gulf medical projects company public shareholding company...

GULF MEDICAL PROJECTS COMPANY PUBLIC SHAREHOLDING COMPANY

AND ITS SUBSIDIARIES SHARJAH

UNITED ARAB EMIRATES

AUDITOR'S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR

ENDED 31 DECEMBER 2006

GULF MEDICAL PROJECTS COMPANY

PUBLIC SHAREHOLDING COMPANY AND ITS SUBSIDIARIES

SHARJAH UNITED ARAB EMIRATES

INDEX

Page Exhibit Independent Auditor's Report 1 - 2 -- Consolidated Balance Sheet as at 31 December 2006 3 – 4 A Consolidated Statement of Income for the year ended 31 December 2006 5 B Consolidated Statement of Changes in Equity for the year ended 31 December 2006 6 C Consolidated Statement of Cash Flows for the year ended 31 December 2006 7 D Notes to Consolidated Financial Statements 8 - 23 --

GULF MEDICAL PROJECTS COMPANY

PUBLIC SHAREHOLDING COMPANY AND ITS SUBSIDIARIES

SHARJAH UNITED ARAB EMIRATES

CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR

ENDED 31 DECEMBER 2006 EXHIBIT B ___________________________________________________________________________ Note 2006 2005 AED AED Income 156,894,200 120,895,855 Operating costs 18 (100,225,333) (83,921,057) Gross operating profit 56,668,867 36,974,798 Other (expenses)/income 19 (4,342,144) 17,011,109 Administrative expenses 20 (19,402,823) (20,873,791) Profit from operations 32,923,900 33,112,116 Finance cost (2,389,848) (1,323,124) Profit for the Year – Exhibit C & D 30,534,052 31,788,992 ========= ========= Attributable To : Shareholders of the parent company 30,562,990 31,788,992 Minority interest (28,938) -- Net Amount 30,534,052 31,788,992 ========= ========= Basic Earnings per share 21 AED. 0.34 AED. 0.35 ========= =========

THE ACCOMPANYING NOTES CONSTITUTE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

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UNITED ARAB EMIRATES EXHIBIT C

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006 ________________________________________________________________________________________________________________________________

Attributable to equity holders of the parent company . Cumulative changes in fair value of avail- Proposed Share able for sale Accumulated issue of Minority capital Reserves investments Profits . bonus shares Total interest Total AED AED AED AED AED AED AED AED

Balance at 1 January 2005 50,000,000 22,584,419 -- 13,509,416 20,000,000 106,093,835 -- 106,093,835

Transferred to capital 20,000,000 -- -- -- (20,000,000) -- -- -- Profit for the year ended 31 December 2005 - Exhibit B -- -- -- 31,788,992 -- 31,788,992 -- 31,788,992 Transferred to statutory reserve -- 3,178,899 -- (3,178,899) -- -- -- -- Proposed issue of bonus shares -- -- -- (21,000,000) 21,000,000 -- -- -- Board of directors’ remuneration -- -- -- (675,000) -- (675,000) -- (675,000) Balance at 31 December 2005 – Exhibit A 70,000,000 25,763,318 -- 20,444,509 21,000,000 137,207,827 -- 137,207,827

Transferred to capital 21,000,000 -- -- -- (21,000,000) -- -- -- Profit for the year ended 31 December 2006 - Exhibit B -- -- -- 30,562,990 -- 30,562,990 (28,938) 30,534,052 Transferred to statutory reserve -- 3,056,299 -- (3,056,299) -- -- -- -- Decrease in fair value of available for sale investments -- -- (14,582,941) -- -- (14,582,941) -- (14,582,941) Proposed issue of bonus shares -- -- -- (19,000,000) 19,000,000 -- -- -- Board of directors’ remuneration -- -- -- (675,000) -- (675,000) -- (675,000) Net funds invested by minority shareholders -- -- -- -- -- -- 4,163,248 4,163,248 Balance at 31 December 2006 – Exhibit A 91,000,000 28,819,617 (14,582,941) 28,276,200 19,000,000 152,512,876 4,134,310 156,647,186 ======== ======== ======== ======== ======== ========= ======== =========


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UNITED ARAB EMIRATES EXHIBIT D

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2006

_______________________________________________________________________________ 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES AED AED Profit for the year – Exhibit B 30,562,990 31,788,992 Adjustments for: Depreciation 6,199,467 5,676,816 Changes in fair value of available for sale investments 58,065 -- Changes in fair value of investment properties (480,000) -- End of service benefits obligation 2,396,590 1,855,793 Provision for slow-moving items -- 798,045 Provision for doubtful accounts 2,323,081 2,265,901 Disposal of capital work-in-progress -- 2,929,720 Gain on sale of property and equipment (22,998) (140,474)

Operating Profit Before Working Capital Changes 41,037,195 45,174,793 Increase in inventories (3,183,801) (775,454) Increase in accounts receivable and others (11,857,020) (5,642,717) Increase in accounts payable and others 4,508,040 4,816,579 Decrease in post-dated cheques issued (464,858) (654,772) Settlements of end of service benefits obligation (1,540,491) (1,731,732)

Net Cash Provided by Operating Activities 28,499,065 41,186,697

CASH FLOWS FROM INVESTING ACTIVITIES Increase in fixed deposits (214,233) (400,000) Net purchases of property and equipment (54,218,533) (16,188,733) Purchase of investments in securities (121,054,226) -- Proceeds from sale of property and equipment 23,000 240,000

Net Cash Used in Investing Activities (175,463,992) (16,348,733)

CASH FLOWS FROM FINANCING ACTIVITIES Net amounts received from/(paid to) an affiliated company 2,905,796 (7,769,279) Increase in short-term borrowings 79,196,446 609,679 Proceeds from/(repayment of) bank loans 31,383,253 (3,157,897) Board of directors’ remuneration (675,000) (675,000) Net increase in minority interest 4,134,310 --

Net Cash Provided by/(Used in) Financing Activities 116,944,805 (10,992,497)

Net (decrease)increase in cash & cash equivalents (30,020,122) 13,845,467 Cash & cash equivalents at beginning of year 30,998,192 17,152,725 Cash & Cash Equivalents at end of Year - Note 22 978,070 30,998,192 ========= =======


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UNITED ARAB EMIRATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ___________________________________________________________________________ 1. STATUS AND ACTIVITIES

Gulf Medical Projects Company – Sharjah (hereinafter referred to as the “Company”) is a public shareholding company incorporated in Sharjah by an Amiri Decree No.48/79 issued by His Highness The Ruler of Sharjah on 2 August 1979.

The main activities of the company and its subsidiaries "the Group" are hospitals and polyclinics management & mediline products factories construction, trading in medical equipment and medical projects construction.

The Company is domiciled in Sharjah City – Emirate of Sharjah – United Arab Emirates.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards. The following is the summary of significant accounting policies adopted by the Group on a consistent basis :-

a) Basis of consolidation

Subsidiaries are those enterprises controlled by the company. Control exists when the company owns directly or indirectly more than 50% of the capital and has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The consolidated financial statements incorporate the financial statements of the parent company and its subsidiaries (together referred to as "the Group"). The details of the subsidiaries are as follows :

Ownership

Al Zahra Private Hospital Company Limited - Sharjah 100% Al Zahra (Pvt.) Hospital Dubai (L.L.C.) – Dubai 68.38%

All significant inter-company balances, transactions and profit have been eliminated in consolidation. Minority interest represents the portion of net assets in subsidiaries not held by the Group and are presented separately.

b) Accounting convention

The Group's financial statements are prepared under the historical cost convention except for certain elements which has been measured on the basis of fair value as set forth in the attached notes.

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c) Trade and settlement date accounting

The Group adopts the settlement date accounting for the “regular way” purchase or sale of various categories of financial assets. Settlement date accounting requires the recognition of financial assets on the day it is transferred to the enterprise.

d) Property and equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment in value. The Group depreciated its property and equipment using the straight line method over the estimated useful lives of these assets which are as follows : Estimated useful lives Hospital buildings 10 to 20 years Motor vehicles 3 to 5 years Hospital furniture and equipment 5 to 10 years Other furniture and equipment 3 years No depreciation is charged on capital-work-in-progress. The carrying amounts are reviewed at each balance sheet date to assess whether they are recorded in excess of their recoverable amounts. Where carrying values exceed recoverable amounts, assets are written down to their recoverable amounts Expenditure incurred to replace a component of an item of property & equipment and the expenditure which is increases future economic benefits of the assets are capitalized and the carrying amount of the component that is replaced is written off. Cost of day to day repair and maintenance of an asset is recognized in the Income Statement.

e) Investment properties

Investment properties held to earn rentals or to use in future for capital appreciation are stated at fair value as at balance sheet date. Gain or loss arising from changes in the fair value of investment properties are included in the Consolidated Statement Of Income.

f) Investments in securities

Held for trading investments

Investments held for trading is initially recorded at cost, being the fair value of the consideration given including acquisition costs associated with investment and subsequently measured at fair value with realized and unrealized gains or losses recognized in the Consolidated Statement Of Income.

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Available for sale investments

Available for sale investments are initially recorded at cost and subsequently re-measured at fair value. Unrealized gains or losses on re-measurement of fair value are recorded as a separate component of equity until the investment is sold or disposed of, or impairment in value, at which time the cumulative gain or loss previously reported in equity is included in the Consolidated Statement of Income.

g) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are 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 such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognized in the Consolidated Income Statement in the period which they are incurred.

h) Impairment

The carrying amounts of the Group’s assets are reviewed at each balance sheet date or whenever there is any indication of impairment. If any such indication exists, the recoverable value of the assets is estimated. An impairment loss is recognized where the carrying amount of an asset exceeds its recoverable value. Impairment losses are recognized in the Consolidated Income Statement.

i) Inventories

Inventories are stated at lower of cost and net realizable value, cost is determined using the First-in, First-out (FIFO) basis. Cost includes purchase cost, freight, insurance and other related expenses incurred in bringing the goods to their present condition and location. Net realizable value is based on the normal selling price, less cost expected to be incurred on disposal. Provision is made where necessary for obsolete, slow-moving and damaged items.

j) Accounts Receivable

Accounts receivable are stated at original invoices amount less a provision for any uncollectible amounts. An estimate for doubtful accounts is made when collection of full amount is no longer probable. Bad accounts are written off when there is no possibility of recovery.

k) End of service benefits obligation

End of service benefits obligation is calculated in accordance with UAE Labour Law requirements.

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l) Accounts payable and accruals

Accounts payable and accruals are recognized for amounts to be paid in the future for goods or services received, whether billed by supplier or not.

m) Provisions

Provisions are recognized when the company has an obligation (legal or constructive) arising from past events and the costs to settle the obligation are both probable and reliably measured.

n) Revenue recognition

Revenue from operation represents the invoiced value of goods delivered and medical services rendered/provided by the Group.

o) Cash and cash equivalents

For the purposes of preparing Statement of Cash Flows (Exhibit D) “cash and cash equivalents” include cash on hand and unrestricted balances with banks which are subject to an insignificant risk of changes in value.

p) Foreign currencies

Assets and liabilities denominated in foreign currencies are expressed in Arab Emirates Dirhams (AED) at rates of exchange ruling at the balance sheet date. Foreign currency transactions occurring during the year are expressed in AED at rates of exchange prevailing on such transaction dates. All foreign currency gains and losses are credited or charged to the Consolidated Statement of Income as they arise.

q) Financial instruments

A financial instrument is defined as any contract that gives rise to both financial assets of the Group and a financial liability or equity instrument of another enterprise. The Group’s financial instruments principally comprise of cash and bank balances, investments in securities, post-dated cheques received, accounts receivable and others, due from an affiliated company, accounts payable and others, post-dated cheques issued, bank loans and short-term borrowings.

Fair value of financial instruments is arrived at by using various methods of estimation that include determining net realizable value or current market value of a similar instrument based on expected discounted cash flows or other estimates based on management judgment and past experience.

3. LAND

Land of AED. 20,847,170 (Exhibit A) represent the value of two plots of land in the Emirate of Sharjah measuring 7,977 square metre.

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4. PROPERTY AND EQUIPMENT

a) The details of this item are as follows :

Hospital Other Capital Hospital Motor furniture & furniture & work-in- buildings vehicles equipment equipment progress Total AED AED AED AED AED AED

Cost : At 1 January 2006 34,024,886 2,355,962 58,774,085 5,397,588 12,636,377 113,188,898 Additions 1,100,380 426,000 5,635,609 283,847 46,772,697 54,218,533 Disposals -- (143,600) -- -- -- (143,600) _________________ _______________ _________________ _______________ _________________ ___________________

Balance at 31 December 2006 35,125,266 2,638,362 64,409,694 5,681,435 59,409,074 167,263,831 _________________ _______________ _________________ _______________ _________________ ___________________

Accumulated Depreciation : At 1 January 2006 6,953,085 1,661,510 40,021,078 4,150,538 -- 52,786,211 Charged for the year - Exhibit D 1,648,015 437,879 3,844,117 269,456 -- 6,199,467 Relating to disposals -- (143,598) -- -- -- (143,598) _________________ _______________ _________________ _______________ _________________ ___________________

Balance at 31 December 2006 8,601,100 1,955,791 43,865,195 4,419,994 -- 58,842,080 _________________ _______________ _________________ _______________ _________________ ___________________

Net Book Value : At 31 December 2006 - Exhibit A 26,524,166 682,571 20,544,499 1,261,441 59,409,074 108,421,751 ======== ======= ======== ======= ======== ========= At 31 December 2005 - Exhibit A 27,071,801 694,452 18,753,007 1,247,050 12,636,377 60,402,687 ======== ======= ======== ======= ======== =========

b) Hospital buildings of AED. 35,125,266 mentioned above are constructed on the plots of land mentioned in Note 3.

c) Capital work-in-progress of AED. 59,409,074 mentioned above include AED. 58,400,949 representing total payments made till date for construction

of new hospital in the Emirate of Dubai.

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5. INVESTMENT PROPERTIES

a) This item consists of the following :

2006 2005 AED AED

Fair value at 1 January 7,520,000 7,520,000 Increase in fair value 480,000 -- _____________________ ___________________

Fair Value at 31 December - Exhibit A 8,000,000 7,520,000 ======== =======

b) Investment properties of AED. 8,000,000 (2005 : AED. 7,520,000) (Exhibit A) is

stated at fair value based on an open market valuation conducted by independent real estate consultants as at 31 December 2006. Investment properties represents the fair value of 16 flats purchased in a tower in the Emirate of Sharjah with a total area of 2,478.40 square metre.

6. INVESTMENTS IN SECURITIES

b) Available for sale investments

This item consists of the following : 2006 2005 AED AED

Fair value at 1 January -- -- Purchases during the year 119,199,661 -- Decrease in fair value (14,582,941) -- ________________________ ___________________

Fair Value at 31 December - Exhibit A 104,616,720 -- ========= =======

b) Held for trading investments


Fair value at 1 January -- -- Purchases during the year 1,854,565 -- Decrease in fair value (58,065) -- ___________________ __________________

Fair Value at 31 December - Exhibit A 1,796,500 -- ======= =======

c) Investments in securities mentioned above include securities of AED. 73,893,820

mortgaged in favour of a local bank against facilities granted to the Group.

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7. INVENTORIES

a) This item consists of the following : 2006 2005 AED AED

Goods for sale (drugs and cosmetics) 6,603,884 4,499,122 General stores and hospital supplies 7,437,867 6,413,515

Total 14,041,751 10,912,637

Provision for slow-moving items - Note 7(b) (1,256,435) (1,311,122) Net Amount - Exhibit A 12,785,316 9,601,515 ======== ========

b) The details of movement in the provision for slow-moving items during the year are as

follows :

2006 2005 AED AED

Balance at 1 January 1,311,122 513,077 Additions to provision -- 798,045 Written off (54,687) -- Balance at 31 December – Note 7(a) 1,256,435 1,311,122 ======= =======

8. DUE FROM AN AFFILIATED COMPANY

a) This item represents the amount due from Gulf Medical Commercial Agencies (L.L.C.) - Sharjah which is managed and financed by the Company. As per the management contract the yearly profit/(loss) generated by the affiliated company has been included in the Consolidated Statement of Income of the Group. The details of the movement in this account are as follows :

2006 2005 AED AED

Balance at 1 January 12,376,331 4,607,052 Net funds received from/(paid to) an affiliated company 4,944,571 (4,452,292) (Loss)/profit for the year transferred from an affiliated company - Note 19 (7,850,367) 12,221,571 Balance at 31 December - Exhibit A 9,470,535 12,376,331 ======== ========

b) No interest is charged on amount due from an affiliated company.

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9. ACCOUNTS RECEIVABLE AND OTHERS


2006 2005 AED AED

Accounts receivable - Note 17(b) 40,209,522 28,084,796 Provision for doubtful accounts - Note 9(b) (8,592,750) (6,311,745) Net amount 31,616,772 21,773,051

Prepayments and others - Note 9(c) 6,525,149 6,860,081 Post-dated cheques received 152,650 127,500 Total - Exhibit A 38,294,571 28,760,632 ======== ========

b) The details of movement in the provision for doubtful accounts during the year are as

follows :

2006 2005 AED AED Balance at 1 January 6,311,745 4,788,442 Additional provision 2,323,081 2,265,901 Doubtful accounts written off (42,076) (742,598) Balance at 31 December - Note 9(a) 8,592,750 6,311,745 ======= =======

c) Prepayments and others

This item consists of the following : 2006 2005 AED AED Prepaid expenses 3,645,828 3,931,696 Staff debtors 363,649 404,498 Refundable deposits 702,888 302,378 Accrued interest 140,753 114,765 Others 1,672,031 2,106,744

Total - Note 9(a) 6,525,149 6,860,081 ======= =======

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10. CASH AND BANK BALANCES

a) This item consists of the following : 2006 2005 AED AED

Cash on hand 390,015 174,478 Cash at banks - Current and call accounts 588,055 10,823,714 Fixed deposits with maturity of less than three months from original date of placement 14,500,000 34,500,000 Fixed deposits with maturity of more than three months from original date of placement 1,014,233 800,000 Total - Exhibit A 16,492,303 46,298,192 ======== ========

b) Fixed deposits mentioned above totaling AED. 15,514,233 held under lien by a bank

against credit facilities granted to the Group. Fixed deposits are at a fixed interest rate per annum.

11. SHAREHOLDERS' EQUITY

a) Share Capital

2006 2005 AED AED Authorized share capital comprises 91,000,000

ordinary shares (2005 : 70,000,000 ordinary ordinary shares) of AED. 1 each fully paid - Exhibit A 91,000,000 70,000,000 ======== ========

The shareholders in their Extra-ordinary General Assembly Meeting held on 22 April 2006 had approved to increase the company’s share capital from AED. 70,000,000 to AED.91,000,000 by issue of 21,000,000 ordinary shares at a nominal value of 1 Dirham for each share as bonus shares issued during the year.

b) Basis of Retained Reserves

The Group’s annual profit is distributed after deducting all administrative expenses and other related expenses as follows :

(i) 10% of the yearly profit shall be deducted and retained in statutory reserve account,

the deduction will be stopped when the reserve reaches 50% of the Company’s paid-up capital and if the statutory reserve decreases from that percentage again will be back to deduction.

(ii) Another 10% of the yearly profit shall be deducted and retained in additional

reserve until a decision from ordinary general assembly meeting on a proposal by Board of Directors or if such reserve reaches to 50% of the Company’s paid-up capital.

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c) Reserves

The details of this item are as follows : 2006 2005 AED AED Statutory reserve 15,379,728 12,323,429 Additional reserve 6,041,573 6,041,573 Revaluation reserve 7,398,316 7,398,316

Total – Exhibit A 28,819,617 25,763,318 ======== ========

d) Proposed dividends

The Board of Directors have proposed the appropriation of profit for the current financial year as follows : 2006 2005 AED AED Transferred to statutory reserve 3,056,299 3,178,899 Directors’ remuneration 675,000 675,000 Proposed issue of bonus shares 19,000,000 21,000,000 Retained in accumulated profits 7,831,691 6,935,093

Total – Exhibit B 30,562,990 31,788,992 ======== ========

The above mentioned proposed dividends are subject to the approval of the shareholders at the Annual General Assembly Meeting.

12. MINORITY INTEREST

This item consists of the following : 2006 2005 AED AED Balance at 1 January -- -- Share of loss for the year (28,938) -- Net funds invested by minority shareholders 4,163,248 -- Balance at 31 December - Exhibit A 4,134,310 -- ======== ========

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13. END OF SERVICE BENEFITS OBLIGATION

The details of movement in this account during the year are as follows : 2006 2005 AED AED

Balance at 1 January 12,808,318 12,684,257 Current service cost 2,396,590 1,855,793 Settlements (1,540,491) (1,731,732)

Balance at 31 December – Exhibit A 13,664,417 12,808,318 ======== ========

14. BANK LOANS


2006 2005 AED AED

Instalments to be paid after one year – Exhibit A 36,120,600 4,737,243 Current instalments of a bank loan – Exhibit A 3,157,896 3,158,000

Total – Note 14(b) 39,278,496 7,895,243 ======== =======

b) The details of bank loans as at 31 December 2006 are as follows :

(i) A bank loan of AED. 34,541,149 (2005 : AED. 'Nil') representing the amounts drawn till date from an approved ceiling of AED. 160,000,000 obtained from a local bank in the name of a subsidiary to finance construction of a new hospital in the Emirate of Dubai. Interest is charged on loan using a marginal rate plus EBOR subject to variation every three months. Bank loan is repayable in 40 quarterly instalments upto 30 September 2017.

Bank loan is secured by : Mortgage of property, assignment of all proceeds, corporate and personal

guarantees of the partners in subsidiary, hypothecation of all assets, assignment of fire and other perils insurance policies as well as building.

(ii) A bank loan of AED. 4,737,347 (2005 : AED. 7,895,243) representing the

remaining balance of loan obtained from a local bank. Interest is charged on loan using a marginal rate plus EBOR subject to variation every three months. Bank loan is repayable in 6 equal quarterly instalments upto 26 April 2008 and secured by the securities disclosed in Note 16.

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15. ACCOUNTS PAYABLE AND OTHERS


2006 2005 AED AED

Accounts payable 14,038,057 9,234,205 Accrued expenses and others – Note 15(b) 10,789,735 10,864,437 Uncollected portion of repayments to shareholders 1,244,177 1,244,497 Shareholders' dividends payable 3,763,674 3,984,464

Total - Exhibit A 29,835,643 25,327,603 ======== ========

b) Accrued expenses and others

(i) This item consists of the following :

2006 2005 AED AED

Accrued expenses 3,701,074 4,035,378 Accrued staff leave salaries 3,788,887 3,772,545 Accrued interest payable 65,399 95,532 Provisions 1,580,205 1,100,205 Retention payable 448,972 454,066 Board of directors remuneration 675,000 675,000 Rent received in advance 396,639 370,666 Due to a joint venture business – Note 15(b)(ii) -- 353,427 Other payables 133,559 7,618 Total – Note 15(a) 10,789,735 10,864,437

======== ========

(ii) On 31 October 2005, the joint venture agreement with the Nuclear Medicine Consultant was terminated, accordingly, all assets and liabilities of the joint venture was transferred to the Group as per the termination agreement signed with the consultant.

16. SHORT-TERM BORROWINGS

Short-term borrowings of AED. 80,173,042 (2005 : AED. 976,596) (Exhibit A) represent overdraft balances with local banks as at 31 December 2006. Short-term borrowings are at agreed interest rates per annum and are secured by : Lien over fixed deposits [Note 10(b)], cash margin, promissory note and pledge over securities.

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17. FINANCIAL INSTRUMENTS

a) Fair Value

The fair values of the Group's financial assets and liabilities are not materially different from their carrying values as of the balance sheet date.

b) Credit Risk

Credit risk is that one party to a financial instrument will fail to discharge an obligation and cause the other party to occur a financial loss. Financial assets which potentially subject the Group to concentration of credit risk consist principally of current accounts and fixed deposits with banks and accounts receivable. The Group limits its credit risk with regard to bank deposits by dealing with high credit quality financial institutions.

The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables. Concentration of credit risk with respect to trade receivables arises from exposure to Group of debtors in the following line of business/economic sector :

2006 2005 AED AED

Insurance companies 34,149,907 19,498,343 Commercial entities 4,510,479 5,249,552 Others 1,549,136 3,336,901 Total - Note 9(a) 40,209,522 28,084,796 ======== ========

Concentration of credit risk also arises from the geographical area in which the debtors are located and in the Group’s case the customer’s base is concentrated in the United Arab Emirates.

c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulties in raising funds to

meet its liabilities when they all due. To limit this risk management has arranged diversified funding sources and monitors liquidity on daily basis.

d) Foreign Currency Risk

The Group’s management believes that there is minimal risk of significant losses due to exchange rate fluctuations and consequently the Group does not hedge foreign currency exposure.

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e) Interest Rate Risk

The Group is exposed to interest rate risk on its interest bearing assets and liabilities namely bank deposits, bank loans and bank borrowings as follows :

The interest rate on the Group's fixed deposits is disclosed in Note 10(b). The interest rates on the Group’s bank loan and short-term borrowings are

disclosed in Notes 14(b) & 16.

f) Market Risk

Financial instruments which expose the company to market risk as at balance sheet date represented in investment held for trading and available for sale which hold net value of AED. 106,413,220.

18. OPERATING COSTS


Salaries and other related benefits 53,568,419 48,141,920 Supplies and services 34,643,909 24,867,161 Depreciation 6,199,467 5,676,816 Remuneration & bonus to doctors 4,138,777 3,570,576 Rent 1,674,761 1,664,584

Total - Exhibit B 100,225,333 83,921,057 ========= ========

19. OTHER (EXPENSES)/INCOME


Interest received 1,539,290 461,596 Rental income 552,734 428,661 (Loss)/profit for the year from management contract (7,850,367) 12,221,571 Profit from a joint venture business agreement -- 341,828 Profit from sale of property and equipment 22,998 140,474 Fair value loss on held for trading investment (58,065) -- Fair value gain on investment properties 480,000 -- Miscellaneous income 971,266 3,416,979

Net Amount - Exhibit B (4,342,144) 17,011,109 ======== ========

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20. ADMINISTRATIVE EXPENSES


Staff salaries and other related benefits 6,836,568 5,200,694 Advertising and publicity 2,350,541 2,067,573 Government expenses 1,078,491 1,002,585 Bad and doubtful accounts 2,323,081 2,308,317 Slow-moving items 336,623 883,154 Legal charges and professional fees 681,962 1,366,632 Electricity and water expenses 1,476,711 1,340,082 Telephone and fax 918,261 723,541 Insurance 771,190 712,579 Bank charges 561,354 427,530 Disposal of capital work-in-progress -- 2,929,720 Miscellaneous expenses 2,068,041 1,911,384

Total - Exhibit B 19,402,823 20,873,791 ======== ========

21. BASIC EARNINGS PER SHARE

Earnings per share are calculated by dividing the profit for the year attributable to equity holders of parent company of AED. 30,562,990 (2005 : AED. 31,788,992) on the weighted average number of ordinary shares outstanding during the year of 91,000,000 ordinary shares. Based on the approval of the shareholders at the Extra-ordinary General Assembly Meeting held on 22 April 2006, the company had issued 21,000,000 bonus shares, accordingly, the earnings per share for 2005 have been adjusted to reflect the effect of the shares issued in 2006 by adjusting the number of ordinary shares as at 31 December 2005.

22. CASH AND CASH EQUIVALENTS

At 31 December 2006 and 2005 “cash and cash equivalents” included in the Statement of Cash Flows (Exhibit D) comprise the following items :

2006 2005 AED AED

Cash on hand 390,015 174,478 Cash at banks - Current and call accounts 588,055 10,823,714 Fixed deposit with maturity of three months or less from original date of placement -- 20,000,000 Total - Exhibit D 978,070 30,998,192 ====== ========

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23. TRANSACTIONS WITH RELATED PARTIES

The Group carried out transaction in the normal course of business with companies and entities that fall within the definition of a related party as contained in International Accounting Standard No. 24. Related parties comprise shareholders, directors and entities related to them, companies under common ownership and/or common management and

control. Transactions with related parties are consummated at prices and terms decided by management other than those obtainable from / quoted to third parties.

• At the balance sheet date, balance due from a related party is disclosed in Note 8(a).

• The following are the details of significant related parties transactions :

AED Sales 36,712 Purchases 65,614 Services 24,000

• The remuneration of directors and other members of key management during the year

were as follows :

2006 2005 AED AED Directors' remuneration 675,000 675,000 Directors' expenses 750,255 753,677 Key management salaries, bonus and other related benefits 4,786,081 3,592,889

24. CONTINGENT LIABILITIES

Contingent liabilities of the Group as at the consolidated balance sheet date as declared by the banks amounted to AED. 1,090,598 (2005 : AED. 910,232) towards guarantees issued by the banks.

25. COMMITMENTS

As at 31 December 2006, the Group has commitments amounting to AED. 141,025,675 towards construction obligations for a new hospital in Dubai.

26. GENERAL

a) Certain prior year figures have been reclassified to conform to current year presentation.

b) The figures in the consolidated financial statements are rounded to the nearest Arab

Emirates Dirham (AED).

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