C&ST/400/2013

July 11, 2014

Through SVP & HOCBG, Dubai
To:
Dubai

Head of CCD, Head Office, and Abu Dhabi

From: C&ST, CBD -

Subject:
M/s Mohamed Tayyeb Khoory & Sons (Customer no. 2151121)
Clearance of AFS for FYE 31.12.2013
Review of Audited Financial statements 31.12.2013
The Subject has provided audited financial statements for year ended 31.12.2013 audited by Aliott Hadi
Shahid who is among Tier III of banks approved list of auditors. The financial statements depict
combined financial position of Mohammed Tayyeb Khoory & Sons and Aikah Establishment and other
Aikah group companies. The auditors have expressed an overall favorable opinion on the companys
financial performance.
Accordingly we give brief analysis of same in comparison to the financial performance for FYE 2012.
9. KEY FINANCIAL INDICATORS (ARE FINANCIALS AUDITED): Yes
Auditor: Alliot Hadi Shahid

Auditor in approved list? Yes (Tier III)

Last three years actual
Audited
Audited
Audited
Audited

Whether audited or inhouse

Year-end closing as of
31.12.2010
31.12.2011
31.12.2012
31.12.2013
Gross Revenue
362,889
370,764
387,474
372,099
Gross Profit
73,308
82,293
75,520
84,206
Operating Profit
(15,468)
(9,106)
(23,028)
(8,096)
Profit Before Management
fees
5
Net Profit/ Loss
(10,261)
(4,896)
(17,319)
(9,352)
6
Tangible Net Worth
123,926
117,545
99,995
109,742
7
Debt : Equity
1.16
1.45
2.16
1.82
8
Working Capital
113,667
93,387
79,239
88,180
9
Current Ratio
1.85
1.58
1.38
1.47
10 Receivables (days O/s)
87
88
89
106
11 Inventory (days O/s)
165
170
188
168
12 Trade Payables (days O/s)
23
31
35
39
13 Net Cash after Operations
24,354
5,223
(29,908)
20,182
14 Financing Surplus
21,466
(22,438)
(41,534)
762
15 End Cash Balance
10,651
14,812
11,574
3,262
9.1 ANALYSIS ON KEY INDICATORS EMANATED FROM INCOME STATEMENT - SL NO 1 TO 5
[Discuss on trends in sales and profitability as indicated in above table. NO NEED TO REPEAT THE
FIGURES AS THOSE ARE EVIDENT IN TABLE. STATE THE REASONS FOR CHANGE IN TREND AND ITS
IMPACT]
Sr.
#
1
2
3
4

Sales/Profitability
The companys sales slightly dropped in 2013
The company has recorded a sales figure of AED 387M as against the sales recorded for the previous year
of AED 371 M with a growth of 4.5%. The registered revenue is attributed to solid brand names
represented by the client in the field of engineering, automobiles and heavy equipment. The subjects
products being competitively priced and they have wide network of branches/workshops across UAE.
Break up of sales is as under:
2012
Local
Overseas
Total

Amount
354,417
33,058
387,475

2013
%

91%
9%
100%

Amount
336,324
35,774
372,099

%
90%
10%

During the period under review the company recorded a GP of AED 75.52 M which represents GP margin
of 19.49% in comparison to the previous year GP of AED 82.29 M with a GPM of 22.2% as the companys
direct costs increased to AED 311.95 M. The reduction was due to reduction in credit period and
percentage of margins to benefit from receiving funds earlier without delay.

The company opened new branches in Kuwait, Bahrain, Oman and Sharjah which resulted in an increase
in employees and employee costs. Therefore the operating expense of the company for the period under
review stood at AED 98.54M compared to the previous year amount of AED 91.39 M reflecting an increase
in absolute terms which is mainly due to the increase in staff cost, depreciation and other administrative
expenses resulting in operating loss of AED 23.02M (PY~ AED 9.10M) posted by the company. Operating
expense to sales ratio showed an increase at 25.43% at the previous years level of 24.46% in 2011.
The company managed to achieve other income of AED 13.75 M as against AED 9.79 M in the previous
year with major contribution from exchange gain of AED 3.5 M. Break up of other income as under:
2012

Profit on disposal of property, plant &

equipment
Exchange Gain

818

6%

3,555

25%

Interest Income
Miscellaneous Income

10
9,375

1%
68%

Total Income

13,75
8

100
%

201
3
548
3,28
3
4,24
0
8,0
72

%
7%
41%
53%
100
%

As bank borrowings increased from AED 121.95 M to AED 162.82 M, interest expense of the company
increased to AED 8 M as against AED 5.5 M in the previous year.
Consequently due to increased costs the companys net loss increased to AED 17.31 M as against AED
4.89 M in the previous year. However, the actual loss remained at AED 3.4 M after setting aside partners
remuneration of AED 4.6 M, provision for stock/ debtors at AED 3.5 M and depreciation of AED 5.8 M.
9.2 ANALYSIS ON KEY INDICATORS EMANATED FROM BALANCE SHEET - SL NO 6 TO 12
(Discuss
on
retention
of
profits,
leverage,
working
capital
management
viz.
Trade
debtors/creditors/inventory holding & their turnover for the last three years, debtors , inter-affiliate dues
& inventory ageing & concentration risk analysis , existence of bad debts & slow moving stock and
adequacy on provisions there-against etc LIKE BEFORE NO NEED TO QUOTE FIGURES WHATEVER IS
MENTIOED IN THE TABLE).
Balance sheet
Balance sheet footing witnessed an increase from AED 288M in 2011 to AED 316 M in 2012.The increase
was mainly reflected under current assets which mainly comprised of account receivables and inventory
of AED 108 M and AED 160 M respectively.
On the other hand current liabilities increased from AED 160M during the year 2011 to AED 206M in 2012
mainly due to increase in overdraft (increased from AED 63M to AED 75 M) and short term financing
(increased from AED 59M to AED 87 M). Balance sheet possesses satisfactory net worth which finances
about 32% of the total assets (PY 41%).
Working Capital & Liquidity
Subjects working capital has been historically carrying a positive position however over the recent years
which appears to have narrowed from AED 93M in 2011 to AED 79 M in 2012 mainly due to increase in
bank borrowings to generate higher sales. However present level of working capital is considered to be
acceptable.
The liquidity position of the company is at acceptable level as reflected by current and quick ratios at
1.38x and 0.58x against the previous year ratios of 1.58x and 0.71x respectively.
Asset efficiency
Current assets as at 31.12.2012 marginally expanded from AED 254M to AED 285M mainly due to the
enhancement in inventory and account receivables. As typical to trading organization, subjects current
assets mainly consist of inventories of AED 160M and trade receivables of AED 108M which signify the
liquid nature of the current assets.
It is to be noted that against the trade receivables of AED 108M in the balance sheet, provision of AED
13M has been made for bad and doubtful debts which is considered acceptable in view of the level of
outstanding receivables. Client advises that normally they allow credit period of 90-120 days while they
accommodate credit period up to 150 days for certain government customers depending upon their

previous experience. However receivable days for the period remained stable and stood at 89 days (PY 88
days).
Subject has provided the breakdown of receivables as at 31.12.2013 details of which are as follows:

Particular
Less than One month
Less than Two months
Less than Three
months
Four to Six months
Above 120 days
Total
Provision for doubtful
debts
Total after
provisioning

O/s as on
30.12.2012
24,289
15,174
19,942

Percenta
ge
22%
14%
18%

O/s as on
30.12.2013
32,987
17,210
17,148

10,503
38,212
108,119
13,237

11%
35%
100%
-

9,952
36,183
113,482
5,328

94,882

108,154

[AED 000]
Percenta
ge
31%
16%
16%
9%
33%
105%
-

The review of above analysis reflects satisfactory position with same being evenly spread with acceptable
concentration in all the areas. As informed by the customer majority of receivables are due from
Govt/Semi-Govt departments hence the risk for non-collection of receivables is very minimal however as a
prudent measure subject has made provisions against delayed receivables.
The customer generally carries required level inventory to support the sales, as they procure goods on the
basis of the written requests received from government departments and from the existing established
clients. As of BS date subject carried inventories of AED 160M(PY~ AED 135M) accordingly inventory DOH
increased marginally and stood at 188 days against 171 days recorded in the previous year.
Ageing analysis of stocks as on 31.12.2013 is as follows:
[A
ED 000]
Particular
One year/below one year
More than one year
Total
Provision for slow moving goods(more than
one year)
Total after provisioning
Work In progress
Goods in transit
Total Inventory

O/s as on
31.12.201
2
133,506
39,285
172,791
12,172
160,619
13
160,632

Percent
age
77%
23%
100%

O/s as on
31.12.201
3
105,441
28,028
133,470
945

Percent
age
79%
21%
100%

132,524
28
132,553

The review of above ageing of inventory reveals satisfactory position with concentration of 23% stretched
over one year as of 31.12.2012 against which company had made adequate provisions of around AED
12.1M in 2012.
Short Term Borrowings & Overdraft
As of BS date short term bank borrowings increased from AED 59M 2011 to AED 87M in 2012. This is
mainly due to the increase in trust receipt loans (increased from AED 38M to AED 59M), short term loans
(increased from AED 7M to AED 14M). As on balance sheet date bank overdraft also increased to AED 75
M as against AED 63M in the previous year. Customer has advised that during 2012 company relied more
on external financing to support the working capital needs.
Due from related parties
Balance sheet carries a portfolio of receivables due from related parties amounting to AED 12 M which
accounts for the transactions related to the real estate division of the group M/s Mohammed Tayyeb
Khoory Real Estate LLC. The transaction has been classified by the auditors as part of their current assets
given the short term nature however as a prudent measure, we have classified them as non-current
assets.
Leverage & Net worth:

Clients networth witnessed a contraction compared to the previous year and recorded at AED 99.9M
during the year 2012 against AED 117M (2011) due to the loss recorded during the year 2012. However,
comfort is drawn from the fact that net worth finances more than 32% of the assets. Meanwhile subjects
debt to equity ratio as of 31.12.2012 stood at 2.16x (PY~1.45x) breaching the leverage covenant of 1.5x
mainly due to the increased borrowings as of BS date as explained earlier to fund increased purchases
and generate higher sales.
Management is taking steps to curtain losses by increasing sales and reducing overheads to improve
earnings. They partners who are also high net worth individuals are also planning to pump in funds, if
required so as to strengthen the liquidity of the company.

Conclusion
The overall financial performance of the company as per the audited financial statements for the period
31.12.2012 could be considered acceptable given the strong ownership structure of the company whose
promoters are well established UAE businessmen whose combined net worth stands over AED 700 M.

Ahmed Mansour
Credit Analyst
Relationship Manager

Ola Madkour
Account Manager

Jaikishan Chainani
AVP &

COMMENTS / RECOMMENDATIONS OF SVP & HOCBD-DUBAI REGION:

COMMENTS BY THE CORPORATE CREDIT DIVISION [CCD]:

Customer Name: Mohammed Tayyeb Khory & Sons

Ref:
C&ST/400/2013

July 9, 2014