the will to create the ability to be...

Annual Report 2005

Shuwaikh Industrial AreaStreet Ni.6, Plot 125Tel +965 482 04 40Fax +965 482 04 70P.O.Box 8904 Salmiyah22060 Kuwait

www.alargan.com

THE WILL TO CREATE ...THE ABILITY TO BE CREATIVE

His Highness

Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah

Amir of the State of Kuwait

His Highness

Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah

Crown Prince

His Highness

Sheikh Nasser Al-Mohamad Al-Ahmad Al-Sabah

Prime Minister

As long as we have the will to create

6 • ALARGAN International Real Estate Co.• Annual Report 2005


Table of content

9

01-11

21-31

61-83

Board members

Chairman’s message

Management report

Auditors report


Then we are obligated to be creative


Board Members

Mohammed Al-SaqqafVice Chairman

Meshari Ayman BodaiBoard Member

Faisal K. Al-MashaanBoard Member

Khaled A. Al-SumaitBoard Member

Abdulaziz K. Al-AbdulrazzakBoard Member

Khaled K. Al-MashaanChairman & MD

Chairman’s Message

The real estate sector in the Middle East has witnessed anunprecedented boom. Nowhere is it more pronounced as inthe gulf region. The current boom is not expected to loosemomentum in the near future as the demand for housing andcommercial projects is expected to continue for some time infuture. As a result of this demand the trend has been increasedactivity and growth across the boarder in the real estate sector.

Given the size and number of real estate projects currentlyunderway, the gulf region has become the focal point of thisactivity. This flurry of activity and growth has generated fiercecompetition amongst the real estate development companieswho have come up with innovative ideas and new methods ofmanaging this vital investment.

In Kuwait, investor confidence in the real estate market hasbeen translated into huge projects across the country. The trendis strengthened by the record increase of oil prices around theworld, which in turn has resulted in the state's budget havinga surplus. Major projects worth billions of dollars have beenrecently launched as a step to strengthen the country'sinfrastructure. Several housing projects have been introducedas well in an attempt to solve the housing crisis facing thecountry which, of course, is relying heavily on the private sectoras the keystone for resolving this challenge.

As for the Kingdom of Saudi Arabia, construction in many citieshas extended beyond the regulative boundaries in search oflarger spaces away from urban congestion, in an effort to providethe proper area for the services and utilities required for theproposed projects. Despite the numerous housing projectsunder construction, studies suggest that the kingdom needs afurther 2.62 million housing units by 2020 in order to meetdemand. Statistics also indicate that the Saudi real estate marketis growing at 10% annually since the start of the new millennium.Similarly, Bahrain seems to be attracting more investments too.

This is especially true in the investment sector of the real estatemarket, which is attracting non Bahraini investors due to theexpectation of high economic returns for their investments. Inlight of this the Bahraini government has passed legislation thatallows non Bahraini nationals to own properties in the capitalManama and the other four provinces.

Oman has witnessed rapid changes in the real estate market.This momentum is expected to continue over the short andmedium-term. The real estate sector in Oman is expected tohave a bright future due to strong economic indicators, suchas population growth, small demographic distribution, the flowof foreign labor, interest rates, liquidity, financing options aswell as the construction costs. The government's practicalintervention in encouraging private and foreign participation inthe sector remains a driving force behind this prediction. Thehousing sector saw a large increase in prices during 2005.

The real estate market in Lebanon witnessed an increaseddemand mainly because of increased investor confidence fromLebanese and Gulf investors. This has resulted in a markedgrowth during the first quarter of 2006. Despite the economicstagnation that is evident across much of the country, the realestate sector and building activity in Beirut and Mount Lebanonhas attracted the biggest share of Arab investors.

In Egypt, the most densely populated country in the Arab world,the real estate sector has unlimited resources and prospectsmainly because of the high population growth which plays amajor role in the continued demand for housing units. This putsmuch of the burden of providing appropriate housing units atcompetitive prices on the private sector.As for India, the second most populous country in the world,the challenge remains in providing the required housing units,making India the largest and most promising market in theregion.



The third quarter of 2005 witnessed a major change in thecapital structure of ALARGAN. The company increased itscapital through a private placement from K.D 10,500,000 toK.D 25,000,000 and it managed to broaden its shareholdersbase. This increase has placed the company in a position tobegin an ambitious yet carefully planned expansion phase. Thenew shareholder base of ALARGAN represents strategicshareholders from the local market and several gulf marketswith complimentary depth that will directly serve the interestand future projects of the company. In 2005, the companypursued its strategic plans of establishing a presence in severalnew geographic locations where it would apply its experiencethrough its strategic partnerships. Accordingly, the companybegan to lay down the foundations for setting up a companyin the Kingdom of Saudi Arabia, another in the Republic ofLebanon, a third in the Arab Republic of Egypt and a fourth inIndia. The phases of the study of laying down the foundationsof these companies differ from one another. In late 2005, thecompany began to build the necessary infrastructure includinghuman and investment resources to start implementing itsexpansion strategy with firm steps and clear vision. Thediversification of the company's capital in real estate projectswhich it develops and the geographical distribution of suchprojects as well as winning third party advisory and managementmandates will result in a positive outcome for both the mediumand long-term while improving the company’s profits in termsof quantity and quality.

The net profit amounted to K.D 2.6 million in 2005, whichequates to over16 fils earning per share based on the averagecapital of the year. This percentage reflects the first phase ofthe expansion plan of the company which required building thehuman resource infrastructure so as to proceed with the majorprojects sought by the company at present. ALARGAN will tryto increase this percentage radically in the coming period toachieve the intended added value for our shareholders.

Khaled Khudair Al-MashaanChairman & Managing Director

And that is what we have succeeded in achieving


Management Report

Capital Increase

In 2005, the capital structure of ALARGAN witnessed a majorchange. During the third quarter of the year, the companyincreased its capital by K.D. 14,500,000, taking it from K.D.10,500,000 to K.D 25,000,000. The increase was from theinjection of funds from new investors through private placementwhich was undertaken by Global Investment House. Thisplacement enjoyed high demand, indicating the sound reputationand strong financial position that ALARGAN enjoys. The objectiveof this placement was to finance the growing activities andfuture projects as well as its expansion into new geographiclocations.

Opening new branches

The real estate sector has witnessed tremendous growth dueto the increasing demand on the residential and commercialprojects. As a result of this growth fierce competition hasincreased and created an environment that has driven realestate companies to find innovative new ways to meet thegrowing demand.In an effort to capitalize on these opportunities and to followALARGAN's mission to become one of the leading real estatedevelopers not only in Kuwait, but also the region, the companyhas extended its activities to reach new markets through longterm strategic partnerships. ALARGAN currently has a 50%stake in ALARGAN Towell Investment Company along withstrategic Omani partners in the Sultanate of Oman. In 2005,ALARGAN was able to create two further strategic partnerships,one in the Kingdom of Saudi Arabia and the other in the Kingdomof Bahrain. The company also has a representative office in theUnited Arab Emirate.

Best Real-Estate Developer Award

In recognition of their excellence in the development of Al-Mawaleh project in Oman, ALARGAN Towell InvestmentCompany was awarded the Best Real Estate Developer for theresidential housing category in Oman by Euromoney magazine.The award was the first of its kind in this sector and it was thefirst time that Euromoney introduced this award in the GCCregion. Numerous companies were competing for this awardand ALARGAN Towell is proud to have won the awardconsidering the stiff competition as a result of its futuristic visionand creative solutions that complemented the project'ssurrounding environment.

Management Team

New professional members were recruited to work within themanagement team of ALARGAN. This was done as part of astrategic plan to diversify the activities of the company as wellas to support and compliment the current services provided.The objective of this plan is to build a proper and stronginfrastructure to support the company’s future expansion.

Real Estate Advisory

Since its inception in 1994, ALARGAN has built a strong trackrecord. Based on the company's experienced managementteam and its commitment to offer creative solutions withoutcompromising on quality, other companies now seek AlARGAN'sexperience in this field. One clear example of that is GlobalGCC Real Estate Fund.


Global GCC Real Estate Fund established by GlobalInvestment House

ALARGAN was appointed as the investment advisor for theFund. It's a closed ended fund with a varying capital rangingfrom 35 to 75 million USD aiming to invest in a portfolio ofshari'a compliant real estate and real estate related investmentsin the member states of the GCC.

2005 Projects

ALARGAN completed a number of projects in 2005. Theseprojects were not only limited to the residential sector, but alsoincluded tourist and social projects. The experience whichALARGAN has built over the years is the strong base from whichALARGAN grows and diversifies, always attaining the higheststandards in the field.

Below is a list of projects that were introduced during the year:

Bida Project

A multi use development over a 3,000 square meters in al-bidaaarea over looking the sea. The project is composed of manyelements such as a hotel, a health club as well as villas andserviced flats. It also consists of a commercial center whichincludes many restaurants and shops.

Shiik Resort

In 2005, ALARGAN acquired the Shiik Resort in Al Bida’a areawith the view of redeveloping it with the objective of determiningthe optimal usage for this resort. ALARGAN is currently in theprocess of putting together a new team to manage this project.

Al-Kheiran Resort in Oman

Located in a tourist resort in the Sultanate of Oman calledBandar Kheiran, the project is on a plot amounting to 137,800Square meters. The resort lies in a unique location with anexclusive beach. ALARGAN is currently working with a renownedarchitect who is famous for his unique designs, to develop adesign suitable for world class hotel that will compliment thesurrounding environment and cater to the elite clients.

Al-Hail project in Oman

The project is located in Al-Seeb area in Oman, and it consistsof 100 villas with 5 different designs in varying sizes. Thecompany signed an agreement with one of the local banks toarrange financing for the unit buyers of this project. Currentlythe project is under construction and is expected to completewithin the fourth quarter of 2006.

Al-Mawaleh

A project consisting of 72 villas in the Al Mawaleh area of theSultanate of Oman. The concept of this project is to developresidential houses suitable for low income families. The projectwas met with great demand where more than 90% of the unitswere sold before the completion of the project. The project isexpected to be completed by the end of the third quarter of2006.

Saar Gate

A development over a 54,700 square meters in the Saar areaof the Kingdom of Bahrain. Currently there are negotiations withthe relevant authorities mainly Al-Eskan Ministry to finalize theconcept of the project which will have a mix of residential andcommercial units. The residential units will comprise of a rangethat will include apartments, duplexes and villas.



Table of content

71

81

91

02

83-12

Consolidated Balance Sheet

Consolidated Income Statement

Consolidated Statement of changes in shareholders equity

Consolidated cashflow statement

Notes to Consolidated Financial statements

Auditor Report

Consolidated financials statements

for the year ended December 31, 2005

with auditor's report

I have audited the accompanying consolidated balance sheetof ALARGAN International Real Estate Company - K.S.C. (Closed)(“the Parent Company”) and its subsidiaries (together referredas “the Group”) as of December 31, 2005, and the relatedconsolidated statements of income, changes in shareholders’equity and cash flows for the year then ended. Theseconsolidated financial statements are the responsibility of theparent Company’s management. My responsibility is to expressan opinion on these consolidated financial statements basedon the audit.

The audit was conducted in accordance with InternationalStandards on Auditing. Those standards require that I plan andperform the audit to obtain reasonable assurance about whetherthe consolidated financial statements are free of materialmisstatements. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in theconsolidated financial statements. An audit also includesassessing the accounting principles used and significantestimates made by management, as well as evaluating theoverall consolidated financial statement presentation. I believethat the audit conducted provides a reasonable basis for myopinion.

In my opinion, the consolidated financial statements referredto above present fairly, in all material respects, the financialposition of ALARGAN International Real Estate Company –K.S.C. (Closed) (“the parent company”) and its subsidiaries(together referred as “the Group”) as of December 31, 2005,and the results of its operations and cash flows for the yearthen ended in conformity with International Financial ReportingStandards.

Also, in my opinion, the consolidated statements include thedisclosures required by the Commercial Companies Law andthe Parent Company’s Articles of Association, and I obtainedthe information I required to perform my audit. In addition,proper books of account have been kept, physical stocktakingwas carried out in accordance with recognized practice, andthe accounting information given in the Directors’ Report is inagreement with the Parent Company’s books. According tothe information available to me, there were no contraventionsduring the year of either the Commercial Companies Law or ofthe parent Company’s Articles of Association which might havematerially affected the parent Company’s financial position orresults of its operations.

The shareholdersALARGAN International Real Estate Company - K.S.C. (Closed)And subsidiariesState of Kuwait

Dr. Shuaib A. ShuaibLicence No. 33-AAlbazie & Co.Member of RSM International


ALARGAN International Real Estate Co. - K.S.C.CAnd subsidiaries

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

22

24

25

26

27

ASSETSCurrent assets:

Cash at banksTime depositsInvestments at fair value through income statementDue from customers for contract worksAccounts receivables and other debit balancesDue from related partiesBranches current accountAssociated companies current accountMaterials in storesTotal current assetsInvestment projectsInvestment in associatesInvestments available for saleInvestment property erected on leasehold landLands for developmentLands held for investmentRight of utilization of land for developmentRight of utilization of land with erected buildingsBuilding erected on right of utilizationFixed assets

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:Due to banksNotes payableShort-term loans installmentsShort term Murabaha contracts installmentsShort term financing contracts installmentsAccounts payables and other credit balancesUnconsolidated subsidiary current accountShareholders’ payableTotal current liabilitiesLong-term loans installmentsLong term financing contracts installmentsProvision for indemnityShareholders’ equity:CapitalShare premiumLegal reserveRetained earningsTotal shareholders’ equity

1,779,931

10,300,000

2,134,442

956,640

4,340,068

346,681

84,457

2,562,773

131,997

22,636,989

24,993,623

889,617

48,000

1,400,000

5,017,959

12,261,012

162,828

236,121

212,928

351,291

68,210,368

582,379

226,678

8,744,000

95,587

2,620,831

9,248,100

-

-

21,517,575

-

3,874,868

193,825

25,000,000

14,500,000

728,970

2,395,130

42,624,100

68,210,368

1,028,699

454,161

110,678

560,224

1,834,801

3,075,439

-

-

62,071

7,126,073

19,465,595

-

148,000

-

336,060

3,816,130

162,828

236,121

732,145

212,736

32,235,688

133,943

387,055

3,633,000

-

-

3,631,785

11,699

710,294

8,507,776

10,000,000

4,000,000

131,433

5,000,000

-

463,822

4,132,657

9,596,479

32,235,688

2005 2004Note

The accompanying notes 1 to 40 are an integral part of the consolidated financial statements

Khaled Khudair Al-MashaanChairman and Managing Director

Mohammed Ahmed Al-SaqqafDeputy Chairman and C.E.O


Consolidated Balance Sheet as of December 31, 2005(All amounts are in Kuwaiti Dinar)

29

30

31

32

33

Net projects revenuesProjects net profitsNet equipments department profitsGain from sale of lands held for investmentUnrealized gain from re-evaluation of investment property erected onleasehold landUnrealized gain form re-evaluation of lands held for investmentOperating gross profitGeneral and administrative expensesDepreciationsOperating profitFinance chargesGain from investment in associatesGain from sale of investments at fair value through income statementChanges in fair value of investments at fair value through incomestatementForeign exchange lossesInterest incomeOther revenuesGain form sale of fixed assetsNet profit for the year before Kuwait Foundation for the Advancementof Sciences shareKuwait Foundation for the Advancement of Sciences shareNet profit for the yearEarnings per share

330,272

182,239

393

-

905,152

1,333,122

2,751,178

(343,332)

(12,528)

2,395,318

(226,864)

162,561

63,440

15,443

(10,671)

182,551

69,706

-

2,651,484

(23,863)

2,627,621

16.794

70,191

462,620

-

344,690

-

3,504,922

4,382,423

(80,333)

(1,280)

4,300,810

-

-

75,913

(15)

-

-

120,760

1,774

4,499,242

(40,493)

4,458,749

95.2

2005 2004Note



Consolidated Statement of Income for the year ended December 31, 2005(All amounts are in Kuwaiti Dinar)


1

Balance at January 1, 2004Net profit for the yearGross realized profit for the yearProceeds from capital increaseTransferred to legal reserveBalance at December 31, 2004Net profit for the yearGross realized profit for the yearProceeds from capital increaseBonus shares (82% - 2004)Share premiumTransferred to legal reserveBalance at December 31, 2005

2,000,000

-

-

3,000,000

-

5,000,000

-

-

15,900,000

4,100,000

-

-

25,000,000

-

-

-

-

-

-

-

-

-

-

14,500,000

-

14,500,000

CapitalSharepremiumNote

13,898

-

-

-

449,924

463,822

-

-

-

-

-

265,148

728,970

123,832

4,458,749

4,458,749

-

(449,924)

4,132,657

2,627,621

2,627,621

-

(4,100,000)

-

(265,148)

2,395,130

Legalreserve

Retainedearnings

2,137,730

4,458,749

4,458,749

3,000,000

-

9,596,479

2,627,621

2,627,621

15,900,000

-

14,500,000

-

42,624,100

Total


Consolidated Statement of Changes in Shareholders’ Equityfor the year ended December 31, 2005

Net profit for the year before Kuwait Foundation for the Advancement ofSciences shareAdjustments:DepreciationsChanges in fair value of investments at fair value through income statementGain from sale of fixed assetsUnrealized gain from re-evaluation of investment property erected onleasehold landUnrealized gain from re-evaluation of lands held for investmentGain from investment in associatesIncrease in provision for indemnityFinance chargesInterest incomeOperating profit before changes in working capital itemsIncrease in investments at fair value through income statementIncrease in due from customers for contract worksIncrease in accounts receivables and other debit balancesDecrease (increase) in due from related partiesIncrease in materials in storesIncrease in branches current accountsIncrease in associated companies current accountsIncrease in investment projectsIncrease in accounts payables and other credit balancesIncrease in subsidiary current accountDecrease in shareholders’ payableNet cash used in operationsIndemnity paidKuwait Foundation for the Advancement of Sciences share paidNet cash used in operating activitiesCash flows from investing activities:Paid to investments available for salePaid to investment in associated companiesPaid to purchase of land for developmentPaid to purchase of lands held for investmentPaid to purchase of fixed assetsProceeds from sale of fixed assetsInterest income receivedNet cash used in investing activitiesCash flows from financing activities:Proceeds from due to banks(Paid to) proceeds from notes payableProceeds from Murabaha contracts installmentsProceeds from financing contracts installments(Paid to) proceeds from loansProceeds from capitalProceeds from share premiumFinance charges paidNet cash provided by financing activitiesIncrease in cash and cash equivalentsCash and cash equivalents at beginning of the yearCash and cash equivalents at end of the year

2,651,484

103,854

(15,443)

-

(905,152)

(1,333,122)

(162,561)

71,628

226,864

(182,551)

455,001

(2,008,321)

(396,416)

(2,505,267)

2,728,758

(94,418)

(84,457)

(2,857,981)

(5,840,591)

5,632,945

178,465

(454,682)

(5,246,964)

(9,236)

(40,493)

(5,296,693)

-

(95,788)

(5,017,959)

(7,111,760)

(226,761)

-

182,551

(12,269,717)

448,436

(160,377)

95,587

2,495,699

(4,889,000)

15,900,000

14,500,000

(226,864)

28,163,481

10,597,071

1,482,860

12,079,931

)4,499,242

106,234

15

(1,774)

-

(3,504,922)

-

37,593

-

-

1,136,388

(110,693)

(560,224)

(1,834,801)

(3,073,310)

(62,071)

-

-

(11,405,671)

3,632,216

11,699

(65,306)

(12,331,773)

(11,508)

(1,250)

(12,344,531)

(148,000)

-

(366,060)

(2,630,707)

(126,690)

44,360

-

(3,227,097)

34,433

387,055

-

-

13,633,000

3,000,000

-

-

17,054,488

1,482,860

-

1,482,860

2005 2004Note

Cash flows from operating activities:

34



Consolidated Statement of cash flows for the year ended December 31, 2005(All amounts are in Kuwaiti Dinar)

1.Nature and activities of the company

Al Argan International Real Estate Co. - K.S.C. (Closed) – the parent company, was incorporated as per Articles of Associationof a Kuwaiti Shareholding Company (Closed) authenticated at the Ministry of Justice – Real Estate Registration and AuthenticationDepartment under Ref. No. 819/Volume 1 dated March 5, 2002. The incorporating General Assembly for the Company was heldon April 8, 2002 and declared the final incorporation of the Company. The Company was registered in the commercial registerunder Ref. No.88093.

The main activities of the Company are:

1- Owning, buying and selling real estates and land and developing them in favour of the company inside and outside the stateof Kuwait, also managing properties for others without breaching the articles stipulated in the existing laws that prohibit thetrading in private residential plots as stipulated in those laws.

2- Owing, buying and selling real states companies shares only to the benefit of the company inside and outside Kuwait.

3- Conducting all kinds of real estates studies and consulting in accordance to the terms required to perform such service.

4- Performing maintenance works related to buildings and real estates owned by the company which includes maintenance work,execution of civil, mechanical, electrical works, elevators works, and air conditioning work which assure the safety of the buildings.

5- Organizing real estate exhibitions related to the Company’s real estate projects according to the ministry’s rules.

6- Establishing the real estate auctions in accordance with the ministry’s rules.

7- Owning and managing commercial shops and housing complexes.

8- Trading in construction materials and equipments.9- performing all civil, mechanical, electrical, sanitary, elevators, air conditioning, aluminum and carpentry contracting works for

real estates owned by the company and by others.

10- Importing all constructing equipment related to the company’s works.

11- Owning, managing, renting and leasing hotels, health clubs and touristic resorts.

12- Managing, operating, investing, renting and leasing hotels, health clubs, motels, hospitality houses, rest houses, parks, gardens, exhibitions, restaurants, cafeterias, housing complexes, touristic and health resorts, entertainment and sports projectsand shops at all levels and grades including all main and auxiliary services and any other relating services.

13- Establishing and managing investment funds (after of the Central Bank of Kuwait approval).

14- Direct contribution in infra structure projects for areas, housing, commercial and industrial projects under BOT system (build, operate, transfer) and managing real estate facilities under BOT system.

The Company is allowed to conduct the above mentioned activities inside or outside the State of Kuwait by its own or as anagent for other parties. The Company may have an interest or in any way associate itself with other bodies practicing activitiessimilar to its activities or which may assist the Company in achieving its objective in Kuwait and abroad, or may establish,participate in or acquire these bodies or have them affiliated to it.


Notes to Consolidated Financial Statements for the year ended december 31, 2005(All figures in Kuwaiti Dinar)

According to the Company’s extraordinary General Assembly meeting held on April 10, 2005,the following changes have been approved:

1- Increase of the parent company’s capital from KD 5,000,000 to be KD 10,500,000 in the amount of KD 5,500,000 through,• Distribution of bonus shares amounting to KD 4,100,000 the percentage of 82% of capital and its for the interest of the parent company shareholders’ until the date of the Assembly Meeting.• Cash increasing by the amount of KD 1,400,000 paid through one payment will be specialized for the new shareholders’ with a waiver from the current shareholders’ for their priority right to the new shareholders.

2- Amendment of Article (6) of Articles of Association and Article (5) of Articles of Incorporation as the following:The Company’s capital is determined by the amount of KD 10,500,000 distributed into 105,000,000 shares of 100 fils each and all shares are cash.

The parent company registered these amendments in the commercial register pursuant to company’s management Memo No.334/2005 dated May 8, 2005.

According to the Company’s extraordinary General Assembly meeting held on July 26, 2005, they approved the following:

1- Increasing the company’s authorized and paid up capital by the amount of KD 14,500,000 through one payment will be specialized for the new shareholders’ that’s the company’s authorized, written and paid up capital will be KD 25,000,000 distributed into KD 250,000,000 shares of 100 fils each and all shares are cash fully paid.

2- Amendment of Article (5) of Articles of Incorporation and Article (6) of Articles of Association of the company:The company’s capital is determined by the amount of KD 25,000,000 distributed into 250,000,000 shares of 100 fils each and all shares are cash and fully paid.

3- Approval for adding the article (54) to the Articles of Incorporation of the parent company:For the purpose of preserving of efficient employees to work in the Company and strengthen their loyalty; the Board of Directorshas the right to create a system of “option for the employees to purchase shares” through the conditions mentioned in the Ministerial decision No. (337/ for 2004).

a- To cover the Company’s commitment towards the “option for the employees to purchase shares plan”, the Company’s capitalcan be increased stipulated that the gross increases to the paid-up capital within a period of 10 years do not exceed 10% ofthe capital since the beginning of the program implementation.b- Board of Directors annual report to the shareholders includes employees levels benefited from the program and the quantityof shares devoted for each level.c- The “option for the employees to purchase shares plan” is presented to the General Assembly for approval”.

4- Adding the Article (12) to the Articles of Incorporation to be as follows:It is not allowed to increase capital unless the shares installments are fully paid, and it is not allowed to issue new shares withvalue lower than its face value, and if they are issued with higher value, the excess is allocated first to cover issuance expensesand then to reserve or to shares depletion, and every shareholder has the priority in subscription in proportion with the numberof shares he has, and it is allowed to shareholders to restrict their priority right, and it is allowed to shareholders to assign their priority rights to create the “option for the employees to purchase shares”.



The parent company registered these amendments in the commercial register pursuant to company’s management Memo No.257/2005 dated August 28, 2005.

According to the company’s extraordinary General Assembly meeting held on September 27, 2005, the following were approved:

1- Amendment of Article (13) of Articles of Incorporation to be as the following:

The company’s management will be assumed by a board of 6 members and the authority or the authorities that have the rightto delegate its actors in the company’s Board as required by the company’s commercial Law No. (15) for 1960, by the percentageof their shares in the company and the remaining members will be chosen by secret voting.

The parent company registered these amendments in the Commercial register, pursuant to company’s management memo No.284/2005 dated October 17, 2005

The company’s registered address is P.O. Box 8904, Al-Salmiya 22060, State of Kuwait.

The consolidated financial statements were authorized for issue by the Board of Directors on June 30, 2005. The shareholders’General Assembly has the power to amend these financial statements after issuance.

At December 31, 2005 the company had 75 employees (2004 – 132 employees).

2- Accounting policies

The accompanying consolidated financial statements have been prepared in accordance with the accounting standards issuedby the International Accounting Standards Board (IASB). Significant accounting policies are summarized as follows:

a) Basis of preparation

The consolidated financial statements are presented in Kuwaiti Dinars and are prepared under the historical cost conventionexcept for investments at fair value through income statement are stated at fair value and that according to the previous yearaccounting policies.

Except for the changes due to implementation of revised IAS 39: Financial Instruments – “Recognition and Measurement”,implementation of IFRS 3: “Business combination”, implementation of IAS 36: “Impairment of Assets” (revised) and implementationof IAS 38 “Intangible assets” (revised).

As per the revised IAS 39, unrealized gains and losses from investments available for sale are now recognized under cumulativechanges in fair value under shareholders equity. This has not resulted in changes in accounting policies since previously unrealizedgains and losses from available for sale investments were recognized in the shareholders equity.

b) Basis of consolidation of financial statements

The consolidated financial statements include the financial statement of the Al-Argan International Real Estate Company (theParent Company) and its following subsidiaries:

First Al-Argan General Trading & Contracting CompanySaar Gate Real Estate Company

Ownership%

100%100%


Notes to Consolidated Financial Statements for the year ended December 31, 2005(All figures in Kuwaiti Dinar)

Also the consolidated financial statements include the financial statement of the branch that the company own in the United ArabEmirates that is fully owned by Al-Argan International Real Estate Company K.S.C. (Closed).

Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly orindirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financialstatements of subsidiaries are included in the consolidated financial statements from the date that control effectively commencesuntil the date that control effectively ceases. Inter-company balances and transactions, including inter-company profits andunrealized profits and losses are eliminated on consolidation. Consolidated financial statements are prepared using uniformaccounting policies for like transactions and other events in similar circumstances.

c) Cash equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with originalmaturities of three months or less and that are subject to an insignificant risk of change in value like fixed deposits that matureswithin three months and bank overdraft.

d) Investment

The Group classifies its investments in the following categories: investments at fair value through income statement and available-for-sale investments. The classification depends on the purpose for which the investments were acquired and is determined atinitial recognition by the management.

(i) Investments at fair value through income statementThis category has two sub-categories: investments held for trading, and those designated at fair value through profit or loss atinception. An investment is classified in this category if acquired principally for the purpose of selling in the short term or if sodesignated by management. Investments in this category are classified as current assets if they are either held for trading orare expected to be realized within 12 months of the balance sheet date.

(iii) Available-for-sale financial investmentsAvailable-for-sale investments are non-derivatives that are either designated in this category or not classified in any of the othercategories. They are included in non-current assets unless management intends to dispose of the investment within 12 monthsof the balance sheet date.

Purchases and sales of investments are recognized on settlement date. Investments are initially recognized at fair value plustransaction costs for all financial investments not carried at fair value through income statement.

After initial recognition, investments at fair value through income statement and available- for-sale investments are subsequentlycarried at fair value. The fair values of quoted investments are based on current bid prices. If the market for an investment isnot active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use ofrecent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis,and option pricing models refined to reflect the issuer’s specific circumstances.Realized and unrealized gains and losses from investments at fair value through income statement are included in the incomestatement. Unrealized gains and losses arising from changes in the fair value of available-for-sale investments are recognizedin cumulative changes in fair value in statement of changes in shareholders’ equity.



When an available-for-sale investment is disposed off or impaired, any prior fair value earlier reported in equity is transferred tothe statement of income.

Investments are derecognized when the rights to receive cash flows from the investments have expired or have been transferredand the Group has transferred substantially all risks and rewards of ownership.

The Group assesses at each balance sheet date whether there is objective evidence that an investment or a group of investmentsis impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value ofthe security below its cost is considered in determining whether the securities are impaired. If any such evidence exists foravailable-for-sale investments, the cumulative loss – measured as the difference between the acquisition cost and the currentfair value, less any impairment loss on that investment previously recognized in profit or loss – is removed from equity andrecognized in the income statement. Impairment losses recognized in the income statement on available for sale investmentsare not reversed through the income statement.

e) Receivables

Receivables are stated at face value, after provision for doubtful accounts.

f) Materials in stores

Materials in stores are valued at the cost, cost is determined using first in first out method.

g) Investment projects

Investment projects are valued at cost, which consist of purchase cost or direct building and any expenses related to it. Afterfinishing the works, the villas are sold to customers.

h) Investment in associates

Associates are those enterprises in which the Group has significant influence, but not control, over the financial and operatingpolicy decisions. The consolidated financial statements include the Group’s share of the results and assets and liabilities ofassociates under the equity method of accounting from the date that significant influence effectively commences until the datethat significant influence effectively ceases, except when the investment is classified as held for sale, in which case it is accountedfor under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments inassociates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s shareof the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excessof the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s netinvestment in the associate) are not recognized.Gains or losses arising from transactions with associates are eliminated against the investment in the associate to the extent ofthe Group’s interest in the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingentliabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within thecarrying amount of the investment in associates and is assessed for impairment as part of the investment. Any excess of theGroup’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, afterreassessment, is recognized immediately in profit or loss.



i) Investment property erected on leasehold land

Investment properties erected on leasehold land that held for the purpose of renting are valued at market value by independentevaluer yearly, and the gain from revaluating is recognized in the statement of income.

j) Land for development

Lands for development are valued at cost.

k) Lands held for investment

Lands held for investment are initially recognized at cost which consist of all expenses related to lands purchase. After initialrecognition, lands held for investment are measured at fair value, any changes in the fair value is recognized in the statement ofincome. The fair value of land held for investment is determined based on its market value according to an independent evaluatorat the end of each year using specific evaluation ways that fits with the nature and lands using.

l) Right of utilization of land for development

Right of utilization of land for development rented from other are valued at cost.

m) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and impairment losses. When assets are sold or retired, their costand accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included inthe statement of income.

The initial cost of fixed assets comprises its purchase price and any directly attributable costs of bringing the asset to its workingcondition and location for its intended use. Expenditures incurred after the fixed assets have been put into operation, such asrepairs and maintenance and overhaul costs, are normally charged to income in the period in which the costs are incurred. Insituations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefitsexpected to be obtained from the use of an item of fixed assets beyond its originally assessed standard of performance, theexpenditures are capitalized as an additional cost of fixed assets. Depreciation is computed on a straight-line basis over theestimated useful lives of items of fixed assets at a rate of 4 to 5 years.

The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation areconsistent with the expected pattern of economic benefits from items of fixed assets.

Gain or loss from fixed assets sales is recognized in the statement of income based on the difference between selling price andnet book value of the fixed assets, after eliminating its cost and accumulated depreciation from accounts.

Works under progress are classified under fixed assets until it will be completed and ready for use. At that date, it will be reclassifiedunder its same fixed assets items, and it will be depreciated starting from that date.

n) Right of utilization of land with erected building

The cost of utilization of land with erected building rented from others is considered as deferred expenses and is amortized over20 years which represents the rent contract period.



o) Building erected on leasehold lands

The cost of building erected on leasehold lands is depreciated over 20 years, the life of the rent contract of utilized land.

p) Payables

Accounts payable are stated at cost.

q) Provision for indemnity

Provision is made for amounts payable to employees under the Kuwaiti Labor Law. This liability, which is unfunded, representsthe amount payable to each employee as a result of involuntary termination on the balance sheet date, and approximates thepresent value of the final obligation.

r) Income recognition

1. Revenues from projects is recognized based on the percentage-of-completion method which is determined as the percentageof the cost of completed project works to the total estimated cost. If, at any fiscal year, a loss has been incurred on the completion of a contract, the loss is fully booked in the fiscal year in which the loss has been incurred.

2. Revenues of projects shared with others are recognized after finishing the projects and selling housing units at the percentageof the Company’s share in these projects which represent the cost of construction, finishing and preparing the housing unitsfor sale to the total projects cost.

3. Revenues from investment villas projects are recognized according to the percentage of completion for villas sold to customers.

4. Revenues from sale of securities and investment funds are recognized when sale is completed , dividends on investment is recorded when the right to receive this dividend is established.

5. Other revenues and expenses are recognized on the accrual basis.

s) Impairment of assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whetherthere is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amountof the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate therecoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to whichthe asset belongs.

Recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carryingamount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediatelyin statement of income, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treatedas a revaluation decrease.



Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to therevised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount thatwould have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversalof an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, inwhich case the reversal of the impairment loss is treated as a revaluation increase.

t) Foreign currencies

Foreign currency transactions are translated into Kuwaiti Dinars at rates of exchange prevailing on the date of the transactions.Monetary assets and liabilities denominated in foreign currency at the balance sheet date are translated into Kuwaiti Dinars atrates of exchange prevailing on that date. Non-monetary items carried at fair value that are denominated in foreign currenciesare retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measuredin terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included inprofit or loss for the period. Translation differences on non-monetary items such as equity investments which are classified asinvestments at fair value through income statement are reported as part of the fair value gain or loss. Translation differences onnon-monetary items such as equity investments classified as available for sale financial assets are included in “cumulative changesin fair value” in the statement of changes in equity.

The assets and liabilities of the foreign subsidiary are translated into Kuwaiti Dinars at rates of exchange ruling at the balancesheet date. The results of the subsidiary are translated into Kuwaiti Dinars at rates approximating the exchange rates ruling atthe dates of the transactions. Foreign exchange differences arising on translation are recognized directly in equity. Such translationdifferences are recognized in profit or loss in the period in which the foreign operation is disposed off.

u) Cost of projects

Cost of projects consists of the actual cost of materials, wages and other direct and indirect expenses.

v) Financial instruments

Financial assets and financial liabilities carried on the consolidated balance sheet include cash at banks, term deposits, investmentsat fair value through income statement, receivables, branches current account, associated companies current account, due tobanks, notes payable, short-term loans installments, short term Murabaha contracts installments, short term financing contractsinstallments and payables. The accounting policies on recognition and measurement of these items are disclosed in the respectiveaccounting policies found in this Note. Financial instruments are classified as liabilities or equity in accordance with the substanceof the contractual arrangement. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability,are reported as expense or income. Financial instruments are offset when the Establishment has a legally enforceable right tooffset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously.

w) Critical accounting estimates and judgments

The Group makes estimates and assumptions concerning the future. The preparation of financial statements in conformity withIFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue andexpenses during the period. Actual results could differ from the estimates.



Accounting policies

In the process of applying the Group’s accounting policies which are described in note 2, management has made judgmentsthat have the most significant effect on the amounts recognized in the financial statements are discussed below:

Gross amount due from customers for contract work.

Accounting estimates

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that havea significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial yearare discussed below:

Applying percentage of completion method for revenue recognition.

x) Contingencies

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow ofresources embodying economic benefits is remote.

A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable.

3- Time deposits

Time deposits earn annual interest rate ranging between 4% and 4.65%.



4- Investments at fair value through income statement

Investment in portfolioInvestment in investment funds

17,925

2,116,517

2,134,442

17,925

92,753

110,678

2005 2004

- Investment in portfolio which value is KD 17,925 and the amount of KD 100,275 from investment in investment funds areregistered in the name of one of the shareholders, and obtained a letter of assignment of those investment towards the Group.

- Investments mentioned above, is not included in the Group’s activities which is shown in its Article of Association.

5- Accounts receivables and other debit balances

6- Due from related parties

7- Branches current account

8- Associated companies current account

Trade receivablesEmployees receivablesPetty cashPrepaid expensesRefundable depositsRetentionsDeferred finance chargesLetters of credit expensesAccrued revenuesLetters of guaranteeDeposits with othersOthers

2,512,619

38,045

12,148

51,261

13,148

329,830

1,268,509

5,799

44,487

-

64,222

-

4,340,068

1,433,824

90,574

-

15,681

8,372

114,192

-

26,437

-

120,000

-

25,721

1,834,801

2005 2004

Abu Al-Hasaniyah Real Estate Co. - W.L.L.Coastal Strip Real Estate Company – W.L.L.Sama Catering Company – W.L.L.Other related parties

-

-

-

346,681

346,681

1,807,292

624,534

114,518

529,095

3,075,439

2005 2004

2005

Kingdom of Saudi Arabia current accountRepublic of Iraq current account

80,249

4,208

84,457

Al-Argan Towell for investment Co. – W.L.L. current accountAl-Argan Bahrain Co. – W.L.L. current account

2005

2,542,396

20,377

2,562,773



9- Investment projects

- This item represents the cost of building a hotel, health club and investment villas on free land, and leased land for resellingpurpose. Lands which located in Al-Fintas, Al-Jabriya and Salwa areas that’s the investment projects where erected, are pledgedagainst loans (Note 20).

- Some free lands are registered in the name of one of the shareholders, and we obtained a letter of assignment of those landstowards the company.

10- Investments in associates

11- Investment property erected on leasehold land

This item represents the market value for the property which erected on the leased land from the National Real Estate Companypursuant to a leasing contract of 20 years.

12- Lands for development

Land in Hadiya area is pledged against financing contracts (Note 22).

13- Lands held for investment

- Al-Fintas land is pledged against loan (Note 20 - C).

14- Right of utilization of land for development

This item represents the cost of right of utilization of leasehold land from the government with an area of 2,273.60 m2, the Groupdid not amortize the cost since the company will build chalets and it well resell it again. Right of utilization cost will be amortizedwhen constructed chalets are sold. Right of utilization contract is registered in the name of a related party, and I obtained thedocuments that confirming the transfer of the right of utilization contract to the Group, the right of utilization on contract transferringprocess to the favor of the Parent Company is still under processing.

Al-Argan Bahrain Co. – W.L.L. – Bahrain KingdomAl-Argan Towell Investment Co. – W.L.L.

50

50

32,755

856,862

889,617

Shareholding% 2005

Land in Hadiya areaLand in Al-Bahrain KingdomLand in Oman

1,816,232

3,201,727

-

5,017,959

-

-

336,060

336,060

2005 2004

Land in Al-Fintas area in the name of Al-ArganLand in Dubai

4,042,994

8,218,018

12,261,012

3,816,130

-

3,816,130

2005 2004



15- Right of utilization of land with erected building

This item represents the cost of Al-Hilalya Project right of utilization of land rented from the government.This land is rented from the government for 20 years.

16- Building erected on right of utilization

Cost of building erected on land in free trade zone transferredCost of building erected on land of Al-Hilalya projectTransferred to investment property erected on leasehold landNote (11)Balance as of December 31

Accumulated depreciation as of January 1, 2004Depreciation for the yearTransferred to investment property erected on leasehold landBalance as of December 31Net book value as of December 31

555,884

237,297

(555,884)

237,297

61,036

24,369

(61,036)

24,369

212,928

555,884

237,297

-

793,181

30,476

30,560

-

61,036

732,145

2005 2004





17- Fixed assets

44,058--

22,813

66,871

42,845-

3,160

46,005

20,866

1,213

Balance as of D

ecemb

er 31, 2004Transferred to A

l Argan First C

o. for General

Trading and

Contracting

Transferred from

investment p

rojectsA

dd

itions for the yearB

alance as of Decem

ber 31, 2005

Accum

ulated d

epreciation:

Balance as of D

ecemb

er 31, 2004Transferred to A

l Argan First C

o. for General

Trading and

Contracting

Dep

reciation for the yearB

alance as of Decem

ber 31, 2005

Net b

ook value:A

s of Decem

ber 31, 2005

As of D

ecemb

er 31, 2004

249,915

(249,915)

-

116,814

116,814

167,392

(197,373)

37,186

7,205

109,609

82,523

256,125

(250,152)

-18,860

24,833

165,023

(186,264)

25,475

4,234

20,599

91,102

Vehicles and

equipment

Tools andequipm

entsF

urnitureand fixture

108,245

---

108,245

106,201

-

681

106,882

1,363

2,044

15,872

--9,088

24,960

7,915

-6,085

14,000

10,960

7,957

New

officesdecoration

Accounting

program

27,897

--59,186

87,083

--6,898

6,898

80,185

27,897

Building for

the company

--

107,709

-

107,709

----

107,709

-

Al-A

bdaly farmbuilding that erectedon leaseholdland fromG

overnment

702,112

(500,067)

107,709

226,761

536,515

489,376

(383,637)

79,485

185,224

351,291

212,736

Total

Co

st:

- Dep

reciation charged to cost of p

rojects and p

rojects in progress shared

with others am

ounted to K

D 12,082 (2004 – 11,521).

- Al-A

bd

aly build

ings which erected

on leasehold land

from G

overnment is leased

for 20 years.

18- Due to banks

This item represents bank facilities granted from local banks at interest rate ranges between 2 – 2.5% over the Central Bank ofKuwait discount rate. These bank facilities are granted to the Company with personal guarantee of the shareholder Mr. KhaledKhudair Mashaan Al-Khudair , and by continuing of the official pledge of Al-Jabriya & Al-Fintas Real Estates.

19- Notes payable

This amount represents notes payable resulted from purchase of material and paying the electricity subscription fees, and theymature through installments, the last installment is mature on July 1, 2008 and they do not bear any deferred interest.

20- Short and long-term loans installments

A- This loan is offered from one of the local banks with interest rate of 2.5% over the Central Bank of Kuwait discount rate. Thisloan is granted to the Company by the personal guarantee of the shareholder Mr. Khaled Khudair Mashaan Al-Khudair. The loanis registered in the name of a related party and it was not transferred to the Company’s name.

B- This loan is offered to the Company from one of the local banks with an annual interest rate of 1.5% over the Central Bankof Kuwait discount rate. This loan is granted by the personal guarantee of Mr. Khaled Khudair Mashaan Al-Khudair and the officialpledge of Salwa area Real Estate (Note 9).

C- This loan is offered from one of the local banks with interest rate of 2% over the Central Bank of Kuwait discount rate dueevery 3 months. This loan is granted to the Company by the personal guarantee of the shareholder Mr. Khaled Khudair MashaanAl-Khudair and by the official pledge of Al-Fintas and Al-Jabriya Real Estate.

21- Short term Murabaha contracts installments

This item represent the value of Murabaha contracts installments against purchasing of goods that due through paymentsaccording to its maturity dates and the last installment will due to pay on April 25, 2006.

22- Short / long term financing contracts installments

This item represents the value of financing contracts installment as follows:

The Group has signed a post dated sale contract with one company for the purpose of financing the purchasing of the propertywhich located in Al-Hadiya area and it will repaid through one payment on December 31, 2006. This financing is against pledgingof the real estate in Al-Hadiya area.

The Group has signed financing agreements with one of the investing companies for the purpose of financing Al-Bidaa projectand it will be repaid through monthly payments that and the first installment is due on December 20, 2005 and the last on January20, 2010. This financing agreement is granted to the Group against insurance policy for Al-Bidaa projects and pledging of thebuildings which erected on the project.

Short term loan, paid in one payment by maximum period December 31, 2005 – ALong term loan, paid in one payment on June 30, 2006 – BLong term loan, paid in one payment by maximum period December 31, 2006 – C

50,000

700,000

7,994,000

8,744,000

-

-

-

-

2005

Current portion Non-Current portion



Short term financing contracts installmentsLong term financing contracts installments

-

4,000,000

4,000,000

2005 2004

2,620,831

3,874,868

6,495,699

23- Accounts payables and other credit balances

24- Provision for indemnity

25- Capital

The parent company’s authorized capital and issued capital is determined by the amount of KD 25,000,000 distributed over250,000,000 shares of 100 fils each and all shares are cash (2004 – KD 5,000,000 distributed over 50,000,000 shares of 100 filseach and all shares are cash).

26- Share premium

This item represents the share premium that resulted by issuing the number of145,000,000 shares of 100 fils each and sharepremium of 100 fils each. The share premium has not insert in the Ordinary General Assembly working schedule which approvedthe increasing of the parent company capital from KD 10,500,000 to KD 25,000,000, according to that the share premium hasnot been registered in the commercial register.

27- Legal reserve

As required by the Commercial Companies Law and the parent Company's Articles of Association, 10% of net profit of the yearis transferred to legal reserve. The Parent Company may resolve to discontinue such annual transfers when the reserve equals50% of the capital. This reserve is not available for distribution except in cases stipulated by Law and the Parent Company'sArticles of Association.

It is not allowed to distribute legal reserve to shareholders, it is only allowed to use it to distribute profits to shareholders amountto 5% (five percent) in the years when the Parent Company’s profits do not allow to reach such percentage, if the legal reserveexceeded half of the parent company’s capital, the general assembly can decide to use such excess in activities that are suitablefor the parent company and shareholders best interest.

The legal reserve contribution was calculated as follows:

Trade payablesEmployees payablesUnearned revenuesAccrued leaveRents consignmentsRetentionsAccrued expensesKFASDeferred revenuesAmounts received in advanceOthers

6,810,560

5,505

783,008

81,120

213,714

219,595

246,273

23,863

195,836

668,140

486

9,248,100

2,349,141

1,190

-

40,580

-

299,916

265,693

40,493

364,756

268,897

1,119

3,631,785

2005 2004

Balance at beginning of the yearCharge for the yearPayment during the yearBalance at end of the year

131,433

71,628

(9,236)

193,825

105,348

37,593

(11,508)

131,433

2005 2004

Net profit of the year before KFAS shareLegal reserve percentage


2,651,484

10%

265,148

4,499,242

10%

449,924

2005 2004


28- Voluntary reserve

As required by the Parent Company’s Article of Association, a percentage is transferred to the voluntary reserve, suggested bythe Board of Directors and agreed to by the General Assembly, such transfer may be discontinued by a resolution of the ordinaryGeneral Assembly based on the Board of Directors recommendation. Board of Directors did not suggest any percentage to bededucted for voluntary reserve for the year ended December 31, 2005, so no transfer was done.

29- Net projects revenue

30- Net departments revenues

31- Other revenues

Projects revenueProjects costs

Villas department revenuesVillas department expense

Free trade zone department revenuesFree trade zone department expenses

Landscaping department revenuesLandscaping department expenses

Equipment department revenuesEquipment department expenses

Al-Hilalya revenue sAl-Hilalya expenses

Al-Bedaa revenuesAl-Bedaa expenses

Supervision, controlling and development department revenuesSupervision, controlling and development department expenses

Rent revenuesAllowed discountScrap saleDeposits received from othersDifference in ceramic and doors pricesDividends of investments at fair value through income statementMiscellaneous


7,015

-

-

4,609

-

5,521

52,561

69,706

6,000

11,799

22,350

12,720

60,525

-

7,366

120,760

2005 2004

5,671,699

(5,341,427)

330,272

479,040

(408,849)

70,191

2005 2004

1,719,768

(1,691,790)

27,978

105,127

(50,363)

54,764

30,249

(35,040)

(4,791)

59,185

(13,401)

45,784

170,229

(226,973)

(56,744)

2,295

(70,355)

(68,060)

195,661

(12,353)

183,308

182,239

5,491,838

(5,152,963)

338,875

127,507

(64,655)

62,852

22,086

(12,790)

9,296

32,448

(9,734)

22,714

45,016

(10,873)

34,143

-

(5,260)

(5,260)

-

-

-

462,620

2005 2004


32- Kuwait Foundation for the Advancement of Sciences share

33- Earning per shar

Earnings per share is computed based on net profit of the year attributable to parent company’s shareholders and the weightedaverage number of outstanding shares during the year as follows:Net profit for the year

34- Cash and cash equivalents

- Some bank accounts are registered in the name of a related party, and there is a letter of assignment from this party for thoseaccounts to the Company’s favor. Those bank accounts amounted to KD 2,733.

35- Transaction with related parties

The Company conducted some transactions with related parties in the normal course of business. Terms and prices of thosetransactions are approved by the Board of Directors.

36- Employees’ cost

Employees’ salaries and other benefits amounted to KD 578,542 as of December 31, 2005 (2004 – KD 619,245).

37- Financial instruments

In the normal course of business, the group uses primary financial instruments such as cash at banks, term deposits, investmentsat fair value through income statement, receivables, branches current account, associated companies current account, due tobanks, notes payable, short-term loans installments, short term Murabaha contracts installments, short term financing contractsinstallments and payables and as a result, is exposed to the risks indicated below. The Company currently does not use derivativefinancial instruments to manage its exposure to these risks.

Net profit for the year before Kuwait Foundation for theAdvancement of Sciences shareLegal reserve

Kuwait Foundation for the Advancement of Sciences share

Net profit for the yearWeighted average number of outstanding sharesEarning per share (fils)

Cash on hand and at banksTime deposits


2,651,484

(265,148)

2,386,336

1%

23,863

4,499,242

(449,924)

4,049,318

1%

40,493

2005 2004

2,627,621

156,463,562

16.794

4,458,749

46,805,556

95.2

2005 2004

1,779,931

10,300,000

12,079,931

1,028,699

454,161

1,482,860

2005 2004


Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation causing the other party to incura financial loss. Financial assets which potentially subject the group to credit risk consist principally of cash at banks, termdeposits and receivables. The group’s cash at banks are placed with high credit rating financial institutions. The bank accountsof the Company are distributed among different banks, without concentrating on a single bank. Receivables are presented netof allowance for doubtful debts. Credit risk with respect to receivables is limited due to the large number of customers and theirdispersion across different industries.Foreign currency risk

The Company incurs foreign currency risk on investments that are denominated in a currency other than the Kuwaiti Dinar. TheGroup may reduce its exposure to fluctuations in foreign exchange rates through the use of derivative financial instruments. TheGroup ensures that the net exposure is kept to an acceptable level, by dealing in currencies that do not fluctuate significantlyagainst the Kuwaiti Dinar.

Interest rate riskFinancial instruments are subject to the risk of changes in value due to changes in the level of interest. The effective interest ratesand the periods in which interest bearing financial assets and liabilities are repriced or mature indicated in the respective notes.

Cash flow risk

Cash flow risk is the risk that future cash flows associated with a monetary financial instrument will fluctuate in amount. At present,the Group has exposure to such risk due to fluctuation in its various investments.

Fair value of financial instruments

Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeablewilling parties in an arm's length transaction, other than in forced or liquidation sale. Fair values are obtained from quoted marketprices, discounted cash flow models and other models as appropriate. The carrying amount of financial instruments at December31, approximates their fair value due to the relatively short term maturity of these financial instruments.

38- Contingent liabilities

39- Non-cash transactions - off cash flow statement

The consolidated statement of cash flow includes non-cash transactions occurred during the year and these transactions werenot shown in the statement of cash flow.

40- Comparative figures

Certain prior year figures have been reclassified to conform with the current year presentation.


Letters of creditLetter of guarantees

958,187

4,183,163

5,141,350

722,878

1,454,913

2,177,791

2005 2004


the will to create the ability to be...

Documents