions have been made with related parties during the year, except for: 2006 SR
2005 SR
Purchase of property and equipment
8,847,000
6,453,600
Executive Board of directors’ salaries and remunerations
8,630,000
8,265,042
211,420
-
Allowance and board of directors’ expenses
20. MINORITY INTEREST Minority interest represents the part of the net results of operations and of net assets of the subsidiaries attributable to interests, which are not owned, directly or indirectly through subsidiaries, by the parent company.
Annual Report 2006
The minority partners’ share in subsidiaries is analyzed as follows: Kuwaiti Group for Publishing and Distribution Company SR
Emirates Printing, Publishing and Distribution Company SR
2006 SR
2005 SR
3,615,243
222,078
3,837,321
(5,233,202)
Exclusion of unconsolidated subsidiaries
-
-
-
9,562,166
Share in subsidiaries’ earnings/(losses)
-
(169,037)
(169,037)
633,684
(3,615,243)
-
(3,615,243)
-
-
-
-
(1,125,327)
-
53,041
53,041
3,837,321
At the beginning of the year
Settlements and payments during the year Dividends
21. RESERVES Statutory reserve In accordance with Saudi Arabian Regulations for Companies, 10% of net income for the year has been transferred to the statutory reserve. The Company may resolve to discontinue such transfers when the reserve totals 50% of the share capital. The statutory reserve is not available for distribution. Contractual reserve In accordance with the Articles of Association, the Company must set aside 5% of its net income for the year to the contractual reserve until it has built up a reserve equals to 25% of the share capital.The contractual reserve may be used for any purpose authorized by the Board of Directors.
22. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON INVESTMENTS IN OVERSEAS SUBSIDIARIES The translation adjustments comprise all
37
38
Annual Report 2006
foreign exchange differences arising from translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the Group’s net investments in foreign subsidiaries.
23. SELLING AND MARKETING EXPENSES 2006 SR
2005 SR
7,075,690
4,967,367
16,009,937
8,877,953
1,426,312
177,181
-
472,541
Provision for doubtful debts
8,175,239
6,028,669
Other
2,026,455
302,544
34,713,633
20,826,255
Salaries, wages and benefits Promotion Seminars and advertising Marketing research
24. GENERAL AND ADMINISTRATION EXPENSES 2006 SR
2005 SR
Salaries, wages and benefits
99,533,791
88,030,332
Rent
10,298,982
7,394,063
Maintenance
7,601,290
5,548,032
Postal, telephone and fax
4,987,056
4,256,855
Insurance
3,390,295
3,507,279
Travel expenses
3,431,057
3,187,138
Electricity and water
2,595,253
2,325,693
Stationery
2,202,970
2,118,091
Shipping, packing and customs
1,749,583
1,593,030
550,000
1,000,000
12,258,096
13,446,769
148,598,373
132,407,282
Provision for slow moving inventories Other
Annual Report 2006
25. OTHER INCOME - NET 2006 SR
2005 SR
405,083
(2,759,135)
Earned commission
1,814,889
2,528,600
Freight income
2,047,923
1,905,768
38,127,281
1,484,587
2,443,529
466,658
-
1,136,048
Rental income
1,016,172
821,018
Gain on disposal of property, plant and equipment
1,398,311
617,696
Miscellaneous – net
2,298,530
1,438,200
49,551,718
7,639,440
Gain (loss) on foreign currency translation
Gains on a sale and leaseback transactions Gains from investments in available for sale securities Unrealized gain on revaluation of financial instruments
26. SEGMENT INFORMATION These are attributable to the Group’s activities and business as approved by the management to be used as a basis for the financial reporting and being consistent with the internal reporting process. Transactions between the business segments are conducted on an arm length basis. The segment results and assets comprise items that are directly attributable to certain segment and items that can reasonably be allocated between various business segments. Unallocated items are included under “other”. The Group is organized into the following main business segments: Publishing incorporating the local and international publishing works, researches and marketing of the products of the Group and others. Distribution comprises distribution of newspapers, magazines, publications and books locally and internationally and to the Group and others.
39
40
Annual Report 2006
Advertising includes local and international advertising, production, representation and marketing of the audio visual and machine readable advertising media, advertising signs and books locally and internationally. Printing comprises printing works to the Group and to others. Other comprises head office, general management, investing activities and others. Publishing SR
Distribution SR
Advertising SR
Printing SR
Other SR
Total SR
Elimination SR
Consolidation SR
Revenue
930,717,266
356,605,642
569,047,051
324,853,969
596,757
2,181,820,685 (1,020,745,925)
1,161,074,760
Gross profit
187,315,195
53,347,621
110,075,139
127,710,144
596,757
479,044,856
(3,390,212)
475,654,644
Net book value of property, plant and equipment
180,570,344
28,520,198
20,634,346
410,453,819
14,736,482
654,915,189
-
654,915,189
Total assets
415,539,393
125,661,999
283,133,897
820,959,993
1,351,232,919
2,996,528,201 (1,211,353,308)
1,785,174,893
Total liabilities
201,579,187
88,852,709
160,509,356
225,366,889
173,011,233
849,319,374
(259,036,040)
590,283,334
Revenue
851,162,380
372,675,858
517,927,328
262,247,470
768,346
2,004,781,382
(941,812,672)
1,062,968,710
Gross profit
138,642,229
55,829,565
111,676,719
93,828,680
768,346
400,745,539
(1,686,430)
399,059,109
Net book value of property, plant and equipment
165,470,401
26,731,239
22,254,319
237,492,401
14,824,879
466,773,239
-
466,773,239
Total assets
288,485,812
113,625,685
440,016,473
435,360,876
1,016,878,369
2,294,367,215
(896,798,810)
1,397,568,405
Total liabilities
173,694,078
85,408,814
156,793,130
112,782,021
108,403,866
637,081,909
(168,879,372)
468,202,537
As of December 31, 2006
As of December 31, 2005
Substantially, all the Group’s operating assets are located in the Kingdom of Saudi Arabia. Principal markets for the Group’s products are the Middle East, Europe and North Africa. It is not practicable to disclose information to individual geographic areas.
27. CONTINGENT LIABILITIES Certain of the Group’s subsidiaries are involved in various litigation matters in the ordinary course of business, which are being defended. While the ultimate results of these matters cannot be determined with certainty, management does not expect that they will have a material adverse effect on the consolidated financial statements of the Group.
Annual Report 2006
The Group’s bankers have issued on its behalf, bank guarantees amounting to SR 43.2 million (2005: SR 59.8 million), in the normal course of business.
28. EARNINGS PER SHARE In accordance with the Capital Market Authority’s resolution No. 4/154/2006 dated Safar 27, 1427 H (corresponding to March 27, 2006) based on the Council of Minister’s resolution for shares split of the joint stock companies, the nominal value of the Company’s share would be SR 10 instead of SR 50 and accordingly, the Company’s shares became 80 million effective April 8, 2006. Earnings per share is calculated by dividing the net income for the year by weighted average number of shares outstanding for the year ended December 31, 2006 of 80 million shares.The earnings per share for 2005 have been adjusted retrospectively to reflect the bonus shares of 2005 and the split of shares on April 8, 2006.
29. OPERATING LEASES Minimum committed non cancelable lease payments for operating leases are: 2006 SR
2005 SR
Less than one year
2,037,130
5,778,935
Between one and five years
4,116,799
5,089,212
More than five years
5,726,820
1,272,303
11,880,749
12,140,450
During the current year SR 10,298,982 (2005: SR 7,394,063) was recognized as an expense in the consolidated statement of income in respect of operating leases.
30. RISK MANAGEMENT Interest rate risk The Group has no significant interest bearing long term assets, but has interest bearing liabilities at December 31, 2006. The Group manages its interest rate risk by keeping floating rate long term loans at an acceptable level. Credit risk The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables. Investments are allowed only in liquid securities with counterparties that have a sound credit rating. At the balance sheet date, no significant concentration of credit risk was assessed.
41
42
Annual Report 2006
Liquidity risk The Group limits its liquidity risk by ensuring bank facilities are available. Currency risk Exposure currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used to reduce exposure to fluctuations in foreign exchange rates. While these are subject to the risk of market rates changing subsequent to acquisition, such changes are generally offset by opposite effects on the items being hedged. The Group is exposed to foreign currency risk on expenses that are denominated in a currency other than Saudi Riyal. The currency giving rise to this risk is primarily Pounds Sterling. At any point in time the Group hedges all of its estimated foreign currency exposure in respect of forecasted expenses over the following months. The Group uses currency options to hedge its foreign currency risk. Most of the currency options contracts have expiration dates of less than one year. The Group classifies its currency options as cash flow hedges and states them at fair value. The fair value of currency option at the balance sheet date was nil. In respect of other monetary assets and liabilities held in currencies other than Saudi Riyals, the Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rate where necessary. The Group’s Pound Sterling denominated payable balance is designated as a hedge of the Group’s investments in its subsidiaries in the United Kingdom. A foreign exchange gain of SR 3.7 million (Loss in 2005: SR 1.3 million) was recognized in equity as translation of the payable balance to Saudi Riyal.
31. FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm’s length transaction. Financial instruments comprise of financial assets, financial liabilities and derivatives. The Group’s financial assets consist of cash and cash equivalents and receivables. Its financial liabilities consist of term loans, payables, accrued expenses and obligations under capital lease. Its derivatives consist of currency options and commission rate swaps. The fair values of financial instruments are not materially different from their carrying values.
Annual Report 2006
32.APPROVAL OF FINANCIAL STATEMENTS AND APPROPRIATION OF NET INCOME The Board of Directors, in its meeting held on Muharram 19, 1428 H (corresponding to February 7, 2007), approved the consolidated financial statements and proposed distribution of dividends of SR 160 million (SR 2 per share) and transfer the remaining balance of the net income for the year after the appropriations of the statutory and the contractual reserves to the retained earnings. The above are subject to the approval of the shareholders at the Annual General Meeting.
33. COMPARATIVE FIGURES Certain figures for 2005 have been reclassified to conform with the presentation in the current year.
43
Consolidated Financial Statements & Auditor's Report Year Ended December 31, 2006
13
14
Annual Report 2006
Annual Report 2006
15
16
Annual Report 2006
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2006 Note
2006 SR
2005 SR
178,561,251
117,273,184
294,625,996
275,479,180
ASSETS Current assets Cash and cash equivalents
3
Trade receivable Prepaid expenses and other receivables
4
76,645,704
57,611,860
Inventories
5
132,291,886
119,183,514
682,124,837
569,547,738
83,156,077
-
Total current assets Non-current assets Equity investments
6
Investments in available for sale securities
7
-
4,104,570
Property, plant and equipment
8
654,915,189
466,773,239
Intangible assets
9
364,978,790
357,142,858
Total non-current assets
1,103,050,056
828,020,667
TOTAL ASSETS
1,785,174,893
1,397,568,405
LIABILITIES AND EQUITY Current liabilities Murabaha and short term borrowings
10
10,000,000
51,560,351
Current portions of Murabaha and term loans
11
13,333,332
11,757,912
Deferred revenue
13
14,364,926
13,402,839
Obligations under capital lease ‑ current portion
14
46,800,000
18,800,000
Deferred gains on a sale and leaseback transactions ‑ current portion
14
60,578,375
22,090,651
Trade payables and other credit balances
12
202,553,910
183,609,211
Zakat and income tax
15
14,118,036
14,199,949
361,748,579
315,420,913
Total current liabilities Non-current liabilities Murabaha and term loans
11
20,000,001
-
Customers’ deposits
16
26,088,921
25,167,208
Trade payables
17
12,961,073
3,958,841
Obligations under capital lease ‑ non current portion
14
44,374,092
28,200,000
Deferred gains on a sale and leaseback transactions ‑ non current portion
14
51,256,145
31,651,390
End-of-service indemnities
18
73,854,523
63,804,185
Total non-current liabilities
228,534,755
152,781,624
TOTAL LIABILITIES
590,283,334
468,202,537
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
Annual Report 2006
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2006 Note
2006 SR
2005 SR
SHAREHOLDERS’ EQUITY Share capital
1
800,000,000
800,000,000
Statutory reserve
21
112,985,072
86,826,712
Contractual reserve
21
22,150,911
9,071,731
-
2,448,052
8,283,032
(1,891,386)
251,419,503
29,073,438
1,194,838,518
925,528,547
53,041
3,837,321
1,785,174,893
1,397,568,405
Unrealized gains on revaluation of investments in available for sale securities Foreign currency translation adjustments on investments in overseas subsidiaries
22
Retained earnings Total shareholders’ equity Minority interest TOTAL LIABILITIES AND EQUITY
20
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
17
18
Annual Report 2006
CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2006 2006 SR
2005 SR
Revenues
1,161,074,760
1,062,968,710
Costs of revenues
(685,420,116)
(663,909,601)
475,654,644
399,059,109
2,793,834
(678,806)
Note
GROSS PROFIT Income (losses) from equity investments Selling and marketing expenses
23
(34,713,633)
(20,826,255)
General and administration expenses
24
(148,598,373)
(132,407,282)
Professional and consulting fees
(17,793,533)
(14,916,034)
Amortization of intangible assets
(2,380,952)
(2,380,952)
Depreciation
(20,599,087)
(20,685,102)
INCOME FROM MAIN OPERATIONS
254,362,900
207,164,678
Financial charges
(13,294,022)
(11,587,085)
49,551,718
7,639,440
INCOME FROM CONTINUING OPERATIONS
290,620,596
203,217,033
Non recurring expenses
(15,857,040)
(3,793,499)
-
(6,707,756)
274,763,556
192,715,778
169,037
(633,684)
274,932,593
192,082,094
(13,348,988)
(10,647,467)
261,583,605
181,434,627
3.27
2.27
Other income, net
25
Loss from discontinued operations, net INCOME BEFORE MINORITY INTEREST AND ZAKAT AND INCOME TAX Minority interest
20
INCOME BEFORE ZAKAT AND INCOME TAX Zakat and income tax
15
NET INCOME Earnings per share
28
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
Annual Report 2006
19
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY YEAR ENDED DECEMBER 31, 2006 Foreign currency translation adjustments on investments in overseas subsidiaries SR
Retained earnings SR
Total SR
5,266,173
6,854,005
791,997,967
Share capital SR
Statutory reserve SR
General reserve SR
Contractual reserve SR
Unrealized gains on revaluation of investments in available for sale securities SR
January 1, 2005
600,000,000
80,777,002
90,780,000
7,126,247
1,194,540
Transfer to share capital
200,000,000
(12,093,753)
(90,780,000)
(7,126,247)
-
- (90,000,000)
-
Net income for 2005
-
-
-
-
-
- 181,434,627
181,434,627
Transfer to statutory reserve
-
18,143,463
-
-
-
- (18,143,463)
-
Transfer to contractual reserve
-
-
-
9,071,731
-
-
(9,071,731)
-
Unrealized gains on revaluation of investments in available for sale securities
-
-
-
-
1,253,512
-
-
1,253,512
Foreign currency translation adjustments, net
-
-
-
-
-
(7,157,559)
-
(7,157,559)
Dividends
-
-
-
-
-
- (42,000,000)
(42,000,000)
800,000,000
86,826,712
-
9,071,731
2,448,052
-
-
-
-
Note
December 31, 2005
1
Net income for 2006
(1,891,386)
29,073,438
925,528,547
-
- 261,583,605
261,583,605
Transfer to statutory reserve
21
-
26,158,360
-
-
-
- (26,158,360)
-
Transfer to contractual reserve
21
-
-
-
13,079,180
-
- (13,079,180)
-
-
-
-
-
(2,448,052)
-
-
(2,448,052)
-
-
-
-
-
10,174,418
-
10,174,418
800,000,000
112,985,072
-
22,150,911
-
Unrealized losses on revaluation of investments in available for sale securities, net Foreign currency translation adjustments, net
December 31, 2006
22
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
8,283,032 251,419,503 1,194,838,518
20
Annual Report 2006
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2006 2006 SR
2005 SR
274,932,593
192,082,094
Depreciation, amortization and impairment losses
45,227,189
38,827,073
Employees’ end-of-service indemnities
14,951,258
12,789,381
Income (loss) from equity investments
(2,793,834)
678,806
Gain from investments in available for sale securities
(2,443,529)
(466,658)
Receivables, prepayments and other receivables
(38,180,660)
(40,089,468)
Inventories
(13,108,372)
(65,343,870)
27,946,931
769,220
Deferred revenue
962,087
1,569,478
Customers’ deposits
921,713
1,117,533
308,415,376
141,933,589
(4,900,920)
(26,831,727)
Zakat and income tax paid
(13,430,901)
(6,650,197)
Net cash from operating activities
290,083,555
108,451,665
(93,275,517)
(20,090,483)
(130,000,000)
(55,226,628)
(7,712,670)
5,291,022
-
2,039,194
Equity investments
(80,362,243)
1,034,062
Goodwill
(10,216,884)
-
4,100,047
877,747
-
75,938
(317,467,267)
(65,999,148)
OPERATING ACTIVITIES Income before zakat and income tax Adjustments for:
Changes in operating assets and liabilities:
Trade payables and other credit balances
Cash from operations End-of-service indemnities paid
INVESTING ACTIVITIES Purchase of property, plant and equipment, net Leased assets Foreign currency adjustment on property, plant and equipment, net Exclusion of subsidiaries’ property, plant and equipment, net
Proceeds from sale of investments in available for sale securities Dividends received from investments in available for sale securities Net cash used in investing activities
The accompanying notes 1 to 33 form an integral part of these consolidated financial statements.
Annual Report 2006
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2006 2006 SR
2005 SR
(19,984,930)
(141,142,260)
Minority interests
(3,784,280)
9,070,523
Foreign currency translation adjustments on investments in overseas subsidiaries
10,174,418
(7,157,559)
Deferred gains on sale and lease back transactions
58,092,479
53,742,041
Obligation under capital lease
44,174,092
47,000,000
-
(42,000,000)
Net cash from (used in) financing activities
88,671,779
(80,487,255)
NET CHANGE IN CASH AND CASH EQUIVALENTS
61,288,067
(38,034,738)
Cash and cash equivalents at the beginning of the year
117,273,184
155,307,922
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
178,561,251
117,273,184
FINANCING ACTIVITIES Murabaha, short term borrowing and term loans
Dividends paid
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2006 1. ORGANIZATION AND ACTIVITIES Saudi Research and Marketing Group (the Company) is a Saudi Joint Stock Company registered in Riyadh, Kingdom of Saudi Arabia under Commercial Registration number 1010087772 dated Rabi Al Awal 29, 1421 H (corresponding to July 1, 2000) with a branch in Jeddah with sub commercial registration number 1010087772/001 dated Dhul Quada 12, 1408 H (corresponding to June 27, 1988) and its registered head office is at P.O. Box 53108, Riyadh 11583. The Saudi Research and Marketing Group was converted from a limited liability company to a Joint Stock Company with subscription that is limited to its partners, as per the Ministry of Commerce and Industry’s Resolution No. 92 dated Muharram 27, 1421 H (corresponding to May 1, 2000) and under the commercial registration mentioned above. 30% of the
21
22
Annual Report 2006
Company’s share capital had been offered to the public on April 8, 2006. The share capital of the Company amounting to SR 800 million is divided into 80 million shares of SR 10 each as of December 31, 2006. (SR 800 million is divided into 80 million shares of SR 10 each as of December 31, 2005 after share split) (Note 28). The Company is engaged in trading, marketing, advertising, distribution, printing and publishing. The Company operates mainly in the Middle East, Europe and North Africa.
2. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in accordance with the Standard of General Presentation and Disclosure issued by the Ministry of Commerce and in compliance with the Accounting Standards issued by the Saudi Organization for Certified Public Accountants. The following is a summary of significant accounting policies applied by the Company: Accounting convention The consolidated financial statements are prepared under the historical cost convention except for investments in available for sale securities which are measured at fair value and investments in associates are accounted using the equity method. Use of estimates The preparation of consolidated financial statements by management requires the use of estimates and assumptions that affect the financial position and the results of operations and actual results ultimately may differ from those estimates.
Annual Report 2006
Basis of consolidation These consolidated financial statements include assets, liabilities and the results of the operations of Saudi Research and Marketing Group and its subsidiaries after eliminating all inter-company balances and transactions for the purpose of consolidation. Investment in investee company is classified as “a subsidiary” based on the level of control exercised by the Company compared to other owners from the actual date of exercising control. Following are the details of consolidated subsidiaries: The company effectively owns the following subsidiaries which are engaged in the same activities. Commercial Registration number
Country of incorporation
Direct and indirect shareholding
Intellectual Holding Company for Advertisement and Publicity – L.L.C.
1010119045
Saudi Arabia
100%
Scientific Works Holding Company – L.L.C.
1010119043
Saudi Arabia
100%
Saudi Printing and Packaging Company (formerly known as Al Madina Printing and Publication Company) L.L.C.
1010219709
Saudi Arabia
100%
Subsidiary companies
23
24
Annual Report 2006
The following subsidiaries are jointly owned by Intellectual Holding Company for Advertisement and Publicity and by Scientific Works Holding Company: Principal field of activities
Country of incorporation
Publishing
Saudi Arabia
Distribution
Saudi Arabia
Arab Media Company Limited and its subsidiaries (iii)
Media and papers advertising and promotional services
Saudi Arabia
Al Khaleejiah Advertising and Public Relations Company
Media and papers advertising and promotional services
Saudi Arabia
Trading in cosmetics, household instruments and printing supplies
Saudi Arabia
Trading in communication equipment and developing of software
Saudi Arabia
Specialized Publishing
Saudi Arabia
Subsidiary companies Saudi Research and Publishing Company and its subsidiaries (i) Saudi Distribution Company and its subsidiaries (ii)
Saudi Commercial Company Limited Ofoq Information Systems and Communication Company (in liquidation) Saudi Specialized Publishing Company
(i) This company owns 100% of subsidiaries registered outside the Kingdom of Saudi Arabia. (ii) This company owns subsidiaries registered in Kuwait and United Arab Emirates at 100% and 90% respectively. (iii) This company owns subsidiaries registered in Lebanon and Egypt at 100%. In addition, the Saudi Printing and Packaging Company owns 95% of Hala Printing Company (established in 2006) and 50% of Teabah Printing and Publishing Company (established in 2006); the remaining shares are owned by Saudi Research and Publishing Company. On Zul Qa’dah 27, 1427 H (corresponding to December 18, 2006) the partners of the Company resolved to proceed with the plan of offering 30% of the company’s shares to the public and resolved to change the name of the company from Al Madina Printing and Publication
Annual Report 2006
Company to “Saudi Printing and Packaging Company”. The legal formalities for changing the Company’s name have been completed subsequent to the balance sheet date.
Revenue Revenue is recognized upon delivery of goods to customers and is stated net of trade or quantity discounts, while subscription revenues are recognized over the period of subscriptions.
Expenses Selling and marketing expenses principally comprise of costs incurred to sell and market the Company’s products. All other expenses are classified as general and administration expenses. General and administration expenses include direct and indirect costs not specifically part of production costs as required under generally accepted accounting principles. Allocations between general and administrative expenses and cost of revenue, when required, are made on a consistent basis.
Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined, for work in progress, on a weighted average cost basis and includes cost of materials, labor and an appropriate proportion of direct overheads. Paper, printing materials, spare parts and other inventories are valued on a weighted average cost basis.
Property and equipment Property and equipment are stated at cost less accumulated depreciation. Expenditure on maintenance and repairs is expensed, while expenditure for betterment is capitalized. Depreciation is provided over the estimated useful lives of the applicable assets using the straight line method. The estimated depreciation rates of the principal classes of assets are as follows: % Buildings
2–3
Leasehold improvements
10 – 25
Computer and communication equipments
10 – 25
Printing machinery and equipments
5 – 10
Furniture and fixtures
7.5 – 25
Vehicles
15 – 25
25
26
Annual Report 2006
Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining term of the lease.
Intangible assets Mastheads: Mastheads represent the recorded value of the mastheads of the newspapers and magazines published by the Group. The Group, at each balance sheet date, tests the mastheads for impairment using fair value method. If any such indication exists, the recoverable amount of the asset is estimated in order to determine that the book value of masthead is recoverable. Impairment losses of mastheads are recognized as an expense in the consolidated statement of income once its book value exceeds its recoverable amount. Impairment loss shall not be subsequently reversed, unless such loss originally occurred as a result of special external events of an exceptional nature that not expected to be repelled, and the recoverable amount clearly related to such events. Goodwill: The goodwill represents the excess of the investment cost over the Company’s share in the fair value of the net assets of the subsidiary at the date of acquisition. The carrying amount of the goodwill is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the goodwill is reduced to the estimated recoverable amount and an impairment loss is recognized in the consolidated statement of income. Distribution and advertising rights: Capitalized distribution and advertising rights, being treated as intangible assets, are amortized over the estimated period of benefit, which is five years.
Impairment of non‑financial assets At each balance sheet date, the carrying amounts of tangible and intangible assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. If the recoverable amount of an assets or cashgenerating unit is estimated to be less than its carrying amount, the carrying amount of the assets or cash-generating unit is reduced to its recoverable
Annual Report 2006
amount. Impairment loss is recognized as an expense in the consolidated statement of income immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the assets or cashgenerating unit in prior years. A reversal of an impairment loss is recognized as income immediately in the consolidated statement of income.
Investment in associated companies Investments in companies which are at least 20% owned and in which the Company exercises significant influence are accounted for using the equity method of accounting. The Company’s share in the associated companies’ net income/losses for the year is included in the consolidated statement of income. Equity method of accounting is stopped if the investment balance for the investee company becomes nil due to continuing losses of such companies (unless the Group has guaranteed the obligations of such a company or is obliged to provide additional financial support).
Investments in available for sale securities Investments, that are bought neither with the intention of being held to maturity nor for trading purposes, are stated at fair value and are included under current assets unless they will not be sold in the next fiscal year. Changes in fair value are credited or charged to the consolidated statement of changes in shareholders’ equity. Any decline in value considered to be other than temporary is charged to the consolidated statement of income. Fair value is determined by reference to the market value if an open market exists. Otherwise, cost is considered to be the fair value. Where partial holdings are sold, these are accounted for on a weighted average basis.
Derivative financial instruments and hedging The Group uses derivative financial instruments such as currency options to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognized at cost on the date on which a derivative contract is entered into and are subsequently re‑measured at fair value. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the consolidated statement of income. The fair value of currency options is calculated by reference to quoted market prices. If market prices are not readily available, fair value determined by using other estimated basis, as appropriate.
27
28
Annual Report 2006
In relation to cash flow hedges which meet the criteria for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized initially under shareholders’ equity and the ineffective portion, if any, is recognized in the statement of income. Hedges of a net investment in foreign operations resulting in translation adjustment from translating obligations to Saudi Riyals are recognized directly in equity. Hedge accounting is discontinued when the hedging instrument is expired or sold. At that point of time, any cumulative gain or loss on the cash flow hedging instrument that was recognized is retained in shareholders’ equity until the forecasted transaction occurs.Where the hedged forecasted transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the consolidated statement of income.
Operating leases Leases are classified as a capital lease when the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Any excess of the selling price over the carrying amount is deferred and amortized on a straight line basis over the lease term. The sale and leaseback transaction is capitalized at the present value of the minimum lease payments at the inception of the lease term. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Operating lease payments are recognized as an expense in the consolidated statement of income on a straight line basis over the lease term.
Zakat and income tax The Company and its subsidiaries are subject to the Regulations of the Directorate of Zakat and Income Tax (“DZIT”) in the Kingdom of Saudi Arabia. The zakat charge is computed on the zakat base. Any difference in the estimate is recorded when the final assessment is approved, at which time the provision is cleared. Overseas subsidiaries, provide for income tax liabilities, if any, in accordance with the regulations of the countries in which they operate. Zakat and income tax provision is charged to the consolidated statement of income.
Foreign currency transactions Transactions in foreign currencies are recorded in Saudi Riyals at the rate ruling at the date of the
Annual Report 2006
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income. For consolidation purposes, the financial statements of overseas subsidiaries’ operations are translated into Saudi Riyals using the exchange rate at the balance sheet date, for assets and liabilities, and the average exchange rate for each period for revenues, expenses, gains and losses. Components of equity, other than retained earnings, are translated at the rate ruling at the date of occurrence of each component. Translation adjustments are recorded as a separate component of shareholders’ equity, if significant.
End-of-service indemnities End-of-service indemnities are provided in the financial statements based on the Company’s internal policy and Saudi Arabia labor law and applicable laws for employees working with subsidiaries outside Saudi Arabia.
Cash and cash equivalents Cash and cash equivalents consist of bank balances, cash on hand and time deposits with original maturities of three months or less.
Dividends Profit distributions are recorded in the year in which the General Assembly approves such distributions.
3. CASH AND CASH EQUIVALENTS 2006 SR
2005 SR
Bank balances and cash
84,277,414
65,007,075
Time deposits
94,283,837
52,266,109
178,561,251
117,273,184
4. PREPAID EXPENSES AND OTHER RECEIVABLES 2006 SR
2005 SR
Prepaid expenses
46,195,898
25,044,649
Accrued income
6,266,257
4,916,328
Other receivables
24,183,549
27,650,883
76,645,704
57,611,860
29
30
Annual Report 2006
5. INVENTORIES 2006 SR
2005 SR
105,812,831
72,475,740
Goods in transit
2,668,844
20,921,453
Work in progress
5,919,015
12,934,973
Spare parts
6,934,253
6,797,580
10,430,541
5,646,156
526,402
407,612
132,291,886
119,183,514
Printing papers
Printing materials Others
The spare parts inventory primarily relates to plant and machineries, accordingly this inventory is expected to be utilized over a period exceeding one year.
6. EQUITY INVESTMENTS Equity investments comprise of the following:
United Printing & Publishing Company (a) Moutamarat Company (b)
2006 SR
2005 SR
83,156,077
-
-
-
83,156,077
-
(a) During the year 2006, the Company acquired 40% of the share capital of United Printing & Publishing Company (UPP), registered in Abu Dhabi, with a capital amounting to AED 20 million divided into 20,000 shares. On May 15, 2006, the shareholders of UPP resolved to increase the company’s capital to AED 192,625,226. The Company has paid in full its share in the company’s capital amounting to AED 77,050,090. The legal formalities relating to the capital increase was in process as of the balance sheet date. (b) During the year 2006, the Company acquired 49% of the share capital of Moutamarat Company (limited liability company), registered in Dubai. The capital of Moutamarat Company is AED 1.5 million divided into 1,500 shares each AED 1,000. As of December 31, 2006, the Company has provided in full against the investment.
Annual Report 2006
7. INVESTMENTS IN AVAILABLE FOR SALE SECURITIES This represents investments in quoted securities. 2006 SR
2005 SR
January 1
1,656,518
2,143,545
Disposals
(1,656,518)
(487,027)
-
1,656,518
2,448,052
1,194,539
(4,523)
1,644,233
(2,443,529)
(390,720)
December 31
-
2,448,052
Book value
-
4,104,570
Cost
December 31 Valuation adjustment January 1 Unrealized (loss)/gains during the year Transfer to the statement of income
31
32
Annual Report 2006
8. PROPERTY, PLANT AND EQUIPMENT
Land SR
Leasehold Buildings improvements SR SR
Printing Computers and machinery communication and equipment equipments SR SR
Furniture and fixtures SR
Motor vehicles SR
Capital projects SR
Total SR
Cost January 1, 2006
82,898,153
378,941,874
23,857,404
341,135,811
171,751,508
74,412,925
46,760,930
835,690 1,120,594,295
Foreign currency adjustment, net
-
4,592,796
1,046,679
4,630,140
6,444,103
6,222
75,726
-
16,795,666
Additions
-
5,230,880
13,642,802
83,303,907
4,555,796
6,319,066
10,680,962
4,720,643
128,454,056
Disposals
(12,656,250)
(22,297,274)
-
(13,612,331)
(3,969,987)
(900,605)
(6,811,679)
(687,401)
(60,935,527)
Transfers
-
-
245,351
-
-
-
-
(53,924)
191,427
Leased assets
108,875,560
21,124,440
-
-
-
-
-
-
130,000,000
December 31, 2006
179,117,463
387,592,716
38,792,236
415,457,527
178,781,420
79,837,608
50,705,939
23,797,100
175,077,186
17,524,511
192,067,267
150,842,334
66,757,822
27,754,836
-
653,821,056
Foreign currency adjustment, net
-
960,409
497,841
1,570,394
5,994,241
16,454
43,657
-
9,082,996
Additions
-
5,410,758
968,968
12,585,994
7,266,146
3,401,411
6,949,901
-
36,583,178
Disposals
-
(1,173,286)
-
(13,612,323)
(3,774,149)
(792,108)
(6,213,695)
-
(25,565,561)
Impairment losses
-
-
-
6,263,059
-
-
-
-
6,263,059
23,797,100
180,275,067
18,991,320
198,874,391
160,328,572
69,383,579
28,534,699
-
680,184,728
December 31, 2006
155,320,363
207,317,649
19,800,916
216,583,136
18,452,848
10,454,029
22,171,240
4,815,008
654,915,189
December 31, 2005
59,101,053
203,864,688
6,332,893
149,068,544
20,909,174
7,655,103
19,006,094
835,690
466,773,239
4,815,008 1,335,099,917
Depreciation and impairment losses January 1, 2006
December 31, 2006 Net book value
Property, plant and equipments includes assets sold and leased back, which has cost and net book value amounting to SR 185 million and SR 183 million respectively (Note 14) as of December 31, 2006.
Annual Report 2006
9. INTANGIBLE ASSETS 2006 SR
2005 SR
Mastheads
350,000,000
350,000,000
Goodwill
10,216,884
-
4,761,906
7,142,858
364,978,790
357,142,858
Distribution rights
10. MURABAHA AND SHORT TERM BORROWINGS Saudi Research and Marketing Group (the Company) has a Group Treasury Department to which most of the subsidiaries remit their receipts as and when necessary.The Group Treasury Department obtains credit facilities on behalf of these subsidiaries under a master bank facility with local banks. The Murabaha and short term loans balance represents credit facilities outstanding and used by the Group companies.
11. MURABAHA AND TERM LOANS
Murabaha/term loans Less: Current portion from Murabaha/term loans
2006 SR
2005 SR
33,333,333
11,757,912
(13,333,332)
(11,757,912)
20,000,001
-
Following is a repayment schedule of the Murabaha installments: Year
SR
2007
13,333,332
2008
13,333,332
2009
6,666,669 33,333,333
The Murabaha is repayable in 5 equal semi annual installments of SR 6,666,667 each commencing March 27, 2007 with the last installment maturing on September 27, 2009. Installments due within one year from the balance sheet date are shown under current liabilities.
33
34
Annual Report 2006
12.TRADE PAYABLE AND OTHER CREDIT BALANCES
Trade and notes payable Accrued expenses Other payables
2006 SR
2005 SR
46,608,306
68,967,870
122,309,862
93,959,839
33,635,742
20,412,807
-
268,695
202,553,910
183,609,211
Amounts due to related parties
13. DEFERRED REVENUE Deferred revenue represents subscriptions received in advance. This amount will be recognized as revenue in the subsequent period over the period of subscriptions.
14. OBLIGATIONS UNDER CAPITAL LEASE During the year ended December 31, 2005, the Group has sold and leased back the shares of Media Investment Limited (a leased subsidiary company) for an amount of SR 66,000,000, which has resulted in a deferred gain of SR 55,226,628.The excess of the present value of the minimum lease payments over the carrying amount of the leased subsidiary company’s net assets (asset adjustments) amounting to SR 55,226,628 was allocated to the leased subsidiary’s building and depreciated over 40 years. The asset adjustments depreciation for the year ended December 31, 2006 was amounted to SR 1,385,089 (2005: SR 115,424). During 2006, one of the Group’s subsidiaries sold its land and building to a local bank for SR 130 million through sale-leaseback agreement with the option-to-buy at the end of the lease period, which resulted in a deferred gain of SR 96,219,760. Minimum lease payments under capital leases are as follows: 2006 SR
2005 SR
2007
57,192,446
21,561,096
2008
39,360,143
20,261,128
2009
7,120,575
9,646,638
Net minimum lease payments under capital lease
103,673,164
51,468,862
Less: Financial charges
(12,499,072)
(4,468,862)
91,174,092
47,000,000
(46,800,000)
(18,800,000)
44,374,092
28,200,000
Present value of net minimum lease payments Less: Current portion
Annual Report 2006
The unrecognized gains on the sale and leaseback transactions represent deferred gains for the shares of Media Investment Limited and for land and building for one of the Group’s subsidiaries, which is recognized on a straight line basis. 2006 SR
2005 SR
Total deferred gains on the sale and leaseback transactions
149,961,801
55,226,628
Gains recognized during the year
(38,127,281)
(1,484,587)
111,834,520
53,742,041
(60,578,375)
(22,090,651)
51,256,145
31,651,390
2006 SR
2005 SR
12,597,029
11,981,915
1,521,007
2,218,034
14,118,036
14,199,949
Less: Current portion
15. ZAKAT AND INCOME TAX
Zakat Income tax
The consolidated zakat liability of the Group for the year represents the zakat on Saudi Research and Marketing Group, in addition to the Group’s share in the zakat liabilities of its subsidiaries. The movement in the zakat provision during the year is as follows: 2006 SR
2005 SR
January 1
11,981,915
7,252,130
Provision for the year
14,114,917
10,370,474
(13,499,803)
(5,640,689)
12,597,029
11,981,915
Payments during the year December 31
The Company and its subsidiaries has filed the zakat returns up to year 2005. Management believes that adequate provision has been made for any liability to the Department of Zakat and Income Tax (DZIT) that may arise upon the settlement of any amounts due, based on the final zakat assessments.
35
36
Annual Report 2006
16. CUSTOMERS’ DEPOSITS These represent amounts received from the distribution outlets for selling newspapers and other publications.
17. LONG TERM PAYABLES These represent amounts relating to equipments and vehicles purchased on installment basis. No commission is charged on these amounts. The balance is payable in variable monthly installments.The installments due in 2007 are included as part of trade payables and other credit balances.
18. END-OF-SERVICE INDEMNITIES The movement in the provision during the year is as follows: 2006 SR
2005 SR
January 1
63,804,185
77,846,531
Provision for the year
14,951,258
12,789,381
Payments during the year
(4,900,920)
(26,831,727)
December 31
73,854,523
63,804,185
19. RELATED PARTY TRANSACTIONS No major transactions have been made with related parties during the year, except for: 2006 SR
2005 SR
Purchase of property and equipment
8,847,000
6,453,600
Executive Board of directors’ salaries and remunerations
8,630,000
8,265,042
211,420
-
Allowance and board of directors’ expenses
20. MINORITY INTEREST Minority interest represents the part of the net results of operations and of net assets of the subsidiaries attributable to interests, which are not owned, directly or indirectly through subsidiaries, by the parent company.
Annual Report 2006
The minority partners’ share in subsidiaries is analyzed as follows: Kuwaiti Group for Publishing and Distribution Company SR
Emirates Printing, Publishing and Distribution Company SR
2006 SR
2005 SR
3,615,243
222,078
3,837,321
(5,233,202)
Exclusion of unconsolidated subsidiaries
-
-
-
9,562,166
Share in subsidiaries’ earnings/(losses)
-
(169,037)
(169,037)
633,684
(3,615,243)
-
(3,615,243)
-
-
-
-
(1,125,327)
-
53,041
53,041
3,837,321
At the beginning of the year
Settlements and payments during the year Dividends
21. RESERVES Statutory reserve In accordance with Saudi Arabian Regulations for Companies, 10% of net income for the year has been transferred to the statutory reserve. The Company may resolve to discontinue such transfers when the reserve totals 50% of the share capital. The statutory reserve is not available for distribution. Contractual reserve In accordance with the Articles of Association, the Company must set aside 5% of its net income for the year to the contractual reserve until it has built up a reserve equals to 25% of the share capital.The contractual reserve may be used for any purpose authorized by the Board of Directors.
22. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON INVESTMENTS IN OVERSEAS SUBSIDIARIES The translation adjustments comprise all
37
38
Annual Report 2006
foreign exchange differences arising from translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the Group’s net investments in foreign subsidiaries.
23. SELLING AND MARKETING EXPENSES 2006 SR
2005 SR
7,075,690
4,967,367
16,009,937
8,877,953
1,426,312
177,181
-
472,541
Provision for doubtful debts
8,175,239
6,028,669
Other
2,026,455
302,544
34,713,633
20,826,255
Salaries, wages and benefits Promotion Seminars and advertising Marketing research
24. GENERAL AND ADMINISTRATION EXPENSES 2006 SR
2005 SR
Salaries, wages and benefits
99,533,791
88,030,332
Rent
10,298,982
7,394,063
Maintenance
7,601,290
5,548,032
Postal, telephone and fax
4,987,056
4,256,855
Insurance
3,390,295
3,507,279
Travel expenses
3,431,057
3,187,138
Electricity and water
2,595,253
2,325,693
Stationery
2,202,970
2,118,091
Shipping, packing and customs
1,749,583
1,593,030
550,000
1,000,000
12,258,096
13,446,769
148,598,373
132,407,282
Provision for slow moving inventories Other
Annual Report 2006
25. OTHER INCOME - NET 2006 SR
2005 SR
405,083
(2,759,135)
Earned commission
1,814,889
2,528,600
Freight income
2,047,923
1,905,768
38,127,281
1,484,587
2,443,529
466,658
-
1,136,048
Rental income
1,016,172
821,018
Gain on disposal of property, plant and equipment
1,398,311
617,696
Miscellaneous – net
2,298,530
1,438,200
49,551,718
7,639,440
Gain (loss) on foreign currency translation
Gains on a sale and leaseback transactions Gains from investments in available for sale securities Unrealized gain on revaluation of financial instruments
26. SEGMENT INFORMATION These are attributable to the Group’s activities and business as approved by the management to be used as a basis for the financial reporting and being consistent with the internal reporting process. Transactions between the business segments are conducted on an arm length basis. The segment results and assets comprise items that are directly attributable to certain segment and items that can reasonably be allocated between various business segments. Unallocated items are included under “other”. The Group is organized into the following main business segments: Publishing incorporating the local and international publishing works, researches and marketing of the products of the Group and others. Distribution comprises distribution of newspapers, magazines, publications and books locally and internationally and to the Group and others.
39
40
Annual Report 2006
Advertising includes local and international advertising, production, representation and marketing of the audio visual and machine readable advertising media, advertising signs and books locally and internationally. Printing comprises printing works to the Group and to others. Other comprises head office, general management, investing activities and others. Publishing SR
Distribution SR
Advertising SR
Printing SR
Other SR
Total SR
Elimination SR
Consolidation SR
Revenue
930,717,266
356,605,642
569,047,051
324,853,969
596,757
2,181,820,685 (1,020,745,925)
1,161,074,760
Gross profit
187,315,195
53,347,621
110,075,139
127,710,144
596,757
479,044,856
(3,390,212)
475,654,644
Net book value of property, plant and equipment
180,570,344
28,520,198
20,634,346
410,453,819
14,736,482
654,915,189
-
654,915,189
Total assets
415,539,393
125,661,999
283,133,897
820,959,993
1,351,232,919
2,996,528,201 (1,211,353,308)
1,785,174,893
Total liabilities
201,579,187
88,852,709
160,509,356
225,366,889
173,011,233
849,319,374
(259,036,040)
590,283,334
Revenue
851,162,380
372,675,858
517,927,328
262,247,470
768,346
2,004,781,382
(941,812,672)
1,062,968,710
Gross profit
138,642,229
55,829,565
111,676,719
93,828,680
768,346
400,745,539
(1,686,430)
399,059,109
Net book value of property, plant and equipment
165,470,401
26,731,239
22,254,319
237,492,401
14,824,879
466,773,239
-
466,773,239
Total assets
288,485,812
113,625,685
440,016,473
435,360,876
1,016,878,369
2,294,367,215
(896,798,810)
1,397,568,405
Total liabilities
173,694,078
85,408,814
156,793,130
112,782,021
108,403,866
637,081,909
(168,879,372)
468,202,537
As of December 31, 2006
As of December 31, 2005
Substantially, all the Group’s operating assets are located in the Kingdom of Saudi Arabia. Principal markets for the Group’s products are the Middle East, Europe and North Africa. It is not practicable to disclose information to individual geographic areas.
27. CONTINGENT LIABILITIES Certain of the Group’s subsidiaries are involved in various litigation matters in the ordinary course of business, which are being defended. While the ultimate results of these matters cannot be determined with certainty, management does not expect that they will have a material adverse effect on the consolidated financial statements of the Group.
Annual Report 2006
The Group’s bankers have issued on its behalf, bank guarantees amounting to SR 43.2 million (2005: SR 59.8 million), in the normal course of business.
28. EARNINGS PER SHARE In accordance with the Capital Market Authority’s resolution No. 4/154/2006 dated Safar 27, 1427 H (corresponding to March 27, 2006) based on the Council of Minister’s resolution for shares split of the joint stock companies, the nominal value of the Company’s share would be SR 10 instead of SR 50 and accordingly, the Company’s shares became 80 million effective April 8, 2006. Earnings per share is calculated by dividing the net income for the year by weighted average number of shares outstanding for the year ended December 31, 2006 of 80 million shares.The earnings per share for 2005 have been adjusted retrospectively to reflect the bonus shares of 2005 and the split of shares on April 8, 2006.
29. OPERATING LEASES Minimum committed non cancelable lease payments for operating leases are: 2006 SR
2005 SR
Less than one year
2,037,130
5,778,935
Between one and five years
4,116,799
5,089,212
More than five years
5,726,820
1,272,303
11,880,749
12,140,450
During the current year SR 10,298,982 (2005: SR 7,394,063) was recognized as an expense in the consolidated statement of income in respect of operating leases.
30. RISK MANAGEMENT Interest rate risk The Group has no significant interest bearing long term assets, but has interest bearing liabilities at December 31, 2006. The Group manages its interest rate risk by keeping floating rate long term loans at an acceptable level. Credit risk The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables. Investments are allowed only in liquid securities with counterparties that have a sound credit rating. At the balance sheet date, no significant concentration of credit risk was assessed.
41
42
Annual Report 2006
Liquidity risk The Group limits its liquidity risk by ensuring bank facilities are available. Currency risk Exposure currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used to reduce exposure to fluctuations in foreign exchange rates. While these are subject to the risk of market rates changing subsequent to acquisition, such changes are generally offset by opposite effects on the items being hedged. The Group is exposed to foreign currency risk on expenses that are denominated in a currency other than Saudi Riyal. The currency giving rise to this risk is primarily Pounds Sterling. At any point in time the Group hedges all of its estimated foreign currency exposure in respect of forecasted expenses over the following months. The Group uses currency options to hedge its foreign currency risk. Most of the currency options contracts have expiration dates of less than one year. The Group classifies its currency options as cash flow hedges and states them at fair value. The fair value of currency option at the balance sheet date was nil. In respect of other monetary assets and liabilities held in currencies other than Saudi Riyals, the Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rate where necessary. The Group’s Pound Sterling denominated payable balance is designated as a hedge of the Group’s investments in its subsidiaries in the United Kingdom. A foreign exchange gain of SR 3.7 million (Loss in 2005: SR 1.3 million) was recognized in equity as translation of the payable balance to Saudi Riyal.
31. FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm’s length transaction. Financial instruments comprise of financial assets, financial liabilities and derivatives. The Group’s financial assets consist of cash and cash equivalents and receivables. Its financial liabilities consist of term loans, payables, accrued expenses and obligations under capital lease. Its derivatives consist of currency options and commission rate swaps. The fair values of financial instruments are not materially different from their carrying values.
Annual Report 2006
32.APPROVAL OF FINANCIAL STATEMENTS AND APPROPRIATION OF NET INCOME The Board of Directors, in its meeting held on Muharram 19, 1428 H (corresponding to February 7, 2007), approved the consolidated financial statements and proposed distribution of dividends of SR 160 million (SR 2 per share) and transfer the remaining balance of the net income for the year after the appropriations of the statutory and the contractual reserves to the retained earnings. The above are subject to the approval of the shareholders at the Annual General Meeting.
33. COMPARATIVE FIGURES Certain figures for 2005 have been reclassified to conform with the presentation in the current year.
43
