ANNUAL REPORT - CRCcrckt.com/crcar2007eng.pdfSheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Amir of the State of Kuwait His Highness ... crc Kuwait. CRCQ started its activities by the end

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A N N U A L R E P O R T

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A N N U A L R E P O R T

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In the Name of Allah, The Most Gracious, The Most Merciful

"And Say, Work and God and His Messenger and Believers will see your work."The Holy Qu'ran, Altawba (105)

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 of the State of Kuwait

His Highness Sheikh Nasser Al-Mohammad Al-Ahmad Al-Sabah

Prime Minister of the State of Kuwait

Board of Directors

Chairman’s Statement

Shari’ah Supervisory Board

Shari’ah Supervisory Board Report

Financial Statements

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Credit Rating and Collection Company K.S.C. (Closed) Kuwait

B O A R D O F D I R E C T O R S

Mustafa E. Al-SalehChairman & Managing Director

Abdullah Yousef Al-SeifVice Chairman

Amr Abou El-SeoudBoard Member

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C H A I R M A N ’ S S T A T E M E N T

Dear Shareholders,

The Board of Directors is pleased to present you with the Annual Report of Credit

Rating & Collection Company, for the year ended 31st December 2007.

To begin with, the process of the capital increase of the Company, from KWD.

15,000,000/- to KWD. 16,500,000/-, was successfully completed during the

first quarter of the year 2007 by issuing 10% bonus shares amounting to KWD.

1,500,000/-.

During 2007, with regard to the operational and non-operational revenues, the

Board of Directors continued to reactivate the Company’s objectives, in addition,

to the introduction of new sources of revenue generation either through revenues

related to debts collected from third parties or debts purchased or investments so

as to increase the total revenues of the company and realize an increased level of

profitability in line with the Islamic Shari’ah principles.

Consequently, we observed that the Company’s total assets grew to KWD.

25,175,555/- in 2007 compared to KWD. 23,909,000/- in 2006. The net equity

position rose to KWD. 24,767,654/- in 2007 compared to KWD. 23,580,000/- in

2006, thereby, representing an increase of KWD. 1,187,654/-.

As for the operational revenues, we noted an increase in collections related to third

parties, in particular, amounting to KWD. 955,749/-.

We can also observe an increase in revenues from investment profits relating to

Murabaha and Wakala activities carried out by the company, amounting to KWD.

1,270,583/- in 2007 compared to KWD. 593,443/- in 2006. In addition, it has been

noticed that the Company experienced a reduction in the total revenues amounting to

KWD. 2,393,680/- in 2007 as compared to KWD. 2,440,243 in 2006.

In terms of operational expenditure, we observe a continuation of the reduction

strategy that aims to reduce expenses in most of the major items, though the

financial statements of the years 2006 & 2007 show a normal increase in the total

expenditure, particularly in wages, salaries and other administrative expenses by

nearly 10%. In 2006, these expenses amounted to KWD. 856,352/- compared to

KWD. 969,979/- in 2007. This is attributed to many factors including the increase

in the total personnel from 56 in 2006 to 62 in 2007, representing an increase in

the senior and administrative level jobs where salaries are relatively high in order

to match the increased volume of business and upgrade the performance levels in

quality and quantity, not to mention additional operational expenditure related to the

first phase of establishment expenditure of the Company CRCQ in UAE and borne by

crc Kuwait. CRCQ started its activities by the end of the first quarter 2007.

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It can also be observed that there were no investment provisions for the purchase of debts in 2007

as compared to KWD. 9,986/- in 2006. In addition, there was a decrease in the depreciation and

amortization expenses in 2007 by more than 50%, amounting to KWD. 17,403/- compared to KWD.

30,733/- in 2006. Furthermore, the contribution to Kuwait Foundation for the Advancement of Sciences

reduced from KWD. 13,888/- in 2006 to KWD. 12,657/- in 2007. Similarly, the National Labor Support Tax

also reduced to KWD. 29,719/- in 2007 from KWD. 32,250/- in 2006.

Consequently, we observed that total expenditure increase estimated at 10% is considered normal and

an achievement despite the company’s expansion, increase in manpower and establishment expenses of

CRCQ, UAE. This reflects the Board’s commitment to shareholders to minimize the company’s operational

and non operational expenses.

The foregoing detailed explanation outlines the reasons which contributed to the company’s net profits

in 2007 amounting to KWD. 1,333,196/- compared to KWD. 1,476,034 in 2006. Accordingly, this result

was reflected in the Earnings Per Share ratio which was 9.73 fils in 2006 compared to 8.08 fils in 2007.

This shall not be considered either as an indication of the company’s poor performance nor the low

levels of productivity of its personnel. It rather reflects an analysis of the changes that took place within

the company and a rise in the performance and productivity levels in 2007. As evidence, reference can

be made to the above mentioned details in general, and to the total revenues and expenditure levels

in particular.

Regarding the domestic achievements of the company, four new major collection contracts involving

leading diversified companies were concluded in 2007 with the results to be witnessed in 2008. On the

regional level, crc in co-operation with Al-Qudra Credit Rating & Collection Company, contributed actively

to the business commencement and actual operations of CRCQ in UAE. In addition, the Company has also

initiated consultations with several parties to establish similar companies in Qatar, Bahrain, Egypt and

Saudi Arabia, in line with the implementation of the Board of Directors commitment to this effect.

On this occasion, the Board of Directors would like to emphasize that Credit Rating & Collection Company

was established in Kuwait as a financial services provider to various sectors of the local economy.

Diversification and maintaining a balance among the various revenue generating divisions of the company

shall be the basis for the company’s success in the long term in pursuit of the Company’s commitment

to move forward towards the next stage of profit generation and profit growth. Eventually, the Board

Of Directors would like to extend their sincere gratitude and appreciation to all shareholders for their

continued support and assistance, to all staff members for their relentless efforts exerted towards the

interests of the company in order to push forward the march towards progress.

Wishing everyone success and prosperity in all endeavours.


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S H A R I ’ A H S U P E R V I S O R Y B O A R D

Sheikh Yousef Hassan Al-SharrahChairman

Sheikh Esam Khalaf Al-AnziBoard Member

Sheikh Ali Ibrahim Al-RashedBoard Member

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S H A R I ’ A H S U P E R V I S O R Y B O A R D R E P O R T

In the Name of Allah, the Most Gracious, the Most Merciful

We have reviewed the activities of Credit Rating & Collection Company as well as its contracts and investment transactions and studied the Company’s commitment to the Islamic Shari’ah principles and provisions, as well as our Fatwas, directions and decisions during the year ended 31st December 2007.

Since crc’s assured conformity to the Islamic Shari’ah principles and provisions is an obligation of its executive management, hence, our responsibility is restricted to issue an independent judgement based on our study of crc’s activities and this report preparation.

Furthermore, our continuous review included the examination of crc’s documents and application of procedures and policies, and the study of each and every transaction at a specific time.

Similarly, our review was planned and executed, bearing in mind, the collection of relevant information and opinions deemed necessary to provide ample evidence and reasonable assurance that no violation has occurred to the principles and provisions of the Islamic Shari’ah.

We, hereby, believe that:

1. The contracts, investment transactions and activities conducted and concluded during the year ended 31st December 2007 by crc, were practiced in compliance with the guidelines of the Islamic Shari’ah.

2. Zakat calculation was ruled in compliance with the guidelines of the Islamic Shari’ah as well.

This is to the best of our knowledge.

Sheikh Yousef Hassan Al-SharrahChairman

Sheikh Esam Khalaf Al-AnziBoard Member

Sheikh Ali Ibrahim Al-RashedBoard Member

Auditors' Report to the Shareholders

Balance Sheet

Statement of Income

Statement of Cash Flows

Statement of Changes in Shareholders' Equity

Notes to the Financial Statements

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AUDITOR’S REPORT TO THE SHAREHOLDERS

Report on the Financial StatementsWe have audited the accompanying financial statements of Credit Rating and Collection Company K.S.C. (Closed) which comprise the balance sheet as at December 31, 2007, and the related statements of income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted in the State of Kuwait. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Credit Rating and Collection Company K.S.C. (Closed) - as at December 31, 2007 and the results of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Other legal and regulatory requirements Furthermore, in our opinion proper books of account have been kept by the company and the financial statements together with the contents of the report of the board of directors relating to these financial statements, are in accordance therewith. We further report that we obtained all the information and explanation that we required for the purpose of our audit and that the financial statements incorporate all information that is required by the Commercial Companies Law as amended, and by the company’s articles of association , that an inventory was duly carried out and that, to the best of our knowledge and belief , no violations of the Commercial Companies Law nor of the company’s articles of association have occurred during the year that might have had a material effect on the business of the company or on its financial position.

Al - Waha Auditing OfficeAli Owaid RukheyeesMember of the International Group of Accounting FirmsP. O.. Box 27387 Safat, 13134 State of KuwaitTel: (965) 2423415 / 7, 2424919Fax: (965) 2422026

BDO Burgan - International AccountantsAli Al Hassawi & Co. - Member of BDO InternationalP. O.. Box 22351 Safat 13084 KuwaitSharq - Dasman Complex - Block 2 - 9 FloorTel: 2464574 - 6 / 2426862 - 3 Fax: (965) 2414956Email: [email protected]

Ali A. Al Hasawi Ali Awaid RukhaeyesLicence No. 30 (A)BDO Burgan - International Accountants February 11, 2008State of Kuwait

Ali Awaid RukhaeyesLicence No. 73 (A)Member of Certified Public Accountants Society of (Montana)Member of The International Group of Accounting Firms (igaf)

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B A L A N C E S H E E T As of December 31, 2007(All amounts are in Kuwaiti Dinars)

Note 2007 2006

Assets

Current assets

Cash and cash equivalent 4 911,576 679,067

Investments at fair value - income statement 5 17,662,410 18,846,132

Murbaha and Wakala investments 6 3,393,490 3,418,978

Accounts receivable and other debit balances 7 562,320 449,235

22,529,796 23,393,412

Non-current assets

Investments available for sale 8 272,450 288,590

Investment in purchased debts 193,504 167,697

Investment in associate 9 2,131,650 -

Property and equipment 10 42,193 49,503

Intangible assets 11 5,962 9,982

2,645,759 515,772

Total Assets 25,175,555 23,909,184

Liabilities and equity

Current liabilities

Due to banks - 16,928

Accounts payable and other credit balances 12 299,799 242,680

299,799 259,608

Non-current liabilities

End of service indemnity 108,102 69,891

Equity

Share capital 13 16,500,000 15,000,000

Share premium 5,400,000 5,400,000

Statutory reserve 14 612,477 471,847

Voluntary reserve 15 312,150 316,747

Retained earnings 1,943,027 2,391,091

24,767,654 23,579,685

Total liabilities and equity 25,175,555 23,909,184


Abdullah Yousef Al-SeifVice Chairman

Exhibit - A

The accompanying notes form an integral part of these financial statements.

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STATEMENT OF INCOME

Note 2007 2006Revenues

Collection commission 955,749 1,587,604

Income from purchased debts collected 71,990 53,506

Gain/(loss) from investment 16 1,103,134 (42,477)

Murbahat and Wakala income 167,449 635,920

Provision no longer required 95,743 175,000

Other (losses)/revenue (385) 30,690

Total revenues 2,393,680 2,440,243

Expenses and other charges

General and administrative expenses 17 969,979 856,352

Provision for investment in purchased debts - 9,986

Depreciation and amortization 18 17,403 30,733

Contribution to Kuwait Foundation for the

advancement of Sciences 12,657 13,888

National Labor Support Tax 29,719 32,250

Zakat 191/ 726 -

Board of directors remuneration 30,000 21,000

Total expenses and other charges 1,060,484 964,209

Net profit for the year 1,333,196 1,476,034

Earnings per share/(fils) 20 8.08 9.73

For the year ended December 31, 2007(All amounts are in Kuwaiti Dinars)

Exhibit - B

The accompanying notes form an integral part of these financial statements.

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S T A T E M E N T O F C A S H F L O W SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars)

Note 2007 2006

Cash flows from operating activities

Net profit for the year 1,333,196 1,476,034

Adjustments

Depreciation and amortization 17,403 30,733

Change in fair value of investments at fair value -

income statement (735,869) 180,859

Gain on sale of investments at fair value -

income statement (193,907) (6,586)

Provision for investment in purchased debts - 9,986

profit from purchased debts collected (71,990) (53,506)

Provision no longer required (95,743) (175,000)

Cash dividend (243,955) (90,862)

Murbaha and Wakala income (167,449) (635,920)

Provision for end of service indemnity 38,211 29,921

Operating (loss)/profit before changes in working capital

assets and liabilities (120,103) 765,659

Accounts receivable and other debit balances (17,342) (405,706)

Accounts payable and other credit balances (88,108) (484,153)

Net cash used in operating activities (225,553) (124,200)

Cash flows from investing activities

Investments at fair value – income statement (6,775,037) (15,171,747)

Proceeds from sale of investments at fair value –

income statement 8,888,535 1,556,217

Property and equipment (6,073) (17,767)

Investment in associate (2,131,650) -

Murbaha and Wakala investment 25,488 (3,418,978)

Investment in purchased debts (80,704) -

Proceeds from investment in purchased debts 126,887 258,328

Cash dividend received 243,955 90,862

Murbaha and Wakala income received 167,449 635,920

Net cash generated from/(used in) investing activities 458,850 (16,067,165)

Cash flows from financing activities

Due to banks (16,928) 16,928

Share capital - 10,800,000

Share premium - 5,400,000

Net cash (used in)/generated from financing activities (16,928) 16,216,928

Foreign currencies translation adjustment 16,140 2,860

Net increase in cash and cash equivalent 232,509 28,423

Cash and cash equivalent at beginning of the year 679,067 650,644

Cash and cash equivalent at end of the year 4 911,576 679,067

Exhibit - C

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Exhibit - D

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N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007(All amounts are in Kuwaiti Dinars unless stated otherwise)

1 Formation and activities The Credit Rating and Collection Company - K.S.C. (Closed) was incorporated on December 5, 1998 and is listed in the Kuwait Stock.

The principle activities of the company are as follows:

- Collecting and purchasing of trade debts on behalf of its clients and for their account.

- Developing, utilizing and providing collection and debt purchase methods for its customers and others.

- Gathering, providing, and updating the financial information and credit rating for others.

- Utilizing the monetary surplus of the company by investing it in portfolios managed by specialized parties.

- Applying the authorized international standards in assessing and rating all securities, shares, bonds and other instruments of debt and investment companies, financially independent entities which are dealing with the financial market and its instruments.

- Providing independent professional opinions about competence of the institutions and abilities to fulfill their financial obligations and follow up the rules of transparency an increase the declaration of the procedures and instructions which organize the administration, accountancy, auditing affairs applied with the market and its management.

- Providing economic specialized professional information necessary for knowing the performance of markets and institiusions it deals with and sustaining to promote the financial market in Kuwait and others, for facilitating the utility of capital materials therein.

- Developing, utilizing and providing evaluation’ methods, securitization and recovery of client assets and others.

- The Company’s activities are conducted according to Islamic Shari’ah.

The company has the right to participate and subscribe in any way, in other firms or institutions which operate in the same field or those which would assist in achieving its objectives in Kuwait or abroad and to purchase these firms, institutions or participate in their equity.

The Company’s registered address is P.O. Box 1432 –Safat 13115 Kuwait.

The Board of Directors approved these financial statements for the year ended December 31, 2007 for issue on February 11, 2008. The shareholders have the authority to amend these financial statements in the General Assembly meeting of shareholders.

2 Adoption of new and revised standards Standards and Interpretations adopted during the year:In the current year the company has adopted IFRS 7: Financial instruments “Disclosure” and subsequent amendments to IAS 1 Financial Statements Presentation which are effective for annual reporting periods beginning on or after January 1, 2007 the adoption of these standards and amendments resulted in additional disclosures in the financial statements regarding to the financial instruments and managing capital as follows:

• IFRS (7), Financial Instruments: “Disclosures” to evaluate the significance of the company’s financial instruments for the company’s financial position and performance and to disclose the nature and extent of risks resulted from financial instruments during the year and at the financial statements date, and also how the company is managing these risks.

• The adjustments related to IAS (1), “Capital Disclosures” to disclose the company’s objectives and policies to manage capital.

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2 Adoption of new and revised standards (Continued)

Standards and Interpretation issued but not yet adopted:Up to the date of issue of these financial statements, the following new standards have been issued but are not yet effective:

• IAS 23 “Revised”: Borrowing Cost.

• IAS 1 “Revised”: Financial statements presentation.

• IFRS 8 “Operating Segments”

These standards will be adopted for the annual reporting periods beginning on or after January 1, 2009. The management anticipates that the adoption of these standards will have no material impact for the periods commencing on or after January 2009.

3 Significant accounting policiesThe principals accounting policies applied in the preparation of these financial statements are set out below:

3 /1 Basis of preparationThese financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and Interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and state of Kuwait Commercial Companies’ law requirements.- The accounting policies have been consistently applied during the year, as a similar base for the

policies applied in the previous year, except for the adoption of (Note 2).

3 /2 Accounting convention - These financial statements are prepared under the historical cost convention, adjusted through

the revaluation of some assets according to fair value as explained in detail in the accompanying policies and disclosures.

- The financial statements are presented in Kuwaiti Dinar.

3 /3 Critical accounting estimates and judgments The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Although these estimates are based on management best knowledge, the actual results may differ fromthose estimates.

3 /4 Recognition and de-recognition of financial assets and liabilities A financial assets or a financial liability is recognized when the Company become a party to the contractual provisions of the instrument. A financial asset is de-recognized either when the contractual rights to cash flows from the financial asset expire, the Company has transferred substantially all the risks and rewards of ownership or when it has neither transferred no retained substantially all the risks and rewards, but no longer has control over the asset or a proportion of the asset. A financial liability is de-recognized when the obligation specific in the contract is discharged, cancelled or expired.

3 /5 Cash and cash equivalentsCash and cash equivalents for the purpose of preparing the statement of cash flows comprise cash on hand and at banks and short term bank deposits with a maturity date not exceeding three months from the date of deposit.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T SFor the year ended December 31, 2007

(All amounts are in Kuwaiti Dinars unless stated otherwise)

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3 /6 Financial instruments Classification The company is identified the suitable classification for the investments at the purchase date according to the purpose from acquired these investments. It was classified as receivables and available for sale investments.

Receivables There are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the company provides goods and services directly to a debtor with no intention of trading the receivables.

Available for sale assetsThese are non-derivative financial assets that are either designated in this category or not included in any of the above categories and are principally, those acquired to be held, for an indefinite period of time which could be sold when liquidity is needed or upon changes in rates of profit.

Recognition and de-recognition Regular purchase and sales of financial assets are recognized on trade date – the date on which the Company is committed with sale or purchase process. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership.

Measurement Financial assets are initially recognized at fair value plus transaction cost for all assets not carried at fair value through profit or loss.

Subsequently, available for sale assets and financial assets at fair value. Receivable are carried at amortized cost using the effective yield method.

Changes in the fair value of available for sale investments are recognized directly in equity. When available for sale investments sold or impaired, the accumulated changes in fair value recognized in equity are included in the statement of income.

Fair valueThe fair value of financial instruments in regular financial market are based on last bid prices.For the unquoted investments, the company establish fair value by reference to other instruments that are substantially the same, or by using the expected discounted cash flows after adjustment to reflect the same circumstances of the company. Available for sale investments, which its fair value have not been determined, are carried at cost less impairment losses.

Impairment in valueThe Company assesses at each balance sheet date whether there is an objective evidence that a financial asset or a similar of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the investments below its cost is considered as an indicator that the values are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the statement of income. Impairment losses recognized in the statement of income on equity instruments are not reversed through the statement of income.

A specific provision for impairment of receivables is established when there is objective evidence that the company will not be able to collect all amounts due to the original terms of receivables. The amount of the specific provision is the difference between the book value and the recoverable value which is the present value of estimated future cash flows, discounted at the effective rate or return. The generated loss from impairment value is recognized in the income statement.


16


3 /7 Investment in purchased debts These investments are recorded in the amounts paid in purchased debts from customers according to contractual provisions, and the difference between the amount paid to/and collected from customers are recognized directly in the income statement as collection commissions.

3 /8 Property & equipmentProperty & equipment are stated at cost less accumulated depreciation. The recoverable value of property and equipment are reviewed at the balance sheet date. If the recoverable value for property and equipment decreased from the book value in which case the book value is written down to the recoverable value. If the useful lives are different from its estimated lives then the useful lives are adjusted from the beginning of the year in which the change occurred in without going intoretroactive periods.

Property & equipment are depreciated on straight line basis over their estimated useful livesas follows:

Machinery and equipment 5 years Computers 5 years Furniture & fixtures 5 yearsVehicles 5 years

3 /9 Impairment of non-financial assetsAt each balance sheet date, the company reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any), and an allowance is recognized in the statement of income. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses, recognized for the asset no longer exist or has decreased. The reversal is recorded in income.

3 /10 Intangible assetsIntangible assets are carried at cost less accumulated amortization and any accumulated impairment losses.

Intangible assets are amortized on a straight - line basis over their estimated useful life.

3 /11 Accounts payableAccounts payable are stated at their nominal value

3 /12 Staff indemnityProvision for staff end of service indemnity is computed as per the Labour Law in the private sector and on the assumption of ending the services of all staff at the balance sheet date. This obligation is not funded. The management expects that based on this method of calculation a reasonable estimate is made of the obligation of the company towards employees indemnity for past andcurrent periods.

3 /13 Revenue recognition- Collection commission is recognized based on actual collections from the debts of customers

according to contractual provisions, also collection commission of debts purchased from the other is recognized by the difference between amounts collected and amounts paid to purchase these debts.

- Income from Murabaha and Mudaraba is recognized as it is earned, on a time apportionment basis.

- Dividend income from shares is recognized when the right to receive payment is established.

- Gain on sale of investments in securities is measured by the difference between the sale proceeds and the net book value of the investment sold.

- Other categories of income are recognized when earned, at the time the related services are rendered and/or on the basis of the terms of the contractual agreement of each activity.



17


3 /14 Zakat Zakat is calculated at 2.577% on the reserves at the end of the year before transfers to reserves for the year, and calculated under the direction of the company’s Fatwa and Sharia Supervisory Board. Zakat is charged to voluntary reserve.

In addition, effective form December 10, 2007, the company has also provided in accordance with these requirements is charges requirements of Law No. 46 of 2006. The Zakat charge calculated in accordance with these requirements is charged to the income statement.

3 /15 Foreign currenciesThe functional currency of the Company is the Kuwaiti Dinar (“KD”) and accordingly, the financial statements are presented in KD. Transactions denominated in foreign currencies are translated into KD at the average rates of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into KD at rates of exchange prevailing at the balance sheet date. The resultant exchange differences are taken to the statement of income.

3 /16 ContingenciesContingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefitsis probable.

4 Cash and cash equivalents

2007 2006

Current accounts at banks 623,926 477,322

Cash in investment portfolios 287,250 201,745

Cash on hand 400 -

911,576 679,067

5 Investments at fair value – income statement

2007 2006

Portfolios held for trading (quoted) 5,501,993 6,693,538

Investment in Local fund (unquoted) 12,160,417 12,152,594

17,662,410 18,846,132

6 Murbaha and Wakala investments The balance represents the amounts deposited in local financial institutions in accordance with Murabaha agreements. The average effective rate on this balance as of December 31, 2007 is 7.06%.

7 Accounts receivables and other debit balances

2007 2006

Trade receivables 32,686 135,815

Provision for doubtful debts - (95,743)

32,686 40,072

Due from related parties 333,432 290,760

Staff receivables 57,587 30,387

Refundable deposits 1,219 1,219

Prepayments 37,416 17,676

Others 99,980 69,121

562,320 449,235

The carrying value of trade and other receivables approximates its fair value.


18




7 Accounts receivables and other debit balances (Continued)

As of 31 December 2007, trade receivables were not impaired and not provided for (2006: KD 95,743) the amount of the provision was (Nil) as of 31 December 2007 (2006: KD 95,743). It was assessed that a portion of the receivables is expected to be recovered.

Movement of provision for impairment of trade and other receivables:

2007 2006

Opening balance - 1 January 95,743 270,743

Recoveries/Write back of provisions (95,743) (175,000)

Charge for the year - -

Closing balance – 31 December - 95,743

The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Company does not hold any collateral as security.

8 Investments available for sale The investments available for sale are investments in portfolio at US Dollar. The book value of portfolio amounted to KD 272,450 (US$ 1,000,000), (2006: KD 288,590 US $ 1,000,000)

The fair value of the investment at available for sale, has not been determined since these investments do not have a quoted market price on active market, and could not be measured reliably by any other means.

9 Investment in associate This item represents the company share in Q for Credit Rating and Collection (CRCQ) W.L.L Company (United Arab Emirates – Abu Dhabi) equal to 45 % from its capital.

The investment in associate is recorded at cost which represents the company’s share in the capital of associate since it is incorporated during the year and financial statements have been issued until the date of preparing these financial statements

19


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20


11 Intangible assets Computers Key Software money Total

Cost

Balance at January 1, 2007 229,212 7,500 236,712

Balance at December 31, 2007 229,212 7,500 236,712

Accumulated amortization

Balance at January 1, 2007 224,730 2,000 226,730

Charges for the year 2,520 1,500 4,020


Net Book Value



12 Accounts payables and other credit balance

2007 2006

Trade payables 33,518 33,783

Due to related parties 31,977 -

Provision for staff leave 45,444 30,560

Contribution to KFAS 12,657 13,888

National Labour support tax 29,719 32,250

Zakat 726 -

Staff payable 6,188 3,785

Board of Directors Remuneration 30,000 21,000

Others 109,570 107,414

299,799 242,680

13 Share capital The Extraordinary General Assembly of shareholders held on March 27, 2007 has approved an increase in the authorized and issued capital from KD 15,000,000 to KD 16,500,000 by issue10 % of bonus shares from capital equal to KD 1,500,000.

14 Statutory reserve As required by the Commercial Companies’ Law and the Company’s Articles of Association 10% (ten percent) of the net profit for the year is transferred to statutory reserve. The company may resolve to discontinue such annual transfer when the reserve equals 50 % of paid up share capital. Distribution of the reserve subject only in cases stated in Commercial Companies’ Law the Company’s Articles of Association.

15 Voluntary reserve As required by the Company’s Articles of association, 10 % of the year net profit is transferred to voluntary reserve. Such annual transfer may discontinue by a resolution of the General Assembly based on a recommendation from the Company’s Board of Directors.



21


16 Gain/ (loss) from investment

2007 2006

Cash and non cash dividends 217,553 166,231

Change in fair value of investment at

fair value - income statement – portfolio

held for trading (quoted) (70,774) (272,799)

Change in fair value of investment at

fair value - income statement–

in local fund (unquoted) 806,643 91,940

Gain from sale investments at

fair value – income statement 193,907 6,586

Cash dividend for investment available for sale 26,402 26,887

Portfolios expenses (70,597) (61,322)

1,103,134 (42,477)

17 General and administrative expenses

2007 2006

Staff cost 534,513 558,331

Others 435,466 298,021

969,979 856,352

18 Deprecation and amortization

2007 2006

Property and equipment 13,383 29,233

Intangible assets 4,020 1,500

17,403 30,733

19 Zakat

This item represents: 19 /1 Zakat computed in accordance with law No 46 issued on November 27, 2007 related to Zakat

imposed on the general and closed shareholding companies, this Zakat is calculated for the period from December 10, 2007 (the date of issuing the Ministerial Decree No 58 of year 2007 with this regard in Kuwaiti Gazette) to December 31, 2007 as 1 % from net profit before deducting the company’s provisions and reserves.

19 /2 Zakat computed in accordance with the resolution of the Ordinary General Assembly of shareholders

held on March 27, 2007. Zakat for the year ended December 31, 2006 has been calculated on behalf of the shareholders at KD 145,227. This amount has been deducted from the balance of voluntary reserve in conformity with the policy of the Company.


22


20 Earnings per share/(fils)Earnings per share calculation based on the weighted average number of shares outstanding during the year (restated by the effect of right issue for shareholders during the last year) is as follow:

2007 2006 (Adjusted)Net profit for the year 1,333,196 1,476,034Weighted average numbers of outstanding shares during the year 165,000,000 130,151,236Effect of right issue on weighted average of outstanding share - 21,444,657Weighted average numbers of outstanding shares during the year (restated by right issue) 165,000,000 151,595,893Earnings per share (restated by right issue)/fils 8.08 9.73

The weighted average number of shares outstanding during the year December 31, 2006 has been adjusted to reflect the issue of bonus shares of 15,000,000 approved by the Shareholders’ General Assembly held on March 27, 2007.

21 Related parties transactions These represent transactions with certain parties (Associates Companies, shareholders, Board of Directors Members, company’s senior Management Employees, their Relatives and Companies having significant share and executive officers). Transactions of the company with related parties are within the normal course of business entered on normal commercial terms and with Management approval.

All related parties transactions are subject to the approved of the Ordinary General Assembly of shareholders.

Transaction balances with related parties included in the balance sheet are as follows:

Balance sheet 2007 2006Investments at fair value - income statement 14,557,497 16,329,338Murbaha and Wakala investments - 3,418,978Accounts receivable 333,432 290,760Accounts payable 31,977 -

Transactions with related parties included in the income statement are as follow:

Income statement 2007 2006Changes in fair value of investments at fair value - income statement (453,410) (51,946)Cash Dividend 116,200 161,106Collection commission 910,949 1,491,377Murbaha and wakala income 113,534 635,920



23


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24


23 Proposed dividends and Board of Directors Remuneration On February 11, 2008, the Board of Directors have not proposed any dividends for shareholders for the year ended December 31, 2007 (2006: 10 shares for each 100 shares), and also Directors’ remuneration has been proposed with amounts of KD 30,000 (2006: KD 21,000).

These proposals are subject to the approval of the Ordinary General Assembly of the shareholders.

24 Provision for investment in purchased debtsThe provisions was calculated after the approval of the Fatwa and Shari’ah and in accordance with Noble Islamic Shari’ah.

25 Off balance sheet items The company collects commercial debts on behalf of the clients, these debts do not appear in the company balances sheet which amounted to KD 156,285,653 as of December 31, 2007 (2006: KD 147,548,898).

26 Financial instruments

Categories of financial instrumentsThe financial instruments represent financial assets & liabilities. Financial assets include cash and cash equivalents, investments at fair value through income statement, Murabaha and Wakala investments, accounts receivable and other debts balances, investments available for sale and investment in purchase debts. The financial liabilities include due to banks and accounts payable other credit balances.

Fair value of financial instruments Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than in force or liquidation sale. The company used recognized assumptions and methods to estimate the fair value of the financial instruments. The fair value of financial assets and financial liabilities are determined as follows:

• The fair value of other financial assets and financial liabilities with standard terms and conditions and trade on active liquid markets is determined with reference to quoted market prices.

• The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar financial instruments.

• The fair values of financial instruments carried at amortized cost are not significantly different from their carrying values.



25


26 Financial instruments (Continued)

Financial risks management

The Company’s use of financial instruments exposes it to financial risks such as credit risk, market

risk, liquidity risk.

The Company continuously reviews its risk exposures and takes the necessary procedures to limit

these risks at acceptable levels.

The Board of Directors provides written principles for overall risk management, as well as written

policies covering specific areas, such as foreign exchange risk, interest rate risks, credit risk and

investment of excess liquidity.

The significant risks that the Company is exposed to are as follows:

• Credit risk

Credit risk is the risk that one party to a financial instrument will fail to pay an obligation causing

the other party to incur a financial loss. Financial assets, which potentially subject the Company

to credit risk, consist principally of accounts receivables. Credit risk with respect to receivables is

limited due to dealing with large number of customers. For more details see note (7).

The Company considers its maximum exposure to credit risk to be as follows:

2007 2006

Current and call accounts at banks 623,926 477,322

Trade receivables 32,686 135,815

Investments in purchased debts 193,504 167,697

850,116 780,834

The majority of the company’s trade receivables is due for maturity within 90 days and most big

portion of this debts represent debts individuals and company’s.

The credit risk of trade receivables is limited due to large customers’ size of company and no

existence of relation between them.

Therefore the management believes there is no future credit risk provision required in excess of the

normal provision for impairment of trade receivables.

• Liquidity risks

Liquidity risks is the risk that the Company will be unable to meet its cash obligations. The

management of liquidity risks consist of keeping sufficient cash, and arranging financing sources

through enough facilities , managing highly liquid assets, and monitoring liquidity on a periodically

basis by method of future cash flow.

The maturity of liabilities stated below based on the period from the balance sheet date to the

contractual maturity date. In the case of financial instruments that do not have a contractual

maturity date, the maturity is based on management’s estimate of time period in which the asset

will be collected or disposed and the liability settled.


26


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26 Financial instruments (Continued)

• Market risks Market risk, comprise of price risk, interest rate risk and currency risk. These risks arise due to

change in market prices, interest rates and foreign currency rates.

Foreign currencies risks Foreign currencies risks arise from transactions with foreign currencies. The Company manages these risks by setting limits on transaction with other foreign currencies and counterparty and limiting its transaction business in major currencies with reputable counterparties.

Cash flow and fair value interest rate risks As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially not affected by the changes in market interest rates.

The Company is not exposed to interest risk since it has no loans or any other facilities.

Equity price risksTo manage its equity price risks arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limitations set by the Company.

During the year the Company held investments and classified on the balance sheet as investments at fair value through income statement and available for sale investments.

27 Capital risk management The Company’s objectives when managing capital are:

• To safeguard the company’s ability to continue as a going concern to be able to provide returns for shareholders and benefits for other beneficiaries, and,

• To maintain an optimal returns to shareholders by pricing its products and services commensurately with risk level.

Consistently with others in the industry, the company determines share capital that is adequate for risks and manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders or sell assets to reduce debt.

The company monitors capital on the basis of debt – to – adjusted capital ratio. This ratio is calculated as net debts divided by total adjusted capital. Net debts calculated as total debts including borrowings, trade and other payables, as shown in the balance sheet less cash and cash equivalent. Total adjusted capital comprise of all components of equity (share capital reserves and retained earning).

Gearing ratio of debts to equity as follows:

2007 2006Debts - 16,928Less: Cash and cash equivalent (911,576) (679,067)Net debts (911,576) (662,139)Total equity 24,767,654 23,579,618Gearing ratio (3.7 %) (2.8%)

The decrease in gearing ratio during 2007 was not material and resulted from decrease in due to banks.

28 Comparative figuresCertain comparative figures were reclassified to conform with the current year presentation.



Documents

ANNUAL REPORT - CRCcrckt.com/crcar2007eng.pdfSheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Amir of the State of Kuwait His Highness ... crc Kuwait. CRCQ started its activities by the end