HH Sheikh Jaber Al-Ahmed Al-Jaber Al-Sabah, HH Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, · 2017-09-20 · HH Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, Prime Minister. Gulf Franchising

HH Sheikh Saad Al-Abdullah Al-Salem Al-Sabah,

Crown Prince

HH Sheikh Jaber Al-Ahmed Al-Jaber Al-Sabah,

Amir of the State of KuwaitHH Sheikh Sabah Al-Ahmed

Al-Jaber Al-Sabah,Prime Minister

Gulf Franchising Holding Company

Chairmanʼs Message

Honorable Shareholders,

It gives me a great pleasure, for myself and on behalf of my fellow directors, to present to you the annual report of Gulf Franchising Holding Company for the year 2004.

Commercial franchises and international agencies operations in Kuwait witnessed several developments which had varying impact on the results of the companyʼs business. Foremost among those developments was the expansion of the subsidiary companies activities and its continued efforts to cater to the increasing demand for other franchises and trademarks in services and retail sectors.

In order to keep pace with the construction and real estate development presently taking place in Kuwait and, believing the importance of diversifying the strategic investments of the company, we have taken a substantial participation in the Kuwait Business City Holding Company Project. The Kuwait Business City Holding Project is one of Kuwait Cityʼs largest commercial real estate developments, slated to be erected on an area of 11,000 m2 in Sharq. The project will consist of huge towers that would include modern commercial offices.

Our participation in the Kuwait Business City Project is expected to create new opportunities to expand our activities and franchises in Kuwait, particularly in the light of the service nature of the project which falls in line with our own future plans.

Your company has also acquired Building Expo General Trading and Contracting Company for the purpose of establishing and managing the most prestigious business center in Kuwait. The Center will be located in the Future Zone adjacent to Shuwaikh Port. This integrated business center will provide companies and businessmen with the opportunity of renting intelligent offices that are fully furnishedand supported by professional administrative & secretarial services plus other support services.

Our Franchising activities witnessed considerable expansion to meet the increasing demand within the services sector. This encompassed the areas of computer services, training services and business services using state-of-the-art technologies and modern techniques to provide quality services that meets and even exceeds the requirements of the Kuwaiti market. The company has also expanded in the retail business by signing a franchise agreement for the clothes trade mark “Adolfo Dominguez”. We will open the first outlet in Kuwait in 2005.

Gulf Franchising Company believes in the effective development of its human resources in order to keep pace with technological development and change. The company manages its Human Resource by hiring the best available talents and providing continuing training in the field of commercialfranchises development. This therefore, enables us to achieve our objectives for the company so that 2005 would be another good year for your company and its subsidiaries. Achievement of our objectives increases the chances of the company concluding more agreements to serve the Kuwaiti and Gulf markets thus providing better results and higher profits.

With the grace of God, your company achieved a profit of KD 1,382,407 during 2004, representing13.8% of its capital, with an increase of KD 1,090,362 over last years. The liquidity ratio for the year was 32% and the earnings per share were 14 Fils for the year. The company achieved a growth rate of

5 4

13.37%, with an increase of 10.46% over 2003.

The foregoing results underline the soundness of the company with regard to investing in franchises and other investments, seizing available opportunities that are likely to increase its revenues and finding alternative sources of income. The company will continue to pursue its present course ofsearching for international franchises and projects that are consistent with its policies and goals.

With a view to attract the best available personnel to work for the company, the Board of Directors has introduced the option of purchase of shares for efficient personnel. The purpose of which is tocreate an incentive to attract competent personnel and strengthen employee loyalty to the company. This option is available to all employees at all levels, with 40% being available to the members of the higher executive management and 60% to be distributed among all the employees from senior management to the worker category.

The positive results achieved by the company during the past three years, particularly the remarkable increase in profits during the past year were the result of elaborate studies and research in addition tocontinuous efforts by a team of young professionals.

With the grace of God, we hope that these positive results would enable us to satisfy the conditions required for listing the shares of the company on the Kuwait Stock Exchange, which we expect to take place during the first half of 2005.

Finally, on behalf of myself and the members of the Board of Directors, I would like to express our thanks and appreciation to all those who contributed to our success in achieving our goals. In particular, we thank the Ministry of Commerce and Industry, the various other ministries and authorities, the Public Authority for Applied Education & Training, and our honorable shareholders for their support of the company and its activities. We take this opportunity to assure them all that their interest is a matter of top priority for us. We should also express our thanks to the employees of our company for their generous efforts, dedication, faithfulness and loyalty, for they are the real and most valuable assets of our company.

In conclusion, we thank God Almighty for his guidance and for good fortune and pray for his divine assistance and blessing to enable us to succeed in achieving our objectives for the benefit of ourbeloved country under the leadership of His Highness the Amir, His Highness the Crown Prince and His Highness the Prime Minister.

Ahmed Saadoun Jassem Al-YaqoubChairman and Managing Director

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AUDITORS ̓REPORT TO THE SHAREHOLDERS OF GULF FRANCHISING HOLDING COMPANY K.S.C (HOLDING)

We have audited the accompanying consolidated balance sheet of Gulf Franchising Holding Company K.S.C. (Holding) and its subsidiaries (the Group) as of 31 December 2004, and the related consolidated statements of income, cash flows andchanges in equity for the year then ended. These consolidated financial statements are the responsibility of the Groupʼsmanagement. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of theGroup as of 31 December 2004, and the results of its operations and its cash flows for the year then ended in accordance withInternational Financial Reporting Standards.

Furthermore, in our opinion proper books of account have been kept by the parent company and the consolidated financialstatements, together with the contents of the report of the board of directors relating to these consolidated financial statements,are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the consolidated financial statements incorporate all information that is required by theCommercial Companies Law of 1960, as amended, and by the parent company s̓ articles of association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Commercial Companies Law of 1960, as amended, nor of the articles of association have occurred during the year ended 31 December 2004 that might have had a material effect on the business of the Group or on its financial position.

WALEED A. AL OSAIMILICENCE NO. 68 AOF ERNST & YOUNG

6 February 2005Kuwait

Notes 31 December 31 December

1312

2004 2003

K D K D

Sales 221,868 165,879

Cost of sales (109,279) (32,893)

Gross Profit 112,589 132,986

Murabaha income 76,025 92,290

Interest income 190,480 241,093

Unrealized gain on available for sale investments 1,667,039 154,125

Realized gain on available for sale investments 42,800 194,068

Dividend income 60,102 -

Share of results of an associate 17,155 -

Other operating income 12,969 3,498

Profit on sale of subsidiary 3 - 342,829

Income 2,179,159 1,160,889

General and administrative expenses 709,752 799,089

Other operating expenses 48,209 67,103

Directors fees 26,000 -

Expenses 783,961 866,192

Net profit before contribution to KuwaitFoundation for the Advancement of Sciences 1,395,198 294,697

Contribution to Kuwait Foundation for the Advancement of Sciences (12,791) (2,652)

Net profit for the Year 4 1,382,407 292,045

31 December 31 December2004 2003

Gulf Franchising Holding Company K.S.C. (Holding) And Its Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

Year ended 31 December 2004

The attached notes 1 to 24 form part of these consolidated financial statements

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ASSETS Notes K D K DNon-current AssetsPlant and equipment 5 295,883 151,710Intangibles 6 94,574 95,329Investment property 7 490,000 -Investment in associate 8 599,155 -Available for sale investments 9 13,388,336 2,615,604

14,867,948 2,862,643Current Assets Inventories 2,795 5,057Murabaha receivables 10 1,129,250 1,426,940Accounts receivable and prepayments 11 174,687 31,217Bank balances and cash 12 151,256 6,157,643

1,457,988 7,620,857Total Assets 16,325,936 10,483,500

EQUITY AND LIABILITIES Capital and Reserves Share capital 13 10,000,000 10,000,000Statutory Reserve 14 182,875 40,755General Reserve 15 182,875 40,755Retained earnings 1,356,607 258,440Total Equity 11,722,357 10,339,950Non-current Liabilities Employees ̓end of service benefits 16 41,633 26,898Non-current portion of finance lease 17 18,734 -

60,367 26,898Current LiabilitiesAccounts payble and accruals 18 4,523,146 116,652Current portion of finance lease 17 20,066 -

4,543,212 116,652Total Equity and Liabilities 16,325,936 10,483,500

Ahmed Saadoun Al-Yaqoub Bader Abdullah Ahmed Al-Sumait Chairman and Managing Director Vice Chairman

Note31 December2004

31 December2003


CONSOLIDATED BALANCE SHEET

At 31 December 2004


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Ahmed Saadoun Al-Yaqoub Bader Abdullah Ahmed Al-Sumait Chairman and Managing Director Vice Chairman

K D K DOPERATING ACTIVITIES

Net profit for the year 1,382,407 292,045

Adjustments for:

Interest income (190,480) (241,093)

Depreciation 47,382 74,547

Amortisation of intangibles 11,486 14,442

Provision for employees’ end of service benefits 17,190 27,763

Profit on sale of subsidiary - (342,829)

Share of results of associate (17,155) -

operating profit (loss) before working capital changes 1,250,830 (175,125)

Available for sale investments (10,772,732) (1,068,751)

Inventories 2,262 (21,392)

Murabaha receivables 297,690 439,709

Receivables (143,470) 47,820

paybles 4,406,494 31,563

Cash used in operations (4,958,926) (746,176)

Interest received 190,480 225,026

Employees’ end of service benefits paid (2,455) (13,278)

Net cash used in operating activities (4,770,901) (534,428)INVESTING ACTIVITIES

Purchase of plant and equipment (152,755) (194,055)

Payment of intangibles (10,731) (11,066)

Proceeds from sale of subsidary 3 - 600,000

bank balance and cash of the disposed subsidary - (6,428)

Purchase of investment property (490,000) -

Investment in associate (582,000) -

Net cash (used in) from investment activities (1,235,486) 388,451DECREASE IN CASH AND CASH EQUIVALENTS (6,006,387) (145,977)

Cash and cash equivalents at the beginning of the year 6,157,643 6,303,620CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 12 151,256 6,157,643

Gulf Franchising Holding Company K.S.C. (Holding) and its Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS



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ShareCapital

Statutory Reserve

General Reserve

Retained Earnings Total

K.D K.D K.D K.D K.D

Balance as at 31 December 2002 10,000,000 11,285 11,285 25,335 10,047,905Net profit for the year - - - 292,045 292,045Transferred to reserves - 29,470 29,470 (58,940) -

Balance as at 31 December 2003 10,000,000 40,755 40,755 258,440 10,339,950Net profit for the year - - - 1,382,407 1,382,407Transferred to reserves - 142,120 142,120 (284,240) -

Balance as at 31 December 2004 10,000,000 182,875 182,875 1,356,607 11,722,357

1 ACTIVITIES


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY



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The consolidated financial statements of Gulf Franchising Holding Company K.S.C. (Holding) (the parentcompany) and its subsidiaries (the Group) for the year ended 31 December 2004 were authorised for issue in accordance with a resolution of the directors on 6 February 2005.

Gulf Franchising Holding Company K.S.C., the parent company, is a Holding shareholding company incorporated on 4 August 2001 under the Commercial Companies Law No. 15 of 1960 and amendments thereto. Details of subsidiaries are set out in Note 20.

The Groupís principal licensed activity is primarily engaged in acquisition and operation of franchises and investment activities. Its registered office is at Al-Dira Tower, Ahmed Al-Jaber Street, Sharq, Kuwait.

The Group operates in Kuwait and employed 51 people as of 31 December 2004 (2003: 66).

2 SIGNIFICANT ACCOUNTING POLICIES

Basis of preparationThe consolidated financial statements have been prepared in accordance with Standards issued, or adopted bythe International Accounting Standards Board, interpretations issued by the International Financial Reporting Interpretations Committee and applicable requirements of Ministerial Order No. 18 of 1990.

The consolidated financial statements are prepared under the historical cost convention modified to includethe remeasurement at fair value of available for sale investments and investment property.

The accounting policies are consistent with those used in the previous year.

Basis of consolidationThe consolidated financial statements incorporate the financial statements of the parent company andits subsidiaries as at 31 December each year. Subsidiaries are those enterprises controlled by the parent company. Control exists when the parent company has the power, directly or indirectly, to govern the financial and operating policies of enterprises so as to obtain benefits from its activities. The financialstatement of subsidiaries is included in the consolidated financial statements from the date that controleffectively commences until the date that control effectively ceases.

The financial statements of the subsidiaries are consolidated on a line-by-line basis by adding together likeitems of assets, liabilities, income and expenses. Any significant intra-group balances and transactions,and any unrealised gains or losses arising from the intra group transactions, are eliminated in preparing the consolidated financial statements. The financial statements of subsidiaries are prepared for the samereporting year as the parent company, using uniform accounting policies for like transactions and other events in similar circumstances.

Revenue Sales are recognised when services are rendered to customers and the amount of revenue can be measured reliably.

Interest income is recognised as the interest accrues.

Murabaha income is recognised on a time proportion basis so as to yield a constant periodic rate of return on the net balance outstanding.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31 December 2004

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Plant and equipmentPlant and equipments are stated at cost less accumulated depreciation and any impairment in value.

Depreciation is calculated on a straight line basis over the estimated useful lives of the assets as follows:

* Plant and machinery 10 years* Office furniture and equipment 5 years* Motor vehicles 4 years* Key money 10 years

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.

IntangiblesIntangibles are stated at cost less accumulated amortisation and any impairment in value.

Amortisation is calculated on a straight line basis over the estimated useful life of 10 years.

The carrying values of intangibles are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.

Investment propertyInvestment property is initially recorded at cost. After initial recognition, investment property is remeasured and carried at fair value based on an external valuation by an independent, registered real estate assessor. Changes in fair value are included in the consolidated income statement.

Investment in associateAssociate is a company over which the Group exerts significant influence including a holding of 20% to 50%of the voting power of the investee company. The consolidated financial statements include the Groupʼs shareof results of associate using the equity method of accounting based on the latest audited financial statementsof the associate.

Under the equity method of accounting, the initial investment is recorded at cost and the carrying amount is increased or decreased to recognise the Groupʼs share of profit or loss and other changes in the equity of theassociated company. Distributions received from the associated company reduce the carrying amount of the investment.

An assessment of the investment in associate is performed when there is an indication that the asset has been impaired or the impairment losses recognised in prior years no longer exist.

Available for sale investmentsInvestments classified as available for sale are initially recognised at cost and are subsequently remeasured atfair value unless fair value cannot be determined. Unrealised gains and losses arising from changes in the fair value of available for sale investments are reported in the consolidated statement of income.

InventoriesInventories are stated at the lower of cost and net realisable value. Costs are those expenses incurred in bringing each product to its present location and condition measured on a weighted average cost basis.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)



31 December 2004

1918

Murabaha receivables Murabaha is an Islamic transaction involving the purchase and immediate sale of an asset at cost plus an agreed profit. The amount due is settled on a deferred payment basis.

Murabaha receivables are financial assets originated by the Group and are carried at amortised cost includingprovision for impairment, if any.

Accounts receivableAccounts receivable are stated at original invoice amount less a provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

Cash and cash equivalentsCash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquidinvestments readily convertible to known amounts of cash and subject to insignificant risk of changes invalue.

Employees ̓end of service benefitsThe Group provides end of service benefits to its expatriate employees. The entitlement to these benefits isbased upon the employees ̓final salary and length of service, subject to the completion of a minimum serviceperiod. The expected costs of these benefits are accrued over the period of employment.

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

ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured.

LeasesFinance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership ofthe leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the financecharges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.

Foreign currenciesTransactions in foreign currencies are recorded at the rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income.

Impairment and uncollectability of financial assetsAn assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset, or Group of similar assets, may be impaired. If such evidence exists, the estimatedrecoverable amount of that asset is determined and any impairment loss, based on the net present value of future anticipated cash flows, is recognised in the consolidated statement of income. For assets carried atcost, future anticipated cash flows are discounted at the financial instrumentʼs original effective interest rate.

Use of estimatesThe preparation of the consolidated financial statements requires management to make estimates and



31 December 2004

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assumptions that affect the reported amount of financial assets and liabilities at the date of the consolidatedfinancial statements. The use of estimates is principally limited to the determination of fair values ofunquoted investments.

Financial instrumentsFinancial instruments include cash and cash equivalents, available for sale investments, accounts receivable and prepayments and accounts payable and accruals.

Fair valuesFor unquoted equity investments, fair value is determined by reference to the market value of a similar investment or is based on the expected discounted cash flows.

3 PROFIT ON SALE OF SUBSIDIARY

On 29 December 2003, the company sold a wholly-owned subsidiary, Dry Clean Gulf Franchising Company W.L.L. Cash received from the sale amounted to KD 600,000 and resulted in a net gain to the company of KD 342,829.

The net book value of assets disposed and liabilities relinquished of the previously owned subsidiary at 29 December 2003 were as follows:

2003

K.D

Equipment 186,670

Intangible assets 62,911

Inventories 22,559

Account receivable and prepayments 10,839

Bank balances and cash 6,428

Employees’ end of service benefits (3,129)

Accounts payable and accruals (29,107)

Net book value 257,171

Profit on sale of a subsidiary 342,829

Total sale consideration 600,000

4 NET PROFIT FOR THE YEAR

The net profit for the year is stated after charging the following expenses (included in general andadministration expenses):

2004K.D

2003K.D

Staff costs 431,543 488,285

Rent 95,430 103,027

5 PLANT AND EQUIPMENT



31 December 2004

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Plantand

machinery

Officefurniture

and equipment

Motor vehicles

KeyMoney Total

K.D K.D K.D K.D K.D

Cost:

At 1 January 2004 16,402 165,735 11,508 3,380 197,025

Additions 72,050 58,005 - 61,500 191,555

At 31 December 2004 88,452 223,740 11,508 64,880 388,580

Depreciation

At 1 January 2004 129 43,255 1,730 201 45,315

Charge for the year 5,258 36,538 2,877 2,709 47,382

At 31 December 2004 5,387 79,793 4,607 2,910 92,697

Net carrying amount

At 31 December 2004 83,065 143,947 6,901 61,970 295,883

At 31 December 2003 16,273 122,480 9,778 3,179 151,710

Depreciation charge for the year is inclueded in General and Administration Expenses.

Additions include KD 38,800 of plant and machinery acquired under finance lease (Note 17).

6 INTANGIBLES

Cost:Franchise FeesK.D

At 1 January 2004 105,921

Additions 10,731

At 31 December 2004 116,652

Amortization:

At 1 January 2004 10,592

Charged for the year 11,486

At 31 December 2004 22,078

Net Carrying Amount :

At 31 December 2004 94,574

At 31 December 2003 95,329

Amortisation charge for the year is inclueded in other operating expenses.7 INVESTMENT PROPERTY



31 December 2004

2322

Investment property is considered to be carried at fair value as it represents recent transaction in the open market.

8 INVESTMENT IN ASSOCIATE

2004K.D

2003K.D

Fair value of net tangible assets acquired 582,000 -

Post acquisition share of profits 17,155 -

599,155 -

During the year, the Holding Company invested KD 582,000 in Al Bareeq Holding Company K.S.C. (Closed) (Al Bareeq) representing 38.8% interests in the entity and has classified it as an associate. Al Bareeqʼs whollyowned subsidiary, Dry Clean Gulf Franchising Company W.L.L., is the entity that was previously a wholly owned subsidiary of the parent company and was sold during 2003 (Note 3).

9 AVAILABLE FOR SALE INVESTMENTS2004K.D

2003K.D

Unquoted equities 12,858,336 2,615,604

Quoted equities 530,000 -

13,388,336 2,615,604

Unquoted equities include an investment carried at the cost of KD 87,890. It relates to a recently incorporated unlisted entity, consequently the cost is considered to be the fair value at this stage.

10 MURABAHA RECEIVABLES

2004K.D

2003K.D

Gross amount 1,141,483 1,442,341

Less: Deferred income (12,233) (15,401)

1,129,250 1,426,940

Average profit rate attributable to murabaha receivables during the year was 7% p.a (2003: 6% p.a.).

11 ACCOUNTS RECEIVABLE AND PREPAYMENTS

2004K.D

2003K.D

Accounts receivable 61,313 16,712

Other receivables 1,130 277

Diposit and prepaid expenses 33,797 7,742

Advance to suppliers 38,054 2,085

Due from related parties (Note 19) 40,393 4,401

174,687 31,217

12 CASH AND CASH EQUIVALENTS



31 December 2004

2322

2004K.D

2003K.D

Bank balance and cash 151,256 773,059

Investment in Money Market Fund - 5,384,584

Total Cash and Cash Equivalent 151,256 6,157,643

13 SHARE CAPITAL

Authorized, issued and fully-paid2004K.D

2003K.D

Shares of 100 Fils each. 10,000,000 10,000,000

14 STATUTORY RESERVE

As required by the law of commercial companies and the articles of association of the parent company, 10% of the profit for the year before contribution to Kuwait Foundation for the Advancement of Sciences istransferred to statutory reserve. The parent company may resolve to discontinue such annual transfer when the total reserve equals 50% of paid up share capital.

Distribution of the reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in periods when accumulated profits are not sufficient for the payment of a dividend of that amount.

15 GENERAL RESERVE

The board of directors of the parent company has proposed a transfer to general reserve of 10% of the net profit for the year before contribution to Kuwait Foundation for the Advancement of Sciences. Suchtransfer is subject to approval of the ordinary general assembly of the shareholders of the company. There are no restrictions on the distribution of the general reserve.

16 EMPLOYEES ̓END OF SERVICE BENEFITS

The Group provides for an end of service benefit for its employees based on employment contract and theKuwait labour law. Movements in the liability recognised in the balance sheet are as follows:

2004K.D

2003K.D

Provision at the beginning of the year 26,898 12,413

Expense recognised the consolodated statement of income 17,190 27,763

End of service benefits paid (2,455) (13,278)

Provision at 31 December 41,633 26,898

17 FINANCE LEASE



31 December 2004

2524

Minimum PaymentsKD

Present Value of PaymentsKD

Minimum PaymentsKD

Present Value of the PaymentsKD

Within one year 22,224 20,066 - -

After one year 22,224 18,734 - -

Total minimum lease payments 44,448 38,800 - -

Less: amounts representing finance changes 5,648 - - -

Present value of the minimum lease payments 38,800 38,800 - -

18 ACCOUNTS PAYABLE AND ACCRUALS

2004K.D

2003K.D

Accrued expenses 80,807 30,148

Other payable 121,384 86,504

Due to related Party (Note 19) 4,320,955 -

4,523,146 116,652

Amount due to related party has been fully paid up subsequent to the year end

19 RELATED PARTY TRANSACTIONS

These represent transactions with related parties, i.e. shareholders, directors and senior management of the company, and companies of which they are principal owners. Pricing policies and terms of these transactions are approved by the companyʼs management. During the year, the Group had significant transactions withrelated parties and these transactions included in the consolidated income statement are as follows:

2004K.D

2003K.D

Murabaha income 76,025 92,290

Interest income 190,480 241,093

Significant year end balances in respect of related parties are as follows:

2004K.D

2003K.D

Available for sale investments (Note 9) 12,644,444 2,615,604

Accounts recievable and prepayments (Note 11) 40,393 4,401

Investment in the Money Market Fund (Note 12) - 5,384,584

Accounts payable and accruals (note 18) 4,320,955 -

Available for sale investments are managed by a related party and the fair valuation of unquoted available for sale investments is based on the fair valuation provided by the same related party. The amount payable primarily comprises the purchase price for certain available for sale investments and is due to the same related party .

Gulf Franchising Holding Company K.S.C. (Holding) and its Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT

31 December 2004

2524

2004 2003

20 SUBSIDIARY COMPANIES

Details of subsidiary companies are as follows:

Name Country of Incorporation

VotingCapitalheld %

Purpose

Franchise International General Trading Co. W.L.L Kuwait 100To provide training and management consultancy services.

Quick Service General Trading Co. W.L.L Kuwait 100 To engage in general trading activities.

Computer Troubleshooter Services Company W.L.L Kuwait 100To provide computer programming and operations services.

Multi Moda General Trading Co. W.L.L Kuwait 100

To provide economical and administrative consultations.

Business Consulting Co. W.L.L Kuwait 100 To engage in general trading activiies.

Al Beena Expo General Trading and Contracting Company W.L.L Kuwait 100 To engage in general trading activiies.

The voting capital of these subsidiaries is held by the Chairman and Managing Director of the parent company on behalf of the parent company. The Chairman and Managing Director has confirmed in writing that the parent company is the beneficial owner of the shares.

21 RISK MANAGEMENT

Interest rate risk The Group is exposed to interest rate risk on its interest bearing assets (bank deposits, investment in money market funds and murabaha receivables). The Group minimise these risk by regular monitoring of interest rate movements and portfolio duration.

Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge or cause the other party toincur a financial loss.

The Group deals with high credit quality financial institutions and counterparties.

Liquidity riskThe Group manages its liquidity risk by monitoring on regular basis that sufficient funds are available tomeet future commitments. The Groupʼs term of sales require amounts to be paid within 30 days of the date of sale. Trade payable are normally settled within 90 to 120 days of the date of purchase.

Currency riskThe Group is not significantly exposed to currency risk because significant portion of assets and liabilities aredenominated in Kuwaiti Dinars.

22 FAIR VALUES OF FINANCIAL INSTRUMENTS



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Financial instruments comprise of financial assets and financial liabilities.

Financial assets consist of cash and bank balances, murabaha receivables and available for sale investments. Financial liabilities consist of accounts payables and accrued expenses.

The fair values of financial instruments are not materially different from their carrying values.

23 COMPARATIVE AMOUNTS

The corresponding figures for 2003 have been reclassified in order to conform with the presentation for thecurrent year. Such reclassifications do not affect previously reported net profit or shareholdersʼ equity.

24 PROFIT-SHARING SCHEMES

Subsequent to the year end, the board of directors has proposed to operate two profit-sharing schemes toreward the performance of its employees, namely a performance bonus scheme (PBS) and a share option scheme (SOS). Both schemes will be in operation for a period of 10 years starting from the year ended 31 December 2004. The total capital increase to meet the requirements of the schemes should not exceed 12% of the parent companyʼs share capital at the end of 2013.

The PBS covers all employees who are entitled to receive a portion of their annual bonus in shares to be issued by the company. The SOS covers senior executives who are granted an option to subscribe for shares allotted to them at the commencement of each year of a three-year period, at the end of which the employee may exercise the option. The subscription price for the shares allotted is the book value per share as at 31 December 2004.

The board of directors have proposed to grant options under SOS and PBS of 1,440,000 and 720,000 shares respectively at the book value of the company at 31 December 2004. The right of shares will be subject to the approval of shareholders at the annual general meeting.



31 December 2004

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