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Qannas Investments Limited Annual Financial Report

28/06/2019 5:25pm

UK Regulatory (RNS & others)


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TIDMQIL

RNS Number : 9108D

Qannas Investments Limited

28 June 2019

Qannas Investments Limited

("Qannas" or the "Company")

Audited Financial Statements and Posting of Audited Financial Statements

Qannas (AIM:QIL), the closed-ended investment company listed on the AIM market, is pleased to announce the release of its audited financial statements for the period ending 31 December 2018. Extracts from these statements are enclosed below.

In accordance with AIM Rule 20, the Company confirms that a copy of the annual report and accounts is available on the Company's website www.qannasinvestments.com

For further information please contact:

   Qannas Investments Limited                         Tel: 01534 844 806 

Nadia Trehiou

   ADCM Ltd. (Investment Manager)                 Tel: +971 2 639 0099 

Mustafa Kheriba

   finnCap Ltd                                                      Tel: 020 7220 0500 

Henrik Persson/William Marle (Corporate Finance)

The notification set out below is provided in accordance with the requirements of the EU Market Abuse Regulation.

 
 QANNAS INVESTMENTS LIMITED             1. 
 GENERAL INFORMATION 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  === 
 
 
 DIRECTORS                              PRINCIPAL BANKERS 
 Christopher Ward (Chairman)            First Abu Dhabi Bank (formerly First 
                                         Gulf Bank) 
                                        Main Branch 
 Richard John Stobart Prosser           P.O. Box 6316 
                                        Abu Dhabi 
 Richard Green (resigned 19 September   United Arab Emirates 
  2018) 
 
 Mustafa Kheriba 
                                        REGISTRAR 
                                        Link Asset Services (Jersey) Limited 
 COMPANY NUMBER                         (formerly Capita Registrars (Jersey) 
                                         Limited) 
 CT 286543 (registered in Cayman        12 Castle Street 
  Islands) 
                                        St Helier 
                                        Jersey JE2 3RT 
 COMPANY SECRETARY                      Channel Islands 
 Walkers Corporate Limited 
  Cayman Corporate Centre 
 George Town                            NOMINATED ADVISOR 
 Grand Cayman KY1-9008                  finnCap Ltd 
  Cayman Islands                         60 New Broad Street 
                                        London EC2M 1JJ 
                                        England 
 
 REGISTERED OFFICE                      NOMINATED BROKER 
 Cayman Corporate Centre                finnCap Ltd 
  27 Hospital Road                       60 New Broad Street 
 George Town                            London EC2M 1JJ 
 Grand Cayman KY1-9008                  England 
 Cayman Islands 
 
                                        LEGAL ADVISORS 
 ADMINISTRATOR                          Appleby 
 Estera Fund Administrators (Jersey)    13-14 Esplanade 
  Limited 
 13-14 Esplanade                        St Helier 
 St Helier                              Jersey JE1 1BD 
 Jersey JE1 1EE                         Channel Islands 
 Channel Islands 
                                        Herbert Smith Freehills LLP 
                                        Exchange House 
 AUDITOR                                Primrose Street 
 Deloitte LLP                           London EC2A 2HS 
 Regency Court                          England 
 Glategny Esplanade 
 GY1 3HW                                Conyers Dill & Pearman Limited 
 Guernsey                               Level 2, Gate Village 4 
                                        Dubai International Financial Centre 
                                        P.O. Box 506528 
 INVESTMENT MANAGER                     Dubai 
 ADCM Ltd ("ADCM")                      United Arab Emirates 
 Codan Trust Company (Cayman) Limited 
 Cricket Square, Hutchins Drive, 
  P.O. Box 2681 
 George Town, Grand Cayman KY1-1111     COMPANY WEBSITE 
 Cayman Islands                         www.qannasinvestments.com 
 
 
 
 
 
 
 QANNAS INVESTMENTS LIMITED             2. 
 CHAIRMAN'S REPORT 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  === 
 

It is with great pleasure that I present my seventh annual report on the performance of Qannas Investments Limited ("QIL" or the "Company"). The Board presented a new investment strategy for approval by shareholders at last year's AGM, and I am pleased to announce that this was indeed approved. Hence, QIL's new investment strategy focuses on investing in listed equities in the Gulf Cooperation Council ("GCC") region, with a proportion of funds to be allocated to debt investments and pre-IPO financing with an emphasis on value investing.

As a consequence, the process of divesting existing investments which do not fit the new strategy has continued. During 2018, QIL generated $17.7 million in sale proceeds from these non-core investments, repaid $8 million of outstanding debt and invested $12.8 million in debt instruments generating a 9.8% yield per annum. Details of these transactions are contained in the Investment Manager's Report.

During the year, the NAV of QIL declined marginally to $0.61 per share as of December 2018, from $0.65 per share last year. This decline is a reflection of the subdued market sentiments in the overall global capital markets (including the GCC region), which gave rise to significant falls in Q4 2018.

The market for raising new capital in the London market remains challenging, but we are keeping this under constant review. In the meantime, we will pursue the new investment strategy as best we can within our existing resources, so as to be ready to present a very focused investment portfolio to the market when conditions are in our favour.

QIL has appointed an Anti-Money Laundering officer to comply with the Cayman Islands' latest regulations.

During the year, the Company applied the Quoted Companies Alliance Corporate Governance Code which is discussed in more detail on page 3.

With the adoption of the new investment strategy, which precludes private equity investing, Richard Green retired from the Board at the time of the AGM and we are actively looking for a potential candidate to be hired in his place.

The Board and the investment manager will keep shareholders updated on disposals of investments and deployment of new capital. As QIL continues to evolve and deliver value to shareholders by adapting to the dynamic global environment, I would like to thank shareholders, the board of directors, service providers, and the investment manager for their continued support.

 
 QANNAS INVESTMENTS LIMITED                3. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT 
 
 FOR THE YEARED 31 DECEMBER 2018 
========================================  === 
 

This Corporate Governance Report has been written to comply with the Quoted Companies Alliance ("QCA") Corporate Governance Code. As Chairman of the Board of Directors, corporate governance is my responsibility.

By following the QCA code, my Board colleagues and I seek to ensure that the Company operates efficiently and effectively and communicates well, to promote confidence and trust in the Company's Board and management. The Board aims to balance the interests and expectations of the Company's shareholders and stakeholders by observing a transparent set of rules, practices and processes. I believe that by adhering to this clear set of guidelines which clarify authority and responsibility, requiring constant measurement and review, the Company is best placed to manage risk and achieve a high level of performance, both of which are pre-requisites to the Company's long-term success.

Corporate Governance Review

In January 2018 the London Stock Exchange's AIM Rule 26 was amended to require all AIM quoted companies to give details of the corporate governance code that they have decided to apply, to explain how they comply with their chosen code, and, if they depart from the chosen code, to explain where and why.

The Board has chosen to apply the QCA's Corporate Governance Code (the "QCA Code") and has carried out a detailed review of the requirements of the QCA Code and AIM Rule 26, with respect to both its governance arrangements and practices, and its reporting. The key changes that have resulted from this review are:

   --      Adoption of the QCA Code and implementation of its "comply or explain provisions"; 
   --      An update to this Corporate Governance Report; 

-- Updates to the Terms of Reference for each Committee of the Board and Matters Reserved for the Board of Directors;

-- Updates to Directors' biographies to highlight the key skills each individual brings to the Board; and

-- Consideration by the Nomination Committee of the desired make-up of the Board of Directors, and the implementation of a transition and succession plan.

Corporate Governance Code

The QCA Code is based upon the principle that companies need to deliver growth in long-term shareholder value. This requires an efficient, effective and dynamic management framework and should be accompanied by good communication which helps to promote confidence and trust. The QCA Code takes key elements of good governance and is constructed around ten broad principles and a set of disclosures. Companies are asked to provide an explanation of how they are meeting the principles through the prescribed disclosures. Where a company departs from the principles the board is asked to provide a well-reasoned explanation for doing so. The following section of this Corporate Governance Report seeks to provide this:

Principle 1 - Establish a strategy and business model which creates long-term value for shareholders

The Board reviews the Company's strategic goals annually, and has recently proposed a new strategy which was approved by shareholders at the Company's AGM on September 19, 2018.

This strategy centres on investing in listed equities in the Gulf region, with a proportion of the fund to be allocated to provide balance through investments in debt instruments (with the intention of generating a cash return to enable the Company to pay a regular dividend) and in participating in pre-IPO financing rounds. However, the emphasis will continue to be on value investing, leveraging the specialist regional knowledge of the Investment Manager to identify opportunities for exceptional returns. The key challenges of the strategy could be global and GCC economic and capital market environment. These can be addressed through active management of these companies and adapting to the market conditions.

 
 QANNAS INVESTMENTS LIMITED                            4. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
====================================================  === 
 

Corporate Governance Code - continued

Principle 2 - Seek to understand and meet shareholder needs and expectations

The Board produces a quarterly short-form Investment Management Report which is published on the Company's website and which provides updates on investment and divestment activity. In addition, an Investment Management Report is included in the interim and annual financial statements.

There is regular communication from shareholders to the Investment Manager which is passed on to the Board for their review and action if appropriate. Communication with the Investment Manager, the Company's NOMAD, together with Regulatory News Service announcements and the Company's Annual Report, assist the Board to gauge investor sentiment, set expectations and communicate the Company's intentions.

Principle 3 - Take into account wider stakeholder and social responsibilities and their implications for long-term success

The day-to-day administration of the Company is carried out by Estera Fund Administrators (Jersey) Limited, represented on the Board by Richard Prosser. Members of the Estera team attend all board and other important meetings as observers, and are thus fully aware of the Company's strategic aims and responsibilities. The same goes for the Company's Investment Manager, ADCM, which is part of the Abu Dhabi Financial Group, LLC ("ADFG") group of companies and which is represented on the board by Mustafa Kheriba. Members of the ADCM team also attend all board and other important meetings. The Board believes that the maintenance of good relations with stakeholders is important for the long-term prospects of the Company. The Board receives feedback on the views of stakeholders from its registrar. Through this process the Board seeks to monitor the views of stakeholders and to ensure an effective communication programme.

The Board believes that the Annual General Meeting provides an appropriate forum for investors to communicate with the Board and encourages participation.

Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Company has a comprehensive Risk Assessment Report, which is reviewed and updated periodically, normally annually. Financial risks are considered by the Board at each Board meeting.

The Board regularly seeks and gains assurance that the risk management and related control systems, as well as disaster recovery plans, are effective within its principal service providers, Estera and ADCM. Each service provider is required to complete an annual Service Provide Questionnaire which assesses the policies and procedures of each appointed service provider and is consideration by the Board.

Key risk and mitigating factors are detailed as follows:

 
 Risk description                            Mitigation controls 
 
 Strategy design risk 
 The risk that the Board may set             Open communication between the 
  a strategy that is not in line              management of the Company and 
  with shareholder expectations.              shareholders. 
  This may lead to difficulties attracting 
  investor capital and loss of market         Clear and regular correspondence 
  confidence.                                 with investors of key decision 
                                              by way of Regulatory News Service 
                                              releases and face to face meetings 
                                              at the Annual General Meeting. 
 
                                              The business plan is defined and 
                                              any changes communicated by the 
                                              Board. 
 
 
 QANNAS INVESTMENTS LIMITED                            5. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
====================================================  === 
 

Corporate Governance Code - continued

Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation - continued

 
 Risk description                        Mitigation controls 
 Acquisition risk 
 There is a risk that acquisitions       Acquisitions follow a structured 
  do not perform as envisaged, which      process involving directors and 
  may result in the loss of investor      consultations with the investment 
  confidence and material write downs     manager. 
  of investments/loans. 
                                          All acquisitions involve a thorough 
                                          due diligence exercise which may 
                                          involve professional advisors, 
                                          if considered appropriate. 
 
                                          Each year, the investment manager 
                                          undertakes a thorough review of 
                                          each investment/loan held and, 
                                          in consultation with the directors, 
                                          appropriate fair values are recognised. 
 
 Macroeconomic risk 
 This is the risk of an adverse          The Company manages this risk 
  impact on the Company arising from      by closely monitoring its investments 
  an economic downturn. The Company       and their underlying performances. 
  has significant exposure to the 
  GCC region and any slowdown in 
  growth in this region could affect 
  profitability. The Company has 
  minimal exposure to Europe and 
  hence does not consider any Brexit 
  related risk to be significant 
  at this juncture. 
 
 Liquidity risk 
 The risk of insufficient liquidity      The Company is in the process 
  in the Company to meet its financial    of realising existing investments 
  obligations as they fall due.           in an orderly fashion and pursuing 
                                          the new investment strategy, as 
                                          further detailed in the Chairman's 
                                          Report. As disclosed in note 10, 
                                          the Company is due to repay the 
                                          bank loan payable during 2019. 
                                          This repayment will be financed 
                                          by way of existing cash reserves 
                                          and the continued realisation 
                                          of the Company's investments. 
 

Principle 5 - Maintain the Board as a well-functioning, balanced team led by the Chair

The Board currently comprises myself as independent Non-Executive Chairman plus only two other directors, both of whom are Non-Executive Directors (NEDs). A fourth NED is being actively sought to fill the gap left by the resignation of Richard Green. Of the three existing NEDs, Richard Prosser represents Estera and Mustafa Kheriba represents ADCM.

The new appointee will be required to be independent, which will restore an appropriate balance on the Board and the Company will then meet the QCA Code's requirement that at least half of the Directors should be independent NEDs. Nevertheless, all Directors are encouraged to foster an attitude of independence of character and judgement.

The relevant experience, skills and personal qualities that each Director brings to the Board are detailed later in this report. Each Director keeps their skillset up to date by reading relevant publications and attending external training and personal development courses where appropriate.

A strong diverse experience of the Non-Executive Chairman and Non-Executive Directors enrich the Board and Committee deliberations.

Non-Executive Directors are required to attend 4-6 board and board committee meetings per annum and to be available other times as required for face-to-face and telephone board and shareholders meetings; and to consider and approve significant transactions of the Company.

 
 QANNAS INVESTMENTS LIMITED                            6. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
====================================================  === 
 

Corporate Governance Code - continued

Principle 6 - Ensure that the Directors collectively have all appropriate skills, capabilities and experience

The Board consists of individuals with backgrounds and experience in the financial sector, in investment management and investment activity and with publicly and privately-owned businesses. Collectively, the Board's members have a wide range of experience, personal qualities and capabilities. The Directors regularly attend continued professional development courses relevant to their role. Where appropriate, external advice is obtained on matters that the Board consider to be complex/unusual. The Company Secretary oversees the corporate governance structure of the Company and provides assistance to the Directors where appropriate.

Given the nature and current size of the business, the board believes that the right number of Directors is four, of which two are independent, and aims to recruit a new independent NED as soon as possible to replace Richard Green.

In accordance with the QCA Code Non Executive Directors are only eligible to serve for up to 9 years. Chris Ward and Richard Prosser were appointed on 17 January 2012 and Mustafa Kheriba was appointed on 17 June 2014.

Each Director shall retire at the annual general meeting held in the third calendar year following the year in which he was elected or last re-elected by the Company. Each Director has significant sector, financial and plc experience. Between them, the Directors have many decades of Board experience in the GCC region. Biographies of the Directors can be seen overleaf.

Principle 7 - Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

The performance and effectiveness of the Board, its committees and individual Directors is reviewed by the Chairman and the Board on an ongoing basis. Training is available should a Director request it, or if the Chairman feels it is necessary. The performance of the Board is measured by the Chairman with reference to the Company's achievement of its strategic goals. A formal process for the Board assessment has been put in place this year. A Board self-assessment questionnaire for the year ended 2018 was created and circulated to the directors of the Company. The report measured how each director believed the Company was operating in 8 key areas. These areas were:

Composition and Quality of the Board;

Overall Strategy, Performance and Risk;

Shareholder View;

Governance;

Board Meetings;

Support and Relations with Suppliers;

Personal Evaluation; and

Chairman Evaluation.

It was noted by the Board when the report for this evaluation was tabled that the Company scored particularly high in the sections: Chairman Evaluation, Governance and Personal Evaluation.

Principle 8 - Promote a corporate culture that is based on ethical values and behaviour

The Board promotes a corporate culture that is based on sound ethical values and behaviour through their own actions and words, and ensures that these are apparent and understood within both principal service providers, Estera and ADCM. The culture of the service provides is reviewed by the Board on an ongoing basis. Each service provider is required to complete an annual Service Provide Questionnaire which assesses the policies and procedures to ensure alignment with the corporate culture of the Company, a culture of good governance and transparency.

Principle 9 - Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

The Board's members are well informed, have access to all parts of the business, and are appropriately equipped through their own skills, experience and personality to make good business decisions.

 
 QANNAS INVESTMENTS LIMITED                            7. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
====================================================  === 
 

Corporate Governance Code - continued

Principle 10 - Communicate how the Company is governed and is performing by maintaining dialogue with shareholders and other relevant stakeholders

This Corporate Governance Report is included within the Corporate Governance section of the Qannas website and is reviewed and updated annually.

Board of Directors

The Directors of the company understand the importance of corporate governance and strongly subscribe to the Company's compliance with high standards of Corporate Governance.

The Board of Directors is chaired by myself as independent Non-Executive Chairman, with Richard Prosser and Mustafa Kheriba as Non-Executive Directors.

A strong diverse experience of the Non-Executive Chairman and Non-Executive Directors enrich the Board and Committee deliberations.

The Company is controlled by the Board of Directors, all NEDs, one of whom is independent and two represent the principal service providers, Estera and ADCM. A fourth NED is being sought who will be independent.

All Directors can take independent advice to assist them in their duties if necessary.

The Board is responsible to shareholders for the proper management of the Company and meets formally at least four times a year to set the overall direction and strategy of the Company, to review the performance of investments and to consider the pipeline of potential new investment opportunities. All key decisions are subject to Board approval.

The Board of Directors is responsible for ensuring that procedures are followed and that all applicable rules and regulations are complied with. The Board is supported by the Administrator and the Company Secretary. The QCA's guidelines state that the role of Company Secretary should not be held by an Executive Director, and Qannas complies with this by outsourcing company secretarial activities to the Company Secretary.

 
                                                        Chris Ward is a Chartered Accountant who, in a career 
   Chris Ward                                           spanning some forty years, has largely specialised in 
   Non-Executive                                        corporate finance. He has advised on many transactions 
   Chairman                                             and capital raisings in a wide variety of sectors and 
                                                        particularly in the private equity market. Chris was 
                                                        an equity partner of Deloitte in the UK from 1979 to 
                                                        2008, when he relocated to Dubai, and held a number of 
                                                        roles at various times, including Head of Corporate 
                                                        Finance 
                                                        Advisory in the UK and Global Head of Corporate Finance. 
                                                        From September 2008 to May 2011, Chris established and 
                                                        ran the Financial Advisory Services practice of Deloitte 
                                                        in the Middle East, as the Chief Executive Officer of 
                                                        Deloitte Corporate Finance Limited (DFCL), a company 
                                                        regulated by the Dubai Financial Services Authority. 
 
                                                        Chris was also responsible for establishing the private 
                                                        equity and real estate fund placement business at Deloitte 
                                                        in the UK. Chris has also served as a member of the Board 
                                                        of the Corporate Finance Faculty of the Institute of 
                                                        Chartered Accountants in England & Wales (ICAEW). He 
                                                        was the Faculty's Chairman from 2004 to 2008 and during 
                                                        his tenure the Faculty launched the Corporate Finance 
                                                        qualification. Until his move to Dubai, he was a member 
                                                        of the Council of the ICAEW. From September 2014 to April 
                                                        2018, he was a non-executive director of Gems Education 
                                                        Group and chaired their Investment Committee. Chris is 
                                                        a graduate in Commerce & Accounting (B.Sc.) from 
                                                        Southampton 
                                                        University, and is a holder of the Corporate Finance 
                                                        qualification (CF). In 2011, he received the award of 
                                                        'Outstanding Achievement in Corporate Finance' from the 
                                                        ICAEW. 
 
                                                        He brings the following skills to the Board 
                                                         *    Deep understanding of investing and of capital 
                                                              raising internationally; 
 
 
                                                         *    Open-mindedness and pragmatism; 
 
 
                                                         *    Experience of operating in highly regulated market; 
                                                              and 
 
 
                                                         *    Decisiveness. 
 QANNAS INVESTMENTS LIMITED                                                                                       8. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT - 
  continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
=================================================  ================================================================= 
 
 

Board of Directors - continued

 
                          Richard Prosser is a fellow of the Institute of Chartered 
   Richard Prosser         Accountants in England and Wales, a member of the Society 
   Non-Executive           of Trust and Estate Practitioners and a member of the 
   Director                Institute of Directors. Richard is a group director at 
                           Estera Trust (Jersey) Limited with overall responsibility 
                           for the group's global trust services offering and has 
                           over 35 years' experience in the offshore financial services 
                           industry. Richard is on the board of a number of companies 
                           quoted in London and various other jurisdictions, including 
                           property companies and investment management companies. 
                           He is Chairman of Threadneedle Investments (C.I.) Limited 
                           and Manager of the Threadneedle Property Unit Trust, 
                           with assets worth over GBP1.5 billion, as well as Chairman 
                           of Aberdeen Latin American Income Fund Limited, quoted 
                           in London. 
 
                           Richard has been listed on the Citywealth Leaders list 
                           since 2011. This annual list aims to highlight the best 
                           of those individuals working in the private wealth management 
                           sector. He has also been listed on ePrivate Client Top 
                           50 Most Influential List for 2017. 
 
                           Richard brings in the following necessary diverse skills, 
                           experience and expertise to the board; 
                            *    Strong financial acumen; 
 
 
                            *    Leadership; 
 
 
                            *    Effective management and delegation; 
 
 
                            *    Understanding of a multi-faceted business operation; 
 
 
                            *    Decisiveness; and 
 
 
                            *    Up to date regulatory and compliance knowledge. 
 
 
                          Mustafa Kheriba is the Chief Operating Officer of ADFG, 
   Mustafa Kheriba         and Executive Director of the Company's Investment Manager, 
   Non-Executive           ADCM Ltd. Mustafa has extensive experience and an inherent 
   Director                understanding of the UK real estate and private equity 
                           markets as well as pioneer emerging markets such as the 
                           GCC and Eastern Europe. 
 
                           Mustafa manages the day-to-day operations, business development 
                           and control aspects of ADFG and its subsidiary companies. 
                           He also oversees deal origination, fund raising activities 
                           and directly manages key investments for the company. 
                           He also serves on the boards of Integrated Alternative 
                           Finance, Spadille Ltd., Northacre Plc, Reem Finance, 
                           Shuaa Capital, Integrated Securities, Khaleeji Commercial 
                           bank in addition to being Non-Executive Director at Qannas 
                           Investments Limited. Mustafa is also currently a board 
                           member of Gulf Finance Company in the UAE and KSA, and 
                           board member of ADCorp. 
 
                           Mustafa previously held senior posts in financial services 
                           and investment companies in the GCC, USA and Canada. 
                           Mustafa has been named among the top 50 MENA Fund Managers 
                           in the 2015 and 2016 annual survey conducted by MENA 
                           FM Magazine. Mustafa holds a BA from the University of 
                           Toronto, and an MBA from Ohio Dominican University with 
                           Magna Cum Laude honors. 
 
                           Mustafa Kheriba brings to the board: 
                            *    Inherent understanding of Private Equity, Public 
                                 Equity and Real Estate development experience; 
 
 
                            *    Global network of significant resources for both deal 
                                 pipeline and capital sources; 
 
 
                            *    Experience of operating in a highly regulated 
                                 regional market being on the board of three publicly 
                                 listed entities; 
 
 
                            *    Investment management and operational prowess with 20 
                                 + years experience in the industry; and 
 
 
                            *    Performance and target driven business acumen. 
 

Board and Committee attendance

The Board met during the year and its committees met in accordance with their terms of reference. The attendance of the Directors at these meetings is detailed below. On the occasions when a Director is unable to attend a meeting, any comments he has arising from the information pack circulated prior to the meeting are provided to the Chairman.

 
 QANNAS INVESTMENTS LIMITED                            9. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
====================================================  === 
 

Board and Committee attendance - continued

 
       2018           Board      Attended       Audit and        Attended   Management Engagement   Attended 
                     Meetings                 Risk Committee                   and Remuneration 
                     eligible                Meetings eligible                Committee Meetings 
                     to attend                   to attend                       eligible to 
                                                                                    attend 
    Chris Ward          4           4               2               2                 1                1 
 Richard Prosser        4           2               2               0                 1                1* 
  Richard Green         2           2               1               1                 0                0 
 Mustafa Kheriba        4           2               0               0                 0                0 
 

* - This meeting was attended by Richard Prosser's alternate director.

The Board does not comply with QCA Code's requirement that the Chairman of the Board of Directors should not sit on any of the Committees to the Board. The Chairman's participation has been necessary due to the small number of Non-Executive Directors available to sit on each Committee.

Committees of the Board

Remuneration and Management Engagement Committee

The Remuneration and Management Engagement Committee operates under terms of reference which are reviewed annually, meeting at least once per year, and comprises myself and Richard Prosser, under my chairmanship. It reviews, inter alia, the performance of the principal service providers. The beneficial interests of the Directors who served during the year and their connected persons in the ordinary share capital of the Company as at 31 December 2018 can be seen in note 3 of the financial statements. Furthermore, the remuneration of each Director can be seen in note 3 of the financial statements. Each Director is only entitled to a basic salary.

The Company does not comply with the QCA's requirement to publish a separate Remuneration and Management Engagement Committee Report as it believes that the information provided within this Corporate Governance Report gives shareholders adequate information on the committee's activities.

During the year the Remuneration and Management Engagement committee met on one occasion to:

-- Monitor and evaluate the Investment Manager's investment performance and compliance with the terms of the Investment Management Agreement;

-- Review the level and method of remuneration, the basis on which the performance fees (if any) are calculated;

-- Review, consider and recommend any amendments to the terms of the appointment and remuneration of providers of other services to the Company; and

-- Consider any points of conflict which may arise between the providers of services to the Company.

The Committee reported formally to the Board on proceedings after each meeting.

Audit and Risk Committee

The Audit and Risk Committee operates under terms of reference which are reviewed annually, and comprises Richard Prosser and myself under the chairmanship of Richard Prosser. It meets at least twice a year and, amongst other duties, reviews accounting policies and financial reporting, and provides a forum through which the external auditors report. It meets at least twice a year with the external auditors. The Board noted that there were no financial reporting issues during the year.

The Company does not comply with the QCA's requirement to publish a separate Audit and Risk Committee Report as it believes that the information provided within this Corporate Governance Report gives shareholders adequate information on the committee's activities.

 
 QANNAS INVESTMENTS LIMITED                            10. 
 CHAIRMAN'S CORPORATE GOVERNANCE REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
====================================================  ==== 
 

Committees of the Board - continued

During the year the audit committee met on two occasions to:

-- Meet with the Company's external auditors to discuss the audit planning report, key risks and areas of focus and their findings and recommendations arising from the annual audit;

-- Discuss with the Company's external auditors matters such as compliance with accounting standards;

   --      Approve the terms of engagement and fees of the Company's external auditors; and 

-- Monitor the external auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company and other related requirements.

The Committee reported formally to the Board on proceedings after each meeting on the above.

Nominations Committee

The Nominations Committee operates under terms of reference which are reviewed annually and comprises myself and Richard Prosser under my chairmanship. The Committee has been established for the purpose of identifying and nominating for the approval of the Board candidates to fill Board vacancies as and when they arise.

The Company does not comply with the QCA's requirement to publish a separate Nominations Committee Report as the Committee did not meet in the year of 2018.

Relations with shareholders

The Company's website, www.qannasinvestments.com, contains full details of its activities, press releases and other details, as well as share price details, share trading activities and Regulatory News Service (RNS) announcements. The Board actively promotes the AGM as a forum to present to and meet with investors.

Maintenance of a sound system of internal control

The Company's business is conducted by relatively few individuals (through the outsourced principal service providers) who report to the Board on a regular basis.

Estera is engaged to provide administration and accounting services. Estera is a regulated administration services provider in Jersey. As the Company does not hold an office of its own the majority of services are offered by Estera and the majority of the procedures are addressed at the Administrator level. Estera has comprehensive AML/CFT policies and procedures and a comprehensive compliance monitoring programme is in place. The Board conducts a regulatory, fiduciary, commercial and financial risk assessment on an annual basis. A business continuity and disaster recovery plan covering various aspect of the business including premises requirements, equipment and telecoms is in place and is tested on a regular basis. Estera operates a six eyes policy and checking/signing controls which are subject to internal compliance reviews and external audit in line with regulatory requirements. Estera reports to the Board for any matters of concerns, if any, on a quarterly basis.

ADCM is responsible for managing the Investments of the Company in line with the Admission Document available on the Company's website. ADCM has a professional and experienced team that looks after the Company's portfolio. Investment appraisal processes and asset monitoring procedures are in place and are subject to overall review by the Board. A detailed evaluation of each investment is performed and presented to the board and quarterly updates on all the existing investments and the pipeline are provided to the Board.

Management of liquid resources

The Board is risk averse when investing any surplus cash funds. It considers that a minimum cash balance of US$0.2 million is appropriate - providing adequate protection against unexpected events - for the current size of the business, and seeks to adhere to this wherever possible and practicable.

 
 QANNAS INVESTMENTS LIMITED             11. 
 INVESTMENT MANAGER'S REPORT 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 

ADCM Ltd. ("ADCM"), the investment manager of QIL, is pleased to present the Investment Manager's report for the financial year ended 31 December 2018.

Summary

FY 2018 has marked an important event in the journey of QIL with the adoption of a new investment strategy, focusing on investing in listed equities in the GCC region but with a proportion of funds to be allocated to debt investments and Pre-IPO financing. Accordingly, in-line with the new strategy, QIL has divested non-core investments worth $17.7 million during the year and the proceeds, together with the starting cash position of $5.7 million, have been utilized as follows:

   --      $12.8 million in new investments with an average yield of 9.8% per annum 
   --      $8 million in repayment of debt 
   --      $2.6 million in interest and other expenses 

During FY 2018, QIL's NAV has declined marginally to $36.3 million primarily due to a $1.3 million reduction in the value of the Goldilocks investment which reflected challenging capital markets in the GCC and global markets in the last quarter of FY 2018.

Exits in FY 2018

During 2018, QIL exited the following investments:

-- Project Adriatic: QIL redeemed its loan in CentreVille Hotel in November 2018, realizing EUR9.5 million in proceeds

-- Project Palace: QIL has exited GBP1.5 million of its outstanding interest in Project Palace. QIL also exited from the full portion of its undrawn commitment (GBP3.6 million)

-- Project Beast: QIL received $0.3 million in distributions from ADCM SPEF, mainly from the liquidation proceeds from its limited partnership interests in Lumina Real Estate Fund and Havenvest Private Equity Middle East L.P

   --      Project Demeter: QIL's loan to IEEF was repaid, realizing $3.7 million in 2018 

New Investments in FY 2018

During 2018, QIL made the following investments:

-- Project Three: QIL invested AED 34 million (approx. $9.3 million) as part of an overall loan of AED 250 million (approx. US$68.1 million) in a consortium debt investment with an annual interest rate of 9.75%

-- Project JODC: QIL invested $3.5 million in a Sukuk investment at a 9.85% profit rate which was issued by Jabal Omar Development Company, one of the largest real estate developers in GCC region

Net Asset Value ("NAV") Summary

As of 31 December 2018, QIL's NAV is $36.3 million or $0.61 per share, including cash of $0.3 million.

 
 QANNAS INVESTMENTS LIMITED                 12. 
 INVESTMENT MANAGER'S REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
=========================================  ==== 
 

Net Asset Value ("NAV") Summary - continued

 
 Net Asset Value Summary          In $, m 
===========================  ============ 
  Investments                   31-Dec-18 
===========================  ============ 
 Project Beast (ADCM SPEF)           $3.6 
 Goldilocks                          $8.9 
 Project Integration                $19.0 
 Project Three                       $9.2 
 Project Adriatic (HRC)              $4.1 
 Project Palace                      $5.7 
 Project JODC                        $3.5 
 Cash                                $0.3 
 Liabilities                      ($19.3) 
 Other Assets                        $1.3 
  NAV                               $36.3 
===========================  ============ 
  Shares Outstanding                 59.6 
  NAV per share                     $0.61 
---------------------------  ------------ 
 

Investments update

Project Adriatic (HRC)

For the year ending 2018, Hard Rock Café achieved positive EBITDA (EUR 102k) for the first time since inception, a major turnaround from last year's EBITDA loss of EUR 93k.

HRC Sales increased by more than 20% in 2018 compared to the same period in 2017, primarily driven by the additional contribution of merchandise sales from Kotor, Montenegro. Additionally, HRC was able to improve its gross profit margins from 33.5% in 2017 to 43.9% in 2018 as a result of continuous cost optimization.

Project Integration

QIL invested $18.7 million in 2014 to acquire a 47% interest in Integrated Financial Group ("IFG"), a UAE-based holding company with two subsidiaries - Integrated Capital and Integrated Securities.

Post the first half of 2017, Shuaa Capital - a leading investment bank in the UAE-acquired Integrated Capital and Integrated Securities.

IFG will be distributing $19 million sale proceeds to QIL, with final payment expected by March 2020. In the period from 1 January 2019 to the date of signing these financial statements, QIL had received $11 million proceeds from IFG. No discounting has been applied as the effect is not considered material.

Project Palace

In Q4 2014, QIL made a commitment of GBP11 million (as part of an overall tranche of GBP50 million) in Palace Preferred Partners L.P., an SPV created for the redevelopment of 1 Palace Street ("1PS") in London.

Of the total commitment of GBP11 million, QIL contributed GBP7.3 million in three tranches with an undrawn commitment of GBP3.6 million.

QIL initially entered into a GBP11 million commitment to Project Palace. In August 2018, the Company exited the remaining undrawn portion of this commitment, being GBP3.5 million. It also disposed of GBP3.8 million of its previously drawn commitment.

 
 QANNAS INVESTMENTS LIMITED                 13. 
 INVESTMENT MANAGER'S REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
=========================================  ==== 
 

Investments update - continued

Project Goldilocks

In Q1 2016, QIL had made an equity investment of $6.6 million (in two tranches of $5.5 million and $1.1 million) in Goldilocks Fund, an investment fund primarily focused on publicly listed equities in the UAE.

In FY 2017, QIL redeemed 25% of its interest in the Goldilocks Fund at a redemption value of $5.8 million.

Project Three

In December 2018, QIL participated in Project Three, a consortium debt investment with an annual interest rate of 9.75% in an independent UAE based Investment Firm for AED 34 million (approx. $9.3 million), part of an overall loan of AED 250 million (approx. US$68.1 million). The debt has 2.5 years of term and had a coverage ratio of 1.9x at the time of issuance.

Project JODC

In November 2018, QIL invested $3.5 million in a Sukuk issued by Jabal Omar Development Company ("JODC"), a leading real estate development company in the Kingdom of Saudi Arabia, as part of a total issuance of $135 million. This was a 5-year, unsecured Sukuk (the "Sukuk") with a profit rate of 9.85% p.a. paid semi-annually. Subsequent to the year end, QIL exited from JODC.

Project Beast

In the year 2018, ADCM SPEF received a $563k distribution from Havenvest and a GBP64k final distribution from Lumina.

Of this, the Company received $251k in 2018 and subsequently $264k in 2019.

 
  NAV of ADCM SPEF (as of 31 December 2018)                      in $'000 
=========================================================  ============== 
  Fund Name                                                Attributed NAV 
---------------------------------------------------------  -------------- 
 Havenvest Private Equity Middle East L.P. ("Havenvest")           $1,494 
 TNI Growth Capital Fund, L.P.                                     $1,517 
 Global Opportunistic Fund II                                        $275 
 Global Opportunistic Fund I                                          $61 
 SPE Qannas B                                                         $41 
 Net Current Assets / (Liabilities)                                  $191 
  NAV                                                              $3,579 
 
 

Corporate Activity

Richard Green, who has served on the Board of the Company since June 2014, resigned from his position as a Non-Executive Director of the Company on 19 September 2018.

In FY 2018, QIL bought back 429,137 ordinary shares at a price of $0.45 per ordinary Share.

In late 2017, the Cayman Islands law was amended to increase the scope of entities that are captured as Relevant Financial Businesses and as such are subject to the Cayman Islands laws and regulations with regards to anti-money laundering and terrorist financing. To comply with the amendments in the Cayman Islands Law, in December 2018, the Company appointed an Anti-Money Laundering Compliance Officer ("AMLCO"), Money Laundering Reporting Officer ("MLRO") and Deputy Money Laundering Reporting Officer ("DMLRO"). The AMLCO's responsibilities is to ensure that measures set out in the Cayman Islands Anti-Money Laundering Regulations are adopted by the Company, and to function as the point of contact with competent authorities for the purpose of the Cayman Islands Anti-Money Laundering Regulations.

 
 QANNAS INVESTMENTS LIMITED             14. 
 DIRECTORS' REPORT 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 

The Directors present their report and the audited financial statements of the Company for the year ended 31 December 2018.

Principal activities

The Company's principal activity is that of investing, centred around a theme-based investment approach, which has evolved over the years, starting with a focus on distressed / opportunistic investments in the UAE in 2012 and 2013 and broadening to the acquisition of secondary portfolios of regional PE funds and European real estate investments between 2014 and 2018. At the Annual General Meeting held on 19 September 2018, the Company changed its strategy to centre around investing in listed equities in the GCC region, with a proportion of funds to be allocated in debt instruments and pre-IPO financing. The core philosophy of the Company continues to be value investing with an investment objective to achieve long-term and sustainable attractive returns through a combination of income generation and long-term capital appreciation.

Results and dividends

The Statement of Comprehensive Income for the year is set out on page 22. The Company's Total Comprehensive Loss was $2,217,093 for the year ended 31 December 2018 (2017: $18,295,313). A share buy-back was made during 2018 whereby 429,137 (2017: 8,888,889) participating shares were repurchased for $193,112 (2017: $8,000,000).

Directors

The Directors who held office throughout the year and up to the date of approving the financial statements (unless otherwise indicated) were:

Christopher Ward (Chairman)

Richard John Stobart Prosser

Richard Green (resigned 19 September 2018)

Mustafa Kheriba

Details of the financial interests of Directors are disclosed in note 3 of the financial statements.

Secretary

Conyers Trust Company (Cayman) Limited was company secretary between 1 January 2018 and 30 June 2018. On that date, they were replaced by Walkers Corporate Limited who have continued to act in this role up to the date of approval of the financial statements.

Registered office

The registered office of the Company between 1 January 2018 and 30 June 2018 was Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, George Town, Grand Cayman KY1-1111, Cayman Islands. Since 30 June 2018, and to the date of approval of these financial statements, the registered office has been Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman, KY1-9008, Cayman Islands.

Independent auditor

Deloitte LLP was appointed independent auditor on 12 January 2018 and has expressed its willingness to continue in office.

 
 QANNAS INVESTMENTS LIMITED             15. 
 DIRECTORS' REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 

Responsibilities of the Directors

The Directors are responsible for preparing the annual report and financial statements in accordance with International Financial Reporting Standards as endorsed for use in the European Union ("IFRS"). In preparing these financial statements, the Directors are required to:

   --      select suitable accounting policies and then apply them consistently; 
   --      make judgements and estimates that are reasonable and prudent; 

-- state where applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping accounting records that are sufficient to show and explain the Company's transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Alternative Investment Market listing rules. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that they have complied with the above requirements.

Statement of disclosure to auditors

The Directors confirm that:

-- so far as they are aware there is no relevant audit information of which the Company's auditors are unaware; and

-- they have taken all steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

By order of the board

Director

Date: ...............................................

 
 QANNAS INVESTMENTS LIMITED             16. 
 INDEPENT AUDITOR'S REPORT 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 
 
 Opinion 
=============================================================================== 
          In our opinion the financial statements of Qannas Investments Limited 
           (the 'company'): 
            *    give a true and fair view of the state of the 
                 company's affairs as at 31 December 2018 and of its 
                 loss for the year then ended; and 
 
 
            *    have been properly prepared in accordance with 
                 International Financial Reporting Standards (IFRSs) 
                 as adopted by the European Union. 
 
 
 
           We have audited the financial statements of Qannas Investments 
           Limited (the 'company') which comprise: 
            *    the statement of comprehensive income; 
 
 
            *    the statement of financial position; 
 
 
            *    the statement of changes in equity; 
 
 
            *    the statement of cash flows; and 
 
 
            *    the related notes 1 to 21. 
 
 
 
           The financial reporting framework that has been applied in their 
           preparation is applicable law and IFRSs as adopted by the European 
           Union. 
 
 
 Basis for opinion 
=============================================================================== 
 We conducted our audit in accordance with International Standards 
  on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities 
  under those standards are further described in the auditor's responsibilities 
  for the audit of the financial statements section of our report. 
 
  We are independent of the company in accordance with the ethical 
  requirements that are relevant to our audit of the financial statements 
  in the UK, including the Financial Reporting Council's (the 'FRC's') 
  Ethical Standard as applied to listed entities, and we have fulfilled 
  our other ethical responsibilities in accordance with these requirements. 
  We believe that the audit evidence we have obtained is sufficient 
  and appropriate to provide a basis for our opinion. 
 
 
 Summary of our audit approach 
============================================================================ 
  Key audit matters   The key audit matter that we identified in the current 
                       year was: 
                        *    Valuation of loans and investments 
 
 
 
                       Within this report, any new key audit matters are 
                       identified with and any key audit matters which are 
                       the same as the prior year identified with. 
-------------------  ======================================================= 
 Materiality          The materiality that we used in the current year 
                       was $711.4k which was determined on the basis of 
                       2% of Net Asset Value ("NAV"). 
-------------------  ======================================================= 
  Scoping             We undertook all audit work with no component audit 
                       teams used in the current year. 
-------------------  ======================================================= 
 Conclusions relating to going concern 
 
 
          We are required by ISAs (UK) to report in respect of          We have nothing 
           the following matters where:                                  to report 
           -- the directors' use of the going concern basis of           in respect 
           accounting in preparation of the financial statements         of these 
           is not appropriate; or                                        matters. 
           -- the directors have not disclosed in the financial 
           statements any identified material uncertainties that 
           may cast significant doubt about the company's ability 
           to continue to adopt the going concern basis of accounting 
           for a period of at least twelve months from the date 
           when the financial statements are authorised for issue. 
 
 
 QANNAS INVESTMENTS LIMITED                  17. 
 INDEPENT AUDITOR'S REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
==========================================  ==== 
 
 
 Key audit matters 
=============================================================================== 
 Key audit matters are those matters that, in our professional judgement, 
  were of most significance in our audit of the financial statements 
  of the current period and include the most significant assessed 
  risks of material misstatement (whether or not due to fraud) that 
  we identified. These matters included those which had the greatest 
  effect on: the overall audit strategy, the allocation of resources 
  in the audit; and directing the efforts of the engagement team. 
 
  These matters were addressed in the context of our audit of the 
  financial statements as a whole, and in forming our opinion thereon, 
  and we do not provide a separate opinion on these matters. 
 
  In the current year, the loans receivable were changed from being 
  measured at amortised cost to being measured at fair value through 
  profit or loss. As such the key audit matter of impairment of loans 
  receivable was removed, and the valuation of investments key audit 
  matter was updated to incorporate loans receivable. 
 Valuation of Loans and Investments 
 Key audit matter   Qannas Investments Limited holds a number of investments 
  description        in unquoted investments and loans which are valued 
                     at fair value through profit or loss under International 
                     Financial Reporting Standards. These investments 
                     total $37.4m (2017: $42.4m) with the loans totalling 
                     $13m (2017: $16.8m). 
 
                     The fair value of securities and loans that are 
                     not quoted in an active market are determined 
                     using valuation techniques in accordance with 
                     IFRS 13 "Fair Value Measurement" and International 
                     Private Equity and Venture Capital Valuation Guidelines 
                     ("IPEV Guidelines"). 
 
                     Palace Preferred Partners L.P ("Palace") is valued 
                     based on the balance on the company's capital 
                     account in the underlying partnership. 
 
                     The company's investments in ADCM Secondary Private 
                     Equity Fund L.P ("ADCM SPEF"), Goldilocks and 
                     SPE Qannas C Limited are valued based on the net 
                     asset value ("NAV") provided by the respective 
                     fund's manager, as adjusted by the company's investment 
                     manager. 
 
                     The company's investment into EE F&B Holding Limited 
                     represents an equity holding of $0.3m and a loan 
                     investment of $3.7m and has been valued based 
                     on the discounted value of expected cash flows. 
 
                     The underlying business owned by the company's 
                     investment in Integrated Financial Group, LLC 
                     ("IFG") was sold in the prior period and hence 
                     the company's investment in IFG has been valued 
                     based on the proceeds expected to flow up to the 
                     company. 
 
                     Finally the fair value of the loan receivable 
                     from Kepler Lending Co. Limited has been determined 
                     based on the outstanding capital and accrued interest. 
 
                     Due to the complexity and degree of management 
                     judgement involved when determining fair value, 
                     in the absence of quoted market prices and different 
                     valuation methodologies applied across loans and 
                     investments, we considered this a key audit matter. 
 
                     Relevant accounting policies and critical accounting 
                     estimates are disclosed in note 2, and further 
                     detail on the investments and loans are disclosed 
                     in notes 4, 5 and 17. 
=================  ========================================================== 
 
 
 
 QANNAS INVESTMENTS LIMITED                  18. 
 INDEPENT AUDITOR'S REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
==========================================  ==== 
 
 
 Valuation of Loans and Investments 
 How the scope                  In order to test the valuation of the investments 
  of our audit responded         as at 31 December 2018, we assessed the design 
  to the key audit               and implementation of controls relating to the 
  matter                         valuation of loans and investments. In addition, 
                                 the following procedures were performed: 
 
                                 In respect of Palace: 
                                  *    confirmed the valuation of Palace, as the valuation 
                                       method used within Qannas Investments Limited is the 
                                       value of the capital account, as reported by Palace, 
                                       and we recalculated this value in line with Qannas 
                                       Investments Limited's holding; and 
 
 
 
                                  *    as this investment is a preferred return, we ensured 
                                       that the fair value of the instrument was supported 
                                       by the NAV, as such we obtained the draft financial 
                                       statements of the underlying entity. This entity is 
                                       Palace Preferred Partners' sole investment and we 
                                       reconciled the valuation of that investment in 
                                       Palace's financial statements to assess whether this 
                                       supported the company's investment. 
 
 
 
                                 In respect of ADCM-SPEF, SPE Qannas C: 
                                  *    as these investments are no longer audited, we 
                                       confirmed ownership and pricing of their underlying 
                                       investments to confirmations from underlying managers, 
                                       as well as obtaining audited financial statements for 
                                       a number of the underlying investments to support the 
                                       company's valuation. 
 
 
 
                                 In respect of Goldilocks: 
                                  *    confirmed ownership and pricing of underlying 
                                       investment to confirmations from the investment 
                                       manager, and obtained the audited financial 
                                       statements of Goldilocks to verify the year-end net 
                                       asset value; and 
 
 
 
                                  *    confirmed the number of units held by Qannas 
                                       Investments Limited and the net asset value of 
                                       Goldilocks with the Deloitte Abu Dhabi team who are 
                                       the auditors of Goldilocks. 
 
 
 
                                 In respect of EE F&B Holding Limited: 
                                  *    agreed the initial equity investment from QIL to 
                                       share certificates, and agreed the fair value of the 
                                       equity and loan elements to the discounted cash flow 
                                       model prepared by the company; and 
 
 
 
                                  *    challenged the material assumptions made in the 
                                       discounted cash flow model including the discount 
                                       rate used, the EBITDA multiple for terminal value and 
                                       key cash flow assumptions. 
 
 
 
                                 In respect of IFG: 
                                  *    obtained the share purchase agreement relating to the 
                                       sale of the underlying business and reconciled the 
                                       expected proceeds to be received by the company to 
                                       the Company's valuation; and 
 
 
 
                                  *    confirmed the receipt of sales proceeds to date to 
                                       the post year-end bank statements, along with 
                                       confirming with the IFG investment manager that the 
                                       cash is available for distribution post year-end. 
========================  =================================================================== 
 
 
 QANNAS INVESTMENTS LIMITED                  19. 
 INDEPENT AUDITOR'S REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
==========================================  ==== 
 
 
 Valuation of Loans and Investments 
 How the scope                 In respect of loans receivable: 
  of our audit                   *    obtained and reviewed the loan facility agreements to 
  responded to                        understand the key terms and conditions on which the 
  the key audit                       loan has been granted by the company; 
  matter 
 
 
                                 *    reviewed each loan to ensure that the loan had not 
                                      breached its covenants and that the borrower had not 
                                      defaulted on any loan interest payments due, and 
                                      considered other financial information available on 
                                      the borrower to assess the entities ability (or 
                                      otherwise) to meet future payment commitments; and 
 
 
 
                                 *    for the new loan to Kepler Lending Co. Limited we 
                                      have reviewed the loan agreement, and challenged 
                                      whether principal plus interest was a fair proxy for 
                                      fair value given the level of collateral and the 
                                      performance of the loan. 
=================  ======================================================================== 
 Key observations   We concluded that the valuation of loans and investments 
                     is appropriate. 
=================  ======================================================================== 
 

Our application of materiality

 
 We define materiality as the magnitude of misstatement in the financial 
  statements that makes it probable that the economic decisions of 
  a reasonably knowledgeable person would be changed or influenced. 
  We use materiality both in planning the scope of our audit work 
  and in evaluating the results of our work. 
 Based on our professional judgement, we determined materiality 
  for the financial statements as a whole as follows: 
   Materiality             $0.71m (2017: $1.02m) 
  ---------------------- 
   Basis for determining   2% of preliminary Net Asset Value ("NAV") as 
    materiality             at 31 December 2018 (2017: 3% of NAV). 
  ----------------------  ================================================== 
   Rationale for           As an investment entity that is also AIM listed, 
    the benchmark           shareholders are predominantly focussed on 
    applied                 the NAV of Qannas Investments Limited, which 
                            in turn is driven by the value of the underlying 
                            investments. 
  ----------------------  ================================================== 
 
 
 QANNAS INVESTMENTS LIMITED                  20. 
 INDEPENT AUDITOR'S REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
==========================================  ==== 
 

Our application of materiality

 
 We agreed with the Board of Directors that we would report to them 
  all audit differences in excess of $0.035m, as well as differences 
  below that threshold that, in our view, warranted reporting on 
  qualitative grounds. We also report to the Board of Directors on 
  disclosure matters that we identified when assessing the overall 
  presentation of the financial statements. 
 
 
 An overview of the scope of our audit 
====================================================================== 
 Our audit was scoped by obtaining a further understanding of the 
  company and its environment, the investment manager, including 
  relevant controls, and assessing the risks of material misstatement, 
  alongside the consideration in the company's new strategy. 
 
  We liaised with both the administrator and the investment manager 
  to obtain sufficient and appropriate audit evidence. 
 
 
 Other information 
============================================================================ 
 The directors are responsible for the other information.        We have 
  The other information comprises the information included        nothing 
  in the annual report including the Chairman's Report, the       to report 
  Investment Manager's Report, and the Director's Report,         in respect 
  other than the financial statements and our auditor's report    of these 
  thereon.                                                        matters. 
 
  Our opinion on the financial statements does not cover 
  the other information and we do not express any form of 
  assurance conclusion thereon. 
 
  In connection with our audit of the financial statements, 
  our responsibility is to read the other information and, 
  in doing so, consider whether the other information is 
  materially inconsistent with the financial statements or 
  our knowledge obtained in the audit or otherwise appears 
  to be materially misstated. 
 
  If we identify such material inconsistencies or apparent 
  material misstatements, we are required to determine whether 
  there is a material misstatement in the financial statements 
  or a material misstatement of the other information. If, 
  based on the work we have performed, we conclude that there 
  is a material misstatement of this other information, we 
  are required to report that fact. 
 
 
 Responsibilities of directors 
====================================================================== 
 As explained more fully in the directors' responsibilities statement, 
  the directors are responsible for the preparation of the financial 
  statements and for being satisfied that they give a true and fair 
  view, and for such internal control as the directors determine 
  is necessary to enable the preparation of financial statements 
  that are free from material misstatement, whether due to fraud 
  or error. 
 
  In preparing the financial statements, the directors are responsible 
  for assessing the company's ability to continue as a going concern, 
  disclosing as applicable, matters related to going concern and 
  using the going concern basis of accounting unless the directors 
  either intend to liquidate the company or to cease operations, 
  or have no realistic alternative but to do so. 
 
 
 QANNAS INVESTMENTS LIMITED                  21. 
 INDEPENT AUDITOR'S REPORT - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
==========================================  ==== 
 
 
 Auditor's responsibilities for the audit of the financial statements 
======================================================================================================= 
 Our objectives are to obtain reasonable assurance about whether 
  the financial statements as a whole are free from material misstatement, 
  whether due to fraud or error, and to issue an auditor's report 
  that includes our opinion. Reasonable assurance is a high level 
  of assurance, but is not a guarantee that an audit conducted in 
  accordance with ISAs (UK) will always detect a material misstatement 
  when it exists. Misstatements can arise from fraud or error and 
  are considered material if, individually or in the aggregate, they 
  could reasonably be expected to influence the economic decisions 
  of users taken on the basis of these financial statements. 
 
  A further description of our responsibilities for the audit of 
  the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. 
  This description forms part of our auditor's report. 
 Use of our report 
======================================================================================================= 
 This report is made solely to the company's members, as a body. 
  Our audit work has been undertaken for compliance with the AIM 
  Listing Rules (Part 1.19) and so that we might state to the company's 
  members those matters we are required to state to them in an auditor's 
  report and for no other purpose. To the fullest extent permitted 
  by law, we do not accept or assume responsibility to anyone other 
  than the company and the company's members as a body, for our audit 
  work, for this report, or for the opinions we have formed. 
 

David Becker

For and on behalf of Deloitte LLP

Statutory Auditor

St Peter Port, Guernsey

June 2019

 
 QANNAS INVESTMENTS LIMITED             22. 
 STATEMENT OF COMPREHENSIVE INCOME 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 
 
                                                 Notes          2018           2017 
                                                                          Restated* 
                                                                   $              $ 
 Income 
 Movement in management and performance 
  fee rebate receivable                           16         383,667    (3,426,058) 
 Investment income                                                 -      1,107,502 
 Interest income on loans receivable                         785,568        899,949 
 Realised gain on disposal of investments          4               -      1,099,838 
 Realised gain on repayment of loan 
  receivable                                       5         701,855              - 
                                                           1,871,090      (318,769) 
 Expenditure 
 Secretarial and administration fees                       (153,480)      (134,353) 
 Directors' remuneration                           3        (67,068)       (85,290) 
 Insurance expense                                           (6,870)        (7,719) 
 Investment manager fees                          16       (646,663)    (1,038,624) 
 Movement in performance fees                     16         504,074        277,707 
 Legal and professional fees                               (174,210)      (284,793) 
 Audit fees                                                (116,605)       (51,678) 
 Sundry expenses                                             (6,447)        (3,565) 
 Bank charges                                                (1,999)          (440) 
 Realised loss on disposal of investments          4       (734,314)              - 
                                                         (1,403,582)    (1,328,755) 
                                                        ------------  ------------- 
 
 Net profit / (loss)                                         467,508    (1,647,524) 
 
 Net movement on changes in fair value 
  of investments                                   4       (620,589)   (16,469,906) 
 Net movement on changes in fair value 
  of loans receivable                              5       (521,481)      1,494,445 
 
   Impairment losses arising on loan interest 
   receivable                                       7      (147,538)      (238,992) 
 Finance costs 
 Loan interest payable                                   (1,421,795)    (1,671,765) 
 (Loss) / gain on foreign exchange                          (27,928)        235,804 
 
 Finance income 
 Interest income - cash and cash equivalents                  54,730          2,625 
                                                        ------------  ------------- 
 Loss for the year before taxation                       (2,217,093)   (18,295,313) 
 
 Taxation provision for the year                  14               -              - 
                                                        ------------  ------------- 
 Loss for the year after taxation                        (2,217,093)   (18,295,313) 
 
 Other comprehensive income                                        -              - 
 Total comprehensive loss for the year                   (2,217,093)   (18,295,313) 
                                                        ============  ============= 
 
 Loss per share 
 Basic and diluted EPS on (loss) for 
  the year                                        13          (0.04)         (0.28) 
                                                        ============  ============= 
 

* - Details of the restatement to the 2017 comparatives can be seen in note 2

The notes on pages 26 to 55 form part of these audited financial statements

 
 QANNAS INVESTMENTS LIMITED         23. 
 STATEMENT OF FINANCIAL POSITION 
 
 AS AT 31 DECEMBER 2018 
=================================  ==== 
 
 
                                                          31.12.18                    31.12.17 
                                                                                     Restated* 
                                Notes              $             $              $            $ 
 Assets 
 Non-current assets 
 Investments at fair 
  value 
 through profit and loss          4       28,536,890                   32,209,713 
 Loans receivable at 
  fair value through profit 
  and loss                         5      12,965,277                    3,713,576 
                                       -------------                ------------- 
 Total non-current assets                               41,502,167                  35,923,289 
 
 Current assets 
 Investments at fair 
  value 
 through profit and loss          4       12,449,911                   10,181,714 
 Loans receivable at 
  fair value through profit 
  and loss                         5               -                   13,110,632 
 Property investments             6                -                            - 
 Trade and other receivables      7        1,348,687                    1,978,874 
 Cash and cash equivalents        8          256,920                    5,715,713 
                                       -------------                ------------- 
 Total current assets                                   14,055,518                  30,986,933 
 Total assets                                           55,557,685                  66,910,222 
                                                      ============                 =========== 
 
 Equity and liabilities 
 Equity 
 Management shares               11                2                            2 
 Participating shares            11       59,605,907                   59,799,019 
                                 12, 
 Retained earnings                18    (23,346,350)                 (21,129,257) 
                                       -------------                ------------- 
 Total equity                                           36,259,559                  38,669,764 
 
 Liabilities 
 Current liabilities 
 Trade and other payables         9        1,860,702                      776,883 
 Loans payable                   10       17,427,652                    8,000,000 
                                       -------------                ------------- 
 Total current liabilities                              19,288,354                   8,776,883 
 
 Non-current liabilities 
 Trade and other payables         9            9,772                    2,259,631 
 Loans payable                   10                -                   17,203,944 
                                       -------------                ------------- 
                                                             9,772                  19,463,575 
 Total liabilities and 
  equity                                                55,557,685                  66,910,222 
                                                      ============                 =========== 
 
 Net asset value per Participating 
  share                                                      $0.61                       $0.65 
                                                      ============                 =========== 
 

* - Details of the restatement can be seen in note 2.

The notes on pages 26 to 55 form part of these audited financial statements

The financial statements were approved and authorised for issue by the Board of Directors of Qannas Investments

Limited on                ........................................ and signed on their behalf by: 

........................................

Director

 
 QANNAS INVESTMENTS LIMITED             24. 
 STATEMENT OF CHANGES IN EQUITY 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 
 
                                     Management       Participating       Retained 
                                      share capital   share capital       earnings           Total 
                                                  $               $              $               $ 
 
 At 1 January 2017                                2      67,799,019    (2,833,944)      64,965,077 
 
 Purchase of participating shares 
  under tender offer (note 11)                    -     (8,000,000)              -     (8,000,000) 
 
 Total comprehensive loss                         -               -   (18,295,313)    (18,295,313) 
 
 At 31 December 2017                              2      59,799,019   (21,129,257)      38,669,764 
                                     --------------  --------------  -------------  -------------- 
 
 
 At 1 January 2018                                2      59,799,019   (21,129,257)      38,669,764 
 
 Purchase of participating shares 
  (note 11)                                       -       (193,112)              -       (193,112) 
 
 Total comprehensive loss                         -               -    (2,217,093)     (2,217,093) 
 
 At 31 December 2018                              2      59,605,907   (23,346,350)      36,259,559 
                                     ==============  ==============  =============  ============== 
 

The notes on pages 26 to 55 form part of these audited financial statements

 
 QANNAS INVESTMENTS LIMITED             25. 
 STATEMENT OF CASH FLOWS 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 
 
                                                              2018           2017 
                                                                 $              $ 
 
 Operating activities 
 Loss for the year before taxation                     (2,217,093)   (18,295,313) 
 Net movement on changes in fair value 
  of investments                                           620,589     15,431,602 
 Realised loss / (gain) on disposal of 
  investments                                              734,314    (1,099,838) 
 Realised gain on repayment of loans receivable          (701,855)              - 
 Interest income                                         (840,298)      (902,574) 
 Loan interest payable                                   1,421,795      1,671,765 
 Net movement on changes in fair value 
  of loans receivable                                      521,481    (1,592,875) 
 Impairment losses arising on loan interest 
  receivable                                               147,538        337,422 
 Loss / (gain) on foreign exchange                          27,928      (235,804) 
 Decrease in trade receivables                              70,441      4,467,328 
 Decrease in trade payables                            (1,030,112)      (404,348) 
 Net cash flow from operating activities               (1,245,272)      (622,635) 
                                                      ------------  ------------- 
 
 Investing activities 
 Interest received - cash and cash equivalents              54,730          2,625 
 Interest received - loans receivable                    1,524,534        182,240 
 Issue of loans receivable                             (9,251,701)      (133,912) 
 Repayment of loans receivable                          12,950,230      1,204,759 
 Purchase of investments                               (3,500,000)    (3,896,899) 
 Proceeds from disposal of investments                   3,298,636      5,847,054 
 Capital distributions received from investments           251,087     14,402,547 
 Proceeds from disposal of property investments                  -        779,560 
 Net cash flow from investing activities                 5,327,516     18,387,974 
                                                      ------------  ------------- 
 
 Financing activities 
 Repayment of bank loan                                (8,000,000)    (4,500,000) 
 Loan interest paid                                    (1,334,015)    (1,365,135) 
 Purchase of own participating shares                    (193,112)    (8,000,000) 
 Net cash flow from financing activities               (9,527,127)   (13,865,135) 
                                                      ------------  ------------- 
 
 Net (decrease) / increase in cash and 
  cash equivalents                                     (5,444,883)      3,900,204 
 
 Effect of foreign exchange movements                     (13,910)        196,498 
 
 Cash and cash equivalents at 1 January                  5,715,713      1,619,011 
 
 Cash and cash equivalents at 31 December                  256,920      5,715,713 
                                                      ============  ============= 
 

The notes on pages 26 to 55 form part of these audited financial statements

 
 QANNAS INVESTMENTS LIMITED             26. 
 NOTES TO THE FINANCIAL STATEMENTS 
 
 FOR THE YEARED 31 DECEMBER 2018 
=====================================  ==== 
 
   1.         GENERAL INFORMATION 

The Company is an exempt closed-ended investment company listed on London's Alternative Investment Market ("AIM"), with an unlimited life, incorporated in the Cayman Islands. The registered office of the Company is Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman, KY1-9008, Cayman Islands.

The Company's principal activity is that of investing, centred around a theme-based investment approach, which has evolved over the years, starting with a focus on distressed / opportunistic investments in the UAE in 2012 and 2013 and broadening to the acquisition of secondary portfolios of regional PE funds and European real estate investments between 2014 and 2018. At the Annual General Meeting held on 19 September 2018, the Company changed its strategy to centre around investing in listed equities in the GCC region, with a proportion of funds to be allocated in debt instruments and pre-IPO financing. The core philosophy of the Company continues to be value investing with an investment objective to achieve long-term and sustainable attractive returns through a combination of income generation and long-term capital appreciation.

   2.         SIGNIFICANT ACCOUNTING POLICIES 

Basis of preparation

The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments and investments which are included at fair value, and in accordance with applicable International Financial Reporting Standards as endorsed for use in the European Union ("IFRS") and, where applicable, takes guidance from the Association of Investment Companies Statement of Recommended Practice ("AIC SORP"). The principal accounting policies are set out below.

In the current period, the Company has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRSs for the first time. IFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) impairment of financial assets and 3) general hedge accounting. Details of these new requirements as well as their impact on the Company's financial statements are described below.

Non consolidation

The Company fulfils the definition of an investment entity under IFRS 10 ("Consolidated Financial Statements") and as a result does not consolidate investments in subsidiaries but instead measures its investment at fair value through profit and loss. It also carries its loans receivables at fair value through profit or loss. IFRS 10 defines an investment entity as one that obtains funds from investors for the purpose of providing investors with investment management services, commits to its investors that its purpose is to invest funds solely for returns from capital appreciation, investment income or both and measures and evaluates the performance of substantially all its investments on a fair value basis. The Company considers its meets the definition on the basis it has more than one investment, has more than one investor, including investors that are not related parties and has ownership interests in the form of equity or other similar interests.

Impact of transition to IFRS 9 / Restatement of comparatives

   a)    Classification and measurement of financial assets 

The date of initial application (i.e. the date on which the Company has assessed its existing financial assets and financial liabilities in terms of the requirements of IFRS 9) is 1 January 2018. Accordingly, the Company has applied the requirements of IFRS 9 to instruments that have not been derecognised as at 1 January 2018 and has not applied the requirements to instruments that had already been derecognised as at 1 January 2018. Comparative amounts have not been restated.

All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.

With effect from 1 January 2018, and a result of the impact analysis performed by management on the adoption of IFRS 9, the Company reclassified loans receivable, previously measured at amortised cost, to loans receivable at fair value through profit and loss.

 
 QANNAS INVESTMENTS LIMITED                       27. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   2.         SIGNIFICANT ACCOUNTING POLICIES - continued 

Impact of transition to IFRS 9 / Restatement of comparatives - continued

   a)    Classification and measurement of financial assets - continued 

The change in accounting policy has been treated as a correction of a prior period error, which reflects the requirement to subsequently measure all financial asset investments (including debt investments) at fair value when an entity meets the definition of an investment entity under IFRS 10 ("Consolidated Financial Statements") (as referred to above).

As the amortised cost previously recognised was equivalent to fair value, there was no quantitative impact of this change on the prior year. As such, a third balance sheet has not been presented as required under IAS 8. ("Accounting policies, changes in accounting estimates and errors") Note (c) below tabulates the change in classification of the Company's financial assets upon application of IFRS 9 / restatement of comparatives.

As noted in the previous paragraph, financial assets classified as loans and receivables under IAS 39 that were measured at amortised cost are now measured at fair value through profit or loss under IFRS 9 as they are considered to represent part of the Company's investment portfolio and hence are more appropriately classified at fair value.

   b)    Impairment of financial assets 

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the Company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

As at 1 January 2018, the Directors of the Company reviewed and assessed the Company's existing financial assets for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially recognised.

No additional credit loss as at 1 January 2018 has been recognised against retained earnings as a result.

   c)     Disclosures in relation to the initial application of IFRS 9 / restatement of comparatives 

The table below illustrates the classification and measurement of financial assets and financial liabilities.

 
                                         Loans and receivables        Fair value 
                                                                  through profit 
                                                                        and loss 
                                                             $                 $ 
 
 Closing balance 31 December                        16,824,208                 - 
  2017 (as previously reported) 
 
 Reclassification of loans receivable             (16,824,208)        16,824,208 
 
 As restated                                                 -        16,824,208 
                                        ----------------------  ---------------- 
 
 

The change in measurement category of the different financial assets has had no impact on their respective carrying amounts on their initial application / correction of a policy error.

   d)    Financial impact of initial application of IFRS 9 

The application of IFRS 9 has no impact on initial application.

 
 QANNAS INVESTMENTS LIMITED                       28. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   2.         SIGNIFICANT ACCOUNTING POLICIES - continued 

Basis of measurement

Financial assets

All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

   a)    Classification of financial assets 

Financial assets that are considered to be part of the Company's core investment operations are held at fair value through profit and loss as they are managed on a fair value basis.

Other financial assets that are not part of the core investment operations are measured at amortised cost so long as the below criteria is met: -

-- The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

-- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

By default, all other financial assets are subsequently measured at FVTPL.

   (i)     Amortised cost and effective interest method 

At initial recognition financial assets are measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. The amortised cost of a financial asset is the financial amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised costs of a financial asset before adjusting for any loss allowance.

Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset. For financial assets that have subsequently become credit impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset.

For purchased or originated credit impaired financial assets, the Company recognises interest income by applying the credit adjusted effective interest rate to the amortised cost of the financial asset from initial recognition. The calculation does not revert to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset is no longer credit impaired.

Interest income is recognised in profit or loss and is included in the 'interest income' line item.

   (ii)    Financial assets at fair value through profit or loss 

Financial assets that are considered part of the Company's investment operations or do not meet the criteria for being measured at amortised cost (see (i) above) are measured at FVTPL with any fair value gains or losses recognised in profit or loss to the extent they are not part of a designated hedging relationship. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets. Fair value is determined in the manner described as follows:

 
 QANNAS INVESTMENTS LIMITED                       29. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   2.      SIGNIFICANT ACCOUNTING POLICIES - continued 

Basis of measurement - continued

Financial assets - continued

   (ii)       Financial assets at fair value through profit or loss - continued 

Investments are recognised and de-recognised on the trade date; the date on which the Company commits to purchase or sell an investment. Investments are initially recognised at cost. Transaction costs are expensed as incurred in the Statement of Comprehensive Income. Investments are de-recognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

Subsequent to initial recognition, investments are measured at their fair value. Gains and losses arising from changes in the fair value are presented in the Statement of Comprehensive Income in the period in which they arise.

Dividend income is recognised in the Statement of Comprehensive Income when the Company's right to receive payments is established.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value of financial assets and liabilities traded in active markets (such as publicly traded securities) are based on quoted market prices at the close of trading on the reporting date. The Company utilises the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Directors will determine the point within the bid-ask spread that is most representative of fair value.

The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Company's investments in underlying funds are ordinarily valued using the values (whether final or estimated) as advised to the Investment Manager by the managers, general partners or administrators of the relevant underlying fund. The valuation date of such investments may not always be coterminous with the valuation dates of the Company and in such cases the valuation of the investments as at the last valuation date is used. The net asset value reported by the administrator may be unaudited and, in some cases, the notified asset values are based upon estimates. The Company or the Investment Manager may depart from this policy where it is considered such valuation is inappropriate and may, at its discretion, permit any other method of valuation to be used if it considers that such method of valuation better reflects value generally or in particular markets or market conditions and is in accordance with good accounting practice. In the event that a price or valuation estimate accepted by the Company or by the Investment Manager in relation to an underlying fund subsequently proves to be incorrect or varies from the final published price by an immaterial amount, no retrospective adjustment to any previously announced Net Asset Value or Net Asset Value per Share will be made.

 
 QANNAS INVESTMENTS LIMITED                       30. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   2.     SIGNIFICANT ACCOUNTING POLICIES - continued 

Basis of measurement - continued

Financial assets - continued

   b)    Impairment of financial assets 

The Company recognises lifetime expected credit losses for trade receivables at each reporting date. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company's historical credit loss experience, adjusted for any factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.

Cash and cash equivalents

Cash and cash equivalents comprises deposits held on call with banks.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.

Trade receivables include the contractual amounts for the settlement of trades and other obligations due to the Company.

Financial liabilities

All financial liabilities are subsequently measured at amortised cost using the effective interest method.

Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.

Trade and other payables represent contractual amounts and obligations due by the Company.

Loans payable

Loans payable are measured initially at cost. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method. These financial liabilities are recognised when the Company enters into a loan agreement and are de-recognised when the loan agreement is terminated.

The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument, in order that the present value of the future cash flows, including fees or transaction costs, is equal to the carrying amount of the financial instrument.

Finance costs associated with loans payable have been spread on an effective interest rate basis over the life of the loan.

Functional and presentational currency

The performance of the Company is measured and reported to the investors in US dollars. The Board of Directors considers the US dollar as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in US dollars, which is the Company's functional and presentation currency.

 
 QANNAS INVESTMENTS LIMITED                       31. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   2.         SIGNIFICANT ACCOUNTING POLICIES - continued 

Use of estimates and judgements

The preparation of the financial statements in conformity with IFRS and applicable law requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates with the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are outlined below:

(i) Valuation of unquoted investments - The fair value of these is determined via valuation techniques. For further details of the judgements and assumptions made see notes 4 and 17;

(ii) Valuation of loans receivable - Loans receivable are held at fair value through profit and loss. The fair value is determined via valuation techniques. For further details of the judgements and assumptions made see notes 5 and 17; and

(iii) Classification as an investment entity - The Directors' have reviewed the definition of an investment entity and are satisfied the Company qualifies as such and hence does not consolidate. See the following page for details of the consideration.

Foreign currencies

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the Statement of Financial Position date.

Foreign exchange gains and losses arising from translation are included in the Statement of Comprehensive Income. Foreign exchange gains and losses relating to cash and cash equivalents are presented in the Statement of Comprehensive Income. Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the Statement of Comprehensive Income within 'net movement on changes in fair value of investments'.

Shares in issue

Management Shares are not redeemable, do not participate in the net income or dividends of the Company and are recorded at $1.00 per share.

Participating shares in issue are not redeemable at the shareholder's option.

Participating shares which are acquired by the Company are recognised at cost and deducted from equity. No gain or loss is recognised in the Statement of Comprehensive Income on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable in the normal course of business. The Company recognises revenue when the amount of revenue can be reliably measured and when it is probable that the future economic benefits will flow into the Company.

Taxation

The Company is tax resident in Jersey, on the basis that board meetings and strategic decisions are undertaken in Jersey. Provision has been made in these financial statements for Jersey income tax at the rate of 0%.

Expenditure and transaction costs

All items of expenditure, including the performance and management fees, are recognised on an accruals basis.

The Company receives rebates for performance and management fees in respect of certain investments. These are included in the Statement of Comprehensive Income on an accruals basis.

 
 QANNAS INVESTMENTS LIMITED                       32. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   2.         SIGNIFICANT ACCOUNTING POLICIES - continued 

Distributions payable

The payment of dividends will depend on the availability of distributable reserves, cash resources and the working capital requirements of the Company. Dividends paid are included in the Company financial statements in the period in which the related dividends are declared.

Going concern

The Directors, after making due enquiries, continue to adopt the going concern basis in preparing the financial statements which assumes that the Company will continue in operation for the foreseeable future. The Company is in the process of realising existing investments in an orderly fashion and pursuing the new investment strategy, as further detailed in the Chairman's Report. As disclosed in note 10, the Company is due to repay the bank loan payable during 2019. This repayment will be financed by way of existing cash reserves and the continued realisation of the Company's investments.

The Company as at June 2019 currently has $6.9m cash and cash equivalent in order to pay its $5m loan repayment which is due on 30 June 2019 (having already settled approximately $500,000 of trade and other payables), after which the balance of the company's bank borrowings will total $10m.

In Q3 and Q4 of 2019 the Company intends to realise its investments in IFG, PPP and ADCM SPEF and the Directors are confident that the realisation of these investments will be sufficient to repay the balance of the bank loan by December 2019. Whilst the investments in PPP and ADCM SPEF are illiquid, the investment in IFG (with a residual balance of $8m net of post year end distributions) is considered liquid with the distributions controlled by the parent company of the Company Investment Manager acting as manager to IFG.

Should the projected realisations not occur in the timeframes expected, the Company will look to liquidate a further element of its holding in Goldilocks Investment Company Limited.

Segmental reporting

The Company is operated as one segment by the Board of Directors (which is considered to be the Chief Operating Decision Maker).

Operating segments are reported in a manner consistent with the internal reporting used by the Chief Operating Decision Maker. The Board of Directors is responsible for allocating resources and assessing performance of the operating segments that have been identified as the Board of Directors.

The Directors make the strategic resource allocations on behalf of the Company. The Company has determined the operating segments based on the reports reviewed by the Board of Directors, which are used to make strategic decisions.

The Board of Directors is responsible for the Company's entire portfolio and considers the business to have a single operating segment. The Board of Directors asset allocation decisions are based on a single, integrated investment strategy, and the Company's performance is evaluated on an overall basis.

The Company trades in a diversified portfolio of securities with the objective of generating value for shareholders.

The internal reporting provided to the Board of Directors for the Company's assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.

There were no changes in the reportable segments during the year.

Restatement of prior period comparatives

As detailed earlier in this note, with the adoption of IFRS 9, the Company reclassified loans receivable held at amortised cost to fair value through profit or loss. There was no numerical impact on the prior year as the fair value at 31 December 2017 is equivalent to the amortised cost position at 31 December 2017. However, a number of presentational / terminology changes have been applied to reflect this change.

 
 QANNAS INVESTMENTS LIMITED                       33. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   2.         SIGNIFICANT ACCOUNTING POLICIES - continued 

Adoption of new and revised standards

The Directors have assessed the impact, or potential impact, of all new accounting requirements. In the opinion of the Directors, there are no mandatory new accounting requirements applicable in the current year that have any material effect on the reported performance, financial position, or disclosures of the Company, other than IFRS 9 Financial Instruments, which is detailed earlier in this note.

IFRS 15 Revenue from Contracts with Customers, establishes a five-step model that applies to revenue arising from contracts with customers and provides a more structured approach to measuring and recognising revenue. The Company has two principal revenue streams in the form of management fee and performance fee rebates, and loan interest. As part of the assessment process, the five-step model has been applied to each material revenue stream. It is considered that the application of the five-step model to material revenue streams does not result in any change to either the timing of when revenue is recognised or to the value of the amounts recognised in the financial statements when compared to the way in which revenue was previously recognised under IAS 18 Revenue. The Company has not recognised any performance or carried interest fees in these results but will do so when they meet the criteria outlined in IFRS 15. There has been no material impact as a result of the adoption of IFRS 15 to either the current or prior year.

The Company has not adopted any new accounting requirements that are not mandatory.

Amendments adopted early by the Company

There were no standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2018 that were material to the Company, other than IFRS 9 which is detailed earlier in this note.

New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2019, and have not been adopted in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of the Company.

   3.         DIRECTORS' REMUNERATION AND INTERESTS 

The remuneration of the individual Directors who served in the year to 31 December 2018 was:

 
                                  31.12.18   31.12.17 
                                         $          $ 
 
 Richard John Stobart Prosser       26,876     26,210 
 Christopher Ward                   32,416     32,277 
 Richard Green                       7,776     26,803 
 Mustafa Kheriba                         -          - 
                                    67,068     85,290 
                                 =========  ========= 
 

Mustafa Kheriba is a representative from the Investment Manager, who sits on the Board, and therefore does not receive any form of director remuneration.

Directors' interests in the shares of the Company, including family interest, at 31 December 2018 were:

 
                                 Share            Nominal   % Held 
 
                                 Participating 
 Richard John Stobart Prosser     shares              nil    0.00% 
                                 Participating 
 Christopher Ward                 shares          100,000    0.17% 
                                 Participating 
 Mustafa Kheriba                  shares          461,153    0.77% 
 
 
 QANNAS INVESTMENTS LIMITED                       34. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   4.         INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS 
 
                                              31.12.18       31.12.17 
                                                     $              $ 
 
 Fair value brought forward                 42,391,427     74,114,197 
 Additions                                   3,500,000      3,896,899 
 Disposals                                 (3,298,636)    (5,847,054) 
 Realised (losses) / gains                   (734,314)      1,099,838 
 Capital distributions                       (251,087)   (14,402,547) 
 Net movement on changes in fair value 
  of investments                             (620,589)   (16,469,906) 
 Fair value at 31 December                  40,986,801     42,391,427 
                                          ============  ============= 
 
 
 Investments comprise: 
                                              31.12.18     31.12.17 
                                            Fair Value   Fair Value 
                                                     $            $ 
 Non-current assets 
 ADCM Secondary Private Equity Fund 
  L.P. ("ADCM SPEF")                         3,579,885    4,439,078 
 SPE Qannas C Limited                                -            - 
 EE F&B Holding Limited                        326,917            1 
 Palace Preferred Partners 
  L.P.                                       5,661,520    8,743,938 
 Integrated Financial 
  Group, LLC                                18,968,568   19,026,696 
                                            28,536,890   32,209,713 
                                           -----------  ----------- 
 
 
 Current assets 
 Goldilocks Fund                       8,896,152   10,181,714 
 Jabal Omar Development Sukuk          3,553,759            - 
  9.85% 15-Nov-2023 
                                     -----------  ----------- 
                                      12,449,911   10,181,714 
                                     -----------  ----------- 
 
 
 Total         40,986,801        42,391,427 
              ===========  ================ 
 

The investments in Goldilocks Fund and Jabal Omark Development Sukuk are classified as current assets as it is anticipated they will be disposed of within the short term. As further detailed in note 21, the investment in Jabal Omark Development Sukuk was disposed of in February 2019.

In 2017, the Company elected to write down the holdings by ADCM SPEF and SPE Qannas C Limited in Abraaj exposed funds to $nil. This followed the Investment Manager's observations that it will be challenging to find a willing buyer for the holdings in Abraaj due to uncertainty over the General Partner and the funds' underlying assets. Furthermore, as these funds are in liquidation phase, and as there is no further incentive for the General Partner, the Investment Manager believes that the liquidation of underlying assets could be at a steep discount and could take significant time to realize. The Investment Manager considers the position is unchanged at 31 December 2018.

 
 QANNAS INVESTMENTS LIMITED                       35. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   4.         INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS - continued 

The fair values of the investments are based on the latest available net asset value reports and / or financial information available for the underlying companies. Further details can be seen in note 17.

 
 Investments at 31 December 2018 comprise: 
                                   Class of       No. of   Percentage         Book 
                                     Shares       Shares      Holding         Cost 
                                                    Held 
                                                                                 $ 
 
 SPE Qannas C Limited              Preference   8,039,559        74.3%    7,930,886 
 ADCM Secondary Private 
  Equity Fund L.P.                          -           -        96.5%   18,025,471 
 EE F&B Holding Limited              Ordinary       1,000         100%    1,006,904 
 Palace Preferred Partners 
  L.P.                                      -           -       17.43%    3,460,840 
 Goldilocks Investment 
  Company Limited (formally 
  Goldilocks Fund)                      Units   3,541,004           4%    4,094,938 
 Integrated Financial 
  Group, LLC                         Ordinary      73,908        47.4%   18,667,177 
 Jabal Omar Development            Preference   3,500,000        0.03%    3,500,000 
                                                                        56,686,216 
                                                                       =========== 
 

During the year, the Company was party to the following investment transactions: -

-- The Company exited a portion of the investment in Palace Preferred Partners L.P., resulting in the receipt of proceeds of $3,298,636 (GBP2,334,656). This resulted in a realised loss of $734,314;

   --      The Company acquired a $3,500,000 sukuk in Jabal Omar Development; 

-- The Company received capital distributions amounting to $251,087 from ADCM Secondary Private Equity Fund L.P.; and

-- The Company also entered into an agreement to transfer its entire right, title and interest for the remaining outstanding commitment of GBP3,652,816 in Palace Preferred Partners L.P.. No proceeds were received in respect of this as the Company had not made any advancements in respect of this element of the commitment.

The loan due to First Abu Dhabi Bank is secured by way of a charge over the Company's investments in ADCM Secondary Private Equity Fund L.P., SPE Qannas C Limited, Palace Preferred Partners L.P., EE F&B Holding Limited and Integrated Financial Group LLC. See note 10 for further details, including covenants.

 
 QANNAS INVESTMENTS LIMITED                       36. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   5.         LOANS RECEIVABLE AT FAIR VALUE THROUGH PROFIT AND LOSS 
 
                                               31.12.18      31.12.17 
                                                      $             $ 
 
 Brought forward                             16,824,208    16,220,609 
 Additions                                    9,251,701       133,912 
 Loan interest (repaid) / capitalised         (340,776)       180,001 
 Repayments                                (12,950,230)   (1,204,759) 
 Gain on repayment                              701,855             - 
 Net movement on changes in fair value 
  of loans receivable                         (521,481)     1,494,445 
                                             12,965,277    16,824,208 
                                          =============  ============ 
 

At 31 December 2017, $13,110,632 of the total loans of $16,824,208 were due for repayment within 12 months and hence were classified as current assets. These loans were subsequently repaid in full during the year ended 31 December 2018.

At 31 December 2018, loans receivable, which are all considered non-current as they are not expected to be repaid within 12 months of the year end, comprise: -

 
                            Interest      Maturity        Carrying     Carrying 
                                rate          date           value        value 
                                                               CCY            $ 
 
 EE F&B Holding Limited           4%   Not defined    EUR3,480,170    3,713,576 
 Kepler Lending Co. 
  Limited                      9.75%          2021   AED34,000,000    9,251,701 
 Belcafe Limited                 N /         N / A               -            - 
                                   A 
                                                                     12,965,277 
                                                                    =========== 
 

Loan interest of $785,568 (2017: $899,949) was accrued in respect of the year ended 31 December 2018, of which $65,147 remained outstanding at 31 December 2018 (2017: $624,894).

During the year ended 31 December 2018, the following loan transactions occurred: -

-- The loan receivable from Capital Hotel d.o.o. was repaid, resulting in proceeds of $9,931,555 (EUR8,759,530) being received. It was originally intended the loan would be converted into equity and hence on repayment there was a gain of $701,855 over carrying value, which has been recognised in the Statement of Comprehensive Income. Loan interest outstanding and accrued on the loan was also repaid in full;

-- The loans receivable from Integrated Eastern European Fund, Lucice Montenegro d.o.o. and Arqutino EAD, and associated capitalised and accrued loan interest, were repaid in full; and

-- The Company subscribed a term interest certificate to Kepler Lending Co. Limited, for $9,251,701 (AED34,000,000).

The loans receivable are unsecured, except for the loan receivable from Kepler Lending Co. Limited which is secured by way of 37,719,359 units in Goldilocks Fund. EE F&B Holding Limited owns the Master Franchise rights to operate Hard Rock Cafes in Podgorica, Montenegro, Sofia, Bulgaria and Belgrade, Serbia.

 
 QANNAS INVESTMENTS LIMITED                       37. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   6.         PROPERTY INVESTMENTS 
 
                                 31.12.18     31.12.17 
                                        $            $ 
 
 Fair value brought forward               -     779,560 
 Disposals                                -   (779,560) 
 Fair value at 31 December                -           - 
                                ===========  ========== 
 

This represented the deposit paid by the Company to acquire 2 premium units in the development Marina 101 at Dubai Marina and were disposed of during 2017 for $779,560, which was equivalent to their fair value at 31 December 2016.

   7.         TRADE AND OTHER RECEIVABLES 
 
                                                 31.12.18    31.12.17 
                                                        $           $ 
 Current 
 Sundry debtors                                        34          34 
 Management fee rebate receivable (see note 
  16)                                             392,045     404,229 
 Performance fee rebate receivable (see 
  note 16)                                        880,134     931,903 
 Loan interest and income receivable               65,147     624,894 
 Prepayments                                       11,327      17,814 
                                                1,348,687   1,978,874 
                                               ==========  ========== 
 

The performance fee rebate receivable will become due at the time of completion of the liquidation of the funds of Goldilocks Investment Company Limited.

Following a review by the investment manager $147,538 (2017: $238,992) of loan interest receivable in relation to EE F&B Holding Limited is considered impaired and has been reflected in the Statement of Comprehensive Income accordingly. The provision at 31 December 2018 amounts to $386,530 (2017: $238,992).

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

   8.        CASH AND CASH EQUIVALENTS 
 
                                          31.12.18    31.12.17 
                                                 $           $ 
 
 First Abu Dhabi Bank                      256,920   5,660,640 
 Royal Bank of Scotland International            -      55,073 
                                                    ---------- 
                                           256,920   5,715,713 
                                         =========  ========== 
 
 
 QANNAS INVESTMENTS LIMITED                       38. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   9.         TRADE AND OTHER PAYABLES 
 
                                                  31.12.18    31.12.17 
                                                         $           $ 
 Non-current 
 Performance fees                                    9,772   2,259,631 
                                                ==========  ========== 
 
 Current 
 Secretarial, administration and accountancy 
  fees                                              36,288      60,249 
 Director fees                                      13,968      41,823 
 Investment manager fees                           349,959     466,952 
 Performance fees                                1,374,759           - 
 Legal and professional fees                        27,100      36,397 
 Audit fees                                         57,106      33,728 
 Sundry expenses                                     1,521       1,805 
 Loan interest payable                                   -     135,928 
 Participating shares                                    1           1 
                                                            ---------- 
                                                 1,860,702     776,883 
                                                ==========  ========== 
 

The performance fee payable has been allocated between current and non-current in line with the classification of the respective investment / loan to which it relates.

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

   10.       LOANS PAYABLE 
 
                                  31.12.18      31.12.17 
                                         $             $ 
 Loan Capital 
 Brought forward                25,500,000    30,000,000 
 Repayments in the year        (8,000,000)   (4,500,000) 
                              ------------  ------------ 
 Carried forward                17,500,000    25,500,000 
 
 Issue Costs 
 Brought forward                 (296,056)     (603,607) 
 Amortised during the year         223,708       307,551 
                              ------------  ------------ 
                                  (72,348)     (296,056) 
                                17,427,652    25,203,944 
                              ============  ============ 
 

The Company has a loan facility with First Abu Dhabi Bank for up to $30,000,000. The loan facility was refinanced in November 2016 and now bears interest at the rate of US LIBOR + 3.5% per annum (previously US LIBOR + 2.5% per annum) and is repayable in quarterly instalments commencing 30 June 2017, with a final repayment date of 31 December 2019. As such at 31 December 2018, the entire balance is classified within current liabilities. At 31 December 2017, $8,000,000 was repayable within one year and hence included within current liabilities, with the remaining $17,203,944 included in non-current liabilities. There have been no breaches on loan covenants at 31 December 2018 and although there was a breach in 2018, the bank were informed and elected to take no action. Loan covenants comprise the requirement for the Company to inform First Abu Dhabi Bank before making distributions to investors, the Company ensuring the value of securitised investments exceed 175% of the loan value and, in June 2019, the Company was required to notarise a share pledge in respect of its investment in IFG.

The loan is secured by way of a pledge with First Abu Dhabi Bank in respect of the receivable accounts held by the Company and by way of a charge over the Company's investment in ADCM Second Private Equity Fund L.P., SPE Qannas C Limited, Palace Preferred Partners L.P. and Integrated Financial Group LLC. Details of the Company's repayment plan can be seen in the Going Concern disclosure (note 2).

The loan is measured at its net proceeds with the issue costs being spread at a constant rate using the effective interest rate over the life of the loan.

 
 QANNAS INVESTMENTS LIMITED                       39. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   11.       SHARE CAPITAL 
 
                                             31.12.18         31.12.17 
 Management shares 
 
 Authorised: 
 2 ordinary non-participating 
  shares of no par value                            2                2 
                                      ===============  =============== 
 
                                                    $                $ 
 Issued and fully paid: 
 2 shares of $1 each                                2                2 
                                      ===============  =============== 
 
 
 Participating shares 
 
 Authorised: 
 Unlimited participating shares 
  of no par value 
                                      ===============  =============== 
 
                                                    $                $ 
 Issued and fully paid: 
 79,331,354 (2017: 79,331,354) 
  participating shares of 
 no par value at various issue 
  prices                                   76,638,587       76,638,587 
                                      ===============  =============== 
 
 Treasury shares: 
 19,820,779 (2017: 19,391,642) 
  participating shares of no par 
  value redeemed at various prices       (17,032,680)     (16,839,568) 
                                      ===============  =============== 
 

In addition to the above, the Company has two further share classes - redeemable 'B' and redeemable 'C'. Both of these share classes have an unlimited number of participating shares of no par value authorised for issue. At 31 December 2018 and 31 December 2017 no redeemable 'B' shares and redeemable 'C' shares were in issue.

Management shares

The Management Shares carry no right to receive any dividends, whether by way of finance costs, return of capital or otherwise, other than the return (on a winding up) of the issue price paid on such shares, are non-redeemable and are recorded at $1.00 per share.

Participating shares

Participating Shares carry the right to receive a dividend out of the income of the Company in such amounts and at such times that the Directors shall determine, and to receive a dividend on a return of capital of the assets of the Company on a winding up, in proportion to the number of shares held. Participating shares in issue are redeemable at the option of the Company.

During the year, the Company repurchased 429,137 $1 participating shares at a price of $0.45 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.

In the prior year, the Company redeemed 8,888,889 $1 participating shares at a price of $0.90 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.

 
 QANNAS INVESTMENTS LIMITED                       40. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   11.       SHARE CAPITAL - continued 

B Shares

This class of share has no rights to receive dividends, to receive notice of or vote at general meetings of the Company or to receive amounts available for distribution on a winding up, for the purpose of a reorganisation or otherwise or upon any distribution of capital.

C Shares

The Directors are authorised to issue C Shares of different classes which are convertible into Participating Shares. If the shares were converted into Participating Shares, then these shares would rank equal to, and hold the same rights attaching to, Participating Shares currently in issue at the date of conversion.

This class of share will be entitled to receive such dividends as the Directors may resolve to pay to such shares out of the assets attributable to this class of share. This class of share carries no right to attend or vote at any general meeting of the Company. The capital and assets of the Company on a winding up or on a return of capital attributable to this class of share shall be divided amongst the shareholders of this class of share according to their holding.

   12.       RETAINED EARNINGS - UNREALISED AND REALISED SPLIT 

Retained earnings at 31 December 2018 comprise the following revenue items, split between realised and unrealised income: -

 
                                          Unrealised       Realised          Total 
                                                   $              $              $ 
 Balance at 1 January 2018              (11,324,463)    (9,804,794)   (21,129,257) 
 Income                                      383,667        701,855      1,085,522 
 Expenditure                                       -    (1,403,582)    (1,403,582) 
 Net movement in changes in fair 
  value of investments                     (620,589)              -      (620,589) 
 Impairment losses arising on 
  loan interest receivable                         -      (147,538)      (147,538) 
 Loan interest payable                             -    (1,421,795)    (1,421,795) 
 Net movement in changes in fair 
  value of loans receivable                (521,481)              -      (521,481) 
 Loss on foreign exchange                          -       (27,928)       (27,928) 
 Interest income - cash and cash 
  equivalents                                      -         54,730         54,730 
 Interest income - loans receivable                -        785,568        785,568 
                                       -------------  -------------  ------------- 
 Balance at 31 December 2018            (12,082,866)   (11,263,484)   (23,346,350) 
                                       =============  =============  ============= 
 

The retained earnings are distributable to the investors at the discretion of the Directors if, in their opinion, the profits of the Company justify such payments. The Directors consider the future requirements of the Company when making such distributions. There are currently no restrictions on distributions for the Company save for prior notification of any distribution to being provided to First Abu Dhabi Bank.

   13.       LOSS PER SHARE 

Loss per share is calculated by dividing the loss attributable to the participating shareholders of the Company by the weighted average number of participating shares in issue during the year, excluding the average number of participating shares purchased by the Company and held as treasury shares.

On 24 October 2018, the Company repurchased 429,137 participating shares which are held in equity as treasury shares. The average number of shares in issue during the year ended 31 December 2018 was 59,859,767 (2017: 65,279,303).

 
 QANNAS INVESTMENTS LIMITED                       41. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   13.       LOSS PER SHARE - continued 
 
                                                 31.12.18       31.12.17 
 
 Total loss for the year after taxation 
  ($)                                         (2,217,093)   (18,295,313) 
 Weighted average number of participating 
  shares in issue                              59,859,767     65,279,303 
 Basic and diluted earnings per share 
  ($ per share)                                    (0.04)         (0.28) 
                                             ============  ============= 
 

The Company has not issued any shares or other instruments that are considered to have dilutive potential and hence basic and diluted earnings per share are the same.

   14.       TAXATION 

The Company is tax resident in Jersey, on the basis that board meetings and strategic decisions are undertaken in Jersey. Provision has been made in these financial statements for Jersey income tax at the rate of 0%.

   15.       DISTRIBUTIONS 

Distributions of $nil (2017: $nil) were paid during the year.

   16.       INVESTMENT MANAGER AND PERFORMANCE FEES 

The Investment Manager is entitled to a quarterly management fee equal to 0.4375% of the net asset value of the company at each quarter end (being 31 March, 30 June, 30 September and 31 December). $646,663 (2017: $1,038,624) was recognised during 2018.

In addition to the management fee, the Investment Manager is entitled to a fee based upon the performance of the investments (the "Performance Fee"). The movement in the performance fee payable at the year end was ($504,074) (2017 : ($277,707). The calculation for this fee changed in 2014 following the acquisition of interests in ADCM SPEF and SPE Qannas C Limited.

Performance Fee calculation to 27 March 2014

Up until 27 March 2014, the Performance Fee was payable once the Company had made aggregate distributions in cash to the shareholders, in accordance with the following methodology:

The Company firstly had to make distributions to shareholders equivalent to:

   i)              their gross share subscription price paid (the "contributed capital"); and 

ii) a premium of "simple" interest of 7% per annum on the contributed capital (the "preferred return").

When the thresholds had been met then:

i) on the event of any further cash distributions to shareholders the Investment Manager was entitled to an equal amount until they have received payments which in total are equivalent to 20% of the amounts distributed to the shareholders in excess of the contributed capital.

ii) when the 20% has been achieved, the Investment Manager is entitled to 20% of any further cash distributions.

The above calculation was replaced by a new method of calculation that was applied from 27 March 2014.

 
 QANNAS INVESTMENTS LIMITED                       42. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   16.       INVESTMENT MANAGER AND PERFORMANCE FEES - continued 

Performance Fee calculation since 27 March 2014

Under the new method of calculation, the Investment Manager is entitled to be paid a performance fee in respect of each asset in the Company's portfolio from time to time. Performance fees payable at 31 December 2018 amounted to $1,384,531 (2017: $2,259,631).

On the disposal by the Company of the whole or part of its interest in any Asset, the Investment Manager shall be entitled to a Performance Fee equal to 15 percent of the amount by which the net disposal proceeds (after deducting the costs incurred and any taxes payable in connection with such disposal) together with the net proceeds of any previous disposal of interests in such Asset (together, the "Total Proceeds") are greater than the cost (including any fees and expenses) of acquiring the Asset (the "Acquisition Cost").

For the unquoted investments of ADCM SPEF and SPE Qannas C Limited, acquired in March 2014, each of their underlying fund investments will be considered as separate Assets. As such the Acquisition Cost in respect of each underlying fund investment shall be deemed to be such proportion of the ADCM SPEF and SPE Qannas C Limited consideration (after being adjusted for the net receivables from ADCM SPEF and SPE Qannas C Limited investors (on an individual basis)) as is attributable to such ADCM SPEF and SPE Qannas C Limited Assets. Similarly, the date of acquisition of any ADCM SPEF and SPE Qannas C Limited asset shall be deemed to be the effective date of 27 March 2014 relating to ADCM SPEF and SPE Qannas C Limited.

Any Performance Fee payable by the Company to the Investment Manager shall be reduced to the extent required to ensure that, in respect of the Asset to which the Performance Fee relates, an amount equal to a simple 7 per cent per annum return on the Acquisition Cost of such Asset from the date of its acquisition to the date on which the Total Proceeds first exceed the Acquisition Cost has been retained by the Company before the payment of any Performance Fee to the Investment Manager.

Any Performance Fee payable by the Company to the Investment Manager shall be paid to the Investment Manager within 10 days of the receipt by the Company of the relevant disposal proceeds.

As a result of the above mentioned change in Performance Fee structure, the Performance Fee accrual was reduced by $1,149,109.69 during 2014. The Investment Manager also returned 1,197,945 participating shares for an aggregate price of $1 which were issued under original agreement to the Investment Manager in lieu of management fee before 27 March 2014.

Rebates

In order to prevent the double-charging of Management and Performance Fees, ADCM Ltd (in its capacity as Investment Manager to ADCM SPEF) and ADCM SPEF GP Limited (in its capacity as general partner of ADCM SPEF) entered into an agreement with the Company, such that they shall rebate to the Company any Management Fee or Performance Fee that they receive from ADCM SPEF, which is attributable to the Company's percentage ownership of ADCM SPEF.

In order to prevent the double-charging of Performance Fees, ADCM Ltd (in its capacity as Investment Manager to SPE Qannas C Limited) entered into an agreement with the Company, such that they shall rebate to the Company any Performance Fee that they receive from SPE Qannas C Limited.

The timing of receipt of the Performance Fee rebate is uncertain and is dependent on the realisation of the underlying investments held by ADCM SPEF and SPE Qannas C Limited. As such, the Performance Fee rebate has been classified as a current asset within the Statement of Financial Position.

The Company has accrued Management Fee rebate income in respect of ADCM SPEF of $120,859 at 31 December 2018 (2017: $297,828). The Company has accrued Performance Fee rebate income in respect of ADCM SPEF and SPE Qannas C Ltd of $nil at 31 December 2018 (2017: $nil). These are settled when investments are sold and are based on the fair value gains realised on the disposal.

Abu Dhabi Financial Group, the investment manager of Goldilocks Fund, provide a rebate to the company in respect of Management and Performance Fees it charges to Goldilocks Fund. At 31 December, $271,186 (2017: $106,401) was due in respect of Management Fees and $880,134 (2017: $931,903) in respect of Performance Fees. These are included in trade and other receivables and are considered a current asset, in line with the investment itself.

 
 QANNAS INVESTMENTS LIMITED                       43. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   16.       INVESTMENT MANAGER AND PERFORMANCE FEES - continued 

A reconciliation of the rebate recognised in the statement of comprehensive income can be seen below:

 
                                                31.12.18      31.12.17 
                                                       $             $ 
 
 Opening performance fee rebate receivable 
  (note 7)                                     (931,903)   (4,663,572) 
 Opening management fee rebate receivable 
  (note 7)                                     (404,229)      (98,618) 
 Management fee rebate received in the           447,620             - 
  year 
 Closing performance fee rebate receivable 
  (note 7)                                       880,134       931,903 
 Closing management fee rebate receivable 
  (note 7)                                       392,045       404,229 
                                                 383,667   (3,426,058) 
                                              ==========  ============ 
 
   17.       FINANCIAL RISK MANAGEMENT 

The Company's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

The management of these risks is performed by the Board of Directors. The policies for managing each of these risks are summarised below.

Management of market risk

Price risk

The Company is exposed to market price risk in respect of its portfolio of investments via equity securities price risk. The risk arises from investments held by the Company for which prices in the future are uncertain. Where non-monetary financial instruments are denominated in currencies other than the US dollar, the price initially expressed in foreign currency and then converted into US dollar will also fluctuate because of changes in foreign exchange rates (further details on the foreign exchange risk can be seen later in this note).

The Company mitigates price risk by having established investment appraisal processes and asset monitoring procedures which are subject to overall review by the board. The Company also manages the risk by appropriate diversification of its assets.

Details of the Company's financial assets are given in notes 4, 5, 6, 7 and 8.

Price risk sensitivity

The table below summarises the impact on the Company's profit before taxation for the year and on equity of a 10% increase / decrease in the price of investments that are based on a recent / year end price. The sensitivity is based on the effect of the market volatility in the current climate and previous experience with regards to the Company's quoted investment. Ten percent has been selected as the Directors consider this to be a reasonably foreseeable change which is consistent with previous years to measure price risk sensitivity.

 
                                                31.12.18    31.12.17 
                                                       $           $ 
 Impact of a 10% price change 
 Investments at fair value through profit 
  and loss                                     3,141,848   3,024,671 
 Loans receivable at fair value through 
  profit and loss                              1,296,528   1,682,421 
                                             -----------  ---------- 
 Total                                         4,438,376   4,707,092 
                                             ===========  ========== 
 

Interest rate risk

The Company's interest rate risk principally arises from borrowings in the form of the loan payable (see note 10) and receivables in the form of loans receivable (see note 5).

 
 QANNAS INVESTMENTS LIMITED                       44. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Management of market risk - continued

The Company relies on receipt of investment income and realised gains on investments to meet interest obligations due on the Loan Payable. The loan payable bears interest at 3.5% plus US LIBOR. The board has, in consultation with the Investment Manager, reviewed the terms of the loan and are satisfied that the risk of significant movements in US LIBOR over the term of the loan is low. Through cash flow projections and the structuring of the Company, the Board of Directors believe the Company will have sufficient cash available to meet its obligations as they fall due and therefore, there is no material interest rate risk.

The Loans receivable carry fixed rates of interest and so there is no risk arising from movement in interest rates on income receivable by the Company.

Foreign exchange risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures.

Foreign exchange risk is the risk that the fair value of future transactions, recognised monetary and non-monetary assets and liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. Trade payables are settled within short time periods (under 12 months) in order to minimise the fluctuation between expected and actual expenditure.

The Company's investments in financial instruments are valued in US dollars. The Company holds cash deposits denominated in currencies other than US dollars, the functional and presentational currency. Some of the Company's payables are transacted in currencies other than US dollars.

The significant currency assets of the Company are held in AED, USD, GBP and EUR. The Board considers that its exposure to foreign exchange risk is limited. The AED is 'pegged' to USD and the Investment Manager monitors EUR and GBP currency movements and proposes any action deemed appropriate.

The table below summarises the Company's assets and liabilities, monetary and non-monetary, which are denominated in a currency other than the US dollar.

 
 (amounts in US                       31.12.18                           31.12.17 
  dollars) 
                            EUR         GBP         AED          EUR          GBP       AED 
 Assets 
 Monetary assets            17,665       4,996            -        9,726       9,793     137 
 Non-monetary 
  assets                 4,040,493   5,664,026   28,286,803   17,449,102   8,750,360   1,387 
 
 Liabilities 
 Monetary liabilities            -           -            -            -           -       - 
 Non-monetary 
  liabilities                    -     135,559            -            -     173,713       - 
 

The below table summarises the sensitivity of the Company's monetary and non-monetary assets and liabilities to changes in foreign exchange movements at 31 December. The analysis is based on the assumptions that the relevant foreign exchange rate increased / decreased by the percentage disclosed in the table below, with all other variables held constant. This represents the Directors' best estimate of a reasonable possible shift in the foreign exchange rates, having regard to historical volatility of those rates.

 
 QANNAS INVESTMENTS LIMITED                       45. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Management of market risk - continued

Foreign exchange risk - continued

 
                              Reasonable                   Reasonable 
                                possible                     possible 
   Currency                         rate     31.12.18            rate     31.12.17 
                            shift (2018)                 shift (2017) 
                                                    $                            $ 
 Euros (EUR) 
 Monetary                    + / - 5%             883     + / - 5%             486 
 Non-monetary                + / - 5%         202,025     + / - 5%         872,455 
 
 Pounds Sterling (GBP) 
 Monetary                    + / - 5%             250     + / - 5%             490 
 Non-monetary                + / - 5%         276,423     + / - 5%         437,518 
 

As disclosed above, the AED is 'pegged' to the USD and so no sensitivity analysis has been prepared for AED denominated amounts.

Credit risk

For the Company, credit risk arises from cash and cash equivalents and contractual cash flows of debt investments as well as credit exposures arising on outstanding trade and other receivables.

The maximum exposure to credit risk on the Company's financial assets is represented by their carrying amount, as detailed in notes 4 to 8.

The Company's trade and other receivables are subject to the expected credit loss model:

Cash and cash equivalents

While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial. The credit quality (in accordance with Fitch) of cash and cash equivalents can be seen below:

 
                               31.12.18    31.12.17 
                                      $           $ 
 Cash and cash equivalents 
 AA-                            256,920   5,660,640 
 A                                    -      55,073 
                                256,920   5,715,713 
                              =========  ========== 
 

The Company seeks to limit the level of credit risk on the cash balances by only depositing surplus liquid funds with counterparty banks with high credit ratings (at least A grade in accordance with Fitch). The Company does not hold any derivative financial instruments.

Trade and other receivables

The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables.

To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due.

 
 QANNAS INVESTMENTS LIMITED                       46. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Credit risk - continued

Trade and other receivables - continued

The expected loss rates are based on the payment profiles over a period of 36 month before 31 December 2018 or 1 January 2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of counterparties to settle the receivables.

On that basis, the periodic review of loss allowance on the loan interest receivable from EE F&B Holding Limited was determined as $386,530 at 31 December 2018 and $238,992 at 31 December 2017. This arises on loan interest and income receivable, with the movement in provision of $147,538 recognised in the Statement of Comprehensive Income during the year ended 31 December 2018. Such loss allowance has been recognised before the transition of IFRS 9.

Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a counterparty to engage in a repayment plan with the Company, and a failure to make contractual payments in a reasonable time frame.

Impairment losses on trade and other receivables are presented as impairment within loss for the year. Subsequent recoveries of amounts previously written off are credited against the same line item.

In the prior year, the impairment of trade and other receivables was assessed based on the incurred loss model. Individual receivables which were known to be uncollectible were written off by reducing the carrying amount directly. The other receivables were assessed collectively to determine whether there was objective evidence that an impairment had been incurred but not yet been identified. For these receivables the estimated impairment losses were recognised in a separate provision for impairment. Receivables for which an impairment provision was recognised were written off against the provision when there was no expectation of recovering additional cash.

Loans receivable

The Company mitigates credit risk on loans receivable by only entering into agreements which have sufficient security held against the loans or where the operating strength of the counterparty is considered sufficient to support the amounts outstanding.

Credit risk is determined on initial recognition of each loan and re-assessed at each reporting date. The risk assessment is undertaken by the Investment Manager.

The Board of the Directors reviews the position of the counterparty prior to entering into any loan arrangement and the Investment Manager provides subsequent quarterly updates. The Investment Manager's review includes review of financial information in respect of the counterparty. Further disclosure in respect of loans receivable and relevant collateral can be seen in note 5. The Investment Manager is responsible for evaluating and proposing loan proposals, as well as monitoring their recoverability and taking action on any doubtful amounts.

Loans receivable are held at fair value through profit and loss and the above factors are considered when assessing the year end fair value assessment.

 
 QANNAS INVESTMENTS LIMITED                       47. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Credit risk - continued

Other assets

The credit risk associated with trading and portfolio investments is considered minimal.

Further, Goldilocks Fund is managed by ADCM Altus. The Investment Manager's review includes review of external ratings, where available, and financial information in respect of the counterparty. Further disclosure in respect of Goldilocks Fund can be seen in note 4.

The Company does not consider that any changes in fair value of financial assets in the year to be attributable to credit risk.

No aged analysis of financial assets is presented as no financial assets are past due at the reporting date.

The maximum exposure to credit risk before any credit enhancements at 31 December is the carrying amount of the financial assets as set out below:

 
                                              31.12.18     31.12.17 
                                                     $            $ 
 
 Loans receivable at fair value through 
  profit or loss                            12,965,277   16,824,208 
 Trade and other receivables                 1,348,687    1,978,874 
 Cash and cash equivalents                     256,920    5,715,713 
                                            14,570,884   24,518,795 
                                           ===========  =========== 
 

Liquidity risk

The Company seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Company deems there is sufficient liquidity for the foreseeable future. The Company has a strong relationship with various financial institutions and has utilised these relationships to borrow funds when necessary. The Board of Directors is comfortable that the Company has sufficient resources to meet the requirements of the Company.

During 2014 the Company entered into a facility for $30 million from First Abu Dhabi Bank and drew down the full loan during the prior year. The loan was refinanced in November 2016 and is now due for repayment quarterly (see note 10).

This repayment will be financed by way of existing cash reserves and the continued realisation of the Company's investments. The Company as at June 2019 currently has $6.9m cash and cash equivalent in order to pay its $5m loan repayment which is due on 30 June 2019 (having already settled approximately $500,000 of trade and other payables), after which the balance of the company's bank borrowings will total $10m. In Q3 and Q4 of 2019 the Company intends to realise its investments in IFG, PPP and ADCM SPEF and the Directors are confident that the realisation of these investments will be sufficient to repay the balance of the bank loan by December 2019. Whilst the investments in PPP and ADCM SPEF are illiquid, the investment in IFG (with a residual balance of $8m net of post year end distributions) is considered liquid with the distributions controlled by the parent company of the Company Investment Manager acting as manager to IFG. Should the projected realisations not occur in the timeframes expected, the Company will look to liquidate a further element of its holding in Goldilocks Investment Company Limited.

 
 QANNAS INVESTMENTS LIMITED                       48. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Liquidity risk - continued

The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date. The amounts in the table are the undiscounted cash flows.

 
                     Less than      1 to 3      3 to 6      6 to 12    More than 
                       1 month      months      months       months    12 months 
                             $           $           $            $            $ 
 
 Trade and other 
  payables           1,860,702           -           -            -        9,772 
 Loans payable               -   2,500,000   2,500,000   12,500,000            - 
                    ----------  ----------  ----------  -----------  ----------- 
                     1,860,702   2,500,000   2,500,000   12,500,000        9,772 
                    ==========  ==========  ==========  ===========  =========== 
 

Capital risk management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders.

The capital of the Company is represented by the share capital of the Company less retained losses. The Company has sufficient assets to cover the Company's liabilities at the Statement of Financial Position date and for the foreseeable future. As such at 31 December 2018 the Company had $35,452,206 of capital (2017: $38,669,764).

To maintain or adjust the capital structure, the Company may propose dividend payment to the shareholders, buy back shares or issue new shares.

Concentration risk

The Company aims to mitigate concentration risk through investing in companies that operate in a variety of different markets.

Fair value measurements recognised in the Statement of Comprehensive Income

IFRS 13 requires the disclosure of fair value measurements by level of the following fair value measurement hierarchy:

   --      Quoted prices (unadjusted) in active markets for identical assets (level 1); 

-- Inputs other than quoted prices included within level 1 that are observable for the asset, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); or

-- Inputs for the asset that are not based on observable market data (that is, unobservable inputs) (level 3).

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

The following table shows an analysis of the fair values of the financial instrument recognised in the Statement of Financial Position by level of the fair value hierarchy:

 
                                       Level 1      Level 2        Level        Total 
                                                                       3 
                                             $            $            $            $ 
 2018 
 Investments and loans receivable    3,553,759    8,896,152   41,502,167   53,952,078 
 
 2017 
 Investments and loans receivable            -   10,181,714   49,033,921   59,215,635 
 
 
 QANNAS INVESTMENTS LIMITED                       49. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

Investments whose values are based on quoted market prices in active markets, and are therefore classified within level 1, include active listed equities. The Company does not adjust the quoted price for these instruments.

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and / or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and / or non-transferability, which are generally based on available market information.

The following table sets out the valuation technique used in determination of fair values within level 2 including the key inputs used.

The valuation of the level 2 investment, Goldilocks Fund, is based upon the net asset value of underlying assets, which comprise publicly listed companies in the UAE, held by the Fund.

 
 Item                     Valuation approach and inputs used 
 
 Investments at fair      The fair value is determined based on market 
  value through profit     values of underlying assets, which comprise 
  and loss - Goldilocks    publicly listed companies in the UAE. 
  Fund 
 

Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include corporate debt positions. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value. The following table sets out the valuation techniques used in the determination of fair values within level 3 including the key unobservable inputs used and the relationship between unobservable inputs to fair value.

 
 QANNAS INVESTMENTS LIMITED                       50. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

 
 Item and valuation      Fair      Fair value   Key un-observable   Input value    Input value    Relationship 
       approach          value         at             inputs          31.12.18       31.12.17      between 
                           at                                                                      unobservable 
                                                                                                   inputs and 
                                                                                                   fair value 
                        31.12.18    31.12.17 
                           $            $ 
 Investments 
  at fair value 
  through profit 
  and loss -                                        Value of 
  ADCM Secondary                                  the underlying 
  Private Equity                                   investments 
  Fund L.P.                                           within 
                                                    the funds 
  The carrying                                       and the 
  value of the                                       discount 
  investments                                         factor 
  is based on                                        applied                                         An increase 
  valuations                                         (in 2017                                        in the value 
  provided by                                       the value                                          shown in 
  the General                                       of certain                                       the financial 
  Partners of                                       underlying                                          reports 
  the underlying                                     holdings                                      of the underlying 
  funds. A discount                                were written                                        fund and 
  is then applied                                    down due                                           premium 
  to the valuations                               to uncertainty                                      / discount 
  by the Investment                                surrounding                                       on underlying 
  Manager to                                      the underlying                                       assets in 
  consider the                                      holdings,                                        the secondary 
  funds the Company                                  further                                         market would 
  can expect                                         details                                           result in 
  to realise                                         of which                                        the year-end 
  if disposed                                         can be        NAV provided   NAV provided        valuation 
  in the short                                       seen in          by General     by General      being higher 
  term.                3,579,885    4,439,078        note 4).            Partner        Partner     and vice-versa. 
 
 
 
 QANNAS INVESTMENTS LIMITED                       51. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

 
    Item and valuation         Fair         Fair      Key un-observable      Input         Input       Relationship 
         approach              value        value           inputs           value          value       between 
                                at           at                             31.12.18      31.12.17      unobservable 
                                                                                                        inputs and 
                                                                                                        fair value 
                             31.12.18     31.12.17 
                                 $            $ 
 Investments                         -            -     Value of the              NAV   NAV provided     An increase 
  at fair value                                          underlying          provided     by General    in the value 
  through profit                                         investments       by General        Partner      shown in 
  and loss - SPE                                         within the           Partner                   the financial 
  Qannas C Limited                                        funds and                                        reports 
                                                        the discount                                       of the 
  The carrying                                         factor applied                                    underlying 
  value of the                                          (in 2017 the                                      fund and 
  investments                                             value was                                        premium 
  is based on                                           written down                                     / discount 
  valuations provided                                      due to                                       on underlying 
  by the General                                         uncertainty                                      assets in 
  Partners of                                            surrounding                                    the secondary 
  the underlying                                       the underlying                                   market would 
  funds. An assessment                                    holdings,                                       result in 
  is then undertaken                                   further details                                  the year-end 
  of whether any                                        of which can                                      valuation 
  further discount                                       be seen in                                     being higher 
  is required                                             note 4).                                     and vice-versa. 
  (as was the 
  case in 2017 
  - see note 4) 
  before a multiple 
  is applied by 
  the Investment 
  Manager to consider 
  the funds the 
  Company can 
  expect to realise 
  if disposed 
  in the short 
  term. 
                                                                                                         An increase 
                                                                                                       in the multiple 
                                                                                                           applied 
 Investments                                                                                            would result 
  and loans receivable                                                                                   in a higher 
  at fair value                                                              Multiple       Multiple      valuation 
  through profit                                        The discount           of 12x         of 12x   and a decrease 
  and loss - EE                                       rate and multiple      Discount       Discount    would result 
  F&B Holding                                            utilised in             rate           rate     in a lower 
  Limited*                     326,917            1    the valuations.         of 10%         of 10%     valuation. 
                             3,713,576    3,713,576 
  The carrying 
   value is based 
   on applying 
   a multiple to 
   projected EBITDA 
   forecasts associated 
   with the licence 
   and, due to 
   the market volatility, 
   a discount rate 
   has been applied. 
 

* - This holding is split between a loan receivable element ($3,713,576) and an unquoted investment element ($326,917).

 
 QANNAS INVESTMENTS LIMITED                       52. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

 
 Item and valuation    Fair value   Fair value   Key un-observable        Input          Input       Relationship 
       approach            at           at             inputs             value           value       between 
                                                                         31.12.18       31.12.17      unobservable 
                                                                                                      inputs and 
                                                                                                      fair value 
                        31.12.18     31.12.17 
                            $            $ 
 Investments at 
  fair value through 
  profit and loss 
  - Palace Preferred 
  Partners LP 
 
  The carrying 
  value of the 
  investment is 
  based on the 
  valuation provided 
  by the General 
  Partner of Palace 
  Preferred Partners                                                                                    An increase 
  LP. These                                                                                             in the value 
  valuations                                                                                             of Palace 
  are based on                                                                                           Preferred 
  the latest                                         The value                                            Partners 
  available                                       of the underlying                                    LP investment 
  report for the                                     investments                                        would result 
  quarter ending                                      of Palace                                       in the year-end 
  31-Dec-18 prepared                                  Preferred        NAV provided   NAV provided       valuation 
  in line with                                        Partners           by General     by General      being higher 
  IPEV Guidelines.      5,661,520    8,743,938           LP                 Partner        Partner    and vice-versa. 
 Investments at 
  fair value through 
  profit and loss 
  - Integrated                                                                                          An increase 
  Financial Group                                                                                         in the 
                                                                                                        liquidation 
  In 2018, the                                                                                          value would 
  carrying value                                                                                         increase 
  of the investment                                                                                      the value 
  is based on a                                                                                           of the 
  recent transaction                                                                                    investment, 
  price. No discount                                                                                      while a 
  has been applied                                  Share price                                          decrease 
  as the investment                                   in recent                                         would lower 
  is currently                                       liquidation                                         the value 
  in realisation                                    of underlying                                         of the 
  phase.               18,968,568   19,026,696       investments              N / A          N / A      investment. 
 Loans receivable       9,251,701            -       The value                 Loan          N / A      A worsening 
  at fair value                                   of the underlying       principal                       of the 
  through profit                                   counterparty's      and interest                   counterparty's 
  and loss - Kepler                                  net assets                rate                       ability 
  Lending Co.                                                                                            to repay 
  Limited                                                                                                the loan 
                                                                                                        will result 
  In 2018, the                                                                                        in a reduction 
  carrying value                                                                                        in the fair 
  of the loan                                                                                             value. 
  receivable 
  is determined 
  with reference 
  to the principal 
  loan outstanding 
  and accrued 
  interest 
 
 
 QANNAS INVESTMENTS LIMITED                       53. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   17.       FINANCIAL RISK MANAGEMENT - continued 

Fair value measurements recognised in the Statement of Comprehensive Income - continued

Reconciliation of level 3 fair value measurements of financial assets

 
                                 31.12.18       31.12.17 
                                        $              $ 
 
 Balance brought forward       49,033,921     71,672,647 
 Purchases                      9,251,701      4,210,812 
 Capital distributions          (251,087)   (14,402,547) 
 Disposals                   (16,589,642)    (1,286,435) 
 Revaluations                      57,274   (11,160,556) 
 Balance at 31 December        41,502,167     49,033,921 
                            =============  ============= 
 

The Company's policy is to recognise transfers into and out of fair value hierarchy levels as at the date of the event of change in circumstances that cause the transfer.

The following table analyses the Company's financial assets and liabilities by category: -

 
 Assets per statement of financial               Amortised         Assets at        Total 
  position                                            cost        fair value 
                                                              through profit 
                                                                    and loss            $ 
                                                         $                 $ 
 31 December 2018 
 Investments at fair value through 
  profit and loss                                        -        40,986,801   40,986,801 
 Loans receivable at fair value 
  through profit and loss                                -        12,965,277   12,965,277 
 Trade and other receivables                     1,348,687                 -    1,348,687 
 Cash and cash equivalents                         256,920                 -      256,920 
                                          ----------------  ----------------  ----------- 
 Total assets                                    1,605,607        53,952,078   55,557,685 
                                          ----------------  ----------------  ----------- 
 
 31 December 2017 
 Investments at fair value through 
  profit and loss                                        -        42,391,427   42,391,427 
 Loans receivable at fair value 
  through profit and loss                                         16,824,208   16,824,208 
 Trade and other receivables                     1,978,874                 -    1,978,874 
 Cash and cash equivalents                       5,715,713                 -    5,715,713 
                                          ----------------  ----------------  ----------- 
 Total assets                                    7,694,587        59,215,635   66,910,222 
                                          ----------------  ----------------  ----------- 
 
 
 Liabilities per statement of financial        Liabilities   Other financial        Total 
  position                                   at fair value       liabilities 
                                            through profit 
                                                  and loss                 $            $ 
                                                         $ 
 31 December 2018 
 Trade and other payables                                -         1,870,474    1,870,474 
 Loans payable                                           -        17,427,652   17,427,652 
                                          ----------------  ----------------  ----------- 
 Total liabilities                                       -        19,298,126   19,298,126 
                                          ----------------  ----------------  ----------- 
 
 31 December 2017 
 Trade and other payables                                -         3,036,514    3,036,514 
 Loans payable                                           -        25,203,944   25,203,944 
                                          ----------------  ----------------  ----------- 
 Total liabilities                                       -        28,240,458   28,240,458 
                                          ----------------  ----------------  ----------- 
 
 
 QANNAS INVESTMENTS LIMITED                       54. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   18.       RETAINED EARNINGS 
 
                                   31.12.18       31.12.17 
                                          $              $ 
 
 Balance brought forward       (21,129,257)    (2,833,944) 
 Total loss after taxation      (2,217,093)   (18,295,313) 
 Balance at 31 December        (23,346,350)   (21,129,257) 
                              =============  ============= 
 

Retained earnings represent the cumulative Comprehensive Income net of distributions to owners.

   19.       RELATED PARTY TRANSACTIONS 

Richard John Stobart Prosser, a Director of the Company, is also an officer of Estera Fund Administrators (Jersey) Limited, which acts as administrator. Secretarial and administration fees, director fees and sundry expenses incurred by the Company with Estera Fund Administrator (Jersey) Limited for the year ended 31 December 2018 amounted to $182,121 (2017: $161,195), of which $43,282 (2017: $76,640) was outstanding at 31 December 2018.

Richard John Stobart Prosser, a Director of the Company, was also a director of Palace Investors Holdings Limited up to 22 November 2018, and Mustafa Kheriba, a Director of the Company, is also a director of Palace Real Estate Partners GP Ltd. Estera Fund Administrators (Jersey) Limited, the Company's administrator, also provide administration services to the wider Palace structure. The Company has an investment of $5,661,520 in Palace Preferred Partners LP at 31 December 2018 (2017: $8,743,938). The issue was arranged by a company related to the investment manager and a fee of 0.75% of the capital raised will be paid to the issuer on completion. The value of this will be based on the capital raised, which will be confirmed upon completion.

Mustafa Kheriba, a Director of the Company, is also a director of ADCM Ltd, which acts as Investment Manager to the Company. Investment manager fees incurred by the Company with ADCM Ltd for the year ended 31 December 2018 were $646,663 (2017: $1,038,624), of which $349,959 (2017: $466,952) was outstanding at 31 December 2018. Furthermore, the Investment Manager may be entitled to be paid a performance fee by the Company if certain conditions are met, full details of which can be seen in note 16. Movement in performance fees incurred by the Company with ADCM Ltd for the year ended 31 December 2018 were ($504,074) (2017: ($277,707)). A total of $1,635,071 (2017: $2,259,631) was accrued at 31 December 2018.

ADCM Ltd, the Investment Manager, owns 2 (2017: 2) management shares in the Company.

Mustafa Kheriba, a Director of the Company, is also a director of SPE Qannas C Limited. The Company has an investment of $Nil at 31 December 2018 (2017: $Nil) in SPE Qannas C Limited. Furthermore, the investment manager of the Company also acts as investment manager to SPE Qannas C Limited. No dividends were received from SPE Qannas C Limited during the current or prior year.

Mustafa Kheriba, a Director of the Company, is also a director of ADCM SPEF GP Ltd. ADCM SPEF GP Ltd is the general partner of ADCM SPEF, an investment of the Company. As at 31 December 2018 this was held at fair value of $3,579,885 (2017: $4,439,078). Dividends totalling $nil (2017: $1,107,502) and capital distributions totalling $251,087 (2017: $14,402,547) were received from ADCM SPEF during the year.

Mustafa Kheriba, a Director of the Company, is also a director of EE F&B Holding Limited. The Company has loan of $3,713,576 at 31 December 2018 (2017: $3,713,576) and an investment of $326,917 (2017: $1) in EE F&B Holding Limited. Interest totalling $117,989 (2017: $158,265) was receivable from EE F&B Holding Limited during the year. Accrued interest of $386,530 (2017: $238,992) remained outstanding at the year end.

 
 QANNAS INVESTMENTS LIMITED                       55. 
 NOTES TO THE FINANCIAL STATEMENTS - continued 
 
 FOR THE YEARED 31 DECEMBER 2018 
===============================================  ==== 
 
   19.       RELATED PARTY TRANSACTIONS - continued 

The loans receivable from Integrated Eastern European Fund, Lucice Montenegro d.o.o. and Arqutino EAD (the "IEEF") which were repaid during the year ended 31 December 2018 (2017: $3,359,451), were arranged by Integrated Alternative Finance ("IAF"), a wholly owned subsidiary of Abu Dhabi Financial Group (which is the ultimate parent company of ADCM Ltd, the Company's Investment Manager) and regulated by the Dubai Financial Services Authority. Interest of $253,654 (2017: $362,241) was recognised in the Statement of Comprehensive Income of the Company in respect of loans to IEEF.

The Company operated an investment account with IC in the year and originally invested $6,539,918 (AED 24 million), shown as an investment in Goldilocks Fund in note 4. Further, the Company is entitled to management fee and performance fee rebates as detailed in note 16. Abu Dhabi Financial Group, LLC ("ADFG") holds no units in Goldilocks Fund and charges 1.5% management fee and 15% performance fee on Goldilocks through its wholly owned subsidiary, ADCM Altus. Mustafa Kheriba, a Director of the Company, is also a director of ADCM Altus

Integrated Capital owned 787,408 participating shares in the Company as at 31 December 2018 (2017: 787,408). These shares were acquired by ADFG subsequent to the year end.

Shuaa Capital has acted as an arranger and placement agent for an SED 500 million issuance of JODC sukuk in exchange for a fee. Mustafa Kheriba, a Director of the Company, is also a board member of Shuaa Capital. ADFG, the ultimate controlling shareholder of the Company's Investment Manager, has a shareholding in Shuaa Capital.

ADFG, the ultimate controlling shareholder of the Company's Investment Manager, has a 10% shareholding in Integrated Financial Group, LLC. At 31 December 2018, the Company's investment in Integrated Financial Group, LLC was carried at $18,968,568 (2017: $19,026,696). No dividends were received from Integrated Financial Group, LLC during the current or prior year.

The Company redeemed its loan with Capital Hotel d.o.o. during 2018, resulting in the receipt of proceeds of $9,931,555 in 2018 and $839,545 of interest in 2018. The development owned by Capital Hotel d.o.o. is managed by the Company's investment manager.

ADFG owned 11,283,125 participating shares in the Company as at 31 December 2018 (2017: 11,283,125). Subsequent to the year end, ADFG increased the number of participating shares it holds in the Company to 12,070,533.

   20.       IMMEDIATE HOLDING COMPANY AND ULTIMATE CONTROLLING PARTY 

In the Directors' opinion there is no controlling or ultimate controlling party.

   21.       EVENTS AFTER THE REPORTING PERIOD 

In January 2019, Abu Dhabi Financial Group, LLC ("ADFG") acquired 787,408 participating shares in the Company from Integrated Capital PJSC at a price of $0.45 per share. Following this transaction, ADFG held 12,070,533 participating shares in the Company, representing 20.3% of the voting rights.

In February 2019, the Company disposed of its investment in Jabal Omar Sukuk 9.85% 15-Nov-2023, realising proceeds of $3,578,000. The proceeds were subsequently invested in a secured term investment certificate issued by a special purpose vehicle wholly owned by Terra Real Investments LLC. The term investment note is for 5 years and has a fixed profit rate of 8.5% per annum, which will be paid annually.

During the first half of 2019, the Company exited part of its investment in Integrated Financial Group, LLC realising proceeds of $11,014,560.

In April 2019 as part of the Company's cash management strategy, the Company placed 10 million AED on a 3 month fixed term deposit at an interest rate of 6%.

Loan repayments amounting to $2.5 million in respect of the loan payable have been made as at the date of signing this report, with a further $5 million due on 30 June 2019.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR UWRNRKRANUAR

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June 28, 2019 12:25 ET (16:25 GMT)

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