Alsalam Holding Company

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Alsalam Holding Company

Alsalam Holding Company

Chairman Message 2019

Al-Salam Group Holding Company

In The Name of Allah Most Gracious, Most Merciful

Praise be to God, Lord of the worlds, and prayers and peace be upon our Holy Prophet, Muhammad, and upon his family and companions.

May Allah’s peace, mercy and blessings be upon you,

Dear Shareholders of Al-Salam Group Holding Company,

I would like to extend my sincere regards, and I am delighted to welcome you and meet together to discuss and review the Company's performance and its financial statements for the year ended on 31st of December 2109.

According to the International Monetary Fund (IMF) forecast, the world economy may record modest growth at a rate of 3.3% and 3.4% in 2020 and 2021 respectively, with the possibility that the economic activity might be exposed to negative surprises that may affect some emerging economies, especially China and India. However, the Coruna virus outbreak along with the collapse of the OPEC agreement, came to ravage the global markets and to re-examine the IMF expectations, and to put the world in front of a state of comprehensive uncertainty.

Recent developments had reflected on the global economy forecasts, as economic activity is still suffering from the weight of uncertainty as a result of the emergence of new challenges, such as the Corona virus outbreak, the huge drop in oil prices and the global and regional tense geopolitical relationships such as; the tense political relation between the United States and Iran, the deterioration of trade relations between the United States and its trading partners, the effects of Britain’s exit from the European Union, the escalation of social turbulence in several countries, and the climatic disasters in the Caribbean region, Australia and in the East and Southern Africa.

Regarding the advanced economies, expert’s forecasts growth to stabilize at 1.6% in 2020 and 2021, in light of lower expectations for the United States, the euro zone, the United Kingdom and the developed economies in Asia, especially the Hong Kong Special Administrative Region. As for the group of emerging and developing market economies, growth is expected to rise to 4.4% and 4.6% in 2020 and 2021 respectively.

Growth in the Middle East and Central Asia is expected to reach 2.8% to 3.2% in 2020 and 2021, respectively, influenced by the expected decline in oil production backed by the OPEC's decision in December to extend the cut in oil supplies, as well as the regional geopolitical tensions, social fluctuations and civil conflicts in some countries.

On the other hand, the oil prices witnessed a sharp decline, in-light of the collapse of the OPEC agreement and the failure of the organization members and its allies to reach an agreement to reduce the oil supplies, along with the growing fears of a decline in demand for energy sources, concluded by the largest shock experienced by oil demand since the financial crisis that struck the world in 2008.

Regarding the Kuwaiti economy, economic growth slowed to 0.4% during the third quarter of 2019 on an annual basis, compared to a growth of 1.8% in the second quarter of the same year, according to the Central Statistical Bureau. This is mainly due to the decline in oil production in light of Kuwait's commitment to the OPEC agreement to reduce production, against a strong growth achieved by the non-oil sector during the third quarter of 2019, to register a growth rate of 7.8% on an annual basis, pushed by the services sector, which includes real estate activities, electricity, water, gas, education and trade and public administration, in exchange for the contraction of some sectors, such as transformative industries, construction and building, communications and transportation.

The government budget recorded a deficit of KD 1 billion during the first nine months of the fiscal year 2019/2020, a 3% of the estimated GDP for 2019, compared to a surplus of KD 3.6 billion during the same period in the previous fiscal year. Such drastic change is due to the drop in the oil prices and the decrease in total revenues by 19% on an annual basis, against an increase in spending by 13%. Financial pressures are expected to continue, bringing the projected deficit during 2020/2021 to KWD 7.7 billion, equivalent to 19% of expected GDP. Also, the year 2019 witnessed a cut in the interest rates by the Central Bank of Kuwait, in-light of the reducing interest rates for multiple times by the US Federal Reserve.

On the other hand, the Kuwait Stock Market (Boursa Kuwait) witnessed the best performance among the Gulf region during the fourth quarter of 2019, where the general index increased by 10.6% on a quarterly basis, supported by the performance of the first market. The Kuwait index was led by the consumer services sector, real estate, banking, and telecommunications, while the market value reached KD 35.8 billion at the end of December 2019. The daily trading volume average was about 150 million shares during the fourth quarter of 2019, an increase of 67% compared to the same period of 2018. Net foreign cash flows reached KD 90.2 million during the fourth quarter of 2019, as the fourth quarter witnessed the successful launch of two of the largest IPOs, namely the IPO’s of Shamal Al-Zour Company and the Boursa Kuwait Company.

Capital flows - ahead of the expected listing on the Morgan Stanley Emerging Markets Index in May 2020 - contributed to the reinforcement of the shares performance in the Boursa Kuwait, which is expected to support the market during 2020. This is despite the fact that the market has not yet witnessed any exceptional trading in the first weeks of the year 2020, due to the drop in oil prices and the escalation of global concerns about the spread of the Corona virus.

With regards to the Company’s financial statements for the year 2019, the Company achieved a growth in its total assets by 2.3% to reach KD 38,007,522 after it was KD 37,165,522 in 2018. The Company's assets are concentrated within the investments in associates by 62% of its total assets, and with a total value of KD 23,646,872 in 2019 recording a growth rate of 3.9% compared to its balance of 2018 which was KD 22,757,640. Such investments are distinguished by their sectoral diversification to include the oil sector, the financial investment sector, and the services sector. Also, such investments are distributed over different geographical regions locally and regionally.

On the other hand, the total liabilities witnessed an increase of about 29.1% to reach KD 4,029,563 in 2019 compared to KD 3,122,359 in 2018, representing 10.6% of the Company’s total assets, which in turn strengthen the Company’s financial structure and gives it more flexibility in meeting its potential obligations. While, the shareholder’s rights recorded a slight decrease of not more than 0.2 % to reach KD 33,977,959 in 2019 compared to KD 34,043,163 in 2018.

As for the results of the Company's operations in 2019, total revenues amounted to KD 1,344,295 compared to KD 1,471,129 in 2018, a decrease of 8.62%, as such drop was due to the recorded decrease in net contracts income. Also, the Investment losses amounted to KD 184,771 in 2019 compared to KD 73,077 in 2018.

On the other hand, general and administrative expenses recorded an increase of 26.4% to reach KD 783,603 in 2019 compared to KD 620,147 in 2018, as such increase is mainly due to the increase in professional fees, staff costs, bank charges and the insurance expenses incurred by the Company for this year, in exchange for the decline in rental and other expenses.

Accordingly, the net profit recorded in 2019 declined to reach KD 375,921 equivalent to earning per share of 0.132 fils, compared to a net profit of KD 777,905 in 2018 equivalent to earning per share of 1.179 fils.

It worth mentioning, that the Board of Directors has recommended not to distribute cash dividends nor bonus shares, and not to distribute bonus to the board of directors for the fiscal year ending on December 31, 2019. Noting that such recommendations are subject to the approval of the General Assembly. Also, the board of directors did not enjoy any benefits or advantages during the year. The board of directors also undertakes to the shareholders that the Company’s performance reports are correct, and the consolidated financial statements for the year ended December 31, 2019 has been presented with integrity, and confirms that it expresses in all material aspects the financial position of the group.

Finally, I extend my great gratitude and appreciation for the trust handed to us by our shareholders, asking God almighty, to help us to achieve the Company goals and accommodate our shareholder’s aspirations.

May Allah’s peace, mercy and blessings be upon you,