Al-Madina for Finance & Investment Company
Chairman Message 2019
In the name of Allah and peace be upon Prophet Muhammad,
Praise be to Allah and peace be upon Prophet Muhammad…
On behalf of my fellow Board of Directors and myself, I would like to extend my sincere regards, and I am delighted to discuss and review the Company's performance for the year ended on 31st of December 2109.
First of All, we would like to have a brief outlook on the most important economic developments global wide and its implications on the regional and local economy.
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 of economic activity being exposed to negative surprises that may affect some emerging economies, especially China and India. This may lead to a sharp decline followed with the return of emerging markets and underperforming developing economies, residing under pressure, to reach growth levels closer to that of historical standards. Expected growth patterns are based on the relatively strong emerging market economies maintaining their stable level of performance at a time when developed economies and China may experience slower growth or a decline in its expected growth rates.
Recent developments have mirrored on the forecasts towards the global economy, as economic activity is still suffering from the weight of uncertainty regarding trade policy, geopolitical tensions and unique stress factors in the major developed and emerging market economies. New challenges have emerged, the most important of which; a) what the Corona virus outbreak imposes on China and the whole world, b) the tense political relations between the United States and Iran, c) the deterioration of trade relations between the United States and its trading partners, d) the effects of Britain’s exit from the European Union, e) the escalation of social turbulence in several countries, f) as well as climatic disasters in the Caribbean region, Australia and in the East and Southern Africa.
Experts also expect that the global economy will continue to be affected in 2020 by the monetary easing applied by developed and emerging market economies in 2019, which may lead to a recovery in trade growth, recovery of domestic demand and investment, and the receding of some temporary constraints in the automobile and technology sectors.
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, oil prices witnessed a sharp decline, in-light of the spread of the Corona virus and of the growing fears of a decline in demand for energy sources, concluded the largest shock experienced by oil demand since the financial crisis that struck the world in 2008.
Obviously, this casts a shadow on the Kuwaiti economy, as 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 the 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, 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.
The year 2019 also witnessed a cut in the interest rates by the Central Bank of Kuwait during the month of October by 25 basis points to reach 2.75%, in-light the US Federal Reserve reducing interest rates for three consecutive times during August, September and October 2019 by 25 basis points each time.
On the other hand, the Kuwait Stock Exchange (Boursa Kuwait) witnessed the best performance compared to 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 in 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.
Now we come to discuss your Company's financial statements for the year ended December 31, 2019.
The Company’s total assets reached to KD 27.5 million in 2019 compared to KD 35.1 million in 2018, which was mainly due to the decrease in the balance of investments in associates that reached KD 17.67 million in 2019 compared to KD 22.14 million in 2018, as well as the decrease in the balance of investments at fair value through other comprehensive income to reach KD 2.19 million in 2019 compared to KD 4.01 million in 2018, in addition to the decrease in the balance of investments at fair value through profit and loss in 2019 that reached KD 1.68 million in 2019 compared to KD 2.34 million in 2018.
Total liabilities in 2019 amounted to KD 4.96 million compared to KD 5.07 million in 2018, down by 2% due to the decrease in the balance of payables and other credit balances by about KD 150 thousand, while the balance of wakala payables did not record any change from year 2018.
With regard to the total shareholders equity, it reached KD 22.54 million in 2019, recording a decrease compared to the previous year which was KD 30.03 million in 2018, as such decrease was mainly due to recording additional accumulated losses, as a result of negative results recorded by the Company in 2019, in addition to recording an amount of KD 2.92 million due to the impact that the associate companies applied IFRS 9 at the end of 2018, and the consequential adjustment of the accumulated losses balance of Al-Madina Company, which now represents about 71% of the Company’s capital. The management will do its best during the next stage to take all possible measures to remedy the current situation and extinguish part of the accumulated losses in a way that ensures the Company’s safe financial position.
As for the results of the Company's operations in 2019, the net losses from investment amounted to KD 838.9 thousand in 2019 compared to KD 942.7 thousand in 2018, as most of such losses represents a decrease in the fair value, which is not an actual loss, as the Company counts on the rebound of the stock market in order to compensate such recorded losses, especially with the expectations that a breakthrough will occur in the market and in the trading activity in light of the expected inclusion in the Morgan Stanley Emerging Markets Index in 2020.
On the other hand, losses from investments in associate companies recorded a value of KD 482.3 thousand compared to KD 976.1 thousand in 2018, while the losses from investment properties decreased to reach KD 3.3 thousand in 2019 compared to KD 321.4 thousand in 2018.
Staff cost in 2019 recorded a decrease of about 8% to reach about KD 541.6 thousand compared to KD 589.6 thousand in 2018, while other expenses increased to reach KD 321.8 thousand in 2019 compared to KD 235.9 thousand in 2018. As a result, the total expenses and other charges recorded an increase of 5% at an annual basis.
As a result of the above, the Company recorded a net loss of KD 2.19 million in 2019 compared to a net loss of KD 3 million in 2018, down by 27% on an annual basis, and the loss per share reached 5.4 fils in 2019 compared to 6.99 fils year 2018.
Based on the above, 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. Also, the board of directors did not enjoy any benefits or advantages during the year 2019.
The board of directors also undertakes to the shareholders that the Company’s performance reports for the year 2019 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, its financial performance and its cash flows as at its date in accordance with the International Financial Reporting Standards as applied in the State of Kuwait.
Another year has passed, and a new year started with its great challenges and difficult fluctuations, perhaps the most important of these challenges that we have is to hold the responsibility honestly and successfully to manage the Company’s to a better future. Finally, we cannot conclude this speech without thanking your renewed confidence in us, and may, God Almighty, help us in our efforts in taking these steps towards a brighter future and achieving the Company’s goals and in preserving the shareholder’s rights.
May Allah’s peace, mercy and blessings be upon you,