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           K U W A I T      F I N A N C I A L   C E N T R E    –   S A K   /   A n n u a l   R e p o r t   2 0 0 2




                    His Highness the Amir of                   The Crown Prince and
                      the State of Kuwait,                         Prime Minister,
                     Sheikh Jaber Al-Ahmed                    Sheikh Saad Al-Abdullah
                        Al-Jaber Al-Sabah                        Al-Salem Al-Sabah




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                                  TABLE OF CONTENTS



                                                                                                                Page

                                  Board of Directors                                                              3

                                  Executive Committee                                                             3

                                  Audit Committee                                                                 3

                                  Management Team                                                                 3

                                  Directors’ Report                                                               4

                                  Auditors’ Report and Financial Statements                                      13




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                                  BOARD OF DIRECTORS

                                  Diraar Yusuf Alghanim                                                                  Chairman

                                  Jassem M.O. Al-Mousa                                                              Vice Chairman

                                  Bader M. Al-Sa’ad                                                              Managing Director

                                  Faisal A. Al-Jallal                                                                     Director

                                  Sulaiman H. Al-Dalali                                                                   Director

                                  Sheikh Abdullah Salem Al-Sabah                                                          Director

                                  Khaled M.O. Al-Mousa                                                                    Director




                                  EXECUTIVE COMMITTEE

                                  Jassem M.O. Al- Mousa                                                             Vice Chairman

                                  Sulaiman H. Al-Dalali                                                                   Director

                                  Sheikh Abdullah Salem Al-Sabah                                                          Director




                                  AUDIT COMMITTEE

                                  Diraar Yosuf Alganim                                                                   Chairman

                                  Jassem M.O. Al-Mousa                                                              Vice Chairman

                                  Sulaiman H. Al-Dalali                                                                   Director




                                  MANAGEMENT TEAM

                                  Bader M. Al-Sa’ad                                        Managing Director & General Manager

                                  Ali H. Khalil                                                           Executive Vice President

                                  Gopal Menon                                               Executive Vice President - Investments

                                  Ghada Aleissa                                                  Senior Vice President - Marketing

                                  Sami E. Al-Hassawi                                 Senior Vice President - Domestic Investments

                                  Balwant Bains                              Senior Vice President - Business Risk and Compliance

                                  Khaled A. Chowdhury                                      Vice President - Financial Management

                                  Rasha A. Al-Hamad                                               Vice President - Private Banking


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            Directors’ Report
            Dear Shareholders,                                                                   We benefited substantially from the change in investors’
            The year 2002 was marked by a sluggish global economy,                               sentiments, and by offering our clients the right products
            resulting in further declines in interest rates and equity                           we succeeded in increasing our assets under management
            values in the international markets. These difficult                                 by 47% during the course of the year from KD 240 million
            conditions internationally created favorable investment                              to KD 355 million. As a result, our fee income grew by
            conditions in Kuwait; investors have reallocated funds                               13% to reach KD 2.2 million in 2002. The growth in fees
            from fixed income instruments, bank deposits and                                     is a direct outcome of the strategic enhancement of our fee
            international markets into Kuwaiti equities and real estate.                         generating activities, which relies on our innovation in
            The Kuwaiti markets continued to grow despite downword                               product and deal structuring.
            trends in international market with the benchmark KIC
            index registering a 24% growth and the local real estate
            valuations climbing up by approximately 20%. The S&P                                           Markaz Fees (KD Thou.)
            index, in contrast, declined by 23.4% during the year.
                                                                                                                                                     2,260
                                                                                                                                      2,009

            250
                                                       KIC
                                                       Index
            200                                                                                                        793


            150


            100                                                                                                    2000               2001           2002

                                             S&P 500 Rebased Index
             50


                0                                                                                We ended the year in 2002 with 9 fils in earnings per
                Jan-00   Jun-00   Nov-00 Apr-01   Sep-01   Feb-02     Jul-02    Dec-02
                                                                                                 share; which, although lower by 2 fils than in 2001, is
                                                                                                 commendable under the adverse international market
                                                                                                 conditions that prevailed in 2002.

            Our asset allocation proved to be robust and provided us                                                         Markaz EPS (fils)
            with a natural protection against the acute market
            fluctuations; our losses on exposure in international                                                                11

            markets were offset by the gains on investments in local                                                                           9
            market. Despite the unfavorable overall market conditions,                                             8

            we outperformed our composite benchmark, sustaining
            less than 0.2% in net losses on our aggregate financial
            investments.



                                                                                                                 2000           2001          2002
                                          Asset Allocation
                                                     Real Estate               Domestic
                     Fixed Income                      3%
                        19%                                                    Equities
                                                                                 43%             We have been proactive in complying with international
                                                                                                 rules and regulations aimed at strengthening corporate
                                                                                                 governance. We have established a compliance unit to
                                                                                                 review the best practices within our industry, implement
                                                                                                 them, and properly monitor them at Markaz. By
                                                                                                 enhancing our policies and procedures, we strive to
                   Private                                                                       further protect our clients, our shareholders, and
                   Equities                                          International
                                                                        Equities                 contribute to the orderly functioning of Kuwaitís capital
                    17%
                                                                         18%                     and financial market.




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            Our Outlook for 2003                                                                                                         empowered and encouraged them to come up with
                                                                                                                                         creative ideas catering to the needs of our clients, and
                                                                                                                                         generating long term recurring fees to Markaz. The
            Major unsettling events are taking place in the region.                                                                      following is a sample of our achievements:
            Regardless of the short-term outcome, we remain
            optimistic in the long-term and believe that the aftermath                                                                       • We have closed the first open ended real estate
            will create a stable geo-political environment. Stability                                                                          investment fund ever offered in Kuwait,
            will breed optimism, encouraging cross border investment
            and trade, creating unique investment banking                                                                                    • We will be the first to offer an Options trading
            opportunities. The recent boom in the Kuwaiti stock and                                                                            vehicle on local equities in the Middle East region,
            real estate markets is a likely preview of what the region is                                                                      and
            likely to undergo once stability is reached.
                                                                                                                                             • We have issued a unique liquid Shari’a compliant
                                                                                                                                               financing issue.
            The economic landscape of Kuwait is undergoing major
            transformation due to the demographics, which is a major
                                                                                                                                         In 2003, we shall continue to focus on our core activity,
            driving force for the local economy. Young Kuwaitis are
                                                                                                                                         and enhance the scalability of our operation. We are
            reaching the consumption and working age, setting new
                                                                                                                                         working on strengthening our internal process to achieve
            trends in shopping, housing, entertainment, and working
                                                                                                                                         a sustainable growth that would enable us to provide to all
            habits. From these trends, emerge new demands,
                                                                                                                                         our prospective clients, the same consistent quality of
            imposing a change in the way business is conducted in
                                                                                                                                         service that we have been offering to our current clients.
            Kuwait. The challenge that we face at Markaz is three fold:
            first, to identify the emerging investment needs of the
            young Kuwaitis and provide them with products that meet                                                                      Our Core Activities
            their requirements; second, to identify the companies that
            can meet such trends and new demands, and assist them
            in meeting their financing needs; and third, to provide the                                                                  Investment Management
            qualified young Kuwaitis with a challenging working                                                                          Markaz currently manages a total of eighteen funds: one
            environment.                                                                                                                 money market fund, fourteen open-ended equities and
                                                                                                                                         hedge funds, one private equity fund-of-funds, and two
                                                                                                                                         real estate funds. This provides Markaz a global asset
                                          140                                                                                            allocation capability along four major asset classes:
                                                                                              Demographics
                                          120
                                                                                                                                             1.   Domestic Investments
                Kuwaiti Population '000




                                          100                                                                                                2.   International Investments
                                              80                                                                                             3.   Private Equities

                                              60
                                                                                                                                             4.   Real Estate Investments

                                              40
                                                                                                                                         In 2002, we increased our assets under management by
                                              20                                                                                         KD 114 million to reach KD 355 million on 31 December
                                                                                                                                         2002, yielding a net increase of 47%. The most substantial
                                          -
                                                     <5    10-14    20-24   30- 34   40- 44    50- 54   60-64   70- 74
                                                                                                                                         growth has been in our domestic equities and real estate
                                                                      Age Categories                                                     funds. The overall expansion of our assets was fuelled by:

                                                   Potential Future Target Market              Current Target Market                         • Growth in our domestic equities, which increased
                                                                                                                                               by 41% over last year.

                                                                                                                                             • Growth in our real estate advisory services marked
            In 1997, we committed to become a full service Kuwaiti
                                                                                                                                               by successful launch of the Markaz US Industrial
            investment and finance company; and we succeeded in
                                                                                                                                               Realty Investment Unit I, and the booking of new
            reaching our target through a culture of strong business
                                                                                                                                               clients’ assets, which added KD 50 million to our
            ethics, creativity, innovation, team-work, and excellence
                                                                                                                                               assets under management.
            in client service. More importantly, we succeeded because
            we made every member of our staff responsible, as part of                                                                        • Continuing growth of funds managed by our
            a team, for the formulation and execution of our plan. We                                                                          Private Equities Department.

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                        400
                                  A ssets Under M anagement                                                               MIDAF Return vs. Market Index (Since Inception)
                        350
                                          KD M illio n
                        300
                                                                                                              45%
                        250
                                                                                                              35%
                        200                                                                                   25%
                                                                                                                                      Midaf Fund

                        150                                                                                   15%
                                                                                                                                                       KIC Index
                                                                                                               5%
                        100
                                                                                                              -5%
                            50                                                                                  Jun-01   Sep-01   Dec-01     Mar-02     Jun-02     Sep-02   Dec-02
                        -
                                        2000              2001                2002
                             Do mestic Equities                  Internatio nal Equities
                             P rivate Equities                   Real Estate
                                                                                                           Managed Portfolios
                                                                                                           The clients’ Portfolio Accounts increased by 37.2 % during
                                                                                                           the twelve-month period ending 31 December, 2002, and
             Domestic Equities                                                                             our Domestic Equities Department succeeded in providing
             The Kuwaiti stock market is enjoying a consecutive bull                                       our clients with relative out-performance, on a par with
             market year. The decline in interest rates and the anemic                                     those achieved for the Funds.
             international markets have incited Kuwaiti investors to
             increase their allocation to Kuwait stocks and real estate.                                   International Investments
             As a result, the Kuwait Stock Market has increased by 24%
                                                                                                           2002 was widely expected to be the year of global
             in value, and trading value has increased by 87%, to reach
                                                                                                           economic recovery and positive performance for stock
             an average value traded of KD 26 million in 2002 versus
                                                                                                           markets; and a rebound in the US economy was expected
             KD 14 million in 2001. These favorable conditions,
                                                                                                           to lead the world out of recession. Instead, a short
             combined with our ability to outperform the market for the
                                                                                                           economic bounce gave way to another dip resulting in
             sixth year in a row, have attracted additional investors’
                                                                                                           violent swings in international equity markets. Eventually,
             money to our funds and contributed substantially to our
                                                                                                           the major markets completed a disappointing third year
             investment gains.
                                                                                                           making it the worst bear market since the Great
                                                                                                           Depression.
             Investment Funds
             Our domestic equities funds, MUMTAZ and Markaz                                                Our policy relating to our investments and that of our
             Investment Development Fund (MIDAF), continue to lead                                         clients is to achieve a higher return than the related
             the market in returns and size. The KIC index increased by                                    indices, while adhering to a low risk profile and an
             24%, whereas, the Mumtaz Fund posted a gain of 30.6%                                          investment style of defensive growth. Towards that end,
             and MIDAF posted a gain of 27.5%; reinforcing Markaz’                                         our International Investment department was prepared for
             position as one of the best performing fund managers in                                       the high volatility in the market, and pursued a dynamic
             the Kuwaiti market.                                                                           asset allocation approach enabling it to minimize the
                                                                                                           adverse impact from the market on our portfolio and that
                                                                                                           of our clients.
                                 Mumtaz Return Vs. Market Index (Since Inception)
                                                                                                           Markaz Portfolio
                 155%
                                                                                                           During the year, we have altered our asset allocation and
                                                               Mumtaz Fund                                 reduced our exposure to Growth Equities from 47% to
                 115%
                                                                                                           44% of our total investments, and increased our allocation
                 75%                                                                                       to defensive investments, whether equities or hedge funds
                 35%
                                                                      KIC Index
                                                                                                           from 47% to 53%.        Geographic allocation was also
                  -5%                                                                                      revised in line with our investment strategy; we reduced
                    Dec-99        Jun-00    Dec-00    Jun-01     Dec-01      Jun-02   Dec-02               our exposures to the US by 10%, Japan by 2% and
                                                                                                           increased our exposure to global markets and Europe by
                                                                                                           9% and 2% respectively.




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             International Funds                                                   We believe that the uncertainty and the resulting risk
             We introduced Al-Markaz European Equities Hedge Class                 aversion, which had caused the economy to stall, should
             (MEEH) to our family of investment funds. MEEH is a                   soon recede ensuing a return to above-trend growth during
             hedge fund designed to exploit the opportunities present              the second half of 2003. The accompanying risk appetite
             in European markets. We also invested in a global multi-              and the improved outlook for growth should provide
             manager hedge fund, advised by Olympia Capital                        support for higher risk assets.
             Management, Paris for diversification reasons.
                                                                                   In light of the above scenario, we will be adopting a
             As at the end of 2002, our International Investments                  defensive position for our investments in the short-to-
             department managed twelve mutual funds covering                       medium term and turn to growth-oriented themes once we
             international markets; of which nine invests in                       sense the evidence of market recovery.
             international equities and are part of Markaz International
             Investment Fund (MIIF), and three hedge funds which are               We intend to leverage our favorable track record in asset
             part of Markaz Alternative Investment Fund (MAIF).                    allocation by introducing a new investment product in
                                                                                   2003, the Markaz Master Portfolio Program (MMAPP),
             Performance in Review                                                 which will be offered to our private institutional and high
                                                                                   net-worth clients. MMAPP will invest in a portfolio of
             We compare our performance with two benchmarks; one
                                                                                   global securities and financial products through a dynamic
             is the Weighted Index to measure the performance of our
                                                                                   asset allocation process. Going forward, we expect this to
             asset selection and the second is the Asset Allocation
                                                                                   be our flagship product of investment advisory services,
             Index to measure the performance of our asset allocation.
                                                                                   which will provide the right vehicle for clients who wish
             Our funds were down by an average 17.26% for the year,
                                                                                   to invest globally and benefit from our view of the markets
             substantially outperforming the Weighted Index and the
                                                                                   and our asset allocation.
             Asset Allocation Index, which were down by 23.03%, and
             24.69% respectively.
                                                                                   Private Equities
             Investment Advisory Services                                          2002 was the year when the major institutional investors
             In 2002, our capabilities in investment advisory services             in private equity revised their plans; the dismay in public
             and asset allocation were clearly recognized when we                  markets and its adverse effect on valuations and exit
             increased our assets under management by 20%, despite                 potential for the private companies brought about opposite
             the dismal performance of the international markets.                  reactions by investors. While some pension plans and
                                                                                   institutions, for a variety of reasons including portfolio
                                                                                   repositioning or regulatory constraints, reduced their
             Our investment advisory services took a big leap in 2002
                                                                                   allocation to private equities and sometimes went so far as
             when we were awarded a major institutional account to
                                                                                   to divest part or all of their portfolios; we have seen others
             manage. As with all our advisory accounts, we structured
                                                                                   especially in Europe, have, on the contrary, increased their
             the investment portfolio in accordance with the client’s
                                                                                   allocation to the asset class, the argument being that
             objectives and constraints. We actively managed the asset
                                                                                   historically, private equity has always generated the best
             allocation through the year, and succeeded in minimizing
                                                                                   returns by investing in down markets and divesting when
             the volatility and in ending the year with favorable returns.
                                                                                   markets turned around.

             Market Outlook and Strategy
                                                                                   At Markaz, at the end of 2001, we decided not to allocate
             Consensus 2003 growth forecasts have been cut sharply                 further to the asset class during 2002, instead to take the
             by experts, but the probability of a global double-dip is             time to pro-actively manage the existing portfolio, and
             low. The cut in US Federal Reserve interest rate and the              observe the market trends. We believe we have taken the
             expected tax cuts in the US have alleviated fears of                  right decision, as 2002 turned out to be one of the most
             deflation, but some uncertainties still remain in the form of         difficult years for private equity in terms of both fund
             geopolitical risks and their impact on the US budget                  raising and investments.
             deficit. In Europe, growth is likely to be subdued, which
             will result in easing of the monetary policy in 2003.




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             We remain vigilant but also committed to the asset class,                        The Markaz/Hamilton Lane Technology Fund, L.P
             and disciplined in our approach and our selection criteria,                      Our Technology Fund-of-Funds held a first closing in
             and as such we believe that, for 2003, we should look to                         November 2000, at which time it made its first investment.
             invest in those opportunities that plan to take advantage of                     To date, the fund has committed to 8 top tier funds,
             the market dislocations for the generation of high returns.                      extremely well-diversified in terms of stage of
                                                                                              development (from seed to late-stage) and technology sub-
             Our portfolio, initiated in 1997 consists of 42 Funds, well                      sectors.
             diversified in terms of geography and sector focus. The
             portfolio is 60% invested and we expect the cash                                 During the year, we have not committed to any new funds
             payments to still exceed distributions at this early phase of                    for a variety of reasons, including the fact that most
             the portfolio lifecycle.                                                         venture firms still carry a heavy burden of
                                                                                              unrealized/troubled portfolios that needed their attention,
                                                                                              company valuations’ decline continued, and as a result, a
                                          Real Estate    Internet
                                                           4%
                                                                                              lot of venture firms, considered to be ‘household names’
                                             7%
                                                                                              have taken unprecedented measures such as reducing
                                                                                              their staff, their fees and the size of their funds.

                                                                                              Nevertheless, we believe that we should remain vigilant
                                                                                              and disciplined in our selection, by focusing on top tier
                                                                                              managers who are capable of generating attractive returns.
                                                                    Technology
                                Diversified                                                   Simultaneously, Hamilton Lane Investment Management
                                                                       36%
                                   53%
                                                                                              Ltd, the Managing General Partner of the Fund remains
                              Private Equity : Sector Distribution
                                                                                              focused on pro-actively managing and monitoring the
                                                                                              existing portfolio by maintaining continuous dialogue with
                                                                                              the managers.
             Private Equity Investment Management
             Given the fact that we have not committed to any funds in
             2002, our clients’ assets remained flat after having                             Real Estate Investment Management Services
             achieved an annual compounded growth rate of 28% in                              Our real estate activity dates back to 1978, when Markaz
             the past four years. This is in line with our commitment to                      sponsored its first real estate investment fund in the United
             always align our interest with that of our clients, and not                      States. Markaz through its fully owned subsidiary, Mar-
             offer any investment opportunity in which we do not invest                       Gulf Management Company Inc., which is based in Los
             ourselves. Our assets under management represent a                               Angeles, California, currently manages over US Dollars
             mixture of institutional and sophisticated high net-worth                        250 million in real estate assets, which are located in
             individuals who have the same commitment to the asset                            seven states. The assets consist of bulk distribution
             class and the long-term investment horizon as Markaz.                            warehouses, suburban office buildings, and development
                                                                                              land. Our Kuwait Real Estate unit manages KD 24 million
                    Commitments Under Management (in thousands $)                             in assets (US Dollars 80 million) consisting of apartments
                                                                                              and central business district office properties.
                                                                     91,724
                                                        84,964

                                               69,792
                                                                                              Our impeccable track record, whether in asset acquisition,
                                                                                              disposition, zoning and entitlement, financial and tax
                                                                                              structuring, stems from a team of real estate and legal
                                                                                              professionals that has been working together continuously
                                  33,022                                                      for the past 15 years. Our record in fair dealing, timely
                      29,170
                                                                                              closing on transactions, and proper management has given
                                                                                              us the credibility, and hence, the advantage in accessing
                                                                                              investment opportunities.
                       1998        1999        2000     2001         2002




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                     Real Estate Under Management (in thousands $)                      Corporate Finance
                                                                                        The capital market in 2002 was marked by low interest
                                                              261,142                   rates, and a strong appreciation in the value of financial
                                                                                        assets. The primary market for equity issues remained
                                                                                        dormant during 2002, as the level of interest rates relative
                                                                                        to the cost of capital offered little incentive for public
                                                                                        companies to increase their capital for expansion, and
                                                                                        instead, they reverted to debt and the sale of non-strategic
                          68,600            68,760                                      financial assets to meet their financing needs.

                                                                                        The Bond market was at its peak driven by the strong
                           2000              2001              2002                     demand for fixed income instruments by the emerging
                                                                                        money market funds and by institutions that were looking
                                                                                        to enhance their investment yields. Kuwaiti companies
                                                                                        took this opportunity to refinance their bank debt through
             The US Real Estate Market                                                  the issuance of bonds.
             The difficult conditions for equities have not impacted the
             value of real estate in the US; despite the increase in                    Primary Issues
             vacancy and the declining rental rates. The large spread
                                                                                        As we had planned, we targeted our efforts in 2002 on
             between the capitalization rates of US properties and the
                                                                                        generating business from middle size companies, and we
             mortgage rates, which currently stands at 4%, has created
                                                                                        were awarded four mandates to manage debt issues, of
             a strong demand for real estate by investors chasing yields.
                                                                                        which, one was executed last year and three will be
                                                                                        executed in the first quarter of 2003.
             At Markaz, we realize that this spread is unlikely to be
             sustained, and have taken this opportunity to structure
                                                                                        We continue to apply our structuring capabilities to add
             funds with the sole objective of offering the maximum
                                                                                        value to our clients, providing them with the lowest cost of
             yield to our investors. With that in mind, we established
                                                                                        debt, and providing the investors with fairly priced and
             in 2002 Markaz US Industrial Realty Investment Unit - I,
                                                                                        quality instruments to invest in. Such issues include a US
             which invested in distribution warehouses in the US. The
                                                                                        Dollar denominated issue, which will be placed in the
             Fund, which has total assets of USD 150 million, has a
                                                                                        GCC countries, a tradable Sharia’a compliant fixed
             tenure of seven years and is distributing to its shareholder
                                                                                        income instrument, and a BOT project secured issue.
             10% in dividends per annum on monthly basis.

             The Kuwaiti Real Estate Market                                             Outlook for 2003
             In Kuwait, the property market has benefited substantially
             from the decline in interest rate, and on average, values                  The capital market in Kuwait has reached a level of
             have increased by over 20% in 2002. With bank deposit                      liquidity, depth, and regulation that makes it the best
             rates as low as 2 %, investors are scrambling for alternative              engine for economic expansion, enabling it to provide the
             investments that provide them with higher yields.                          financing required for the success of a privatization
                                                                                        program, and qualifies it to be the major catalyst for the
                                                                                        integration of the GCC capital markets.
             Having sensed this opportunity, we established Markaz
             Real Estate Fund (MREF), the first open ended real estate
             fund to ever be established in Kuwait. The objective of the                We are proud to be a contributor to the development of
             Fund is to offer Sharia’a compliant investors with a steady                our capital market. During this year, Markaz, along with
             stream of income on a monthly basis. MREF, which has a                     the Kuwait Stock Exchange (KSE) and the Kuwait Clearing
             capital of KD 24 million, has acquired assets from the                     Company (KCC), will be creating a vehicle to trade
             Kuwait Investment Authority and other real estate                          regulated Equity Options on Kuwaiti stocks, offering these
             companies in Kuwait. The assets consist of office, retail,                 new instruments to institutional and individual investors,
             and residential properties located in various markets in                   and providing them with a cost effective tool to hedge and
             Kuwait.                                                                    manage their risk exposure, making KSE the first exchange
                                                                                        in the Middle East to offer such instruments.




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           We are strong believers that political stability will be
           achieved, which will create strong pressure towards GCC
           market integration; however, privatization in Kuwait is
           expected to lag behind some of the other GCC countries,
           where privatization of utilities and infrastructure projects
           are well under way. At Markaz, we are betting on the
           vibrancy of the private sector, and on the entrepreneurial
           spirit of the Kuwaiti investor; which has transcended the
           delay in reforms in Kuwait, whether it is privatization or
           amendment of commercial laws. We will continue to
           focus on providing small to mid size companies access to
           the capital market, and on assisting companies to execute
           their cross border expansion plans, and access to capital
           in Kuwait and in the GCC region.




           The Board of Directors
           23 March 2003




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           Kuwait Financial Centre K.S.C.

           P.O. Box 23444, Safat 13095, Kuwait

           Tel : +(965) 241-2131

           Fax : +(965) 242-5828

           www.markaz.com

           info@markaz.com




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            FINANCIAL STATEMENTS AND AUDITORS’ REPORT
            FOR THE YEAR ENDED 31 DECEMBER 2002




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                                                                                                                       Page




                                    Auditors’ report                                                                    13



                                    Balance sheet as at 31 December 2002                                                14



                                    Statement of profit and loss for the year ended 31 December 2002                    15



                                    Statement of changes in shareholders’ equity for the year ended 31 December 2002    16



                                    Statement of cash flows for the year ended 31 December 2002                         17



                                    Notes to the financial statements                                              18 to 28




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            AUDITORS’ REPORT TO THE SHAREHOLDERS
            For the year ended 31 December 2002




            We have audited the accompanying balance sheet of Kuwait Financial Centre (A Kuwaiti Closed Shareholding Company) as
            at 31 December 2002, and the related statements of profit and loss, changes in shareholders’ equity and cash flows for the
            year then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to
            express an opinion on these financial statements based on our audit.

            We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and
            perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
            An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
            An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
            evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

            In our opinion, the financial statements present fairly, in all material respects, the financial position of Kuwait Financial
            Centre – SAK (Closed) as at 31 December 2002, and the results of its operations, the changes in its shareholders’ equity and
            its cash flows for the year then ended in accordance with International Accounting Standards.

            Furthermore, in our opinion proper books of account have been kept by the company and the financial statements, together
            with the contents of the report of the board of directors relating to these financial statements, are in accordance therewith.
            We further report that we obtained all the information and explanations that we required for the purpose of our audit and
            that the financial statements incorporate all information that is required by the Commercial Companies Law of 1960, as
            amended, and by the company’s articles of association, that an inventory was duly carried out and that, to the best of our
            knowledge and belief, no violations of the law nor of the articles of association have occurred during the year ended 31
            December 2002 that might have had a material effect on the business of the company or on its financial position.

            We further report that, during the course of our audit we have not become aware of any material violations of the provisions
            of Law 32 of 1968, as amended, concerning currency, the Central Bank of Kuwait and the organisation of banking business,
            and its related directives during the year ended 31 December 2002.




            Anwar Y. Al-Qatami, F.C.C.A.                                                                         Waleed A. Al Osaimi
            (Licence No. 50-A)                                                                                    (Licence No. 68-A)
            of Grant Thornton – Anwar Al-Qatami & Co.                                                                of Ernst & Young




            23 March 2003
            Kuwait




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            BALANCE SHEET
            For the year ended 31 December 2002




                                                                                                              2002       2001
                                                                                              NOTE          KD '000    KD '000
            ASSETS
            Bank balances and cash                                                                              449        916
            Time deposits                                                                       5               200      1,596
            Due from bank                                                                       6             4,731          -
            Securities held for trading                                                                      12,009     10,573
            Accounts receivable and other assets                                                              2,081      1,776
            Murabaha receivable                                                                 7               500          -
            Loans to customers                                                                  8             7,512      6,055
            Available for sale investments                                                      9            36,159     34,885
            Amount due under Ijara finance leases                                                               191        340
            Land under development                                                                            1,073      1,020
            Investment in land                                                                                   36         49
            Fixed assets                                                                                         67         99

            Total assets                                                                                     65,008     57,309


            LIABILITIES AND SHAREHOLDERS’ EQUITY
            Liabilities
            Due to banks                                                                                         17         13
            Accounts payable and other liabilities                                                            2,273      1,653
            Dividends payable                                                                                   163        139
            Short-term borrowings                                                               10            9,927      4,059

                                                                                                             12,380      5,864
            Shareholders’ equity
            Share capital                                                                       11           39,668     39,668
            Treasury shares                                                                     12             (939)    (3,000)
            Share premium                                                                                     7,451      7,451
            Legal reserve                                                                       13            2,147      1,775
            Voluntary reserve                                                                                 1,924      1,552
            Reserve of profit on sale of treasury shares                                                         550         54
            Cumulative changes in fair value                                                    14           (4,030)    (1,715)
            Retained profits                                                                                  5,857      5,660

                                                                                                             52,628     51,445

            Total liabilities and shareholders’ equity                                                       65,008     57,309




                                      Diraar Yusuf Alghanim                            Bader M. Al-Saad
                                            Chairman                                   Managing Director




            The notes set out on pages 18 to 28 form an integral part of these financial statements.


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            S TAT E M E N T O F P R O F I T A N D L O S S
            For the year ended 31 December 2002




                                                                                                              2002       2001
                                                                                              NOTE          KD '000    KD '000
            OPERATING INCOME


            Interest income on time deposits                                                                     53         46
            Interest income on loans and bonds                                                                  570        696
            Dividend income                                                                                     463        873
            Management fees and commission                                                                    2,260      2,009
            Profit on sale of securities held for trading                                                       231        404
            Change in fair value of securities held for trading                                               1,939      1,402
            Profit on sale of available for sale investments                                                    870      1,267
            Impairment in value of available for sale investments                                            (1,414)      (583)
            Profit on sale of land                                                                                 -        12
            Foreign exchange gain/(loss)                                                                         99      (156)
            Provision released/(charged) for guarantees and loans to customers                                   10        (51)
            Other income                                                                                        129           -

                                                                                                              5,210      5,919


            EXPENSES AND OTHER CHARGES

            General and administrative expenses                                                 15            1,261      1,258
            Finance costs                                                                                       225        299

                                                                                                              1,486      1,557

            Profit before extraordinary income                                                                3,724      4,362
            Extraordinary income                                                                16                -         58

            Profit for the year before contribution to Kuwait Foundation
            for the Advancement of Sciences (KFAS), directors’ remuneration
            and National Manpower Support Tax                                                                 3,724      4,420

            Contribution to KFAS                                                                                (34)      (80)
            Directors’ remuneration                                                                             (70)      (70)
            National Manpower Support Tax                                                                       (81)      (94)


            Net profit for the year                                                                           3,539      4,176


            EARNINGS PER SHARE                                                                  17            9 Fils    11 Fils




            The notes set out on pages 18 to 28 form an integral part of these financial statements.


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                                                                                                                                                                                            K U W A I T




     S TAT E M E N T O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y
     For the year ended 31 December 2002
                                                                                                                                                                                                                12:25 PM
                                                                                                                                                                                                                Page 16




                                                                                                                                         Reserve of
                                                                                                                                      profit on sale   Cumulative
                                                                                                                                                                                            F I N A N C I A L




                                                           Share               Treasury            Share         Legal    Voluntary     of treasury     changes in    Retained
                                                          capital                shares         premium        reserve      reserve           shares     fair value     profits     Total
                                                         KD '000               KD '000           KD '000      KD '000      KD '000         KD '000        KD '000     KD '000     KD '000


     Balances at 31 December 2000                        39,668               (2,454)           (7,451)       (1,333)       1,110                 -              -     4,558      51,666
                                                                                                                                                                                            C E N T R E




     Net profit for the year                                      -                 -                   -            -          -                -             -        4,176       4,176
                                                                                                                                                                                            –




     Transfer to reserves                                         -                 -                   -          442        442                -             -        (884)           -
     Dividends                                                    -                 -                   -            -          -                -             -      (2,275)     (2,275)
     Purchase of treasury shares                                  -           (1,879)                   -            -          -                -             -            -     (1,879)
                                                                                                                                                                                            S A K




     Sale of treasury shares                                      -            1,333                    -            -          -                -             -            -      1,333
                                                                                                                                                                                            /




     Profit on sale of treasury shares                            -                 -                   -            -          -               54             -           85         139
     Movement during the year (Note 14)                           -                 -                   -            -          -                -       (1,715)            -     (1,715)

     Balances at 31 December 2001                        39,668               (3,000)             7,451           1,775     1,552               54       (1,715)       5,660      51,445
                                                                                                                                                                                            A n n u a l




     Net profit for the year                                      -                 -                   -            -          -               -              -        3,539       3,539
     Transfer to reserves                                         -                 -                   -          372        372               -              -        (744)           -
     Dividends                                                    -                 -                   -            -          -               -              -      (2,598)     (2,598)
     Sale of treasury shares                                      -             2,061                   -            -          -               -              -            -      2,061
     Profit on sale of treasury shares                            -                 -                   -            -          -             496              -            -         496
                                                                                                                                                                                            R e p o r t




     Movement during the year (Note 14)                           -                 -                   -            -          -               -        (2,315)            -     (2,315)

     Balances at 31 December 2002                        39,668                 (939)             7,451           2,147     1,924             550        (4,030)       5,857      52,628
                                                                                                                                                                                            2 0 0 2




     The notes set out on pages 18 to 28 form an integral part of these financial statements.
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            S TAT E M E N T O F C A S H F L O W S
            For the year ended 31 December 2002




                                                                                                                 2002        2001
                                                                                                 NOTE          KD '000     KD '000
            CASH FLOWS FROM OPERATING ACTIVITIES
            Profit before extraordinary income                                                                   3,724       4,362
            Adjustments for:
              Depreciation of fixed assets                                                                           49           69
              Profit on sale of available for sale investments                                                    (870)     (1,267)
              Impairment in value of available for sale investments                                               1,414         583
              Change in fair value of securities held for trading                                               (1,939)     (1,402)
              Provision (released)/charged for guarantees and loans to customers                                    (10)          51
              Profit on sale of land                                                                                   -        (12)
              Dividend income                                                                                     (463)       (873)
              Interest income                                                                                     (123)       (264)
              Change in fair value of investment in land                                                             13            -
            Operating profit before changes in operating assets and liabilities                                  1,795       1,247
            Changes in operating assets and liabilities:
              Securities held for trading                                                                           503     (5,393)
             Accounts receivable and other assets                                                                 (291)     (1,097)
              Murabaha receivable                                                                                 (500)           -
              Loans to customers                                                                                (1,447)     (3,882)
            Accounts payable and other liabilities                                                                  435        486
            Cash inflow/(outflow) before extraordinary income                                                      495      (8,639)
            Compensation claim received from United Nations                                                          -          58
            Net cash generated from/(used in) operating activities                                                 495      (8,581)

            CASH FLOWS FROM INVESTING ACTIVITIES
            Due from bank                                                                                       (4,731)            -
            Acquisition of fixed assets                                                                             (17)        (87)
            Proceeds from sale of available for sale investments                                                  8,473     20,817
            Acquisition of available for sale investments                                                      (12,606)    (11,406)
            Decrease/(increase) in Ijara finance leases                                                             149       (105)
            Land under development                                                                                  (53)         12
            Dividend received                                                                                       463        873
            Interest received                                                                                       109        250
            Net cash (used in)/generated from investing activities                                              (8,213)     10,354

            CASH FLOWS FROM FINANCING ACTIVITIES
            Purchase of treasury shares                                                                               -     (1,879)
            Proceeds from sale of treasury shares                                                                 2,557       1,472
            Dividends paid                                                                                      (2,574)     (2,224)
            Increase in short-term borrowings                                                                     5,868       2,429
            Net cash generated from/(used in) financing activities                                               5,851        (202)
            Net (decrease)/increase in cash and cash equivalents                                                (1,867)      1,571
            Cash and cash equivalents at beginning of the year                                                   2,499         928
            Cash and cash equivalents at end of the year                                           18              632       2,499


            The notes set out on pages 18 to 28 form an integral part of these financial statements.


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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            1       INCORPORATION AND ACTIVITIES



            Kuwait Financial Centre – SAK (Closed) was incorporated in 1974 in accordance with the Commercial Companies Law in
            the State of Kuwait. The company was listed on the Kuwait Stock Exchange on 7 April 1997 and is governed under the
            directives of the Central Bank of Kuwait. The principal activities of the company are the granting of loans, money exchange
            and investment in property, shares and equity shareholdings. Its registered office is PO Box 23444, Safat 13095, State of
            Kuwait.

            At 31 December 2002, the company had 58 employees (48 employees at 31 December 2001).

            The financial statements for the year ended 31 December 2002 were authorised for issue by the company’s board of directors
            on 23 March 2003




            2         SIGNIFICANT ACCOUNTING POLICIES


            Preparation of financial statements
            The financial statements are prepared in accordance with International Accounting Standards.

            Investment securities
            The company classifies investment securities under the following headings:

            I       Securities held for trading
            ii.     Available for sale investments

            All investments are initially recognised at cost, being the fair value of the consideration given including acquisition charges
            associated with the investment. After initial recognition, securities held for trading and available for sale investments are re-
            measured at fair value, unless fair value cannot be reliably measured.

            For investments traded in organised financial markets, fair value is determined by reference to stock exchange quoted market
            bid prices at the close of business on the balance sheet date.

            For investments where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to
            an earnings multiple, or an industry specific earnings multiple or a value based on a similar publicly traded company, or is
            based on the expected cash flows of the investment or the underlying net asset base of the investment. Fair value estimates
            take into account liquidity constraints and assessment for any impairment.

            Valuation gains and losses arising from a re-measurement to fair value for securities held for trading are taken to the statement
            of profit and loss.

            Valuation gains and losses arising from a re-measurement to fair value for available for sale investments are taken to the
            statement of changes in shareholders’ equity, until the related investments are disposed of or impaired, at which time they
            are transferred to the statement of profit and loss.

            Trade and settlement date accounting

            All "regular way" purchases and sales of financial assets are recognised on the trade date, i.e. the date that the entity commits
            to purchase/sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of
            assets within the time frame generally established by regulation or convention in the market place.



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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            2       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


            Investment properties
            Investment in properties are initially recorded at cost. After initial recognition, investment properties are re-measured and
            carried at fair value on an individual basis based on an annual external valuation by an independent real estate assessor. Any
            gain or loss arising from a re-measurement at fair value is included in the statement of profit and loss.

            Loans and provisions
            Loans originated by the company by providing money directly to the borrower are stated at amortised cost in addition to any
            expenses incurred in granting the loan. Provisions for credit risk are established to meet any decline in value.

            Resale agreement
            Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognised in
            the balance sheet, as the company does not obtain control over the assets. Amounts paid under these agreements are
            included in due from banks or loans and advances to customers, as appropriate. The difference between purchase and resale
            price is treated as interest income and accrued over the life of the reverse repo agreement.

            Murabaha receivables
            Murabaha is an Islamic transaction involving the purchase and immediate sale of asset at cost plus an agreed profit. The
            amount due is settled on a deferred payment basis. Where the credit risk of the transaction is attributable to a bank, the
            amount due is classified as a murabaha investment. Where the credit risk is attributable to a party other than a bank, the
            amount due is classified as a murabaha receivable.

            Murabaha receivables which arise from the company’s financing of long-term transactions on an Islamic basis are classified
            as murabaha receivables originated by the company and are carried at the principal amount less impairment. Third party
            expenses such as legal fees, incurred in granting a murabaha are treated as part of the cost of the transaction.

            All Murabaha receivables are recognized when the legal right to control the use of the underlying asset is transferred to the
            customer.

            Impairment of financial assets
            A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. An assessment is made
            at each balance sheet date to determine whether there is objective evidence that a specific financial asset, or a group of
            similar assets, may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined based
            on the net present value of future cash flows, discounted at original interest rates and any impairment loss is recognised in
            the statement of profit and loss.

            The provision for impairment of loans and advances also covers losses where there is objective evidence that probable losses
            are present in components of the loans and advances portfolio at the balance sheet date. These have been estimated based
            on the historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current
            economic environment in which the borrowers operate.

            A loss is recognised in income when a financial asset is impaired.

            Related party transactions
            Related parties consist of directors, executive officers, their close family members and companies of which they are principal
            owners. All related party transactions are conducted on an arm’s length basis and are approved by management.




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            Investment in joint ventures
            The company accounts for joint ventures, defined as a contractual arrangement to undertake an economic activity which is
            subject to joint control, by including in the company’s financial statements its share of assets, liabilities, revenues and
            expenses.

            Fixed assets and depreciation
            Fixed assets are stated at cost less accumulated depreciation and any impairment in value. The company depreciates its fixed
            assets using the straight-line method at rates sufficient to write off the assets over their estimated useful economic lives.

            Treasury shares
            Treasury shares are stated at cost and are not entitled to cash dividends that the company may distribute. Gains or losses
            resulting from the company trading in treasury shares are taken directly to shareholders’ equity under "reserve of profit on
            sale of treasury shares".

            Should the reserve of profit on sale of treasury shares fall short of any losses from the sale of treasury shares, the difference
            is charged to retained profits, subsequent to this, should profits arise from sale of treasury shares an amount is transferred to
            retained profits equal to the loss previously charged to this account.

            Income recognition
            Interest income is recognised on a time proportion basis taking account of the principal outstanding and the rate applicable.
            Murabaha income is recognised on a time proportion basis so as to yield a constant periodic rate of return based on the net
            balance outstanding. Profits and losses on securities held for trading are recognised as and when they are realised. Dividend
            income is recognised when the right to receive payment is established. Portfolio management fees is recognised when
            earned.

            Foreign currencies
            Foreign currency transactions are recorded in Kuwaiti Dinars at rates prevailing at the date of the transaction. Monetary assets
            and liabilities denominated in foreign currencies are retranslated into Kuwaiti Dinars at mid-market rates at the balance sheet
            date. The resultant gains and losses are accounted for in the statement of profit and loss.

            Fiduciary assets
            Assets held in a trust or fiduciary capacity are not treated as assets of the company and accordingly they are not included in
            these financial statements.

            Cash and cash equivalents
            Cash and cash equivalents as stated in the statement of cash flows comprise bank and cash balances, time deposits and due
            to banks.




            3       FINANCIAL INSTRUMENTS


            Credit risk
            Financial assets, which potentially subject the company to concentrations of credit risk, consist principally of bank balances,
            time deposits, accounts receivable, and loans to customers. The company’s bank balances and time deposits are placed with
            high credit quality financial institutions whilst accounts receivable and loans to customers are presented net of provision for
            doubtful debts.

            Fair values
            Except for long-term equity participations the carrying amounts of financial assets and liabilities at 31 December 2002 and
            2001 approximated their fair values.




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            4       INVESTMENT IN JOINT VENTURE


            The joint venture is engaged in developing residential real estate in Kuwait. The following represents a summary of the
            company’s 66.667% interest in the joint venture which are included in these financial statements:

                                                                                                              2002          2001
                                                                                                            KD '000       KD '000

            Assets (including net investment in land of KD1,073 thousand)                                     2,228          1,998
            Liabilities                                                                                       1,153            717
            Revenue                                                                                              29             27




            5       TIME DEPOSITS


            The company’s time deposits yield interest at an average rate of 2.25% per annum (3.21% per annum in 2001) and mature
            within one month from the date of deposit.




            6       DUE FROM BANK


            This represents the value of units purchased from a fund managed by Burgan Bank. These units were purchased from facilities
            granted by Burgan Bank and the units were sold on credit with an yield of 4.5% per annum with the agreement to settle the
            units’ value and all expected profits by Burgan Bank.




            7       MURABAHA RECEIVABLE


            This represents a receivable arising from a Murabaha transaction with the principal amount and profit thereon being
            recoverable over a 5 year period from the date of the transaction and a profit rate over the period of 6.4% per annum. The
            Murabaha transaction is with a financial institution regulated by the Central Bank of Kuwait.




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            8       LOANS TO CUSTOMERS


                                                                                                               2002             2001
                                                                                                             KD '000          KD '000

            Commercial loans                                                                                   5,038             5,585
            Personal loans                                                                                     4,211             2,220

                                                                                                               9,249            7,805
            Provision                                                                                         (1,737)          (1,750)

                                                                                                               7,512             6,055



            Specific provision against doubtful receivables is in accordance with Central Bank of Kuwait instructions. The company has
            also taken a general provision of 2% on the balance of regular facilities for which no specific provisions are made.

            Commercial loans include loans to related parties in the amount of KD4,267 thousand (KD4,817 thousand in 2001). The
            interest rate on loans to customers ranges from 3.125% to 13.724% per annum (4.77% to 13.72% per annum in 2001) for
            commercial loans and 5.250% to 6.250% per annum (4.3% to 6.3% per annum in 2001) for personal loans. All loans are
            denominated in Kuwaiti Dinars and U.S. Dollars. Commercial loans are fully secured by charges over property and the
            related parties portfolios under the company’s management.




            9       AVAILABLE FOR SALE INVESTMENTS


                                                                                                               2002             2001
                                                                                                             KD '000          KD '000

            Quoted securities and managed funds                                                               19,698           20,488
            Equity participations                                                                             12,255           12,070
            Fixed interest securities                                                                          4,206            2,327

                                                                                                              36,159           34,885



            Equity participations are acquired with the intention of capital appreciation over a medium to long-term time frame. The
            nature of these investments is such that a reasonable estimate of fair value can only be determined when the individual
            investments underlying the participations are realised or upon the disposal of the direct equity participations. Management
            is unable to determine the expected realisable values of these investments and the timing of disposals in this connection and
            is therefore unable to estimate fair values. The values that may eventually be realised may differ materially from the carrying
            value of these investments. However, management is not aware of any circumstances that would indicate any further
            impairment in the value of these investments at the balance sheet date.

            The interest on fixed interest securities range from 6.25% to 8.125% peranum (6.25% to 8.125% peranum in 2001)




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            10         S H O R T- T E R M B O R R O W I N G S


            Short-term borrowings are due to local banks and are repayable within one month from the date of borrowing. The loans are
            denominated in Sterling Pounds, U.S. Dollars and Euro and bear an average interest rate of 4.14% per annum (3.75% per
            annum in 2001).




            11         SHARE CAPITAL


                                                                                                              2002             2001
                                                                                                            KD '000          KD '000

            Authorised share capital of 400,000,000 shares at a nominal value of 100
            Kuwaiti Fils each                                                                                40,000           40,000

            Issued and fully paid-up share capital of 396,678,000 shares at a nominal
            value of 100 Kuwaiti Fils each                                                                   39,668           39,668




            12         TREASURY SHARES


            At 31 December 2002 the company held 8,000,000 (25,560,000 at 31 December 2001) of its treasury shares equivalent to
            2.02% (6.44% in 2001) of the shares issued. The market value at the same date was KD1,232 thousand (KD3,118 thousand
            in 2001). Reserves equivalent to the cost of treasury shares have been earmarked as non-distributable.




            13         LEGAL RESERVE


            Distribution of the legal reserve is limited to the amount required to enable the payment of a dividend of 5% of paid-up share
            capital to be made in years when retained profits are not sufficient for the distribution of a dividend of that amount.




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            14         CUMULATIVE CHANGES IN FAIR VALUE


                                                                                                             2002           2001
                                                                                                           KD '000        KD '000

            Balance at 1 January                                                                            (1,715)               -

            Net unrealised losses                                                                           (3,929)         (2,298)
            Impairment in value                                                                              1,414             583
            Net realised gains                                                                                 200                -

            Net movement                                                                                    (2,315)         (1,715)

            Balance at 31 December                                                                          (4,030)         (1,715)




            15        GENERAL AND ADMINISTRATIVE EXPENSES


            General and administrative expenses include the following charges:

                                                                                                             2002           2001
                                                                                                           KD '000        KD '000

            Staff costs                                                                                        840             719
            Depreciation                                                                                        49              69




            16        EXTRAORDINARY INCOME


            This item represents the full and final compensation amount received in 2001 from the United Nations for losses suffered as
            a result of the Iraqi invasion and occupation of the State of Kuwait.




            17         EARNINGS PER SHARE


            Earnings per share was calculated based on the weighted average number of shares in issue during the year of 382,221,288
            shares (2001 : 369,985,397 shares) excluding treasury shares.




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            18         CASH AND CASH EQUIVALENTS



            Cash and cash equivalents included in the statement of cash flows are comprised as follows:

                                                                                                             2002           2001
                                                                                                           KD '000        KD '000

            Bank balances and cash                                                                            449              916
            Time deposits                                                                                     200            1,596
            Due to banks                                                                                      (17)             (13)

                                                                                                              632            2,499




            19         PROPOSED DIVIDENDS


            Subject to the requisite consent of the relevant authorities and approval from the general assembly, the board of directors
            propose to:

            a.   Distribute a cash dividend of 6 Fils for each share held (7 Fils in 2001) amounting to KD 2,332 thousand (KD2,598
                 thousand in 2001) to the shareholders of record as of the date of the general assembly excluding treasury shares.

            b.   Pay directors non-executive remuneration of KD70 thousand (KD70 thousand in 2001). This is below the maximum
                 amount provided for by the Commercial Companies Law.

            Proposed appropriations at 31 December 2001 were subsequently approved by the general assembly.




            20         S E G M E N TA L A NA LY S I S



            The company operates primarily in one area of business activity, investment and accordingly its primary basis for segmental
            reporting is by geographical segment.

            The company operates in two main geographical segments: Inside Kuwait and outside Kuwait. The geographical analysis is
            as follows:




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




                                                                                          Inside              Outside
                                                                                         Kuwait                Kuwait          Total
                                                                                        KD '000               KD '000        KD '000

            31 December 2002

            Operating income/(loss)                                                        5,943                (733)           5,210

            Net profit/(loss)                                                              4,355                (816)           3,539

            Total assets                                                                 39,028                25,980         65,008
            Total liabilities                                                           (12,217)                 (163)       (12,380)

            Net assets employed                                                           26,811               25,817         52,628

            31 December 2001

            Operating income/(loss)                                                        6,924               (1,005)          5,919

            Net profit/(loss)                                                              5,418               (1,242)          4,176

            Total assets                                                                  29,687               27,622         57,309
            Total liabilities                                                             (5,712)                (152)        (5,864)

            Net assets employed                                                           23,975               27,470         51,445




            21          R E - P R I C I N G M AT U R I T Y A NA LY S I S O F A S S E T S A N D L I A B I L I T I E S


            Interest rate risk is the sensitivity of the company’s financial condition to future movements in interest rates. The company
            would be exposed to interest rate risk as a result of mismatches or "gaps" in the amounts of interest sensitive assets and
            liabilities that mature or re-price in a given period. However, as the majority of company’s assets and liabilities are either
            non-interest sensitive or frequently re-price, the company has no significant exposure to interest rate risk.

            The company’s re-pricing maturity profile, based on the contractual re-pricing or maturity dates of assets and liabilities,
            whichever dates are earlier, is as follows:




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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            21        R E - P R I C I N G M AT U R I T Y A N A LY S I S O F A S S E T S A N D L I A B I L I T I E S            (CONTINUED)


                                                                                                                            Not exposed
                                                                  Up to               1-3           3-12            Over      to interest
                                                                1 month            months         months           1 year       rate risk     Total
                                                                 KD'000            KD'000         KD'000          KD'000         KD'000     KD'000

            At 31 December 2002
            ASSETS
            Bank balances and cash                                  47                 -           -                  -           402          449
            Time deposits                                          185                15           -                  -             -          200
            Due from bank                                            -                 -       4,731                  -             -        4,731
            Securities held for trading                              -                 -           -                  -        12,009       12,009
            Accounts receivable and other assets                     -                 -           -                  -         2,081        2,081
            Murabaha receivable                                      -                 -           -                500             -          500
            Loans to customers                                       -                49       6,557                906             -        7,512
            Available for sale investments                           -                 -         891              3,315        31,953       36,159
            Amount due under Ijara finance leases                    -                 -         191                  -             -          191
            Land under development                                   -                 -           -                  -         1,073        1,073
            Investment in land                                       -                 -           -                  -            36           36
            Fixed assets                                             -                 -           -                  -            67           67
                                                                   232                64      12,370              4,721        47,621       65,008
            LIABILITIES
            Due to banks                                             17                 -             -               -             -           17
            Accounts payable and other liabilities                    -                 -             -               -         2,273        2,273
            Dividends payable                                         -                 -             -               -           163          163
            Short-term borrowings                                 4,127            1,198          4,602               -             -        9,927
                                                                 4,144             1,198          4,602               -         2,436       12,380
            Total interest rate sensitivity gap                 (3,912)           (1,134)         7,768           4,721        45,185       52,628
            Cumulative interest rate sensitivity gap            (3,912)           (5,046)         2,722           7,443        52,628            -
            At 31 December 2001
            ASSETS
            Bank balances and cash                                  23                  -             -               -           893          916
            Time deposits                                        1,596                  -             -               -             -        1,596
            Securities held for trading                              -                  -             -               -        10,573       10,573
            Accounts receivable and other assets                     -                  -             -               -         1,776        1,776
            Loans to customers                                       8                  -         4,270           1,777             -        6,055
            Available for sale investments                       1,827                  -             -             500        32,558       34,885
            Amount due under Ijara finance leases                    -                  -           340               -             -          340
            Land under development                                   -                  -             -               -         1,020        1,020
            Investment in land                                       -                  -             -               -            49           49
            Fixed assets                                             -                  -             -               -            99           99
                                                                 3,454                  -         4,610           2,277        46,968       57,309
            LIABILITIES
            Due to banks                                            13                 -              -               -             -           13
            Accounts payable and other liabilities                    -                -              -               -         1,653        1,653
            Dividends payable                                         -                -              -               -           139          139
            Short-term borrowings                                4,059                 -              -               -             -        4,059
                                                                 4,072                 -              -               -         1,792        5,864
            Total interest rate sensitivity gap                   (618)                -          4,610           2,277        45,176       51,445
            Cumulative interest rate sensitivity gap              (618)            (618)          3,992           6,269        51,445            -

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            N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
            For the year ended 31 December 2002




            22         FOREIGN EXCHANGE


            At 31 December the net open foreign exchange positions were as follows:

                                                                                                               2002             2001
                                                                                                             KD '000          KD '000

            US Dollars                                                                                        15,080           18,094
            Euro                                                                                               3,798            3,444
            Sterling pounds                                                                                      885              675
            Egyptian pounds                                                                                      778              598
            UAE Dirhams                                                                                          435              436
            Other                                                                                                561              113

                                                                                                              21,537           23,360




            23         CONTINGENT LIABILITIES AND COMMITMENTS


                                                                                                               2002             2001
                                                                                                             KD '000          KD '000

            Letter of guarantee on behalf of a related party                                                   1,203            1,160
            Commitments for purchase of investments                                                           12,775           16,986

                                                                                                              13,978           18,146




            24         FIDUCIARY ASSETS


            The company holds investment portfolios and traveller cheques on behalf of clients that are not reflected in the balance sheet.
            The total amounts of client portfolios and traveller cheques held by the company at 31 December 2002 were KD96,074
            thousand (KD70,085 thousand at 31 December 2001) and KD17 thousand (KD498 thousand at 31 December 2001)
            respectively.




            25         C O M PA R AT I V E A M O U N T S


            Certain comparative amounts have been reclassified to conform to the current year’s presentation.




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