ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY THE CONSOLIDATED FINANCIAL STATEMENTS AND AUDITORS REPORT FOR THE

YEAR ENDED 31 DECEMBER 2009

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY

INDEX PAGES

AUDITORS REPORT

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2009

CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2009

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2009

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6 32

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2009
Notes ASSETS Current Assets Cash and Cash Equivalents Derivative Financial Instruments Receivables and Prepayments Inventories Total Current Assets Non Current Assets Investments and Financial Assets Property, Plant and Equipment Biological Assets Intangible Assets - Goodwill Deferred Charges Total Non Current Assets TOTAL ASSETS LIABILITIES AND EQUITY Current Liabilities Short Term Loans Payables and Accruals Derivative Financial Instruments Total Current Liabilities Non Current Liabilities Long Term Loans Employees' Termination Benefits Total Non Current Liabilities Shareholders' Equity Share Capital Share Premium Statutory Reserve Other Reserves Retained Earnings Total Shareholders' Equity Minority Interest TOTAL LIABILITIES AND EQUITY 12 13 23 395,534 962,585 82,153 1,440,272 511,165 669,558 108,072 1,288,795 5 23 6 7 507,666 455,492 1,218,575 2,181,733 246,585 6,648 409,777 1,096,723 1,759,733 2009 SAR '000 2008 SAR '000

8 9 10 11

963,131 6,282,208 734,689 793,468 31,766 8,805,262 10,986,995

489,337 4,704,573 638,735 548,636 40,270 6,421,551 8,181,284

12

3,981,193 165,814 4,147,007

3,132,956 128,041 3,260,997

14

1,150,000 1,600,500 526,361 (81,390) 2,187,164 5,382,635 17,081 10,986,995

1,090,000 612,000 416,689 (83,161) 1,581,614 3,617,142 14,350 8,181,284

Georges Schorderet Chief Financial Officer

.. Abdulrahman Al Fadley Chief Executive Officer

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS 2

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2009

Notes

2009 SAR '000

2008 SAR '000 5,029,904 (3,030,947) 1,998,957 (750,878) (187,108) 1,060,971 (125,489) 935,482 (24,662) 910,820 (558) 910,262

Sales Cost of Sales Gross Profit Selling and Distribution Expenses General and Administration Expenses Income before Bank Charges, Zakat and Minority Interest Share of Results of Associates Bank Charges Income from Main and Continuing Operations Zakat Income before Minority Interest Minority Interest Net Income for the Year

15 16

5,868,805 (3,503,013) 2,365,792

17 18

(887,147) (199,735) 1,278,910

(2,003) (147,518) 1,129,389

19

(29,229) 1,100,160 (3,438) 1,096,722

Earnings per Share (SAR) Attributable to Income from Main and Continuing Operations Attributable to Net Income for the Year

20 10.24 8.58

9.95

8.35

Georges Schorderet Chief Financial Officer

Abdulrahman Al Fadley Chief Executive Officer

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS 3

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2009
Notes OPERATING ACTIVITIES Net Income for the Year Adjustments for: Depreciation of Property, Plant and Equipment Net Appreciation of Biological Assets Profit on Sale of Property, Plant and Equipment Loss on Sale of Biological Assets Bank Charges Share of Results of Associates Change in Employees' Termination Benefits Share of Minority Interest in Net Income of Consolidated Subsidiaries Changes in: Receivables and Prepayments Inventories Payables and Accruals Cash Flows from Operating Activities INVESTING ACTIVITIES Additions to Property, Plant and Equipment Additions / (Purchase Price Rebates) to Biological Assets Proceeds from the Sale of Property, Plant and Equipment Proceeds from the Sale of Biological Assets Investments in Associates Acquisition of Subsidiaries, Net of Cash Acquired Cash Flows used in Investing Activities FINANCING ACTIVITIES Increase in Loans Dividends Paid Distribution to Minority Interests Bank Charges Change in Deferred Charges Minority Interest Share in Modern Food Industries Cash Flows from Financing Activities Increase in Cash and Cash Equivalents Cash and Cash Equivalents at 1 January Cash and Cash Equivalents at 31 December 5 689,625 (379,977) (707) (147,518) 8,504 169,927 261,081 246,585 507,666 1,052,345 (270,173) (543) (125,489) (5,578) 14,000 664,562 108,610 137,975 246,585 9 10 21 21 8 (1,334,987) 183 16,216 91,180 (457,864) (25,730) (1,711,002) (1,533,517) (122,102) 3,964 79,567 (1,572,088) 26,086 (32,779) 169,757 1,802,156 (41,967) (363,150) 91,894 1,016,136 3,438 558 21 21 21 21 505,201 (217,175) (3,636) 78,819 147,518 2,003 26,202 378,968 (165,142) (1,093) 57,179 125,489 23,138 1,096,722 910,262 2009 SAR '000 2008 SAR '000

Georges Schorderet Chief Financial Officer

Abdulrahman Al Fadley Chief Executive Officer

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS 4

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009
Attributable to equity holders of the parent Share Capital SAR '000 Balance at 1 January 2008 Net Income for the Year Transfers from Retained Earnings Net Movement on Financial Investments Distribution to Minority Interests Dividends Approved Net Movement on Cash Flow Hedges Minority Interest Share in Modern Food Industries Balance at 31 December 2008 Net Income for the Year Transfers from Retained Earnings Net Movement on Financial Investments Distribution to Minority Interests Dividends Approved Net Movement on Cash Flow Hedges Share Capital Issued Balance at 31 December 2009 1,090,000 Share Premium SAR '000 612,000 Statutory Reserve SAR '000 325,663 91,026 Other Reserves SAR '000 (9,095) Retained Earnings SAR '000 1,034,878 910,262 (91,026) Total Shareholders' Equity SAR '000 3,053,446 910,262 Minority Interest SAR '000 335 558 Total Equity SAR '000 3,053,781 910,820 -

18,263

18,263

18,263

(92,329) -

(272,500) -

(272,500) (92,329)

(543) 14,000

(543) (272,500) (92,329)

14,000

1,090,000

612,000

416,689

(83,161)

1,581,614

3,617,142

14,350

3,631,492

60,000

988,500

109,672 -

(17,500) 19,271 -

1,096,722 (109,672) (381,500) -

1,096,722 (17,500) (381,500) 19,271 1,048,500

3,438 (707) -

1,100,160 (17,500) (707) (381,500) 19,271 1,048,500

1,150,000

1,600,500

526,361

(81,390)

2,187,164

5,382,635

17,081

5,399,716

Georges Schorderet Chief Financial Officer

Abdulrahman Al Fadley Chief Executive Officer

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS 5

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.

THE COMPANY, ITS SUBSIDIARIES AND ITS BUSINESS DESCRIPTION Almarai Company (the Company) is a Saudi Joint Stock Company, which was converted on 2 Rajab 1426 A.H. (8 August 2005). The Company initially commenced trading on 19 Dl Hijjah 1411 A.H. (1 July 1991) and operates under Commercial Registration No. 1010084223. The Company and its subsidiaries (together, the Group) are a major integrated consumer food group in the Middle East with leading market shares in Saudi Arabia and the neighbouring Gulf Cooperative Council (GCC) countries. The dairy, fruit juices and related food business is operated under the Almarai brand name. All raw milk production and related processing along with dairy food manufacturing activities are undertaken in Saudi Arabia and United Arab Emirates (UAE). Final consumer products are distributed from the manufacturing facilities in Saudi Arabia and UAE to local distribution centres by the Groups long haul distribution fleet. Bakery products are manufactured and traded by Western Bakeries Company Limited and Modern Food Industries Limited under the brand names Lusine and 7 Days respectively. International Baking Services Company Limited trades bakery products. These are Limited Liability companies registered in Saudi Arabia and based in Jeddah. Poultry products are manufactured and traded by Hail Agricultural Development Company (HADCO) under the HADCO brand. HADCO is a closed joint stock company registered in Saudi Arabia and based in Hail. The distribution centres in the GCC countries (except for Bahrain and Oman) are managed by the Group and operate within Distributor Agency Agreements as follows: Kuwait - Al Kharafi Brothers Dairy Products Company Limited Qatar - Khalid for Foodstuff and Trading Company United Arab Emirates - Bustan Al Khaleej Establishment The Group operates in Bahrain and Oman through subsidiaries, Almarai Company Bahrain S.P.C and Arabian Planets for Trade and Marketing L.L.C. respectively. The Groups Head Office is located at the following address: Exit 7, North Circle Road Al Izdihar District P.O. Box 8524 Riyadh 11492 Saudi Arabia On 2 Safar 1430 AH (28 January 2009), a new subsidiary, Almarai Investment Holding W.L.L. was incorporated as a holding company for the joint venture with PepsiCo. On 19 Safar 1430 AH (14 February 2009), the Company announced the creation of a joint venture with PepsiCo to explore new business opportunities in dairy and juice products. The new joint venture, called International Dairy and Juice Limited (IDJ), held 52% by PepsiCo and 48% by Almarai (through its subsidiary Almarai Investment Holding W.L.L.), has been incorporated with an initial paid up capital of USD 7 million and will focus on opportunities in Southeast Asia, Africa and the Middle East excluding the Gulf Cooperation Council Countries. On 3 Safar 1430 A.H. (29 January 2009), the Company completed the acquisition of 75% of Teeba Investment for Developed Food Processing Company (Teeba) in Jordan. An amount of JOD 54.8 million (SAR 271 million) was paid to the founding shareholders. At the same time, the Company

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

increased its share capital from JOD 12.2 million to JOD 32.2 million. On 10 Jumada II 1430 A.H. (3 June 2009) the Company transferred its 75% investment in Teeba to IDJ for equity and cash. IDJ paid up capital has been increased from USD 7.0 million to USD 108.4 million . On 20 Dhul-Qada 1430 A.H. (8 November 2009) IDJ increased its paid up capital from USD 108.4 million to USD 127.0 million. On 14 Jumada II 1430 A.H. (7 June 2009), a new subsidiary, Almarai International Holding W.L.L. was incorporated as a holding company for the acquisition of the International Company for Agro Industrial Projects (Beyti) in Egypt. The transaction was completed on 11 Shawwal 1430 A.H. (30 September 2009) and the Company paid cash consideration of USD 127.1 million (SAR 477.7 million). On 13 Muharam 1431 A.H. (30 December 2009), the company transferred 100% of Beyti to IDJ for equity and cash. As a consequence the paid in capital of IDJ increased from USD 127.0 million to USD 254.0 million. On 26 Shawwal 1430 A.H. (15 October 2009) the Company acquired 100% of the outstanding share capital of HADCO in exchange for 6 million new shares issued by Almarai in the ratio of one new Almarai share for every five HADCO shares and a payment of SAR 0.50 per HADCO share. The total acquisition cost of HADCO including acquisition expenses amounts to SAR 1,081.7 million based on an issued share price of SAR 174.75 at close of market on 25 Shawwal 1430 A.H. (14 October 2009) On 25 Rajab 1430 A.H. (18 July 2009) Almarai Baby Food Company Limited was incorporated (which is 100% owned by the Group) with the objective of manufacturing and trading baby food products.

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Details of the subsidiary companies are as follows:

Direct and Beneficial Ownership Interest 2009 100% 100% 2008 -

Name of Subsidiary Almarai Investment Company Limited Almarai Baby Food Company Limited Hail Agricultural Development Company Western Bakeries Company Limited International Baking Services Company Limited Modern Food Industries Limited Agricultural Input Company Limited (Mudkhalat) Almarai Company Bahrain S.P.C. Almarai International Holding W.L.L. Almarai Investment Holding W.L.L. Markley Holdings Limited Arabian Planets for Trade and Marketing L.L.C.

Country of Incorporation Saudi Arabia Saudi Arabia

Business Activity Holding Company Manufacturing and Trading Company Poultry / Agricultural Company Bakery Company Trading Company Bakery Company Agricultural Company Sales Company Holding Company Holding Company Dormant Sales Company

Shares Capital SAR 1,000,000 SAR 5,000,000 Issued 100,000 500,000

Saudi Arabia

100%

SAR 30,000,000 300,000,000 SAR 100,000,000 SAR 500,000 SAR 35,000,000 SAR 25,000,000 BHD 100,000 BHD 250,000 BHD 250,000 OMR 150,000 100,000

Saudi Arabia

100%

100%

Saudi Arabia Saudi Arabia Saudi Arabia Bahrain Bahrain

100% 60% 52% 100% 100%

100% 60% 100% -

500 35,000 250 1,000 2,500

Bahrain Jersey Oman

99% 100% 90%

100% 90%

2,500 150,000

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.

BASIS OF ACCOUNTING, PREPARATION, CONSOLIDATION & PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (a) The consolidated financial statements have been prepared on the accrual basis under the historical cost convention (except for derivative financial instruments and investments that have been measured at fair value) and in compliance with the accounting standards issued by the Saudi Organisation for Certified Public Accountants (SOCPA). (b) When necessary, prior year comparatives have been regrouped or adjusted on a basis consistent with current year classification. Any adjustments are considered immaterial in the context of these consolidated financial statements. (c) These consolidated financial statements include assets, liabilities and the results of the operations of Almarai Company (the company) and its subsidiaries (the Group) as set out in note (1) above. A subsidiary company is that in which the Company has, directly or indirectly, long term investment comprising an interest of more than 50% in the voting capital or over which it exerts practical control. A subsidiary company is consolidated from the date on which the Company obtains control until the date that control ceases. The consolidated financial statements are prepared on the basis of the individual financial statements of the company and the audited financial statements of its subsidiaries, as adjusted by the elimination of all significant inter group balances and transactions. Minority interests represent the portion of profit or loss and net assets not controlled by the Group and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet. (d) The figures in these consolidated financial statements are rounded to the nearest thousand.

3.

SIGNIFICANT ACCOUNTING POLICIES A. Use of Estimates The preparation of consolidated financial statements, in conformity with accounting standards generally accepted in Saudi Arabia, requires the use of estimates and assumptions. Such estimates and assumptions may affect the balances reported for certain assets and liabilities as well as the disclosure of certain contingent assets and liabilities as at the balance sheet date. Any estimates or assumptions affecting assets and liabilities may also affect the reported revenues and expenses for the same reporting period. Although these estimates are based on managements best knowledge of current events and actions, actual results ultimately may differ from those estimates.

B.

Revenue Recognition Products are sold principally on a sale or return basis. Revenue is recognised on delivery of products to customers by the Group or its distributors, at which time risk and reward passes, subject to the physical return of expired products. Adjustment is made in respect of known actual returns. Revenue from the sale of wheat guaranteed to be sold to the Government is recognised upon completion of harvest but the profit on any undelivered quantities is deferred until delivered to the Government

C. Cash and Cash Equivalents For the purposes of the consolidated statement of cash flows, cash and cash equivalents consists of cash at bank, cash on hand, and short-term deposits that are readily convertible into known amounts of cash and have a maturity of three months or less when purchased.

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

D. Accounts Receivable Accounts receivable are carried at the original invoiced amount less any provision made for doubtful debts. Provision is made for all debts for which the collection is considered doubtful or more than three months due. Bad debts are written off as incurred.

E. Inventory Valuation Inventory is stated at the lower of cost and net realisable value. In general, cost is determined on a weighted average basis and includes transport and handling costs. In the case of manufactured products, cost includes all direct expenditure based on the normal level of activity. Net realisable value comprises estimated price less further production costs to completion and appropriate selling and distribution costs. Provision is made, where necessary, for obsolete, slow moving and defective stocks.

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

G. Intangibles-Goodwill Goodwill represents the difference between the cost of businesses acquired and the Groups share in the net fair value of the acquirees assets liabilities and contingent liabilities at the date of acquisition. Goodwill arising on acquisitions is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

H. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and depreciated on a straight line basis at the following annual rates: Buildings Plant, Machinery & Equipment Motor Vehicles Land is not depreciated 3% - 10% 5% - 33% 15% - 25%

I.

Biological Assets Biological assets are stated at cost of purchase or at the cost of rearing or growing to the point of commercial production, less accumulated depreciation. The costs of immature biological assets are determined by the cost of rearing or growing to their respective age. Biological assets are depreciated to their estimated residual value based on commercial production periods ranging from 36 weeks to 50 years. Biological assets are depreciated on a straight line basis (excluding poultry flocks which are depreciated according to actual output) at the following annual rates: Dairy Herd Plantations 15% - 25% 2% - 8%

10

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

J. Impairment The carrying values of property, plant and equipment and biological assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. Impairment losses are expensed in the consolidated statement of income. Except for goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately in the consolidated statement of income.

K. Conversion of Foreign Currency Transactions During the financial period foreign currency transactions are converted and booked in Saudi Riyals at standard exchange rates which are periodically set to reflect average market rates or forward rates if the transactions were so covered. At the balance sheet date, assets and liabilities denominated in foreign currencies are converted into Saudi Riyals at the exchange rates ruling on such date or at the forward purchase rates if so covered. Any resulting exchange variances are charged or credited to the consolidated statement of income as appropriate. The functional currencies of Bahrain operations for Almarai Company Bahrain S.P.C, Almarai Investment Holding Company W.L.L., Almarai International Holding W.L.L. is the Bahraini Dinar and the functional currency of Arabian Planets for Trade and Marketing L.L.C is the Omani Riyal. As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of the Group (SAR) at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year.

L. Employees Termination Benefits Employees termination benefits are payable as a lump sum to all employees employed under the terms and conditions of the respective GCC Labour and Workman Laws on termination of their employment contracts. The liability is calculated as the current value of the vested benefits to which the employee is entitled, should the employee leave at the balance sheet date. Termination payments are based on the employees final salaries and allowances and their cumulative years of service, in compliance with the conditions stated in the laws of the respective GCC countries.

M. Government Grants Government grants are recognized when there is a reasonable assurance that they will be received from the state authority. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate

N. Selling, Distribution, General & Administration Expenses Selling, Distribution, General & Administration Expenses include direct and indirect costs not specifically part of Cost of Sales as required under accounting standards generally accepted in Saudi Arabia. Allocations between Cost of Sales and Selling, Distribution, General and

11

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Administration Expenses, when required, are made on a consistent basis. The Group charges payments in respect of long term agreements with customers and distributors to Selling and Distribution Expenses.

O. Management Fees The Group credits fees charged in respect of the management of Arable Farms to General and Administration Expenses.

P. Zakat Zakat is provided for in the consolidated balance sheet on the basis of an estimated Zakat assessment carried out in accordance with Saudi Department of Zakat and Income Tax (DZIT) regulations. Adjustments arising from final Zakat assessments are recorded in the period in which such assessments are made.

Q. Operating Leases Rentals in respect of operating leases are charged to the consolidated statement of income over the terms of the leases. R. Investments in Securities Investments in securities are measured and carried in the consolidated balance sheet at fair value with unrealised gains or losses recognised directly in equity. When the investment is disposed of or impaired the cumulative gain or loss previously recorded in equity is recognised in the consolidated statement of income. Where there is no market for the investments, cost is taken as the most appropriate, objective and reliable measurement of fair value of the investments.

S. Investment in an Associates The investment in an associate is accounted for under the equity method of accounting when the Company exercises significant influence over the entity and where the entity is neither a subsidiary nor a joint venture. Investment in an associate is carried in the balance sheet at cost, plus postacquisition changes in the Companys share of net assets of the associates, less any impairment in value. The income statement reflects the Companys share of the results of its associates. Unrealized gains and losses resulting from transactions between the Company and its associate are eliminated to the extent of the Companys interest in the associates.

T. Derivative Financial Instruments and Hedging Forward foreign exchange contracts are entered into to hedge exposure to changes in currency rates on purchases and other expenditures of the Group. Commission rate swap agreements are entered into to hedge the exposure to commission rate changes of the Groups borrowings. Forward purchase commodity contracts are entered into to hedge exposure to changes in price of commodities used by the Group.

12

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

All hedges are expected to be in the range of 80 125% effective and are assessed on an ongoing basis. All hedges are treated as cash flow hedges and gains / losses at market valuation are recorded as derivative financial instruments in the consolidated balance sheet and taken to other reserves in Shareholders Equity. When the hedging instrument matures or expires any associated gain or loss in Other Reserves is reclassified to the consolidated statement of income, or the underlying asset purchased that was subjected to the hedge. The Group policy is to use financial instruments which are compliant with Sharia. U. Statutory Reserve In accordance with its by-laws and the regulations for Companies in Saudi Arabia, the Company is required each year to transfer 10% of its net income to a Statutory Reserve until such reserve equals 50% of its share capital. This Statutory Reserve is not available for distribution to Shareholders. V. Segmental Reporting A segment is a distinguishable component of the group that is engaged either in providing products or services (a business segment) or in providing products or services within a particular economic environment (a geographic segment), which is subject to risks and rewards that are different from those of other segments.

13

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.

BUSINESS COMBINATION Acquisition of Hail Agricultural Development Company (HADCO) On 26 Shawwal 1430 A.H. (15 October 2009), the Company acquired 100% of the share capital of HADCO, a company engaged in the production of a variety of agricultural products as well as the manufacture and distribution of poultry products for a purchase consideration of SAR 1,081.7 million. These consolidated financial statements include the results of HADCO for the period from 15 October 2009 as the Company effectively obtained control of HADCO from that date. The fair value of the identifiable assets and liabilities of HADCO as at the date of acquisition were as follows: Fair Value Recognized on Acquisition SAR '000 Assets Investments 35,433 809,390 Fixed Assets 89,073 Inventories 71,800 Receivables and Prepayments 7,511 Bank Balances and Cash 1,013,207 Liabilities 121,747 Payables and Accruals 37,230 Short Term Loans 5,750 Long Term Loans 11,571 Employees' Termination Benefits 176,298
Total Identifiable Net Assets at Fair Value Goodwill Arising on Acquisition Purchase Consideration Transferred 836,909 244,832 1,081,741

The total acquisition cost of SAR 1,081.7 million comprised an issue of shares, cash and costs directly attributable to the combination. The Company issued 6 million ordinary shares with a fair value of SAR 174.75 each, being the published price of the shares of the Company at the date of exchange.
Total Acquisition Cost: Shares Issued, at Fair Value Cash Consideration Costs Associated with the Acquisition Total Cash Outflow on Acquisition: Net Cash Acquired with the Subsidiaries Cash Paid Net Cash Outflow 7,511 (33,241) (25,730) SAR '000 1,048,500 15,000 18,241 1,081,741

14

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The goodwill is attributable to, the position of the poultry and agricultural businesses in their respective markets and their projected cash flows expected to arise after acquisition by the Company. The fair valuation adjustments to HADCOs assets and liabilities are as follows: A. Land Land has been fair valued based on a combination of third party valuation and recent local land sales. B. Inventories have been fair valued as follows: I. finished goods at selling prices less the cost of disposal and a reasonable profit allowance for the selling effort of the acquirer based on profit for similar finished goods; II. work in progress at the selling prices of finished goods less the sum of (1) costs to complete, (2) costs of disposal and (3) a reasonable profit allowance for the completing and selling effort based on profit for similar finished goods; and III. raw materials at current replacement costs less any provision made for obsolescence C. Receivables and Prepayments The fair value of receivables and prepayments amounts to SAR 71.8 million. The gross amount of receivables and prepayments amounts to SAR 113.2 million and a provision for doubtful amounts has been made in accordance with the Companys accounting policies. From the date of acquisition, HADCO has contributed SAR 72.9 million of revenue and SAR 3.1 million to the net income of the Group. If the combination had taken place at the beginning of the year, revenue from continuing operations would have been SAR 223.4 million and the profit from continuing operations for the Group would have been SAR 19.3 million.

2009 SAR '000

2008 SAR '000

5.

CASH AND CASH EQUIVALENTS

Cash at Bank Cash in Hand Total 437,823 69,843 507,666 191,272 55,313 246,585

Cash at bank includes SAR 248.9 million received on 31 December 2009 for the sale of Beyti to IDJ.

15

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2009 SAR '000

2008 SAR '000

6.

RECEIVABLES AND PREPAYMENTS

Trade Accounts Receivable - Third Parties - Related Parties (Refer note 26) 376,945 67,464 444,409 (56,728) (11,331) 376,350 79,142 455,492 309,422 31,357 340,779 (11,726) (10,039) 319,014 90,763 409,777

Less: Provision for impairment of trade receivables Less: Provision for sales returns Net Accounts Receivable Prepayments Total

A. The Groups policy is to provide 100% impairment provision for all trade receivables due over three months. As at 31 December 2009, trade receivables more than three months due and impaired were SAR 56.7 million (2008: SAR 11.7 million). Except for the provision of SAR 41.4 million relating to HADCO trade receivables acquired 15 October 2009 the movement in the group provision for impairment was not significant. 2009 2008 SAR '000 SAR '000 Trade Accounts Receivable Up to 3 months 387,681 329,053 More than 3 months 56,728 11,726 Total 444,409 340,779

B. Unimpaired receivables are expected on the basis of past experience, to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables. C. Provision for sales returns is calculated based on the forecasted return of expired products in line with the Groups product return policy.

2009 SAR '000

2008 SAR '000

7.

INVENTORIES Raw Materials Finished Goods Spares Work in Progress Total

874,765 201,455 102,883 39,472 1,218,575

839,688 163,077 57,497 36,461 1,096,723

16

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2009 SAR '000

2008 SAR '000

8.

INVESTMENTS AND FINANCIAL ASSETS The investments in securities and associated companies comprise of the following:
International Dairy and Juice Limited (IDJ Limited) Pure Breed Company (PB Company) Zain Equity Investment Zain Subordinated Founding Shareholders' Loan Jannat for Agricultural Investment Company National Seeds and Agricultural Services Company United Dairy Farms Company National Company for Tourism Total 48.0% 21.5% 2.5% 10.0% 7.0% 8.3% 1.1% 455,080 29,050 355,250 109,587 7,000 2,064 600 4,500 963,131 372,750 109,587 7,000 489,337

(a) The investment in associated companies comprises the following:

IDJ Limited SAR '000 Balance at 1 January 2009 Add : Capital Introduced Less : Distributions : Share of Results for the Year Balance at 31 December 2009 458,451 (3,371) 455,080 PB Company SAR '000 28,269 (587) 1,368 29,050 Total SAR '000 486,720 (587) (2,003) 484,130

Pure Breed Company is an associate company of HADCO. The capital introduced represents the fair value of the investment at the date of acquisition of HADCO by the Group. (b) The Zain equity investment of 35 million shares at a par value of SAR 10 per share is measured at fair value based on a quoted market price for the shares on the Saudi Arabian (Tadawul) stock exchange at 31 December 2009 of SAR 10.15. This has resulted in an unrealised gain of SAR 0.8 million which is included within other reserves in shareholders equity. The founding shareholders have extended the repayment date of the shareholders loans to ZAIN KSA and have agreed to pledge their ZAINs shares for and on behalf of the preferred creditors until 27th July 2012 in order to enable ZAIN KSA to refinance its existing debts. (c) All other investments in securities are stated at cost less impairment.

17

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

9.

PROPERTY, PLANT AND EQUIPMENT

Land and Buildings (a) SAR '000 Cost At the beginning of the year Acquisition of Subsidiaries Additions during the year Transfers during the year Disposals during the year At the end of the year Accumulated Depreciation At the beginning of the year Acquisition of Subsidiaries Depreciation for the year Disposals during the year At the end of the year Net Book Value At 31 December 2009 At 31 December 2008 1,845,431 915,798 14,544 630,101 (2,981) 3,402,893 Capital Work-inProgress SAR '000 1,139,150 25,667 1,200,505 (1,587,094) 778,228

Plant, Machinery & Equipment SAR '000 2,971,227 457,390 78,262 782,702 (61,384) 4,228,197

Motor Vehicles SAR '000 609,186 45,588 41,676 174,291 (37,848) 832,893

Total 2009 SAR '000 6,564,994 1,444,443 1,334,987 (102,213) 9,242,211

Total 2008 SAR '000 5,127,308 1,533,517 (95,831) 6,564,994

342,724 232,962 77,238 (1,697) 651,227 2,751,666 1,502,707

1,235,775 419,602 328,328 (53,469) 1,930,236 2,297,961 1,735,452

281,922 31,450 99,635 (34,467) 378,540 454,353 327,264

778,228 1,139,150

1,860,421 684,014 505,201 (89,633) 2,960,003 6,282,208

1,574,413 378,968 (92,960) 1,860,421

4,704,573

(a) Land & Buildings include land granted to a subsidiary of the company at a historic fair value of SAR 61.0 million 18

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. BIOLOGICAL ASSETS

Immature Dairy SAR '000 302,400 309,488 (253,706) (76,504) 281,678 Mature Poultry SAR '000 9,176 3,756 12,932 Immature Poultry SAR '000 4,195 3,576 (3,756) 4,015 Mature Plantations SAR '000 11,531 4,045 15,576 Immature Plantations SAR '000 33,400 282 (4,045) (1,071) 28,566

Mature Dairy SAR '000 Cost At the beginning of the year Acquisition of Subsidiaries Additions / (Purchase Price Rebates) during the year Appreciation Transfers during the year Disposals during the year At the end of the year Accumulated Depreciation At the beginning of the year Acquisition of Subsidiaries Depreciation for the year Disposals during the year At the end of the year Net Book Value At 31 December 2009 At 31 December 2008 518,817 (465) 253,706 (152,259) 619,799

Total 2009 SAR '000 821,217 58,302 (183) 313,064 (229,834) 962,566

Total 2008 SAR '000 611,283 122,102 271,589 (183,757) 821,217

182,482 93,042 (59,835) 215,689 404,110 336,335

281,678 302,400

5,292 2,789 8,081 4,851 -

4,015 -

4,049 58 4,107 11,469 -

28,566 -

182,482 9,341 95,889 (59,835) 227,877 734,689

123,046 106,447 (47,011) 182,482

638,735

19

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2009 SAR '000

2008 SAR '000

11. INTANGIBLE ASSETS GOODWILL

Western Bakeries and International Baking Services HADCO Total 548,636 244,832 793,468 548,636 548,636

The goodwill noted above arised from the acquisition of Western Bakeries Limited and International Baking Services Limited in 2007 and HADCO in 2009 (the Subsidiaries). Goodwill is subject to impairment testing. Western Bakeries and International Baking Services Limited form part of the Bakery Products reporting segment, while HADCO represents part of both the Dairy and the Poultry reporting segments. Assets are tested for impairment by comparing the residual carrying amount of each cash-generating unit to the recoverable amount. For Western Bakeries Limited and International Baking Services Limited the recoverable amount has been determined based on a value in use calculation using cash flow projections based on financial forecasts approved by senior management covering a five-year period. The discount rate applied to cash flow projections is 12% and the residual value at the end of the forecast period has been calculated using the times earning multiple at acquisition multiplied by the net income of the final year in the forecast period. The recoverable amount for HADCO has been determined based on a fair value less costs to sell calculation. Key Assumptions Used in Value in Use Calculations Management determined forecast sales growth and gross margin based on past performance and its expectations of market development. The discount rates reflect managements estimate of the specific risks relating to the segment. Estimates for raw material price inflation have been made based on the publicly available information in Saudi Arabia and past actual raw material price movements, which have been used as an indicator of future price movements. Growth rates are based on the industry averages. The calculation of value in use is most sensitive to the assumptions on sales growth rate and cost of sales inflation used to extrapolate cash flows beyond the budget period. Sensitivity to Changes in Assumptions Western Bakeries With regard to the assessment of the value in use, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount. The implications of the key assumptions are discussed below. (a) Sales Growth Assumption The current sales growth in 2009 is 22% and in the forecast period has been estimated to be a compound annual growth of 29%. All other assumptions kept the same; a reduction of this growth rate to 17% would give a value in use equal to the current carrying amount. (b) Cost of Sales Inflation The current cost of sales in 2009 is 37% and in the forecast period has been estimated at an average of 39%. All other assumptions kept the same; an increase in the rate to an average of 60% would give a value in use equal to the current carrying amount.

20

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Key Assumptions Used in Fair Value Calculations The recoverable amount for HADCO is measured on the basis of fair value less costs to sell. Fair value less costs to sell is defined as the amount obtainable from the sale of an asset or cash-generating unit in an arms length transaction between knowledgeable, willing parties, less the costs of disposal. The recent best evidence of HADCOs fair value less costs to sell is the arms length price paid to acquire HADCO adjusted for disposal costs. The cost of disposal has been determined to be insignificant, therefore, fair value less cost to sell is the same as the purchase price paid by the Group.
2009 SAR '000 2008 SAR '000

12. TERM LOANS

Islamic Banking Facilities (Murabaha) Saudi Industrial Development Fund Agricultural Development Fund Total A. 3,756,739 612,270 7,718 4,376,727 3,078,796 554,890 10,435 3,644,121

The borrowings from Islamic banking facilities (Murabaha) are secured by promissory notes given by the Group. The borrowings from the Saudi Industrial Development Fund (SIDF) are secured as follows: (i) in respect of borrowings amounting to SAR 612.3 million for 31 December 2009 (2008: SAR 554.9 million) by a mortgage on specific assets; (ii) in respect of uncollateralized borrowings, no payment guarantee was given for both the years ended 31 December 2009 and 2008.

B.

C. The borrowings from Agricultural Development Fund are secured by a bank payment guarantee.
D. Maturity of Financial Liabilities: Facilities available at 31 December SAR '000 440,600 3,231,845 3,329,413 371,980 7,373,838

2009 SAR '000 395,534 1,452,227 2,527,966 1,000 4,376,727

2008 SAR '000 511,165 1,617,148 1,500,488 15,320 3,644,121

Less than one year One to two years Two to five years Greater than five years Total

The Islamic banking facilities (Murabaha) with a maturity period of less than two years are predominantly of a revolving nature. During 2009 the group secured an additional SAR 790 million of commercial loan facilities with maturities between three to five years (2008: SAR 1,700.0 million). As at 31 December 2009 SAR 2,515.3 million Islamic Banking Facilities (Murabaha) were unutilized and available for drawdown (2008: SAR 1,729.8 million).

21

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As at 31 December 2009 the Group had SAR 481.8 million of unutilized SIDF facilities available for draw down with maturities predominantly greater than five years (2008: SAR 581.4 million).

2009 SAR '000

2008 SAR '000

13. PAYABLES AND ACCRUALS

Trade Accounts Payable - Third Parties - Related Parties (Refer note 26) 427,854 42,425 431,790 60,516 962,585 350,098 46,360 250,318 22,782 669,558

Other Payables Zakat Provision (Refer note 19) Total

14. SHARE CAPITAL On 26 Shawwal 1430 A.H. (15 October 2009), the Company issued 6 million shares to the owners of the Hail Agricultural Development Company, on acquisition of the same (Note 4), and as a result the share capital of the Company increased from 109 million fully paid and issued shares of SAR 10 each to 115 million fully paid and issued shares of SAR 10 each. The Companys share capital at 31 December 2009 and 31 December 2008 amounted to SAR 1,150 million and SAR 1,090 million respectively, consisting of 115 million and 109 million fully paid and issued shares of SAR 10 each.

22

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. SEGMENTAL REPORTING The Groups principal business activities involve manufacturing and trading of dairy and juices products under the Almarai brand, bakery products under the brands Lusine and 7 Days, poultry products under the HADCO brand, arable and horticultural products as well as other activities. Other activities include our investment in Zain and infant formula. Selected financial information as of 31 December 2009 and 2008 and for the years then ended categorized by these business segments, are as follows:

Dairy and Juice SAR '000 31 December 2009 Sales Third Party Sales Depreciation Share of Results of Associates Income before Minority Interest Share of Net Assets in Associates Additions to Non-Current Assets Non-Current Assets Total Assets Total Liabilities 31 December 2008 Sales Third Party Sales Depreciation Income before Minority Interest Additions Non-Current Assets Non-Current Assets Total Assets Total Liabilities 5,204,614 5,177,730 (206,632) (3,371) 972,450 455,080 1,537,741 5,663,992 7,298,020 (4,666,296)

Bakery SAR '000 646,416 618,122 (56,468) 139,770 338,253 1,280,632 1,467,132 (218,375)

Poultry SAR '000 44,498 44,498 (2,696) 1,368 8,395 29,050 383,365 377,916 454,201 (70,241)

Arable and Horticulture SAR '000 158,926 28,455 (22,230) (7,910) 847,917 922,179 1,203,056 (131,717)

Other Activities SAR '000 (12,545) 88,706 560,543 564,586 (500,650)

Total SAR '000 6,054,454 5,868,805 (288,026) (2,003) 1,100,160 484,130 3,195,982 8,805,262 10,986,995 (5,587,279)

4,535,833 4,515,097 (168,977) 818,019 1,717,839 4,923,741 6,556,270 (3,904,200)

537,335 514,807 (44,849) 106,361 209,369 1,008,473 1,135,677 (158,132)

(13,560) 489,337 489,337 (487,460)

5,073,168 5,029,904 (213,826) 910,820 1,927,208 6,421,551 8,181,284 (4,549,792)

23

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The business activities and operating assets of the Group are mainly concentrated in GCC countries, and selected financial information as at 31 December 2009 and 2008 and for the years then ended, categorized by these geographic segments are as follows:

Sales SAR '000 2009 Saudi Arabia Other GCC Countries Other Countries Total 2008 Saudi Arabia Other GCC Countries Other Countries Total

NonCurrent Assets SAR '000

4,061,912 1,744,249 62,644 5,868,805

8,246,294 103,888 455,080 8,805,262

3,453,558 1,510,552 65,794 5,029,904

6,332,772 88,779 6,421,551

Analysis of sales is given by product group as shown below.

2009 SAR '000 Fresh Dairy Long Life Dairy Fruit Juice Cheese & Butter Bakery Poultry Arable and Horticulture Other Total 2,817,587 562,619 620,162 1,143,002 618,122 44,498 28,445 34,370 5,868,805 2008 SAR '000 2,474,586 495,710 484,455 1,028,206 514,807 32,140 5,029,904

24

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2009 SAR '000

2008 SAR '000

16. COST OF SALES

Direct Material Costs Government Grants Employee Costs Depreciation of Property, Plant and Equipment Depreciation of Biological Assets Biological Asset Appreciation Loss on Sale of Biological Assets Other Expenses Total 2,580,261 (93,812) 363,440 390,750 95,889 (313,064) 78,819 400,730 3,503,013
2009 SAR '000

2,242,693 (17,618) 297,622 290,537 106,447 (271,589) 57,179 325,676 3,030,947

2008 SAR '000

17. SELLING AND DISTRIBUTION EXPENSES

Employee Costs Marketing Expenses Depreciation of Property, Plant and Equipment Other Expenses Total 376,909 297,442 96,680 116,116 887,147 327,951 247,319 78,982 96,626 750,878

2009 SAR '000

2008 SAR '000

18. GENERAL AND ADMINISTRATION EXPENSES

Employee Costs Insurance Depreciation of Property, Plant and Equipment Profit on Sale of Property, Plant and Equipment Other Expenses Total 144,077 22,527 17,771 (3,636) 18,996 199,735 121,109 20,936 9,449 (1,093) 36,707 187,108

25

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

19. ZAKAT
A. Zakat is charged at the higher of net adjusted income or Zakat base as required by the Saudi Arabian Zakat Regulations. In the current year, the Zakat charge is based on the net adjusted income method, calculated as follows: 2009 2008 SAR '000 SAR '000 Income from Main and Continuing Operations Disallowed Expenses: Accrual for Employees' Termination Benefits Other Provision Net Income for Zakat Purposes Zakat Charge @ 2.5% Adjustment in respect of prior year provision Charged to Consolidated Statement of Income B. Zakat Provisions Balance at 1 January Acquisition of Subsidiary Charged to Consolidated Statement of Income Payments Balance at 31 D ecember 1,129,389 26,202 13,551 1,169,142 29,229 29,229 935,482 23,138 10,946 969,566 24,239 423 24,662

22,782 26,070 29,229 (17,565) 60,516

18,028 24,662 (19,908) 22,782

C. The Company has filed its Zakat returns for all the years up to 2008 and settled its Zakat liabilities accordingly. The Zakat assessments have been agreed with the Department of Zakat and Income Tax (DZIT) for all the years up to 2006 while 2007 and 2008 Zakat returns are still under review by the Department of Zakat and Income Tax (DZIT).

HADCO has filed its Zakat returns for all years up to 31 December 2008 and has settled its Zakat liabilities accordingly. The Zakat assessments have been agreed with the DZIT for all years up to 31 December 2002.

20. EARNINGS PER SHARE Earnings per Share are calculated on the weighted average number of issued shares for the years ended 31 December 2009 and 31 December 2008 amounting to 110.3 million shares and 109 million shares respectively.

26

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2009 SAR '000

2008 SAR '000

21. DEPRECIATION AND DISPOSAL OF ASSETS

A. Depreciation Biological Assets Depreciation of Biological Assets Biological Assets Appreciation Net Biological Assets Appreciation Property, Plant and Equipment Depreciation Total B. (Profit)/Loss on the Sale of Assets Biological Assets Proceeds from Sale of Biological Assets Net Book Value of Biological Assets Sold Loss on the Sale of Biological Assets Property, Plant & Equipment Proceeds from the Sale of Property, Plant and Equipment Net Book Value of Property, Pland and Equipment Sold Profit on the Sale of Property, Plant and Equipment Total

95,889 (313,064) (217,175)

106,447 (271,589) (165,142)

505,201 288,026

378,968 213,826

(91,180) 169,999 78,819

(79,567) 136,746 57,179

(16,216) 12,580 (3,636) 75,183

(3,964) 2,871 (1,093) 56,086

27

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments carried on the consolidated balance sheet include cash and cash equivalents, trade and other accounts receivable, derivative financial instruments, investments in securities, loan, short term bank borrowings, accounts payable, accrued expenses and other liabilities and long term debt. Commission Rate Risk is the exposure associated with the effect of fluctuations in the prevailing commission rates on the Groups financial position and cash flows. Islamic banking facilities (Murabaha) amounting to SAR 3,756.7 million at 31 December 2009 (2008: SAR 3,078.8 million) bear financing commission charges at the prevailing market rates. The Groups policy is to manage its financing charges using a mix of fixed and variable commission rate debts. The policy is to keep between 50% to 60% of its borrowings at fixed commission. The following table demonstrates the sensitivity of the income to reasonably possible changes in commission rates, with all other variables held constant. There is no impact on the Companys equity. Increase/decrease in basis points of commission rates 2009 SAR SAR +30 - 30 11,141 (11,141) Effect on income for the year SAR000

2008 SAR SAR + 30 - 30 9,236 (9,236)

Foreign Currency Risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group has transactional currency exposure principally in Saudi Riyals, United States Dollars, Great British Pounds and Euros. Other transactions in foreign currencies are not material. The outstanding foreign currency forward purchase agreements were as follows:
2009 SAR '000
Euro Great British Pound Other Total 703,642 66,409 30,924 800,975

2008 SAR '000

669,819 94,800 37,428 802,047

The Group uses forward currency contracts to eliminate significant currency exposures. Management believe that the currency risk for inventory and capital expenditure purchases is adequately managed primarily through entering into foreign currency forward purchase agreements. It is the Groups policy to

28

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

enter into forward contracts based on the underlying exposure available from the groups business plan/commitment with the suppliers. The forward purchase agreements are secured by promissory notes given by the Group. The following analysis calculates the sensitivity of income to reasonably possible movements of the SAR currency rate against the respective currencies, with all other variables held constant, on the fair value of currency sensitive monetary assets and liabilities as at the reporting date. Increase/decrease in Euro rate to SAR 2009 +10% -10% Effect on income for the year SAR000 11,229 (11,229)

2008

+10% -10%

8,602 (8,602)

Credit Risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur a financial loss. The Group limits its credit risk by trading only with recognized, creditworthy third parties. The Groups policy is that all customers who wish to trade on credit terms are subject to credit verification procedures. Trade and other account receivables are mainly due from local customers and related parties and are stated at their estimated realizable values. The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and by monitoring outstanding receivables on an ongoing basis. The receivable balances are monitored with the result that the Groups exposure to bad debts is not significant. The five largest customers account approximately for 19% of outstanding accounts receivable at 31 December 2009 (2008: 25%). With respect to credit risk arising from other financial assets of the Group comprising of cash and cash equivalents, investments in securities and loan, the Groups exposure to credit risk arises from default of the counterparty, with maximum exposure equal to the carrying amount of these instruments. Cash and bank balances are placed with national and international banks with sound credit ratings. All derivative financial instruments form part of effective cash flow hedges. Liquidity Risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from the inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds and bank facilities are available to meet the Groups future commitments. The Groups terms of sales require amounts to be paid either on a cash on delivery or on a terms basis. The average days of sales outstanding for 2009 were 24 days (2008: 22 days). Trade payables are typically settled on a terms basis, the average payables outstanding for 2009 were 45 days (2008: 46 days).

29

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

23. FINANCIAL INSTRUMENTS Fair Value Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm's length transaction. As the Groups consolidated financial statements are prepared under the historical cost method, differences can arise between the carrying values and the fair value. The fair values of financial instruments are not materially different from their carrying values.

Hedging Activities At 31 December 2009 the Group had 8 commission rate swap agreements in place covering total notional amounts of SAR 100 million and US$ 210 million. At 31 December 2008 the Group had 8 commission rate swap agreements in place covering total notional amounts of SAR 100 million and US$ 210 million. The swaps result in the Group receiving floating 6 month SIBOR/ 3 month US$ LIBOR rates while paying fixed rates of commission or floating 3 month US$ LIBOR rates under certain conditions. The swaps are being used to hedge the exposure to commission rate changes of the Groups Islamic borrowings. At 31 December 2009 and 2008 the Group had various forward foreign exchange contracts that were designated as hedges to cover purchases and other expenditures in a variety of foreign currencies. All derivative financial instruments are being used as cash flow hedges and are carried in the consolidated balance sheet at fair value. All cash flow hedges are either against transactions with either firm commitments, or forecast transactions that are highly probable. The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 14 months. All 2009 hedges were considered highly effective and the net loss on cash flow hedges during the year recognised in Other Reserves within equity was SAR 82.2 million (2008: net loss of SAR 101.4 million). During the year net gains reclassified to the income statement were SAR 14.8 million (2008: SAR 14.7 million).

24. COMMITMENTS AND CONTINGENCIES A. The contingent liabilities against letters of credit are SAR 170.9 million for 31 December 2009 (2008: SAR 330 million). B. The contingent liabilities against letters of guarantee are SAR 83.0 million for 31 December 2009 (2008: SAR 61.1 million). C. The Company had capital commitments to SAR 1,555.6 million for 31 December 2009 in respect of ongoing projects (2008: SAR 702.5 million). The majority of the capital commitments are for new production facilities, sales depot development, distribution fleet, fridges and information technology.

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ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

D. Commitments under operating leases expire as follows:

2009 SAR '000
Within one year Two to five years After five years Total 63,517 61,759 20,104 145,380

2008 SAR '000

50,723 48,288 96,268 195,279

25. DIRECTORS REMUNERATION The Directors' remuneration paid to the Board of Directors for year ended 31 December 2009 amounted to SAR 6.3 million (2008: SAR 6.4 million).

26. RELATED PARTY TRANSACTIONS AND BALANCES During the normal course of its operations, the Group had the following significant transactions with related parties during the year ended 31 December 2009 and 31 December 2008 along with their balances:
Balance at 31 December SAR '000 67,464 (42,425)

Nature of Transaction

Amount SAR '000

2009 Sales Purchases 2008 Sales Purchases

(257,250) 190,935

(155,141) 185,986

31,357 (46,360)

Pricing and terms for these transactions are at arms length. The related parties noted above include the following:
Entity Savola Group Arabian Shield Cooperative Insurance Company ARASCO Feed Mills Managed Arable Farms International Dairy and Juice Limited Pure Breed Company Relationship Common Ownership Common Ownership Common Ownership Common Ownership Investment in Associate Investment in Associate

31

ALMARAI COMPANY A SAUDI JOINT STOCK COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. DIVIDENDS APPROVED AND PAID On 26 Rabi Awal 1430 A.H. (23 March 2009), the General Assembly Meeting approved a dividend of SAR 381.5 million (SAR 3.5 per share) for the year ended 31 December 2008, which was paid on 11 Rabi Thani 1430 A.H. (7 April 2009).

28. DIVIDENDS PROPOSED The Board of Directors proposes for approval at the General Assembly Meeting a dividend for the year ended 31 December 2009 of SAR 460.0 million (SAR 4.0 per share).

29. SUBSEQUENT EVENTS In the opinion of the Management, there have been no significant subsequent events since the year end that would have a material impact on the financial position of the Group as reflected in these consolidated financial statements.

32