abdullah al-othaim markets company (saudi joint stock company)
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM FINANCIAL STATEMENTS AND REVIEW REPORT FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM FINANCIAL STATEMENTS AND REVIEW REPORT FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
INDEX
PAGE
Auditors’ review report
1
Interim balance sheet
2
Interim statement of income
3
Interim statement of cash flows
4
Notes to the interim financial statements
5 – 12
-1-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM BALANCE SHEET (UNAUDITED) AS AT SEPTEMBER 30, 2011
ASSETS Current assets Cash on hand and at banks Inventories, net Prepayments and other receivables Total current assets
Notes
3
Non-current assets Investment in an associated company and others Property and equipment, net Projects in progress Intangible assets, net Total non-current assets
5 6
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term loans and Murabaha Current portion of long-term loans and Murabaha Trade payables Other payables and accrued expenses
7 (a) 7 (b)
Total current liabilities Non-current liabilities End-of-service indemnities Long-term loans and Murabaha
7 (b)
Total non-current liabilities Total liabilities Shareholders' equity Share capital Statutory reserve Voluntary reserve Retained earnings
1 10
Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
2011 SR
2010 SR
1,362,595 296,235,088 96,259,605 393,857,288
7,814,234 296,988,858 79,380,573 384,183,665
118,346,091 1,022,785,647 50,075,545 13,549,954
102,184,517 591,976,409 332,716,805 14,888,458
1,204,757,237
1,041,766,189
1,598,614,525
1,425,949,854
121,653,717 84,458,224 670,025,020 87,312,767
54,341,809 86,092,574 584,588,743 74,811,026
963,449,728
799,834,152
34,373,700 106,171,060
26,899,681 203,693,778
140,544,760
230,593,459
1,103,994,488
1,030,427,611
225,000,000 41,974,094 12,453,336 215,192,607
225,000,000 25,781,233 12,453,336 132,287,674
494,620,037
395,522,243
1,598,614,525
1,425,949,854
The accompanying notes form an integral part of these interim financial statements -2-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM STATEMENT OF INCOME (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
THREE-MONTH PERIOD ENDED September 30, September 30, 2011 2010 SR SR
NINE-MONTH PERIOD ENDED September 30, September 30, 2011 2010 SR SR
Revenues 1,096,135,178
941,393,847
3,017,484,032
2,542,631,624
40,084,562
25,272,817
110,633,168
68,785,321
1,136,219,740
966,666,664
3,128,117,200
2,611,416,945
(1,053,718,961)
(898,679,119)
(2,886,184,255)
(2,423,868,615)
82,500,779
67,987,545
241,932,945
187,548,330
Selling and distribution expenses
(35,781,590)
(23,014,598)
(83,438,286)
(63,857,335)
General and administrative expenses
(14,043,726)
(13,996,435)
(39,014,743)
(32,388,529)
32,675,463
30,976,512
119,479,916
91,302,466
6,582,831
7,106,681
12,655,583
11,452,941
(3,158,501)
-
(9,588,954)
-
642,407
8,535,619
(5,696,558)
9,525,398
36,742,200
46,618,812
116,849,987
112,280,805
(750,000)
(750,000)
(3,250,000)
(3,350,000)
35,992,200
45,868,812
113,599,987
108,930,805
From continued main operations
1.45
1.38
5.31
4.06
From net income
1.60
2.04
5.05
4.84
Sales Rent Total revenues Cost of revenues Gross profit
Income from continued main operations Company's share in the net profit of an associated company Financial charges Other income (losses), net Income before zakat Zakat NET INCOME
Earnings per share (Note 8)
The accompanying notes form an integral part of these interim financial statements -3-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
2011 SR OPERATING ACTIVITIES Income before Zakat
2010 SR
116,849,987
112,280,805
54,826,512
36,479,329
1,003,878
111,542
Adjustments: Depreciation Amortization of intangible assets Income from sale of property and equipment Company's share in the net profit of an associated company
(662,232)
( 969,112 )
(12,655,583)
( 11,452,941 )
5,490,181
End-of-service indemnities
5,027,285
Changes in working capital: Inventories
(10,959,356)
( 76,768,354 )
Prepayments and other receivables
(14,581,512)
10,618,145
Trade payables, other payables and accrued expenses
106,386,677
122,274,602
Zakat paid Net cash from operating activities INVESTING ACTIVITIES Investment in local company
(3,712,420)
( 2,119,255 )
241,986,132
195,482,046
(500,000)
Additions to property, equipment and projects in progress
(180,133,251)
(240,656,543)
Proceeds from sale of property and equipment
837,8858
Intangible assets
-
(15,000,000)
Cash dividends received
-
8,500,000
Net cash used in investing activities
1,224,240
(179,795,393)
(245,932,303)
FINANCING ACTIVITIES Loans and Murabaha
(38,564,050)
7,253,483
Cash dividends
(67,500,000)
(56,250,000)
(106,064,050)
(48,996,517)
(43,873,311)
(99,446,774)
45,235,906
107,261,008
CASH ON HAND AND AT BANKS AT SEPTEMBER 30
1,362,595
7,814,234
Non cash transactions: Property and equipment transferred from projects in progress (NOTE 5)
4,376,350
26,405,435
Net cash used in financing activities Net change in cash on hand and at banks Cash on hand and at banks at January 1
The accompanying notes form an integral part of these interim financial statements -4-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 1. ORGANIZATION AND ACTIVITY Abdullah Al-Othaim Markets Company is a Saudi Joint Stock company registered on Rajab 7, 1400 (May 21, 1980) in Riyadh under Commercial Registration Number 1010031185. The Company was converted from a liability into a joint stock Company according to the ministerial decree No. 227/G on Ramadan 3, 1428 (corresponding to September 15, 2007). The share capital of the Company amounting to SR 225 million is divided into 22.5 million shares of SR 10 each. The main activity of the Company is to undertake wholesale trading in food supplies, fish, meat, cars and its spare parts, agricultural crops and livestock, household equipment, constructing, managing, operating and maintaining of super markets and malls, cooked and non-cooked catering services, computer services, operating and maintaining electrical and mechanical equipment, constructing, operating and maintaining of storage and cooling warehouses. The board of directors agreed in its meeting held on June 18, 2011 to acquire the rest of the shares of "Abdulla Al-Othaim Real Estate Investment & Development Company" (an associated Company), amounting to 53,753,500 shares. The deal will be financed by issuing 7,253,303 new shares of Abdulla Al-Othaim Markets Company for the other shareholders of the target company. The agreed share price of Abdulla Al-Othaim Markets Company between the two parties was SAR 97.75 which represents the market closing price on 18/6/2011. Accordingly, the swap rate would be one share of Abdulla Al-Othaim Markets Company against 7.4109 shares of Abdulla Al-Othaim Real Estate Investment & Development Company. This agreement is subject to the consent of the regulatory authorities and the general assembly of the shareholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying interim financial statements have been prepared in accordance with standard of interim financial reporting issued by the Saudi Organization of Certified Public Accountants. The significant accounting policies applied by the Company in the preparation of the interim financial statements, and summarized below, are consistent with the policies of the annual audited financial statements for the year ended December 31, 2010. Use of estimates The preparation of the interim financial statements in conformity with generally accepted accounting standards requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements in addition to the reported amounts of revenues and expenses during the period. Although these estimates are based on management’s best knowledge of current events and activities available with the management, actual results may ultimately differ from those estimates.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
Accounting convention The interim financial statements are prepared under the historical cost and accrual conventions, except for the investment in an associated company which is accounted for using equity method. Revenue recognition Sales are recognized upon delivery of goods to customers. Income from rent is recognized on accrual basis over the period of lease contracts. Expenses Selling and distribution expenses principally comprise of costs incurred in the distribution and sale of the Company’s products. All other expenses are classified as general and administrative expenses. General and administrative expenses include direct and indirect costs not specifically part of cost of revenues as required under generally accepted accounting standards. Allocations between general and administrative expenses and cost of revenues, when required, are made on consistent basis. Investments Investment in an associated company which is 13.65% owned and in which the Company exercises significant influence through its participation in its financial and operational policies is accounted for using equity method, under which the investment is initially stated at cost and adjusted thereafter for the change in the Company's share in net assets of the investee. Company's share of the net profit or loss of the investee is reported in the interim statement of income. Investments in companies which are less than 20% owned and where the fair value is no readily determinable are stated at cost. Appropriate provision is made for any other than temporary impairment in the value of these investments. Cost of sales Cost of sales includes the cost of purchases and expenses related to the outlets. Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average costing method. 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. Leasehold improvements and buildings constructed on leased lands are amortized over the shorter of the estimated useful life of these assets or the remaining term of the lease. The estimated lives of the principal classes of assets are as follows:
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
Years Machinery and equipment Buildings Vehicles Computers Furniture and fixtures Leasehold improvements
10 5 – 25 5–7 5–7 7 10
Impairment of long-term assets The Company reviews on regular basis the carrying amount of its tangible assets to determine whether there is any indication that those assets have suffered impairment in value. In case such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment, if any. Where it is not possible to estimate the recoverable amount of individual assets, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. Impairment loss is recognized as an expense in the interim statement of income immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or cashgenerating 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 asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized as income in the interim statement of income immediately. Borrowing cost Borrowing costs directly attributable to acquisitions or constructions of qualifying assets, which are the assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until the assets are substantially ready for their intended use or sale. All other borrowing costs are charged to the interim statement of income in the period in which they are incurred. Intangible assets Intangible assets represent costs incurred for the purpose of using rented stores. These assets are amortized over the term of the related contract lease. Foreign currency translation Foreign currency transactions are translated into Saudi Riyals at the rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at that date. Gains and losses from settlement and translation of foreign currency transactions are included in the interim statement of income. Accounting for lease agreements All leases entered into by the Company are classified as operating leases. Rental payments are charged to the interim statement of income using the straight-line method over the term of the operating lease contract.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 The lease amounts received by the Company as a lessor in operating lease contracts are recognized in the interim statement of income using the straight-line method over the period of the related leases. End-of-service indemnities End-of-service indemnities are provided in accordance with the Saudi Arabian Labor Law and are reduced by the payments to employees. Differences in indemnities, if any, are computed and paid to employees upon termination. Zakat The Company is subject to the regulations of the Department of Zakat and Income Tax (“DZIT”) in the Kingdom of Saudi Arabia. Zakat is provided on an accrual basis. 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. 3. PREPAYMENTS AND OTHER RECEIVABLES Prepayments include an amount of SR 23.3 million (September 30, 2010: SR 30.3 million) which represents rents paid to a related party in advance against early payment discount. 4. RELATED PARTY TRANSACTIONS During the period, the Company transacted with the following related parties. The terms of these transactions and expenses were executed in accordance with the Company’s management approval. Company’s name AlOthaim Holding Company Abdullah AlOthaim Investment and Real Estate Development Co. Dar Alkhuyool Contracting Co.
Relationship Founding Shareholder Associated Company Affiliated Company
The significant transactions and related amounts are as follows: 2011 SR
2010 SR
7,184,186
5,101,713
28,060,729
2,872,345
Transactions Rent expenses Rent income* Transfer /Purchase of property and equipment
-
98,279,788
Prepaid rents
-
30,281,646
Construction works contracts
-
57,537,354
* Rent income includes SR 26.2 million rents of a shopping mall leased to a related party.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 5. PROPERTY AND EQUIPMENT, NET Land SR
Machinery and equipment SR
Buildings SR
Vehicles SR
Computers SR
Furniture and fixtures SR
Leasehold improvements SR
Total SR
January 1, 2011 Additions
199,189,040 119,649,620
165,403,510 16,079,380
480,266,188 4,471,862
47,731,567 3,902,828
70,570,271 9,862,808
105,705,657 7,835,598
97,407,150 7,698,533
1,166,273,383 169,500,629
Disposals September 30, 2011
318,838,660
(561,389) 180,921,501
484,738,050
(1,532,550) 50,101,845
(3,846,473) 76,586,606
(4,671,048) 108,870,207
(46,494) 105,059,188
(10,657,954) 1,325,116,058
January 1, 2011
-
65,609,899
32,437,559
30,285,727
34,994,222
60,980,276
32,178,544
256,486,227
Charge for the year
-
11,458,668
19,981,502
5,060,988
3,684,499
7,370,850
Provision for impairment of property and equipment
-
1,500,000
-
-
-
Disposals
-
(534,150)
-
(1,467,938)
(3,795,674)
(4,650,417)
(34,149)
(10,482,328)
September 30, 2011
-
78,034,417
52,419,061
33,878,777
34,883,047
63,700,709
39,414,400
302,330,411
Net book value September 30, 2011
318,838,660
104,387,084
432,318,989
16,223,068
41,703,559
45,169,498
65,644,789
1,022,785,647
September 30, 2010
199,189,040
94,341,346
148,412,084
18,250,423
26,536,453
41,770,343
63,476,720
591,976,409
Cost
Accumulated depreciation
•
•
• •
-
7,270,005 -
54,826,512 1,500,000
During August, 2011 the Company purchased investment lands for an amount of 119 million riyals, for the purpose of building warehouses, shopping mall, residential and office spaces. Board approvals were obtained on 13th and 16th of August, 2011. Title deeds of these lands were transferred to the name of Company. The Company has purchased an investment land in Medina on March 29, 2010 for an amount of SR 98 million for building a shopping mall and investment in residential and office buildings. The approval for this transaction was granted in the second shareholders' ordinary general assembly meeting held on April 7, 2010. Some title deeds of the land were transferred to the name of the Company while other title deeds amounting to SR 37 million are still under progress. Land amounting to SR 64 million is mortgaged to a local bank as collateral against bank facilities Note 7b. No capital commitments associated with the above mentioned Medina and Ha’el city projects existed as of the balance sheet date. Additions include the amount of SAR 4,376,350 transferred from the projects in progress (2010: SAR 26,405,435) Note 6.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
6. PROJECTS IN PROGRESS Projects in progress represent mainly the costs of constructing shopping mall in Dammam city which was completed at the end of the year 2010, in addition to contractors’ bills for establishing and developing new stores. Contingent liabilities related to projects in progress at September 30, 2011 amounted to SR 16.5 million (September 30, 2010: SR 51.6 million). 7. LOANS AND MURABAHA a) Short-term murabaha The Company has facilities from local banks in the form of short-term murabaha to finance working capital. Unutilized balance of these murabaha loans as at September 30, 2011 amounted to SR 118.3 million (September 30, 2010: SR 185.5 million). b) Long-term loans and murabaha: September 30, 2011 Current Non-current portion portion SR SR Saudi Industrial Development Fund Loan Bank Al Bilad Loan Saudi British Bank Loan Saudi Hollandi Bank Loan
400,000 52,724,890 16,666,667 14,666,667
443,500 88,283,115 2,777,778 14,666,667
843,500 141,008,005 19,444,445 29,333,334
84,458,224
106,171,060
190,629,284
September 30, 2010 Current Non-current portion Portion SR SR Saudi Industrial Development Fund Loan Bank Al Bilad Loan Saudi British Bank Loan Saudi Hollandi Bank Loan
Total SR
Total SR
400,000 37,457,054 16,666,667 31,568,853
843,500 141,572,500 19,444,445 41,833,333
1,243,500 179,029,554 36,111,112 73,402,186
86,092,574
203,693,778
289,786,352
These facilities are secured by personal guarantee of one of the shareholders and mortgage of title deeds owned by the Company with a book value of SR 64 million as at September 30, 2011 and 2010. 8. EARNINGS PER SHARE Earnings per share are calculated based on net income for the period and income from continuous main operations for the period divided by the weighted average number of shares for the period ended September 30, 2011 and 2010 amounting to 22.5 million shares.
-10-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 9. DIVIDENDS In its meeting held on March 28, 2011, the shareholders’ General Assembly approved the distribution of cash dividends of SR 67.5 million, which represents SR 3 per share for the year ended December 31, 2010. In its meeting held on April 7, 2010, the shareholders’ General Assembly approved the distribution of cash dividends of SR 56.25 million, which represents SR 2.5 per share for the year ended December 31, 2009.
10. VOLUNTARY RESERVE The extraordinary general assembly in its meeting held on Jumad Al-Awal 2, 1430 (corresponding to April 27, 2009) approved a voluntary reserve of 20% from 2008 net income and appropriated it for the expansion of the Company’s operations. 11. SEGMENTAL INFORMATION The Company’s activities are focused on retail and wholesale of food stuff and carries out its operations in the Kingdom of Saudi Arabia, in addition to constructing commercial malls and investing in their sales or leases. Some selected information were summarized as at September 30, 2011 for each business segment. For The Nine Months Period Ended September 30,2011
Sales
Retail and
Real Estate
Wholesale
and Leasing
Total
SR
SR
SR
3,017,484,032
Rents revenue
3,017,484,032
62,759,926
48,873,242
110,633,168
Property and equipment, net
455,558,826
567,226,821
1,022,785,647
Gross Profit
220,523,860
21,409,085
241,932,945
12. COMMITMENTS AND CONTINGENCIES a)
As at September 30 the Company had the following commitments and contingent liabilities:
Letters of credit Letters of guarantee Capital commitments on projects in progress
-11-
2011 SR 43,660,453 20,668,300 16,494,238
2010 SR 14,589,443 20,253,010 51,631,074
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
b)
Commitments against operating leases agreements The outstanding lease commitments of the Company related to non-cancelable long-term operating leases for the Company’s branches and malls as at September 30 were as follows: 2011 2010 SR SR Less than one year More than one year, but less than 5 years More than 5 years, but less than 23 years
43,084,969 152,446,950 277,607,670
37,502,439 113,884,816 228,982,645
13. PERIOD RELATED ADJUSTMENTS The adjustments which management believes to be material were adjusted in the interim financial statements to present fairly, the financial position and results of operations. The result of operations for the interim financial period might not give an exact indication about the actual results of the whole year operations.
-12-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM FINANCIAL STATEMENTS AND REVIEW REPORT FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
INDEX
PAGE
Auditors’ review report
1
Interim balance sheet
2
Interim statement of income
3
Interim statement of cash flows
4
Notes to the interim financial statements
5 – 12
-1-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM BALANCE SHEET (UNAUDITED) AS AT SEPTEMBER 30, 2011
ASSETS Current assets Cash on hand and at banks Inventories, net Prepayments and other receivables Total current assets
Notes
3
Non-current assets Investment in an associated company and others Property and equipment, net Projects in progress Intangible assets, net Total non-current assets
5 6
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term loans and Murabaha Current portion of long-term loans and Murabaha Trade payables Other payables and accrued expenses
7 (a) 7 (b)
Total current liabilities Non-current liabilities End-of-service indemnities Long-term loans and Murabaha
7 (b)
Total non-current liabilities Total liabilities Shareholders' equity Share capital Statutory reserve Voluntary reserve Retained earnings
1 10
Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
2011 SR
2010 SR
1,362,595 296,235,088 96,259,605 393,857,288
7,814,234 296,988,858 79,380,573 384,183,665
118,346,091 1,022,785,647 50,075,545 13,549,954
102,184,517 591,976,409 332,716,805 14,888,458
1,204,757,237
1,041,766,189
1,598,614,525
1,425,949,854
121,653,717 84,458,224 670,025,020 87,312,767
54,341,809 86,092,574 584,588,743 74,811,026
963,449,728
799,834,152
34,373,700 106,171,060
26,899,681 203,693,778
140,544,760
230,593,459
1,103,994,488
1,030,427,611
225,000,000 41,974,094 12,453,336 215,192,607
225,000,000 25,781,233 12,453,336 132,287,674
494,620,037
395,522,243
1,598,614,525
1,425,949,854
The accompanying notes form an integral part of these interim financial statements -2-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM STATEMENT OF INCOME (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
THREE-MONTH PERIOD ENDED September 30, September 30, 2011 2010 SR SR
NINE-MONTH PERIOD ENDED September 30, September 30, 2011 2010 SR SR
Revenues 1,096,135,178
941,393,847
3,017,484,032
2,542,631,624
40,084,562
25,272,817
110,633,168
68,785,321
1,136,219,740
966,666,664
3,128,117,200
2,611,416,945
(1,053,718,961)
(898,679,119)
(2,886,184,255)
(2,423,868,615)
82,500,779
67,987,545
241,932,945
187,548,330
Selling and distribution expenses
(35,781,590)
(23,014,598)
(83,438,286)
(63,857,335)
General and administrative expenses
(14,043,726)
(13,996,435)
(39,014,743)
(32,388,529)
32,675,463
30,976,512
119,479,916
91,302,466
6,582,831
7,106,681
12,655,583
11,452,941
(3,158,501)
-
(9,588,954)
-
642,407
8,535,619
(5,696,558)
9,525,398
36,742,200
46,618,812
116,849,987
112,280,805
(750,000)
(750,000)
(3,250,000)
(3,350,000)
35,992,200
45,868,812
113,599,987
108,930,805
From continued main operations
1.45
1.38
5.31
4.06
From net income
1.60
2.04
5.05
4.84
Sales Rent Total revenues Cost of revenues Gross profit
Income from continued main operations Company's share in the net profit of an associated company Financial charges Other income (losses), net Income before zakat Zakat NET INCOME
Earnings per share (Note 8)
The accompanying notes form an integral part of these interim financial statements -3-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) INTERIM STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
2011 SR OPERATING ACTIVITIES Income before Zakat
2010 SR
116,849,987
112,280,805
54,826,512
36,479,329
1,003,878
111,542
Adjustments: Depreciation Amortization of intangible assets Income from sale of property and equipment Company's share in the net profit of an associated company
(662,232)
( 969,112 )
(12,655,583)
( 11,452,941 )
5,490,181
End-of-service indemnities
5,027,285
Changes in working capital: Inventories
(10,959,356)
( 76,768,354 )
Prepayments and other receivables
(14,581,512)
10,618,145
Trade payables, other payables and accrued expenses
106,386,677
122,274,602
Zakat paid Net cash from operating activities INVESTING ACTIVITIES Investment in local company
(3,712,420)
( 2,119,255 )
241,986,132
195,482,046
(500,000)
Additions to property, equipment and projects in progress
(180,133,251)
(240,656,543)
Proceeds from sale of property and equipment
837,8858
Intangible assets
-
(15,000,000)
Cash dividends received
-
8,500,000
Net cash used in investing activities
1,224,240
(179,795,393)
(245,932,303)
FINANCING ACTIVITIES Loans and Murabaha
(38,564,050)
7,253,483
Cash dividends
(67,500,000)
(56,250,000)
(106,064,050)
(48,996,517)
(43,873,311)
(99,446,774)
45,235,906
107,261,008
CASH ON HAND AND AT BANKS AT SEPTEMBER 30
1,362,595
7,814,234
Non cash transactions: Property and equipment transferred from projects in progress (NOTE 5)
4,376,350
26,405,435
Net cash used in financing activities Net change in cash on hand and at banks Cash on hand and at banks at January 1
The accompanying notes form an integral part of these interim financial statements -4-
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 1. ORGANIZATION AND ACTIVITY Abdullah Al-Othaim Markets Company is a Saudi Joint Stock company registered on Rajab 7, 1400 (May 21, 1980) in Riyadh under Commercial Registration Number 1010031185. The Company was converted from a liability into a joint stock Company according to the ministerial decree No. 227/G on Ramadan 3, 1428 (corresponding to September 15, 2007). The share capital of the Company amounting to SR 225 million is divided into 22.5 million shares of SR 10 each. The main activity of the Company is to undertake wholesale trading in food supplies, fish, meat, cars and its spare parts, agricultural crops and livestock, household equipment, constructing, managing, operating and maintaining of super markets and malls, cooked and non-cooked catering services, computer services, operating and maintaining electrical and mechanical equipment, constructing, operating and maintaining of storage and cooling warehouses. The board of directors agreed in its meeting held on June 18, 2011 to acquire the rest of the shares of "Abdulla Al-Othaim Real Estate Investment & Development Company" (an associated Company), amounting to 53,753,500 shares. The deal will be financed by issuing 7,253,303 new shares of Abdulla Al-Othaim Markets Company for the other shareholders of the target company. The agreed share price of Abdulla Al-Othaim Markets Company between the two parties was SAR 97.75 which represents the market closing price on 18/6/2011. Accordingly, the swap rate would be one share of Abdulla Al-Othaim Markets Company against 7.4109 shares of Abdulla Al-Othaim Real Estate Investment & Development Company. This agreement is subject to the consent of the regulatory authorities and the general assembly of the shareholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying interim financial statements have been prepared in accordance with standard of interim financial reporting issued by the Saudi Organization of Certified Public Accountants. The significant accounting policies applied by the Company in the preparation of the interim financial statements, and summarized below, are consistent with the policies of the annual audited financial statements for the year ended December 31, 2010. Use of estimates The preparation of the interim financial statements in conformity with generally accepted accounting standards requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements in addition to the reported amounts of revenues and expenses during the period. Although these estimates are based on management’s best knowledge of current events and activities available with the management, actual results may ultimately differ from those estimates.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
Accounting convention The interim financial statements are prepared under the historical cost and accrual conventions, except for the investment in an associated company which is accounted for using equity method. Revenue recognition Sales are recognized upon delivery of goods to customers. Income from rent is recognized on accrual basis over the period of lease contracts. Expenses Selling and distribution expenses principally comprise of costs incurred in the distribution and sale of the Company’s products. All other expenses are classified as general and administrative expenses. General and administrative expenses include direct and indirect costs not specifically part of cost of revenues as required under generally accepted accounting standards. Allocations between general and administrative expenses and cost of revenues, when required, are made on consistent basis. Investments Investment in an associated company which is 13.65% owned and in which the Company exercises significant influence through its participation in its financial and operational policies is accounted for using equity method, under which the investment is initially stated at cost and adjusted thereafter for the change in the Company's share in net assets of the investee. Company's share of the net profit or loss of the investee is reported in the interim statement of income. Investments in companies which are less than 20% owned and where the fair value is no readily determinable are stated at cost. Appropriate provision is made for any other than temporary impairment in the value of these investments. Cost of sales Cost of sales includes the cost of purchases and expenses related to the outlets. Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average costing method. 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. Leasehold improvements and buildings constructed on leased lands are amortized over the shorter of the estimated useful life of these assets or the remaining term of the lease. The estimated lives of the principal classes of assets are as follows:
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
Years Machinery and equipment Buildings Vehicles Computers Furniture and fixtures Leasehold improvements
10 5 – 25 5–7 5–7 7 10
Impairment of long-term assets The Company reviews on regular basis the carrying amount of its tangible assets to determine whether there is any indication that those assets have suffered impairment in value. In case such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment, if any. Where it is not possible to estimate the recoverable amount of individual assets, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. Impairment loss is recognized as an expense in the interim statement of income immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or cashgenerating 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 asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized as income in the interim statement of income immediately. Borrowing cost Borrowing costs directly attributable to acquisitions or constructions of qualifying assets, which are the assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until the assets are substantially ready for their intended use or sale. All other borrowing costs are charged to the interim statement of income in the period in which they are incurred. Intangible assets Intangible assets represent costs incurred for the purpose of using rented stores. These assets are amortized over the term of the related contract lease. Foreign currency translation Foreign currency transactions are translated into Saudi Riyals at the rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at that date. Gains and losses from settlement and translation of foreign currency transactions are included in the interim statement of income. Accounting for lease agreements All leases entered into by the Company are classified as operating leases. Rental payments are charged to the interim statement of income using the straight-line method over the term of the operating lease contract.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 The lease amounts received by the Company as a lessor in operating lease contracts are recognized in the interim statement of income using the straight-line method over the period of the related leases. End-of-service indemnities End-of-service indemnities are provided in accordance with the Saudi Arabian Labor Law and are reduced by the payments to employees. Differences in indemnities, if any, are computed and paid to employees upon termination. Zakat The Company is subject to the regulations of the Department of Zakat and Income Tax (“DZIT”) in the Kingdom of Saudi Arabia. Zakat is provided on an accrual basis. 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. 3. PREPAYMENTS AND OTHER RECEIVABLES Prepayments include an amount of SR 23.3 million (September 30, 2010: SR 30.3 million) which represents rents paid to a related party in advance against early payment discount. 4. RELATED PARTY TRANSACTIONS During the period, the Company transacted with the following related parties. The terms of these transactions and expenses were executed in accordance with the Company’s management approval. Company’s name AlOthaim Holding Company Abdullah AlOthaim Investment and Real Estate Development Co. Dar Alkhuyool Contracting Co.
Relationship Founding Shareholder Associated Company Affiliated Company
The significant transactions and related amounts are as follows: 2011 SR
2010 SR
7,184,186
5,101,713
28,060,729
2,872,345
Transactions Rent expenses Rent income* Transfer /Purchase of property and equipment
-
98,279,788
Prepaid rents
-
30,281,646
Construction works contracts
-
57,537,354
* Rent income includes SR 26.2 million rents of a shopping mall leased to a related party.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 5. PROPERTY AND EQUIPMENT, NET Land SR
Machinery and equipment SR
Buildings SR
Vehicles SR
Computers SR
Furniture and fixtures SR
Leasehold improvements SR
Total SR
January 1, 2011 Additions
199,189,040 119,649,620
165,403,510 16,079,380
480,266,188 4,471,862
47,731,567 3,902,828
70,570,271 9,862,808
105,705,657 7,835,598
97,407,150 7,698,533
1,166,273,383 169,500,629
Disposals September 30, 2011
318,838,660
(561,389) 180,921,501
484,738,050
(1,532,550) 50,101,845
(3,846,473) 76,586,606
(4,671,048) 108,870,207
(46,494) 105,059,188
(10,657,954) 1,325,116,058
January 1, 2011
-
65,609,899
32,437,559
30,285,727
34,994,222
60,980,276
32,178,544
256,486,227
Charge for the year
-
11,458,668
19,981,502
5,060,988
3,684,499
7,370,850
Provision for impairment of property and equipment
-
1,500,000
-
-
-
Disposals
-
(534,150)
-
(1,467,938)
(3,795,674)
(4,650,417)
(34,149)
(10,482,328)
September 30, 2011
-
78,034,417
52,419,061
33,878,777
34,883,047
63,700,709
39,414,400
302,330,411
Net book value September 30, 2011
318,838,660
104,387,084
432,318,989
16,223,068
41,703,559
45,169,498
65,644,789
1,022,785,647
September 30, 2010
199,189,040
94,341,346
148,412,084
18,250,423
26,536,453
41,770,343
63,476,720
591,976,409
Cost
Accumulated depreciation
•
•
• •
-
7,270,005 -
54,826,512 1,500,000
During August, 2011 the Company purchased investment lands for an amount of 119 million riyals, for the purpose of building warehouses, shopping mall, residential and office spaces. Board approvals were obtained on 13th and 16th of August, 2011. Title deeds of these lands were transferred to the name of Company. The Company has purchased an investment land in Medina on March 29, 2010 for an amount of SR 98 million for building a shopping mall and investment in residential and office buildings. The approval for this transaction was granted in the second shareholders' ordinary general assembly meeting held on April 7, 2010. Some title deeds of the land were transferred to the name of the Company while other title deeds amounting to SR 37 million are still under progress. Land amounting to SR 64 million is mortgaged to a local bank as collateral against bank facilities Note 7b. No capital commitments associated with the above mentioned Medina and Ha’el city projects existed as of the balance sheet date. Additions include the amount of SAR 4,376,350 transferred from the projects in progress (2010: SAR 26,405,435) Note 6.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
6. PROJECTS IN PROGRESS Projects in progress represent mainly the costs of constructing shopping mall in Dammam city which was completed at the end of the year 2010, in addition to contractors’ bills for establishing and developing new stores. Contingent liabilities related to projects in progress at September 30, 2011 amounted to SR 16.5 million (September 30, 2010: SR 51.6 million). 7. LOANS AND MURABAHA a) Short-term murabaha The Company has facilities from local banks in the form of short-term murabaha to finance working capital. Unutilized balance of these murabaha loans as at September 30, 2011 amounted to SR 118.3 million (September 30, 2010: SR 185.5 million). b) Long-term loans and murabaha: September 30, 2011 Current Non-current portion portion SR SR Saudi Industrial Development Fund Loan Bank Al Bilad Loan Saudi British Bank Loan Saudi Hollandi Bank Loan
400,000 52,724,890 16,666,667 14,666,667
443,500 88,283,115 2,777,778 14,666,667
843,500 141,008,005 19,444,445 29,333,334
84,458,224
106,171,060
190,629,284
September 30, 2010 Current Non-current portion Portion SR SR Saudi Industrial Development Fund Loan Bank Al Bilad Loan Saudi British Bank Loan Saudi Hollandi Bank Loan
Total SR
Total SR
400,000 37,457,054 16,666,667 31,568,853
843,500 141,572,500 19,444,445 41,833,333
1,243,500 179,029,554 36,111,112 73,402,186
86,092,574
203,693,778
289,786,352
These facilities are secured by personal guarantee of one of the shareholders and mortgage of title deeds owned by the Company with a book value of SR 64 million as at September 30, 2011 and 2010. 8. EARNINGS PER SHARE Earnings per share are calculated based on net income for the period and income from continuous main operations for the period divided by the weighted average number of shares for the period ended September 30, 2011 and 2010 amounting to 22.5 million shares.
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ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 9. DIVIDENDS In its meeting held on March 28, 2011, the shareholders’ General Assembly approved the distribution of cash dividends of SR 67.5 million, which represents SR 3 per share for the year ended December 31, 2010. In its meeting held on April 7, 2010, the shareholders’ General Assembly approved the distribution of cash dividends of SR 56.25 million, which represents SR 2.5 per share for the year ended December 31, 2009.
10. VOLUNTARY RESERVE The extraordinary general assembly in its meeting held on Jumad Al-Awal 2, 1430 (corresponding to April 27, 2009) approved a voluntary reserve of 20% from 2008 net income and appropriated it for the expansion of the Company’s operations. 11. SEGMENTAL INFORMATION The Company’s activities are focused on retail and wholesale of food stuff and carries out its operations in the Kingdom of Saudi Arabia, in addition to constructing commercial malls and investing in their sales or leases. Some selected information were summarized as at September 30, 2011 for each business segment. For The Nine Months Period Ended September 30,2011
Sales
Retail and
Real Estate
Wholesale
and Leasing
Total
SR
SR
SR
3,017,484,032
Rents revenue
3,017,484,032
62,759,926
48,873,242
110,633,168
Property and equipment, net
455,558,826
567,226,821
1,022,785,647
Gross Profit
220,523,860
21,409,085
241,932,945
12. COMMITMENTS AND CONTINGENCIES a)
As at September 30 the Company had the following commitments and contingent liabilities:
Letters of credit Letters of guarantee Capital commitments on projects in progress
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2011 SR 43,660,453 20,668,300 16,494,238
2010 SR 14,589,443 20,253,010 51,631,074
ABDULLAH AL-OTHAIM MARKETS COMPANY (SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011
b)
Commitments against operating leases agreements The outstanding lease commitments of the Company related to non-cancelable long-term operating leases for the Company’s branches and malls as at September 30 were as follows: 2011 2010 SR SR Less than one year More than one year, but less than 5 years More than 5 years, but less than 23 years
43,084,969 152,446,950 277,607,670
37,502,439 113,884,816 228,982,645
13. PERIOD RELATED ADJUSTMENTS The adjustments which management believes to be material were adjusted in the interim financial statements to present fairly, the financial position and results of operations. The result of operations for the interim financial period might not give an exact indication about the actual results of the whole year operations.
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