Revised GIC A/R02 Covers final 16/4/03 1:51 pm Page 1 Annual Report 2002 Gulf Investment Corporation Annual Report 2002 GIC π02 Review P.8 Final AW 16/4/03 1:19 pm Page 1 Gulf Investment Corporation Annual Report 2002 Financial Highlights US$ Millions 2002 2001 Net Income (US$ million) 02 90.3 For the year 01 85.3 Net Interest Income 79.2 48.8 Other Income 43.6 51.7 Operating Expenses 28.0 26.9 Income from Discontinued Operations - 26.7 Net Income 90.3 85.3 At year end Total Assets 5,804.9 5,541.0 Trading Securities & Managed Funds 308.7 220.6 Total Assets (US$ million) Investment Securities 3,564.1 3,055.6 Loans & Credit Funds 426.8 487.9 02 5,805 01 5,541 Deposits 1,705.1 1,464.8 Shareholders' Equity 1,178.1 1,151.7 Selected Ratios (%) Profitability Return on Paid-up Capital 12.0 11.4 Return on Adjusted Shareholders' Equity 8.3 7.3 Capital BIS ratios Shareholders’ Equity (US$ million) - Total 35.0 35.9 - Tier 1 34.9 35.8 02 1,178 Shareholders' Equity as a % of Total Assets 20.3 20.8 01 1,152 Asset Quality Loans & Credit funds as a % of Total Assets 7.4 8.8 Marketable Securities as a % of Total Assets 60.1 55.1 GCC & OECD country risk as a % of Total Assets 99.3 95.9 Liquidity Liquid Assets Ratio 76.3 71.7 Productivity Operating Income as Multiple of Operating Expenses 4.4 3.7 Note: Where necessary, prior years' comparative figures have been adjusted to conform with changes in presentation in the current year. 1 GIC π02 Review P.8 Final AW 16/4/03 1:19 pm Page 2 Board of Directors Sultanate of Oman United Arab Emirates H.E. Ahmed Macki H.E. Dr. Mohammed Khalfan Bin Khirbash Chairman Minister of State for Finance and Industry Minister of National Economy and Deputy Chairman of the Financial Affairs and Mr. Rashed Ahmed Rasheed §❖ Energy Resources Council Deputy General Manager Emirates Management Services Corporation Mr. Darwish bin Ismail bin Ali Al-Bulushi § Undersecretary of Financial Affairs Ministry of Finance Kingdom of Bahrain H.E. Abdulla H. Saif Minister of Finance and National Economy State of Qatar H.E. Yousef Hussain Kamal* Mr. Rashid Ismail Al Meer §❖ Deputy Chairman Director General Minister of Finance The Pension Fund Commission H.E. Abdulla Khalid Al-Attiya § Governor, Qatar Central Bank Kingdom of Saudi Arabia H.E. Dr. Ibrahim Al-Assaf Minister of Finance and National Economy State of Kuwait H.E. Dr. Mohammed Sabah Al-Salem Al-Sabah H.E. Hamad Al-Sayari § Minister of State for Foreign Affairs and Acting Governor, Saudi Arabian Monetary Agency Minister of Finance and Minister of Planning Mr. Abdulmohsen Yousef Al-Hunaif §❖ Senior Management Undersecretary, Ministry of Finance Mr. Hisham Abdulrazzaq Al Razzuqi Chief Executive Officer * Chairman of the Executive Committee § Member of the Executive Committee ❖ Member of the Audit Committee 2 GIC π02 Review P.8 Final AW 16/4/03 1:19 pm Page 3 Gulf Investment Corporation Annual Report 2002 State of Kuwait Kingdom of Bahrain State of Qatar Kingdom of Saudi Arabia United Arab Emirates Sultanate of Oman Footer 3 GIC π02 Review P.8 Final AW 16/4/03 1:19 pm Page 4 On behalf of the Board of Directors, I have the privilege to present the Annual Report and Accounts of Gulf Investment Corporation for the year 2002. Chairman’s Statement I am pleased to report that 2002 was GIC will continue its efforts to realign its another good year for GIC, with profits and organizational resources to meet the assets registering solid growth. Operating requirements of its strategy. It is important to income increased by over 22% to US$ 122.8 recap that GIC strategy implies an increased million and the overall balance sheet size focus on the GCC region, with principal grew by approximately 5% to US$ 5,804.9 investing in projects playing a central role. million. At US$ 90.3 million, net income Over a third of the Corporation’s total assets for 2002 was 5.9% higher than that of are invested within the GCC countries. the prior year, and represented a return on The focus implies not only directing more shareholders’ equity of 8.3%. The sound investment resources to the GCC economies performance during the year was a result of but also entails revitalizing GIC’s role as a strategic initiatives that reflect clear adherence promoter of investment concepts and by the Corporation to the strategy approved ideas that enhance and encourage private by the Board of Directors. This performance enterprise in the region. Our ownership and also highlights GIC’s ability to continuously standing, strong capital position, efficient optimize its asset mix in line with the and flexible organization structure and clear changing operating environment. focus constitute our principal strengths. I am confident that the Corporation is now well During the past year, GIC had initiated several positioned and has the wherewithal to focused and well-defined action plans targeted leverage these strengths for continued success. at diversifying and enhancing revenues, increasing efficiency through management of As at December 31, 2002, total shareholders’ expenses, and phased expansion of operating equity reached US$ 1,178.1 million. With businesses. The rewards of these actions are a capital base in excess of 20% of total reflected in the strong performance during assets, GIC continues to be one of the most 2002 and I am confident that the Corporation strongly capitalized financial institutions will continue to benefit from its diversification in the region. We view this solid capital plans in the future. We intend to continue position as a strategic resource and will growing the balance sheet over the next few strive to deploy this resource in an efficient years, aiming to achieve a suitable leverage, in and disciplined manner to earn competitive line with the Corporation’s target ROE and returns. Capital management is fundamental accepted risk profile. to GIC’s risk management philosophy, and 4 GIC π02 Review P.8 Final AW 16/4/03 1:19 pm Page 5 Gulf Investment Corporation Annual Report 2002 takes into account economic and regulatory Investment Corporation are rotated every requirements. two years among the Ministers of Finance representing each of the GCC governments, I am pleased to welcome to the Board His His Excellency Yousef Hussain Kamal, Excellency Dr. Mohammed Sabah Al-Salem Minister of Finance of Qatar, has assumed Al-Sabah, Minister of State for Foreign the position of Deputy Chairman of the Affairs and Acting Minister of Finance and Board following the Corporation’s General Planning of the State of Kuwait. Assembly meeting in April 2002. I welcome Dr. Mohammed Al-Sabah replaces Dr. Yousef His Excellency and wish him success as Hamad Al-Ebraheem. I take this opportunity Deputy Chairman and Head of the Executive to thank Dr. Al-Ebraheem for his valuable Committee. I also wish to express my contributions during his tenure as member appreciation and gratitude to the members of the Board and wish him continued success. of the Board and Executive Committee for their strategic guidance and to the I assumed the chairmanship of the GIC management and staff at GIC for their Board in April 2002 and would like to thank contributions toward the commendable my colleague His Excellency Dr. Ibrahim Al- performance. Assaf for all his efforts and diligence during his term as Chairman of the Board in the preceding two years. Since the posts of Ahmed Macki Chairman and Deputy Chairman of the Gulf Chairman 5 GIC π02 Review P.8 Final AW 16/4/03 1:19 pm Page 6 The Gulf Investment Corporation continued its efforts to manage its main lines of business according to clear strategic guidelines. Emphasis on focused and well-defined approaches in developing and managing the business resulted in a solid financial performance for the year. Chief Executive Officer’s Review Operating income grew by over 22% to In line with the consistent efforts to diversify US$ 122.8 million from the US$ 100.5 our funding profile, the Corporation issued million earned in 2001. The solid performance 5-year floating rate notes in July 2002. once again demonstrates the ability to Increased demand from regional and identify opportunities and leverage international financial institutions led us to competencies in a challenging operating raise the total issue to US$ 300 million and environment. Subsequent to the divestiture enabled favorable pricing of the issue in of its principal subsidiary Gulf International comparison to recent issues in the region. Bank (GIB) during 2001, this year was the first full year of operations on a stand-alone Within the Principal Investing activity, basis for the Corporation. the profitable divestiture of our investment in Clearstream, the international clearing Net income at US$ 90.3 million, was 5.9% and settlement organization, conforms higher than that of the previous year, in spite with our exit strategy for project investments. of the US$ 28.3 million provisions made In addition to gains generated on this sale, during the year under review. Net income the principal investing activity contributed represents a return on shareholders’ equity to operating income through share of of 8.3% for the year. The record provisions profits and dividend income from other made in 2002 reflects the Corporation’s project investments. conservative provisioning policy and the stringent criterion for valuation of assets. The Corporation continued its task to review Despite the difficult operating environment, and restructure its portfolio of GCC projects.