Director’s Report - Galfar Engineering and Contractinggalfar.com/userfiles/Audited Financials yr 2014(1).pdfPage 1 of 6 Director’s Report Dear Shareholders, I am pleased to welcome

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Director’s Report Dear Shareholders, I am pleased to welcome you all on behalf of the Board of Directors to the Annual General

Meeting of Galfar Engineering & Contracting SAOG and to present to you the Annual

Report for the Year ended 31st December 2014.

Business environment is undergoing changes which have slowed down the decision

making process in general. This has adversely affected the Company. The Board is

deeply concerned with the declining financial performance of the Company and has taken

strategic steps to improve the situation by focusing specifically on the settlement of

Company’s outstanding dues and claims, and execution of projects in time and within

budget.

The Company has substantially completed the MC5 Runway works of Salalah Airport

Project and will be delivered for operational use soon.

The Company’s 100% subsidiaries have been performing well and our strategy of having

subsidiaries for specific activities has generated value addition and stakeholders’

satisfaction. The company is now planning to have more such subsidiaries to concentrate

on specific activities. One such activity envisaged is to concentrate on water projects.

Galfar has qualified along with our consortium/joint venture partner for Oman Rail project,

but our JV partner decided not to submit due to some technical matters.

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Economic Environment Oman Government is keen to maintain the economic growth despite the recent decline in

international oil prices. This is reflected in its budget for 2015, wherein the provision for

expansion in Oil and Gas production has increased to over RO 2 Billion. Companies in

the private sector engaged in oil extraction have also announced their investment plans.

This augurs well for growth in the Oil and Gas sector. The budget also provides for

continuing infrastructure projects including tourism and road projects. Your company is

actively pursuing these opportunities.

Subsidiaries: Galfar Aspire Projects & Services LLC and Galfar Aspire Readymix LLC, two of the wholly

owned subsidiaries of Galfar in Oman have achieved good financial results. In addition to

catering to the needs of Galfar, they have achieved 51% of their turnover from non-Galfar

revenues. Galfar India, a wholly owned subsidiary of Galfar Oman, is executing two DBFOT road

projects of RO 76 Million through our 100% subsidiary SPV companies, Salasar

Highways Private Limited and Kashipur-Sitarganj Highways Private Limited

Operations

Galfar maintains its position as one of the leading contracting companies in the Sultanate

of Oman.

We have been facing procedural constraints in the process of collecting our ageing

receivables. Therefore, the Company’s average collection period has increased from 210

to 259 days. This has led to increased bank borrowing and interest cost. The Company

has intensified its collection and follow up efforts at all levels, the results of which are

expected to be seen in 2015.

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Certain projects were scheduled to be completed in December 2014. However, due to

reasons beyond our control these works could not be completed, resulting in the

Company incurring additional costs which has impacted our bottom line.

The summary of the performance of the Company (including Subsidiaries) is as follows:

In RO Million

Particulars 2014 2013

Gross revenue 372.510 412.408

Profit from

Operation 12.660 21.036

Net Profit After Tax 0.197 7.584

Omanisation

Galfar is committed to the development of Omani Nationals, and currently employs 4491

Omani nationals. It is actively pursuing recruitment, training and retention of Omani

Nationals in the technical and managerial cadres.

The Training Centre at Al Hail is engaged in training and skill development of Omanis for

the construction industry and this adds to the In Country Value. Corporate Structure and Governance

At the last Annual General Meeting of the Company in March 2014, the share holders

had duly elected a new board of nine members, including three new members, viz. Mr.

Abdul Qadir Askalan, Mr. Mohiuddin Mohamed Ali, and Mr. Raiz Basheeruddin. The

Board has formed two new committees viz. Supervisory and Follow up Committee

(SAFCOM) and Human Resource Committee (HRC) and re-constituted the Internal Audit

Committee.

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The Company has appointed a new CFO, Mr. Ram Mohan N. with effect from 31st August

2014.

The Company has implemented the Code of Conduct and Whistleblower Policy during

the year. This was recommended by the external consultant appointed by the Board of

Directors to review and strengthen the internal control system and corporate governance.

Companywide awareness program has been rolled out and uploaded in the company’s

website.

Galfar has in place various internal systems and manuals to assist the management in

day to day operations. These are reviewed and updated from time to time. A

comprehensive corporate governance report is included in the Annual report of 2014.

Health, Safety and Environment Galfar is pleased to report that it has achieved a significant milestone of 40 million man

hours without Loss Time Injury in the Oil & Gas and EPC Unit. Galfar Management

Systems are certified for compliance with ISO 29001:2010, ISO 9001:2008, OHSAS

18001:2007 and ISO 14001:2004 Standards.

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Outlook

The outlook for the construction industry in Oman remains robust. The government

continues its plans to go ahead with various infrastructure and services projects.

Roads & Bridges We have been awarded the following projects:

Barka – Nakhal Road - RO 65 Million

Dualization of Nizwa-IbriRoad - RO 28 Million

Batinah Tunnel - RO 22 Million

Further, the Taqa-Mirbat contract, awarded for RO 40 Million, has received the project

commencement order.

This provides a stable base for the Roads & Bridges Unit.

Oil & Gas Prospects for Oil & Gas sector is bright in view of the increase in government’s planned

expenditure.

Our Off-Plot Delivery Contract (ODC) with PDO will expire in August 2015 and an

offer for extension till March 2016 has been received.

There are other clients in the private sector with whom the company is engaged in

providing services.

We have also been awarded the contract for 132KV OH line for British Petroleum

(BP) for USD 10 Million, in February 2015.

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At the beginning of the year, the Company had an order book backlog of RO 675 Million.

In addition, we expect to bag projects during the year which will further strengthen our

order book position.

On Record

We pray for His Majesty’s health, long life and early return to his beloved Sultanate.

As an Omani Public Company, we are thankful to His Majesty’s Government for their

continued support.

We thank the Banks & Financial Institutions, Capital Market Authority, esteemed clients,

suppliers, sub-contractors and shareholders for their cooperation and continued support.

We also thank the employees and management of the company for their commitment and

dedication.

Salim Said Hamad Al Fannah Al Araimi Chairman

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Corporate Governance Report

Company’s Philosophy Galfar Engineering and Contracting SOAG is committed to good corporate governance and healthy corporate practices. The concept of good governance at Galfar envisages care of the Company to enhance the value of all its stakeholders by adhering to proper methods of management, internal controls, accountability, corporate governance rules and high level of transparency to the extent of not affecting the competitive position of the Company. The Company continues applying well-defined Management Systems Procedures (MSPs) in accordance with ISO 9001. The Company has implemented the Code of Conduct and Whistleblower Policy during the year. This was recommended by the external consultant appointed by the Board of Directors to review and strengthen the internal control system and corporate governance. Companywide awareness program has been rolled out and uploaded in the company’s website.

The company is fully abiding by the corporate governance code issued by the Capital Market Authority (CMA). The company has taken all necessary steps to fulfill the objective of good corporate governance.

The Board Members are experienced in their diversified professional fields. They have given great support to the Board to exercise its widest authorities in managing the Company and supervise the good performance of the Company’s business. The Board is responsible for achieving the company’s objectives. For this purpose, the Board is assisted by various sub committees and the higher executive management of the company. The Board has formed two new sub committees, Supervisory and Follow up Committee and the Human Resource Committee, and has reconstituted the Audit Committee. In addition, there is a well-structured organization for management executives whose authorities are defined in a revised Manual of Authority. In general the board exercises its primary functions and duties in line with the powers stipulated in article 35 of the Articles of Association of the company.

Board of Directors

At the Annual General Meeting of the Company held on 26th March 2014, the Shareholders duly elected a new Board of 9 members, which includes nine non-executives. Four of the Directors are independent.

The Members of the Board have professional and practical experience in their respective fields ensuring proper direction and control of company’s activities. No director is a member of more than 4 joint stock public companies whose shares are listed on the Muscat Securities Market (MSM) and no director is chairman of more than 2 public companies whose principal office is in the Sultanate of Oman. None of the directors are members of a Board of a joint stock public or closed company which carries out similar business and whose principal office is in the Sultanate of Oman.

2

Sr. No.

Name of Director & Representative Designation Category Directorship in Other Joint Stock

Companies

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi Chairman

Non Independent Non – Executive

Oman Medical College S.A.O.C

2 Sheikh Salim Abdullah Saeed Badr Al Rawas Vice Chairman


Oman Oil Marketing Company S.A.O.G , Kunooz Oman Holding

S.A.O.C.

3 Dr.Hatem Bakheit Saeed Al Shanfari Director Independent

Non - Executive

Gulf Investment Services Co. S.A.O.G, Gulf Baader Capital

Markets Co. S.A.O.C

4 Mr. Hamad Mohamed Al Wahaibi Director Independent Non - Executive

Voltamp Energy Co. S.A.O.G., Al Madina Insurance Co S.A.O.C.,

and National Bank of Oman S.A.O.G.

5 Engr. Salman Rashid Al Fannah Al Araimi Director


NIL

6 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi Director


Gulf Plastic Industries Co. S.A.O.G and Oman Medical

College S.A.O.C

7 Abdulqader Askalan (W.E.F 26.03.2014) Director

Independent Non – Executive

Oman Telecommunication

Company S.A.O.G

8 Engr. Mohiuddin Mohamad Ali (W.E.F 26.03.2014) Director Non Independent

Non - Executive NIL

9 Engr. Raiz Basheeruddin (W.E.F 26.03.2014) Director Independent

Non - Executive NIL

3

Board Meetings: During the year 2014, the Board held 9 meetings. Five meetings of them were held after election of the new Board. The following table shows details of the same.

Board of Directors Meetings & Attendance Details - Year 2014

√

Sr. No.

Name of Director &

Representative

Meeting 40

Meeting 41

Meeting 42

Meeting 43

Meeting 44

Meeting 45

Meeting 46

Meeting 47

Meeting 48

14-Jan-14

03-Feb-14

11-Feb-14

06-Mar-14 &

20-Mar-14

26-Mar-14

First meeting

of Elected Board

13-May-14

10-Aug-14

09-Nov-14

30-Dec-14

1

Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi

√ √ √ √ √ √ X X X

2 Dr.P. Mohamed Ali √ X X X X X X X X

3 Dr.Adil Abdul Aziz Yahya Al Kindy

X √ √ X X X X X X

4 Dr.Hatem Bakheit Saeed Al Shanfari

√ X X √ √ √ √ √ √

5 Sheikh Salim Abdullah Saeed Badr Al Rawas

√ √ √ √ √ √ √ √ √

6

Sheikh Yahya Abdullah Al Fannah Al Araimi

√ X √ √ X X X X X

7

Engr. Salman Rashid Al Fannah Al Araimi

√ √ √ √ √ √ √ √ √

8 Mr. Hamad Mohamed Al Wahaibi

√ √ √ √ √ √ √ √ √

9

Ms. Khalood Mohamed Rashid Al Fannah Al Araimi

√ √ √ √ √ √ √ √ √

10 Mr. Abdulqader Ahmed Askalan X X X X X √ √ √ √

11 Engr. Mohiuddin Mohamad Ali X X X X √ √ √ √ √

12 Engr. Raiz Basheeruddin X X X X √ X √ √ √

4

Remuneration to the Board of Directors: The total amount proposed to be paid to the Directors for the year 2014 is RO 73,500/-, being the sitting fees for the year 2014, which will be paid after approval in AGM dated 25th March, 2015.

The total amount paid to the Directors or provided during the year 2014 for the year 2013 is as under:

Sr. No. Name of Director & Representative Sitting Fees Remuneration Total

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi 4,900 15,422

20,322

2 Dr.P. Mohamed Ali 7,700 15,422

23,122

3 Dr.Adil Abdul Aziz Yahya Al Kindy 5,900 15,422

21,322

4 Dr.Hatem Bakheit Saeed Al Shanfari 6,700 15,422

22,122

5 Sheikh Salim Abdullah Saeed Badr Al Rawas 7,700 15,422

23,122

6 Sheikh Yahya Abdullah Al Fannah Al Araimi 4,400 15,422

19,822

7 Engr. Salman Rashid Al Fannah Al Araimi 7,700 15,422

23,122

8 Mr. Hamad Mohamed Al Wahaibi 8,100 15,422

23,522

9 Ms. Khulood Mohamed Rashid Al Fannah Al Araimi 8,100 15,422

23,522

Total 61,200

138,800

200,000

Board Secretary The elected Board has re-appointed Mr.Abdelbagi Daffalla, a legal professional, as secretary of the Board. The secretary facilitates holding and smooth conduct of the Board Meetings, records the minutes of the meetings, drafting of resolutions, following-up implementation of the Board resolutions and to inform the competent bodies therewith. The secretary also serves as a liaison between the board and its Sub-Committees and addresses the subsidiaries and associate companies on any matters or in respect of the resolutions being issued by the or to be issued for them by the parent Company.

5

Other Committees: Supervisory and Follow up Committee: The Board assigned four members as a task committee and after holding two preliminary meetings, the Board decided to form it under the name Supervisory and Follow up Committee (SAFCOM) consisting of 4 members and thereafter expanded to 5 members. SAFCOM assists the board in following up and improvement of outstanding receivables. It also studies Investment opportunities for the company and monitors performance of all Company units. SAFCOM helps the management of the company to play its role effectively and efficiently to achieve the Company’s objectives and ensures the interests of the Shareholders are protected. The committee held 5 meetings during the year 2014.

Name of members of the committee Designation

Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi Chairperson

Sheikh Salim Abdullah Saeed Badr Al Rawas Member

Dr.Hatem Bakheit Saeed Al Shanfari Member

Mr. Abdul Qader Askalan Member

Engr. Mohiuddin Mohamad Ali Member

SAFCOM Attendance details – 2014

Sr. No.

Name of Director & Representative

1st Meeting

2nd Meeting

3rd Meeting

4th

Meeting

5th

Meeting

19-May-14 01-June-14 28-Sep-14

02-Nov-14

14-Dec-

14

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi

√ √ X

X

X

2 Sheikh Salim Abdullah Saeed Badr Al Rawas √ √ √ √ √

3 Dr.Hatem Bakheit Saeed Al Shanfari X √ √

√ √

4 Mr. Abdul Qader Askalan √ √ √

√ √

5 Engr. Mohiuddin Mohamad Ali X X X

X

√

6

Human Resource Committee: The Board has formed the Human Resources Committee, which consists of 4 members, to assist the Board in fulfilling its oversight responsibilities on HR matters and to reorganize and restructure the Human Resources Unit in order to enhance organizational effectiveness. The committee also reviews from time to time the systems, regulations and policies of the HR Unit of the company. The committee held 4 meetings during the year 2014

Name of members of the committee Designation

Ms. Khulood Mohamed Rashid Al Fannah Al Araimi Chairperson

Engr. Salman Rashid Al Fannah Al Araimi Member

Mr. Hamad Mohamed Al Wahaibi Member

Engr. Mohiuddin Mohamad Ali Member

Human Resource Committee Attendance details – 2014

Sr. No. Name of Director & Representative

1st Meeting 2nd Meeting

3rd Meeting

4th Meeting

06-May-14 11-Aug-14 10-Sep-14 03-Nov-14

1 Ms. Khulood Mohamed Rashid Al Fannah Al Araimi √ √ √ √

2 Engr. Salman Rashid Al Fannah Al Araimi √ √ √ √

3 Mr. Hamad Mohamed Al Wahaibi √ √ √ √

4 Engr. Mohiuddin Mohamad Ali √ √ √ √

7

Audit Committee The Board reconstituted the Audit committee which consists of 5 members. The Audit Committee assists the board in discharging its oversight responsibilities and oversees the financial reporting process to ensure the balance, transparency and integrity of published financial information. The audit committee also reviews the effectiveness of the company’s internal financial controls and risk management system; the effectiveness of the internal audit function; the independent audit process including recommending the appointment and assessing the performance of the external auditor; the company’s process for monitoring compliance with laws and regulations affecting financial reporting and code of business conduct. In performing its duties, the committee maintains effective working relationships with the board of directors, management, and the external and internal auditors. To perform its role effectively, each committee member will need to develop and maintain his skills and knowledge, including an understanding of the committee’s responsibilities and of the company’s business, operations and risks. The Committee held nine meetings during the year 2014.

Sr. No. Name of the members of the committee Designation

1 Dr.Hatem Bakheit Saeed Al Shanfari Chairman

2 Mr. Hamad Mohamed Al Wahaibi Member

3 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi Member

4

Engr. Salman Rashid Al Fannah Al Araimi Member

5

Engr. Raiz Basheeruddin Member

8

Audit Committee Meetings & Attendance Details - Year 2014

√

Sr. No.

Name of the

members of the

committee

Designation

1st Meeti

ng

2nd Meeti

ng

3rd Meeti

ng

4th Meeti

ng

5th Meeti

ng

6th Meeti

ng

7th Meeti

ng

8th Meeti

ng

9th Meeti

ng 22-

Jan-14

10-Feb-14

04-Mar-14

22-Apr-14

11-May-

14

19-Jun-14

10-Aug-

14

09-Nov-

14

07-Dec-14

1

Dr.Hatem Bakheit Saeed Al Shanfari

Chairman √ X √ √ √ √ √ √ √

2

Sheikh Yahya Abdullah Al Fannah Al Araimi

Member X √ √ X X X X X X

3

Mr. Hamad Mohamed Al Wahaibi

Member √ √ √ √ √ √ √ √ X

4

Ms. Khalood Mohamed Rashid Al Fannah Al Araimi

Member √ √ √ √ √ X √ √ √

5

Engr. Salman Rashid Al Fannah Al Araimi

Member X X X √ √ √ √ √ √

6 Engr. Raiz Basheeruddin

Member X X X √ √ √ √ √ √

Procedure for Standing as a Candidate for the Board: The right to stand as a candidate for membership of the Board of Directors of the Company is open to shareholders and non shareholders.

In case of a shareholder, whether in personal capacity or representing a juristic person, he must have a minimum equity of not less than 10000 shares.

Key Management Remuneration: Total remuneration during the financial year 2014 to top Management (top 5) was RO 534,838/-

9

Compliance with Rules and Regulations:

The Company has been following the applicable rules and regulations issued by MSM, CMA and those stipulated in the Commercial Companies Law 1974 as amended. During the year 2014, a fine of RO 1450/-, was imposed on the Company, for delay in disclosure of the Unaudited Financial Statement for the second quarter on the Company’s page at the website of Muscat Securities Market. Communication with Shareholders and Investors:

The company maintains good communication relations with the shareholders and Investors and responds as much as possible to their queries and requests in line with the disclosures rules. The company, during the period, conducted several phone interviews with financial analysts and investors. The company publishes its un-audited financial results in the newspapers on a quarterly basis and the audited financial statements annually. Detailed financial statements are sent to shareholders on request. The company publishes its quarterly and annual results in MSM website. Detailed financial statements are sent to shareholders on request. The company posts its quarterly and annual results on MSM website, and also on the Company’s website: www.galfar.com. All the Company’s announcements are posted on MSM’s website.

The Management discussions and analysis report forms an integral part of the Annual Report.

Statement on Market Price and distribution of Holdings: High / Low price during each month

Market High/Low price during each month of 2014

Sr. No. Month High Low Closing

1 January-14 0.316 0.268 0.282

2 February-14 0.297 0.262 0.267

3 March-14 0.267 0.241 0.249

4 April-14 0.270 0.240 0.246

5 May-14 0.253 0.218 0.221

6 June-14 0.272 0.222 0.252

7 July-14 0.272 0.252 0.264

8 August-14 0.270 0.237 0.240

9 September-14 0.245 0.225 0.227

10 October-14 0.228 0.161 0.166

11 November-14 0.179 0.153 0.155

12 December-14 0.176 0.100 0.161

http://www.galfar.com.

10

Distribution of ownership of shares between shareholders (Including Shares having preferential voting rights)

Sr. No. Category No. of Shareholders

No. of Shares

% of Shareholding

1 Less than 5%

4,591

127,784,585

33.85

2 5% to 10% 2

46,765,847

12.39

3 Above 10% 4

202,918,329

53.76

Total 4,597

377,468,761

100.00

There are no Securities / Convertible Financial Instruments as on the Balance Sheet date which will have an impact on the Shareholders’ equity. Profile of the Statutory Auditors

PwC is a global network of firms operating in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. PwC also provides corporate training and professional financial qualifications through PwC's Academy. Established in the Middle East for over 40 years, PwC Middle East has firms in Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and the United Arab Emirates, with around 3,000 people. (www.pwc.com/middle-east)

PwC has been established in Oman for over 40 years and the Firm comprises 3 partners, including one Omani national, and over 135 professionals and support staff. Expert assurance, tax and advisory professionals are able to combine internationally acquired specialist consulting and technical skills with relevant local experience.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

Audit fees of the Company and Subsidiaries:

In addition to the below stated fees, the Company has paid RO. 885/- towards participation fee for the Company’s delegates to attend a seminar on International Financial Reporting Standards, organized by PricewaterhouseCoopers LLP. The Company has also paid RO. 15,950/- during the year as fee towards their professional services rendered for issuing various tenders related certificates in their capacity as the statutory auditors of the Company.

http://www.pwc.com/middle-east)

http://www.pwc.com/structure

11

Audit Fees of Company and Subsidiaries and fees for other services paid to the Auditors for 2014

Sr. No. Particulars Amount (In RO)

1 Statutory Audit Fees (Parent) 35,000

2 Statutory Audit Fees Al Khalij Heavy Equipment & Engineering LLC (Subsidiary) 2,750

3 Statutory Audit Fees Galfar Training Institute LLC (Subsidiary) 1,700

4 Statutory Audit Fees Galfar Engineering & Contracting India Pvt. Ltd (Subsidiary) 5,938

5 Statutory Audit Fees Aspire Projects & Services LLC (Subsidiary) 2,300

6 Statutory Audit Fees Galfar Aspire Readymix LLC (Subsidiary) 2,200

7 Statutory Audit Fees Salasar Highways Pvt. Ltd. (Subsidiary) 920

8 Statutory Audit Fees Kashipur Sitarganj Highways Pvt. Ltd. (Subsidiary) 920

The Board of Directors acknowledges as at December 31, 2014:

The Board of Directors acknowledges:

With its liability for the preparation of financial statements in accordance with the applicable standards and rules.

Review of the efficiency and adequacy of internal control systems of the Company and that it complies with internal rules and regulations. In order to enhance and strengthen the efficiency of the internal control systems, the Company has appointed a chief internal auditor and also recruited technical auditors in the Internal Audit Department.

That there is no material matter that affects the continuation of the Company and its ability to continue its production and operations during the next financial year.

Salim Said Hamed Al Fannah Al Araimi Chairman

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ManagementDiscussionandAnalysisReport2014

GCC Economic Scenario

The age of oil-driven abundance seems to be changing in the Gulf region. Apparently the decline in oil price is directing Governments’ focus towards deeper economic diversification and strategy to boost economic growth. The objective is to create a multiplier effect by exploiting the socio-economic potential of the massive investments planned in the Gulf region. For example, it has been announced that over $ 200bn is expected to be invested in over 40000 Km of rail across the GCC. The vision is to create the infrastructure and enabling environment to accelerate economic growth and attract companies, manufacturers, human resources and capital into the GCC economies. Oman is expected be a significant beneficiary in this scenario.

Oman Economy

Oman Budget 2015 is aimed towards driving and sustaining growth. It is expected that real growth for 2014 will be around 4.4% and will increase to 5% in 2015. This includes a budgeted 5.5% growth in non-oil activities. Despite the deep reduction in global oil prices, Oman’s 2015 budget comes with the commitment that critical projects will remain on track and that projects aimed towards economic diversification and stimulated economic growth will continue to be supported. Announcement of continuing investment in Duqm, the Sohar – Al Buraimi section of the railway project and several major road projects is noteworthy. Budget also speaks of several significant tourism projects, including a number of hotel developments and the Oman Convention and Exhibition Centre, in Muscat. In general, business environment for construction companies appears positive and supportive.

Galfar Overview

Galfar Engineering and Contracting SAOG is carrying out works of around USD 1 Billion per year. We stay committed to the Omanization agenda through planned employment opportunities and employee development through quality training. Also we remain focused on our goal to support the growth of Small and Medium Enterprises (SME).

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Our resource mobilization capabilities continue to be our major strength. The equipment spread available within Galfar remains unparalleled in the local market. Each year the fleet is brought up-to-date for executing the actual workload.

Main Objectives and Operational Results

Galfar’s objectives are always aligned with the policies of the Sultanate. Our aim is to delight our stakeholders through our committed efforts to deliver our projects in time in strict compliance with safety and quality standards.

Company, through its efforts to support SMEs, has been able to network with a large number of SMEs in the construction sector in Oman and add In Country Value.

Galfar is committed to achieve excellence in Quality, Health, Safety and environmental protection.

The Company, including its subsidiaries has recorded turnover for the year 2014 RO 372 m (2013: RO 412 m) with profit after tax RO 0.2 m (2013: RO 7.6 m). The parent company’s turnover for the year 2014 is RO 354 m (2013: RO 394 m) and the profit after tax is RO 1.2 m (2013: RO 6.9 m).

Galfar has five subsidiaries and three associates in operations. The performance of the subsidiaries as follows. Galfar Engineering & Contracting India Pvt. Ltd., which is engaged in construction activities in India, recorded a turnover of RO 16 m (2013: 13 m) with profit after tax RO 0.1 m (2013: RO 1.9 m). Galfar Aspire Readymix LLC, which produces ready mix concrete, recorded a turnover of RO 17 m (2013: RO 15 m) with profit after tax RO 1.1 m (2013: RO 1.1 m). Aspire Projects and Services LLC which is a specialized engineering and services company had a turnover of RO 3.0 m (2013: RO 2.1 m) with profit after tax RO 0.3 m (2013: RO 0.2 m). Al Khalij Heavy Equipment & Engineering LLC which specializes in hiring out of equipment recorded a turnover of RO 1.8 m (2013: RO 1.9 m) with profit after tax RO 0.1 m (2013: RO 0.1 m). Galfar Training Institute LLC which specializes in the field of training Omanis in various trades recorded a turnover of RO 0.9 m (2013: RO 1.1 m) and incurred loss RO 0.1 m (2013: 0 m).

Human Resources

We aim to accomplish employee development through transparent and harmonious HR policies, and maintain a motivating work environment and retain talent. Our goal is to be seen as the most preferred employer in the construction sector. Among the construction companies in the private sector in the Sultanate, Galfar has the largest number Omani personnel.

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Omanization and Training

For over 41 years Galfar has been a committed partner in the progress of the Sultanate of Oman in the Oil and Gas, Roads and Bridges, Civil and Marine Infrastructure and Utilities and Services sectors of the construction industry. Our Omanization policies are directed towards development, performance and steady growth within the organization.

Quality, Health, Safety and Environment:

Our company continues to maintain the competitive edge in Quality & HSE Management in the contracting industry in Oman through our management systems certified for compliance with ISO 29001:2010 (Petroleum & Petrochemical Sector specific standard), ISO 9001:2008 (Quality), OHSAS 18001:2007 (Health & Safety) and ISO 14001:2004 (Environment) standards.

In addition to our ASME - ‘U’ & ‘R’ certifications, we have also been placed as an approved subcontractor in AVME list of PDO for fabrication of Pig Launchers & Receivers.

We have worked 87 million man hours and have driven 106 million kilometers collectively during the year, in our projects throughout the country.

Despite exposure to this enormous amount of activities & challenges, our performance continues to be encouraging; our Lost Time Injury Frequency recorded during the year is 0.23 (lowest ever recorded and lower than the set limit of 0.4). Road Traffic Accident Frequency of the company is also lower than the limit set for the year (2.41 against 3.0) and lowest ever achieved.

We have also recorded several achievements in terms of man hours worked without Lost Time Injury in our projects / units. The significant ones are 40 million man hours of Oil & Gas and EPC Unit and 22 million man hours of Off-plot Delivery Contract.

We have conducted companywide campaigns during the year 2014, focusing on promoting HSE compliance and Empowerment to stop unsafe work in addition to Toolbox Talks improvement, Behavioral Safety awareness sessions and various Quality & HSE trainings in-house.

Management commitment to HSE protection, camp hygiene & employee welfare, subcontractor management and vehicle / equipment related incidents are the improvement areas currently under particular focus for which actions are addressed in Corporate HSE Plan for the year 2015.

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Risks

Risks remain an integral part of the construction business in the region. One of the major risks is the delay in receipt of our outstanding payments. This has led to a significant increase in our borrowings and interest costs. We are working hard and closely with government departments at all levels to collect our payments against the client-certified invoices for the completed jobs.

Additionally we face risk of delay in completion of our jobs due to various external reasons like delay in government approvals, changes of scope and approval for variation orders. These factors are outside our control and they have negative impact in many cases and they are potential threats to our profitability.

Higher salaries in other countries in the Arabian Peninsula are driving away our expatriate workforce. This trend is also a threat to our operations.

Salaries and wages form a significant part of our costs. Government regulations require year on year increase in salaries and wages. We strive to maintain a minimum, but highly productive, workforce and price our tenders accordingly.

Internal Control Systems

In 2014 we have made a notable progress in putting adequate internal control systems and monitoring processes in place to ensure that our business is conducted in a transparent manner. The new Manual of Authority has been rolled out and it will be updated whenever required.

The Management assures that it is fully aware of its responsibility towards all the stakeholders of Galfar.

Corporate Social initiatives and Campaigns

Galfar has always been conscious of its responsibilities towards the society. We have over the year carried out CSR activities on several fronts. One of the main focus as always has been “Road Safety”. We have supported several campaigns which include small organizations involved in spreading social awareness in locations as far of as Salalah. Also we have contributed to safety campaigns integrating efforts together with the Royal Oman Police.

Another main area of focus has been the contributions made towards organizations encouraging small and medium enterprises. SME enhancement has received direct impetus from His Majesty Sultan Qaboos himself and organization like ours together with

Page 5 of 6

the Chamber of Commerce are leaving no stone unturned to nurture and hand hold them to succeed and grow.

We have also contributed towards several efforts being made by the Ministry of Health in fighting infection, nursing conferences, and many others. Our efforts in continuously supporting the Oman Forum which is the most focused programs in “Career Growth of Omani Youth” has helped us in understanding the changing environments in our dynamic and growing Sultanate. We will continue these and other efforts through 2015 while remaining modest in our assertion of our contributions in such CSRs.

Outlook

Outlook for the construction industry in Oman appears good. Budget 2015 indicates that Government is going ahead with the works that have been planned. We expect that the oil price will recover to some extent in the second half of the year and from that perspective, activities in the Oil & Gas Sector may continue at a high level.

Several road projects are seen to be in the pipeline and we stand a good chance to win some of them during the year 2015. Market for civil works presents a significant opportunity for works and we expect to have a good share in this area also. Civil work is expected to grow phenomenally with Hotels, Hospitals and Heritage Centers being planned for construction in the coming years. Water and wastewater is another sector where, because of our expertise, we have a cutting edge over our competitors as we have been executing many such treatment and conveyance projects all over Oman.

Galfar’s Order Book position is healthy and stands at RO 675 million at the beginning of the year 2015.

Galfar is also a reputed facilities management provider in the Sultanate, commanding a high level of client retention and steady growth in the last two decades. We offer a full range of facilities and asset management services with innovative solutions tailored to cater to clients in different sectors. Galfar provides operation and maintenance services to a majority of sewage treatment and desalination plants in Oman. Most of these plants are the ones constructed by Galfar.

Performance of our subsidiaries is good and there is ample scope to increase their competitiveness and standing in the market.

Aspire Projects and Services LLC, is engaged in providing specialized Facilities Management services for establishments. It will focus on energy saving, water cycle management, alternative power and several such green energy initiatives.

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Galfar Aspire Readymix LLC has expanded its operations to Sohar & Duqm in 2014. It has also set up a permanent establishment at Rusayal for Muscat operations. It is planning to be self-reliant in some raw materials by commencing Grinding Units for GGBS and having own aggregate source. It also aims to be the local producer of GGBS thereby getting qualified for its product in the specifications of all major clients / consultants in Oman. The company is also plan to commence an additional Plant for a Block Unit in Muscat.

The Indian operations of Galfar have created significant value and they continue to remain a key growth area as the demand for infrastructure projects is continually growing. Galfar is trying to establish its footprint in India in all the major sectors and particularly in Oil & Gas and other infrastructure projects.

We salute His Majesty Sultan Qaboos, who in the 44 years of his commendable rule has transformed Oman into a powerful modern economy in the region. We shall endeavour to reach even higher standards of project delivery through continuous improvement in our processes and we wish to lead by action in Omanization as a true Omani enterprise.

Galfar’s broad image as a premier Omani company with its international presence is without any comparison. We have the capability to deliver projects in all the sections of engineering and construction industry with high quality standards in a safe and timely manner to the entire satisfaction of all its stake holders.

Hans Erlings Chief Executive Officer

Galfar Engineering & Contracting SAOG & Subsidiaries

Consolidated Statement of Financial Position As at 31st December, 2014 Amount in RO '000s

Notes 31 December 2014

31 December 2013

31 December 2014

31 December 2013

ASSETSNon-current AssetsProperty, plant and equipment 3 91,891 110,404 104,685 120,347 Intangible assets 4 1,131 1,514 19,225 1,533 Investment in subsidiaries 5 4,496 1,940 - - Investment in associates 6 8,706 8,706 4,861 6,444 Investment available-for-sale 125 125 145 145 Retentions receivables 9 30,816 32,246 30,896 32,246

137,165 154,935 159,812 160,715 Current AssetsInventories 7 21,131 35,569 22,379 36,488 Due from customers on contracts 8 67,557 53,582 68,743 54,737 Contract and trade receivables 9 213,162 201,469 225,927 205,328 Advances, prepayments and other receivables 10 22,094 19,848 21,532 20,807 Deposits with bank 11 1,293 11,551 1,324 11,591 Cash and bank balances 12 735 4,169 2,568 6,092

325,972 326,188 342,473 335,043 Total Assets 463,137 481,123 502,285 495,758 EQUITY AND LIABILITIES EquityShare capital 13 37,747 37,747 37,747 37,747 Share premium 14 23,370 23,370 23,370 23,370 Statutory reserve 15 12,582 12,582 12,835 12,888 Foreign currency translation reserve 16 - - (1,859) (1,788) Retained earnings 29,514 32,080 29,421 32,978

103,213 105,779 101,514 105,195 Non controlling interest - - 980 986 Total Equity 103,213 105,779 102,494 106,181 Non-current LiabilitiesTerm loans 18 68,202 46,150 73,588 46,714 Employees' end of service benefits 22 11,066 10,919 11,253 11,067 Contract advances from customers 23 16,146 9,450 17,744 9,450 Deferred tax liability 24 6,039 6,899 6,638 7,305

101,453 73,418 109,223 74,536 Current LiabilitiesTerm loans - current portion 18 32,380 30,625 32,982 31,116 Short term loans 19 28,000 35,400 33,027 35,400 Bank borrowings 20 62,691 87,713 63,503 90,248 Trade payables 21 77,507 91,678 87,044 96,171 Other payables and provisions 23 56,720 55,333 70,159 59,319 Provision for taxation 24 1,173 1,177 3,853 2,787

258,471 301,926 290,568 315,041 Total Liabilities 359,924 375,344 399,791 389,577 Total Equity and Liabilities 463,137 481,123 502,285 495,758

Net Assets per share (RO) 32 0.273 0.280 0.269 0.279

____________________ ____________________Chairman Chief Finance Officer

The attached notes 1 to 39 form part of these consolidated financial statements.

The consolidated financial statements were approved by board of directors on 7 March, 2015 and were signed on their behalf by:

Consolidated Parent Company


Consolidated Statement of Comprehensive IncomeFor the year ended 31st December, 2014 Amount in RO '000s

Notes 2014 2013 2014 2013

Contract income 350,977 392,178 357,282 403,723

Sales and services income 25 2,982 2,097 15,228 8,685

Total revenue 353,959 394,275 372,510 412,408

Other income 26 3,012 1,634 3,039 1,844

Contract and other direct costs 27 (335,465) (367,517) (350,070) (380,257)

Gross profit 21,506 28,392 25,479 33,995

General and administrative expenses 28 (10,357) (11,404) (12,819) (12,959)

Profit from operations 11,149 16,988 12,660 21,036

Financing costs, (net) 30 (9,755) (9,078) (10,371) (9,578)

Share of loss of associates 6 - - (1,366) (1,618)

Profit before tax 1,394 7,910 923 9,840

Income tax expense 24 (185) (1,019) (726) (2,256)

1,209 6,891 197 7,584

Other comprehensive income:

Item that may be subsequently reclassified to profit or loss:

Foreign currency translation difference - - (71) (769)

Total comprehensive income for the year 1,209 6,891 126 6,815

Profit attributable to:

Equity shareholders of parent company 1,209 6,891 169 7,533

Non-controlling interests - - 28 51

1,209 6,891 197 7,584

Basic and diluted earnings per share attributable to the equity shareholders of the parent company (RO) 31 0.003 0.018 - 0.020


Consolidated

Profit for the year

Parent Company


Consolidated Statement of Cash FlowsFor the year ended 31st December, 2014 Amount in RO '000s

2014 2013 2014 2013

Operating Activities

1,394 7,910 923 9,840 Adjustments for:

Depreciation on property, plant and equipment 21,794 22,449 23,571 23,880 Amortisation of intangible assets 400 405 409 406 Finance cost 9,755 9,078 10,371 9,578 Share of loss of associates - - 1,366 1,618 Employees' end of service benefits 2,084 2,619 2,213 2,724 Gain on disposal of plant and equipment (1,549) (437) (1,555) (453)

Payment of end of service benefits (1,937) (358) (2,027) (445) Working capital movements:

Inventories 14,438 (2,976) 14,109 (3,660) Trade and other receivables (27,914) (19,005) (35,330) (22,219) Trade and other payables (12,784) 3,846 1,713 4,565 Retention receivables 1,430 (9,997) 1,350 (9,997) Advance payables 6,696 (23,378) 8,294 (23,377)

Income tax paid (1,049) (1,545) (331) (1,469)

Net cash generated from/(used in) operating activities 12,758 (11,389) 25,076 (9,009) Investing ActivitiesPurchases of property, plant and equipment (5,025) (28,917) (9,708) (31,369) Purchases of intangible assets (15) (135) (18,099) (147) Disposal of property, plant and equipment 3,291 2,251 3,352 2,604 Investment in associates and subsidiaries (2,556) (822) 146 986 Bank deposits 10,258 1,080 10,267 1,083 Interest income 98 307 110 319

Net cash generated from/(used in) investing activities 6,051 (26,236) (13,932) (26,524) Financing ActivitiesShare capital raised - 13,196 - 13,196 Term loans and finance leases 23,807 12,653 28,740 12,538 Short term loans (7,400) (250) (2,373) (250) Bank borrowings (25,022) 29,619 (26,745) 28,345 Interest expenses (9,853) (9,385) (10,481) (9,897) Dividend paid (3,775) (5,775) (3,809) (5,775)

Net cash (used in)/generated from financing activities (22,243) 40,058 (14,668) 38,157

Net (decrease)/increase in cash and bank balances (3,434) 2,433 (3,524) 2,624

Cash and bank balances at beginning of the year 4,169 1,736 6,092 3,468 Cash and bank balances at end of the period 735 4,169 2,568 6,092


Parent Company Consolidated

Profit before taxation

Operating results before payment of end of service benefits and working capital changes


Statement of Changes in Equity - Parent CompanyFor the year ended 31st December, 2014 Amount in RO '000s

Notes Share Capital Share Premium

Statutory Reserve

Retained Earnings Total

Balance as at 1 January, 2013 33,000 16,503 11,000 30,964 91,467

Comprehensive income:

Profit and total comprehensive income for the year - - - 6,891 6,891

Transactions with shareholders

Share capital raised by way of right issue 13 4,747 8,449 - - 13,196

Transfer to statutory reserve 14,15 - (1,582) 1,582 - -

Dividend paid - 2012 17 - - - (5,775) (5,775)

Total transactions with shareholders 4,747 6,867 1,582 (5,775) 7,421

Balance as at 1 January, 2014 37,747 23,370 12,582 32,080 105,779

Comprehensive income:

Profit and total comprehensive income for the year - - - 1,209 1,209

Transactions with shareholders

Dividend paid - 2013 17 - - - (3,775) (3,775)

Balance as at 31 December, 2014 37,747 23,370 12,582 29,514 103,213


Attributable to equity holders of the parent company

Galfar Engineering & Contracting SAOG & SubsidiariesStatement of Changes in Equity - Consolidated For the year ended 31st December, 2014 Amount in RO '000s

Notes Share Capital

Share Premium

Statutory Reserve

Foreign Currency

Translation

Retained Earnings Total Grand

Total

Balance as at 1 January, 2013 33,000 16,503 11,106 (1,019) 31,420 91,010 848 91,858 Comprehensive income:Profit for the year - - - - 7,533 7,533 51 7,584 Other comprehensive income:Foreign currency translation reserve 16 - - - (769) - (769) - (769) Total comprehensive income for the year - - - (769) 7,533 6,764 51 6,815 Transactions with shareholders:Share capital raised by way of right issue 13,14 4,747 8,449 - - - 13,196 - 13,196 Transfer to statutory reserve 15 - (1,582) 1,782 - (200) - - - Non-controlling interest in new subsidiary - - - - - - 87 87 Dividend paid -2012 17 - - - - (5,775) (5,775) - (5,775) Total transactions with shareholders 4,747 6,867 1,782 - (5,975) 7,421 87 7,508

Balance as at 1 January, 2014 37,747 23,370 12,888 (1,788) 32,978 105,195 986 106,181 Comprehensive income:Profit for the year - - - - 169 169 28 197 Other comprehensive income:Foreign currency translation reserve 16 - - - (71) - (71) - (71) Total comprehensive income for the year - - - (71) 169 98 28 126 Transactions with shareholders:Adjustment of earlier year in subsidiary companies - - (115) - 111 (4) - (4) Transfer to statutory reserve 15 - - 62 - (62) - - - Dividend paid -2013 17 - - - - (3,775) (3,775) (34) (3,809) Total transactions with shareholders - - (53) - (3,726) (3,779) (34) (3,813)

Balance as at 31 December, 2014 37,747 23,370 12,835 (1,859) 29,421 101,514 980 102,494


Attributable to equity holders of the parent companyNon

controlling interest


Notes to Consolidated Financial StatementsAs at 31st December, 2014

1. Activities

Galfar Engineering and Contracting SAOG (“the parent company”) is an Omani joint stock company registered under the Commercial Companies Law ofthe Sultanate of Oman and listed in Muscat Security Exchange.

The principal activities of Galfar Engineering and Contracting SAOG and its subsidiaries (“the group”) are road, bridge and airport construction, oil and gasincluding EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts and Design,Build,Finance, Operate and Transfer (DBFOT) projects.

2. Significant Accounting Policies

Basis of preparationThese consolidated financial statements are prepared on the historical cost basis, as modified by the revaluation of derivative financial instruments at fairvalue through statement of comprehensive income , available-for-sale financial assets that have been measured at fair value and in accordance withInternational Financial Reporting Standards (IFRS), the requirements of the Commercial Companies Law of the Sultanate of Oman, 1974 (as amended)and comply with the disclosure requirements set out in the ‘Rules and Guidelines on Disclosure by issuer of Securities and Insider Trading’ issued by theCapital Market Authority (CMA) of the Sultanate of Oman.

The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect thereported amount of financial assets and liabilities at the date of the financial statements and the resultant provisions and changes in fair value for the year.Such estimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment anduncertainty and actual results may differ from management’s estimates resulting in future changes in estimated assets and liabilities. The assumptionsconcerning the key sources of estimation uncertainty at the reporting date are set out in note 38.

These consolidated financial statements have been presented in Rial Omani which is the functional and reporting currency for these consolidated financialstatements and all values are rounded to nearest thousand (RO '000) except when otherwise indicated.

Change in accounting policy estimates and disclosures

The accounting policies are consistent with those used in the previous financial year except for below;

In the current year, the company has changed the method of recognising the contract revenue from 'surveys of work performed method' to ‘percentagecompletion method’. Hence from 2014, the company uses the ‘percentage of completion method’ to determine the appropriate amount of contract revenueto be recognised in a given period. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as apercentage of total estimated costs for each contract.

The Company has considered the above to be a 'change in accounting estimate'. Accordingly, the effect of this change has been recognisedprospectively in the financial statements, in line with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. The amount of effect in thecurrent period and the future periods have not been disclosed in these financial statements due to its impracticability.

Standards and amendments effective in 2014 and relevant for the group’s operations:

For the year ended 31 December 2014, the group has adopted all of the new and revised standards and interpretations issued by the InternationalAccounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to itsoperations and effective for periods beginning on 1 January 2014.

The adoption of these standards and interpretations has not resulted in changes to the group’s accounting policies and has not affected the amountsreported for the current year.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the group:

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the group’s accountingperiods beginning on or after 1 January 2015 or later periods, but the group has not early adopted them and the impact of these standards andinterpretations is not reasonably estimable as at 31 December 2014:

IFRS 9, ‘Financial instruments’, (effective on or after 1 January 2015); andIFRS 15, ‘Revenue from contracts with customers’ (effective on or after 1 January 2017);

Accounting PoliciesThe significant accounting policies adopted by the group are as follows:

Basis of consolidationThe consolidated financial statements comprise those of Galfar Engineering and Contracting SAOG, its subsidiaries and its associates as at closing ofeach period. A subsidiary is a company in which the parent company owns, directly or indirectly more than half of the voting power.



2. Significant Accounting Policies (continued)

Basis of consolidation (continued)

The subsidiary is consolidated from the date on which control is transferred to the group and ceases to be consolidated from the date on which control istransferred out of the group.

The financial statements of the subsidiary are prepared for the same reporting period as the parent company using consistent accounting policies.Adjustments are made to bring into line any dissimilar accounting policies which may exist.

All intercompany balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated.

A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.

Losses are attributed to the non-controlling interest even if that results in a deficit balance.

If the group loses control over a subsidiary, it:• Derecognises the assets (including goodwill) and liabilities of the subsidiary• Derecognises the carrying amount of any non-controlling interests• Derecognises the cumulative translation differences, recorded in equity• Recognises the fair value of the consideration received• Recognises the fair value of any investment retained• Recognises any surplus or deficit in profit or loss• Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss

In the parent company’s separate financial statements, the investment in the subsidiary is carried at cost less impairment.

Business combinations and goodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the considerationtransferred, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination,the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.Acquisition costs incurred are expensed and included in administrative expenses.

When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordancewith the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embeddedderivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree isremeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair valueof the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as achange to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled withinequity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controllinginterest, over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of thesubsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired ina business combination is, from the acquisition date, allocated to each of the group’s cash-generating units that are expected to benefit from thecombination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed off, the goodwill associated with the operationdisposed off is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in thiscircumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.




Business combinations and goodwill (continued)

Changes in ownership interests in subsidiaries without change of control:Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with theowners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value ofnet assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Disposal of subsidiaries:Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with theowners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value ofnet assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Investments in associatesThe group’s investments in its associates are accounted for under the equity method of accounting. In the parent company's separate financialstatements, the investment in an associate is carried at cost less impairment. An associate is an entity in which the group has significant influence andwhich is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post- acquisition changes in thegroup’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment. After application of theequity method, the group determines whether it is necessary to recognise any additional impairment loss with respect to the group’s net investment in theassociate. The statement of comprehensive income reflects the share of the results of operations of the associate. Where there has been a changerecognised directly in the equity of the associate, the group recognises its share of any changes and discloses this, when applicable, in the statement ofchanges in equity. Profits and losses resulting from transactions between the group and the associate are eliminated to the extent of the interest in theassociate.

The financial statements of the associates are prepared for the same reporting period as the parent company using consistent accounting policies.Adjustments are made to bring into line any dissimilar accounting policies which may exist.

Property, plant and equipment All items of property, plant and equipment held for the use of group’s activities are recorded at cost less accumulated depreciation and any identifiedimpairment loss. Land is not depreciated. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced atintervals, the group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspectionis performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All otherrepair and maintenance costs are recognised in the statement of comprehensive income as incurred.

Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, on thefollowing bases:

Buildings 15 yearsCamps 4 yearsPlant and machinery 7 & 10 years Motor vehicles and heavy equipment 7 & 10 yearsFurniture and office equipment 6 yearsProject equipment and tools 6 years

Items costing less than RO 100 are expensed out in the year of purchase.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end. Where the carrying value of an asset isgreater than its estimated recoverable amount, it is written down immediately to its recoverable amount.




Property, plant and equipment (continued)An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposalproceeds and the carrying amount of the asset is recognised in the statement of comprehensive income when the asset is derecognised.

Capital work in progress Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less anyrecognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for theirintended use. Intangible assets Computer software:Computer software costs that are directly associated with identifiable and unique software products and have probable economic benefits exceeding thecosts beyond one year are recognised as an intangible asset. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads. Computer software costs recognised as an asset are amortised using the straight-line method over the estimated useful life of fiveyears.

Concessionaire rights:Concessionaire rights arising from Design, Build, Finance, Operate and Transfer (DBFOT) road projects are shown at historical cost. These have a finiteuseful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of intangibleassets over their lease period and is recognised in the statement of comprehensive income.

Available-for-sale investments Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in general, subsequently carried at fairvalue. Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonablyestimating fair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment. Changes in fair value are reportedas other comprehensive income.

An assessment is made at each reporting date to determine whether there is objective evidence that an investment may be impaired. If such evidenceexists, any impairment loss (being the difference between cost and fair value, less any impairment loss previously recognised) is removed from othercomprehensive income and recognised in the income statement.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises purchase price and all direct costs incurred in bringing the inventoriesto their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling priceless all estimated costs to be incurred in marketing, selling and distribution. Provision is made where necessary for obsolete, slow moving and defectiveitems.

Impairment of non-financial assetsAt each reporting date, the group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have sufferedan 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. For the purpose of assessing the impairment, assets are grouped at the lowest level for which they are largely independent cash flows (cashgenerating units).An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups ofassets.

The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and isrecognised immediately in the statement of comprehensive income.




Impairment of non-financial assets (Continued)

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist ormay have decreased. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of itsrecoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed thecarrying amount that would have been determined, had no impairment loss been recognised earlier.

Financial instruments Financial assets and financial liabilities are recognised on the group’s statement of financial position when the group becomes a party to the contractualprovisions of the instrument.

The principal financial assets are trade and other receivables, term deposits, available for sale investments and cash and bank balances.

The principal financial liabilities are trade payables, liabilities against finance leases, term loans, bank borrowings and overdrafts.

Derivative financial instruments

Trade and other receivables

Trade receivables are amounts due from customers for billing in the ordinary course of business for construction contracts. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

Term deposits

Term deposits are carried on the statement of financial position at their principal amount.

Cash and cash equivalents

For the purpose of the cash flows statement, the group considers cash on hand and bank balances with a maturity of less than three months from the dateof placement as cash and cash equivalents.

Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payableare classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they arepresented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Interest-bearing loans and borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are classified as current liabilities unless the company has anunconditional right to defer settlement of the liability for at least 12 months after the reporting date.

At the time of assessing the impairment on its investments in associates, the group determines, after application of the equity method, whether it isnecessary to recognise an additional impairment loss of the group’s investment in its associates. The group determines at each reporting date whetherthere is any objective evidence that the investment in associate is impaired. If this is the case the group calculates the amount of impairment as being thedifference between the fair value of the associate and the acquisition cost and recognises the amount in the statement of comprehensive income.

Derivatives are initially recognised at cost on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Changes inthe fair value of derivative instruments are recognised immediately in the statement of comprehensive income.




Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to getready for its intended use or sale are capitalised as part of the cost of the respective assets untill such time as the assets are substantially ready for theirintended use. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs inconnection with the borrowing of funds.

Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfillmentof the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitionalrequirements of IFRIC 4.

Group as a lessee

Finance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at thecommencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments areapportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are recognised in the statement of comprehensive income.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the group will obtain ownership by the endof the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Derecognition of financial assets and liabilities

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: - The rights to receive cash flows from the asset have expired; or- The group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full withoutmaterial delay to a third party under a ‘pass-through’ arrangement; and either:- The group has transferred substantially all the risks and rewards of the asset, or - The group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability isreplaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchangeor modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carryingamounts is recognised in the statement of comprehensive income.

Impairment of financial assets

The group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financialasset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is objective evidence of impairment as a result ofone or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimatedfuture cash flows of the financial asset or group of financial assets that can be reliably estimated.

Impairment is determined as follows:(a) For assets carried at fair value, impairment is the difference between cost and fair value;(b) For assets carried at cost, impairment is the difference between cost and the present value of future cash flows discounted at the current market rateof return for a similar financial asset.(c) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted atthe original effective interest rate.




Offsetting

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legallyenforceable right to set off the recognised amounts and the group intends to either settle on a net basis, or to realise the asset and settle the liabilitysimultaneously.

ProvisionsProvisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or constructive obligationas a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operatinglosses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class ofobligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligationsmay be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the risks specific to the obligation.

Provision for employees’ benefits

Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.

End of service benefits are accrued in accordance with the terms of employment of the group's employees at the reporting date, having regard to therequirements of the applicable labour laws of the countries in which the group operates and in accordance with IAS 19. Employee entitlements to annualleave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of servicesrendered by employees up to the reporting date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosedas a non-current liability.

Dividend on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the company’s shareholders.

Taxation

Current income tax

Taxation is provided based on relevant laws of the respective countries in which the group operates. Current income tax assets and liabilities for thecurrent and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred taxation

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply tothe period when the asset is realised or the liability is settled, based on laws that have been enacted at the reporting date.

Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused tax losses to theextent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assetsand unused tax losses can be utilised.




Taxation (continued)

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting dateand are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to theunderlying transaction either in other comprehensive income or directly in equity.

Contract revenue and profit recognition

A construction contract is defined by IAS 11 as a contract specifically negotiated for the construction of an asset.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred thatare likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable,contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expectedloss is recognised as an expense immediately. Contract revenue corresponds to the initial amount of revenue agreed in the contract and any variations incontract work, claims and incentive payments to the extent that it is probable that they will result in revenue, and they can be reliably measured.

A variation is included in contract revenue when:(a) it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and (b) the amounts of revenue can be reliably measured.

Claims are included in contract revenue only when:(a) negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and (b) the amount that it is probable will be accepted by the customer can be measured reliably.

Incentive payments are included in contract revenue when:(a) the contract is sufficiently advanced that it is probable that the specified performance standards will be met or exceeded; and (b) the amount of the incentive payment can be measured reliably.

The company uses the ‘percentage of completion method’ to determine the appropriate amount to recognise in a given period. The stage of completion ismeasured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract. Costs incurred inthe year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented asinventories, prepayments or other assets, depending on their nature.

Contract work in progressWork in progress on long term contracts is calculated at cost plus attributable profit, to the extent that this is reasonably certain after making provision forcontingencies, less any losses foreseen in bringing contracts to completion and less amounts received and receivable as progress payments. These aredisclosed as 'Due from customers on contracts'. Cost for this purpose includes direct labour, direct expenses and an appropriate allocation of overheads.For any contracts where receipts plus receivables exceed the book value of work done, the excess is included as ' Due to customers on contracts' inaccounts payable and accruals.

Sales and service income

Revenue from sales of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount ofrevenue can be measured reliably.

Revenue from rendering of services is recognised when the outcome of the transaction can be estimated reliably, by reference to the stage of completionof the transaction at the reporting date.

Contract costs

Contract costs include costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocated tothe contract. Costs that relate directly to a specific contract comprise: site labour costs (including site supervision); costs of materials used in construction;depreciation of equipment used on the contract; costs of design, and technical assistance that is directly related to the contract.

The Group’s contracts are typically negotiated for the construction of a single asset or a group of assets which are closely interrelated or interdependent interms of their design, technology and function. In certain circumstances, the percentage of completion method is applied to the separately identifiablecomponents of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.

Contract costs are recognised as expenses in the period in which they are incurred.




Interest income

Interest income and expense are accounted for on an accrual basis using the effective interest rate method.

Dividend income

Dividend income is recognised when the right to receive the dividend is established.

Directors’ remuneration

The Parent Company follows the Commercial Companies Law 1974 (as amended), and other latest relevant directives issued by CMA, in regard todetermination of the amount to be paid as Directors’ remuneration. Directors’ remuneration is charged to the statement of comprehensive income in thesucceeding year to which they relate after its approval in AGM.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, netof tax, from the proceeds.

Where any group company purchases the company’s equity share capital (treasury shares), the consideration paid, including any directly attributableincremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued.Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and therelated income tax effects, is included in equity attributable to the company’s equity holders.

Foreign currency translation

Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using thatfunctional currency. Items included in the financial statements of the company are measured and presented in Rials Omani being the currency of theprimary economic environment in which the parent company operates.

Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to thestatement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using theexchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined. The results of the translations in foreign currency investments of foreign subsidiaries andassociates are disclosed under other comprehensive income.

Segment reporting

A segment is a distinguishable component of the group that is engaged in providing products or services (business segment) or in providing products orservices within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of othersegments. The segment information is set out in note 35.


3. Property, plant and equipment - Parent Company Amount in RO '000s

Particulars Land Building & Camps

Plant & Machinery

Motor Vehicles & Equipment

Furniture & Office

Equipment

Project Equipment

& Tools

Capital Work-in- Progress Total

CostsAt 1 January 2013 1,278 25,596 114,450 69,955 13,772 13,818 5,063 243,932 Additions - 849 15,832 7,941 952 1,254 2,089 28,917 Disposals - (193) (2,588) (2,897) (140) (17) - (5,835) Transfers - 7,152 - - - - (7,152) -

At 1 January 2014 1,278 33,404 127,694 74,999 14,584 15,055 - 267,014 Additions - 772 2,076 1,508 401 252 16 5,025 Disposals/written off - (2,040) (8,055) (6,525) (5,443) (6,888) - (28,951) Transfers to intangible assets - 212 315 - (1,386) 670 - (189) At 31 December 2014 1,278 32,348 122,030 69,982 8,156 9,089 16 242,899

DepreciationAt 1 January 2013 - 18,493 59,033 38,728 11,828 10,100 - 138,182 Charge for the year - 1,341 11,584 7,256 864 1,404 - 22,449 Disposals - (193) (1,674) (2,133) (4) (17) - (4,021)

At 1 January 2014 - 19,641 68,943 43,851 12,688 11,487 - 156,610 Charge for the year - 1,606 11,484 6,870 664 1,170 - 21,794 Disposals/written off - (2,018) (6,983) (5,896) (5,426) (6,886) - (27,209) Transfers to intangible assets - 171 298 - (1,323) 667 (187) At 31 December 2014 - 19,400 73,742 44,825 6,603 6,438 - 151,008

Net book amountAt 31 December 2014 1,278 12,948 48,288 25,157 1,553 2,651 16 91,891

At 31 December, 2013 1,278 13,763 58,751 31,148 1,896 3,568 - 110,404


3. Property, plant and equipment - Consolidated Amount in RO '000s

Description Land Building & Camps

Plant & Machinery

Motor Vehicles & Equipment

Furniture & Office

Equipment

Project Equipment

& Tools

Capital Work-in- Progress Total

CostsAt 1 January 2013 1,278 25,759 124,540 74,221 14,071 13,932 5,555 259,356 Additions - 853 17,614 8,683 1,083 1,298 1,838 31,369 Disposals - (193) (3,164) (2,742) (126) (42) (16) (6,283) Transfers - 7,152 - - - - (7,152) -

At 1 January 2014 1,278 33,571 138,990 80,162 15,028 15,188 225 284,442 Additions - 774 4,744 3,241 455 336 158 9,708 Disposals/written off - (2,040) (8,055) (6,651) (5,466) (6,888) - (29,100) Transfers to intangible assets - 212 333 - (1,404) 670 - (189)

At 31 December 2014 1,278 32,517 136,012 76,752 8,613 9,306 383 264,861

DepreciationAt 1 January 2013 - 18,525 63,360 40,391 11,962 10,108 - 144,346 Charge for the year - 1,357 12,495 7,715 899 1,414 - 23,880 Disposals - (193) (1,784) (2,132) (2) (20) - (4,131)

At 1 January 2014 - 19,689 74,071 45,974 12,859 11,502 - 164,095 Charge for the period - 1,617 12,678 7,393 693 1,190 - 23,571 Disposals/written off - (2,018) (6,988) (5,984) (5,427) (6,886) - (27,303) Transfers to intangible assets - 171 309 - (1,334) 667 - (187)

At 31 December 2014 - 19,459 80,070 47,383 6,791 6,473 - 160,176

Net book amount

At 31 December 2014 1,278 13,058 55,942 29,369 1,822 2,833 383 104,685

At 31 December, 2013 1,278 13,882 64,919 34,188 2,169 3,686 225 120,347

Galfar Engineering & Contracting SAOG & SubsidiariesNotes to Consolidated Financial StatementsAs at 31st December, 2014 Amount in RO '000s

2014 2013 2014 2013

3. Property, plant and equipment (continued)

Depreciation of property, plant and equipment is allocated as follows:Contract costs (note 27) 20,402 21,524 22,149 22,916

General and administrative expenses (note 28) 1,392 925 1,422 964

21,794 22,449 23,571 23,880

4. Intangible assetsCostsBalance at beginning of the year 2,693 2,558 2,713 2,566Addition for the year 15 135 18,099 147Written off (208) - (208) - Transfer from property,plant and equipment 189 - 189 - Balance at end of the year 2,689 2,693 20,793 2,713

AmortisationBalance at beginning of the year 1,179 774 1,180 774Charge for the year 400 405 409 406Written off (208) - (208) - Transfer from property, plant and equipment 187 - 187 - Balance at end of the year 1,558 1,179 1,568 1,180

Net book value at end of the year 1,131 1,514 19,225 1,533

The intangible assets of the parent company comprise of the computer soft ware.The intangible assets of the group comprise of the computer soft ware and concessionaire rights under development as follows:

2014 2013 2014 2013CostsBalance at beginning of the year 2,713 2,566 - -Addition for the year (Refer note 5(1)) 50 147 18,049 -Written off (208) - - -Transfers 189 - - -Balance at end of the period 2,744 2,713 18,049 -

AmortisationBalance at beginning of the year 1,180 774 - -Charge for the year 409 406 - -Written off (208) - - -Transfers 187 - - -Balance at end of the period 1,568 1,180 - -Net book value at end of the period 1,176 1,533 18,049 -

5. Investment in subsidiariesGalfar Engineering & Contracting India Pvt. Ltd. 1,595 8 - - Salasar Highways Pvt. Ltd. (i) 1,276 307 - - Al Khalij Heavy Equipment & Engineering LLC 600 600 - - Kashipur Sitarganj Highways Pvt. Ltd. (KSHPL) (i) 307 307 - - Aspire Projects & Services LLC 200 200 - - Galfar Mott MacDonald LLC 163 163 - - Galfar Training Institute LLC 149 149 - - Galfar Aspire Readymix LLC 148 148 - - Galfar Wasen Contracting Company 58 58 - -

4,496 1,940 - - Information of subsidiary companies is summarised below:

Al Khalij Heavy Equipment & Engineering LLC 52% 52% 52% 52%Galfar Training Institute LLC 99% 99% 100% 100%Galfar Engineering & Contracting India Pvt. Ltd. 100% 100% 100% 100%Aspire Projects & Services LLC 100% 100% 100% 100%Galfar Aspire Readymix LLC (ii) 99% 99% 100% 100%Salasar Highways Pvt. Ltd. (i) 24% 98% 100% 100%Kashipur Sitarganj Highways Pvt. Ltd. (i) 9% 98% 100% 100%Galfar Mott MacDonald LLC 65% 65% 65% 65%Galfar Wasen Contracting Company 65% 65% 65% 65%

Consolidated

Capital work-in-progress represents machinery under installation in parent company and building under construction in a subsidiary company.

Land and buildings with a net book value of RO 11,674 (2013: RO 12,215) thousands have been mortgaged in favour of banks, against termloan obtained by the company.Vehicles and equipment also have been jointly registered with banks/finance companies for insured value ofRO 121,958 (2013: RO 82,457)thousands to obtain term loan (note 18).

Parent Company

Computer soft ware Concessionaire rights under development

Shares held by parent company

Shares held by group


2014 2013 2014 2013 Consolidated Parent Company

5. Investment in subsidiaries (continued)Principal activity

Galfar Engineering & Contracting India Pvt. Ltd. Construction India 2009Salasar Highways Pvt. Ltd. (i) Concessionaire India 2013Al Khalij Heavy Equipment & Engineering LLC Hiring equipment Oman 2006Kashipur Sitarganj Highways Pvt. Ltd. (KSHPL) (i) Concessionaire India 2013Aspire Projects & Services LLC Construction Oman 2011Galfar Mott MacDonald LLC EPC consultancy Oman 2013Galfar Training Institute LLC Training Oman 2009Galfar Aspire Readymix LLC (ii) Manufacturing Oman 2012Galfar Wasen Contracting Company Construction Libya 2010

6. Investment in associatesGalfar Engineering & Contracting Kuwait KSC (GEC) (i) 5,323 5,323 2,590 3,229 Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 2,255 2,255 (710) (406) Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 739 739 1,427 1,608 Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 344 344 2,010 1,983 International Water Treatment LLC (IWT) (iii) 45 45 (456) 30

8,706 8,706 4,861 6,444

Information of associate companies is summarised below:

Galfar Engineering & Contracting Kuwait KSC (i) 26% 26% 26% 26%Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 26% 26% 26% 26%Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 6% 6% 26% 26%Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 2% 2% 26% 26%International Water Treatment LLC (iii) 30% 30% 30% 30%

Galfar Engineering & Contracting Kuwait KSC (i) Construction Kuwait 2010Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) Concessionaire India 2010Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) Concessionaire India 2011Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) Concessionaire India 2011International Water Treatment LLC (IWT) (iii) Construction Oman 2013

(ii) During the year, Galfar Aspire Redimix LLC where the parent company owns 99% of the issued share capital, has issued additional sharesamounting to 100 thousands by capitalising the retained earnings. No adjustments have been made in the parent company financialstatements in line with the parent company’s accounting policy to carry the investments in subsidiaries at cost less impairment.

Shares acquired by parent company

Shares acquired by group

(iii) The parent company has acquired 30% share of this company during the year 2013. The company is incorporated in partnership with VATech Wabag Ltd. of India and Cadagua SA of Spain with 32.5% and 37.5% shareholding respectively. This company has been awarded 'AlGhubrah Independent Water Desalination Project', which is being executed by the parent company as one of the sub-contractors.

(i) The parent company holds 26% shareholding in this company (earlier known as 'Shaheen Al Ghanim Contracting Co. KSC'). Thecompany is engaged in construction activities.

(ii) The group holds 26% shareholding in these companies incorporated in India to handle DBFOT road projects. The MTPL has commencedcommercial activities in year 2011 while SJEPL and GAEPL projects are still under construction.

Principal activity

Place of incorporation

Year of incorporation

Place of incorporation

(i) Salasar Highways Pvt. Ltd. and Kashipur Sitarganj Highways Pvt. Ltd., the two companies are incorporated in India as concessionaire tohandle DBFOT road projects 'Fatehpur-Salasar highway' and 'Kashipur-Sitarganj highway' with total project costs at equivalent RO 37,750 andRO 42,500 thousands respectively. The projects are awarded to the parent company in November, 2012 and to be executed by the subsidiarycompany Galfar Engineering and Contracting India Pvt. Ltd. (GECIPL). The investment made by the parent company and GECIPL is RO1,583 thousands and RO 7,046 thousands respectively in each company, which is part of the total investment of equivalent RO 6,318 and RO6,929 thousands respectively. The shareholding of the parent company is reduced in both subsidiaries as investment during the year made byGECIPL. The construction of both the project's are under progress and expected to be completed in August, 2016. Also refer note (4).

Year of incorporation



6. Investment in associates (continued)

The following table illustrates summarised information of the group’s investment in its associates:

Share of associates statement of financial position:Current assets 10,124 10,667 Non-current assets 54,543 42,097 Current liabilities (12,139) (12,513)

Non-current liabilities (47,667) (33,807) Net assets and carrying amount of the investment 4,861 6,444

Share of associates statement of income:Revenue 18,635 10,708 Costs of revenue 20,001 12,326 Loss for the period (1,366) (1,618)

7. InventoriesMaterials and consumables 22,916 36,020 24,190 36,965 Less: allowance for non-moving inventories (1,785) (451) (1,811) (477)

21,131 35,569 22,379 36,488

Movement for the provision for inventories is as follows;At the beginning of the year 451 325 477 351 Charged for the year 1,334 126 1,334 126 At the end of the year 1,785 451 1,811 477

8. Due from/(to) customers on contracts

67,557 53,582 68,743 54,737

1,470 3,692 7,713 6,169

Due from customers on construction contracts:Revenue recognised at cost plus attributable profit 1,162,655 1,029,690 1,166,071 1,040,558 Less: Progress claims received and receivable (1,095,098) (976,108) (1,097,328) (985,821)

67,557 53,582 68,743 54,737

Due to customers on construction contracts:Progress claims received and receivable 154,627 307,709 181,117 323,319 Less: Revenue recognised at cost plus attributable profit (153,157) (304,017) (173,404) (317,150)

1,470 3,692 7,713 6,169

9. Contract and trade receivablesContract billed receivables 182,382 172,119 190,647 172,871 Trade receivables 1,491 1,089 5,951 3,713 Retention receivables - current 29,289 28,261 29,372 28,783 Provision for impaired debts - - (43) (39)

213,162 201,469 225,927 205,328 Retentions receivables

Non-current portion 30,816 32,246 30,896 32,246

Loss for the period comprises of loss from GEC, Kuwait RO 584 ( 2013 - RO 1,068) thousands, MTPL, India RO 296 ( 2013 -RO 535) thousands and IWT, Oman RO 486 ( 2013 - RO 15) thousands.

Work-in-progress on long term contracts at cost plus attributable profit considered as receivablesTo customers under construction contracts recorded as billings in excess of work done (note 23)



10. Advances, prepayment and other receivablesAdvance on sub-contracts and supplies 5,316 3,947 6,468 4,559 Advances to employees 452 1,078 458 1,078 Prepaid expenses 4,139 4,411 4,247 4,526 Due from related parties (note 33) 11,024 9,414 7,570 7,827 Insurance claims receivable 606 235 606 235 Income tax receivables - - 2,418 2,045 Deposits 510 496 544 522 Other receivables 47 267 155 289 Provision for impaired advances - - (934) (274)

22,094 19,848 21,532 20,807

11. Deposits with bankShort term deposits 1,293 11,551 1,293 11,551 Margin deposits - - 31 40

1,293 11,551 1,324 11,591

12. Cash and bank balancesCash in hand 204 271 223 300 Bank balances with current accounts 531 3,898 2,345 5,792

735 4,169 2,568 6,092

13. Share capitalAuthorised:

50,000 50,000 50,000 50,000 Issued and fully paid:Balance at beginning of the year 37,747 33,000 37,747 33,000 Proceeds from 47,468,761 shares issued during the year - 4,747 - 4,747 Balance at end of the period 37,747 37,747 37,747 37,747

The term deposits carry interest rates of 1.0% to 2.0% (2013 - 1% to 2%) per annum and are kept for a period three to twelve months fromdate of placement.

At the reporting date, the issued and fully paid share capital comprises of 377,468,761 (2013: 377,468,761) shares having a par value of RO0.100 (2013: RO 0.100) each. Pursuant to the terms of its IPO, as detailed below, the share capital of the Company has been divided into twoclasses comprising of 263,618,761 (2013: 263,618,761) ordinary shares and 113,850,000 (2013: 113,850,000) preferential votingrights shares. The preferential voting rights shares are held by the promoting shareholders and carry two votes at all general meetings whileotherwise ranking pari-passu with ordinary shares in all rights including the dividend receipt.

500,000,000 (2013: 500,000,000) ordinary shares of parvalue RO 0.100 (2013: RO 0.100) each



14. Share premium

15. Statutory reserve

16. Foreign currency translation reserve

17. Dividend

18. Term loansTerm loans: - from banks 89,665 64,281 94,449 64,281 - finance companies 10,917 12,494 12,121 13,549

100,582 76,775 106,570 77,830 Current portion - from banks 28,108 26,179 28,342 26,179 - finance companies 4,272 4,446 4,640 4,937

32,380 30,625 32,982 31,116 Non-current portion - from banks 61,557 38,102 66,107 38,102 - finance companies 6,645 8,048 7,481 8,612

68,202 46,150 73,588 46,714

The term loans are repayable as follows:Within one year 32,380 30,625 32,982 31,116 In the second year 27,002 18,536 27,589 18,856 In the third year onwards 41,200 27,614 45,999 27,858

100,582 76,775 106,570 77,830

During the year the company has not issued any right shares to the shareholders.

As required by the Commercial Companies Law of Oman, the statutory reserve is to be maintained at least one third of the issued sharecapital.

Foreign currency translation reserve represents impact of translation of subsidiaries and associates financial statement figures in foreigncurrency to functional currency of the parent company as allowed under IAS 21.

For the previous year 2013, a cash dividend of RO 0.010 per ordinary shares totaling RO 3,775 thousands proposed by the Board of Directorswas approved at Annual General Meeting of the company held on 26th March, 2014 and subsequently credited to shareholders' accountduring the year.

For the year 2014, a stock dividend of 10% totalling to 37,747 thousands shares of RO 0.100 each has been proposed out of share premiumin the Board meeting on 7 March, 2015 to be approved at Annual General Meeting of the parent company to be held on 25 March, 2015.

The long term loans are stated at the proceeds received net of repayments and amounts repayable within next twelve months have beenshown as a current liability. The term loans from banks are secured against the contract assignments and/or joint registration ofvehicle/equipment. The term loans from finance companies are secured against the jointly registered vehicle/equipment. Also refer note 3 forland and buildings mortgaged in favour of a comemcial bank against term loan obtained by the company.

However during the last year, the company has has issued 47,468,761 right shares to shareholders at RO 0.280 with a nominal value of RO0.100 and a share premium of RO - RO 0.180. An amount of RO 13,196 thousands were collected comprising nominal value RO 4,747thousands and share premium of RO 8,449 thousands. An amount of RO1,582 thousands during the last year were transferred to statutoryreserve account from Share premium.

This reserve is available for distribution to the members.



18. Term loans (continued)The interest rates on term loans were as follows:

Floating rate loans LIBOR + 2.0% LIBOR + 2.0%Fixed interest rate loans 4.25% to 7.0% 4.5% to 7.0%

19. Short term loans - from banks 28,000 35,400 33,027 35,400

20. Bank borrowings Bank overdrafts 6,950 10,093 7,762 12,628 Loan against trust receipts 48,491 77,620 48,491 77,620 Bills discounted 7,250 - 7,250 -

62,691 87,713 63,503 90,248

21. Trade payablesSundry creditors 46,318 58,619 55,256 62,416 Provision for purchases and sub-contracts 31,189 33,059 31,788 33,755

77,507 91,678 87,044 96,171

22. Employees’ end of service benefitsBalance at beginning of the year 10,919 8,658 11,067 8,788 Charge for the year 2,084 2,619 2,213 2,724 Paid during the year (1,937) (358) (2,027) (445) Balance at end of the year 11,066 10,919 11,253 11,067

23. Other payables and provisionsAdvances from customers - current 32,776 28,453 35,798 28,481 Accrued expenses 9,926 9,564 13,021 9,789 Provision for employees’ leave pay and passage 6,637 6,957 6,664 7,007 Retention on sub-contracts 2,006 1,941 2,200 2,013 Due to related parties (note 33) 1,980 1,830 2,422 2,218 Creditors for capital purchases -current portion 1,034 1,993 1,139 1,995 Due to customers on contracts (note 8) 1,470 3,692 7,713 6,169 Other payables 891 903 1,202 1,647

56,720 55,333 70,159 59,319 Advance payables

Non-current portion 16,146 9,450 17,744 9,450

Current period Previous period

Bank short term loans are repayable in one year and are secured against the contract assignments and/or joint registration ofvehicle/equipment. The interest rates on these loans vary between 4.0% to 4.75% (2013: 4.0% to 5.0%) per annum.

Advances from customers which can be adjusted against the estimated amounts to be billed in next 12 months are considered as current advances.

Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary between 4.0% to 5.5% (2013: 4.0%to 7%) per annum. Bank borrowings are secured against the contract assignments and/or joint registration of vehicle/equipment.



24. Taxation

Income tax expenseCurrent tax charge for current year 1,045 1,240 1,397 2,284 Deferred tax credit for current year (860) (221) (670) (28) Current tax credit for prior years - - (4) (31) Deferred tax charge for prior years - - 3 31

185 1,019 726 2,256

Profit before tax 1,394 7,910 923 9,840 Tax on accounting profit 164 946 494 2,120 Tax effect on non admissible expenditure and adjustments 21 73 232 136

185 1,019 726 2,256

Provision for tax

Balance at beginning of the year 1,177 1,482 2,787 2,003 Charge during the period 1,045 1,240 1,397 2,253 Tax paid during the year (1,049) (1,545) (331) (1,469) Balance at end of the year 1,173 1,177 3,853 2,787

Deferred tax liability

Balance at beginning of the year 6,899 7,120 7,305 7,302 (Credit) /charge during the year (860) (221) (667) 3 Balance at end of the year 6,039 6,899 6,638 7,305

Deferred tax liability:Property, plant and equipment:

Balance at beginning of the year 6,953 7,159 7,314 7,296 (Release)/charged to income statement (700) (206) (507) 18 Balance at end of the year 6,253 6,953 6,807 7,314

Deferred tax asset:Trade receivables and inventories:

Balance at beginning of the year (54) (39) (9) 6 Release to income statement (160) (15) (160) (15) Balance at end of the year (214) (54) (169) (9)

Net deferred tax liability 6,039 6,899 6,638 7,305

Income tax is provided for parent company and Omani subsidiaries as per the provisions of the 'Law of Income Tax on Companies' in Oman@ 12% of taxable profit after adjusting non-assessable and disallowable items and statutory exemption of RO 30,000. It is provided for Indiansubsidiary as per 'Income tax Act' in India @ 33% of taxable profit after adjusting non-admissible expenses and depreciation difference.

The reconciliation between tax on accounting profit and tax profit is as follows:

The parent company income tax assessment up to the year 2008 has been finalised by the taxation department. During the year 2014, parentcompany income tax assessment for the years 2008 has been completed and the resulted additional tax liability was immaterial. The incomeassessments of the subsidiaries are at various stages of completion. The management believes that any taxation for the unassessed yearswill not be material to the financial position of the Group as at the reporting date. The status of tax provision is as follows:

Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rate as per taxlaw of the respective country.

The net deferred tax liability and deferred tax charge/(release)in the comprehensive income statement are attributable to following items:



25. Sales and services incomeSales and services 2,024 1,407 12,014 5,244 Hiring services 958 690 2,738 2,507 Training services - - 476 934

2,982 2,097 15,228 8,685

26. Other incomeGain on sale of property,plant and equipment 1,549 437 1,555 453 Dividend income 38 - - - Miscellaneous income 1,425 1,197 1,484 1,391

3,012 1,634 3,039 1,844

27. Contract and other direct costsMaterials 111,600 121,814 115,733 122,984 Manpower costs (note 29) 99,187 105,624 103,031 109,233 Sub-contracting costs 53,527 54,196 52,951 55,290 Depreciation (note 3) 20,402 21,524 22,149 22,916 Plant and equipment repair and maintenance 18,180 20,529 19,518 21,911 General and administrative expenses (note 28) 14,375 15,982 14,973 16,580 Fuel expenses 13,868 17,576 15,536 19,457 Plant and equipment hiring costs 4,326 10,272 5,070 11,306 Training expenses - - 368 272 Duties and taxes - - 741 308

335,465 367,517 350,070 380,257

28. General and administrative expensesManpower costs (note 29) 5,035 5,490 6,139 6,171 Rent 4,357 5,042 4,640 5,266 Insurance charges 3,740 3,660 3,959 3,848 Electricity and water charges 3,250 3,293 3,364 3,440 Bank guarantee and other charges 2,045 1,973 2,123 1,984 Depreciation and amortisation (note 3 and 4) 1,792 1,330 1,831 1,370 Communication expenses 1,105 1,118 1,187 1,178 Professional and legal charges 1,079 2,205 1,314 2,297 Repairs and maintenance -others 679 695 695 743 Traveling expenses 400 611 474 686 Printing and stationery 386 410 415 436 Business promotion 274 846 287 964 Directors expenses 200 204 200 204 Tender fees 153 165 161 169 Miscellaneous expenses 237 344 343 470 Debts and advances impaired - - 660 313

24,732 27,386 27,792 29,539 Pertaining to contract and other direct costs (note 27) 14,375 15,982 14,973 16,580

10,357 11,404 12,819 12,959



29. Manpower costsSalary and wages 73,731 79,494 76,891 82,696 Employees service benefits 12,144 12,992 12,600 13,368 Camp and catering expenses 12,049 10,921 12,606 11,328 Hired salary and wages 2,996 2,435 3,413 2,632 Staff incentives - 2,804 234 2,896 Other expenses 3,302 2,468 3,426 2,484

104,222 111,114 109,170 115,404 Pertaining to cost of contract and sales (note 27) 99,187 105,624 103,031 109,233 Pertaining to general and administration expenses (note 28) 5,035 5,490 6,139 6,171

30. Financing costs, netInterest expense 9,853 9,385 10,481 9,897 Interest income (98) (307) (110) (319)

9,755 9,078 10,371 9,578

31. Earnings per share

Profit for the year 1,209 6,891 197 7,584 Weighted average number of shares in '000 (note 13) 377,470 377,470 377,470 377,470 Basic earnings per share (RO) 0.003 0.018 - 0.020

32. Net assets per share

Net assets 103,213 105,779 101,514 105,195

377,470 377,470 377,470 377,470

Net assets per share (RO) 0.273 0.280 0.269 0.279

33. Related party transactions

Contract income 2,835 1,124 18,457 14,595 Sales and services 2,001 1,975 2,009 1,985 Sale of property, plant and equipment 617 719 617 719 Purchase of property, plant and equipment 169 312 169 312 Purchase of goods and services 16,949 18,950 16,949 19,016 Director's remuneration 200 200 200 200

The diluted earnings per share is identical to the basic earnings per share as there are no potential dilutive shares at the reporting date.

The basic earnings per share is calculated by dividing the profit for the period attributable to the shareholders of the parent company by theweighted average number of shares outstanding during the year as follows:

The following is a summary of significant transactions with related parties which are included in the financial statements:

Related parties comprise the directors and business entities in which they have the ability to control or exercise significant influence infinancial and operating decisions.

The group maintains significant balances with these related parties which arise in the normal course of business from commercialtransactions, and are entered into at terms and conditions which the management consider to be comparable with those adopted for arm’slength transactions with third parties.

Net assets per share is calculated by dividing the equity attributable to shareholders of the parent company at the reporting date by thenumber of shares outstanding as follows:

Number of shares outstanding at the year end in '000 (note13)



33. Related party transactions (continued)

Due from shareholders 171 150 171 150 Due from subsidiary and associate companies 8,254 6,890 4,799 5,303 Due from other related parties 2,599 2,374 2,600 2,374

11,024 9,414 7,570 7,827

Due to shareholders 156 168 156 168 Due to subsidiary and associate companies 322 195 764 582 Due to other related parties 1,502 1,467 1,502 1,468

1,980 1,830 2,422 2,218

The remuneration of the members of key management during the year was as follows:

Short term benefits 505 613 997 1,036 Post employment benefits 30 29 30 29

535 642 1,027 1,065

34. Commitments and contingenciesBonds and guarantees 167,018 167,927 167,483 171,882 Corporate guarantees 27,021 20,383 75,396 68,758 Letter of credit 25,727 37,950 25,727 26,822 Forex forward contracts 10,895 - 10,895 - Capital commitments 260 1,478 260 1,701

230,921 227,738 279,761 269,163

Legal cases

Penalties

Balances of related parties recognised and disclosed in notes 10 and 23 respectively are as follows:

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of theGroup, directly or indirectly, including any director (whether executive or otherwise).

The parent company has provided corporate guarantees for subsidiaries and associates amounting to RO 8,334 (2013: RO 1,696)thousands and RO 18,687 (2013: RO 18,687) thousands respectively. The parent company does not anticipate any material liability to arisefrom these guarantees.

The parent company has provided support sponsor's undertakings for any shortfall in project funding and toll collection of all concessionairecompanies (MTPL, SJEPL, GAEPL, KSHPL and SHPL) for DBFOT road projects in India, on joint and several basis.The contingent liability forthe same is not determinable.

The parent company and its subsidiaries, in common with the significant majority of contractors, is subject to litigation in the normal course ofits business. The parent company and its subsidiaries, based on independent legal advice, does not believe that the outcome of these courtcases will have a material impact on the group’s income or financial condition.

Penalties amounting to RO 9,203 (2013: RO 9,203) thousands have been levied on the parent company. The penalties are countered by theextension of time and other claims from the parent company. The cases are under various stages of negotiations /arbitrations and expectedto be settled during the current year. Accordingly management believes that no liability is expected to ultimately arise and therefore noprovision for any financial effect that may arise has been included in these financial statements.


Notes to Consolidated Financial StatementsFor the year ended 31st December, 2014

35. Business segments

The financial results, assets and liabilities of business segments are as follows:Amount in RO '000s

December 2014

December 2013

December 2014

December 2013

December 2014

December 2013

December 2014

December 2013

December 2014

December 2013

December 2014

December 2013

Segment revenue and expenses

Segment revenue 371,742 409,322 17,381 15,474 1,814 1,858 476 934 (18,903) (15,180) 372,510 412,408

Segment expenses 370,192 400,313 16,327 14,391 1,753 1,751 602 929 (16,560) (12,560) 372,313 404,824

Segment results 1,550 9,009 1,054 1,083 61 107 (126) 5 (2,343) (2,620) 197 7,584

Segment assets and liabilities

Segment assets 514,568 496,539 6,387 4,641 2,893 3,138 133 178 (21,696) (8,738) 502,285 495,758

Segment liabilities 394,736 385,064 3,879 3,184 1,021 1,254 155 75 - - 399,791 389,577

The Group operates in two geographical segments, Sultanate of Oman and India.

Segmental information is presented in respect of the Group’s business segments. Business segment is based on the Group’s management and internal reporting structure. Segment results, assets andliabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The group business is divided in four segments - construction, manufacturing, hiring of equipment and training of personnel. The principal activities of the group are road, bridge and airport construction,oil and gas including EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts. The other activities are hiring out of cranes, equipment andother vehicles and training of drivers, operators, manufacturing of readymix concrete and others.

Construction Manufacturing Hiring Training Inter segments Consolidated


Notes to Consolidated Financial StatementsAs at 31st December, 2014 Amount in RO '000s

36. Financial instruments and related risk management

Market risk

Interest rate risk

Foreign currency risk

Commodity price risk

Equity price risk

Credit risk

The Group’s principal financial liabilities other than derivatives, comprise loans and borrowings, trade and other payables. The main purposeof these financial liabilities is to raise finances for the Group’s operations. The Group has loans and other receivables, trade and otherreceivables, and cash and short-term deposits that arrive directly from its operations. The Group also holds available-for-sale investments.

The Group’s activities expose it to various financial risks, primarily being, market risk (including currency risk, interest rate risk, and pricerisk), credit risk and liquidity risk. The Group’s risk management is carried out internally in accordance with the policies approved by theBoard of Directors.

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.Market prices comprise three types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity risk.Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments, and derivative financialinstruments

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in marketinterest rates.

The Group is exposed to interest rate risk on its interest bearing assets and liabilities (short term bank deposits, held to maturity investments,bank borrowings and term loans). The management manages the interest rate risk by constantly monitoring the changes in interest ratesand availing lower interest bearing facilities.

As at the reporting date, had the interest rate were to move up or down by 1%, the impact on the parent and consolidated income statementwould have been RO 2,004 thousands (2013 - RO 1,618 thousands) and RO 2,134 thousands (2013 -RO 1,677 thousands) respectively.

However, the management has set up a policy to require the Company to manage its foreign exchange risk against their functional currency.The Company is required to hedge its foreign exchange risk exposure as needed. To manage its foreign exchange risk arising from futurecommercial transactions and recognised assets and liabilities, the Company uses forward contracts. These contracts are not howeverdesignated as hedges under IAS 39 and are consequently initially recognised at cost and subsequently re-measured to their fair value ateach reporting date. Material changes in the fair value of foreign currency forward contracts are recorded in the statement of comprehensiveincome account as they arise. At 31 December 2014, with all the other variables held constant, management believes that there would be nosignificant impact on the post tax profits due to fluctuations in these currencies.

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreignexchange rates. The Group operates in international markets and is exposed to foreign exchange risk arising from various currencyexposures, primarily with respect to the US dollar, Euros, Pound sterling and all GCC currencies.

The majority of the Group’s financial assets and financial liabilities are either denominated in local currency (Rials Omani) or currency fixedagainst Rials Omani. Term loan is due in US Dollars. As the Omani Rial is pegged to the US Dollar, balances in US Dollars are notconsidered to represent significant currency risk, hence the management believes that there would not be a material impact on theprofitability if these foreign currencies weakens or strengthens against the Omani Rials with all other variables held constant.

The Group is affected by the volatility of certain commodities. Due to the significantly increased volatility of the price of the underlying, theGroup’s Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation.

The Group do not hold any quoted investment.

Credit risk primarily arises from credit exposures to customers, including outstanding receivables and committed transactions. The Grouphas a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customersrequiring credit over a certain amount. The Group seeks to limit its credit risk with respect to banks by only dealing with reputable banks andwith respect to customers by setting credit limits for individual customers and monitoring outstanding receivables.



36. Financial instruments and related risk management (continued)

Capital management

Exposure to credit risk

2014 2013 2014 2013

Contract and trade receivables 251,430 226,790 265,341 231,321 Retention receivables 60,105 60,507 60,268 61,029 Advances, prepayments and other receivables 22,094 19,848 21,532 20,807 Deposits with banks 1,293 11,551 1,324 11,591 Cash and bank balances 735 4,169 2,568 6,092

335,657 322,865 351,033 330,840

Government customers 179,504 163,028 180,273 164,168 Petroleum Development Oman 51,178 48,534 51,178 48,534 Other private customers 20,748 15,228 33,890 18,619

251,430 226,790 265,341 231,321

The age of trade receivables at the reporting date was:

Not past due 129,844 101,488 141,247 103,695 Past due 0- 180 days 33,311 57,706 34,702 59,269 Past due 181 - 365 days 25,048 12,731 25,771 13,306 More than 365 days 63,227 54,865 63,621 55,051

251,430 226,790 265,341 231,321 Impairment - - (43) 39

The credit quality of the cash at bank and deposits with bank are as follows:RatingP - 1 1,420 5,851 2,188 6,947 P - 2 226 1,658 1,119 1,733 P - 3 - - 184 740 Not rated 178 7,940 178 7,963

1,824 15,449 3,669 17,383

The exposure to credit risk for contract billed receivables, trade receivables and work in progress at the reporting date by type of customer was:

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and benefit other stakeholders. The management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustainfuture development of the business.

There has been no change in the group’s objectives, policies or process during the year ended 31 December 2014 and 31 December 2013.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reportingdate was:


The group has established credit policies and procedures that are considered appropriate for the parent company and its subsidiaries. TheCompany’s business is conducted mainly by participating in tenders / bids. On acceptance of a tender / bid it enters into a detailed contractwith the customer. This contract specifies the payment and performance terms as well as the credit terms. Also refer to note 38 keysources of estimation of uncertainty for the impairment of the trade receivables.



36. Financial instruments and related risk management (continued)

Liquidity riskThe following are the financial liabilities including interest payments:

2014 2013 2014 2013

Term loans 100,582 76,775 106,570 77,830 Short term loans 28,000 35,400 33,027 35,400 Bank borrowings 62,691 87,713 63,503 90,248 Trade and other payables 161,439 167,380 186,200 166,557

352,712 367,268 389,300 370,035

The contractual maturities of above financial liabilities were:Term Loans:Upto 90 days 6,170 5,512 7,209 5,676 91 - 180 days 8,972 5,425 10,012 5,571 181 - 365 days 17,238 19,688 15,761 19,869 More than 365 days 68,202 46,150 73,588 46,714

100,582 76,775 106,570 77,830

Short term loans:Upto 90 days 23,000 22,900 23,000 22,900 91 - 180 days 5,000 12,500 5,000 12,500 181 - 365 days - - 5,027 -

28,000 35,400 33,027 35,400

Bank Borrowings:Upto 90 days 51,049 62,711 51,861 65,246 91 - 180 days 11,642 25,002 11,642 25,002

62,691 87,713 63,503 90,248

Trade and other payables:Upto 90 days 98,550 123,604 115,698 111,485 91 - 180 days 18,403 21,455 21,774 23,076 181 - 365 days 17,274 1,952 19,731 11,479 More than 365 days 27,212 20,369 28,997 20,517

161,439 167,380 186,200 166,557

Interest rate risk

Consolidated

The Group’s exposure to interest rate risk relates to its bank deposits, borrowings, and term loans.

Term loans of RO 104,068 (2013: RO 75,329) thousands are recognized at fixed interest rates and expose the Group to the fair valueinterest rate risk. The remaining term loans of RO 2,502 (2013: RO 2,502) thousands are recognized at floating rates thus exposing theGroup to cash flow interest rate risk.

The company’s short term bank deposits carry fixed rates of interest and therefore are not exposed to interest rate risk.

Parent Company



37. Fair values of financial instruments

Fair values

Financial assets

2014 2013 2014 2013

Contract and trade receivables 251,430 226,790 265,341 231,321 Retention receivables 60,105 60,507 60,268 61,029 Due from related parties 11,024 9,414 7,570 7,827

1,163 998 2,789 2,817

Investment in associates and subsidiaries 13,202 10,646 4,861 6,444 Investment available for sale 125 125 145 145 Cash and bank balances and deposits 2,028 15,720 3,892 17,683

339,077 324,200 344,866 327,266

Financial liabilitiesTrade payables 77,507 91,678 87,044 96,171 Due to related parties 1,980 1,830 2,422 2,218

21,964 25,050 31,939 28,620

Bank borrowings 62,691 87,713 63,503 90,248 Term loans 128,582 112,175 139,597 113,230

292,724 318,446 324,505 330,487

38. Key sources of estimation uncertainty

Estimates and assumptions

(a) Revenue recognition

(b) Claims


The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant riskof causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below :

The company uses the percentage-of-completion method in recognising its project revenues. Use of this method requires the company toestimate revenues and costs over the remaining period of the projects. However, the deviations are not anticipated to be of a material natureas the estimates are based on historical experience, progress to date on contracts and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances, and are regularly evaluated.

The claims raised by the company against the customers are mainly in relation to variations from the originally agreed contract scope,changes in costs incurred due to effects of the royal decrees issued after the commencement of contracts, additional costs incurred due toextension of the project completion time etc., which are under various stages of negotiations with customers at the reporting date. Board ofdirectors believe that the full disclosure of the total amount of claims involved can prejudice the position of the group in these claims whichare uncertified by the customers. The group has also incurred losses on certain contracts which are still being executed at 31 December2014. The management has recognised future estimated losses on these contracts in accordancewith IAS 11- Construction Contracts atthe year end .

Other receivables (excluding prepaid expenses, advances and due from related parties)

Other payables and provisions (excluding advances and due to related parties)

Financial instruments comprise financial asset, financial liabilities and derivatives.

Financial assets consist of bank balances, receivables and available for sale investments. Financial liabilities consist of term loans,government soft loan and payables. Derivatives relates to forward currency and commodity hedging contracts.

The group has filed certain claims with its Government and Quasi Government customers and made an assessment of recoverable amountsbased on ongoing negotiations at the reporting date. In accordance with the group's accounting policy on revenue recognition, a portion ofsuch claims has been recognised in these consolidated financial statements based on these assessments. Management believes that suchamounts are in the normal course of the business activity.

Group’s financial instruments that are carried in the financial statements are having same fair value as set out below:



38. Key sources of estimation uncertainty (continued)

(b) Claims (continued)

(c ) Impairment of accounts receivable

(d) Impairment of inventories

(e ) Useful lives of property, plant and equipment

(f) Impairment of intangible assets

(g) Impairment of equity investments

An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. Forindividually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but whichare past due, are assessed collectively and a provision applied according to the length of time past due.

At the reporting date, the contract receivables were RO 190,647 (2013: RO 172,871) thousands of the group, which are mostly receivablefrom Government and Quasi Government entities, includes value of RO 117,226 (2013: RO 117,035) thousands certification in process,which is in normal course of the business activity in the construction industry. The management believes that these amounts are recoverablein full. In addition to this, groups’ trade receivables and provision for impaired debts were RO 5,951 (2013: RO 3,713) thousands and RO 43(2013: RO 39) thousands respectively.(refer note 9).

Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their netrealisable value through physical verification of inventories carried out annually. As majority of the inventories are at ongoing project sitesthese are considered as usable in nature by management as these are closely monitored by the respective project teams. Dedicated projectteams also monitors surplus inventories on closed/completed jobs for assessing their usability to consider necessary provisions. Amountswhich are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to theinventory type and the degree of ageing or obsolescence. Management believes that provision of RO 1,785 thousand (2013 : RO 451thousand) is adequate.(refer note 7).

The group's management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. Thisestimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual valueand useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ fromprevious estimates.

The group treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in the fair valuebelow its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requiresjudgment, which is critically evaluated by the Group on a case to case basis.

The Group follows the guidance of IAS 36 to determine when an intangible asset recognised is impaired. This determination requiressignificant judgement and in making this judgement, the management evaluates, among other factors, the carrying amount of the entity’sintangible assets and the future free cash flows from the operations of these entities which are based on the project feasibility reports andlong-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and theoperational and financing cash flow.

The management tests annually whether these intangible assets of the group have suffered any impairment in accordance with IAS 36,‘Impairment of Assets’ which require the use of the above estimates.(refer note 4)

Other estimates that involve uncertainties and judgments which have significant effect on the financial statements include whether anyliquidated damages will apply when there has been a delay in completion of contracts and it is unsure as to which party is at fault.



38. Key sources of estimation uncertainty (continued)

(i) Taxes

39. Comparative amounts

The parent company test annually whether investment in associates have suffered any impairment in accordance with IAS 36, ‘Impairmentof Assets’ which require the use of estimates. The parent company considers impairment of investments in associate companies when therehas been a significant decline in the carrying value below its cost or where other objective evidence of impairment exists. At 31 December2014, management has made a specific assessment with respect to loss making associates (GEC, Kuwait and MTPL, India) based on thefuture cash flows and profits of these associates and believes that the future profits would be sufficient to recover the accumulated lossesexisting at the reporting date. Accordingly no impairment was considered necessary in these financial statements (refer note 6).

Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Given the widerange of business relationships and nature of existing contractual agreements, differences arising between the actual results and theassumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense alreadyrecorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessmentsof respective Group companies. The amount of such provisions is based on various factors, such as experience of previous taxassessments and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.(refer note 24)

(h) Impairment of investments in associates

Certain of the corresponding figures of previous year have been reclassified in order to conform with the presentation for the current year.Such reclassifications do not affect previously reported profit or shareholder’s equity.

Documents

Director’s Report - Galfar Engineering and Contractinggalfar.com/userfiles/Audited Financials yr 2014(1).pdfPage 1 of 6 Director’s Report Dear Shareholders, I am pleased to welcome