Management report

Dear shareholder,

Dear shareholder, Over the past 12 months, the global economy has fought to find its balance while oil prices continued their descent, resulting in a disappointing growth. While inflation has slowed down in some oil importing countries and the gap in their fiscal deficits has become smaller, oil importers have yet to reap the benefits from low oil prices.

In oil exporting countries, the sharp decline in oil prices has reduced activity and increased fiscal pressures. In Kuwait, the oil price plunge comes with a forecast of deficit in 2016 given the 60% drop in State revenue in 2015. The Kuwaiti government has awarded infrastructure contract work estimated at US$ 30 billion over the past 12 months, and the Public-Private Partnership (PPP) law passed earlier in the year may result in more involvement from the private sector. KIPCO has been investing heavily in its core businesses since the 2008 financial crisis. We will continue to take measures to consolidate our businesses in light of these developments, as we further strengthen our companies to weather this storm. 

Our 2015 results


At last year’s Shafafiyah Investors’ Forum, we set an objective to double our 2014 profit by 2018. I am delighted to report that we are on track to achieve our target, with a 4% increase in total revenue from continuing operations and 15% in profit.

Our results for 2015 have continued to follow our planned growth trajectory; our total assets have increased 66% from KD 5.8 billion in 2011 to KD 9.6 billion in 2015, while our revenue growth and profitability are both up by 77% for the same five-year period.

The performance of our core businesses is sound and positive, as reflected by these results. These figures are also a testament of the growth our companies have registered over the past five years.


Core operations


During 2015, our core operating companies largely met – and in some cases exceeded – our expectations: Burgan Bank’s operational income increased 11% to KD 248.1 million (US$ 817.5 million), and Gulf Insurance Group’s profit was up 17% to KD 14.09 million (US$ 46.4 million). Meanwhile, United Real Estate’s total operating revenue increased 17% to KD 60.5 million (US$ 199.3 million), and United Industries Company’s investments increased by 16% to KD 225.9 million (US$ 744.3 million), driving total assets to KD 227.8 million (US$ 750.5 million) a further 16% upwards. OSN has also continued to register growth, achieving a 6.2% increase in net profit and 11% increase in revenue.

For Burgan Bank, the last twelve months have seen continued progress. International operations continue to contribute to the Group’s revenues, reflecting the strong performance of the bank’s regional network despite the continued political tensions in some areas.

In Kuwait, Burgan is the number two conventional bank in the market in terms of assets and its performance continues to be strong. Burgan Bank has continued to make progress in its risk management activities, which as a regional operator is a complex exercise. The first phase of this process has been successfully implemented, with the second phase to follow in 2016. By selling its 51% controlling stake in the JKB to KIPCO Group, Burgan Bank successfully raised its capital adequacy ratio to over 15% at the end of 2015 and yielded a reduction of over KD 500 million in Burgan’s risk-weighted assets. The transaction has positioned Burgan Bank with capital levels comfortably in excess of that required under Basel III, giving it the capacity to grow for the next few years without the need for further capital. Burgan Bank is set to deliver good return on shareholder equity in 2016, and will continue to work very closely with JKB and other banks under the KIPCO Group, thereby continuing to benefit from the synergies and support offered by the network.

For Gulf Insurance Group (GIG), 2015 saw further strengthening of operations. GIG’s Kuwait-based operations have ranked it market leader for 13 consecutive years in terms of Gross Written Premium (GWP). GIG’s network has placed it amongst the top eight insurance players in the MENA region. Its regional operations remain leaders in their markets; Bahrain Kuwait Insurance in Bahrain and Arab Orient Insurance in Jordan both rank first in terms of GWP, and in Egypt, the Arab Misr Insurance Group is number one by technical profits.

Late in 2015, GIG was awarded by the Kuwaiti Ministry of Health to provide health insurance for 117,000 retirees. The contract will increase GWP by KD 82.48 million (US$ 271 million) annually. GIG will be working to close this deal and start implementation in early 2016. Alongside this, GIG continues to provide medical insurance to leading corporations in Kuwait, including Kuwait Petroleum corporation where it has close to 58,800 medical insurance policies.  

For OSN, the past 12 months have seen the pay-TV company continue to deliver higher EBITDA and net profit numbers, increasing 2.2% and 6.2% respectively. Revenue has grown 33% over the past 3 years. With the shift in competitive landscape, both at the television and OTT (over-the-top) fronts, 2015 was a year where many challenges were comfortably faced and overcome.

During 2015, the pay-TV company secured a US$400 million syndicated loan, a testament to the financial strength of OSN and the banking community’s confidence in OSN’s business model. The loan is aimed at strengthening OSN’s exclusive and premium content, and to develop innovative technology platforms that enhance viewer experience. In 2016, OSN will remain focused on investing in its technology platforms, talent and content.

Over the past year, OSN signed a five-year ‘first and exclusive’ output agreement with Warner Brothers, underlying the pay-TV’s prime position as the home of blockbuster movies and series. It also became the home of HBO after signing a long-term deal that will see the launch of a dedicated HBO channel later this year. The deal marks the expansion of OSN’s ‘On Demand’ service with more than 2,000 hours of HBO programing available to watch anytime, anywhere. For OSN, the battle against piracy has been strong in 2015 and will continue.

United Real Estate (URC), our real estate business, saw a revenue growth of 30% in 2015, and an increase in leasing income by 33%. This is mostly supported by rent from the company’s new project in Oman, Salalah Gardens Mall. In Jordan, Abdali Mall is expected to be inaugurated in Q2 2016. URC’s projects, Aswar Residences in Cairo and Raouche View at 1090 in Beirut, were both launched in 2015 and sale of residential units in the two projects will continue in 2016.

Our savings, investment and pensions company, TAKAUD, signed a business partnership agreement with Dubai Mirabaud (Middle East) Ltd – associated with one of the oldest and most distinguished Swiss Private Banks, Mirabaud & Cie – to provide TAKAUD’s clients with a range of wealth management services. The partnership enhances TAKAUD’s investment platform with the addition of Mirabaud’s topperforming flagship funds. The two sides will also work together to develop new investment solutions in the area of wealth management and corporate retirement services to better serve TAKAUD’s clients in the region.

Earlier in the year, TAKAUD signed an MoU with KAMCO, providing a framework to facilitate business and client servicing synergy between the two companies. The agreement will offer KAMCO’s clients and shareholders a diverse pool of investment products.

In the education sector, United Education Company (UEC) continued to expand its student base in 2015, with over 16,000 students now enrolled in the educational institutions under the company. The American University of Kuwait (AUK) signed an agreement with Dartmouth College to expand cooperation to the latter’s Tuck School of Business. This will allow the Tuck team to work with AUK on enhancing its business and economic curriculum.

The American United School (AUS) continued to expand, adding Grade 9 and inaugurating the Middle and High School buildings at the beginning of the academic year. Furthermore, UEC continued to invest in technology solutions for its schools.

For United Networks, 2015 saw a consolidation of its position as a provider of leading edge solutions. Its subsidiary, Gulfsat successfully launched its new E8WB satellite, hosting 1,200 television channels with over 250 million viewers in 52 million homes. To further broaden its outreach, the communications company also signed an MoU with the Palestine Public Broadcasting Corporation and discussed means for cooperation with the Bahraini government. Gulfnet, our internet provider, achieved partnership status with Microsoft in a number of categories, while Marina FM launched its television service.


Our business highlights


Plans for a new multi-use commercial and residential real estate development project, to be built in Daiya, were announced by KIPCO during 2015. The project, valued at approximately US$ 2.5 billion, will have a built up area of 380,000 sq.m. overlooking the sea on the outskirts of Kuwait City. Development of the project will be undertaken by URC and other entities, and is expected to take five to seven years to complete. Infrastructure for the district will be laid down by KIPCO, and the project will include villas, residential buildings, town houses, commercial buildings, entertainment and recreational areas, as well as parks, walkways and open-air features. Infrastructure work is expected to begin in Q2 of 2016.

From a liquidity and funding perspective, KIPCO remains strong, with current cash levels sufficient to meet all debt obligations until the end of 2018. We will continue to manage our liquidities and financing activities to ensure that our existing needs are met, and to allow us the flexibility to embrace and pursue new opportunities as they arise. KIPCO has maintained its international investment grade ratings, and in 2016, KIPCO will continue to support the growth of its core operations across the different sectors.


Corporate governance


KIPCO has always been an advocate of transparency and the shareholders’ right to know what is taking place in their company. KIPCO was the first company to launch its annual Shafafiyah Investors’ Forum in 2004 and remains to this day the only company that openly discusses its outlook and plans for the coming year with its shareholders and investors.

In line with these sound practices, KIPCO continues to prepare for the implementation of the Capital Market Authority’s corporate governance framework, set for mid- 2016. Following the formalization of a number of standing committees and the establishment of others, 2015 saw the formalization of the Board of Directors Charter, the Shareholder Rights Policy and the Stakeholder Rights Policy.

To ensure that all of its executive teams are well-informed of best practices in the different business areas in which they perform, KIPCO undertook a Group-wide initiative in 2015 that targeted different levels of experience. Through workshops, training sessions and seminars, the executives were exposed to such topics as corporate governance, management trends, operations, sales and other dynamic subjects.


Looking ahead


The global economy is expected to grow at 2.9% in 2016, up from 2.4% in 2015, and is expected to recover at a slower pace than previously forecast. The growth projected for the coming year will be supported by a recovery in advanced economies and stability among commodity exporters.

In the MENA region, economic growth is forecast to accelerate to 5.1% in 2016 from 2.5% in 2015, largely in part to the lifting of economic sanctions on Iran, resulting in a larger contribution to the global energy market. If oil prices stabilize, growth is expected to pick up in oil exporting countries. In the Gulf region, there remains the risk of conflict escalation and a further drop in oil prices.

In Kuwait, partnerships between the public and private sectors are likely to be prompted by budget cuts in the government sector on grounds of lower oil revenues. At KIPCO, the solid positions of our core businesses will ensure that we emerge strongly from these circumstances. The year 2016 will be one of further business consolidation and integration within KIPCO, and we expect these measures to have an impact on our projections. Nonetheless, our companies are expected to continue to report growth, and this will set the stage for very strong performances across the sectors in 2017. 


Faisal Hamad Al Ayyar


Vice Chairman (Executive)



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