Annual Review 2012
The Dar al-Athar al-Islamiyyah is one of Kuwait’s leading cultural organizations and home to the al-Sabah Islamic art collection – acknowledged as one of the world’s finest collections of Islamic art. The collection consists of over 30,000 priceless objects, including manuscripts, scientific instruments, carpets, fabrics, jewelry, ceramics, ivory, metalwork and glass dating from the seventh century CE from countries such as Spain, India, China and Iran.
This year, the annual reports of KIPCO Group companies each feature a different key glassware artifact from the al-Sabah collection. The images used within the reports reflect KIPCO’s commitment to protecting and promoting Kuwait’s heritage, while helping to build the nation’s future.
The item pictured here is a glass mosque lamp made in Egypt during the early fourteenth century CE. The piece is gilded and enameled glass and was commissioned by the amir Husayn Abi Bakr for a mosque in Cairo. The image is reproduced with the kind permission of the Dar al-Athar al-Islamiyyah.
Contents
1 Executive Summary 2012 2 Debt profile & credit ratings 3 Financial statements highlights 3 KIPCO Group: by geography and sector 4 KIPCO and key listed subsidiaries: performance measures 4 KIPCO vs KSE index 5 KIPCO valuation metrics 6 KIPCO Group companies: by sector 12 Letter from the Board of Directors 14 Management Report 21 Board of Directors 22 Executive Management H.H. Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Amir of the State of Kuwait
H.H. Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah Crown Prince of the State of Kuwait Executive Summary 2012
KIPCO: The KIPCO Group is one of the largest holding companies in KIPCO’s financial services interests include holdings in the Middle East and North Africa, with consolidated assets of commercial banks, asset management and investment banking, US$ 26 billion. The Group has significant ownership interests and insurance companies. The Group’s core operations in this in a portfolio of more than 60 companies operating across 24 sector include Burgan Bank, United Gulf Bank and Gulf Insurance countries. The Group’s main business sectors are financial Company. In the media sector, the Group has joint control of the services, media, manufacturing and real estate. Through its core OSN, the leading pay-TV operator in the region. companies, subsidiaries and affiliates, KIPCO also has interests in the education and healthcare sectors.
Key achievements in 2012: Burgan Bank Group buys Eurobank Tefken: the KD 99 Gulf Insurance celebrates 50 years: the company marked million (US$ 352 million) deal is the latest stage in Burgan’s its golden anniversary with the formation of the Gulf Insurance development as a major regional banking group Group OSN increases revenue and earnings: the MENA region’s United Real Estate successful exit: KIPCO’s real estate leading pay-TV company increased revenue by 33% and company sold an investment in Lebanon for a profit of KD EBITDA by 439% 21 million (US$ 76 million)
2012 financial results summary: KIPCO reported a profit of KD 31.3 million (US$ 111.3 million) of KD 443 million (US$ 1.6 billion) were a 26% increase on for 2012 - its twenty first consecutive year of profitability and the KD 351 million (US$ 1.3 billion) reported in 2011. KIPCO’s subject to aproval - its eleventh consecutive year of paying consolidated assets also increased in the year to KD 7.2 billion shareholder dividends. The company’s total revenues in 2012 (US$ 25.6 billion) from KD 5.8 billion (US$ 20.8 billion) in 2011.
24 37 45 30 31 440 399 408 351 443 KD millionsKD KD millionsKD Net profit - revenuesTotal - 08 09 10 11 12 08 09 10 11 12
544 544 560 574 576 5.2 5.3 5.7 5.8 7.2 KD millionsKD KD billionsKD Shareholders’ equity - Assets - 08 09 10 11 12 08 09 10 11 12
1 KIPCO: parent 2012
Debt profile (in KD million)
Cash position 285 118 179 Debt maturity(1): 2012
2-4 years 55% over 4 years 45% 10 11 12
Gross debt 528 348 399 Debt type: 2012
International bonds 70% KD bonds 20% Bank loans 10% 10 11 12
Net debt 243 230 220
10 11 12
KIPCO credit ratings: Rating agency Short-term rating Long-term rating Outlook Standard & Poor’s A3 BBB- Stable Moody’s Prime 3 Baa3 Negative Capital Standards BBB+ A+KW Stable
Notes: (1) In January 2013, KIPCO extended the debt maturity of a term loan to January 2018. The data reflects this maturity extension.
2 Financial Statements Highlights 2012
2008 2009 2010 2011 2012 (Restated)(1) Consolidated Balance sheet KD millions Cash in hand and at banks 972.0 1,027.7 1,143.8 960.1 1,002.7 Treasury bills & bonds 387.4 417.1 467.0 419.1 483.6 Investment in associates 238.9 252.1 328.0 325.4 366.8 Investment properties 7.0 54.5 336.1 368.4 398.0 Other investments 357.6 356.0 302.6 317.4 398.0 Other assets (inc. goodwill & intangibles) 3,245.1 3,219.4 3,083.7 3,459.9 4,535.9 Total assets 5,208.0 5,326.8 5,661.2 5,850.3 7,185.0 Debt 3,971.7 4,100.0 4,367.9 4,547.5 5,764.2 Other liabilities 362.6 358.8 281.3 264.0 349.1 Shareholders’ equity 543.8 544.3 560.0 574.2 576.3 Non-controlling interest 329.9 323.7 452.1 464.6 495.3
Consolidated Income statement KD millions Investment income 53.0 72.7 95.4 31.8 65.7 Share of results of associates (3.0) (1.1) 4.9 8.3 7.8 Digital satellite network services income 52.9 57.5 46.8 49.5 77.0 Hospitality and real estate income - - - 23.5 37.0 Other revenues 332.5 264.1 232.9 238.1 255.7 Profit from discontinued operations 4.9 6.1 28.2 - - Total revenues 440.3 399.3 408.2 351.2 443.2 Total expenses 397.9 352.2 346.2 286.3 369.0 Non-controlling interest 18.3 10.2 17.0 34.9 42.9 Net profit 24.1 36.9 45.0 30.0 31.3
Earnings Per Share Fils(2) 17.95 29.86 36.31 24.14 24.23
KIPCO Group: by geography & sector
Assets by geography Revenue by geography
Kuwait 50% Kuwait 49% Rest of GCC 15% Rest of GCC 18% Rest of MENA 29% Rest of MENA 31% Europe 5% Europe 1% North America 1% North America 1%
Total assets by sector(3): US$26 billion Total revenues by sector(3): US$1.58 billion
Commercial banking 78% Commercial banking 57% (4) (4) AMIB 8% AMIB 7% Insurance 1% Insurance 1% Media 3% Media 17% Industrial 2% Industrial 2% Leisure & real estate 7% Leisure & real estate 15% Others 1% Others 1%
Notes: (1) Please refer to Note 11 in the full 2010 financial statements for 2009 restatement details. (2) Historic EPS data have been adjusted due to issuance of bonus shares in 2008, 2010, 2011 and 2012. (3) Sector percentages have been calculated before inter-company eliminations. (4) AMIB: Asset management and investment banking.
3 KIPCO and key listed subsidiaries:performance measures
Total shareholder’s return CAGR(1): 2002-2012(2)
1.9% 0.0% 16.3% 13.5% 16.7% 31.3%
UIC URC Burgan Bank UGB GIC KIPCO
Book value CAGR(3): 2002-2012
9.7% 10.1% 12.0% 17.1% 12.4% 20.5%
UIC URC Burgan Bank UGB GIC KIPCO
KIPCO vs Kuwait Stock Exchange Index (KSE): 2001-2012
1120 1040 KIPCO Rebased 960 KSE Rebased 880 800 720 640 560 480 400 320 240 160 80 0 01 02 02 02 03 03 03 04 04 04 05 05 05 06 06 06 07 07 08 08 09 09 10 10 11 11 11 12 12 12
Source: KAMCO (Dec. 2012)
Notes: (1)Compounded annual growth rate. (2)Represents shareholders returns including dividends, bonus issue adjustment for rights issues and other corporate actions during the holding period. (3)Book value growth calculated by considering no dividends paid and adjustments for other corporate actions.
4 KIPCO: valuation metrics
Price to book ratio 2012(1)
0.5x 0.7x 1.7x 0.9x 1.3x 0.9x
UIC URC Burgan Bank UGB GIC KIPCO
Net asset value The net asset value table below is based upon a ‘sum of the parts’ valuation. Two scenarios are shown: the ‘base case’ and the ‘with control premium’. Under the ‘base case’ scenario, KIPCO’s quoted investments are calculated at the prevailing year-end price. The ‘with control premium’ scenario assumes the prevailing year-end price for quoted stocks, raised by 50%. This is shown for illustrative purposes, because historically, when KIPCO has sold assets it has achieved a higher or similar level of premium pricing. In both scenarios, OSN’s value is based upon KIPCO’s 60.4% stake of the company’s appraised value when the Showtime and Orbit merger took place in August 2009(2).
Base case With Control Premuim(2) 2012 2011 2012 2011 KD Per share KD Per Share KD Per share KD Per Share mn (Fils) mn (Fils) mn (Fils) mn (Fils) United Gulf Bank 116 90 140 112 173 134 210 168 Burgan Bank 335 259 286 229 503 389 429 343 Gulf Insurance Co. 38 29 39 31 57 44 58 46 United Industries Co. 31 24 20 16 46 36 30 24 United Real Estate Co. 47 37 39 31 71 55 59 47 OSN 256 198 254 203 256 198 254 203 Net Other Assets 12 9 66 53 12 9 66 53 Gross Assets Value 835 646 845 675 1,118 865 1,107 884 Net Debt 220 170 230 183 220 170 230 183 Operating expenses 10 8 10 8 10 8 10 8 Net asset value 605 468 605 483 888 687 867 692 Share Price 390 305 390 305
Notes: (1) As at 31 December,2012. (2) See note 22 of KIPCO’s 2009 financial statements.
5 KIPCO Group companies: by sector Financial Services
Eduardo Eguren Rabih Soukarieh Chief Executive Officer Acting Chief Executive Officer Burgan Bank United Gulf Bank
Burgan Bank is one of Kuwait’s leading commercial banks and United Gulf Bank (UGB) is KIPCO’s investment banking operation one of the fastest growing banking groups in the MENA region. based in Bahrain. Offering a range of commercial and investment Burgan Bank Group has majority stakes in Jordan Kuwait Bank, banking and asset management services, the bank also manages Gulf Bank Algeria, Bank of Baghdad, Tunis International Bank and a diversified portfolio of investments in private equity funds, private Burgan Bank – Turkey (previously known as Eurobank Tekfen). equities, structured products, trading portfolios and provides a Burgan Bank is listed on the Kuwait Stock Exchange. range of treasury activities. UGB is listed on the Bahrain Stock Exchange.
KIPCO direct holding 2012: 43% KIPCO direct holding 2012: 87% KIPCO consolidated holding 2012: 60% KIPCO consolidated holding 2012: 96%
Business highlights 2012 Business highlights 2012 All operations profitable and growing Total assets of US$ 1.23 billion Awarded Best Bank in Kuwait, Best Bank in Iraq, Bank of the Reduced leverage by US$ 0.4 billion Year in Tunis, Best Bank in Jordan and best banking group in MENA Financial highlights 2012 Acquired Eurobank Tekfen in Turkey Twenty-second consecutive year of profitability with profit of Successfully issued KD100 Million Lower Tier 2 subordinated US$ 11 million bonds: first such bond issued in Kuwait Achieved seven fold increase in net profit Total assets under management of US$ 8 billion Financial highlights 2012 Consolidated capital adequacy ratio of 23%, above required 12.5% Increased profit by 10% to KD 55.6 million Increased operating income by 16% to KD 190 million Customer deposits increased by 39%
4.7 50.6 55.6 164.9 163.4 190 10.8 0.4 3 45.8 30.2 26
10 11 12 10 11 12 10 11 12 10 11 12
Net Profit KD millions Revenue KD millions Net Profit KD millions Revenue KD millions
www.burgan.com Tel +965 2298 8000 www.ugbbah.com Tel +973 1753 3233
6 KIPCO Group companies: by sector Financial Services
Khaled Al Hassan Faisal Mansour Sarkhou Managing Director Acting Chief Executive Officer & Chief Executive Officer KAMCO Gulf Insurance Company
The Gulf Insurance Company (GIC) is the leading insurance company KAMCO is KIPCO’s asset management and investment banking arm. in Kuwait and has become one of the MENA region’s biggest insurance KAMCO’s asset management division provides customized portfolio networks with operating companies in Saudi Arabia, Jordan, Lebanon, management, access to capital market products and managed fund UAE, Syria, Egypt, Iraq and Bahrain. GIC offers a full range of products products. The company’s investment division provides investment including life, motor, accident and medical insurance. The company banking services, alternative investment products and investment is listed on the Kuwait Stock Exchange. research services. The company provides fully integrated investment services and products. KAMCO is listed on the Kuwait Stock Exchange.
KIPCO direct holding 2012: 40% KIPCO consolidated holding 2012: 45% KIPCO consolidated holding 2012: 86%
Business highlights 2012 Business highlights 2012 50th anniversary Successfully organised three major corporate bond issuances, Acquired 20% stake in Alliance Insurance Company in UAE raising KD 206.5 million: deals included the largest size and longest Maintained market leadership position in Kuwait, Bahrain, Jordan tenure corporate bond in Kuwait’s history & Egypt Successfully executed key advisory transactions, client financial S & P credit rating upgraded to ‘A-‘ with Stable outlook restructurings and managed a client’s acquisition of a leading Won ‘Best Insurance Provider Middle East 2012’ award from Global education platform in Kuwait and region Banking and Finance Review Solidified its position as leading regional asset manager with a Won ‘Insurance Company 2012, Kuwait’ from World Finance 10.78% increase in assets under management (AUM): total now is over KD 2.4 billion Financial highlights 2012 Awarded ‘Deal maker of the Year’ by Finance Monthly magazine for Increased net profit by 30% to KD 9.3 million role as buy-side advisor Increased Gross Premiums Written by 9% to KD 145.4 million Achieved Net Underwriting results of KD 8.7 million Increased consolidated assets by 12% to KD 298.3 million
7.7 7.1 9.3 68.9 75.6 86 2.4 2.2 2.4 7.6 3.9 N/A
10 11 12 10 11 12 10 11 12 10 11 12
Net Profit KD millions Revenue KD millions AUM KD Billion Operational revenue KD millions
www.gulfinsgroup.com Tel +965 1802 080 www.kamconline.com Tel +965 185 26 26
7 KIPCO Group companies: by sector Media & Industry
David Butorac Sheikh Sabah Mohammad Chief Executive Officer Abdulaziz Al-Sabah OSN Chairman United Industries Company
OSN is the leading pay-tv operator in the MENA region offering The United Industries Company (UIC) is KIPCO’s industrial holding the widest choice of new and premium Western, Arabic and company. UIC has holdings in a variety of industrial sectors Filipino entertainment. The company provides more than 100 including stakes in SADAFCO – one of the region’s leading food pay-tv channels of which 36 are in high definition available to manufacturers – and Qurain Petrochemicals. UIC is listed on the customers via satellite, cable and broadband. OSN’s technology Kuwait Stock Exchange. is unparalleled and includes: OSN Plus HD DVR - the region’s first hybrid set top box; OSN Play - the region’s first online TV platform; and OSN on Demand - the region’s first video-on-demand service.
KIPCO direct holding 2012: 68% KIPCO direct and consolidated holding 2012: 60% KIPCO consolidated holding 2012: 71%
Business highlights 2012 Business highlights 2012 Launched region’s most advanced on demand library via a Reduced non-strategic investments to 7.8% of asset base personal video recorder: system offers viewers the opportunity Acquired remaining 7.42% stake in KNIP; company is now wholly to watch over 1000 movies and 52 latest seasons of the top owned by UIC series - all available in full HD quality and Dolby Digital sound Reduced overall borrowings by 10% to KD 63.2 million Launched OSN Play - first on-line-tv platform in the region Secured US$100m financing from regional and international Financial highlights 2012 banks Increased income by 10% to KD 9 million Reduced expenses by 19% Financial highlights 2012 Increased profit by 176% to KD 3.35 million Increased in ARPU by 5% Increased revenue by 33% Increased EBITDA by 439%
(2.6) 3.8 21.2 77.7 82.6 110.0 4.0 1.2 3.3 9.7 8.2 9.0
10 11 12 10 11 12 10 11 12 10 11 12
EBITDA KD millions Revenue KD millions Net Profit KD millions Revenue KD millions
www.osn.com Tel +971 4367 7027 www.uickw.com Tel +965 2246 6842
8 KIPCO Group companies: by sector Industry
Sadoun A. Ali Waltherus Matthijs Vice Chairman & CEO Chief Executive Officer Qurain Petrochemical Industries SADAFCO Company
Qurain Petrochemical Industries Company (QPIC) is the biggest private The Saudi Dairy and Foodstuff Company (SADAFCO) is one of the most investor in the petrochemical sector in Kuwait. QPIC’s main investments profitable companies in the United Industries Company’s investment include stakes in Kuwait’s main petrochemical plants such as Equate portfolio. SADAFCO was established in 1976 and is a leader in the Petrochemicals and Kuwait Aromatics Company (KARO). The company region’s dairy and foodstuff industry producing almost 700 million is listed on the Kuwait Stock Exchange. packs every year. The company is listed on the Saudi Stock Exchange.
KIPCO consolidated holding 2012: 19% KIPCO consolidated holding 2012: 40%
Business highlights 2012 Financial highlights 2012 Investigating mutual development opportunities in Kuwait Petroleum Increased sales by 16% Corporation’s future projects Increased operating profit by 12% Working with consultants and investment banks to source new regional investment opportunities
Financial highlights 2012 Increased profit to KD 18.61 million Increased earnings to KD 17.07 fils per share Assets reached KD 246 million
(1.9) 18.1 19 (0.8) 20.6 21.5 15.8 10.5 11.7 79.8 96.8 112.2
10 11 12 10 11 12 10 11 12 10 11 12
Net Profit KD millions Revenue KD millions Net Profit KD millions Net sales KD millions
www.qpic-kw.com Tel +965 2294 3232 www.sadafco.com Tel +966 02 6293366
9 KIPCO Group companies: by sector Real Estate & Leisure
Mohammad Al Saqqaf Fawzi Al Musallam Chief Executive Officer Chief Executive Officer United Real Estate Company Kuwait Hotels Company
United Real Estate Company (URC) is KIPCO’s real estate Kuwait Hotels Company (KHC) specializes in hospitality and development company., URC’s operations are primarily in the MENA catering services. KHC’s subsidiaries include Safir International region. The company is currently developing properties in Kuwait, Hotels Management, one of the region’s premier hotel companies, Egypt, Jordan, Lebanon and Oman. These properties include with a total of 15 hotels throughout the MENA Region. KHC also residential, commercial, retail and mixed-use developments. URC includes Kuwait Catering Company, Safat Catering Services, Cake is listed on the Kuwait Stock Exchange. & Bake and Safir Support Services. KHC is listed on the Kuwait Stock Exchange.
KIPCO direct holding 2012: 35% KIPCO consolidated holding 2012: 63% KIPCO consolidated holding 2012: 32%
Business highlights 2012 Business highlights 2012 Executed assets’ sales strategy Signed contract to manage hotels in Salalah, Oman Accelerated leasing activities Launched Phase 2 of Safir Hotel & Residences development at Improved subsidiaries & affiliates performance Fintas, Kuwait Streamlined company operations Launched Aldirwaza food brand offering authentic Kuwaiti cuisine Franchised first international Cake & Bake outlet in Doha, Qatar Financial highlights 2012 Increased profit by 123% to KD 22.5 million Increased assets by 6% Increased revenue by 49% Increased earnings per share by 129% Increased interest coverage ratio by 63%
5.5 10.1 22.5 24.0 28.2 41.8
10 11 12 10 11 12
Net Profit KD millions Revenue KD millions
www.urc.com.kw Tel +965 1805 225 www.khc.com.kw Tel +965 2225 7070
10 KIPCO Group companies: by sector Other Sectors
United Gulf Management, Boston, USA
Narendra Baliga Iqbal Mohamed Chief Operating Officer President Pulsar Knowledge Centre, Delhi, United Gulf Management, India Boston, USA
Pulsar Knowledge Centre (PKC) is KIPCO’s consulting company based United Gulf Management is KIPCO’s subsidiary in the United States. in India. PKC offers services and solutions in business advisory, financial The company – based in Boston - is responsible for identifying research and analysis. For clients in India’s fast growning economy, strategic resources to support KIPCO’s financial services, real estate the company offers a complete range of investment advisory services. and media operations. PKC’s clients include KIPCO Group and external companies.
www.pulsarkc.com Tel +91 124 4525300 www.kipco.com Tel +1617 3034100
Emad Al-Saleh Abdullah Kubursi Chief Executive Officer Chief Executive Officer North Africa Holding Company Takaud Savings & Pensions Kuwait Bahrain
The North Africa Holding Company (NAHC) is a private equity company Takaud Savings & Pensions is the first company in the MENA region to that identifies and invests in opportunities within North African offer a range of personal and corporate pension and savings products. economies. NAHC is one of MENA’s largest pan-regional investment During 2012, the company launched it services in Bahrain and will launch companies and its portfolio includes holdings in the manufacturing, in other local markets during the next 12 months. Takaud’s product real estate and corporate services sectors, in countries such as Algeria, range is specifically designed to meet the investment aspirations of Morocco, Tunisia and Egypt. people in our region.
www.northafricaholding.com Tel +965 2232 2322 www.takaud.com Tel +973 17 520176
11 Letter from the Board of Directors
Dear shareholder, Despite the problems that continue to affect the global economy, there are some signs that, finally, confidence is beginning to return to the financial markets. Positive signs are, of course, still outweighed by the major issues that continue to afflict Western economies. But if we recall earlier recessions, then we remember confidence takes time to return and that perception lags behind reality. Perhaps it will take much longer for investors to regain their confidence after all that has happened over the last five years. However, if we have learnt one lesson from past recessions it is that people can’t see the worst is over, until the worst has passed. So, it is possible that 2013 will be a turning point and that recovery will begin in earnest. We shall see.
In Kuwait, despite healthy growth in sectors such as and a renewed focus on local programming. financial services and commercial real estate, during the year, stock market performance and investor confidence Another business highlight for your company over the were affected by the political stalemate between our last 12 months was the agreement between KIPCO government and parliament. However, with the outcome and the ORIX Corporation of Japan - one of the world’s of the December parliamentary elections creating the biggest financial services companies. The agreement possibility of a more productive relationship between the outlines an intention to form a strategic alliance for the two sides, the next 12 months could see some positive development of leasing and financial services in the change. We sincerely hope this proves to be the case MENA region. We are very excited about the potential and that we see accelerated progress of the country’s of this relationship, because a combination of ORIX’s development plan with previously stalled development global expertise and our local knowledge could prove projects now given the green light to proceed. to be a very productive – and very profitable - alliance.
The major business highlight for your company during Another highlight of 2012 for KIPCO was the launch of 2012 was Burgan Bank’s acquisition of a 99.3% stake our new pensions and savings operation in Bahrain. of Eurobank Tefken in Turkey and a decision to secure Bahrain is the first in a series of regional markets a controlling share in FIMBank of Malta. These deals we have targeted for the introduction of our pension represent the next stage in Burgan’s development as product range. Our research shows there is huge a significant player in the regional banking market and demand for this type of product and the company will we are very pleased with the pace of Burgan’s progress launch in other selected countries during this year. towards that objective. As to the financial objectives we set for our companies For our broadcast company OSN, 2012 was a year of last year, we are pleased to report that UGB and KAMCO remarkable progress. The company increased its revenue deleveraged a total of KD 113 million (US$ 401 million) by 33% and its EBITDA figure by 439% during the year. This of debt from their books during 2012. This deleveraging has been achieved by a combination of new technology process has affected their profitability for 2012, but the to combat piracy, measures to reduce customer churn long-term benefits of reducing their debt will offset this.
12 As to our financial performance for 2012, we are delighted government and parliament find a way or working together for to report that despite fluctuating economic conditions, we the sake of the country and our future prosperity. If only one met the targets we set for the year by achieving a profit of of these issues were to be resolved, then the prospects for KD 31.3 million (US$ 111.3 million) - a 4.2% increase on 2011. us all may improve. If all three were to be resolved, then we This means 2012 was KIPCO’s twenty-first consecutive year might finally see an end in sight to the financial uncertainty of profitability – a remarkable track record of which we are that has plagued us all for far too long. justly proud. We would like to thank His Highness, the Amir of the State Your company’s total revenues for the year also increased of Kuwait, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, 26% to KD 443 million (US$ 1.6 billion) from KD 351 million His Highness, the Crown Prince Sheikh Nawaf Al-Ahmad (US$ 1.3 billion) in 2011. Your company’s total consolidated Al-Jaber Al-Sabah and His Highness, the Prime Minister assets also increased 23% in the year to KD 7.2 billion (US$ Sheikh Jaber Al-Mubarak Al-Ahmad Al-Hamad Al-Sabah 25.6 billion) from KD 5.8 billion (US$ 20.8 billion). for their continuing support and guidance.
As a result, we are proposing to pay shareholders a dividend We would also like to thank you, our shareholder, for the of 20 fils (20%) and a 5% stock dividend subject to approval support and trust you have placed in your Board of Directors by our General Assembly. and management during the last 12 months. We would like to thank all the employees of KIPCO and our operating We remain cautiously optimistic about the prospects for companies for the contribution they made during 2012. 2013. This optimism will be well-founded if we see a positive outcome on three crucial issues. First, that the economy On behalf of our shareholders, we would also like to thank of the United States begins a concerted recovery and that Mr Al Ayyar and his management team for the results they agreement is reached on the long-term future of the country’s achieved during 2012. fiscal process. Second, that the European Union finally halts the contagion of sovereign and banking debt that has so May God continue to grant us success and prosperity. crippled the region’s prospects for its common currency, employment and future growth. And third, that our own
13 Management Report
However, against this prevailing mood of pessimism,
there are small signs of improvement. For example, the
news that toxic American housing debt – which four
years ago was completely untouchable – is starting to
find buyers, is perhaps an indication that the American
economy is now gaining some traction. Although this
may be only a very small step in the full recovery of
the global economy, it is a welcome example of how
the situation is slowly improving. We hope that other
similar signs of recovery appear during 2013.
Our 2012 results
In March last year, we said our annual profit for 2012
Dear shareholder, was likely to remain at about the same level as 2011.
One could view the last 12 months of Despite the volatile economic climate, we met this
as merely a continuation of the last five target by delivering a profit of KD 31.3 million (US$ years. Indeed, uncertainty in financial 111.3 million) for 2012 – a 4.2 % rise over the year. As markets, unsustainable levels of Western a result, subject to approval by our General Assembly, sovereign debt, fragile economies, we intend to pay shareholders a dividend of 20 fils (20 political deadlock and a lack of investor %) per share with a 5% stock dividend. confidence have been with us for what seems like an eternity. These results are very positive because they reflect the strengths of our operating companies within their
respective marketplaces. Our results also indicate that
14 Burgan Bank buys Eurobank Tefken
Burgan Bank marked another highly successful year of its regional expansion strategy with the purchase of Eurobank Tefken in Turkey. The KD 99 million (US$ 352 million) deal gives Burgan a 99.3% stake in the bank and an opportunity to expand within one of the world’s fastest growing economies.
the regional economy is perhaps showing some signs of highly successful year of regional expansion and market consistent growth. consolidation at home. The bank’s expansion strategy took
a major step with the purchase of Eurobank Tefken in Turkey
Our core companies and the decision to buy a stake in FIMBank of Malta.
During 2012, our core operating companies delivered impressive performances: Burgan Bank’s year-on-year The KD 99 million (US$ 352 million) deal for Eurobank profit increased 10 % to KD 55.6 million (US$ 197.7 million), Tefken – which has now been rebranded Burgan Bank
Gulf Insurance Company’s (GIC) profit was up 30 % to KD Turkey - will give Burgan a 99.3% stake in the bank and
9.3 million (US$ 33.1 million) and United Gulf Bank’s (UGB) an opportunity to expand within one of the world’s fastest profit increased over seven times to KD 3.1 million (US$ 11 growing economies. Turkey offers enormous potential in million). Our broadcast company, OSN also continued its both commercial and retail banking, so the acquisition was growth trajectory, by achieving a staggering 439% increase the right deal at the right time. in EBITDA and 33% increase in revenue.
Burgan’s decision to buy a controlling stake in FIMBank of
For Burgan Bank, the last 12 months have been another Malta is another very interesting opportunity because of
15 Management Report Continued
Gulf Insurance celebrates 50 years
The Gulf Insurance Company celebrated its 50th anniversary in 2012 with special events, including a presentation to the Crown Prince of Kuwait. The landmark year was also used to launch the company’s new corporate brand which will bring together, for the first time, GIC’s regional companies under one shared identity. The group will now be known as the Gulf Insurance Group.
the potential of the island’s strategic location midway 2012 was also a very special moment in GIC’s
between Europe and North Africa. history because the year marked the company’s 50th
anniversary. We are proud to say that the last 50 years
We are delighted with the outcome of these deals have been years of consistent achievement for the
because they represent the next stage in Burgan’s company. For example, when it began in 1962, GIC
development into one of the biggest banking groups was a very small Kuwaiti company with one tiny office
in our region. Burgan intends to explore further options employing just seven people. Today, GIC is a regional
for organic growth outside the GCC during this year. group with 73 offices in seven countries employing
over 1,700 people. The company’s golden anniversary
Another highlight of the year for Burgan was the was celebrated by an event attended by His Highness,
successful completion of a KD 100 million (US$ 356 Sheikh Nawaf Al Ahmad Al Jaber Al Sabah, The
million) ten year bond. The funds raised from the bond Crown Prince of Kuwait. During the event, The Crown
will be used to strengthen Burgan’s capitalization ratio Prince presented former GIC Chairmen with awards in
and to invest in other regional acquisitions should they recognition of the contribution these gentlemen have
arise. made to GIC’s development.
16 OSN increases revenue and earnings
OSN is the leading pay-tv operator in the MENA region and offers the widest choice of the latest premium Western, Arabic and Filipino entertainment. OSN provides more than 100 pay-tv channels of which 36 are in High Definition. In 2012, the company increased revenue by 33% and EBITDA by 439%.
To communicate its position as a regional group of improvement in the new company’s outlook, but we did not companies, GIC also used its 50th anniversary year to launch expect to see such positive results in such a short space of its new corporate brand. The new brand will bring together, time. This is a testament to OSN’s management team and for the first time, all GIC’s regional companies under one their efforts to reduce the level of customer churn, improve shared identity and the group will now be known as the Gulf the quality of programming while at the same time, continuing
Insurance Group. to introduce new technology into the market. We believe OSN
is on course for a very bright future and we hope to see even
During its special year GIC also continued its regional further progress from the company in the next 12 months. expansion with the acquisition of the Alliance Insurance
Company in the UAE. For UGB, 2012 was another year of consolidation and
deleveraging debt. The bank delivered on its commitments
At OSN, the last 12 months have been truly outstanding. The by reporting a seven-fold increase in profits and reducing company accelerated its profitability curve and increased its debt by US$ 0.4 billion (KD 112.5 million). UGB’s capital its revenue by an impressive 33% in 2012. When we formed adequacy ratio stands at 23%, well above the minimum
OSN three years ago, we expected over time to see an regulatory requirement of 12.5%.
17 Management Report Continued
KIPCO signs MOU with ORIX
A major business highlight of 2012 was the signing of a memorandum of understanding between KIPCO and the ORIX Corporation. ORIX is one of the world’s biggest financial services companies with business interests that also include real estate and life insurance. KIPCO and ORIX intend to explore the opportunities for leasing within the MENA region.
Our business highlights relationship with ORIX and we look forward to working
A major business highlight of the last 12 months was with them on a range of exciting new ventures in the
the agreement between your company and the ORIX months to come.
Corporation. ORIX is one of the world’s biggest financial
services companies with business interests that also Another highlight of 2012 was the official launch of
include real estate and life insurance. Therefore, we Takaud Savings & Pensions - our new savings and
share a great deal of synergy and find their business pensions company. Takaud opened for business in
philosophy perfectly in tune with ours. The agreement Bahrain at the end of the year and expects to begin
between us – in the form of a memorandum of operations in a number of other selected markets by
understanding – outlines a mutual intention to form a the end of 2013.
strategic alliance. Our first project together - a feasibility
study to explore the formation of a leasing company Our people
in Algeria – will be complete soon and we hope to During 2012, we reallocated some senior members of
announce plans for this new company in the near future. our management team to help drive the development
We believe this is only the start of very productive of key subsidiaries. We moved Mr Sadoun Ali from
18 KIPCO Tower becomes new HQ
In 2012, KIPCO relocated to its new headquarters in KIPCO Tower. The 60 storey Tower offers flexible office accommodation, retail and residential space and a modern working environment. The new building also features the latest technology, outstanding architecture and stunning views across Kuwait City.
our asset management company KAMCO to become Vice made at this role and this reflects our commitment to our
Chairman and CEO of the Qurain Petrochemical Industries employees and their well-being. Mr Al Sharrad has also
Company (QPIC). We did this because Mr Ali’s experience in taken responsibility for the purchasing processes across the petrochemical industry, combined with the considerable the KIPCO Group. By negotiating with suppliers on behalf financial expertise he gained at KAMCO, will help QPIC of the entire Group, we aim to produce considerable cost accelerate its business and profitability. To replace Mr savings for all our companies over the next few months.
Ali at KAMCO, we appointed Mr Faisal Sarkhou as acting
CEO. Mr Sarkhou has held senior positions within KAMCO Our new HQ for 13 years and we are confident that he will succeed in At the end of 2012, KIPCO relocated to its new headquarters restructuring KAMCO so that the company is prepared for in KIPCO Tower in Kuwait City. The new building offers a resurgence in its business. your company flexible office accommodation and a much
more modern environment in which to work. The Tower’s
During the year, we also appointed Mr Khaled Al Sharrad as impressive technology, outstanding architecture and stunning
KIPCO’s Group Chief Human Resources & Administration views also reflect the nature of our business and befit our
Officer. This is the first senior appointment KIPCO has position as one of Kuwait’s leading companies.
19 Management Report Continued
KIPCO sponsors NUKS for second year
KIPCO renewed its sponsorship of the American branch of the National Union of Kuwaiti Students (NUKS) annual conference in 2012. The event was held in Washington DC and attracted an audience of over 2000 students. Marina FM radio station – one of KIPCO’s media companies – covered the event with interviews and competitions for the students.
The outlook for 2013 turning in the right direction during 2013. If that is the
Some 12 months ago I said that 2012 was likely to be case, then it is possible that this year will mark the
very challenging. So it proved to be. But within these end of the worst. Perhaps it may be too much to hope
challenging times we are seeing some encouraging that this year proves to be the beginning of the end of
signs that, at least locally, the economic situation has the a crisis that has been with us for far too long, but at
possibility for positive change. The recent parliamentary some point confidence will return and a full recovery
elections in Kuwait have bought within sight some sort will be underway.
of proper working relationship between our government
and parliament.
If this happens, then Kuwait has an opportunity to begin
unlocking its full potential. Faisal Hamad Al Ayyar
Vice Chairman
As I said at the start, we also have the prospect – albeit
a faint prospect – that the global economy, will begin
20 Board of Directors
Sheikh Hamad Sabah Al Ahmad Al Sabah Chairman
Faisal Hamad Al Ayyar Vice Chairman
Abdullah Yacoub Bishara Board Director
Sheikh Abdullah Nasser Sabah Al Ahmad Al Sabah Board Director
Sheikh Sabah Nasser Sabah Al Ahmad Al Sabah Board Director
21 Executive Management
Samer Subhi Khanachet Masaud Hayat Group Chief Operating Officer Chief Executive Officer, Banking
Mr Khanachet joined KIPCO as General Manager Mr Hayat joined KIPCO as CEO, Banking in 2010. in 1990. He moved to the United States in 1991 He has served the KIPCO Group in a number of key to run United Gulf Management, KIPCO’s US positions since 1997 and has extensive experience subsidiary, to identify strategic resources to in the region’s commercial, investment banking support KIPCO’s activities in financial services, and asset management sectors. He is responsible media and other sectors across the MENA for the development and supervision of KIPCO’s region. He was appointed KIPCO’s Chief banking and financial services businesses. He is Operating Officer in 2008. He is Chairman of Chairman of United Gulf Bank, Syria Gulf Bank Takaud Savings & Pensions and a Board member and Tunis International Bank and Vice Chairman of of Burgan Bank, United Gulf Bank and United Gulf Bank Algeria, North Africa Holding Company Real Estate. He holds board and committee and Royal Capital Group. He is a Board member positions with the American University of Kuwait of Jordan Kuwait Bank, Bank of Baghdad and and the Massachusetts Institute of Technology KAMCO. Mr Hayat has an Economics degree from (MIT). He holds two BSc degrees from MIT and Kuwait University and High Diploma in Banking an MBA from Harvard University. Studies from the Institute of Banking Studies, Kuwait. He also attended the International Institute for Management Development in Geneva, the Advanced Management Program at Wharton Business School and the John F. Kennedy School of Government at Harvard University.
Tariq Abdulsalam Pinak Maitra Chief Executive Officer, Investments Group Chief Financial Officer
Mr AbdulSalam joined KIPCO as CEO, Mr. Maitra joined KIPCO in 1988. He was Investments in January, 2011. He first joined appointed Financial Controller in 1991 and Group KIPCO in 1992 and from 1996 was Head of CFO in 1996. He is a member of the Group’s KIPCO’s Investment Division. In 1999, he became strategy and risk management team. He leads the General Manager of KAMCO. In 2006, he the Group planning and performance analysis joined the United Real Estate Company (URC) as function. He is a Board member of Burgan CEO and in 2010 became Chairman and CEO. Bank, OSN and Pulsar Knowledge Centre. He was Chairman of Burgan Bank from 2007 to Prior to joining KIPCO, he worked for Arthur 2010 and has held Board positions at KAMCO, Young International. He won the MENA Private United Gulf Bank, Kuwait Bahrain Insurance Sector CFO of the Year award in 2008. In 2011, Company and Gulf Insurance Company. He is he won the first MENA region CFO of the Year currently Chairman of URC and Vice Chairman award, organized by the Institute of Chartered of the Kuwait Clearing Company. He is also Accountants of England and Wales. Mr. Maitra is a Board member of Jordan Kuwait Bank and a graduate of Osmania University, India. Qurain Petrochemical Industries Company. Mr AbdulSalam holds a BSc in Accounting from Kuwait University.
Khaled Abdul Jabbar Al Sharrad Declan Sawey Group Chief Human Resources Group Treasurer and Administration Officer Mr Sawey joined KIPCO in 2007. He was Mr Al Sharrad joined KIPCO in June 2012. Prior to previously Head of Asset & Liability Management this, he served as Head of Human Resources at for HBoS Corporate in Edinburgh, Scotland. He the Kuwait Foreign Trading Contracting Investment has held positions with Gulf Bank of Kuwait, the Company. In 1995, he joined KIPCO as Head of Kuwait Investment Authority, Ernst & Young, Human Resources and Administration. In 2000, Kuwait and KPMG, London. He is a Fellow he joined KAMCO as Senior Executive Vice of the Institute of Chartered Accountants in President, Head of Human Resource Management England & Wales, a Chartered Financial Analyst & Development and Administration. He was also and a member of the Association of Corporate Secretary to KAMCO’s Board of Directors. Mr Al Treasurers. Sharrad won KAMCO’s Best Employee of the Year award in 2010. He is a member of AMAI and holds a BA degree in Management from St. Edwards University, Austin, Texas.
22 Mohsen Ali Husain Mazen Isam Hawwa Group Chief Internal Auditor Group Senior Vice President, Finance & Operations
Mr Husain joined KIPCO in 2006. He has wide Mr Hawa joined KIPCO in 2001. He leads KIPCO’s experience in public accounting and internal auditing finance and operations department and also serves as and previously held positions with KPMG, Arab advisor to a number of KIPCO operating subsidiaries. Insurance Group, National Bank of Bahrain, Ahli He is Vice Chairman of Takaud Savings & Pensions United Bank and United Gulf Bank. He is a Certified and United Networks. He is also a Board member of Public Accountant (CPA), a Certified Information the United Real Estate Company, North Africa Holding System Auditor (CISA), a Certified Internal Auditor Company and Fajr Al Gulf Insurance Company. Prior (CIA) and holds a BSc in Accounting. to joining KIPCO, he worked for Andersen & Co. Mr Hawwa is a graduate of the Lebanese American University and is a Certified Public Accountant (CPA), Chartered Global Management Accountant (CGMA) and a Certified Management Accountant (CMA) from US-based institutions.
Robert Drolet Adel Al Waqayan Senior Vice President, Technology and Media Treasurer
Mr Drolet joined KIPCO in 2006. He is responsible Mr Al Waqayan joined KIPCO in 1995. He was for the supervision, development and optimization of previously a Senior Foreign Exchange dealer with KIPCO’s technology and media portfolio; he serves Burgan Bank’s Treasury department. He is a Board on the executive committees of OSN and United member of the United Real Estate Company and was Networks. He is KIPCO’s lead legal counsel on major Chairman of the Kuwait Financial Markets Association financing and M&A transactions. Prior to joining in 2006. Mr Al Waqayan holds an MBA from USI KIPCO, he was CEO, Continental Europe and CEO University in the USA. US Communications Solutions, Cable & Wireless. He previously led turnarounds, M&A and strategic alliances as Chief Commercial Officer, C&W Global, and in senior UK cable industry positions. He was General Counsel of Bell Canada International and Canam Manac, after practicing at Stikeman, Elliott. He holds a B.Ll. (Laval), an Ll.M. (Osgoode) and an M.Litt (Oxon), is an Avocat (Quebec) and Solicitor (E&W).
Robert Hipkins Group Communications Director
Mr Hipkins joined KIPCO in 2007. He has responsibility for KIPCO’s corporate communications. He was previously a senior consultant with Hill & Knowlton, one of the world’s leading public relations companies. Mr Hipkins has over 25 years experience in public relations and marketing in the UK, the United States, Europe and the Middle East. He began his career as a press officer for the British government. He holds an MSc from Edinburgh University, Scotland.
23 This year, the annual reports of KIPCO Group companies each feature a different key glassware artifact from the al-Sabah collection.
How to obtain our 2012 Financial Statements:
Shareholders attending our General Assembly Shareholders can request a copy of the Financial Shareholders can download a PDF copy of the meeting will be provided with a draft printed copy Statements to be sent to them by email seven Financial Statements seven days before the of the Financial Statements for their approval. days before the advertised date of the General advertised date of the General Assembly from our Shareholders can request a printed copy of the Assembly; please contact [email protected] company website - www.kipco.com Financial Statements to be sent to them by courier to arrange this. seven days before the advertised date of the General Assembly; please call KIPCO’s Corporate Communications Department on +965 2294 3477 to arrange this.
For further information on our 2012 Financial Statements or for extra copies of this Review, please telephone +965 2294 3477
P.O. Box 23982, Safat 13100, Kuwait, Tel: +965 1805 885 Fax: +965 2294 3499 www.kipco.com