Management Report

2022 results

At last year’s General Assembly Meeting, we said that KIPCO looked to the year 2022 as the year of transformation. With the successful completion of the merger with Qurain Petrochemical Industries Company (QPIC), we are delighted to announce that the company achieved a net profit of KD 25.2 million (US$ 82.3 million), a 44% increase over the KD 17.5 million (US$ 57.1 million) reported in 2021.

Total revenue from operations increased 47% to KD 1.06 billion (US$ 3.5 billion), compared to the KD 721 million (US$ 2.35 billion) reported in 2021. Shareholder equity increased 81% from KD 325.8 million (US$ 1.1 billion) to KD 590.5 million (US$ 1.9 billion). KIPCO’s consolidated assets came to KD 11.4 billion (US$ 37.2 billion), compared to KD 10.2 billion (US$ 33.3 billion) reported at year-end 2021, an increase of 12%.

The merger

In March, KIPCO announced that it had reached a preliminary agreement to merge by amalgamation with QPIC, and the two sides signed a Memorandum of Understanding to assess the proposition.
The transaction required an extensive due diligence process that included the approval of the independant asset valuation and fairness opinion reports by the Boards of the two companies, obtaining the necessary approvals of the regulatory authorities, and the approvals of the shareholders of the two companies.
The merger required a 91.2% increase in KIPCO’s capital, or KD 240.85 million (US$ 786.3 million), bringing the total authorized, issued and paid-up capital to KD 504.8 million (US$ 1.64 billion). The capital increase was completed in November 2022 and allowed for the transfer of QPIC shares to KIPCO at a swap ratio of 2.24, marking the successful completion of the merger.

Executive management

In April, Mr Sunny Bhatia was appointed Group Chief Financial Officer. With more than 30 years experience spanning across multiple financial services’ sectors, Mr Bhatia plays a vital role in KIPCO’s long-term growth plans.

At the end of the year, Sheikh Sabah Mohammad Abdulaziz Al Sabah was appointed Group Chief Strategic Projects Officer. With extensive knowledge in the industrial and petrochemical operations that came under KIPCO’s portfolio following the merger, in addition to his experience in the investment sector, Sheikh Sabah will play an important role in greater value creation for shareholders.

KIPCO business updates

In June, KIPCO signed a US$ 375 million (KD 115 million) 18-month senior unsecured credit facility with a group of six international banks.
Late in the year KIPCO announced the successful completion of a KD 165 million (US$ 539 million) six-year senior unsecured bond issue. This was the largest KD-denominated bond issue to date, reflecting the confidence of investors in KIPCO’s underlying credit strength. The transaction is a continuation of the company’s proactive liability management strategy that aims to raise long-term financing, extend the tenor of the company’s existing liabilities for a stronger capital structure, and align the liabilities profile with investment holding strategies.

The bonds, maturing in December 2028, were available in fixed and floating rate tranches, with the floating tranche attracting 67% of the allocation. The fixed rate bond pays investors a coupon of 6.75% annually, while the floating rate pays investors a coupon rate of 3% annually over the declared Central Bank of Kuwait discount rate. The joint lead managers of the transaction were Kamco Invest and Gulf Bank.

On KIPCO’s rating by the credit agencies, S&P maintained in May its rating of the company at BB- and placed it on CreditWatch negative pending the successful completion of the merger with QPIC. In its report, S&P highlighted the management’s engagement and commitment to major initiatives to ensure secured funding to service its debt maturities over the next 12-18 months. It also said that the pending merger with QPIC would be a highly transformative event.

In December, Fitch Rating assigned KIPCO a Long-term Issuer Default Rating of ‘BB’ with a Stable Outlook. In its commentary, Fitch’s key rating drivers included the improved asset value diversification and a substantial increase in gross asset value that came as a result of the successful completion of the merger with QPIC, KIPCO’s active role in the operation of its portfolio companies, and an uplift from maintaining a medium level of overall dividend diversification driven by strong sector diversification. Fitch also noted that the company’s near-term refinancing is manageable due to KIPCO’s track record,
performing operating assets and established relationship with capital and banking markets.

This year saw the publication of KIPCO’s first Sustainability Report, ‘The Way Forward: Embarking on a Sustainable Journey’. In line with the Global Reporting Initiative (GRI), the report measures, assesses and discloses performance in a range of non-financial areas in relation to sustainability and ESG – environmental, social and governance. This report forms a baseline for current comparisons and future performance. A common theme is governance, both within KIPCO as a holding company and in relation to its portfolio companies. This includes governance and oversight over certain ESG areas.

Burgan Bank
Over the past twelve months, Burgan Bank’s operations registered a 15% increase in net profit to KD 52.1 million (US$ 170 million). The bank’s reported revenue for the year was at KD 232 million (US$ 757.4 million) and its operating profit came to KD 125 million (US$ 408 million).

This year saw the election of Sheikh Abdullah Nasser Sabah Al Ahmad Al Sabah as the bank’s Chairman. The Board elections also saw the entry of five new members with banking and financial experience to help shape the future strategy of the bank. At the closing of the year, the Board approved the request of the bank’s Group CEO, Mr Masaud Hayat, for non-renewal of his contract. The Board also accepted the resignation of Deputy Group CEO and CEO Kuwait, Mr Raed Al Haqhaq.

In 2022, Burgan Bank’s Board of Directors agreed to sell its majority stake in the Bank of Baghdad to Jordan Kuwait Bank. The sale of the 51.8% stake, which was completed in early 2023, resulted in a profit of KD million (US$ 6.5 million) and will enhance Burgan’s CET1 by 70 basis points. Burgan also received a wealth management license and put in place a sustainable financing framework.

In 2022, Burgan Bank received CMA approval for a wealth management license to provide investment advisory, security brokerage and investment portfolio management. This would enable the bank to expand both its portfolio of services and the scope of clients it caters to, thus establishing itself as a first-class wealth management service provider in the market.

During the year, Burgan Bank announced the establishment of a sustainable financing framework that would govern the deployment of proceeds from sustainability bond and loan issuances towards financing projects and companies that deliver positive environmental and social impact. Burgan Bank is the first Kuwaiti bank to put such a framework in place.

Gulf Insurance Group
Gulf Insurance Group (GIG) maintained its market leadership position in Kuwait, Bahrain and Jordan in terms of gross written premiums, and in Egypt in terms of technical profits (ie. general insurance private sector).

Following GIG’s acquisition of AXA Gulf’s operations in the region, all entitles were successfully integrated into the Group’s operations. After an extension of GIG’s health insurance contract with the Ministry of Health to cover retirees, Afiya 2, the company won the bid for Afiya 3, a two-year contract worth KD 354.56 million (US$ 1.15 billion). This came into effect in September and provides health insurance services to around 156,000 retirees. The coverage was later extended to emergency healthcare during travel.

During the year, GIG signed a credit facility with a local bank worth KD 133 million (US$ 430.6 million).

Celebrating its 60th anniversary, GIG unveiled an evolved brandmark and an identity upgrade. The company maintained its ‘A’ (Excellent) rating with a Stable outlook from AM Best, and ‘A3’ IFS rating with a Positive outlook from Moody’s.

United Real Estate
Our real estate arm, United Real Estate (URC), continued to show positive performance in 2022. The company completed its merger by amalgamation with United Towers Holding and Al Dhiyafa Holding. The merger enhances URC’s portfolio of income-generating assets, creates added value, strengthens the shareholder base, increases equity through the issuance of new shares and streamlines operational performance.

In Hessah Al Mubarak District, URC exceeded its sales target of 70% pre-completion for Hessah Towers and Byout Hessah. The two projects are expected to be completed in the second half of 2023. Timely progress is being made by the main contractor for the Commercial District. URC attained eight awards at the Arabian Property Awards 2022-2023 for its Hessah District projects.

During the year, URC exited from Kuwait Hotels Company, booking a profit of KD 1.2 million (US$ 3.9 million). The exit falls in line with the company’s strategy to focus on real estate development and investment. In Lebanon, URC reached an agreement to lease 24 residential units in Raouche View 1090 for five years. The contract is
worth KD 4.4 million (US$ 14.4 million) and came into effect in March. In Egypt, all remaining villas in the Aswar residential project have been sold.

For OSN, the past twelve months have seen the continued turnaround of its business model towards stronger streaming services. In April, KIPCO’s Joe Kawkabani joined OSN as its CEO and he has since been working towards the Board’s vision for the company to be a leading premium entertainment ecosystem in the region. In June, Chairperson and CEO of National Creative Industries Group, Sheikha Al Zain Sabah Al Nasser Al Sabah, and Anghami co-founder, Elie Habib, joined the Board, chaired by Sheikha Dana Nasser Sabah Al Ahmad Al Sabah. The two new Board members bring a wealth of experience to OSN.

Early in the year, OSN extended its exclusive licensing agreement with HBO and the premiere of ‘House of Dragons’ was aired on OSN+ at the same time as the US.

In March, OSN announced the rebrand of its streaming service to OSN+, thus differentiating the streaming service from the pay-tv service. This was followed by a rebrand of OSN’s 18 exclusive channels. The OSNtv box was launched in November, an all-in-one new product that brings together OSN exclusive and curated live tv channels, streaming and free-to-air entertainment across a single android device.

This year marked OSN’s commission of its first original feature film, ‘Yellow Bus’, as part of the streaming service’s investment in original content. It also partnered with several production houses for the film debut of ‘My Driver and I’. In partnership with NBCUniversal, OSN launched the reality series ‘Below Deck Sailing Yacht’. The Arabic adaptation of the legal drama, ‘Suits’, was commissioned as an OSN Original and aired in April.

Jordan Kuwait Bank
In 2022, Jordan Kuwait Bank (JKB) achieved a net profit of JOD 18.7 million (US$ 26.4 million), an increase of 143% compared to JOD 7.7 million (US$ 10.9 million) reported in 2021. Equity grew 1.8% to JOD 475.8 million (US$ 671.6 million) at year-end. During the year, JKB began the process of acquiring a 51.75% stake in the Bank of Baghdad. The transaction, which was completed in early 2023, is in line with the bank’s strategy to enhance its performance and financial position and expand its regional presence in order to diversify revenue streams.

Kamco Invest
Our investment banking and asset management arm, Kamco Invest, reported a net profit of KD 5.5 million (US$ 18 million) for 2022, with revenue for the year at KD 24.5 million (US$ 80 million). Revenue from fees increased 2.5% to KD 20.7 million (US$ 67.6 million).

Kamco successfully attracted over US$ 1.3 billion (KD 398 million) in investments for different products and transactions, with AUMs growing to US$ 13.8 billion (KD 4.2 billion). Kamco Invest’s equity funds and portfolios continued to outperform respective benchmarks and peers, and maintained their position among the top performing funds in Kuwait.

During the year, Kamco completed three acquisitions of income-generating property portfolios in the US and Germany, one exit and three refinancing transactions. The value of the managed real estate properties increased to US$ 1.8 billion (KD 551 million) across 21 assets.

The investment team closed 13 transactions during the year, worth approximately US$ 5.5 billion (KD 1.68 billion). These include seven mergers and acquisitions, two equity capital market transactions and four debt issuances.

Saudia Dairy & Foodstuff Company (SADAFCO) registered a net profit of SAR 218.3 million (US$ 58.1 million) in the first nine month of the company’s financial year, with a healthy cash position of SAR 634 million (US$ 169 million) with zero leveraging.
During the year, SADAFCO began the construction of a depot in Mecca on land leased from the Saudi Industrial Property Authority (Modon). The new depot, which replaces the existing rented location, is expected to provide long-term infrastructure solutions to both the distribution and logistics operations, resulting in future cost savings and growth opportunities.

EQUATE Group plants across the globe maintained healthy performance and utilization during 2022, reaching around 4,900 kmt of salable production despite the lower feed, challenging weather conditions and scheduled turn-around activities.
Group revenue for the year came to around US$ 4.0 billion (KD 1.22 billion), broadly in line with last year’s revenue of US$ 4.1 billion (KD 1.3 billion). This is despite the sharp drop in the market price of Olefins in the second half of 2022 and production constraints. Net profit for the year came to US$ 611 million (KD 187.2 million), compared to US$ 1.11 billion (KD 340 million) reported in 2021.

Kuwait Aromatics (KARO) reported revenue of US$ 2.2 billion (KD 673 million) in 2022 compared to US$ 2 billion (KD 613 million) the previous year, representing a 10% increase. This is mainly attributed to the positive performance of its subsidiary, Kuwait Paraxylene Production Company. KARO’s net profit for the year amounted to US$ 59 million (KD 18.1 million), an increase of 103% over the US$ 29.1 million (KD 9 million) reported last year.

The National Petroleum Services Company (NAPESCO) witnessed a healthy recovery during 2022, supported by several contract extensions and improvement in the overall business environment. As such, total revenue increased 33.3% to KD 37.2 million (US$ 121.4 million) compared to KD 27.9 million (US$ 91.1 million) the previous year. Net profit for the year came to KD 6.8 million (US$ 22.2 million), significantly higher than the KD 4.8 million (US$ 15.6 million) reported last year. NAPESCO was awarded seven contracts during the year, totaling KD 28 million (US$ 91.4 million). These include services to Kuwait Oil Company and the Kuwait National Petroleum Company for support, oil well cementing, maintenance, as well as HSE support systems.

The Advanced Technology Company (ATC) registered a net profit of KD 7 million (US$ 22.8 million) for 2022, representing a 32% increase over the KD 5.3 million (US$ 17.3 million) reported in 2021. ATC saw excellent performance from all of its core sectors, with total revenue reaching KD 165.5 million (US$ 540.3 million) compared to the KD 142 million (US$ 463.5 million) the previous year. 

Jassim Transport and Stevedoring Company (JTC) showed significant improvement in its financial performance in 2022, with revenue and net profit up 25% and 82% respectively. This year, JTC commissioned its first temperature-controlled warehouse in Mina Abdullah, marking a significant milestone in its warehousing expansion plan. The company also added more than 150 new generators to its power rental fleet in Kuwait and Saudi Arabia.

Insha’a Holding
Despite the slowdown in government projects, Insha’a Holding maintained its market share across the various segments it operates in. Overall, the company’s sales revenue was up 22%, while its gross profit grew 25%.

In ready-mix, the company successfully began the commercial operation of a batching plant in Mutla’a, which has significantly increased the company’s exposure to the housing sector.

Revenue from residential customers represented 24% of the company’s total 2022 revenue, compared to just 8% the year before. Insha’a now holds a 37% share of the concrete admixture market, establishing itself as the market leader. The company also launched a new product, silica sand, the first of its kind in Kuwait.