Management Reports: 2012
| 2006 | 2005
2006, another year of substantial growth
| The factors behind our success
| Our transparency
| Our strategy
| Our people
I am delighted to report that 2006 was
another record year in the history of this
Company. As you have seen in the first
section of this Annual Review, during the
year all our core companies met their
performance expectations and earnings
forecasts. These performances – achieved
against a mixed background of high
liquidity, volatile stock markets, high oil
prices and tensions in our region –
have been especially pleasing.
2006, another year of substantial growth
For our financial services sector, 2006
was an exceptional year. United Gulf Bank
continued the expansion of its operations
and has reported a 25% rise in profits
and a 22% rise in revenue for the year.
Burgan Bank also made substantial
progress with its retail business in Kuwait;
this resulted in a 26% year-on-year rise in
revenue and a 32% increase in profits.
Gulf Insurance Company also reported a
49% rise in revenue and a 20% increase
in profits for 2006.
We expect our financial services companies
to continue this impressive rate of growth
during 2007. To achieve this, we are
considering launching a number of initiatives
such as Re Takaful (Islamic re-insurance).
This type of initiative reflects the strength of
our financial services sector to answer the
needs of consumers and businesses for
quality products and services.
Our media and telecommunications sector
also reported excellent results for 2006.
Wataniya (NMTC) attained year-on-year
revenue growth of 40% and a 39% rise
in profits during 2006. The company
is increasing its subscriber base in its
established markets and is steadily
improving its market share in emerging
economies such as Algeria. Wataniya also
won the second operating licence in
Palestine during the year and is now
investigating further new licence
opportunities outside our region.
Wataniya’s underlying strength was also
reflected by the news that the company
has the best mobile telephone brand in the
Gulf region, according to an independent
survey of consumers conducted during
2006. This clearly shows the effectiveness
of Wataniya’s customer services and
consumer marketing. It also demonstrates
that our expertise in these crucial areas is
adding real value to the business.
Elsewhere in our media & telecoms sector,
during the year we decided to make
changes within Showtime’s senior
management. Having made it clear that we
intend to bring the company to market as
soon as possible, we recognized that
Showtime needed fresh thinking and
relevant experience to help it reach the
next stage of its development. Despite this
change in management, the company
continued to grow and expand its offering
during 2006. For example in December,
against fierce competition, Showtime
secured the regional broadcast rights for
the English Premier League – one of the
world’s most popular sporting attractions.
With new management and continued
product investment, we believe Showtime
now has all the elements in place for a
The factors behind our success
By any measure, 2006 was another
milestone in KIPCO’s impressive growth.
But, rather than concentrate on what we
achieved last year, I would like to share
my thoughts on the factors behind our
success and how these factors will
influence our future.
I believe that KIPCO’s ongoing success
is due to three main factors – our
transparency, our business strategy and
our people. Each of these factors are
interdependent and each factor alone
would be insufficient to deliver the
consistency we have achieved. However,
I think 2006 was the first year that these
factors came together to create a
competitive advantage for this Company
and that this advantage will serve KIPCO
for many years to come.
In May 2006, we held our third annual
Shafafiyah (‘Transparency’) event where
our core operating companies presented
their forecasts to shareholders, partners
and institutional investors. We are
extremely proud that for each of the last
three years, our core companies have
matched or exceeded the predictions
they made for that year. This enviable
track record is a testament to the rigorous
budget and planning process we have
in place and a clear sign that our core
businesses are being managed in a
robust and professional manner.
When we adopted transparency as part of
our business practice, we did so because
we recognized the benefits it would bring.
We knew that transparency would cement
our leadership position within Kuwait’s
business community, but we also believed
that transparency would deliver far more
significant benefits to the Company.
The most obvious benefit of transparency
is the healthy two-way dialogue it has
created between KIPCO and its
shareholders. This dialogue – still rare in
the region – maintains investor confidence
at a time when local stock markets are
undergoing a lengthy period of correction.
The second benefit of transparency is
the access it has given us to
international financial markets. This
access has allowed us to broaden
our investor base and tap alternative
sources of funding. For example, in
April we launched a US$2 billion
Euro Medium Term Note programme –
the first Euro bond issue by a private
sector corporation from the Middle East.
The issue raised over KD175.5 million
(US$ 607 million) and allowed us to
pre-pay two existing syndicated loans
and thereby reduce our overall cost
I believe this access to international funds
is a milestone in the Company’s
development because it demonstrates
how far KIPCO has come within the last
five years. Whereas in the past we looked
exclusively towards the Gulf, we now have
a global perspective, and more importantly,
a global reputation.
The third, and perhaps most important
benefit of transparency, is that it has
strengthened our relationships with global
investors and international rating agencies.
These relationships are essential to the
future of the Company and our plans for
So, it is clear to me that transparency has
played a major part in our achievements
and we should not underestimate the
positive effect it will have on our future.
Our strategy of building and investing
in companies that produce sustainable
and predictable cash flows remains
unchanged. This strategy has been an
tremendous success and is measured by
2006 being the fifteenth consecutive year
of profitability and above average growth
for the Company.
One example of our strategy in action
during 2006, was the investment we made
in North Africa Holding – an investment
company that is targeting new business
opportunities in high-growth economies
such as Algeria, Morocco and Tunisia.
This is a very exciting investment because
the region has such enormous potential.
Although KIPCO already has a presence
in North Africa through the subsidiary
companies of United Gulf Bank and
Wataniya, the increasing regionalization of
our operations is a sign of things to come.
However, without successful
implementation, our strategy would
remain an empty promise – and as every
good leader knows, the successful
implementation of any strategy depends
upon one crucial factor: people.
In 2006 we strengthened KIPCO’s
management team by hiring a Senior Vice
President of Technology & Media and a
Senior Vice President of Insurance, Real
Estate & Industrial. During the year, these
two gentlemen used their extensive
knowledge and experience to make
outstanding contributions to the business
planning of our operating companies.
When I consider KIPCO’s track record
and how we have achieved it, I have
recognized that the one irreplaceable
element of our success is the
management we have both at Group level
and within our operating companies.
Indeed, if there was a way to quantify and
value the sum total of the experience
within our Company so that the results
appeared in our financial statement, I’m
certain the results would make a significant
contribution to our balance sheet.
The three factors I have identified as
central to our success – strategy,
transparency and people – are not the
result of luck or coincidence. They are the
result of the way this Company was
formed and the way it has continued to
grow. We have been highly successful in
building a company culture where these
factors have been able to deliver a
competitive advantage. As I look forward
to 2007 and beyond, I fully expect this
advantage to continue.
Finally, I would like to thank all the staff
within KIPCO and our operating
companies for the contribution they made
during 2006. Without their dedication,
commitment and sheer hard work, your
company would not have been able to
report such impressive results.
Faisal Hamad Al-Ayyar
Managing Director and Chief Executive Officer