Board of directors report

Dear shareholder,

For KIPCO, the year 2016 has been one where the strength of our companies has been highlighted.

Despite the political and economic tensions in some of the regional countries in which we operate – including sharp currency fluctuations – our operating companies have still shown great operational strength and have registered growth, making 2016 our twenty-fifth year of consecutive profitability.

In 2016, the world economy continued to show some signs of recovery. Global circumstances such as the Brexit, the slowdown in China, and the US economic growth figures released after the presidential elections have led the IMF to lower its global economic forecasts for 2016 several times.

While oil output cuts resulted in a hike in the price of the barrel at the end of 2016, H.H. the Amir of Kuwait has told the newly-elected parliament that “austerity” measures must be taken to cut down spending. Local gasoline prices were hiked and plans to lift subsidies off electricity and water have been announced. Having said that, development plans are going ahead as planned and Kuwait awarded contracts in excess of US$ 12 billion in 2016.

At last year’s Shafafiyah Investors’ Forum, we predicted that 2016 will be challenging. While the devaluation of the Egyptian pound in late 2016 had an impact on KIPCO’s businesses in the country – including real estate, insurance and entertainment – our net profit for 2016 came to KD 45.5 million (US$ 148.7 million), compared to KD 51.2 million (US$ 167.3 million) the year before.

Your company’s revenue from operations for the year increased 6.6% to KD 661 million (US$ 2.2 billion) from KD 620 million (US$ 2 billion) in 2015. Subject to approval by our General Assembly, we are proposing to pay shareholders a cash dividend of 25 fils (25%) per share, as well as the Board of Directors’ remuneration of KD 220,000.

A major business highlight for your company during 2016 was the announcement of details of Hessah Al Mubarak District, a comprehensive mixed-use development that is strategically located in the area of Daiya, on the outskirts of Kuwait City. This prestigious urban community overlooking the sea, built over an area of approximately 227,000 sqm and with a total built-up area of 380,000 sqm, will include 82 plots of which 70% are allocated for residential buildings.

Our Group companies will be constructing 40% of Hessah Al Mubarak District, and negotiations are underway with like-minded developers who have shown serious interest in purchasing the remaining plots. Infrastructure works are underway, and the construction of the buildings will begin as soon as this phase is complete. Residents of Hessah Al Mubarak District are expected to begin moving into their homes by the end of 2020.

For Burgan Bank, 2016 witnessed the successful capital issuance of a KD 100 million Tier 2 bond. Despite the challenging market conditions, the oversubscribed issuance was a testament to the bank’s solid market position. The issuance has further boosted Burgan’s capital adequacy ratio by over 2%.

Gulf Insurance Group expanded its regional operations in 2016, after acquiring a 90% stake in Turins Sigorta, a Turkish non-life insurer with a strong market presence. Early in the year, the company’s Kuwait arm, Gulf Insurance and Reinsurance, officially closed its deal with the Ministry of Health to provide health insurance to around 117,000 retirees. The deal is worth over KD 82 million (US$ 270 million) per year in premiums.

Over the past 12 months, OSN has seen stable pay-TV revenue for the company. To lead a new chapter in OSN’s growth story, a new CEO was appointed. Building on its strategy to provide viewers with exclusive content, OSN extended its long-term partnerships with Discovery Communications and Metro-Goldwyn-Mayer Studios. It also signed a deal with NBC Universal International, a subsidiary of Comcast Corporation, to secure first pay window rights for OSN and exclusive over-the-top (OTT) content access on OSN Play.

Over the past twelve months, our savings, investment and pensions company, TAKAUD, continued to strengthen its portfolio of investment offerings by partnering with 11 banks and financial institutions, including Bahrain Kuwait Insurance Company and Takaful International in Bahrain. In line with its expansion plans, the pensions company opened representative offices in Cairo and at the Dubai International Finance Center.

In 2017, the lower oil output worldwide, alongside the decline in US oil investments over the past two years, should lead to higher oil prices. If sustained, these higher oil prices will help counterbalance the impact of lower output on State budgets of GCC member states, including Kuwait.

However, we believe that 2017 will continue to be challenging. Over the next twelve months, KIPCO will continue to consolidate and streamline its businesses. While we look to the coming year with caution, we are confident that our core operating companies will continue to register growth.

We thank His Highness the Amir of the State of Kuwait, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, His Highness the Crown Prince, Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, and His Highness the Prime Minister, Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah, for their continued support and guidance. We would like to thank you, our shareholders, for the support and trust you have placed in your Board of

Directors and management during the last 12 months. We would also like to thank all the employees of KIPCO and its operating companies for the contribution they made during the year.

On behalf of our shareholders, we thank the management for the results they achieved during 2016. May God continue to grant us success and prosperity.


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