Board of directors report

Dear shareholder,

In 2018, KIPCO’s companies fared well despite the challenges that regional economic circumstances presented. We attribute this stable performance to our continuous internal streamlining and capability building measures across the Group. Drawing strength from our long-term strategy of portfolio diversification, 2018 is our twenty-seventh consecutive year of profitability.

Global growth reached 3% in 2018, and according to the World Bank, it is expected to drop slightly to 2.9% in 2019 as global slack dissipates and financing conditions tighten. In the MENA region, growth is expected to slightly strengthen from 1.7% to 1.8% in 2019.

For Kuwait, OPEC’s announcement of oil cutbacks in late 2018 and the fall of the barrel price are expected to negatively affect the country’s fiscal position. This comes following a surplus registered between April and October 2018 owing to healthy oil prices. Despite this, Kuwait continues to plow ahead with its US$ 100 billion ‘New Kuwait’ development plan for 2035.

At last year’s Shafafiyah Investors’ Forum, we predicted that our performance in 2018 would be similar to that of the previous year due to a weak operating environment – driven by a lower consumer purchasing power and a slowdown in growth in the GCC – as well as cost increases to counter competition, especially in the media sector. Our net profit for 2018 increased 20% to KD 28.3 million (US$ 93.3 million), compared to KD 23.6 million (US$ 77.8 million) the year before.

KIPCO’s total revenue from continuing operations for the year increased 13% to KD 774 million (US$ 2.55 billion) from KD 686 million (US$ 2.26 billion) in 2017. Subject to approval by our General Assembly, we are proposing to pay shareholders a cash dividend of 12 fils (12%) per share, as well as the Board of Directors’ remuneration of KD 220,000 and Executive Management remuneration of KD 4,249,000. It is worthy to note that the regulatory authorities have registered no penalties against the company.

One of KIPCO’s business highlights for 2018 was the successful issuance in November of a KD 100 million five-year bond. The issue was 1.35 times oversubscribed.

Another highlight in 2018 was the announcement in July of the official handover of the Hessah Al Mubarak District infrastructure works to relevant government entities. This has allowed developers to start applying at Kuwait Municipality for construction permits for all residential and commercial land plots in the district.

In December, KIPCO announced the purchase of a plot of land from Gulf Bank for KD 90 million. The plot, ‘Khabari’, is located in Fahaheel and is 231,803 square meters in size. Plans for this project will be announced in due course.

In 2018, Burgan Bank successfully completed its rights issue, raising KD 62.55 million in equity through the issuance of 240.58 million shares. This represents a 10.6% increase in the bank’s issued share capital, and the proceeds served to further strengthen Burgan Bank’s capital position. The bank also issued three-year bonds worth KD 100 million, the first of their kind in the local market. The transaction was well-received by institutional investors and high net-worth individuals.

For Gulf Insurance Group’s Kuwait operations, the ‘Afya’ contract with the Ministry of Health to provide health insurance to retirees was extended into 2019. The company continues to be among the strongest contenders for the next bid.

Over the last twelve months, OSN has continued to strengthen its business operations by aligning with strategic partners, including Huwaei, Netflix and major telecommunication companies across the region. Patrick Tillieux was appointed CEO of the pay-tv network and will continue to steer OSN and ensure that its customers receive the highest quality, and most innovative services.

Our real estate arm, United Real Estate, completed the acquisition of the Abdali Mall in Amman, through its subsidiary, URC Jordan. 2018 also saw the launch of residential unit sales in Hessah Towers, the two high-rise towers that URC is constructing in Hessah Al Mubarak District.

KAMCO Investment Company successfully purchased a majority stake in Global Investment House from NCH Ventures, an investment entity representing the interests of more than 50 financial institutions. The acquisition combines four decades worth of experience in the investment sector.

With the oil sector accounting for 90% of Kuwait’s revenue, the drop in oil prices following the higher than expected production of US shale oil is expected to have an impact on the local economy’s growth and hit the State’s budget surplus in 2019.

While we believe that 2019 will continue to be challenging, KIPCO’s long-term strategy of diversifying its portfolio in Kuwait and across the MENA region will help us face these headwinds. We are confident that over the next twelve months, our companies will continue to register growth.

We thank His Highness the Amir of the State of Kuwait, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, His Highness the Crown Prince, Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, and His Highness the Prime Minister, Sheikh Jaber Al-Mubarak Al-Hamad 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 last 12 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 2018. May God continue to grant us success and prosperity.

In this section