Management report

Dear shareholder,


The last twelve months have seen the strongest growth in global economy since 2011, at 3%. This is forecast to increase slightly in 2018 as emerging markets and developing economies continue to recover. With US shale production remaining high, the global oil market is expected to slowly see its way to a balance and oil prices are likely to remain flat into 2018.

In the MENA region, oil production cuts in 2017 have led to a slowdown in growth in oil exporting countries, while resulting in a pickup among oil-importing economies. Fiscal adjustments and reform efforts also held back growth in both oil importers and exporters in the region.

Due to political tension and fiscal austerity in the Gulf region, most GCC markets underperformed when compared to global markets. The climb in oil prices towards the end of the year, meanwhile, led to stock market gains and this momentum is expected to carry through into 2018. Driven by economic reform, growth in the GCC is expected to strengthen in the coming year.

In Kuwait, the stock market was among the best-performing in the region and stocks are expected to continue to register gains into 2018 following the market’s upgrade by FTSE. In terms of the State’s development plan, the value of awarded projects dropped 36% from 2016 to reach KD 3.6 billion in 2017, with delays that affected the activity of projects. However, the announcement of the New Kuwait 2035 strategic vision at the beginning of 2017 reflects the government’s strong commitment to move forward with its development plans.

For KIPCO Group, 2017 was a year where some of our operating companies were severely affected by difficult circumstances, while others weathered the storm well. The first three quarters of 2017 were very challenging, with the Kuwaiti market driven to a sharp slow-down by the continued weakness in oil prices, which in turn negatively affected consumer sentiments. The political scene in the GCC region served to further disrupt business operations.

While KIPCO Group has performed positively for 25 years despite competition from government and private entities in the countries in which we operate, some of our operations were affected in 2017 by competition from regional governments engaging in non-commercial activities. We view this as harmful to the private sector, in the GCC and the world, especially if it is expected to create jobs on a large scale.

In the financial sector, Kuwait embraced the new global financial regulatory requirements before any other country and its business reality was not taken into consideration in the haste of implementation. This has resulted in a drop in profitability and has put our financial institutions at a competitive disadvantage to other regional players, as evidenced by the continuous drop in Kuwait’s financial stocks since 2014. Despite this difficult situation, KIPCO’s banks, insurance companies and asset management businesses have continued to deliver profits. 

The prudent measures we have put in place over the years and the experience with which our executive team manages risks has helped us withstand the harshest of circumstances.

While we look to 2018 with caution, we are confident that our companies have built the strength they require to withstand these difficulties.

Our 2017 results

At last year’s Shafafiyah Investors’ Forum, we said that the challenging external environment in which our core companies operate would have an impact on our profitability in 2017. The headwinds we have been facing include adjustment to new banking regulations, currency risks in some of the countries where we have businesses, as well as the continued impact of the drop in oil prices which are now stabilizing.

Despite these challenges, I am delighted to report that we succeeded in achieving a net profit of KD 23.6 million         (US$ 78.2 million), compared to KD 45.5 million (US$ 150.8 million). This makes 2017 KIPCO’s twenty-sixth year of consecutive profitability. It is also KIPCO’s sixteenth year of continuous dividend payment for its shareholders, with KD 486 million paid out since 2002.


Core operations

During 2017, our core operating companies largely met our expectations: Burgan Bank reported a net income of KD 65.2 million (US$ 216.1 million), and Gulf Insurance Group’s gross written premiums grew 42.9% to KD 304.8 million (US$ 1 billion).

Meanwhile, United Real Estate’s total operating revenue increased 23% to KD 87 million (US$ 288.3 million), and United Industries Company’s net profit reached KD 5.9 million (US$ 19.5 million), bringing total assets up to KD 245 million (US$ 811.9 million).

Over the past twelve months, Burgan Bank has continued to register progress across its operations. Burgan Bank’s operating profit increased 8%, while its operating income for 2017 increased 2%.

Early in the year, Burgan Bank announced the appointment of Mr Raed Al Haqhaq to the position of Deputy CEO of its Kuwait operations. Mr Al Haqhaq’s new role is to support the Group CEO in forming and executing strategic plans pertaining to Burgan Bank Kuwait.

In July, Burgan Bank signed a strategic US$ 94.2 million deal to finance Cityland Mall in Dubai, Cityland Group’s flagship retail project, the landmark transaction, enabled by a consortium of banks, will cover construction costs of the 2.2 million square feet mall complex. The deal reflects Burgan Bank’s ever growing presence in the region as it solidifies its position as a regional financial powerhouse.

Reflecting the bank’s continued success, Burgan Bank was awarded the ‘Citibank Straight Through Processing Excellence Award, and was also named ‘Best Quality Assurance Program’ and ‘Best Service Assurance Program’ by INSIGHTS Middle East. The Burgan Equity Fund was named ‘Best Equity Fund over 10 Years’ once again this year by Thomson Reuters Lipper Awards. While Burgan is the fund manager, KAMCO is the external advisor to the fund.

In 2017, Gulf Insurance Group further strengthened its brand value by uniting all its operations in eleven countries under the Group’s name. For its Kuwait operations, the company’s contract with the Ministry of Health to provide health insurance services to retirees, ‘Afya’, was extended by the government into 2018. The initial year-long deal, which kicked off in September 2016, offers services to some 117,000 retirees and is worth KD 82 million (US$ 272 million) per year in premiums.

Regionally, GIG Bahrain successfully finalized the acquisition of the Sharia-compliant Takaful International, now a subsidiary. It also completed the process of merging AIG with Gulf Sigorta to become GIG Turkey, bringing GIG’s stake in the company to 99.22%. With the consolidation of the Takaful business in Bahrain and the two companies in Turkey, alongside the ‘Afya’ contract, GIG’s gross written premiums increased 42.9% in 2017.

In a testament to GIG’s business excellence, the company was awarded the Mohammed Bin Rashed Al Maktoum Business Excellence Award. The award is organized by the Dubai Chamber of Commerce. The Central Markets Authority declared GIG among the ten top companies abiding the corporate governance framework.

For OSN, 2017 was a year of continued efforts to ensure that customers continued to view premium exclusive content, thus maintaining its position as the region’s leading entertainment network. The year kicked off with the launch of ‘new OSN’, the strategy and vision based on three pillars: customers always first, unrivalled quality content and unbeatable value. It also aims to provide entertainment at a price to suit every pocket.

During the year, OSN launched its flexi-priced TV streaming service, WAVO. The smart device application builds on the pioneering model of ‘anytime, anywhere’ entertainment with a full spectrum of Western and Arabic live content, blockbusters and hit series. The pay-TV network also worked on producing exclusive Arabic content for the region’s viewers, and extended contracts with renowned studios to continue to hold the rights to first air the best Hollywood blockbusters.

United Real Estate (URC), our real estate business, saw a revenue growth of 23% in 2017. In Kuwait, concept design for the two high-rise Hessah Towers, located in Hessah Al Mubarak District, were approved and the development agreements have been signed. Construction is expected to begin in the first half of 2018. Designs for the low-rise residential component are now being reviewed.

In URC’s Assoufid project in Morocco, concept design is underway for the hotel and residential components of the project, and construction is set to begin in 2018. Sales in Avaris, the residential project in Egypt, are set to commence in Q1 2018. In Jordan, contracts were signed with C-Town and the anchor tenant for the family entertainment center in Abdali Mall.

As for Jordan Kuwait Bank (JKB), corporate facilities activities registered an 8% growth in total direct credit facilities at the end of 2017, while retail credit grew 13.6% across all types of retail products, small enterprises and lending to private banking customers.

Furthermore, JKB established a solar power plant with a total capacity of 1980 kW to cover the consumption of the bank’s HQ and all the branches located within the vicinity of the Jordan Electric Power Company. Meanwhile, Ejara Leasing Company, wholly owned by the bank, recorded a 13% growth in profit and 17% growth in business.

The year 2017 was Sanad Capital’s first operational year. All necessary licenses and approvals for the company’s operations were obtained, allowing it to lay the foundation for its advisory services, as well as future equity restructuring and debt financing deals.

As for United Gulf Bank (UGB), KIPCO announced the realignment of the operational structure of its Bahrain-based subsidiary in August. The realignment of the investment bank’s operations resulted in the establishment of two distinct entities: United Gulf Holding Company (UGHC) – listed on the Bahrain Bourse and holding full ownership of UGB – and UGB as a wholesale conventional bank governed by the Central Bank of Bahrain but delisted. The creation of these two lines of business serves to enhance performance and increase efficiency down the line. By retaining its regulated banking activities, UGHC continues to hold its investment stakes in Burgan Bank, URC, TAKAUD and others.

For KAMCO, 2017 was a year of successful deals and transactions. The investment company acted as a Joint Lead Manager for KIPCO’s two bond issuances and another for a local bank, while also operating as the Financial Advisor & Acquisition Manager for QPIC’s deal to acquire a stake in NAPESCO. KAMCO’s alternative investment team diversified its operations into the club deals platform, closing two transactions on commercial properties in the US and the UK totaling US$ 145 million.

This year also saw the inauguration of KAMCO’s first overseas office in Dubai DIFC, with Mr Anwar Abu Sbaitan appointed Senior Executive Officer. Mr Abu Sbaitan brings with him over 25 years of experience in investment banking and financial services, having held senior positions in regional and international investment holding companies throughout his career.

TAKAUD, our Bahrain-based savings, investment and pensions company, partnered with Mubasher Financial Services, whereby the latter will make TAKAUD’s conventional and Sharia-compliant conservative and other investment strategies available to Mubasher clients online. Mubasher’s technology enables broad public access to TAKAUD’s carefully constructed strategies, under the Mubasher name. The company also launched the ‘Tawfeer’, the Bahrain national savings plan, the first offering of its kind in the GCC.

TAKAUD also included three more funds in its portfolio in 2017: Franklin Floating Rate Fund PLC, which invests in secure corporate loans and debt securities in established and emerging markets; Franklin US Low Duration Fund, which is restricted to expert investors for individual fund purchases; and the BGF US Dollar High Yield Bond Fund, in which exempt investors can buy into.

In the education sector, United Education Company (UEC) became a KIPCO subsidiary after the purchase of a 20.33% stake worth KD 10.16 million (US$ 33.7 million) in the company by Overland. Overland’s total stake in UEC now stands at 63.88%.

The schools under UEC continued to grow, with Al Rayan Holding facilities undergoing construction work to accommodate the expanding student base. UEC now has over 17,000 students registered in its educational institutions. The American United School (AUS) added Grade 11 at the beginning of the academic year, as planned. The American University of Kuwait (AUK) received the American Academy Liberal Education five-year accreditation renewal for the university’s College of Arts and Sciences.

In 2017, United Networks, our technology arm, continued to grow its regional presence. Gulfsat launched a bouquet of new Sudanese channels on Nilesat, SuntSat, in line with telecommunication company’s strategy to increase its presence in the MENA region. It also signed and renewed cooperation agreements with ministries and entities across the region. Marina FM, the first private radio station in Kuwait, began broadcasting on its new frequency FM 90.4.


Hessah Al Mubarak District

In 2017, the infrastructure for Hessah Al Mubarak District was laid. KIPCO is the first private sector real estate master planner to commit to laying the infrastructure work for a project of this size. As part of its commitment to providing an unprecedented experience for residents and visitors alike, KIPCO has undertaken an upgrade of all standard surface specifications and street furniture. Fifty percent of the district’s area is dedicated to open spaces, parks and amenities. By the end of the year, infrastructure was complete.

KIPCO’s real estate development arm, URC, will begin constructing Hessah Towers – two forty-story residential towers on the waterfront – as soon as infrastructure work is complete. URC will be developing 40% of Hessah Al Mubarak District, including low-rise residential units, office buildings, as well as retail and F&B outlets.

Our business highlights

In February 2017, KIPCO successfully completed the issuance of a US$ 500 million (KD 152.5 million) bond under its US$ 3 billion Euro Medium Term Note (EMTN) Program, with a simultaneous tender of its existing 2019 bonds. The ten-year notes, four times oversubscribed, were issued at a fixed rate coupon of 4.5% and set a new benchmark for the issuer. The bond issuance took place alongside a repurchase of its existing five-year bond maturing in 2019. KIPCO is the first-ever company to execute a liability management exercise out of Kuwait.


And in December 2017, KIPCO issued the first ever seven-year corporate dinar bond issue in Kuwait. The KD 100 million (US$ 331 million) bond issue was 1.45 times oversubscribed, and is part of KIPCO’s strategy of regularly raising money in the debt markets to diversify its investor base and provide financial flexibility to the company. KIPCO is a long-term investor in its businesses and seeks to match this investment strategy with long-term funding. With its proactive approach to extend its debt maturity profile, KIPCO has no debt repayments due till mid-2019.

Looking ahead

The global economy is expected to show a slight growth of 3.1% in 2018, up from 3% in 2017. Following two years of weakened growth, global trade has gained momentum, driven by investment in advanced economies, greater trade in China, among other factors. While growth has dropped to 1.8% in 2017 in the MENA region, it is expected to accelerate to 3% in 2018 assuming that geopolitical tensions do not escalate and oil prices continue to register a modest increase.

The forecast increase in oil prices, together with the stringent economic efforts of the Kuwaiti government, will ensure that the State’s development plans will continue, thereby providing diverse investment opportunities. While we look with caution at the next twelve months, we believe that our core businesses will be able to continue to tackle these challenges and register growth.


Faisal Hamad Al Ayyar

Vice Chairman (Executive)


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