ANNUAL REPORT 2018 ARCAPITA 2 ANNUAL REPORT 2018

OVERVIEW TABLE OF 4 Geographic Presence CONTENTS 5 Our Values 6 Directors’ Report 7 CEO’s Message 8 Financial Highlights

OUR BUSINESS

10 Clients 10 Investment Focus 11 Investment Process 12 Real Estate 14 Private Equity

CORPORATE GOVERNANCE FRAMEWORK

16 Board of Directors 16 Board Committees 17 Management Committees 18 Code of Business Conduct 18 Compliance 19 Organizational Structure and Business Divisions

ARCAPITA GROUP HOLDINGS LIMITED

22 Shari’ah Supervisory Board’s Report to Shareholders 23 Auditors’ Report

ARCAPITA INVESTMENT MANAGEMENT B.S.C.(C)

60 Shari’ah Supervisory Board’s Report to Shareholders 62 Auditors’ Report

OUR PEOPLE

78 Board of Directors 80 Shari’ah Supervisory Board 81 Senior Management 84 Management Team ANNUAL REPORT 2018 3 ARCAPITA

OVERVIEW

Arcapita offers investors and shareholders diversified investment opportunities which adhere to Shari’ah principles. At the center of one of the fastest growing wealth markets in the world, Arcapita’s management team has been serving an exclusive group of investors in the GCC region and Southeast Asia for more than 20 years. With offices in Bahrain, Atlanta, London and Singapore, Arcapita’s senior management team has overseen over 80 transactions with a total transaction value in excess of $30 billion and possesses the footprint to invest on a global scale. ARCAPITA 4 ANNUAL REPORT 2018

Geographic Presence

ATLANTA LONDON

BAHRAIN

SINGAPORE

ARCAPITA OFFICES SELECTED COUNTRIES WHERE MANAGEMENT HAS OVERSEEN INVESTMENTS ANNUAL REPORT 2018 5 ARCAPITA

Our Values

Originality Integrity Arcapita aims to provide innovative Arcapita aims to attract and retain people with and proprietary alternative investment the fortitude to do the right thing at all times opportunities

Prudent Risk Management Alignment of Interests Arcapita strives to achieve sustainable growth Arcapita aims to align its interest with through maintaining a robust capital base and investors and shareholders through retaining sound risk management processes a sizeable equity stake in all transactions offered to stakeholders

Transparency Professionalism Arcapita is committed to accurate and timely Arcapita is committed to recruiting and disclosure of information to its stakeholders retaining the best talent in the field

Ethical Investment Policy Arcapita aims to invest in morally and ethically sound companies and products, and does not invest in non Shari’ah-compliant activities ARCAPITA 6 ANNUAL REPORT 2018

Directors’ Report Fiscal year 2018

We are pleased to report that Fiscal Year To support our growth, we expanded (“FY”) 2018 was another successful our GCC and US investment teams, and year for Arcapita with revenues of added additional depth to our Investors ABDULAZIZ H. ALJOMAIH $37.9 million and net income of $12.4 Relationship Management team, which CHAIRMAN million, marking five years of continued maintains strong relationships with profitability, accelerating investment our investor base across the Gulf. We activity and strong fundraising across also continued to strengthen other the Gulf. Arcapita’s balance sheet departments in order to ensure that remains robust with total assets of our key functions grow in line with the $354.1 million, and total equity of needs of the overall business. $219.7 million, including $33.0 million in As always, our goal is to provide reserves. innovative alternative investment We have completed four investments opportunities for our investors and worth a total transaction value in deliver attractive returns to all excess of $400 million across the stakeholders. With a robust pipeline US and the GCC. These included the of investment opportunities, we acquisition of a $148 million portfolio have set ambitious investment and of senior living communities in Chicago, fundraising targets for FY 2019. On US; a $62 million investment in a behalf of Arcapita’s Board of Directors, portfolio of logistics assets in Dubai, I would like to thank our clients and UAE; a $143 million investment in shareholders for their continued support the leading provider of signage and and look forward to another successful lighting solutions in the US; and a $51 year ahead. million acquisition of a boutique female fitness chain in Saudi Arabia. With the completion of these transactions, Arcapita’s portfolio now comprises eleven investments with an aggregate transaction value of over $1 billion. Our global presence, lean investment teams, and deep industry relationships position us well to take advantage of the Abdulaziz H. Aljomaih changing global economic landscape, Chairman and we are confident in our ability to continue to provide our investors with distinctive investment opportunities. Arcapita’s management team has over two decades of experience in managing Shari’ah-compliant alternative investments across the globe, and we are excited about accelerating our investment activity in the geographies and sectors we know best. ANNUAL REPORT 2018 7 ARCAPITA

CEO’s Message

With over 20 years of experience, In FY 2018, Arcapita increased its equity Arcapita’s management team has built an base to over $200 million through a investment platform with the capability capital raise that received substantial ATIF A. ABDULMALIK to source proprietary investment support from our existing shareholder CEO opportunities across the globe. We base while simultaneously attracting have a diversified business model and a new investors as Arcapita shareholders. veteran management team that brings We believe that our expanded balance decades of deal sourcing, structuring sheet will allow us to accelerate our and portfolio management expertise. investment activity and deliver on our long-term business plan targets. Our team is focused on several thematically driven sectors that are As we look towards FY 2019 and poised to experience significant growth beyond, we remain confident that we over the medium to long term. In the US, have built the key attributes to support a rapidly aging population is sustaining a diversified, flexible, and sustainable our interest in the senior living business model, which will allow us to sector, where we have a strong and deliver consistent results as we grow our established track record, while growing franchise in the region. college enrollment and supportive demographics are increasing our appetite for student housing transactions. In the US and MENA, increased supply chain sophistication and penetration of e-commerce are driving significant demand for industrial and logistics services, a sector where we are exploring Atif A. Abdulmalik several private equity and real estate CEO opportunities. As a firm, we believe in the importance and value of long-term relationships with our shareholders, investors and investment partners. We utilize these partnerships to bring a range of different dimensions to our services and investments, resulting in access to high-quality transactions and efficient execution. ARCAPITA 8 ANNUAL REPORT 2018

Financial Highlights

Figures in US$ million unless FY FY FY FY FY otherwise noted 2014 2015 2016 2017 2018 Total Income 29.3 35.5 36.2 33.5 37.9 Net Income 10.1 11.4 12.2 8.1 12.4 Net Income Margin (%) 35% 32% 34% 24% 33% Total Equity 50.5 86.1 130.2 132.3 219.7 Dividend as a Percentage of 5% 7% 7% 7% 7% Paid-up Capital (%)

TOTAL INCOME NET INCOME $37.9 million $12.4 million

37.9 14 40 35.5 36.2 12.2 12.4 33.5 12 11.4 35 29.3 10.1 30 10 8.1 25 8 20 6 15 4 10 2 5

0 0 FY FY FY FY FY FY FY FY FY FY 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

TOTAL EQUITY DIVIDEND (as a percentage of paid-up capital) $219.7 million 7%

8% 250 219.7 7% 7% 7% 7% 7% 200 6% 5% 132.3 5% 150 130.2 4% 86.1 100 3% 50.5 2% 50 1%

0 0% FY FY FY FY FY FY FY FY FY FY 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 ANNUAL REPORT 2018 9 ARCAPITA

OUR BUSINESS

Arcapita’s core business is offering its clients real estate and private equity transactions on a deal-by-deal basis. After a transaction is completed, Arcapita syndicates a portion of the underwritten equity with its investor base while maintaining a sizable equity position in each transaction, thus aligning its interests with investors. ARCAPITA 10 ANNUAL REPORT 2018

Our Business CLIENTS Industrial and Logistics Arcapita maintains a network of over Growth in e-commerce and increased 1,300 valuable investors from across sophistication of supply chains is the GCC and Southeast Asia. Arcapita’s creating significant demand for more investor base is primarily comprised efficient logistics and warehousing of investors from the following four services. As a result, companies are categories: increasingly outsourcing complex supply chain activities to specialized operators. • High Net Worth Individuals Given senior management’s track record (“HNWI”): individuals with in this sector and the positive investor investable assets in excess of $1 returns generated by investments such million; as PODS and 3PD, the team will continue to seek opportunities in the freight- • Family Offices: professional entities forwarding, last-mile delivery and set up to manage the investments, contract logistics subsectors. business affairs and philanthropic interests of high net worth families; Healthcare and Wellness • Institutions: large, sophisticated In addition to the significant growth in investment groups that include the global senior population, the 65 and pension funds, university over age demographic is also increasingly endowments, asset managers and wealthy. In the US, the baby boomer insurance companies; and population is estimated to control 70% of the population’s disposable • Sovereign Wealth Funds (“SWFs”): income and by 2022, this demographic state-owned investments funds that is projected to inherit approximately invest in real and financial assets on a $15 trillion from parents and spouses. global scale. Capitalizing on these demographic tailwinds, Arcapita’s core management INVESTMENT FOCUS team has an established track record in the senior living real estate sector with Arcapita’s core business model will eight transactions completed, worth a continue to revolve around offering total transaction value of approximately its investors real estate and private $1.8 billion. Senior living remains a key equity investments across sectors and focus area for the firm, and management geographies where its investment team is continuing to monitor opportunities has demonstrated a strong track record. in the healthcare and consumer As Arcapita continues to accelerate its services sectors that cater to this age deal-by-deal business and introduces demographic. new products, the firm’s investments are expected to focus on the following industries. ANNUAL REPORT 2018 11 ARCAPITA

In the GCC and other emerging After the initial screening to determine INVESTMENT PROCESS FLOW economies, increased internet which opportunities meet the firm’s penetration and health consciousness are Deal Sourcing investment criteria, the investment creating significant demand for products teams conduct in-depth due diligence and services that promote fitness on promising opportunities. During the FINDING, EVALUATING AND CLOSING and physical well-being. This trend is due diligence stage, the investment team expected to continue over the long term • Analyze industry structure, conducts research on multiple aspects and is further supported by government- competitive position, and value of the potential investment, including backed healthcare initiatives such as proposition the market opportunity, partner’s KSA Vision 2030. • Assess competitive landscape background and capabilities, and • Evaluate management team investment fundamentals. This process Consumer and Business Services draws on expertise from Arcapita’s Fueled by increasing brand awareness internal investment teams, senior and an expanding middle class in management and a network of third- emerging markets, Arcapita is focusing Portfolio Management party advisors. its private equity efforts on sectors that are consumer-driven. These include In the early stage of the investment EARLY OWNERSHIP 100-DAY PLAN food & beverage, branded retail and process, each new investment technology, as well as sectors that • Define and review initial strategy and proposition is presented to the capitalize on the increasing amount of action plans Market Sounding Group (“MSG”). The discretionary spending within the global • Conduct workshops to assimilate MSG takes an active role during the Muslim population. company into Arcapita and gain investment sourcing process to facilitate consensus around goals and convergence between Arcapita’s In addition, a growing trend of expectations investment products and prevailing outsourcing non-core services by • Develop and refine business plan and investor sentiment. corporates has led to sustained growth in strategy the business services segment. Arcapita During the MSG review, the relevant is focused on acquiring businesses investment team discusses the that provide mission-critical services, opportunity with Arcapita’s Investors outsourced business processes, and Relationship Management (“IRM”) PRIMARY VALUE CREATION PERIOD technology-enabled services. team, together with members of senior • Review performance against targeted management, thus allowing Arcapita to financial and operating metric formulate a preliminary understanding INVESTMENT PROCESS • Build capabilities within companies to on how a potential investment product Arcapita’s investment process comprises improve key processes would be perceived by Arcapita’s three stages: deal sourcing, portfolio • Structure management objectives and investor base. If the proposed management, and exit. When sourcing compensation plans investment gains MSG approval, the investments, Arcapita receives • Implement best-in-class industry investment team continues to pursue numerous investment referrals from its practices the opportunity before presenting it to deal sourcing network. These sources Arcapita’s Investment Committee (“IC”), include proprietary relationships, direct Executive Committee (“EC”), and Board approach from partners and sellers, of Directors’ Executive Investment referrals from specialist intermediaries, Exit Committee (“EIC”) for approval. dialogue with investment banks and follow-on transactions within the • Optimize earnings and overall portfolio. financial performance • Identify exit options and facilitate the exit process ARCAPITA 12 ANNUAL REPORT 2018

Once a transaction has been approved The team has completed investments INTERNAL INVESTMENT SCREENING FRAMEWORK and completed, it passes into the across the globe; from North America, portfolio, where its performance is to Europe, the Middle East and Asia. In Investment Team monitored against the investment thesis. support of Arcapita’s overall business The portfolio management team function strategy, and to provide more diverse Investment teams originate investments via: plays an important role in ensuring investment opportunities for investors, • Investment banks and advisors that investments achieve their full the real estate team at Arcapita has • Direct approach to partners and potential. A cross-functional team of extended its focus to develop initiatives sellers portfolio management and investment that include the establishment and professionals works with management of management of real estate investment • Personal relationships the company to plan business strategy funds. In addition to real estate funds, • Public information and how to implement it. the team is also focused on providing • Based on investment criteria real estate financial services and During the holding period, the portfolio solutions by leveraging its experience management function helps the Investment Team in specific real estate sectors. To date, portfolio companies with identifying Arcapita’s core management has Investments teams study prospective and enhancing strategic and operational overseen over 40 investments with a investment: matters such as recruitment of senior • Analyze and pursue promising total transaction value of approximately management, developing the supply investment opportunities $15 billion. chain and IT infrastructure as well as • Conduct preliminary due diligence introducing additional financial and Portfolio Management reporting disciplines. After closing the transaction, the asset MSG Investor Readiness Test The portfolio management team managers, corporate management Market Sounding Group: teams and joint venture partners are • For investments that match Arcapita’s monitors a range of monthly key performance indicators (“KPIs”) against directly responsible for the execution strategy, the MSG will provide insight of the business plan. Arcapita works on investor appetite the deal’s original investment thesis and closely with these partners to monitor • If MSG approves, the investment assesses the management’s performance. The team maintains close contact with and evaluate the progress of each team starts engaging advisors for real estate investment. Early in the due diligence company management teams through monthly video conferences, quarterly ownership period, the deal team works board meetings and site visits. with its partners to identify the primary Investment Team Full Due Diligence operating statistics to be monitored Due diligence: The firm aims to exit most investments through regular meetings and reports. • Due diligence is conducted in within three to seven years. However, if In this fashion, the deal team seeks to partnership with: an attractive opportunity for exit occurs, maintain continuous oversight over each - Financial advisors Arcapita will support an earlier exit. investment. - Legal firms On a monthly basis, the deal team - Consultants REAL ESTATE receives an asset performance report • Detailed report produced for which includes a comprehensive set of management approval Overview marketing and financial updates for the Arcapita’s real estate team acts as a investment and, on a quarterly or annual principal, arranger and manager of real IC, EC and EIC Investment Decision basis, the deal team also receives and estate investments, operating out of its reviews audited financial statements for Approval process: offices in Atlanta, London, Bahrain and • IC and EC evaluate the merits and every investment. Singapore. The real estate team analyzes risks of the investment, as well as the overall fit within Arcapita’s portfolio opportunities across a broad spectrum of The deal team conducts on-site transaction structures, geographies and operational reviews on a quarterly • EIC, a subcommittee of the Board of Directors, reviews investments that return profiles to provide a diverse mix basis. At these sessions, the team have been approved by the IC and EC of real estate investment opportunities conducts a deeper assessment of the to investors. To date, Arcapita’s senior investment’s performance, working with management has completed real estate the operating partner to understand the investments in the industrial and underlying factors influencing current logistics warehousing, self-storage, and future performance. residential, senior living, mixed-use, business park and retail sectors. ANNUAL REPORT 2018 13 ARCAPITA

Recent Real Estate Transactions*

Company Description Transaction Size Transaction Date

ARC US Senior Arcapita acquired a portfolio of two premium continuing $148 Million 2018 Living VII care retirement communities in Chicago, United States, with approximately 1,100 units. The communities are located within master-planned commercial areas and enjoy a variety of amenities.

ARC UAE Arcapita invested in a portfolio of high-quality warehousing facilities $62 Million 2018 Logistics III located primarily in Dubai Investments Park, Dubai, UAE.

ARC UAE Arcapita acquired a portfolio of income-generating logistics assets $150 Million 2017 Logistics II in Dubai, UAE. The portfolio comprises 11 warehousing facilities occupying a total built-up area in excess of 1.2 million square feet, primarily in Dubai Investments Park.

ARC US Senior Arcapita acquired three high quality, recently upgraded and $110 Million 2016 Living VI stabilized senior living communities in the suburbs of Atlanta, Georgia, and Washington D.C.

ARC UAE Arcapita acquired a logistics park in Dubai, UAE. The investment $100 Million 2016 Logistics Park comprises nine freehold plots of land to be developed into ten warehousing facilities that will be under a long-term master lease with a reputable UAE conglomerate.

ARC US Senior Arcapita acquired a privately-held portfolio of senior living $87 Million 2016 Living V communities in Colorado, United States, in a joint venture with Morningstar Senior Living, an experienced operating partner specializing in this sector.

ARC Saadiyat Three premium midrise residential buildings located in Saadiyat $190 Million 2015 Beach Island, Abu Dhabi. The facilities were developed by Abu Dhabi’s Apartments Tourism Development & Investment Company (TDIC) in 2013.

Note: Transaction size is based on each deal’s private placement memorandum (PPM). ARCAPITA 14 ANNUAL REPORT 2018

PRIVATE EQUIT Y portfolio company management team in During the early ownership period, establishing a clearly defined business Arcapita introduces disciplines in the Overview plan to grow the company’s value, while areas of strategy, operations, and people Arcapita acts as a principal and arranger designing a tailored capital structure management. The company works with in the acquisition of established middle- and management equity incentives senior management to identify the key market companies, with an emphasis on to foster growth and profitability. industry and company-specific operating the United States, Europe, the Middle Arcapita aims to nurture and grow the and financial measures that best reflect East and Asia. The firm targets growth- investments through the holding period the true performance levers for a oriented corporate acquisitions with a with strategic and financial support particular business. The firm structures transaction size between $50 million when necessary. To date, Arcapita’s incentive plans to encourage and and $300 million. Arcapita focuses on core management has overseen over motivate the target’s management teams sectors where its management team has 30 investments with a total transaction to meet agreed-upon metrics. established industry knowledge and a value of approximately $15 billion. successful track record. Arcapita executives serve as members of Portfolio Management each company’s Board of Directors, seeking Arcapita aims to acquire companies that Arcapita’s portfolio management to increase the value of the investment excel in a number of key aspects. These approach is designed to ensure the in three primary ways: (i) assisting companies typically have innovative highest possible performance for management in defining and continuously products or services; growing market its portfolio companies through updating the optimal three to five year positions and strong management implementing best-in-class practices and action-based strategy, (ii) identifying teams, in place or identified; be capable strategic growth initiatives. Arcapita’s and driving initiatives in the company’s of building shareholder value through portfolio management approach will be annual operating plans that improve the market strength in product line, applied in each of the critical stages of near-term operating performance of the technology, distribution, manufacturing an asset ownership process - including business and support achievement of or brand; a clear business strategy with pre-acquisition and due diligence, early financial objectives, and (iii) improving multiple avenues for growth and market ownership, the core ownership period the company’s human resource share gains; and industry growth drivers and the process leading to exit. Prior to management and succession planning. that are fundamental and compelling. the acquisition of a company, the firm Once an acquisition is completed, and conducts market and operational due the target company becomes part of diligence, along with an assessment of the private equity portfolio, Arcapita’s the management team. executives work closely with the

Recent Private Equity Investments*

Company Description Transaction Size Transaction Date

NuYu NuYu is a leading chain of women-only boutique gyms in Saudi $51 Million 2018 Arabia. NuYu offers internationally certified trainers, state-of the- art equipment, and high-quality fitness classes in a premium environment. The company is at the forefront of a global shift in tastes and preferences within the fitness industry, which is driving heightened interest in boutique concepts, and away from traditional “big box” gyms.

MC Group MC Group is the sole nationwide provider of sign management, lighting, $143 Million 2017 and service solutions in the US. MC Group has a diverse network of over 275 customers comprising nationally recognized blue-chip companies in the retail, banking, hospitality, quick service restaurant and C-store segments. Through its headquarters in Cleveland, Ohio, MC Group processes over 40,000 work orders per year through over 5,000 field service partners.

NAS United Arcapita, as part of a consortium, completed the acquisition of NAS $66 Million 2017 Healthcare United Healthcare Services LLC, a leading third-party medical claims Services LLC processing company based in Abu Dhabi, UAE.

Note: Transaction size is based on each deal’s private placement memorandum (PPM). ANNUAL REPORT 2018 15 ARCAPITA

CORPORATE GOVERNANCE FRAMEWORK The system of procedures and principles governing Arcapita’s management and operations are fundamental to the firm’s success. Arcapita’s Board of Directors and senior management are committed to an efficient, entrepreneurial decision-making structure that is fair, transparent and accountable while maintaining the agility required to execute transactions effectively. ARCAPITA 16 ANNUAL REPORT 2018

Corporate Governance

BOARD & MANAGEMENT CORPORATE GOVERNANCE FRAMEWORK

Board of Board of Directors Director’s Level

Executive Executive Administrative Board Committee’s Audit and Risk Investment and Corporate Governance Level Committee Committee Committee

Risk Management Executive Committee Management Committee’s Level Committee

Market Sounding Group

Investment Investment Committee Team’s Level

BOARD OF DIRECTORS two different individuals, to ensure an appropriate balance and separation of Arcapita has assembled a distinguished authority. Board of Directors comprising eminent business personalities from across the GCC Arcapita’s management works closely region. Drawing on deep experience in with the Board of Directors, both management, industry and investments, directly and through its various the Board of Directors is well positioned committees. Management regularly to represent the best interests of investors provides investment and financial while assisting management with expert updates and strategic forecasts to advice and counsel. the Board of Directors, and discusses all investment decisions under Arcapita’s Board of Directors takes consideration, as well as any other major responsibility for the strategy of decisions or issues facing Arcapita. Arcapita and for the supervision and oversight of its senior management, who have been entrusted with implementing BOARD COMMITTEES day-to-day management policies. Arcapita’s Board of Directors is Arcapita’s Board of Directors consists assisted in its monitoring and oversight of eight members, including seven responsibilities by the Executive non-executive members and Mr. Atif A. Investment Committee (“EIC”), the Abdulmalik, the firm’s CEO, representing Executive Administration and Corporate management. The Board of Directors Governance Committee (“EAC”) and the meet as often as business requires, and Audit and Risk Committee (“ARC”). a minimum of four times a year. The roles of Chairman and CEO are held by ANNUAL REPORT 2018 17 ARCAPITA

Executive Investment Committee MANAGEMENT COMMITTEES Market Sounding Group The EIC’s primary duties and Arcapita has assembled a management The Market Sounding Group is intended responsibilities are to: team with extensive experience in to evaluate the marketability of investment products identified by the • Establish operating guidelines for building and managing investment deal teams. The group comprises the investment activities platforms globally. Drawing upon management’s collective experience and Investors Relationship Management • Approve new investments and exits track record, Arcapita enjoys a seasoned team, members of the Financial Management Group and Shari’ah • Monitor investment performance management team that with experience spanning multiple economic cycles. department. The Market Sounding Group • Approve financing and issuing of is responsible for the initial assessment securities Executive Committee of investor and market sentiment to The Executive Committee oversees potential new transactions. Executive Administration and the strategic planning for Arcapita Corporate Governance Committee Investment Committee and the decision making for all new The EAC’s primary duties and investments. For example, prior to The Investment Committee oversees the responsibilities are to: making a commitment to sign definitive management of the existing investment portfolio, and screens future new deal • Approve and recommend corporate agreements relating to investments (equity and financing), each new activity before the Marketing Sounding and administrative policies and Group, Executive Committee and other procedures investment will need to be reviewed by the Executive Committee. The Executive approvals are sought, and provides • Review and recommend approval of Committee’s duties and responsibilities inputs for Arcapita’s annual business the annual budget include: planning. The Investment Committee’s role and responsibilities include: • Recommend and revise corporate • Setting global strategy for Arcapita governance policies and procedures • Overseeing all deal teams and • Reviewing and recommending new investment assets • Oversee and monitor the governance investments framework • Vetting all deal team requests that • Reviewing and approving business will ultimately require Executive Audit and Risk Committee plans, budgets and control systems Committee approval The ARC’s primary duties and responsibilities are to: • Managing human capital, including • Serving as first point of contact for determining compensation and individual deal teams • Approve and recommend for further benefits plans and overseeing human approval by the Board of Directors: resource development • Providing Board-level engagement with individual deals - Annual financial statements and Risk Management Committee • Serving as go-to liaison for new deal budgets The Risk Management Committee’s activities for specific sectors and duty is to establish and maintain a risk - Auditors and consultants geographies management framework throughout • Monitor financial reporting, risk, the firm to best manage Arcapita’s • Managing the firm’s operating rhythm compliance and internal control shareholder and client interests. Its relating to investments (e.g., quarterly • Review and appraise activities of mandate is to identify, assess and reviews, valuation updates, dividend external and internal auditors measure risks arising from the firm’s distributions, investor reporting, etc.) activities, and to define the appropriate • Providing periodic portfolio summary course of action to mitigate or manage input for Arcapita’s overall financial them. The Risk Committee’s role and reports responsibilities include: • Establishing and maintaining a risk management framework throughout the firm by working with the Board Audit and Risk Committee • Overseeing risk functions ARCAPITA 18 ANNUAL REPORT 2018

CODE OF BUSINESS CONDUCT Whistleblower Policy COMPLIANCE The Board of Directors has adopted a Code of Conduct Policy Arcapita adopts a comprehensive Whistleblower Policy that applies to all Compliance framework to ensure full The Board of Directors has adopted a Arcapita Employees to encourage and compliance with applicable regulations Code of Conduct policy that outlines provide a process for Arcapita Employees in the jurisdictions where Arcapita principles that the Board of Directors, to raise any serious concerns regarding conducts its activities. In this regard, senior management, and all employees any wrongdoing or improper conduct the Board of Directors has adopted a (collectively, the “Arcapita Employees”) at Arcapita and a reassurance that Compliance Charter which outlines shall adhere to. The Code of Conduct was they will be protected from possible the fundamental principles, roles, and adopted to promote honest and ethical recriminations if they have made a good responsibilities of the Compliance business conduct at Arcapita. Arcapita faith disclosure in connection with such function as well as its relationship Employees are required to have full concerns. loyalty to Arcapita and its operations with the Board of Directors, Board and should conduct themselves with Anti-Money Laundering Policy Committees, senior management, and integrity, honesty, leadership, and The Board of Directors has adopted a business and operational functions. The professionalism in fulfilling their comprehensive Anti-Money Laundering Compliance Charter has been developed fiduciary responsibilities to Arcapita Policy and Procedure to prohibit and to provide an informative written and its stakeholders and to maintain actively prevent money laundering reference for the Compliance function. full confidentiality with respect to and any activity that facilitates money The Compliance function is overseen by any Arcapita confidential information. laundering or the financing of terrorist the head of Compliance who reports to In addition, Arcapita Employees are or criminal activities. Arcapita Group the Audit and Risk Committee. required to avoid actual or potential will not establish a relationship with, or conflicts of interest with Arcapita and to conduct a transaction for, a customer a) The responsibilities of the head of properly disclose and be transparent in whose funds appear to be the proceeds Compliance include: any transactions involving Arcapita. of or involved with illegal activity b) • Overseeing Arcapita’s Compliance whose identity or legitimacy cannot be Insider Trading Policy activities and monitoring the satisfactorily established and c) who The Board of Directors has adopted an implementation of the Compliance fails to provide information which is review plan Insider Trading Policy that applies to necessary to comply with the policy. all Arcapita Employees and all Arcapita • Reporting annually to the Audit and Employees are required to certify All Arcapita Employees who handle Risk Committee, senior management, in writing that they have read and customer transactions, or who are and the Board of Directors on understand such policy and agree to managerially responsible for such Arcapita’s Compliance activities and abide by its terms. The policy provides transactions, participate in Anti-Money status that, except with the prior written Laundering training on an annual basis. consent of the Chief Executive Officer, • Coordinating internal Compliance no Arcapita Employee who while acting reviews for Arcapita Group, obtains material • Ensuring that the Compliance non-public information which relates to function is appropriately staffed with any public company that the Arcapita competent individuals Group has invested in or is considering investing in (“Public Company”) may • Providing portfolio exit projections buy or sell or otherwise deal in securities and future investment plans as input of such Public Company or otherwise for Arcapita’s business year plan misuse or disclose such information to any person within or outside Arcapita Group, other than those persons who need to know such information on a case-by-case basis. ANNUAL REPORT 2018 19 ARCAPITA

ORGANIZATIONAL STRUCTURE AND BUSINESS DIVISIONS

Board of Directors

Chief Executive Officer

Chief Chief Global Head of Financial Global Head of Operating Officer Investment Officer Management Group Financial Control

Investors Relationship Reporting & Internal Real Estate Corporate Finance Management Control

Corporate Accounts, Legal Private Equity Shari’ah Payables & Imprest Accounts

Corporate Investment Accounting Risk Management Management & Administration

Corporate Information Technology Communications

Treasury Operations

Human Resources ARCAPITA 20 ANNUAL REPORT 2018

Investors Relationship Management Corporate Management Investments: Real Estate and Private (“IRM”) Corporate Management provides support Equity IRM is responsible for developing to all of Arcapita’s departments across Arcapita employs investment teams and maintaining relationships within the firm’s office network in Bahrain, and independent consultants that are Arcapita’s network of investors and Atlanta, London, and Singapore. active globally, and their activities are potential investors. The team members coordinated under the Chief Investment Information Technology (“IT”) are the main point of contact for Officer. The investment teams originate, clients, delivering portfolio updates The Information Technology negotiate, structure, and manage and presenting new investment department is responsible for business Arcapita’s investments, and eventually opportunities. This group is also the process automation, information facilitate the investment exit process. first point of contact for investment management, and implementation Arcapita’s investment teams operate out opportunities which may be sourced of business solutions. Arcapita has of Bahrain, Atlanta, and Singapore. from clients or potential clients. Arcapita always acknowledged the vital role Financial Management Group (“FMG”) operates a sophisticated marketing of IT, and its ability to enhance the system to plan, execute and monitor firm’s competitive advantage in FMG comprises multiple business investment syndication, providing the marketplace. Furthermore, IT units, including, Corporate Finance, investors with a personalized and is responsible for connecting and Shari’ah, Risk Management and efficient service. Further support is enhancing communication between all Corporate Communications. The group provided through the Investor Services departments, streamlining services, and is responsible for client reporting, the Group within the IRM department, boosting performance through state-of- coordination of information across which is responsible for providing the the-art technology adaptation. the firm, corporate level strategic/ financial planning, preparation of Board team with the support necessary to Treasury Operations of Directors packages, risk assessment respond to investor requests in a timely Treasury Operations comprises multiple and efficient manner. of prospective investments, Shari’ah business units, including: Treasury, and corporate communications. Client Legal which is responsible for banking reporting includes preparing fundraising Arcapita’s legal department has relationships and implementation of documentation, preparing quarterly responsibility for Arcapita’s compliance treasury products; Investors Information valuations and investment updates. with all applicable laws and regulations Management, which is responsible Financial Control in its business activities and advises for opening and managing investor with respect to all legal matters. Its accounts; and Operations, which is Financial Control comprises several activities include advising investment responsible for fund transfers and business units and is responsible for teams on investments and divestments, receipts, treasury bank office processes, preparing and maintaining accounting and advising senior management and deal funding, and reporting processes. records, including subsidiary accounting, internal and external financial reporting, the Board of Directors on corporate Human Resources (“HR”) regulatory reporting of financial figures governance, financing arrangements Arcapita’s HR Department is responsible and strategic planning. Arcapita’s and the related internal controls of the for the administration and management foregoing, and internal and external legal department also assists with the of the firm’s most valued assets – the administration of Cayman Islands, reporting of Arcapita’s financial employees, the administration and information to the respective stakeholders. European, Middle Eastern and Mauritius management of the global compensation & offshore corporate structures in various benefits, and the design and administration investments. of the firm’s long-term incentive programs. The primary goal of our HR Department is to help the organization meet its strategic goals by attracting and maintaining high caliber employees. ANNUAL REPORT 2018 21 ARCAPITA

ARCAPITA GROUP HOLDINGS LIMITED Shari’ah Supervisory Board’s Report Independent Auditors’ Report and Consolidated Financial Statements For the year ended 30 June 2018 ARCAPITA 22 ANNUAL REPORT 2018

Shari’ah Supervisory Board’s Report to Shareholders

Assalam Alaikum Wa Rahmat Allah Wa Barakatuh,

In compliance with the letter of appointment and article 110 of the Articles of Association of Arcapita Group Holdings Limited, we are required to submit the following report:

We, through and in coordination with the Shari’ah Department, have reviewed the contracts relating to the transactions and applications introduced by Arcapita Group Holdings Limited and its subsidiaries (“the Group”) during the year ended 30 June 2018. We have also conducted our review to form an opinion as to whether the Group has complied with Shari’ah rules and principles and also with the specific fatwas, rulings and guidelines issued by us.

The Group’s management is responsible for ensuring that it conducts its business in accordance with Islamic Shari’ah rules and principles. It is our responsibility to form an independent opinion, based on our review of the operations of the Group and to report to you.

We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give assurance that the Group has not violated the rules and principles of Islamic Shari’ah. The Shari’ah Supervisory Board will conduct site visits and audits to ensure Shari’ah compliance. In our opinion: a) The contracts entered into by the Group during the year are in compliance with Islamic Shari’ah rules and principles. b) The Group is managing an investment portfolio on behalf of its clients and this investment portfolio was acquired by its clients prior to establishing the Group and the investment portfolio was structured and approved by the client’s previous Shari’ah board. c) The investments undertaken by the Group during the year have been reviewed by us and are in accordance with Islamic Shari’ah principles. d) The allocation of profit and charging of losses conform to the basis that had been approved by us in accordance with Islamic Shari’ah rules and principles. e) All earnings (if any) that may have been realized from sources or by means prohibited by Shari’ah rules and principles have not been recognized as income but have been set aside to be disposed of to charitable causes. f) The calculation of Zakah is in compliance with Shari’ah rules and principles.

We beg Allah the Almighty to grant us all success and straightforwardness.

Shari’ah Supervisory Board:

Sh. Muhammad Taqi Usmani Sheikh Esam Mohamed Ishaq Chairman Member

Sh. Dr. Yousuf Abdullah Al Shubaily Sheikh Mohammed Isa Al Jamea Member Member 2 August 2018 ANNUAL REPORT 2018 23 ARCAPITA

Independent Auditors’ Report to the Shareholders of Arcapita Group Holdings Limited

Report on the Audit of the Consolidated Financial Statements Opinion We have audited the accompanying consolidated financial statements of Arcapita Group Holdings Limited (“the Company”) and its subsidiaries (together “the Group”), which comprise the consolidated statement of financial position as at 30 June 2018, and the consolidated statements of profit or loss, comprehensive income, cash flows and changes in equity for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 30 June 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other information Other information consists of the Supplementary information, that was obtained at the date of this auditor’s report. The Board of Directors is responsible for the other information. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors for the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. ARCAPITA 24 ANNUAL REPORT 2018

Independent Auditors’ Report to the Shareholders of Arcapita Group Holdings Limited (continued)

Report on the audit of the consolidated financial statements (continued) Auditor’s responsibilities for the audit of the consolidated financial statements (continued) As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors. • Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Partner’s Registration No. 121 27 September 2018 Manama, Kingdom of Bahrain ANNUAL REPORT 2018 25 ARCAPITA

Arcapita Group Holdings Limited Consolidated Statement of Financial Position As at 30 June 2018

2018 2017 Note USD ‘000 USD ‘000

ASSETS Cash and cash equivalents 7 26,429 47,052 Receivables 8 101,005 65,678 Investments 9 211,017 75,712 Other assets 10 1,900 1,464 TOTAL ASSETS 340,351 189,906

EQUITY AND LIABILITIES LIABILITIES Payable on acquisition of investments 11 86,656 32,634 Murabaha financing 12 14,076 21,114 Accrued expenses and other liabilities 13 32,771 11,649 TOTAL LIABILITIES 133,503 65,397

EQUITY Share capital and premium 15 173,867 96,610 Reserves 32,981 27,899 TOTAL EQUITY 206,848 124,509

TOTAL EQUITY AND LIABILITIES 340,351 189,906

Abdulaziz Hamad Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director

The attached explanatory notes 1 to 26 form part of these consolidated financial statements. ARCAPITA 26 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Consolidated Statement of Profit or Loss For the year ended 30 June 2018

2018 2017 Note USD ‘000 USD ‘000

OPERATING INCOME Fee and other income 17 18,721 27,409 Income from investments 18 18,990 6,083 Total operating income 37,711 33,492

OPERATING EXPENSES Staff compensation and benefits (13,613) (12,707) General and administration expenses (7,003) (6,489) Professional and consultancy fees (3,391) (3,907) Financing cost (1,279) (553) AEIP expense 19 - (1,361) Total operating expenses (25,286) (25,017) Net operating income 12,425 8,475

Foreign exchange loss (3) (397) NET PROFIT FOR THE YEAR 12,422 8,078

Abdulaziz Hamad Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director

The attached explanatory notes 1 to 26 form part of these consolidated financial statements. ANNUAL REPORT 2018 27 ARCAPITA

Arcapita Group Holdings Limited Consolidated Statement of Comprehensive Income For the year ended 30 June 2018

2018 2017 USD ‘000 USD ‘000

NET PROFIT FOR THE YEAR 12,422 8,078

Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange differences arising from translation of foreign operations 2 (7) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 12,424 8,071

The attached explanatory notes 1 to 26 form part of these consolidated financial statements. ARCAPITA 28 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Consolidated Statement of Cash Flows For the year ended 30 June 2018

2018 2017 Note USD ‘000 USD ‘000

OPERATING ACTIVITIES Net profit for the year 12,422 8,078 Adjustment for non-cash items: Arcapita equity incentive plan expense 19 - 1,027 Fair value adjustments (18,990) - Financing cost 1,279 553 Operating (loss) income before changes in operating assets and liabilities (5,289) 9,658

Changes in operating assets and liabilities: Investments 11 (116,315) (31,854) Receivables (35,327) (35,956) Other assets (436) (315) Accrued expenses and other liabilities 21,124 (1,806) Payable on acquisition of investments 11 54,022 32,634 Cash used in operations (82,221) (27,639) Financing cost paid (1,317) (439) Net cash flows used in operating activities (83,538) (28,078)

FINANCING ACTIVITIES Proceeds from Murabaha financing - 21,000 Settlement of Murabaha financing (Note a) (7,000) - Proceeds from issuance of share capital 15 77,257 - Dividends paid (7,342) (7,264) Net cash flows from financing activities 62,915 13,736

NET DECREASE IN CASH AND CASH EQUIVALENTS (20,623) (14,342) Cash and cash equivalents at the beginning of the year 47,052 61,394 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 7 26,429 47,052

Note a: This represents non-cash settlement by one of the investors of SIF by participating in one of the investment placements by the Group. The investor was issued shares of the Investment Company in lieu of its early settlement under Murabaha financing.

The attached explanatory notes 1 to 26 form part of these consolidated financial statements. ANNUAL REPORT 2018 29 ARCAPITA

Arcapita Group Holdings Limited Consolidated Statement of Changes in Equity For the year ended 30 June 2018

Share capital and premium Reserves Total Un- Share Foreign allocated Capital Currency Share Share AEIP and Retained Translation Total Total Capital Premium Shares Premium Earnings Reserve Reserves Equity USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000

As at 1 July 2017 10 102,768 (6,168) 96,610 27,950 (51) 27,899 124,509 Net profit for the year - - - - 12,422 - 12,422 12,422 Exchange differences arising from translation of foreign operations - - - - - 2 2 2 Total comprehensive income for the year - - - - 12,422 2 12,424 12,424 Issue of share capital 6 77,251 - 77,257 - - - 77,257 Dividends paid - - - - (7,342) - (7,342) (7,342) Balance as at 30 June 2018 16 180,019 (6,168) 173,867 33,030 (49) 32,981 206,848

Share capital and premium Reserves Total Un- Share Foreign allocated Capital Currency Share Share AEIP and Retained Translation Total Total Capital Premium Shares Premium Earnings Reserve Reserves Equity USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000

As at 1 July 2016 10 102,768 (7,195) 95,583 27,136 (44) 27,092 122,675 Net profit for the year - - - - 8,078 - 8,078 8,078 Exchange differences arising from translation of foreign operations - - - - - (7) (7) (7) Total comprehensive income for the year - - - - 8,078 (7) 8,071 8,071 Shares granted to employees under AEIP - - 1,027 1,027 - - - 1,027 Dividends paid - - - - (7,264) - (7,264) (7,264) Balance as at 30 June 2017 10 102,768 (6,168) 96,610 27,950 (51) 27,899 124,509

The attached explanatory notes 1 to 26 form part of these consolidated financial statements. ARCAPITA 30 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements 30 June 2018

1 ORGANISATION AND ACTIVITIES Arcapita Group Holdings Limited (the “Company”) was incorporated in the Cayman Islands on 30 December 2013 as an exempt limited liability company. The registered office of the Company is at P.O. Box 1111, George Town, Grand Cayman, British West Indies. The Company and its subsidiaries (together the “Group“) provide alternative Islamic financial products. These consolidated financial statements were approved and authorised for issue by the Board of Directors on 27 September 2018.

2 BASIS OF PREPARATION The consolidated financial statements have been prepared under the historical cost basis, except for investments that have been measured at fair value. The consolidated financial statements have been presented in US Dollars being the functional currency of the Group and all values are rounded to the nearest USD thousand (USD ‘000), except when otherwise indicated. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS“) as issued by the International Accounting Standards Board (“IASB“).

3 BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 June 2018. The financial statements of subsidiaries are prepared using consistent accounting policies. The Group has utilised the “investment entity“ exemption for investment in subsidiaries held for sale in the normal course of business. The investments are carried at fair value through profit and loss. Control is achieved when the Group is exposed, or has rights, to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically the Group controls the investee if, and only if, the Group has: - Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); - Exposure, or rights, to variable returns from its involvement with the investee; and - The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: - The contractual arrangement with the other vote holders of the investee; - Rights arising from other contractual arrangements; and - The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. ANNUAL REPORT 2018 31 ARCAPITA

3 BASIS OF CONSOLIDATION (continued) Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to non-controlling interest (NCI), even if this results in NCI having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. 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 the statement of profit or loss; and - Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

Subsidiary companies The following are the principal subsidiaries of the Company and are consolidated in these financial statements.

Year of Country of Subsidiary Ownership Incorporation Incorporation

AIM Group Limited 100% 2013 Cayman Islands The primary activity of AIM Group Limited is to provide asset management and administrative services. Arcapita Investment Limited 100% 2015 Cayman Islands The primary activity of Arcapita Investment Limited is to hold the investments of the Group. Arcapita Management Limited 100% 2015 Cayman Islands The primary activity of Arcapita Management Limited is to administer or manage the Group’s investment structure companies. Arcapita Investment Partners Limited 100% 2015 Cayman Islands The primary activities of Arcapita Investment Partners Limited is to structure Islamically compliant investment products and act as placement agent. Arcapita Cayman SPE Limited 100% 2014 Cayman Islands The primary activity of Arcapita Cayman SPE Limited is to act as a deposit agent to the investors of the Group. ARCAPITA 32 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

3 BASIS OF CONSOLIDATION (continued)

Subsidiary Companies (continued)

Year of Country of Subsidiary Ownership Incorporation Incorporation

Arcapita Investment Advisors UK Limited 100% 2013 United Kingdom The primary activities of Arcapita Investment Advisors UK Limited are to source investment opportunities in Europe and provide investment advisory services. Arcapita Investment Management US Inc. 100% 2013 United States of The primary activity of Arcapita Investment Management US Inc. is to provide America advisory services with respect to investment opportunities in the United States of America. Arcapita Investment Management Singapore Pte Limited 100% 2013 Singapore The primary activity of Arcapita Investment Management Singapore Pte Limited is to source investment opportunities in Asia and to provide financial advisory services to its related companies

The Group’s ownership in the aforementioned subsidiaries has not changed from the previous year ended 30 June 2017.

Investment entity Entities that meet the definition of an investment entity within IFRS 10 “consolidated financial statements“ are required to measure their subsidiaries held for sale under the ordinary course of business at fair value through profit or loss rather than consolidate them. The criteria which define an investment entity are, as follows: - An entity that obtains funds from one or more investors for the purpose of providing those investors with investment services; - An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and - An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis. The Group raises commitment from a number of investors in order to raise capital to invest in private equity investment or to place its acquired investment to investors. The Group provides investment management services to investors which include investment in Islamic compliant equities, fixed income securities, private equity and real estate investments for the purpose of returns in the form of capital appreciation and investment income. The Group reports to management via internal management reports and to its investors via investment reports on a fair value basis as agreed under the private placement memorandum. All such investments are reported at fair value to the extent allowed under IFRS in the Group’s consolidated financial statements. The Group does not intend to hold such investments indefinitely and has an exit strategy for all such investments. ANNUAL REPORT 2018 33 ARCAPITA

3 BASIS OF CONSOLIDATION (continued)

Investment entity (continued) The Group’s management has concluded that the Group meets the additional characteristics of an investment entity in that it has more than one investor; more than one investment; and the investments are predominantly in the form of equities and similar securities. The Group concluded that it meets the definition of an investment entity and has therefore recorded its investment in subsidiaries held for sale at fair value through profit or loss. Following is the list of unconsolidated subsidiaries.

Effective Country of Unconsolidated subsidiaries ownership incorporation

SBA Holdings Limited 100% Cayman Islands Senior Living Holdings Limited 100% Cayman Islands UAE Logistics Holdings Limited 100% Cayman Islands Senior Living VI Holdings Limited 100% Cayman Islands ARC Logistics Portfolio II Holdings Limited 100% Cayman Islands HealthServ Holdings Limited 100% Cayman Islands KSAFitness Holdings Limited 100% Cayman Islands US Signage Holdings Limited 100% Cayman Islands Senior Living VII Holdings Limited 100% Cayman Islands ARC Healthcare I Holdings Limited 100% Cayman Islands ARC Logistics Portfolio III Holdings Lim 100% Cayman Islands US Signage Capital II Limited 80% Cayman Islands US Signage Capital III Limited 80% Cayman Islands US Signage Capital IV Limited 80% Cayman Islands KSAFitness Capital Limited 62% Cayman Islands US Signage Capital V Limited 54% Cayman Islands HealthServ Capital Limited 51% Cayman Islands

4 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the consolidated financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Significant judgements applied in the preparation of the consolidated financial statements are given below: ARCAPITA 34 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

4 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Going concern The Group’s Board of Directors has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the Board of Directors is not aware of any material uncertainties that may cast significant doubt about the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements are prepared on a going concern basis.

Impairment of financial assets The management of the Group reviews its individually significant financial assets at each statement of financial position date to assess whether an impairment loss should be recorded in the statement of profit or loss. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. Assets that have been assessed individually and found not to be impaired and all individually insignificant assets are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether impairment should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident.

Fair value of financial instruments Fair value is the price that would be received upon the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group’s entire investment portfolio falls under level 3 of the fair value hierarchy. The Group uses various valuation techniques which are based on unobservable market inputs to determine the fair value of such investments. The Group engages internal valuation experts to perform the valuation of certain investments. Where the Group does not engage external valuers, the Group determines the valuation of investments internally as of the reporting date. The third party valuers and the internal valuation team use methods such as sales comparison or the capitalisation of future cash streams of the underlying asset by using the prevailing capitalisation rate for similar properties or similar geographies. The Group and valuation experts apply their judgement in determining the appropriate valuation techniques and considerations of unobservable valuation inputs used in valuation models which includes capitalisation rates, discount rates, multiples and comparable assets. The input to these models is derived from observable markets where available, but where this is not feasible, degree of judgment is required in determining assumptions used in these models. Changes in assumptions used in the models could affect the reported fair value of financial assets and liabilities.

5 NEW AND AMENDED STANDARDS AND INTERPRETATIONS The accounting policies adopted are consistent with those of the previous financial year, except for the following IASB’s new and amended standards and interpretations which are effective as of 1 July 2017. The adoption of these standards and interpretations did not have any effect on the Group’s financial position, financial performance or disclosures. IAS 7 Disclosure Initiative – Amendments to IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. ANNUAL REPORT 2018 35 ARCAPITA

5 NEW AND AMENDED STANDARDS AND INTERPRETATIONS (continued) IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses - Amendment to IAS 12 In January 2016, through issuing amendments to IAS 12, the IASB clarified the accounting treatment of deferred tax assets of debt instruments measured at fair value for accounting, but measured at cost for tax purposes. The amendment is effective from 1 January 2017.

6 SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below: a) Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. (i) Financial assets Financial assets comprise of cash and cash equivalents, receivables, investments and other assets. Initial recognition The Group classifies its financial assets into two categories: at fair value through profit or loss and amortised cost. The classification depends on the purpose for which the financial assets were acquired or transferred to the Group. Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to its acquisition or issue except in the case of financial assets recorded at fair value through profit or loss. Subsequent measurement Financial assets at fair value through profit or loss Financial assets designated at fair value through profit or loss upon inception are those that are not held for trading but are managed and their performance evaluated on a fair value basis in accordance with the Group’s objectives. The Group’s objectives require the Board of Directors to evaluate information about these assets on a fair value basis together with other related financial information. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value are recognised in the consolidated statement of profit or loss. Financial assets at amortised cost These are non-derivative financial assets that are not quoted in an active market and are stated at fair value plus transaction costs, if any. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment, if any. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. An allowance for doubtful receivables is made when collection of the full amount is no longer probable. Receivables are written off when there is no possibility of recovery. ARCAPITA 36 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

6 SIGNIFICANT ACCOUNTING POLICIES (continued) a) Financial instruments (continued) (i) Financial assets (continued) Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: (i) the right to receive cash flows from the asset have expired; or (ii) 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 without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Impairment of financial assets The Group assesses, at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (ii) Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as loans and borrowings and payables. All financial liabilities are recognised initially at fair value, net of directly attributable transaction costs. The Group’s financial liabilities include payable on acquisition of investments, murabaha financing, accrued expenses and other liabilities. Subsequent measurement After initial recognition, financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated statement of profit or loss, when the liabilities are derecognised, as well as through the effective interest rate amortisation process. ANNUAL REPORT 2018 37 ARCAPITA

6 SIGNIFICANT ACCOUNTING POLICIES (continued) a) Financial instruments (continued) (ii) Financial liabilities (continued) Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated statement of profit or loss. b) Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if and only if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. c) Payables, accruals and provisions Provisions are made when the Group has a present obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. d) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Fee income The fee income represents management and performance fee the Group earns for investment placement, investment structuring and arranging, asset management and administrative services rendered in accordance to the contractual terms agreed between the parties. Fees are recognised as the services are preformed. Placement and arrangement fee The Group earns arrangement and placement fees for rendering services during the acquisition and placement of investments. These fees are recognised when earned based on the binding signed share purchase agreements between the Group and the investors. Dividend income Dividends from investments in equity securities are recognised when the right to receive the payment is established. ARCAPITA 38 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

6 SIGNIFICANT ACCOUNTING POLICIES (continued) e) Foreign currencies Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange prevailing at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated into USD at exchange rates prevailing at the consolidated statement of financial position date. Any gains or losses are recognised in the consolidated statement of profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial recognition. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Exchange gains and losses on non-monetary items classified as “fair value through profit or loss“ are taken to the consolidated statement of profit or loss and for items classified as “fair value through OCI“ such differences are taken to the consolidated statement of comprehensive income. f) Share-based payments Employees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised as employee benefits expense in the consolidated statement of profit or loss, together with a corresponding increase in equity. g) Operating lease commitments The Group has entered into property leases which are classified as operating leases. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the property and the present value of the minimum lease payments not amounting to substantially all of the fair value of the property, that it therefore does not retain all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases. h) Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt these standards when they become effective. IFRS 9 Financial instruments (“IFRS 9“) In July 2014, the IASB issued the final version of IFRS 9 Financial instruments that replaces IAS 39 Financial instruments: Recognition and measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group has carried out a detailed impact assessment with respect to the classification and impairment assessment of its financial instruments and plans to adopt the new standard on the required effective date. As per the assessment, the adoption of this new standard will have no impact on classification of financial instrument and impact on impairment will be immaterial. ANNUAL REPORT 2018 39 ARCAPITA

6 SIGNIFICANT ACCOUNTING POLICIES (continued) h) Standards issued but not yet effective (continued) IFRS 15 - Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, effective for periods beginning on 1 January 2018 with early adoption permitted. IFRS 15 defines principles for recognising revenue and will be applicable to all contracts with customers. However, interest and fee income integral to financial instruments and leases will continue to fall outside the scope of IFRS 15 and will be regulated by the other applicable standards (e.g., IFRS 9, and IFRS 16 Leases). Revenue under IFRS 15 will need to be recognised as goods and services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard will also specify a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and corresponding cash flows with customers. The Group has carried out a detailed impact assessment of adoption of IFRS 15 and is of a view that adoption of IFRS 15 will not have a material impact on Group’s revenue recognition. IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. These amendments are not expected to have any impact on the Group. IFRS 16 – Leases The IASB issued the new standard for accounting for leases - IFRS 16 Leases in January 2016. The new standard does not significantly change the accounting for leases for lessors. However, it does require lessees to recognise most leases on their balance sheets as lease liabilities, with the corresponding right-of-use assets. Lessees must apply a single model for all recognised leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets. Generally, the profit or loss recognition pattern for recognised leases will be similar to today’s finance lease accounting, with interest and depreciation expense recognised separately in the consolidated statement of profit or loss. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted provided the new revenue standard, IFRS 15, is applied on the same date. Lessees must adopt IFRS 16 using either a full retrospective or a modified retrospective approach. The Group does not anticipate early adopting IFRS 16 and is currently evaluating its impact. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Management is considering the implications of these standards and amendments, their impact on the Group’s financial position and results and the timing of their adoption by the Group. ARCAPITA 40 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

7 CASH AND CASH EQUIVALENTS 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Murabaha with a financial institution 7.1 21,012 38,016 Cash and balances with banks 5,416 9,035 Cash in hand 1 1 26,429 47,052

7.1 This represents short term murabaha placement with a bank, rated ‘A’ by Standard & Poors. These murabaha carry a profit rate of 2.0% (2017: 1.25% to 1.3%) per annum with maturities of up to 1 month.

8 RECEIVABLES 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Deal subscription receivable 8.1 91,000 56,900 Receivable from employee incentive programs 8.2 3,535 2,406 Advances to investment companies 8.3 2,324 2,357 Investment yield / dividend receivable 8.4 2,069 2,804 Fee receivable 1,919 1,030 Other receivables 158 181 101,005 65,678

8.1 Deal subscription receivable represent amounts due from investors for participation in the Group’s investment products. These arise in the normal course of the Group’s placement activities and are recorded along with placement fee when the investor signs a binding agreement confirming their participation in an investment product. These are collected over short term.

8.2 This largely represents amounts advanced to the Arcapita Investment Participation Program on an interest free basis for an allocation in the Group’s investment products. Employees have been provided an opportunity to acquire investment products in cash from this allocation. Unutilized allocations will be returned to the Group and the receivable will be reversed. These are collected over the short term.

8.3 This represents interest free advances to investment structure entities and will be recovered from distributions or exit proceeds.

8.4 This represents dividend income that the Group is entitled to receive from it structured entities. These are expected to be received over short term. ANNUAL REPORT 2018 41 ARCAPITA

9 INVESTMENTS 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Private equity 117,791 2,963 Real estate 93,226 72,749 211,017 75,712

9.1 The investments are classified at fair value through profit and loss. The Group has invested through its structured entities in real estate portfolios and private equity investments in the Middle East and in the United States of America.

10 OTHER ASSETS 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Equipments 1,267 794 Prepayments 320 385 Others 313 285 1,900 1,464

11 PAYABLE ON ACQUISITION OF INVESTMENTS These represent obligations of the Group with respect to three (2017: one) investments acquired during June 2018. These are expected to be settled within six months of the year end.

12 MURABAHA FINANCING During 2017, the Group entered into a Murabaha Financing Facility (the “Facility“) with Strategic Investors Facility Limited (“SIF”), a Cayman Islands limited liability company owned by a group of shareholders and investors. Under this facility, AGHL can utilise financing of up to USD 75 million. As of 30 June 2018, USD 14 million is outstanding under the Facility. The Facility will mature on 1 March 2022 unless SIF exercises an option at any time prior to 1 December 2019 to require a reduced maturity date of 1 March 2020 for all or a part of the Facility. The Facility is unsecured and Arcapita Investment Limited, a wholly owned subsidiary of the Group, has provided a guarantee with respect to the entire facility amount outstanding. ARCAPITA 42 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

13 ACCRUED EXPENSES AND OTHER LIABILITIES 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Due to investment companies 29,715 8,460 Employee related payables 14.3 1,628 2,099 Payable to an affiliate 731 73 Payable to board members 400 577 Accrued expenses and supplier payables 212 227 Other liabilities 85 213 32,771 11,649

14 RELATED PARTY TRANSACTIONS Related parties represent associated companies, major shareholders, directors and key management personnel of the Group, the Group’s Shari’ah Supervisory Board and entities controlled, jointly controlled or significantly influenced by such parties. Transactions with related parties arise from the ordinary course of business. Pricing policies and terms of these transactions are approved by the Group’s management. Income and expenses on transactions with related parties included in the consolidated statement of profit or loss: 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Income Placement income 6,663 11,895 Reversal of placement income (6,439) - Yield and dividend income from investment companies 4,670 6,083 Management fee from investment companies 3,412 1,602 Arrangement fee from investment companies 1,335 1,000

Expenses Reimbursement of expenses 14.1 14,382 13,264 Share-based compensation to key management personnel 19 - 1,361 Key management personnel costs 1,734 1,276 Financing cost 1,279 553 Fees to the Board of Directors 400 400 ANNUAL REPORT 2018 43 ARCAPITA

14 RELATED PARTY TRANSACTIONS (continued) Balances with related parties as of the date of the consolidated statement of financial position are: 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Assets Deal subscription receivable 37,000 32,500 Investment yield / dividend receivable from investment companies 2,069 2,804 Advances to investment companies 2,324 2,357 Management fee receivable from investment companies 965 1,030

Liabilities Murabaha financing 14.2 14,076 21,114 Payable to investment companies 29,715 8,460 Payable to board members 400 577 Payable to key personnel 193 545 Payable to an affiliate 14.1 731 73

14.1 Reimbursement of expenses The Group and Arcapita Investment Management B.S.C.(c) (“AIM BSC“) are under the common control of the same shareholders and governed by the same Board of Directors. As a result AIM BSC is a related party to the Group. The Group reimburses the expenditures incurred by AIM BSC in providing services to the Group. In the consolidated statement of profit or loss for the year ended 30 June 2018, the reimbursement is included within general and administration expenses, legal and professional expenses, staff compensation and benefit expenses and AEIP expenses.

14.2 Profit rate This carries a fixed profit rate of 6.5% per annum up to 1 March 2020 and 7.5% per annum thereafter.

14.3 Accrued expenses and other liabilities Included in accrued expenses and other liabilities are amounts recovered by the Group from an affiliate, under a fiduciary capacity, on behalf of certain employees and consultants of the Group. The Group collects such amounts on behalf of such employees and consultants as per agreed terms. This amount will not revert to the Group at any point in time. ARCAPITA 44 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

15 SHARE CAPITAL & PREMIUM 15.1 Share capital 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Authorised capital 50,000,000 (2017: 50,000,000) ordinary shares with a par value of USD 0.001 per share 50,000 50,000

Issued and paid up capital As at 1 July (2018: 10,277,778 shares, 2017: 10,277,778 shares) 10,278 10,278

Issued during the year (2018: 6,175,681 shares, 2017: Nil shares) 6,176 -

As at 30 June (2018: 16,453,459 shares, 2017: 10,277,778 shares) 16,454 10,278

15.2 Share premium Amounts collected in excess of the par value of the issued share capital during any issue of shares are treated as share premium.

15.3 Unallocated AEIP shares As detailed in Note 18, the Group has an employee share incentive program by the name of Arcapita Equity Incentive Plan (“AEIP“). Under this program shares have been issued to the plan for allocation to plan participants. Any shares that have not been allocated to plan participants are presented as a deduction from equity.

16 PROPOSED DIVIDENDS As of 27 September 2018, the Board of Directors of the Group have proposed a cash dividend of USO 0.42 (2017: USO 0.76) per share amounting to USO 6.651 million (2017: USO 7.342 million) and bonus shares of 509,300 for approval by the shareholders at the next annual general meeting. The board has priced the bonus shares at US$13.06 per share and authorized a debit to retained earnings of USO 6.651 million (2018: USO Nil) pending approval by shareholders. ANNUAL REPORT 2018 45 ARCAPITA

17 FEE AND OTHER INCOME 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Placement fees 10,369 20,859 Management and performance fees 6,666 5,347 Arrangement fees 1,335 1,000 Others 351 203 18,721 27,409

18 INCOME FROM INVESTMENTS 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Fair value gain on investments at FVTPL 14,320 - Investment yield / dividend income 4,670 6,083 18,990 6,083

19 ARCAPITA EQUITY INCENTIVE PLAN Arcapita Equity Incentive Plan (AEIP) is an employee share incentive program through which employees may earn shares in the Company. Investment units comprising of 1,027,778 shares of the Company were allocated to the program upon its inception. Based on the Group’s performance, up to 20 percent of the plan allocation becomes eligible to be granted to employees each year. Shares granted to employees are fully vested on the date of grant and expensed (i.e. AEIP expense) to the consolidated statement of profit or loss. The fair value of the shares is estimated at the grant date based on the valuation of last capital call and raise.

Movement during the year 2018 2017 in ‘000 in ‘000

Shares brought forward 616,666 719,444 Shares granted to employees during the year - (102,778) Number of un-allocated shares outstanding at 30 June 616,666 616,666 ARCAPITA 46 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

20 COMMITMENTS AND CONTINGENCIES 20.1 Operating lease commitments 2018 2017 USD ‘000 USD ‘000

Operating lease commitments relating to rented premises within one year 524 429 within two to five years 2,017 1,197 more than five years 143 433 2,684 2,059

20.2 The Group has issued a financial guarantee on behalf of an investment company for an amount of USD 13.25 million. The group does not expects this guarantee to be called.

21 INVESTOR FUNDS From time to time the Group receives funds from or due to its investors. These funds are placed in a segregated client account with established reputed international bank based in New York and are held pursuant to investment account agreements with investors and portfolio investment companies in which these investors have invested. The agreements restrict the Group’s access to these funds and requires the consent and instructions of the investors or portfolio companies to transact. As a result the Group does not have legal authority to solely control the funds nor an obligation to the investor and as such these funds are not reflected in the Group’s consolidated financial statements. Investor funds as at 30 June 2018 amounted to USD 41.7 million (2017: USD 27.7 million).

22 RISK MANAGEMENT 22.1 Introduction The Group adopts an enterprise-wide approach to risk management, with proactive identification and mitigation of the risks embedded in the Group’s balance sheet and business activities. One of the primary objectives of risk management is to optimize shareholder and investor returns while maintaining the Group’s risk exposure within self-imposed parameters defined within the Group’s Board approved risk strategy, appetite and policy documents. The overall responsibility for the implementation of a sound risk management framework lies with the Group’s senior management and the Board of Directors. The Group has established an independent Risk Management Department (RMD) that works in co-ordination with the Risk Management Committee (RMC), which is a management-level committee with the objective of providing a platform for senior management input, review and approval of key aspects relating to risk management. The RMD and RMC work under the supervision of the Audit and Risk Committee (ARC), which is a board level committee delegated with certain responsibilities of risk oversight on behalf of the Board of Directors and supports the Board of Directors in the execution of its responsibilities pertaining to risk management. ANNUAL REPORT 2018 47 ARCAPITA

22 RISK MANAGEMENT (continued)

22.2 Credit risk Credit risk is the risk that one party to a financial transaction will fail to discharge an obligation and cause the other party to incur a financial loss. The Group’s exposure to credit risk is limited due to minimal lending / placement activity and the fact that there are no investments in financial securities. The Group is exposed to credit risk on its bank balances and receivables. This risk is considered minimal as the bank balances are maintained in current accounts with reputable international banks with good credit standings. The receivable balances primarily represents receivable from deal subscriptions, investee companies, staff and prepayments to vendors.

22.3 Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may also arise from an inability to realise a financial asset quickly at an amount close to its fair value. The Group has established a liquidity risk management framework having defined minimum liquid asset requirements, liquidity monitoring and reporting responsibilities and limits on the extent of leverage and investment underwriting on the Group’s consolidate statement of financial position. The Group’s Asset and Liability Committee (ALCO), supported by the RMD and the Treasury function closely monitor the Group’s actual and forecasted liquidity position and ensures that the RMC is frequently updated on the Group’s exposure to liquidity risk. As part of the Group’s risk appetite framework, the ARC is updated on a regular basis on aspects relating to liquidity risk defined within the risk appetite statement. The Group’s exposure to funding liquidity risk is low given that the Group maintains minimal balance sheet leverage. The Group has sufficient cash and bank balances available as of 30 June 2018 in order to discharge its financial liabilities when they fall due. ARCAPITA 48 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

22 RISK MANAGEMENT (continued)

22.3 Liquidity risk (continued) A maturity profile of assets and liabilities, based on expected maturities, is provided below.

As at 30 June 2018 > 3 months Sub-Total > 1 year Up to 3 up to up to up to Non-cash months 1 year 1 year 5 years items Total

ASSETS Financial assets Cash and cash equivalents 26,429 - 26,429 - - 26,429 Receivables 96,761 2,159 98,920 2,085 - 101,005 Investments - 100,536 100,536 110,481 - 211,017 Other assets - - - 313 - 313 Total financial assets 123,190 102,695 225,885 112,879 - 338,764

Non-financial assets Prepayments - - - - 320 320 Equipments - - - - 1,267 1,267 Total assets 123,190 102,695 225,885 112,879 1,587 340,351

LIABILITIES Financial liabilities Payable on acquisition of investments 46,615 40,041 86,656 - - 86,656 Murabaha financing 76 - 76 14,000 - 14,076 Accrued expenses and other liabilities 32,771 - 32,771 - - 32,771 Total financial liabilities 79,462 40,041 119,503 14,000 - 133,503

Net gap 43,728 62,654 106,382 98,879 1,587 206,848 ANNUAL REPORT 2018 49 ARCAPITA

22 RISK MANAGEMENT (continued)

22.3 Liquidity risk (continued)

As at 30 June 2017 > 3 months Sub-Total > 1 year Up to 3 up to up to up to Non-cash months 1 year 1 year 5 years items Total

ASSETS Financial assets Cash and cash equivalents 47,052 - 47,052 - - 47,052 Receivables 63,321 2,357 65,678 - - 65,678 Investments - 9,056 9,056 66,656 - 75,712 Other assets - - - 285 - 285 Total financial assets 110,373 11,413 121,786 66,941 - 188,727

Non-financial assets Prepayments - - - - 385 385 Equipments - - - - 794 794 Total assets 110,373 11,413 121,786 66,941 1,179 189,906

LIABILITIES Financial liabilities Payable on acquisition of investment 32,634 - 32,634 - - 32,634 Murabaha financing 114 - 114 21,000 - 21,114 Accrued expenses and other liabilities 11,649 - 11,649 - - 11,649 Total financial liabilities 44,397 - 44,397 21,000 - 65,397

Net gap 65,976 11,413 77,389 45,941 1,179 124,509 ARCAPITA 50 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

22 RISK MANAGEMENT (continued)

22.4 Investment risk This category relates to risks arising from the Group’s real estate and private equity investment portfolio, and entails market / systematic risks (losses on investments due to changes in market fundamentals) and non-systematic / investment specific risks. The Group’s objective is to manage and control risk exposures within acceptable parameters, while optimizing returns. RMD monitors the Group’s investment risk exposures in light of the Group’s risk appetite limits and reports to RMC and ARC on a regular basis. Additionally, RMD works closely with the business units to conduct investment risk analysis at the individual deal and portfolio level throughout the investment cycle. The analysis focuses on the risk profile of each individual investment and the overall investment portfolio in light of the Group’s risk strategy, appetite, policies and the risk limits and guidelines defined therein. At the pre-acquisition stage, RMD works with business units to undertake pre-acquisition risk analysis based on the characteristics of proposed investments. The objective of this analysis is to filter investments at an initial stage and to complement the extensive due diligence undertaken by business units. Following the acquisition of any investment, business units and RMD periodically perform post-acquisition risk analysis to ascertain how the risks of the portfolio change over time and assess the impact in line with the Group’s risk strategy, appetite, policies and the risk limits and guidelines defined therein. Results of risk analysis are reported to RMC on a regular basis highlighting portfolio level investment risk exposure, economic capital requirements for investment risk, utilization of investment risk limits and any significant issues in light of the Group’s investment risk profile. As part of the Group’s risk appetite framework, ARC is updated regularly on aspects relating to investment risk defined within the risk appetite statement. At the time of exiting an investment, RMD and business units (in conjunction with any other departments / functions relevant to the exit process) will use appropriate strategies to mitigate risks associated with the exit process and to protect the expected realization proceeds from downside risks (assessed on a case-by-case basis).

22.5 Market Risk The Group defines market risk as the risk of losses due to adverse movements in market fundamentals such as profit rates, foreign currency exchange rates, equity markets / prices and commodity prices on the Group’s investment securities (other than the real estate and private equity investment portfolio). The Group does not maintain a significant portfolio of investment securities (such as investment in Sukuk, listed equity investments) other than the real estate and private equity investment portfolio, and maintains a minimal component of liabilities on its balance sheet. As of 30 June 2018 and 30 June 2017, the Group had no significant foreign currency exposure. The Group’s exposure, not including the real estate and private equity investment portfolio, to market risk as defined above is therefore not significant. Systematic and non-systematic risks arising from the real estate and private equity investment portfolio are categorized under “Investment risk“ that is outlined under note “21.4 Investment risk” in these consolidated financial statements.

22.6 Operational risk Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or lead to financial loss. The Group minimizes the operational risk by maintaining a strong internal control environment and continuous oversight by the Board of Directors. ANNUAL REPORT 2018 51 ARCAPITA

23 CAPITAL MANAGEMENT The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it in line with the changes in operating conditions and the risk characteristics of its activities.

24 FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the price that would be received upon the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: a) In the principal market for the asset or liability, or b) In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or most advantageous market must be accessible by the Group. The Group’s financial instruments have been classified in accordance with their measurement basis as follows: At fair value through At cost/ statement of amortised profit or loss cost Total 30 June 2018 USD ‘000 USD ‘000 USD ‘000

ASSETS Murabaha with a financial institution - 21,012 21,012 Cash and balances with banks - 5,416 5,416 Investments 211,017 - 211,017 Receivables - 101,005 101,005 Other assets - 313 313 211,017 127,746 338,763

LIABILITIES Payable on acquisition of investments - 86,656 86,656 Accrued expenses and other liabilities - 32,771 32,771 Murabaha financing - 14,076 14,076 - 133,503 133,503 ARCAPITA 52 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

24 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) At fair value through At cost/ statement of amortised profit or loss cost Total 30 June 2017 USD ‘000 USD ‘000 USD ‘000

ASSETS Cash and balances with banks - 9,035 9,035 Murabaha with financial institution - 38,016 38,016 Investments 75,712 - 75,712 Receivables - 65,678 65,678 Other assets - 285 285 75,712 113,014 188,726

LIABILITIES Payable on acquisition of investment - 32,634 32,634 Accrued expenses and other liabilities - 11,649 11,649 Murabaha financing - 21,114 21,114 - 65,397 65,397

Fair value hierarchy The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Determination of fair value and fair value hierarchy The Group uses the following hierarchy for determining and disclosing fair value of financial assets and liabilities: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: Techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data. The investments carried at ‘fair value through profit or loss’ has been classified as level 3 assets. ANNUAL REPORT 2018 53 ARCAPITA

24 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Movements in level 3 financial instruments measured at fair value The following table shows a reconciliation of the opening and closing amount of level 3 financial assets which are recorded at fair value: 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Opening balance 75,712 43,858 Acquisition of investments 250,243 173,626 Fair value adjustments 14,320 - Placement of investments (129,258) (141,772) 211,017 75,712

Valuation process of the Group Balances with banks represent cash and cash equivalents and are due on demand. The carrying value of these balances represents their fair value. The recoverability of receivables were determined by the management as part of impairment testing. The carrying amounts approximate the fair value of these receivables. For investments, fair value is determined by reference to valuations by an internal valuation expert. The determination of the fair value of such assets is based on local market conditions. Other liabilities and payable to a related party are current in nature and the carrying value of these financial instruments represents their fair value.

The effect of unobservable inputs on fair valuation The significant unobservable inputs used in the fair value measurements categorised within Level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis as at 30 June 2018 are as shown below: As at 30 June 2018 Impact on profit or loss Favorable Unfavorable Unobservable inputs Input Change USD ‘000 USD ‘000

EV EBITDA Multiples 9.1x to 10.5x +/- 10% 10,393 (10,393) Discount rates 7.25% to 8.40% +/- 10% 3,037 (2,977) ARCAPITA 54 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Notes to the Consolidated Financial Statements (continued) 30 June 2018

24 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The effect of unobservable inputs on fair valuation (continued) As at 30 June 2017 Impact on profit or loss Favorable Unfavorable Unobservable inputs Input Change USD ‘000 USD ‘000

Price per square feet USD 490 +/- 10% 7,329 (7,329) Capitalization rates 6.0% to 8.2% +/- 10% 1,659 (1,357)

25 SEGMENTAL INFORMATION The sole business of the Group is to provide and manage alternative Islamic investment products and as a result it does not have any other reportable segments for this financial period.

26 EARNINGS PROHIBITED BY SHARI’AH The Group receives interest from incidental deposits. These earnings are prohibited by Shari’ah, hence set aside as a liability to be used exclusively for charitable purposes and amount to USD 88 thousand (30 June 2017: USD 69 thousand) for the year. ANNUAL REPORT 2018 55 ARCAPITA

Arcapita Group Holdings Limited Supplementary Information

Arcapita Group consists of Arcapita Group Holdings Limited (“AGHL“), AGHL’s direct and indirect subsidiaries and Arcapita Investment Management B.S.C. (c) (“Arcapita Bahrain“). AGHL and Arcapita Bahrain currently are owned by the same shareholders in the same shareholding ratios. This is as a result of contractual arrangements which requires the shareholders of each entity to be identical. The shareholders have to hold their interests in Arcapita Group in the same ratio of AGHL shares to Arcapita Bahrain shares and to appoint identical members to the Board of Directors in both entities, now and in the future. However, under the requirements of IFRS, in order to consolidate the financial position and results of Arcapita Bahrain with AGHL certain conditions have to be met. These conditions have not been fulfilled at this time and Arcapita Bahrain results cannot be consolidated with AGHL. Therefore, in order to provide supplementary information to the shareholders we provide below a summarised pro-forma consolidated statement of profit or loss and financial position. Arcapita Group pro-forma statement of financial position

As at 30 June 2018 AGHL Arcapita Consolidation Arcapita Group Bahrain adjustments Group USD ‘000 USD ‘000 USD’000 USD ’000

ASSETS Cash and cash equivalents 26,429 12,418 - 38,847 Receivables 101,005 1,379 (731) 101,653 Investments 211,017 - - 211,017 Other assets 1,900 731 - 2,631 TOTAL ASSETS 340,351 14,528 (731) 354,148

LIABILITIES Payable on acquisition of investments 86,656 - - 86,656 Murabaha financing 14,076 - - 14,076 Accrued expenses and other liabilities 32,771 1,688 (731) 33,728 TOTAL LIABILITIES 133,503 1,688 (731) 134,460

EQUITY Share capital and premium 173,867 12,840 - 186,707 Reserves 32,981 - - 32,981 TOTAL EQUITY 206,848 12,840 - 219,688

TOTAL EQUITY AND LIABILITIES 340,351 14,528 (731) 354,148 ARCAPITA 56 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Supplementary Information (continued)

Arcapita Group pro-forma statement of financial position (continued)

As at 30 June 2017 AGHL Arcapita Consolidation Arcapita Group Bahrain adjustments Group USD ‘000 USD ‘000 USD’000 USD ’000

ASSETS Cash and cash equivalents 47,052 7,848 - 54,900 Receivables 65,678 243 (73) 65,848 Investments 75,712 - - 75,712 Other assets 1,464 776 - 2,240 TOTAL ASSETS 189,906 8,867 (73) 198,700

LIABILITIES Payable on acquisition of investment 32,634 - - 32,634 Murabaha financing 21,114 - - 21,114 Accrued expenses and other liabilities 11,649 1,034 (73) 12,610 TOTAL LIABILITIES 65,397 1,034 (73) 66,358

EQUITY Share capital and premium 96,610 7,833 - 104,443 Reserves 27,899 - - 27,899 TOTAL EQUITY 124,509 7,833 - 132,342

TOTAL EQUITY AND LIABILITIES 189,906 8,867 (73) 198,700 ANNUAL REPORT 2018 57 ARCAPITA

Arcapita Group pro-forma statement of profit or loss

Year ended 30 June 2018 AGHL Arcapita Consolidation Arcapita Group Bahrain adjustments Group USD ‘000 USD ‘000 USD’000 USD ’000

INCOME Fee and other income 18,721 14,575 (14,382) 18,914 Income from investments 18,990 - - 18,990 Total operating income 37,711 14,575 (14,382) 37,904

EXPENSES Staff compensation and benefits (13,613) (10,050) 10,050 (13,613) General and administration expenses (7,003) (3,473) 3,336 (7,140) Professional and consultancy fees (3,391) (996) 996 (3,391) Financing cost (1,279) - - (1,279) Arcapita equity incentive plan expenses - - - - Total operating expenses (25,286) (14,519) 14,382 (25,423)

Foreign exchange (loss) / gain (3) (56) - (59) NET PROFIT 12,422 - - 12,422 ARCAPITA 58 ANNUAL REPORT 2018

Arcapita Group Holdings Limited Supplementary Information (continued)

Arcapita Group pro-forma statement of profit or loss (continued)

Year ended 30 June 2017 AGHL Arcapita Consolidation Arcapita Group Bahrain adjustments Group USD ‘000 USD ‘000 USD’000 USD ’000

INCOME Fee and other income 27,409 13,305 (13,264) 27,450 Income from investments 6,083 6,083 Total operating income 33,492 13,305 (13,264) 33,533

EXPENSES Staff compensation and benefits (12,707) (9,314) 9,314 (12,707) General and administration expenses (6,489) (3,131) 2,807 (6,813) Professional and consultancy fees (3,907) (1,143) 1,143 (3,907) Financing cost (553) - - (553) AEIP expense (1,361) - - (1,361) Total operating expenses (25,017) (13,588) 13,264 (25,341)

Foreign exchange gain / (loss) (397) 283 - (114) NET PROFIT 8,078 - - 8,078 ANNUAL REPORT 2018 59 ARCAPITA

ARCAPITA INVESTMENT MANAGEMENT B.S.C.(C) Shari’ah Supervisory Board Report, Report of The Board of Directors, Independent Auditors’ Report and Financial Statements For the year ended 30 June 2018 ARCAPITA 60 ANNUAL REPORT 2018

Shari’ah Supervisory Board’s Report to Shareholders

Assalam Alaikum Wa Rahmat Allah Wa Barakatuh,

In compliance with the letter of appointment and article 54(e) of the Articles of Association of Arcapita Investment Management B.S.C.(c) (“the Company”), we are required to submit the following report:

We have reviewed the contracts relating to the transactions undertaken by the Company during the year ended 30 June 2018. We have also conducted a review of the Operations of the Company to form an opinion as to whether the Company has complied with Shari’ah rules and principles and with the specific fatwas, ruling and guidelines issued by us.

The Company’s management is responsible for ensuring that the Company conducts its business in accordance with Islamic Shari’ah rules and principles. It is our responsibility to form an independent opinion, based on our review of the operations of the Company and to report to you.

We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give assurance that the Company has not violated the rules and principles of Islamic Shari’ah. In our opinion: The services agreement entered into by the Company with AIM Group Limited, and the transactions and dealings resulting from such agreement and Zakah calculation during the year ended 30 June 2018 are in compliance with the Islamic Shari’ah rules and principles. All earnings (if any) that may have been realized from sources or by means prohibited by Shari’ah rules and principles have not been recognized as income but have been set aside to be disposed of to charitable causes.

We beg Allah the Almighty to grant us all success and straightforwardness.

Shari’ah Supervisory Board:

Sh. Muhammad Taqi Usmani Sheikh Esam Mohamed Ishaq Chairman Member

Sheikh Mohammed Isa Al Jamea Member

2 August 2018 ANNUAL REPORT 2018 61 ARCAPITA

Arcapita Investment Management B.S.C. (c) Report of the Board of Directors

The Directors have pleasure in submitting their report and the audited financial statements of Arcapita Investment Management B.S.C. (c) (the “Company“) for the year ended 30 June 2018.

Principal activities and review of business developments The Company operates under an Investment Firm license - Category I (Islamic Principles) issued by the Central Bank of Bahrain (“CBB“), to operate under Islamic Shari’ah principles, and is supervised and regulated by the CBB. The Company’s principal activities are in dealing in financial instruments as an agent, and arranging, managing, safeguarding and advising on financial instruments.

Financial Highlights Year ended Year ended 30 June 2018 30 June 2017 USD ‘000 USD ‘000

OPERATING INCOME Fee and other income 14,575 13,305 Foreign exchange (loss) gain (56) 283 Total operating income 14,519 13,588

OPERATING EXPENSES Staff compensation and benefits (10,050) (9,314) General and administration expenses (3,473) (3,131) Professional and consulting fees (996) (1,143) Total operating expenses (14,519) (13,588)

Auditors Ernst & Young have expressed their willingness to continue in office and a resolution proposing their appointment as auditors of the Company, for the year ending 30 June 2019, will be submitted at the Annual General Meeting.

Signed on behalf of the Board of Directors

Abdulaziz Hamad Aljomaih Chairman of the Board of Directors 27 September 2018 ARCAPITA 62 ANNUAL REPORT 2018

Independent Auditors’ Report to the Shareholders of Arcapita Investment Management B.S.C.(c)

Report on the financial statements We have audited the accompanying statement of financial position of Arcapita Investment Management B.S.C. (c) (the “Company”) as of 30 June 2018, and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements and the Company’s undertaking to operate in accordance with Islamic Shari’ah Rules and Principles are the responsibility of the Company’s Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Auditing Standards for Islamic Financial Institutions issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (“AAOIFI“). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 30 June 2018, the results of its operations, its cash flows and changes in equity for the year then ended in accordance with the Financial Accounting Standards issued by AAOIFI.

Report on other regulatory requirements As required by the Bahrain Commercial Companies Law and the Central Bank of Bahrain (“CBB“) Rule Book (Volume 4), we report that: a) the Company has maintained proper accounting records and the financial statements are in agreement therewith; and b) the financial information contained in the Report of the Board of Directors is consistent with the financial statements. We are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial Institutions Law, the CBB Rule Book (Volume 4 and applicable provisions of Volume 6) and CBB directives, regulation and rules or the terms of the Company’s memorandum and articles of association have occurred during the year ended 30 June 2018 that might have had a material adverse effect on the business of the Company or on its financial position. Satisfactory explanations and information have been provided to us by Board of Directors in response to all our requests. The Company has also complied with the Islamic Shari’ah Rules and Principles as determined by the Shari’ah Supervisory Board of the Company.

Partner’s registration no. 45 27 September 2018 Manama, Kingdom of Bahrain ANNUAL REPORT 2018 63 ARCAPITA

Arcapita Investment Management B.S.C. (c) Statement of Financial Position As at 30 June 2018

2018 2017 Note USD ‘000 USD ‘000

ASSETS Balances with banks and cash 6 12,418 7,848 Receivables and other assets 7 1,379 946 Due from a related party 11 731 73 TOTAL ASSETS 14,528 8,867

LIABILITIES AND EQUITY LIABILITIES Accrued expenses and other liabilities 1,688 1,034 TOTAL LIABILITIES 1,688 1,034

EQUITY Share capital 8 7,833 7,833 Shares pending allotment 9 5,007 - TOTAL EQUITY 12,840 7,833

TOTAL LIABILITIES AND EQUITY 14,528 8,867

Abdulaziz Hamad Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director

The attached explanatory notes 1 to 16 form part of these financial statements. ARCAPITA 64 ANNUAL REPORT 2018

Arcapita Investment Management B.S.C. (c) Statement of Income and other Comprehensive Income For the year ended 30 June 2018

Year ended Year ended 2018 2017 Note USD ‘000 USD ‘000

OPERATING INCOME Fee and other income 10 14,575 13,305 Total operating income 14,575 13,305

OPERATING EXPENSES Staff compensation and benefits (10,050) (9,314) General and administration expenses (3,473) (3,131) Professional and consulting fees (996) (1,143) Total operating expenses (14,519) (13,588)

Foreign exchange (loss) gain (56) 283 NET INCOME AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR - -

Abdulaziz Hamad Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director

The attached explanatory notes 1 to 16 form part of these financial statements. ANNUAL REPORT 2018 65 ARCAPITA

Arcapita Investment Management B.S.C. (c) Statement of Cash Flows For the year ended 30 June 2018

Year ended Year ended 30 June 2018 30 June 2017 Note USD ‘000 USD ‘000

OPERATING ACTIVITIES Net income for the year - -

Changes in operating assets and liabilities: Capital raise proceeds held with a deposit agent 6 (5,007) - Due from a related party (658) 35 Receivables and other assets (433) 30 Accrued expenses and other liabilities 654 52 Net cash (used in) from operating activities (5,444) 117

FINANCING ACTIVITY Proceeds from issuance of share capital 8 5,007 333 Net cash from financing activity 5,007 333

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (437) 450

Cash and cash equivalents at the beginning of the year 7,848 7,398 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 7,411 7,848

Balances with banks 7,405 7,840 Cash in hand 6 8 Cash and cash equivalents 7,411 7,848

Capital raise proceeds held with deposit agent 5,007 - Balances with banks and cash 6 12,418 7,848

The attached explanatory notes 1 to 16 form part of these financial statements. ARCAPITA 66 ANNUAL REPORT 2018

Arcapita Investment Management B.S.C. (c) Statement of Changes in Equity For the year ended 30 June 2018

Shares Share pending Retained Total capital allotment earnings equity Note USD ‘000 USD ‘000 USD ‘000 USD ‘000

As at 1 July 2017 7,833 - - 7,833 Net income for the year - - - - Issuance of share capital 9 - 5,007 - 5,007 As at 30 June 2018 7,833 5,007 - 12,840

As at 1 July 2016 7,50 0 - - 7,50 0 Net income for the year - - - - Issuance of share capital 333 - - 333 As at 30 June 2017 7,833 - - 7,833

The attached explanatory notes 1 to 16 form part of these financial statements. ANNUAL REPORT 2018 67 ARCAPITA

Arcapita Investment Management B.S.C. (c) Notes to the Financial Statements 30 June 2018

1 ORGANISATION AND ACTIVITIES Arcapita Investment Management B.S.C. (c) (“the Company“) is a closed joint stock company registered with the Ministry of Industry, Commerce and Tourism in the Kingdom of Bahrain and operates under the commercial registration number 87184 obtained on 10 October 2013, which is the date the Company commenced its commercial operations. The address of the Company’s registered office is P.O. Box 1357, Arcapita Building, 5th floor, Bahrain Bay, Manama, Kingdom of Bahrain. The Company operates under an Investment Firm license - Category I (Islamic Principles) issued by the Central Bank of Bahrain (“CBB“), to operate under Islamic Shari’ah principles, and is supervised and regulated by the CBB. The Company’s strategy and principal activities are dealing in financial instruments as an agent, and arranging, managing, safeguarding and advising on financial instruments. As at 30 June 2018, the Company has nil assets under management (30 June 2017: nil). These financial statements have been approved and authorised for issue by the Board of Directors on 27 September 2018.

2 BASIS OF PREPARATION

2.1 Statement of compliance The financial statements are prepared in accordance with the Financial Accounting Standards (“FAS“) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (“AAOIFI“), the Shari’ah Rules and Principles as determined by the Shari’ah Supervisory Board of the Company and in conformity with FAS, the Bahrain Commercial Companies Law, Financial Institutions Law, the CBB Rulebooks, directives, regulations and associated resolutions and the terms of the Company’s memorandum and articles of association. In accordance with the requirements of AAOIFI, for matters for which no AAOIFI standard exists, the Company uses the relevant International Financial Reporting Standard (“IFRS“) issued by International Accounting Standards Board.

2.2 Accounting convention The financial statements have been prepared under the historical cost basis and presented in the United States Dollar (“USD“) rounded to the nearest USD thousand, unless otherwise indicated, which is the functional currency of the Company.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these financial statements are:

a. Cash and cash equivalents Cash and cash equivalents include cash in hand, amounts due from banks on demand or with an original maturity of 90 days or less and balances held with deposit agents, unless restricted for use in operations or for specific purpose.

b. Receivables and other assets Receivables and other assets are carried at amortised cost. An estimate is made for impaired receivables based on a review of all outstanding amounts at the year end. ARCAPITA 68 ANNUAL REPORT 2018

Arcapita Investment Management B.S.C. (c) Notes to the Financial Statements (continued) 30 June 2018

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

c. Financial instruments Recognition, measurement and de-recognition Financial instruments comprise financial assets and financial liabilities. All financial assets and financial liabilities are initially recognised at fair value on the trade date, i.e. the date that the Company becomes a party to the contractual provisions of the instrument. All financial assets and financial liabilities are subsequently measure at amortised cost. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where: - The right to receive cash flows from the asset has expired; or - The Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or - The Company has transferred its right to receive cash flows from the asset and either: (a) has transferred substantially all the risks and rewards of the assets, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

d. Accrued expenses and other liabilities Accrued expenses and other liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

e. Amortised cost measurement Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as such when the Company has the positive intention and ability to hold them to maturity. After initial measurement, these investments are measured at amortised cost using the effective profit rate (EPR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EPR. The EPR amortisation is included in the statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss under ‘provisions’.

f. Offsetting Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a legally enforceable or religious right to set off the recognised amounts and the Company intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously. ANNUAL REPORT 2018 69 ARCAPITA

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Fee income The fee income represents income the Company earns for asset management and administrative services rendered in accordance to the contractual terms agreed between the parties.

h. Shari’ah supervisory board The Company’s business activities are subject to the supervision of a Shari’ah supervisory board consisting of at least three members appointed by the general assembly.

i. Earnings prohibited by Shari’ah The Company is committed to avoid recognising any income generated from non-Islamic sources. Accordingly all non-Islamic income is credited to a charity account where the Company uses these funds for various social welfare activities.

j. Foreign currencies Transactions in foreign currencies are initially recorded at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities in foreign currencies are translated into United States Dollars at exchange rates prevailing at the statement of financial position date. Any gains or losses are recognised in the statement of profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial recognition. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

k. Employees’ end of service benefits Bahraini employees are covered by the Social Insurance Organization scheme which comprises a defined contribution scheme to which the Company contributes a monthly sum based on a fixed percentage of the salary. The contribution is recognised as an expense in the statement of income. The Company provides end of service benefits to its non-Bahraini employees. Entitlement to these benefits is usually based upon the employees’ length of service and the completion of a minimum service period. The expected costs of these benefits which comprise a defined benefit scheme are accrued over the period of employment based on the notional amount payable if all employees had left at the statement of financial position date. ARCAPITA 70 ANNUAL REPORT 2018

Arcapita Investment Management B.S.C. (c) Notes to the Financial Statements (continued) 30 June 2018

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

l. Impairment of financial assets An assessment is made at each financial position date to determine whether there is objective evidence that a specific financial asset or a group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss, based on the assessment by the Company of the estimated cash equivalent value, is recognised in the statement of income. Specific provisions are created to reduce all impaired financial contracts to their realizable cash equivalent value. Financial assets are written off only in circumstances where effectively all possible means of recovery have been exhausted. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment value was recognised, the previously recognised impairment loss is reversed.

m. Events after the statement of financial position date The financial statements are adjusted to reflect events that occurred between the statement of financial position date and the date the financial statements are authorised for issue, provided they give evidence of conditions that existed as of the statement of financial position date. Events that are indicative of conditions that arose after the statement of financial position date are disclosed, but do not result in an adjustment to the financial statements.

o. Operating lease commitments The Company has entered into property leases which are classified as operating leases. The Company has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the property and the present value of the minimum lease payments not amounting to substantially all of the fair value of the property, that it therefore does not retain all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

p. Zakah Individual shareholders are responsible for payment of Zakah.

4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures as well as the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of assets or liabilities affected in future periods. ANNUAL REPORT 2018 71 ARCAPITA

4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued) Judgements In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements. (i) Estimates and assumptions The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

(ii) Going concern The Company’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements are prepared on the going concern basis.

5 NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS The standard issued but not yet effective, up to the date of issuance of Company’s financial statements is listed below. The Company intends to adopt this standard when it becomes effective. FAS 30 - Impairment, credit losses and onerous contracts (FAS 30) In November 2017, the AAIOFI issued FAS 30. The standard supersedes the earlier FAS 11 “Provision and reserves“. The new standard is effective for financial periods beginning on or after 1 January 2020, with early adoption permitted. The Company is in the process of assessing the impact of FAS 30 on its financial statements.

6 BALANCES WITH BANKS AND CASH 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Balances with banks 7,405 7,840 Cash in hand 6 8 Cash and cash equivalents 7,411 7,848 Capital raise proceeds held with deposit agent 6.1 5,007 - 12,418 7,848

6.1 Capital raise proceeds held with deposit agent Proceeds from the capital raise were held with the deposit agent, Arcapita Cayman SPE Limited, through a segregated client account operated by a reputed international bank until allocation and issuance of shares is completed as explained in note 9. These proceeds will be available for utilisation by the Company only after completion of the capital raise legal formalities and allocation of shares. ARCAPITA 72 ANNUAL REPORT 2018

Arcapita Investment Management B.S.C. (c) Notes to the Financial Statements (continued) 30 June 2018

7 RECEIVABLES AND OTHER ASSETS 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Equipments 663 390 Prepayments 303 276 Receivables 303 170 Other assets 110 110 1,379 946

8 SHARE CAPITAL 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Authorised capital 26,455,030 ordinary shares with a par value of USD 1 per share 26,455,030 26,455,030

Issued and paid up capital As at 1 July 2017 / 2016 (2018: 7,833,334 shares, 2017: 7,500,000 shares) 7,833,334 7,500,000

Issued during the year (2018: Nil Shares, 2017: 333,334 shares) - 333,334

As at 30 June 2018 / 2017 (2018: 7,833,334 shares, 2017:7,833,334 shares) 7,833,334 7,833,334

9 SHARES PENDING ALLOTMENT As at 30 June 2018 the Company received USD 5,007 thousand from its current and new shareholders as part of a capital raise. This amount is categorised as shares pending allotment as the legal formalities necessary to issue shares have still not been completed. These formalities are in progress and expected to be completed subsequent to year end, once the Extra Ordinary General meeting is held. ANNUAL REPORT 2018 73 ARCAPITA

10 FEE AND OTHER INCOME 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Intercompany fee income 10.1 14,382 13,264 Management Fee 141 - Other income 52 41 14,575 13,305

10.1 Intercompany fee income AIM Group Limited (AGL) an affiliate company, and the Company are under the common control of the same shareholders and governed by the same Board of Directors. In accordance with the terms of a ‘Service Agreement’, the Company provides advisory and administrative services to AGL (and its affiliates). AGL reimburses the expenditures incurred by the Company in respect of the services rendered in the form of fee income.

11 RELATED PARTY TRANSACTIONS AND BALANCES Related parties represent associated companies, major shareholders, directors and key management personnel of the Company, the Company’s Shari’ah Supervisory Board and entities controlled, jointly controlled or significantly influenced by such parties. Transactions with related parties arise from the ordinary course of business. Pricing policies and terms of these transactions are approved by the Company’s management. Outstanding balances at year end if any, are unsecured. Income and expenses incurred with related parties is as follows: 30 June 30 June 2018 2017 Note USD ‘000 USD ‘000

Income Fee income 10.1 14,382 13,264

Expenses Key management personnel costs 4,740 5,456 Shari’ah supervisory board remuneration 69 72

Balances with related parties Assets Due from a related party 731 73 ARCAPITA 74 ANNUAL REPORT 2018

Arcapita Investment Management B.S.C. (c) Notes to the Financial Statements (continued) 30 June 2018

12 SEGMENTAL INFORMATION The Company’s sole business is the provision of advisory and administrative services. Therefore the Company does not have any other reportable segments for the financial year.

13 FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the price that would be received upon the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: a) In the principal market for the asset or liability, or b) In the absence of a principal market, in the most advantageous market for the asset or liability. The Company’s financial instruments are carried at amortised cost as follows: 30 June 30 June 2018 2017 At cost/ At cost/ amortised amortised cost cost USD ‘000 USD ‘000

ASSETS Balances with banks 7,405 7,840 Capital raise proceeds held with deposit agent 5,007 - Receivables and other assets 413 280 Due from a related party 731 73 13,556 8,193

LIABILITIES Accrued expenses and other liabilities 1,688 1,034 1,688 1,034

Determination of fair value and fair value hierarchy The Company uses the following hierarchy for determining and disclosing fair value of financial assets and financial liabilities: - Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities; - Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and - Level 3: Techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data. As at 30 June 2018 and 2017, the fair values of the Company’s financial instruments approximated their carrying values. ANNUAL REPORT 2018 75 ARCAPITA

13 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) Balances with banks represent cash and cash equivalents and are due on demand. The carrying value of these balances represents their fair value. The recoverability of receivables were determined by management as part of impairment testing by calculating the net present values of the expected cash flows. The carrying amounts therefore approximate the fair value of these receivables. Other liabilities are current in nature and the carrying value of these financial instruments represents their fair value.

14 CAPITAL MANAGEMENT The objective of capital management is to ensure the Company’s ability to operate as a going concern by maintaining an appropriate capital base in line with regulatory requirements.

15 RISK MANAGEMENT

15.1 Introduction The Company adopts an enterprise-wide approach to risk management, with proactive identification and mitigation of the risks embedded in the Company’s balance sheet and business activities. One of the primary objectives of risk management is to optimize shareholder and investor returns while maintaining the Company’s risk exposure within self-imposed parameters defined within the Company’s Board approved risk policy documents. The overall responsibility for the implementation of a sound risk management framework lies with the Company’s senior management and the Board of Directors. The Company has established an independent Risk Management Department (RMD) that works in co-ordination with the Risk Management Committee (RMC), which is a management level committee with the objective of providing a platform for senior management input, review and approval of key aspects relating to risk management. The RMD and RMC work under the supervision of the Audit and Risk Committee (ARC), which is a board level committee delegated with certain responsibilities of risk oversight on behalf of the Board and supports the Board in the execution of its responsibilities pertaining to risk management.

15.2 Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s exposure to credit risk is limited due to minimal lending / placement activity and the fact that there are no investments in financial securities. The Company is exposed to credit risk on its bank balance and receivables. This risk is considered minimal as the bank balances are maintained in current accounts with a reputable regional bank. The receivable balances primarily represent prepayments to vendors and other receivables.

15.3 Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may also arise from an inability to realize a financial asset quickly at an amount close to its fair value. The Company’s exposure to liquidity risk is low given that the Company does not hold any investments on its balance sheet and maintains minimal balance sheet leverage. The Company has enough cash and bank balances available as of 30 June 2018 in order to discharge its financial liabilities as and when they fall due. All of the assets and liabilities as presented in the statement of financial position of the Company are of current nature with the exception of equipment. ARCAPITA 76 ANNUAL REPORT 2018

Arcapita Investment Management B.S.C. (c) Notes to the Financial Statements (continued) 30 June 2018

15 RISK MANAGEMENT (continued)

15.4 Market risk Market risk is the risk of losses due to adverse movements in market fundamentals such as profit rates, foreign currency exchange rates, equity markets / prices and commodity prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the risk adjusted return on capital. The Company’s exposure to market risk is low given that the Company does not hold any investments on its balance sheet, maintains minimal profit rate sensitive assets / liabilities and foreign currency net open positions (of non USD currencies that are not pegged to the USD) are also minimal. As of 30 June 2018, the Company has no significant foreign currency exposure.

15.5 Operational risk Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or lead to financial loss. The Company minimizes the operational risk by maintaining a strong internal control environment and oversight by the Board of Directors.

16 COMMITMENTS AND CONTINGENCIES 30 June 30 June 2018 2017 USD ‘000 USD ‘000

Operating lease commitments relating to rented premises within one year 302 1,150 more than 1 year and less then five years - 288 302 1,438 ANNUAL REPORT 2018 77 ARCAPITA

OUR PEOPLE

Arcapita is defined by the quality of its people: a veteran management team with extensive experience, and a group of investment professionals with deep expertise in their respective fields. ARCAPITA 78 ANNUAL REPORT 2018

Board of Directors ABDULAZIZ HAMAD ALJOMAIH Chairman of the Board, Chairman of EIC & Member of EAC Mr. Aljomaih is the Chairman of the Board of Directors of Arcapita Group Holdings Limited. Mr. Aljomaih has been the Head of International Investments at Aljomaih Holding Co. in Saudi Arabia since 1988. His other key positions include: member of the Board of Directors of Ittihad Etisalat (Mobily), Saudi Arabia; Dana Gas, United Arab Emirates; and Vice Chairman of Pearl Initiative (a UN initiative).

GHAZI FAHAD ALNAFISI Board Member & Member of EAC Mr. Alnafisi is a Director of Arcapita Group Holdings Limited. Mr. Alnafisi is Co- Founder and Chairman of Salhia Real Estate Company K.S.C., Kuwait. His other current positions include: Chairman of Kuwait Hotel Owners Association, Kuwait; and Co- Founder and Vice Chairman of Independent Petroleum Group s.a.k., Kuwait.

ABDULRAHMAN ABDULAZIZ AL-MUHANNA Board Member & Chairman of EAC Mr. Al-Muhanna is a Director of Arcapita Group Holdings Limited. Mr. Al-Muhanna joined the Almarai Company in the Kingdom of Saudi Arabia in 1979 and was appointed Managing Director and a member of the board in 1997. His other board memberships include ARASCO; the publishing company Al Jazirah; and the National Committee for Biodiversity, as well as various commercial establishments in Saudi Arabia.

MAHMOOD HASHIM AL KOOHEJI Board Member & Member of EIC Mr. Al Kooheji is a Director of Arcapita Group Holdings Limited. Mr. Al Kooheji is the Chief Executive Officer of Bahrain Mumtalakat Holding Company. Mr. Al Kooheji sits on the board of Gulf Air and is also a board member at McLaren Automotive Limited and McLaren Group Limited. In addition, he sits on the boards of Durrat Khaleej Al Bahrain Company and the Arab Petroleum Investment Corporation (“APICORP”), and serves the role of Governor at the Royal College of Surgeons in Ireland, Bahrain. He holds a bachelor’s degree in Mechanical Engineering from Staffordshire University and a Masters of Business Administration from Henley College of Management, Brunel University, UK.

NOORUR RAHMAN ABID Board Member & Chairman of ARC Mr. Abid is a Director of Arcapita Group Holdings Limited. Mr. Abid is a Fellow Chartered Accountant from the Institute of Chartered Accountants in England and Wales. He has more than 35 years of experience in the profession across Europe, the Middle East and Africa. Mr. Abid spent over 30 years with Ernest & Young, joining them in 1979 and rising to become an Office Managing Partner, then the Assurance Leader for the MENA region. Mr. Abid previously served as the Chairman of the Auditing Standards Committee, and the Deputy Chairman of the Accounting and Auditing Standards Board of Accounting and Auditing Organization for Islamic Financial Institutions. ANNUAL REPORT 2018 79 ARCAPITA

KHALID JASSIM BIN KALBAN Board Member & Member of EIC Mr. Kalban is a Director of Arcapita Group Holdings Limited and is the Managing Director and Chief Executive Officer of Dubai Investments PJSC. His extensive experience covers the industrial, financial, investment and real estate sectors. He currently holds several prominent positions including a membership of the Board of Directors of National General Insurance PJSC and Chairmanship of Union Properties PJSC. Mr. Kalban has a degree in Business Management from the Metropolitan State College, US.

USAMA MOHAMMED AL BARWANI Board Member & Member of ARC Mr. Al Barwani is a Director of Arcapita Group Holdings Limited. Mr. Al Barwani is an Executive Director of MB Holding, a major Omani family conglomerate, and is responsible for new projects and the investments of the MB Group. He is also Managing Director of United Engineering Services, a major oil and gas, and defense manufacturing business. He is on the Board of Directors of Ahli Bank SAOG, and Chairman of Ubar Hotels and Resorts, both listed on the Muscat Securities Markets, as well as Nautilus Minerals which is listed on the Toronto Stock Exchange. He has obtained a B.Sc. in Petroleum Engineering from Tulsa University, US and an M.Sc. in Energy, Trade and Finance from City University, London.

MUSTAFA FOUAD ALI REDA Board Member Mr. Reda is a Director of Arcapita Group Holdings Limited. Mr. Reda is the General Manager of Reda Investment & Development Group, with extensive experience across various sectors including real estate, financial services, hospitality and tourism. Additionally, Mr. Reda holds a number of prominent positions across leading entities such as Member of the Board of Directors at the Mecca Chamber of Commerce & Industry, Member of the Saudi-Turkish Business Council, and Member of the Board of Directors of the Saudi Al Bilad Establishment.

ATIF AHMED ABDULMALIK Chief Executive Officer, Board Member & Chairman of the Executive Committee Mr. Abdulmalik is the Chief Executive Officer and executive member of the Board of Directors of Arcapita Group Holdings Limited. Previously, Mr. Abdulmalik was at Investcorp where he served in numerous management positions. In 2007, he was awarded The Proficiency Medal First Class by His Majesty King Hamad bin Isa Al Khalifa in acknowledgement of his outstanding contribution to the Kingdom of Bahrain. Mr. Abdulmalik obtained his BBA in Accounting, Finance and Management from Saint Edward’s University, Texas. ARCAPITA 80 ANNUAL REPORT 2018

Shari’ah Supervisory Board

Arcapita’s Shari’ah Supervisory Board is fully supported by the internal Shari’ah department and other Arcapita departments. The Shari’ah department is responsible for ensuring that there is an ongoing process of reviewing and auditing of the business of Arcapita generally, including existing and new investments. The Shari’ah Supervisory Board ensures that all investments undertaken by the lines of business are structured in a manner that comply strictly with Shari’ah principles and resolve any Islamic investment issues that may arise. The Shari’ah Supervisory Board also approves the audited financial statements of Arcapita, confirming adherence to Islamic Shari’ah principles. The Shari’ah Supervisory Board is composed of the following prominent scholars:

SHEIKH MUHAMMED TAQI USMANI Chairman of Shari’ah Supervisory Board Vice President, Darul-Uloom University, Karachi, Pakistan; Member of the Islamic Fiqh Academy; Ex-Member of the Shari’ah Appellate Bench of the Supreme Court, Karachi, Pakistan; Member of the Shari’ah Supervisory Boards of a number of Islamic banks and financial institutions.

SHEIKH ESAM MOHAMED ISHAQ Shari’ah Supervisory Board Member Chairman of the Board, Muslim Educational Society, Bahrain; Director & Shari’ah Advisor, Discover Islam, Bahrain; Member of Board of Trustees, Al Iman Islamic School, Bahrain; Member, Accounting & Auditing Organization for Islamic Financial Institutions, Bahrain; Member of the Shari’ah Supervisory Boards of a number of Islamic banks and financial institutions.

SHEIKH DR. YOUSUF ABDULLAH AL SHUBAILY Shari’ah Supervisory Board Member Sheikh Yousuf is a Member of the Shari’ah Board of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and Chairman & member of several Shari’ah Supervisory Boards of Islamic banks and financial institutions. He is a faculty member of the Higher Institute of Justice, a Member of the Saudi Fiqh Society, and he holds a master and Ph.D. in Shari’ah from Imam Mohamed Bin Saud Islamic University in Saudi Arabia.

SHEIKH MOHAMMED ISA AL JAMEA Shari’ah Supervisory Board Member Sheikh Mohammed is the Director heading the Shari’ah department of the firm. Previously, he was with the Royal Bahraini Air Force. Sheikh Mohammed has a BS in Islamic Shari’ah Law from Imam Mohamed Bin Saud University, Saudi Arabia (UAE Branch), and several Shari’ah certificates and licenses in Islamic studies from different prominent scholars. He has a BS in Aerospace Engineering from Northrop University in California. ANNUAL REPORT 2018 81 ARCAPITA

Senior Management ATIF ABDULMALIK Chief Executive Officer & Chairman of the Executive Committee Atif is a Founding Partner, Chief Executive Officer, Board Member, and Chairman of the Executive Committee for Arcapita Group. Having established Arcapita in 1997, Atif was instrumental in growing the Group’s presence beyond Bahrain to Atlanta, London and Singapore. Prior to founding Arcapita, Atif held a number of senior management positions with Investcorp. In recognition of his outstanding contribution to the Kingdom of Bahrain, in 2007 Atif was awarded The Proficiency Medal First Class by His Majesty King Hamad Bin Isa Al Khalifa. Atif holds a BBA in Accounting, Finance and Management from Saint Edward’s University, Texas.

HISHAM AL RAEE Chief Operating Officer, Head of IRM & Member of the Executive Committee Hisham is a Founding Partner, Chief Operating Officer, and a Member of the Executive Committee, for Arcapita Group, responsible for the day-to-day operations of the firm. He also serves as Head of the Investors Relationship Management team, drawing on extensive industry experience across the region and Asia. Previously, Hisham served as the Senior Director of Business Development with Reuters Middle East in Saudi Arabia for five years. He also previously worked with the Finance Department at Citibank N.A., Bahrain. Hisham received his MBA from the University of Hull, United Kingdom, and a CSD in Business Administration from the University of Bahrain.

MARTIN TAN Chief Investment Officer & Member of the Executive Committee Martin is a Founding Partner, Chief Investment Officer, and a Member of the Executive Committee at Arcapita Group. He is responsible for developing and overseeing the firm’s investment strategy and capabilities. Martin joined Arcapita in 2007, and has played a leading role in developing the firm’s private equity and real estate business. Martin has extensive international experience, having managed listed and private real estate investments across multiple geographies, including Europe, the Middle East, North America and Asia. Prior to joining Arcapita, Martin was Chief Executive Officer of CapitaLand Commercial & Integrated Development where he managed a global portfolio in excess of $7 billion. Martin started his career in the manufacturing and construction industries and obtained his MBA and Bachelor’s degrees from Washington State University.

MOHAMMED CHOWDHURY Global Head of Financial Management Group & Member of the Executive Committee Mohammed is a Founding Partner, Member of the Executive Committee, and Head of Financial Management Group for Arcapita Group. As part of his role, Mohammed is responsible for overseeing the Corporate Finance, Shari’ah, Risk Management and Corporate Communications functions at Arcapita. Prior to joining Arcapita in 1998, Mohammed spent nine years working for Ernst & Young in Bahrain and KPMG in London. Mohammed is a Member of the Institute of Chartered Accountants in England and Wales, completing his training while working for KPMG in London. Mohammed is a graduate of the London School of Economics and has an MBA from the London Business School. ARCAPITA 82 ANNUAL REPORT 2018

ARTHUR M. ROGERS Managing Director & General Counsel Art is a Managing Director and General Counsel responsible for overseeing all legal and compliance roles within the firm. Art has over 24 years of legal and business experience in private equity, venture capital, real estate, infrastructure, banking, M&A, compliance and Islamic finance. Prior to rejoining Arcapita, Art was General Counsel and Executive Vice President at Gatehouse Bank and Director, Legal at Arcapita Bank in Bahrain for eight years. Prior to that, Art was a corporate attorney at two leading law firms: Gibson, Dunn & Crutcher, and Testa, Hurwitz & Thibeault. Art holds a law degree with distinction from Emory University School of Law and a B.A. in History from Hamilton College, New York. Art is admitted to the bar in Massachusetts and Virginia.

AHMED AL SHIRAWI Managing Director & Deputy Head of Investors Relationship Management Ahmed is a Managing Director and Deputy Head of the Investors Relationship Management team at Arcapita. He oversees the firm’s strategic investor relations in the GCC region and South East Asia. Previously, Ahmed held various positions at Arcapita including within the Financial Management Group, where he was Head of the Corporate Finance and Investor Reporting teams. Ahmed obtained his B.Sc. degree in Business Management from King’s College, London.

BRIAN HEBB Managing Director & Head of US Real Estate Brian is the Head of US Real Estate. Brian has 20 years of real estate experience, and has held various positions with Goldman Sachs, NYL Investors and Colony NorthStar, where he initiated NorthStar’s entry into the industrial real estate sector. Most recently, he formed Point Grey Partners to invest privately raised capital in industrial real estate transactions. Brian is experienced in all major property sectors, and has deep knowledge in fund management, tax structuring, and real estate development. Brian holds a Bachelor’s degree from the University of Western Ontario and an MBA from Columbia Business School. ANNUAL REPORT 2018 83 ARCAPITA

NAEL MUSTAFA Managing Director & Head of MENA Investments Nael is a Managing Director and Head of MENA Investments responsible for the origination, structuring and management of MENA investments. His role also involves approaching, developing and maintaining investor relationships at institutional and HNWIs level as well as creating and developing strategic partnerships. With over 26 years of investment banking experience, Nael has covered the areas of capital markets, corporate finance as well as Shari’ah-compliant alternative investments. His experience spans wide geographic areas including North America and the Middle East. Previously, Nael was heading the capital markets activity at TAIB Bank as the General Manager of TAIB Securities, prior to that he headed the fixed income desk and derivatives desk. He later headed the Corporate Finance at SICO, leading a number of IPOs and M&A transactions. Nael is a CFA Charter holder and has an MBA from Edinburgh University.

NEIL CARTER Managing Director & Head of US Private Equity Neil is the Head of US Private Equity. Neil has 18 years of private equity experience, including nine years at Fortress Investment Group where he served the role of Senior Vice President in the Credit Funds department. In this role, Neil oversaw origination, underwriting, negotiation, and management of middle market private equity transactions. Previously, Neil gained experience in a number of high caliber firms including Goldman Sachs, Atlantic Pacific Capital, and Stern Steward & Co. Neil earned his MBA and Bachelor’s degree in Commerce from the University of Virginia, Charlottesville, US. ARCAPITA 84 ANNUAL REPORT 2018

Management CHIEF EXECUTIVE OFFICER Yousif Al Abdulla Atif Abdulmalik MENA Private Equity Team Chief Executive Officer Chairman of the Executive Committee PRINCIPALS Abdulla Alyaqoob MANAGING DIRECTORS Investor Services Group Hisham Al Raee Adrian Peck Chief Operating Officer & Head of IRM MENA Investments Member of the Executive Committee Ahmad Roshan Martin Tan Risk Management Chief Investment Officer Member of the Executive Committee Ahmed Salem Investors Relationship Management Mohammed Chowdhury Head of Financial Management Group Amin Jawad Member of the Executive Committee Treasury Operations Arthur Rogers Amy Doshi General Counsel Legal Ahmed Al Shirawi Duaij Al Khalifa Deputy Head of the Investors Investors Relationship Management Relationship Management Ebrahim Al Shroogi Brian Hebb Investors Relationship Management US Real Estate Farooq Aqeel Nael Mustafa Financial Control Head of MENA Investments Fawzi Al Nasir Neil Carter Investors Relationship Management US Private Equity Halah Faraj MENA Investments DIRECTORS Hassan Shujaie Anthony Nambiar Administration Human Resources Isa Al Khalifa Gana Balaratnam MENA Real Estate Financial Control Joseph Mathai Hafedh Al Najem Financial Control Financial Control Mishal Al Hellow Len Bravo Information Technology & Public US Real Estate Relations Muhannad Buhindi Mohamed Sharif Investors Relationship Management Investors Relationship Management Osama Al Tamimi Ryan Dunn Financial Control US Private Equity Saeed Fadhl Syed Bokhari Investors Relationship Management US Real Estate Tariq Hayat Corporate Management This annual report (the “Annual Report”) contains certain “forward-looking” statements, and such statements are based on the beliefs of Arcapita, as well as on assumptions made by, and information currently available to, Arcapita. When used in this Annual Report, the words “anticipate”, “believe”, “estimate”, “expect”, “plan”, “intend”, and words or phrases of similar import, are intended to identify forward-looking statements. Such forward- looking statements may include, without limitation, statements relating to the following: Arcapita’s plans, strategy, objectives or goals; Arcapita’s future economic performance or prospects; specific country, region and worldwide business environment; potential effect on future performance of certain contingencies; and assumptions underlying any such statements. These statements are inherently subject to significant business, economic, competitive, regulatory and operational uncertainties, contingencies and risks, both specific and general in nature, many of which are beyond the control of Arcapita. Any forward-looking statements are speculative in nature, and it can be expected that one or more of the assumptions underlying such statements will prove not to be accurate, and unanticipated events and circumstances may occur. Actual results and events will likely vary from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, and such variations may be material. Consequently, this Annual Report should not be regarded as a representation by Arcapita that the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements will be achieved and should not be relied on. Arcapita does not intend to update these forward-looking statements.

Note: throughout the Annual Report, $ refers to United States Dollars, unless otherwise noted. Arcapita Investment Arcapita Investment Arcapita Investment Arcapita Investment Management B.S.C.(c) Management US Inc. Advisors UK Limited Management Singapore Pte. Ltd. P.O. Box 1357 1180 Peachtree Street The Shard 24 Raffles Place Manama Atlanta, GA 30309 32 London Bridge Street #16-03 Clifford Centre Kingdom of Bahrain United States of America London SE1 9SG Singapore 048621 United Kingdom Republic of Singapore

Tel: +973 17 218333 Tel: +1 (404) 920 9000 Tel: +44 (0)20 7824 5600 Tel: +65 6513 0395 www.arcapita.com