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CEO Message

In the Name of Allah, Most Gracious, Most Merciful, praise be to Allah the Lord of the worlds and may the blessings and peace of Allah be upon the most honored of messengers our master Muhammad and upon all his family, companions and followers with kindness until the day of judgment.

Dear respected shareholders, Greetings.

On behalf of the members of the executive management of AAYAN Leasing & Investment Company, I am pleased to review with you a report on the financial indicators for the year ended 31 December 2018, reviewing briefly the most important financial and economic developments during such year.

A brief overview of the economic conditions in 2018

First: World Conditions

Reports on the performance of the global economy indicate that the global economy has achieved 3-point growth last year. This is the best ratio of growth since 2011.

As the return to normal monetary policy continues in the next two years, growth is expected to fall to levels lower than those achieved before the global financial crisis. Also, there are several risks highlighted in the issue of April 2018 at World Economic Outlook report, issued by IMF. This includes rising trade barriers and the reversal of capital flows to emerging market economies. They are now more obvious or partially achieved.

Although the growth outlook for the United States remains robust, the growth rate is expected to slow down and fall compared to the expected rates in the April 2018 IMF Global Economic Outlook, which was 2.9% in 2018 and 2.7% in 2018. This figure has been revised to 2.5% for 2019 as a result of recent trade tensions between the United States and China.

As macroeconomic conditions and fiscal-stimulus program improve, these factors are expected to have an impact on the US Federal Reserve towards its gradual restoration of normal monetary policy. As expected, in 2018 the US raised the interest rate on the US dollar four times. Restrictions in advanced economies are likely to cause confounding portfolio adjustments, serious exchange rate movements, and further cuts in capital inflows into emerging markets. However, forecasts indicate that US Federal Reserve Council may raise the interest rates once per quarter until Mid-2019, as the US Federal Reserve Council sees that interest rates on the US dollar will be in a balanced and moderate position when it reaches about 3%.

On the other hand, the European Union continued to apply negative interest rates, affected by the repercussions of Brexit and the Italian debt crisis.

As for the growth rates, China and India have been the driving forces of the global economic growth despite the weakness shown by the Chinese economy, and China's economy, which grew by 6.6% in 2018, is expected to grow by 0.6% in 2019 and 2020. The Chinese government seeks to restore the balance of the economy away from relying on investment and export activities and directs it towards consumption and domestic demand. This shift is likely to take some time as the slowdown in growth is expected to remain in place until the balance of the economy is restored.

Second: Regional Conditions

According to the published data and statistics, energy prices rose in the first quarter of 2018 mainly due to higher oil prices. The reduction of oil supply and improved pace of economic activity during the first half of 2018 contributed to the rise in oil prices during May and June, reaching its highest levels since November 2014. The increase witnessed by oil production in Saudi Arabia and Russia and the threat of US sanctions against Iran have then rebalanced the oil market, which has fallen to around USD 54 a barrel as of December 2018, after it had seen several increases and its price reached USD 64 a barrel.

According to the November 2018 Regional Economic Outlook for the Middle East and Central Asia, the International Monetary Fund (IMF) expects real GCC GDP to grow by 2.4% and 3.0% in 2018 and 2019 respectively. Estimates were revised upward (by 0.6% and 0.5%, respectively) when forecasting for May 2018 as a result of oil-related GDP growth, which is expected to grow due to the adjustment and upgrading of oil-related GDP growth forecasts in Saudi Arabia, the UAE and Kuwait in 2018, while oil-related GDP is expected to grow in Oman in 2019. The growth rate of non-oil GDP in the GCC region for 2018 remained unchanged at 2.7%, while estimates for 2019 (up 0.2%) were revised upwards to 2.9%.

The growth of non-oil GDP in the Gulf region is supported by the development of investment projects offered by the countries of the region, such as the five-year development plan of the State of Kuwait, the investment projects in the infrastructure of the State of Qatar (World Cup 2022) and the ongoing preparations for the Dubai International Expo 2020 in the UAE. The International Monetary Fund (IMF) has welcomed the introduction of value-added tax (VAT) by Saudi Arabia and the United Arab Emirates, which is expected to improve non-oil revenues and will reduce dependence on commodity-related revenues and thus enhance financial resources.

Third: Local Conditions – Kuwait

The government has continued its efforts to implement infrastructure-related development projects, which is a driving force for the construction sector and the growth of private sector lending activities. The government has awarded a number of projects worth USD 11 billion and USD 6 billion in 2017 and 2018 respectively.

It can be argued that the domestic operating environment is witnessing a cautious optimism due to the improvement in the economic growth outlook and the current conditions, especially the rise in oil prices since the beginning of the first quarter until the third quarter of 2018. According to IMF projections, real GDP growth will be 2.3% in 2018 and 4.1% in 2019 (2017: -3.3%), as investment expenditure is expected to contribute significantly to this growth. Yet, while oil prices decline recently, it is expected that the financial conditions will go back after reporting a large surplus during the period from April to October 2018. Undoubtedly, any decline in oil prices will have significant implications on the capital markets. The risks due to the decline in oil revenues reflecting on the rates of government spending and the decline of that spending of will be the main concerns of the local economy.

Fourth: Stock Markets Performance

According to reports from the performance of the MENA stock markets, the stock markets in the MENA region have achieved a positive performance in 2018 despite the decline in oil prices and the global turmoil in the stock markets throughout 2018. The S&P GCC Index increased by 11.47% in 2018, supported by the strong performance of Saudi Arabia and Abu Dhabi, where Kuwait Stock Exchange recorded the fourth best performing GCC markets in 2018.

Fifth: Financial Indicators

The Parent company (AAYAN Leasing & Investment) has achieved a net profit of KD 3 million for the year ended 31 December 2018 with a profit per share of 3.78 fils. The shareholders' equity reached KD 81.8 million as of the end of 2018, with an increase of 4.7% as compared to the shareholders' equity at the end of 2017, reporting KD 78.2 million.

AAYAN Group's consolidated assets totaled KD 307 million as at the end of 2018, while the group's consolidated liabilities amounted to KD 186 million at the end of 2018.

The Company continued to focus on its revenue-generating business activities as outlined in the review of the company's performance review content contained in the 2018 Annual Report.

Sixth: Progress on governance Standards and Rules

AAYAN Leasing & Investment places priority on compliance and implementation of regulatory requirements and effective internal control regulations. Accordingly, the company prepares the necessary reports to meet all the standards and rules related to the implementation of governance and takes into account the observations and instructions issued by the Capital Markets Authority in that regard. In accordance with the requirements of the Capital Markets Authority, a detailed report on governance has been included in the company's annual report.

Seventh: Review of the company's activities

Leasing:

During the year 2018, the leasing sector achieved excellent performance rates continuing its outstanding operating performance. 2018 has witnessed excellent operating revenues, a remarkable increase in net profit and an increase in gross profit over the previous year. AAYAN Leasing Holding Company has made further progress in its business. As it has achieved operating income of KD 32,515,662 for 2018, and gross profit increased by 9% to reach KD 7,859,282 for 2018 as compared to KD 7,189,640 for 2017. Gross profit margin ratio of 24% for the year 2018 is excellent as compared to 22% for the year 2017. The company achieved a noticeable increase in its net profit by 29% to reach KD 5,341,122 for the year 2018 as compared to KD 4,141,358 for the year 2017 and the equity increased by 2%, as it reached KD 34,583,799 for 2018 as compared to KD 33,816,038 for 2017.

In its continuous endeavor to develop its services and provide an enjoyable and sophisticated experience for operational leasing customers, AAYAN Leasing Holding Company has upgraded and developed its electronic services that contribute to the speedy completion of transactions and facilitation for customers. The company has also been keen to launch a number of distinctive marketing campaigns throughout the year, which were designed to attract new segments of customers, in addition to focusing on the presence in the places where customers gather.

On the other hand, the management of the leasing sector (AAYAN Leasing Holding Company) has strengthened its efforts in the processes of operational leasing and concluded a number of major deals during the year with a number of the most important and major car agencies in order to diversify the cars provided to its customers companies, ministries and individuals. It also provides stronger competitive services and new cars to customers to satisfy them and provides the highest well-being and quality to them. AAYAN Kuwait Auto Company, a subsidiary to AAYAN Leasing Holding Company, has won several large deals and tenders to add to its wonderful and multiple records in the Kuwaiti market. The company has also succeeded in disposing a larger number of used cars through cooperation with various financing agencies.

AAYAN Leasing Holding Company has continued its efforts to support its subsidiaries inside and outside Kuwait and help them to develop their businesses, promote their plans and overcome any obstacles they may face. As a result, the business of the subsidiaries of AAYAN Leasing Holding Company focus on the development and expansion of the activities of subsidiaries in all the field of car rental, whether long, medium or short-term (daily and weekly).

It is noteworthy that AAYAN Leasing Holding Company is wholly owned by AAYAN Leasing & Investment Company and its operational arm in the automotive sector and its services Also, it manages the vehicle fleet inside and outside Kuwait. It also includes several subsidiaries, most notably AAYAN Kuwait Auto Company, which specializes in leasing and selling used cars, and Budget Car Rental, a global leasing agency that owns its agency in Kuwait and focuses on short- and medium-term leasing operations, and Recap for Car Rental, which is specialized in short and medium-term leasing operations. In addition to the Garage Ayaan, which is the main center specialized in repairing the fleet of cars of AAYAN and is equipped with the latest equipment and has two branches in Shuwaikh Industrial Area and Al-Ahmadi Area.

Property Management:

Real estate Department is considered one of the most important profitable departments in Aayan Leasing and Investment Company. It manages various real estate properties owned by the company in various real estate sectors and activities represented in commercial, investment, industrial and crafts. This diversification reflects the company's strategy to diversify income generating real estate investment to reduce the degree of risk in investing in this sector.

Also, the Real Estate Department constantly looks for high-profile investment opportunities in the real estate field, while focusing on high profitability and limited risks through owning, selling, purchasing and developing real estate and land plots, both inside and outside Kuwait.

The department also studies investment projects and opportunities presented to the company to enter into it with strategic investors inside and outside the State of Kuwait.

Marketing Plans: 

The Real Estate Department undertakes the marketing and leasing of the real estates owned by the company by preparing carefully studied rental plans, concluding the leasing contracts, collecting the rents, and carrying out the services of the tenants, such as maintenance, security and cleanliness, as well as preparing marketing studies and carrying out advertising campaigns.

In 2018, the investment real estate market faced a decline in rental rates in investment real estate and demand for housing units due to the high supply, lack of demand and the state plan to localize many jobs by replacing Kuwaiti workers instead of expatriate workers.

As for the craft assets owned by the company in the areas (Ardiya and Abu Fteira), 2018 has witnessed a remarkable demand for these areas due to the stability in the rate of return on the property and the increased demand for rental units by investors, which led to a rise in the rental value of the units. Since this contributed to an increase in operating income from KD 2,491 million in 2017 to 626.2 million KD, an increase of 5.4%.

Al-Jahraa Mall Commercial Project:

(AAYAN Leasing & Investment Company) owns 78.53% of Al-Jahraa Mall and through the marketing plan for the rental of the mall units, the rental rate at the end of 2017 reached 82.31% of the total rental area 16,427.44 m2 and at the end of 2018, the rental rate reached 92.41%, an increase by 10% over the year 2017.

Asset Management:

(AAYAN Leasing & Investment Company) continued to follow up and improve investment portfolios and real estate funds, and improvement of its performance. The asset management follows up on several investments in several countries, including Kuwait, The Arab Republic of Egypt, the United Arab Emirates and others. During the previous period, the Department sought to develop projects for those products, improve performance and liquidate some of them. On the level of investment portfolios, the company's management has begun work to reconcile the conditions of these investments after a regulation was issued regulating the collective investment process. The company is constantly working to reconcile the conditions of these investment products according to the time specified by the Capital Markets Authority.

The Real Estate Return Fund has continued to serve its clients in a competitive manner for many of the investment products available in the local market. The fund is characterized by its monthly distributions and competitive returns compared to the real estate sector in Kuwait and competing funds. In this context, management continued to focus on improving the performance of the Fund's assets and improving its performance to maintain its asset levels despite the low performance of the real estate sector, and the Fund has achieved positive performance compared to competing funds and the performance of the local real estate sector during 2018.

In 2018, the company also began to liquidate Egypt's third portfolio, providing portfolio investors with several solutions to exit them from the investment. As a percentage of 78.32% of portfolio investors have been terminated, while contacting other investors constantly to deliver them the liquidation amounts and fully terminate the investment. It is worth noting that the portfolio had invested in a real estate project in the Fifth Assembly area in the Arab Republic of Egypt, in a privileged location opposite the main building of the American University in Cairo, but the political and economic conditions that accompanied the project led to the delay of completion in time.

As for Egypt's fourth portfolio, the company reached an agreement with the project's shareholders to exit the portfolio based on an assessment that was made to determine the final value of the portfolio in an initial plan to start the liquidation work. The company is currently developing the appropriate mechanism for liquidating the portfolio and finding appropriate exit options for the concerned investors. It is worth noting

that the Green Waves Project, for which the portfolio was made, is located in the Sheikh Zayed area opposite the new building of the Ahli Club in the Arab Republic of Egypt, and the project is divided into three stages where the project consists of 584 residential units in addition to shops.

Investment Sector:

The investment sector is a key pillar of (AAYAN Leasing & Investment Company), where subsidiaries and associates play a key role in enhancing the company's profitability and cash flow. During the year, the company was able to exit several investments in the Sultanate of Oman with a total value of KD 2.9 million, which resulted in a profit for the company of approximately KD 1 million. Such liquidity was directed mainly to pay the payments to the company's creditors.

As for the company's main investments, AAYAN Real Estate, which is 57.78% owned by AAYAN, managed to overcome the negative results in 2017, where the company achieved a net profit of KD 5.94 million in the fiscal year ended on 31/12/2018. These profits have resulted mainly from the Yaal Complex, in which the occupancy ratio has significantly increased. Considering these positive results and in emphasis of the extent of its cash flow worthiness, the Board of Directors of AAYAN Real Estate has submitted a proposal to the General Assembly to distribute dividends of up to 5 fils per share.

As for Mubarrad Holding Company, the company continued its positive results to achieve its objectives and managed to achieve a net profit of KD 1.67 million. The Board of Directors has submitted a proposal to the General Assembly to distribute dividends of up to 5 fils per share for the fifth consecutive year, and to distribute bonus shares at a ratio of 0.5%

Our follow-up to the investments in the associate companies continued, where Mashaer Holding Company has changed the management of the company. As the new management is working to continue the plan developed by its board of directors and address some of the outstanding problems in some assets, especially some real estate investments in Saudi Arabia, which have mainly influenced the company's results over the past year. Abyaar Real Estate Development Company continues to face significant challenges in liquidity and its assets are affected by the real estate market in The Emirate of Dubai. The company has undergone major changes in the level of its management system, and we hope that 2019 will find a solution to many of the liquidity problems faced by the company in order to achieve the best results that reflect positively on (AAYAN Leasing & Investment Company).

Eighth: Future Aspirations

AAYAN Leasing & Investment Company will pursue its efforts to meet its commitments to creditors, as well as to strengthen the financial position of the company and will work to enhance the future prospects of its presence in the ranks of investment companies in The State of Kuwait.

However, the circumstances and conditions that prevail the region have affected the leasing and investment activity.

Ninth: Conclusion:

In conclusion, I can only thank the company's shareholders for the great trust and continued support they provide to the company as well as to the company's customers for their trust in the company's services and products. I also extend my thanks to the regulatory authorities that seek to establish regulatory frameworks to reduce risk, I cannot also miss to thank all the company's employees for their outstanding performance and dedication to work.

I also appreciate the Chairman and members of the Board of Directors for providing continued support to the company's executive management.

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