The General Organisation For Social Insurance Consolidated Financial Statements For The Year Ended 31 December 2006
The General Organisation For Social Insurance
Incorporated by Chairman
Amiri Decree 24 of 1976 HE The Minister for Labour Dr Majeed bin Mohsin Al-Alawi Shaikh Abdulrahman Bin Abdulla Al-Khalifa Salman Isa Sayadi Mr Rashid Ismaeel Al-Meer Mr Ebrahim Khalifa Al Dosari Dr Ahmed Ali Al-Sharian Dr Sameer Abdulla Khalfan Mr Mohamed Abdulla Al-Zamil Mr Ibrahim Mohamed Ali Zaynal Mr Yousif Saleh Al-Saleh Mr Faysal Hassan Fowlaz Mr Mohamed Ameen Mohamadi Mr Saeed Abbas Al-Sammak Shaikh Mohamed Bin Isa Al Khalifa GOSI Building PO Box 5319 Diplomatic Area Kingdom of Bahrain Central Bank of Bahrain National Bank of Bahrain Bank of Bahrain and Kuwait Ahli United Bank Investcorp Bank BSC Arcapita Bank BSC (c) BDO Jawad Habib PO Box 787 5th Floor, UGB Tower Diplomatic Area Kingdom of Bahrain
Board of Directors
Director General Registered office
Bankers
Auditors
INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF THE GENERAL ORGANISATION FOR SOCIAL INSURANCE
We have audited the accompanying consolidated financial statements of The General Organisation For Social Insurance (“the Organisation”) and its subsidiary undertakings (“the Group”), which comprise consolidated statement of net assets as at 31 December 2006, consolidated statement of income, consolidated statement of changes in scheme members’ funds and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Responsibility of the Directors for the financial statements The Directors of the Organisation are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility 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 comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2006, and of its consolidated financial performance, the changes in its consolidated equity and its consolidated cash flows for the year then ended in accordance with the International Financial Reporting Standards. Without qualifying our opinion, we draw attention to Note 21 to the consolidated financial statements which indicates the fact that the unfunded deficit as at 31 December 2006 amounted to BD580,121,674 (2005: BD741,172,165). The management of the Organisation is currently in the process of reviewing the unfunded deficit and considering options to cover this short fall.
Report on other legal and regulatory requirements Further, as required by Amiri Decree 24 of 1976, as amended, in the case of the Organisation, we report that: (1) (2) we have obtained all the information we considered necessary for the purpose of our audit; and the Organisation has maintained proper books of account and the financial statements are in agreement therewith. In addition, we report that nothing has come to our attention which causes us to believe that the Organisation has breached any of the applicable provisions of Amiri Decree 24 of 1976, as amended, which would materially affect its activities, or its financial position as at 31 December 2006.
Manama, Kingdom of Bahrain September 2007 92238 1
The General Organisation For Social Insurance Consolidated statement of net assets as at 31 December 2006 (Expressed in Bahrain Dinars) Notes ASSETS Cash and bank balances Placement with banks Fixed deposits Receivables: Social insurance contributions receivable Net pension loan receivable Other receivables Loans to employees Accrued interest and rents receivable Investments: Financial assets at fair value through profit or loss Available-for-sale investments Originated loans Held-to-maturity investments Investments in associated undertakings Investment properties Inventories Property, plant and equipment Total assets LIABILITIES Trade and other payables Net assets SCHEME MEMBERS’ FUNDS Scheme members’ funds Investment fair value reserve Retained earnings Revaluation reserve 2006 422,172 125,000 553,718,021 9,406,243 9,278,603 367,505 190,902 6,713,563 2005 3,788,726 3,372,000 471,742,843 9,791,248 8,243,668 439,199 157,497 3,737,368
3 4 5 6 7
8 9 10 11 12 14
191,442,506 291,221,329 6,000 61,230,320 20,750,898 31,771,172 3,648 42,288,717 1,218,936,599
178,050,457 291,592,693 7,000 70,911,967 20,746,388 32,117,429 10,084 21,244,428 1,115,952,995
15
325,273 1,218,611,326
922,160 1,115,030,835
1,013,761,840 101,351,243 70,071,007 33,427,236 1,218,611,326
928,991,424 103,820,269 70,071,007 12,148,135 1,115,030,835
These consolidated financial statements were approved by the Board of Directors on September 2007 and signed on their behalf by:
______________ Chairman
_________________ Director General
The accounting policies on pages 6 to 9 and the notes on pages 10 to 22 form an integral part of these consolidated financial statements. 2
The General Organisation For Social Insurance Consolidated statement of income for the year ended 31 December 2006 (Expressed in Bahrain Dinars) Notes Income Social insurance income Standard contributions Prior year contributions Penalties and others 2006 2005
64,048,990 550,610 1,367,418 65,967,018
57,804,783 584,295 1,185,900 59,574,978 49,848,126
Net investment income Other income Income from pension loans Service income of Marina Club Miscellaneous income
16
64,229,170
461,242 634,319 55,205 1,150,766
393,317 758,599 12,205 1,164,121 110,587,225
Total income Expenses Social insurance benefits paid General and administrative expenses Provision for bad and doubtful social insurance contributions receivable Operating costs of Marina Club Total expenses Net income transferred to Scheme members’ funds
131,346,954
(41,673,777) (4,076,128) 5 (406,528) (420,105) (46,576,538)
(38,128,628) (3,673,299) (614,376) (42,416,303)
84,770,416
68,170,922
These consolidated financial statements were approved by the Board of Directors on September 2007 and signed on their behalf by:
______________ Chairman
_________________ Director General
The accounting policies on pages 6 to 9 and the notes on pages 10 to 22 form an integral part of these consolidated financial statements. 3
The General Organisation For Social Insurance Consolidated statement of changes in scheme members’ funds for the year ended 31 December 2006 (Expressed in Bahrain Dinars)
Scheme members’ funds At 1 January 2005 860,820,502 Unrealised fair value gains on available-for-sale investments (Note 9) Realised fair value gains on sale of quoted managed funds (Note 9) Net income for the year 68,170,922 At 31 December 2005 928,991,424 Investments fair value reserve 81,283,749 Retained earnings 70,071,007 Revaluation reserve 12,148,135
Total 1,024,323,393
24,867,450
-
-
24,867,450
(2,330,930) 103,820,269
70,071,007
12,148,135
(2,330,930) 68,170,922 1,115,030,835
At 1 January 2006 Unrealised fair value gains on available-for-sale investments (Note 9) Realised fair value gains on sale of quoted managed funds Revaluation surplus (Note 14) Net income for the year At 31 December 2006
928,991,424
103,820,269
70,071,007
12,148,135
1,115,030,835
-
3,496,450
-
-
3,496,450
84,770,416
(5,965,476) -
70,071,007
21,279,101 33,427,236
(5,965,476) 21,279,101 84,770,416 1,218,611,326
1,013,761,840 101,351,243
The accounting policies on pages 6 to 9 and the notes on pages 10 to 22 form an integral part of these consolidated financial statements. 4
The General Organisation For Social Insurance Consolidated statement of cash flows for the year ended 31 December 2006 (Expressed in Bahrain Dinars)
Notes Operating activities Net income for the year Adjustments for: Depreciation on property, plant and equipment Provision for social insurance contributions receivable Loss on write-off of property, plant and equipment Depreciation on investment properties Loss on write-off of investment properties Unrealised fair value gains on investment properties Share of (profits)/losses in associated undertakings Realised gains on sale of available-for-sale investments Unrealised fair value gains on financial assets at fair value through profit or loss Changes in operating assets and liabilities: Decrease/(increase) in social insurance contributions receivable Increase in net pension loan receivable Decrease in other receivables Increase in loans to employees Increase in accrued interest and rents receivable Decrease in inventories (Decrease)/increase in trade and other payables Net cash provided by operating activities Investing activities Proceeds received from repayment of originated loans Purchase of financial assets at fair value through profit or loss Proceeds from sale of financial assets at fair value through profit or loss Proceeds from redemption of held-to-maturity investments Purchase of held-to-maturity investments Purchase of available-for-sale investments Proceeds from sale and redemption of available-for-sale investments Dividend received from/(additional investment in) associated undertakings Capital expenditure incurred on investment properties Purchase of property, plant and equipment Net cash provided by/(used in) investing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the year Comprising : Cash and bank balances Placement with banks Fixed deposits 2006 84,770,416 14 5 12 12 12 16 357,147 406,528 748,057 95,200 (497,000) (355,326) (7,850,476) (13,142,984) (21,523) (1,034,935) 71,694 (33,405) (2,976,195) 6,436 (596,887) 59,946,747 2005 68,170,922 357,716 1,084 785,277 (856,000) 361,043 (2,330,930) (21,085,758) (1,142,991) (803,142) 2,312,600 (10,755) (1,303,797) 3,951 61,492 44,520,712
8
8 8
1,000 (622,804) 373,739 52,750,259 (43,068,612) (19,139,859) 24,892,673 350,816 (122,335) 15,414,877 75,361,624 478,903,569 554,265,193 422,172 125,000 553,718,021 554,265,193
4,000 (52,780) 446,762 27,121,745 (51,586,242) (2,715,988) 9,414,537 (570,000) (2,125) (62,420) (18,002,511) 26,518,201 452,385,368 478,903,569 3,788,726 3,372,000 471,742,843 478,903,569
9
12 14
3 4
The accounting policies on pages 6 to 9 and the notes on pages 10 to 22 form an integral part of these consolidated financial statements. 5
The General Organisation For Social Insurance Significant accounting policies
1
Basis of preparation The financial statements have been prepared in accordance with the International Financial Reporting Standards as promulgated by the International Accounting Standards Board, interpretations issued by the Financial Reporting Interpretations Committee and the provisions of Amiri Decree 24 of 1976, as amended. The financial statements have been prepared under the historical cost convention, except for the remeasurement of financial assets at fair value through profit or loss, available-for-sale investments and certain categories of property, plant and equipment which are stated at their fair values.
2
Principles of consolidation Subsidiary undertakings are those entities in which the Group has an interest of more than one-half of the voting rights, or otherwise has power to exercise control over the entities’ operations, and are hence consolidated. Subsidiary undertakings are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All inter-company transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated; unrealised losses are also eliminated unless the costs cannot be recovered. Where necessary, the subsidiary undertakings accounting policies have been changed to ensure consistency with the policies adopted by the Group.
3
Investment in associated undertakings Investments in associated undertakings are accounted for by the equity method of accounting. Associated undertakings are those companies over which the Organisation exercises significant influence but which it does not control. Significant influence is usually evidenced by the Organisation owning, directly or indirectly, between 20 percent and 50 percent of the share capital. Equity accounting involves recognising in the statement of income the Organisation’s share of the associated undertakings profit or loss for the year. The Organisation’s interest in these undertakings is carried in the balance sheet at an amount that reflects its share in the net assets of the associated undertakings.
4
Property, plant and equipment All property, plant and equipment is stated at cost less accumulated depreciation, except for freehold land which are carried at their market values, based on valuations conducted by external independent valuers. Cost includes all costs directly attributable to bringing the property, plant and equipment to working condition for their intended use. Increases in the carrying amount arising on revaluation of land are credited to a revaluation reserve in Scheme members’ funds. Decreases that offset previous increases of the same class of revalued assets are charged against the revaluation reserve; all other decreases are charged to the statement of income.
6
The General Organisation For Social Insurance Significant accounting policies (continued)
4
Property, plant and equipment (continued) Depreciation is calculated using the straight-line method to write-off the cost of property, plant and equipment to their estimated residual values over their expected useful lives as follows: Buildings on freehold land Equipment and other assets 15-25 years 3-5 years
Freehold land is not depreciated as it is deemed to have an infinite life. Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining net profit. On disposal of revalued assets, amounts in the revaluation reserve relating to these assets are transferred to retained earnings. Repairs and renewals are charged to the statement of income when the expenditure is incurred. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written-down immediately to its recoverable amount. 5 Financial assets at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or if so designated by management. Financial assets at fair value through profit or loss are initially recognised at cost and subsequently re-measured at their fair values. Realised and unrealised gains and losses arising from changes in the fair value are included in the statement of income in the period in which they arise.
6
Available-for-sale investments and investment fair value reserve Available-for-sale investments are initially measured at cost, including transactions costs, and subsequently re-measured to their fair values. Purchases and sales of available-forsale investments are accounted for on the trade date. Unrealised gains and losses arising from changes in the fair values of available-for-sale investments are recognised as ‘investment fair value reserve’. The fair values of investments listed on active markets are determined by reference to the quoted market prices. The fair values of investments listed on inactive markets and unlisted investments are determined using other generally accepted valuation methods such as the adjusted prices of similar instruments. Equity securities for which fair values cannot be measured reliably are recognised at cost, less impairment provision. In the event of sale, disposal or impairment, the cumulative gains and losses recognised in Scheme members’ funds are transferred to the statement of income.
7
The General Organisation For Social Insurance Significant accounting policies (continued)
7
Held-to-maturity investments Investments with a fixed maturity date that management has the intention and ability to hold to maturity are classified as held-to-maturity investments. Such investments are initially recognised at cost and are subsequently carried at amortised cost using the effective yield method. Any realised and unrealised gains or losses arising either from derecognition or impairment are recognised in the statement of income.
8
Originated loans Originated loans are created by the subsidiary undertakings by providing money directly to the borrowers and are initially recognised at cost. Specific provisions for impairment are made on the basis of a continuous appraisal of the subsidiary undertakings lending portfolio and reflect an amount which, in the opinion of the management, is adequate to provide for identified impairment.
9
Investment properties Investment properties are held for capital appreciation and long-term rental yields and are not occupied by the Group. Investment properties are treated as long-term investments and are carried at cost less accumulated depreciation and impairment losses. Buildings on freehold land are depreciated over a period of 25 to 40 years, whereas freehold land is not depreciated as it is deemed to have an infinite life. Investment properties are derecognised when either they have been disposed off or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of income in the year in which they arise. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.
10
Employee benefits Employee benefits and entitlements to annual leave, holiday, air passage and other shortterm benefits are recognised as they accrue to the employees. The employees of the Organisation are covered by the pension scheme to which the employees and employers contribute monthly on a fixed percentage of salary basis. This is a defined contribution pension plan and the Organisation’s contributions are charged to the statement of income in the year to which they relate. In respect of this plan, there is a legal obligation to pay the contributions as they fall due and no obligation exists to pay the future benefits. The expatriate employees of the Group are paid leaving indemnity in accordance with the provisions of the Bahrain Labour Law. The Group accrues for its liability in this respect on an annual basis. 8
The General Organisation For Social Insurance Significant accounting policies (continued)
11
Foreign currency transactions Foreign currency assets and liabilities at year-end are translated into Bahrain Dinars at rates of exchange prevailing at the balance sheet date. Transactions during the year carried out in foreign currencies are converted at the rates of exchange prevalent at the time of the transaction. All exchange gains and losses are taken to the statement of income for the year.
12
Social insurance Social insurance income is recognised on the accruals basis and in accordance with Amiri Decree 24 of 1976, as amended. Contributions legally due from entities that have not registered are excluded, as are those from entities, which have registered but not submitted the necessary declarations. Specific provision is made for unpaid contributions at the balance sheet date, based on estimates made by management in the light of available information. Social insurance benefits paid in accordance with Amiri Decree 24 of 1976, as amended, are recognised on the accruals basis.
13
Investment income Interest and rental income are recognised on the accruals basis. Dividends are recognised as income when declared by the investee companies.
14
Cash and cash equivalents Cash and cash equivalents comprise cash on hand, bank balances and short-term fixed deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
9
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
1
Status and operations The General Organisation For Social Insurance (“the Organisation”) and its subsidiary undertakings constitute the “Group”. The Organisation was established by Amiri Decree 24 of 1976, as amended, with effect from 1 October 1976. The social insurance scheme covers: • • • • • • • • Old age pensions, disability and death benefits Employment injuries benefits Temporary disability (sickness or maternity) benefits Unemployment benefits Insurance for self-employed persons and professionals Insurance for employers Family allowances Other types of insurance that fall within the scope of social security.
Currently, the scheme covers the above except the third, fourth and eighth items and covers employees of all registered entities employing one or more persons.
2
Actuarial position An independent actuary was appointed and carried out the calculation to estimate the actuarial present value of the promised retirement benefits as at 31 December 2006 in accordance with International Accounting Standard 26 “Accounting and Reporting by Retirement Benefit Plans” (Note 21).
3
Placements with banks 2006 BD Remaining maturity: 1 month or less but not repayable on demand Repayable on demand 107,000 18,000 125,000 2005 BD 3,295,000 77,000 3,372,000
10
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
4
Fixed deposits Fixed deposits amounting to BD553,718,021 at 31 December 2006 (2005: BD471,742,843), bear interest which ranged between 2.5% and 6.7% per annum (2005 : between 4% and 5.75% per annum) and are held with the Organisation’s bankers with maturities ranging between 15 and 180 days.
5
Social insurance contributions receivable 2006 BD Social insurance contributions receivable Provision for bad and doubtful social insurance contributions receivable Net social insurance contributions receivable 13,812,771 (4,406,528) 9,406,243 2005 BD 13,791,248 (4,000,000) 9,791,248
The social insurance contributions receivable are generally due within 15 days after the month for which the social contribution invoice is raised by the Organisation. The movement in the provision for bad and doubtful social insurance contributions receivable is as follows: 2006 BD At 1 January Provision for the year At 31 December 4,000,000 406,528 4,406,528 2005 BD 4,000,000 4,000,000
Net social insurance contributions receivable represents the social insurance and other contributions income accrued during 2006 and earlier years but not received at 31 December 2006, after deducting the provision for bad and doubtful social insurance contributions receivable. 6 Net pension loans receivable 2006 BD Pension loans receivable Deferred pension loans income Net pension loans receivable 13,772,678 (4,494,075) 9,278,603 2005 BD 12,248,758 (4,005,090) 8,243,668
Net pension loans receivable represents the net balance of pension loans provided as at 31 December 2006 by the Organisation in accordance with the Minister of Labour and Social Affairs Order (1) for the year 2002. 11
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
7
Other receivables 2006 BD Amounts receivable on sale of investments Trade receivables Other receivables 172,680 124,519 70,306 367,505 2005 BD 129,399 309,800 439,199
8
Financial assets at fair value through profit or loss 2006 BD At 1 January Additional investments made during the year Sales/redemption of quoted managed funds Unrealised fair value gains included in statement of income At 31 December 178,050,457 622,804 (373,739) 13,142,984 191,442,506 2005 BD 157,358,681 52,780 (446,762) 21,085,758 178,050,457
Financial assets at fair value through profit or loss represents amounts invested in quoted equities, bonds and other financial instruments by portfolio managers located in the United States of America, Japan and Europe. 9 Available-for-sale investments 2006 BD At 1 January Additional investments in quoted managed funds Sales/redemption of quoted managed funds Unrealised fair value gains transferred to investment fair value reserve Realised gains on sale of quoted managed funds At 31 December Comprising of: Shares in public listed companies in the Kingdom of Bahrain Unquoted managed funds Shares in public listed companies in the United States of America Shares in closed companies in the Kingdom of Bahrain 291,592,693 19,139,859 (18,927,197) 3,496,450 (4,080,476) 291,221,329 2005 BD 273,423,792 2,715,988 (7,083,607) 24,867,450 (2,330,930) 291,592,693
234,721,102 42,309,408 8,837,700 5,353,119 291,221,329
228,162,638 52,043,596 8,361,595 3,024,864 291,592,693
12
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
10
Held-to-maturity investments 2006 BD Government of Bahrain bonds Other bonds 41,778,120 19,452,200 61,230,320 2005 BD 54,355,067 16,556,900 70,911,967
11
Investments in associated undertakings The Organisation has the following investments in associated undertakings: Percentage of ownership interest 40.00% 33.33% 33.33% 28.13% 21.43% 28.18%
Name of the associated undertaking Bahrain Tourism Company BSC Bahrain Development Bank BSC (c) Global Leasing Company Limited Southern Area Development Company BSC (c) Bahrain International Golf Course BSC (c) Joslin Diabetes Centre BSC (c)
2006 BD 8,730,550 4,186,248 3,331,816 2,042,234 1,827,126 632,924 20,750,898
2005 BD 8,410,749 4,039,263 3,671,486 2,036,810 1,963,023 625,057 20,746,388
Investments in associated undertakings have been ascertained based on the Organisation’s proportionate share in the net assets of the associated undertakings in accordance with the audited financial statements of the associated undertakings for the year ended 31 December 2006.
12
Investment properties 2006 BD At 1 January Capital expenditure incurred on buildings during the year Unrealised fair value gains on investment properties Write-off of investment properties Depreciation charge for the year At 31 December 32,117,429 497,000 (95,200) (748,057) 31,771,172 2005 BD 32,044,581 2,125 856,000 (785,277) 32,117,429
Investment properties includes freehold land amounting to BD12,198,086 (2005: BD12,198,086) and buildings on freehold land amounting to BD25,809,501 (2005 : BD25,904,701). At 31 December 2006, the management estimated the fair values of the investment properties at BD92,267,502 (2005: BD62,342,015). 13
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
13
Investment in wholly owned subsidiary undertakings Bahrain Investment Bank BSC (c), Bahrain (“BIB”) BIB is incorporated as a closed joint stock company in the Kingdom of Bahrain and operates as an investment banking institution under a license granted by the Central Bank of Bahrain. In September 1987, all the shares of the bank were acquired by the Organisation, and accordingly, BIB became a wholly owned subsidiary of the Organisation. In accordance with the Extra-Ordinary General Meeting held on 17 January 2007, the Organisation has decided to put BIB into voluntary liquidation and an Official Liquidator has also been appointed to liquidate the assets and liabilities of BIB. Accordingly, BIB changed its basis of accounting to the liquidation basis. However, as the liquidation process has not yet been completed, the Organisation has consolidated the assets and liabilities and results of operations of BIB based on audited financial statements prepared as at, and for the period ended 30 November 2006. Marina Club S.P.C., Bahrain (“MC”) MC is a single person company registered with the Ministry of Industry and Commerce in the Kingdom of Bahrain and is engaged in the business of harbouring pleasure crafts and providing catering, sports, gymnasium and marine related services. MC is a wholly owned subsidiary of the Organisation.
14
Property, plant and equipment Freehold Buildings on land freehold land BD BD Cost or valuation At 1 January Additions Revaluation surplus Disposals At 31 December Accumulated depreciation At 1 January Charge for the year Disposals At 31 December Net book amount At 31 December 2006 At 31 December 2005 40,653,296 19,374,195 1,355,147 1,527,235 280,274 342,998 42,288,717 21,244,428 4,596,015 172,088 4,768,103 3,863,916 185,059 (71,598) 3,977,377 8,459,931 357,147 (71,598) 8,745,480 19,374,195 21,279,101 40,653,296 6,123,250 6,123,250 4,206,914 122,335 (71,598) 4,257,651 29,704,359 122,335 21,279,101 (71,598) 51,034,197 Equipment and other assets BD
Total BD
14
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
14
Property, plant and equipment (continued) The land and building of one of the subsidiary undertakings of the Organisation was revalued by three independent property valuers (Mirza Al Tawash, A.Hameed Rajab and Awal Construction Company) during April 2007. The revaluation surplus of BD21,279,101 arising on revaluation has been taken to revaluation reserve in Scheme members’ funds.
15
Trade and other payables 2006 BD Rent received in advance Accruals and other payables Provision for employees’ leaving indemnity 252,090 73,183 325,273 Retirement benefits cost The Organisation employed 4 expatriates (2005: 5 expatriates) and 327 Bahrainis (2005: 305 Bahrainis) as at 31 December 2006. Bahraini employees are covered by the Government employee pension scheme. Employees and the Organisation contribute monthly to this scheme on a fixed-percentageof-salary basis. Expatriate employees on limited-term contracts are entitled to leaving indemnity payable under the provisions of the Bahrain Labour Law for the Private Sector, 1976, as amended. The movement in the provision for employees' leaving indemnity is as follows: 2006 BD At 1 January Accruals for the year Payments during the year At 31 December 74,088 7,255 (8,160) 73,183 2005 BD 106,235 20,006 (52,153) 74,088 2005 BD 55,662 792,410 74,088 922,160
15
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
16
Net investment income Year ended 31 December 2006 BD Unrealised fair value gains on financial assets at fair value through profit and loss Interest on fixed deposits and bank balances Dividend income Investment (loss)/profit from a subsidiary undertaking Realised gains on sale of available-for-sale investments Interest on Government of Bahrain and other bonds Net income from investment properties Share of profits/(losses) in associated undertakings Foreign exchange translation gains/(losses) Net investment income 13,142,984 28,449,992 10,248,587 (228,000) 7,995,321 3,693,972 286,561 355,326 284,427 64,229,170 Year ended 31 December 2005 BD 21,085,758 16,381,769 9,749,277 2,396,000 2,330,930 2,472,733 42,066 (361,043) (4,249,364) 49,848,126
17
Effective interest rates on cash and bonds The effective interest rate is the historical annual yield on fixed-rate instruments carried at amortised cost and the current market yield for a floating rate instrument or a short-term fixed deposit. The following table presents the effective rates of the financial instruments: Aggregate principal 2006 Short-term fixed deposits Floating rate short-term fixed deposits Fixed rate bonds Floating rate bonds (re-priced within 4-6 months) 459,397,158 59,008,333 37,905,775 27,695,408 Effective interest rate 2006 Aggregate principal 2005 Effective interest rate 2005 3.518% 3.626% 2.611% 4.492%
5.225% 396,995,843 5.833% 5.352% 5.934% 79,170,000 16,218,867 54,693,100
18
Financial assets and liabilities and risk management Financial instruments consist of financial assets and financial liabilities. Financial assets of the Group include cash and bank balances, placements with banks, fixed deposits, receivables and investments. Financial liabilities of the Group include trade and other payables. The risks associated with financial instruments and the Group’s approach to managing such risks is set out below:
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The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006 18 Financial assets and liabilities and risk management (continued) Currency rate risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group has deposits and investments in currencies other than Bahrain Dinars and United States Dollars. The Bahrain Dinar is effectively pegged to the United States Dollar; thus, currency risk is expected to occur only in respect of other currencies. The Group’s exposure to currency risk, as well as the currency-wise concentration of investments, expressed in equivalent Bahrain Dinars (excluding short-term deposits and assets and liabilities) is summarised below: Net currency wise concentration of investments in Bahrain Dinar equivalents 2006 BD Euros Pounds Sterling Japanese Yen Total open foreign exchange positions at 31 December United States Dollars Bahrain Dinars Total at 31 December This comprises: Cash and bank balances Placement with banks Fixed deposits Receivables: Social insurance contributions receivable Net pension loan receivable Other receivables Loans to employees Accrued interest and rents receivable Investments: Financial assets at fair value through profit or loss Available-for-sale investments Originated loans Held-to-maturity investments Investment properties Total 9,694,076 4,508,997 12,612,796 26,815,869 847,254,678 281,822,789 1,155,893,336 2005 BD 10,213,636 19,487,130 13,065,738 42,766,504 754,854,717 276,330,874 1,073,952,095
422,172 125,000 553,718,021 9,406,243 9,278,603 367,478 190,929 6,713,563 191,442,506 291,221,329 6,000 61,230,320 31,771,172 1,155,893,336
3,788,726 3,372,000 471,742,843 9,791,248 8,243,668 439,199 157,497 3,737,368 178,050,457 291,592,693 7,000 70,911,967 32,117,429 1,073,952,095
Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market rates of interest. 17
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006 18 Financial assets and liabilities and risk management (continued) The Group’s short-term fixed deposits are at fixed interest rates and mature within one year. Investments in Government bonds consist of both fixed and floating rate instruments. The effective interest rates on deposits and bonds are set out in Note 17. Derivatives: The Group does not use derivative financial instruments to hedge its currency, interest rate or market risks. Market risk is the risk that the value of financial instrument will fluctuate as a result of changes in market prices on account of factors specific to the individual security or to its issuer or factors affecting the securities market. The Group is exposed to market risk with respect to its various investments. The Group’s limits market risk by maintaining a well-diversified portfolio and by continuous monitoring of pertinent developments in international securities markets. In addition, the Group actively monitors the key factors that are likely to affect the prices of securities, including operational and financial performance of investee companies. The geographical concentration of the Group’s investments is set out in Note 19. Credit risk is the risk that one party to a contract underlying a financial instrument will fail to discharge its obligations causing the other party to incur a financial loss. Cash is placed with national and international banks with good credit ratings. Credit risk on receivables is limited to local employers in the private sector, which are carried net of impairment allowances. The Group monitors its credit risk with respect to receivables from employers in accordance with defined policies and procedures. Liquidity risk is the risk that an enterprise will encounter financial difficulty in raising funds to meet commitments associated with financial instruments and social insurance obligations. Liquidity risk may arise from the inability to sell a financial asset at a price close to its fair value. Liquidity requirements are monitored on a daily basis and the management ensures that sufficient funds are available to meet all liabilities as they fall due. In the normal course of business, the Group does not normally resort to borrowings, but has the ability to raise funds from banks at short notice. Fair value is the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Differences can, therefore, arise between the carrying values under the historical cost method and the fair value estimates. Underlying the definition of fair value is a presumption that an enterprise is a going concern without any need or intention to either liquidate, curtail materially the scale of its operations, or undertake a transaction on adverse terms. With the exception of investment properties, the fair value of the Group’s financial assets and liabilities are not materially different from their carrying values.
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The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
19
Geographical concentration of investments A geographical distribution of the Group’s financial assets at 31 December 2006 is set out below: 2006 BD Bahrain North America Europe Japan Middle East and Africa Total This comprises: Cash and bank balances Placement with banks Fixed deposits Receivables: Social insurance contributions receivable Net pension loan receivable Other receivables Loans to employees Accrued interest and rents receivable Investments: Financial assets at fair value through profit or loss Available-for-sale investments Originated loans Held-to-maturity investments Investment properties Total 929,541,670 140,327,384 63,729,819 12,612,796 9,681,667 1,155,893,336 2005 BD 858,255,180 130,082,759 72,528,082 13,065,738 20,336 1,073,952,095
422,172 125,000 553,718,021 9,406,243 9,278,603 367,478 190,929 6,713,563
3,788,726 3,372,000 471,742,843 9,791,248 8,243,668 439,199 157,497 3,737,368
191,442,506 291,221,329 6,000 61,230,320 31,771,172 1,155,893,336
178,050,457 291,592,693 7,000 70,911,967 32,117,429 1,073,952,095
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The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006
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Segmental analysis Business segments A business segment is a group of assets and operations engaged in products or services that are subject to risk and return that are different from those of other business segments. A summary of the assets, liabilities and results of operations of the Group’s business segments as at, and for the year ended 31 December 2005 and 2006 is as follows: 2006 Social insurance BD 65,967,018 64,457,170 481,236 (45,905,583) 84,999,841 1,166,476,115 173,805 Banking BD 832,000 (1,060,000) (228,000) 11,126,000 3,000 Resort BD 634,319 35,211 (670,955) (1,425) 41,334,484 148,468 Total BD 66,601,337 65,289,170 516,447 (47,636,538) 84,770,416 1,218,936,599 325,273 2005 Social insurance BD Revenue Net investment income Other income Expenses Net profit/(loss) Total assets Total liabilities Geographical segments A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. A geographical concentration of the Group’s investments has been provided in Note 19. As the Group operations are located only in the Kingdom of Bahrain, a geographical segmental analysis of the Group’s assets, liabilities and operations has not been provided. 20 59,574,978 47,452,126 393,317 (41,538,668) 65,881,753 1,080,751,059 564,733 Banking BD 2,546,000 (150,000) 2,396,000 14,885,000 141,000 Resort BD 758,599 29,122 (894,552) (106,831) 20,316,936 216,427 Total BD 60,333,577 49,998,126 422,439 (42,583,220) 68,170,922 1,115,952,995 922,160
Revenue Net investment income Other income Expenses Net profit/(loss) Total assets Total liabilities
The General Organisation For Social Insurance Notes to the consolidated financial statements for the year ended 31 December 2006 21 Actuarial position The Group’s actuarial funding provision at 31 December 2006 is as follows: 2006 BD Scheme members’ funds Actuarial present value of promised benefits Unfunded deficit 1,218,611,326 (1,798,733,000) 580,121,674 2005 BD 1,115,030,835 (1,856,203,000) 741,172,165
The actuarial present value of promised benefits at 31 December 2006 can be further analysed as follows: 2006 BD Vested benefits Non-vested benefits 1,628,265,000 170,468,000 1,798,733,000 2005 BD 1,579,627,000 276,576,000 1,856,203,000
The actuarial estimate has been prepared by independent actuaries, Hewitt Associates SA, Greece. The actuary has calculated the actuarial present value of promised benefits accruing under the terms and conditions of the scheme at 31 December 2006. The method used to calculate the actuarial liability, as well as the standard contribution rate, is the “Projected Unit Method” which requires the actuarial liability to be calculated based on the present value of the benefits accrued at the valuation date, taking into account the final earnings for members in service. The discount rate has been taken at 5.5% per annum, consistent with the long-term investment returns to the Organisation. The Group’s unfunded deficit at 31 December 2006 amounts to BD580,121,674 (2005:BD741,172,165). Management is in the process of reviewing this unfunded deficit and considering options available to address the shortfall. A reconciliation between the actuarial liability at 31 December 2006 and 2005, as provided by the actuary, Hewitt Associates SA, is set out below: Notes Actuarial liability at 31 December 2005 Increase in interest cost Increase in service cost Impact of Law 40 Change in salary assumption Benefits paid Salary increase higher than expected Miscellaneous Actuarial liability at 31 December 2006 21 BD 1,856,203,000 102,000,000 102,000,000 (78,000,000) (234,000,000) (41,000,000) 75,000,000 16,530,000 1,798,733,000
a b c d e f
The General Organisation For Social Insurance Notes to the financial statements for the year ended 31 December 2006 21 Actuarial position (continued) The explanatory notes for the above items appearing in the reconciliation are as follows: a) Increase in interest cost
This cost represents the accrued interest on the actuarial liability as at 31 December 2005 calculated at the rate of 5.5% per annum. b) Increase in service cost
This cost represents accrued additional benefits in respect of additional years of service of the insured employees covered under various schemes of the Group. c) Impact of Law 40
This amount represents the reduced impact arising due to various amendments to Law 24/1976 which has been replaced by Law No. 40 of 2006 with effect from 3 August 2006. The amendments cover aspects such as ceiling of the salary to a maximum of BD4,000 per month for contribution purposes, extending the social insurance cover to all private sector employers employing one or more employees and the basis of calculation of the pension salary to a maximum of 150% of the last five years salary of an employee. d) Change in salary assumption
This represents the use of a lower salary increase assumption of 4% compared to 5.5% adopted in the year 2005. e) Benefits paid
This amount represents reduction in the actuarial liability due to payments made to beneficiaries during the current year. f) Salary increases higher than expected
This represents the actuarial liability arising due to the difference between the actual increase in salaries during the year 2006 compared to the level of increase assumed in the actuarial projections previously. 22 Contingent liabilities A legal case was filed on 1 August 2006 against the Organisation and Marina Club S.P.C., a wholly owned subsidiary of the Organisation, by Maymen Development and Real Estate Investment Company, a company registered in the Kingdom of Saudi Arabia, and Dr Abdul Rahman Bin Hassan Bin Mohammed Al Hussaini, a Saudi national, claiming an amount of BD32,208,000, plus interest at 9% per annum and legal costs, in respect of the Organisation’s withdrawal to dispose-off its stake in Marina Club S.P.C. As the legal outcome of this case is not certain as at 31 December 2006, management has made no provision for this claim in these financial statements.
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