ANNUAL REPORT This Annual Report contains certain “forward-looking” statements, and such information is 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: “$” refers to US dollars throughout.
2 | ARCAPITA ANNUAL REPORT 2014 TABLE OF CONTENTS
Overview 4 Geographic Presence 5 Arcapita Values 5 Chairman's Message to the Shareholders 6 Chief Executive Officer’s Message 8
Our Business 9 Business Model 10 Clients 10 Lines of Business 10 Investment Process 13 Current and Exited Portfolio 14 Corporate Governance Overview 15 Organizational Structure and Business Divisions 18 Financial Highlights 20
Arcapita Group Holdings Limited Independent Auditors’ Report to the Shareholders 23 Consolidated Statement of Financial Position 24 Consolidated Statement of Comprehensive Income 25 Consolidated Statement of Cash Flows 26 Consolidated Statement of Changes in Equity 27 Notes to the Consolidated Financial Statements 28 Shari’ah Supervisory Board’s Report 40 to the Shareholders - AGHL
Aim Investment Management B.S.C. (C) Independent Auditors’ Report to the Shareholders 41 Report of The Board of Directors 42 Statement of Financial Position 43 Statement of Income 44 Statement of Cash Flows 45 Statement of Changes In Equity 46 Notes to the Financial Statements 47 Shari’ah Supervisory Board’s Report 57 to the Shareholders - AIM
Our People Board of Directors 58 Shari’ah Supervisory Board 60 Senior Management 61 Management Team 63 Contact Information 65
ARCAPITA ANNUAL REPORT 2014 | 3 Overview
Arcapita originates global alternative investments which comply with Shari’ah principles for its investors and shareholders. At the center of one of the fastest growing wealth markets in the world, Arcapita serves an exclusive group of investors in the GCC region and Southeast Asia. With offices in Bahrain, Atlanta, London and Singapore, Arcapita possesses a footprint to invest on a global scale.
4 | ARCAPITA ANNUAL REPORT 2014 GEOGRAPHIC PRESENCE
London
Atlanta Bahrain
Singapore
Selected countries where Management oversaw investments
Arcapita offices
Arcapita currently operates out of the following offices: • Manama, Bahrain: Covering the GCC region and India; • Atlanta, US: Covering United States; • London, UK: Covering the UK, Western, Central and Eastern Europe; and • Singapore: Covering Southeast Asia, China, Japan and Australia.
ARCAPITA VALUES
Quality We believe passionately in the long-term value creation that comes from insisting on the very best people, systems and processes. The professionalism of our people is at the heart of everything that we do and the way in which the firm approaches its business with all of its stakeholders. This leads to the strong and long-lasting relationships on which we have built our business.
Transparency We have built a system of governance to ensure that our processes, our products and services are all clearly defined and communicated to ensure full transparency for all stakeholders.
Alignment with our investors We believe wholeheartedly in the importance of investing alongside our investors, ensuring that our success is always closely correlated with theirs.
ARCAPITA ANNUAL REPORT 2014 | 5 CHAIRMAN'S MESSAGE TO THE SHAREHOLDERS
Abdulaziz Hamad Aljomaih | Chairman
Fiscal Year (“FY”) 2014 was a successful period for Arcapita, during which we have strengthened our balance sheet and enhanced the performance of our investment portfolio. Arcapita ended FY 2014 having achieved revenues of $29.3 million and net income of $10.1 million.
Our robust financial performance was driven by the performance of the existing investment portfolio. Over the course of the year, we took advantage of the favorable market conditions across the globe to exit several investments ahead of plan. The global economic environment has been improving, with the recovery led by developed economies. The growth has generally been supported by favorable monetary conditions, improving confidence, recovering real estate sectors, improved consumer spending and improved lending conditions. The alternative investments industry, including Arcapita, has benefited from this recovery, the strong equity markets, low interest rates and increasingly accommodating bank lending conditions. Since September 2013, Arcapita has delivered approximately $730 million in proceeds to investors from monetizing investments within the current portfolio. Most of the remaining portfolio investments continue to perform at or above their respective plan levels.
Another important achievement during FY 2014 was the closing of the targeted equity offering of $100 million with prominent shareholders from across the GCC region, including sovereign wealth funds, institutional investors, high net worth individuals, family offices and certain senior management members. The equity offering, which was oversubscribed, will fund our growth strategy over the next five years.
Building on this positive momentum is a key objective during FY 2015. Arcapita is now focused on two clear areas of opportunity: asset management of an existing $3 billion investment portfolio and the growth opportunity of new Shari’ah-compliant alternative investment products and services.
Arcapita will offer real estate and private equity investments on “deal-by-deal” and funds basis to a select group of investors. We also intend to offer services to clients, including asset management and advisory services, with the objective of developing additional recurring revenue streams. We are actively developing a new deal pipeline, and have initiated discussions with our global partners and a number of co-investors along these lines. Given our global network, investment capabilities and the support of our exclusive investor relationships, we believe that Arcapita is well positioned to take advantage of the economic landscape. We are also focused on ensuring that Arcapita is well prepared for future changes in market conditions and the stability of the firm’s earnings by growing sustainable recurring revenues. To this end, we will pursue new investments, funds and other service-oriented offerings that are synergistic and build on the strengths that the Arcapita management team built over the past 17 years.
6 | ARCAPITA ANNUAL REPORT 2014 We are proceeding ahead with the execution of our strategic targets under the following key guidelines: • Balance sheet-light model: Arcapita’s balance sheet is 100% equity-funded and will continue with this model for the foreseeable future. We will conservatively utilize the balance sheet to underwrite a portion of new transactions. A substantial majority of deal-by-deal investments are expected to be syndicated to our investor base prior to closing a given investment. This focus on pre-syndication is purposeful and is meant to reduce underwriting risks. • Flexible cost base: Lower and flexible cost base relative to peers, while maintaining a culture of accountability. Our aim is to cover fixed cost base from recurring income over the medium term. • Investment risk management: Comprehensive capital allocation and risk management guidelines to guide new investment activities. The board of directors will be involved in steering the strategic direction of the firm and overseeing its risk profile through board committees; such as the Audit and Risk Committee.
Arcapita was formed to provide innovative, high-quality Shari’ah-compliant alternative investment opportunities for investors. Over the last 17 years, Arcapita’s investment professionals have completed more than 70 investments across the globe, with a transaction value of approximately $30 billion. Today, we believe that we are still the only firm with the capability to provide high net worth investors in the GCC the opportunity to invest in private equity investments globally, on a Shari’ah-compliant basis.
Finally, Arcapita continues to benefit from the ongoing support of its shareholders, board of directors, investors and other stakeholders, relationships that will sustain the future growth path of Arcapita’s business. We are grateful to all of these stakeholders for this active support and, in particular, we recognize the contribution of the Government of the Kingdom of Bahrain and the Central Bank of Bahrain in our continued success.
Abdulaziz Aljomaih
ARCAPITA ANNUAL REPORT 2014 | 7 CHIEF EXECUTIVE OFFICER’S MESSAGE
Atif A. Abdulmalik | Chief Executive Officer
With over 17 years of experience, Arcapita’s management and investors have built a global investment platform to access the opportunities that exist in its core markets of the US, Europe, Middle East and Asia. We have a diversified business model and a management team that brings experience and expertise across our different investment areas.
Through numerous innovations, we are proud to have played a major part in opening access to alternative investments for Shari’ah-aligned investors and we have completed transactions valued at approximately $30 billion. We believe resolutely in the importance and value of long-term relationships with our shareholders, our investors and our investment partners, thus our model stresses the importance of aligned interests. We use these partnerships to bring a range of different skills and experience to our investments, enhancing transaction access, execution and exits for the benefit of all stakeholders.
We have been in business long enough to have experienced a wide range of market conditions. We faced some demanding challenges in the aftermath of the financial crisis but, largely as a result of the deep relationships that we enjoy with our stakeholders, we have been successful in creating an organization that we believe is well positioned to grow steadily over the coming years. We will continue to build closer relationships with the investment and operational partners who can add support and value to our business. Overall, our goal is to deliver sustainable returns to our shareholders and investors using our sectoral and geographic insights and a risk-adjusted approach to investing.
As we started FY 2014, we initiated the objective to stabilize the firm and regain our place as the market leaders among the Shari’ah-compliant alternative investment managers. Given the hard work and effort of our employees, we were able to outperform the goals we had set forth and we seek to continue this effort. In the upcoming months we look forward to launching our first transaction, which will offer our investors the strong returns they have grown used to in the past. With this capital raise, we hope to gain experience and input from the dedicated shareholder base in order to guide the business towards excellence. We are hoping to leverage on the participation of the board of directors in order to outperform the goals we have set and to achieve profitable returns for our investors.
Atif A. Abdulmalik
8 | ARCAPITA ANNUAL REPORT 2014 OUR BUSINESS
Arcapita was established to provide investors with alternative investments and financial services that are Shari’ah-compliant. Arcapita seeks to capitalize on the GCC region’s status as a net exporter of capital to provide clients with investments that target long-term returns at or exceeding those offered by conventional public equity markets. Arcapita comprises Arcapita Group Holdings Limited (“AGHL”), an exempted company organized under the laws of the Cayman Islands, and AIM Investment Management B.S.C(c) (“Arcapita Bahrain”), a company organized under the laws of the Kingdom of Bahrain, and their respective subsidiaries. Arcapita maintains offices in Bahrain, Atlanta, London and Singapore.
ARCAPITA ANNUAL REPORT 2014 | 9 BUSINESS MODEL
Arcapita was formed to: • Provide investors with opportunities in alternative investment products in a Shari’ah-compliant manner and investment management services in connection with such products; • Co-invest with its investors in Arcapita-sponsored investment products to generate a return on such investments ; and • Provide investment management and administration services.
CLIENTS
The firm serves on a broad network of over 1,300 valuable investors from across the GCC and Southeast Asia.
Arcapita’s investor base is composed primarily of investors from the following four segments: • HNWI: High net worth individuals with investable assets in excess of $1 million; • Family offices: Professional entities set up to manage the investments, business affairs and philanthropic interests of high net worth families; • Institutions: Large, sophisticated investment groups that include pension funds, university endowments, asset managers and insurance companies; and • SWFs: State-owned investment funds.
LINES OF BUSINESS
Real Estate
Overview Arcapita’s real estate team acts as a principal, arranger and manager of real estate investments, operating out of its offices in Atlanta, London, Bahrain and Singapore. Its experienced real estate professionals analyze opportunities across a broad spectrum of transaction structures, geographies and return profiles in an effort to provide a diverse mix of attractive real estate investment opportunities to investors. To date, Arcapita's senior management have completed real estate investments in the warehousing/logistics, self-storage, senior living, residential, resort, mixed-use, business parks and retail sectors. The team has completed investments across the world; from North America, through Europe, the Middle East and Asia.
In support of Arcapita’s overall business strategy, and to provide more diverse investment opportunities for investors, the real estate team at Arcapita extended its focus to develop initiatives that include the establishment and management of real estate investment funds. In addition to real estate funds, the team is also focused on providing more real estate financial services and solutions by leveraging its experience in specific real estate sectors; such as the residential and warehousing sectors where it has executed transactions in excess of $4 billion and $6 billion respectively.
Arcapita’s investment model has been developed and refined over a large number of investments and structures. The process begins with Arcapita sourcing projects, from direct approaches made to partners and sellers, and by working with specialist intermediaries within the real estate industry. Arcapita performs project analysis and due diligence in varying degrees on sourced projects. A full investment process typically lasts between two to six months. The real estate team also carefully assesses potential risks associated with the project, from broad macroeconomic trends to more narrowly defined issues
10 | ARCAPITA ANNUAL REPORT 2014 specific to the particular project. Arcapita consults closely with its co-investment partners, and reviews extensive analysis of the post-acquisition execution and exit strategies for realizing value over the investment term.
The real estate team typically seeks to exit from investments within three to seven years, depending on the type of investment and the market. Partial or full exit may occur through recapitalization, or private or public sale.
Portfolio Management Arcapita’s portfolio management approach is designed to ensure the highest possible performance of each of its real estate investments. After closing the transaction, the asset managers, corporate management teams or joint venture partners are directly responsible for the execution of the business plan. Arcapita works closely with these partners to monitor and evaluate the progress of each real estate investment.
Early in the ownership period, the deal team works with its partners to identify the primary operating statistics to be monitored through regular meetings and reports. In this fashion, the deal team is able to apply continuous oversight of each investment. On a bi-monthly or quarterly basis, the deal team receives an asset performance report which includes a comprehensive set of marketing and financial updates for the investment and, on an annual basis, the deal team also receives and reviews audited financial statements for every investment.
The deal team conducts on-site operational reviews on a quarterly basis. At these sessions, the team conducts a deeper assessment of the investment’s performance, working with the operating partner to understand the underlying factors influencing current/future performance. This process helps to ensure early recognition of any performance concerns, and to determine appropriate course corrections, if necessary. More extensive involvement is undertaken as needed.
Private Equity
Overview Arcapita acts as a principal and arranger in the acquisition of controlling and non-controlling interests in established companies with an emphasis on the United States, Europe, the Middle East and Asia, targeting growth-oriented corporate acquisitions with a total transaction size between $50 million and $300 million per transaction. Arcapita focuses on sectors where it's management team have established industry knowledge and a successful track record. Future acquisitions will most likely be in the energy, business services, industrial and consumer sectors.
Arcapita looks for companies that score highly in a number of important areas. These companies should have innovative products or services; growing market positions and strong management teams, in place or identified; be capable of building shareholder value through market strength in product line, technology, distribution, manufacturing or brand; a clear business strategy with multiple avenues for growth and market share gains; industry growth drivers that are fundamental and compelling; and exit potential through a financial or strategic sale, or IPO.
Furthermore, Arcapita targets companies where it has a unique angle to secure the acquisition or to create value thereafter. In practice, this has arisen from transactions being offered to Arcapita on a proprietary basis, the opportunity to install a new expert management team, a special situation or industry knowledge that leads to identification of an opportunity, or in situations where Arcapita is able to leverage its extensive network of business relationships to the advantage of the target company, especially within the Middle East.
ARCAPITA ANNUAL REPORT 2014 | 11 Once an acquisition is completed, and the target company becomes part of the private equity portfolio, Arcapita’s executives work closely with each portfolio company management team in establishing a clearly defined business plan for creating equity value, while designing a tailored capital structure and management equity incentives to foster growth and profitability. Arcapita aims to nurture and grow the investments through the holding period with strategic and financial support when necessary and, at the appropriate time, to position the company for sale to a financial or strategic buyer, or through an IPO.
Portfolio Management Arcapita’s portfolio management approach is designed to ensure the highest possible performance of each of its portfolio companies - bringing critical insights, strategic capabilities, and world-class best practices in delivering superior investor returns. Arcapita currently provides full support to all private equity portfolio investments, and periodic support to the private equity business as required.
Arcapita’s portfolio management approach is applied in each of the critical stages of a company and asset ownership process—including pre-acquisition and due diligence, early ownership, the core ownership period, and the process leading to exit. Prior to the acquisition of a company or asset, we conduct market and operational due diligence, along with an assessment of the management team.
During the critical early ownership period, the approach includes process disciplines in the areas of strategy, operations, and people management, as well as leading-edge board governance and audit protocols. Early on, we work with senior management to identify the key industry and company-specific operating and financial measures that best reflect the true performance levers for a particular business. We design incentive plans to encourage and motivate management teams to meet agreed-upon metrics. Through a disciplined program of monthly performance reviews and quarterly board meetings, we work with each management team to evaluate the company’s performance, ensure early recognition of any deviations from expected performance, and determine appropriate course corrections. More extensive involvement is undertaken as needed.
During the ownership period, Arcapita executives serve as members of each company’s board of directors, seeking to increase the value of the investment in three primary ways: (1) assisting management in defining and continuously updating the optimal three to five year action-based strategy, (2) identifying and driving initiatives in the company’s annual operating plans that improve the near-term operating performance of the business and support achievement of ambitious financial objectives, and (3) improving the company’s human resource management and succession planning. We also regularly identify opportunities where our functional capabilities (both in-house and with selected third-party advisors) can be leveraged in support of marketing, sales, and growth-related initiatives, as well as cost reduction, working capital reduction, process improvement, and supply chain initiatives. Finally, we also play a critical role in evaluating, selecting, and developing CEO candidates, and often assist the CEO in the recruitment and selection of senior management team members.
12 | ARCAPITA ANNUAL REPORT 2014 INVESTMENT PROCESS
ONGOING
Deal Sourcing
Exit Due Diligence 2-6 MONTHS
3-5 YEARS Closing Acquisition Post-Acquisition /Underwritnig
Fundraising
3-6 MONTHS
Deal sourcing Due diligence Closing Fundraising Post-acquisition Exit acquisition/ underwriting
• DirectReferrals approach from • Market sounding • Close documentation First contact with • Active portfolio • Partial or full tospecialist partners/sellers • Extensive analysis • Form investment investors management realization intermediaries Referrals from • Consult external structure • Book building starts • Ongoing oversight • Deal team’s • specialistDirect approach experts & advisors • Equity and financing • Investors’ meetings by Risk Management responsibility intermediariesto partners/sellers Group • Identify risks funded • Release Private • Approvals • Dialogue with & mitigants • Finalize pricing Placement • Value optimization • Distributions to investment banks to maximize returns • Arrange financing & investment for Memorandum investors & Arcapita & other relationships investors • Documentation • Process client orders • Allocation of • Follow-on • Set placement price performance fees transactions within • Investment approvals • Investors’ queries transactions within • Prepare closing memo response the portfolio • Risk management • Prepare post- • Commitments through acquisition strategy Share Purchase Agreements • Funding & reduction of Arcapita’s position
ARCAPITA ANNUAL REPORT 2014 | 13 CURRENT AND EXITED PORTFOLIO
To date, Arcapita management have completed over 70 investments with a total transaction value of approximately $30 billion.
Current Private Equity Investment Under Management Roxar AS Arcapita GCC Utilities Development I Smart Document Solutions, LLC Arcapita India Growth Capital I South Staffordshire Plc Arcapita Ventures I Limited Southland Log Homes, Inc. Freightliner Group Limited The Tensar Corporation, LLC Honiton Energy Caymans Ltd TLC Health Care Services, Inc. Jill Acquisition, LLC Transportation Safety Technologies, Inc. Meridian Surgical Partners, LLC Varel International Energy Services, Inc. Viridian Group Watermark, Inc. Working Rx Current Real Estate Investments Under Management Yakima Products, Inc. ARC Real Estate Income Fund Zephyr Investments Limited Arcapita CEE Residential Development I Arcapita India Business Park Development I Exited Real Estate Investments Arcapita International Luxury Residential Development I Arcapita Asian Industrial Yielding I Arcapita Japan Residential Yielding I Arcapita European Industrial Development I Arcapita US Residential Development I Arcapita European Industrial Yielding I Arcapita US Senior Living Yielding IV Arcapita European Self-Storage Development I Bahrain Bay Development B.S.C.(c) Arcapita European Self-Storage Development II Bahrain Bay Development II B.S.C.(c) Arcapita India Business Park Development II Exited Private Equity Investments Arcapita UK Senior Living Yielding I American Pad & Paper LLC Arcapita UK Senior Living Yielding II B.R. Lee Industries, Inc. Arcapita US Residential Development II Bijoux Terner, LLC Arcapita US Residential Developmental III Caribou Coffee Company, Inc. Arcapita US Retail Yielding I Church Street Health Management Arcapita US Senior Living Yielding I Church’s Chicken Arcapita US Senior Living Yielding II Cirrus Design Corporation Arcapita US Senior Living Yielding III Compagnie Européenne de Prestations Logistiques Arcapita Qatar Residential Development I (CEPL) Multifamily I Computer Generation Incorporated Multifamily II Cypress Communications Prologis I DVT Corporation Prologis II Falcon Gas Storage Company, Inc. Prologis III Loehmann’s Holdings, Inc. Riffa Views B.S.C.(c) Medifax-EDI, Inc. Victory Heights Golf Residential and- Profine GmbH Development Company LLC PODS
14 | ARCAPITA ANNUAL REPORT 2014 CORPORATE GOVERNANCE OVERVIEW
The system of procedures and principles governing Arcapita’s management and operations are fundamental to our future success. The board of directors and senior management are committed to an efficient, entrepreneurial decision-making structure that is fair, transparent and accountable. The illustration below describes Arcapita’s current governance framework:
BOARD AND MANAGEMENT CORPORATE GOVERNANCE FRAMEWORK
Board of Directors Board of Directors Level
Board Committees Executive Level Executive Investment Administrative and Executive Audit & Risk Committee Corporate Governance Committee Committee
Management Committees Level Risk Executive Committee Management Committee
Market Sounding Group
Investment Teams Level Investment Executive Committee
Arcapita has assembled a distinguished board of directors comprising preeminent businessmen across the GCC region. Drawing on deep experience in management, industry and investments, the board of directors is well positioned to represent the best interests of investors and management with expert advice and counsel.
Mr. Abdulaziz Hamad Aljomaih, the Chairman of Arcapita, is not an independent director, as recommended by the CBB’s Rulebook “High Level Controls” Module, Paragraph HC-1.5.7.
Mr. Aljomaih represents AlJomaih Company Ltd E.C., the single largest shareholder of Arcapita. Mr. Aljomaih is a professional with over 26 years of business experience and is the Head of International Investments at Aljomaih Group in Saudi Arabia. Other key positions held by Mr. Aljomaih include: member of the Boards of Directors of Ittihad Etisalat (Mobily), Saudi Arabia and Dana Gas, United Arab Emirates and Vice Chairman of the Board of Governors of the Pearl Initiative, a private sector-led not- for-profit organization set up to improve transparency, accountability and business practices in the Gulf region.
The AlJomaih Group have been the principal sponsor of Arcapita and Arcapita believes that Mr. Aljomaih’s chairmanship gives it a business and competitive advantage.
Arcapita’s board of directors take responsibility for the strategy of Arcapita and for the supervision and oversight of its senior management, who have been entrusted with implementing day-to-day management policies. Arcapita’s board of directors consists of nine members, including non-executive
ARCAPITA ANNUAL REPORT 2014 | 15 members and Mr. Atif A. Abdulmalik, the firm's CEO, representing management. The Chairman of the board of directors is Mr. Abdulaziz Hamad Aljomaih. The board of directors meet as often as business requires, and a minimum of four times a year. The functions of Chairman of the board of directors and the CEO are carried out by separate individuals, thus providing a separation of power. Arcapita’s management works closely with the board of directors, both directly and through its various committees. Management regularly provides investment and financial updates and strategic forecasts to the board of directors, as well as openly discussing all investment decisions and any other major decisions or issues facing Arcapita. By facilitating this free flow of information, Arcapita seeks to encourage transparency and accountability at all levels and to provide effective oversight by the board of directors.
16 | ARCAPITA ANNUAL REPORT 2014 BOARD COMMITTEES
Arcapita’s board of directors is assisted in its monitoring and oversight responsibilities by the Executive Investment Committee (“EIC”), the Executive Administration and Corporate Governance Committee (“EAC”) and the Executive Audit and Risk Management Committee (“ARC”).
Executive Investment Committee The EIC’s primary duties and responsibilities are to: • Establish operating guidelines for investment activities • Approve new investments / exits • Monitor investment performance • Approve financing and issuing of securities • Establish banking relationships
Executive Administration and Corporate Governance Committee The EAC’s primary duties and responsibilities are to: • Approve and recommend corporate and administrative policies and procedures (“P&P”) • Review and recommend approval of the annual budget • Recommend and revise corporate governance policies and procedures • Oversee and monitor the governance framework
Executive Audit & Risk Management Committee The ARC's primary duties and responsibilities are to: • Approve and recommend for further approval by the board of directors: - Approve annual financial statements and budgets - Appoint auditors • Monitor financial reporting, risk and internal control • Review and appraise activities of auditors
ARCAPITA ANNUAL REPORT 2014 | 17 MANAGEMENT
Arcapita has assembled a management team with deep experience in building and managing investment platforms globally. Drawing upon management’s collective experience and track record, Arcapita enjoys a seasoned management team that has lived through multiple investment cycles. Arcapita will utilize cross- functional management committees to operate its business:
Executive Committee (“EC”) The EC oversees the strategic planning for Arcapita and the decision making for all new investments. For example, prior to making a commitment to sign definitive agreements relating to investments (equity and financing), each new investment will need to be reviewed by the EC. Roles of the EC include the following: • Setting global strategy for Arcapita Group; • Reviewing and recommending new investments; • Reviewing and approving of business plans, budgets and control systems; and • Managing human capital, including determining compensation, and benefits plans and overseeing human resource development.
Risk Management Committee (“RMC”) The RMC’s duty is to establish and maintain a risk management framework throughout the Company to best manage Arcapita’s shareholder and client interests. Its mandate is to identify, assess and measure risks arising from the firm's activities, and to define the appropriate course of action to mitigate or manage them. Roles of the RMC include the following: • Establish and maintain a risk management framework throughout the firm by working with the Board Audit and Risk Committee • Oversee Risk functions.
Market Sounding Group (“MSG”) The MSG is intended to deem the marketability of investment products brought in by the deal team members. The MSG comprises of the Investors Relationship Management team, members of the Financial Management Group and Shari'ah. The MSG is responsible for the initial assessment of investor and market reaction to the following: • Additional funding for an existing legacy transaction; and • New transactions.
18 | ARCAPITA ANNUAL REPORT 2014 ORGANIZATIONAL STRUCTURE AND BUSINESS DIVISIONS
Board of Directors
Chief Executive Officer
Chief Operating Chief Investment Financial Financial Control Officer Officer Management Group
Investors Relationship Financial Management Reporting and Real Estate Management Group Internal Control
Corporate Corporate Accounts & Private Equity Risk Management Imprest Accounts
Corporate Investment Accounting Legal Communications and Administration
Human Resources Shari’ah
Investments: Real Estate and Private Equity Arcapita employs investment teams and independent consultants that are active globally, and their activities are coordinated under a Chief Investment Officer. Through the investment teams, Arcapita (i) originates, manages and exits investment products and services, and (ii) in the case of the current portfolio, manages and exits investments.
Investors Relationship Management (“IRM”) IRM is responsible for developing and maintaining relationships within Arcapita’s network of potential investors. The team members are the main point of contact for clients; delivering portfolio updates and presenting new investment opportunities. This group is also the first point of contact for investment opportunities which may be sourced from potential clients. Investor relation operations are based in Bahrain; the firm also has personnel located in Singapore.
Arcapita operates a sophisticated marketing system to plan, execute and monitor investment syndication, providing investors with a personalized and efficient service. Further support is provided through the client support team within the Financial Management Group, which is responsible for providing the team with the support necessary to respond to queries and requests in a timely and efficient manner.
ARCAPITA ANNUAL REPORT 2014 | 19 Financial Management Group (“FMG”) The FMG is responsible for client reporting, the coordination of information across the Company, corporate level strategic/financial planning, preparation of Board of Directors packages, risk assessment of prospective investments, Shari’ah, and corporate communications. The Financial Management Group operates out of Bahrain.
Client reporting includes preparing fundraising documentations, responding to investor queries, preparing quarterly valuations, and preparing biannual investment updates. These tasks are completed in relation to the Current Portfolio and new investments.
Financial Control Financial Control is responsible for accounts payable, subsidiary accounting, investment valuation, Imprest accounts, reporting and regulatory compliance, accounting of transactions and the related internal controls of the foregoing, and internal and external reporting of Arcapita’s financial information to the respective stakeholders. Financial Control coordinates with E&Y, and operates out of Bahrain.
Within Financial Control, Investment Administration oversees the investment structures and related accounting, capitalizations, processes distributions, fees and exits for investors, as well as investment company share allocations.
Legal Arcapita’s legal department (in coordination with related compliance personnel) has responsibility for Arcapita’s compliance with all applicable laws and regulations in its business activities and advises with respect to all legal matters. Its activities include advising investment teams on investments and divestments, and advising senior management and the Board of Directors on corporate governance, financing, arrangements and strategic planning. Arcapita’s legal department also assists with the administration of Cayman Islands, European, Middle Eastern and Mauritius offshore corporate structures in various investments. The legal department operates out of Bahrain and Atlanta.
Corporate Management Corporate Management provides support to all of Arcapita's departments. The Corporate Management department comprises multiple disciplines, including: Administration, Information Technology and Treasury Operations. Corporate Management operates out of Bahrain.
Human Resources Arcapita’s HR Department is responsible for the administration and management of the firm’s most valued assets – the employees, the administration and management of the global compensation & benefits, and the design and administration of the company’s long term incentive programs. The primary goal of our Human Resources Department is to help the organization meet its strategic goals by attracting and maintaining employees and also managing them effectively through several processes. Most of these processes are performed by the HR Department in Bahrain. Some of the HR processes for Arcapita offices outside Bahrain are outsourced to third-party Service Providers whose service levels are monitored and managed from Bahrain. When all of these processes are effectively integrated, they provide significant economic benefits to the firm.
20 | ARCAPITA ANNUAL REPORT 2014 FINANCIAL HIGHLIGHTS
Income Statement (US$ millions) Arcapita’s revenues are driven by two areas of opportunity: asset management of the existing $3 billion investment portfolio and new Shari’ah-compliant alternative investment products and services. Under the terms of a Management Services Agreement with RA Holding Corp., Arcapita is paid (i) base management fees through March 15, 2015, (ii) enhanced management fees, which are dependent on certain performance assumptions in the current portfolio, through March 15, 2015, and (iii) an assets under management (“AUM”) fee from March 16, 2015 to March 15, 2018. RA Holding also pays Arcapita incentive fees based on exit outcomes in the current portfolio. Arcapita achieved net income for FY 2014 totaling $10.1 million. G&A expenses for the year totaled $6.7 million. Total staff expenses for FY 2014 totaled approximately $12.5 million.
AGHL Arcapita Consolidation Arcapita Group Bahrain Adjustments Group
USD '000 USD '000 USD '000 USD '000
INCOME
Fee Income 29,197 8,995 (8,995) 29,197 Other income 89 23 112 Total income 29,286 9,018 (8,995) 29,309
EXPENSES
General and administration expenses (6,697) (2,084) 2,061 (6,720) Staff compensation and benefits (12,463) (6,934) 6,934 (12,463) Total expenses (19,160) (9,018) 8,995 (19,183) NET PROFIT FOR THE PERIOD 10,126 - - 10,126
Balance Sheet Arcapita’s balance sheet is 100% equity-funded, with no bank borrowings. Total equity as at June 30, 2014 amounted to approximately $50.4 million, including approximately $20 million of funded capital, approximately $8.1 million of retained earnings and $22.4 million in shares pending allotment (representing the first tranche or two-thirds of the equity investments made by new shareholders who transferred their commitments by June 2014). At the closing of the first tranche of the new equity, funds classified as shares pending allotment will be converted into shareholder capital. Total shareholder capital has reached approximately $67 million, as all shareholders have funded their allocations. Arcapita ended FY 2014 with a cash balance of approximately $57.7 million.
ARCAPITA ANNUAL REPORT 2014 | 21 AGHL Arcapita Consolidation Arcapita Group Bahrain Adjustments Group
USD '000 USD '000 USD '000 USD '000
ASSETS
Cash and cash equivalents 56,620 1,081 - 57,701 Receivables and other assets 901 558 (26) 1,433 Receivable from AGHL Group - (2,281) (2,281) - 57,521 3,920 (2,307) 59,134
LIABILITIES
Fee received in advance 2,832 - - 2,832 Accrued expenses and other liabilities 5,094 738 - 5,832 Payable to Arcapita Bahrain 2,281 - (2,281) - NET PROFIT FOR THE PERIOD 10,207 738 (2,281) 8,664
EQUITY
Share capital and premium 17,381 2,645 (26) 20,000 Shares pending allotment 21,896 537 - 22,433 Retained earnings 8,126 - - 8,126 Exchange equalization reserve (89) - - (89) TOTAL EQUITY 47,314 3,182 (26) 50,470 TOTAL EQUITY AND LIABILITIES 57,521 3,920 (2,307) 59,134
22 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED SHARI'AH SUPERVISORY BOARD REPORT, INDEPENDENT AUDITOR'S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM 30 JANUARY 2013 TO 30 JUNE 2014
AIM 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 PERIOD FROM 10 October 2013 to 30 June 2014
ARCAPITA ANNUAL REPORT 2014 | 23 ARCAPITA GROUP HOLDINGS LIMITED INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF ARCAPITA GROUP HOLDINGS LIMITED
Report on the consolidated financial statements 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 2014 and the consolidated statements of comprehensive income, cash flows and changes in equity for the period from 30 January 2013 to 30 June 2014 and a summary of significant accounting policies and other explanatory information.
Board of Directors’ responsibility for the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the Board of Directors determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 30 June 2014, and its consolidated financial performance and cash flows for the period from 30 January 2013 to 30 June 2014 in accordance with International Financial Reporting Standards.
21 August 2014 Manama, Kingdom of Bahrain
24 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2014
30 June 2014 Note USD '000
ASSETS Cash and cash equivalents 6 56,620 Receivables and other assets 901 TOTAL ASSETS 57,521
EQUITY AND LIABILITIES LIABILITIES Accrued expenses and other liabilities 8 5,094 Fee received in advance 7 2,832 Payable to a related party 8 2,281 TOTAL LIABILITIES 10,207
EQUITY Share capital 9 2 Share premium 10 17,379 Shares pending allotment 11 21,896 Retained earnings 8,126 Exchange equalization reserve (89) TOTAL EQUITY 47,314 TOTAL EQUITY AND LIABILITIES 57,521
Abdulaziz Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director
ARCAPITA ANNUAL REPORT 2014 | 25 ARCAPITA GROUP HOLDINGS LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the period from 30 January 2013 to 30 June 2014
For the period from 30 January 2013 to 30 June 2014 USD ’000
OPERATING INCOME Fee Income 29,197 Other income 89 TOTAL OPERATING INCOME 29,286
OPERATING EXPENSES General and administration expenses (6,697) Staff compensation and benefits (12,463) TOTAL OPERATING EXPENSES (19,160) NET PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 10,126
Abdulaziz Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director
26 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS For the period from 30 January 2013 to 30 June 2014
For the period from 30 January 2013 to 30 June 2014 Note USD '000
OPERATING ACTIVITIES NET PROFIT FOR THE PERIOD 10,126 Changes in operating assets and liabilities: Receivables and other assets (901) Fee received in advance 2,832 Accrued expenses and other liabilities 5,094 Payable to a related party 2,192 NET CASH FLOWS FROM OPERATING ACTIVITIES 19,343
FINANCING ACTIVITIES Proceeds from the issuance of share capital 11 39,277 Dividend paid (2,000) NET CASH FLOWS FROM FINANCING ACTIVITY 37,277 NET INCREASE IN CASH AND CASH EQUIVALENTS 56,620 Cash and cash equivalents at 30 January 2013 - CASH AND CASH EQUIVALENTS AT 30 JUNE 2014 6 56,620
ARCAPITA ANNUAL REPORT 2014 | 27 ARCAPITA GROUP HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2014
Shares Exchange Share Share Pending Retained Equalization Total Capital Premium Allotment Earnings Reserve Equity USD '000 USD '000 USD '000 USD '000 USD '000 USD '000
AS AT 30 JANUARY 2013 ------Issue of share capital 2 17,379 21,896 - - 39,277 Net profit and total comprehensive income for - - - 10,126 - 10,126 the period Exchange differences arising from transalation of - - - - (89) (89) foreign operations Dividend paid - - - (2,000) - (2,000) Balance as at 30 June 2014 2 17,379 21,896 8,126 (89) 47,314
28 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
1 ORGANIZATION AND ACTIVITIES
Arcapita Group Holdings Limited (“the Company”) was incorporated in the Cayman Islands on 30 December 2013 as an exempt 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.
As of the statement of financial position date, the parent is Aljomaih Company Limited E.C. (an exempt company), registered with the Ministry of Industry and Commerce in the Kingdom of Bahrain and operating under the commercial registration number 24145. On completion of the capital raise (more fully described in note 11) Aljomaih Company Limited E.C will own about 30 percent interest in the Company.
These consolidated financial statements have been prepared for the period from 30 January 2013 to 30 June 2014 and were authorized for issue by the board of directors on 21 August 2014. This being the first period of operations, no comparative information has been presented. However, certain pre-incorporation expenes were incurred by the founders of the Company which have been recognized in the general and administration expenses in these consolidated financial statements.
Subsidiary Companies The following are the principal subsidiaries of the Company and are consolidated in these financial statements.
Subsidiary Ownership Year of Country of Incorporation Incorporation
AIM Group Limited The primary activity of AIM Group Limited is to provide asset 100% 2013 Cayman Islands management and administrative services.
AIM Cayman SPE Limited The primary activity of Arcapita Cayman SPE Limited is to act as 100% 2014 Cayman Islands deposit agent to the investors of the Group.
Arcapita Investment Advisors UK Limited The primary activity of Arcapita Investment Advisors UK Ltd is to source investment opportunities in Europe and to monitor the 100% 2013 United Kingdom performance of acquired companies on behalf of Arcapita Group Holding Limited.
Arcapita Investment Management US Inc. The primary activity of Arcapita Investment Management US United States of Inc. is to source investment opportunities in the United States of 100% 2013 America America and to monitor the performance of acquired companies on behalf of Arcapita Group Holding Limited.
Arcapita Investment Management Singapore Pte Limited The primary activity of AIM Investment Management Singapore Pte Limited is to source investment opportunities in Asia and 100% 2013 Singapore to monitor the performance of acquired companies on behalf of Arcapita Group Holdings Limited.
ARCAPITA ANNUAL REPORT 2014 | 29 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
2 BASIS OF PREPARATION
The consolidated financial statements have been prepared under the historical cost convention. The consolidated financial statements have been presented in US Dollars (USD) being the functional currency of the Group and all values are rounded to the nearest USD thousand, 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 2014. 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 an 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.
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 Company acquired control of AIM Group Limited on 30 January 2014. As at the time of acquisition Aljomaih Company Limited E.C wholly controlled both the Company and AIM Group Limited and as a result the business combination is excluded from IFRS 3 : Business Combination and the use of the acquisition method of accounting for the consolidation. Therefore the Group has included the results of the combining entities for the full financial period irrespective of when the combination took place and the payment of USD 2 million to the ultimate shareholder by AIM Group Limited has been presented as a dividend payment of the Group.
Profit or loss and each component of Other Comprehensive Income (OCI) are attributed to the equity holders of the parent of the Group. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into 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: - Derecognizes the assets (including goodwill) and liabilities of the subsidiary, - Derecognizes the carrying amount of any non-controlling interests, - Derecognizes the cumulative translation differences recorded in equity,
30 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
- Recognizes the fair value of the consideration received, - Recognizes the fair value of any investment retained, - Recognizes any surplus or deficit in profit or loss, and - Reclassifies the parent’s share of components previously recognized 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.
4 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES
The preparation of these consolidated financial statements requires management to make judgments, 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 judgments applied in the preparation of the consolidated financial statements are given below:
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 receivables at each statement of financial position date to assess whether an impairment loss should be recorded in the statement of income. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss.
Receivables that have been assessed individually and found not to be impaired and all individually insignificant receivables 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.
5 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below: a) Financial instruments
Recognition and de-recognition Financial instruments comprise financial assets and financial liabilities.
A financial asset or liability is initially measured at fair value; which is the value of the consideration given (in the case of an asset) or received (in the case of a liability).
ARCAPITA ANNUAL REPORT 2014 | 31 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized where: - the right to receive cash flows from the asset has expired; or - the Group 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 Group 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 Group 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 recognized to the extent of the Group’s continuing involvement in the asset.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
Fair value of financial instruments The Group measures certain financial instruments at fair value at each date of statement of financial position. Fair value is the price that would be received to sell an asset or 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: - In the principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
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 that use inputs which have significant effect on the recorded fair value that are not based on observable market data.
b) Classification of financial assets and financial liabilities
Financial assets consist of balances with banks and receivables and other assets. Financial liabilities consist of management fees received in advance, payables to a related party, accrued expenses and other liabilities. Management determines the classification of its financial instruments at initial recognition.
32 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
c) Impairment of financial assets
The Group assesses at each reporting date whether a financial asset is impaired. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. Impairment loss is charged to the consolidated statement of income. d) Offsetting of financial instruments
Financial assets and financial liabilities are only offset and the net amounts reported in the consolidated statement of financial position when there is a legally enforceable right to set off the recognized amounts and the Group intends to either settle these on a net basis, or intends to realize the asset and settle the liability simultaneously. e) Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured. f) Revenue recognition
Revenue is recognized 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 income the Group earns for asset management and administrative services rendered in accordance to the contractual terms agreed between the parties. g) 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 United States Dollars at exchange rates prevailing at the statement of financial position date. Any gains or losses are recognized in the statement of income.
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 statement of income” are taken to the consolidated statement on income and for items classified as ”fair value through equity” such differences are taken to the consolidated statement of comprehensive income. 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.
ARCAPITA ANNUAL REPORT 2014 | 33 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
IFRS 9 Financial Instruments: Classification and Measurement IFRS 9, as issued, reflects the first phase of the IASB’s work though the adoption date is subject to the recently issued Exposure Draft on the replacement of IAS 39 and applies to classification and measurement of financial assets and liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2015, but amendments to IFRS 9 issued in November 2013, removed the mandatory effective date of 1 January 2015 for IFRS 9. A new mandatory date for IFRS 9 will be determined by the IASB when IFRS 9 is closer to completion.
6 CASH AND CASH EQUIVALENTS
As at 30 June 2014 USD '000
Cash and balances with bank 34,724 Capital raise proceeds with deposit agent 6.1 21,896 56,620
6.1 Capital raise proceeds with deposit agent Proceeds from the ongoing capital raise (more fully described in note 11) are held by the deposit agent Arcapita Cayman SPE Limited through a segregated client account operated by a reputed international bank.
7 FEE RECEIVED IN ADVANCE
Fees received in advance are presented in the statement of financial position as a liability and amortized over the period of service to which the advance relates.
8 RELATED PARTY TRANSACTIONS
Related parties represent associated companies, the parent and its 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.
34 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
Expenses paid to related parties are as follows:
For the period from 30 January 2013 to 30 June 2014 Note USD '000
Reimbursement of expenses 8.1 8,623 Key management personnel costs 1,540
Balances with related parties
Liabilities
Payable to a related party 2,281
8.1 Reimbursement of expenses The Group and AIM Investment Management B.S.C.(c) are under the common control of the ultimate parent and share an identical board of directors. As a result, AIM Investment Management B.S.C.(c) is a related party to the Group. The Group reimburses the expenditures incurred by AIM Investment Management B.S.C.(c) in providing services to the Group. In the consolidated statement of income for the period from 30 January 2013 to 30 June 2014, the reimbursement is included with general and administration expenses and staff compensation and benefit expenses and the liability is presented in the consolidated statement of financial position as payable to a related party.
8.2 Accrued expenses and other liabilities Included in accrued expenses and other liabilities are amounts recovered by the Group from a customer, 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. At no point in time, any portion of amounts so collected will revert to the Group.
9 SHARE CAPITAL
As at 30 June 2014 USD '000
Authorized capital 50,000 50,000,000 ordinary shares of USD 0.001 per share Issued and paid up capital 1,738 1,738,095.2 ordinary shares of USD 0.001 per share
The ongoing capital raise (more fully described in note 11) is being carried out with the intention of increasing paid up capital to USD 9,250 (USD 92,500,000 including share premium) in two tranches. Up to USD 6,167 (USD 61,666,667 including share premium) will be raised on conclusion of the first tranche and a further USD 3,083 (USD 30,833,333 including share premium) as a second tranche.
ARCAPITA ANNUAL REPORT 2014 | 35 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
10 SHARE PREMIUM
Amounts collected in excess of the par value of the issued share capital during any issue of shares is treated as share premium.
11 SHARES PENDING ALLOTMENT
On 30 January 2014, the board of directors resolved to increase the paid up capital to 9,250,000 shares of USD 0.001 each (in aggregate paid up capital of USD 9,250). The issue is priced at USD 10 per share and is expected to result in a combined share capital and premium of USD 92,500,000. As of the statement of financial position date, 30 June 2014, the Company had received signed share purchase agreements (”SPA”) for USD 67,802,500 and investors have paid up USD 39,277,044. Out of the paid up amounts, USD 21,896,092 remains unallocated and held with the deposit agent.
Subsequent to the statement of financial position date, the Group received additional SPA’s and achieved the target capital raise of USD 92,500,000 and collected USD 58,459,705 out of the first tranche amount of USD 61,666,667.
12 RISK MANAGEMENT
12.1 Introduction The Group was incorporated during this financial period and is in the process of establishing a risk management department and a robust risk management framework. While such a framework is being established management has identified and is monitoring the risks identified below. Significant matters, if any, are brought to the attention of the board of directors.
12.2 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 Group 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 reputed international banks having good credit standings. The receivable balances primarily represents prepayments to vendors and receivable from staff.
12.3 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 arise from an inability to realize a financial asset quickly at an amount close to its fair value. The Group has enough cash and bank balances available as of 30 June 2014 in order to discharge its financial liabilities when they fall due.
12.4 Market risk Market risk is the risk that changes in market prices, such as profit rate and foreign exchange rates, will affect the Group’s income. Market risk comprises three types of risk: profit rate risk, currency risk and other price risk. 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.
36 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
Profit rate risk Profit rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market profit rates.
The Group does not have any such financial instruments which are profit linked and are likely to change due to changes in market profit rates.
Currency risk Currency risk is the risk that the value of a financial instruments will fluctuate due to changes in foreign exchange rates. The Group’s exposure to currency risk arises from its foreign operations which are insignificant as at the statement of financial position date.
12.5 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 Group minimizes the operational risk by maintaining a strong internal control environment and continuous oversight by the board of directors.
13 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 which are in line with the changes in operating conditions and the risk characteristics of its activities.
14 FAIR VALUE OF FINANCIAL INSTRUMENTS
As at the statement of financial position date, the Group carried its financial assets and liabilities at cost or amortized cost. The following table sets out the fair values of financial instruments, not measured at fair value, and analyzes them by the level in the fair value hierarchy into which each fair value measurement is categorized.
ARCAPITA ANNUAL REPORT 2014 | 37 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
Total Total carrying Level 1 Level 2 Level 3 Fair Values Amount USD '000 USD '000 USD '000 USD '000 USD '000
FINANCIAL ASSETS
Balance due from banks 34,724 - - 34,724 34,724 Capital raise proceeds with deposit agent 21,896 - - 21,896 21,896 Receivables - - 790 790 790 56,620 - 790 57,410 57,410
FINANCIAL LIABILITIES
Fee received in advance - - 2,832 2,832 2,832 Other liabilities - - 3,558 3,558 3,558 Payable to a related party - - 2,281 2,281 2,281 - - 8,671 8,671 8,671
As at 30 June 2014, the fair values of the Company’s financial instruments approximated their carrying values.
Balances with banks represent cash and cash equivalents and are due on demand. The carrying value of these balances represent their fair value.
The recoverability of receivables was determined by the 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.
Fee received in advance, other liabilities and payables to related party are current in nature and the fair value of these financial instruments represents their carrying value.
15 SEGMENTAL INFORMATION
The Group was incorporated on 30 January 2013 and its sole business up to 30 June 2014 has been asset management. Therefore, the Group does not have any other reportable segments for this financial period.
16 SUBSEQUENT EVENT
Subsequent to the statement of financial position date, no material events have taken place which materially impact these financial statements, other than the additional progress achieved on the capital raise (detailed in note 11).
38 | ARCAPITA ANNUAL REPORT 2014 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
17 ARCAPITA GROUP PRO-FORMA CONSOLIDATED SUMMARY FINANCIAL STATEMENTS
Arcapita Group consists of Arcapita Group Holdings Limited (”AGHL”), AGHL’s direct and indirect subsidiaries, and AIM Investment Management B.S.C.(c) (”Arcapita Bahrain”). Due to certain regulatory considerations in the Kingdom of Bahrain, Arcapita Bahrain is separately owned by the ultimate parent from AGHL and its direct and indirect subsidiaries.
AGHL and Arcapita Bahrain currently are directly and indirectly owned by the same ultimate parent. The ongoing capital raise through contractual arrangements and the terms of the Articles of Association requires the shareholders of each entity to be identical, 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. As a result, even though they are legally separate entitles, both AGHL and Arcapita Bahrain operate as one Group. In order to reflect this relationship, we provide below a summarized pro-forma consolidated statement of income and financial position is given below.
17.1 ARCAPITA GROUP PRO-FROMA STATEMENT OF INCOME
AGHL Arcapita Consolidation Arcapita Group Bahrain Adjustments Group USD '000 USD '000 USD '000 USD '000
INCOME
Fee Income 29,197 8,995 (8,995) 29,197 Other income 89 23 - 112 TOTAL INCOME 29,286 9,018 (8,995) 29,309
EXPENSES
General and administration expenses (6,697) (2,084) 2,061 (6,720) Staff compensation and benefits (12,463) (6,934) 6,934 (12,463) TOTAL EXPENSES (19,160) (9,018) 8,995 (19,183) NET PROFIT FOR THE PERIOD 10,126 - - 10,126
ARCAPITA ANNUAL REPORT 2014 | 39 ARCAPITA GROUP HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the period from 30 January 2013 to 30 June 2014
17.2 ARCAPITA GROUP PRO-FROMA STATEMENT OF FINANCIAL POSITION
AGHL Arcapita Consolidation Arcapita Group Bahrain Adjustments Group USD '000 USD '000 USD '000 USD '000
ASSETS Cash and cash equivalents 56,620 1,081 - 57,701 Receivables and other assets 901 558 (26) 1,433 Receivable from AGHL Group - 2,281 (2,281) - TOTAL ASSETS 57,521 3,920 (2,307) 59,134
EQUITY AND LIABILITIES Liabilities Fee received in advance 2,832 - - 2,832 Accrued expenses and other liabilities 5,094 738 - 5,832 Payable to Arcapita Bahrain 2,281 - (2,281) - TOTAL LIABILITIES 10,207 738 (2,281) 8,664
EQUITY Share capital and premium 17,381 2,645 (26) 20,000 Shares pending allotment 21,896 537 - 22,433 Retained earnings 8,126 - - 8,126 Exchange equalization reserve (89) - - (89) TOTAL EQUITY 47,314 3,182 (26) 50,470 TOTAL EQUITY AND LIABILITIES 57,521 3,920 (2,307) 59,134
40 | ARCAPITA ANNUAL REPORT 2014 بسم اهلل الرمحن الرحيم
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 have reviewed the principles and the contracts relating to the transactions and applications introduced by Arcapita Group Holdings Limited and its subsidiaries (“the Group”) during the period from 30 January 2013 to 30 June 2014. 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.
In our opinion: a) The investment portfolio managed by the Group have been acquired prior to establishing the Group and were structured and approved by the previous Shari'ah committee. These investments are managed by the Group through a management service agreement and are based on past practice and fatwas issued by the previous Shari'ah committee. The Shari’ah Supervisory Board will conduct site visits and audits to ensure Shari'ah compliance;
b) 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;
We beg Allah the Almighty to grant us all success and straightforwardness.
Shari’ah Supervisory Board:
Sh. Muhammad Taqi Usmani Chairman
Sh. Essam Mohammed Ishaq Sh. Mohammed Al Jamea Member Member
ARCAPITA ANNUAL REPORT 2014 | 41 AIM INVESTMENT MANAGEMENT B.S.C. (c) INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF AIM INVESTMENT MANAGEMENT B.S.C. (c)
Report on the financial statements We have audited the accompanying statement of financial position of AIM Investment Management B.S.C.(c) (the ”Company”), for the period from 10 October 2013 to 30 June 2014, and the related statements of income, cash flows, changes in owners’ equity and sources and uses of charity fund for the period then ended. These financial statements and the Company’s undertaking to operate in accordance with Islamic Shari’a 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 2014, the results of its operations, its cash flows, changes in owners’ equity and sources and uses of charity fund 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. With the exception of the matters referred to in note 13 of 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, regulations and associated resolutions, rules and procedures of the Bahrain Bourse or the terms of the Company’s memorandum and articles of association during the period from 10 October 2013 to 30 June 2014 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 management in response to all our requests. The Company has also complied with the Islamic Shari’a Rules and Principles as determined by the Shari’a Supervisory Board of the Company.
21 August 2014 Manama, Kingdom of Bahrain
42 | ARCAPITA ANNUAL REPORT 2014 AIM 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 ofAIM Investment Management B.S.C. (c) (the "Company") for the period from 10 October 2013 to 30 June 2014.
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 (for the period from 10 October 2013 to 30 June 2014)
Operating Income USD '000 Fee income 8,995 Other 23 TOTAL OPERATING INCOME 9,018
OPERATING EXPENSES General and administration expenses (2,084) Staff compensation and benefits (6,934) TOTAL OPERATING EXPENSES (9,018)
Auditors Ernst & Young have expressed their willingness to continue in office and a resolution proposing their appointment as auditors of AIM Investment Management B.S.C. (c), for the year ending 30 June 2015, will be submitted to the Annual General Meeting.
Signed on behalf of the Board
Abdulaziz Aljomaih Chairman of the Board of Directors
21 August 2014
ARCAPITA ANNUAL REPORT 2014 | 43 AIM INVESTMENT MANAGEMENT B.S.C. (c) STATEMENT OF FINANCIAL POSITION As at 30 June 2014
2014 Note USD '000
ASSETS
Cash and cash equivalents 6 1,081 Receivable from a related party 10 2,281 Receivables and other assets 7 558 TOTAL ASSETS 3,920
LIABILITIES AND EQUITY
Liabilities Accrued expenses and other liabilities 738 TOTAL LIABILITIES 738
EQUITY
Share capital 8 2,645 Shares pending allotment 9 537 TOTAL EQUITY 3,182 TOTAL LIABILITIES AND EQUITY 3,920
Abdulaziz Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director
44 | ARCAPITA ANNUAL REPORT 2014 AIM INVESTMENT MANAGEMENT B.S.C. (c) STATEMENT OF INCOME For the period from 10 October 2013 to 30 June 2014
For the period from 10 October 2013 to 30 June 2014 Note USD '000
OPERATING INCOME
Fee income 10.1 8,995 Other 23 TOTAL OPERATING INCOME 9,018
OPERATING EXPENSES
General and administration expenses (2,084) Staff compensation and benefits (6,934) TOTAL OPERATING EXPENSES (9,018) NET INCOME -
Abdulaziz Aljomaih Atif A. Abdulmalik Chairman of the Board of Directors Chief Executive Officer and Director
ARCAPITA ANNUAL REPORT 2014 | 45 AIM INVESTMENT MANAGEMENT B.S.C. (c) STATEMENT OF CASH FLOWS For the period from 10 October 2013 to 30 June 2014
For the period from 10 October 2013 to 30 June 2014 Note USD '000
CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period - Changes in operating assets and liabilities Receivable from a related party (2,281) Receivables and other assets (558) Accrued expenses and other liabilities 738 NET CASH USED IN OPERATING ACTIVITIES (2,101)
CASH FLOWS FROM FINANCING ACTIVITY Proceeds from the issuance of share capital 9 3,182 NET CASH FROM FINANCING ACTIVITY 3,182 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,081 Cash and cash equivalents at the beginning of the period - CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 6 1,081
46 | ARCAPITA ANNUAL REPORT 2014 AIM INVESTMENT MANAGEMENT B.S.C. (c) STATEMENT OF CHANGES IN EQUITY For the period from 10 October 2013 to 30 June 2014
Shares Share Pending Retained Total Capital Allotment Earnings Equity USD '000 USD '000 USD '000 USD '000
Net income for the period - - - - Amount received towards issuance of share capital 2,645 537 - 3,182 2,645 537 - 3,182
ARCAPITA ANNUAL REPORT 2014 | 47 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
1 ORGANIZATION AND ACTIVITIES
AIM Investment Management B.S.C. (c) (”the Company”) is a closed joint stock company registered with the Ministry of Industry and Commerce 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 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.
As of the statement of financial position date, the parent is Aljomaih Company Limited E.C. (an exempt company) registered with the Ministry of Industry and Commerce in the Kingdom of Bahrain and operating under the commercial registration number 24145. On completion of the capital raise (more fully described in note 9) Aljomaih Company Limited E.C. will own about 30 percent interest in the company.
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.
These financial statements have been prepared for the period 10 October 2013 to 30 June 2014 and were authorized for issue by the board of directors on 21 August 2014. This being the first period of operations, no comparative information has been presented.
2 BASIS OF PREPARATION
2.1 Statement of compliance The financial statements are prepared in accordance with the Financial Accounting Standards 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, 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 Standards (”IFRS”) issued by International Accounting Standards Board (”IASB”).
2.2 Accounting convention The financial statements have been prepared on a historical cost basis and presented in United States Dollars, 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 on hand, amounts due from bank on demand or with an original maturity of three months or less and balances held with deposit agents.
48 | ARCAPITA ANNUAL REPORT 2014 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
b. Receivables and other assets Receivables and other assets are carried at their anticipated values. An estimate is made for impaired receivables based on a review of all outstanding amounts at the year end. c. Financial instruments Recognition and de-recognition Financial instruments comprise financial assets and financial liabilities.
All financial assets and liabilities are initially recognized on the trade date, i.e. the date that the Company becomes a party to the contractual provisions of the instrument.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized 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 recognized to the extent of the Company’s continuing involvement in the asset.
The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
Fair value of financial instruments The Company measures certain financial instruments at fair value at each date of statement of financial position. Fair value is the price that would be received to sell an asset or 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: - In the principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
ARCAPITA ANNUAL REPORT 2014 | 49 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
Determination of fair value and fair value hierarchy The Company 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 that use inputs which have significant effect on the recorded fair value that are not based on observable market data.
d. Accrued expenses and other liabilities Accrued expenses and other liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.
e. Derecognition of financial assets and financial liabilities (i) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where: - the rights to receive cash flows from the asset have expired; - 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; and - either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
(ii) Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.
f. Amortized 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 amortized cost using the Effective Profit Rate (EPR), less impairment. Amortized 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 amortization is included in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income under ’provisions’.
g. 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 recognized amounts and the Company intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.
h. Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.
50 | ARCAPITA ANNUAL REPORT 2014 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
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. i. 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. j. Earnings prohibited by Shari’ah The Company is committed to avoid recognizing any income generated from non-Islamic sources. Accordingly all non-Islamic income is credited to a charity account where the Group uses these funds for various social welfare activities. k. 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 recognized in the statement of income.
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 statement of income” are taken to the statement on income and for items classified as ”fair value through equity” such differences are taken to the statement of comprehensive income. l. 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 recognized 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. m. 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 recognized 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 recognized, the previously recognized impairment loss is reversed.
ARCAPITA ANNUAL REPORT 2014 | 51 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
n. 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 authorized 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. Zakah Individual shareholders are responsible for payment of Zakah.
4 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires management to make judgments, 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.
Judgments In the process of applying the Company’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements.
Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. 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.
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 INITIAL ACCOUNTING PERIOD
The board of directors has designated the financial year end as 30 June and the initial accounting period from 10 October 2013 to 30 June 2014.
52 | ARCAPITA ANNUAL REPORT 2014 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
6 CASH AND CASH EQUIVALENTS
As at 30 June 2014 Note USD '000
Cash and balances with bank 544 Capital raise proceeds with deposit agent 6.1 537 1,081
6.1 Capital raise proceeds with deposit agent Proceeds from the ongoing capital raise (more fully described in note 9 ) are held by the deposit agent Arcapita Cayman SPE Limited through a segregated client account operated by a reputed international bank.
7 RECEIVABLES AND OTHER ASSETS
Receivables and other assets comprise of prepaid expenses, reimbursables and plant and equipment.
8 SHARE CAPITAL
As at As at 30 June 2014 30 June 2014 BHD USD
Authorized capital 10,000,000 26,455,026 10,000 000 ordinary shares of BHD 1 per share Issued and paid up capital 1,000,000 2,645,503 1,000,000 ordinary shares of BHD 1 per share
On 30 January 2014, the board of directors resolved to re-designate the share capital from Bahraini Dinars to United States Dollars, by way of an amendment to the Memorandum and Articles of Association. As a result of the proposed amendment, the par value of shares will be amended to USD 1 per share. The amendment will take place subsequent to the statement of financial position date and requires the approval of the shareholders in an Extraordinary General Meeting.
The ongoing capital raise (more fully described in note 9) is being carried out with the intention of increasing paid up capital to USD 7,500,000 in two tranches (up to USD 5,000,000 on conclusion of the first tranche and a further USD 2,500,000 as a second tranche). Such increase requires the approval of the shareholders in an Extraordinary General Meeting.
ARCAPITA ANNUAL REPORT 2014 | 53 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
9 SHARES PENDING ALLOTMENT
On 30 January 2014, the board of directors resolved to increase the paid up capital to 7,500,000 shares of USD 1 each (In aggregate paid up capital of USD 7,500,000). As of the statement of financial position date, the Company had received signed share purchase agreements (”SPA”) for USD 5,497,500 and investors have paid up USD 3,182,480. Out of the paid up amounts, USD 536,978 remains unallocated and held with the deposit agent.
Subsequent to the statement of financial position date, the Company received additional SPA’s and achieved the target capital of USD 7,500,000 and collected USD 4,739,976 out of the first tranche amount of USD 5,000,000.
10 RELATED PARTY TRANSACTIONS AND BALANCES
Related parties represent associated companies, the parent and its 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 are unsecured.
Income received from related parties is as follows:
For the period from 10 October to 30 June 2014 Note USD '000
Fee income 10.1 8,995 Key management personnel costs 2,114
Balances with Related Parties Assets Receivable from a related party 2,281
10.1 Fee income AIM Group Limited is a wholly owned subsidiary of Arcapita Group Holdings Limited. As of the statement of financial position date, Arcapita Group Holdings Limited is beneficially controlled by the same ultimate parent and has an identical board of directors as the Company. In accordance with the terms of a service agreement with AIM Group Limited for the provision of advisory and administrative services, the Company earns a fee equivalent to the Company’s net expenses after adjusting for foreign exchange movements and other income. At 30 June 2014, USD 2,281 thousand remains outstanding.
11 SEGMENTAL INFORMATION
The Company commenced commercial operations on 10 October 2013 and its sole business up to 30 June 2014 has been to provide advisory and administrative services. Therefore the Company does not have any other reportable segments for this financial period.
54 | ARCAPITA ANNUAL REPORT 2014 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
12 FAIR VALUE OF FINANCIAL INSTRUMENTS
As at the statement of financial position date, the Company carried its financial assets and liabilities at cost or amortized cost. The following table sets out the fair values of financial instruments not measured at fair value and analyzes them by the level in the fair value hierarchy into which each fair value measurement is categorized.
Total Total Carrying Level 1 Level 2 Level 3 Fair Values Amount USD '000 USD '000 USD '000 USD '000 USD '000
FINANCIAL ASSETS
Balance due from banks 544 - - 544 544 Capital raise proceeds with deposit agent 537 - - 537 537 Receivables - - 2,355 2,355 2,355 1,081 - 2,355 3,436 3,436
FINANCIAL LIABILITIES Other liabilities - - 206 206 206 - - 206 206 206
As at 30 June 2014, the fair values of the Company’s financial instruments approximated their carrying values.
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 was determined by the 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 fair value of these financial instruments represents their carrying value.
13 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.
As of the statement of financial position date, the Company does not meet the minimum capital adequacy requirement as prescribed in the CBB Rulebook Volume 4: Investment Business. As part of the initial set up, the Company was seeded with BD 1 million (USD 2.6 million) of capital. As disclosed in note 9, the Company completed its capital raise subsequent to the statement of financial position date and has thereby resolved its non compliance.
ARCAPITA ANNUAL REPORT 2014 | 55 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
14 RISK MANAGEMENT
14.1 Introduction The Company was incorporated on 10 October 2013 and is in the process of establishing a risk management department and a robust risk management framework. While such a framework is being established, management has identified and is monitoring the risks identified below. Significant matters, if any, are brought to the attention of the board of directors.
14.2 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 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 reputable international banks having good credit standings. The receivable balances primarily represent prepayments to vendors and other receivables.
14.3 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 arise from an inability to realize a financial asset quickly at an amount close to its fair value. The Company has enough cash and bank balances available as of 30 June 2014 in order to discharge its financial liabilities 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.
14.4 Market risk Market risk is the risk that changes in market prices, such as profit rate and foreign exchange rates, will affect the Company’s income. Market risk comprises three types of risk: profit rate risk, currency risk and other price risk. 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.
Profit rate risk Profit rate risk is the risk that the value of a financial instruments will fluctuate due to changes in market profit rates.
The Company does not have any such financial instruments which are profit linked and are likely to change due to changes in market profit rates.
Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
14.5 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.
56 | ARCAPITA ANNUAL REPORT 2014 AIM INVESTMENT MANAGEMENT B.S.C. (c) NOTES TO THE FINANCIAL STATEMENTS For the period from 10 October 2013 to 30 June 2014
15 SUBSEQUENT EVENTS
Subsequent to the statement of financial position date, no material events have taken place which materially impact these financial statements other than the additional progress achieved on the capital raise (explained in note 9).
16 ASSET UNDER MANAGEMENT
As at 30 June 2014, the Company has USD nil as asset under management.
17 CHANGE OF NAME
On 30 January 2014, the board of directors resolved to change the name of the Company to Arcapita Investment Management B.S.C.(c). The name change is pending regulatory approvals and other legal formalities.
ARCAPITA ANNUAL REPORT 2014 | 57 بسم اهلل الرمحن الرحيم
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 AIM Investment Management B.S.C.(c) (“the Company”), we are required to submit the following report:
We have reviewed the principles and the contracts relating to the transactions and applications introduced by the Company during the period from 10 October 2013 to 30 June 2014. We have also conducted our review to form an opinion as to whether the Company has complied with Shari’ah rules and principles and also with the specific fatwas, rulings 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 during the period from 10 October 2013 to 30 June 2014 are in compliance with Islamic 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 Chairman
Sh. Essam Mohammed Ishaq Sh. Mohammed Al Jamea Member Member
58 | ARCAPITA ANNUAL REPORT 2014 OUR PEOPLE
BOARD OF DIRECTORS
Abdulaziz Hamad Aljomaih - Chairman Mr. Aljomaih is the Head of International Investments at Aljomaih Group in Saudi Arabia. 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 U.N. initiative). A professional with over 26 years of experience, Mr. Aljomaih was Vice Chairman of Arcapita Bank’s board of directors from 1997 to 2013.
Ghazi Fahad Alnafisi 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. A professional with over 40 years of experience, Mr. Alnafisi was a member of Arcapita Bank’s board of directors from 1999 to 2013.
Abdurrahman Abdulaziz Al-Muhanna 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 Riyadh, Kingdom of Saudi Arabia. A professional with 30 years of experience, Mr. Al-Muhanna was a member of Arcapita Bank’s board of directors from 2000 to 2013.
Aamer Abdul Jalil Al Fahim Mr. Al Fahim is a Supervisory Board Member of Al Fahim Group, one of the most successful groups in the UAE, encompassing the automotive, travel, hospitality, oil & gas and real estate sectors. The group represents a wide range of blue-chip international brands including Mercedes-Benz, Jeep, Fiat and Lancia, Michelin and the Fairmont. Mr. Al Fahim was a Member of Federal National Council, UAE and is a board member in a number of establishments and financial institutions in the UAE. Mr. Al Fahim was a member of Arcapita Bank’s board of directors from 2011 to 2013.
Mahmood Hashim Al Kooheji Mr. Al Kooheji currently serves as the Chief Executive Officer of Bahrain Mumtalakat Holding Company, and sits on the board of Gulf Air. He 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, the Arab Petroleum Investment Corporation (“APICORP”), and serves the role of Governor at the Royal College of Surgeons in Ireland, Bahrain. He holds a Bachelors Degree in Mechanical Engineering from Staffordshire University, and a Masters of Business Administration from Henley College of Management, Brunel University, UK.
Khalid Jassim Bin Kalban Mr. Bin Kalban 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 positions, including member of the Board of Directors of National General Insurance PJSC. Presently he is also the Chairman of Union Properties PJSC. He holds a B.Sc. from Metropolitan State College, USA and an Associate Degree of Arts with Business Management as major subject at Arapahoe Community College, USA.
ARCAPITA ANNUAL REPORT 2014 | 59 Usama Mohamed Al Barwani 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 defence 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. (Energy, Trade and Finance) from City University, London.
Noor Abid Mr. Abid is a Fellow Chartered Accountant from the Institute of Chartered Accountants in England and Wales. He has more than 35 years’ experience across Europe, the Middle East, and Africa. Mr. Abid spent 33 years with Ernst & 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. Mr. Abid is a Member of the board of directors of Kuwait Finance House in Kuwait and Chairman of their Board Audit and Compliance Committee.
Atif Ahmed Abdulmalik - CEO Mr. Abdulmalik is the Chief Executive Officer and executive member of the board of directors of Arcapita. Previously, Atif 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. Atif obtained his BBA in Accounting, Finance and Management from Saint Edward’s University, Texas.
60 | ARCAPITA ANNUAL REPORT 2014 SHARI’AH SUPERVISORY BOARD
Arcapita’s Shari’ah Supervisory Board is fully supported by the internal Shari’ah department and other Arcapita Group 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. For Shari’ah compliance, Shari’ah Supervisory Board members and Shari’ah department members also make regular portfolio company visits. 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 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 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 Mohammed Isa Al Jamea 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/licenses in Islamic studies from different prominent scholars. He is a member of the Shari’ah Supervisory Board of the ARC Real Estate Income Fund. He has a BS in Aerospace Engineering from Northrop University in California.
ARCAPITA ANNUAL REPORT 2014 | 61 SENIOR MANAGEMENT
Atif Abdulmalik Chief Executive Officer & Chairman of the Executive Committee Atif is the Chief Executive Officer and executive member of the board of directors of Arcapita. Previously, Atif 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. Atif obtained his BBA in Accounting, Finance and Management from Saint Edward’s University, Texas.
Hisham Al Raee Chief Operating Officer & Member of the Executive Committee Hisham is the Chief Operating Officer and a member of the Executive Committee, responsible for the daily operation of the firm. He also serves as the Head of the Investors Relationship Management team with his extensive investor experience across the GCC region and Asia. Previously, Hisham was the Senior Director of Business Development with Reuters Middle East in Saudi Arabia for five years and prior to that he worked in the finance department at Citibank N.A., Bahrain. Hisham received his Master’s degree in Business Administration 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 the Chief Investment Officer and a member of the firm’s Executive Committee where he is responsible for developing and overseeing the firm’s investment strategy and capabilities. Prior to joining Arcapita in 2007, Martin spent about 15 years in the Real Estate industry. As the CEO of CapitaLand Commercial & Integrated Development, he managed a global portfolio in excess of SGD 10 billion and he has extensive experience in listed and private real estate investments. 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 the Global Head of the Financial Management Group and a member of the Executive Committee, responsible for overseeing Corporate Finance, Shari’ah, Risk, and Corporate Communications. Previously, Mohammed spent nine years in the accounting profession 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 contract 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.
Essa Zainal Global Head of Financial Control Essa is a Managing Director and the Global Head of the Financial Control Department, responsible for overseeing the Accounting, Internal Control, Finance and Investment Administration operations. Previously, Essa was with Al Baraka Banking Group in Bahrain for three years as financial controller, responsible for the consolidation of Al Baraka’s financial institutions. Before then, he was with Arthur Andersen in Bahrain for more than 15 years, during which he headed the assurance and then the advisory services division. Essa has a BS in Accounting from the University of Bahrain and is a certified public accountant in the state of Georgia, USA.
62 | ARCAPITA ANNUAL REPORT 2014 MANAGEMENT TEAM
Chief Executive Officer Atif Abdulmalik
Managing Directors Hisham Al Raee, Chief Operating Officer Martin Tan, Chief Investment Officer Mohammed Chowdhury, Global Head of Financial Management Group Essa Zainal, Global Head of Financial Control
Directors Michael Casey, Real Estate Vivian Chian, Real Estate Jay Fortin, Legal Abdulhameed Juma, Corporate Management Kevin Keough, Portfolio Management Yasser Al Raee, Real Estate Salah Al Shaikh, Financial Control Gagan Suri, Real Estate Elaine Zhao, Relationship Management & Distribution
Principals Gana Balaratnam, Financial Control Muhannad Buhindi, Relationship Management & Distribution Osama Al Haram, Relationship Management & Distribution Mishal Al Hellow, Information Technology Hafedh Al Najem, Financial Control Tony Nambiar, Human Resources Mohamed Sharif, Relationship Management & Distribution Ahmed Al Shirawi, Relationship Management & Distribution Hassan Shujaie, Legal Pik Sian Sim, Real Estate Osama Al Tamimi, Financial Control Ahmed Al Zayani, Relationship Management & Distribution
Senior Associates Amin Jawad, Treasury Operations Amy Kim, Legal Brian Tsang, Investment Team
ARCAPITA ANNUAL REPORT 2014 | 63 Associates Ali Ardati, Financial Management Group Amy Doshi, Legal Vincent Favier, Investment Team Isa Al Ghatam, Financial Management Group Isa Al Khalifa, Real Estate Mani Kuttickal, Financial Control Mohammed Shakir Maka, Legal Salwa Makarem, Human Resources Joseph Mathai, Financial Control Mohammed Al Saie, Information Technology Kaleel Sainul, Human Resources
64 | ARCAPITA ANNUAL REPORT 2014 Manama London P.O. Box 1357 Manama 32 London Bridge Street Kingdom of Bahrain London SE1 9SG Telephone: +973 17 218333 United Kingdom Telephone: +44 20 7824 5600
Atlanta Singapore 1180 Peachtree St NE 152 Beach Road Suite 3000, Atlanta GA 30309 #10-01/02 The Gateway East United States of America Singapore 189721 Telephone: +1 404 920 9000 Telephone: +65 6499 9888 www.arcapita.com