Board of directors report

Dear shareholder,

 

The year 2017 has been one where KIPCO’s companies have continued to weather through difficult external circumstances, drawing strength from years of streamlining, prudent internal processes and good governance. While tensions continue in the Gulf and the region, posing a challenge to our operations, our core companies have continued to register growth, making 2017 our twenty-sixth consecutive year of profitability.

In 2017, the global economy showed signs of strength and global trade gained momentum following two years of weak performance. The MENA region, meanwhile, has been held back by OPEC oil production cuts, while the region’s largest oil importer, Egypt, continues to work to adjust to currency floatation since late 2016 amidst an increase in inflation.

In Kuwait, the government announced in January its state-wide strategic plan, New Kuwait 2035, aimed at achieving long-term diversification of the economy and transforming the country into a regional financial and commercial hub. Spending on non-oil activities has continued to expand in 2017, while real estate prices have stabilized and the banking sector remained healthy.

At last year’s Shafafiyah Investors’ Forum, we predicted that challenging external factors – such as banking regulations, the introduction of new technology in the media business, currency risks, among others – would impact our profitability in 2017. Our net profit for 2017 came to KD 23.6 million (US$ 78.2 million), compared to KD 45.5 million (US$ 150.8 million) the year before.

Your company’s revenue from operations for the year came to KD 656 million (US$ 2.17 billion) compared to KD 661 million (US$ 2.19 billion) in 2016. Subject to approval by our General Assembly, we are proposing to pay shareholders a cash dividend of 10 fils (10%) per share and a 5% stock dividend, as well as the Board of Directors’ remuneration of KD 220,000 and Executive Management remuneration of KD 4,341,000. It is worthy to note that the regulatory authorities have registered no penalties against the company.

One of your company’s business highlights for 2017 was the successful issuance in February of a US$ 500 million (KD 152.5 million) bond under KIPCO’s US$ 3 billion Euro Medium Term Note (EMTN) Program, with a simultaneous tender of its existing 2019 bonds. KIPCO is the first-ever company to execute a liability management exercise out of Kuwait, and the new issue was four times oversubscribed. In December, KIPCO set yet another benchmark when it issued a KD 100 million (US$ 331 million) bond, the first ever seven-year corporate dinar bond issue in Kuwait.

Another highlight in 2017 was the laying of the infrastructure of Hessah Al Mubarak District. As the master planner, KIPCO is the first private sector company to commit to infrastructure work for a project of this size, and has upgraded all specifications and street furniture to ensure that the district offers its residents and visitors an unprecedented experience. Infrastructure work was completed by the end of 2017. United Real Estate – our investment arm, which is developing 40% of Hessah Al Mubarak District – will start constructing two towers on the waterfront as soon as KIPCO’s work is complete.

Celebrating its fortieth anniversary, Burgan Bank continued to deliver resilient performance despite regional headwinds. With a focus on operating efficiencies, the bank generated high quality earnings throughout the year. It has also shown positive growth across its units, and has maintained optimized capital usage.

 

Gulf Insurance Group continued to consolidate its brand image, unifying its operations in eleven countries under the GIG brand. In Kuwait, GIG’s ‘Afya’ contract with the Ministry of Health to provide health insurance to retirees has been extended into 2018. The initial year-long deal is worth over KD 82 million (US$ 272 million) per year in premiums. Regionally, GIG has finalized the merging of AIG and Gulf Sigorta in Turkey, bringing its share to 99.22% of the company. As for GIG Bahrain, the company has successfully made the Sharia-compliant Takaful International a subsidiary. Owing to Afya, and the consolidation of business in Turkey and Bahrain, Gross Written Premiums were up 42.9% in 2017.

Over the last twelve months, OSN has seen the launch of the ‘new OSN’. The new vision and strategy places customers first, provides unrivalled quality content and unbeatable value. Alongside offering new packages and prices, the pay-tv network launched its flexi-priced TV streaming service, WAVO, as part of its strategy to take a more digital approach to its business and reach out to the younger people in the region.

In August, KIPCO announced the realignment of the operational structure of United Gulf Bank in Bahrain, resulting in the establishment of two distinct entities: United Gulf Holding (which fully owns UGB and is listed on the Bahrain Bourse), and UGB as a wholesale conventional bank governed by the Central Bank of Bahrain and now delisted. The strategic creation of these two distinct lines of business serves to enhance performance and increase efficiency down the line.

Sustained lower oil output in 2018 will help maintain the price of the barrel, thus guaranteeing continued funding for the region’s mega projects and the economic plans announced by Gulf governments for diversifying sources of income. At home, Kuwait’s vision for 2035 will create investment opportunities outside of the oil sector.

While we believe that 2018 will continue to be challenging, KIPCO will continue to work with its Group companies to deal with the external risks they face. While we embrace the difficulties anticipated over the next twelve months, we are confident that our companies will continue to deliver 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 2017. May God continue to grant us success and prosperity.

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