SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company)

FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company) BALANCE SHEET As of March 31, 2008 2007 SR000 SR000

Note ASSETS Current assets: Cash and cash equivalent Accounts receivable, net Inventories, net Prepayments and other assets Total current assets Non-current assets: Investments and financial assets Projects under construction Property, plant and equipment, net Total non-current assets Total assets LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Accounts payable Notes payable due within a year Accruals and other liability Short term loans Current portion of long term loans Total current liabilities Non-current liabilities: Notes payable Long term loans Employees end of service benefits Total non-current liabilities Total liabilities Shareholders equity: Share capital Statutory reserve Retained earnings Unrealized gain from available-for-sale securities Total Shareholders equity Total liabilities and shareholders equity

69,388 110,098 273,329 16,649 469,464 33,311 315,952 606,754 957,767 1,427,231

15,698 91,709 257,783 10,878 376,068 9,483 270,802 433,178 713,463 1,089,531

90,416 21,447 33,911 62,500 420,000 27,117 655,391 13,866 147,304 23,015 184,185 839,576 250,000 90,087 244,193 3,375 587,655 1,427,231

83,987 28,320 40,073 240,000 12,500 404,880 24,670 66,435 22,000 113,105 517,985 250,000 77,336 244,210 571,546 1,089,531

The accompanying notes 1 through 13 form an integral part of these financial statements

SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company) STATEMENT OF INCOME

Note Net sales Cost of sales Gross Income Selling and marketing expenses General and administrative expenses Operating income Financing cost Other revenues and expenses, net Net income for the year before Zakat Zakat provision Net income for the year

For the Three Months Ended March 31, 2007 2008 SR000 SR000 199,709 (129,883) 69,826 (24,275) (8,171) 37,380 (341) 2,362 39,401 (1,038) 38,363 135,122 (83,997) 51,125 (19,374) (5,911) 25,840 (375) 816 26,281 (825) 25,456

Earning per share Operating Income (in Saudi Riyal) Earning per share Net Income (in Saudi Riyal)

1.49 1.53

1.03 1.02

The accompanying notes 1 through 13 form an integral part of these financial statements

SAUDI CERAMIC COMPANY

2

(A Saudi Joint Stock Company) STATEMENT OF CASH FLOWS For the Three Months Ended March 31, 2008 2007 SR000 SR000

Cash flows from operating activities:

Net income before Zakat Adjustments to reconcile net income before zakat to net cash provided by operating activities: Depreciation Gain from sale of property, plant and equipment Employees end of service benefit provision Changes in operating assets and liabilities Increase in accounts receivable Decrease (Increase) in inventory Decrease in prepayments and other assets Decrease (Increase) in accounts payables Increase (Decrease) in notes payable Decrease (Increase) in accruals and other liabilities Cash from operations End of service benefit paid Net cash flows provided by operating activities 16,329 (54) 893 (6,611) 9,717 889 (222) 4,138 (13,645) 50,080 (755) 50,080 13,256 827 (5,216) (37,860) 1,980 7,582 (1,924) 1,020 5,946 (639) 5,307 39,401 26,281

Cash flows from investing activities:

Additions to investments and financial assets Dividends from financial investments Additions to property, plant, equipment and projects Proceeds from sale of property, plant and equipment Net cash used in investing activities (9,000) 238 (104,535) 54 (113,243) (33,369) (33,369)

Cash flows from financing activities:

Net proceeds (settlements) of short-term loans Dividends paid Loan For Affiliate Company Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at the end of the year Non-cash transactions Unrealized gain from revaluation of securities Transfer of Dividends from Retained Earnings to current Liabilities 115,000 (1,560) (1,750) 111,690 48,527 20,861 69,388 30,000 30,000 1,938 13,760 15,698

254 62,500

The accompanying notes 1 through 13 form an integral part of these financial statements

SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company)
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

1.

ORGANIZATION AND ACTIVITY Saudi Ceramic Company, (the Company) is a Saudi Joint Stock Company established by the Royal Decree No. (M/16) on 25/4/1397H (corresponding to 14/4/1977G), registered in the Kingdom of Saudi Arabia under Commercial Registration No. 1010014590 issued in Riyadh on 15/2/1398H (corresponding to 24/1/1978G). The Company is engaged in the production and sale of ceramic products, water heaters and their components. The Company is also involved in the import of related machineries, equipments and other accessories. The authorized and fully paid-up capital of the Company is SR 250 million, divided into 25 million shares of SR 10 each. The financial year of the Company commences on January 1, and ends on December 31 of each calendar year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared under the historical cost convention (except for investments in available for-sale financial instruments which are measured at fair value) on the accrual basis of accounting, in accordance with generally accepted accounting principles applicable in Saudi Arabia. Significant accounting policies adopted in the preparation of these financial statements are summarized below:

Accounting Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and judgments which might effect the valuation of recorded assets, liabilities and the disclosure of contingencies at the balance sheet date. Although these estimates are based on the best information available to management at the date of issuing these financial statements, the actual end results might immaterially differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, balances and deposits with banks, and other highly liquid investments with maturities of 90 days or less from its purchase date. Accounts Receivable Accounts receivable is stated net of provision. Provision is made for accounts receivable where recovery is considered doubtful based on the Companys approved policy. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined, on a weighted average cost basis. Cost of finished goods and work in process includes cost of materials, labor and an appropriate proportion of indirect overheads. Provisions for slowmoving and obsolete inventory are estimated based on the Companys approved policy. As a result of the large expansions in the Companys plants during this year, which were accompanied with the supply of related major spare parts, management decided to change the accounting policy related to recognition of spare parts which are considered major parts of the plants machinery and equipment, such as strategic and stand-by parts, to be recorded as plant and equipment instead of inventory. The total value of those parts as of December 31, 2007, amounted to about SR. 9.8 million. This change in policy was not applied retroactively, as management believe the affect is immaterial on the Companys financial statement as a whole.

SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company)
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

Investments in Associates Investments in associates where the Company has significant influence over the investees financial and operation policies, or where the Company has a long-term investment between 20% and 50% of the equity, is accounted for using the equity method. Under the equity method, the investment is stated initially at cost and adjusted thereafter for the post acquisition changes in the net assets of the associates. The Companys share of profit in the associate company is recognized in the income statement. Investments in Financial Instruments Investments in (available for sale) securities, which are neither held to maturity or for trading, are valued at fair value and are classified as non-current assets, unless the intention is to sell it in the following year. Changes in fair value of available for sale securities are taken to equity as a separate item. Permanent impairment, if any, of such investment is recognized directly in the income statement. Revenues from such investments are recognized when declared. Fair value is determined by reference to the market value when an active trading market is available; else, if no active market is available, cost is considered the best substitute to fair value. If part of the investment is sold, cost is determined on weighted average basis. Capitalization of Financing Costs The net financing cost of the Companys borrowings, is capitalized on qualified projects which require a substantial period of time to construct. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Expenditure on maintenance and repairs is expensed, while expenditure for betterment is capitalized. Depreciation is provided over the estimated useful lives of the applicable assets using the straight line method. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining term of the lease. Property and equipment sold or otherwise disposed off and their related accumulated depreciation are removed from the accounts at the time of disposal and the related gain or loss is recognized in the income statement. The estimated operational useful lives are as follows: Years Buildings Machinery, equipment and spare parts Vehicles and transportation equipments Furniture, fixture and office equipment Leasehold improvements Employees End of Service Benefits Employees end of service benefits are provided for based on Saudi Arabian Labour Law and according to the employees' service duration. Zakat
Zakat is accrued in accordance with the regulations of the Department of Zakat and Income Tax in KSA. Adjustments arising from final Zakat assessments, if any, are recorded in the year in which such assessments are made.

10 - 33.33 10 - 25 4 - 6.66 6.66 - 10 4

SAUDI CERAMIC COMPANY

5

(A Saudi Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

Revenue recognition Revenues from sales are recorded when goods are delivered and invoiced. Expenses Sales and marketing expenses represent salaries and wages of the sales and distribution employees, marketing campaigns, sales costs and similar expenses. All other expenses not related to production or sales are classified as general and administrative expenses. Shared expenses are allocated between selling and general expenses using consistent basis.

Statutory Reserve
In accordance with Regulations for Companies in Saudi Arabia and the companys articles of association, the company has established a statutory reserve by the appropriation of 10% of annual net income, this appropriation continues until the reserve equals 50% of the share capital, then it can be stopped. This reserve can not be distributed as dividends. Foreign Currency Translation The Company are maintained its accounts in Saudi Riyals, foreign currency transactions are translated into Saudi Riyals at the rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at that date. Gains and losses from settlement and translation of foreign currency transactions are included in the statement of income. Earnings per Share Earning per share is calculated using the weighted average of the shares outstanding during the period. 3. THE RESULTS FOR THE PRIMARY PERIOD The management prepared all adjustments which were important to present fairly, the financial position of the Company as of March 31, 2008 and the results of its operations, for the three months then ended. Those primary financial results for that period might not represent an accurate indicator for the whole year results.

4.

INVENTORIES, NET Finished goods and Work in process Raw materials, Spare parts, and Goods in transit Purchased goods for resale

March 31, 2008 SR000 93,700 164,749 14,880 273,329

2007 SR000 82,644 160,501 14,638 257,783

The Company uses the standard cost method for valuation of its cost of goods sold, finished production and work in process. Standard cost is adjusted when there are material variances between standard and

SAUDI CERAMIC COMPANY

6

(A Saudi Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

INVENTORIES (continued) actual costs inventory. Management believes that using this approach is appropriate for the Companys circumstances due to the nature of its products and method of production. The variance between standard and actual at the end of March 2008 is immaterial.

5.

INVESTMENTS AND FINANCIAL ASSETS Investment in Associates Natural Gas Distribution Company (5a) Ceramic Pipes Company (5b) Available for Sale Securities Gulf Real Estate Company Yanbu National Petrochemical (YANSAP) Portfolio for Land Parcel (5c) 6,006 10,000 16,006 4,200 4,105 9,000 17,305 33,311 4,553 4,553 4,200 730 4,930 9,483

Investment in Associates 5-a The Company held 15.87% of the share capital of Natural Gas Distribution Company a Limited Liability Company amounting to SR 15 million. The main activity of the associate is to purchase and distribute gas to the factories in the Second Industrial City in Riyadh. The investment is accounted for using the equity method because the Company has significant influence over the investee by major representation in the board of directors. To date, the audited financial statements for the associate for the year 2007 was not yet issued, and the share of the Company in the associate profits was estimated at SR. 1,929K. 5b During 2007, the Company participated in establishing the Ceramic Pipes Company a closed joint stock Company holding a 50% share of its SR 100 million issued and fully subscribed share capital. The paid-up capital is SR 50 million. The Company has paid SR 10 million in cash for its share and the remaining amount of SR 15 million was paid in-kind and the legal procedures to transfer it in the name of Ceramic Pipes Company is under process. 5c The Company subscribed during the first quarter of 2008 in 900,000 unit of Kasab Taiba Real Estate fund for 10 SAR each.

6. LOAN FOR AN AFFILIATE COMPANY The company agreed with Natural Gas Distribution Company to lend it the amount of SAR 1.75 million, this loan is a contribution in the cost of natural gas supply project to supply the gas to the Companies factories on AlKharj Road. This loan will be repaid when the consumption reaches 505 of the allocated quantities.

SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

7.

SHORT TERM LOANS Short term loans represent the Islamic Murabaha loans offered to the Company by local commercial banks in accordance with agreed rates guaranteed by promissory notes in favour of the banks for the loan values. March 31,

8.

LONG TERM LOANS Loan from Saudi Industrial Development Fund Loan from local bank Total loan Less: Current Portion Loan from Saudi Industrial Development Fund Loan from local bank Total Current Portion Total non-current Portion Saudi Industrial Development Fund (SIDF) Loans

2008 SR000 94,421 80,000 174,421 (14,200) (12,917) (27,117) 147,304

2007 SR000 78,935 78,935 (12,500) (12,500) 66,435

The Company obtained loans from SIDF to finance its tiles and sanitary ware plants against pledging all those plants fixed assets. The agreement with SIDF includes terms related to financial ratios. The total SIDF available and not utilized facility as at March 31, 2008 amount to SR 88.88 million (2007: SR 47.12 million). The due date for utilizing the remaining amounts of the facility is 29/12/1429H corresponding to 27/12/2008G. Local Bank Loan The Company obtained a long term Islamic Murabaha loan facility during 2007 from a local commercial bank for a total amount of SR 80 million for the expansion of its plants. The bank loan is guaranteed with promissory notes in favour of the bank.

9- RETAINED EARNINGS March 31, 8. RETAINED EARNINGS Opening Balance Dividends Declared during the period Net Profit for the period Ending Balance 2008 SR000 269,730 (63,900) 38,363 244,193 2007 SR000 218,754 25,456 244,210

SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company)

NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

Retained earnings (continued) The general assembly of the shareholders held on 17/3/2008 agreed to distribute cash dividends for the shareholders for the year 2007 for the amount of SAR 62.5 million (being SAR 2.5 per share), and to award the board members for the amount of SAR 1.4 million, accordingly the amounts were transferred from the retained earnings account to current liabilities since the actual distribution of the dividends started on 7/4/2008. (For 2007 the dividends of year 2006 were agreed by the general assembly during the second quarter of 2007 for the amount of SAR 62.5 million). 10- Earnings Per Share from sub activities

The continuous sub activities of the Company include the financing costs, other revenues and other expenses. The EPS from those activities for the three months ended 31/3/2008 and 2007 was SAR 0.08 and SAR 0.02 respectively. The Zakat per share for the same periods was SAR 0.04 and SAR 0.03 respectively.

11.

CONTINGENT LIABILITIES AND COMMITMENTS The Company has obtained bank facilities in the form of letters of credit and guarantees from local banks amounting to SR 116 million (2007: to SR 131 million). Additionally, the Company provided SR 1.87 million (2007: 2.78 million) as a partial guarantee for SIDF loan to one of its associate Companies. The guarantee provided is proportionality equivalent to the Companys share in the associate Company capital. The Companys capital commitments relating to its plant expansion and machineries as at March 31, 2008 amounted to approximately SR 118 million.

12.

SEGMENT INFORMATION A segment is a major component of a business that sells/provides certain services (business segment) or sells/provides services in a particular economic environment (Geographical Segment) and its profits and losses are different from those of other business segments. The Company follows the business segment as a base for reporting its segment information which is consistent with its internal reporting purposes. The Company is developing a system which will provide detailed segment activity information. The main segments of the Company are ceramic tiles and sanitary ware, and water heaters. Information related to each segment is as follows:

SAUDI CERAMIC COMPANY

(A Saudi Joint Stock Company)
9

NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

SEGMENT INFORMATION - Continued

Ceramic Tiles And Sanitary Ware SR000 Water Heaters SR000

Total SR000

For the year ended March 31, 2008: Total assets Total liabilities Sales Gross income Net income For the year ended March 31, 2007: Total assets Total liabilities Sales Gross income Net income

1,309,770 809,574 155,607 59,866 33,811 971,480 492,875 102,534 41,213 20,572

117,461 30,002 44,102 9,960 4,552 118,051 25,110 32,588 9,912 4,884

1,427,231 839,576 199,709 69,826 38,363 1,089,531 517,985 135,122 51,125 25,456

13.

COMPARATIVE FIGURES Certain reclassifications have been made to the comparative figures to conform with the current period presentation.

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