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Directors’ Report

Dear Shareholders,

I am pleased to welcome you all on behalf of the Board of Directors to the Annual General Meeting of Galfar Engineering & Contracting SAOG and to present to you the Annual Report for the year ended 31st December 2015.

Overview

The Company is deeply concerned with its declining performance over the last few years, which has largely arisen from unprecedented delays in closing out projects and delays in payment of receivables from clients, mainly the Governmental entities. These factors are well known but not resolved till now and Galfar and all other contractors are affected by long outstanding receivables, including that of certified receivables.

Some claims are also pending due to the changes in government legislation and ministerial decisions like increase in minimum wages for National workforce. The time taken by the client and consultants to settle contractual matters has become exorbitantly longer than it was few years ago. At the same time these delays in payments do not affect our contractual rights

To defend the rights of the company we have initiated a number of arbitration cases. While this may take some time and incur costs, it should lead to a fair conclusion. Your Company has initiated a transformation program to achieve a sustainable improvement of its performance and operational efficiency. In this context, Roland Berger, a leading global strategy consultancy with a strong track record in operational, organizational and financial transformation of companies, has been appointed in December 2015 for a long term mandate.

Key building blocks of the transformation program include organizational transformation and enhanced talent management, enhanced liquidity management and assets optimization, overhead cost reductions, productivity improvement and lean on-site execution, supply chain management optimization, and information technology transformation.

Galfar's Board of Directors is fully committed to the rigorous implementation of the transformation program over the next 12-18 months, with tangible results expected in Q2 2016 and better operating results in Financial Year 2016. In parallel the

transformation program will drive cost savings. Based on the company’s leading market position and confirmed order book of over RO 640 m at end of 2015, Galfar's revenues for 2016 are expected to be above 2015 levels despite an increasingly challenging market environment.

Operations

During the year, the Company was awarded new projects worth RO 134 m mainly in the Oil & Gas sector. The major contracts awarded are – ‘Construction and installation of gas gathering system’ by BP Exploration Ltd. for RO 42 m, ‘Site preparation services at Duqm Refinery for RO 32 m and ‘Mukhaizna civil work services’ by Occidental Oman for RO 20 m. Currently, the Company is in final discussion with clients and main contractors for oil and gas and petrochemical projects and expects to win work in these areas.

The Company has completed Ras al Hadd airport and phase 1 of Salalah airport, Hallaniyat island port and road network and many other road, building and electrical network projects. Some of these completed projects were loss making due to many changes in deliverables or non-approval of borrow pits for road works.

During the year the parent company has provided RO 31.917 million towards impairment of receivables, retention and accounted fair value loss on Forex Forward Contract of RO 1.229 mln, which is made in line with IFRS requirements and company's accounting policies. Out of these provisions, the major portion is a provision for Muscat Expressway and Central Corridor projects. The other provisions come from other contracts which could not be financially closed for a long period. These provisions are made without prejudice to the company's right to recover these dues through amicable settlement or arbitration proceedings.

The summary of the financial performance of the company (including group companies) is as follows:

In RO millions Particulars 2015 2014

Total Revenue 345.234 372.510

Profit from operations

(before impairment of receivables, retention and debts)

10.673 13.320

Profit / (loss) for the year (28.859) 0.197

The Board has taken necessary steps to strengthen the company’s financial position and has mandated Oman Arab Bank as Issue Manager for convertible bonds or any other instrument.

Further to support the company’s Business Plan for the coming years, the Company has decided to appoint a Lead Financial Advisor for financial re-engineering as well as to arrange necessary banking facilities including term loans.

The company has formed a Core Collection Group to improve the collections position and draw up specific action points to reduce the receivables cycle time.

Subsidiaries & Associates

Galfar Aspire Projects & Services LLC and Galfar Aspire Readymix LLC, wholly owned subsidiaries of Galfar in Oman, have achieved good financial results. In addition to catering to the needs of Galfar, during the year 2015 they have achieved 67% of their revenues from non-Galfar jobs.

The Fully Owned subsidiary Galfar Engineering & Contracting India Pvt. Ltd (GI), is carrying out road construction activities and has an order book of RO 76 m as at 31st Dec 2015.

The parent company along with its subsidiary, Galfar India, have two fully owned Special Purpose Vehicles (SPVs) as subsidiaries namely, Salasar Highways Private Limited and Kashipur Sitarganj Private Limited. These SPVs are currently constructing on Design, Build, Finance, Operate and Transfer (DBFOT) basis two roads, viz. i) two-lane road on the Fatehpur-Salasar section of National Highway 65 in the State of Rajasthan, and ii) four laning of road in the Kashipur-Sitarganj section of National Highway 74 in the States of Uttarkhand / Uttar Pradesh. Construction of these projects is expected to be completed in early 2017.

In the three Associate SPVs, viz. MTPL, GAEPL and SJEPL, created with other partners for the construction of Highway Roads in India on DBFOT basis, the Company holds 26% share. Construction has been completed in the two SPVs, namely MTPL and GAEPL and toll collection is going on. Although the present toll collection is below the estimated level we expect collections to improve in the years to come.

The road infrastructure projects in India are expected to increase in the coming years and offers a good opportunity for growth. For the first time since acquiring 26% shares in 2010, Galfar Kuwait recorded a profit for the financial year 2015. Two legacy projects were handed over to the client in the year 2015. The Company has been awarded a project for construction of roads and bridges for the New Refinery Project in Kuwait for a value of KD 19.5 million. Omanisation Galfar is committed to the development of Omani Nationals. The Company employs 3830 Omani Nationals and continues to actively recruit, train and retain them in technical and managerial cadres. Corporate Structure and Governance A report on corporate governance, management discussion and analysis as well as auditor’s report confirming the compliance with the provisions of code of corporate governance are included in the Annual Report of the Company.

Quality, Health, Safety and Environment

The Company continues to maintain its certification to ISO 9001 (Quality), QHAS 18001 (Health & Safety), ISO 14001 (Environment) Standards and ISO 29001 (Petroleum & Petrochemical Sector specific standard).

The Lost Time Injury Frequency (LTIF) of 0.17 recorded during the year is the lowest annual LTIF ever achieved by the Company and is amongst the best in the industry. We have worked without LTI 50 Million man hours in Oil & Gas projects and 16 Million man hours in Civil & Marine Infrastructure Unit.

Corporate Social Responsibility

The Company has contributed significantly to road safety campaigns throughout the country.

Outlook

In spite of the low oil prices which have resulted in the slowing down of some projects, the government continues to go ahead with various infrastructure and services projects which are aimed at diversifying the economy and stimulating economic growth. In addition the oil and gas downstream projects are at an all-time high.

The Company has tendered for various projects and expects its fair share of contracts to be awarded. It may be mentioned that Petroleum Development Oman (PDO) has extended the Off-plot Delivery Contract (ODC North Oman) effective from 1st April 2016 to 31st March 2018. This is a Service Contract in which Galfar expects to generate revenue of around RO 120 Million.

On Record

The Directors take this opportunity to thank the customers, shareholders, suppliers, bankers, business partners/associates, financial institutions and the Government of Sultanate of Oman for their consistent support and encouragement to the Company.

On behalf of the Directors, I convey my sincere appreciation to all employees of the Company and its subsidiaries and associates for their hard work and commitment. Their dedication and competence has ensured that the Company continues to be a significant and leading player in the contracting industry.

The Directors are thankful to His Majesty’s Government for its continued support and we pray for His Majesty’s health and long life.

Salim Said Hamad Al Fannah Al Araimi

Chairman

Corporate Governance Report

Company’s Philosophy Galfar Engineering and Contracting SOAG is committed to good corporate governance and healthy corporate practices. The concept of good governance at Galfar envisages care of the Company to enhance the value of all its stakeholders by adhering to proper methods of management, internal controls, accountability, corporate governance rules and high level of transparency to the extent of not affecting the competitive position of the Company. The Company continues applying well-defined Management Systems Procedures (MSPs) in accordance with ISO 9001. The Company is committed to following high standards of Corporate Governance in accordance with the Code of Corporate Governance of the Capital Market Authority and is geared towards the implementation of the New Code of Corporate Governance, promulgated by the Capital Market Authority, with effect from July 2016. The Company has made improvements to its internal regulations by updating its manual of authority and put in place policies for Whistle blowing, Code of conduct, Related Party Transactions and Revenue Recognition, duly approved by the Board.

The Board Members are experienced in their diversified professional fields. They have given great support to the Board to exercise its widest authorities in managing the Company and supervise the good performance of the Company’s business. The Board is responsible for achieving the company’s objectives. For this purpose, the Board is assisted by various sub committees and the higher executive management of the company. In addition, there is a well-structured organization for management executives whose authorities are defined in a revised Manual of Authority. In general the board exercises its primary functions and duties in line with the powers stipulated in article 35 of the Articles of Association of the company.

Board of Directors

The Members of the Board have professional and practical experience in their respective fields ensuring proper direction and control of company’s activities. No director is a member of more than 4 joint stock public companies whose shares are listed on the Muscat Securities Market (MSM) and no director is chairman of more than 2 public companies whose principal office is in the Sultanate of Oman. None of the directors are members of a Board of a joint stock public or closed company which carries out similar business and whose principal office is in the Sultanate of Oman.

Sr. No.

Name of Director & Representative Designation Category Directorship in Other Joint Stock

Companies

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi Chairman Non Independent

Non - Executive Oman Medical College S.A.O.C

2 Sheikh Salim Abdullah Saeed Badr Al Rawas Vice Chairman Non Independent

Non - Executive Oman Oil Marketing Company S.A.O.G , Kunooz Oman Holding S.A.O.C.

3 Dr.Hatem Bakheit Saeed Al Shanfari Director Independent

Non - Executive

Gulf Investment Services Co. S.A.O.G, Gulf Baader Capital Markets Co. S.A.O.C

4 Mr. Hamad Mohamed Al Wahaibi Director Independent Non - Executive

Voltamp Energy Company SAOG, Al Madina Insurance Company SAOG National Bank of Oman SAOG.

5 Engr. Salman Rashid Al Fannah Al Araimi Director Non Independent

Non - Executive NIL

6 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi Director Non Independent

Non - Executive

Gulf Plastic Industries Co. S.A.O.G Oman Medical College S.A.O.C

7 Mr. Abdulqader Askalan Director Independent Non - Executive

Oman Telecommunication Company S.A.O.G

8 Engr. Mohiuddin Mohamad Ali Director Non Independent Non - Executive Oman Medical College S.A.O.C

9 Engr. Raiz Basheeruddin Director Independent Non - Executive NIL.

Board Meetings: During the year 2015, the Board held ten (10) meetings in twelve sessions. The following table shows dates of the meetings and attendance details:

Board of Directors Meetings & Attendance Details - Year 2015 √

Sr. No.

Name of Director &

Representative

Meeting no:49

Meeting no:50

Meeting no:51

Meeting no:52

Meeting no:53

Meeting no:54

Meeting no:55

Meeting no:56

Meeting no:57

Meeting no:58

07-Mar-15 & 17-

Mar-15

10-May-15

31-May-15

06-Jul-15

10-Aug-15

20-Sep-15

11-Oct-15 & 18-

Oct-15

04-Nov-15

11-Nov-15

17-Dec-15

1

Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi

√ √ X √ X √ √ √ √ √

2

Sheikh Salim Abdullah Saeed Badr Al Rawas

√ √ √ √ √ √ √ √ √ √

3 Dr.Hatem Bakheit Saeed Al Shanfari

√ √ √ √ X X √ X X √

4 Mr. Abdel Qadir Ahmed Askalan √ √ √ X X √ X X √ X

5

Engr. Salman Rashid Al Fannah Al Araimi

√ √ √ √ √ √ √ √ √ √

6

Ms. Khalood Mohamed Rashid Al Fannah Al Araimi

√ √ √ √ X X √ √ √ √

7 Mr. Hamad Mohamed Al Wahaibi

√ √ X √ √ √ √ X √ √

8 Engr. Mohiuddin Mohamad Ali

√ √ √ √ √ √ √ √ √ √

9 Engr. Raiz Basheeruddin √ √ √ √ √ √ √ X X √

Remuneration to the Board of Directors:

The total amount proposed to be paid to the Directors for the year 2015 is RO 50,000/-, being the sitting fees for the year 2015, which will be paid to the Directors after approval by the shareholders in the AGM scheduled to be convene on 27thMarch, 2016.

The total amount approved by the shareholders for the year 2014 and paid to the Directors during the year 2015 is detailed as under:

Sr. No. Name of Director & Representative Sitting Fees

Remuneration Total

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi 5,000 -

5,000

2 Dr.P. Mohamed Ali (Director Till 14.01.2014) 700 -

700

3 Dr.Adil Abdul Aziz Yahya Al Kindy (Director Till 26.03.2014)

1,400 -

1,400

4 Dr.Hatem Bakheit Saeed Al Shanfari 9,700 -

9,700

5 Sheikh Salim Abdullah Saeed Badr Al Rawas 8,300 -

8,300

6 Sheikh Yahya Abdullah Al Fannah Al Araimi (Director Till 26.03.2014)

2,900 -

2,900

7 Engr. Salman Rashid Al Fannah Al Araimi 10,000 -

10,000

8 Mr. Hamad Mohamed Al Wahaibi 10,000 -

10,000

9 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi 10,000 -

10,000

10 Mr. Abdel Qadir Ahmed Askalan 4,800 -

4,800

11 Engr. Mohiuddin Mohamad Ali 5,500 -

5,500

12 Engr. Raiz Basheeruddin 5,200 -

5,200

Total 73,500 -

73,500 Board Secretary The elected Board has re-appointed Mr. Abdelbagi Daffalla, a legal professional, as secretary of the Board. The secretary facilitates holding and smooth conduct of the Board Meetings, records the minutes of the meetings, drafting of resolutions, following-up implementation of the Board resolutions and inform the competent bodies with the same. The secretary also serve as a liaison between the board and its Sub-Committees, and follow up the decisions issued by the subsidiaries and associated companies, as well as the decisions that issued on their respect by the parent company.

Other Committees:

Supervisory and Follow up Committee (SAFCOM): Supervisory and Follow up Committee (SAFCOM) consisting of 5 members. The Committee assists the board to provide its support to the executive management to run effectively and efficiently the businesses of the Company in order to achieve the Company’s objectives and to ensure that the interests of the Shareholders are protected. In this context the committee extends a follow-up support to overcome the difficulties faced by the executive management including collection of outstanding receivables. The committee also studies Investment opportunities for the company and monitors performance of all Company’s units.

Sr. No. Name of Director & Representative Designation

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi Chairman

2 Sheikh Salim Abdullah Saeed Badr Al Rawas Member

3 Dr.Hatem Bakheit Saeed Al Shanfari Member

4 Mr. Abdel Qadir Ahmed Askalan Member

5 Engr. Mohiuddin Mohamad Ali Member

SAFCOM Meetings:

During the year 2015, SAFCOM held 13 meetings. The following table shows dates of the meetings and attendance details:

Sr No

Name of Director & Representative

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 08-Jan-15

01-Feb-15

08-Feb-15

19-Feb-15

22-Mar-15

30-Apr-15

21-May-

15

29-Jun-15

14-Jul-15

08-Sep-15

26-Oct-15

17-Nov-15

10-Dec-15

1 Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi

√ X X √ √ X √ √ √ √ √ √ √

2 Sheikh Salim Abdullah Saeed Badr Al Rawas

√ √ √ √ √ √ √ √ √ √ √ √ √

3 Dr.Hatem Bakheit Saeed Al Shanfari √ √ √ √ √ √ √ √ √ √ X √ √

4 Mr. Abdel Qadir Ahmed Askalan √ X √ X √ √ X √ √ √ √ √

√

5 Engr. Mohiuddin Mohamad Ali √ √ √ √ √ √ √ √ √ √ X √ √

Audit Committee

The primary responsibilities and functions of Audit Committee are to provide assistance to the Board of Directors in fulfilling its responsibilities of monitoring and overseeing the adequacy and effectiveness of the internal control systems, procedures, financial reporting process, the effectiveness of the internal audit function; the independent audit process including recommending the appointment and assessing the performance of the external auditor; the company’s process for monitoring compliance with laws and regulations affecting financial reporting and code of business conduct. The Audit Committee reviews and approves the annual audit plan which is prepared based on risk based audit approach. It also reviews the Audit Committee Charter, Internal Audit Charter periodically. These are key to reinforce the organizational independence of Internal Audit and to establish their rules of engagement throughout the Company. The Audit Committee’s focus to create awareness on the code of ethics and whistleblower policy and ensured that all the staff of the Company has gone through the whistleblower awareness program. In performing its duties, the committee maintains effective working relationships with the board of directors, management, and the external and internal auditors. To perform its role effectively, each committee member will need to develop and maintain his skills and knowledge, including an understanding of the committee’s responsibilities and of the company’s business, operations and risks. The Committee held six meetings during the year 2015.

Sr. No. Name of the members of the committee Designation

1 Dr.Hatem Bakheit Saeed Al Shanfari Chairman

2 Mr. Hamad Mohamed Al Wahaibi Member

3 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi Member

4 Engr. Salman Rashid Al Fannah Al Araimi Member

5 Engr. Raiz Basheeruddin Member

Audit Committee Meetings:

During the year 2015, the Audit Committee held 6 meetings. The following table shows dates of the meetings and attendance details:

Sl #

Name of the members of the committee

1st 2nd 3rd 4th 5th 6th 05-03-

15 07-05-

15 11-06-

15 09-08-

15 08-11-

15 17-12-

15

1 Dr Hatem Al Shanfari √ √ √ X √ √

2 Ms. Khulood Mohamed Rashid Al Fannah Al Araimi √ √ √ X √ √

3 Mr. Hamad Mohammad Al Wahaibi √ √ √ √ X √

4 Eng. Salman Rashid Abdullah Al Fannah Al Araimi √ √ √ √ √ √

5 Mr. Raiz Basheeruddin √ √ √ √ √ √

Human Resource Committee: The Human Resources Committee (HR Committee) consists of 4 members. The roll of HR Committee is to assist the Board in fulfilling its oversight responsibilities on HR matters and to reorganize and restructure the Human Resources Unit in order to enhance organizational effectiveness. The committee also reviews from time to time the systems, regulations and policies of the HR Unit of the company.

Name of members of the committee Designation

Ms. Khulood Mohamed Rashid Al Fannah Al Araimi Chairperson

Engr. Salman Rashid Al Fannah Al Araimi Member

Mr. Hamad Mohamed Al Wahaibi Member

Engr. Mohiuddin Mohamad Ali Member

HR Committee Meetings:

During the year 2015, the HR Committee held 5 meetings. The following table shows dates of the meetings and attendance details:

Sr. No.

Name of Director & Representative

1st 2nd 3rd 4th 5th

10-Feb-15

18-Mar-15

15-Apr-15

08-Jun-15

07-Sep-15

1 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi √ √ √ √ √

2 Engr. Salman Rashid Al Fannah Al Araimi √ √ √ √ √

3 Mr. Hamad Mohamed Al Wahaibi √ √ √ √ √

4 Engr. Mohiuddin Mohamad Ali √ √ √ √ √

Procurement Committee

The Board of Directors, on 11 November 2015, formed a Procurement Committee to assists the board in overseeing the management of procurement process and practices. The Committee consists of 4 members chaired by Mr. Hamad Mohammed Hamood Al Wahaibi and membership of Engr. Mohiuddin Mohamad Ali and Ms. Khulood Mohammed Rashid Al Fannah Al Araimi. The committee which was formed in November 2015 didn’t hold a meeting during 2015. Procedure for Standing as a Candidate for the Board: The right to stand as a candidate for membership of the Board of Directors of the Company is open to shareholders and non-shareholders who satisfies the legal requirements provided for in the Commercial Company Law 1974 as amended, the Articles of Associations of the Company and principles of the Code of Corporate Governance.

In case of a shareholder, whether in personal capacity or representing a juristic person, he must have a minimum equity of not less than 10000 shares.

Key Management Remuneration: Total remuneration during the financial year 2015 to top Management (top 5) was RO 548,664/- Compliance with Rules and Regulations:

The Company has been following the applicable rules and regulations issued by MSM, CMA

and those stipulated in the Commercial Companies Law 1974 as amended and Articles of Association of the Company.

Communication with Shareholders and Investors:

The company maintains good communication relations with the shareholders and Investors and responds as much as possible to their queries and requests in line with the disclosures rules. The company, during the period, conducted several phone interviews with financial analysts and investors and held press conference on 09 June 2015. The company publishes its un-audited financial results in the newspapers on a quarterly basis and the audited financial statements annually. Detailed financial statements are sent to shareholders on request. The company posts its quarterly and annual results on MSM website, and also on the Company’s website: www.galfar.com. All the Company’s announcements are posted on MSM’s website.

The Management discussions and analysis report forms an integral part of the Annual Report.

Statement on Market Price and distribution of Holdings:

Market High/Low price during each month of 2015 Sr. No. Month High Low Closing

1 January-15 0.198 0.145 0.172 2 February-15 0.183 0.144 0.159 3 March-15 0.160 0.116 0.124 4 April-15 0.142 0.125 0.128 5 May-15 0.133 0.120 0.120 6 June-15 0.140 0.121 0.122 7 July-15 0.137 0.119 0.121 8 August-15 0.122 0.084 0.103 9 September-15 0.106 0.091 0.092

10 October-15 0.102 0.083 0.086 11 November-15 0.088 0.073 0.074 12 December-15 0.077 0.069 0.070

http://www.galfar.com.

Distribution of Ownership of Shares shareholders (Including Shares preferential voting rights) 2015

Sr. No. Category

No. of Sharehol

ders

No. of Shares

% of Shareholdin

g

1 Less than 5% 4,717 140,563,045 33.85

2 5% to 10% 2 51,442,431 12.39

3 Above 10% 4 223,210,161 53.76

Total 4,723 415,215,637 100.00

Distribution of ownership of shares between shareholders (Including Shares having preferential voting rights) There are no Securities / Convertible Financial Instruments as on the Balance Sheet date which will have an impact on the Shareholders’ equity. Profile of the Statutory Auditors PwC is a global network of firms operating in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, tax and advisory services. PwC also provides corporate training and professional financial qualifications through PwC's Academy.

Established in the Middle East for over 40 years, PwC Middle East has firms in Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and the United Arab Emirates, with around 3,000 people. (www.pwc.com/me).

PwC has been established in Oman for over 40 years and the Firm comprises 3 partners, including one Omani national, and over 140 professionals and support staff. Expert assurance, tax and advisory professionals are able to combine internationally acquired specialist consulting and technical skills with relevant local experience.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

.

http://www.pwc.com/me).

http://www.pwc.com/structure

Audit fees of the Company and Subsidiaries:

In addition to the below stated fees, the Company has paid RO. 600/- towards participation fee for the Company’s delegates to attend a seminar on International Financial Reporting Standards, organized by PricewaterhouseCoopers LLP. The Company has also paid RO. 4,200/- during the year as fee towards their professional services rendered for issuing various tenders related certificates in their capacity as the statutory auditors of the Company.

Audit Fees of Company and Subsidiaries and fees for other services paid to the Auditors for 2015 Sr. No. Particulars Amount

(In RO)

1 Statutory Audit Fees (Parent) 39,000

2 Statutory Audit Fees Al Khalij Heavy Equipment & Engineering LLC (Subsidiary) 2,750

3 Statutory Audit Fees Galfar Training Institute LLC (Subsidiary) 1,700

4 Statutory Audit Fees Galfar Engineering & Contracting India Pvt. Ltd (Subsidiary) 1,287

5 Statutory Audit Fees Aspire Projects & Services LLC (Subsidiary) 2,300

6 Statutory Audit Fees Galfar Aspire Readymix LLC (Subsidiary) 2,200

7 Statutory Audit Fees Salasar Highways Pvt. Ltd. (Subsidiary) 878

8 Statutory Audit Fees Kashipur Sitarganj Highways Pvt. Ltd. (Subsidiary) 878

The Board of Directors acknowledges as at December 31, 2015:

The Board of Directors acknowledges:

With its liability for the preparation of financial statements in accordance with the applicable standards and rules.

Review of the efficiency and adequacy of internal control systems of the Company and that it complies with internal rules and regulations. In order to enhance and strengthen the efficiency of the internal control systems, the Company has appointed a chief internal auditor and also recruited technical auditors in the Internal Audit Department.

That there is no material matter that affects the continuation of the Company and its ability to continue its production and operations during the next financial year.

Salim Said Hamed Al Fannah Al Araimi Chairman

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ManagementDiscussionandAnalysisReport2015

GCC and Omani market context in 2015

Economic growth in the GCC region slowed down in 2015 driven by the sharp drop in oil prices. Price per barrel halved over the past 18 months and wiped out estimated OMR 140 bn of export earnings. This situation required Governments to increasingly focus on diversifying revenues, selectively reduce public spending and utilizing their reserves. The region continued to expand through fiscal deficits.

Oman Budget 2015 was aimed towards driving and sustaining growth and economic diversification. Despite the decline in oil prices and its potential adverse effect on the macro-economic environment, the country showed healthy GDP growth. According to IMF, GDP growth increased from 2.9% in 2014 to an estimated 4.4% in 2015. The Omani non-oil sector played a significant role in achieving this growth; rapid infrastructural developments paired with continued economic diversifications are among the key contributing factors. The GCC (and in the Sultanate) construction market has remained robust, driven partially by long-term mega projects. The Omani government remained instrumental in driving the construction sector thanks to its continued focus on economic diversification and its leading role in various development plans and initiatives. However competition intensified and the market became increasingly challenging putting pressure on local and regional construction players, impacting industry profitability and liquidity. Galfar performance overview in 2015

Galfar Engineering and Contracting SAOG maintained its position as one of the leading contracting companies in Oman with operations across the Sultanate and India, with a turnover of OMR 326 m. Galfar remains the largest employer of Omani nationals in the Private Sector.

Galfar’s objectives are always aligned with the policies of the Sultanate, with its core objective to satisfy its stakeholders and clients through committed efforts to deliver projects in time and in strict compliance with safety and quality standards.

The Company, including its subsidiaries, has recorded for the year 2015 turnover of OMR 345 m (2014: OMR 373 m) with after tax loss of OMR 29 m (2014: profit OMR 0.2 m). The parent company’s turnover for the year 2015 is OMR 326 m (2014: OMR 354 m) and incurred a loss after tax is OMR 29 m (2014: profit OMR 1.2 m). The loss was the result of a provision of OMR 32 million.

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This provision is for impairment of receivables and stock and is in line with International Financial Reporting Standards (IFRS) requirements and the Company's accounting policies. Out of the total provision amount, the major portion is a provision for the Muscat Expressway project and Central Corridor project. The provision was made in line with the offer made by Muscat Municipality. Galfar had received offers from Muscat Municipality together with draft supplemental agreements. The Board, after careful consideration, did not accept the client's proposal and decided to pursue recovery of the amount due to the company through the proper mechanism. These provisions are made without prejudice to the company's right to recover these dues through amicable settlement or arbitration proceedings.

Galfar recognizes the urgent need to significantly improve its operational and financial performance. In the second half of 2015, a detailed analysis on the market outlook and Galfar's current performance and capabilities were conducted and measures are now being taken to enhance performance (see section Galfar outlook and operational focus for 2016).

In 2015 a significant number of jobs have been completed. Amongst them are:

Ras al Hadd airport and phase 1 of Salalah airport

Five road projects

Hallaniyat port and road network

Nizwa water distribution network and four high end building projects

Four electrical grid stations

Galfar has five subsidiaries and three associates in operations. The performance of the subsidiaries is as follows: Galfar Engineering & Contracting India Pvt. Ltd., which is engaged in BOOT contracts in India, recorded a turnover of OMR 14 mln (2014: 16 mln) with profit after tax OMR 0.7

mln (2014: OMR 0.1 mln). Galfar Aspire Readymix LLC, which produces ready mix concrete, recorded a turnover of OMR 20 mln (2014: OMR 17 mln) with profit after tax OMR 1 mln (2014: OMR 1.1 mln). Aspire Projects and Services LLC which is a specialized engineering and services company had a turnover of OMR 3.3 mln (2014: OMR 3 mln) with profit after tax OMR 0.3 mln (2014: OMR 0.2 mln). Al Khalij Heavy Equipment & Engineering LLC which specializes in hiring out of equipment recorded a turnover of OMR 1.8 mln (2014: OMR 1.8 mln) with profit after tax OMR 0.1 mln (2014: OMR 0.1 mln). Galfar Training Institute LLC which specializes in the field of training Omanis in various

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trades recorded a turnover of OMR 0.3 mln (2014: OMR 0.9 mln) and incurred loss OMR 0.3 mln (2014: 0.1 mln).

Human Resources and Omanization

Galfar is committed to develop its resource and maintaining its Omanization targets. Omanization policies in the company are critical and directed towards development, performance and steady growth. Galfar aims to accomplish employee development through transparent and harmonious HR policies, and maintain a motivating work environment and retain talent. Our goal is to be seen as the employer of choice.

Quality, Health, Safety and Environment

The Company continues to maintain its certification to ISO 9001 (Quality), OHSAS 18001 (Health & Safety), ISO 14001 (Environment) standards and ISO 29001 (Petroleum & Petrochemical Sector specific standard).

The Company has worked 84.5 million man-hours and has driven 110.8 million kilometres collectively during year 2015, in projects across the country. In spite of exposure to such enormous amount of activities, Lost Time Injury Frequency (LTIF) of 0.17 recorded during the year is the lowest annual LTIF ever achieved by the company and is amongst the best in the industry.

The Company has also recorded several achievements in terms of man-hours worked without Lost Time Injury in projects / units. The significant ones are 50 million hours of Oil & Gas projects and 16 million man hours of Civil & Marine Infrastructure Unit.

The Management Review Committee chaired by the CEO with the participation of all Unit Heads is reviewing the HSEMS and QMS performance on a regular basis and initiating actions for continual improvement.

Oman economic outlook for 2016 Real GDP is forecasted to increase by 2.0% in 2016 (compared to 3.2% in 2015) due to lower oil revenues, austerity measures and lower regional trade. Oman’s 2016 budget proposes reduced oil price subsidies and increased corporate income taxes, with total budgeted expenditure for 2016 dropping to OMR 11.9 bln (11% lower than estimated actual spending in 2015). Public development spending is set to decrease by 18%, with non-core projects postponed. The Budget indicates that the Government is going ahead with the essential projects planned, in line with the strategic objectives, amongst others of becoming a regional logistics hub by 2020. If oil prices remain low for a prolonged period of time, it is expected

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that some investment plans will be delayed or cancelled, and that the government will further rely on external borrowings and tap into international debt markets.

Galfar outlook and operational focus for 2016

Building on its strong market position and its reputation for delivering high-quality construction projects across various sectors, Galfar has a confirmed healthy order book of around OMR 665 million as of today. Revenues for 2016 are expected to be at par or above 2015 levels despite an increasingly challenging market environment.

Several projects are seen to be in the pipeline and Galfar stands a good chance at winning some of them during the year 2016. The outlook to win additional projects is particularly promising in the oil and gas sector.

Operating profits in 2016 should see a healthy recovery. 2015 was adversely affected by a number of loss making projects, the majority of which have been completed last year.

During 2016 a holistic transformation program will be executed driving enhanced financial and operational performance. In this context, Roland Berger, a leading global strategy consultancy with a strong track record in operational, organizational and financial company transformation, has been appointed in December 2015.

Key building blocks of this program include organizational transformation and enhanced talent management, enhanced liquidity management and assets optimization, overhead cost reductions, productivity improvement and lean on-site execution, supply chain management optimization, and information technology transformation.

Beyond the core business, the outlook of subsidiaries is overall positive.

For example, Galfar Aspire Readymix LLC counts today ten batching plants at seven different locations compared to only one batching plant in 2011. In 2016, the company is expecting to increase production to 900,000m3 (+4.7%). Aspire Projects and Services LLC will continue focusing on providing specialized facilities management and engineering services.

The Indian operations of Galfar have a positive long-term outlook with significant value creation potential. In the very short-term funding is required.

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Risks

Risks remain an integral part of the construction business in the region.

The construction sector, and Galfar in particular, face the risk of higher cost of capital and increasingly difficult access to capital in the future. A deteriorating macro-economic environment might result in banks tightening their lending. This could affect the company's funding and might have broader repercussions on the country as a whole.

Galfar has a strong confirmed order book paired with a positive business development pipeline. However, an increasingly difficult macroeconomic context could cause clients to slow down or even stop ongoing projects and delay award of new projects.

A major risk is the delay of collecting outstanding payments. Construction companies have large concentrations of receivables and continue to deal with outstanding payments that are increasingly hard to collect.

Additionally, there lies a risk of delay in completion of jobs due to various external reasons like the long process to obtain government approvals, changes of scope and approval for variation orders. These factors are outside Galfar's control and can have significant negative impact on profitability.

The profitable delivery of projects relies on the right talent. Higher salaries in other countries in the Arabian Peninsula are driving away expatriate workforce and pose a risk to Galfar operations. At the same time, the construction sector is struggling in attracting qualified Omani nationals.

Our gratitude and commitment

Galfar salutes His Majesty Sultan Qaboos, who in the 46 years of his commendable rule has transformed Oman into a powerful modern economy in the region. Galfar shall endeavour to reach even higher standards of project delivery through continuous improvement in processes and wishes to lead by action in Omanization as a true Omani enterprise.

Hans Erlings Chief Executive Officer

Galfar Engineering & Contracting SAOG & Subsidiaries

Consolidated Statement of Financial Position As at 31 December 2015 Amount in RO '000s

Notes 2015 2014 2015 2014ASSETSNon-current AssetsProperty, plant and equipment 3 88,282 91,891 101,411 104,685 Intangible assets 4 760 1,131 29,307 19,225 Investment in subsidiaries 5 10,203 4,496 - - Investment in associates 6 8,706 8,706 3,899 4,861 Investment available for sale 125 125 145 145 Retentions receivables 9 30,507 30,816 30,539 30,896

138,583 137,165 165,301 159,812 Current AssetsInventories 7 13,353 21,131 15,055 22,379 Due from customers on contracts 8 59,547 67,557 59,985 68,743 Contract and trade receivables 9 195,944 213,162 207,828 225,927 Advances, prepayments and other receivables 10 23,936 22,094 28,839 21,532 Deposits with banks 11 1,258 1,293 1,263 1,324 Cash and cash equivalents 12 14,795 735 18,035 2,568

308,833 325,972 331,005 342,473 Total Assets 447,416 463,137 496,306 502,285 EQUITY AND LIABILITIES EquityShare capital 13 41,522 37,747 41,522 37,747 Share premium 14 18,337 23,370 18,337 23,370 Statutory reserve 15 13,840 12,582 14,093 12,835 Foreign currency translation reserve 16 - - (2,660) (1,859) Retained earnings 1,005 29,514 539 29,421

74,704 103,213 71,831 101,514 Non controlling interest - - 975 980 Total Equity 74,704 103,213 72,806 102,494 Non-current LiabilitiesTerm loans 18 60,658 68,202 74,947 73,588 Employees' end of service benefits 22 12,181 11,066 12,396 11,253 Advance payables 23 27,224 16,146 27,224 17,744 Deferred tax liability 24 1,325 6,039 1,924 6,638

101,388 101,453 116,491 109,223 Current LiabilitiesTerm loans -current portion 18 38,912 32,380 39,523 32,982 Short term loans 19 32,750 28,000 37,547 33,027 Bank borrowings 20 39,521 62,691 40,193 63,503 Trade payables 21 78,101 77,507 88,772 87,044 Other payables and provisions 23 81,108 56,720 96,867 70,159 Provision for taxation 24 932 1,173 4,107 3,853

271,324 258,471 307,009 290,568 Total Liabilities 372,712 359,924 423,500 399,791 Total Equity and Liabilities 447,416 463,137 496,306 502,285

Net Assets per share (RO) 32 0.180 0.273 0.173 0.269

____________________ ____________________Chairman Chief Finance Officer

The attached notes 1 to 39 are an intergral part of these consolidated financial statements.

The consolidated financial statements were approved by board of directors on 9 March, 2016 and were signed on their behalf by:

Consolidated Parent Company


Consolidated Statement of Comprehensive Income DRAFT

For the year ended 31 December 2015 Amount in RO '000s

Notes 2015 2014 2015 2014

Contract income 322,558 350,977 325,692 357,282

Sales and services income 25 3,412 2,982 19,542 15,228

Total revenue 325,970 353,959 345,234 372,510

Other income 26 3,422 3,012 3,422 3,039

Contract and other direct costs 27 (310,213) (335,465) (326,708) (350,070)

Gross Profit 19,179 21,506 21,948 25,479

General and administrative expenses 28 (9,799) (10,357) (11,275) (12,159)

Profit from operations before provision for impairment of receivables 9,380 11,149 10,673 13,320

Provision for impairment of receivables 9,10 (31,917) - (31,408) (660)

(Loss) / profit from operations after provision for impairment of receivables (22,537) 11,149 (20,735) 12,660

Financing costs, net 30 (8,555) (9,755) (9,402) (10,371) Share in loss of associates 6 - - (758) (1,366) Fair value loss on forex forward contracts 23 (1,229) - (1,229) - (Loss) / profit before tax (32,321) 1,394 (32,124) 923 Taxation 24 3,812 (185) 3,265 (726)

(28,509) 1,209 (28,859) 197

Other comprehensive income / (loss)

Item that may be subsequently reclassified to profit or loss:

Foreign currency translation difference - - (801) (71)

Total comprehensive (loss)/income for the year (28,509) 1,209 (29,660) 126

(Loss)/profit attributable to:

Equity shareholders of parent company (28,509) 1,209 (28,882) 169

Non-controlling interests - - 23 28

(28,509) 1,209 (28,859) 197

Basic earnings per share 31 (0.069) 0.003 (0.070) 0.001


Consolidated

(Loss) / profit for the year

Parent Company


Consolidated Statement of Cash FlowsFor the year ended 31 December 2015 Amount in RO '000s

2015 2014 2015 2014

Operating Activities

(32,321) 1,394 (32,124) 923 Adjustments for:

Depreciation on property, plant and equipment's 20,772 21,794 22,835 23,571 Amortisation of intangible assets 398 400 408 409 Finance cost 8,555 9,755 9,402 10,371 Share of loss of associates - - 758 1,366 Employees' end of service benefits 1,115 147 1,143 186 Gain on disposal of plant and equipment's (2,014) (1,549) (2,011) (1,555)

Working capital movements:Inventories 7,778 14,438 7,324 14,109 Trade and other receivables 23,386 (27,914) 19,550 (35,330) Trade and other payables 24,982 (12,784) 28,436 1,713 Retention receivables 309 1,430 357 1,350 Advance payables 11,078 6,696 9,480 8,294

Income tax paid (1,143) (1,049) (1,195) (331)

Net cash generated from operating activities 62,895 12,758 64,363 25,076 Investing ActivitiesPurchases of property, plant and equipment's (18,632) (5,025) (21,298) (9,708) Purchases of intangible assets (27) (15) (10,468) (18,099) Disposal of property, plant and equipment's 3,483 3,291 3,726 3,352 Investment in associates and subsidiaries (5,707) (2,556) (597) 146 Bank deposits 35 10,258 61 10,267 Interest income 85 98 85 110

Net cash (used in) / generated from investing activities (20,763) 6,051 (28,491) (13,932) Financing ActivitiesTerm loans (1,012) 23,807 7,900 28,740 Short term loans 4,750 (7,400) 4,520 (2,373) Bank borrowings (23,170) (25,022) (23,310) (26,745) Interest expenses (8,640) (9,853) (9,487) (10,481) Dividend paid - (3,775) (28) (3,809)

Net cash used in financing activities (28,072) (22,243) (20,405) (14,668)

Net increase/(decrease) in cash and cash equivalents 14,060 (3,434) 15,467 (3,524)

Cash and cash equivalents at beginning of the year 735 4,169 2,568 6,092 Cash and cash equivalents at end of the period 14,795 735 18,035 2,568


Parent Company Consolidated

(Loss)/profit before taxation


Statement of Changes in Equity -Parent CompanyFor the year ended 31 December 2015 Amount in RO '000s

Share Capital Share Premium

Statutory Reserve

Retained Earnings Total

Balance as at 1 January 2014 37,747 23,370 12,582 32,080 105,779

Comprehensive income:

Profit and total comprehensive income for the year - - - 1,209 1,209

Transcations with shareholders

Dividend paid - 2013 - - - (3,775) (3,775)

Balance as at 1 January 2015 37,747 23,370 12,582 29,514 103,213

Comprehensive loss:

Loss and total comprehensive loss for the year - - - (28,509) (28,509)

Transcations with shareholders

Transfer to statutory reserve (note 15) - (1,258) 1,258 - -

Stock dividend - 2014 (note 17) 3,775 (3,775) - - -

Total transactions with shareholders 3,775 (5,033) 1,258 - -

Balance as at 31 December 2015 41,522 18,337 13,840 1,005 74,704


Attributable to equity holders of the parent company


Statement of Changes in Equity -Consolidated For the year ended 31 December 2015 Amount in RO '000s

Share Capital

Share Premium

Statutory Reserve

Foreign Currency

Translation

Retained Earnings Total Grand

Total

Balance at 1 January 2014 37,747 23,370 12,888 (1,788) 32,978 105,195 986 106,181

Comprehensive income:

Profit for the year - - - - 169 169 28 197

Other comprehensive income:

Foreign currency translation reserve - - (71) - (71) - (71)

Total comprehensive income for the year - - - (71) 169 98 28 126

Transactions with shareholders

Adjustment of earlier year in subsidiary companies - - (115) - 111 (4) - (4)

Transfer of statutory reserve - - 62 - (62) - - -

Dividend paid - 2013 - - - - (3,775) (3,775) (34) (3,809) Total transactions with shareholders - - (53) - (3,726) (3,779) (34) (3,813) Balance as at 1 January 2015 37,747 23,370 12,835 (1,859) 29,421 101,514 980 102,494 Comprehensive loss:Loss for the year - - - - (28,882) (28,882) 23 (28,859)

Other comprehensive income:Foreign currency translation reserve - - - (801) - (801) - (801) Total comprehensive loss for the year - - - (801) (28,882) (29,683) 23 (29,660)

Transactions with shareholders Transfer to statutory reserve (note 17) - (1,258) 1,258 - - - - - Stock dividend - 2014 (note 15) 3,775 (3,775) - - - - - - Dividend paid - 2014 (note 15) - - - - - - (28) (28) Total transactions with shareholders 3,775 (5,033) 1,258 - - - (28) (28) Balance as at 31 December 2015 41,522 18,337 14,093 (2,660) 539 71,831 975 72,806


Attributable to equity holders of the parent companyNon

controlling interest


Notes to Consolidated Financial StatementsAs at 31 December 2015

1. Activities

Galfar Engineering and Contracting SAOG (“the parent company”) is an Omani joint stock company registered under the Commercial Companies Law ofthe Sultanate of Oman and listed on the Muscat Security Exchange.

The principal activities of Galfar Engineering and Contracting SAOG and its subsidiaries (“the group”) are road, bridge and airport construction, oil and gasincluding EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts and Design, Build,Finance , Operate and Transfer (DBFOT) projects.

2. Significant Accounting Policies

Basis of preparationThese consolidated financial statements are prepared on the historical cost basis, as modified by the revaluation of derivative financial instruments at fairvalue through statement of comprehensive income , available-for-sale financial assets that have been measured at fair value and in accordance withInternational Financial Reporting Standards (IFRS) and the IFRS Interpretations committee(IFIC) appplicable to companies reporting under IFRS, therequirements of the Commercial Companies Law of the Sultanate of Oman, 1974 (as amended) and comply with the disclosure requirements set out inthe ‘Rules and Guidelines on Disclosure by issuer of Securities and Insider Trading’ issued by the Capital Market Authority (CMA) of the Sultanate ofOman.

The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect thereported amount of assets and liabilities at the date of the financial statements and the resultant provisions and changes in fair value for the year. Suchestimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment and uncertaintyand actual results may differ from management’s estimates resulting in future changes in estimated assets and liabilities. The assumptions concerningthe key sources of estimation uncertainty at the reporting date are set out in note 38.

These consolidated financial statements have been presented in Rial Omani which is the functional and presentation currency for these consolidatedfinancial statements and all values are rounded to nearest thousand (RO '000) except when otherwise indicated.

Going concern

During the year ended 31 December 2015 the group incurred a loss of RO 28,859 (2014 - profit of RO 197) thousands. As at that date the retainedearnings amounted to RO 539 (2014 - RO 29,421) thousands. The Board of Directors are committed to take necessary measures to strengthen thefinancial position of the Group to ensure that the Group becomes profitable. The parent company has taken necessary steps to strengthen the company’sfinancial position and has mandated Oman Arab Bank as Issue Manager for convertible bonds or any other instrument. Further to support the company’sBusiness Plan for the coming years, the Company has decided to appoint a Lead Financial Advisor for financial re-engineering as well as to arrangenecessary banking facilities including term loans. A leading global strategy consultancy, Roland Berger, with strong track record in operational,organizational and financial company transformation has been also appointed with a long-term mandate to achieve a sustainable improvement in thecompany's financial performance and operational efficiency. A holistic transformation program has been initiated to drive sustainable profitability. Keybuilding blocks of this process include organizational transformation and enhanced talent management, enhanced liquidity management and assetsoptimisation, overhead cost reductions, productivity improvement and lean on-site execution, supply chain management optimisation, and ITtransformation.

The Parent Company has been profitable in the past and has a dividend paying history. The parent company has never defaulted in servicing its lenders.Though at the reporting date, there were certain breach of covenants with two banks (as referred in note 18), the company continues enjoying adequateongoing banking facilities. The group is committed to meeting all the loan repayment obligations as they fall due. The parent company regularly pays itsemployees and creditors and not defaulted in tax payment. Building on the company's strong market position as Oman's largest construction entity andhaving a strong order book, the business in year 2016 is expected to be better than previous year levels despite an increasingly challenging marketenvironment.

Change in accounting policy and disclosuresThe accounting policies are consistent with those used in the previous financial year.

Standards and amendments effective in 2015 and relevant for the group’s operations:

For the year ended 31 December 2015, the group has adopted all of the new and revised standards and interpretations issued by the InternationalAccounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to itsoperations and effective for periods beginning on 1 January 2015.

The adoption of these standards and interpretations has not resulted in changes to the group’s accounting policies and has not affected the amountsreported in the consolidated financial statements.



Basis of preparation (continued)Change in accounting policy and disclosures (continued)

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the group’s accountingperiods beginning on or after 1 January 2016 or later periods, but the group has not early adopted them and the impact of these standards andinterpretations is not reasonably estimable as at 31 December 2015:

IFRS 9, ‘Financial instruments’, (effective on or after 1 January 2018);IFRS 15, ‘Revenue from contracts with customers’ (effective on or after 1 January 2018); andIFRS 16, ‘Leases’ (effective on or after 1 January 2019)

The significant accounting policies adopted by the group are as follows:

Basis of consolidationThe consolidated financial statements comprise those of Galfar Engineering and Contracting SAOG, its subsidiaries and its associates as at closing ofeach year. A subsidiary is a company in which the group controls an entity when the group is exposed to, or has rights to, variable returns from itsinvolvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

The subsidiary is consolidated from the date on which control is transferred to the group and ceases to be consolidated from the date on which control istransferred out of the group.

The financial statements of the subsidiary are prepared for the same reporting period as the parent company using consistent accounting policies.Adjustments are made to bring into line any dissimilar accounting policies which may exist.

All intercompany balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated.

A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.

Losses are attributed to the non-controlling interest even if that results in a deficit balance.

If the group loses control over a subsidiary, it:• Derecognises the assets (including goodwill) and liabilities of the subsidiary• Derecognises the carrying amount of any non-controlling interests• Derecognises the cumulative translation differences, recorded in equity• Recognises the fair value of the consideration received• Recognises the fair value of any investment retained• Recognises any surplus or deficit in profit or loss• Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit

In the parent company’s separate financial statements, the investment in the subsidiary is carried at cost less impairment.

Business combinations and goodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the considerationtransferred, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination,the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.Acquisition costs incurred are expensed and included in administrative expenses.

When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordancewith the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embeddedderivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree isremeasured to fair value at the acquisition date through statement of comprehensive income.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair valueof the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as achange to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled withinequity.



2. Significant Accounting Policies (continued)

Business combinations and goodwill (continued)

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controllinginterest, over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of thesubsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired ina business combination is, from the acquisition date, allocated to each of the group’s cash-generating units that are expected to benefit from thecombination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed off,the goodwill associated with the operationdisposed off is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in thiscircumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Changes in ownership interests in subsidiaries without change of control:Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with theowners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value ofnet assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Disposal of subsidiaries:Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with theowners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value ofnet assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Investments in associatesThe group’s investments in its associates are accounted for under the equity method of accounting. In the parent company's separate financialstatements, the investment in an associate is carried at cost less impairment. An associate is an entity in which the group has significant influence andwhich is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post- acquisition changes in thegroup’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment. After application of theequity method, the group determines whether it is necessary to recognise any additional impairment loss with respect to the group’s net investment in theassociate. The statement of comprehensive income reflects the share of the results of operations of the associate. Where there has been a changerecognised directly in the equity of the associate, the group recognises its share of any changes and discloses this, when applicable, in the statement ofchanges in equity. Profits and losses resulting from transactions between the group and the associate are eliminated to the extent of the interest in theassociate.

The financial statements of the associates are prepared for the same reporting period as the parent company using consistent accounting policies.Adjustments are made to bring into line any dissimilar accounting policies which may exist.

Property, plant and equipment All items of property, plant and equipment held for the use of group’s activities are recorded at cost less accumulated depreciation and any identifiedimpairment loss. Land is not depreciated. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced atintervals, the group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspectionis performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All otherrepair and maintenance costs are recognised in the statement of comprehensive income as incurred.

Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, on thefollowing bases:

Buildings 15 yearsCamps 4 yearsPlant and machinery 7 & 10 years Motor vehicles and heavy equipment 7 & 10 yearsFurniture and office equipment 6 yearsProject equipment and tools 6 years

Items costing less than RO 100 are expensed out in the year of purchase.




Property, plant and equipment (continued)The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end. Where the carrying value of an asset isgreater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposalproceeds and the carrying amount of the asset is recognised in the statement of comprehensive income when the asset is derecognised.

Capital work in progress Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less anyrecognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for theirintended use.

Intangible assets Computer software:Computer software costs that are directly associated with identifiable and unique software products and have probable economic benefits exceeding thecosts beyond one year are recognised as an intangible asset. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads. Computer software costs recognised as an asset are amortised using the straight-line method over the estimated useful life of fiveyears.

Concessionaire rights:Concessionaire rights arising from Design, Build, Finance, Operate and Transfer (DBFOT) road projects are shown at historical cost. These have a finiteuseful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of intangibleassets over their estimated lease period and is recognised in the statement of comprehensive income.

Available-for-sale investments Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, subsequently carried at fair value.Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonably estimatingfair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment. Changes in fair value are reported as othercomprehensive income.

An assessment is made at each reporting date to determine whether there is objective evidence that an investment may be impaired. If such evidenceexists, any impairment loss (being the difference between cost and fair value, less any impairment loss previously recognised) is removed from othercomprehensive income and recognised in the income statement.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises purchase price and all direct costs incurred in bringing the inventoriesto their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling priceless all estimated costs to be incurred in marketing, selling and distribution. Provision is made where necessary for obsolete, slow moving and defectiveitems.

Impairment of non-financial assetsAt each reporting date, the group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have sufferedan impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss,if any. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups ofassets.

The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and isrecognised immediately in the statement of comprehensive income.




Impairment of non-financial assets (continued)An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist ormay have decreased. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of itsrecoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed thecarrying amount that would have been determined, had no impairment loss been recognised earlier.

At the time of assessing the impairment on its investments in associates, the group determines, after application of the equity method, whether it isnecessary to recognise an additional impairment loss of the group’s investment in its associates. The group determines at each reporting date whetherthere is any objective evidence that the investment in associate is impaired. If this is the case the group calculates the amount of impairment as being thedifference between the fair value of the associate and the acquisition cost and recognises the amount in the statement of comprehensive income.

Financial instruments Financial assets and financial liabilities are recognised on the group’s statement of financial position when the group becomes a party to the contractualprovisions of the instrument.

The principal financial assets are trade and other receivables, term deposits, available for sale investments and cash and bank balances. The principal financial liabilities are trade payables, liabilities against finance leases, term loans, bank borrowings,overdrafts and advaces from clients.

Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of derivative instruments are recognised immediately in the statement of comprehensive income.

Trade and other receivablesTrade receivables are amounts due from customers for billing in the ordinary course of business for construction contracts. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

Term depositsTerm deposits are carried in the statement of financial position at amortised cost using the effective interest method.

Cash and cash equivalentsFor the purpose of the cash flows statement, the group considers cash on hand and bank balances with a maturity of less than three months from the dateof placement as cash and cash equivalents.

Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payableare classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they arepresented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Interest-bearing loans and borrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using theeffective interest method. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liabilityfor at least 12 months after the reporting date.

Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to getready for its intended use or sale are capitalised as part of the cost of the respective assets until such time as the assets are substantially ready for theirintended use. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs inconnection with the borrowing of funds.




LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfillmentof the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitionalrequirements of IFRIC 4.

Group as a lesseeFinance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at thecommencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments areapportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are recognised in the statement of comprehensive income.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the group will obtain ownership by the endof the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Derecognition of financial assets and liabilitiesA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:The rights to receive cash flows from the asset have expired; orThe group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full withoutmaterial delay to a third party under a ‘pass-through’ arrangement; and either:The group has transferred substantially all the risks and rewards of the asset, or The group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability isreplaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchangeor modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference between the fair value of newliability and the carrying value of exsisting liability is recognised in the statement of comprehensive income.

Impairment of financial assetsThe group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financialasset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is objective evidence of impairment as a result ofone or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimatedfuture cash flows of the financial asset or group of financial assets that can be reliably estimated.

Impairment is determined as follows:(a) For available for sale assets carried at fair value, impairment is the difference between cost and fair value;(b) For assets carried at cost, impairment is the difference between cost and the present value of future cash flows discounted at the weighted avereageof cost of capital.(c) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted atthe original effective interest rate.

OffsettingFinancial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legallyenforceable right to set off the recognised amounts and the group intends to either settle on a net basis, or to realise the asset and settle the liabilitysimultaneously.




ProvisionsProvisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or constructive obligationas a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operatinglosses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class ofobligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligationsmay be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the risks specific to the obligation.

Provision for employees’ benefits Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.

End of service benefits are accrued in accordance with the terms of employment of the group's employees at the reporting date, having regard to therequirements of the applicable labour laws of the countries in which the group operates and in accordance with IAS 19. Employee entitlements to annualleave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of servicesrendered by employees up to the reporting date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosedas a non-current liability.

Dividend on ordinary sharesDividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the company’s shareholders.

Taxation Current income taxTaxation is provided based on relevant laws of the respective countries in which the group operates. Current income tax assets and liabilities for thecurrent and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The current income tax charge iscalculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the companiessubsidiaries and associates operate and generate taxable income

Deferred taxationDeferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply tothe period when the asset is realised or the liability is settled, based on laws that have been enacted at the reporting date.

Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused tax losses to theextent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assetsand unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting dateand are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to theunderlying transaction either in other comprehensive income or directly in equity.




Contract revenue recognition A construction contract is defined by IAS 11 as a contract specifically negotiated for the construction of an asset.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred thatare likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable,contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expectedloss is recognised as an expense immediately. Contract revenue corresponds to the initial amount of revenue agreed in the contract and any variations incontract work, claims and incentive payments to the extent that it is probable that they will result in revenue, and they can be reliably measured.

A variation is included in contract revenue when:(a) it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and (b) the amounts of revenue can be reliably measured.

Claims are included in contract revenue only when:(a) negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and (b) the amount that it is probable will be accepted by the customer can be measured reliably.

Incentive payments are included in contract revenue when:(a) the contract is sufficiently advanced that it is probable that the specified performance standards will be met or exceeded; and (b) the amount of the incentive payment can be measured reliably.

The company uses the ‘percentage of completion method’ to determine the appropriate amount to recognise in a given period. The stage of completion ismeasured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract. Costs incurred inthe year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented asinventories, prepayments or other assets, depending on their nature.

Contract work in progressWork in progress on long term contracts is calculated at cost plus attributable profit, to the extent that this is reasonably certain after making provision forcontingencies, less any losses foreseen in bringing contracts to completion and less amounts received and receivable as progress payments. These aredisclosed as 'Due from customers on contracts'. Cost for this purpose includes direct labour, direct expenses and an appropriate allocation of overheads.For any contracts where receipts plus receivables exceed the book value of work done, the excess is included as ' Due to customers on contracts' inaccounts payable and accruals.

Sales and service incomeRevenue from sales of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount ofrevenue can be measured reliably.

Revenue from rendering of services is recognised when the outcome of the transaction can be estimated reliably, by reference to the stage of completionof the transaction at the reporting date.Contract costsContract costs include costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocated tothe contract. Costs that relate directly to a specific contract comprise: site labour costs (including site supervision); costs of materials used in construction;depreciation of equipment used on the contract; costs of design, and technical assistance that is directly related to the contract.

The Group’s contracts are typically negotiated for the construction of a single asset or a group of assets which are closely interrelated or interdependent interms of their design, technology and function. In certain circumstances, the percentage of completion method is applied to the separately identifiablecomponents of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.

Contract costs are recognised as expenses by reference to the stage of completion of the contract activity at the end of the reporting period. When it isprobable that total contract cost exceed total contract revenue the expected loss is recognised as expense immediately.




Interest incomeInterest income and expense are accounted for on an accrual basis using the effective interest rate method.

Dividend incomeDividend income is recognised when the right to receive the dividend is established.

Directors’ remuneration The Parent Company follows the Commercial Companies Law 1974 (as amended), and other latest relevant directives issued by CMA, in regard todetermination of the amount to be paid as Directors’ remuneration. Directors’ remuneration is charged to the statement of comprehensive income in thesucceeding year to which they relate after its approval in AGM.

Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, netof tax, from the proceeds.Where any group company purchases the company’s equity share capital (treasury shares), the consideration paid, including any directly attributableincremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued.Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and therelated income tax effects, is included in equity attributable to the company’s equity holders.

Foreign currency translationEach entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using thatfunctional currency. Items included in the financial statements of the company are measured and presented in Rials Omani being the currency of theprimary economic environment in which the parent company operates.

Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to thestatement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using theexchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.

Group companiesThe results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into thepresentation currency as follows:- assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet- income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless thisis not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses aretranslated at the dates of the transactions), and- all resulting exchange differences are recognised in other comprehensive income.

Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors. A segment is a distinguishablecomponent of the group that is engaged in providing products or services (business segment) or in providing products or services within a particulareconomic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The segmentinformation is set out in note 35.


3. Property, plant and equipment - Parent Company Amount in RO '000s

Particulars Land Building & Camps

Plant & Machinery

Motor Vehicles & Equipment

Furniture & Equipment's

Project Equipment

& Tools

Capital Work-in- Progress Total

CostsAt 1 January 2014 1,278 33,404 127,694 74,999 14,584 15,055 - 267,014 Additions 772 2,076 1,508 401 252 16 5,025 Disposals/writtenoff - (2,040) (8,055) (6,525) (5,443) (6,888) - (28,951) Transfers - 212 315 - (1,386) 670 (189)

At 1 January 2015 1,278 32,348 122,030 69,982 8,156 9,089 16 242,899 Additions 750 7,480 9,400 578 430 (6) 18,632 Disposals - (147) (4,297) (6,251) (56) (2) - (10,753) Transfers - 10 (10) - At 31 December 2015 1,278 32,951 125,213 73,141 8,678 9,517 - 250,778

Depreciation

At 1 January 2015 - 19,400 73,742 44,825 6,603 6,438 - 151,008 Charge for the year - 1,696 11,100 6,448 514 1,014 - 20,772 Disposals - (144) (3,651) (5,431) (56) (2) - (9,284) Transfers - - At 31 December 2015 - 20,952 81,191 45,842 7,061 7,450 - 162,496

Net book valueAt 31 December 2015 1,278 11,999 44,022 27,299 1,617 2,067 - 88,282

At 31 December 2014 1,278 12,948 48,288 25,157 1,553 2,651 16 91,891


3. Property, plant and equipment - Consolidated Amount in RO '000s

Description Land Building & Camps

Plant & Machinery

Motor Vehicles & Equipment

Furniture & Equipment's

Project Equipment

& Tools

Capital Work-in- Progress Total

CostsAt 1 January 2015 1,278 32,517 136,012 76,752 8,613 9,306 383 264,861 Additions - 750 8,688 10,758 653 451 (2) 21,298 Disposals - (147) (4,669) (6,420) (71) (11) - (11,318) Transfers - - 15 10 22 - (74) (27) At 31 December 2015 1,278 33,120 140,046 81,100 9,217 9,746 307 274,814

DepreciationAt 1 January 2015 - 19,459 80,070 47,383 6,787 6,473 - 160,172 Charge for the year - 1,708 12,428 7,118 552 1,029 - 22,835 Disposals - (145) (3,916) (5,481) (59) (3) - (9,604) Transfers - - (13) - 13 - - - At 31 December 2015 - 21,022 88,569 49,020 7,293 7,499 - 173,403

Net book value

At 31 December 2015 1,278 12,098 51,477 32,080 1,924 2,247 307 101,411

At 31 December 2014 1,278 13,058 55,942 29,369 1,822 2,833 383 104,685


Notes to Consolidated Financial StatementsAs at 31 December 2015 Amount in RO '000s

2015 2014 2015 2014

3. Property, plant and equipment (continued)

Depreciation of property, plant and equipment is allocated as follows:Contract costs (note 27) 19,445 20,402 21,479 22,149

General and administrative expenses (note 28) 1,327 1,392 1,356 1,422

20,772 21,794 22,835 23,571

4. Intangible assetsCostsBalance at beginning of the year 2,689 2,693 20,793 2,713 Addition for the year 27 15 10,468 18,099 Written off - (208) - (208) Transfer from property,plant and equipment - 189 27 189 Balance at end of the year 2,716 2,689 31,288 20,793

AmortisationBalance at beginning of the year 1,558 1,179 1,568 1,180 Charge for the year 398 400 408 409 Written off - (208) - (208) Transfer from property, plant and equipment - 187 5 187 Balance at end of the year 1,956 1,558 1,981 1,568

Net book value at end of the year 760 1,131 29,307 19,225

The intangible assets of the parent company comprise of the computer soft ware.The intangible assets of the group comprise of the computer soft ware and concessionaire rights under development as follows:

2015 2014 2015 2014CostsBalance at beginning of the year 2,744 2,713 18,049 - Addition for the year (Refer note 5(1)) 34 50 10,434 18,049Written off - (208) - - Transfers 27 189 - - Balance at end of the year 2,805 2,744 28,483 18,049

Amortisation

Balance at beginning of the year 1,568 1,180 - - Charge for the year 408 409 - - Written off - (208) - - Transfers 5 187 - - Balance at end of the year 1,981 1,568 - - Net book value at end of the period 824 1,176 28,483 18,049

5. Investment in subsidiariesGalfar Engineering & Contracting India Pvt. Ltd. 4,552 1,595 - - Galfar Aspire Readymix LLC 2,898 148 - - Salasar Highways Pvt. Ltd. 1,276 1,276 - - Al Khalij Heavy Equipment & Engineering LLC 600 600 - - Kashipur Sitarganj Highways Pvt. Ltd. 307 307 - - Aspire Projects & Services LLC 200 200 - - Galfar Mott MacDonald LLC 163 163 - - Galfar Training Institute LLC 149 149 - - Galfar Wasen Contracting Company 58 58 - -

10,203 4,496 - -

Capital work-in-progress represents a building under construction in a subsidiary company.


Land and buildings with a net book value of RO 10,820 (2014: RO 11,674) thousands have been mortgaged in favour of the Bankagainst term loan obtained by the parent company. Vehicles and equipment have been jointly registered with bank / finance companiesfor insured value of RO 181,420 (2014: RO 121,958) thousands to obtain term loan. (note 18)

Computer soft ware Concessionaire rights under development



2015 2014 2015 2014 Parent Company Consolidated

5. Investment in subsidiaries (continued)

Information on principal activities and shareholding is summarised below:Place and year of incorporation

Galfar Engineering & Contracting India Pvt. Ltd. Construction India 2009Galfar Aspire Readymix LLC Manufacturing Oman 2012Salasar Highways Pvt. Ltd. (i) Concessionaire India 2013

Al Khalij Heavy Equipment & Engineering LLC Hiring Equipment's Oman 2006Kashipur Sitarganj Highways Pvt. Ltd. (i) Concessionaire India 2013Galfar Training Institute LLC Training Oman 2009Aspire Projects & Services LLC Construction Oman 2011Galfar Mott MacDonald LLC EPC consultancy Oman 2013Galfar Wasen Contracting Company Construction Libya 2010

Galfar Engineering & Contracting India Pvt. Ltd. 100% 100% 100% 100%Galfar Aspire Readymix LLC (ii) 100% 99% 100% 100%Salasar Highways Pvt. Ltd. (i) 20% 24% 100% 100%Al Khalij Heavy Equipment & Engineering LLC 52% 52% 52% 52%Kashipur Sitarganj Highways Pvt. Ltd. (i) 4% 9% 100% 100%Galfar Training Institute LLC 99% 99% 100% 100%Aspire Projects & Services LLC 100% 100% 100% 100%Galfar Mott MacDonald LLC 65% 65% 65% 65%Galfar Wasen Contracting Company 65% 65% 65% 65%

6. Investment in associatesGalfar Engineering & Contracting Kuwait KSC (GEC) (i) 5,323 5,323 2,598 2,590 Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 2,255 2,255 (771) (710) Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 739 739 1,264 1,427 Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 344 344 1,659 2,010 International Water Treatment LLC (IWT) (iii) 45 45 (926) (456) Binani Aspire LLC (iv) - - 75 -

8,706 8,706 3,899 4,861

Principal activity

Shares acquired by parent company

Shares acquired by the group

(i) Salasar Highways Pvt. Ltd. and Kashipur Sitarganj Highways Pvt. Ltd., the two companies are incorporated in India as concessionaireto handle DBFOT road projects with total project costs at equivalent RO 37,750 thousands and RO 42,500 thousands respectively. Theprojects were awarded to the parent company in November, 2012 and are being executed by the subsidiary company Galfar Engineeringand Contracting India Pvt. Ltd. (GECIPL). The total investment in these companies made by the parent company and GECIPL is RO1,583 thousands (2014 - 1583 thousands ) and RO 11434 thousands (2014 - 7046 thousands) respectively . The construction of boththe projects are under progress and expected to be completed in year 2016.

(ii) During the year, Galfar Aspire Redimix LLC where the parent company now owns 100% of the issued share capital, has furtherissued shares amounting to RO 2,750 thousands (2014 - 100 Thousands) to the parent company.




6. Investment in associates (continued)

Information on principal activities and shareholding is summarised below: Place of incorporation

Year of incorporation

Galfar Engineering & Contracting Kuwait KSC (i) Construction Kuwait 2010Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) Concessionaire India 2010Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) Concessionaire India 2011Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) Concessionaire India 2011International Water Treatment LLC (IWT) (iii) Construction Oman 2013Binani Aspire LLC (iv) Manufacturing Oman 2015

Galfar Engineering & Contracting Kuwait KSC (i) 26% 26% 26% 26%Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 26% 26% 26% 26%Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 6% 6% 26% 26%Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 2% 2% 26% 26%International Water Treatment LLC (IWT) (iii) 30% 30% 30% 30%Binani Aspire LLC (iv) 0% 0% 50% 0%

The following table illustrates summarised information of the group’s investment in its associates:

Share of associate’s statement of financial position:Current assets 6,221 10,124 Non-current assets 51,593 54,543 Current liabilities (10,840) (12,139)

Non-current liabilities (43,075) (47,667) Net assets and carrying amount of the investment 3,899 4,861

Share of associate’s statement of income:Revenue 11,559 18,635 Costs of revenue 12,317 20,001 Loss for the year (758) (1,366)

(ii) The Group holds 26% shareholding in these companies incorporated in India to handle DBFOT road projects. The MTPL andGAEPL have commenced commercial activities in year 2011 and 2015 respectively while SJEPL project is still under construction.

Principal activity

Shares acquired by parent company

Shares acquired by the group

(i) The Group holds 26% shareholding in this company (earlier known as 'Shaheen Al Ghanim Contracting Co. KSC'). The company isengaged in construction activities.

(iii) The parent company have 30% shareholding in this company in partnership with VA Tech Wabag Ltd. of India and Cadagua SA ofSpain with 32.5% and 37.5% shareholding respectively. IWT has completed the construction of 'Al Ghubrah independent waterdesalination project' during the current year which is being executed by the parent company as one of the sub contractors.

(iv) This company is incorporated in the current year, where subsidiary company Galfar Aspire Readymix and Binani Cement, UAEholds 50% shareholding each. The company is yet to start any operation.

Loss for the period comprises of MTPL, India RO 16 (2014: RO 296) thousands, GAEPL, India RO 416 (2014: RO Nil) thousands,GEC,Kuwait 2015 Profit RO 144 (2014: Loss RO 584) thousands and IWT Oman Loss RO 470 (2014: RO 486) thousands.




6. Investment in associates (continued)

Statement of financial position:Current assets 8,173 10,919 99 219 Non-current assets 15,404 15,829 15,047 14,483 Current liabilities (6,654) (10,682) (1,721) (1,651) Non-current liabilities (6,932) (6,105) (16,390) (15,781) Net assets and carrying amount of the investment 9,991 9,961 (2,965) (2,730)

Reconciliation of carrying amount:Net assets at the beginning of the year 9,961 12,419 (2,730) (1,562) Profit / (loss) for the year 554 (2,242) (60) (1,138) Profit on self assets elimination - - (212) (42) Currency translation impact (524) (216) 37 13 Net assets at the end of the year 9,991 9,961 (2,965) (2,730) Group's share in % 26% 26% 26% 26%Carrying amount 2,598 2,590 (771) (710)

Statement of comprehensive income:Revenue 18,204 11,937 1,329 1,341 Costs of revenue (17,650) (14,179) (463) (2,744) Profit / (loss) before tax 554 (2,242) (866) (1,403) Taxation - - (926) (265) Profit / (loss) after tax 554 (2,242) (60) (1,138)

7. InventoriesMaterials and consumables 16,183 22,916 17,914 24,190 Less: allowance for non-moving inventories (2,830) (1,785) (2,859) (1,811)

13,353 21,131 15,055 22,379

Movement for the provisions for inventories is as follows:At the beginning of the year 1,785 451 1,811 477 Charged for the year 1,045 1,334 1,048 1,334 At the end of the year 2,830 1,785 2,859 1,811

The summarised financial information of two major associate companies are stated below -

GEC, Kuwait MTPL, India




8.Due from / (to) customers on Contracts

59,547 67,557 59,985 68,743

11,941 1,470 20,315 7,713

Due from customers on construction contracts:Revenue recognised at cost plus attributable profit 1,224,022 1,162,655 1,224,977 1,166,071 Less: Progress claims received and receivable (1,164,475) (1,095,098) (1,164,992) (1,097,328)

59,547 67,557 59,985 68,743

Due to customers on construction contracts:Progress claims received and receivable 109,418 154,627 137,892 181,117 Less: Revenue recognised at cost plus attributable profit (97,477) (153,157) (117,577) (173,404)

11,941 1,470 20,315 7,713

9. Contract and trade receivablesContract billed receivables 210,067 182,382 216,540 190,647 Trade receivables 2,021 1,491 7,426 5,951 Retention receivables - current 15,278 29,289 15,327 29,372 Less : provision for impaired receivables and retentions (31,422) - (31,465) (43)

195,944 213,162 207,828 225,927 Retentions receivables

Non-current portion 30,507 30,816 30,539 30,896

Movement on the provision for impairment of receivables and retentions are as follows:At beginning of year - - 43 43 Charge for the year 31,917 - 31,917 - Written off (495) - (495) - At end of year 31,422 - 31,465 43

10. Advances, prepayment and other receivablesAdvance on sub-contracts and supplies 3,147 5,316 6,464 6,468 Advances to employees 400 452 408 458 Income tax receivables - - 2,512 2,418 Prepaid expenses 5,163 4,139 5,265 4,247 Due from related parties (note 33) 13,804 11,024 11,555 7,570 Insurance claims receivable 905 606 906 606 Deposits 483 510 519 544 Other receivables 34 47 1,635 155 Less : provision for impaired advances - - (425) (934)

23,936 22,094 28,839 21,532

Movement on the provision for impairment of advances are as follows:At beginning of year - - 934 274 Charge/(reversal) for the year - - (509) 660 At end of year - - 425 934

11. Deposits with bankTerm deposits 1,258 1,293 1,258 1,293 Margin deposits - - 5 31

1,258 1,293 1,263 1,324

12. Cash and cash equivalentsCash in hand 330 204 365 223 Bank balances with current accounts 14,465 531 17,670 2,345

14,795 735 18,035 2,568

Work-in-progress on long term contracts at cost plus attributable profit considered as receivablesTo customers under construction contracts recorded as billings in excess of work done (note 23)

The term deposit carry interest rates of 1.0% to 2.0% (2014: 1% to 2%) per annum and are kept for a period more than three monthsfrom date of placement.




13. Share capitalAuthorised:

50,000 50,000 50,000 50,000 Issued and fully paid:Balance at beginning of the year 37,747 37,747 37,747 37,747 Bonus shares issued during the year 3,775 - 3,775 - Balance at end of the Year 41,522 37,747 41,522 37,747

14. Share premium

15. Statutory reserve

16. Foreign currency translation reserve

17. Dividend

500,000,000 (2014: 500,000,000) ordinary shares of parvalue RO 0.100 (2014: RO 0.100) each

The issued and fully paid share capital comprises of 415,215,637 (2014: 377,468,761) shares having a par value of RO 0.100 (2014:RO 0.100) each. Pursuant to the terms of its IPO, as detailed below, the share capital of the Company has been divided into two classescomprising of 289,980,637 (2014: 263,618,761) ordinary shares and 125,235,000 (2014: 113,850,000) preferential voting rights shares.The preferential voting rights shares are held by the promoting shareholders and carry two votes at all general meetings while otherwiseranking pari-passu with ordinary shares in all rights including the dividend receipt.

During the current year, the company has issued 37,747 thousands bonus shares to shareholders as stock dividend at 10% out of sharepremium account, for which RO 3,775 thousands are reduced from this account. In addition to this RO 1,258 thousands transferred tostatutory reserve account.

As required by the Commercial Companies Law of Oman, the statutory reserve is maintained at at least one third of the issued sharecapital.

During the current year, the company has transferred RO 1,258 thousands (2014 : Nil) , being one third of share capital addition, tostatutory reserve account from share premium account, in order to state the statutory reserve at one third of the revised issued capital.

Foreign currency translation reserve represents impact of translation of subsidiaries and associates financial statement figures in foreigncurrency to functional currency of the parent company as allowed under IAS 21.

For the year 2014, a stock dividend of 10% totaling to 37,747 thousands shares of RO 0.100 each was proposed out of share premiumaccount in the Board meeting on 7th March, 2015 and approved at Annual General Meeting of the parent company on 25th March, 2015.

For the year 2015, no dividend was proposed in the Board meeting held on 9 March, 2016.

This reserve is available for distribution to the shareholders.




18. Term loansTerm loans: - from banks 91,249 89,665 104,764 94,449 - finance companies 8,321 10,917 9,706 12,121

99,570 100,582 114,470 106,570 Current portion - from banks 35,061 28,108 35,399 28,342 - finance companies 3,851 4,272 4,124 4,640

38,912 32,380 39,523 32,982 Non-current portion - from banks 56,188 61,557 69,365 66,107 - finance companies 4,470 6,645 5,582 7,481

60,658 68,202 74,947 73,588

The term loans are repayable as follows:Within one year 38,912 32,380 39,523 32,982 In the second year 27,007 27,002 27,728 27,589 In the third onwards 33,651 41,200 47,219 45,999

99,570 100,582 114,470 106,570

The interest rates on term loans were as follows:

Floating rate loans LIBOR + 2.0% LIBOR + 2.0%Fixed interest rate loans 4.0% to 7.0% 4.25% to 7.0%

Bank 1- Minimum net worth of RO 85 million to be maintained with one of the commercial banks- Maximum gearing ratio to be maintained at 1.5Bank 2 '- Maximum leverage ratio to be maintained at 4.5 '- Maximum adjusted leverage ratio to be maintained at 6.5

19. Short term loans - from banks 32,750 28,000 37,547 33,027

20. Bank borrowings Bank overdrafts 3,937 6,950 4,609 7,762 Loan against trust receipts 14,684 48,491 14,684 48,491 Bills discounted 20,900 7,250 20,900 7,250

39,521 62,691 40,193 63,503

Bank short term loans are repayable in one year and are secured against the contract receivables assignments and/or joint registrationof vehicle/equipment. The interest rates on these loans vary between 4.0% to 4.5% (2014: 4.0% to 4.75%) per annum.

The long term loans are stated at amortised cost and amounts repayable within next twelve months have been shown as a currentliability. The term loans from banks are secured against the contract receivable assignments and/or joint registration ofvehicle/equipment/land mortgage. The term loans from finance companies are secured against the jointly registered vehicle/equipment.Also refer note 3 for land and buildings mortgaged in favour of a comemcial bank against term loan obtained by the company.

Current period Previous period

The long term portion of the respective term loans have been reclassified under short terms loans in accordance with IAS 1.

At 31 December 2015, the company is in breach of following financial covenants with two commercial banks with term loan facilities

Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary between 4.0% to 5.5% (2014:4.0% to 5.5%) per annum. Bank borrowings are secured against the contract receivables assignments and/or joint registration ofvehicle/equipment.




21. Trade payablesSundry creditors 44,210 46,318 53,897 55,256 Provision for purchases and sub-contracts 33,891 31,189 34,875 31,788

78,101 77,507 88,772 87,044

22. Employees’ end of service benefitsBalance at beginning of the year 11,066 10,919 11,253 11,067 Charge for the Year 2,029 2,084 2,156 2,213 Paid during the Year (914) (1,937) (1,013) (2,027) Balance at end of the year 12,181 11,066 12,396 11,253

23. Other payables and provisionsAdvance from customers -current 33,802 32,776 36,406 35,798 Creditors for capital purchases 12,655 1,034 12,929 1,139 Due to customers on contracts (note 8) 11,941 1,470 20,315 7,713 Accrued expenses 10,799 9,926 13,714 13,021 Provision for employees’ leave pay and passage 6,142 6,637 6,233 6,664 Retention on sub-contracts 1,920 2,006 2,141 2,200 Fair value changes on Forex forward contracts 1,229 - 1,229 - Due to related parties (note 33) 1,612 1,980 2,128 2,422 Other payables 647 507 790 601 Statutory dues payable 361 384 982 601

81,108 56,720 96,867 70,159 Advance from customers

Non-current portion 27,224 16,146 27,224 17,744

24. Taxation

Income tax expenseCurrent tax charge for current year 774 1,045 1,234 1,397 Deferred tax credit for current year (4,597) (860) (4,597) (670) Current tax credit for prior years 11 - 98 (4) Deferred tax charge for prior years - - - 3

(3,812) 185 (3,265) 726

(Loss)/Profit before tax (32,321) 1,394 (30,046) 923 Tax on accounting (Loss) /profit (3,882) 164 (3,371) 494 Tax effect on non admissible expenditure and adjustments 70 21 106 232

(3,812) 185 (3,265) 726

Income tax is provided for parent company and Omani subsidiaries as per the provisions of the 'Law of Income Tax on Companies' inOman @ 12% of taxable profit after adjusting non-assessable and disallowable items and statutory exemption of RO 30,000. It isprovided for Indian subsidiary as per 'Income tax Act' in India @ 33% of taxable profit after adjusting non-admissible expenses anddepreciation difference.

The reconciliation between tax on accounting profit and tax profit is as follows:

Advances from customers which can be adjusted against the estimated amounts to be billed in next 12 months are considered as current advances.

The company has entered into a forex forward contracts with a commercial bank against orders placed for a specific project in order tomanage its foreign exchange risk . The changes in the fair value of foreign currency forward contract as at 31 December 2015 arecharged to the statement of comprehensive income. The fair value loss is due to the timing difference. On utilization/maturity of forexcontracts, the fair value loss will be adjusted against the actual gain or loss (refer note 34).




24. Taxation (Continued)

Provision for tax

Balance at beginning of the year 1,173 1,177 3,853 2,787 Charge during the year 785 1,045 1,332 1,397 Tax paid during the year (1,026) (1,049) (1,078) (331) Balance at end of the year 932 1,173 4,107 3,853

Deferred tax liability

Balance at beginning of the year 6,039 6,899 6,638 7,305 Charge during the year (4,714) (860) (4,831) (667) Balance at end of the Year 1,325 6,039 1,807 6,638

Property, plant and equipment:Balance at beginning of the year 6,253 6,953 6,807 7,314 Release to income statement (967) (700) (967) (507) Balance at end of the year 5,286 6,253 5,840 6,807

Trade receivables and inventoriesBalance at beginning of the year (214) (54) (169) (9) Release to income statement (3,747) (160) (3,747) (160) Balance at end of the year (3,961) (214) (3,916) (169)

1,325 6,039 1,924 6,638

25. Sales and services incomeSales and services 2,792 2,024 17,028 12,014 Hiring services 620 958 2,426 2,738 Training services - - 88 476

3,412 2,982 19,542 15,228

26. Other incomeGain on sale of assets 2,014 1,549 2,011 1,555 Dividend income 30 38 - - Miscellaneous income 1,378 1,425 1,411 1,484

3,422 3,012 3,422 3,039

The parent company income tax assessment up to the year 2011 has been completed by the taxation department. The income taxassessments of the subsidiaries are at various stages of completion. The management believes that any taxation for the unassessedyears will not be material to the financial position of the Group as at the reporting date. The status of tax provision is as follows:

Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rate asper tax law of the respective country.

The net deferred tax liability and deferred tax charge/(release) in the comprehensive income statement are attributable to following items:




27. Contract and other direct costsMaterials 97,892 111,600 102,097 115,633 Manpower costs (note 29) 93,591 99,187 97,509 103,031 Sub-contracting costs 51,423 53,527 51,587 53,051 Plant and equipment's repair and maintenance 16,402 18,180 17,804 19,518 Fuel expenses 13,412 13,868 14,949 15,536 Plant and equipment's hiring costs 4,383 4,326 5,998 5,070 Training expenses - - 80 368 Duties and taxes - - 738 741 Depreciation (note 3) 19,445 20,402 21,479 22,149 General and administrative expenses (note 28) 13,665 14,375 14,467 14,973

310,213 335,465 326,708 350,070

28. General and administrative expensesManpower costs (note 29) 4,006 5,035 5,182 6,139 Rent 4,134 4,357 4,446 4,640 Electricity and water charges 3,971 3,250 4,072 3,364 Insurance charges 2,664 3,740 2,841 3,959 Bank guarantee and other charges 2,165 2,045 2,212 2,123 Professional and legal charges 1,740 1,079 1,878 1,314 Communication expenses 960 1,105 1,055 1,187 Repairs and maintenance -others 719 679 733 695 Business promotion expenses 154 274 169 287 Traveling expenses 358 400 429 474 Printing and stationery 297 386 327 415 Tender fees 160 153 162 161 Directors fees 74 200 74 200 Miscellaneous expenses 337 237 398 343 Depreciation and amortisation (note 3 and 4) 1,725 1,792 1,764 1,831

23,464 24,732 25,742 27,132 Pertaining to contract and other direct costs (note 27) 13,665 14,375 14,467 14,973

9,799 10,357 11,275 12,159 29. Manpower costsSalary and wages 71,798 73,731 74,605 76,891 Employees service benefits 11,808 12,144 12,294 12,600 Camp and catering expenses 9,310 12,049 9,859 12,606 Hired salary and wages 1,069 2,996 1,798 3,413 Staff incentives - - 340 234 Other expenses 3,612 3,302 3,795 3,426

97,597 104,222 102,691 109,170 Pertaining to contract and other direct costs 93,591 99,187 97,509 103,031 Pertaining to general and administration expenses 4,006 5,035 5,182 6,139

30. Financing costs, netInterest expense 8,640 9,853 9,487 10,481 Interest income (85) (98) (85) (110)

8,555 9,755 9,402 10,371




31. (Loss) / Earnings per share

(Loss) / profit for the year (28,509) 1,209 (28,859) 197 Number of shares in '000 (note 13) 415,220 377,470 415,220 377,470 Basic (loss)/earnings per share for the year (RO) (0.069) 0.003 (0.070) 0.001

32. Net assets per share

Net assets 74,704 103,213 71,831 101,514

415,220 377,470 415,220 377,470

Net assets per share (RO) 0.180 0.273 0.173 0.269

33. Related party transactions

Contract income 4,587 2,835 17,518 18,457 Sales and services 2,443 2,001 2,443 2,009 Sale of property, plant and equipment - 617 - 617 Purchase of property, plant and equipment 197 169 197 169 Purchase of goods and services 13,096 16,949 13,096 16,949 Director's remuneration 74 200 74 200

Due from shareholders 23 171 23 171 Due from subsidiary and associate companies 9,727 8,254 7,477 4,799 Due from other related parties 4,054 2,599 4,055 2,600

13,804 11,024 11,555 7,570

Due to shareholders 62 156 62 156 Due to subsidiary and associate companies 93 322 609 764 Due to other related parties 1,457 1,502 1,457 1,502

1,612 1,980 2,128 2,422

The following is a summary of significant transactions with related parties which are included in the financial statements:

The basic (loss) / earnings per share is calculated by dividing the profit for the year attributable to the shareholders of the parentcompany by the weighted average number of shares outstanding during the year as follows:

Net assets per share is calculated by dividing the equity attributable to shareholders of the parent company at the reporting date by thenumber of shares outstanding as follows:

Number of shares outstanding at the year end in '000(note 13)

Related parties comprise the Subsidiaries, Associates, directors and business entities in which they have the ability to control or exercisesignificant influence in financial and operating decisions. The group maintains significant balances with these related parties which arise in the normal course of business from commercialtransactions, and are entered into at terms and conditions which the management consider to be comparable with those adopted forarm’s length transactions with third parties.

Balances of related parties recognised and disclosed in notes 10 and 23 respectively are as follows:

The amounts outstanding are unsecured and fully receoverable. No expense has been recognized in the year for bad or doubtful debtsin respect of the amounts owed by related parties.




33. Related party transactions (continued)

The remuneration of the members of key management during the year was as follows:

Short term benefits 497 505 1,002 997 Post employment benefits 30 30 30 30

527 535 1,032 1,027

34. Commitments and contingenciesBonds and guarantees 178,075 167,018 178,075 167,483 Letter of credit 28,537 25,727 28,537 25,727 Corporate guarantees 17,851 27,021 63,598 75,396 Forex forward contracts 9,420 10,895 9,420 10,895 Capital commitments 78 260 78 260

233,961 230,921 279,708 279,761

Legal cases

Penalties

The parent company and its subsidiaries, in common with the significant majority of contractors, is subject to litigation in the normalcourse of its business. The parent company and its subsidiaries, based on independent legal advice, does not believe that the outcomeof these court cases will have a material impact on the group’s income or financial condition.

Penalties amounting to RO 6,653 (2014: RO 9,203) thousands have been levied and notified to the parent company. Though thepenalties are countered by the extension of time claims from the parent company and cases are under various stages ofnegotiations/arbitration and expected to be settled in due course, the provision is made RO 6,653 (2014: nil), which is included in'Provision for impaired receivables' shown under note 9.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities ofthe Group, directly or indirectly, including any director (whether executive or otherwise).

Included in due from related parties RO 486 (2014: RO 486) thousands is due from key management personnel of the parent company.

The parent company has provided corporate guarantees for subsidiaries and associates amounting to RO 8,641 (2014: RO 8,334)thousands and RO 9,210 (2014: RO 18,687) thousands respectively. The parent company does not anticipate any material liability toarise from these guarantees.

The parent company has provided support sponsor's undertakings for any shortfall in project funding and repayment obligations of allconcessionaire companies (MTPL, SJEPL, GAEPL, KSHPL and SHPL) for DBFOT road projects in India, on joint and several basis. Thecontingent liability for the same is not determinable.

Galfar Engineering & Contracting SAOG & SubsidiariesNotes to Consolidated Financial StatementsFor the year ended 31 December 2015

35. Business segments

The financial results, assets and liabilities of business segments are as follows:Amount in RO '000s

2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Segment revenue and expenses

Segment revenue 342,975 371,742 20,009 17,381 1,839 1,814 88 476 (19,677) (18,903) 345,234 372,510

Segment expenses 370,511 370,192 19,044 16,327 1,789 1,753 348 602 (17,599) (16,561) 374,093 372,313

Segment results (27,536) 1,550 965 1,054 50 61 (260) (126) (2,078) (2,342) (28,859) 197

Segment assets and liabilities

Segment assets 516,442 514,568 11,061 6,387 3,208 2,893 (202) 133 (34,203) (21,696) 496,306 502,285

Segment liabilities 417,239 394,736 4,838 3,879 1,343 1,021 80 155 - - 423,500 399,791

The Group operates in two geographical segments, Sultanate of Oman and India.

Segmental information is presented in respect of the Group’s business segments. Business segment is based on the Group’s management and internal reporting structure. Segment results,assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The group business is divided in four segments - construction, manufacturing, hiring of equipment and training of personnel. The principal activities of the group are road, bridge and airportconstruction, oil and gas including EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts. The other activities are hiring outof cranes, equipment and other vehicles and training of drivers, operators, manufacturing of readymix concrete and others.

Construction Manufacturing Hiring Training Inter segments Consolidated


Notes to Consolidated Financial StatementsAs at 31st December, 2014 Amount in RO '000s

36. Financial instruments and related risk management

Market risk

Interest rate risk

Foreign currency risk

Commodity price risk

The Group’s principal financial liabilities other than derivatives, comprise loans and borrowings, trade and other payables. The main purposeof these financial liabilities is to raise finances for the Group’s operations. The Group has loans and other receivables, trade and otherreceivables, and cash and short-term deposits that arrive directly from its operations. The Group also holds available-for-sale investments.

The Group’s activities expose it to various financial risks, primarily being, market risk (including currency risk, interest rate risk, and pricerisk), credit risk and liquidity risk. The Group’s risk management is carried out internally in accordance with the policies approved by theBoard of Directors.

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.Market prices comprise three types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity risk.Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments, and derivative financialinstruments

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in marketinterest rates.

The Group is exposed to interest rate risk on its interest bearing assets and liabilities (short term bank deposits, held to maturity investments,bank borrowings and term loans). The management manages the interest rate risk by constantly monitoring the changes in interest ratesand availing lower interest bearing facilities.

As at the reporting date, had the interest rate were to move up or down by 1%, the impact on the parent and consolidated income statementwould have been RO 1,772 thousands (2014: RO 2,004 thousands) and RO 1,946 thousands (2014: RO 2,134 thousands) respectively.

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreignexchange rates. The Group operates in international markets and is exposed to foreign exchange risk arising from various currencyexposures, primarily with respect to the US dollar, Euros, Pound sterling and all GCC currencies.

The majority of the Group’s financial assets and financial liabilities are either denominated in local currency (Rials Omani) or currency fixedagainst Rials Omani. Term loan is due in US Dollars. As the Omani Rial is pegged to the US Dollar, balances in US Dollars are notconsidered to represent significant currency risk, hence the management believes that there would not be a material impact on theprofitability if these foreign currencies weakens or strengthens against the Omani Rials with all other variables held constant.

However, the management has set up a policy to require the Company to manage its foreign exchange risk against their functional currency.The Company is required to hedge its foreign exchange risk exposure as needed. To manage its foreign exchange risk arising from futurecommercial transactions and recognised assets and liabilities, the Company uses forward contracts. These contracts are not howeverdesignated as hedges under IAS 39 and are consequently initially recognised at cost and subsequently re-measured to their fair value ateach reporting date. Material changes in the fair value of foreign currency forward contracts are recorded in the statement of comprehensiveincome account as they arise. At 31 December 2015, with all the other variables held constant, management believes that there would be nosignificant impact on the post tax profits due to fluctuations in these currencies.

The Group is affected by the volatility of certain commodities. Due to the significantly increased volatility of the price of the underlying, theGroup’s Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation.



36. Financial instruments and related risk management (continued)

Equity price risk

Credit risk

Capital management

Exposure to credit risk

2015 2014 2015 2014

Contract and trade receivables 271,635 251,430 283,951 265,341 Retention receivables 45,785 60,105 45,866 60,268 Advances, prepayments and other receivables 23,936 22,094 28,839 21,532 Deposits with banks 1,258 1,293 1,263 1,324 Cash and bank balances 14,795 735 18,035 2,568

357,409 335,657 377,954 351,033

Government customers 216,452 183,083 216,915 183,852 Petroleum Development Oman 42,672 51,178 42,672 51,178 Other private customers 12,511 17,169 24,364 30,311

271,635 251,430 283,951 265,341

The age of receivables as above at the reporting date was:

Not past due 120,347 129,844 128,596 141,875 Past due 0- 180 days 33,731 33,311 36,911 34,397 Past due 181 - 365 days 38,971 25,048 39,384 25,461 More than 365 days 78,586 63,227 79,060 63,608

271,635 251,430 283,951 265,341 Impairment (31,422) - (31,465) (43)

Credit risk primarily arises from credit exposures to customers, including outstanding receivables and committed transactions. The Grouphas a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customersrequiring credit over a certain amount. The Group seeks to limit its credit risk with respect to banks by only dealing with reputable banks andwith respect to customers by setting credit limits for individual customers and monitoring outstanding receivables.

The Group do not hold any quoted investment.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and benefit other stakeholders. The management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustainfuture development of the business.

There has been no change in the group’s objectives, policies or process during the year ended 31 December 2015 and 31 December 2014.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reportingdate was:


The exposure to credit risk for contract billed receivables, trade receivables and work in progress at the reporting date by type of customer was:

The group has established credit policies and procedures that are considered appropriate for the parent company and its subsidiaries. TheCompany’s business is conducted mainly by participating in tenders / bids. On acceptance of a tender / bid it enters into a detailed contractwith the customer. This contract specifies the payment and performance terms as well as the credit terms. Also refer to note 38 keysources of estimation of uncertainty for the impairment of the trade receivables.




Exposure to credit risk (continued)

The credit quality of the cash at bank and deposits with bank are as follows:

Rating 2015 2014 2015 2014

P - 1 1,945 1,420 2,815 2,188 P - 2 13,548 226 15,443 1,119 P - 3 - - 319 184 Not rated 230 178 356 178

15,723 1,824 18,933 3,669

Liquidity riskThe following are the financial liabilities including interest payments:

Term loans 99,570 100,582 114,470 106,570 Short term loans 32,750 28,000 37,547 33,027 Bank borrowings 39,521 62,691 40,193 63,503 Trade and other payables 198,614 161,439 225,259 186,200

370,455 352,712 417,469 389,300

The contractual maturities of above financial liabilities were:Term Loans:Upto 90 days 8,411 6,170 8,411 7,209 91 - 180 days 8,749 8,972 8,749 10,012 181 - 365 days 21,752 17,238 22,363 15,761 More than 365 days 60,658 68,202 74,947 73,588

99,570 100,582 114,470 106,570

Short term loans:Upto 90 days 27,750 23,000 27,750 23,000 91 - 180 days 5,000 5,000 5,000 5,000 181 - 365 days - - 4,797 5,027

32,750 28,000 37,547 33,027

Bank Borrowings:Upto 90 days 29,487 51,049 30,159 51,861 91 - 180 days 10,034 11,642 10,034 11,642 181 - 365 days - - - -

39,521 62,691 40,193 63,503

Trade and other payables:Upto 90 days 110,085 98,550 127,247 115,698 91 - 180 days 28,889 18,403 33,152 21,774 181 - 365 days 20,235 17,274 25,240 19,731 More than 365 days 39,405 27,212 39,620 28,997

198,614 161,439 225,259 186,200





Interest rate risk

37. Fair values of financial instruments

Fair values

Financial assets

2015 2014 2015 2014

Contract and trade receivables 242,377 251,430 254,693 265,341 Retention receivables 43,621 60,105 43,702 60,268 Due from related parties 13,804 11,024 11,555 7,570

1,422 1,163 5,147 2,789

Investment in associates and subsidiaries 18,909 13,202 3,899 4,861 Investment available for sale 125 125 145 145 Cash and bank balances and deposits 16,053 2,028 19,298 3,892

336,311 339,077 338,439 344,866

Financial liabilitiesTrade payables 78,101 77,507 88,772 87,044 Due to related parties 1,612 1,980 2,128 2,422

45,694 21,964 58,333 31,939

Bank borrowings 39,521 62,691 40,193 63,503 Term loans 132,320 128,582 152,017 139,597

297,248 292,724 341,443 324,505

Financial instruments comprise financial asset, financial liabilities and derivatives.

The Group’s exposure to interest rate risk relates to its bank deposits, borrowings, and term loans.

Term loans of RO 111,968 (2014: RO 104,068) thousands are recognized at fixed interest rates and expose the Group to the fair valueinterest rate risk. The remaining term loans of RO 2,502 (2014: RO 2,502) thousands are recognized at floating rates thus exposing theGroup to cash flow interest rate risk.

The company’s short term bank deposits carry fixed rates of interest and therefore are not exposed to interest rate risk.

Financial assets consist of bank balances, receivables and available for sale investments. Financial liabilities consist of term loans,government soft loan and payables. Derivatives relates to forward currency and commodity hedging contracts.

Group’s financial instruments that are carried in the financial statements are having same fair value as set out below:


Other receivables (excluding prepaid expenses, advances and due from related parties)

Other payables and provisions (excluding advances and due to related parties)



38. Key sources of estimation uncertainty

Estimates and assumptions

(a) Revenue recognition

(b) Claims

(c ) Impairment of accounts receivable

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant riskof causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below :

The company uses the percentage-of-completion method in recognising its project revenues. Use of this method requires the company toestimate revenues and costs over the remaining period of the projects. However, the deviations are not anticipated to be of a material natureas the estimates are based on historical experience, progress to date on contracts and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances, and are regularly evaluated.

The group has filed certain claims with its Government and Quasi Government customers and made an assessment of the recoverableamount of claims based on ongoing negotiations at the reporting date, which in some cases involve arbitration and litigation. In accordancewith the group's accounting policy on revenue recognition, after considering the advanced stage of negotiations with customers and theindependent third party consultants reports and the internal assessments, a portion of such claims has been recognised in theseconsolidated financial statements based on management’s assessment of the amount of claims that will be recoverable from customers.

The claims raised by the Group against the customers are mainly in relation to variations from the originally agreed contract scope, changesin costs incurred due to the effects of royal decrees issued after the commencement of contracts and additional costs incurred due toextension of the project completion time. Claims are determined mostly based on evaluation by third party consultants appointed by thegroup and the group’s internal experts. The determination of claims to be recovered requires the use of estimates based on the evaluationperformed by third party consultants and stage of negotiations of these claims with customers. The amount of claims which will be acceptedby the customers after negotiations may be different from the amount claims recognised in the group’s financial statements. Management isof the view that the amount of claims to be recovered from customers will not be less than the amount recognised in these consolidatedfinancial statements.

Other estimates that involve uncertainties and judgments which have significant effect on the financial statements include whether anyliquidated damages will apply when there has been a delay in completion of contracts.

An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. Forindividually significant amounts, this estimation is performed on an individual basis.

During the year 2015, the Parent company has received an offer from Muscat Municipality for final account settlement of MuscatExpressway and Central corridor projects. The amount offered as settlement is less than the amounts originally recognised by the Parentcompany. This settlement offer is subject to certain conditions among which include clauses which the management consider represent anopen-ended financial obligation that cannot be accurately quantified. Accordingly the terms of the offer have not been accepted. Further,the final offer letter with respect to Muscat Express way did not explicitly refer to any penalty amounts that may be contractually levied due todelay in projects. Accordingly management believes that no penalty is payable as the Muscat Express way was opened to traffic by end ofyear 2010. The Parent Company is yet to receive completion certificate which is being followed up with the client..Under the contractualterms such penalty could amount to approximately RO 13 million being 10% of the original contract value. Management believes that nopenalty is payable. An Impairment provision has been recognised in 2015 the difference between the revenue recognised by the Parentcompany and the final contract value proposed by Muscat Municipality in their offer letter although the Parent company continues tonegotiate with its customer for a higher recovery.

At the reporting date, the Group’s contract billed receivables were RO 216,540 (2014: RO 190,647) thousands, most of these receivableswere from Government and quasi Government entities. This balance includes value of RO 138,102 (2014: RO 117,226) thousandcertification in process, which is in the normal course of business activity in the construction industry. At 31 December 2015, the Provisionfor impaired contract receivables was RO 31,422 (2014: nil) thousand. Management believes the balance amounts are fully recoverable. Inaddition to this, the groups’ trade receivables and provision for impaired debts were RO 7,426 (2014: RO 5,951) thousand and RO 43 (2014:RO 43) thousands respectively. (refer note 9).



38. Key sources of estimation uncertainty (continued)

(c ) Impairment of accounts receivable (continued)

(e ) Useful lives of property, plant and equipment

(f) Impairment of intangible assets

(g) Impairment of equity investments

(i) Taxes

39. Comparative amounts

Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their netrealisable value through physical verification of inventories carried out annually. As majority of the inventories are at ongoing project sitesthese are considered as usable in nature by management as these are closely monitored by the respective project teams. During the year,the company has appointed an independent third party for carrying out the valuation of the inventories relating to the closed projects andcentral warehouse. The company has recognised an impairment provision against these inventories based on the the net realisable valuesreported by the independent valuer.Dedicated project teams also monitors surplus inventories on closed/completed jobs for assessing theirusability to consider necessary provisions. Amounts which are not individually significant, but which are old or obsolete, are assessedcollectively and a provision applied according to the inventory type and the degree of ageing or obsolescence. Management believes thatprovision of RO 2,859 (2014 : RO 1,811) thousands for the group is adequate (refer note 7).

The parent company estimated that its receivables over 365 days disclosed in note 36 of these financial statements would be collected over a period of 1 to 3 years from the reporting date. Should the actual collection period in future vary by 1 year impairment recognised under IAS 39 will increase/decrease by RO 2.4 million approximately.

Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Given the widerange of business relationships and nature of existing contractual agreements, differences arising between the actual results and theassumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense alreadyrecorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessmentsof respective Group companies. The amount of such provisions is based on various factors, such as experience of previous taxassessments and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.(refer note 24)

Certain of the corresponding figures of previous year have been reclassified in order to conform with the presentation for the current year.Such reclassifications do not affect previously reported profit or shareholder’s equity.

The group's management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. Thisestimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual valueand useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ fromprevious estimates.

The Group follows the guidance of IAS 36 to determine when an intangible asset recognised is impaired. This determination requiressignificant judgment and in making this judgment, the management evaluates, among other factors, the carrying amount of the entity’sintangible assets and the future free cash flows from the operations of these entities which are based on the project feasibility reports andlong-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and theoperational and financing cash flow.

The management tests annually whether these intangible assets of the group have suffered any impairment in accordance with IAS 36,‘Impairment of Assets’ which require the use of the above estimates.(refer note 4)

The group treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in the fair valuebelow its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requiresjudgment, which is critically evaluated by the Group on a case to case basis.

(h) Impairment of investments in associates

The parent company test annually whether investment in associates have suffered any impairment in accordance with IAS 36, ‘Impairmentof Assets’ which require the use of estimates. The parent company considers impairment of investments in associate companies when therehas been a significant decline in the carrying value below its cost or where other objective evidence of impairment exists. At 31 December2015, management has made a specific assessment with respect to associates (GEC, Kuwait and MTPL, India) based on the future cashflows and profits of these associates and believes that the future profits would be sufficient to recover the accumulated losses existing at thereporting date. Accordingly no impairment was considered necessary in these financial statements (refer note 6).

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