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KIPCO Financial Results | Record Profits | Burgan Bank – Growing in Innovation | Wataniya Telecom – Growing in Subscriber Base | Showtime – Growing in Variety | Liability Management – Growing in Maturity | Management – Growing in Strength | Looking Forward

“2005 was the fourteenth year of continued profitability, and operating profits were all-time records for each of our listed companies. Highly successful partial exits from some of our holdings in the industrial sector realised significant profits and unlocked substantial cash flows. The exits also kept the Company on track with its broader objective, which is to increase transparency through the listing of all our major businesses.”

As I reflect on 2005 I feel great satisfaction at the milestones reached by the Company during the year. 2005 was the fourteenth year of continued profitability, and operating profits were all-time records for each of our listed companies. Highly successful partial exits from some of our holdings in the industrial sector realised significant profits and unlocked substantial cash flows. The exits also kept the Company on track with its broader objective, which is to increase transparency through the listing of all our major businesses. Our largest ever international syndicated loan transaction was heavily oversubscribed and a major global ratings agency awarded us an ‘investment grade’ rating. In the pages that follow this report, you will see the evidence of many success stories. I would like to spend the remainder of this report sharing just some of them with you.

KIPCO Financial Results – Growing in Profitability
The record profits of operating companies are more than evident in the Company's income statement with the share of associated company profits soaring to KD 42 million from an already impressive KD 25 million last year. The recognised unrealised gain on investments also added over KD 8 million compared to less than KD 2.5 million last year. Further advances are found in the other recurring revenue streams as insurance, interest and investment income all added solid gains. Subscription receipts and other income also made impressive contributions. The effect of all these movements was a major leap in total revenue to KD 118.5 million from KD 72 million in 2004. The profit for the year attributable to shareholders showed a similar rise, up to KD 38 million from KD 25 million.

However, because the economic environment has been so strong in our region during the last year, there are many corporate success stories. To obtain a fuller view of KIPCO's unique growth record it is necessary to look at the results beyond just this year. When a five-year performance history is examined, a clearer picture can be seen as this removes distortion by exceptional performances and circumstances. Over the five years from 2001, at Group level KIPCO has shown consistent development. From a 2001 starting point of KD 47 million, revenues have now reached KD 118.5 million in 2005 - a cumulative average growth rate ("CAGR") of 26%. Over the same period, net income has risen from KD 7 million up to KD 38 million – an astounding 53% CAGR. These results represent a 5% return on equity and underline KIPCO’s impressive performance. This also clearly demonstrates that the Group’s results are not the result of temporary economic conditions.

Record Profits from Financial Services Segment
Further examination of these headline figures reveals that the financial services portfolio of the Group – primarily United Gulf Bank ("UGB"), Burgan Bank ("Burgan") and Gulf Insurance Company ("GIC") – delivered outstanding results.

UGB, the Group's investment banking arm, realised a net profit of US $ 81 million (up from US$ 43 million in 2004). A spectacular performance in its own business was further boosted by the growing success of the commercial banking operations in Jordan, Tunisia and Algeria, and by the outstanding results of the Group's asset management company, KAMCO.

KAMCO's earnings growth was anchored by its increasing fee income from steadily rising volumes of assets under management, but also included a significant gain through the listing of SADAFCO (a market leader in dairy products, beverages and other foodstuffs in Saudi Arabia and the Gulf) on the Saudi stock exchange. United Fisheries of Kuwait, a subsidiary of United Industries Company, the group's industrial sector holding company, sold in 2005 part of its holding in SADAFCO, representing a 13.89% stake, at a generous premium to the cost of the investment.

Burgan Bank – Growing in Innovation, Growing in Transparency
Burgan continued to leverage its technology by launching a number of innovative products in the Kuwait market, such as a mobile telephone ‘push and pull’ SMS service. Other new products introduced this year such as ‘B surprise’ were also well received by customers. Burgan shares the Group's belief that financial transparency is an important driver for modern businesses, adding value to both customers and investors. Accordingly, Burgan lead the financial sector in establishing a comprehensive corporate governance framework, and is one of the first banks in the GCC and MENA region to do so. It is also one of the first banks in the world to prepare reports fully compliant with the Basle II regulatory requirements.

Wataniya Telecom – Growing in Subscriber Base, Growing in Technology
During the year Wataniya Telecom continued its regional expansion, adding two more countries - the Maldives and Saudi Arabia - to its regional presence. In Saudi Arabia, the company announced the launch of ‘Bravo’, the GCC’s first and only specialized wireless operator, offering new and powerful group communication solutions. Additionally, the second operator franchise awarded in November 2004 in the Maldives was developed and a network rolled out in record time, with service being available to subscribers in August 2005.

Wataniya continues to invest in cutting edge technology to provide unmatched service to its subscribers. In Kuwait, the core network was upgraded to enable a country-wide roll-out of an EDGE platform and to implement an HSDPA platform. This has allowed Wataniya to establish the first ‘3.5 generation’ network in the Gulf region. These investments have increased network speed and call quality for all subscribers. It will also allow business customers to transfer large data files through their mobile phones and offer faster and better multimedia services to all customers.

Showtime – Growing in Variety, Growing in Value
From its launch in 1995, Showtime recognised that its success depended on providing the highest quality TV programming in the region. Showtime has therefore always strived to deliver the latest, best and most varied choice of programmes. This can be clearly seen in the number of channels added to the network since last year's report - Style UK, BBC Food and Boomerang have augmented Showtime's extensive offering, bringing the range to more than 50 channels. Moreover, an exclusive license has also been signed with Disney to bring the total number of exclusive major studio deals to five. Another exciting development has been the launch of the ‘Showbox DVR’ system. This cutting edge technology allows subscribers to dispense with VCRs and digitally record up to 40 hours of programmes at the touch of a button. The system is integrated with Showtime's EPG (Electronic Programme Guide) which makes selecting and recording programmes extremely easy.

The quality of Showtime’s programming within the region's marketplaces can be measured by the steady rise in the number of subscribers to the network. As each new subscriber adds revenue without increasing operating costs, the value of the Showtime business also increases.

Liability Management – Growing in Maturity, Growing in Depth
The holding company has also been adding value to the Group by using the track records of companies and the Group's liability management record to obtain growth in the quality of debt financing. Management have regularly presented KIPCO's success story to global leading financial institutions, always to a warm reception. As a result, there has been constant growth in the number and quality of institutions ready to finance the businesses, and has enabled management to secure facilities with longer maturity dates whilst lowering the overall cost of funds. It has also given the Group access to increased diversity of debt instruments, with greater flexibility. A specific instance of this during the year was the establishment of a US$ 175 million syndicated loan facility offered to large international banks which was significantly over-subscribed.

This liability management performance was an important factor in securing an improved rating of BBB+ by Capital Intelligence during the year, and, after the year end, by the award of an BBB-/Positive/A-3 investment grade status rating by Standard and Poors.

Management – Growing in Strength, Growing in Breadth
It was also a source of satisfaction to me that the Company faced – and passed with flying colours – an unanticipated test this year. All the milestones reached by the Company were achieved despite a serious illness which limited my contribution for a significant portion of the year. This was clear evidence that the business models, systems, strategies and strong management team we now have in place, are robust and well established. This was particularly pleasing to me.

Over the past year the Company has been painstakingly developing and expanding our management team. Selecting the right individuals, with the perfect mix of skills and experience has not been easy, but the effort we have spent is already proving to be tremendously worthwhile. I am positive the increased breadth of the team will add further value to the businesses over the years ahead.

Looking Forward
It is to those years ahead that I want to turn my attention as I conclude this report to you. I have reflected on the past year with satisfaction, but look ahead to the coming years with enthusiasm and anticipation. All the signs and indicators I see promise a bright future for the Company. Even on a ‘stand-alone’ basis the individual businesses in the group appear primed for continued growth and growing profitability. But the increased, and constantly increasing, integration, co-operation and co-ordination between the businesses will add substantial synergies to their stand-alone performances. And with the core management team providing additional values through specialist services such as strategic planning, liability management,and ‘green-field’ opportunity identification and development, the prospects for the Group are very healthy.

In fact, the future holds some very exciting prospects. Being the leader in the domestic bond market for many years, the Company is currently preparing for a debut issue in the international market and the signs are very encouraging. The Group will continue to accept the challenge of listing each significant business entity, not only on regional stock exchanges, but also on worldleading exchanges. We will sustain the drive to establish ratings by globally recognised agencies for each of those businesses. We will persist with full and open lines of communication with all stakeholders through channels such as our “Shafafiyah” (“Transparency”) forums - which are still the only events of their kind in our region.

Last year’s results, and those over the past several years, prove that the Group is quick to respond to new circumstances, new challenges and new opportunities. Such agility, combined with great financial resources and strength, breadth and depth of people, technology and systems leave the Group ideally positioned to deliver sustained, and growing, levels of profitability. As I look ahead I am confident in our ability to take full advantage of that positioning and I am certain that next year I will be reporting an even better set of annual results.

Faisal Hamad Al-Ayyar
Managing Director and Chief Executive Officer