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Company: Aluminium Bahrain (Alba) Sector: Manufacturing Sector Recommendation: BUY Exchange: Bahrain Bourse/London Stock Ex. Industry: Aluminium Industry Current Price (16th Jan 2018): BHD 0.620 Ticket Symbol: ALBH Valuation Date: 16th January 2018 Target Price: BHD 1.072 (+72.85%)

SUMMARY Company profile Aluminium Bahrain (ALBA), established in 1968, was the first aluminium smelter in the 16th January 2018 Middle East with a total production of 981,016 metric tonnes as of 2017. The company Market Capitalization BHD 877,399,820 engages in manufacturing aluminium and aluminium related products. Market Share Price BHD 0.620 1.200 9 Outstanding Shares 1,415,161,000 52-Week High-Low 0.620 – 0.266 7 1.000 2-Year Average Beta 0.97 Average 3m Volume 223,188 5 0.800

Key Financials (Year ended 2017) 3 0.600 Dividend Yield 6.9% 1 EPS 24 fils 0.400 P/E Ratio 10.16 -1 EV/EBITDA 7.58 0.200 ROA 2% -3 Net Profit Margin 4% Debt Ratio 0.42 0.000 -5

Valuation Summary

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May 02, May 2017 16, May 2017 DCF 50% 1.496 Change % Price Multiples 40% 0.668 Ben Graham 10% 0.643 The one year forward blended 50:40:10 target price of BHD 1.072, upside of 72.85% from 12-Month Target Price BHD 1.072 the current market price of 620 fils on 16th January 2018, is based on the following key Target Price Upside 72.85% factors; • Alba will become the largest single-site aluminium smelter in the world following the Source: Team Estimates & Annual Report operation of Line 6 expansion project. This will elevate their status and make them a prominent competitor in the aluminium industry. Alba Historical Stock Price since IPO Source: Bahrain Bourse • With the expectation of approximately 5% YoY growth for the next 5 years in demand and decreasing supply by 2.2% of aluminium, Alba will benefit from higher aluminium 1.000 prices. The forecasted market deficit will be driven by reduction in Chinese production 0.900 of aluminium for environmental purposes. 0.800 • The imposition of trade barriers on China’s aluminium will be giving Alba competitive 0.700 advantage due to FTA agreement with USA. 0.600 • Despite rising price of alumina, green petroleum coke, and carbon, the expected rise 0.500 in aluminium prices will increase Alba’s revenue on a yearly basis. Considering Project 0.400 Titan, costs are expected to remain low. 0.300 • Alba dominates a monopolistic position in Bahrain’s market, being the only producer 0.200 of primary aluminium locally. The high barriers of entry shield them from competition 0.100 locally. Also, 41% of their products are secured by the downstream industries in Bahrain. 0.000 • Alba pays yearly dividends, except for 2018 which will be zero given self-financing of Line 6 loan. However, dividends will be distributed thereafter given the rise in

production, net income and cashflows due to operation of Line 6.

11/20/2013 07/19/2016 07/05/2011 02/13/2012 09/10/2012 04/16/2013 06/19/2014 01/29/2015 08/27/2015 03/31/2016 11/14/2016 06/13/2017 12/01/2010

Table 1 Alba’s Facilities Source: Alba Website COMPANY ANALYSIS Facility Type # Facility Details Main Potlines 5 Potline 1-2-3-4-5 BUSINESS DESCRIPTION Cast Houses 2 971,420 mtpa Carbon Plants 3 - COMPANY Fume Treatment Aluminium Bahrain B.S.C., widely known as Alba, is the effort of the output of the Kingdom 11 - Plants of Bahrain’s government to diversify production, reducing the reliance on oil and gas PS 1 (282MW) PS 2 (168MW) activities. Through the continuous advancement in its technological innovation and full Power Plant 4 PS 3 (860MW) involvement in enforcing CSR, training, safety, health and environment guidelines, Alba PS 4 (939MW) Petroleum Coke has managed to be one of the largest aluminium smelters globally (Table 1). Alba was 1 550,000 mt per day Calciner established in 1968 and officially launched its operations in May 1971, becoming the first Seawater 1 41,000 m3 per day aluminium smelter in the Middle East with a total production of 120,000 tons per annum. Desalination Plant 13 hectares 15,000 The company became public on 23 November, 2010 and launched its IPO at BD0.900 per trees/shrubs Green Oasis - ordinary shares and USD11.97 per GDR (1 GDR = 5 ordinary shares) which are traded Fruit/vegetable garden Artificial lake through the Bahrain Bourse and London Stock Exchange under the symbol “ALBH”. 75% of the total trading size were ordinary shares and Global Deposit Receipts (GDRs) through institutional investors, while 25% were ordinary shares available in retail offering. The Figure 1 Sales by product (2016) Company also has a subsidiary incorporated in the United States of America. The market Source: Alba's Website capitalization as of 16th January 2018 is BHD 877,399,820. Today, Alba produces over 14% 971,000 metric tons per annum (mtpa) promising the highest quality of aluminium. As of 2016, Bahrain is ranked as the 9th largest producer of aluminium globally and 2nd largest 30% aluminium smelter in the MENA region1. (Appendix 15) 11% PRODUCT MIX/PRODUCT RANGE Alba not only produces aluminium products, but other by-products as well. Primary 11% products include, standard ingots, rolling slabs, foundry alloy ingots, extrusion billets, t- ingots and liquid metal (Figure 1). Other products include, anodes, power, water, calcined 34% coke. Alba insures 99.86% purity of high-quality aluminium in all products (Appendix 17). The value-added sales accounted for 56% in 2016, a 12.5% drop from last year. Liquid Metal Extrusion Billet Furthermore, Alba imports raw material (alumina) from BHP Billiton, Alcoa and Hydro. Standard Ingots Rolling Slabs Foundry Alloys CONSUMER MIX/ CONSUMER SEGMENT The company’s main consumer sectors include; automotive, consumer products, commercial, residential, transport, and packaging industries. Alba’s main consumer base Figure 2 Sales Revenue by Geographic Location are regional clients and the typical length of the company’s commercial relationships with Source: Alba Annual Report 2016 its top five consumers is more than 28 years (Figure 2). Alba consistently work in collaboration with their customers through technical support services to update their 10% products and boost productivity. COMPANY STRATEGIES 18% 41% Adherence to safety and environment management Alba prioritizes safety in the working environment by conducting regular upgrades to its safety system through the company’s Risk Assessment Committee. Additionally, all 14% employees are trained in health and safety by OHSAS 18001 (Occupational Health and Safety) certified personnel. Alba is recognizable for being the first aluminium smelter in 17% the world to have not a single Lost Time Injury (LTI) in more than 9,200,000 work hours2. Since 1990, the company has invested over USD589million in environmental conservation in the form of fume treatment plants focusing on waste management and reduction of Domestic Asia MENA Europe Americas harmful gas emissions. Investment in training and development Alba has continued to provide training for over 40 years in order to develop the skills of Figure 3 Porter's 5 Forces its employees up to international standards. Alba’s commitment to human asset Appendix 11 development led to opening a Training Centre which consists of workshops and smart Degree of classrooms. The Centre offers training in leadership, automotive, mechanical, electrical, Competition 4 instrumentation and hydraulics and pneumatics. 3 Customer satisfaction Bargaining 2 Threat of Alba commits to maintaining strong relationships with its customers to build long-term Power of 1 New clientele. As a continuous effort to increase efficiency, Alba offers competitively priced Customers Entrants 0 products yet retaining the highest quality of its aluminium with 99.86% metal purity. Technological Development Constant upgrades in the technology used in production is implemented to further Bargaining Threat of increase production and improve efficiency. Alba’s recent upgrade from “EGA DX+” to Power of Substitutes Suppliers “EGA DX+ Ultra” for Line 6 project is expected to increase the company’s production by 540,000 mtpa. This technology improves energy efficiency allowing Alba to increase output by consuming less energy, thus, reducing the company’s production costs.

FUTURE DEVELOPMENT Table 2 Executive Managers Alba’s last expansion was completed in 2005 when the company introduced Line 5 to the Source: Alba's Website main site, increasing production by 307,000mtpa (total output=827,000 mtpa). Today, Name Current Position Alba’s line 6 is under development increasing production to 1,540,000mtpa (Appendix 16). Tim Murray Chief Executive Officer Furthermore, Alba initiated plans of expanding its plant and work on developments to Ali Al Baqali Chief Supply Chain Officer Khalid A.Latif Chief Marketing Officer further strengthen its operations within the nation by continuously supporting the non- Amin Sultan Chief Power Officer oil industry and Bahrain’s community to align with the Kingdom’s 2030 Vision. Waleed Tamimi Chief Admin Officer Hassan Noor Acting Chief Operations Officer CORPORATE GOVERNANCE CORPORATE STRUCTURE Figure 4 Alba's Shareholders Holding Board of Directors & Management Team Source: Alba’s Website The company has 10 members in the Board of Directors with diversified backgrounds and experience, 1 out 10 members of the board are non-independent, executives (Appendix 0.74% 6.79% 2.47% 13). Furthermore, the board works alongside with 3 sub-committees: The Board Audit Committee (BAC), the Board Executive Committee (BEC), and the Board Nomination and Remuneration Committee (BRC). The determination of Alba’s business operations 20.60% direction and its long-run strategy is the main responsibility of the BOD. The management team has 55 members inclusive of the 6 executive managers (Table 2 & Appendix 14). The 69.40% primary responsibility of executive managers in Alba is managing the daily operations and enacting strategies and polices set by Board of Directors. They receive compensation in the form of salaries, bonuses, gratuities, perquisites, pensions. Bahrain Mumtalakat Holding Co. BSC Shareholders Saudi Basic Industries Corp Alba’s ownership is majorly held by Mumtalakat Holding Company (a sovereign wealth Norges Bank Investment Management fund owned by Bahraini government) with 69.40% share, 20.60% is owned by Sabic Aluminium Bahrain BSC Industrial Investment Company (Saudi chemical manufacturing company), and remaining Public 10% of ownership is by the public, out of which 0.74% is held by Alba itself (Figure 4). Employees Figure 5 Aluminium Output in China vs. Rest of World Source: International Aluminium Institute The company provides a healthy environment for employees and is the first company in Bahrain to create a Union in 1975. Moreover, Alba has committed to Bahrainisation and is the largest employer in the Kingdom. As of 2017, it has a total of 2,681, of which 84% are Bahraini nationals. CODE OF CONDUCT Alba’s corporate governance structure is completely aligned with The Kingdom’s Commercial Companies Law and Corporate Governance Code issued by Ministry of Industry, Commerce and Tourism. Furthermore, Alba complies with the International Best Practices and Corporate Governance Module issued by The Central Bank of Bahrain. The company’s code of conduct outlines a set of rules that governs five main subjects: Valuing People: fair treatment, respect, non-harassment policies, providing equal opportunity. Safety, Health and Environment: commitment to environment and strict safety rules. Good Citizenship and Social Responsibility: key attributes towards the community and political relations with the government. Ethical Business: eliminate unlawful acts such as corruption, Figure 6 Refined Aluminium Demand and Supply bribery, conflicts of interest and frauds. Information and Confidentiality: protecting confidential Source: Wood Mackenzie, RBC Capital Markets estimates information and methods of representing Alba.

120000 20% SOCIAL RESPONSIBILITY Alba is determined to create a positive impact and improvement on the society and preserving the environment by contributing and initiating in wide array of activities. In 100000 458 15% sports field, Alba is the leading entity in supporting special needs athletes. Furthermore, 716 1507 Alba also participates in Gulf Air Formula One Grand Prix. Alba dedicated a community 80000 1454 services team that supports unprivileged locals financially by raising funds and creating 10% 1719 charity events. As for healthier environment, Alba has contributed alongside the government in restoration of Malkiya beach as well as providing sponsorship for 60000 environmental entities and numerous events such as The International Garden show. Alba 5% has spent USD$589 million for environmental conservation. 40000 INDUSTRY ANALYSIS 0% 20000 INDUSTRY OVERVIEW • Aluminium consumption increased 5% YoY in 2016; summing up to 59.6 million -376 -5% 0 metric tons. Demand forecasted to increase 4-5% for 2018 and 5-6% for the next 5 2009 2010 2011 2012 2013 2014 years, reaching 65.9 million metric ton in 2020. • Rising demand from transportation, electrical and machinery sectors. -20000 -10% • Aluminium supply growth to 2.2% YoY due to Chinese production curtailment. Supply Demand • Increasing trade barriers against China could diminish world production supply. Surplus/Deficit % Change in Supply • China aims to reduce their reported production by 30% to lower pollution levels and aluminium oversupply in the market. % Change in Demand

• Increasing raw material costs is pressuring the cost of production but marginal Figure 7 Global Aluminium Supply and Demand revenue exceeds marginal cost. Source: Bloomberg, RBC Capital Markets estimates GLOBAL ALUMINIUM INDUSTRY Direction of Market Balance: Is it a Deficit or Surplus? Alba operates in the aluminium industry that has faced challenging pressures on companies’ profits and valuations. The main reason behind such challenges is China, who started oversupplying aluminium mainly from 2013, more than the world producers, distorting aluminium prices and market balance (Figure 5). It could be observed from Figure 6; aluminium market recorded a surplus throughout the years except for the year 2014 (-376,000 tons) and 2016 (-913,000 tons)3. The year 2016, market deficit exceeded the 2014 deficit, which could be attributed to China’s unexpected trimming of production (Figure 7). A relative balance of 344,000 tons and global deficit of 538,000 tons for 2017 and 2018 is forecasted, a conclusion drawn based on the following: Assumptions: China’s output curtailment reaches 4.5 million tons in 2018. Curbing of China’s output for environmental purposes needs to be 600,000 tons in 2018 despite expansionary fiscal policies that will drive growth in short-run. Figure 8 Global Primary Demand (YoY Growth % & mt) Source: CRU Fall in growth of Chinese consumption by 4.5% in 2018 Rise in China’s net exports to 800,000 tonnes in 2018 from 500,000 tonnes in 2017. Risks: Pump of new projects mainly by China’s State-Owned-enterprises Fluctuations in aluminium prices following response to China supply policy Rise in prices of alumina, carbon and power due to cost-push inflation SUPPLY & DEMAND DRIVERS OF ALUMINIUM Demand Trend In 2016, the consumption summed up to 59.6 million metric tons that is approximately 5% YoY higher4 that than the world’s real GDP growth rate of 3.2% for 2016. The demand rate rises to 5.3% in 2017. China owned global demand share of 14% in 2000; exceeding 50% in 20175. United States, Germany, India and Japan are considered chief consumers of aluminium after China. Demand Outlook Aluminium is the 2nd most consumed metal, headed by steel, due to its intrinsic characteristics such as 100% recyclability, durability, versatility, conductivity, lightweight and strength without comprising safety and performance. Steel is being replaced by Figure 9 Demand of Sectors for Aluminium aluminium as per the EU emissions scheme and the Corporate Average Fuel Economy Source: CRU which supports steel substitution as it is considered more environmentally friendly since it is lighter which enhances fuel efficiency and reduces Co2 discharges (Appendix 17). Aluminium consumption is expected to reach 65.9 million metric ton in 2020 6 while demand is expected to further grow by 5-6% in the next 5-10 years (Figure 8)7. These demand growth rate exceed the world’s forecasted real GDP growth rate of 3.6%, 3.7% and 3.8% in 2017, 2018 and 2022 respectively8. The increase in demand growth is due transportation, electrical and machinery sectors (Figure 9). China is anticipated to adopt expansionary fiscal policies to achieve their target of multiplying their real GDP from 2010- to-2020 as it was expected to ease from 6.3% to 5.7% YoY; thus, driving demand for aluminium in real estate and transportation sector; while US has major infrastructure plans worth USD 1 trillion9. Regions, such as India, that are unable to produce aluminium locally due to high costs, rely on imports providing Alba with exporting opportunities especially since India would require large supply quantities which can be granted by the Line 6 expansion project. The reason being that India is viewed to boost aluminium consumption which increases from 3.3 million mt (2015/16) to 5.5 million from 2020 to 2021 as a result of government initiatives such as “Smart Cities”, “Make in India”, rural electrification, “Housing for All” and freight corridors10. Table 3 Top Aluminium Producers (August 2017 in Supply Trend million mt) The top individual aluminium producer is a Russian Company, UC Rusal, with total output Source: The Balance 11 Producer Country Output amounting to 4,173,000 mt, followed by Alcoa in USA with 3,742,000 mt . However, UC Rusal Russia 4.173 China altogether is ranked the highest regional producer with a global aluminium output Alcoa Inc. USA 3.742 share exceeding 50%. The list of top producers as of August 2017 are listed in Table 312. Aluminium Corp of China China 3.502 nd China Power Investment Corp China 2.693 The 2 highest regional aluminium producer is the GCC with a total output reaching Rio Tinto Alcan Inc Canada 2.174 5,197,000 mtpa, of which Alba contributes 17.4%; while Alba represents 1.64% of global Norsk Hydro ASA Norway 1.985 13 China Hongqia Group Ltd China 1.821 supply (Figure 10) . It is forecasted that the share of aluminium production will decrease Shandong Weiqiao Aluminium China 1.715 and there will be a slowdown in supply growth to 2.2%. This slowdown is mostly due to; & Power Co information collected regarding trade barriers and geopolitical tensions, China revamping Shandong Xinfa Aluminium & China 1.630 Electricity Group Ltd. supply policies and the cost-push inflation in raw materials14. Dubai Aluminium Co. UAE 1.420 Trade barriers and geopolitical tensions The governments in Europe, India and US are enacting protective measures against exports from China by levying import duties or provision of subsidies to producers’

locally 15 . This is due to low-cost input and artificially cheap loans given to Chinese Figure 10 Aluminium Production 2016-2017 producers, hindering the world’s aluminium capacity. India increased import duties for Source: The World Aluminium primary aluminium and aluminium products to 7.5% and 10% respectively 16 . US preliminary duties on all Chinese aluminium foil products are around 96.81% - 162.24%. Alba will have competitive advantage over China given their Free-Trade Agreement (FTA). China’s supply-revamp policies From April 2017 onwards, the shutting-down of unlicensed smelting capacity, could result in loss of 4 million tpa. Secondly, the introduction of environmental tax to reduce pollution will impact production significantly. China plans to reduce their reported production by 30% to lower pollution levels and aluminium oversupply in the market. Thus, reported production dropped by 2.3% within a month17. Cost-push inflation in raw material costs Cost of bauxite, alumina (extracted from bauxite), and anode baking capacities are pressuring raw material costs. China plans on trimming 30% of alumina production and 30% of anode baking and calcining capacities. This will reduce Chinese exports to aluminium smelters and will heighten costs for the whole world, including Middle East. These reforms will increase the aluminum marginal cost of production (exclusive of Figure 11 Alba’s Marginal Profit & Total Cost Estimate overheads, labor and management costs) over the years (Figure 11). Considering the main Source: Team Estimates components of production without the benefit of secured contracts, Alba still produces a positive margin due to rising aluminium prices. 5000 LONDON METAL EXCHANGE (LME): ALUMINIUM PRICES 4000 Aluminium prices dropped from 2013-2016, hitting rock bottom in 2015 with $1423.5 per 3000 1479.6 1466.3 ton. Aluminium became the 2nd best performing base metal in 2017/Q1 compared to 2000 488.4 535.7 being 2nd worst in 2016. If the bullish scenario continues as a result of expected global aluminium deficit in 2018, the LME aluminium prices will be as follows in 2018: 1000 1968 2002 Metal Bulletin Research outlook: Rise to an average of $2,090 to $2,195 per ton. 0 Banks & trading companies’ outlook: Rise to an average of $2,400 and $2,500 per ton. 2017 2021 Other’s outlook: Rise to an average of $2,000 and $2,200 per ton.

LME Aluminium Total Cost Margin BAHRAIN MACROECONOMICS The lucrative growth in non-oil sectors, which generates 80.7% of Bahrain’s real GDP, powers Bahrain’s economy against benign international and national economic scene. The non-oil growth slipped down slightly from 5.2% to 4.3% in Q2 and Q1 of 2017 respectively18; this is partially attributed to power outage for 3 hours in Alba, decreasing approximately 3%-5% of the company’s entire aluminium output. Bahrain is expected to experience macroeconomic headwinds, where the foreign-exchange reserves in the Central Bank of Bahrain depleted by 75% since 2014. Without aid or lift in oil prices, Bahrain will struggle to be pegged to US Dollars at BHD 0.376. Hence, Bahrain could be withdrawing subsidies on energy products, increasing Alba’s cost of production. Also, financial aid is expected to be extended to Bahrain as it is viewed less costly compared with BH devaluing the currency that will reverberate regionally. Still, Alba is viewed as solid and financially stable; hence, it receives competitive offers from banks to finance Line 6 that will boost Bahrain economic position. (Appendix 12: PESTL analysis). Thus, its internal strength and Line 6 expansion will shield its stock price from any adverse event. LOCAL ALUMINIUM INDUSTRY The growth drivers of Bahrain’s industrial and logistic sectors are key infrastructure projects worth $33 billion. Among these projects, Alba initiated their Line 6 brownfield project to increase production capacity by 54%. With expectation of additional 250,000 Figure 12 Alba Yearly Production (mtpa) mtpa output sold domestically, local downstream firms plan to take advantage and Source: Alba Website expand their own businesses to accommodate the growing production, creating a wider consumer base for Alba. Furthermore, Alba’s major shareholder, Mumtalakat, entered into joint venture with synergies casting of India in 2015 for building a downstream aluminium plant in Bahrain worth $150 million that will commence operations with output capacity of 25,000 tons in Q4/2017 to absorb Alba’s output when line 6 starts in 2019. COMPETITIVE POSITIONING Monopoly in local aluminium industry & high barriers to entry Alba is the top manufacturer within Bahrain’s aluminium industry due to its monopolized position within the market for aluminium smelting. With the 54% increase in output to 1.5 million mtpa (Figure 12), Alba will have a more competitive edge in the market due to Line 6 expansion. Due to its monopolized market, it is difficult for new entrants to establish a position in the market. Alba has reached high levels of economies of scale due to its increased production and advanced technology levels (EGA DX+ to EGA DX+ Ultra). With the addition of line 6, Alba will be able to lower their costs even more due to operational efficiency and lower energy consumption due to technological advancement.

Table 4 GCC Aluminium Production 2016 (mtpa) Value-added products are key priority Source: Aluminium Insider Alba is among the very few companies who have their own on-site calciner and carbon Emirates Global Aluminium, UAE 2,471,000 plant allowing them to control operations efficiently and maintain optimum production Aluminium Bahrain, Bahrain 971,420 Ma’aden Aluminium, Saudi Arabia 756,800 of value-added products which comprises of more than half the sales. Alba closed 2017 Qatalum, Qatar 643,500 with value-added sales averaging 57% of total shipments against 56% in 2016. Sohar Aluminium, Oman 386,396 Advantage of domestic natural resources & low production costs The initiation of the aluminium industry was due to availability of natural gas – a main component of aluminium production. Alba secured a 10-year gas supply contract in 2015 with NOGA (National Oil and Gas Authority) at a fixed price formula. Also, while electricity is provided at a lower price than the market, Alba generates their own electricity through their production process. With Project Titan and other advantage through the government Figure 13 Alba's Competitive Positioning (5-strong & 0-weak) for land use, construction and utilities, Alba has high competitive advantage. Source: Team Estimates Advanced human capital and government support Monopoly 5 Alba has invested greatly in their human capital through extensive workshops and 4 programs. Alba is the first aluminium smelter in the world to have zero lost time injury Regional 3 Value-added competition 2 products (LTI) in +9,200,000 working hours. Also, since the government owns 50%+ of the company 1 through Mumtalakat Holding Company (sovereign wealth fund), the government is 0 encouraged to continuously support the smooth process of Alba’s operations. Domestic Strategic Strategic location for logistics natural location Bahrain has a strategic location, next to Saudi Arabia (largest economy in GCC), resources connecting via a causeway. Bahrain has easy access to the Gulf and MENA region due to Human capital its prime location. Similarly, Alba has its own port facilities to receive shipment of raw & gov support materials. Furthermore, Alba has a valuable physical position within the industry as the downstream industry is located few minutes away making transportation easy and cheap. Regional competition ranks Alba at 2nd place Top 6 producers of Aluminium in the GCC are listed in Table 4. With UAE’s Emirates Global Aluminium taking first place, Alba is ranked at 2nd. While UAE poses to be competition for Alba, it is asserted that with the start-up of line 6, Alba will improve in its ranking further. GCC accounts for one-tenth of global production; where 60% of production is exported19. This indicates that Alba has access to a wider market, reducing concentration domestically. Table 5 Target Price Source: Team Estimates FINANCIAL ANALYSIS Target Weighted Weight INVESTMENT SUMMARY Price Price DCF We establish a BUY recommendation for Alba at a target price of BHD 1.072 per share, a 1.496 50% 0.748 Valuation 72.85% from the current market price of 620 fils as of 16th January 2018 (Table 5). DCF is Relative 0.649 40% 0.260 given highest weighting as it fully incorporates the impact of line 6 expansion. Relative Valuation Ben valuation has 40% since it highly reflects market perception of the stock using multiples. 0.643 10% 0.064 Graham Ben Graham formula is given 10% as this method yields a value in the upper bound level. 1-Year Forward Target Price BHD 1.072 INVESTMENT ARGUMENT Strong financial position Current Market Price (16th Jan 2018) BHD 0.620 Despite the line 6 loan and interest burden, the ROA (Appendix 5) has continued to rise indicating Target Price Upside 72.85% strong financial health. With the expectation of increased revenues and production, the profit margin increases to 11% by 2021 from 5% in 2016. The current ratio of Alba remains above 1 consistently showing its ability to pay-off any current liability obligations with its current assets. Table 6 Financial Analysis This is further supported by the 96.8% increase in cash and cash equivalent over 5 years from Source: Team Estimates 2016 to 2020, which is attributed to the line 6 production capacity increase. With boost in Financial Analysis (2016) revenue due to higher aluminium prices, effective cost reduction through Project Titan, secured contracts for important raw materials, and upgraded production process will help Alba Piotroski F-Score 5 strengthen their financial position. Beniesh M-Score -3.45 Company Financial Analysis Various analysis tools were employed to access the financial standing of the company Altman Z-Score 3.181 (Table 6 & Appendix 9). Firstly, the Piotroski F-score, which is used to determine the value of stocks through its financial strength, had average scores, representing resilient financial health. Secondly, the Beneish M-Score which is used to identify any manipulations within the financial statements; over the 5-year period, no manipulations were found. Lastly, the Table 7 Project Line 6 Altman Z-score which is used to access the probability of bankruptcy. With being highly- Appendix 16 leveraged for line 6 expansion it is vital to access the likelihood of bankruptcy. However, Line 6 Details with above average scores of 3, bankruptcy is highly unlikely. CAPEX USD$ 3 billion Line 6 Project Syndicated Loan $1.5bn Alba’s Line 6 project is the major driver in their forecasted valuation. With the expansion Project Funding Assuming 2nd loan of $1.2bn initiative of Line 6 and Power Station 5, it would make Alba the world’s largest single-site Equity financing of $300mn aluminium smelter as well as provide the largest and most efficient power station. Output Adding 540,000 mtpa Collectively, it would improve Bahrain’s economic outlook by increasing aluminium Line 6 Valuation BHD 0.374 per share Target Price sector’s GDP contribution from 12% to 15% and generate 500 jobs. Based on DCF Line 6 NPV BHD 530,832,000 valuation, line 6 is estimated to add 374 fils/share to the share price (Table 7).

Project Titan successful implementation Table 8 Valuation Variables (in BHD) Project Titan commenced in February 2014 as a two-year efficiency program to decrease Source: Team Estimates cash cost. Project Titan’s target was to save $150/mt; Alba managed saving $148/mt by Cost of Equity 2015. Followed by Project Titan II, with the aim of saving $100/mt by end-2017, Alba Risk-free rate 5.50% managed saving $78/mt in 2016 and $65/mt in 2017 (actual savings were low in 2017 due to line 5 recovery time). Project Titan will help Alba maintain sustainable growth, boosting Alba's Adjusted Beta 0.94 the economies of scale benefit while lowering its costs. We assume the continuation of Market Return 10.68% this program to reduce costs every year to maintain optimal efficiency and competitive Cost of Equity 10.37% advantage especially with rising raw material prices. Positive LME Aluminium Price Outlook Cost of Debt The average LME prices are listed in Table 8. After falling prices between 2015-16, LME 4.25% aluminium prices is seen to rise by 20% in 2017 at $1,929 from $1,604 in 2016. The WACC forecasted market deficit and higher LME prices in 2018 will support Alba’s growth in sales 8.96% volume and revenue. In 2019, Alba’s rise in production from Line 6 project will lead to higher revenue and income. The upward trend will continue in 2020-21. Demand by transportation, electrical/machinery and construction sectors for aluminium is expected Relative Valuation to increase at 4.9%, 4.2% and 2.1% CAGR respectively. Correspondingly, LME aluminium Alba EPS 0.024 U.S. premium that stood at $180/mt on January 2017, was $200/mt by year-end-2017. This is expected to reach $250/mt with changing industry dynamics. Industry P/E 17.79 Target Price 0.427 VALUATION Alba EBITDA 157,871,000 DISCOUNTED CASH FLOW VALUATION (DCF) Based on DCF, the 1-year forward target price achieved was of BHD 1.496, which is 141% Industry EV/EBITDA 9.71 above current market price of 0.620 fils (Appendix 6). Alba Enterprise Value 1,509,246,760 Free Cash Flows to Firm (FCFF) Less: Debt Value 749,498,000 To determine the fair equity value of Alba, the formula for Free-Cash-Flow-to-Firm (FCFF) Add: Cash 371,806,000 was used (Cash flow from Operating Activities – Capital Expenditure – Changes in Net Working Capital). FCFF was selected because Alba uses a combination of equity and debt Equity Value 1,131,554,760 to finance their expansion plans and debt plays a major role in the company’s financials Outstanding Shares 1,420,000,000 and the cashflow reflects all the major changes undergoing Alba. Target Price 0.797 Weighted Average Cost of Capital (WACC) WACC was used to determine the cost of capital at which to discount the FCFF. For the W of EPS 40% component of cost of equity, Capital Asset Pricing Model (CAPM) was used with the risk- W of EV/EBITDA 60% free rate of Bahraini Government 10-year Bond. The risk adjusted beta was derived by Blended Target Price 0.649 calculating it over a 2-year weekly average by comparing Alba’s stock prices to Bahrain All Share Index. The market return was calculated over a 5-year period by averaging the daily returns and compounding it annually. For the cost of debt, LIBOR rate of 3.25%+1% Table 9 Aluminium Price Sensitivity Analysis ($/mt) was used due to the syndicated loan secured for line 6 expansion project. Weightings Source: World Bank & Team Estimates were derived using historical 5-year average of debt-to-equity ratio (Appendix 6.2). Year 2017 2018 2019 2020 2021 Terminal Growth Value Worst 1873 1890 1908 1926 1944 Alba contributes 12% to the GDP as of 2016 and is expected to increase to 15% after line Base 1911 1929 1947 1965 1984 6. This indicates Alba’s important contribution to the GDP; thus, it is used as a mechanism Best 1950 1968 1987 2005 2024 to determine the terminal growth rate for the terminal value. Conducting a sensitivity Aluminium 1929 1946 1965 1983 2002 Price analysis available in Appendix 6.3, the growth rate was 2.25%. RELATIVE VALUATION Figure 14 Forecasted Revenue (BHD'000) and Aluminium prices (USD$/mt) To determine the financial worth of Alba, it is compared to 7 other similar companies in Source: Team Estimates the industry who are Alba’s competitors (Appendix 7). Using earnings multiples of P/E and 1,600,000 2020 EV/EBITDA, we derived a blended target price (40:60) of 649 fils. These multiples were 1,480,322 specifically selected since P/E ratio is a highly common ratio used to measure performance 1,400,000 against competitors and EBITDA excludes non-cash items giving a more approximate 1,263,190 2000 2002 value. The median value was used as it is a better measure of central tendency since it 1,200,000 eliminates the outliers distorting the result. 1,077,907 1980 1983 BEN GRAHAM VALUATION 1,000,000 919,801 1960 With use of a formula created by Benjamin Graham, we were able to calculate the intrinsic 784,886 1965 800,000 value of Alba at 643 fils which is our target price for 1-year forward. Appendix 8 outlines the variables used to calculate the target price. It is understood that Alba’s share price is 1940 1946 600,000 undervalued in the market; while its fair value is 3.71% above market price.

1929 1920 ANALYSIS 400,000 REVENUE & PRODUCTION CAPACITY 1900 200,000 Alba is expected to recover from falling revenues (13% decrease) caused by downward trend in LME aluminium prices, $1,665 and $1,604 in 2015 and 2016 respectively, despite 0 1880 increasing production. The forecasted revenue is based on production levels and LME 2017 2018 2019 2020 2021 aluminium forecast prices. The production is expected to increase by 4%-5% based on Sales Revenue Aluminium Price

Figure 15 US$ Nominal Annual Average Price of Raw aluminium demand growth, more prominently from American and Asian regions. Materials Source: Consensus Economic Inc & World Bank Additionally, the continuous increase in LME aluminium prices also contributes to the rise 305 302 70 in Alba’s revenues with the forecasted LME prices between 2017-2021 to be at $1,929 in 2017; reaching $2,002 in 2021. This is due to the expected reforms in reducing China’s 60 60.9 300 59 56 60 production; thus, decreasing global aluminium supply. Collectively, Alba’s revenue is 53 expected to exceed BHD1 billion as Line 6 commences in 2019, a 37% increase from 2017 295 (Figure 14). 50 290 289.4 COST OF SALES Currently, Alba is under a long-term contract with Alcoa for raw material supply (alumina) 285 40 286.7 as a legal settlement since 2012. However, terms of the contract have not been disclosed; thus, we assume continuation of contract for raw materials supply. Furthermore, with the 280 30 280.8 secured contract for gas prices with NOGA until April 2021, gas prices will become a major 275 concern by then as it can cause a $31 million fall in net income. However, it is highly 275 20 believed another contract for gas prices will be secured by then to prevent Alba from 270 incurring a loss considering the majority of the company is owned by the government. 15.3 13.7 13.7 14.5 14.5 10 Additionally, the government would take necessary measures to strengthen Alba since it 265 is one of the major contributor to Bahrain's GDP (12%) and would serve in the best interest 260 0 of the country. Crude oil price ($/mmbtu), which produces green coke, is expected to 2017 2018 2019 2020 2021 minimally increase over the next 5 years. Moreover, carbon, which is used to produce carbon anodes for aluminium production is forecasted to increase 5.5% (5-year-CAGR). Alumina Carbon Crude Oil With the assumption of further implementation of Project Titan every year to successfully reduce costs, cost of sales consistently reduces except for the last 2 years where the increasing prices of alumina (Figure 15) and gas price to more than USD$4/mmbtu Figure 16 Dividend per share and Pay-out ratio (increasing by USD$0.25/mmbtu yearly) after April 2021 will apply pressure on costs. Thus, Source: Team Estimates Alba has a competitive advantage in more than half the components of production.

100% 0.040 DIVIDENDS The dividend per share was calculated on the basis of compounded annual growth rate 90% 0.035 (CAGR) of -4.68%. Alba makes yearly payment of dividends but the dividend payout ratio 80% and dividend per share are moving in a downward trend (Figure 16). Alba is expected to 0.030 70% distribute dividends in 2017 with a pay-out ratio of 80.99% compared to 16.03% in 2016; this is due to pick up in LME prices. Despite improved aluminium prices in the future, 0.025 60% Alba’s 10% self-financing plan for line 6 (USD$300 million) and higher capex (45% of line 50% 0.020 6 cost) will result in no dividend paid for 2018. The ratio will increase in 2019 to be 40.82% due to an expected higher income following the operation of Line 6 and lower capex 40% 0.015 (25%). The pay-out ratio will decrease YoY in 2020 and 2021 to be 25.59% and 16.92% as 30% Alba will still be constrained by its Line 6 debt repayment and finance cost obligations. 0.010 20% CASH FLOW GENERATION 0.005 10% Alba is expected to yield favorable liquidity measurements, with current ratio exceeding 1.5, indicating the ability to settle current debt obligations using current assets, especially 0% 0.000 in 2017 recording the highest ratio (3.83) due to increase in cash (Figure 17). However,

2019 poses to be a difficult year for Alba considering its increased debt obligations and

2013 2012 2014 2015 2016 2017 2018 2019 2020 2021 capex. With signs of recovery up till 2021, the company has a resistant liquidity standing Dividend Payout Dividend per share and has an upward trend overall. The cash ratio in 2017 will be the highest (2.06) given procurement of line 6 loan, and Project Titan-Phase II that will decrease cash-cost by US$ 100 per metric ton. Considering 2020 & 2021, the cash ratio will be low yet improved on Figure 17 Coverage Ratio a YoY basis (0.10 and 0.45) due to benefits of Line 6 expansion. Source: Team Estimates CREDIT PROFILE Syndicated term-loan from both conventional and Shari’aa compliant facilities was 27.03 acquired successfully mid-2017 worth $1.5billion (Appendix 16 for further loan details). Interest Margin is 325 basis point per annum over LIBOR for 7-year period, with a grace 22.97 period of 3 years for line 6 construction. The coverage ratio which indicates Alba’s ability 22.26 to pay-off its financial obligations, a ratio of over 3 depicts strong financial health. As seen 16.95 in figure 18, through the years, the ratio remains above 3 with a gradual increase as the burden of capex eases. 17.99 12.33 DUPONT ANALYSIS Return on Equity (ROE) is used as a measurement of Alba’s performance over the years. Considering the 3 factors of ROE (Figure 19), historically, Alba’s ROE is decreasing over 7.81 the years persistently with the most prominent between 2015-16 due to increasing 5.15 financial leverage and falling net profit margin. However, the ROE is expected to follow an 3.43 3.97 upward trend from 2018 onwards as profits from increased sales will increase the profit margin (as a result of rising production and increase in LME prices), efficient asset turnover and the major influx of cashflows increasing the equity multiplier reflecting the significant

contribution of the Line 6 project. Therefore, Alba is expected to achieve an ROE of 13%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 in 2021, the highest peak in past 5 years.

KEY RISKS MARKET RISK LME Aluminium Prices (R1) Figure 18 Cash Ratio Alba’s commodity prices are exposed to changes in LME prices (quoted from the London Source: Team Estimates Metal Exchange) which are used as a basis to determine aluminium prices. Any negative movements in LME prices would risk the profitability of the firm. However, as seen in figure 2.06 20, in the case where LME aluminium prices are to drop by 20%, the impact on the 1-year forward target price is still a 52.9% upside from the current market price of 620 fils as of 16th January 2018. To manage this risk, futures commodity prices are considered to hedge selling price as per customers’ options. This approach can prove to be profitable if a proper strategy is adopted. However, Alba has been able to perform excellently despite 1.17 low aluminium periods over the last few years indicating towards Alba’s resilience during industry downturn. 0.58 Gas Prices (R2) 0.45 0.38 Generally, electricity accounts for 70% in cost variability of aluminium production and 0.29 0.21 since 2015, the rising gas prices from $2.25 per million British thermal units (MMBTU) can 0.10 0.37 be a disadvantage for Alba. The yearly increase of $0.25 in price could cost Alba -0.14 approximately $31 million. Alba consumes 3,574MW in energy for production while the

rest of Bahrain consumes 3,817MW. This depicts the high level of energy consumption

2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 and dependency on gas for production. On April 2017, when Alba faced a power outage for 3 hours, they lost 3-5% of production. Following high dependence on gas, Alba secured a fixed gas price formula, effective till 1st April 2021. Furthermore, to offset fluctuating aluminium price risks, Project Titan, an in-house initiative, was introduced to reduce cash cost per unit. Currently, Alba aims to save $100 per unit on a production 1,000,000 mtpa for 2017. We assume the continuation of this project as it helps Alba Figure 19 Return on Equity Source: Team Estimates maintain its competitive advantage in the market. FINANCIAL RISK 250% 14% Interest rate risk (R3) 13% The company is exposed to interest rate risk which would affect its holding assets and 12% 12% liabilities interest. Currently, the USD$1.5 billion syndicated loan for Line 6 is based upon 200% 11% LIBOR + 3.25%. Therefore, Alba is subjected to high market risk since LIBOR experiences 10% 10% daily movements thus it will have a high impact on the profitability and cashflows of Alba. 9% 150% Foreign exchange risk (R4) 8% The operating activities is the main segment exposed to changes in foreign exchange 7% rates. The majority of Alba’s financial instruments are denominated in Bahraini Dinars, US 6% 6% 100% Dollars, Euros, Swiss Francs and Great Britain Pounds. In the past, the company entered 5% into forward foreign exchange contracts to hedge against forward foreign exchange 4% 4% contracts. Alba is not considered to have a significant exposure to US Dollar fluctuations 3% 50% as the Bahraini Dinar is pegged to the US Dollar at BHD 0.376. With this, the impact and 2% probability are relatively moderate. Credit risk (R5) 0% 0% Credit risk is applicable to Alba’s operating activities (primarily on trade receivables,

financing activities including bank and financial institutions deposits), foreign exchange

2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 transactions and derivatives instruments. A method in which the company reduces credit Net Profit Margin Asset Turnover Ratio risk is to deal with its investments dealt with reputable banks and assign credit limits to Equity Multiplier Return on Equity each counterparty. For trade and other receivables, 52% of its outstanding trade receivables consist of the company’s five largest customers account. In order to manage the credit risk, Alba prefers receiving advanced payments from customers, assess creditworthiness by obtaining letters of credit and other forms of credit insurance and Figure 20 Change in LME Aluminium Price impact on Alba's 1- track the customer exposure on a regular basis. When risks of default are identified, year forward target price provision for doubtful receivables are created. With the assumption of no derivative Source: Team Estimates contracts in the future, Alba is not subjected to credit risk for derivatives specifically. Liquidity risk (R6) 1.210 1.105 1.139 The company may be exposed to this risk when it is unable to sell its financial asset close 1.008 1.039 0.948 to or equal to its fair value. This risk can be decreased by ensuring the availability of banking facilities. Additionally, Alba includes a sales term where it requires a payment to be made within 30 to 180 days of the date of sale. However, with a negative cashflow for 2019, liquidity risk remains high for the year. In the long-run this outlook is expected to change as Alba repays the line 6 loans and operates and maximum capacity to generate greater profits and cash flow in the future.

-20% -10% -5% 5% 10% 20%

Figure 21 Bahrain Real GDP Growth Rate OPERATIONAL RISK Source: World Bank Raw Materials Risk (R7) 8.30% Alba is dependent on its suppliers for raw material supply. Any disruptions in the supply chain could lead to major drawback in the production process. Alba is currently under contract with Alcoa for raw material supply, and the government for gas supply. In the 6.20% 5.30% case these contracts no longer exist or are not renewed, Alba will be subject to major 4.30% fluctuations in market price of raw materials as alumina is expected to become expensive. 4.40% As contingency, Alba is assessing options to satisfy the demand for alumina which will rise 3.60% to 2.5M metric tons/year once Line 6 begins. Alba’s CEO also announced the consideration 2.90% of joint ventures with large alumina suppliers or off-take contracts with their refineries. 3% Operational Cost Risk (R8) 2.50% 2.10% By means of Project Titan II, Alba has been able to successfully reduce operational costs over the last 3 years which given them a competitive advantage in the market by selling at low prices. In addition, Alba close 2016 without any lost time injury. Constant initiative

by the CEO has increasing operational efficiency significantly.

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Strategic risk (R9) Alba manages its strategic risks by adjusting its capital structure and taking appropriate Figure 22 Risk Grid Source: Team Estimates actions in response to economic changes. This can be done by adjusting dividend payment to shareholders, return capital and issue new shares. The main objective of capital management is to sustain a healthy and sufficient capital base able to support its operations and maximize shareholders’ value. Since Alba is constantly on top of such factors to ensure smooth flow of operations, the risk is minimal. Historically, Alba has had many successful strategies (Project Titan I & II). ECONOMIC RISK Bahrain Macroeconomic Status Quo (R10) The economic slowdown of Bahrain since the financial crisis 2007/8, Arab Spring 2011 and declining oil prices has been gradually recovering (Figure 21). The non-oil sector (of which Alba is a part of) has remained resilient despite fiscal reforms such as VAT (5%) and subsidy removal. The introduction of 5% Value Added Tax on all sales by Q3 in 2018 might affect Alba's semi-final aluminium production indirectly, as there is the likelihood of VAT being applied to the downstream industry products. This will eventually affect Alba’s revenue as 41% is derived locally. Sovereign Credit Downgrade (R11) Bahrain’s credit rating is at a risk of another downgrade from B+. It was recently downgraded from BB- to B+ by S&P due to lack of fiscal reform plans and budgeting reports. However, with current reforms under process, the risk of downgrade is moderate since Alba already secured the syndicated loan for line 6 expansion. STOCK ANALYSIS 2015 Q3 - NOGA announced a 25% increase to oil and gas prices. This took an effect on April 1st. Increase in oil and natural gas prices caused a panic among public shareholder within the Bahraini Index. ALBH started dropping starting Q3. 2016 Q2 - ALBH reached its lowest point due to LME price decline, owing to the major increase in supply. The oversupply affected the global markets negatively. China started supplying the market with aluminum at lower price than the current market. 2017 Q1 - ALBH started to recover from the LME prices decline after adjusting to market fluctuations. LME started to resume its normal prices after China’s proposed 30% cut of production capacity. 2018 Q1 - Line 6 is one of the major drivers of share price increase; as the project nears its completion date, the future prospect for Alba is moving in a positive direction. Additionally, China production curtailment and expectation of higher LME prices has led to the increase.

BHD 0.700 25000000

BHD 0.600 20000000 BHD 0.500 15000000 BHD 0.400 10000000 BHD 0.300

BHD 0.200 5000000

BHD 0.100 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2014 2015 2016 2017 2018

Figure 23 Stock Valuation Volume Average Price

APPENDICES APPENDIX 1: CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 Sales 743,725 749,338 821,715 766,686 669,760 784,886 919,801 1,077,907 1,263,190 1,480,322 Cost of sales -638,515 -640,751 -673,947 -663,428 -587,381 -671,253 -777,438 -900,294 -1,042,415 -1,206,793 GROSS PROFIT 105,210 108,587 147,768 103,258 82,379 113,633 142,363 177,614 220,776 273,528 Other income 39,378 7,304 1,865 3,701 2,989 1,750 1,772 2,695 2,817 2,946 (Loss) gain on foreign exchange translation -17,838 211 671 728 -19 - - - - - Administrative expenses -27,347 -30,609 -29,546 -32,417 -22,548 -28,263 -33,121 -38,815 -45,487 -53,305 Selling and distribution expenses -1,346 -17,574 -19,885 -12,187 -11,259 -12,254 -14,360 -16,828 -19,721 -23,111 Finance costs -7,182 -5,823 -4,449 -3,176 -2,504 -40,391 -61,200 -52,548 -43,936 -35,157 Directors’ fees -190 -190 -190 -210 -210 -210 -210 -210 -210 -210 Net revaluation/settlement of derivatives 5,860 17,871 211 264 ------PROFIT FOR THE YEAR BEFORE TAX 96,545 79,777 96,445 59,961 48,828 34,265 35,244 71,907 114,240 164,691 Tax expense - - - - -438 - - - - - PROFIT FOR THE YEAR 96,545 79,777 96,445 59,961 48,390 34,265 35,244 71,907 114,240 164,691

ASSUMPTIONS: Sales Revenue: expected to increase with the boost in production due to line 6. Increasing worldwide demand for aluminium is another reason for the increase. 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Yearly Production 890,217 912,700 931,427 960,643 971,420 981,016 1,019,668 1,540,000 1,609,993 1,698,543

LME Aluminium Price: Based on World Bank forecasts, the team conducted a sensitivity analysis to produce realistic figures of the forecasted aluminium prices.

2017 2018 2019 2020 2021 Probability The rising LME prices will encourage Chinese producers to increase aluminium output, posing downside risk on LME prices. Still, the LME prices will rise due to weakening US dollar against other basket of World Bank Forecasts 1950 1968 1987 2005 2024 currencies, despite Federal Reserve interest rate hawkish hike from 1% to 1.25% this year (2017). Worst-case 1873 1890 1908 1926 1944 0.15 Moreover, the local premiums react to US Midwest premiums; and there is an impression that the US Base 1911 1929 1947 1965 1984 0.25 Midwest premium is increasing for P1020 aluminium, given the need for aluminium imports into US. Increase in freight rates will add to the premium prices; premiums will cushion aluminium smelters to Best-case 1950 1968 1987 2005 2024 0.60 some extent from fall in price. Furthermore, rising raw material costs will further drive the prices upwards. Incorporating all these factors, with the optimistic outlook in the aluminium market, the best- Team Estimates (in $/mt) 1929 1946 1965 1983 2002 case scenario has a higher probability of occurrence than the base and worse.

Cost of Sales: With successful implementation of Project Titan Phase I & II, COS expected to decrease despite increase in Alumina prices due to Alba-Alcoa long-term contract Expenses: As the size of Alba increases with its production, its expenses are expected to increase as well as it caters to more orders around the globe. Finance Cost: With the line 6 loan of USD$1.5 billion and USD$1.2 billion at 3.25% LIBOR rate, the interest rate is calculated accordingly.

APPENDIX 2: CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(in BHD ‘000) 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Assets Non-current assets Property, plant and equipment 901,779 868,318 837,757 811,377 847,500 1,102,685 1,513,794 1,679,390 1,582,116 1,482,947 Long term receivable 10,314 6,877 3,439 ------Other asset - - 4,704 4,512 4,320 - - - - - Deferred tax asset - - - - 10 - - - - - 912,093 875,195 845,900 815,889 851,830 1,102,685 1,513,794 1,679,390 1,582,116 1,482,947 Current assets Inventories 143,564 144,930 152,469 146,404 163,422 157,823 164,042 247,751 259,012 273,257 Current of long terms receivables 3,438 3,438 3,438 ------Long term receivable - - - 3,439 - 60,763 1,743 Trade and other receivables 108,299 85,375 92,888 100,698 92,065 100,684 117,991 138,273 162,041 189,894 Other assets - 4,800 ------Derivatives financial instrument 104 ------Bank balances and cash 61,605 64,540 67,198 116,009 66,413 371,806 294,027 -30,814 24,500 130,726 317,010 303,083 315,993 366,550 321,900 691,077 576,059 356,953 445,552 593,877 TOTAL ASSETS 1,229,103 1,178,278 1,161,893 1,182,439 1,173,730 1,793,762 2,089,853 2,036,343 2,027,668 2,076,825 Equity and Liabilities Equity Share capital 142,000 142,000 142,000 142,000 142,000 142,000 142,000 142,000 142,000 142,000 Treasury shares -4,087 -5,157 -3,696 -4,905 -4,965 -4,965 -4,965 -4,965 -4,965 -4,965 Statutory reserve 71,000 71,000 71,000 71,000 71,000 71,000 71,000 71,000 71,000 71,000 Capital reserve 249 249 249 249 249 249 249 249 249 249 Retained earnings 600,683 629,381 687,387 731,698 779,813 806,322 755,508 827,415 910,982 1,046,437 Proposed dividend 19,773 30,978 21,200 7,768 - 29,658 - 30,673 29,237 27,868 TOTAL EQUITY 829,618 868,451 918,140 947,810 988,097 1,044,264 963,792 1,066,372 1,148,503 1,282,589 Non-current liabilities Borrowings 77,096 84,402 64,137 33,024 6,489 567,578 872,133 750,495 627,283 502,291 Employees’ end of service benefits 915 930 1,265 1,349 1,554 1,678 1,916 2,056 2,275 2,418 Derivatives financial instruments 23,996 5,313 ------102,007 90,645 65,402 34,373 8,043 569,256 874,048 752,550 629,558 504,709 Current liabilities Borrowings 160,303 116,432 72,351 56,373 45,235 34,286 23,654 16,976 12,562 9,507 Trade and other payables 106,585 97,960 101,378 143,844 132,355 145,955 171,044 200,445 234,899 275,277 Derivative financial instruments 13,430 4,790 4,622 39 ------Short term loans 17,160 - - - - - 57,315 - 2,145 4,744 297,478 219,182 178,351 200,256 177,590 180,242 252,013 217,421 249,607 289,527 TOTAL LIABILITIES 399,485 309,827 243,753 234,629 185,633 749,498 1,126,061 969,971 879,165 794,236 TOTAL EQUITY AND LIABILITIES 1,229,103 1,178,278 1,161,893 1,182,439 1,173,730 1,793,762 2,089,853 2,036,343 2,027,668 2,076,825

APPENDIX 3: CONSOLIDATED CASHFLOW STATEMENT 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 BD '000 OPERATING ACTIVITIES PROFIT FOR THE YEAR 96,545 79,777 96,445 59,961 48,828 34,265 35,244 71,907 114,240 164,691 Adjustments for: Depreciation 77,573 77,831 79,419 73,775 71,380 83,215 96,491 116,404 127,467 128,651 Amortisation of other asset - - 96 192 192 - - - - - Provision for employees’ end of service benefits 814 844 1,403 1,476 1,521 1,401 1,610 1,662 1,695 1,729 Provision for impairment of inventories - 339 252 177 53 214 217 330 345 361 Provision for impairment of receivables - net - -51 -4 197 -197 -150 -184 -218 -252 -286 Gain on revaluation of derivative financial instruments -27,648 -27,219 -5,481 -4,583 ------Loss on disposal of property, plant and equipment 36 -1,391 1,549 1,114 239 - - - - - Write off of property, plant and equipment (NBV) 16 124 ------Write off of impairment provision of inventories - -62 -179 ------Interest income -389 -249 -188 -142 -171 -861 -1125 -1530 -2346 -3325 Finance costs 6,121 4,759 3,733 2,749 2,306 40,391 61,200 52,548 43,936 35,157 Cost of Employees’ Stock Incentive Plan - net 765 680 -92 ------153,833 135,382 176,953 134,916 124,151 158,475 193,452 241,103 285,084 326,977 WORKING CAPITAL CHANGES: Inventories 14,456 -1,643 -7,612 5,888 -17,071 5,599 -6,218 -83,710 -11,260 -14,246 Accounts receivable and prepayments -25,014 5,815 -7,509 -8,007 8,820 -8,619 -17,307 -20,282 -23,768 -27,853 Accounts payable and accruals 6,547 -8,553 3,608 42,586 -11,820 13,600 25,088 29,401 34,455 40,377 CASH FROM OPERATIONS 149,822 131,001 165,440 175,383 104,080 169,055 195,016 166,513 284,511 325,256 Employees’ end of service benefits paid -839 -829 -1,068 -1,392 -1,316 -2,804 -3,850 -4,116 -4,183 -4,200 Income tax paid - - - - -217 - - - - - Net cash flows from operating activities 148,983 130,172 164,372 173,991 102,547 166,250 191,166 162,397 280,328 321,055 INVESTING ACTIVITIES Purchase of property, plant and equipment -32,724 -57,512 -50,550 -48,575 -108,122 -338,400 -507,600 -282,000 -31,193 -31,482 Proceeds from disposal of property, plant & equipment 127 14,409 143 66 380 - - - - - Other asset - -4,800 ------Interest received 389 249 188 142 171 2436 2542 2755 3271 3852 Net cash flows used in investing activities -32,208 -47,654 -50,219 -48,367 -107,571 -335,964 -505,058 -279,245 -27,921 -27,631 FINANCING ACTIVITIES Repayment of long term receivable 3,439 3,437 3,438 3,438 3,439 3,243 3,390 3,544 3,705 3,874 Borrowings availed 204,920 314,655 231,240 103,400 105,280 564,000 440,400 - - - Borrowings repaid -284,394 -351,220 -295,586 -150,491 -142,953 -22,087 -146,477 -128,316 -127,625 -128,047 Movement in short term loans 4,076 ------Finance costs paid -6,213 -4,831 -3,923 -2,869 -2,235 -40,391 -61,200 -52,548 -43,936 -35,157 Dividends paid -76,271 -39,488 -47,998 -28,963 -7,756 -29,658 0 -30,673 -29,237 -27,868 Purchase of treasury shares -805 -2,652 -2,020 -1,933 -818 - - - - - Proceeds from resale of treasury shares 591 516 3,354 605 471 - - - - - Net cash flows used in financing activities -154,657 -79,583 -111,495 -76,813 -44,572 475,107 236,112 -207,993 -197,093 -187,198

Decrease/Increase in Cash & Cash Equivalents -37,882 2,935 2,658 48,811 -49,596 305,393 -77,780 -324,841 55,314 106,227 Cash and cash equivalents at 1 January 99,487 61,605 64,540 67,198 116,009 66,413 371,806 294,027 -30,814 24,500 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 61,605 64,540 67,198 116,009 66,413 371,806 294,027 -30,814 24,500 130,726

APPENDIX 4: CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Treasury Statutory Capital Retained Proposed Share Capital Total (in BHD ‘000) Shares Reserves Reserve Earnings Dividend Balance at 31 December 2012 142,000 -4,087 71,000 249 600,683 19,773 829,618 Total comprehensive income for the year 79,777 79,777 Net movement in treasury shares -1,750 -1,750 Amortization of cost of treasury shares held for Employees’ Stock Incentive Plan 680 680 Loss on resale of treasury shares -386 -386 Final dividend for 2012 approved and paid -19,759 -19,759 Excess of final dividend for 2012 reversed 14 -14 Interim dividend for 2013 proposed and paid -19,729 -19,729 Proposed final dividend for 2013 -30,978 30,978 Balance at 31 December 2013 142,000 -5,157 71,000 249 629,381 30,978 868,451 Total comprehensive income for the year 96,445 96,445 Net movement in treasury shares 1,553 1,553 Reversal of amortization of treasury shares held for Employees’ Stock Incentive Plan -92 -92 Loss on resale of treasury shares -219 -219 Final dividend for 2013 approved and paid -31,040 -31,040 Shortage of final dividend for 2013 added -62 62 Interim dividend for 2014 proposed and paid -16,958 -16,958 Proposed final dividend for 2014 -21,200 21,200 Balance at 31 December 2014 142,000 -3,696 71,000 249 687,387 21,200 918,140 Total comprehensive income for the year - - - - 59,961 - 59,961 Net movement in treasury shares - -1,209 - - - - -1,209 Loss on resale of treasury shares -119 -119 Final dividend for 2014 approved and paid -21,198 -21,198 Excess of final dividend for 2014 reversed 2 -2 Interim dividend for 2015 paid -7,765 -7,765 Proposed final dividend for 2015 -7,768 7,768 Balance at 31 December 2015 142,000 -4,905 71,000 249 731,698 7,768 947,810 Total comprehensive income for the year 48,390 48,390 Net movement in treasury shares -60 -60 Loss on resale of treasury shares -287 -287 Final dividend for 2015 approved and paid -7,756 -7,756 Excess of final dividend for 2015 reversed 12 -12 Balance at 31 December 2016 142,000 -4,965 71,000 249 779,813 - 988,097

APPENDIX 5: FINANCIAL RATIOS

2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F Liquidity Ratios: Current Ratio 1.07 1.38 1.77 1.83 1.81 3.83 2.29 1.64 1.79 2.05 Quick Ratio 0.58 0.72 0.92 1.10 0.89 2.96 1.63 0.50 0.75 1.11 Average Collection Period 53 42 41 48 50 47 47 47 47 47 Days Inventory Held 82 83 83 81 102 86 77 100 91 83 Days Payable Outstanding 61 56 55 79 82 79 80 81 82 83 Cash Ratio 0.21 0.29 0.38 0.58 0.37 2.06 1.17 -0.14 0.10 0.45 Cash Conversion Cycle 74 68 69 49 69 53 44 66 55 46 Activity Ratios: Account Receivable Turnover 6.87 8.78 8.85 7.61 7.27 7.80 7.80 7.80 7.80 7.80 Inventory Turnover 4.45 4.42 4.42 4.53 3.59 4.25 4.74 3.63 4.02 4.42 Payable Turnover 5.99 6.54 6.65 4.61 4.44 4.60 4.55 4.49 4.44 4.38 Fixed Asset Turnover 0.82 0.86 0.98 0.94 0.79 0.71 0.61 0.64 0.80 1.00 Total Asset Turnover 0.61 0.64 0.71 0.65 0.57 0.44 0.44 0.53 0.62 0.71 Leverage Ratios: Debt Ratio 0.33 0.26 0.21 0.20 0.16 0.42 0.54 0.48 0.43 0.38 Long-term Debt to Assets 0.06 0.07 0.06 0.03 0.01 0.32 0.42 0.37 0.31 0.24 Debt to Equity 0.48 0.36 0.27 0.25 0.19 0.72 1.17 0.91 0.77 0.62 Financial Leverage 1.48 1.36 1.27 1.25 1.19 1.72 2.17 1.91 1.77 1.62 Profitability Ratios Return on Assets 8% 7% 8% 5% 4% 2% 2% 4% 6% 8% Return on Equity 12% 9% 11% 6% 5% 3% 4% 7% 10% 13% Gross Profit Margin 14% 14% 18% 13% 12% 14% 15% 16% 17% 18% Net Profit Margin 13% 11% 12% 8% 7% 4% 4% 7% 9% 11% Earnings per Share (fils) 68 57 68 42 34 24 25 51 81 117 Dividend Payout 79.00% 49.50% 49.77% 48.30% 16.03% 80.99% 0.00% 40.82% 24.77% 16.48%

APPENDIX 6: DISCOUNTED CASHFLOW VALUATION (DCF)

6.1 DCF CALCULATION (in BHD ‘000) 2017 2018 2019 2020 2021 TOTAL Cash flow from operating activities 166,250 191,166 162,397 280,328 321,055 (-) CAPEX (338,400) (507,600) (282,000) (31,193) (31,482) (-) Working Capital Change (10,580) (1,563) 74,590 573 1,722 Free Cash Flow to Firm (FCFF) (182,729) (317,998) (45,013) 249,709 291,295 Terminal Value 4,438,752 Assumptions: Total (182,729) (317,998) (45,013) 249,709 4,730,047 CAPEX was based on division of $3billion of line 6 expansion over 3 years; 30% in 2017, 45% in 2018, N 1 2 3 4 5 and 25% in 2019, followed by regular CAPEX. WACC 8.96% 8.96% 8.96% 8.96% 8.96% Working Capital Changes derived using changes in Present Value (167,709) (267,866) (34,800) 177,183 3,080,352 2,787,160 inventory (% of production level), trade receivables Enterprise Value 2,787,160 and payables (% of sales). (+) Cash 130,726 (-) Debt (794,236) Equity Value 2,123,650 No. of Shares 1,420,000,000 Target Price per Share 1.496

Cost of Capital BHD 1.496 6.93% 7.68% 8.51% 8.96% 9.40% 10.37% 11.43% A sensitivity analysis was conducted on the key 1.93% 2.461 1.978 1.574 1.397 1.241 0.965 0.728 variables used to calculate the DCF target price; cost 2.13% 2.597 2.077 1.647 1.460 1.296 1.006 0.759 of capital and terminal growth rate. Both inputs are 2.25% 2.675 2.134 1.689 1.496 1.327 1.029 0.777 tested under various scenarios to show target prices

2.36% 2.757 2.194 1.732 1.532 1.359 1.053 0.795 with different values. Terminal Terminal

Growth Rate Growth 2.60% 2.949 2.330 1.831 1.616 1.431 1.107 0.835

6.2 WACC

Beta Calculation Market Return Comparing the 2-year weekly historical data of Alba and Bahrain All Share Index, the covariance This was calculated using 5-year annual average historical data. Averaging 6.83% (2012), 17.20% between two assets was 1.23, resulting in a beta of 0.97. (2013), 14.23% (2014), 14.77% (2015), and 0.38% (2016), the market return used for WACC is 10.68%.

2012 2013 2014 2015 2016 Average Equity Weighting 67.50% 73.71% 79.02% 80.16% 84.18% 76.91% Debt Weighting 32.50% 26.29% 20.98% 19.84% 15.82% 23.09%

6.3 TERMINAL GROWTH VALUE

Sensitivity Analysis Bahrain Forecasted GDP Growth Rate (%) Scenario Rate Probability Weighted Rate 2016 2017 2018 2019 2020 2021 2022 Worst 1.71% 0.15 0.26% 2.973 2.48 1.741 1.713 2.129 2.221 2.231 Base 2.20% 0.25 0.55% Considering forecasted growth rate of Bahrain’s GDP, worst, best and base cases were allotted Best 2.40% 0.60 1.44% accordingly. Probability of best is highly likely due to line 6 successful implementation and a rate of 2.4% is given due to expectation if increasing aluminium demand and Alba production. Minimum Terminal Growth Rate 2.25% probability allotted for worse-case due to low chances of downturn in aluminium industry as it recovers from low LME price. APPENDIX 7: RELATIVE VALUATION

Ticker Company Country Market Cap (in BHD millions) P/E EV/T12M EBITDA AA Alcoa USA 3766.45 17.79 7.74 KALU Kaiser Aluminum Corporation USA 716.4 21.80 9.86 TYO: 5741 UACJ Corp Japan 489.67 8.58 7.83 EPA: RUSAL United Co Rusal PLC Russia 4170 8.36 9.56 NSE: HINDALCO Hindalco Industries LT India 3440 12.04 7.83 CENX Century Aluminium Company USA & Iceland 715.77 62.38 16.20 BCBA: ALUA Aluar Aluminio Argentina 921.2 20.19 11.03 Peer Companies’ Median 17.79 9.56 Aluminium Bahrain Multiples 10.16 7.58

Premium -42.89% -20.71% Alba EPS 0.024 Industry Median P/E 17.79 Multiples Target Price Weighting Weighted Target Price Target Price 0.427 EV/EBITDA 0.797 60% 0.478 Alba EBITDA 157,871,000 EPS 0.427 40% 0.171 Industry Median EV/EBITDA 9.56 Blended Target Price 0.649 Alba Enterprise Value 1,509,246,760 Less: Debt Value 749,498,000 Note: EV/EBITDA is given higher weighting because it is a better measure of performance Add: Cash 371,806,000 as it eliminates non-cash items such as depreciation and amortization giving more realistic Equity Value 1,131,554,760.00 value. The peer selection criteria were only mid and small cap companies to maintain uniformity Outstanding Shares 1,420,000,000 with Alba. Target Price 0.797

APPENDIX 8: BENJAMIN GRAHAM FORMULA

Ben Graham Formula Earnings per share 0.024 푬푷푺 × (푷푬 + ퟐ품) × 푹 푽 = PE Ratio 10.16 풀 Long-term Growth Rate 2.25% The Ben Graham Formula, created by Benjamin V = Intrinsic Value Graham, is used to calculate a growth stock. It EPS = Earnings per share Required Rate of Return 8.96% represents the stock’s fundamental value by PE = Price-to-earnings ratio Risk-free rate 5.50% considering the EPS and PE ratios. g = Growth rate Value 0.399 R = Required rate of return Current Market Price (16-Jan-2018) 0.620 Y = Risk-free rate

Relative Graham Value (RGV) 0.643 Recommendation BUY

APPENDIX 9: STOCK ANALYSIS TOOLS

9.1 PIOTROSKI F-SCORE

This tool is used to determine the value of stocks, if it is a winning or losing stock. Created by Professor Joseph Piotroski, the F-score helps identify the financial strength of a company. There are nine parameters to this formula under which 3 categories are analysed; profitability (1, 2, 3, 4), capital structure (5, 6, 7) and operating efficiency (8, 9). A score 1 is awarded to a positive movement in the parameter, and 0 for negative. F-score of 9 being the best; while 0 is worst. A score below 3 is considered weak, 4-6 average and 7-8 best.

No. Parameters Values Score 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 1 Net Income 96,545 79,777 96,445 59,961 48,390 1 1 1 1 1 2 Operating Cash Flow 148,983 130,172 164,372 173,991 102,547 1 1 1 1 1 3 Return on Assets 7.85% 6.77% 8.30% 5.07% 4.16% 0 0 1 0 0 4 Earnings Quality 52,438 50,395 67,927 114,030 54,157 1 1 1 1 1 5 Long-term-Debt-to-Assets Ratio 0.08 0.08 0.06 0.03 0.01 0 0 0 0 0 6 Current Ratio 0.21 0.29 0.38 0.58 0.37 0 1 1 1 0 7 Average Shares Outstanding 1,409,105 1,410,767 1,411,575 1,410,511 1,409,515 1 1 1 0 0 8 Gross Margin 0.14 0.14 0.18 0.13 0.12 0 1 1 0 0 9 Asset Turnover 1.65 1.57 1.41 1.54 1.75 1 0 0 1 1 F-Score 5 4 5 6 5

Totalling the scores, each year is above 3 indicating strong financial health of Alba.

9.2 BENEISH M-SCORE The Beneish M-Score is a stock-selection-tool used to identify any manipulations done to the company’s earnings by the firm itself. These manipulations are usually done to disguise any financial difficulty by adjusting some numbers within the statements. Using this statistical tool, the shareholders need to be aware of any manipulation as it could affect their dividend payments. If the M-Score is greater than -2.22, it is highly likely that there was some manipulation done. Developed by Professor Messod Beneish in 1999, the equation used to calculate the 8-variable M-Score model is; M = -4.84 + 0.92 (DSRI) + 0.528 (GMI) + 0.404 (AQI) + 0.892 (SGI) + 0.115 (DEPI) – 0.172 (SGAI) + 4.679 (TATA) – 0.327 (LVGI)

Year 2012 2013 2014 2015 2016 Parameters Net Sales 743,725 749,338 821,715 766,686 669,760 Cost of Goods 638,515 640,751 673,947 663,428 587,381 Net Receivables 108,299 85,375 92,888 100,698 92,065 Current Assets 317,010 303,083 315,993 366,550 321,900 Property, Plant and Equipment 901,779 868,318 837,757 811,377 847,500 Depreciation 77,573 77,831 79,419 73,775 71,380 Total Assets 1,229,103 1,178,278 1,161,893 1,182,439 1,173,730 SGA Expense 28,693 48,183 49,431 44,604 33,807 Net Income 96,545 79,777 96,445 59,961 48,828 Cash Flow from Operations 148,983 130,172 164,372 173,991 102,547 Current Liabilities 297,478 219,182 178,351 200,256 177,590 Long-term Debt 102,007 90,645 65,402 34,373 8,043 Other Long-Term Assets 10314 6877 8143 4512 4330 Derived Variables Days Sales in Receivables Index (DSRI) 0.7824 0.9922 1.1619 1.0466 0.9332 Gross Margin Index (GRI) 1.0244 1.2410 0.7489 0.9133 1.1771 Asset Quality Index (AQI) 0.6955 1.2008 0.5445 0.9668 0.0000 Sales Growth Index (SGI) 1.0075 1.0966 0.9330 0.8736 1.1719 Depreciation Index (DEPI) 1.0385 1.0526 0.9625 0.9320 0.9033 Sales, General and Administrative Expenses Index (SGAI) 1.6667 0.9355 0.9671 0.8676 0.9633 Total Accruals to Total Assets (TATA) -0.0427 -0.0428 -0.0585 -0.0964 -0.0458 Leverage Index (LVGI) 0.8090 0.7978 0.9458 0.7970 2.6385 M-Score -3.03 -2.31 -2.96 -2.98 -3.45

As per the M-Score calculated for Alba, the M-Score are all lower than the benchmarks of -2.22 indicating no manipulation in the reports.

9.3 ALTMAN Z-SCORE

The Zeta score measure how likely a company will go bankrupt in the next two years. If the Z-score is lower than 1.8, then it very likely to bankrupt; where as a score higher than 3.0 is highly unlikely to go bankrupt. If the score is between 1.8 and 3.0 then it is a grey area. The formula used is;

Z = 1.2A+1.4B+3.3C+0.6D+1.0E

2012 2013 2014 2015 2016 Working Capital 19,532 83,901 137,642 166,294 144,310 Retained Earnings 600,683 629,381 687,387 731,698 779,813 EBIT 103,727 85,600 100,894 63,137 51,332 Market Capitalization 766,451 702,008 695,924 664,178 429,549 Sales 743,725 749,338 821,715 766,686 669,760 Total Assets 1,229,103 1,178,278 1,161,893 1,182,439 1,173,730 Total Current Liabilities 297,478 219,182 178,351 200,256 177,590

A = Working Capital/Total Assets 0.016 0.071 0.118 0.141 0.123 B = Retained Earnings/Total Assets 0.489 0.534 0.592 0.619 0.664 C = EBIT/Total Assets 0.084 0.073 0.087 0.053 0.044 D = Market Capitalization/Total Liabilities 1.919 2.266 2.855 2.831 2.314 E = Sales/Total Assets 0.605 0.636 0.707 0.648 0.571

Z score 2.738 3.068 3.677 3.558 3.181

The average 5-year score is 3.24. Thus, we can assume that in the coming years ALBA is highly unlikely to bankrupt.

APPENDIX 10: SWOT ANALYSIS

STRENGTH THREAT • Monopolized market locally and well established regionally • Deficiency of natural gas requires the government to import it, increasing Alba’s • Sturdy ownership structure, solid and generous support from the government costs • Established strong relationship with customers & suppliers • Shifts in macroeconomic fundamentals that hinder aluminium market • Ensures strong financial position since national and international institutions • Appreciation in US Dollar which will weigh on LME prices financed Alba’s line 6 project • Intense competition and slimmer profits in tandem with start of new projects in • Capitalizes on human assets through training & development, and safe work China and ROW, leading to overcapacity of aluminium environment • Alba’s projected output in January 2019 could pull LME prices down when • Ensures synergy within management to reach targets accompanied with competitors output • Generates its own power through a grid and exports water and electricity to EWA • Escalation in regional and global geopolitical tensions that hinders Alba’s • Supply creates its own demand due to delivery of high-class aluminium with purity aluminium exports levels of more than 99.86% • Introduction of tight fiscal and monetary policy measures, awakening inflation and • Pioneer in installation of modern technology to raise production & fuel efficiency Alba costs of production (9HA Gas Turbine from GE for Power Station 5) • Trade Union Law permits workers to strike in non-vital places and Alba is not • Strategic logistical location of the smelter and Port facility in the heart of aluminium regarded as sensitive or vital site, this could hinder Alba’s operations park makes access to key market convenient • Tensions between the management and Alba labour union • Diversified sources of revenue; primary aluminium products, export of electricity and water for 225 fils per m3 to Bahraini government • Favourable sales volumes result and financial position despite falling prices and significant loans for Line 6 expansion • Benefit of economies of scale and low operating industrial costs and tackles elevating costs by new technologies (Project Titan Phase II)

WEAKNESSES OPPORTUNITIES • Cost of modernization and maintaining existing machines is expensive • Increase production through Line 6 expansion project which will make it the largest • Revenue is mainly derived from domestic downstream companies single-site smelter in the world. • Dependence on BAPCO for generation of natural gas and diesel that are needed • Encourages research and development to catch up with the shifts in customer for the electro cycle process and operation of other machines demands • Investments in research and development and other advanced technology, or • Vertical forward or backward merger or acquisition tapping into new markets will be difficult due to high costs, given the need to • Demand for aluminium proliferate due to its characteristics; mainly recyclable repay significant loan for Line 6 in 12 months • Government supportive legislations in setting a favourable and low-cost • The significant loan taken for Line 6 expansion project will make it difficult to invest environment for attracting aluminium downstream industries in other advanced technologies or tap into new markets given the high costs • External expansion

APPENDIX 11: PORTER’S 5 FORCES

DEGREE OF COMPETITION 5 0 1 2 3 4 5 4 No threat Very Low Low Average High Very High 3 BARGAINING POWER OF 2 THREAT OF NEW ENTRANTS CUSTOMERS 1 0 BARGAINING POWER OF CUSTOMERS PRICING INFLUENCE Alba’s product prices and quality can be influenced by demand and supply of the products. This is driven by the number of customers and the significance of each customer. If one of Alba’s BARGAINING POWER OF THREAT OF SUBSTITUTES client decides to purchase from another supplier, it would incur a switching cost. SUPPLIERS

THREAT OF SUBSTITUTES BARGAINING POWER OF SUPPLIERS ALUMINIUM SUBSTITUTION SUPPLIER INFLUENCE The threat of substitutions could include all metals that can act as alternatives to aluminium. Other The number of suppliers available can determine Alba’s supply. If there are a small number of materials/metals that can used as replacement for different purposes are listed below: suppliers, this indicates that they have more power and vice versa. Supplies for raw materials a) Aircraft fuselages and wings: Composite materials are delivered by Alcoa, Hydro, and BHPBilliton. b) Packaging: Glass, plastic, paper and steel c) Ground transportation and structural purposed: Titanium, magnesium and steel d) Construction purposes: Wood, steel, vinyl and composite material DEGREE OF COMPETITION e) Electrical products: Copper ALUMINIUM INDUSTRY However, aluminium continues to be a preferable option due it being lightweight, impact-resistant, The presence of multiple aluminium smelters in the world poses a threat to Alba especially with corrosion-resistant, and fully-recyclable, withstand various temperatures, an efficient conductor dominant position of China which consists of several aluminium smelters producing high and allows a variety of processing methods. overall quantity. Additionally, Alba has competitors existing within the GCC regions with top SUPPLIER SUBSTITUTE aluminium companies located in UAE (Emirates Global Aluminium), Saudi Arabia, KSA (Ma’aden As of the current national aluminium market, Alba remains to be the sole supplier of aluminium Aluminium), Oman (Solar Aluminium) and Qatar (Qatalum). Therefore, Alba could attain higher domestically which accounts for 41% of revenue. Thus, the threat is minimal. competitive advantage after the completion of Line 6 expansion.

THREAT OF NEW ENTRY MARKET SHARE ECONOMIES OF SCALE ENVIRONMENTAL STANDARD TECHNOLOGY DEVELOPMENT INDUSTRIAL LOCATION Alba has acquired monopoly over the Potential start-up aluminium smelter Alba has a strong record of following Since Alba is currently in the process of For new entrants to enter the smelting aluminium smelting market in the would face difficulties in competing eco-friendly standards in both local building Line 6, it has also upgraded the industry, the companies would have to Kingdom of Bahrain and it also holds a with Alba in terms of productivity and and global standards. The company technology used from EGA DX+ to EGA match Alba’s extensive plant that is position as one of the most recognizable efficiency as Alba has been in the had spent almost USD589 million in DX+ Ultra which aims to lower energy able to produce 971,000 mtpa. smelter in the GCC region. Therefore, smelting business for over 49 years. environmental conservation. This gives consumption while concurrently Therefore, this would incur research the company’s strong position in the Therefore, its experience and size Alba a competitive edge in the increasing output. New aluminium cost to search for a suitable land in a market and a trusted supplier to its within the industry has led to it aluminium industry. and challenges smelters in Bahrain would have to non-residential area and be granted clients would make it difficult for new achieving economies of scale where it potential entrants to increase costs to match or install more advanced the approval of the government for an competitors dominate Alba. is able to produce aluminium in large avoid breaching environmental technological update of Alba in order industrial producer and manufacturer. quantities at a low cost per unit. standards. to compete at the same level.

APPENDIX 12: PESTL ANALYSIS

STRONG IMPACT

POLITICAL Bahrain is vulnerable to local and regional political instability that stands in front its economic prosperity. The GCC diplomatic rift and isolation of Qatar may diminish investments and trade, costing the countries billions of dollars. The borrowing of funds will be costly for the whole region. Support extended by Saudi Arabia in T E terms of politics and finance will improve Bahrain’s long term political standing and economic situation.

Additionally, the establishment of NEOM industrial and business zone is part of their diversification plan. Since P the GCC countries are highly interrelated, political risk remains high for all involved in the GCC and since Alba is the effort of the government, it could have a great impact on Alba if the political situation took a downturn.

LEGAL FAVOURABLE L UNFAVOURABLE Bahrain’s Commercial Companies Law has been recently amended to capture FDIs, where 100% foreign ownership is permitted and Bahraini shareholders are not required; this leaves very few restrictions for setting up in Bahrain. Investors operating at Bahrain gain from a better balance sheet in comparison with GCC, given

Bahrain low operating costs, incorporating Set-up, Taxation, Transportation and Port handling. The coupling of these laws with Alba Line 6 expansion will encourage international downstream companies to invest in

Bahrain; those could be small or medium sized enterprises such as, auto parts suppliers. Furthermore, there is S a specific percentage of Bahrainis that must be employed in proportion to non-Bahrainis. Alba’s Bahrainisation rate is the highest with 84.2%, contributing to the economy and avoiding legal formalities.

ECONOMICAL WEAK IMPACT Oil prices: In order for Bahrain to balance its budget and save Bahrain from devaluation risk, it requires oil price to reach $99 per barrel in comparison with $73.1 per barrel for Saudi Arabia. In more than two years, Brent crude reached its highest trading level but a $40 difference is underlying between it and Bahrain’s breakeven price. Credit worthiness: Bahrain’s BB- rating was downgraded to B+ in December 2017, which is highly speculative due to external liquidity being extremely weak, and its credit outlook was revised from Negative to Stable by S&P Global Ratings. Noting that, the rating company factored the external support extended to Bahrain from KSA. US Dollar: The Fed rate hike will be strengthening US Dollar against other currencies, making sovereign and corporate borrowing costs expensive when dominated in US Dollars. Influence on Alba: The above economic factors should make it difficult for Alba to secure low borrowing costs. However, Alba’s resilient financial stability is fueling competition between national and international banks to finance the remaining $1.2 billion of Line 6 project total outlay of $3 billion. Deflationary fiscal policy: Bahraini government will remove subsidy on Diesel gradually, increasing Alba’s cost of production. Value Added Tax: The government plans to impose VAT in 2018 but is not expected to impose VAT of double digits, avoiding triggering of products prices and political breakdown. VAT will generate $568 million for the government, which is beneficial for Alba as it is partially owned by the government through Mumtalakat. Corporate taxation is inevitable in Bahrain. The burden must not be passed to the final consumer, escalating Alba’s cost. But the tax will erect a favorable environment for investments as credit ratings will improve, public debt service cost will fall and sensitivity to oil prices will decrease. However, currently the government has provided no indication towards corporate taxes. Aluminium Cartel: Russia is suggesting the formation of an aluminium cartel similar to OPEC. The main objective is that all top producers and exporters approve a singular policy with regards to standards and technologies, controlling the overcapacity challenge presented by China. The cartel could be including Russia, Bahrain, Qatar, China, Saudi Arabia and UAE. However, the formation of a Cartel such as OPEC is doubted, especially that the political issues within its members are worrying. Also, their doubts about OPEC’s success and continuity as its members fail to be disciplined and comply with the agreement articles.

SOCIAL TECHNOLOGICAL Bahrain invests in formal education; with Tamkeen (labor fund) for developing excellence in Alba is employing DUBAL’ DX+ Ultra Technology for Line 6 expansion. DX+ Ultra Technology cells are highly human assets, which trains employees to be qualified engineers or technicians. This disregards energy-efficient; allowing Alba to operate at high amperages and optimized performance levels. This technology the need for migrating employees. Similarly, Alba invests in training and development of their will improve energy efficiency, allowing Alba to increase metal production with no increase in overall energy human capital and the presence of human capital within Bahrain is beneficial. consumption.

APPENDIX 13: BOARD OF DIRECTORS

Chairman Appointed as Alba’s Board of Directors Chairman on February 27, 2014 (member Mr. Al Shamrani owns experience in petrochemicals industry that exceed a quarter since 2005) and is Executive Committee Chairman of Nomination and Director of century. Currently, he works as CEO Business Support & Executive Affairs in Remuneration Committee. His previous directorship titles include Chairman of SABIC CEO office, reporting directly to the Vice Chairman. His start with them ASRY Marketing Services limited (ASRMAR) U.K and Arab Shipbuilding and Repair (19890 was as computer programmer and then promoted to analyst and planner. Yard Company (ASRY Bahrain), both ended in 2015; he is United Arab Shipping He provided assistance in the implementation of a software project (the Baan Company, Dubai-UAE Vice Chairman (ended in June 30 2015). Previously he Chaired enterprise Resource Planning (ERP)). Since then, he was taking responsible GCC Patent Office, Bahrain Airport Company, the General Organization of Sea Ports. positions at SABIC, which include being a SABIC Dubai Manager and then General He had positions in several Bahraini governmental sectors, incorporating the Manager, Asia/Pacific that is in Singapore. He is Yanbu National Petrochemical Co. Shaikh Daij Bin Salman Bin Ministry of Industry and Commerce and the Ministry of Finance. He was awarded Ali Al-Shamrani (YANSAB) Board member. Daij Al Khalifa “Personality of the Year” in 2010 by Seatrade Middle East & Indian Subcontinent. Director Director Mr. Taqi has experience in the financial services sector for above 25 years and is an Mr. Al Arrayedh career initiated in Bahrain’s Ministry of electricity and Water as Islamic finance recognized leader. He formulated and enacted new guidelines and System Developer (1986). He was the Chief Computer systems Development and standards in Bahrain and other countries Islamic financial institutions and Maintenance from 1992 to 2002. He became the Ministry of Industry Director Hi- organizations’ accountancy Board. He became the company’s Board member in Tech and Informatics 2003 and Assistant Undersecretary for Industrial development 2008. He Chairs Alba’s Board Audit Committee, Manara Development in 2005. Now he is the Industry Affairs Undersecretary. In 2006, he became Alba’s CompanyB.S.C. (c), North Start Holding, Amar Holding Company B.S.C. (c); and Pan Board member. Since 2008, he was Gulf Organization for Industrial Consultancy

Arabian Gourmet and Tadhamon Capital Board member. He was Kuwait Finance Board member. House Deputy Manager (2003-06) before advancing to Al Salam Bank CEO (2006). Osama M. Al Arrayedh Yusuf A. Taqi Director Director Is currently Mumtalakat’s CFO since September 2014; managing the Finance, He was appointed Alba’s Board of Directors member (2003-2014) and is a member Treasury and external Portfolio Functions and implementing effective financial of the Executive Committee. Currently, he is the Chief Executive of National policies, reporting financials and build an optimal capital structure meeting short- Industrialization Company (TASNEE) in Saudi Arabia. He was the Executive Vice run and long-run strategic goals. Formerly, she was Mumtalakat’s COO supervising President Corporate Finance at Saudi Basic Industries Corporation (SABIC), Vice corporate functions (Legal, Risk Management, HR and Administration and IT) while President of Shared Services, President of the Saudi Petrochemical Company and ensuring their regulatory and legal adherence. She became Alba’s Board member the Saudi Iron Steel Company. His experience showcases his Corporate Finance on June 10, 2015, making her the first woman member. She has more than 17 years expertise. He currently serves on the Board of National Mental Manufacturing & Suha S. Karzoon accounting and finance experience, audit, advisory and statutory reporting services. Mutlaq H. Al Morished casting Co. (Maadaniyah) and AlinmaTokio Marine Company.

Director Director Mr. Uwaudh Al-Harethi was previously the Executive Vice President, Chemicals. He Ahmed Al Jabr has more than 30 years’ experience in SABIC in the top-level works on improving operations in a culturally diverse environment, translate management Executive in different management, manufacturing and technical conceptual models into specific growth strategies and plan and execute global operations. He currently holds the post of SAFCO and Ibn Al-Baytar and previously business development campaigns that improves market share, gross revenue and served in the Ibn Rushd and Ibn Al Baytar Board of Directors. He practices his EBITDA. As a Chemical Engineer, Mr. Uwaidh Al-Harethi earned a Master degree in expertise in manufacturing, operations and projects, effective work with Business Administration focused on Management Information Systems from King Government bureaus and diverse range of clients and suppliers. Mr. Al Jabr also Fahad University of Petroleum and Minerals. involves in social events and community contributions. Uwaidh Harethi Ahmed Al Jabr

Director Mr. Yaser E. Humaidan has over 20 years banking experience as an Investment Director Dr. Kameshki became a member of Alba’s Board of Directors on February 27, 2014. professional. This includes enterprise finance strategy and financial assets (equities, His profession includes being a renowned Bahraini consultant for over 25 years and fixed income, hedge funds, private equity and structure investment). He assists a social responsibility advocate. As a business strategist, he had helped local companies to attain stability and growth in fluctuating economies and handles an companies on forming strategies, attain operational excellence, customer extensive client-centric portfolio oversight and management skills. He previously satisfaction and hire resourceful human capital. He prioritizes social responsibility worked as a member of the Fixed Income/Derivatives Unit at Gulf International and community contribution by coaching and supervising the Bahraini Youth Bank and later became the Head of Investment. Additionally, he served on the Delegation Programme (Junior leadership programme) for more than 7 years. The Yaser E. Humaidan Board of Bahrain Bourse. Dr. Mohamed Kameshki programme was able to land some participants to leading positions.

APPENDIX 14: MANAGEMENT TEAM

EXECUTIVE MANAGEMENT Deputy CEO and Chief Supply Chain Waleed Tamimi Chief Executive Officer Chief Marketing Officer Chief Power Officer Acting Chief Operations Officer Officer Chief Admin Officer

Tim Murray Khalid A. Latif Amin Sultan Hassan Noor Ali Al Baqali Waleed Tamimi Since 30th of September 2015, he was In 2017, he is Chief Power Officer for He has been Alba’s Chief On 25th of May 2017, he became Chief Marketing Officer at Alba, in the Potline 6 project for new Administration Officer since He joined them in May 2007 as He has been Alba’s Chief Financial Alba’s Acting Chief Operations alignment with the company strategy 1972MW Power Station and 2249 September 2017, leading Alba’s General Manager of Finance. He was Officer, being responsible for Officer, taking care of Operations and of developing Bahrain nationals at MW ISO Power & Utilities. He was Administration divisions. He was also appointed as Alba’s Chief Financial Accounting & Controlling, maintenance of all Carbon Plants, Pot Alba to hold chief leadership Alba’s Chief Operations Officer (COO) Alba’s Operational Excellence Finance & Supply Officer, Chief Strategic Supply & Planning, Legal, lines, and Maintenance and positions. He is responsible for from March 2016 to May 2017 and Manager since 2013, leading Financial Officer and Chief Marketing procurement & warehousing and Workshop Services. He joined as leading the global marketing contributed productively and operational excellence initiative and Officer. Calciner & Marine since June 2013. Alba’s Senior Operator Alba in 1997, strategies in Alba, driving innovation efficiently to increase metal continuous strategy and roadmap spending 20 years serving Alba. in the divisions. production by 11,000 mt. improvement. MANAGEMENT TEAM Director of Casthouse Abdul Rasool Ahmed Abdul Rasool Acting Manager Line 6 Project – Reduction Hani Ali Saleh Abbas Director Line 6 Startup Abdulla Habib Ahmed Ali Acting Manager Casthouse Maintenance & Services Hassan A. Qader Director of Marketing Boris Santosi Acting Manager Line 6 Project – Casthouse Khalil Ebrahim Suhail Acting Director Carbon and Services Fuad A. Hussain Alasfoor Manager Calciner & Marine Taleb Al Ansari Director Line 6 Smelter Project and Engineering Shawqi Al Hashimi Acting Manager Carbon Operations Ahmed Shehabi Director of Power & Utilities Steve Davison Acting Sales Manager Asia Pacific Enoch Kwok Yee Lok Sr. Manager Operations Support Services Nabeel Ebrahim Al Jallabi Sr. Manager Process Control & Development Raghavendra K.S.R Manager Operational Excellence Ahmed Bahar Manager Engineering & Infrastructure Gopichand J. Talreja Chief Internal Auditor & Risk Management Officer Bryan Harris Manager Reduction Maintenance Haitham Salman Ahmed Yusuf Al-Saegh Manager Strategic Supply & Planning Faeq Abdulrahim Manager Customer Services & Marketing Operations Hisham Yousif Alkooheji Manager Customer Technical Support Hussain Al-Malali Sr. Manager HR Hamad Al Shaibeh Manager Line 6 – Contracts & Procurement Jordan Samuel Screen Manager of Project Controls Line 6 Project Karim El Rahimy Manager Investor Relations & Corporate Affairs Eline Hilal Manager Power Expansion Project Khaled Mersal Manager Power Operations Eskandar Abdulnabi Marhoon Alsari Sr. Manager Safety, Health and Environment Mohamed Khalil Ebrahim Saeed Manager Line 6 Start-up Services Khalid Ahmed Shareef Manager Sales MENA Mohamed Khalid Juma Manager Reduction Line 6 Start-up Khalil Ebrahim Mohammed Manager Reduction Lines 1-3 Mohammed A. Rahim Zaina Manager Line 6 Carbon Start-up Masood Toorani Manager Line 6 Project – Carbon A. Rahim Mohd Manager Power Maintenance Mathew Tharakan Manager Training Rawdha Salman Alaradi Manager Line 6 Project – Safety Nezar Hameed Ali Manager Reduction Line 5 Mohsen Ahmed Shukrallah Manager Sales and Marketing – Americas Patrick Hudson Manager Procurement & Warehousing Mustafa A. Rahman Manager Line 6 Engineering & Technology Transfer Paul Otteson Manager Financial Accounting and Controlling Ahmed Abdulqader Mohamed Yusuf Manager Project Construction Line 6 Project Robert Byrne Manager IT Syed Afaque Ahmed Hashmi Manager Reduction Line 4 S. Hussain S. Fadhel Acting Manager Carbon Maintenance Hussain Ebrahim Mohammed Manager Legal Stephanus Grobler Acting Manager Casthouse Operations Hussain Faqihi Acting Manager Public Relations Fatema Al-Mohri

APPENDIX 15: AWARDS & ACHIEVMENTS

Year Awarded Award Recognition • IFTDO International Trophy • Rewarding its commitment to maintaining safety, health and well-being in workplace 2010 • Occupational Health & Safety Gold Award • Recognition of Alba’s effort in providing workplace safety practices • International Safety Award • Best Company for Investor Relations in Bahrain 2012 • Alba’s website earned 2nd place in web ranking survey • 2nd place in 2012M: Communications / KWDigital Middle East Web Ranking • General Counsel of the Year Award • Alba’s Laboratory included in top 5 (out of 41 smelter laboratories globally) laboratories in • Ministry of Labour Award for Excellence in Vocational Training and Development Baked Anode Round Robin 2012-2013 report 2013 • 2013 eGovernment Excellence Award in eEconomy category • IT Team of the Year • Gulf Aluminium Council (GAC)’s Health & Safety and Environmental Award • Alba’s IT Manager won CIO of the Year Award • Best Company for Investor Relations • Recognition award in “Best Application for Mobile” • International Safety Award • Recognizing Alba’s commitment in maintaining workforce’s safety, health and well-being • 2014 Occupational Excellence Achievement Award • Award for reduction in Alba’s 2013 injury rates • 2014 Gold Award for Occupational Health and Safety • Recognition for its safety management • GAC Health & Safety Award under smelters category • Gold winner for Alba’s project on “Fluoride Emission Reduction” 2014 • International Green Apple Awards 2014 under the “Environmental Best Practice” category a) For implementation of BI Solution through using Microsoft BI • 3 IT Awards: Business & Commerce Application category, On the Cloud Project category, b) For Alba’s Private Cloud Solution based on Windows Server 2012 MEET ICT Personality of the Year 2014 c) Awarded to Alba’s IT Senior Manager • Her Royal Highness Princess Sabeeka Award for Bahraini Women Empowerment 2014 • Recognition for Alba’s commitment to gender equality including equal opportunities • Best Company for Investor Relations in Bahrain Award • The Green Era Award 2015 • Rewarding the company’s environmental accomplishments and sustainable initiatives • Best Corporate Governance 2015 in the Middle East (Industrial sector) • Recognizing Alba’s in implementing good accountability practices, transparency and • International Safety Awards 2015 promotions of ethics. • Alba’s employee, Ahmed Janahi, awarded the Health and Safety Champion Award 2015 • Alba’s effort in committing to maintain a safe workplace 2015 • Gold Award for Occupational Health and Safety • Awarded for his contribution in developing in Alba’s safety culture • Alba’s Chairman of Board of Directors was presented the Lifetime Achievement Award by • Rewarded for his superior leadership and contribution to business transformation and the Middle East Business Leaders creativity • International Green Apple Awards 2015 (Gold category) • Recognition for Alba’s project “Aluminium Smelter to Green Oasis” • Gold International Safety Award 2015 • For the determination towards enforcing safety, health and well-being in workforce in 2015 • Certificate of Excellence from R&D Carbon-Switzerland (RDC) • Rewarded for Alba’s completion of exceptional performance in Carbon sampling and • Gold Award for Occupational Health and Safety 2016 analysis for 10 years • Best Nationalisation Initiative Certificate 2016 • Acknowledgement to Alba’s continuous improvement in workforce accident and ill health • 2 Investors’ Community Awards: prevention a) Leading Corporate for Investor Relations in Bahrain • For the company’s contribution towards nationalization and HR development in Bahrain b) Best Investor Relations Professional in Bahrain • Commendation for Alba’s long-term commitment towards environmental protection • Gold Winner of the Green World Award 2016 for Environmental Practice • Occupational Excellence Achievement Award and Significant Improvement Award by NSC • Recognizing Alba’s long-term investment in the safety of its workplace for employees • British Safety Council’s International Safety Awards with Merit for 2017 • For its commitment in 2016 workforce involving safety, health and well-being • Gold Award for Occupational Health and Safety 2017 • Honoured for the Sr. SHE Manager contribution towards Alba’s safety and health 2017 • Alba’s Sr. SHE Manager awarded RoSPA 2017 Guardian Angel Award • Excellence in Alba’s corporate governance policies involving respectable accountability • Ethical Boardroom Corporate Governance 2017 Award in Middle East • Rewarding Alba’s adherence to the highest level of Environmental, Social and Governance • Winner of 2017 Most Innovative Aluminium Solutions GCC Award (ESG) standards and for advancing local and international downstream aluminium industry

APPENDIX 16: LINE 6 EXPANSION PROJECT

PROJECT DESCRIPTION PROJECT INFLUENCE Alba expansion initiative of a new Potline - Line 6(L6) and Power Station 5 (PS5) will increase the annual During its construction, 2000 to 3000 people will be employed. Its operation will create capacity by approximately 50% or 540,000 tones, boosting the total production capacity to 1.5 mtpa. The 500 direct and permanent job positions in Alba. The downstream industry will grow and operating and energy efficiencies will increase as the proprietary EGA DX+ Ultra technology will be used in many local and international downstream companies will be attracted to operate in the 424 pots in L6. The project will make Alba the worlds’ largest single-site aluminium smelter when its Bahrain. Hence, indirect jobs in the downstream industry will be created. Also, the operations start by January 2019. The construction main works were initiated in 2016 and 25% of the project contribution of Alba to Bahrain’s GDP will increase from 12% to 15%. was completed in Q3/2017.

PROJECT CONTRACTORS AND ADVISORS PROJECT FINANCING Alba contracted with Bechtel for L6 engineering, procurement and construction management (EPCM). The The project had an initial outlay of USD$3.5billion but now has CAPEX of USD$3billion Engineering, procurement and construction (EPC) contract for PS 5 is awarded to GE and GAMA Consortium. due to the fall in global crude oil prices. The CAPEX is the total cost for building L6, PS5 They will be responsible for designing, engineering, procuring, constructing and commissioning a Combined and other industrial services. In order to finance the project, Alba has secured a Cycle Gas Turbine Power Plant (PS 5) with 1,792 megawatts and efficiency of 54%. In Bahrain, the biggest and USD$1.5billion syndicated loan from banks (Convention and Islamic Facilities) making most-efficient power station will be PS 5. In the GCC, it will be the first PS with H-class gas turbine technology, it the largest corporate loan in Bahrain’s history. The details of the loan are detailed marking Bahrain as world-class achiever. The Power Distribution System contractor is Siemens, which will be below. Alba plans to secure the loan’s second tranche from ECAs within 2017 second constructing and commissioning High Voltage electrical network and providing Gas Insulated Switchgear half, amounting USD$1.2 billion. The rest 10% will be self-financed, amounting (GIS) that reaches to 220k V. The project financial advisors are J.P. Morgan, Gulf International Bank (GIB) and approximately USD$300 million. National Bank of Bahrain (NBB), who provide consultation and assistance on Line 6 structuring and financing. Line 6 supply of gas is secured for 10 years with Bahrain Petroleum Company (BAPCO). Loan line 6 was raised Conventional Facility $882 million Principal Amount USD$1.5 billion by banks that fall in three different categories as shown in the table below. Islamic Facility $618 million Interest Margin 325 bp/annum (LIBOR) Tenor 7 years (principle paid in 8 semi-annual installments) Grace Period 3 years

Mandated Lead Arrangers & Bookrunners Group Lead Arrangers Group Arrangers Group Standard Chartered Bank (Hong Kong) Limited Saudi National Commercial Bank Burgan Bank K.P.S.C. Arab Banking Corporation B.S.C Riyad Bank Mashreqbank PSC ABC Islamic Bank (E.C.) National bank of Kuwait S.A.K. Bahrain branch Bahrain Islamic Bank B.S.C. Gulf International Bank B.S.C. Arab petroleum Investments Corporation (APICORP) Arab Bank plc- Retail Branch Ahli United Bank B.S.C. Kuwait Finance House (Bahrain) B.S.C. Al Baraka Islamic bank B.S.C. (c) National Bank of Bahrain B.S.C. National bank of Abu Dhabi (Bahrain Branch) Bank of Baroda Credit Agricole Corporate and Investment Bank Al Ahli Bank of Kuwait K.S.C.P. Bahrain Bank Kuwait BBK B.S.C. Note: Riyad Bank acted as the Islamic Agent and National Bank of Abu Dhabi (Bahrain Branch) acted as the Global and Conventional agent.

LINE 6 VALUATION

Discounted Cash Flow Valuation

(in BHD ‘000) 2016 2017 2018 2019 2020 2021 Total

EBITDA from Line 6 127,645 131,259 135,075

(-) CAPEX (338,400) (507,600) (282,000)

Free Cash Flow (338,400) (507,600) (282,000) 127,645 131,259 135,075

Terminal Value 2,058,271

Total (338,400) (507,600) (282,000) 127,645 131,259 2,193,346

N 1 2 3 4 5 6

WACC 8.96% 8.96% 8.96% 8.96% 8.96% 8.96%

Present Value (310,583) (427,578) (218,017) 90,571 85,480 1,310,959 530,832

Equity Value 530,832

No. of Shares 1,420,000,000

Target Price Per Share for Line 6 0.374

Using the DCF variables of WACC (8.96%) and terminal growth rate (2.25%), we calculated the value that line 6 will add to the share price of Alba. The target price derived is 374 fils per share. Assumptions

Year 2017 2018 2019 2020 2021 Assumptions

LME Aluminium Price Per Unit (BHD) 733 740 747 754 761 Based on forecasted aluminium prices converted to BHD at rate of 376 fils/$

Estimated cost of producing primary aluminium product is $1,300 per tonne, Estimated Cost per Unit (BHD) 488.8 488.8 488.8 488.8 488.8 converted to BHD at rate of 376 fils/$ Source: Team Estimates

APPENDIX 17: ALBA’S PRODUCTS, CLIENTS AND SEGMENTATION

Aluminium Products Alba’s standard ingots are sold to consumers who wish to re-melt this residual form of aluminium in their own furnaces, to produce a range of different end products. Approximately 400,000 Standard Ingots metric tons of standard ingots are produced yearly. Rolling slabs are used in rolling mills to manufacture aluminium foil and sheet products, containers and utensils. The total annual production capacity of their rolling slabs currently stands at Rolling Slabs about 140,000 metric tons per annum Foundry Alloy Foundry alloy ingots are mostly used by the automotive industry to manufacture high quality automotive wheels, truck hubs and gas pump nozzles. About 120,000 metric tons of foundry alloy Ingots ingots are produced yearly Extrusion is the procedure of forcing aluminium into a precisely shaped opening flowing in to shape it. Extrusion ingots are broadly used in the construction industry (for windows and door Extrusion Billets frames), transportation, engineering, and consumer durables. About 380,000 metric tons of extrusion ingots are produced yearly. T-Ingots Alba’s Tee Ingot is similar to the Standard Ingot, but is specifically appropriate for consumers who require its T shape for cost-effective handling, storage and particular form of furnace. Aluminium that is highly pure with aluminium content of at least 99.86 per cent, is sold in liquid form to companies such as Midal Cables, Bahrain Alloys Manufacturing Company, Bahrain Liquid Metal Welding Wire Products Mfg. Co., Bahrain Atomisers International and AluWheel, and others. Other Products It is carbon blocks used to conduct electrical energy during the procedure of manufacturing primary aluminium. Alba produces 550,000 metric tons yearly through its three-computerized Anodes carbon. Power Alba has its own power plant generating an overall power volume of 2,249 MW ISO (nearly equal to the power used in the Kingdom of Bahrain as a whole). Water Alba has a seawater desalination plant that was constructed in 2001 as a fundamental part of the company’s Calciner plant. Calcined Coke Calcined petroleum coke is the main raw material essential for the manufacturing of carbon anodes used in the aluminium smelting procedure.

Consumer/Clients Details Segment Ronal Wheel RONAL Company is the pioneer of light alloy wheels in the world market. Alloy wheels Maxion Wheels Maxion Wheels and its subsidiaries have been supplying OEMs with the highest quality wheels and most innovative technologies Aluminium wheels GARMCO Gulf Aluminium Rolling Mill Company (GARMCO) is one of the largest downstream aluminium facilities in the Middle East. Aluminium facilities Manufacturing Aluminium Rods, Wires and Midal Cables Limited Substituting Olex Cables to manufacture Aluminium Rods, Wires and Overhead Conductors for Electrical Transmission Overhead Conductors for Electrical Transmission Hero Motocorp India Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world’s largest manufacturer of two - wheelers, based in India. Manufacturing aluminium two – wheelers Capral Australia Capral is Australia’s largest manufacturer and distributor of aluminium profiles Distribution of aluminium profiles

Changes in customer requirements in specific sectors for aluminium Transport Construction Consumer Goods Aluminium is light for vehicles (trains, plains, automobiles, and ships) Aluminium which is highly durable, resisting climate changes Aluminium that lasts long that for reuse in appliance components to reduce rising fuel expenses and Co2 emissions Strong for transportation vehicles, such as heavier loads for Goods with lesser requirements in terms of energy for lower CO2 Strong and withstanding materials for rails and bridges improved capacity emissions Aluminium which has reflective finishes to enable efficient light Encompasses higher tensile & strength for safe vehicles Aluminium with strong grades, avoiding recycling expenditure management, hence, reduced consumption of energy Aluminium that lasts long that allows for reutilization and ‘cascading’ Aluminium which is versatile, enabling dynamic designs of components for different infrastructure types Flexibility in the metal Products which are prefabricated to quicken construction time

ENDNOTES

1 Countries with the largest smelter production of aluminium from 2010 to 2016 (in 1,000 metric tons). (n.d.). Retrieved from https://www.statista.com/statistics/264624/global-production-of-aluminium-by-country/ 2 Alba. (2012). Corporate Brochure (p. 4). Retrieved from http://www.albasmelter.com/mc/newsletters/pdf/corporatebrochure2012.pdf 3 The Global Aluminium Market Outlook , A. (2017, May). The Global Aluminium Market Outlook. CRU Aluminium . Retrieved from http://www.valuminium.ca/media/files/Aluminium_Market_Outlook_Quebec_2017.pdf 4 Aluminium Bahrain B.S.C. (Alba) . (2016). Annual Report 2016. Retrieved November 27, 2017, from http://www.albasmelter.com/IR/Publications/Documents/Annual%20Reports/AnnualReport2016.pdf 5 International Monetary Fund. (2017, October). World Economic Outlook (October 2017): Real GDP Growth. Retrieved November 27, 2017, from http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD

6 BMI Research. (2017, February 1). Aluminium: 2017 Hinging On China Supply & Demand Direction. Retrieved December 15, 2017 7 Murray, T. (2016, November 23). Tim Murray, CEO, Aluminium Bahrain (Alba): Interview. Oxford Business Group. Retrieved November 23, 2017, from https://www.oxfordbusinessgroup.com/interview/tim-murray-ceo-aluminium-bahrain-alba-interview 8 International Monetary Fund. (2017, October). World Economic Outlook (October 2017): Real GDP Growth. Retrieved November 27, 2017, from http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD 9 Frutos , R. D. (2017, January 17). 3 Reasons Why Aluminium Prices Will Rise in 2017. Metal Miner. Retrieved November 25, 2017, from https://agmetalminer.com/2017/01/17/3-reasons-why-aluminium-prices-will-rise-in-2017/ 10 The Economic Times. (2016, October 07). Aluminium consumption in India to grow from 3.3 million tonne to 5.3 million tonne. Retrieved November 28, 2017, from https://economictimes.indiatimes.com/industry/indl-goods/svs/metals-mining/aluminium-consumption-in-india- to-grow-from-3-3-million-tonne-to-5-3-million-tonne/articleshow/54738630.cms 11 Bell, T. (2017, August 28). Learn About Aluminium Production and the Industry's Best Producers. Retrieved November 28, 2017, from https://www.thebalance.com/the-10-biggest-aluminium-producers-2012-2339722 12 Bell, T. (2017, August 28). Learn About Aluminium Production and the Industry's Best Producers. Retrieved November 28, 2017, from https://www.thebalance.com/the-10-biggest-aluminium-producers-2012-2339722 Desai, P. (2017, November 25). METALS-Aluminium slips on doubts over China supply cuts. Reuters. Retrieved November 27, 2017, from http://www.kitco.com/news/2017-11-21/METALS-Aluminium-slips-on-doubts-over-China-supply-cuts.html 13 World Aluminium. (2017, November 20). PRIMARY ALUMINIUM PRODUCTION. Retrieved January 21, 2017, from http://www.world- aluminium.org/statistics/ 14 The Global Aluminium Market Outlook , A. (2017, May). The Global Aluminium Market Outlook. CRU Aluminium . Retrieved November 27, 2017, from http://www.valuminium.ca/media/files/Aluminium_Market_Outlook_Quebec_2017.pdf Steel Guru. (2017, October 4). Metal Bulletin's 32nd International Aluminium Conference in Bahrain. Retrieved November 11, 2017, from https://steelguru.com/metal/metal-bulletin-s-32nd-international-aluminium-conference-in-bahrain/491436 15 EY. (2016, May). Mining and Metals commodity briefcase: Aluminium, Coal, Copper, Iron Ore, Nickel, Steel, Zinc & Lead. Retrieved November 24, 2017, from http://www.ey.com/Publication/vwLUAssets/commodity_briefcase_mayo/$FILE/EY-mining-commodity-briefcase-mayo.pdf 16 Aluminium Insider. (2016, March 01). India Raises Import Duties on Aluminium by 2.5% – Aluminium Insider. Retrieved December 01, 2017, from https://aluminiuminsider.com/india-raises-import-duties-on-aluminium-by-2-5/ 17 World Aluminium. (2017, November 20). PRIMARY ALUMINIUM PRODUCTION. Retrieved November 27, 2017, from http://www.world- aluminium.org/statistics/ 18 Bahrain Economic Development Board. (2017, June). Bahrain Economic Quarterly: June 2017. Retrieved November 30, 2017, from http://bahrainedb.com/app/uploads/2017/06/BEQ-June-2017.pdf 19 GCC Aluminium Firms Produced over 5 MM Metric Tons of Aluminium in 2016. (2017, January 19). Aluminium Insider. Retrieved 3 December 2017, from http://aluminiuminsider.com/gcc-aluminium-firms-produced-5-mm-metric-tons-aluminium-2016/ 19 Alba hits new highs on sales and production volumes. (2018, January 10). Retrieved from http://www.bna.bh/portal/en/news/820108

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