Letter from the Board of Directors
Throughout 2021, the world continued to witness signs of economic recovery despite the resurgence of the COVID-19 pandemic. Due to supply chain disruptions, low fiscal support and worsening pandemic dynamics, the World Bank estimates global economic growth at 5.5% in 2021 and has expected a deceleration to 4.1% in 2022. The threat of new variants continues to pose uncertainty about when the pandemic will be overcome.
In the Gulf Cooperation Council, the increase in oil production and higher oil prices brought on by the agreement of the OPEC+ countries to reduce production cuts to zero by September 2022 are expected to benefit the economies, as will high vaccination rates in the member states. The price of oil was seen to rise to new highs following the military conflict between Russia and the Ukraine. The World Bank forecasts growth in 2022 to reach 4.7% before slowing down in to around 3% 2023.
In Kuwait, the Government has eased health restrictions related to the pandemic, and has made clear that closure of businesses is not a feasible option. The call for urgent economic reforms in the country continues as S&P maintained Kuwait’s rating at A+ with a negative outlook in January 2022, following two downgrades. However, the large revenue margins that have come from the surge in oil prices brings hope that stalled development projects will pick up once again.
At KIPCO, we continued to navigate through the volatile economic situation brought about by the pandemic, both locally and regionally. Some of our businesses clinched opportunities that had arisen as a result of the circumstances, while others sought to continue to serve their customer base at the highest level possible, while maintaining their safety and that of their employees.
As you know, in March 2022, we announced that we had signed a Memorandum of Understanding with Qurain Petrochemical Industries (QPIC) to study the proposition of a merger. As per the laws and regulations of Kuwait, we have begun the long process of due diligence, valuation and fairness opinion by licensed independent advisors. Once we have these, we will seek the approvals of the regulatory authorities and Extraordinary Assemblies of the two companies.
Looking ahead, we see an opportunity to create a stronger investment holding company that would capitalize on operational synergies between KIPCO and QPIC. The combined entity would have the ability to pursue opportunities in new sectors and continue to support the growth of its existing portfolio, thereby creating greater value for all of the shareholders.
At last year’s Shafafiyah Investors’ Forum, we said that we would remain guarded as we closely monitored the business impact of the COVID-19 pandemic on our companies’ performance. In 2021, our net profit came to KD 7.2 million (US$ 23.8 million), compared to the restated figures of KD 1.1 million (US$ 3.6 million) in 2020.
KIPCO’s total revenue from operations for the year came to KD 711 million (US$ 2.4 billion) compared to the restated KD 724 million (US$ 2.4 billion) in 2020. Subject to approval by our General Assembly, we are proposing to pay shareholders a cash dividend of 5 fils (5%) per share, as well as the Board of Directors’ remuneration of KD 220,000 and Executive Management remuneration of KD 2,288 thousand. It is worthy to note that the regulatory authorities have registered no penalties against the company.
With the closing of 2021, the Board of Directors approved Mr Faisal Al Ayyar’s request to be relieved of his executive duties after a career at KIPCO that extended for more than 30 years. The Board takes this opportunity to thank Mr Al Ayyar for his efforts, which have led KIPCO’s growth into the regional powerhouse it is today. We are happy that he will continue to serve as Vice Chairman.
The Board of Directors appointed Sheikha Dana Nasser Sabah Al Ahmad Al Sabah as the company’s Group Chief Executive Officer, effective January 1, 2022. She brings with her both strategic and operational experience that we are confident will lead KIPCO forward as it realizes its vision of implementing a model of sustainability, agility and business excellence across the Group.
An important business highlight for KIPCO in 2021 was the raising of the company’s issued and paid-up capital to KD 264 million (US$ 872.7 million) from KD 200 million (US$ 661 million) through a rights issue. The capital increase allowed the company to raise KD 80 million (US$ 264.5 million) in equity.
In 2021, Burgan Bank successfully exercised a capital increase, issuing 375 million shares and raising KD 71.25 million (US$ 235.5 million). The funds raised are to support the bank’s business growth and further strengthen its capital levels. The rights issue was well-received, and the transaction was oversubscribed, without the need for public offering or underwriting, reflecting the public’s confidence in Burgan’s business model.
Gulf Insurance Group (GIG) witnessed several business developments in 2021. The company completed two rights issues this year. The first saw GIG issue 14.2 million ordinary shares valued at KD 7.1 million (US$ 23.5 million), bringing the company’s paid-up capital to KD 20.12 million (US$ 66.5 million). The second transaction raised GIG’s issued capital by 83.3 million shares, raising KD 50 million (US$ 165 million) and bringing the paid-up capital to KD 28.46 million (US$ 94 million). Our insurance arm also successfully issued KD 60 million (US$ 198 million) Perpetual Non-Call 5 Subordinated Tier 2 bonds, representing GIG’s debut issuance in the debt capital markets. The issue attracted a large number of local institutional and qualified investors and achieved an oversubscription in a short period, signifying the company’s financial strength.
GIG completed its acquisition of AXA’s Gulf operations during 2021, in a deal worth US$ 474.7 million (KD 144 million). The agreement was announced in November 2020, and included AXA’s shareholding in AXA Gulf (Bahrain, UAE, Oman and Qatar) and AXA Cooperative Insurance Company (Saudi Arabia). The transaction has expanded GIG’s business portfolio substantially, making one of the largest and most diversified insurers in the region.
Over the past year, we continued to make progress in turning around OSN’s operations. Streaming has been made a key future growth component, with the pay-tv’s traditional viewing shifting to on-demand services. The changes in the executive management reflect this shift in strategy, while also emphasizing the success of original content production.
Our real estate arm, United Real Estate (URC), has continued its development projects in Hessah Al Mubarak District. In 2021, URC awarded Alghanim International a contract worth KD 16.7 million (US$ 55 million) for the construction, completion and maintenance of Byout Hessah, the luxury residential development in Hessah Al Mubarak District. URC also signed a contract with Ahmadiah Contracting & Trading Company for the construction of the Hessah Al Mubarak’s Commercial District. The contract is worth KD 42.6 million (US$ 140.8 million).
Kamco Invest, our investment arm, successfully placed over US$ 1.1 billion (KD 332 million) in 2021 in different products and transactions. Its AUM grew by 12.76% to US$ 14.6 billion (KD 4.4 billion). The investment company acquired four income-generating property portfolios in the US and the UK, raising the managed real estate value to over US$ 1.36 billion (KD 413 million). The investment company’s funds and managed portfolios continued to outperform their peers and respective benchmarks.
The impact of the pandemic has begun to lift, as the vaccination campaign and the availability of booster doses, together with the vaccination of children, continues. Together with improved oil prices, the economic outlook is much improved. In the meantime, our Group companies continue to provide quality services to their customers in the safest manner.
We thank His Highness the Amir of the State of Kuwait, Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, and His Highness the Crown Prince, Sheikh Mishaal Al-Ahmad Al-Jaber 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 past twelve 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 2021. May God continue to grant us success and prosperity.