Annual Report 2008 Combined Group Contracting Company - K.S.C.C.

Transcription

1

2

3

4 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. 2

5 H.H. Sheikh Sabah Al-Ahmad Al-Sabah The Amir of the State of Kuwait H.H. Sheikh Nawaf Al-Ahmad Al-Sabah The Crown Prince of the State of Kuwait H.H. Sheikh Nasser Al-Mohammad Al-Sabah The Prime Minister of the State of Kuwait 3

6 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. 4

7 Contents Page Chairman & Board of Directors 6 Company s Achievements in Chairman s Report 11 Managing Director & CEO s Report 13 Challenges Surpassed by CGC 18 CGC Stock Performance in Business Profile 21 Contact Details 28 Financial Statement Analysis 30 5

8 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Chairman & Board of Directors 6

9 Mr. Sulaiman Khalid Abdullatif Al-Hamad Chairman Mr. Ahmad Mousa Al-Marouf Vice Chairman Mr. Abdul Rahman Mousa Al-Marouf Managing Director & CEO Mr. Ahmad Khalid Ahmad Al -Homaizi Member of the Board Miss. Sabaa Khalid Ahmad Al-Homaizi Member of the Board 7

10 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Company s Achievements in 2008 Combined Group Contracting Company K.S.C.C ( the Company or CGC ) has witnessed another stellar year of operations especially considering the economic downturn witnessed in the region especially during the last quarter of The founding principle of quality, dedication and commitment has once again succeeded in delivering benefits to not only the Company but more importantly to its Clients & Stakeholders. Listed below are the major financial and operational achievements of the company during Operational Performance and Events Submitted bids for several tenders in Of this CGC secured 3 contracts worth KD 9.8 million. In addition CGC were the lowest price bidders for 6 projects worth KD 45.8 million which is yet to be awarded. Completed 100% execution of 7 projects worth KD million in Kuwait. Currently carrying out 14 projects in Kuwait worth KD million of which around 70.6 % of the projects value have been executed. Combined Group Trading & Contracting Company (W.L.L.) in the State of Qatar is currently carrying out a road construction project worth KD 22.2 million ( QR. 277 million ) and a project for development of industrial area (Phase II) worth KD 52.7 million ( QR. 659 million ), of which 57.2 % and 27.3% of these projects value has been executed respectively. 4. st Contract backlog value as on 31 December 2008 is KD 87.7 million in Kuwait and KD 47.8 million (QR million) in Qatar. Acquired a 99% equity stake in United Kingdom General Trading & Contracting Company W.L.L. Awarded Superbrand status by the Kuwait Superbrands Council. 6. 8

11 2008 Financial Performance and Events KD Million KD Million Highest Revenue in Operational History : Gross Profit : Gross Margin % : 9.0 % 9.4 % Net Profit : Net Margin % : 5.84 % 6.94 % Operational Net Profit * : Operational Net Margin % : 6.5 % 6.4 % Earnings per share (fils per share) : Total Assets : Total Shareholder s Equity : (* Operational Net Profit and Net Margin % does not consider Investment Portfolio & Fund Performance) Bonus shares issued : 6.6 (10%) 6.0 (10%) Shares outstanding [S/O] (million) : Cash Dividends per share (fils per share) :

12 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Net Profit & EPS Ratio A A: Annualized Figures from the 21 months Financials Shareholders Equity & ROAE Ratio A A: Annualized Figures from the 21 months Financials Total Assets & ROAA Ratio A A: Annualized Figures from the 21 months Financials 10

13 Chairman s Report {In the name of Allah, the Compassionate, the Merciful} Dear & Valued Shareholders, I take great pleasure to welcome you to this General Assembly meeting for the Shareholders of Combined Group Contracting Co. K.S.C.C. ( CGC ). I would like to thank our valuable shareholders for their presence and for accepting our invitation to this meeting. Further I would like to convey the warm greetings of my colleagues -the Board Members- as it is our pleasure all to express our deep and sincere appreciation for your continued interest in following the achievements of the company & its subsidiaries across all the fields. I am extremely honored in presenting the 2008 Annual Report of your Company. This report describes the activities undertaken along and highlights the performance of your Company during the year Furthermore, this report presents the financial accomplishments of the Parent company; Combined Group Contracting Company K.S.C.C.; and its two subsidiaries; Combined Group Trading and Contracting Co. W.L.L. in Qatar and Combined International Real Estate Company K.S.C.C. in Kuwait; as well as its associate Pioneer Rocks Company K.S.C.C has been a good year for CGC. where it witnessed some remarkable operational developments, utilizing the excavation works and earth works capacity that was increased due to our internal expansions last year, and also shifting exclusive dependence on the Kuwait project market alone, as a result of expanding operations and executing projects in Qatar. It was personally pleasing to note that the foundations we laid out in 2007 brought about a positive effect on the company s financial performance in Furthermore, CGC still remains one of the top 10 construction companies in Kuwait, both in terms of asset size as well as revenues. CGC has had a dynamic year with a significant increase in operations as it carried out contracts from key governmental sectors and other public sectors both in Kuwait as well as in Qatar. The Company s vision is to continuously focus on the development and expanding of services offered, improve its capabilities and expand into new business lines and new territories to reduce the risk of single country dependence in these turbulent and volatile times. The application of this vision revealed a number of operational achievements during CGC had submitted bids for several tenders during Of these, CGC signed 3 contracts worth KD 9.8 million. In addition, CGC was the lowest price bidder for 6 projects worth KD 45.8 million, which is yet to be awarded. The total value of these tenders is KD 55.6 million. The geographical diversification of revenues and maintaining the quality of performance as well as enhancing the reputation of the company and its standing in both Kuwait & abroad, has assured the continued success of the company which was reflected in its 2008 financial performance results. During the 12 months period ended December 31, 2008, CGC and its subsidiaries recorded KD million in revenues generated from accomplishing contracts awarded either during the same year or earlier. While the revenue for the comparable 12 months in 2007 was KD million. The net income achieved by the end of 2008 was KD 8.7 million which is almost the same result as in The Earnings per Share (EPS) decreased from fils/share for the year 2007 to fils/share for the year This decrease by 2.6% is a result of increasing the capital of the company by 10% during Combined Group Trading and Contracting Company (W.L.L), Qatar recognized revenues of KD 20.8 million during The parent company in Kuwait possesses 49% equity stack in the Qatari Company. In light of the operational and financial performance that the company witnessed during 2008, the Board of Directors of the Company proposed to distribute cash dividends at 60% of the nominal value of shares, which is equivalent to 60 fils/share as well as free distribution of bonus shares at 10 % of the paid up capital (10 shares 11

14 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. for each 100 shares) to shareholders registered in the company records as of the date of the general assembly meeting. In light of shrinking global and local economy and with no immediate sign of recovery, the present situation is expected to substantially curtail new contract awards. Hence we need to focus on product quality and productivity to retain both revenues and profit margins. While the backlog of 2008 contracts will support our operations in 2009, we need to focus on bidding and tendering in 2009 which also have to take into account, the cancellations of those contracts or delays in its application. We also need to focus on the expanding construction sectors of Abu Dhabi, Saudi Arabia, Sultanate of Oman & Qatar as these four markets offer the best growth prospects in the GCC region. However, we are not without competition and the geo-political situation would also play an increasingly important role in sustaining the award of future contracts. Nevertheless, the company s management will continue to sustain and perform to the expectations of the shareholders to achieve the best possible returns over the coming years. In spite of current economic conditions, the financial position of the company is in a good condition due to that we are not going into the long-term investments financed by bank loans; the company does not have any loans have been used in investments and loans are current only for the financing of the operational activity of the company. We do not expect that the company will face any difficulties with the banks for financing the company s projects that we have to take all the necessary financial reserves to cope with any risks that may appear to the company beyond its control. In closing, I take this opportunity to convey my gratitude and appreciation to H.H. The Prince of Kuwait, H.H. The Crown Prince of Kuwait, H.H. The Prime Minister of Kuwait, various Ministries and Government Bodies and to all Companies, Organizations and Banks that supported us through the year 2008 along with a special thanks to our Managing Director, Mr. Abdul Rahman Moussa Al Marouf and to our Board of Directors, Staff and Employees, praying for their continued advancement and success. May peace and God s mercy and blessings be upon you. Sulaiman Khalid Abdullatif Al-Hamad Chairman of the Board of Directors 12

15 Managing Director & CEO s Report Respectable Shareholders, In our third published annual report we will highlight on the elements of success that helped CGC retain its position as one of the top construction companies in Kuwait. The successful execution of its awarded projects as well as its expansion plans, both locally and regionally has one again resulted in a superior all round performance. Over the past 5 years, CGC worked on multiple construction, oil and services projects with a total value of KD million. The company has evolved progressively during the past years, with the size and complexity of projects recording a steady increase. CGC is now employing 3,462 employees within its various divisions. In 2008, we had successfully acquired a 99% stake in United Kingdom General Trading & Contracting Co. W.L.L. The purpose of the acquisition was to further enlarge CGC s operating capacity. Our Associate in Qatar Combined Group for Trading and Contracting Co. W.L.L. had another successful year of operations. In its second operational year, the company generated KD 20.8 million in revenue and KD 380 thousand in net profit. The Qatari company is currently executing a KD 52.7 million (QR 659 million) the first of its kind major construction project for developing a 4.35 million M 2 industrial district owned by the Ministry of Energy & Industry of Qatar. The Company is also executing a KD 22.2 million (QR 277 million) contract in Qatar in relation to the construction of a 3 km road for the Public Works Authority of Qatar. Economic conditions, the market and construction sector performance highly affect the growth of our business. I will present an overview and a brief analysis of the key economic and market factors that have a bearing on the business environment in which we are operating. Economic Overview The current recessionary environment is the by-product of a weak economy, low oil prices, and constrained liquidity. Foreign demand has shrunk for oil resulting in lower oil prices and the resultant OPEC directed reduction in oil production. The private consumption has been negatively impacted by both the falling investment income as a result of the dismal state of the regional stock markets & the real estate market as well as decreasing consumer wealth. These factors have resulted in a major negative impact on spending. As a result the primary requirement to turn around this situation is increased government consumption and investment. The Major economic indicators in the GCC region & Kuwait that could drive the construction Sector and accordingly CGC s business are as follows: Government fiscal policy in the region seems to be in the direction of increased Government expenditure, Saudi Arabia, UAE and Oman have released budgets for 2009 with an indication towards increased governmental capital expenditure. Qatar has announced intentions to do the same however no concrete numbers have been announced. Kuwait had announced that they would follow the trend of the other GCC regions, however the draft budget numbers for indicate a conflicting picture with a 36% cut in spending overall which includes a 27% cut in development and maintenance projects. Population growth in Kuwait in the region of 3% to 3.5 % with favorable demographics, as around 29% of total population is in the age group of

16 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Construction Sector Overview The end of 2008 saw contracts awarded slowing to a trickle which was far different from the heady days of late 2007 and early 2008 when the Gulf Projects value reached $ 2 Trillion (as per MEED Projects) which was twice the combined gross domestic product of the 6 GCC countries. This has served as a reality check for contractors especially those who were mainly dependant on private sector real estate projects. Growth and structure of the construction sector for the future would be tied to investments in education, healthcare and infrastructure. As private real estate projects in the Gulf are getting delayed or scrapped, Contractors are looking toward increased governmental spending for some much needed respite. By the end of 2008, Dubai had stated it would increase public spending to $ 10 billion. A lot more infrastructure spending is also expected from Saudi Arabia, Abu Dhabi & Oman. Qatar s Prime Minister had also declared in October 2008 that Qatar would continue its infrastructure and investment projects in spite of the global turmoil in markets. Kuwait is embarking on an ambitious 5 years plan which is its first in over 10 years. This includes construction projects worth KD 35 billion (as per Gulf Construction). In support of this, new business towns and tourism islands are in various stages of planning & execution in line with Kuwait s bid to become a regional commercial centre and tourism destination. The construction industry in Kuwait comprises of four segments as laid down below. CGC is already involved in all four segments. Further to this, the company s manpower and equipments are being developed in order to undertake more sophisticated projects. The Construction Industry can be classified into the following sectors. Construction Industry Residential Residential & Commercial Commercial Infrastructure Others Residential & Commercial The 5 years plan spanning includes KD 26 billion for 60 BOT projects. The plan has been approved by the Higher Council for Planning & Development; however the same is under discussion. Current housing legislations stipulate that 100,000 houses are to be built in 3 years in alliance with the private sector. New townships such as Khairan, Saad Al Abdallah, Jabar Al Ahmad city, Sabah Al Ahmad City and Saad Al Abdallah city are expected to be on schedule. Construction sector in Kuwait is witnessing high levels of various mega projects. By the end of 2008, 43 major construction projects (more than USD 150 million) were in the study, design, planning, bidding or execution stage which amounted to a combined value of USD billion (as per Gulf Construction). These projects are largely sponsored and financed by the public sector. The Ministry of Public Works has currently budgeted USD 132 billion alone for its Silk City project which is expected to start in 2012 and be completed by 2037 making it the biggest of the 43 major construction projects. The Ministry of Public Works is also the owner of the Kuwait Railways & the Kuwait Metro projects which are budgeted at USD 14 billion & USD 11.3 billion respectively. 14

17 The Mega Projects Agency has currently budgeted USD 8.2 billion for the Bubiyan Island Development project. However of this, Phase 3 and Phase 4 with a combined budget value of USD 2 billion is expected to start only from The biggest commercial project expected from the private sector is the Silk City Mubarak Tower (USD 1.5 billion) developed jointly by Tamdeen Real Estate & Ajial Real Estate. This start date for this project is expected to be in Other major private projects in the design/planning stage include the Avenue Shopping Mall (Phase 3 & 4) being developed by Mabanee for a combined value of USD 1.1 billion which is expected to be started in 2009 and end in 2011/2012, the USD 378 million Al Debaeya Resort developed by Kuwait Hotels Company and the USD 300 million Mall of Kuwait developed by Tamdeen Shopping Centre Development Company (TSCD). As per the latest data, the rate of housing loans approved in 2008 has undergone an increase compared to The main increase is mainly due to increase for the new house segment which should bode well for the construction industry. As per the Savings & Credit Bank Housing Loan average monthly performance reported by the National Bank of Kuwait, the number of approved loans increased from 378 to 412. In the same time volume of approved loans increased from KD 12.5 million to KD 15 million. However the volume of disbursed loans decreased from KD 15.1 million to KD 12.1 million. Also, upon an analysis of the sales transactions recorded during 2008, in the commercial & residential units, highlights an ongoing increase in demand in the real estate industry. However it is to be noted that the average year on year prices decreased for the first time in the last five years. Apartment & Commercial Real Estate Sales (Monthly Average) Sales Value of Sales KD Million Number of Units Sold Average Price of Unit KD Source: National Bank of Kuwait The number of units sold increased by only 6% while the average price decreased by 23% during 2008 compared to Collectively, this resulted in a fall in total sales value by 22% in during Infrastructure The level of a country s development is reflected by its infrastructure. The need for infrastructure development has increased the demand of the construction sector. The infrastructure projects include roads and bridges in the new developed cities, public hospitals and schools and other government buildings which constitute the core operations of CGC. Infrastructure projects are fully managed by the government and the growth can be identified from the increase in Ministry of Public Works expenditures. Total budgeted Government Expenditure on Construction shows an enormous increase by 58% in 2008 and a Compounded Annual Growth Rate (CAGR) of 24% between 2002 to Kuwait Government Budgeted Expenditure Public Expenditure CAGR Expenditure on Construction ,485 Total Expenditure 4,927 5,523 6,315 6,862 10,306 9,698 18,966 24% Percentage of Total Expenditure 8% 9% 8% 8% 6% 10% 8% * As of December 2008, Source: Central Bank of Kuwait The expansion of the Kuwait International Airport is another key project in the long term development of the country in 15

18 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. order to cater to increasing air traffic. The Civil Aviation Department is planning to overhaul the airport infrastructure in addition to increasing the total area of the airport to 12 million m 2. Infrastructure addition plans include a third runway, develop the other two and establish new terminals. The expanded capacity is expected to support 20 million passengers per year compared to the current traffic of 7 million passengers per year. A public tender is expected shortly for a new terminal hotel, parking areas, freight handling services and bunkers. Major tourism sector development plans includes development of Failaka Islands to include hotels, shops, residential complexes and restaurants. As a business travel destination, Kuwait currently offers 5000 rooms in 20 properties represented mainly by major international hotel chains. By 2011, this is expected to be 10,000 of which 2,300 are expected to be ready by There is a planned USD 2.5 billion expansion in the power sector. Current plans include three new power stations with a combined capacity of 6,700 MW and 225 million gallons of water. A tender for a power plant with a 4,700 MW capacity in North Al Zour is expected. This is in line with Kuwait s plan to increase power capacity from the current 10,000 MW to 16,000 MW by The Ministry of Electricity & Water has announced a plan to develop new water desalination plants by Kuwait is also planning to build a USD 11 billion rail network. A 245 km line will run from the northern border with Iraq to the southern border with Saudi Arabia. About 500 km of rail will be laid at a cost of USD 7 billion and form part of the proposed GCC network across the Gulf. By bringing to a close the sector analysis section, we hope to be able to transfer to you a realistic outlook for the construction sector. Even though the public sector has budgeted some cutback, the overall private and public sector projects put together are worth billion of Kuwait Dinars and should keep contractors busy in the medium to long term. Company s Performance in 2008 With the backdrop of 2007 s performance, CGC witnessed a continuous growth during 2008 by registering its highest operational revenues. Total revenues, generated from multiple type of projects partially or fully completed in 2008, accounted for about KD million. The net profit for the year recorded KD 8.69 million. Compared to the 2007 figures, the company achieved an outstanding performance, with % growth in revenues and 0.35% growth in net profit. This was inspite of tough market conditions during the second half of The strategic and prudent directions initiated by the management such as diversification of revenue sources have been securing the company s position against unexpected economic and market events. This has also provided the company its highest 12 month revenues in the Company s corporate history. Gross profit has only slightly decreased from, 9.4 % in 2007 to 9.0 % in 2008, in spite of a turbulent year with highly volatile movements in prices. This signified your Company s ability and focus to control costs as well as overall stability. Projects Fully Completed & Delivered During

19 CGC has effectively completed and delivered many projects during 2008 and there are in its hand, a number of ongoing projects considered to be as secured revenues for the forthcoming years. Future prospects look to be in our favor; new contracts are expected to be signed in 2009 and after being declared as minimum price bidder for some, negotiation is already in progress for securing the same. CGC considers each project as an exclusive challenge which should be accomplished within a defined timeframe while maintaining the company s high quality standards. This helped the company to preserve its customers loyalty and accordingly to compete effectively in the market. In 2008, the company delivered 7 completed projects to their owners with total value of about KD 54 million. The major project delivered during 2008 was the Infrastructure work for 1,220 plots in the Jabar Al Ahmad City Housing Project amounting to KD 18.4 million and the flowline and pipeline works amounting to KD 14.7 million. CGC was also successful in delivering the UNT- Bulgan project worth USD 9.3 million in Mongolia. Projects executed by CGC during the last year can be categorized into 5 categories. By the end of 2008, CGC completed 46% of its construction projects, 68% of its Maintenance projects, 67% of its Sanitary projects, 84% of its Water & Energy projects, 76% of its Roads & Services projects and 71% of its Oil projects. The remaining works from projects in hand accounted KD 87.7 million by the end of CGC anticipates a slight growth in number of projects to be developed in Kuwait, Qatar and other countries for the upcoming years. CGC is also in the process of expanding its presence beyond Kuwait & the Gulf region with an ongoing PUNA bridge construction project worth USD 7.2 million in Albania as well as tendering / waiting to tender for a road project in Mauritania, a road project in Albania and a highways project in India. To enable a successful tendering of the same CGC has entered into partnership with SOECO (Mauritania), Arjen Albanian (Albania) & Blue Star Construction (India). The Company is currently negotiating the contract terms of some significant construction contracts. Further, the company is into pre-qualifying a number of sizeable projects in Kuwait. CGC is targeting seven major projects in Kuwait. 17

20 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Challenges Surpassed by CGC The robust growth in the construction industry in Kuwait has created certain challenges to the market s players. CGC was able to surpass most of these challenges by efficiently applying its resources and wisely using its relation in the market. Increase in Construction materials cost Competitive tendering process Vertical Integration G e o g r a p h i c a l volatilty Official presence in Gulf Area Cost of construction materials such as steel, cement had increased during the past few years. Accordingly, this affected the construction contractors bottom line and forced the construction cost to go up. CGC through its effective relations with the suppliers of raw materials together with its reputable position in the market has been able to balance its Price-Cost formula and to control its Cost of Goods Sold (COGS) margin to remain around 91%. Fall in projects have made the industry more competitive. In spite of this CGC was able to tender the minimum prices for a few major contracts. This was a result of a more efficient tendering mechanism and the vertical integration policy followed by CGC enabling it to cut margins that were previously captured by sub-contractors. In 2008, CGC acquired UK General Trading & Contracting Company to vertically integrate with the operations of the parent company, CGC. CGC is diversifying to reduce its dependence on the Kuwait projects market. Its operations in Qatar have added significant revenue to the parent company in addition to improving the bottom line. It has also completed in project in Mongolia and is currently executing a project in Albania. It has also entered into partnerships with companies having a local presence in Mauritania, Albania and India to bid for infrastructure projects in those countries. CGC is considering having an official presence in Abu Dhabi to capitalize on infrastructure spending expected from Abu Dhabi and other Emirates. However CGC is following a step by step process which includes getting a major classification to allow it to bid for tenders. CGC will also aim to develop a good rapport and co-ordination with municipal authorities and other public works departments. CGC Stock Performance in 2008 Kuwait s problems are not unique; as in many other Gulf countries the stock market is struggling, down 50% since October 2008, and liquidity is tight. The cause for this scenario is the global financial crisis. However fundamental reasons such as the falling energy prices and major losses incurred by companies on their investment portfolio played a huge part in pulling down the stock market. The index fell 38% during 2008 compared to the 27% rise during All sector indices posted losses with the hardest hit being investment, real estate and infrastructure with falls of 53%, 41% and 38% respectively. CGC Stock Price & KSE Index CGC Stock Price & Services Sector Index Daily Performance in

21 Analysis of CGC Stock Price & Volume Traded The market was moving in an upward direction until June 2008, after that there were continuous slight declines till September 2008 when it fell by the highest margin. The highest 2008 records was 15,654 points on 24 th June for the KSE Index and 26,216 points on 3 rd June for the Services Sector Index. CGC Stock price closed at 600 fils on 31 December 2008 while the closing price was 1360 fils in the previous year ending. The analysis of volume of shares traded reveals an active trading period during April & October with daily average of about 280 thousand and 128 thousand of traded shares respectively. The Stock performance during 2008 was the result of several factors, namely the market news, performance of construction industry and company s disclosures. Disclosures of 2008 that impacted CGC s Stock price are listed hereunder. th 1. On 30 March, the company declared its annual results for 2007 while the Board of Directors proposed the distribution of 75% cash dividends and 10% bonus shares. th 2. On 13 May, The Annual General Meeting and the Extraordinary General Meeting were held and approved on the distribution of 75% cash dividends and 10% bonus shares. th 3. On 18 May, the Company declared the Q1 08 earnings figure that showed that earnings per share increased from fils per share in Q to 35 fils per share in Q as a result of increase in net earning by KD 900,000. th 4. On 29 June, the company announced that it had submitted the best offer and was the lowest price bidder for the KD 2.8 million contract to State of Kuwait National Guard General Headquarter (T /2009) for extension of Al RYASA CAMP Operation Center. th 5. On 28 July, the Company announced earnings of KD 4,994,290 and EPS of 69 fils for the six month period ended June 30, 2008 compared to earnings of KD 3,905,689 and EPS of fils for the same period in th 6. On 20 August, the Company announced that it had submitted the best offer and was the lowest price bidder for the KD 8.6 million contract to the Ministry of Public Works for airport road sewage construction and maintenance works. th 7. On 18 September, the Company announced that it had submitted the best offer for the KD 13.7 million contract to the Ministry of Public Works for East Qurain sewage construction and maintenance works. 19

22 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. rd 8. On 3 November, the Company announced that it had signed a 5 year KD 6.8 million contract with Saudi Arabian Chevron & Kuwait Gulf Oil Co. for Provision of Concrete Support and Surface Support for Production Operation. which was the lowest price. rd 9. On 3 November, the company announced that it had submitted the best offer and were the lowest price bidder for the KD 1.0 million contract to Kuwait Oil Company for Polyurethane Coating Application for 32 Dia HP Gas Line From BS-150 to GCMB manifold (Tender number RFP 1884). th 10. On 12 November, the Company announced earnings of KD 6,688,700 for the nine month period ended September 30, 2008 compared to KD 6,719,238 for the similar period in th 11. On 25 December, the company announced that it had submitted the best offer and was the lowest price bidder for the KD 10.4 million contract to the Ministry of Public Works for The Head Quarters for Manpower & Government Restructuring Program (Tender No: 165). We believe, the prevailing price levels was largely the direct result of extraneous factors and does not really represent the intrinsic worth of the CGC scrip. Nevertheless we expect the market to correct itself, as positive macro-economic indicators flow in and the government carries out successive initiatives to restore confidence in the economy. The upcoming years The economic and market conditions in Kuwait seems turbulent for our business in the upcoming period especially the short term, however Analysts expect a strong growth in the industry in the medium to long term period and the company has the intention, the capability and the capacity to seize greater benefits from this growth. Beside the sizable projects in hand with CGC and with the expected large number of projects in the future, the company has great potential that can be harnessed to improve performance in the upcoming years. Lastly, I and every member in CGC family express gratitude to the Almighty, the Country s Leadership and to our clients for their confidence and we ask the Almighty to continue blessing us with the gift of security and safety, and to guide us in further leading the cause for the continued progress of the Country. Abdul Rahman Mousa Al Ma rouf Managing Director and Chief Executive Officer 20

23 Business Profile Preface Combined Group Contracting Company K.S.C.C. is a publicly listed Kuwaiti company specialized in various aspects within the construction industry including Roads, Infrastructure, Bridges, Expressways, Buildings, Housing projects, Oil pipelines, operation and Maintenance of Sanitary treatment plants, Petrochemical Industry projects, Mechanical works and Industrial Plants. The company has a proven record concerning the quality and delivery time of the projects it contracted and has developed strong relations with major suppliers and subcontractors in the local construction market as well as in Qatar. The company stands in a highly advantageous position, it has the latest technology in the field of construction including but not limited to planning, scheduling, procurement, cost control, accounting, drafting (C.A.D), CPM programming and store keeping. The experience, equipment, human resources and information available to the company puts it in a highly advantageous position and as a valuable asset to any local/foreign company planning to execute construction contracts in the Kuwait market as partners, joint ventures, or in consortiums etc. In addition it can also offer its services and experience to Joint Venture partners outside Kuwait having had experience executing projects in Europe, Asia, Africa & the GCC. Major Activities Annual Report 2008 General contracting activities including construction, mechanical and sanitary works for buildings, roads and Combined Group Contracting Company Ǧ K.S.C.C. bridges. Production and Trade of various constructions and building materials namely Asphalt, Concrete & Aggregate. Business Divisions Related construction works such as painting and decorating works. Business Divisions Associates and Subsidiaries Pioneer Rocks Company (Associate) 21

24 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Associates and Subsidiaries Pioneer Rocks Company (Associate) Pioneer Rocks is involved in buying rocks, importing and selling its related products. It was established on September 6, CGC has 33% equity stake in this company. However the company has sold its share of 33% during February Combined Group Trading and Contracting Co. W.L.L. Qatar (Subsidiary) The company was established in November 2005 in Qatar. CGC holds a 49% stake in the Qatari company which is involved in different type of construction projects in the State of Qatar. Combined International Real Estate Company K.S.C.C (Subsidiary) In 2007, CGC acquired a 100% equity stake of Aalie United Real Estate Company which was the previous name of Combined International Real Estate Company, operating in the real estate development segment. The Company changed its name in United Kingdom General Trading & Contracting Co. W.L.L. (Subsidiary) In 2008, CGC acquired a 99% equity stake in this Kuwaiti registered company. Major Shareholders Ahmed Mousa Al Marouf, 24.50% Abdul Rahman Al Marouf, 24.50% Sulaiman Khalid Al Hamad, 10.00% Others, 34.27% KAMCO, 6.73% * As of 31 December 2008 Vision & Mission Our ultimate mission is to attain customers satisfaction, increase shareholders value and serve the society. We begin with a reason and faith as its continuation. We believe in what we do not see and allow faith to see what we believe in. We walk by faith. 22

25 Main Objectives Enter new avenues in the Gulf Market. Develop successful Joint Venture partnerships in Europe, North Africa & Asia to further CGC s vision. Assist our customers via quality improvement, reduced costs, technical, engineering and economic plan development using the latest technology and modern management systems. Maintain strong relationship with customers, suppliers and financiers to secure the company s future. Success Factors We believe that the advanced operational and financial planning and analysis applied within our contracting business has structured the success story of CGC. First: We conduct a comprehensive due diligence of all projects before participating in the bidding process. Second: We participate in bidding only if the project meets our objectives and goals. Third: We perform a feasibility study to ascertain the true value of the project before submitting the bidding price and bid package. Fourth: We own 2 asphalt plants, 3 ready mix concrete plants, an aggregate procurement division, a fleet of construction equipment and a garage division which help in controlling cost thereby avoiding rapid fluctuations in raw material cost. Quality & Safety Policy Quality & Safety are and will remain a challenge and a commitment for which CGC is willing to go even beyond the call of duty to ensure that the Client gets what he has bargained for and the employee is provided the safest environment to work under. Thus, CGC is devoted to continuing improvement and innovation, as this result in optimizing operations, reducing costs and increasing security and safety. The quality management system ISO 9001:2000 pursued by our managers and employees constitute the safety net and the basis on which CGC builds, to exceed its customers expectation. 23

26 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Classifications Provider Central Tenders Committee Kuwait Oil Company Future Plans Classification Degree Category 1 for Infrastructure works (Road & Sewers) Category 1 for Civil Construction Works Section 2 A, B & C for Pipelines and Associated Works for All diameters of Pipelines, Manifolds and Maintenance. Section 3 for Domestic Water, Air and Gas mains to 4 diameter. Section 4 A, B & C for Mechanical Engineering & Plant Installation & Maintenance for Major, Minor and Process Plant Piping. Section 8 for Plant Maintenance - Production Facilities The company s expansion plans started to be effective with the success of our company in Qatar. The next step is to expand operations in Abu Dhabi, Oman, Saudi Arabia & Iraq in order to benefit from the significant projects that are being planned or being tendered to meet infrastructure needs in these countries. We already have branches in Abu Dhabi, Muscat, Al Khobhar, and Baghdad as the preliminary step to establish our presence in these countries. CGC has also entered into Joint venture with companies in Mauritania, Albania and India to be ready to bid for significant infrastructure projects that are being tendered in these countries. Financial Statement Analysis The financial Analysis covered in this section is used to evaluate the financial operating efficiency of CGC. The level and historical trends of ratios presented below are used to make inferences about the financial condition and operations of the company in 2008 by benchmarking to the performance of previous years. Financial ratios are categorized based on the purpose of each ratio, i.e. Profitability Ratios, Growth Ratios, Liquidity Ratios, Risk Ratios and Turnover Ratios. The ratios presented hereunder are derived from the balance sheet and income statement, which are presented in the next section. Profitability Ratios 113% 61% 20% 13% 59% 13% 12% 12% 8% 35% 39% 34% A A: Annualized figures from the 21 months financials The Return On Average Assets (ROAA) and Return on Average Equity (ROAE) were lower during 2008 mainly due to the performance of CGC s Investment Portfolio and the Investment Funds which had a strong correlation to the dismal performance of the stock market. The ROAA was 12% in 2007 and 8% in The highest ROAA was recorded in 24

27 2004. The Return on Average Equity Ratio decreased from 39% in 2007 to 34% in The highest ROAE of 113%, was also in Following the increase in size of the business and the type of project undertaken during 2008, the average total assets increased by 51%, while the net profit grew marginally by 0.35%. However, the ROAE was around the 35% bracket over which demonstrate the efficiency of the firm in employing its capital. Shareholders received 10% in bonus share during 2008 for the fiscal year ended 31 December Consequently, the company s capital increased from KD 6.6 million to KD 7.26 million. This increase was recorded in 2008 financials. Retained Earnings increased by more than KD 2 million (after transfers to the voluntary and statutory reserves). The total shareholders equity increased to KD 27.7 million as of 31 December 2008 which was an increase of 16 % from the previous year. In spite of the growth in core operational income, CGC s investment portfolio and fund returned a net loss of around KD 1 million which was the main reason for the ROAE decrease from 39 % in 2007 to 34 % in Growth Ratios 206% 421% 136% 72% 145% 16% 12% 51% 19% 25% 24% 0% A A: Annualized figures from the 21 months financials Fluctuation in revenues levels is a common aspect in the contracting business since revenues accounted in one year are directly related to the percentage of completion of contracts in hand. CGC group revenues in 2008 increased by 19%, however the net profit increased by only 0.35% compared to 2007, predominantly due to the losses from the investment portfolio and fund. Between 2003 and 2008, there was a high variance in the percentages of growth in revenues and net profit. Revenue booked during 2008 nearly reached KD 149 million mainly on account of the completion of 7 contracts in Kuwait with a combined value of KD 54 million by CGC Kuwait and completion of 36% of 2 contracts in Qatar (through the Qatar subsidiary) with a combined value of KD 27 million. Liquidity Ratios

28 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. The Liquidity Ratios measures the ability of the company to meet its short term obligations which indicates the financial health of the business. The company s liquidity position remained stable during 2008 with no major variations in the current and quick ratio. In 2008, the Current Ratio was 1.18 while the Quick Ratio was The major increase in current assets was a KD 27.5 million increase in unbilled revenue. The major increase in current liabilities as on was a KD 14 million increase in Accounts Payable & other credit balances and a KD 12.4 million increase in Bank Overdraft liability position. The quick ratio position has improved in 2008, as CGC reduced its inventory stock by KD 4 million compared to the same time last year. Risk Ratios Risk ratios, also called Financial Leverage Ratios, are related to the extent to which a firm relies on debt and other modes of temporary financing rather than equity. The high level of leverage required by the company is the result of financing required for executing sizeable and sophisticated projects that have been undertaken during 2007 and The Debt/Total Assets Ratio of 0.78 in 2008 indicate the dependence on non-equity financing as a source on funds to carry out operations of CGC. The Debt/Total Equity Ratio stood at 3.54 as on , an increase from 3.01 in the previous year, mainly due to the increased overdraft facility outstanding as on Turnover Ratios A A: Annualized figures from the 21 months financials Turnover ratios are constructed to measure the efficiency of the company in employing its assets. These ratios are based on the relationship between the levels of activity, represented by revenues or operating costs in relation to different levels of assets. The Asset turnover ratio decreased during 2008 in spite of a KD 24 million increase in revenues. This was predominantly 26

29 on account of KD 27 million increase in work in progress and KD 7 million increase in receivables. The Receivables turnover ratio decreased during 2008 as the average receivable increased by 45% in 2008 compared to only a 19% increase in revenues. However, over 70% of the receivables are due by the end of March Inventory Turnover Ratio expresses the time needed for the inventory to be replaced. This day sales in inventory that is derived from the inventory turnover ratio has increased from 39 days in 2007 to 48 days in CGC had a higher average inventory level during 2008; however its inventory level as at the end of the year had reduced by KD 4 million compared to the same time last year. Price/Earning Ratio CGC Service Sector (Trailing) Sector KSE (Trailing) A A: Annualized figures from the 21 months financials P/E Ratio also known as Price Multiple is used to evaluate the company s current share price by comparing it to the earnings per share. It shows also how much the investors are willing to pay per 1 KD of earnings per share. In 2008, the P/E Ratio of the Company stands low compared to the Services sector as well as with the overall market. However the Services sector mainly contains companies which cannot be considered as True Comparables, as the sector contains companies that are involved in Food, Logistics, Telecom, Drilling services and Hotels among others, where the PE ratios have generally ranged from 10 to 30 thus increasing the average Services sector PE to 9.6. CGC stock PE has reduced compared to the previous PE due to the fall in the CGC scrip price as a result of the stock market crash witnessed across all sectors in CGC is confident that the CGC scrip value will increase once the positive macro indicators fall in, the Company signs new lucrative contracts and the Government takes the required corrective measures to restore confidence in the economy. 27

30 Annual Report 2008 Combined Group Contracting Company - K.S.C.C. Contact Details Address Mailing Address Telephone Fax Website Address Telephone Fax Subsidiaries inside the State of Kuwait Address Mailing Address Telephone Fax Address Mailing Address Telephone Fax 28

31 Subsidiaries & Branches outside the State of Kuwait Subsidiaries outside the State of Kuwait Address Telephone Fax Address Telephone Fax Address Telephone Fax Branches outside the State of Kuwait Address Telephone Address Telephone Address Telephone Fax 29

32

33 COMBINED GROUP CONTRACTING COMPANY - K.S.C. (CLOSED) AND SUBSIDIARIES STATE OF KUWAIT CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2008 WITH INDEPENDENT AUDITORS REPORT

34 32

35 COMBINED GROUP CONTRACTING COMPANY - K.S.C. (CLOSED) AND SUBSIDIARIES STATE OF KUWAIT CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2008 WITH INDEPENDENT AUDITORS REPORT CONTENTS Independent Auditors Report Pages Consolidated balance sheet 37 3 Consolidated statement of income 38 4 Consolidated statement of changes in shareholders equity 39 5 Consolidated statement of cash flows Notes to consolidated financial statements

36 34

37 INDEPENDENT AUDITORS REPORT The Shareholders Combined Group Contracting Company - K.S.C. (Closed) State of Kuwait Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Combined Group Contracting Company - K.S.C. (Closed) (the Parent Company) and subsidiaries (the Group), which comprise the consolidated balance sheet as of December 31, 2008, and the consolidated statement of income, statement of changes in equity and statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. We did not audit the financial statements of the subsidiary, Combined Group for Trading and Contracting W.L.L. (Qatar) whose assets and revenues constitute 16% and 13.86% of the consolidated totals respectively. The financial statements of the subsidiary was audited by other auditor, whose unqualified report was provided to us and our opinion, in so far as it relates to the amounts included in the consolidated financial statements related to this subsidiary, is based solely on the report of the other auditor. Management's responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free of material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained and the report of the other auditor are sufficient and appropriate to provide a basis for our audit opinion. 35